SIGA Technologies, Inc.
Filed 4/9/01
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File No. 0-23047
December 31, 2000
SIGA Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3864870
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
420 Lexington Avenue, Suite 620
New York, NY 10170
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (212) 672-9100
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
Indicate by check mark whether the registrant (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 |X| No |_|.
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 registrant'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. |X| .
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the
Common Stock on March 20, 2001 as reported on the Nasdaq SmallCap Market was approximately $15,550,544. As of
March 20, 2001 the registrant had outstanding 7,548,808 shares of Common Stock.
SIGA Technologies, Inc.
Form 10-KSB
Table of Contents
Part I Page No.
Item 1 Business .................................................................. 3
Item 2 Properties ................................................................ 14
Item 3 Legal Proceedings ......................................................... 14
Item 4 Submission of Matters to a Vote of Security Holders ....................... 15
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters ..... 16
Item 6 Management's Discussion and Analysis for Financial Condition and Results
of Operations ............................................................. 18
Item 7 Financial Statements and Supplementary Data ............................... 27
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...................................................... 27
Part III
Item 9 Directors and Executive Officers of the Registrant ........................ 28
Item 10 Executive Compensation .................................................... 30
Item 11 Security Ownership of Certain Beneficial Owners and Management ............ 34
Item 12 Certain Relationships and Related Transactions ............................ 36
Part IV
Item 13 Exhibits, Lists and Reports on Form 8-K ................................... 37
Signatures ........................................................................... 42
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PART I
Item 1. Business
Certain statements in this Annual Report on Form 10-KSB, including certain statements contained in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of Operations," constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The words or phrases "can be", "expects", "may affect", "may depend", "believes",
"estimate", "project", and similar words and phrases are intended to identify such forward-looking statements. Such
forward-looking statements are subject to various known and unknown risks and uncertainties and Siga cautions you that any
forward-looking information provided by or on behalf of Siga is not a guarantee of future performance. Siga's actual results
could differ materially from those anticipated by such forward-looking statements due to a number of factors, some of which
are beyond Siga's control, in addition to those risks discussed below and in Siga's other public filings, press releases and
statements by Siga's management, including (i) the volatile and competitive nature of the biotechnology industry, (ii) changes in
domestic and foreign economic and market conditions, and (iii) the effect of federal, state and foreign regulation on Siga's
businesses. All such forward-looking statements are current only as of the date on which such statements were made. Siga
does not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the
date on which any such statement is made or to reflect the occurrence of unanticipated events.
SIGA Technologies, Inc. is referred to throughout this report as "Siga," "we" or "us."
Introduction
SIGA Technologies, Inc. is a development stage biotechnology company. Our focus is on the discovery, development and
commercialization of vaccines, antibiotics and novel anti-infectives for serious infectious diseases. Our lead vaccine candidate is
for the prevention of group A streptococcal pharyngitis or "strep throat." We are developing a technology for the mucosal
delivery of our vaccines which may allow those vaccines to activate the immune system at the mucus lined surfaces of the body
-- the mouth, the nose, the lungs and the gastrointestinal and urogenital tracts -- the sites of entry for most infectious agents.
Siga's anti-infectives programs are aimed at the increasingly serious problem of drug resistance, they are designed to block the
ability of bacteria to attach to human tissue, the first step in the infection process.
Technology
Vaccine Technologies: Mucosal Immunity and Vaccine Delivery
Using proprietary technology licensed from The Rockefeller University ("Rockefeller"), Siga is developing certain commensal
bacteria ("commensals") as a means to deliver mucosal vaccines. Commensals are harmless bacteria that naturally inhabit the
body's surfaces with different commensals inhabiting different surfaces, particularly the mucosal surfaces. Our vaccine
candidates utilize genetically engineered commensals to deliver antigens from a variety of pathogens to the mucosal immune
system. When administered, the genetically engineered ("recombinant") commensals colonize the mucosal surface and replicate.
By activating a local mucosal immune response, our vaccine candidates are designed to prevent infection and disease at the
earliest possible stage. By comparison, most conventional vaccines are designed to act after infection has already occurred.
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Our commensal vaccine candidates utilize gram-positive bacteria, one of two major classes of bacteria. Rockefeller scientists
have identified a protein region that is used by gram-positive bacteria to anchor proteins to their surfaces. We are using the
proprietary technology licensed from Rockefeller to combine antigens from a wide range of infectious organisms, both viral and
bacterial, with the surface protein anchor region of a variety of commensal organisms. By combining a specific antigen with a
specific commensal, vaccines can be tailored to both the target pathogen and its mucosal point of entry.
To target an immune response to a particular mucosal surface, a vaccine would employ a commensal organism that naturally
inhabits that surface. For example, vaccines targeting sexually transmitted diseases could employ Lactobacillus acidophilus, a
commensal colonizing the female urogenital tract. Vaccines targeting gastrointestinal ("GI") diseases could employ Lactobacillus
casei, a commensal colonizing the GI tract. We have conducted initial experiments using Streptococcus gordonii ("S. gordonii"),
a commensal that colonizes the oral cavity and that can potentially be used in vaccines targeting pathogens that enter through the
upper respiratory tract, such as the influenza virus.
By using an antigen unique to a given pathogen, the technology can potentially be applied to any infectious agent that enters the
body through a mucosal surface. Our founding scientists have expressed and anchored a variety of viral and bacterial antigens
on the outside of S. gordonii, including the M6 protein from group A streptococcus, a group of organisms that cause a range of
diseases, including strep throat, necrotizing fasciitis, impetigo and scarlet fever. In addition, proteins from other infectious
agents, such as HIV and human papilloma virus have also been expressed using this system. We believe this technology will
enable the expression of most antigens regardless of size or shape. In animal studies, we have shown that the administration of a
recombinant S. gordonii vaccine prototype induces both a local mucosal immune response and a systemic immune response.
