Business
Overview
Vyteris,
Inc. is a biotechnology company primarily focused on research and development of
technology relating to the transdermal delivery of drugs. Currently,
we are developing or are prepared to develop systems to transdermally deliver
peptide and small molecule drugs. Our patented Smart Patch technology
is positioned to provide a safe and effective method of delivering drugs via a
pre-programmed system that can be programmed to accommodate a wide array of drug
delivery profiles. The technology which we are developing has the
possibility of administering peptide and small molecule drugs without needles
and is being designed to deliver precise amount of the drug, when needed, in a
painless, convenient and cost-effective manner.
We have
developed and produced the first active transdermal drug delivery system
delivering drugs through the skin noninvasively, using low-level electrical
energy. This platform technology can be used to administer certain
therapeutics into the bloodstream or to the skin, avoiding metabolism by the
liver, and reducing the stomach and gastrointestinal upsets associated with oral
drug administration. The system is convenient to use and provides precise dosing
and a relatively pain free application— avoiding the major drawbacks of
injections and intravenous delivery — and delivers drug doses automatically,
minimizing concerns about patient compliance. We have received
approval from the Food and Drug Administration (“FDA”) to commercially launch
our first product, LidoSiteâ— the first active patch
system to be approved by the FDA. We have also recently completed a
Phase I clinical trial demonstrating that our patented Smart Patch transdermal
technology successfully delivered a peptide molecule in humans (multiple pulse)
without the use of needles (noninvasively) in therapeutic levels aimed at the
treatment of female infertility.
Due to
the limited early commercial success of LidoSite, we reassessed our business
model in late December 2007. Accordingly, we have de-emphasized the
LidoSite project and are actively pursuing peptide and small molecule
opportunities, such as the infertility application discussed above.
Technology
Overview
of Electrotransport, or Active Transdermal Drug Delivery
Our
active transdermal drug delivery technology (also referred to as our Smart
Patch™
technology) is based on a process known as electrotransport, or more
specifically iontophoresis, a process that transports drugs through the skin by
applying a low-level electrical current. Our patented technology works by
applying a charge to the drug-holding reservoir of the patch. A positive charge
is applied to a reservoir where a positively charged drug molecule is
held. Because like-charges repel, the drug molecules are forced out
of the drug holding reservoir and into the skin (the same process can occur when
a negative charge is applied to a reservoir containing a negatively charged drug
molecule).
This
process differs significantly from passive transdermal drug delivery which
relies on the slow, steady diffusion of drugs through the skin. Passive drug
delivery patches have a limited number of applications including: smoking
cessation, birth control, hormone replacement therapy, angina and motion
sickness, among others.
By
contrast, using iontophoresis, certain drugs can be delivered through the skin
and deeper into the bloodstream faster and in larger quantities than by passive
transdermal patches. Because of the application of an external form
of energy (electrical energy in the form of a charge), this mode of delivery is
also called “active transdermal delivery”. A significantly greater
number of drugs can be delivered through active transdermal delivery than
through passive transdermal delivery. Based on our analysis, there
are currently in excess of approximately 180 FDA-approved drugs that can be
delivered through our active transdermal delivery platform.
Furthermore,
because the drug is only delivered when current is being administered, our
delivery system is precise, controllable and electronically programmable,
thereby enabling active transdermal delivery technology to duplicate the steady
or periodic delivery patterns of intravenous infusion. By controlling
the intensity and duration of the charge applied, the Smart Patch controls
whether the drug delivery is topical, or whether the delivery is systemic, in
which case the drug molecules are pushed deeper into the skin, where they enter
the body’s circulatory system directly. We believe these attributes
present a distinct advantage for the administration of many drugs where
achieving precisely-controlled levels will greatly improve therapeutic outcomes
as well as reduce or eliminate side effects.
Vyteris
Product Opportunities
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Class
of Drug/
Therapeutic
Area
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Traditional
Treatment/Shortcomings
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Vyteris
Solution
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Peptides
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Patients
and/or healthcare providers have to use a needle to inject/infuse peptide
based drugs. The obvious downside of this delivery method is patient
acceptance and compliance, limiting most peptide development to
indications in which the need to use invasive administration route is not
outweighed by associated expenses or inconvenience
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Our
Smart Patch technology is noninvasive and can be pre-programmed to deliver
various therapeutic profiles. As such, it offers an alternative to
potentially improving drug performance and increasing patient compliance
through more convenient mode of dosing and administration
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Female
Infertility Treatment
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Female
patients have to use a needle to inject a hormone multiple times as a part
of the treatment regimen.
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We
are developing a system for noninvasive transdermal delivery of peptides
using its proprietary Smart Patch technology.
We
have completed a Phase I trial and are moving towards Phase II
trials with Ferring Pharmaceuticals, Inc. (“Ferring”), a
leading pharmaceutical company in women’s health.
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Migraine
Treatment
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Oral
therapies can take a long time to become effective and do not provide
relief from recurring or rebound migraines.
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Our
Smart Patch would potentially provide faster relief as compared to oral
medications and is likely to be programmable to continuously deliver
maintenance medication to prevent rebound or recurrence of
migraines.
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Pain
Management
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Traditional
NSAID (non-steroidal anti-inflammatory drug) therapies over long periods
of usage can result in serious gastrointestinal (“GI”) related side
effects including hospitalizations and potentially death.
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Our
Smart Patch delivery would potentially prevent the side effects associated
with traditional NSAIDS.
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Topical
Anesthetic
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Topical
anesthetic creams take long time (60-90 minutes) to provide effective
anesthesia and do not penetrate deep under the skin
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Faster
anesthetic effect (10 minutes) and deeper skin penetration has been
demonstrated through our FDA-approved LidoSite patch.
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Our
Approach to Iontophoresis
Our
proprietary active transdermal technology is the result of over 15 years of
research while being part of Becton, Dickinson and Company (“Becton Dickinson”)
and after spin-off from Becton Dickinson in November 2000. Our goal
has been to fully realize the potential of this technology by creating
irritation-free, easy to use, wearable, low-cost, and disposable systems that
would be specifically designed to improve the administration of certain drugs to
address high-value unmet medical needs.
We have
developed a proprietary approach encompassing a series of significant
improvements to drug formulation and commercial manufacturing. We
used this approach with our first product, LidoSite, and are currently using
this approach within peptide drug delivery application. Many of our
innovations center on the way we approach designing and formulating
electronically controlled drug delivery patches. Our patches are
pre-filled with the proper dosage of drug during the manufacturing
process. They are designed to be disposable after a single
application and are discreet in appearance. Further, we designed our
patches so that they can be quickly and cost-effectively mass-produced using
automated systems.
To
complement our patch design, we approached the design of electronic controllers
with the goal of being small, wearable, simple to operate and programmable to
handle simple, as well as complex, drug delivery routines. The dose
controller contains a miniature battery and circuitry, controlling delivery
rate, and is capable of recording information on the amount and time of drug
delivered. We believe the controllability and programmability offered by our
technology are distinct competitive advantages that will enable our products to
deliver more consistent and predicable results for a broad range of existing and
new drugs. Using our active transdermal technology, we believe we can
potentially create a variety of cost-effective, wearable, drug delivery systems
that are discreet and easy to use in both a clinical environment as well as for
day-to-day self-medication programs.
Commercialization
Our
primary commercialization strategy is to make use of already FDA-approved and
marketed drugs with our unique delivery technology by partnering with major
pharmaceutical companies on existing drugs and, to a lesser extent, fully
developing our own brands. By working with pre-approved drugs, we
will be developing and commercializing new products that can potentially reach
the market faster than traditional development of new chemical entities,
enabling what we believe to be a high probability of commercial success in
improving patient care.
Each
market opportunity and potential product will be evaluated for speed to market
and size of return to Vyteris and its partners. We have analyzed the clinical
potential of over 220 FDA-approved drugs that can be delivered through our
active transdermal patch technology — in particular looking for high-value
market sectors where patents for major FDA-approved drugs are scheduled to
expire in the near future. Our algorithms, and our filter for high growth
potential, high profitability and low-risk opportunities, will allow us to
primarily pursue the development of other peptides and small molecules while, to
a lesser extent, continue to seek out licensing or other opportunities for
LidoSite.
Active Transdermal Drug
Delivery
Applications - Products in Development
Peptide
and Small Molecule Delivery Opportunities
Recent
innovations in the biotechnology industry have led to a significant increase in
the number of protein and peptide therapeutics available. The fastest
growing sector in the healthcare industry today is the biotechnology sector with
over $50 billion dollars in sales annually world wide and growing at over 10
percent each year “Protein Drug Delivery: penetrating a growth market” –
Datamonitor – 03/2005. Due to this high growth potential, Vyteris
plans to apply its proprietary Smart Patch technology to expand its presence in
the delivery of peptides.
Proteins
and peptides are typically digested by the GI, system, and if delivered orally,
usually do not achieve therapeutically acceptable levels of bioavailability
before being digested. Currently, the most common method for protein
and peptide-based drug delivery is by injection. There are obvious disadvantages
to this delivery method, including patient acceptance and compliance in part due
to the pain normally associated with injection, limiting most peptide
development to indications in which the need to use this invasive administration
route is not outweighed by associated expenses or inconvenience. Our Smart Patch
technology is noninvasive and can be pre-programmed to deliver various
therapeutic profiles. As such, it offers an attractive alternative to
potentially improving drug performance, and increasing patient compliance
through a more convenient mode of dosing and administration.
Our
patented Smart Patch technology is positioned to provide a safe and effective
method of delivering drugs via a pre-programmed system that can be programmed to
accommodate a wide array of drug delivery profiles. Up until now,
almost all peptide and protein based therapeutics had to be delivered using an
invasive method, i.e.: using injections or infusion pumps. Many
patients need to undergo multiple injection - based or pump - based protocols
for their therapy. These therapies result in added burden for the healthcare
system and are inconvenient for patients. The technology which we are
developing has the possibility of administering the peptide without needles and
is being designed to deliver precise amount of the peptide, when needed, in a
painless, convenient and cost-effective manner.
Our Smart
Patch technology uses an integrated circuit to control a small amount of current
that delivers drugs through the skin. This process is called
iontophoresis. The two-component system employs a transdermal patch
containing the pre-filled drug and a small battery-powered controller that
precisely controls the rate and amount of drug released from the
patch. The level of control is intended to mimic an injection or an
infusion pump delivery without the needles.
Our Smart
Patch technology has several advantages, which positions it in a unique manner
for effective delivery of peptides and other small molecules. The Smart Patch
technology is truly noninvasive as it does not require the use of needles for
injections. With regard to work completed on our infertility program, the Smart
Patch technology has demonstrated that it can deliver a peptide with a complex
delivery profile. The technology allows precise control of dosing and ability to
program various drug delivery profiles ranging from simple bolus injection, to
maintenance dosing, pulsatile dosing, and on-demand bolus dosing. The
noninvasive nature of this therapy will potentially help improve patient
compliance and has the potential to reduce needle stick injuries associated with
needle-based injection therapies.
In
addition, the biopharmaceutical industry is increasingly looking for new ways to
create higher value pipelines through highly differentiated therapeutics, to
lower development risk for lead candidates entering the clinic, and to reduce
product development time and cost. Innovative drug delivery technologies are
emerging as a key component of the pharmaceutical development process by
allowing companies to create superior therapies, as well as extend
pharmaceutical product and patent life. Our proprietary Smart Patch technology
is able to offer such solutions. We have developed a portfolio of patents and
expanded our know-how in developing formulations for peptides and other small
molecules to deliver them using iontophoresis. In addition, the peptides being
targeted for development are FDA approved molecules thereby reducing the risk of
development, since safety and efficacy of those molecules have already been
established in other dosage forms (i.e.: injections).
The
recent commercial and clinical success of alternative drug delivery methods,
such as Smart Patch technology (as demonstrated through the FDA approval of the
first active patch product LidoSite), suggests that biopharmaceutical companies
may benefit from evaluating the potential of these enabling technologies even
earlier in the drug development process. Of course, the Smart Patch technology
does have its limitations. For example, on its own, the technology
can deliver only drugs of a molecular size up to 12,000 Daltons. There exist a
considerable number of peptides with molecular weight lower than 12,000 Daltons,
thereby providing ample opportunity for the Smart Patch technology to provide
effective therapeutic solutions. The opportunity for peptide delivery
can be expanded by integrating the Smart Patch technology with other
skin-impairment technologies, thereby allowing delivery of even larger peptides.
Vyteris plans to demonstrate the feasibility of delivering other peptides and
partnering with medium to large pharmaceutical and biopharmaceutical companies.
One such area of peptide delivery, where Vyteris already has an active
development program is in the treatment of female infertility.
Female
Infertility
We have
partnered with Ferring for the development of an innovative product to treat
female infertility. The product under development mimics the female body's
natural rhythms, a characteristic important in the delivery of therapeutics for
the treatment of infertility. To be effective, medication must be delivered in
multiple daily doses for up to 21 days during a woman's 28-day cycle. Many
patients currently need to undergo multiple injection-based protocols for
ovulation induction. The product, being co-developed by Vyteris and Ferring,
would make it possible to administer the peptide without needles, and is being
designed to deliver multiple transdermal pulses automatically, around the clock,
in a painless, convenient and cost-effective manner, possibly with as little as
two 12-hour patches per day. In addition to this less painful
therapy, there are also potential benefits that would possibly reduce the
likelihood of multiple births.
According
to a 2005 study from Business Communications Company, Inc., the total U.S.
market for the treatment of women’s infertility was $6.5 billion in 2004 and is
expected to grow to $9.8 billion in 2009. We have already completed pre-clinical
testing of this product and have demonstrated the feasibility of delivering
multiple infusions of this hormone via iontophoresis through in vivo animal
studies. Our data demonstrates we can achieve blood hormone levels
using pulsed iontophoretic delivery comparable to that achieved by multiple
injections.
In
September 2004, we entered into a license and development agreement and a supply
agreement with Ferring for this infertility product. The principal
terms of the agreement call for, among other things, Ferring and Vyteris to
share the development costs, for Ferring to pay for the costs of the clinical
trials and regulatory filings, for Ferring to make milestone payments to us, for
Ferring to pay us a royalty based on sales and for Ferring to pay us a transfer
price for manufacturing the product.
