s22-9094_10k.htm
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
Washington, DC 20549
 
FORM 10-K

(Mark One)
 
 
ý
    
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
    
For the fiscal year ended December 31, 2008
 
OR
 
o
    
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
 
 
 
    
For the transition period from______________________ to____________________________              
 
Commission File Number: 1-12584
 
Adeona Pharmaceuticals Logo

ADEONA PHARMACEUTICALS, INC.
(Name of small business issuer in its charter)

Delaware
13-3808303
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification Number)
 
3930 Varsity Drive
Ann Arbor, MI
48108
(Address of principal executive offices)
(Zip Code)
 
Registrant’s telephone number, including area code:
(734) 332-7800
 
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.001 par value per share
 
Securities registered pursuant to Section 12(g) of the Act:
 None.

  (Title of Class)
 
       Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  ¨       No  ý

       Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  ¨      No  ý

       Indicate by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý       No  o
 

 

 

       Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ý
 
       Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, a non-accelerated file, or a smaller reporting company.  See the definitions of “large accelerated filer,  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
   Large accelerated filer                               ¨   Accelerated filer                               ¨
   Non-Accelerated filer                                ¨  Smaller reporting company             ý
   (Do not check if a smaller reporting company  
     
     
 
                            
       Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o      No  ý
 
       The aggregate market value of the issuer’s common stock held by non-affiliates of the registrant as of March 26, 2009, was approximately $3,602,853 based on $0.17, the price at which the registrant’s common stock was last sold on that date.
 
       As of March 26, 2009, the issuer had 21,193,254 shares of common stock outstanding.
 
Documents incorporated by reference: None.
 
 


 
 

 

 

ADEONA PHARMACEUTICALS, INC.
 
FORM 10-K
TABLE OF CONTENTS

       
Page
   
PART I.
   
     1
 
Item 1.
 
Business
    
 
1
 
Item 1A.
 
Risk Factors
    
 
7
 
Item 1B.
 
Unresolved Staff Comments
   
23
 
Item 2.
 
Properties
    
 
24
 
Item 3.
 
Legal Proceedings
    
 
24
 
Item 4.
 
Submission of Matters to a Vote of Security Holders
    
 
24
 
   
PART II.
   
 25
 
Item 5.
 
Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities
    
 
25
 
Item 6.
 
Selected Financial Data
   
27
 
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    
 
27
 
Item 7A.
 
Quantitative and Qualitative Disclosures About Market Risk
   
32
 
Item 8.
 
Financial Statements and Supplementary Data
    
 
33
 
Item 9.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
 
60
 
Item 9A(T).
 
Controls and Procedures
    
 
60
 
Item 9B.
 
Other Information
    
 
60
 
   
PART III.
   
61
 
Item 10.
 
Directors, Executive Officers and Corporate Governance
    
 
61
 
Item 11.
 
Executive Compensation
    
 
64
 
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
 
68
 
Item 13.
 
Certain Relationships and Related Transactions, and Director Independence
    
 
69
 
Item 14.
 
Principal Accountant Fees and Services
    
 
70
 
   
PART IV.
   
  71
 
Item 15.
 
Exhibits and Financial Statement Schedules
    
 
  71
 
SIGNATURES
    
 
  73
 
 


 
PART I.
 
FORWARD-LOOKING STATEMENTS
 
Most of the matters discussed within this report include forward-looking statements on our current expectations and projections about future events. In some cases you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements.  Such risks and uncertainties include the risks noted under “Item 1A Risk Factors.”  We do not undertake any obligation to update any forward-looking statements.
 
 
ITEM 1. BUSINESS

 
GENERAL

 
Adeona Pharmaceuticals, Inc. (together with its subsidiaries, “Adeona” or the “Company”) is a specialty pharmaceutical company that is preparing to commercialize a series of proprietary products for the prevention and treatment of degenerative conditions that we believe involve subclinical zinc deficiency and/or chronic copper toxicity.  We believe that such conditions are highly prevalent and under-recognized in the aging population and that they  may contribute to the progression of dry age-related macular degeneration (dry AMD), Alzheimer’s disease (AD), and mild cognitive impairment (MCI).

Our leading product candidate brands, Zinthionein™ and EyeDaily™ with Zinthionein™, are expected to be products that contain proprietary ingredients (such as, zinc monocysteine complex), proprietary combinations of ingredients, proprietary modified-release zinc-containing formulations and proprietary product packaging.  We believe that our technologies and expertise may provide physicians and aging patients with the most timely, convenient, well-tolerated, “best-in-class” product solutions for what we consider to be an under-recognized  potential multi-billion dollar market.

Zinc-monocysteine is a complex of zinc and the amino acid cysteine that we believe may have improved properties compared to currently marketed zinc–based products.  Zinc-monocysteine was invented and developed by David A. Newsome, M.D., former Chief of the Retinal Disease Section of the National Eye Institute (NEI).  Dr. Newsome was the first to demonstrate the benefits of oral high dose zinc therapy in dry AMD.  Oral high dose zinc containing products now represent the standard of care for dry AMD affecting over 10 million Americans and have annual sales of approximately $300 million.  Zinthionein™  has completed an 80-patient, randomized, double-masked, placebo controlled clinical trial in dry AMD and demonstrated highly statistically significant improvements in central retinal function, the results of which were published in a peer-reviewed journal in 2008.  In addition, we believe that our patent pending modified-release formulations of zinc-monocysteine and other zinc moieties may offer the significant advantages of convenient once-a-day dosing and improved gastrointestinal tolerability compared to currently-marketed oral high dose zinc-containing products.

Our sales and marketing plans include promoting prevention through public awareness, physician and patient education including current research, the research and development of potential proprietary diagnostic products to aid in the identification of individuals who may be at increased risk as well as the commercialization of our proprietary zinc-based products intended for the treatment and/or nutritional support of conditions characterized by subclinical zinc deficiency and chronic copper toxicity.

We also have a number of proprietary drug candidates at various stages of clinical development, including; dnaJP1 for the induction of immune tolerance in rheumatoid arthritis which has completed a 160-patient, multicenter, randomized, double blind, placebo-controlled clinical trial; and TRIMESTA™ (oral estriol) for relapse-remitting multiple sclerosis in female patients.  TRIMESTA™ is currently the subject of a 150-patient, multicenter, double-blind, randomized, placebo-controlled clinical trial that is currently fully funded by a $5 million grant from the National Multiple Sclerosis Society and National Institutes of Health (NIH).

Below is a table of our product candidates, their respective therapeutic indication and their respective stage of development:
 
Product
Therapeutic Indication
Stage of Development
 
Zinthionein™
(oral high dose zinc)
Dry Age-Related Macular Degeneration
80-patient trial of zinc-monocysteine
in dry AMD completed and published
dnaJP1™
(oral dnaJP1 hsp peptide)
Induction of Immune Tolerance for Rheumatoid Arthritis
160-patient phase II completed
 
Trimesta™
(oral estriol)
Relapsing-Remitting Multiple Sclerosis in Female Patients
150-patient phase IIb ongoing
 
Effirma™
(oral flupirtine)
Fibromyalgia
90-patient phase II
 IND and IRB approved
CD4 Inhibitor 802-2
(oral cyclic heptapeptide)
Immune Tolerance Induction for
Prevention of Severe GvHD
24-patient phase I/II completed
 


 
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Product Summary

 
The following is a summary of the product candidates that we are developing:

Products for Subclinical Zinc Deficiency and Chronic Copper Toxicity

Our leading product candidate brands, Zinthionein™ and EyeDaily™ with Zinthionein™, are expected to be products that contain proprietary ingredients (such as, zinc monocysteine complex), proprietary combinations of ingredients, proprietary modified-release zinc-containing formulations and proprietary product packaging.  We believe that our technologies and expertise may provide physicians and aging patients with the most timely, convenient, well-tolerated, “best-in-class” product solutions we consider to be an under-recognized,  potential multi-billion dollar market to address for the prevention and treatment of degenerative conditions that we believe involve subclinical zinc deficiency and/or chronic copper toxicity.

Zinc-monocysteine is a complex of zinc and the amino acid cysteine that we believe may have improved properties compared to currently marketed zinc–based products.  Zinc-monocysteine was invented and developed by David A. Newsome, M.D., former Chief of the Retinal Disease Section of the National Eye Institute (NEI).  Dr. Newsome was the first to pioneer demonstrate the benefits of oral high dose zinc therapy in dry AMD.  Oral high dose zinc containing products now represent the standard of care for dry AMD affecting over 10 million Americans and have annual sales of approximately $300 million.  Zinthionein™  has completed an 80-patient, randomized, double-masked, placebo controlled clinical trial in dry AMD and demonstrated highly statistically significant improvements in central retinal function the results of which were published in a peer-reviewed journal in 2008.  In addition, we believe that our patent pending modified-release formulations of zinc-monocysteine and other zinc moieties may offer the significant advantages of convenient once-a-day dosing and improved gastrointestinal tolerability compared to currently-marketed oral high dose zinc-containing products.

Our sales and marketing plans include promoting prevention through public awareness, physician and patient education including current research,  the research and development of potential proprietary diagnostic products to aid in the identification of individuals who may be at increased risk as well as the commercialization of our proprietary zinc-based products intended for the treatment and/or nutritional support of conditions characterized by subclinical zinc deficiency and chronic copper toxicity.  We recently completed an observational clinical study in 90 subjects that we believe demonstrates a statistically significant subclinical zinc deficiency and increased chronic copper toxicity susceptibility in subjects AD subjects compared to normal subjects and intend to publish these results in the future.  We intend to seek relationships with third parties to develop proprietary diagnostic products based on our findings. We intend to launch a branded website, educational materials and marketing campaign to increase public awareness aimed at the prevention of chronic copper toxicity and market product solutions.  Our EyeDaily™ brand of oral zinc-based therapies is expected to utilize patent-pending product packaging that incorporates an eye-self test to improve compliance and convenience of patients with dry AMD.

Oral dnaJP1

Oral dnaJP1 is our oral, once-daily candidate for immune tolerance induction and treatment of rheumatoid arthritis (RA).  Oral dnaJP1 has completed a 160-patient, six-month, multi-center, double-blind, randomized, placebo-controlled Phase II clinical trial for the treatment of RA.  This clinical trial was funded by a $5 million grant from the National Institutes of Health. Rheumatoid arthritis is an autoimmune disease which affects approximately 20 million people worldwide.  Oral dnaJP1 is a 15 amino acid sequence delivered orally to RA patients.  The dnaJP1 amino acid sequence is expressed on the surface of cells during an immune response and is expressed by an estimated 70% of RA patients.  The intended mechanism of action of oral dnaJP1 is  to induce immune tolerance to the dnaJP1 peptide in RA patients and thereby modify the course of disease.

Oral dnaJP1 is a heat shock protein (hsp)-derived peptide which was previously identified as a contributor of T-cell mediated inflammation in RA. Immune responses to hsp are often found at sites of inflammation and have an initial amplifying effect that upregulates the autoimmune disease.
 

 
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Phase II Clinical Trial Results with oral dnaJP1
 
 
The response data from the phase II clinical trial for oral dnaJP1 at the ACR20 endpoint along with the percentage of ACR20 response at day 112, 140 and 168 (AUC p=0.09 (primary endpoint)) as well as day 112, 140 and 168 and day 196 follow-up without further drug therapy (AUC p=0.04).  ACR20 is a composite endpoint developed the American College of Rheumatology and is generally accepted as an FDA approvable scoring criteria.
 
Consistent with the disease modifying process of active immune tolerization, there was a progressive separation between treatment and placebo groups for both ACR20 and ACR50 endpoints after day 112. Oral dnaJP1 treated patients achieved a 40.7% ACR20 response at follow up versus 21.5% of placebo-treated patients (CMH test p=0.007, GEE p<0.001). The proportion of dnaJP1-treated patients who achieved an ACR20 response at Days 112, 140, 168, and follow up was significantly higher than that of placebo-treated patients (CMH p=0.03; GEE p=0.0005). A statistically significant difference was also seen for the AUC when more strict ACR50 criteria were applied (GEE p-value=0.02). The primary endpoint (AUC 112-140-168) found more patients succeeding on dnaJP1 (p=0.09 by CMH and p=0.04 by adjusted GEE).  GEE analysis was employed to correct for intercenter variability and this was possible as randomization occurred per center. Patients in this study were permitted to be on currently available standard background therapies, including HCQ, corticosteroids, sulfasalazine, analgesics, NSAIDS, but not on disease modifying agents or biologics.  Potential side effects noted in this study included leucopenia and anemia in 11% and 25%, respectively, of treated patients and 1.3% and 18%, respectively, in placebo patients but was not considered to be statistically significant.  
 
From an immunologic standpoint, oral dnaJP1 also demonstrated an 80% reduction in the production in-vitro of TNF-alpha by T cells (p<0.007), a hallmark cytokine of inflammation.  Additionally, oral dnaJP1 treated patients demonstrated an increase in tolerogenic cytokines and immune response genes, including IL-10 and FoxP3 production.
 
Our clinical collaborators are planning an end-of-phase II meeting with the FDA to discuss a proposed further clincial trial  of dnaJP1 for the treatment of rheumatoid arthritis.
 

Market Opportunity for oral dnaJP1
 
Rheumatoid arthritis is a chronic inflammatory disease that leads to pain, stiffness, swelling and limitation in the motion and function of multiple joints. If left untreated, rheumatoid arthritis can produce serious destruction of joints that frequently leads to permanent disability. Though the joints are the principal body part affected by rheumatoid arthritis, inflammation can develop in other organs as well. The disease currently affects over two million Americans, almost 1% of the population, and is two to three times more prevalent in women. Onset can occur at any point in life but is most frequent in the fourth and fifth decades of life, with most patients developing the disease between the ages of 35 and 50.  Over 20 million people suffer from rheumatoid arthritis worldwide and the global market is estimated at over $6.3 billion. DMARDs, including biologics, accounted for nearly $5.0 billion of that figure.
 
TRIMESTATM   (oral, once-daily estriol)
 
We are developing TRIMESTATM (oral estriol) as an oral immunomodulatory and anti-inflammatory bio-identical estrogenic agent for the North American market. Estriol has been approved and marketed throughout Europe and Asia as a mild estrogenic agent for over 40 years for the treatment of post-menopausal hot flashes. Estriol is an important endogenous hormone that is produced in the placenta by women during pregnancy. Maternal levels of estriol increase in a linear fashion throughout the third trimester of pregnancy until birth, whereupon they abruptly fall to near zero. Our scientific collaborator of TRIMESTA TM has explored the role that estriol plays in affording immunologic privilege to the fetus so as to prevent its rejection by the mother. It is a widely observed phenomenon that pregnant women with autoimmune diseases (such as multiple sclerosis and rheumatoid arthritis) experience a spontaneous reduction of 80% of relapse rates (p<0.001) during pregnancy (especially in the third trimester) as well as high rates of relapse during the post-partum period (especially in the three-month post-partum period). Based upon these insights, our scientific collaborator of TRIMESTA TM has conducted an initial clinical trial of TRIMESTA TM in multiple sclerosis patients and has demonstrated encouraging results, the results of which were published.
 