We believe that mucosal vaccines developed using our proprietary commensal delivery technology could provide a number of
advantages, including:
o More complete protection than conventional vaccines: Mucosal vaccines in general may be more effective than conventional
parenteral (injectable) vaccines, due to their ability to produce both a systemic and local (mucosal) immune response.
o Safety advantage over other live vectors: A number of bacterial pathogens have been genetically rendered less infectious, or
attenuated, for use as live vaccine vectors. Commensals, by virtue of their harmless nature, may offer a safer delivery vehicle
without fear of genetic reversion to the infectious state inherent in attenuated pathogens.
o Non-injection administration: Oral, nasal, rectal or vaginal administration of the vaccine eliminates the need for painful
injections with their potential adverse reactions.
o Potential for combined vaccine delivery: The Children's Vaccine Initiative has called for the development of combined
vaccines, specifically to reduce the number of needle sticks per child, by combining several vaccines into one injection, thereby
increasing compliance and decreasing disease. We believe our commensal delivery technology can be an effective method of
delivery of multi-component vaccines within a single commensal organism that address multiple diseases or diseases caused by
multiple strains of an infectious agent.
o Eliminating need for refrigeration: One of the problems confronting the effective delivery of parenteral vaccines is the need for
refrigeration at all stages prior to injection. The stability of the commensal organisms in a freeze-dried state would, for the most
part, eliminate the need for special climate conditions, a critical consideration, especially for the delivery of vaccines in
developing countries.
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o Low cost production: By using a live bacterial vector, extensive downstream processing is eliminated, leading to considerable
cost savings in the production of the vaccine. The potential for eliminating the need for refrigeration would add considerably to
these savings by reducing the costs inherent in refrigeration for vaccine delivery.
Anti-Infectives Technology: Prevention of Attachment and Infectivity
The bacterial infectious process generally includes three steps:
colonization, invasion and disease. The adherence of bacteria to a host's surface is crucial to establishing colonization. Bacteria
adhere through a number of mechanisms, but generally by using highly specialized surface structures which, in turn, bind to
specific structures or molecules on the host's cells or, as discussed below, to inanimate objects residing in the host. Once
adhered, many bacteria will invade the host's cells and either establish residence or continue invasion into deeper tissues. During
any of these stages, the invading bacteria can cause the outward manifestations of disease, in some cases through the
production and release of toxin molecules. The severity of disease, while dependent on a large combination of factors, is often
the result of the ability of the bacteria to persist in the host. These bacteria accomplish this persistence by using surface
molecules which can alter the host's nonspecific mechanisms or its highly specific immune responses to clear or destroy the
organisms.
Unlike conventional antibiotics, as discussed above, our anti-infectives approaches aim to block the ability of pathogenic
bacteria to attach to and colonize human tissue, thereby preventing infection at its earliest stage. Our scientific strategy is to
inhibit the expression of bacterial surface proteins required for bacterial infectivity. We believe that this approach has promise in
the areas of hospital-acquired drug-resistant infections and a broad range of other diseases caused by bacteria.
Many special surface proteins used by bacteria to infect the host are anchored in the bacterial cell wall. Scientists at Rockefeller
University have identified an amino acid sequence and related enzyme, a selective protease, that are essential for anchoring
proteins to the surface of most gram-positive bacteria. Published information indicates that this amino acid sequence is shared
by more than 50 different surface proteins found on a variety of gram-positive bacteria. This commonality suggests that this
protease represents a promising target for the development of a new class of antibiotic products for the treatment of a wide
range of infectious diseases. Experiments by our founding scientists have shown that without this sequence, proteins cannot
become anchored to the bacterial surface and thus the bacteria are no longer capable of attachment, colonization or infection.
Such "disarmed" bacteria should be readily cleared by the body's immune system. Our drug discovery strategy is to use a
combination of structure-based drug design and high throughput screening procedures to identify compounds that inhibit the
protease, thereby blocking the anchoring process. If successful, this strategy should provide relief from many gram-positive
bacterial infections, but may prove particularly important in combating diseases caused by the emerging antibiotic resistance of
the gram-positive organisms S. aureus, Streptococcus pneumoniae, and the enterococci.
In contrast to the above program, which focuses on gram-positive bacteria, our pilicide program, based upon initial research
performed at Washington University, focuses on a number of new and novel targets all of which impact on the ability of
gram-negative bacteria to assemble adhesive pili on their surfaces. Pili are proteins on the surfaces of gram-negative bacteria -
such as E. coli, salmonella, and shigella - that are required for the attachment of the bacteria to human tissue, the first step in the
infection process. This research program is based upon the well-characterized interaction between a periplasmic protein -- a
chaperone -- and the protein subunits required to form pili. In addition to describing the process by which chaperones and pili
subunits interact, we have developed the assay systems necessary to screen for potential therapeutic compounds, and has
provided an initial basis for selecting novel antibiotics that work by interfering with the pili adhesion mechansism.
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Surface Protein Expression System ("SPEX")
The ability to overproduce many bacterial and human proteins has been made possible through the use of recombinant DNA
technology. The introduction of DNA molecules into E. coli has been the method of choice to express a variety of gene
products, because of this bacteria's rapid reproduction and well-understood genetics. Yet despite the development of many
efficient E. coli-based gene expression systems, the most important concern continues to be associated with subsequent
purification of the product. Recombinant proteins produced in this manner do not readily cross E. coli's outer membrane, and
as a result, proteins must be purified from the bacterial cytoplasm or periplasmic space. Purification of proteins from these
cellular compartments can be very difficult. Frequently encountered problems include low product yields, contamination with
potentially toxic cellular material (i.e., endotoxin) and the formation of large amounts of partially folded polypeptide chains in
non-active aggregates termed inclusion bodies.
To overcome these problems, we have taken advantage of our knowledge of gram-positive bacterial protein expression and
anchoring pathways. This pathway has evolved to handle the transport of surface proteins that vary widely in size, structure and
function. Modifying the approach used to create commensal mucosal vaccines, we have developed methods which, instead of
anchoring the foreign protein to the surface of the recombinant gram-positive bacteria, result in it being secreted into the
surrounding medium in a manner which is readily amenable to simple batch purification. We believe the advantages of this
approach include the ease and lower cost of gram-positive bacterial growth, the likelihood that secreted recombinant proteins
will be folded properly, and the ability to purify recombinant proteins from the culture medium without having to disrupt the
bacterial cells and liberating cellular contaminants. Gram-positive bacteria may be grown simply in scales from those required
for laboratory research up to commercial mass production.