The
remaining steps before marketing approval of this product include the successful
completion of Phase I, Phase II and Phase III clinical trials. We
estimate total development and commercial release of the product will take at
least 24 to 36 months to complete based on current project plans.
The
principal terms of our development and marketing agreement and a supply
agreement with Ferring are as follows:
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We
are responsible for a portion of product development activities through
Phase I. Product development activities include all activities associated
with the design, engineering and laboratory testing of the physical
product and its manufacturing processes, including hardware, software,
materials, components, specifications, procedures and manufacturing
equipment;
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Ferring
is obligated to reimburse us for 50 percent of our product development
costs, provided such costs do not exceed 110 percent of the amount
budgeted;
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Ferring
is responsible for all regulatory
filings;
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Ferring
is responsible for the conduct of, and cost of, clinical trials. Clinical
trials include experimental testing of the product on humans in a clinical
environment according to FDA guidelines to demonstrate safety and efficacy
and ultimately gain FDA approval. This includes all activities associated
with design of the experimental trials, selecting the test centers,
personnel costs associated with carrying out the trials, acquisition and
analysis of data from the trials, and presentation or publication of the
data in a format suitable for submission to the FDA;
and
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Ferring
is obligated to pay up to $9.0 million on the occurrence of certain events
during the term of the agreements. Through December 31, 2007, Ferring has
made $0.5 million of such milestone payments to us, and we cannot gauge
what, if any, of the rest of the payments or royalties we will
receive.
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Feasibility
Studies
Migraine
Treatment
Another
key area with high potential for use of Smart Patch technology is in the
treatment of migraines. This is a highly attractive market segment,
worth over $3 billion per year (“Migraine Market: Trexima Approval Delays
Benefits Generic Triptan”, RedOrbit NEWS, published March 29, 2007), where major
market leaders face imminent patent expirations.
The
treatment of migraine requires rapid onset of medication. A class of
compounds known as “triptans” is currently considered the best
treatment. We believe a significant market opportunity exists to
improve the efficacy of triptan therapy for migraines by changing the method by
which triptans are administered. Taken orally, triptans often fail to
deliver sufficient quantities of medication in the short time frame required to
optimally treat migraine onset. Further, they often fail to prevent
the second episode, known as recurrence, which many migraine patients suffer
within 12 to 18 hours after a first attack.
We have
demonstrated in a Phase I study that our proprietary active transdermal delivery
technology can be used to provide controlled delivery of zolmitriptan, a leading
migraine medication, in humans. Pending availability of sufficient
funds, our intent is to complete the necessary trials and obtain FDA approval to
launch zolmitriptan in a Smart Patch, about the time it loses patent protection
in 2012.
Our
active patch technology can be pre-programmed for rapid delivery — in as little
as 15 minutes to achieve therapeutic levels — followed by a sustained
maintenance dose that may prevent recurrence. If our Smart Patch technology is
applied in this area, this customizable drug delivery could offer tremendous
advantages in the treatment of migraine, and could improve patient satisfaction
and patient compliance. This method of drug delivery represents a unique and
significantly improved therapy and we believe it could be a potentially
effective way of treating migraine headaches and preventing recurring migraine
headaches.
Pain
Management Treatment
A key
area with opportunities to partner with pharmaceutical companies is in pain
management, specifically the non-steroidal anti-inflammatory drug (“NSAID”)
sector, which falls in line with our strategy of pursuing high probability,
low-risk opportunities leading to better patient care. The NSAID
market today is potentially worth $6 billion (see “Celebrex sales plunge 40
percent”, CNN Money.com, June 29, 2005) although the recent withdrawal of COX-2
inhibitor products because of safety issues has led to a 49 percent decline, or
a $3 billion immediate market opportunity (see “Celebrex sales plunge 40
percent”, CNN Money.com, June 29, 2005).
NSAIDs
have made a dramatic contribution to pain management, but their extensive use
has also documented a problematic safety profile, due to GI side effects
associated with extended use or over dosing of the drugs. In the
United States alone, more than 200,000 hospitalizations are attributed to NSAID
use, and more than 16,000 deaths a year are attributed to NSAID use (“Easing the
Pain of Exercise”, HealthScout, July 22, 2003); a higher number than those
patients who die from AIDS or HIV infection. There is a significant
market opportunity for a drug delivery system minimizing GI side affects
associated with oral NSAIDs.
The
Vyteris Smart Patch delivery system could bypass the GI tract minimizing the GI
side effects associated with oral NSAIDS, and could circumvent a major
disadvantage of these commonly used medications. We believe that if applied to
NSAIDs, the controlled drug delivery profile from our active patch could also
curtail overdosing of these drugs.
In
December 2006, the FDA proposed new stricter safety warnings for
over-the-counter pain relievers used by millions of Americans. These new labels
warn of the potential for severe liver damage with the use of acetaminophen, a
common pain reliever contained in products such as Tylenol. Warnings have also
been placed on other NSAID painkillers, including ibuprofen, aspirin, and
naproxen, cautioning of a risk of gastrointestinal bleeding with overuse. Many
nonprescription drugs already carry similar warnings. FDA officials are seeking
to make the alerts more visible and specific, after recent reports suggesting
that injury related to common pain relievers -- while uncommon -- is more
prevalent than previously thought.
Large
Pharmaceutical Partners - Extended Patent Protection
Pharmaceutical
companies today face the tough realities of dwindling product pipelines. They
have been forced to embrace better management of product life cycles. Innovative
drug delivery can greatly extend product life and patent protection for their
current portfolio of drugs. Our innovative transdermal drug delivery technology
could supplement product maximization strategies. A $5 billion
product can lose up to 75 to 80 percent of its market share (and margin) within
weeks of going off patent. With such enormous commercial value in every
percentage point, pharmaceutical companies fight for every month of additional
patent protection. We believe Vyteris and its Smart Patch technology
can extend the patent life of a drug by up to 10 additional years, making it an
attractive partner.
Our goal
is to exploit our proprietary technology through the development and commercial
introduction of a number of successful products incorporating pharmaceuticals
into our drug delivery systems. Our business strategy is to identify
unmet medical needs, define products addressing those needs, evaluate the market
potential of the defined products, develop such products through an appropriate
clinical stage, partner with strong marketing companies, complete the
development of such products in collaboration with our partners, manufacture
such products, and commercially launch such products through our marketing
partners.
We will
focus our efforts to apply our platform technology in therapeutic areas where
our approach to drug delivery can substantially improve a drug therapy, offering
advantages over existing methods of delivering the same drug. We
intend to partner with pharmaceutical and other healthcare companies who are
market leaders in specific therapeutic areas and can provide immediate market
access and financial support during the later stages of clinical
studies. Currently, we are focused on FDA-approved drugs, thereby
reducing clinical risks and eliminating certain costly and time consuming
pre-clinical and clinical studies; shortening time to approval and materially
reducing costs.
Our drug
delivery technology cannot be applied to all drug compounds. We have
screened approximately 220 drug compounds to ascertain if our drug
delivery technology is applicable. The amount of drug required to be
delivered to be effective, the size of the drug compound’s molecule and the
electrical charge of the drug compound, are the key determinants in establishing
applicability. We are focusing our development efforts on drugs
within this group targeting large potential markets for which our technology may
offer significant therapeutic, economic or lifestyle advantages over existing
drug delivery methods.
Our key
business strategy is to enter into arrangements with strategic partners for the
development, marketing, sales and distribution of our future
products. We expect our strategic partners will finance some of our
research and development expenses, finance the clinical trials and finance the
costs of marketing, sales and distribution. In addition, we expect
that our strategic partners will pay us a royalty on sales of the products and a
transfer price on delivery of the manufactured products.
Our
“Proof of Concept” Commercial Case - LidoSite Topical Anesthetic
System
As
discussed above, due to the limited early commercial success of LidoSite, we
reassessed our business model in late December 2007. Accordingly, we
have de-emphasized the LidoSite project and are actively pursuing peptide and
small molecule opportunities. However, despite the limited commercial
success and resulting de-emphasis, the LidoSite project has proven to be a
valuable exercise for us as we have been able to commercially prove the concept
of topical delivery of drugs through iontophoresis.
Clinical
Need
Currently,
the principal means of administering local dermal anesthesia, such as lidocaine,
is by needle injection, which is fast, effective and long lasting. However,
lidocaine injection, although widely-used for adult dermatological procedures,
such as skin biopsy, and prior to the placement of large-bore hypodermic
needles, such as for spinal punctures, is rarely used in children for the many
routine needle-sticks associated with blood draws, intravenous catheter
insertions and immunization. According to a recent study by TVG,
Inc., on an annual basis, more than 30 million American adults and 10 million
children over the age of five suffer from high discomfort or exhibit
needle-phobic behavior when faced with getting a blood draw or injection, with
the overwhelming majority citing "pain" as the component most feared. Clinically
known as blenophobia, the condition is defined as a fear of needles, and
includes the fear of pain felt and high discomfort during injections and blood
draws.
In
attempting to numb the skin prior to needle-stick procedures, clinicians have
used or recommended that patients use local anesthesia products based on passive
transdermal technology, such as patches and creams. Such products
have experienced some commercial success but have significant drawbacks because
they are very slow to take effect, anywhere between 60 to 90 minutes, and
achieve limited depth of anesthesia.
The unmet
clinical need for an alternative to lidocaine injection is evidenced by the
market acceptance of a topically applied lidocaine cream, EMLAÒ, marketed by
AstraZeneca. EMLA was introduced in 1997. According to
IMS, sales of EMLA have increased each year since its introduction and
approached $80 million in 2002. According to the Journal of the
American Academy of Dermatology, EMLA takes 60 to 90 minutes to achieve
anesthesia. Despite this, EMLA has gained widespread acceptance as an
alternative to lidocaine injection, especially in pediatric hospitals and
clinics. Even when EMLA is given enough time to become effective,
that is, 60 to 90 minutes, anesthesia is limited to a depth of two to three
millimeters.
Vyteris
Product Solution
The first
key area targeted with our Smart Patch Technology, and our “proof in concept”
case, has been primarily needle stick pain with a secondary focus on the areas
of dermatology, rheumatology and oncology procedures. On May 6, 2004,
we received approval from the FDA to commercially launch our first product,
LidoSite. LidoSite is a topical delivery system indicated for use on
normal intact skin to provide local anesthesia prior to needle stick procedures
such as venipunctures (blood draws), injections and intravenous therapies for
arthritis and oncology patients as well as superficial dermatological
procedures. Our LidoSite product uses our technology to achieve
rapid, deep local anesthesia prior to these procedures.
Our
LidoSite product delivers lidocaine, a local anesthetic, along with a small
quantity of epinephrine, a drug that helps lidocaine work faster and last longer
by accelerating the onset of anesthesia and extending the duration of pain
reduction. The system consists of a patch that adheres to the skin and contains
the pre-filled medication and a small reusable battery-powered dose controller
that connects to the patch. Placebo-controlled clinical studies have shown that
use of our LidoSite product significantly reduces the pain of both pediatric and
adult needle-stick procedures, including blood draws and catheter insertions
into a vein, as well as other skin incision or puncture procedures.
Our
LidoSite product has substantial advantages over other local anesthesia products
available on the market. Clinical trials have shown that our LidoSite
product:
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works
faster, taking as little as 10 minutes to become
effective;
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provides
deeper anesthesia in the skin of anywhere from six to 10 mm;
and
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is
better suited for applications in the clinic, where time and staff
productivity are important.
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Applications
Physician office, hospitals, and
commercial diagnostic laboratories - We have attempted to fuel
near-term growth by marketing LidoSite to physician offices, hospitals, and
commercial diagnostic laboratory markets in certain regional-metro
markets. Due to unanticipated market factors continued cost
containment in reimbursement rates, and limited capital funding, the success of
these efforts has been limited in the primary care market although specialty
markets have shown better potential. Due to the limited early
commercial success of LidoSite, we reassessed our business model in late
December 2007. Accordingly, we have de-emphasized the LidoSite
project
Rheumatology - A possible
significant market opportunity for LidoSite lies in the rheumatoid arthritis
sector. TNF inhibitors like Enbrel® and Humira™, used to treat rheumatoid
arthritis, are only available as injections. Over 200,000
prescriptions are written each month, leading to 20 million injections per year,
making this a $6 billion market segment. This therapeutic category focuses on
relieving pain, yet for many patients the necessity of multiple injections makes
the cure almost as painful as the disease itself. LidoSite could be used for
pain relief prior to these injections.
Dermatology - With the increasing use of
elective skin procedures, in addition to traditional in-patient procedures,
dermatologist offices represent a significant market opportunity for our
LidoSite active transdermal delivery for a faster onset of action when compared
to current office therapies, as well as to quell the fear of blenophobic
patients.
Oncology - Oncology is another
fast growing segment within the pharmaceutical industry, where several new
injectable medications are coming into the marketplace each year. The injection
treatments in oncology require multiple visits by the patient to the treatment
center. LidoSite use prior to those chemotherapy injections can help reduce pain
and provide a better chemotherapy experience for the patients.
Production
Production
has effectively been halted as given the current level of demand for LidoSite,
we expect that current quantities of available product available shall exceed
demand for the next 24 to 36 months. We have determined to not take delivery on
previously ordered manufacturing equipment as we currently do not have
sufficient capital to execute our previously determined manufacturing capacity
expansion plans and, given the redirection towards our peptide / infertility
application, we will not require such capacity for 24 to 36 months.
Our
Strategy
To
achieve our objectives, we plan to implement the following business
strategy:
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Apply our drug delivery
technology to specific therapies where it can improve delivery and
efficacy while reducing side effects. We plan to use our
proprietary technology to create products that provide fundamental
improvements in therapy, greatly improving drug efficacy, eliminating side
effects and reducing patient discomfort and inconvenience, thereby
improving compliance and lowering healthcare
costs.
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We
believe our patented platform drug delivery technology is applicable to a
broad range of peptides and small molecule pharmaceuticals. Our
goal is to use our technology to develop pharmaceutical products that are
programmable, noninvasive, safe and effective, as well as offer
consistent, predictable and reproducible
results.
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We
intend to develop pharmaceutical products based on FDA-approved drugs that
can substantially improve the therapeutic value of drugs currently
delivered by oral means, injection, infusion or other means; expand market
penetration for existing therapeutics currently delivered by oral means,
injection, infusion or other routes; extend existing patent protection or
offer new patent protection, providing important competitive advantages to
our strategic partners and ourselves; and enable the commercialization of
drugs or therapies that cannot be effectively administered through other
drug delivery methods.
