Boris Peaker, Ph.D., CFA212 667-8564Boris.Peaker@opco.com

Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. Asa result, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report. Investors should consider this report as only a single factor in making theirinvestment decision. See "Important Disclosures and Certifications" section at the end of this report forimportant disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Key Risksto Price Target" sections at the end of this report, where applicable.

Stock Price Performance

Q3 Q14

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2012

1 Year Price History for CNDO

Created by BlueMatrix

Company Description

Coronado Biosciences Inc. is a developmentstage biotechnology company focusing ononcology and immunology.

February 23, 2012 HEALTHCARE/EMERGING BIOTECHNOLOGY

Stock Rating:

OUTPERFORM12-18 mo. Price Target $12.00

CNDO - NASDAQ $6.85

3-5 Yr. EPS Gr. Rate NA

52-Wk Range $11.00-$4.95

Shares Outstanding 18.5M

Float 14.4M

Market Capitalization $126.9M

Avg. Daily Trading Volume 30,986

Dividend/Div Yield NA/NM

Fiscal Year Ends Dec

Book Value ($6.35)

2011E ROE NA

LT Debt $0.0M

Preferred $0.0M

Common Equity ($6M)

Convertible Available No

EPS Diluted Q1 Q2 Q3 Q4 Year Mult.

2010A -- -- -- -- (2.24) NM

2011E (4.71)A (1.63)A (0.48)A (0.27) (4.66) NM

2012E (0.28) (0.27) (0.21) (0.17) (0.82) NM

2013E (0.19) (0.19) (0.20) (0.20) (0.78) NM

Coronado BiosciencesHarnessing Nature to Treat Autoimmune Disease andCancer;Initiate w/Outperform

SUMMARY

We are initiating coverage of Coronado Biosciences with an Outperform rating and

a $12/share price target. Coronado's leading asset (CNDO-201) is a

pharmaceutical formulation of porcine parasite for the treatment of human

autoimmune disease. Although the therapy is unconventional, it aims to recreate a

natural relationship that humans have had with intestinal parasites throughout the

millenia until the significant public health changes in the last century. The treatment

showed encouraging efficacy in Crohn's disease and ulcerative colitis, as well as

early data in multiple sclerosis. We believe that the market is largely overlooking

Coronado due to the unconventional approach of its leading asset. We anticipate

investors to discover this company, particularly as new CNDO-201 data is

presented in 2H12.

KEY POINTS

■ We believe that natural approaches to autoimmune disease, such as

CNDO-201, hold the potential of efficacy on par or better than today's biologic

drugs, but with reduced side effect profile and more convenient dosing.

■ Coronado's partner, OvaMed (private), owns a GMP certified manufacturing

facility for the production of porcine whipworm ova. We believe that the facility,

and the associated manufacturing patents, are a substantial barrier to entry for

potential future competitors.

■ Coronado's second asset (CNDO-109) is a cell therapy which activates NK cells

in vitro. The initial data in Acute Myeloid Leukemia (AML) is encouraging, and

we believe CNDO-109 has potential in liquid and solid tumors.

■ Both of Coronado's assets are targeting established blockbuster markets

(Crohn's disease, ulcerative colitis, multiple sclerosis, liquid tumors), and

mechanistically may work in other autoimmune and oncology indications.

■ Given the relatively early stage of development, we are not explicitly modeling

each indication that Coronado is pursuing. We anticipate results from two Phase

II placebo controlled studies in Crohn's disease in 2H12, and our price target is

based on comparable companies with existing Phase II data in large

commercial markets.

EQUITY RESEARCH

INITIATION OF COVERAGE

Oppenheimer & Co Inc. 300 Madison Avenue New York, NY 10017 Tel: 800-221-5588 Fax: 212-667-8229

2

Table Of Contents

Page

Investment Thesis 3

Key Milestones 5

Valuation 6

Risks to Our Thesis 8

Financial Overview and Projections 9

Hygiene Hypothesis Background 12

CNDO-201 Clinical Development In Intestinal Disease 16

CNDO-201 Clinical Development In Systemic Disease 20

Thought Leader Interviews 25

CNDO-109 Clinical Development 27

Key Licensing Agreements 30

Management Biography 31

3

Investment Thesis We are initiating coverage of Coronado Biosciences Inc. (CNDO) with an Outperform

rating and a 12- to 18-month price target of $12/share. Coronado Biosciences Inc. is a

development stage biotechnology company focusing on oncology and immunology. Both

of Coronado‟s assets are aimed at immune system modulation, CNDO-201 for treatment

of autoimmune disease and CNDO-190 for treatment of cancer. Both of these assets are

very unique and are highly differentiated from other drugs in development or approved for

similar indications.