Phase IIb Clinical Trial of TRIMESTA TM in Relapsing-Remitting MS
TRIMESTA TM is currently the subject of an ongoing 150 patient double-blind phase IIb clinical in relapsing-remitting MS patients. TRIMESTA TM will be given in combination with subcutaneously injected Copaxone®, a standard treatment for MS. The primary endpoint is evaluating effects of the treatment combination on relapse rates using several clinical and magnetic resonance imaging measures of disability progression. This clinical trial is expected to be enrolled up to 16 sites within the U.S. and has received a $5 million grant from the National Multiple Sclerosis Society (NMSS) in partnership with the National MS Society’s Southern California chapter, with support from the National Institutes of Health (NIH).
 

 
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TRIMESTA TM for Relapsing-Remitting Multiple Sclerosis (MS)
 
Current Therapies for Relapsing-Remitting MS.
There are currently five FDA-approved therapies for the treatment of relapsing-remitting multiple sclerosis: Betaseron ®, Rebif ®, Avonex ®, Novantrone, Copaxone ® and Tysabri ®. These therapies provide only a modest benefit for patients with relapsing-remitting MS and therefore serve to only delay progression of the disease. All of these drugs require frequent (daily, weekly & monthly) injections (or infusions) on an ongoing basis and are associated with unpleasant side effects (such as flu-like symptoms), high rates of non-compliance among users, and eventual loss of efficacy due to the appearance of resistance in approximately 30% of patients. An estimated two-thirds of MS patients are women.
 
Phase II Clinical Trial Results of TRIMESTA in Relapsing-Remitting MS
TRIMESTA TM has completed an initial 10-patient, 16-month, single-agent, crossover, phase IIA clinical trial in the U.S. for the treatment of MS. The results of this study were encouraging.
 
Decrease in Volume and Number of Myelin Lesions
In relapsing-remitting MS patients treated, the total volume and number of pathogenic gadolinium enhancing myelin lesions (an established neuroimaging measurement of disease activity in MS) decreased during the treatment period as compared to a six-month pre-treatment baseline period. The median total enhancing lesion volumes decreased by 79% (p =0.02) and the number of lesions decreased by 82% (p =0.09) within the first three months of treatment with TRIMESTA TM . Over the next three months, lesion volumes decreased by 82% (p =0.02) and the number of lesions decreased by 82% (p =0.02) compared to baseline. During a three-month re-treatment phase of this clinical trial, relapsing-remitting MS patients again showed a decrease in enhancing lesion volumes (88%) (p =0.008) and a decrease in the number of lesions (48%) (p =0.04) compared to baseline.
 
Market Opportunities for TRIMESTA TM
 
Multiple Sclerosis
 
MS is a progressive neurological disease in which the body loses the ability to transmit messages along nerve cells, leading to a loss of muscle control, paralysis, and, in some cases, death. Currently, more than 2.5 million people worldwide (approximately 400,000 patients in the US), mainly young adults aged 18-50, are afflicted with MS and 66% of these patients are women. The most common form of MS is relapsing-remitting MS, which accounts for approximately 75% of MS patients.
 
MS exacts a heavy toll on our healthcare system. According to a published study, the total annual cost for all people with MS in the U.S. is estimated to be more than $9 billion. The average annual cost of MS is approximately $44,000 to $95,625 per person. These figures include lost wages and healthcare costs (care giving, hospital and physician costs, pharmaceutical therapy and nursing home care). The cost of treating patients with later-stage progressive forms of MS is approximately $65,000 per year per person. The average lifetime costs for people with MS are more than $2.2 million per person.
 
Oral Flupirtine
 
We are developing oral flupirtine, a non-opiate, non-addictive oral therapy for the treatment of fibromyalgia and other ophthalmic indications.  Fibromyalgia is a common, centrally-mediated pain disorder characterized by chronic diffuse pain and other symptoms. Flupirtine was originally developed by Asta Medica and has been approved in Europe since 1984 for the treatment of pain, although it has never been introduced to the U.S. market for any indication.
 
Preclinical data and clinical experience suggests that flupirtine should also be effective for neuropathic pain since it acts in the central nervous system via a mechanism of action distinguishable from most marketed analgesics. Flupirtine is especially attractive because it operates through non-opiate pain pathways, exhibits no known abuse potential, and lacks withdrawal effects. In addition, no tolerance to its antinocioceptive effects has been observed. One common link between neuroprotection, nocioception, and flupirtine may be the NMDA (N-methyl-D-aspartate) glutamate system, a major receptor subtype for the excitotoxic neurotransmitter, glutamate. Flupirtine has strong inhibitory actions on NMDA-mediated neurotransmission.

Flupirtine for Fibromyalgia
 
Our scientific collaborator has demonstrated preliminary anecdotal efficacy of  flupirtine for the treatment of fibromyalgia in a small number of U.S. patients suffering from fibromyalgia that were refractive to other analgesics and therapies. Flupirtine was well tolerated by patients with no untoward side effects. In addition, substantial improvement in signs and symptoms was demonstrated in this difficult-to-treat fibromyalgia patient population. Our scientific collaborator filed an investigator initiated IND with the FDA to conduct a phase II clinical trial in

 
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fibromyalgia patients with oral flupirtine. During 2008, this proposed clinical trial and IND have been approved the FDA.  Additionally, this protocol has received institutional review board (IRB) approval although we do not currently plan to immediately initiate this study.
 
Fibromyalgia is an arthritis-related condition that is characterized by generalized muscular pain and fatigue. It is a chronic and debilitating condition characterized by widespread pain and stiffness throughout the body, accompanied by severe fatigue, insomnia and mood symptoms. It is estimated to affect between two and four percent of the world's population and after osteoarthritis is the most commonly diagnosed disorder in rheumatology clinics.

We estimate that there are approximately 6 million Americans with fibromyalgia. During 2007, Lyrica®, which is marketed by Pfizer, was the only FDA-approved medication for fibromyalgia, recorded $1.8 billion in sales and $1.2 billion during its first year on the market.

CD4 Inhibitors
 
We are developing a series of small molecule and peptide based inhibitors of the T-cell CD4 co-receptor. The CD4 co-receptor is central to a number of autoimmune disorders, such as, multiple sclerosis.
 
Our lead CD4 inhibitor molecule, named 802-2, has demonstrated preliminary safety and efficacy in a number of animal models of autoimmune disease models, and it has been evaluated in a phase I/II clinical trial for the prevention of graft-vs.-host disease. Anti-CD4 802-2 may represent the first clinical stage, non­antibody-based molecule capable of inducing immune tolerance for a variety of CD4-mediated autoimmune diseases.

Market Opportunity for Anti-CD4 802-2 and Small Molecule CD4 Inhibitors
 
From a commercial perspective, anti-CD4 802-2 and our other anti-CD4 molecules address an autoimmune disease market estimated at $21 billion (2006) with an anticipated annual growth rate of 15%. Autoimmune diseases represent the third-largest category of illness in the industrialized world, after heart disease and cancer. A partial list of such diseases includes MS, psoriasis, and rheumatoid arthritis, as well as “non­typical” CD4-mediated diseases such as allergy and asthma.

Intellectual Property

Our goal is to (a) obtain, maintain, and enforce patent protection for our products, formulations, processes, methods, and other proprietary technologies, (b) preserve our trade secrets, and (c) operate without infringing on the proprietary rights of other parties, worldwide. We seek, where appropriate, the broadest intellectual property protection for product candidates, proprietary information, and proprietary technology through a combination of contractual arrangements and patents.
 
We have exclusively licensed from various universities issued patent and patent applications, including foreign equivalents relating to our product candidates. We also file patent applications for inventions invented or discovered by us.
 
Some of our products also have various regulatory exclusivities, such as “Waxman-Hatch” designations including, TRIMESTA and Flupirtine. Waxman-Hatch exclusivities provide 5 years of market exclusivity in the U.S.  These regulatory exclusivities combined with our patents and patent applications provide for supplemental intellectual property protection for our products against competitors.
 
Below is a description of our license and development agreements relating to our product candidates:
 
The Regents of University of California License Agreement
 
We have an exclusive worldwide license agreement with the Regents of the University of California relating to a issued and pending U.S. and international patents and patent applications covering the composition of matter and uses of an epitope specific immunotherapeutic technology for which dnaJP1 is the lead product candidate. Pursuant to this agreement, we have paid an upfront license fee, reimbursed patent expenses as well as annual maintenance fees, success based milestone payments totaling $11 million as well as royalties on net sales of products covered by the licensed patents.

The Regents of University of California License Agreement
 
We  have an exclusive worldwide license agreement with the Regents of the University of California relating to issued U.S. Patent No. 6,936,599 and pending patent applications covering the uses of the TRIMESTA TM technology. Pursuant to this agreement, we paid an upfront license fee of $20,000, reimbursed patent expenses of $41,000 and agreed to pay a license fee of $25,000 during 2006, as well as annual maintenance fees, milestone payments totaling $750,000 that are payable on filing an NDA, and on approval of an NDA with the FDA, as well

 
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as royalties on net sales of the TRIMESTA TM technology covered by the licensed patents. If we become public or are acquired by a public company, we may be permitted to partially pay milestone payments in the form of equity.

McLean Hospital Exclusive License Agreement
 
We have entered into an exclusive license agreement with the McLean Hospital, a Harvard University hospital, relating to U.S. Patent No. 6,610,324 and its foreign equivalents, entitled “Flupirtine in the treatment of fibromyalgia and related conditions.” Pursuant to this agreement, we agreed to pay McLean royalties on net sales of flupirtine equal to 3.5% of net sales of flupirtine for indications covered by the issued patents, reduced to 1.75% if we have a license to other intellectual property covering those indications; use our best efforts to commercialize flupirtine for the therapeutic uses embodied in the patent applications; reimburse back patent costs of approximately $41,830; and pay the following milestone payments: $150,000 upon the initiation of a pivotal phase III clinical trial of flupirtine; $300,000 upon the filing of an NDA for flupirtine; and $600,000 upon FDA approval of flupirtine.
 
Thomas Jefferson University License Agreement
 
Our majority-owned subsidiary CD4 Biosciences Inc. has entered into an exclusive worldwide license agreement with Thomas Jefferson University (TJU) relating to certain U.S. and foreign issued patents and patent applications relating to all uses of anti-CD4 802-2 and CD4 inhibitor technology. We are obligated to pay annual maintenance fees, milestone payments upon the filing of an NDA and approval of an NDA with the FDA, as well as royalties on net sales of anti-CD4 802-2 and other anti-CD4 molecules covered by the licensed patents. We also received rights to valuable data generated under any IND application filing, which includes toxicology and manufacturing information relating to anti-CD4 802-2. As partial consideration for this license, TJU was issued shares representing 5% of the common stock of CD4 Biosciences Inc. We also agreed that TJU would receive anti-dilution protection on those CD4 shares through the first $2 million in financing to CD4. We also agree to indemnify TJU against certain liabilities.

 
University of Michigan (UM) Exclusive License Agreement
 
We have entered into an exclusive worldwide license agreement with the University of Michigan (UM) for all uses of U.S. Patent No. 6,855,340, corresponding international applications, and a related corresponding patent application that relates to various uses of anti-copper therapeutics to treat inflammatory and fibrotic diseases. Pursuant to this agreement, we will use our best efforts to commercialize oral TTM for  the therapeutic uses embodied in the issued patent and pending patent application; reimburse UM for patent expenses; pay UM royalties equal to 2% of net sales of oral TTM for uses covered by the UM patents; issue UM shares of our common stock; pay UM success-based milestone fees  totaling $350,000 (the first of which is due when we file an NDA and the second of which is due when we receive FDA approval for oral TTM in an  indication covered by the UM patents), and indemnify UM against certain liabilities.

Research and License Agreements Terminated in 2009 and First Quarter of 2009

During 2008 and the first quarter of 2009, we terminated our research agreement with the University of Michigan as well our license agreements with Maine Medical Institute, Oregon Health & Sciences Center (OHSU), University of Southern California (USC), and Children’s Hospital-Boston.

 
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Manufacturing
 
We utilize contract manufacturing firms to produce the bulk active ingredients for CD4 Inhibitor 802-2 and dnaJP1 in accordance with “current good manufacturing processes” (cGMP) guidelines outlined by the FDA. Our 17,675 square feet of primary office, laboratory and manufacturing facility in Ann Arbor, MI includes approximately 6,000 square feet of cleanroom suites, cGMP areas and QA/QC analytical lab that we utilize to perform formulation and process development, ingredient storage, milling, sieving, blending, tableting, capsuling, dissolution testing, stability testing and potential commercial production of our Zinthionein™ and modified-release zinc formulation finished products.  Our monthly rent is $15,033.80 and our lease expires on February 28, 2011, but extendable at our option for an additional three years. We are currently seeking to sublease some or all of our excess space at this facility.   Our Trimesta bulk and finished product is manufactured by Organon NV, a European subsidiary of Schering-Plough which has manufactured the active ingredient in Trimesta for nearly 40 years.

Sales and Marketing

We currently do not market any products. We may hire a Vice President of Sales and Marketing and develop our own marketing team and/or enter into a co-promotion or licensing agreement for specific territories with biotechnology or pharmaceutical companies to market our products.

 
ITEM 1A. RISK FACTORS
 
An investment in our securities is highly speculative and involves a high degree of risk. Therefore, in evaluating us and our business you should carefully consider the risks set forth below, which are only a few of the risks associated with our business and our common stock. You should be in a position to risk the loss of your entire investment.
  
RISKS RELATING TO OUR BUSINESS  
 
We are a development stage company. We currently have no product revenues and will need to raise additional capital to operate our business.   
 
We are a development stage company that has experienced significant losses since inception and has a significant accumulated deficit. We expect to incur additional operating losses in the future and expect our cumulative losses to increase. To date, we have generated no product revenues. As of December 31, 2008, we have expended approximately $23.0 million on a consolidated basis acquiring and developing our current product candidates. Until such time as we receive approval from the FDA and other regulatory authorities for our product candidates, we will not be permitted to sell our drugs and will not have product revenues. Therefore, for the foreseeable future we will have to fund all of our operations and capital expenditures from equity and debt offerings, cash on hand, licensing fees, and grants. We will need to seek additional sources of financing and such additional financing may not be available on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we may be unable to complete planned pre-clinical and clinical trials or obtain approval of our product candidates from the FDA and other regulatory authorities. In addition, we could be forced to discontinue product development, reduce or forego sales and marketing efforts, and forego attractive business opportunities. Any additional sources of financing will likely involve the issuance of our equity or debt securities, which will have a dilutive effect on our stockholders.
 