Our Product Candidates and Research and Discovery Programs
Mucosal Vaccines
Development of our mucosal vaccine candidates involves: (i) identifying a suitable immunizing antigen from a pathogen; (ii)
selecting a commensal that naturally colonizes the mucosal point of entry for that pathogen; and (iii) genetically engineering the
commensal to express the antigen on its surface for subsequent delivery to the target population.
Strep Throat Vaccine Candidate. Until the age of 15, many children suffer recurrent strep throat infections. Up to five percent
of ineffectively treated strep throat cases progress to rheumatic fever, a debilitating heart disease, which worsens with each
succeeding streptococcal infection. Since the advent of penicillin therapy, rheumatic fever in the United States has experienced
a dramatic decline. However, in the last decade, rheumatic fever has experienced a resurgence in the United States. Part of the
reason for this is the latent presence of this organism in children who do not display symptoms of a sore throat, and, therefore,
remain untreated and at risk for development of rheumatic fever. Based on data from the Centers for Disease Control and
Prevention, there are five to 10 million cases of pharyngitis due to group A streptococcus in the United States each year. There
are over 32 million children in the principal age group targeted by us for vaccination. Worldwide, it is estimated that one
percent of all school age children in the developing world have rheumatic heart disease. Despite the relative ease of treating
strep throat with antibiotics, the specter of antibiotic resistance is always present. In fact, resistance to erythromycin, the second
line antibiotic in patients allergic to penicillin, has appeared in a large number of cases.
No vaccine for strep throat has been developed because of the problems associated with identifying an antigen that is common
to the more than 100 different serotypes of group A streptococcus, the bacterium that causes the disease. We have licensed
from Rockefeller a proprietary antigen which is common to most types of group A streptococcus, including types that have
been associated with rheumatic fever. When this antigen was orally administered to animals, it was shown to provide protection
against multiple types of group A streptococcal infection. Utilizing this antigen, we are developing a mucosal vaccine for strep
throat.
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Our strep throat vaccine candidate expresses the strep throat antigen on the surface of the commensal S. gordonii, which lives
on the surface of the teeth and gums. Pre-clinical research in mice and rabbits has established the ability of this vaccine
candidate to colonize and induce both a local and systemic immune response. We are collaborating with the National Institutes
of Health (the "NIH") and the University of Maryland Center for Vaccine Development on the clinical development of this
vaccine candidate. In cooperation with the NIH we filed an Investigational New Drug Application ("IND") with the United
States Food and Drug Administration (the "FDA") in December 1997. The first stage of these clinical trials, utilizing the
commensal delivery system without the strep throat antigen, were completed at the University of Maryland in 2000. The study
showed the commensal delivery system to be well-tolerated and that it spontaneously eradicated or was easily eradicated by
conventional antibiotics. A second clinical trial of the commensal delivery system without the strep throat antigen was initiated in
2000 at the University of Maryland. In September 1999 we were awarded a Phase I Small Business Innovation Research
Grant (SBIR) from the NIH to help support the research cost of our strep program.
STD Vaccine Candidates. One of the great challenges in vaccine research remains the development of effective vaccines to
prevent sexually transmitted diseases (STDs). Two principal pathogens that are transmitted via this route are chlamydia, the
most common bacterial STD, and Neisseria, the causative agent of gonnorhia. To date, a great deal of effort has been
expended, without appreciable success, to develop effective injectable prophylactic vaccines versus these pathogens. Given
that both of these pathogens enters the host through the mucosa, we believe that induction of a vigorous mucosal response to
certain bacterial antigens may protect against acquisition of the initial infection. To test this hypothesis, we have expressed newly
discovered antigens from these pathogens in our proprietary mucosal vaccine delivery system. These live recombinant vaccines
will be delivered to animals and tested for local and systemic immune response induction, and whether these responses can
block subsequent viral infections. We have licensed technology from Oregon State University and Washington University in
support of our chlamydia and Neisseria programs. In February 2000 we entered into an option agreement with the Ross
Products Division of Abbott Laboratories (Ross) which will provide funding to further development of an STD vaccine
product. In September 2000 we were awarded a Phase I SBIR Grant from the NIH to help support the research cost of this
program.
Mucosal Vaccine Delivery System
We are developing our proprietary mucosal vaccine delivery system, which is a component of our vaccine candidates, for
license to other vaccine developers. Our commensal vaccine candidates utilize gram-positive bacteria as vectors for the
presentation of antigens. We are using proprietary technology to anchor antigens from a wide range of infectious organisms,
both viral and bacterial, to the surface protein anchor region of a variety of commensal organisms. By combining a specific
antigen with a specific commensal, we believe that vaccines can be tailored to both the target pathogen and its mucosal point of
entry.
We have developed several genetic methods for recombining foreign sequences into the genome of gram-positive bacteria at a
number of non-essential sites. Various parameters have been tested and optimized to improve the level of foreign protein
expression and its immunogenicity. In pre-clinical studies, recombinant commensals have been implanted into the oral cavities of
several animal species with no deleterious effects. The introduced vaccine strains have taken up residence for prolonged
periods of time and induce both a local mucosal (IgA) as well as a systemic immune response (IgG and T-cell).
We have completed two early stage clinical evaluations of our mucosal vaccine delivery system based on the commensal
bacteria S. gordonii. These clinical studies were designed to test the safety of the formulation, to monitor the extent and duration
of colonization of the nasal and oral cavities, and to determine if the delivery system could be eradicated at the end of the study
with a regimen of conventional antibiotics. A total of 47 volunteers between the ages of 18 and 40 completed the first study, in
which S. gordonii was delivered to the nasal passage and oral cavity. A total of 60 volunteers completed a second
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study which was conducted at the University of Maryland as part of our strep throat vaccine program as described above. The
results of the studies indicated the delivery system was well-tolerated and that the delivery system spontaneously eradicated or
was easily eradicated by conventional antibiotics. The ongoing clinical studies at the University of Maryland are also designed to
evaluate S. gordonii as a commensal bacterial delivery system for our vaccine targeting strep throat.