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Reduce development risk and
costs by focusing on approved drugs. We plan to focus on
drugs with proven safety and efficacy and approved for marketing by the
FDA, but which have certain limitations in their existing delivery
forms. We believe working primarily with drugs with
demonstrated safety and efficacy reduces our technical risks and
development costs, allowing us to bring new products to market
faster.
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Retain control of product
development. In most cases, we plan to develop products
through at least proof of concept in humans before strategic partnering,
thereby establishing more value for our products. We believe
this puts us in a stronger position to negotiate marketing agreements with
prospective partners providing more value to us. We also plan
to retain control of product development after partnering through to
commercial introduction. By retaining control of product
development we believe we will be able to retain a more significant share
of product revenues.
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Develop marketing arrangements
with leaders in specific therapeutic areas. We will seek
marketing and late stage development partnerships with pharmaceutical
companies that can provide established, significant market access as well
as finance late stage clinical trials. Generally, we will
expect our partners to handle sales, marketing and distribution while we
retain manufacturing
responsibility.
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Concentrate on therapeutic
areas with large markets. We intend to focus on areas
where we believe the U.S. market potential for each of our products is at
least $200 million annually and more than $300 million on a worldwide
basis. By the use of the term “market potential”, we are referring to the
dollar amount we believe consumers would be willing to spend for safe and
effective products focused on a specific need. We intend to
target highly profitable applications of our technology where we believe
we can materially increase, or even create, the
market.
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Extend the application of our
technology. We intend to continue to further the
development of our technology, through university collaborations and
licensing and technology collaborations, to extend the ability of our
technology to deliver larger molecules, and other high-value
applications. We intend to continue to seek patent protection
in the U.S. and elsewhere for our technological
advances.
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Clinical
Studies
Infertility/Peptide
Application
We recently completed a late Phase I
clinical trial demonstrating that our patented Smart Patch transdermal
technology successfully delivered a peptide molecule in humans (multiple pulse)
without the use of needles (noninvasively) in therapeutic levels aimed at the
treatment of female infertility.
The study results showed that
therapeutic levels of the peptide in humans are achievable without the use of
injections or infusion pumps. The clinical trial was conducted in the
U.S. with 30 healthy volunteers under an
investigational new drug application (IND). Specific technical data will undergo
peer review for future disclosure.
In the Phase I clinical trial, a pulse
profile controlled the transdermal delivery of the peptide from patches loaded
with different concentrations of the peptide. The amounts of peptide delivered
using the patch were comparable or higher than with subcutaneous (subQ)
injection. The study used different formulations within our patch that were
compared with subQ delivery of the peptide. No unexpected adverse side effects
were observed in any of the trial participants.
LidoSite
We have
received FDA approval for the sale of our LidoSite product in the United
States. Prior to receiving FDA approval, LidoSite underwent extensive
clinical and laboratory testing, culminating in the completion of Phase III
clinical studies in the fourth quarter of 2001. Those Phase III
clinical studies involved 15 sites within the U.S. and over 1,000 human
applications of our system, testing various aspects such as safety, wearability,
pain sensation and reliability. Under the appropriate Investigative
New Drug provision of the Food, Drug and Cosmetic Act, we conducted the
following studies of our lidocaine system in humans.
Phase
I Clinical Studies.
Phase I
clinical studies were initiated as early as 1995 and consisted of several series
focused on:
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finalizing
the design of the system;
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seeing
how deep the numbness goes;
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looking
at the amount of drug that gets into the blood
stream;
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determining
if it matters where you place the patch on the
body;
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making
sure the lidocaine that is administered does not contaminate the blood
samples that are drawn from the site where the patch was on the skin;
and
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comparing
the performance of the patch to EMLA lidocaine
cream.
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Phase
II Clinical Studies.
One study
of 48 pediatric, i.e., patients 5-18 years old, was conducted in a major
mid-west children's hospital to measure the pain sensation, or lack thereof,
associated with actual clinical use of our lidocaine system. The
participants were patients that needed to have a needle placed through their
skin and into a vein because of the need to draw blood or the need to insert an
intravenous catheter for infusion of IV medication. During these
studies, which were randomized and placebo-controlled, clinical investigators
noted pain scores during needle penetration. From these studies, we
were able to conclude that the system could be used easily on these patients and
a statistically significant pain reduction was noted over the placebo
patches.
Phase
III Clinical Studies.
We
conducted four Phase III clinical studies to demonstrate the efficacy and safety
of our lidocaine delivery system when used for local dermal anesthesia on intact
skin. These large-scale studies consisted of two studies involving
puncture of the skin by needles and two dermatological studies involving minor
incisions of the skin or the use of lasers to treat skin conditions. In all,
over 650 patients were evaluated in the four studies. The two
large-scale studies consisted of a double-blind evaluation of our lidocaine
delivery system in pediatric patients, ages 5 to 17, and a double-blind
evaluation of the system in adult patients. In children aged 5 to 17
as well as adults, the study results demonstrated that those treated with our
lidocaine delivery system reported significantly less pain than subjects treated
with a placebo system. When we refer to a “double-blind evaluation,” we are
referring to a testing procedure in which both the patients and the
administrators were unaware of which patients were receiving placebos and which
patients were using our lidocaine system.
Phase IV Clinical
Studies.
During
the fall of 2006, Vyteris conducted a Phase IV clinical study to assess the
feasibility and acceptance of LidoSite Topical System for use as a topical
anesthetic system by practicing rheumatologists, prior to injection procedures
in their offices. The study, involved six study sites and 14 physicians, and
followed 63 patients over the course of two routine injections of hyaluronic
acid for the treatment of osteoarthritis. During the first treatment, patients
either received no local anesthesia or an alternate local anesthesia prior to
cannulation or needle puncture. During the second treatment, patients received
the LidoSite system, comprised of the LidoSite Patch and the LidoSite
Controller. In the study more than 73 percent of the subjects preferred LidoSite
to the treatment used during their first visit. Additionally, the majority of
rheumatology physicians surveyed were satisfied with LidoSite, compared to other
available treatment options, such as ethyl chloride, lidocaine injections or
fluormethane spray. In the study more than half the rheumatology
physicians surveyed found LidoSite exceeded their expectations with regard to
positively impacting their patient's experience. Overall, the majority of
physicians in the study were satisfied with the LidoSite Topical System in its
ease of use and conformity to standard office practices. Unlike topical
anesthetic creams typically used in today's healthcare settings to address
needlestick pain, the LidoSite System delivers numbing medication to the
procedure site quickly and effectively after a 10 minute application. Topical
anesthetic creams usually take up to an hour for full anesthetic
benefit.
Regulatory status of our
LidoSite product
Our
LidoSite product is considered a “combination” product by the FDA, as it
consists of a drug-filled patch and a device, our controller. For a
combination product, approval by the FDA requires that a New Drug Application
(“NDA”) and a 510(k) notification be submitted to the FDA. In
addition, an acceptable Pre-approval Inspection, or PAI, of our facility,
quality systems and data documentation by the FDA was required. In
May 2004, we received approval from the FDA to commercially launch our
LidoSite product in the United States.
Sales, Marketing and
Distribution
While we
have been able to demonstrate some limited success with our commercialization of
LidoSite, the results have not been as significant as originally
anticipated. In addition, the recent success related to the Phase I
trial for delivering an infertility peptide has provided us with alternative
growth opportunities. Therefore, we have redirected our focus toward
the potential use of Smart Patch technology as an effective method for peptide
delivery. Given the need to complete these Phase I and further Phase
II and Phase III trials for this infertility drug, we are also redirecting the
majority of our capital spending towards this effort. We will,
however, continue to support current LidoSite demand but will not continue to
expend significant resources on its commercial sales, marketing and distribution
efforts. As a result, we have significantly reduced our workforce and
variable costs that were either solely or partially dedicated to the support of
LidoSite.
Competition
Any
existing or future products, which we may develop, will likely compete with both
conventional drug delivery methods and advanced drug delivery
methods.
Conventional
Drug Delivery Methods
Traditionally,
the pharmaceutical industry has relied on oral delivery and injection as the
primary methods of administering drugs:
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Conventional Oral
Method. Conventional, oral drug dosage forms, such as
pills and capsules, are the most common types of drug
delivery. Oral drug delivery methods are easy to administer,
but their efficacy can be limited because drugs must first pass through
the digestive system and liver before being absorbed into the
bloodstream. Orally delivered drug dosages must, therefore, be
large to overcome the degradation that occurs in the gastrointestinal
tract and liver. As a result, conventional oral dosage forms
often produce higher initial drug levels than are required to achieve the
desired therapeutic effects, thereby increasing the risk of side effects,
some of which can be serious. Also, it is difficult to maintain
therapeutically optimal drug levels using oral drug delivery
methods. Further, oral drug delivery methods can require
patients to follow inconvenient dosing routines, which may diminish
patient compliance with self-medication
schedules.
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Injection
Methods. Injectable drug dosage forms generally provide
rapid onset of therapeutic action and offer many of the same advantages as
conventional oral drug dosage methods. Injectable drug delivery
methods use needles, raising the possibility of needle-stick injuries, as
well as the risk of infection to the caregiver and the
patient. The use of needles also increases patient anxiety due
to the pain of injection. Further, patients often find
self-injectable therapies unpleasant. As a result, injected
drugs for many chronic and subchronic diseases meet with varying degrees
of patient acceptance and compliance with the prescribed regimens, which
can lead to increased incidence of medical complications and potentially
higher disease management costs. In addition, some elderly,
infirm or pediatric patients cannot administer their own injections and
require assistance, thereby increasing both the inconvenience to these
patients and the cost of therapy.
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Advanced
Drug Delivery Technologies
The
limitations of conventional forms of drug delivery, such as oral and injection
methods, have driven demand for advanced drug delivery alternatives that are
safer, more effective and more convenient. Advanced drug delivery
technologies have improved oral and injection methods as well as offering new
means of administering drugs, such as through the skin and the respiratory
system. Advanced drug delivery technologies include sustained release
pills and injectables, passive transdermal patches and infusion pumps, as well
as pulmonary, nasal, intravaginal and opththalmic methods. In some
cases, these technologies offer better control over the release of drugs into
the bloodstream, thereby improving therapeutic efficacy and reducing side
effects and risks. In other cases, advanced drug delivery
technologies make therapies easier to administer and support more complex
therapeutic regimens. Innovative drug delivery technologies can offer
many advantages over traditional methods, including ease of use and
administration, greater control of drug concentration in the blood, improved
safety and efficacy, improved patient compliance, expanded indications for
certain therapies, and totally new therapies using drugs that cannot be
delivered otherwise.
The
following is an overview of advanced drug delivery technologies and other
alternative methods that could be direct or indirect competitors of our
LidoSite product and any of our potential future
products:
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Sustained release oral dosage
forms are designed to release the active ingredients of the drug
into the body at either a predetermined point in time or at a
predetermined rate over an extended period of time, generally do not work
fast and may be partially destroyed by the liver and stomach before they
get into the blood stream.
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Passive transdermal patches
allow absorption of drugs through the skin and generally provide a
convenient method of administering drugs at a steady rate over an extended
period of time, but onset of action may take hours after application, and
absorption of the drug may continue for hours after the patch is removed,
which can increase side effects. Additionally, because human
skin is an effective barrier, most drug formulations will not passively
permeate the skin in therapeutic quantities. There is also an
element of variability associated with passive transdermal systems due to
variations in skin characteristics.
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Sustained release injectable
preparations allow conventional injectable drugs to be incorporated
into a biodegradable material that is then injected and absorbed slowly
into the surrounding tissue. These preparations reduce the
frequency of injections by creating a small “depot” of the drug beneath
the skin that is slowly absorbed by the body, thus increasing the interval
between injections. They can turn a conventional once-a-day
injection into a once weekly or even longer
regimen.
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Continuous infusion pumps
are small implantable or externally-worn battery-powered pumps that
introduce drugs directly into the body, using a needle or catheter
inserted into tissue just below the skin or directly into the blood stream
or spinal space. They use conventional drugs, and provide rapid
onset of action as well as sustained or programmed delivery of
medication. These are costly, complex electromechanical devices
reserved mostly for treatment of chronic conditions such as the delivery
of insulin for certain diabetes patients and for chronic intractable pain
management for the treatment of certain forms of
spasticity.
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Pulmonary and nasal methods
are designed to provide fast action or to deliver drugs that are
destroyed by the gastro-intestinal tract. Variations in a
user's respiratory tract, often brought on by everyday occurrences such as
a cold, infection or even changes in climate, can markedly affect the
amount of drug inhaled from each spray. Nasal sprays can also cause
irritation in some patients and usually it is not possible to adjust the
amount of dose delivered in each sniff or spray. In addition,
the patient cannot control dosage over a period of time, and patients and
caregivers may have difficulty maintaining desired therapeutic
effects.
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Transmucosal technology
enables drugs to be delivered through the body’s mucosal
surfaces. There are four means by which drugs can be delivered
in this fashion: orally, nasally, rectally and vaginally. In
limited situations, drug absorption through mucosal surfaces is effective
because mucosal tissue is usually rich in blood supply, providing the
means for rapid drug transport to the systemic
circulation.
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Jet injection drug delivery
technology uses stored mechanical energy from either a spring or
compressed gas cylinder to ballistically deliver a liquid or powder
through the skin without a needle. Liquid jet injection has
been used for many years with minimal success. A new technology
allows the administration of small amounts of drugs in dry powder form
through the skin using a specially engineered device, which propels the
drug using a high-powered jet of helium gas. The gas
accelerates the dry drug particles, enabling penetration of the
skin.
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Competition
for our drug delivery products may come from any of these
technologies.
The
attractiveness of the local anesthesia market has compelled new entrants to
challenge EMLA’s market share and expand the market still
further. One company, Iomed, Inc., offers an iontophoretic lidocaine
delivery system into the market that is faster-acting than
EMLA. However, we believe that Iomed’s product, marketed under the
label Numby StuffÒ, is
complex and difficult to administer. Numby Stuff uses two separate,
large electrode patches: a drug patch and a grounding patch. The drug
patch does not come pre-filled with the drug; rather, it must be saturated with
a specific liquid formula of lidocaine called IontocaineÒ, which is drawn from a
vial prior to use. Both electrode patches in the Numby Stuff system
must then be manually connected to the power supply/controller using “alligator”
clip wires. The electronic controller is a benchtop model that is
manually controlled by a nurse or doctor and cannot be conveniently worn by the
patient.