We are not currently profitable and may never become profitable.
 
We have a history of losses and expect to incur substantial losses and negative operating cash flow for the foreseeable future. Even if we succeed in developing and commercializing one or more of our product candidates, we expect to incur substantial losses for the foreseeable future and may never become profitable. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future as we do the following:
 
 
continue to undertake pre-clinical development and clinical trials for our product candidates;
 
seek regulatory approvals for our product candidates;
 
implement additional internal systems and infrastructure;
 
lease additional or alternative office facilities; and
 
hire additional personnel, including members of our management team.

 

 
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We also expect to experience negative cash flow for the foreseeable future as we fund our technology development with capital expenditures. As a result, we will need to generate significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our common stock and underlying securities. 
 
We have a limited operating history on which investors can base an investment decision.
 
We are a development-stage company and have not demonstrated our ability to perform the functions necessary for the successful commercialization of any of our product candidates. The successful commercialization of our product candidates will require us to perform a variety of functions, including:
 
 
continuing to undertake pre-clinical development and clinical trials;
 
participating in regulatory approval processes;
 
formulating and manufacturing products; and
 
conducting sales and marketing activities.
 
 
Our operations have been limited to organizing and staffing our company, acquiring, developing, and securing our proprietary technology, and undertaking pre-clinical trials and Phase I/II, and Phase II and Phase III clinical trials of our principal product candidates. These operations provide a limited basis for you to assess our ability to commercialize our product candidates and the advisability of investing in our securities.
 
We have experienced several management changes.
 
We have had significant changes in management in the past two years.  Effective July 1, 2008, Charles L. Bisgaier resigned as our President and Corporate Secretary and as a director of our Company.  Also effective on July 1, 2008, Steve H. Kanzer resigned as our Chief Executive Officer (although he did remain as our Chairman of the Board).  Effective July 1, 2008, Nicholas Stergis was appointed our Chief Executive Officer. Effective March 29, 2009, Nicholas Stergis resigned as our Chief Executive Officer. Mr. Stergis remains a director of the Company and Steve H. Kanzer was appointed our Chief Executive Officer and President. Changes in key positions in our Company, as well as additions of new personnel and departures of existing personnel, can be disruptive, might lead to additional departures of existing personnel and could have a material adverse effect on our reputations, business, operating results, financial results and internal controls over financial reporting.  
 
We may not obtain the necessary U.S. or worldwide regulatory approvals to commercialize any other of our product(s).
 
We will need FDA approval to commercialize our product candidates in the U.S. and approvals from equivalent regulatory authorities in foreign jurisdictions to commercialize our product candidates in those jurisdictions. In order to obtain FDA approval for any of our product candidates, we  must submit to the FDA an NDA, demonstrating that the product candidate is safe for humans and effective for its intended use and that the product  candidate can be consistently manufactured and is stable. This demonstration requires significant research and animal tests, which are referred to as “pre-clinical studies,” human tests, which are referred to as “clinical trials” as well as the ability to manufacture the product candidate, referred to as  “chemistry manufacturing control” or “CMC.” We will also need to file additional investigative new drug applications and protocols in order to initiate clinical testing of our drug candidates in new therapeutic indications and delays in obtaining required FDA and institutional review board approvals to  commence such studies may delay our initiation of such planned additional studies.
 
Satisfying the FDA’s regulatory requirements typically takes many years, depending on the type, complexity, and novelty of the product candidate, and requires substantial resources for research development, and testing. We cannot predict whether our research and clinical approaches will result in drugs that the FDA considers safe for humans and effective for indicated uses. The FDA has substantial discretion in the drug approval process and may require us to conduct additional pre-clinical and clinical testing or to perform post-marketing studies.
 
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The approval process may also be delayed by changes in government regulation, future legislation or administrative action, or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatory approvals may do the following:
 
 
delay commercialization of, and our ability to derive product revenues from, our product candidates;
 
impose costly procedures on us; and
 
diminish any competitive advantages that we may otherwise enjoy.
 
 
Even if we comply with all FDA requests, the FDA may ultimately reject one or more of our NDAs. We cannot be sure that we will ever obtain regulatory clearance for our product candidates. Failure to obtain FDA approval of any of our product candidates will severely undermine our business by reducing our number of salable products and, therefore, corresponding product revenues.
 
In foreign jurisdictions, we must receive approval from the appropriate regulatory authorities before we can commercialize our drugs. Foreign regulatory approval processes generally include all of the risks associated with the FDA approval procedures described above. We cannot assure you that we will receive the approvals necessary to commercialize our product candidate for sale outside the United States.
 
We may not be able to retain rights licensed to us by others to commercialize key products and may not be able to establish or maintain the relationships we need to develop, manufacture, and market our products.
 
In addition to our own patent applications, we also currently rely on licensing agreements with third party patent holders/licensors for our products.  We have an exclusive license agreement with the McLean Hospital relating to the use of flupirtine to  treat fibromyalgia syndrome; an exclusive license agreement with Thomas Jefferson University relating to our CD4 inhibitor program; an exclusive  license agreement with the Regents of the University of California relating to our TRIMESTA™ technology; an exclusive license to our oral immunotherapeutic tolerance program, named dnaJP1 from UCSD and an exclusive license agreement with Dr. Newsome and Mr. Tate relating to our Zinthionein program. Each of these agreements requires us to use our best efforts to commercialize each of the technologies as well as meet certain diligence requirements and timelines in order to keep the license agreement in effect. In the event we are not able to meet our diligence requirements, we may not be able to retain the rights granted under our agreements or renegotiate our arrangement with these institutions on reasonable terms, or at all.
 
Furthermore, we currently have very limited product development capabilities, and limited marketing or sales capabilities. For us to research, develop, and test our product candidates, we would need to contract with outside researchers, in most cases those parties that did the original research and from whom we have licensed the technologies.
 
We can give no assurances that any of our issued patents licensed to us or any of our other patent applications will provide us with significant proprietary protection or be of commercial benefit to us. Furthermore, the issuance of a patent is not conclusive as to its validity or enforceability, nor does the issuance of a patent provide the patent holder with freedom to operate without infringing the patent rights of others.
 
Developments by competitors may render our products or technologies obsolete or non-competitive.
 
Companies that currently sell or are developing both generic and proprietary pharmaceutical compounds to treat central-nervous-system and autoimmune diseases include: Pfizer, Inc., Rigil Pharmaceuticals, Incyte Pharmaceuticals, Chelsea Therapeutics International, Inc., Aton Pharma, GlaxoSmithKline Pharmaceuticals, Alcon, Inc., Shire Pharmaceuticals, Plc., Schering-Plough, Organon NV, Merck & Co., Eli  Lilly & Co., Serono, SA, Biogen Idec, Inc., Achillion, Ltd., Active Biotech, Inc., Panteri Biosciences, Meda, Merrimack Pharmaceuticals, Inc.,  Merch-Schering AG, Forest Laboratories, Inc., Attenuon, LLC, Cypress Biosciences, Inc., Genentech, Neurotech, Amgen, Inc., Centocor/Johnson and Johnson, UCB Group, Abbott, Wyeth, OM Pharma, Cel-Sci Pharmaceuticals, Novartis, Axcan Pharma, Inc., Teva Pharmaceuticals, Inc., Intermune, Inc.  Fibrogen, Inc., Active Biotech, CNSBio, Pty., Rare Disease Therapeutics, Inc., Prana Biotechnology, Inc., Merz & Co., AstraZeneca Pharmaceuticals, Inc., Chiesi Pharmaceuticals,  Inc., Alcon, Inc., Bausch and Lomb, Inc., Targacept, Inc., and Johnson & Johnson, Inc. Alternative technologies or alternative delivery or dosages of already approved therapies are being  developed to treat dry AMD, autoimmune inflammatory, rheumatoid arthritis, psoriasis, Fibromyalgia, MS, Huntington’s, Alzheimer’s and Wilson’s diseases, several of which may be approved or are in early and  advanced clinical trials, such as zinc based combinations, Syk inhibitors, Jak inhibitors, connective tissue growth factors (CTGF), FTY-720, Laquinimod, pirfenidone, milnacipram, Lyrica, anti-depressant combinations, Rituxan, Enbrel, Cimzia, Humira, Remicade, Cymbalta, Effexor, Actimmune and other interferon preparations. Unlike us, many of our competitors have significant financial and human resources. In addition, academic research centers may develop technologies that compete with our TRIMESTA, Zinthionein, dnaJP1, CD4 inhibitors and flupirtine technologies. Should clinicians or regulatory authorities view these therapeutic regiments as more effective than our products, this might delay or prevent us from obtaining regulatory approval for our products, or it might prevent us from obtaining favorable reimbursement rates from payers, such as Medicare, Medicaid and private insurers.
 

 
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Competitors could develop and gain FDA approval of our products for a different indication.
 
Since we do not have composition of matter patent claims for, flupirtine and TRIMESTA, others may obtain approvals for other uses of these products which are not covered by our issued or pending patents. For example, the active ingredients in both flupirtine and TRIMESTA have been approved for marketing in overseas countries for different uses. Other companies, including the original developers or licensees or affiliates may seek to develop flupirtine or TRIMESTA or their respective active ingredient(s) for other  uses in the US or any country we are seeking approval for. We cannot provide any assurances that any other company may obtain FDA approval for products that contain flupirtine or TRIMESTA in various formulations or delivery systems that might adversely affect our ability to develop and market these products in the US.  We are aware that other companies have intellectual property protection using the active ingredients and have conducted clinical trials of flupirtine, and TRIMESTA for different applications that what we are developing.  Many of these companies may have more resources than us.  Should a competitor obtain FDA approval for their product for any indication prior to us, we might be precluded under the Waxman-Hatch Act to obtain approval for our product candidates for a period of five years.  We cannot provide any assurances that our products will be FDA approved prior to our competitors.
 
Other companies could manufacture and develop oral TTM and its active ingredient, tetrathiomolybdate, and secure approvals for different indications. We are aware that a potential competitor has an exclusive license from the University of Michigan (UM) to an issued U.S. patent that relates to the use of tetrathiomolybdate to treat angiogenic  diseases (the “Angiogenic Patent”) and is currently in phase I and phase II clinical trials for the treatment of various forms of cancer. To our knowledge, this competitor and UM have filed additional patent applications claiming various analog structures and formulations of tetrathiomolybdate to treat various diseases. Further, we cannot predict whether our competitor might obtain approval in the U.S. or Europe to market tetrathiomolybdate for cancer or another indication ahead of us. We also cannot predict whether, if issued, any patent corresponding to the Angiogenic Patent may prevent us from conducting our business or result in lengthy and costly litigation or the need for a license. Furthermore, if we need to obtain a license to these or other patents in order to conduct our business, we may find that it is not available to us on commercially reasonable  terms, or is not available to us at all.
 
 If the FDA approves other products containing our active ingredients to treat indications other than those covered by our issued or pending patent applications, physicians may elect to prescribe a competitor’s products to treat the  diseases for which we are developing—this is commonly referred to as “off-label” use. While under FDA regulations a competitor is not allowed to promote off-label uses of its product, the FDA does not regulate the practice of medicine and, as a result, cannot direct physicians as to which source it should use for these products they prescribe to their patients. Consequently, we might be limited in our ability to prevent off-label use of a competitor’s product to treat the diseases we are developing, even if we have  issued patents for that indication. If we are not able to obtain and enforce these patents, a competitor could use our products for a treatment or use not covered by any of our patents.  We cannot provide any assurances that a competitor will not obtain FDA approval for a product that contains the same active ingredients as our products.
 
We rely primarily on method patents and patent applications and various regulatory exclusivities to protect the development of our technologies, and our ability to compete may decrease or be eliminated if we are not able to protect our proprietary technology.
 
Our competitiveness may be adversely affected if we are unable to protect our proprietary technologies. Other than our CD4 inhibitor, oral dnaJP1 and Zinthionein program, we do not have composition of matter patents for TRIMESTA, flupirtine, oral TTM or their respective active ingredients estriol, flupirtine, and ammonium tetrathiomolybdate.  We also expect to rely on patent protection from an issued U.S. Patent for the use of oral TTM and related compounds to treat inflammatory and fibrotic diseases (U.S. Patent No 6,855,340). These patents have been exclusively licensed to us. We have also filed various pending patent applications which cover various formulations, packaging, distribution & monitoring methods for oral TTM. We rely on issued patent and pending patent applications for use of TRIMESTA to treat MS (issued U.S. Patent No. 6,936,599) and various other therapeutic indications which have been exclusively licensed to us. We have exclusively licensed issued U.S. Patent No. 5,773,570, 6,153,200, 6,946,132, 6,989,146, 7,094,597, 7,301,005, including foreign equivalents  along with several patent applications which cover dnaJP1, methods and its uses, We have also exclusively licensed an issued patent for the treatment of fibromyalgia with flupirtine.
 
Our Zinthionein product candidate is exclusively licensed from its inventors, David A. Newsome, M.D. and David Tate, Jr.  Zinthionein is the subject of two issued U.S. patents, 7,164,035 and 6,586,611 and pending U.S. patent application ser. no. 11/621,380 which cover composition of matter claims. In our annual Form 10-KSB for the year ending December 31, 2007 filed March 31, 2008 (page 23), we described our receipt in March 2008 (and potential impact on claim 1 of our exclusively licensed issued U.S. patent 7,164,035) of an English translation of a Russian disclosure, Zegzhda et. al. Chemical Abstracts Vol. 85 Abstract No. 186052 (1976) that was cited by the U.S. patent examiner during our
 

 
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prosecution of the pending divisional U.S. patent application Ser. No. 11/621,390. In April 2008, we analyzed the zinc-cysteine complex described by Zegzhda and concluded that such complex describes an insoluble zinc salt and does not describe a non-zinc salt zinc monocyteine complex and therefore believe that such disclosure should not affect the validity of any of our issued U.S. patent claims relating our zinc-monocysteine composition-of-matter claims.  We have filed a response and declaration describing the results of our analysis with the U.S. Patent and Trademark Office with respect to the Zegzhda reference with respect to U.S. patent application ser. no. 11/621,380.   In an office action dated August 20, 2008, the U.S. patent examiner did not accept our arguments filed May 23, 2008 in connection with the Zegzhda reference under pending divisional application ser. no. 11/621,390, to which we intend to respond. Public copies of relevant and future communications can be obtained using the electronic PAIR system of the U.S. Patent and Trademark Office.
 
The patent positions of pharmaceutical companies are uncertain and may involve complex legal and factual questions. We may incur significant expense in protecting our intellectual property and defending or assessing claims with respect to intellectual property owned by others. Any patent or other infringement litigation by or against us could cause us to incur significant expense and divert the attention of our management.
 