Anti-Infectives
Our anti-infectives program is targeted principally toward drug-resistant bacteria and hospital-acquired infections. According to
estimates from the Centers for Disease Control, approximately two million hospital-acquired infections occur each year in the
United States.
Our anti-infectives approaches aim to block the ability of bacteria to attach to and colonize human tissue, thereby blocking
infection at the first stage in the infection process. By comparison, antibiotics available today act by interfering with either the
structure or the metabolism of a bacterial cell, affecting its ability to survive and to reproduce. No currently available antibiotics
target the attachment of a bacterium to its target tissue. By preventing attachment, the bacteria should be readily cleared by the
body's immune system.
Gram-Positive Antibiotic Technology. Our lead anti-infectives program is based on a novel target for antibiotic therapy. Our
founding scientists have identified an enzyme, a selective protease, utilized by most gram-positive bacteria to anchor certain
proteins to the bacterial cell wall. These surface proteins are the means by which certain bacteria recognize, adhere to and
colonize specific tissue. Our strategy is to develop protease inhibitors as novel antibiotics. We believe protease inhibitors will
have wide applicability to gram-positive bacteria in general, including antibiotic resistant staphlyococcus and a broad range of
serious infectious diseases including meningitis and respiratory tract infections. In 1997, we entered into a collaborative research
and license agreement with the Wyeth-Ayerst Laboratories Division of American Home Products Corporation
("Wyeth-Ayerst") to identify and develop protease inhibitors as novel antibiotics. In the first quarter of 2001 we received a
milestone payment from Wyeth-Ayerst for delivery of the first quantities of protease for screening, and high-throughput
screening for protease inhibitors was initiated. In connection with our effort on this program we have entered into a license with
the University of California at Los Angeles (UCLA) for certain technology that may be incorporated into our development of
products for Wyeth-Ayerst.
Gram-Negative Antibiotic Technology. We have entered into a set of technology transfer and related agreements with
MedImmune, Inc. ("MedImmune"), Astra AB and The Washington University, St. Louis ("Washington University"), pursuant to
which we acquired rights to certain gram-negative antibiotic targets, products, screens and services developed at Washington
University. In February 2000, we ended our collaborative research and development relationship with Washington University
on this technology. (See "Collaborative Research and Licenses") We maintain a non-exclusive license to technology acquired
through these related agreements. We are using this technology in the development of antibiotics against gram-negative
pathogens. These bacteria utilize structures called pili to adhere to target tissue, and we plan to exploit the assembly and export
of these essential infective structures as novel anti-infective targets.
Research carried out at Washington University has demonstrated that assembly of type P pili on gram-negative bacteria
requires the participation of both a periplasmic molecular chaperone and an outer membrane usher. Since the gram-negative pili
are the primary structures by which these organisms adhere to and colonize host tissue, inhibition of their assembly should
effectively inhibit disease caused by this class of organisms. Detailed structural data is available on the molecular chaperone and
the usher protein. This information has been used in concert with molecular modeling techniques to identify potential structures
that will bind to the conserved residues of the chaperone and usher proteins. With identification of these structures, natural and
synthetic molecules that inhibit chaperone/usher function can be screened
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using high throughput assays developed by our scientists. We believe that this approach is a departure from conventional
antibiotics and therefore may afford a method to circumvent the resistance mechanisms already established in many
gram-negative bacteria.
Scientists at Washington University have elucidated the role of chaperones -- a family of periplasmic proteins -- in the formation
of pili, which are essential for the virulence of certain gram-negative bacteria, such as E. coli or the Enterobacteriaceae
(Salmonella, Shigella, Klebsiella, etc.). The elucidation of this pathway provides several targets for the development of novel
anti-infectives: (i) blocking the interaction between chaperones and pilin subunits; (ii) interfering with chaperone-dependent
folding of pilin subunits; or (iii) interfering with how pilin subunits exit from the bacteria's outer membrane (through the "usher"
component). The chaperone-pilin complex has been examined using x-ray crystallography, and assays measuring the chaperone
interactions have been established. We are reviewing potential compounds which interfere with the chaperone-pilin interaction,
as well as seeking alternative intervention sites in the pilus formation pathway. In July 1999 and August 2000 we were awarded
Phase I SBIR grants from the NIH to support our development efforts in this area.
Broad-Spectrum Antibiotic Technology. An initial host response to pathogen invasion is the release of oxygen radicals, such as
superoxide anions and hydrogen peroxide. The DegP protease is a first-line defense against these toxic compounds, which are
lethal to invading pathogens, and is a demonstrated virulence factor for several important gram-negative pathogens: Salmonella
typhimurium, Salmonella typhi, Brucella melitensis and Yersinia enterocolitica. In all of these pathogens it was demonstrated that
organisms lacking a functional DegP protease were compromised for virulence and showed an increased sensitivity to oxidative
stress. It was also recently demonstrated that in Pseudomonas aeruginosa conversion to mucoidy, the so-called CF phenotype
involves two DegP homologues.
Scientists at Siga recently demonstrated that the DegP protease is conserved in most important Gram-positive pathogens,
including S. pyogenes, S. pneumoniae, S. mutans and S. aureus. Moreover, Siga investigators have shown a conservation of
function of this important protease in Gram-positive pathogens and believe that DegP represents a true broad-spectrum
anti-infective development target. Siga research has uncovered a virulence-associated target of the DegP protease that will be
utilized to design an assay for high-throughput screening for the identification of lead inhibitors of this potentially important
anti-infective target.
Biological Defense Program. In the U.S. an estimated $177 million will be spent this year on measures to address bioterrorism.
On of the major concerns is smallpox, although declared extinct in 1980 by the World Health Organization, it is believed that
rogue nations such as Iran, Iraq, Libya and North Korea may have an illegal inventory of the virus that causes the disease. The
only legal inventory of the virus is held under extremely tight security at the Centers For Disease Control in Atlanta, and at a
laboratory in Russia. As a result of this threat the U.S. government will be making significant expenditures on finding a way to
counter act the virus if turned loose by terrorist or on a battlefield. Siga in collaboration with Rockefeller University and Oregon
State University is working on ways to disable the virus' ability to replicate. If the virus can not replicate, it can not overwhelm
the immune system and, theoretically, can not kill its victims. The parties are also working on developing nasal sprays and
lozenges that could combat toxins such as anthrax. In September 2000 we entered into a subcontract agreement with Oregon
State University. The subcontract agreement is part of a project targeted towards developing novel antiviral drugs capable of
preventing disease and pathology for smallpox in the event this pathogen were to be used as an agent of bioterrorism. The
project is being funded by a grant from the NIH to Oregon State University. The basic virology aspects of the project will be
conducted at OSU and the drug development will be performed by Siga under subcontract.