A number
of other advanced local anesthesia products are currently or potentially under
development. AlgoRx Pharmaceuticals, Inc., for example, is developing
a jet injection lidocaine delivery system that will use a high-power jet of gas
to propel a powder formulation of the drug through the skin and ZARS, Inc., has
announced it has developed and received FDA approval for a local anesthetic
patch that uses their CHADD™ (Controlled Heat-Assisted Drug Delivery)
technology. Other companies, such as Empi, Inc. and Life-Tech, Inc.,
have also developed iontophoretic systems similar to Iomed’s Numby Stuff, but
their systems are currently used with drugs other than lidocaine. We
believe that the growing interest in local anesthesia products, despite their
clinical limitations, is a positive indication of the healthcare industry’s
strong desire for an effective, noninvasive, local dermal
anesthetic.
Alza
Corporation, a Johnson & Johnson subsidiary, with its E-TRANS® system, is
the only other company known to have developed pre-filled iontophoresis
technology. Alza has chosen a very different application, delivery of
an opiate-based product for systemic pain management, for its first
product. Alza received approval of its IONSYSTM NDA in the summer of
2006 from the FDA. This approval further validates the potential
value and utility of iontophoretic drug delivery, making this class of
technology more attractive to the pharmaceutical and health-care industries.
Once the IONSYS product based on the E-TRANS system is launched as a commercial
product, we believe our platform technology can compete effectively against the
E-Trans technology, because we believe we will offer our commercialization
partners a lower cost system, since our product does not contain the expensive
electronics contained in the Alza patches, and because we and Alza
are addressing very different therapeutic applications. The Alza system was
developed to treat pain associated with major surgery and cannot be used as a
dermal anesthetic. We also believe that because Alza has incorporated
the electronics into each patch, the added complexity of the product
necessitates product development cycles for new applications that are
significantly longer than those required by our system.
Travanti
Pharma, Inc., formerly Birch Point Medical, Inc., a development stage company,
developed a single use iontophoretic system called IontoPatch™, aimed at the
physical therapy market. We believe that the IontoPatch product is
not FDA-approved for any specific therapeutic indication and is not pre-filled
with medication.
Becton
Dickinson is engaged in developing alternative drug delivery technologies and we
may compete in the future with alternative technologies developed or acquired by
Becton Dickinson. Under the “Transaction Agreement” that we entered into with
Becton Dickinson dated November 10, 2000, Becton Dickinson was prohibited from
competing directly with us in the field of active transdermal drug delivery
technology (iontophoresis) for a five year period ending in November 2005.
Becton Dickinson has developed drug delivery technology employing
“micro-needles,” tiny needles that deliver compounds into the first few hundred
microns of the skin. This technology, which has not yet been
commercialized, may compete directly with our current technology. We
do not know whether or when Becton Dickinson will seek to commercialize this
technology.
Patents, Intellectual
Property and Proprietary Technology
The
intellectual property that we own is based on significant improvements we have
made to our drug delivery technology during more than 15 years of research and
development, ten of which were as a division of Becton, Dickinson and Company,
or Becton Dickinson. A significant portion of our
intellectual property relates to the design and manufacture of our proprietary
disposable, active transdermal patches and electronic dose
controllers.
We
protect our technological and marketing position in advanced transdermal drug
delivery technology by filing U.S. patent applications and, where appropriate,
corresponding foreign patent applications. Our success will depend in
part upon our ability to protect our proprietary technology from infringement,
misappropriation, duplication and discovery. Our policy is to apply
for patent protection for inventions and improvements deemed important to the
success of our business. We have a portfolio of United States patents
and foreign patents. We have approached the design and development of
our active transdermal drug delivery systems with the objective of maximizing
overall delivery system efficiency while addressing commercial requirements for
reproducibility, formulation stability, safety, convenience and
cost. To achieve this goal, our delivery systems integrate
proprietary and patented technology with commercially available, off-the-shelf
components.
Vyteris
holds over 180 worldwide patents. This allows the products developed
using Vyteris technology to provide for a significant competitive
advantage.
Iontophoresis,
as a way of delivering drugs, has been well known for many years. Our
patent portfolio consists of innovations that advance basic iontophoresis
technology through:
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enabling
more efficient electrode designs;
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drug
formulations enhancing
iontophoresis;
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specific
transdermal patch features allowing convenient use and low manufacturing
cost;
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electronic
circuitry and program algorithms improving the safety and control of
medication delivery; and
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ability
to deliver specific classes of molecules not previously
possible.
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We
believe these patented features provide for improved clinical performance and
provide a competitive advantage in manufacturing cost and
quality. Some areas in which we have a particular concentration of
patents are components, designs and formulations resulting in little to no skin
sensation during delivery, delivery of cell adhesion inhibitors via
iontophoresis, creating safe, single-use patches that cannot be inadvertently
reused, and patches that can be used with drugs having limited aqueous
stability.
The
issuance of a patent is not conclusive as to its validity or as to the
enforceable scope of the claims of the patent. The patent positions
of pharmaceutical, biotechnology and drug delivery companies, including our
company, are uncertain and involve complex legal and factual
issues. Accordingly, we cannot assure investors that our patents will
prevent other companies from developing similar products or products which
produce benefits substantially the same as our products, or that other companies
will not be issued patents that may prevent the sale of our products or require
us to pay significant licensing fees in order to market our
products. If our patent applications are not approved or, even if
approved, if such patents are circumvented or not upheld in a court of law, our
ability to competitively exploit our patented products and technologies may be
significantly reduced. Additionally, the coverage claimed in a patent
application can be significantly reduced before the patent is
issued. As a consequence, we do not know whether any of our patent
applications will be granted with broad coverage or whether the claims that
eventually issue or that relate to our current patents will be
circumvented. Since patent applications in the United States can be
maintained in secrecy until patents issue, and since publication of discoveries
in scientific or patent literature often lag behind actual discoveries, we
cannot be certain that we were the first inventor of inventions covered by our
issued patents or pending patent applications or that we were the first to file
patent applications or such inventions. Moreover, we may have to
participate in interference proceedings declared by the United States Patent and
Trademark Office to determine priority of invention, which could result in
substantial cost to us, even if the eventual outcome is favorable. An
adverse outcome could subject us to significant liabilities to third parties,
require disputed rights to be licensed from or to third parties or require us to
cease using the technology in dispute.
Also,
patents may or may not provide competitive advantages for their respective
products or they may be challenged or circumvented by competitors, in which case
our ability to commercially exploit these products may be
diminished.
From time
to time, we may need to obtain licenses to patents and other proprietary rights
held by third parties in order to develop, manufacture and market our
products. If we are unable to timely obtain these licenses on
commercially reasonable terms, our ability to commercially exploit such products
may be inhibited or prevented. Additionally, we cannot assure investors that any
of our products or technology will be patentable or that any future patents we
obtain will give us an exclusive position in the subject matter claimed by those
patents. Furthermore, we cannot assure investors that our pending
patent applications will result in issued patents, that patent protection will
be secured for any particular technology, or that our issued patents will be
valid, enforceable and provide us with meaningful protection.
Although
we have entered into invention assignment agreements with our employees and with
certain advisors, if those employees or advisors develop inventions or processes
independently which may relate to products or technology under development by
us, disputes may arise about the ownership of those inventions or
processes. Time-consuming and costly litigation could be necessary to
enforce and determine the scope of our rights.
We also
rely on trade secrets and proprietary know-how that we seek to protect, in part,
through confidentiality agreements with our strategic partners, customers,
suppliers, employees and consultants. It is possible that these agreements will
be breached or will not be enforceable in every instance, and that we will not
have adequate remedies for any such breach. It is also possible that
our trade secrets will otherwise become known or independently developed by
competitors.
Manufacturing and
Suppliers
Patch
Manufacturing
We have
an automated manufacturing and assembly facility for pre-commercial and
commercial production of LidoSite and other patches based upon our Smart Patch
technology. With this competency in place, we have the capability of
developing and manufacturing other transdermal products that we may
develop. Our facility is periodically audited and reviewed by the
FDA. The facility also practices current Good Manufacturing Practices
(“GMP”).
We
conduct our manufacturing in a 14,000 square foot section of our 13-01 Pollitt
Drive facility in Fair Lawn, New Jersey with a maximum production capacity of up
to two million patches per year. At our current production level we
do not anticipate making the units cost-effectively and expect that our
production costs will exceed our revenue. In order to manufacture the
product cost-effectively (when demand rises to exceed current maximum production
capacity) we would need to increase our manufacturing efficiency through the
installation of a second manufacturing line that we expect would operate at four
to five times the capacity of our current equipment. Given our
current business plan, we do not anticipate need in the foreseeable future to
consider a second line. Since we obtained a custom designed manufacturing
line, there is no resale
value. We have therefore recorded an impairment loss of $0.1 million,
$0.2 million and $2.1 million in cost and expenses, in our consolidated
statement of operations for the year ended December 31, 2007, 2006 and 2005,
respectively.
We
design, develop and maintain our own manufacturing processes, but use third
parties to build the automated assembly equipment and fabricate replacement
parts when necessary.
We have
leased a second production facility (17-01 Pollitt Drive in Fair Lawn, New
Jersey) anticipated to be utilized as we expand our manufacturing
capacity. As a result of our recent redirection toward peptide
delivery, we have scaled down our manufacturing related to the production of
LidoSite based on current demand for LidsoSite, which we do believe will
decrease, and currently do not intend to initiate use of the manufacturing
capabilities of the second facility. We are also currently evaluating
possibilities to terminate this second lease (or sublet the facility) in light
of this redirection of strategic focus. See “PROPERTIES AND
FACILITIES” below.
Electronic
Dose Controller Development and Manufacturing
To date,
we have gained significant expertise in the design and development of miniature,
wearable electronic dose controllers using commercially available, off-the-shelf
components assembled onto miniature circuit boards. The controller
that has been developed for LidoSite is a simple, single-pulse device initiated
by the push of a button, which turns on the electric current for a ten-minute
interval as it delivers the drug. Sophisticated control circuitry
senses the skin's electrical resistance and limits the amount of current that is
delivered to a safe, comfortable level, thereby automatically adapting to a wide
range of skin types and characteristics. This controller is usable
for up to 99 applications of LidoSite.
In
addition, we have currently developed a prototype controller that has been
effectively used in the Phase I clinical trials related to infertility
product. We intend to continue to evaluate this prototype
controller during the remaining clinical trials in order to meet the
characteristics of use for this drug in commercialization.
Although
we designed and developed the controller, have assembled several prototypes and
own various patents on its design, we outsource manufacturing on a non-exclusive
basis to a company specializing in contract manufacturing of electronic medical
devices. In this way, we can use the knowledge and facilities of the supplier
towards the goal of manufacturing a high-quality, cost-effective controller
available in quantities sufficient to meet market
demand. Manufacturing processes and electronic components for the
controller are fairly standardized and widely available. Future
versions of the dose controller for drugs other than lidocaine may incorporate
features such as enhanced programmability, custom componentry including
integrated circuitry, and radio frequency and telemetry technology as the
designs evolve to fit various therapeutic applications and lifestyle aspects of
the patient.
Suppliers
Our
principal suppliers are Hydrogel Design Systems, Inc., Advanced Labelworx and
Altron Inc. We also purchase parts from single-source
suppliers. Although we have not experienced significant production
delays attributable to supply changes, we believe that, for the electrode
subcomponent and hydrogel in particular, alternative sources of supply would be
difficult to develop over a short period of time. Because we do not
have supply agreements and direct control over our third-party suppliers,
interruptions or delays in the products and services provided by these third
parties may be difficult to remedy in a timely fashion. In addition,
if such suppliers are unable or unwilling to deliver the necessary parts or
products or if we are unable to make full payments to these suppliers on a
current basis, we may be unable to redesign or adapt our technology to work
without such parts or find alternative suppliers or manufacturers. In
such events, we could experience interruptions, delays, increased costs, or
quality control problems.
Governmental
Regulation
Under the
United States Food, Drug and Cosmetic Act, "new drugs" must obtain clearance
from the Food and Drug Administration, or FDA before they can be marketed
lawfully in the United States. Applications for marketing clearance
must be based on extensive clinical and other testing, the cost of which is very
substantial. Approvals – sometimes including pricing approvals -- are required
from health regulatory authorities in foreign countries before marketing of
pharmaceutical products may commence in those countries. Requirements
for approval may differ from country to country, and can involve additional
testing. There can be substantial delays in obtaining required clearances from
both the FDA and foreign regulatory authorities after applications are
filed. Even after clearances are obtained, further delays may be
encountered before the products become commercially available in countries
requiring pricing approvals.
Product
development generally involves the following steps which are required by the
regulatory process:
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preclinical
development, during which initial laboratory development and in vitro and
in vivo testing takes place;
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submission
to the FDA of an investigational new drug application (IND) for the
commencement of clinical studies;
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adequate
and well-controlled human clinical trials -- Phase I, II and III studies
--to establish the safety and efficacy of the
product;
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submission
of an NDA to the FDA requesting clearance to market the product and
comparable filings to regulatory agencies outside the United States if the
product is to be marketed outside of the United States;
and
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clearance
from the FDA -- and foreign regulatory authorities, if applicable -- must
be obtained before the product can be
marketed.
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Medical
devices are subject to comparable regulatory requirements.
Each of
these steps can take several years and can cost tens of millions of
dollars. Failure to obtain, or delays in obtaining, regulatory
clearance to market new products, as well as other regulatory actions and
recalls, could adversely affect our financial results.
The
packaging, labeling and advertising of pharmaceutical products are also subject
to government regulation. The FDA recommends preclearing advertising
materials prior to the launch of a product, and the launch materials for
products receiving an accelerated FDA clearance must be precleared by the
FDA. With an accelerated FDA clearance, all labeling and advertising
must be submitted to the FDA 30 days prior to use, unless the FDA determines
otherwise. In addition, the FDA may require that additional clinical
studies - Phase IV studies - be completed after it grants clearance to market a
product.