We may also rely on the United States Drug Price Competition and Patent Term Restoration Act, commonly known as the “Hatch-Waxman Amendments,” to protect some of our current product candidates, specifically oral TTM, dnaJP1, TRIMESTA, zinc-monocystine, CD4 inhibitor, flupirtine and other future product candidates we may develop. Once a drug containing a new molecule is approved by the FDA, the FDA cannot accept an abbreviated NDA for a generic drug containing that molecule for five years, although the FDA may accept and approve a drug containing the molecule pursuant to an NDA supported by independent clinical data. Recent amendments have been proposed that would narrow the scope of Hatch-Waxman exclusivity and permit generic drugs to compete with our drug.
 
Others may file patent applications or obtain patents on similar technologies or compounds that compete with our products. We cannot predict how broad the claims in any such patents or applications will be, and whether they will be allowed. Once claims have been issued, we cannot predict how they will be construed or enforced. We may infringe intellectual property rights of others without being aware of it. If another party claims we are infringing their technology, we could have to defend an expensive and time consuming lawsuit, pay a large sum if we are found to be infringing, or be prohibited from selling or licensing our products unless we obtain a license or redesign our product, which may not be possible.
 
We also rely on trade secrets and proprietary know-how to develop and maintain our competitive position. Some of our current or former employees, consultants, or scientific advisors, or current or prospective corporate collaborators, may unintentionally or willfully disclose our confidential information to competitors or use our proprietary technology for their own benefit. Furthermore, enforcing a claim alleging the infringement of our trade secrets would be expensive and difficult to prove, making the outcome uncertain. Our competitors may also independently develop similar knowledge, methods, and know-how or gain access to our proprietary information through some other means.
 
We may fail to retain or recruit necessary personnel, and we may be unable to secure the services of consultants.
 
As of March 28, 2009, we have 3 full-time employees and 3 part-time employees. We have also engaged regulatory consultants to advise us on our dealings with the FDA and other foreign regulatory authorities. We intend to recruit certain key executive officers, including a Vice President of Sales and Marketing and Vice President of Business Development during 2009. Our future performance will depend in part on our ability to successfully integrate newly hired executive officers into our management team and our ability to develop an effective working relationship among senior management.
 
Effective March 29, 2009, Nicholas Stergis resigned as our Chief Executive Officer. Mr. Stergis remains a director of the Company. In order to fill the vacancy, Steve H. Kanzer was appointed our President and Chief Executive Officer. The Company has engaged an executive search firm to identify potential candidates for the Chief Executive Officer position.
 
Certain of our directors, (Jeffrey Kraws, a director and former VP of Business Development, Jeffrey Wolf, a director, Nicholas Stergis, a director, and Dr. Kuo, a director) scientific advisors, and consultants serve as officers, directors, scientific advisors, or consultants of other biopharmaceutical or biotechnology companies which might be developing competitive products to ours. Other than corporate opportunities, none of our directors are obligated under any agreement or understanding with us to make any additional products or technologies available to us. Similarly, we can give no assurances, and we do not expect and stockholders should not expect, that any biomedical or pharmaceutical product or technology identified by any of our directors or affiliates in the future would be made available to us other than corporate opportunities.
 

 
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We can give no assurances that any such other companies will not have interests that are in conflict with our interests.
 
Losing key personnel or failing to recruit necessary additional personnel would impede our ability to attain our development objectives. There is intense competition for qualified personnel in the drug-development field, and we may not be able to attract and retain the qualified personnel we would need to develop our business.
 
We rely on independent organizations, advisors, and consultants to perform certain services for us, including handling substantially all aspects of regulatory approval, clinical management, manufacturing, marketing, and sales. We expect that this will continue to be the case. Such services may not always be available to us on a timely basis when we need them.
 
We may experience difficulties in obtaining sufficient quantities of our products or other compounds.
 
In order to successfully commercialize our product candidates, we must be able to manufacture our products in commercial quantities, in compliance with regulatory requirements, at acceptable costs, and in a timely manner. Manufacture of the types of biopharmaceutical products that we propose to develop present various risks. For example, manufacture of the active ingredient in oral TTM and Zinthionein is a complex process that can be difficult to scale up for purposes of producing large quantities. This process can also be subject to delays, inefficiencies, and poor or low yields of quality products. Furthermore, the active ingredient of Zinthionein has been difficult to scale up at larger quantities.  As such, we can give no assurances that we will be able to scale up the manufacturing of Zinthionein.  Oral TTM is also known to be subject to a loss of potency as a result of prolonged exposure to moisture and other normal atmospheric conditions. The active ingredient of our dnaJP1 program is a peptide.  Traditionally, peptide manufacturing is costly, time consuming, resulting in low yields and poor stability. We cannot give any assurances that we will not encounter this issues when scaling up manufacturing for dnaJP1.  We are developing proprietary formulations and specialty packaging solutions to overcome this stability issue, but we can give no assurances that we will be successful in meeting the stability requirements required for approval by regulatory authorities such as the FDA or the requirements that our new proprietary formulations and drug product will demonstrate satisfactory comparability to less stable formulations utilized in prior clinical trials. We may experience delays in demonstrating satisfactory stability requirements and drug product comparability requirements that could delay our planned clinical trials of for any of our products.
 
For manufacturing and nonclinical information for TRIMESTA, we rely upon an agreement with Organon, a division of Schering-Plough for access to clinical, nonclinical, stability and drug supply relating to estriol, the active ingredient in TRIMESTA which is currently in a phase IIb clinical trial for MS. Should Organon terminate our agreement or be unable or unwilling to continue to supply TRIMESTA to us, this might delay enrollment and commercialization plans for our TRIMESTA clinical trial program. Organon has manufactured estriol the active ingredient of TRIMESTA for the European and Asian market for approximately 40 years but has never been approved in the US.
 
 Historically, our manufacturing has been handled by contract manufacturers and compounding pharmacies. We can give no assurances that we will be able to continue to use our current manufacturer or be able to establish another relationship with a manufacturer quickly enough so as not to disrupt commercialization of any of our products, or that commercial quantities of any of our products, if approved for marketing, will be available from contract manufacturers at acceptable costs.
 
In addition, any contract manufacturer that we select to manufacture our product candidates might fail to maintain a current “good manufacturing practices” (cGMP) manufacturing facility. During February 2007, we established a manufacturing facility in Ann Arbor, MI and we are currently seeking to sublease some or all of our excess office, laboratory and manufacturing space.  In March 2009, our building control systems for cleanrooms and associated air handling equipment were removed and sold which might affect our ability to reachieve cGMP status for our facility.
 
The cost of manufacturing certain product candidates may make them prohibitively expensive. In order to successfully commercialize our product candidates we may be required to reduce the costs of production, and we may find that we are unable to do so. We may be unable to obtain, or may be required to pay high prices for compounds manufactured or sold by others that we need for comparison purposes in clinical trials and studies for our product candidates.
 
The manufacture of our products is a highly exacting process, and if we or one of our materials suppliers encounter problems manufacturing our products, our business could suffer.

The FDA and foreign regulators require manufacturers to register manufacturing facilities. The FDA and foreign regulators also inspect these facilities to confirm compliance with cGMP or similar requirements that the FDA or foreign regulators establish. We or our materials suppliers may face manufacturing or quality control problems causing product production and shipment delays or a situation where we or the supplier may not be able to maintain compliance with the FDA’s cGMP requirements, or those of foreign regulators, necessary to continue manufacturing our drug substance. Any failure to comply with cGMP requirements or other FDA or foreign regulatory requirements could adversely affect our clinical research activities and our ability to market and develop our products.

If the parties we depend on for supplying our drug substance raw materials and certain manufacturing-related services do not timely supply these products and services, it may delay or impair our ability to develop, manufacture and market our products.

 
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We rely on suppliers for our drug substance raw materials and third parties for certain manufacturing-related services to produce material that meets appropriate content, quality and stability standards and use in clinical trials of our products and, after approval, for commercial distribution. To succeed, clinical trials require adequate supplies of drug substance and drug product, which may be difficult or uneconomical to procure or manufacture. We and our suppliers and vendors may not be able to (i) produce our drug substance or drug product to appropriate standards for use in clinical studies, (ii) perform under any definitive manufacturing, supply or service agreements with us or (iii) remain in business for a sufficient time to successfully produce and market our product candidates. If we do not maintain important manufacturing and service relationships, we may fail to find a replacement supplier or required vendor or develop our own manufacturing capabilities which could delay or impair our ability to obtain regulatory approval for our products and substantially increase our costs or deplete profit margins, if any. If we do find replacement manufacturers and vendors, we may not be able to enter into agreements with them on terms and conditions favorable to us and, there could be a substantial delay before a new facility could be qualified and registered with the FDA and foreign regulatory authorities.

Clinical trials are very expensive, time-consuming, and difficult to design and implement.
 
Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is also time-consuming. We estimate that clinical trials of our product candidates would take at least several years to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. Commencement and completion of clinical trials may be delayed by several factors, including: 
 
 
unforeseen safety issues;
 
determination of dosing;
 
lack of effectiveness during clinical trials;
 
slower than expected rates of patient recruitment;
 
inability to monitor patients adequately during or after treatment; and
 
inability or unwillingness of medical investigators to follow our clinical protocols.
 
 
In addition, we or the FDA may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA finds deficiencies in our submissions or conduct of our trials.
 
The results of our clinical trials may not support our product candidate claims.
 
Even if our clinical trials are initiated and completed as planned, we cannot be certain that the results will support our product-candidate claims. Success in pre-clinical testing and phase II clinical trials does not ensure that later phase II or phase III clinical trials will be successful. We cannot be sure that the results of later clinical trials would replicate the results of prior clinical trials and pre-clinical testing. Clinical trials may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. Any such failure could cause us to abandon a product candidate and might delay development of other product candidates. Any delay in, or termination of, our clinical trials would delay our obtaining FDA approval for the affected product candidate and, ultimately, our ability to commercialize that product candidate.
 
Physicians and patients may not accept and use our technologies.
 
Even if the FDA approves our product candidates, physicians and patients may not accept and use them. Acceptance and use of our product will depend upon a number of factors, including the following:
 
 
the perception of members of the health care community, including physicians, regarding the safety and effectiveness of our drugs;
 
the cost-effectiveness of our product relative to competing products;
 
availability of reimbursement for our products from government or other healthcare payers; and
 
the effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any.
 
 
Because we expect sales of our current product candidates, if approved, to generate substantially all of our product revenues for the foreseeable future, the failure of any of these drugs to find market acceptance would harm our business and could require us to seek additional financing.
 

 
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We depend on researchers who are not under our control.  
 
Since we have in-licensed some of  our product candidates, we depend upon independent investigators and scientific collaborators, such as universities and medical institutions or private physician scientists, to conduct our pre-clinical and clinical trials under agreements with us. These collaborators are not our employees and we cannot control the amount or timing of resources that they devote to our programs or the timing of their procurement of clinical-trial data or their compliance with applicable regulatory guidelines.  Should any of these scientific inventors/advisors become disabled or die unexpectedly, or should they fail to comply with applicable regulatory guidelines, we may be forced to scale back or terminate development of that program.  They may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking those programs ourselves. Failing to devote sufficient time and resources to our drug-development programs, or substandard performance and failure to comply with regulatory guidelines, could result in delay of any FDA applications and our commercialization of the drug candidate involved.
 
These collaborators may also have relationships with other commercial entities, some of which may compete with us. Our collaborators assisting our competitors at our expense could harm our competitive position. For example, we are highly dependent on scientific collaborators for our dnaJP1, TRIMESTA, Zinthionein, CD4 Inhibitor 802-2 and flupirtine development programs. Specifically, all of the clinical trials have been conducted under physician-sponsored investigational new drug applications (INDs), not corporate-sponsored INDs. Generally, we have experienced difficulty in collecting data generated from these physician sponsored clinical trials or physician sponsored INDs for our programs.  We cannot provide any assurances that we will not experience any additional delays in the future.  For example, the clinical trials for oral TTM have been conducted and completed prior to us licensing this technology from the University of Michigan. Due to various patient privacy regulations and other administrative matters, we have experienced delays and/or an inability to obtain clinical trial data relating to oral TTM.  We have also experienced similar difficulties with our Zinthionein program.  George J. Brewer, M.D., our initial clinical collaborator for oral TTM for Wilson’s disease, has retired from University of Michigan, will no longer participate as a clinical investigator and no longer has an IND for oral TTM.  We do not plan to conduct any further clinical studies of oral TTM.  Should we or a future sublicensee elect to seek to conduct additional clinical trials of oral TTM, we or such sublicensee as the ase may be would be expected to be required to file a new IND with the FDA for oral TTM and gain FDA approval for such IND prior to initiating any clinical studies and would be subject to the risks and potential delays associated with obtaining such approval.  Any delay or inability to obtain any data, and any such regulatory issues, might result our inability to advance our products through the regulatory process or obtain pharmaceutical partners for them.
 
We are also highly dependent on government and private grants to fund certain of our clinical trials for our product candidates. For example, TRIMESTA has received a $5 million grant from the Southern California Chapter of the National Multiple Sclerosis Society and the National Institutes of Health (NIH) which funds a majority of our ongoing 150 patient phase IIb clinical trial in relapsing remitting  multiple sclerosis. If our scientific collaborator is unable to maintain these grants, we might be forced to scale back or terminate the development of this product candidate.
 
We have no experience selling, marketing, or distributing products and do not have the capability to do so.
 
We currently have no sales, marketing, or distribution capabilities. We do not anticipate having resources in the foreseeable future to allocate to selling and marketing our proposed products. Our success will depend, in part, on whether we are able to enter into and maintain collaborative relationships with a pharmaceutical or a biotechnology company charged with marketing one or more of our products. We may not be able to establish or maintain such collaborative arrangements or to commercialize our products in foreign territories, and even if we do, our collaborators may not have effective sales forces.
 
If we do not, or are unable to, enter into collaborative arrangements to sell and market our proposed products, we will need to devote significant capital, management resources, and time to establishing and developing an in-house marketing and sales force with technical expertise. We may be unsuccessful in doing so.
 
If we fail to maintain positive relationships with particular individuals, we may be unable to successfully develop our product candidates, conduct clinical trials, and obtain financing.
 
If we fail to maintain positive relationships with members of our management team or if these individuals decrease their contributions to our company, our business could be adversely impacted. We do not carry key employee insurance policies for any of our key employees.

 
We also rely greatly on employing and retaining other highly trained and experienced senior management and scientific personnel. The competition for these and other qualified personnel in the biotechnology field is intense. If we are not able to attract and retain qualified scientific, technical, and managerial personnel, we probably will be unable to achieve our business objectives.
 

 
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We may not be able to compete successfully for market share against other drug companies.
The markets for our product candidates are characterized by intense competition and rapid technological advances. If our product candidates receive FDA approval, they will compete with existing and future drugs and therapies developed, manufactured, and marketed by others. Competing products may provide greater therapeutic convenience or clinical or other benefits for a specific indication than our products, or may offer comparable performance at a lower cost. If our products fail to capture and maintain market share, we may not achieve sufficient product revenues and our business will suffer.
 