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Veterinary Vaccines
One application of our technology is the development of live vaccines that are delivered to a specific mucosal niche where they
can colonize and thereby present antigen to the immune system and produce local immunity at the site where the corresponding
pathogen will eventually attempt to enter. Since the proprietary expression pathway that we use is conserved in essentially all
gram-positive bacteria, this should allow the same strategy to be employed in the development of veterinary vaccines. A
commensal bacterium can be isolated from the mucosa of the target species, engineered to express a desired antigen and then
reintroduced to the species in order to produce immunity against subsequent infection by the corresponding pathogen.
Examples of potential targets for this technology in the area of animal health include prevention of salmonid aquaculture disease
problems or canine papilloma virus infections.
Veterinary Program. We believe our vaccine and anti-infectives technologies also provide opportunities to develop
biopharmaceutical products for the veterinary health care market. The world wide veterinary market was reported to have been
$8 billion in 1999. In the U.S. alone, there are 120 million cats and dogs, 2 million horses, 100 million cattle, 56 million hogs
and 8 million sheep and goats. In December 2000 we entered into a collaborative agreement with Fort Dodge Animal Health, a
division of American Home Products Corporation, focusing on the design of novel vaccines for the prevention of veterinary
diseases. The research collaboration combines Siga's bacterial commensal delivery technology with Fort Dodge's proprietary
veterinary antigens. Siga will be responsible for the construction and characterization of candidate vaccines while Fort Dodge
will assess the immunogenicity and protective capacity of the target animal species.
Surface Protein Expression System
Our proprietary SPEX protein expression uses the protein export and anchoring pathway of gram-positive bacteria as a means
to facilitate the production and purification of biopharmaceutical proteins. We have developed vectors which allow foreign
genes to be inserted into the chromosome of gram-positive bacteria in a manner such that the encoded protein is synthesized,
transported to the cell surface and secreted into the medium. This system has been used to produce milligram quantities of
soluble antigenically authentic protein that can be easily purified from the culture medium by affinity chromatography. We
believe this technology can be extended to a variety of different antigens and enzymes.
We have commenced yield optimization and process validation of this system. This program is designed to transfer the method
from a laboratory scale environment to a commercial production facility. Our business strategy is to license this technology on a
non-exclusive basis for a broad range of applications.
Collaborative Research and Licenses
We sponsor research and development activities in laboratories at Oregon State University and at the University of California,
Los Angeles. We have a research and development facility in Corvallis, Oregon. We have entered into the following license
agreements and collaborative research arrangements:
Rockefeller University. Siga and Rockefeller have entered into an exclusive worldwide license agreement whereby we have
obtained the right and license to make, use and sell mucosal vaccines based on gram-positive organisms and products for the
therapy, prevention and diagnosis of diseases caused by streptococcus, staphylococcus and other organisms. The license
covers two issued United States patents and one issued European patent as well as 11 pending United States patent
applications and corresponding foreign patent applications. The issued United States patents expire in 2005 and 2014,
respectively. The agreement generally requires us to pay royalties on sales of products developed from the licensed
technologies and fees on revenues from sublicensees, where applicable, and we are responsible for certain milestone payments
and for the costs of filing and prosecuting patent applications.
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Oregon State University. Oregon State is also a party to our license agreement with Rockefeller whereby we have obtained the
right and license to make, use and sell products for the therapy, prevention and diagnosis of diseases caused by streptococcus.
Pursuant to a separate research support agreement with Oregon State, we provided funding for sponsored research through
December 31, 1999, with exclusive license rights to all inventions and discoveries resulting from this research. At this time, no
additional funding is contemplated under this agreement, however we retain the exclusive licensing rights to the inventions and
discoveries that may arise from this collaboration. During 1999, we acquired an option to enter into a license with the University
in which we will acquire the rights to certain technology pertaining to the potential development of a chlamydia vaccine. In
February 2000 we exercised our option and pursuant to an exclusive license agreement dated March, 2000, we will make
certain payments to the University as part of our obligation under the option.
In September 2000 we entered into a subcontract with Oregon State University. The contract is for a project which is targeted
towards developing novel antiviral drugs capable of preventing disease and pathology for smallpox in the event this pathogen
were to be used as an agent of bioterrorism. The project is being funded by a grant from the NIH. The basic virology aspects
of the project will be conducted at OSU and the drug development will be performed by Siga under the subcontract. The
budget for the subcontract work will be negotiated on a year by year basis with OSU depending on progress of the program
and funding available.
National Institutes of Health. We have entered into a clinical trials agreement with the NIH pursuant to which the NIH, with our
cooperation, will conduct a clinical trial of our strep throat vaccine candidate. In addition, during 2000, we received four Phase
I SBIR grants from the NIH to support our vaccine and anti infectives development programs.
Wyeth-Ayerst. We have entered into a collaborative research and license agreement with Wyeth-Ayerst in connection with the
discovery and development of anti-infectives for the treatment of gram-positive bacterial infections. Pursuant to the agreement,
Wyeth-Ayerst provided funding for a joint research and development program, subject to certain milestones, through
September 30, 1999 and is responsible for additional milestone payments.