Our
research and development, manufacturing and distribution operations involve the
use of hazardous substances and are regulated under international, federal,
state and local laws governing health and safety and the
environment. We believe that our operations comply in all material
respects with applicable environmental laws and worker health and safety laws;
however, the risk of environmental liabilities cannot be eliminated and we
cannot assure investors that the application of environmental and health and
safety laws to us will not require us to incur significant
expenditures.
Employees
At May 15, 2008, we have a staff of 34
employees, of which 2 are part-time employees and 32 are full-time employees. Of
those 34 employees, 9 are in manufacturing and process development, 4 in
regulatory, quality and analytical services, 12 in research and development and
9 in administration and management.
We also
have 2 consultants currently providing services in the following areas in the
area of research and development.
None of
our employees are represented by a labor union or covered by a collective
bargaining agreement, nor have we experienced any work stoppages.
PROPERTIES
AND FACILITIES
We lease
approximately 27,000 square feet of manufacturing, warehouse, laboratory and
office space located at 13-01 Pollitt Drive in Fair Lawn, New Jersey. This lease
expires in September 2011. These facilities include manufacturing space
sufficient to house our current patch manufacturing and packaging equipment, and
a second manufacturing line built to our specifications. Our
facilities also contain prototype labs for simultaneous production of clinical
supplies of multiple products, and nine additional labs for research and
development and quality control purposes. For the years ended
December 31, 2007 and 2006, rent expense for the 13-01 lease was $0.3 million
and $0.2 million, respectively.
We also
have a lease for additional space located at 17-01 Pollitt Drive in Fair Lawn,
New Jersey, approximately 200 yards from our headquarters
building. The lease covers approximately 26,000 square feet of
space. The lease term expires in July 2015. While the
primary purpose of this facility is for the expansion of our manufacturing
capability, we are currently evaluating whether there will be a short or mid
term need for this additional manufacturing capacity. This facility
also includes office space. Given the de-emphasis of Lidosite, we do
not anticipate current or short term need for this manufacturing
facility. Therefore, during the first quarter of 2008 we consolidated
all operations (including offices) in the 13-01 Pollitt Drive facility and are
approaching the landlord to seek an early lease termination, as well as securing
a broker to assist us in securing a subtenant for this space. We
accordingly recognized the present value of future lease costs of $2.4 million
in facilities realignment costs in the condensed consolidated statement of
operations for the three months ended March 31, 2008.
LEGAL
PROCEEDINGS
From time
to time, we are involved in lawsuits, claims, investigations and proceedings,
including pending opposition proceedings involving patents, that arise in the
ordinary course of business. There are no matters pending that we
expect to have a material adverse impact on our business, results of operations,
financial condition or cash flows.
RISK
FACTORS
You
should carefully consider the risks described below together with all of the
other information included in this prospectus, as well as all other information
included in all other filings, incorporated herein by reference, when evaluating
the Company and its business. If any of the following risks actually occurs, our
business, financial condition, and results of operations could suffer. In that
case, the price of our common stock could decline and our stockholders may lose
all or part of their investment.
RISKS
RELATED TO OUR BUSINESS
We
are experiencing a severe, continuing cash shortage and without sufficient
financing we may be required to cease operations, and this demonstrates
uncertainty as to our ability to continue as a going concern.
As of
March 31, 2008, our cash and cash equivalents amounted to $2.1 million. Without
any substantial revenues, we have been dependent upon more than $24.9 million in
net cash provided by financing activities, since January 1, 2007 to remain in
business. As of March 31, 2008, our current liabilities exceeded our
current assets by approximately $11.3 million. If we do not continue
to raise capital until we generate sufficient revenue to cover this working
capital deficit, we will be required to discontinue or substantially modify our
business. These factors raise substantial doubt about our ability to
continue as a going concern. The report of the independent registered
public accounting firm relating to the audit of our consolidated financial
statements for the year ended December 31, 2007 contains an explanatory
paragraph expressing uncertainty regarding our ability to continue as a going
concern because of our operating losses and our need for additional capital.
Such explanatory paragraph could make it more difficult for us to raise
additional capital and may materially and adversely affect the terms of any
future financing that we may obtain
We
have never been profitable, we may never be profitable, and, if we become
profitable, we may be unable to sustain profitability.
From
November 2000 through March 31, 2008, we incurred net losses in excess of $174.1
million, as we had been engaged primarily in clinical testing and development
activities. We have never been profitable, we may never be profitable, and, if
we become profitable, we may be unable to sustain profitability. We expect to
continue to incur significant losses for the foreseeable future and to finance
our operations through sales of securities and incurrence of
indebtedness.
We
have a substantial amount of indebtedness owed which becomes due on
December 1, 2008, and we may not have the capital to repay the principal amount
due.
$5.3
million principal amount of indebtedness from Spencer Trask Specialty Group
(“STSG”) and $0.5 million principal amount of indebtedness from Allen Capital
becomes due and payable in full on December 1, 2008 and $2.9 million principal
amount of indebtedness from STSG becomes due and payable in full on June 1,
2009. If extensions are not obtained, we will be required to repay
the principal balance of such indebtedness plus any accrued and unpaid interest
thereon on the respective due dates. If payment in full is not timely
made or an extension obtained in either or both cases, the failure to pay may
trigger acceleration of our other indebtedness, which is secured by our
assets. The lenders of such secured indebtedness could exercise their
rights against our assets and could cause foreclosure of our
assets. Therefore, we must either raise sufficient capital to pay all
amounts due with respect to the Notes or obtain extensions. There can
be no assurances that we will be able to either (i) raise sufficient capital; or
(ii) obtain an extension of the maturity date of such Notes. Failure
to do so could result in cessation of our business due to foreclosure on its
assets.
We
are subject to restrictive covenants and terms which are not likely to be waived
by the holders of various financing instruments to which we are a
party.
When we
have issued various financing instruments, we were required to agree to several
restrictive covenants and terms, including, among others, restrictions on our
ability to sell to, merge with, or purchase, another business, incur additional
debt, grant liens on our assets, or buyback or redeem stock, without the consent
of those lenders. The holders of such instruments have advised us that they have
no intention of granting us waivers with respect to any of those covenants or
terms. Several of those covenants and terms have made, and may make, it more
difficult for us to obtain additional financing through the issuance of debt
securities.
An
agreement that provided us with our principal source of revenues is subject to
termination on short notice.
Our
agreement with Ferring Pharmaceuticals, Inc. (“Ferring”), under which we are
developing a drug delivery product for female infertility, enables Ferring to
terminate our relationship on short notice. This agreement was our principal
source of revenues during 2006, 2007 and the first quarter of 2008. Any
reduction in our revenues will produce further need for capital infusions, which
may not be available to us.
We
may be unable to hire and retain the key management necessary to develop and
grow our business.
We rely
on the continued service of our senior management, our chief technical staff,
and other key employees as well as the hiring of new qualified employees. In the
pharmaceutical industry, there is substantial and continuous competition for
highly skilled business, product development, technical and other personnel.
Given the concern over our long-term financial strength and that fact that
currently no members of management have employment contracts, we may not be
successful in recruiting new personnel and retaining and motivating existing
personnel, which could lead to increased turnover and reduce our ability to meet
the needs of our current and future customers. If we are unable to retain
qualified personnel, we could face disruptions to operations, loss of key
information, expertise or know-how, and unanticipated additional recruitment and
training costs. If employee turnover increases, our ability to provide customer
service and execute our strategy would be negatively affected.
Since
we are a company with a limited independent operating history, it is difficult
to predict our future growth and operating results, thereby making investment
decisions difficult.
Our
limited operating history as an independent drug delivery business (which is
prolonged by our lack of commercial drug experience) makes predicting our future
growth and operating results difficult. Vyteris, Inc., our subsidiary
incorporated in Delaware, now a subsidiary of Vyteris, Inc. (incorporated in
Nevada), was incorporated in Delaware in 2000, although a substantial portion of
its business was developed by Becton Dickinson from prior to 1990 until
2000.
As
a small company with limited financial resources, we have not proven that we
will be capable to meet the many challenges that we face.
You
should consider the risks and uncertainties that a company with limited
financial resources, such as Vyteris, faces in the rapidly evolving market for
drug delivery technologies. In particular, you should consider that we have not
proven that we will be able to:
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raise
significant additional capital in the public or private
markets;
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obtain
the regulatory approvals necessary to commence selling drug delivery
systems that we may develop in the future,
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manufacture
products in a manner that enables us to be profitable or meets regulatory,
strategic partner or customer requirements;
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attract,
retain and manage a qualified, diverse staff of engineers and
scientists;
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develop
the relationships with strategic partners and key vendors that are
necessary to our ability to exploit the processes and technologies that we
develop;
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effectively
manage our operations;
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develop
new products and drug delivery processes and new applications for our drug
delivery technology; or
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respond
effectively to competitive
pressures
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If we
cannot accomplish all or even some of these goals, our business is not likely to
succeed.
We
cannot expect that we will be able to derive material revenues from the sale of
products in the near future.
While we
have commenced development of other products and believe that our technology can
and should be pursued with respect to several applications that could result in
commercially viable products. The process of developing drug delivery
products to the point of commercial sales takes significant time and requires a
substantial commitment of financial and other resources that may not be
available to us for regulatory approval. We cannot assure investors that we will
have the financial resources necessary to bring future products to market or
that developments in our industry will not preclude us from expanding our
product line beyond LidoSite, a product that is currently being de-emphasized.
If we are unable to bring additional products to market, our entire
business would be at risk in the event that market or competitive conditions
threatened the viability of our existing product, thereby increasing the risk of
a business interruption or discontinuation.
We
may not be able to obtain FDA or foreign regulatory approval for our products in
a timely manner, or at all, which could have a material adverse effect on our
ability to sell and market our products.
Drug
formulations and related delivery systems that we may develop in the future
cannot be sold in the United States until the FDA approves such products for
medical use. Similar foreign regulatory approvals will be needed in order to
sell any new drug formulations and related drug delivery systems, including our
LidoSite product, outside of the U.S. We may not be able to obtain FDA or
foreign regulatory approval for our products in a timely manner, or at all.
Delays in obtaining FDA or foreign approvals for our products could result in
substantial additional costs to us, and, therefore, could adversely affect our
ability to compete with other drug delivery companies. If we do not obtain such
approvals at all, our revenues may be insufficient to support continuing
operations.
We
rely on single suppliers for certain key materials and components used in our
Smart Patch delivery system, which makes us dependent on persons or events that
we cannot control.
Certain
raw materials and components used in the manufacture of our Smart Patch delivery
system are available only from single suppliers. Some of those materials or
components are custom-made for us and are the result of long periods of
collaboration with our suppliers. The hydrogel that we use to hold the drugs in
the patch and the electrode subcomponents that we use to carry current through
our delivery system, for example, are both provided by single suppliers.
Any curtailment of the availability of such raw materials or components could be
accompanied by production or other delays and could result in a material loss of
sales, with resulting adverse effects on our business and operating results. In
addition, because raw material sources for pharmaceutical products must
generally be approved by regulatory authorities, changes in raw material
suppliers may result in production delays, higher raw material costs and loss of
sales, customers and market share.
The
development or identification of alternative sources, or redesigning products,
could be time-consuming and expensive. We cannot assure you that
price increases or interruptions in the supply of raw materials and components
will not occur in the future or that we will not have to seek alternate
suppliers or obtain substitute raw materials or components, which may require
additional product validations and regulatory approvals. Further, our suppliers
could experience price increases or interruptions in the supply of materials
from their suppliers, or could fail to meet our or governmental manufacturing
standards.
Any
significant price increase, interruption of supply, our inability to secure an
alternate source or our inability to qualify a substitute material could have a
material adverse effect on our ability to manufacture our LidoSite product or
maintain regulatory approval.
We
have limited experience in manufacturing drug delivery systems for commercial
resale and may be unable to manufacture our products for commercial sale on a
profitable or reliable basis.
As an
organization we have had limited experience in manufacturing drug delivery
systems for sale. We must increase our production capabilities significantly
beyond our present manufacturing capacity, which has been focused on producing
small quantities of our products, and incur significant capital expense in order
to be able to produce our products in commercial volumes in a cost effective
manner. The equipment and machinery that we use to manufacture the drug and
patches for our products are expensive and custom-built, and have never been
used in the large-scale production of pre-filled drug delivery
patches.
We cannot
assure you that we can:
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successfully
increase our manufacturing capabilities and develop large-scale
manufacturing processes on a profitable
basis;
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hire
and retain skilled personnel to oversee our manufacturing
operations;
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avoid
design and manufacturing defects and correct or redesign components once
they are in production; or
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develop
and maintain our manufacturing facility in compliance with governmental
regulations, including the FDA's good manufacturing
practices.
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We may
not be able to manufacture our products, in a manner that ensures that the
systems provide reproducible dosages of stable formulations of drugs for
sufficient periods after manufacture. If we cannot ensure that our products have
sufficient post-production shelf-life, we may be unable to produce our products
in sufficient quantities to develop an economical supply chain. Accordingly, we
may not be able to manage our inventory successfully.
We
operate in a complex regulatory environment which creates specific challenges in
hiring and maintaining our sales force.
Pharmaceutical
companies, such as Vyteris, operate in a regulatory environment at both the
federal and state level, which continues to increase in complexity as well as
the areas which are covered by regulation. Additionally, both federal
and state regulations may impose different regulatory and reporting requirements
on the same areas, thus making compliance even more difficult and
intricate. Many areas of these regulations cover reporting and
compliance and it becomes increasingly difficult to assure full compliance
without the expenditure of significant resources. This expenditure of
resources affects our ability to assure commercial success and may affect our
profitability.
The
failure of any of our product, to achieve market acceptance could materially and
adversely impact our future success.
Our
future success depends upon the acceptance of any of our potential future
products by health care providers and patients. In addition, our future success
may be dependent upon acceptance by third-party payors -- including, without
limitation, health insurance companies, Medicaid and Medicare -- of products
that we may develop in the future. Such market acceptance may depend on numerous
factors, many of which may not be under our control,
including:
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the
safety and efficacy of our
products;
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regulatory
approval and product labeling;
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the
availability, safety, efficacy and ease of use of alternative
technologies;
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the
price of our products relative to alternative technologies;
and
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for
future products, the availability of third-party
reimbursement.