We will compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agencies, or other public and private research organizations. Many of these competitors have therapies to treat autoimmune fibrotic and central nervous system diseases already approved or in development. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research-and-development programs than we do, have substantially greater financial resources than we do, and have significantly greater experience in the following areas: 
 
 
developing drugs;
 
undertaking pre-clinical testing and human clinical trials;
 
obtaining FDA and other regulatory approvals of drugs;
 
formulating and manufacturing drugs; and
 
launching, marketing and selling drugs.
 
 
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights, as well as costs associated with frivolous lawsuits.
 
If any other person files patent applications, or is issued patents, claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings in the U.S. Patent and Trademark Office to determine priority of invention. We, or our licensors, may also need to participate in interference proceedings involving our issued patents and pending applications of another entity.
 
 We cannot guarantee that the practice of our technologies will not conflict with the rights of others. In some foreign jurisdictions, we could become involved in opposition proceedings, either by opposing the validity of another’s foreign patent or by persons opposing the validity of our foreign patents.
 
 We may also face frivolous litigation or lawsuits from various competitors or from litigious securities attorneys. The cost to us of any litigation or other proceeding relating to these areas, even if resolved in our favor, could be substantial and could distract management from our business. Uncertainties resulting from initiation and continuation of any litigation could have a material adverse effect on our ability to continue our operations.
 
If we infringe the rights of others we could be prevented from selling products or forced to pay damages.  
 
If our products, methods, processes, and other technologies are found to infringe the proprietary rights of other parties, we could be required to pay damages, or we may be required to cease using the technology or to license rights from the prevailing party. Any prevailing party may be unwilling to offer us a license on commercially acceptable terms.
 
 Our products, if approved, may not be commercially viable due to change in health care practice and third party reimbursement limitations.

Recent initiatives to reduce the federal deficit and to change health care delivery are increasing cost-containment efforts. We anticipate that Congress, state legislatures and the private sector will continue to review and assess alternative benefits, controls on health care spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, price controls on pharmaceuticals, and other fundamental changes to the health care delivery system. Any changes of this type could negatively impact the commercial viability of our products, if approved. Our ability to successfully commercialize our product candidates, if they are approved, will depend in part on the extent to which appropriate reimbursement codes and authorized cost reimbursement levels of these products and related treatment are obtained from governmental authorities, private health insurers and other organizations, such as health maintenance organizations. In the absence of national Medicare coverage determination, local contractors that administer the Medicare program may make their own coverage decisions. Any of our product candidates, if approved and when commercially available, may not be included within the then current Medicare coverage determination or the coverage determination of state Medicaid programs, private insurance companies or other

 
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health care providers. In addition, third-party payers are increasingly challenging the necessity and prices charged for medical products, treatments and services.

 
We may not be able to obtain adequate insurance coverage against product liability claims.
 
Our business exposes us to the product liability risks inherent in the testing, manufacturing, marketing, and sale of human therapeutic technologies and products. Even if it is available, product liability insurance for the pharmaceutical and biotechnology industry generally is expensive. Adequate insurance coverage may not be available at a reasonable cost.
 
 RISKS RELATING TO OUR STOCK

We will seek to raise additional funds in the future, which may be dilutive to stockholders or impose operational restrictions.
 
We expect to seek to raise additional capital in the future to help fund development of our proposed products. If we raise additional capital through the issuance of equity or debt securities, the percentage ownership of our current stockholders will be reduced. We may also enter into strategic transactions, issue equity as part of license issue fees to our licensors, compensate consultants or settle outstanding payables using equity that may be dilutive. Our stockholders may experience additional dilution in net book value per share and any additional equity securities may have rights, preferences and privileges senior to those of the holders of our common stock. If we cannot raise additional funds, we will have to delay development activities of our products candidates.
 
We are controlled by our current officers, directors, and principal stockholders.
 
Currently, our directors, executive officers, and principal stockholders beneficially own a majority of our common stock. As a result, they will be able to exert substantial influence over the election of our board of directors and the vote on issues submitted to our stockholders.  In January 2009, we registered for sale under the Securities Act of 1933, as amended, 8,816,918 shares of our outstanding common stock held by our officers, directors and principal stockholders and 1,148,753 shares of common stock issuable upon the exercise of warrants held by our officers, directors and principal stockholders.  Because our common stock has from time to time been “thinly traded”, the sale of these shares by our officers, directors and principal stockholders could have an adverse effect on the market for our stock and our share price.
 
Our shares of common stock are from time to time thinly traded, so stockholders may be unable to sell at or near ask prices or at all if they need to sell shares to raise money or otherwise desire to liquidate their shares.
 
Our common stock has from time to time been “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non­existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give stockholders any assurance that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading levels will be sustained.
 
Our compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls may be time consuming, difficult and costly.
 
Although individual members of our management team have experience as officers of publicly traded companies, much of that experience came prior to the adoption of the Sarbanes-Oxley Act of 2002. It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by Sarbanes-Oxley. We may need to hire additional financial reporting, internal controls and other finance staff in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with Sarbanes-Oxley’s internal controls requirements, we may not be able to obtain the independent accountant certifications that Sarbanes-Oxley Act requires publicly-traded companies to obtain.
 
We cannot assure you that the common stock will be liquid or that it will remain listed on a securities exchange.
 

 
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We cannot assure you that we will be able to maintain the listing standards of the NYSEAmex formerly the American Stock Exchange or NYSE Alternext US. The NYSEAmex requires companies to meet certain continued listing criteria including certain minimum stockholders' equity and equity prices per share as outlined in the Exchange Company Guide. We may not be able to maintain such minimum stockholders' equity or prices per share or may be required to effect a reverse stock split to maintain such minimum prices and/or issue additional equity securities in exchange for cash or other assets, if available, to maintain certain minimum stockholders' equity required by the NYSEAmex. If we are delisted from the Exchange then our common stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board securities market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. In addition, delisting of our common stock could further depress our stock price, substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all. Delisting from the Exchange could also have other negative results, including the potential loss of confidence by suppliers and employees, the loss of institutional investor interest and fewer business development opportunities.
 
There may be issuances of shares of preferred stock in the future.

Although we currently do not have preferred shares outstanding, the board of directors could authorize the issuance of a series of preferred stock that would grant holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends would be declared to common stockholders, and the right to the redemption of such shares, possibly together with a premium, prior to the redemption of the common stock. To the extent that we do issue preferred stock, the rights of holders of common stock could be impaired thereby, including without limitation, with respect to liquidation.
 
Our board has approved a plan to re-incorporate the Company from the State of Delaware to the State of Nevada
 
During the Company’s annual shareholder meeting held during June 2008, the Company received authorization to re-incorporate from the State of Delaware to the State of Nevada.  The Company intends to complete this re-incorporation during the second quarter of 2009.  
 
We have never paid dividends.
 
We have never paid cash dividends on our common stock and do not anticipate paying any for the foreseeable future.
 
RISKS RELATED TO OUR INDUSTRY
 
Government Regulation
 
In the United States, the formulation, manufacturing, packaging, storing, labeling, promotion, advertising, distribution and sale of our products are subject to regulation by various governmental agencies, including (1) the Food and Drug Administration, or FDA, (2) the Federal Trade Commission, or FTC, (3) the Consumer Product Safety Commission, or CPSC, (4) the United States Department of Agriculture, or USDA. Our proposed activities may also be regulated by various agencies of the states, localities and foreign countries in which our proposed products may be manufactured, distributed and sold. The FDA, in particular, regulates the formulation, manufacture and labeling of over-the-counter, or OTC, drugs, conventional foods, dietary supplements, and cosmetics such as those that we intend to distribute.  FDA regulations require us and our suppliers to meet relevant current good manufacturing practice, or cGMP, regulations for the preparation, packing and storage of foods and OTC drugs. On June 25, 2007, the FDA published its final rule regulating cGMPs for dietary supplements. The final rule became effective August 24, 2007 and small companies with less than 20 employees, such as us, have until June 2010 to achieve compliance.  As a result of inactivity and the removal and sale of certain equipment, our facility in Ann Arbor, Michigan is no longer currently cGMP compliant.
 
The U.S. Dietary Supplement Health and Education Act of 1994, or DSHEA, revised the provisions of the Federal Food, Drug and Cosmetic Act, or FFDCA, concerning the composition and labeling of dietary supplements and, we believe, the revisions are generally favorable to the dietary supplement industry. The legislation created a new statutory class of dietary supplements. This new class includes vitamins, minerals, herbs, amino acids and other dietary substances for human use to supplement the diet, and the legislation grandfathers, with some limitations, dietary ingredients that were on the market before October 15, 1994. A dietary supplement that contains a dietary ingredient that was not on the market before October 15, 1994 will require evidence of a history of use or other evidence of safety establishing that it is reasonably expected to be safe. Manufacturers or marketers of dietary supplements in the United States and certain other jurisdictions that make product performance claims, including structure or function claims, must have substantiation in their possession that the statements are truthful and not misleading. The majority of the products marketed by us in the United States are classified as conventional foods or dietary supplements under the FFDCA. Internationally, the majority of products marketed by us are classified as foods or food supplements.

 
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In January 2000, the FDA issued a regulation that defines the types of statements that can be made concerning the effect of a dietary supplement on the structure or function of the body pursuant to DSHEA. Under DSHEA, dietary supplement labeling may bear structure or function claims, which are claims that the products affect the structure or function of the body, without prior FDA approval, but with notification to the FDA. They may not bear a claim that they can prevent, treat, cure, mitigate or diagnose disease (a disease claim). The regulation describes how the FDA distinguishes disease claims from structure or function claims. During 2004, the FDA issued a guidance, paralleling an earlier guidance from the FTC, defining a manufacturers obligations to substantiate structure/function claims. The FDA also issued a Structure/Function Claims Small Entity Compliance Guide. In addition, the agency permits companies to use FDA-approved full and qualified health claims for products containing specific ingredients that meet stated requirements.

In order to make disease claims, we may seek to market some our proposed products as medical foods for the dietary management of certain diseases.  Medical foods are defined in section 5(b) of the Orphan Drug Act (21 U.S.C. 360ee (b) (3)) is "a food which is formulated to be consumed or administered enterally under the supervision of a physician and which is intended for the specific dietary management of a disease or condition for which distinctive nutritional requirements, based on recognized scientific principles, are established by medical evaluation."  Although we believe our products may qualify as medical foods provided we are able to generate, and have published, sufficient clinical data to support such claims.  Medical foods are required to be utilized under a medical doctor’s supervision and as such, our distribution channels may be limited and/or complicated.

Should we seek to make disease claims beyond those permitted for medical foods, we may seek to conduct necessary clinical trials to support such claims and file one or more New Drug Applications with respect to such products which would be the subject of the time, expense and uncertainty associated with achieving approval of such NDA by the FDA.
 
On December 22, 2007, a new law went into effect in the United States mandating the reporting of all serious adverse events occurring within the United States which involve dietary supplements or OTC drugs. We believe that in order to be in compliance with this law we will be required to implement a worldwide procedure governing adverse event identification, investigation and reporting. As a result of our receipt of adverse event reports, we may from time to time elect, or be required, to remove a product from a market, either temporarily or permanently.
 
Some of the products marketed by us are considered conventional foods and are currently labeled as such. Within the United States, this category of products is subject to the Nutrition, Labeling and Education Act, or NLEA, and regulations promulgated under the NLEA. The NLEA regulates health claims, ingredient labeling and nutrient content claims characterizing the level of a nutrient in the product. The ingredients added to conventional foods must either be generally recognized as safe by experts, or GRAS, or be approved as food additives under FDA regulations.  Our zinc-monocysteine complexes are comprised of zinc (a GRAS ingredient) and cysteine (an amino acid that also has GRAS status).  While many chelated zinc products are currently on the market and are generally not considered new dietary ingredients, we cannot provide any assurance that zinc-monocysteine will be similarly considered by the FDA.
 
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The FTC, which exercises jurisdiction over the advertising of all of our proposed products, has in the past several years instituted enforcement actions against several dietary supplement companies and against manufacturers of products generally for false and misleading advertising of some of their products. These enforcement actions have often resulted in consent decrees and monetary payments by the companies involved. In addition, the FTC has increased its scrutiny of the use of testimonials, which we also utilize, as well as the role of expert endorsers and product clinical studies. It is unclear whether the FTC will subject our advertisements to increased surveillance to ensure compliance with the principles set forth in its published advertising guidance.  The copper industry has supported  research studies that conclude that copper has no effect in Alzheimer’s disease.  In February 2007, the State of California issued its public health goal for copper in drinking water and considered the research studies mentioned above as well as those of our scientific collaborators and concluded that at the present time, the data with respect to copper in drinking water’s role in Alzheimer’s disease were to be “equivocal” .  We cannot provide assurance that the FTC will allow is to publically advertise or promote our products to the American public.
 
The FDA, comparable foreign regulators and state and local pharmacy regulators impose substantial requirements upon clinical development, manufacture and marketing of pharmaceutical products. These and other entities regulate research and development and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising, and promotion of our products. The drug approval process required by the FDA under the Food, Drug, and Cosmetic Act generally involves:
 
 
Preclinical laboratory and animal tests;
 
Submission of an IND, prior to commencing human clinical trials;
 
Adequate and well-controlled human clinical trials to establish safety and efficacy for intended use;
 
Submission to the FDA of a NDA; and
 
FDA review and approval of a NDA.
 
 
The testing and approval process requires substantial time, effort, and financial resources, and we cannot be certain that any approval will be granted on a timely basis, if at all.
 
Preclinical tests include laboratory evaluation of the product candidate, its chemistry, formulation and stability, and animal studies to assess potential safety and efficacy. Certain preclinical tests must be conducted in compliance with good laboratory practice regulations. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring them to be replicated. In some cases, long-term preclinical studies are conducted concurrently with clinical studies.
 
We will submit the preclinical test results, together with manufacturing information and analytical data, to the FDA as part of an IND, which must become effective before we begin human clinical trials. The IND automatically becomes effective 30 days after filing, unless the FDA
 

 
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raises questions about conduct of the trials outlined in the IND and imposes a clinical hold, as occurred with oral TTM, in which case, the IND sponsor and FDA must resolve the matters before clinical trials can begin. It is possible that our submission may not result in FDA authorization to commence clinical trials.
 
Clinical trials must be supervised by a qualified investigator in accordance with good clinical practice regulations, which include informed consent requirements. An independent Institutional Review Board (“IRB”) at each medical center reviews and approves and monitors the study, and is periodically informed of the study’s progress, adverse events and changes in research. Progress reports are submitted annually to the FDA and more frequently if adverse events occur.
 
Human clinical trials typically have three sequential phases that may overlap:
 
Phase I: The drug is initially tested in healthy human subjects or patients for safety, dosage tolerance, absorption, metabolism, distribution, and excretion.
 