Washington University. In February 1998 we entered into a research collaboration and worldwide license agreement with
Washington University pursuant to which we obtained the right and license to make, use and sell antibiotic products based on
gram-negative technology for all human and veterinary diagnostic and therapeutic uses. The license covered five pending United
States patent applications and corresponding foreign patent applications. The agreement generally required us to pay royalties
on sales of products developed from the licensed technologies and fees on revenues from sublicensees, where applicable, and
we were responsible for certain milestone payments and for the costs of filing and prosecuting patent applications. Pursuant to
the agreement, we agreed to provided funding to Washington University for sponsored research through February 6, 2001,
with exclusive license rights to all inventions and discoveries resulting from this research. During 1999, a dispute arose between
the parties regarding their respective performance under the agreement. In February 2000, the parties reached a settlement
agreement and mutual release of their obligations under the research collaboration agreement. Under the terms of the
settlement, we are released from any further payments to the University and have disclaimed any rights to the patents licensed
under the original agreement. As part of the settlement agreement, we entered into a non-exclusive license to certain patents
covered in the original agreement.
11
Abbott Laboratories. In March 2000 we entered into an agreement with the Ross Products Division of Abbott Laboratories
(Ross). The agreement grants Ross an exclusive option to negotiate an exclusive license to certain Siga technology and patents
in addition to certain research development services. In exchange for research services and the option, Ross is obligated to pay
us $120,000 in three installments of $40,000. The first payment of $40,000 was received during the quarter ended March 31,
2000. The remaining installments are contingent upon certain milestones under the agreement. In the twelve months ended
December 31, 2000, we recognized revenue of $80,000.
Regents of the University of California. In December 2000 we entered into an exclusive license agreement and a sponsored
research agreement with the Regents of the University of California (the "Regents"). Under the license agreement Siga obtained
rights for the exclusive commercial development, use and sale of products related to certain inventions in exchange for a
non-refundable license issuance fee of $15,000 and an annual maintenance fee of $10,000. In the event that the Company
sub-leases the license, it shall pay Regents 15% of all royalty payments made to Siga. Under the agreement, Siga will also pay
Regents 15% of all funds received from Wyeth-Ayesrt and a minimum annual amount of $250,000 for the continued
development of the inventions for a period of three years.
Under the sponsored research agreement Siga will provide the Regents with funding in the total amount of $300,000 over a
period of two years to support certain research.
Maxygen, Inc. In October 2000 we entered into a collaborative agreement with Maxygen, Inc. to develop a vaccine for
biological defense applications. The collaboration combines Siga's patented vaccine delivery system with Maxygen's
proprietary antigens for generating an immune response.
American Home Products. In December 2000 we entered into a collaborative agreement with Fort Dodge Animal Health, a
division of American Home Products Corporation. The collaboration is focused on the design of novel vaccines for the
prevention of veterinary diseases. The research collaboration combines Siga's bacterial commensal delivery technology with
Fort Dodge's proprietary veterinary antigens. Siga will be responsible for the construction and characterization of candidate
vaccines while Fort Dodge will assess the immunogenicity and protective capacity of the target animal species.
Intellectual Property and Proprietary Rights
Protection of our proprietary compounds and technology is essential to our business. Our policy is to seek, when appropriate,
protection for our lead compounds and certain other proprietary technology by filing patent applications in the United States
and other countries. We have licensed the rights to seven issued United States patents and one issued European patent. We
have also licensed the rights to one allowed United States patent application, four pending United States patent applications as
well as corresponding foreign patent applications. We are joint owner with Washington University of one issued, one allowed
application, and seven pending applications as well as foreign counterparts. We are also exclusive owner of three pending U.S.
applications based on research conducted in our facility in Oregon.
The patents and patent applications licensed to us relate to all of the core technology used in the development of our leading
product candidates, including the mucosal vaccine delivery system, the SPEX protein expression system for producing
biopharmaceutical products, the protective streptococcal antigens and the antibiotic development target, as well as a variety of
early stage research projects. Each of our products represented by each of the patents is in a very early stage in its
development process.
We also rely upon trade secret protection for our confidential and proprietary information. No assurance can be given that
other companies will not independently develop substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets or that we can meaningfully protect our trade secrets.
12
Government Regulation
Regulation by governmental authorities in the United States and other countries will be a significant factor in the production and
marketing of any biopharmaceutical products that we may develop. The nature and the extent to which such regulations may
apply to us will vary depending on the nature of any such products. Virtually all of our potential biopharmaceutical products will
require regulatory approval by governmental agencies prior to commercialization. In particular, human therapeutic products are
subject to rigorous pre-clinical and clinical testing and other approval procedures by the FDA and similar health authorities in
foreign countries. Various federal statutes and regulations also govern or influence the manufacturing, safety, labeling, storage,
record keeping and marketing of such products. The process of obtaining these approvals and the subsequent compliance with
appropriate federal and foreign statutes and regulations requires the expenditure of substantial resources.
In order to test clinically, produce and market products for diagnostic or therapeutic use, a company must comply with
mandatory procedures and safety standards established by the FDA and comparable agencies in foreign countries. Before
beginning human clinical testing of a potential new drug, a company must file an IND and receive clearance from the FDA. This
application is a summary of the pre-clinical studies that were conducted to characterize the drug, including toxicity and safety
studies, as well as an in-depth discussion of the human clinical studies that are being proposed.
The pre-marketing program required for approval of a new drug typically involves a time-consuming and costly three-phase
process. In Phase I, trials are conducted with a small number of patients to determine the early safety profile, the pattern of
drug distribution and metabolism. In Phase II, trials are conducted with small groups of patients afflicted with a target disease in
order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase III, large scale,
multi-center comparative trials are conducted with patients afflicted with a target disease in order to provide enough data for
statistical proof of efficacy and safety required by the FDA and others.
The FDA closely monitors the progress of each of the three phases of clinical testing and may, in its discretion, reevaluate, alter,
suspend or terminate the testing based on the data that have been accumulated to that point and its assessment of the
risk/benefit ratio to the patient. Estimates of the total time required for carrying out such clinical testing vary between two and
ten years. Upon completion of such clinical testing, a company typically submits a New Drug Application ("NDA") or Product
License Application ("PLA") to the FDA that summarizes the results and observations of the drug during the clinical testing.
Based on its review of the NDA or PLA, the FDA will decide whether to approve the drug. This review process can be quite
lengthy, and approval for the production and marketing of a new pharmaceutical product can require a number of years and
substantial funding; there can be no assurance that any approvals will be granted on a timely basis, if at all.
Once the product is approved for sale, FDA regulations govern the production process and marketing activities, and a
post-marketing testing and surveillance program may be required to monitor continuously a product's usage and its effects.