Coronado‟s leading asset is CNDO-201, which is a therapeutic formulation of a non-

human intestinal parasite. Although some investors may be surprised by the

unconventional nature of the treatment, the therapeutic approach is based on the hygiene

hypothesis. This hypothesis suggests that the rise of autoimmune disease over the last

100 years is due to the effects of eradication of parasites and infections from our bodies

and environment. We believe that CNDO-201 offers a potential breakthrough approach in

the treatment of autoimmune disease. Initial data are very encouraging both in local

intestinal autoimmune conditions such as Irritable Bowel Disease (IBD), as well as

systemic diseases like multiple sclerosis. Based on initial data, the treatment appears to

be very safe, and potentially much safer than current biologic drugs. From the efficacy

perspective, the data in all the tested indications is very encouraging. CNDO-201 showed

statistically significant benefit in a placebo controlled study in ulcerative colitis, as well as

improvement over historical controls in open-label trials. Additionally, an independent,

controlled, 7.5 year observational study of MS patients infected with a range of intestinal

parasites further confirmed the hygiene hypothesis in this systemic autoimmune condition,

which is the scientific basis for CNDO-201. From the patient‟s perspective, administration

of CNDO-201 requires drinking a small water-based solution that contains invisible

parasite eggs once every two or three weeks. While some patients may hesitate initially,

based on the many requests to participate in the study received by investigators, we

believe that most patients will find CNDO-201 much more convenient to administer than

current injectable drugs.

The hygiene hypothesis was postulated in the 1980‟s. As such, there have been a number

of biotechnology companies that investigated the idea of developing intestinal parasites

for the treatment of autoimmune conditions. However, we are not aware of any company

successfully moving forward with development (beside Coronado‟s partners, OvaMed and

Dr. Falk Pharma), which we believe was for two primary reasons. First, they did not have

the right parasite that would be viewed as safe by the FDA. We believe that CNDO-201 is

an ideal organism for this treatment, and we discuss the details underlying our view further

in our report. Second, companies failed to gain IND approval from the FDA due to

concerns about manufacturing and quality control. Coronado secured rights to a GMP-

approved manufacturing facility for CNDO-201, which we believe is a major competitive

advantage, in addition to the company‟s patents.

CNDO-109 is the second asset that Coronado Biosciences is developing. CNDO-109 is a

method of activating Natural Killer (NK) cells for the treatment of cancer. Past attempts at

activating NK cells in the patient‟s body using cytokines showed encouraging data, but

was limited by severe toxicity. Coronado‟s process requires a blood donation by a

matched donor. The NK cells are then activated with Coronado‟s proprietary technology in

the lab and infused into the patient. This appears to be a safer approach than

administering potent cytokines to a cancer patient. To date the therapy has been

investigated in Acute Myelogenous Leukemia (AML) patients that have exhausted other

options, and the results showed a duration of remission higher than observed for prior

4

stages of treatment. We believe that this data is intriguing, and we look forward to

additional clinical result for CNDO-109.

Exhibit 1: Coronado Biosciences Pipeline

Source: Company website

5

Key Milestones

Event Date

CNDO-201

Start Phase II study in Crohn's disease 2Q12

Results from Phase II study in Crohn's disease 2H12

Results from 212-subject Phase II Crohn's study by partner Dr. Falk Pharma GmbH 4Q12

Initial results from second stage of Phase I study in MS (HINT-2) April '12

Complete results from Phase I study in MS (HINT-2) 1H13

CNDO-109

Commence Phase I/II Study in AML 2Q12

Results from Phase I/II Study in AML 2H13

Source: Company reports, Oppenheimer & Co. Inc.

6

Valuation

Both Programs Have Blockbuster Potential

Coronado Biosciences is developing two assets, CNDO-201 and CNDO-109. Both are

very unique potential treatments for autoimmune disease and cancer, respectively.

CNDO-201 has shown very encouraging proof of concept data in open-label and placebo-

controlled studies, with one Phase II study ongoing and another Phase II trial anticipated

to start in 2Q12. CNDO-109 showed encouraging data in an open-label academic study,

and the company plans to commence a Phase I/II trial in 2Q12.