Phase II: The drug is studied in a limited patient population to identify possible adverse effects and safety risks, determine efficacy for specific diseases and establish dosage tolerance and optimal dosage.
 
Phase III: When phase II evaluations demonstrate that a dosage range is effective with an acceptable safety profile, phase III trials to further evaluate dosage, clinical efficacy and safety, are undertaken in an expanded patient population, often at geographically dispersed sites.
 
 We cannot be certain that we will successfully complete phase I, phase II, or phase III testing of our product candidates within any specific time period, if at all. Furthermore, the FDA, an IRB or the IND sponsor may suspend clinical trials at any time on various grounds, including a finding that subjects or patients are exposed to unacceptable health risk. Concurrent with these trials and studies, we also develop chemistry and physical characteristics data and finalize a manufacturing process in accordance with good manufacturing practice (“GMP”) requirements. The manufacturing process must conform to consistency and quality standards, and we must develop methods for testing the quality, purity, and potency of the final products. Appropriate packaging is selected and tested, and chemistry stability studies are conducted to demonstrate that the product does not undergo unacceptable deterioration over its shelf-life. Results of the foregoing are submitted to the FDA as part of a NDA for marketing and commercial shipment approval. The FDA reviews each NDA submitted and may request additional information.
 
Once the FDA accepts the NDA for filing, it begins its in-depth review. The FDA has substantial discretion in the approval process and may disagree with our interpretation of the data submitted. The process may be significantly extended by requests for additional information or clarification regarding information already provided. As part of this review, the FDA may refer the application to an appropriate advisory committee, typically a panel of clinicians. Manufacturing establishments often are inspected prior to NDA approval to assure compliance with GMPs and with manufacturing commitments made in the application.
 
Submission of a NDA with clinical data requires payment of a fee (for fiscal year 2008, $1,178,500). In return, the FDA assigns a goal of ten months for issuing its “complete response,” in which the FDA may approve or deny the NDA, or require additional clinical data. Even if these data are submitted, the FDA may ultimately decide the NDA does not satisfy approval criteria. If the FDA approves the NDA, the product becomes available for physicians prescription. Product approval may be withdrawn if regulatory compliance is not maintained or safety problems occur. The FDA may require post-marketing studies, also known as phase IV studies, as a condition of approval, and requires surveillance programs to monitor approved products that have been commercialized. The agency has the power to require changes in labeling or prohibit further marketing based on the results of post-marketing surveillance.
 
Satisfaction of these and other regulatory requirements typically takes several years, and the actual time required may vary substantially based upon the type, complexity and novelty of the product. Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures on our activities. We cannot be certain that the FDA or other regulatory agencies will approve any of our products on a timely basis, if at all. Success in preclinical or early-stage clinical trials does not assure success in later-stage clinical trials. Data obtained from pre-clinical and clinical activities are not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Even if a product receives regulatory approval, the approval may be significantly limited to specific indications or uses.
 

 
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Even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Delays in obtaining, or failures to obtain regulatory approvals would have a material adverse effect on our business.
 
Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing FDA regulation, including record-keeping requirements, reporting of adverse experiences, submitting periodic reports, drug sampling and distribution requirements, manufacturing or labeling changes, record-keeping requirements, and compliance with FDA promotion and advertising requirements. Drug manufacturers and their subcontractors are required to register their facilities with the FDA and state agencies, and are subject to periodic unannounced inspections for GMP compliance, imposing procedural and documentation requirements upon us and third-party manufacturers. Failure to comply with these regulations could result, among other things, in suspension of regulatory approval, recalls, suspension of production or injunctions, seizures, or civil or criminal sanctions. We cannot be certain that we or our present or future subcontractors will be able to comply with these regulations.
 
The FDA regulates drug labeling and promotion activities. The FDA has actively enforced regulations prohibiting the marketing of products for unapproved uses. The FDA permits the promotion of drugs for unapproved uses in certain circumstances, subject to stringent requirements. We and our product candidates are subject to a variety of state laws and regulations which may hinder our ability to market our products. Whether or not FDA approval has been obtained, approval by foreign regulatory authorities must be obtained prior to commencing clinical trials, and sales and marketing efforts in those countries. These approval procedures vary in complexity from country to country, and the processes may be longer or shorter than that required for FDA approval. We may incur significant costs to comply with these laws and regulations now or in the future.
 
The FDA’s policies may change, and additional government regulations may be enacted which could prevent or delay regulatory approval of our potential products. Increased attention to the containment of health care costs worldwide could result in new government regulations materially adverse to our business. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad.
 
 Other Regulatory Requirements
 
The U.S. Federal Trade Commission and the Office of the Inspector General of the U.S. Department of Health and Human Services (“HHS”) also regulate certain pharmaceutical marketing practices. Government reimbursement practices and policies with respect to our products are important to our success.
 
We are subject to numerous federal, state and local laws relating to safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with these laws and regulations. The regulatory framework under which we operate will inevitably change in light of scientific, economic, demographic and policy developments, and such changes may have a material adverse effect on our business.
 
European Product Approval
 
Prior regulatory approval for human healthy volunteer studies (phase I studies) is required in member states of the European Union (E.U.). Summary data from successful phase I studies are submitted to regulatory authorities in member states to support applications for phase II studies. E.U. authorities typically have one to three months (which often may be extended in their discretion) to raise objections to the proposed study. One or more independent ethics committees (similar to U.S. IRBs) review relevant ethical issues.
 
For E.U. marketing approval, we submit to the relevant authority for review a dossier, or MAA (Market Authorization Application), providing information on the quality of the chemistry, manufacturing and pharmaceutical aspects of the product as well as non-clinical and clinical data.
 
Approval can take several months to several years, and can be denied, depending on whether additional studies or clinical trials are requested (which may delay marketing approval and involve unbudgeted costs) or regulatory authorities conduct facilities (including clinical investigation site) inspections and review manufacturing procedures, operating systems and personnel qualifications. In many cases, each drug manufacturing facility must be approved, and further inspections may occur over the product’s life.
 

 
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The regulatory agency may require post-marketing surveillance to monitor for adverse effects or other studies. Further clinical studies are usually necessary for approval of additional indications. The terms of any approval, including labeling content, may be more restrictive than expected and could affect the marketability of a product.
 
Failure to comply with these ongoing requirements can result in suspension of regulatory approval and civil and criminal sanctions. European renewals may require additional data, resulting in a license being withdrawn. E.U. regulators have the authority to revoke, suspend or withdraw approvals, prevent companies and individuals from participating in the drug approval process, request recalls, seize violative products, obtain injunctions to close non-compliant manufacturing plants and stop shipments of violative products.
 
Pricing Controls
 
Pricing for products under approval applications is also subject to regulation. Requirements vary widely between countries and can be implemented disparately intra-nationally. The E.U. generally provides options for member states to control pricing of medicinal products for human use, ranging from specific price-setting to systems of direct or indirect controls on the producer’s profitability. U.K. regulation, for example, generally provides controls on overall profits derived from sales to the U.K. National Health Service that are based on profitability targets or a function of capital employed in servicing the National Health Service market. Italy generally utilizes a price monitoring system based on the European average price over the reference markets of France, Spain, Germany and the U.K. Italy typically establishes price within a therapeutic class based on the lowest price for a medicine belonging to that category. Spain generally establishes selling price based on prime cost plus a profit margin within a range established yearly by the Spanish Commission for Economic Affairs.
 
There can be no assurance that price controls or reimbursement limitations will result in favorable arrangements for our products.
 
Third-Party Reimbursements
 
In the U.S., the E.U. and elsewhere, pharmaceutical sales are dependent in part on the availability and adequacy of reimbursement from third party payers such as governments and private insurance plans. Third party payers are increasingly challenging established prices, and new products that are more expensive than existing treatments may have difficulty finding ready acceptance unless there is a clear therapeutic benefit.
 
In the U.S., consumer willingness to choose a self-administered outpatient prescription drug over a different drug or other form of treatment often depends on the manufacturer’s success in placing the product on a health plan formulary or drug list, which results in lower out-of-pocket costs. Favorable formulary placement typically requires the product to be less expensive than what the health plan determines to be therapeutically equivalent products, and often requires manufacturers to offer rebates. Federal law also requires manufacturers to pay rebates to state Medicaid programs in order to have their products reimbursed by Medicaid. Medicare, which covers most Americans over age 65 and the disabled, has adopted a new insurance regime that will offer eligible beneficiaries limited coverage for outpatient prescription drugs effective January 1, 2006. The prescription drugs that are covered under this insurance are specified on a formulary published by Medicare. As part of these changes, Medicare is adopting new payment formulas for prescription drugs administered by providers, such as hospitals or physicians that are generally expected to lower reimbursement.
 
The E.U. generally provides options for member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement. Member states can opt for a “positive” or “negative” list, with the former listing all covered medicinal products and the latter designating those excluded from coverage. The E.U., the U.K. and Spain have negative lists, while France uses a positive list. Canadian provinces establish their own reimbursement measures. In some countries, products may also be subject to clinical and cost effectiveness reviews by health technology assessment bodies. Negative determinations in relation to our products could affect prescribing practices. In the U.K., the National Institute for Clinical Excellence (“NICE”) provides such guidance to the National Health Service, and doctors are expected to take it into account when choosing drugs to prescribe. Health authorities may withhold funding from drugs not given a positive recommendation by NICE. A negative determination by NICE may mean fewer prescriptions. Although NICE considers drugs with orphan status, there is a degree of tension on the application of standard cost assessment for orphan drugs, which are often priced higher to compensate for a limited market. It is unclear whether NICE will adopt a more relaxed approach toward the assessment of orphan drugs.
 
We cannot assure you that any of our products will be considered cost effective, or that reimbursement will be available or sufficient to allow us to sell them competitively and profitably.
 

 
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Fraud and Abuse Laws
 
The U.S. federal Medicare/Medicaid anti-kickback law and similar state laws prohibit remuneration intended to induce physicians or others either to refer patients, or to acquire or arrange for or recommend the acquisition of health care products or services. While the federal law applies only to referrals, products or services receiving federal reimbursement, state laws often apply regardless of whether federal funds are involved. Other federal and state laws prohibit anyone from presenting or causing to be presented false or fraudulent payment claims. Recent federal and state enforcement actions under these statutes have targeted sales and marketing activities of prescription drug manufacturers. As we begin to market our products to health care providers, the relationships we form, such as compensating physicians for speaking or consulting services, providing financial support for continuing medical education or research programs, and assisting customers with third-party reimbursement claims, could be challenged under these laws and lead to civil or criminal penalties, including the exclusion of our products from federally-funded reimbursement. Even an unsuccessful challenge could cause adverse publicity and be costly to respond to, and thus could have a material adverse effect on our business, results of operations and financial condition. We intend to consult counsel concerning the potential application of these and other laws to our business and to our sales, marketing and other activities to comply with them. Given their broad reach and the increasing attention given them by law enforcement authorities, however, we cannot assure you that some of our activities will not be challenged.
 
Patent Restoration and Marketing Exclusivity
 
The U.S. Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman) permits the FDA to approve Abbreviated New Drug Applications (“ANDAs”) for generic versions of innovator drugs, as well as NDAs with less original clinical data, and provides patent restoration and exclusivity protections to innovator drug manufacturers. The ANDA process permits competitor companies to obtain marketing approval for drugs with the same active ingredient and for the same uses as innovator drugs, but does not require the conduct and submission of clinical studies demonstrating safety and efficacy. As a result, a competitor could copy any of our drugs and only need to submit data demonstrating that the copy is bioequivalent to gain marketing approval from the FDA. Hatch-Waxman requires a competitor that submits an ANDA, or otherwise relies on safety and efficacy data for one of our drugs, to notify us and/or our business partners of potential infringement of our patent rights. We and/or our business partners may sue the company for patent infringement, which would result in a 30-month stay of approval of the competitor’s application. The discovery, trial and appeals process in such suits can take several years. If the litigation is resolved in favor of the generic applicant or the challenged patent expires during the 30-month period, the stay is lifted and the FDA may approve the application. Hatch-Waxman also allows competitors to market copies of innovator products by submitting significantly less clinical data outside the ANDA context. Such applications, known as “505(b)(2) NDAs” or “paper NDAs,” may rely on clinical investigations not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use and are subject to the ANDA notification procedures described above.
 
The law also restores a portion of a product’s patent term that is lost during clinical development and NDA review, and provides statutory protection, known as exclusivity, against FDA approval or acceptance of certain competitor applications. Restoration can return up to five years of patent term for a patent covering a new product or its use to compensate for time lost during product development and regulatory review. The restoration period is generally one-half the time between the effective date of an IND and submission of an NDA, plus the time between NDA submission and its approval (subject to the five-year limit), and no extension can extend total patent life beyond 14 years after the drug approval date. Applications for patent term extension are subject to U.S. Patent and Trademark Office (“USPTO”) approval, in conjunction with FDA. Approval of these applications takes at least six months, and there can be no guarantee that it will be given at all.
 
Hatch-Waxman also provides for differing periods of statutory protection for new drugs approved under an NDA. Among the types of exclusivity are those for a “new molecular entity” and those for a new formulation or indication for a previously-approved drug. If granted, marketing exclusivity for the types of products that we are developing, which include only drugs with innovative changes to previously-approved products using the same active ingredient, would prohibit the FDA from approving an ANDA or 505(b)(2) NDA relying on safety and efficacy data for three years. This three-year exclusivity, however, covers only the innovation associated with the original NDA. It does not prohibit the FDA from approving applications for drugs with the same active ingredient but without our new innovative change. These marketing exclusivity protections do not prohibit FDA from approving a full NDA, even if it contains the innovative change.
 
ITEM 1B.  UNRESOLVED STAFF COMMENTS

Not applicable.

 
23

 


ITEM 2. PROPERTIES

Our primary offices, laboratories and manufacturing facility is located at 3930 Varsity Drive, Ann Arbor, MI 48108. We currently rent approximately 17,675 square feet of office, laboratory and production space for monthly rent of $15,033.80.  This lease expires on February 28, 2011, but extendable at our option for an additional three years. We believe our current offices will be adequate for the foreseeable future and we are currently seeking to sublease some or all of our excess space at this facility.  Our phone number is (734) 332-7800 and our facsimile number is (734) 332-7878. Our website is located at www.adeonapharma.com ..