Product approvals may be withdrawn if compliance with regulatory standards is not maintained. Other countries in which any
products developed by us may be marketed, could impose a similar regulatory process.
13
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly evolving technology and intense competition. Our
competitors include most of the major pharmaceutical companies, which have financial, technical and marketing resources
significantly greater than ours. Biotechnology and other pharmaceutical competitors include Cubist Pharmaceuticals, Inc.,
Corixa Corporation, Microcide Pharmaceuticals, Inc., ID Vaccines Ltd., Actinova PLC, and Antex Biologics, Inc. Academic
institutions, governmental agencies and other public and private research organizations are also conducting research activities
and seeking patent protection and may commercialize products on their own or through joint venture. There can be no
assurance that our competitors will not succeed in developing products that are more effective or less costly than any which are
being developed by us or which would render our technology and future products obsolete and noncompetitive.
Human Resources and Facilities
As of March 20, 2001 we had 17 full time employees. Our employees are not covered by a collective bargaining agreement
and we consider our employee relations to be excellent.
Item 2. Properties
Our headquarters are located in New York, New York and our research and development facilities are located in Corvallis,
Oregon. In New York, we lease approximately 5,200 square feet under a lease that expires in November 2002. In Corvallis,
we lease approximately 10,000 square feet under a lease that expires in December 2004.
Item 3. Legal Proceedings - None
14
Item 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Stockholders held on November 1, 2000, the following matters were voted upon:
The following nominees were elected to the Board of Directors
Nominee For Number of Votes Against Abstained
------- --- ----------------------- ---------
Judson A. Cooper 5,925,991 12,840 0
Eric I. Richman 5,925,991 12,840 0
Thomas N. Lanier 5,925,991 12,840 0
Jeffrey Rubin 5,925,991 12,840 0
Joshua D. Schein 5,925,991 12,840 0
The Stockholders voted to ratify the selection of Pricewaterhouse Coopers LLP as independent auditors of SIGA
Technologies, Inc. for its fiscal year ending December 31, 2000.
For Number of Votes Against Abstained
5,928,491 7,340 3,000
The Stockholders voted to amend our 1996 Incentive and Non-Qualified Stock Option Plan increasing the number of shares
authorized for issuance by 1,000,000 shares from 1,500,000 to 2,500,000.
For Number of Votes Against Abstained
--- ----------------------- ---------
2,290,025 70,130 1,600
15
Part II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
Our common stock has been traded on the Nasdaq SmallCap Market since September 9, 1997 and trades under the symbol
"SIGA." Prior to that time there was no public market for our common stock. The following table sets forth, for the periods
indicated, the high and low closing sales prices for the common stock, as reported on the Nasdaq SmallCap Market.
Price Range
1999 High Low
First Quarter $1.88 $1.03
Second Quarter $1.44 $0.81
Third Quarter $1.41 $0.69
Fourth Quarter $2.09 $0.97
2000 High Low
First Quarter $9.38 $1.44
Second Quarter $5.50 $3.00
Third Quarter $4.88 $2.59
Fourth Quarter $5.31 $3.00
As of March 20, 2001, the closing sales price of our common stock was $2.06 per share. There were 44 holders of record as
of March 20, 2001. We believe that the number of beneficial owners is substantially greater than the number of record holders,
because a large portion of common stock is held in broker "street names."
We have paid no dividends on our common stock and we do not expect to pay cash dividends in the foreseeable future. We
are not under any contractual restriction as to our present or future ability to pay dividends. We currently intend to retain any
future earnings to finance the growth and development of our business.
Recent Sales of Unregistered Securities
On January 31, 2000, we completed a private placement of an aggregate principal amount of $1,500,000 6% convertible
debentures and 1,043,478 warrants. We received net proceeds of $1,499,674 from the total $1,552,174 gross proceeds. The
debentures are convertible into common stock at $1.44 per share. The warrants have a term of five years and are exercisable
at $3.41 per share. Under certain circumstances, we can redeem the shares.
16
On March 28, 2000, we completed a private placement of an aggregate of 600,000 shares of common stock and 450,000
warrants. We received net proceeds of $2,883,000 from the total gross proceeds of $3,000,000. The warrants have a term of
three years; 210,000 warrants are exercisable at $5.00 per share, 120,000 are exercisable at $6.375 per share and 120,000
are exercisable at $6.90 per share.
On July 7, 2000, pursuant to a stock purchase agreement, we exchanged 40,336 shares of our common stock and certain
additional consideration, for 12.5% of the outstanding capital stock of Open-i Media, Inc., an Internet development and
multimedia training company.
Recent Developments
On March, 30, 2001, Joshua D. Schein, our Chief Executive Officer and a director and Judson A. Cooper, our Chairman of
the Board entered into an agreement with, among others, Donald G. Drapkin, a beneficial owner of more than 5% of our
common stock, in which Messrs. Schein and Cooper have agreed to resign from Siga and use their best efforts to cause each
of the current directors of Siga to resign. Certain provisions of the agreement are subject to the condition that each current
director of Siga resign. Provided that such condition is satisfied, it is expected that Mr. Drapkin will be appointed Chairman of
the Board and Eric A. Rose, M.D. will be appointed as Interim Chief Executive Officer. In addition, it is anticipated that
Gabriel M. Cerrone, Thomas E. Constance, Mehmet C. Oz, M.D. and Michael Weiner, M.D. will be appointed as directors.
Each of the parties to the agreement have agreed to lock up their respective shares of common stock and options of Siga for
24 months subject to certain conditions and exceptions. Messrs. Schein and Cooper have also each entered into a separation
agreement with Siga. A Schedule 14f-1 is currently being prepared and will be sent to our stockholders promptly. The
resignations of Messrs. Schein and Cooper are expected to be effective 10 days after the mailing of Schedule 14f-1.
17
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS
The following discussion should be read in conjunction with our financial statements and notes to those statements and other
financial information appearing elsewhere in this Annual Report. In addition to historical information, the following discussion
and other parts of this Annual Report contain forward-looking information that involves risks and uncertainties.