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Our
LidoSite product is based upon a method of drug delivery through the skin that,
to date, has not gained widespread market acceptance, and due to the limited
acceptance, we have deemphasized the product. Furthermore, as evidenced by our
LidoSite commercialization efforts, we cannot assure you that LidoSite or any
future product will ever gain broad market acceptance. Furthermore,
we cannot predict that any of our future products will be more commercially
successful than the limited success with LidoSite.
In
addition, the adoption of new pharmaceutical products is greatly influenced by
health care providers and administrators, inclusion in hospital formularies, and
reimbursement by third party payors. Because our existing and proposed drug
delivery systems encompass both a device and a drug and may be used by many
different departments within a hospital or health care facility, buying
decisions in these settings require more departmental approvals than are
required for either a stand-alone drug or a stand-alone device. As a result, it
may be more difficult and more time consuming to achieve market penetration with
our products. We cannot assure investors that health care providers and
administrators, hospitals or third party payors will accept our products on a
large scale or on a timely basis, if at all, or that we will be able to obtain
approvals for additional indications and labeling for our products which
facilitate or expand their market acceptance or use. In addition, unanticipated
side effects, patient discomfort, defects or unfavorable publicity concerning
any of our products, or any other product incorporating technology similar to
that used by our products, could have a material adverse effect on our ability
to commercialize our products or achieve market acceptance.
We
may be unable to secure strategic partnering relationships, which could limit
our ability to effectively market, sell or distribute certain
products.
In order
for us to develop, market, sell and distribute certain future products, we will
be dependent on entering into satisfactory arrangements with strategic partners.
We cannot assure investors that we will be able to negotiate such agreements on
terms that are acceptable to us, or at all. In addition, we cannot assure any
investor that any strategic partner will not also engage in independent
development of competitive delivery technologies.
If
we are unable to protect our proprietary technology and preserve our trade
secrets, we will increase our vulnerability to competitors which could
materially adversely impact our ability to remain in business.
Our
ability to commercialize successfully our products will depend, in large
measure, on our ability to protect those products and our technology with
domestic and foreign patents. We will also need to continue to preserve our
trade secrets. The issuance of a patent is not conclusive as to its validity or
as to the enforceable scope of the claims of the patent. The patent positions of
pharmaceutical, biotechnology and drug delivery companies, including our
company, are uncertain and involve complex legal and factual
issues.
We cannot
assure you that our patents will prevent other companies from developing similar
products or products which produce benefits substantially the same as our
products, or that other companies will not be issued patents that may prevent
the sale of our products or require us to pay significant licensing fees in
order to market our products. Accordingly, if our patent applications are not
approved or, even if approved, if such patents are circumvented or not upheld in
a court of law, our ability to competitively exploit our patented products and
technologies may be significantly reduced. Additionally, the coverage claimed in
a patent application can be significantly reduced before the patent is
issued.
From time
to time, we may need to obtain licenses to patents and other proprietary rights
held by third parties in order to develop, manufacture and market our products.
If we are unable to timely obtain these licenses on commercially reasonable
terms, our ability to commercially exploit such products may be inhibited or
prevented. Additionally, we cannot assure investors that any of our products or
technology will be patentable or that any future patents we obtain will give us
an exclusive position in the subject matter claimed by those patents.
Furthermore, we cannot assure investors that our pending patent applications
will result in issued patents, that patent protection will be secured for any
particular technology, or that our issued patents will be valid or enforceable
or provide us with meaningful protection.
We
may incur significant costs associated with litigation claims arising from
related party transactions.
In
February 2008, our Board of Directors was made aware of the related party
transaction involving our former CEO, Timothy McIntyre and Monumed, LLC, one of
our most significant vendors, and the Special Assessment Committee of our Board
of Directors expects reports imminently from the consultants engaged to assist
in this assessment (See "Related Party Transactions" in our Form 10-KSB for the
year ended December 31, 2007 and Form 10-Q for the quarter ended March 31, 2008
for a further discussion of this related party transaction). We may face the
risk of litigation arising from the Monumed related party transaction, and if
litigation were to arise, we would likely incur significant fees and costs
relating to such litigation. Incurrence of significant fees and costs could
divert significant amounts of available funds from operational cash flow sources
to cover such fees and costs.
If
we are required to engage in expensive and lengthy litigation to enforce our
intellectual property rights, the costs of such litigation could be material to
our results of operations, financial condition and liquidity and, if we are
unsuccessful, the results of such litigation could materially adversely impact
our entire business.
We may
find it necessary to initiate litigation to enforce our patent rights, to
protect our trade secrets or know-how or to determine the scope and validity of
the proprietary rights of others. We plan to aggressively defend our proprietary
technology and any issued patents, if funding is available to do so.
Litigation concerning patents, trademarks, copyrights and proprietary
technologies can often be time-consuming and expensive and, as with litigation
generally, the outcome is inherently uncertain.
Although
we have entered into invention assignment agreements with our employees and with
certain advisors, if those employees or advisors develop inventions or processes
independently which may relate to products or technology under development by
us, disputes may also arise about the ownership of those inventions or
processes. Time-consuming and costly litigation could be necessary to enforce
and determine the scope of our rights under these agreements.
We also
rely on confidentiality agreements with our strategic partners, customers,
suppliers, employees and consultants to protect our trade secrets and
proprietary know-how. We may be required to commence litigation to enforce such
agreements and it is certainly possible that we will not have adequate remedies
for breaches of our confidentiality agreements.
Other
companies may claim that our technology infringes on their intellectual property
or proprietary rights and commence legal proceedings against us which could be
time-consuming and expensive and could result in our being prohibited from
developing, marketing, selling or distributing our products.
Because
of the complex and difficult legal and factual questions that relate to patent
positions in our industry, we cannot assure you that our products or technology
will not be found to infringe upon the intellectual property or proprietary
rights of others. Third parties may claim that our products or technology
infringe on their patents, copyrights, trademarks or other proprietary rights
and demand that we cease development or marketing of those products or
technology or pay license fees. We may not be able to avoid costly patent
infringement litigation, which will divert the attention of management away from
the development of new products and the operation of our business. We cannot
assure investors that we would prevail in any such litigation. If we are found
to have infringed on a third party's intellectual property rights, we may be
liable for money damages, encounter significant delays in bringing products to
market or be precluded from manufacturing particular products or using
particular technology.
Other
parties have challenged certain of our foreign patent applications. If such
parties are successful in opposing our foreign patent applications, we may not
gain the protection afforded by those patent applications in particular
jurisdictions and may face additional proceedings with respect to similar
patents in other jurisdictions, as well as related patents. The loss of patent
protection in one jurisdiction may influence our ability to maintain patent
protection for the same technology in another jurisdiction.
If
we do not accurately predict demand for our products when deciding to invest in
the development of new products, we will likely incur substantial expenditures
that will not benefit our business.
Research
and development, clinical testing and obtaining regulatory approvals for new
drug delivery systems takes a significant amount of time and requires
significant investment in skilled engineering and scientific personnel and in
expensive equipment. Furthermore, manufacturing our LidoSite product requires
expensive, custom-built machinery. We have made these investments, and intend to
continue to make such investments, for our products based on internal
projections of the potential market for that system and of our potential profit
margins on sales of that system. If those projections are inaccurate, we may not
be able to obtain an acceptable return on our investment in the development of
our products. If our projections of the prospects of new products are
inaccurate, we may make investments in the development, testing and approval of
those products that may result in unsatisfactory returns.
We
may be unable to hire and retain skilled engineers and scientists in a tight
labor market, in which case we will be severely hampered in our product
development efforts and in our ability to attract marketing and distribution
partners.
Skilled
employees in our industry are in great demand. We are competing for employees
against companies located near our headquarters that are more established than
we are and have the ability to pay more cash compensation than we do. We require
scientific and engineering personnel in many fields, some of which are addressed
by relatively few companies. As a result, we may continue to experience
difficulty in hiring and retaining highly skilled employees, particularly
engineers and scientists. If we are unable to hire and retain skilled engineers
and scientists, our business, financial condition, operating results and future
prospects could be materially adversely affected.
If
we are unable to develop products or technologies that will be marketable, we
will not be able to remain in business.
We may
not be able to develop drug delivery products or technologies that will be
marketable. Even if we are able to develop marketable drug delivery products or
technologies, we may not be able to develop them or obtain patent protection,
successful clinical trial results or regulatory approval for them. Our research
and development efforts may be hampered by a variety of factors, many of
which are outside of our control. Sustained development failures could
materially adversely impact our business.
We
face substantial competition for any future products that we may develop, as
well as for strategic partner transactions. Our failure to adequately compete
could have a material adverse effect on our ability to develop, market and sell
our products and meet our financial projections.
There is
substantial competition to develop alternative drug delivery solutions from both
drug delivery technology and pharmaceutical companies, most of which are much
larger and have far greater resources than we do. Further, the drug delivery,
pharmaceutical and biotechnology industries are highly competitive and rapidly
evolving. We expect that significant developments in those industries will
continue at a rapid pace. Our success will depend on our ability to establish
and maintain a strong competitive position for our products while developing new
products that are effective and safe. We cannot assure you that any of our
products will have advantages over alternative products and technologies that
may be developed later and that may be significant enough to cause health care
providers to prefer those products or technologies over ours.
In our
drug delivery segment, which is focused on the process of actively delivering
drugs through the skin, we are aware of several companies that are also
developing or marketing products based on this process. We also face competition
from companies that are currently testing or already marketing delivery systems
or products for lidocaine or similar topical anesthetics. We face indirect
competition from companies that are actively involved in the development and
commercialization of modified drug delivery technologies, including oral,
pulmonary, bucal, nasal and needle-less injections, as well as companies working
on processes that passively deliver drugs through the skin. We also expect
to compete with other drug delivery companies and technologies in the
establishment of strategic partnering arrangements with large pharmaceutical
companies to assist in the development or marketing of products. Competition is
expected to intensify as more companies enter the field.
Most of
our competitors have substantially greater financial, technical, research and
other resources, are more experienced in research and development,
manufacturing, pre-clinical and clinical testing, and obtaining regulatory
approvals, and are larger, more established and have more collaborative partners
than we do. In addition, those other entities may offer broader product lines
and have greater name recognition than we do. Those other entities may succeed
in developing competing technologies and obtaining regulatory approvals and
market share more rapidly than we can. Some of those companies have competing
products that have already been approved by the FDA and foreign authorities, or
are further along in development than is our LidoSite product. We cannot assure
you that those competitors will not succeed in developing or marketing products
that are more effective or more commercially acceptable than our lidocaine
delivery system or any future product. We cannot assure you that we will have
the financial resources, technical or management expertise or manufacturing and
sales capability to compete in the future.
Increased
competition may result in price cuts, reduced gross margins and loss of market
share, any of which could have a material adverse effect on our business,
financial condition, results of operations and future prospects.
We
may not be able to license complementary drug technologies or drug
reformulations to expand our product offerings, in which case we will be
significantly limited in our product offerings.
In order
to enhance our platform technology, strengthen our intellectual property
portfolio and expand our overall market opportunity beyond that for our LidoSite
product, we may seek to acquire or license rights to additional drug delivery
technologies or reformulations of FDA-approved drugs that compliment our core
drug delivery platform. We may not be able to acquire or license such other
technologies or drug reformulations on terms that are acceptable to us, if at
all. Further, efforts to identify such technologies and attempts to negotiate
the terms of such acquisitions or licenses may divert the attention of our
management away from the internal development of new applications for our
existing technology and from the operation of our business.
If
any of our products injure a user, we could be subject to product liability
exposure in excess of amounts for which we are insured, which could have a
material adverse effect on our business, financial condition, results of
operations and future prospects.
Any drug
delivery system we may develop or manufacture in the future may result in
injuries to persons using those products as a result of mislabeling, misuse or
product failure. While we carry product liability insurance with respect to the
now-completed clinical trials and for the commercial sale of our LidoSite
product, there can be no assurance that our coverage will be adequate to protect
us against future liability claims. Furthermore, we cannot assure you that we
can afford to maintain the insurance that we have obtained. Product liability
insurance is expensive and there can be no assurance that this insurance will be
available to us in the future for the commercial sale of our delivery system or
for any new products, on terms satisfactory to us, if at all. A successful
product liability claim or series of claims brought against us in excess of our
insurance coverage could have a material adverse effect on our business,
financial condition, results of operations and future prospects.
We
have recently announced that we have redirected our business towards peptide
delivery and as a result we do not expect to commercialize any products for the
next 24-36 months
We have
announced that we will be de-emphasizing our efforts away from our only
commercially available product, LidoSite. As a result, our future
efforts will be dependent upon the successful development of new products with
new and existing partners. There are no assurances that we will be successful in
continuing the development of new products. As such, we do not expect
to commercialize any of these products in the next 24-36 months. In
addition, if any of these new products is not approved in a timely manner or
does not gain market acceptance, it will adversely effect our business,
financial condition, results of operations and future prospects.
Sales
of a significant number of shares of our common stock, warrants or the exercise
of stock options could depress the market price of our stock.
The
market price of our common stock could decline as a result of sales of
substantial amounts of common stock in the public market after this offering or
the perception that substantial sales could occur. These sales also might make
it difficult for us to sell equity securities in the future at a time when, and
at a price which, we deem appropriate.
As of
March 31, 2008, we had stock options to purchase 5,775,055 shares of our common
stock outstanding, of which options to purchase 3,240,739 shares were
exercisable. Also outstanding as of the same date were warrants exercisable for
69,495,392 shares of common stock. There are also 7.5 million shares
of preferred stock which are convertible into Common Stock on a one for one
basis. Exercise of any outstanding stock options or warrants could
harm the market price of our common stock.
We
may be unable to list our Common Stock on the NASDAQ or any other securities
exchange, in which case an investor may find it difficult to dispose of shares
or obtain accurate quotations as to the market value of our Common
Stock.
Although
we may apply to list our common stock on NASDAQ or the American Stock Exchange
in the future when and if we have stabilized our liquidity concerns, we may not
be able to meet the initial listing standards, including the minimum per share
price and minimum capitalization requirements, of either of those or any other
stock exchange, and we may not be able to maintain a listing of our common stock
on either of those or any other stock exchange. If we are unable to list our
common stock on NASDAQ, the American Stock Exchange or another stock exchange,
or to maintain that listing, we expect that our common stock will continue to
trade on the OTC Bulletin Board maintained by NASDAQ, or possibly another
over-the-counter quotation system or on the "pink sheets," where an investor may
find it difficult to dispose of shares or obtain accurate quotations as to the
market value of our common stock.