ITEM 3. LEGAL PROCEEDINGS
 
On January 13, 2009, a subsidiary of the Company was served with legal action from an individual regarding a claim for payment of past consulting services and associated expenses from 2005.  The Company does not have a written agreement executed by both parties, management believes the lawsuit is without merit.  The Company has engaged legal counsel to respond to this matter.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

 
24

 

PART II
 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock has traded on the NYSEAmex (formerly the American Stock Exchange) under the symbol “AEN” since October 16, 2008.  Prior to this, our common stock traded under the symbol “PP” on the American Stock Exchange since July 2007. We were previously listed on the OTC Bulletin Board under the name “PPXP” beginning on December 18, 2006.  The following table states the range of the high and low bid-prices per share of our common stock for each of the calendar quarters during the last two fiscal years while our common stock was quoted on the OTC Bulletin Board and the high and sale price while our common stock has traded on the American Stock Exchange. These quotations represent inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions. The last price of our common stock as reported on the American Stock Exchange on March 4, 2009 was $0.15 per share. As of March 4, 2009, there were approximately 379 stockholders of record of our common stock. This number does not include beneficial owners from whom shares are held by nominees in street name.

   
High
   
Low
 
YEAR ENDED DECEMBER 31, 2008
           
Fourth quarter
 
$
0.55
   
$
    0.03
 
Third quarter
 
$
1.02
   
$
    0.48
 
Second quarter
 
$
1.40
   
$
0.65
 
First quarter
 
$
5.25
   
$
0.80
 
YEAR ENDED DECEMBER 31, 2007
               
Fourth quarter
 
$
7.10
   
$
4.68
 
Third quarter
 
$
8.00
   
$
4.30
 
Second quarter
 
$
8.10
   
$
3.71
 
First quarter
 
$
30.00
   
$
3.06
 

 
Dividend Policy
 
We have not paid any cash dividends on our common stock to date, and we have no intention of paying cash dividends in the foreseeable future. Whether we declare and pay dividends is determined by our board of directors at their discretion, subject to certain limitations imposed under Delaware corporate law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our board of directors.
 
The following table provides information about Company purchases of its equity securities that are registered pursuant to Section 12 of the Exchange Act during the quarter ended December 31, 2008:

ISSUER PURCHASES OF EQUITY SECURITIES

Period
Total Number
of Shares
Purchased
Average Price
Paid per
Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or Programs
Maximum Number of Shares
that May Yet Be
Purchased Under
the Plans or Programs
Month Ended October 31, 2008
 0
$ 0   
 0
 0
Month Ended November 30, 2008
 0
0
 0
 0
Month Ended December 31, 2008
 0
0
 0
 0
Total
 0
$0
 0
 0


 
25

 

Equity Compensation Plan Information

See Item 11 for equity compensation plan information.

Recent Sales of Unregistered Securities; Uses of Proceeds from Registered Securities
 
In October, November and December 2008, we issued a total of 44,312 shares of our common stock to 2 consultants for services rendered.  These offering and sales of shares qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuances did not involve a public offering. The offerings were not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. This offering was done with no general solicitation or advertising by the Registrant. Based on an analysis of the above factors, the Registrant has met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for these sales.
 
In August and September 2008, we issued a total of 113,958 shares of our common stock to 2 consultants for services rendered and 31,875 shares to 2 universities for license fees.  These offering and sales of shares qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuances did not involve a public offering. The offerings were not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. This offering was done with no general solicitation or advertising by the Registrant. Based on an analysis of the above factors, the Registrant has met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for these sales.
 
In May and June 2008, we issued a total of 106,630 shares of our common stock to 2 universities for license fees and 39,370 shares to a university for a milestone payment. These offerings and sales of shares qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuances did not involve a public offering. The offerings were not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. The offerings were done with no general solicitation or advertising by the Registrant. Based on an analysis of the above factors, the Registrant has met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for these sales. 
 
In April 2008, we issued a total of 37,603 shares of our common stock to 8 of our employees and 13,887 shares of our common stock to a consultant for services rendered. These offerings and sales of shares qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance did not involve a public offering. The offerings were not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. The offerings were done with no general solicitation or advertising by the Registrant. Based on an analysis of the above factors, the Registrant has met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for these sales.
 
From October through November 2007, the Company issued a total of 3,274,566 shares of our common stock to a total of 50 warrant holders pursuant to a warrant call.  These warrants had been previously issued in connection with the Company’s 2006 private placement transaction.  In connection with this warrant call, the Company appointed Noble International Investments, Inc. (“Noble”) as the Company’s exclusive warrant solicitation agent.  The Company paid Noble $579,569 and issued Noble 327,456 warrants to purchase 327,456 share of common stock.  The Warrants have a term of five years and are exercisable at $6.36 per share. This offering and sale of shares of common stock qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance did not involve a public offering. The offering was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. In addition, these investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, share certificates bearing a legend stating that such shares are restricted. This restriction ensures that these shares will not be immediately redistributed into the market and therefore not be part of a public offering. This offering was done with no general solicitation or advertising by us. Each investor made representations regarding his or her financial sophistication and had an opportunity to ask questions of our management.
 
From May 17, 2007 through September 30, 2007, the Registrant issued a total of 127,406 shares of our common stock to a total of three holders of our warrants upon the exercise of those warrants. This offering and sale of shares of common stock qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance did not involve a public offering. The offering was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. In addition, these investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, share certificates bearing a legend stating that such shares are restricted. This restriction ensures that these shares will not be immediately redistributed into the market and therefore not be part of a public offering. This offering was done with no general solicitation or advertising by us. Each investor made representations regarding his or her financial sophistication and had an opportunity to ask questions of our management.
 

 
26

 

On January 5, 2007, the Registrant issued 795,248 shares of its common stock, and assumed a total of 34,685 options to purchase its common stock and a total of 68,858 warrants to purchase its common stock in connection with its acquisition of the remaining 34.53% interest in its subsidiary EPI. This offering and sale of securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance did not involve a public offering. The offering was not a public offering as defined in Section 4(2) because of the manner of the offering. The investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, share certificates bearing a legend stating that such shares are restricted. This restriction ensures that these shares will not be immediately redistributed into the market and therefore not be part of a public offering. This offering was done with no general solicitation or advertising by the Registrant. Based on an analysis of the above factors, the Registrant has met the requirements to qualify this offering and sale for exemption under Section 4(2) of the Securities Act of 1933.

ITEM 6.  SELECTED FINANCIAL DATA

Not applicable because the Company is a smaller reporting company.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion of our financial condition and results of operations should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31, 2008, found in this report. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward looking statements by using words such as “anticipate,” “believe,” “intends,” or similar expressions. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including, but not limited to, those set forth under “Risk Factors” in Part I, Item 1A of this Report.
 
Overview
 
Since our inception in 2001, our efforts and resources have been focused primarily on acquiring and developing our pharmaceutical products, costs associated with operating a publicly traded company, raising capital and recruiting personnel. We are a development stage company and have had no product sales to date and we will not have any prescription product sales until and unless we receive approval from the FDA or receive approval from equivalent foreign regulatory bodies to begin selling our pharmaceutical candidates. Our major sources of working capital have been proceeds from equity financings from an affiliate of our Chairman and Chief Executive Officer and various private financings, primarily involving private sales of our common stock and other equity securities.
 
Our company’s current corporate structure resulted from the October 2006 merger of a newly-created wholly owned subsidiary of Sheffield Pharmaceuticals, Inc. (“Sheffield”), a Delaware corporation incorporated in September 1993, and Pipex Therapeutics, Inc., a Delaware corporation (“Pipex Therapeutics”). In connection with that transaction, a wholly owned subsidiary of Sheffield merged with and into Pipex Therapeutics, with Pipex Therapeutics remaining as the surviving corporation and a wholly-owned subsidiary of Sheffield. On December 11, 2006, Sheffield changed its name to Pipex Pharmaceuticals, Inc. (“Pipex”) and on October 16, 2008 the Company changed its name to Adeona Pharmaceuticals, Inc. (“Adeona”). In exchange for their shares of capital stock in Pipex Therapeutics, the former stockholders of Pipex Therapeutics received shares of capital stock of Sheffield representing approximately 98 percent of the outstanding equity of Sheffield on a primary diluted basis after giving effect to the transaction, with Sheffield assuming Pipex’s outstanding options and warrants. In addition, the board of directors of Sheffield was reconstituted shortly following the effective time of the transaction such that the directors of Sheffield were replaced by our current directors, all of whom were previously directors of Pipex Therapeutics. Further, upon the effective time of the merger, the business of Sheffield was abandoned and the business plan of Pipex Therapeutics was adopted. The transaction was therefore accounted for as a reverse acquisition with Pipex Therapeutics as the acquiring party and Sheffield as the acquired party. Accordingly, when we refer to our business and financial information relating to periods prior to the merger, we are referring to the business and financial information of Pipex Therapeutics, unless the context indicates otherwise.
 
Critical Accounting Policies
 
In December 2001, the SEC requested that all registrants discuss their most “critical accounting policies” in management’s discussion and analysis of financial condition and results of operations. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of the company’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that the following discussion regarding research and development expenses, general and administrative expenses and non-cash compensation expense involve our most critical accounting policies.
 
Research and development expenses consist primarily of manufacturing costs, license fees, salaries and related personnel costs, fees paid to consultants and outside service providers for laboratory development, legal expenses resulting from intellectual property prosecution and

 
27

 

organizational affairs and other expenses relating to the design, development, testing, and enhancement of our product candidates, as well as an allocation of overhead expenses incurred by the Company. We expense our research and development costs as they are incurred.
 
General and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including business development and general legal activities, as well as an allocation of overhead expenses incurred by the Company. We expense our general and administrative expenses as they are incurred.
 
Our results include non-cash compensation expense as a result of the issuance of stock and stock option grants. Compensation expense for options granted to employees represents the fair value of the award at the date of grant. All share-based payments to employees since inception have been recorded and expensed in the statements of operations as applicable under SFAS No. 123R “Share-Based Payment”.
 
This amount is being recorded over the respective vesting periods of the individual stock options. The expense is included in the respective categories of expense in the statement of operations. We expect to record additional non-cash compensation expense in the future, which may be significant. However, because some of the options are milestone-based, the total expense is uncertain.
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
 
Results of Operations
 
Year Ended December 31, 2008 and 2007.
 
Research and Development Expenses. For the year ended December 31, 2008, research and development expense was $4,643,570 as compared to $6,327,726 for the year ended December 31, 2007. The decrease of $1,684,156 is due primarily to a decrease in salaries and payroll taxes of approximately $739,000, a decrease of approximately $684,000 associated with payments related to further the development of our licensed clinical drug candidates and a decrease in stock based compensation charges of approximately $214,000.
 
General and Administrative Expenses. For the year ended December 31, 2008, general and administrative expense was $2,675,636 as compared to $3,810,585 for the year ended December 31, 2007. The decrease of $1,134,949 is due primarily to a decrease in stock based compensation charge of approximately $952,000 and an decrease in salaries and payroll taxes of approximately $160,000.
 
Other Income (Expense), net. For the year ended December 31, 2008, other income-net was $114,048 compared to $245,878 for the year ended December 31, 2007. For the year ended December 31, 2008, interest income was $128,236 as compared to $298,807 for the year ended December 31, 2007. Interest income was lower for the period in 2008 as compared to the same period in 2007, due to lower interest rates and lower levels of cash in interest bearing accounts. For the year ended December 31, 2008, interest expense was $13,831 as compared to $52,929 for the year ended December 31, 2007. Interest expense for both periods relates to interest paid on the notes payable which were repaid in March 2008.
 
Net Loss. Net loss for the year ended December 31, 2008, was $7,205,158 as compared to $9,892,433 for the year ended December 31, 2007. This decrease in net loss is attributable primarily to a decrease in research and development expenses of $1,684,156 and a decrease in general and administrative expenses of $1,134,149 as discussed above.
 
Net Loss Applicable to Common Shareholders. The net loss applicable to common shareholders for the year ended December 31, 2007 includes a non-cash charge of $12,409,722 related to the acquisition of Effective Pharmaceuticals, Inc (“EPI”).  The total of the non-cash charges was reflected through equal and offsetting adjustments to additional paid-in-capital with no net impact on stockholders’ equity. This amount was considered in the determination of the Company’s loss per common share amounts for the year ended December 31, 2007 and for the period from January 8, 2001 (inception) to December 31, 2008.
 
Liquidity and Capital Resources
 
During the year ended December 31, 2008, we had a net decrease in cash of $5,636,418. Total cash resources as of December 31, 2008 was $5,856,384. During the year ended December 31, 2008 and 2007, net cash used in operating activities was $4,851,675 and $6,606,859 respectively. This cash was used to fund our operations for the periods, adjusted for non-cash expenses and changes in operating assets and liabilities.
 
Net cash provided by investing activities for the year ended December 31, 2008 was $110,867 compared to $1,965,574 net cash used in investing activities for the year ended December 31, 2007.  The net cash provided by investing activities for the year ended December 31, 2008

 
28

 

resulted from the proceeds from the sale of equipment in the amount of $132,265, offset by the purchase of property and equipment n the amount of $21,398.  The net cash used in investing activities for the year ended December 31, 2007 resulted from the acquisition of property and equipment totaling $1,965,574.  
 
Net cash used in financing activities was $895,610 the year ended December 31, 2008 compared to $7,872,809 net cash provided by financing activities for the year ended December 31, 2007. The net cash used in financing activities for the year ended December 31, 2008 resulted from $900,000 for the repayment on notes payable, less proceeds of $4,390 from the issuance of common stock. The net cash proceeds from financing activities for the year ended December 31, 2007 resulted from $7,552,378 for proceeds from the exercise of warrants, less $579,569 paid as direct offering costs.  In addition, the Company raised $1,100,000 in proceeds from notes payable under term loans, less $200,000 of repayments under these loans.
 
Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing. Such additional funds may not become available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term. We will continue to fund operations from cash on hand and through the similar sources of capital previously described. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs.
 
Current and Future Financing Needs
 
We have incurred an accumulated deficit of $38,281,676 through December 31, 2008. We have incurred negative cash flow from operations since we started our business. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials, and our research and discovery efforts. Based on our current plans, we believe that our cash will be sufficient to enable us to meet our planned operating needs at least for the next 18 months.
 
However, the actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:
 
• the progress of our research activities;
• the number and scope of our research programs;
• the progress of our pre-clinical and clinical development activities; 
• the progress of the development efforts of parties with whom we have entered into research and development agreements;
• our ability to maintain current research and development programs and to establish new research and development and licensing
  arrangements;
• our ability to achieve our milestones under licensing arrangements;
• the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
• the costs and timing of regulatory approvals.
 
We have based our estimate on assumptions that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential sources of financing include strategic relationships, public or private sales of our shares or debt and other sources. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed.
 

 
29

 
 
License and Contractual Agreement Obligations
 
Below is a table of our contractual obligations for the years 2009 through 2013 as of December 31, 2008.