Overview
We are a development stage, technology company, whose primary focus is in biopharmaceutical product development. Since
inception in December 1995 our efforts have been principally devoted to research and development, securing patent
protection, obtaining corporate relationships and raising capital. Since inception through December 31, 2000, we have
sustained cumulative net losses of $22,441,569, including non-cash charges in the amount of $1,457,458 for the write-off of
research and development expenses associated with the acquisition of certain technology rights acquired from a third party in
exchange for our common stock. In addition, a non-cash charge of $450,450 was incurred for stock option and warrant
compensation expense. Our losses have resulted primarily from expenditures incurred in connection with research and
development, patent preparation and prosecution and general and administrative expenses. From inception through December
31, 2000, research and development expenses amounted to $10,275,888, patent preparation and prosecution expenses
totaled $1,237,491, general and administration expenses amounted to $12,264,156. From inception through December 31,
2000 revenues from research and development agreements and government grants totaled $2,127,681.
Since inception, Siga has had limited resources, has incurred cumulative net operating losses of $22,198,954 and expects to
incur additional losses to perform further research and development activities. We do not have commercial biomedical
products, and we do not expect to have such for several years, if at all. We believe that we will need additional funds to
complete the development of our biomedical products. These circumstances raise substantial doubt about our ability to continue
as a going concern. Our plans with regard to these matters include continued development of our products as well as seeking
additional research support funds and financial arrangements. Although we continue to pursue these plans, there is no assurance
that we will be successful in obtaining sufficient financing on terms acceptable to us. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
We have consolidated our biotechnology assets and operations in our research facility in Corvallis, Oregon. We continue to
seek to fund a major portion of our ongoing vaccine and antibiotic programs through a combination of government grants,
corporate partnerships and strategic alliances. While we have had success in obtaining partners and grants, no assurance can be
given that we will continue to be successful in obtaining funds from these sources. Until additional relationships are established,
we expect to continue to incur significant research and development costs and costs associated with the manufacturing of
product for use in clinical trials and pre-clinical testing. It is expected that general and administrative costs, including patent and
regulatory costs, necessary to support clinical trials and research and development will continue to be significant in the future.
To date, we have not marketed, or generated revenues from the commercial sale of any products. Our biopharmaceutical
product candidates are not expected to be commercially available for several years, if at all. Accordingly, we expect to incur
operating losses for the foreseeable future. There can be no assurance that we will ever achieve profitable operations.
Results of Operations
Twelve Months ended December 31, 2000 and December 31, 1999.
Revenues from grants and research and development contracts were $483,120 for the twelve months ended December 31,
2000 compared to $519,561 for the same period of 1999. The approximate 7% decline in revenue for the period ended
December 31, 2000 is the result of no revenue being recognized from Wyeth-Ayerst, compared to revenue of $337,500 for
the same twelve month period of 1999. This decline was largely offset by increased revenue from Small Business Innovation
Research (SBIR) Grants and an agreement with the Ross Products division of Abbott Laboratories. During the twelve month
period of 2000 we received $450,000 from Wyeth-Ayerst in continued support for our research efforts, however, pending
completion of a new agreement, the entire amount has been recorded as deferred revenue.
18
General and administrative expenses increased approximately 123% for the twelve months ended December 31, 2000 to
$4,851,100 from $2,284,790 for the twelve months ended December 31, 1999. The increase in expenditures is the result of
non-cash compensation of approximately $950,000 associated with the grant of warrants and options to certain consultants
and directors, and a charge of $511,000 to reserve an amount advanced to Hypernix during the twelve months ended
December 31, 2000. Hypernix was an Isreali company we entered into a letter of intent to acquire in May 2000. We
terminated the agreement in August 2000. Also contributing to the increase in expenses were the personnel costs associated
with managing our internet assets and higher legal and accounting costs incurred as a result of our Internet investment.
Research and development expenses increased to $2,608,907 for the twelve months ended December 31, 2000 from
$1,672,778 for the same period in 1999. The approximate 56% increase in spending from 1999 compared to the same twelve
month period ended December 31, 2000, is primarily the result of expenses incurred in the development of our internet
initiative, PeerFinder. In July 2000, we exchanged our internet assets and 40,336 shares of our common stock for 12.5% of
Open-i Media, Inc. an Internet development and multimedia training company. At December 31, 2000, we reassessed the
value of our investment in Open-i Media. We reviewed certain events and changes in circumstances indicating that the carrying
amount of the investment in Open-i Media may not be recoverable in its entirety. As a result, we elected to reduce the carrying
amount of our investment to reflect its recoverable value as of year end and recorded an impairment charge of $156,000.
Research and development expenses incurred in our biotechnology operation were essentially flat.
Patent preparation expense of $106,647 for the twelve months ended December 31, 2000 was approximately 45% lower than
the $193,567 incurred for the twelve months ending December 31, 1999. The decline in spending from the prior year twelve
month period reflects the continuing trend to reduce patent costs by focusing on our core biopharmaceutical technologies and
eliminating programs that we believe have less commercial value.
In the twelve months ended December 31, 1999 we incurred expenses of $97,696 resulting from the settlement of litigation
with a university where we had been sponsoring research. The settlement expenses were for the transfer of title to the university
of certain fixed assets as part of the settlement agreement. No such expenses were incurred in the twelve months ended
December 31, 2000.
Total operating loss for the twelve months ended December 31, 2000 was $7,083,534, an approximate 90% increase from the
$3,729,543 loss incurred for the twelve months ended December 31, 1999. The increase in the operating loss was primarily
due to the non-cash general and administration compensation expense associated with warrants and options granted to certain
consultants and directors and the charge taken to reserve the funds advanced to Hypernix. Also contributing to the increase in
the operating loss were the higher general and administrative and research and development expenses associated with the
management and development of our internet assets.
19
Net interest expense for the twelve months ended December 31, 2000 was $550,464 compared to income of $26,383 for the
twelve months ended December 31, 1999. The increase in interest expense is the result of the accrual of interest expense
associated with our sale of $1,500,000 principal amount of 6% convertible debentures in January 2000.
We recorded a net gain of $66,660 for the twelve months ended December 31, 1999 from the sale of certain securities held
for investment purposes. No such income was received in the year ending December 31, 2000.