Our
common stock is considered a “penny stock” and may be difficult to
sell.
Our
common stock is considered to be a “penny stock” since it meets one or more of
the definitions in Rule 3a51-1 under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). These include but are not limited to the
following: (i) the stock trades at a price less than $5.00 per share;
(ii) it is not traded on a “recognized” national exchange; (iii) it
is not quoted on the NASDAQ Stock Market, or even if so, has a price less
than $5.00 per share; or (iv) is issued by a company with net tangible
assets less than $2.0 million, if in business more than a continuous
three years, or with average revenues of less than $6.0 million for the
past three years. The principal result or effect of being designated a
“penny stock” is that securities broker-dealers cannot recommend the stock but
must trade in it on an unsolicited basis. Section 15(g) of the
Exchange Act and Rule 15g-2 promulgated thereunder by the SEC require
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction in a
penny stock for the investor’s account.
Potential
investors in our common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be “penny
stock.” Moreover, Rule 15g-9 requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives;
(ii) reasonably determine, based on that information, that transactions in
penny stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written
statement setting forth the basis on which the broker-dealer made the
determination in (ii) above; and (iv) receive a signed and dated copy
of such statement from the investor, confirming that it accurately reflects the
investor’s financial situation, investment experience and investment
objectives. Compliance with these requirements may make it more difficult
for holders of our common stock to resell their shares to third parties or to
otherwise dispose of them in the market or otherwise.
Standards
for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are
uncertain, and if we fail to comply in a timely manner, our business could be
harmed and our stock price could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of
2002 require annual assessment of our internal control over financial reporting,
and attestation of the assessment by our independent registered public
accountants. This requirement for management’s assessment of our internal
control over financial reporting for our annual report for fiscal 2007 and the
requirement for our auditor’s attestation will first apply to our annual report
for fiscal 2008. The standards that must be met for management to assess
the internal control over financial reporting as effective are new and complex,
and require significant documentation, testing and possible remediation to meet
the detailed standards. We may encounter problems or delays in completing
activities necessary to make an assessment of our internal control over
financial reporting. In addition, the attestation process by our
independent registered public accountants is new and we may encounter problems
or delays in completing the implementation of any requested improvements and
receiving an attestation of the assessment by our independent registered public
accountants. If we cannot assess our internal control over financial
reporting as effective, or our independent registered public accountants are
unable to provide an unqualified attestation report on such assessment, investor
confidence and share value may be negatively impacted. We expect to incur
additional accounting related expenses associated with compliance with Section
404.
We
may not be able to attract the attention of brokerage firms, which could have a
material adverse impact on the market value of our Common Stock.
Security
analysts of brokerage firms have not provided, and may not provide in the
future, coverage of our common stock since there is limited incentive to
brokerage firms to produce research reports and recommend the purchase of our
common stock. To date, we have not been able to attract the attention of
brokerage firms and securities analysts. The absence of such attention limits
the likelihood that an active market will develop for our common stock. It also
will likely make it more difficult to attract new investors at times when we
require additional capital.
Some of
the statements contained or incorporated by reference in this prospectus or in
the prospectus supplement may include forward-looking statements that reflect
our current views with respect to our research and development activities,
business strategy, business plan, financial performance and other future events.
These statements include forward-looking statements both with respect to us,
specifically, and the biotechnology sector, in general. We make these statements
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Statements that include the words “expect,” “intend,”
“plan,” “believe,” “project,” “estimate,” “may,” “should,” “anticipate,” “will”
and similar statements of a future or forward-looking nature identify
forward-looking statements for purposes of the federal securities laws or
otherwise.
All
forward-looking statements involve inherent risks and uncertainties, and there
are or will be important factors that could cause actual results to differ
materially from those indicated in these statements. We believe that these
factors include, but are not limited to, those factors set forth under the
caption “Risk Factors” in this prospectus and in any prospectus supplement and
under the captions “Business,” “Legal Proceedings,” “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” “Quantitative and
Qualitative Disclosures About Market Risk” and “Controls and Procedures” in our
most recent Annual Report on Form 10-KSB and our most recent Quarterly Reports
on Form 10-QSB, all of which you should review carefully. Please consider our
forward-looking statements in light of those risks as you read this prospectus
and the prospectus supplement. We undertake no obligation to publicly update or
review any forward-looking statement, whether as a result of new information,
future developments or otherwise.
If one or
more of these or other risks or uncertainties materializes, or if our underlying
assumptions prove to be incorrect, actual results may vary materially from what
we anticipate. All subsequent written and oral forward-looking statements
attributable to us or individuals acting on our behalf are expressly qualified
in their entirety by this Note. Before purchasing any shares or warrants, you
should consider carefully all of the factors set forth or referred to in this
prospectus and in the prospectus supplement that could cause actual results to
differ.
THE
SECURITIES WE MAY OFFER
We may
offer our common shares and/or warrants to purchase common shares, with a total
value of up to $50,000,000, from time to time under this prospectus at prices
and on terms to be determined by market conditions at the time of offering. This
prospectus provides you with a general description of the securities we may
offer. Each time we offer a type or series of securities, we will provide a
prospectus supplement that will describe the specific amounts, prices and other
important terms of the securities, including, to the extent
applicable:
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designation
or classification;
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aggregate
principal amount or aggregate offering price;
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maturity,
if applicable;
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voting
or other rights, if any;
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exercise
prices, if any; and
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important
federal income tax considerations.
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The
prospectus supplement also may add, update or change information contained in
this prospectus or in documents we have incorporated by reference. However, no
prospectus supplement shall offer a security that is not registered and
described in this prospectus at the time of its effectiveness. The
prospectus supplement shall also include specimen forms of the shares of Common
Stock and warrants being offered thereby.
This
Prospectus may not be used to consummate a sale of securities unless it is
accompanied by a Prospectus Supplement.
We may
sell the securities directly to or through agents, underwriters or dealers. We,
and our agents or underwriters, reserve the right to accept or reject all or
part of any proposed purchase of securities. If we do offer securities through
agents or underwriters, we will include in the applicable prospectus
supplement:
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the
names of those agents or underwriters;
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applicable
fees, discounts and commissions to be paid to them;
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details
regarding over-allotment options, if any; and
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the
net proceeds to us.
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Common Shares.
We may issue common shares from time to time. Holders of common shares
are entitled to one vote per share on all matters submitted to a vote of
shareholders. Subject to the rights of any series of preferred stock issued from
time to time, all actions submitted to a vote of shareholders shall be voted on
by the holders of common shares, voting together as a single class, except as
provided by law.
Warrants.
We may issue warrants for the purchase of common shares. We may issue
warrants independently or together with common shares, and the warrants may be
attached to or separate from these securities.
The
warrants will be evidenced by warrant certificates. In this prospectus, we have
summarized certain general features of the warrants. We will incorporate by
reference into the registration statement of which this prospectus is a part the
form of warrant agreement, including a form of warrant certificate, which
describes the terms of the series of warrants we are offering before the
issuance of the related series of warrants. We urge you to read the prospectus
supplements related to the series of warrants being offered, as well as the
complete warrant agreements and warrant certificates that contain the terms of
the applicable series of warrants.
USE
OF PROCEEDS
Unless we
indicate otherwise in the prospectus supplement, we expect to use the net
proceeds we receive from the sale of our common stock and warrants to augment
our working capital and for general corporate purposes, including, but not
limited to, product development activities, including research and development
activities surrounding our potential migraine, NSAID and peptide products,
capital expenditures, potential acquisitions and other business opportunities.
We may set forth in the prospectus supplement additional information on our
intended use for the net proceeds received from the sale of any common stock and
warrants sold pursuant to that prospectus supplement.
We may
sell the shares of our common stock and/or warrants being offered hereby in one
or more of the following ways from time to time:
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through agents to the public or to
investors;
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to one or more underwriters for
resale to the public or to
investors;
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in “at the market” offerings,
within the meaning of Rule 415(a)(4) of the Securities Act of 1933,
as amended, or the Securities Act, to or through a market maker or into an
existing trading market, on an exchange or
otherwise;
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directly to investors;
or
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through a combination of these
methods of sale.
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We will
set forth in a prospectus supplement the terms of an offering of shares of our
common stock and/or warrants, including.
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the name or names of any agents or
underwriters;
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the purchase price of the shares
and/or warrants being offered and the proceeds we will receive from the
sale;
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any over-allotment options under
which underwriters may purchase additional shares and/or warrants from
us;
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any agency fees or underwriting
discounts and other items constituting agents’ or underwriters’
compensation;
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the public offering price;
and
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any discounts or concessions
allowed or reallowed or paid to
dealers.
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We may
distribute the common stock and/or warrants from time to time in one or more
transactions;
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at a fixed price or prices, which
may be changed;
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at market prices prevailing at the
time of sale;
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at prices related to such
prevailing market prices; or
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We may
also, from time to time, authorize dealers, acting as our agents, to offer and
sell common stock and/or warrants upon the terms and conditions set forth in the
applicable prospectus supplement. We, or the purchasers of common stock and/or
warrants for whom the underwriters may act as agents, may compensate
underwriters in the form of underwriting discounts or commissions, in connection
with the sale of common stock and/or warrants. Underwriters may sell the common
stock and/or warrants to or through dealers, and those dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters or commissions from the purchasers for whom they may act as agent.
Unless otherwise indicated in a prospectus supplement, an agent will be acting
on a “best efforts” basis and a dealer will purchase common stock and/or
warrants as a principal, and may then resell the common stock and/or warrants at
varying prices to be determined by the dealer.
We will
describe in the applicable prospectus supplement any compensation we will pay to
underwriters or agents in connection with the offering of common stock and/or
warrants, and any discounts, concessions or commissions allowed by underwriters
to participating dealers. The dealers and agents participating in the
distribution of common stock and/or warrants may be deemed to be underwriters,
and any discounts and commissions received by them and any profit realized by
them on resale of the common stock and/or warrants may be deemed to be
underwriting discounts and commissions. We may enter into agreements to
indemnify underwriters, dealers and agents against certain civil liabilities,
including liabilities under the Securities Act and to reimburse these persons
for certain expenses. We may grant underwriters who participate in the
distribution of common stock and/or warrants we are offering under this
prospectus an option to purchase additional shares and/or warrants to cover
over-allotments, if any, in connection with the distribution.
To
facilitate the offering of common stock and/or warrants, certain persons
participating in the offering may engage in transactions that stabilize,
maintain, or otherwise affect the price of the common stock and/or warrants.
This may include over-allotments or short sales of the common stock and/or
warrants, which involve the sale by persons participating in the offering of
more common stock and/or warrants than we sold to them. In these
circumstances, these persons would cover such over-allotments or short positions
by making purchases in the open market or by exercising their over-allotment
option, if any. In addition, these persons may stabilize or maintain the price
of the common stock and/or warrants by bidding for or purchasing common stock
and/or warrants in the open market or by imposing penalty bids, whereby selling
concessions allowed to dealers participating in the offering may be reclaimed if
common stock and/or warrants sold by them is repurchased in connection with
stabilization transactions. The effect of these transactions may be to stabilize
or maintain the market price of the common stock and/or warrants at a level
above that which might otherwise prevail in the open market. These transactions
may be discontinued at any time.
Certain
underwriters, dealers or agents and their associates may engage in transactions
with and perform services for us in the ordinary course of our
business.
Under no circumstances will the fee, commission or discount received by a
placement agent or any other FINRA member or independent broker-dealer exceed
eight percent of the gross proceeds to us in this offering or any other offering
in the United States pursuant to the base prospectus.
The agent’s compensation warrants, if any, will be substantially on
the same terms as the warrants offered under any prospectus supplement, except
that the compensation warrants will comply with FINRA Rule 2710(g)(1) in that
for a period of six months after the issuance date of the compensation warrants
(which shall not be earlier than the closing date of the offering pursuant to
which the compensation warrants are being issued), neither the compensation
warrants nor any warrant shares issued upon exercise of the compensation
warrants shall be sold, transferred, assigned, pledged, or hypothecated, or be
the subject of any hedging, short sale, derivative, put, or call transaction
that would result in the effective economic disposition of the securities by any
person for a period of 180 days immediately following the date of effectiveness
or commencement of sales of the offering pursuant to which the compensation
warrants are being issued, except as otherwise permitted by FINRA Rule
2710(g)(2).
The
following statements with respect to our share capital are subject to the
detailed provisions of our articles of incorporation and bylaws. These
statements do not purport to be complete and, while we believe the descriptions
of the material provisions of the memorandum of continuance and bye-laws
incorporated by reference are accurate statements with respect to such material
provisions, such statements are subject to the detailed provisions in the
articles of incorporation and bylaws, to which reference is hereby made for a
full description of such provisions.
Common
Shares
General
Our
memorandum of continuance and bye-laws provide that our authorized common share
capital is limited to 500,000,000 common shares, par value U.S.$.001 per share.
As of May 5, 2008, there were 107,959,312 common shares issued
and outstanding.
On May 6,
2008, we filed a Certificate of Change with the Nevada Secretary of State which
serves to effect a 1-for-15 reverse split of Registrant’s common stock. As a
result of the reverse stock split, every fifteen shares of our common stock will
be combined into one share of common stock; any fractional shares created by the
reverse stock split will be rounded up to whole shares. The reverse stock split
affects all of our common stock, stock options, Series B Preferred Stock and
warrants outstanding immediately prior to the effective date of the reverse
stock split. The reverse split will reduce the number of shares of our common
stock outstanding from approximately 107,959,312 shares to approximately
7,197,288 shares, and the number of authorized shares of common stock will be
reduced from 500,000,000 shares to 33,333,333 shares.
Voting
The
holders of common shares are entitled to one vote per share. Subject to the
rights of any series of preferred stock issued from time to time, all actions
submitted to a vote of shareholders shall be voted on by the holders of common
shares, voting together as a single class and any other shares having general
voting rights, (if any), except as provided by law.