 
   
Year
   
   
2009
 
2010
 
2011
 
2012
 
2013
 
Total
License Agreements
 
$  82,000
 
$  95,000
 
$95,000
 
$120,000
 
$155,000
 
$547,000
Lease Agreements
 
$145,733
 
$150,152
 
$25,148
 
0
 
0
 
$321,033
Consulting Agreements
 
$  40,000
 
$  30,000
 
  0
 
0
 
0
 
$  70,000
                         
Total
 
$267,733
 
$275,152
 
$120,148
 
$120,000
 
$155,000
 
$938,033
 
Product Candidates

Zinthionein TM (oral zinc-monocysteine complex)
 
We plan to initially develop Zinthionein TM as an oral treatment for the support of subclinical zinc deficiency and/or chronic copper toxicity dry age-related macular degeneration (“dry AMD”). Zinthionein has completed a six month double blind randomized placebo controlled trial in 80 dry AMD patients with statistically significant improvements in visual acuity, contrast sensitivity and photorecovery times. During July 2008, we announced detailed results following the publication of the study results in a peer-reviewed ophthalmic journal. Through December 31, 2008, we have incurred approximately $410,000 of costs related to our development of Zinthionein of which $154,000 was incurred during 2007 and $256,000 was incurred in 2008.

Oral dnaJP1
 
In June 2008, we acquired Oral dnaJP1, an oral, candidate for the treatment of rheumatoid arthritis (RA) which has completed a 160 patient, multi-center, double-blind, randomized, placebo-controlled Phase II clinical trial for the treatment of RA. Rheumatoid arthritis is an autoimmune disease which affects approximately 20 million people worldwide.  Oral dnaJP1 is a epitope specific immunotherapy for RA patients. Oral dnaJP1 is a heat shock protein (hsp)-derived peptide which was previously identified as a contributor of T cell mediated inflammation in RA. Immune responses to hsp are often found at sites of inflammation and have an initially amplifying effect that needs to be downregulated to prevent tissue damage. The mechanisms for this regulation involve T cells with regulatory function that are specific for hsp-derived antigens. This regulatory function is one of the key components of a "molecular dimmer" whose physiologic function is to modulate inflammation independently from its trigger. This function is impaired in autoimmunity and could be restored for therapeutic purposes. Through December 31, 2008, we have incurred approximately $219,000 of costs related to our development of Oral dnaJP1 all of which has been incurred in 2008.

TRIMESTA TM (oral estriol)
 
In June 2007, a two year seven U.S. center, placebo controlled 150 patient phase IIb clinical trial using TRIMESTA TM for the treatment of relapsing-remitting Multiple Sclerosis (MS) was initiated under a $5 million grant from the Southern California Chapter of the National Multiple Sclerosis Society and NIH. This phase IIb clinical trial builds upon our encouraging results from an earlier phase IIa clinical trial. The primary purpose of this study is to evaluate the safety and efficacy of TRIMESTA TM in a larger MS patient population with a one year blinded interim analysis. The preclinical and clinical development of TRIMESTA TM has been primary financed by grants from the NIH and various non-profit foundations. Through December 31, 2008, we have incurred approximately $685,000 of costs related to our development of TRIMESTA TM of which approximately $49,500, $185,500 and 194,000 was incurred in fiscal years 2005, 2006 and 2007, respectively, and approximately $256,000 was incurred in 2008.  During 2009, this clinical trial was expanded to include 16 total clinical trial sites.

 
30

 

 
Oral flupirtine
 
A scientific collaborator of ours has filed and received an IND with the FDA to conduct a phase II clinical trial with flupirtine in fibromyalgia patients.  Our scientific collaborator also received institutional review board (IRB) approval to conduct this study.  Through December 31, 2008, we have incurred approximately $112,000 of costs related to our development of flupirtine, of which $85,000 was incurred during 2007 and $27,000 was incurred during 2008.  During 2008, we obtained an option to license issued and pending patent applications relating to flupirtines use in the treatment of ophthalmic indications.  We are seeking potential U.S. and international corporate partners for the further development of flupirtine for various indications.
 
Freebound TM (metals diagnostic device)
 
We were, but no longer are,  developing a proprietary electrochemical diagnostic device, Freebound TM capable of measuring levels of free and bound metals in biological samples. Through December 31, 2008, we have incurred approximately $56,000 of costs related to our development of Freebound TM, of which $38,000 was incurred during 2008.  We are no longer actively developing this electrochemical device and instead are seeking potential U.S. and international corporate partners for the further development of FreeBound.

Oral TTM (oral tetrathiomolybate)
 
Through December 31, 2008, we have incurred approximately $3,612,000 of costs related to our development of oral TTM, of which approximately $150,000, $1,061,000 and $1,676,000 was incurred in fiscal years 2005, 2006 and 2007, respectively, and approximately $725,000 was incurred during 2008.
 
We are seeking potential U.S. and international corporate partners for the further development of Oral TTM for Wilson's Disease, idiopathic pulmonary fibrosis (IPF), Alzheimer’s disease and Huntington’s Disease.

Anti-CD4 802-2
 
Through December 31, 2008, we have incurred $1,465,000 of costs related to our development of anti-CD4 802-2 of which $58,000, $332,000, $303,000, $295,000, $113,000, $161,000 and $121,000 was incurred in fiscal years 2001, 2002, 2003, 2004, 2005, 2006 and 2007 respectively and approximately $82,000 has been incurred in 2008.
 
CORRECTA TM (clotrimazole emema)
 
 In November 2008, we provided Children's Hospital Boston notice of termination of the license agreement relating to this product candidate.
 
Through December 31, 2008, and prior to our termination of this agreement, we incurred approximately $364,000 of costs related to our development of CORRECTA TM of which approximately $103,000, $107,000 and $36,000 was incurred in fiscal years 2005, 2006 and 2007, respectively, and $118,000 has been incurred during 2008.

Solovax TM   (multivalent T-cell vaccine for MS)

In November 2008, we provided University of Southern California notice of termination of the license agreement relating to this product candidate.
 
Through December 31, 2008, and prior to our termination of this agreement, we have incurred approximately $814,000 of costs related to our development of SOLOVAX of which $107,000, $158,000, $164,000, $163,000, $67,000, $21,000 and $8,000 was incurred in fiscal 2001, 2002, 2003, 2004, 2005, 2006 and 2007, respectively, and $126,000 has been incurred  during 2008.

Based on our current capital expenditures, we believe we currently have sufficient capital to fund development activities of our principal products for at least the next 18 months. However, if our business does not generate any cash flow through corporate partnering transactions, we will need to raise additional capital to continue operations beyond the second half of 2010. To the extent additional capital is not available when we need it, we may be forced to sublicense our rights to our product candidates, abandon our development efforts altogether, or lose our licenses to our product candidates, any of which would have a material adverse effect on the prospects of our business. See also the risks identified under the section entitled “Risk Factors” in this report.
 

 
31

 


Additional Licenses
 
We may enter into additional license agreements relating to new drug candidates.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable because the Company is a smaller reporting company.

 
 
 
 
 
32

 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
INDEX TO FINANCIAL STATEMENTS
 
 
ADEONA PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
 
TABLE OF CONTENTS

 
   
Page
Report of Independent Registered Public Accounting Firm
   
34
Consolidated Balance Sheets
   
35
Consolidated Statements of Operations
   
36
Consolidated Statements of Changes in Stockholders’ Equity
   
37
Consolidated Statements of Cash Flows
   
38
Notes to Consolidated Financial Statements
   
39
 
33

Top of CPA's Letterhead
 
Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Stockholders of:
Adeona Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Adeona Pharmaceuticals, Inc. and Subsidiaries (a development stage company) as of December 31, 2008 and 2007 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years ended December 31, 2008 and 2007 and for the period from January 8, 2001 (inception) to December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the consolidated financial position of Adeona Pharmaceuticals, Inc. and Subsidiaries (a development stage company) as of December 31, 2008 and 2007, and the consolidated results of their operations, changes in stockholders’ equity and cash flows for the years ended December 31, 2008 and 2007, and for the period from January 8, 2001 (inception) to December 31 2008, in conformity with accounting principles generally accepted in the United States of America.
 
Berman & Company, P.A.
CPA's Signature
Boca Raton, Florida
March 12, 2009, except for Note 9, as to which the date is March 30, 2009.
Bottom of CPA's Letterhead
 
34

 
Adeona Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Balance Sheets
 
   
December 31,
 
Assets
 
2008
   
2007
 
             
Current Assets
           
Cash
  $ 5,856,384     $ 11,492,802  
Other receivables
    55,419       -  
Prepaid expenses
    15,109       63,636  
  Total Current Assets
    5,926,912       11,556,438  
                 
Property and Equipment, net of accumulated depreciation of $591,876 and $232,564
    1,446,407       2,063,233  
                 
Deposits and other assets
    11,989       13,381  
                 
Total Assets
  $ 7,385,308     $ 13,633,052  
                 
 Liabilities and Stockholders' Equity
               
Current Liabilities:
               
Accounts payable
  $ 574,896     $ 728,119  
Accrued liabilities
    45,820       59,409  
Notes payable
    -       900,000  
  Total Current Liabilities
    620,716       1,687,528  
                 
Stockholders' Equity
               
  Preferred stock,  $0.001 par value; 10,000,000 shares authorized,
               
    none issued and outstanding
    -       -  
  Common stock,  $0.001 par value; 100,000,000 shares authorized,
               
    20,882,839 and 20,433,467 shares issued and outstanding
    20,883       20,433  
  Additional paid-in capital
    45,025,385       43,001,609  
  Deficit accumulated during the development stage
    (38,281,676 )     (31,076,518 )
  Total Stockholders' Equity
    6,764,592       11,945,524  
                 
Total Liabilities and Stockholders' Equity
  $ 7,385,308     $ 13,633,052  
 
 
See accompanying notes to consolidated financial statements
 
35

 
Adeona Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Operations
 
               
For the Period
 
               
from January 8, 2001
 
   
For the years ended December 31,
   
(Inception) to
 
   
2008
   
2007
   
December 31, 2008
 
Operating Expenses:
                 
Research and development
  $ 4,643,570     $ 6,327,726     $ 15,804,365  
General and administrative
    2,675,636       3,810,585       9,520,847  
Total Operating Expenses
    7,319,206       10,138,311       25,325,212  
                         
Loss from Operations
    (7,319,206 )     (10,138,311 )     (25,325,212 )
                         
Other Income (Expense):
                       
Interest income
    128,236       298,807       471,625  
Loss on sale of equipment
    (357 )     -       (357 )
Interest expense
    (13,831 )     (52,929 )     (66,760 )
Total Other Income, net
    114,048       245,878       404,508  
                         
Net Loss
  $ (7,205,158 )   $ (9,892,433 )   $ (24,920,704 )
                         
Less: Preferred stock dividend - subsidiary
    -       -       (951,250 )
Less: Merger dividend
    -       (12,409,722 )     (12,409,722 )
                         
Net Loss Applicable to Common Shareholders
  $ (7,205,158 )   $ (22,302,155 )   $ (38,281,676 )
                         
Net Loss Per Share  - Basic and Diluted
  $ (0.35 )   $ (1.27 )   $ (6.14 )
                         
Weighted average number of shares outstanding
                       
  during the year/period - basic and diluted
    20,651,027       17,597,120       6,235,691  
 
 
See accompanying notes to consolidated financial statements
 
36

 
Adeona Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2008 and 2007 and for the period from January 8, 2001 (inception) to December 31, 2008
 
   
Series A, Convertible
                     
Deficit
accumulated
       
   
Preferred Stock
   
Common Stock
   
Additional
   
during
   
Total
 
   
$0.001 Par Value
   
$0.001 Par Value
   
Paid-in
   
development
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
stage
   
Equity
 
                                           
Balance, January 8, 2001 (inception)
    -     $ -       -     $ -     $ -     $ -     $ -  
                                                         
Issuance of common stock to founders in exchange for subcription receivable ($0.00003/share)
    -       -       1,572,136       1,572       (1,222 )     -       350  
                                                         
Issuance of preferred stock to founder for cash ($0.055/share)
    5,421,554       5,422       -       -       294,578       -       300,000  
                                                         
Issuance of preferred and common stock to founder for cash - subsidiaries
    -       -       -       -       850,540       -       850,540  
                                                         
Net loss for the period ended December 31, 2001
    -       -       -       -       -       (277,868 )     (277,868 )
                                                         
Balance, December 31, 2001
    5,421,554       5,422       1,572,136       1,572       1,143,896       (277,868 )     873,022  
                                                         
Issuance of common stock for compensation and consulting - subsidiary
    -       -       -       -       119       -       119  
                                                         
Grant of stock options for consulting services - subsidiary
    -       -       -       -       5,890       -       5,890  
                                                         
Net loss for the year ended December 31, 2002
    -       -       -       -       -       (768,508 )     (768,508 )
                                                         
Balance, December 31, 2002
    5,421,554       5,422       1,572,136       1,572       1,149,905       (1,046,376 )     110,523  
                                                         
Grant of stock options for compensation - subsidiary
    -       -       -       -       17,984       -       17,984  
                                                         
Net loss for the year ended December 31, 2003
    -       -       -       -       -       (719,307 )     (719,307 )
                                                         
Balance, December 31, 2003
    5,421,554       5,422       1,572,136       1,572       1,167,889       (1,765,683 )     (590,800 )
                                                         
Issuance of common stock for cash - subsidiary
    -       -       -       -       50       -       50  
                                                         
Grant of stock options for consulting services - subsidiary
    -       -       -       -       10,437       -       10,437  
                                                         
Net loss for the year ended December 31, 2004
    -       -       -       -       -       (602,493 )     (602,493 )
                                                         
Balance, December 31, 2004
    5,421,554       5,422       1,572,136       1,572       1,178,376       (2,368,176 )     (1,182,806 )
                                                         
Recognition of stock based consulting in connection with stock options grants
    -       -       -       -       59,960       -       59,960  
                                                         
Recognition of stock based compensation in connection with stock option grants
    -       -       -       -       10,493       -       10,493  
                                                         
Recognition of deferred compensation - subsidiary
    -       -       -       -       14,057       -       14,057  
                                                         
Issuance of Series B, convertible preferred stock for cash - subsidiary
    -       -       -       -       1,902,500       -       1,902,500  
                                                         
Cash paid as direct offering costs in connection with sale of Series B, convertible preferred stock - subsidiary
                            (152,200            (152,200
                                                         
10% in-kind Series B, convertible preferred stock dividend - subsidiary
    -       -       -       -       190,250       (190,250 )     -  
                                                         
Net loss for the year ended December 31, 2005
    -       -       -       -       -       (1,355,842 )     (1,355,842 )
                                                         
Balance, December 31, 2005
    5,421,554       5,422       1,572,136       1,572       3,203,436       (3,914,268 )     (703,838 )
                                                         
Conversion of related party loan to common stock ($2.02/share)
    -       -       1,665,211       1,665       3,273,063       -       3,274,728  
                                                         
Issuance of common stock for cash - private placement ($2.02/share)
    -       -       6,900,931       6,901       13,919,462       -       13,926,363  
                                                         
Cash paid as direct offering costs in private placements
    -       -       -       -       (1,160,418 )     -       (1,160,418 )