Dividends
Holders
of common shares are entitled to participate, on a share for share basis, with
the holders of any other common shares issued and outstanding, with respect to
any dividends declared by our board of directors, subject to the rights of
holders of preferred stock. Dividends will generally be payable in U.S. dollars.
We have not paid cash dividends on the common shares. We currently do not intend
to pay dividends and intend to retain any of our earnings for use in our
business and the financing of our capital requirements for the foreseeable
future. The payment of any future cash dividends on the common shares is
necessarily dependent upon our earnings and financial needs, along with
applicable legal and contractual restrictions.
Liquidation
Upon our
liquidation, holders of our common shares will be entitled to receive any assets
remaining after the payment of our debts and the expenses of the liquidation,
subject to such special rights as may be attached to any other class of
shares.
Redemption
The
common shares are not subject to redemption either by us or the holders
thereof.
Variation
of Rights
Under our
bye-laws, if at any time our share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the terms
of the issue of the shares of that class) may be varied with the consent in
writing of the holders of a majority of the issued shares of that class or with
the sanction of a resolution passed by the holders of a majority of such shares
at a separate general meeting.
DESCRIPTION
OF WARRANTS
The
following description, together with the additional information we may include
in any applicable prospectus supplements, summarizes the material terms and
provisions of the warrants that we may offer under this prospectus and the
related warrant agreements and warrant certificates. While the terms summarized
below will apply generally to any warrants that we may offer, we will describe
the particular terms of any series of warrants in more detail in the applicable
prospectus supplement. If we indicate in the prospectus supplement, the terms of
any warrants offered under that prospectus supplement may differ from the terms
described below. However, no prospectus supplement shall fundamentally change
the terms that are set forth in this prospectus or offer a security that is not
registered and described in this prospectus at the time of its effectiveness. We
will incorporate by reference into the registration statement of which this
prospectus is a part the form of warrant agreement, including a form of warrant
certificate, that describes the terms of the series of warrants we are offering
before the issuance of the related series of warrants. The following summaries
of material provisions of the warrants and the warrant agreements are subject
to, and qualified in their entirety by reference to, all the provisions of the
warrant agreement applicable to a particular series of warrants. We urge you to
read the applicable prospectus supplements related to the warrants that we sell
under this prospectus, as well as the complete warrant agreements that contain
the terms of the warrants.
Terms
We will
describe in the applicable prospectus supplement the terms of the series of
warrants, including:
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the
offering price and aggregate number of warrants
offered;
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the
currency for which the warrants may be
purchased;
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if
applicable, the designation and terms of the securities with which the
warrants are issued and the number of warrants issued with each such
security or with a specified
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principal
amount of such security;
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if
applicable, the date on and after which the warrants and the related
securities will be separately
transferable;
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the
number of common shares, as the case may be, purchasable upon the exercise
of one warrant and the price at which these shares may be purchased upon
such exercise;
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the
effect of any amalgamation, consolidation, merger, sale or other
disposition of our business on the warrant agreements and the
warrants;
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the
terms of any rights to redeem or call the warrants;
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any
provisions for changes to or adjustments in the exercise price or number
of securities issuable upon exercise of the
warrants;
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the
dates on which the right to exercise the warrants will commence and
expire;
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the
manner in which the warrant agreements and warrants may be
modified;
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U.S.
federal income tax consequences of holding or exercising the warrants;
and
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any
other specific terms, preferences, rights or limitations of or
restrictions on the warrants.
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Before
exercising their warrants, holders of warrants will not have any of the rights
of holders of the securities purchasable upon such exercise.
Exercise
of Warrants
Each
warrant will entitle the holder to purchase the securities that we specify in
the applicable prospectus supplement at the exercise price that we describe in
the applicable prospectus supplement. Unless we otherwise specify in the
applicable prospectus supplement, holders of the warrants may exercise the
warrants at any time up to 5:00 P.M. New York time on the expiration date that
we set forth in the applicable prospectus supplement. After the close of
business on the expiration date, unexercised warrants will become
void.
Holders
of the warrants may exercise the warrants by delivering the warrant certificate
representing the warrants to be exercised together with specified information,
and paying the required amount to the warrant agent in immediately available
funds, as provided in the applicable prospectus supplement. We will set forth on
the reverse side of the warrant certificate and in the applicable prospectus
supplement the information that the holder of the warrant will be required to
deliver to the warrant agent.
Upon
receipt of the required payment and the warrant certificate properly completed
and duly executed at the corporate trust office of the warrant agent or any
other office indicated in the applicable prospectus supplement, we will issue
and deliver the securities purchasable upon such exercise. If fewer than all of
the warrants represented by the warrant certificate are exercised, then we will
issue a new warrant certificate for the remaining amount of warrants. If we so
indicate in the applicable prospectus supplement, holders of the warrants may
surrender securities or rights to purchase securities as all or part of the
exercise price for warrants.
Enforceability
of Rights by Holders of Warrants
Each
warrant agent will act solely as our agent under the applicable warrant
agreement and will not assume any obligation or relationship of agency or trust
with any holder of any warrant. A single bank or trust company may act as
warrant agent for more than one issue of warrants. A warrant agent will have no
duty or responsibility in case of any default by us under the applicable warrant
agreement or warrant, including any duty or responsibility to initiate any
proceedings at law or otherwise, or to make any demand upon us. Any holder of a
warrant may, without the consent of the related warrant agent or the holder of
any other warrant, enforce by appropriate legal action its right to exercise,
and receive the securities purchasable upon exercise of, its
warrants.
Outstanding
Warrants
A
description of our outstanding warrants is set forth in the periodic reports
filed by us with the Securities and Exchange Commission, as incorporated herein
by reference.
We are
subject to the informational requirements of the Securities Exchange Act of
1934, or Exchange Act, and are required to file annual, quarterly and other
reports, proxy statements and other information with the SEC. You may inspect
and copy these reports, proxy statements and other information at the public
reference facilities maintained by the SEC in Washington, D.C. (100 F Street NE,
Room 1580, Washington, D.C. 20549). Copies of such materials can be
obtained from the SEC’s public reference section at prescribed rates. You may
obtain information on the operation of the public reference rooms by calling the
SEC at (800) SEC-0330 or on the SEC website located at http://www.sec.gov.
Our
common stock is traded on the Over the Counter Bulletin Board under the symbol
“VYHN”.
Information
about us is also available at our website at www.vyteris.com; however, the
information on our website is not a part of this prospectus.
INCORPORATION
OF INFORMATION FILED WITH THE SEC
The SEC
allows us to incorporate in this prospectus “by reference” information contained
in documents that we file with the SEC, which means that we can disclose
important information to you by referring you to those other documents. The
information incorporated by reference is an important part of this prospectus,
and documents that we file with the SEC after the date of this prospectus will
automatically update and, where applicable, modify or supersede any information
set forth or incorporated by reference in this prospectus.
We
incorporate by reference in this prospectus the documents listed
below:
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Our Annual Report on Form 10-KSB
for the year ended
December 31,
2007.
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Our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2008.
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Our Current Reports on Form 8-K
filed with the SEC on February 22, 2007 (2), March 1, 2007, March 21,
2007, June 6, 2007, June 11, 2007, June 19, 2007, July 20, 2007,
July 31, 2007,
September 27, 2007,
November 13, 2007,
January 2, 2008, February 7, 2008, February 20, 2008, March 4, 2008, March
26, 2008, April 18, 2008 and May 12,
2008
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Any document that we file with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this prospectus and before the termination of this
offering (other than any portion of such documents that are not deemed
“filed” under the Exchange Act in accordance with the Exchange Act and
applicable SEC rules). Information in these subsequent SEC filings will be
deemed to be incorporated by reference as of the date we make the
filing.
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You may
obtain a copy of the foregoing documents from us at no cost by writing or
calling us at the following address and telephone number: Vyteris, Inc., 13-01
Pollitt Drive, Fair Lawn, NJ 07410 (201) 703-2299, attn: Joseph Himy, Chief
Financial Officer.
The validity of the common shares being offered hereby has been passed upon for
us by Hale Lane Peek Dennison and Howard, 5441 Kietzke Lane, Second Floor, Reno,
Nevada 89511. The validity of the warrants being offered hereby has
been passed upon for us by Jolie Kahn, Esq., 61 Broadway, Suite 2820, New York,
NY 10006.
The
consolidated financial statements of Vyteris, Inc. appearing in Vyteris, Inc.'s
Annual Report (Form 10-KSB) at December 31, 2007 and December 31, 2006 and for
each of the years ended December 31, 2007 and December 31, 2006, respectively,
have been audited by Amper, Politziner & Mattia P.C., independent registered
public accounting firm, as set forth in their report thereon (which contained an
explanatory paragraph describing conditions that raise substantial doubt about
the Company's ability to continue as a going concern as described in Note 1 to
the consolidated financial statements) included therein, and incorporated herein
by reference. Such consolidated financial statements are incorporated
herein by reference in reliance on such report given the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of Vyteris Holdings (Nevada), Inc.
appearing in Vyteris Holdings (Nevada), Inc.'s Annual Report (Form 10-KSB) at
December 31, 2005 and for the year ended December 31, 2005, have been audited by
Ernst & Young LLP, independent registered public accounting firm, as set
forth in their report thereon (which contained an explanatory paragraph
describing conditions that raise substantial doubt about the Company's ability
to continue as a going concern as described in Note 1 to the consolidated
financial statements) included therein, and incorporated herein by
reference. Such consolidated financial statements are incorporated
herein by reference in reliance on such report given the authority of such firm
as experts in accounting and auditing.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We
estimate that the expenses incurred in connection with the distribution
described in this registration statement will be as set forth below. We will
bear all of such expenses. The selling shareholders will bear any commissions
and discounts attributable to sales of the shares being registered
hereunder.
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SEC
registration fee
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$
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5,350
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Accounting
fees and expenses
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$
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30,000
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Legal
fees and expenses
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$
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10,000
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Miscellaneous
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$
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2,500
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Total
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$
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47,850
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ITEM
15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The
Nevada Corporation Code grants to Vyteris the power to indemnify the officers
and directors of Vyteris, under certain circumstances and subject to certain
conditions and limitations as stated therein, against all expenses and
liabilities incurred by or imposed upon them as a result of suits brought
against them as such officers and directors if they act in good faith and in a
manner they reasonably believe to be in or not opposed to the best interests of
Vyteris and, with respect to any criminal action or proceeding, have no
reasonable cause to believe their conduct was unlawful.
Article
IX of the Vyteris articles of incorporation provides as follows:
"To the
fullest extent allowed by law, the directors and executive officers of the
Corporation shall be entitled to indemnification from the Corporation for acts
and omissions taking place in connection with their activities in such
capacities."
Under
Nevada law, a director or officer is not individually liable to the corporation
or its stockholders or creditors for any damages as a result of any act or
failure to act in his capacity as a director or officer unless it is proven that
his or her act or failure to act constituted a breach of fiduciary duty as a
director or officer and his or her breach of those duties involved intentional
misconduct, fraud or a knowing violation of law. One of the amendments to the
articles of incorporation adopted by Vyteris' stockholders confirms that, in the
event that Nevada law were no longer automatically applied to all Nevada
corporations, then, to the maximum extent permitted under Nevada law, no
director or officer of Vyteris would be personally liable to the corporation or
its stockholders for damages as a result of any act or failure to act in his or
her capacity as a director or officer.
The
registration rights agreement entered into by Vyteris immediately after the
consummation of the Vyteris/Vyteris Merger contains provisions pursuant to which
each selling stockholder severally agrees to indemnify Vyteris, any person
controlling Vyteris within the meaning of Section 15 of the Securities Act of
1933, or Section 20 of the Securities Exchange Act of 1934, each of Vyteris'
directors, and each officer of Vyteris who signs this registration statement
with respect to information relating to such selling stockholder furnished in
writing to Vyteris by or on behalf of such selling stockholder specifically for
inclusion in this registration statement.
We also
maintain directors' and officers' liability insurance to cover such
individuals.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of Vyteris pursuant to
the foregoing provisions, or otherwise, Vyteris has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM
16. EXHIBITS
The
exhibits listed in the accompanying Exhibit Index are filed or incorporated
by reference as part of this registration statement.
ITEM
17. UNDERTAKINGS
The
undersigned registrant hereby undertakes:
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(1)
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To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
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(i)
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To
include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
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(ii)
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To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in the
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the SEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no
more than 20% change in the maximum aggregate offering price set forth in
the “Calculation of Registration Fee” table in the effective registration
statement; and
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(iii)
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To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement;
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Provided, however,
that: paragraphs (1)(i), (1)(ii) and (1)(iii) above do
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with or
furnished to the SEC by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement, or is contained in a form of
prospectus filed pursuant to Rule 424(b) that is part of the registration
statement.
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(2)
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That,
for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide
offering thereof.
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(3)
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To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
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(4)
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That,
for the purpose of determining liability under the Securities Act of 1933
to any purchaser:
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(i)
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If
the registrant is relying on 430B:
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(A)
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Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall
be deemed to be part of the registration statement as of the date the
filed prospectus was deemed part of and included in the registration
statement; and
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(B)
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Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5),
or (b)(7) as part of a registration statement in reliance on
Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i),
(vii), or (x) for the purpose of providing the information required
by Section 10(a) of the Securities Act of 1933 shall be deemed to be part
of and included in the registration statement as of the earlier of the
date such form of prospectus is first used after effectiveness or the date
of the first contract of sale of securities in the offering described in
the prospectus. As provided in Rule 430B, for liability purposes of
the issuer and any person that is at that date an underwriter, such date
shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering
thereof. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to
such effective date, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective
date.
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Or
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(ii)
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If
the registrant is subject to Rule 430C, each prospectus filed
pursuant to Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on Rule 430B or
other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the
date it is first used after effectiveness. Provided, however, that
no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that
was part of the registration statement or made in any such document
immediately prior to such date of first
use.
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(5)
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That,
for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities, the undersigned registrant undertakes that in a primary
offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will be
considered to offer or sell such securities to such
purchaser:
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(i)
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Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to
Rule 424;
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(ii)
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Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
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(iii)
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The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
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(iv)
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Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
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(6)
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That,
for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant’s annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan’s annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed
to be the initial bona
fide offering thereof.
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(7)
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Insofar
as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Exchange Act and will be
governed by the final adjudication of such
issue.
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(8)
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That,
for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)
(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
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(9)
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That,
for the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
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