Both pipeline assets target large markets. CNDO-201 may be effective in Crohn‟s disease,

ulcerative colitis, multiple sclerosis (MS), rheumatoid arthritis, and potentially other

autoimmune indications. The global MS drug market is in excess of $7B/year and TNF

alpha inhibitors that are frequently used for rheumatoid arthritis, psoriasis, Crohn‟s

disease and ulcerative colitis garner over $20B/year. Similarly, CNDO-109 may have

potential utility in both liquid and solid tumors, and as such, it is not difficult to arrive at a

multi-billion potential target market. Given the placebo-adjusted response rate of <50% for

today‟s leading immunomodulatory biologic drugs, in addition to the associated adverse

effects and the inconvenience of regular injections, we believe that CNDO-201‟s safety

and efficacy profile to date appears very competitive. However, due to the relatively early

stage of development for both of these drugs and the large commercial potential, we

believe that it is a bit premature to build financial projection. Therefore, in order to arrive at

our 12-18 month price target, we believe that the more reasonable approach is to look at

comparable biotechnology companies.

Over the next 12-18 month we anticipate investors to primarily focus on CNDO-201 since

there is already more data for this compound, and results from two controlled Phase II

studies should be announced in this time frame. A positive outcome in these trials can

significantly alter the investment community‟s perception of CNDO-201 and drive the

company‟s valuation. If the data confirm the results observed to date, we believe that

investors will give credit to Coronado for the barriers to entry that exist for any potential

competitor. First, we believe that CNDO-201 is one of the best organisms for this

indication given its unique safety profile in humans. Additionally, the access to an

approved GMP manufacturing facility is a very valuable asset, lack of which prevented

other companies from commencing similar studies in the past. As such, looking 12-18

month into the future and anticipating positive outcome in the Phase II studies, we

selected a list of biotechnology companies that have strong Phase II data in potentially

blockbuster market opportunities (Exhibit 2). Based on an anticipated share count of 38M

at the end of 2012 (this includes a possible financing round and all outstanding

options/warrants), and the average comparables valuation of $459M, we arrive at a price

target of $12/share.

7

Exhibit 2: Price Target Based on Comparables Analysis

Ticker NamePrice

(02-22-12)

Shares

Outstanding (M)

Market

Cap ($M)Rating

ACHN Achillion Pharmaceuticals Inc. $10.32 70 $720 Perform

ARQL ArQule Inc. $7.26 54 $390 Outperform

IDIX Idenix Pharmaceuticals Inc. $12.25 96 $1,178 Perform

LGND Ligand Pharmaceuticals Inc. $14.64 20 $288 Not Rated

NBIX Neurocrine Biosciences Inc. $8.08 66 $535 Not Rated

ONCY Oncolytics Biotech Inc. $5.01 71 $357 Perform

CLDX Celldex $4.30 44 $190 Outperform

RDEA Ardea $19.45 27 $523 Outperform

PBTH Prolor $5.41 55 $295 Not Rated

YMI YM BioSciences Inc. $2.08 117 $243 Not Rated

ZIOP ZIOPHARM Oncology Inc. $4.90 68 $334 Not Rated

Average 459

Source: FactSet, Oppenheimer & Co. Inc.

8

Key Risks to Our Thesis and Price Target

There are multiple risks and uncertainties associated with investment in development-

stage biotechnology companies. We recommend investors review Coronado‟s regulatory

filings for the detailed summary of investment risks, and below we highlight the key risks

that relate to our thesis and price target.

Clinical Trial Risk

Coronado and/or its partners are conducting several ongoing clinical studies. There is a

risk that these trials may not meet their endpoint(s), and as such, may not lead to

marketing approval.

Regulatory Risk

Both of Coronado‟s assets will require FDA approval for commercialization in the US and

similar approvals in other geographies. Both assets are rather unique, and there is a risk

that the FDA and/or other regulatory bodies may delay the regulatory process and/or not

grant approval.

Competitive Risk

There are many drugs approved and in development for the treatment of autoimmune

conditions and oncology. As such, both of Coronado‟s assets will have to show at least a

modest improvement in safety and/or efficacy compared to these agents. There is a risk

that CNDO-201 and/or CNDO-109 may not yield competitive profiles in clinical trials.

Partnership Risk

Coronado has several key partnerships that enable it to gain access to the existing clinical

data, manufacturing facilities, and other specific know-how and expertise related to its two

pipeline assets. There is a risk that a disagreement with its partners, change in control of

the partner, or other unanticipated partner developments may negatively affect the

advancement of Coronado‟s clinical programs.

Political/Reimbursement Risk

Healthcare costs and reimbursement are prominent political items, particularly in light of

the budget deficits in the US and the rest of the world. Unfavorable political developments

may negatively impact Coronado‟s valuation

Liquidity and Small Capitalization

Coronado Biosciences is a small-capitalization (<$500M) unprofitable biotechnology

company. Although the stock is trading above $5/share, we believe that there is a limited

market for CNDO stock at this time, which may lead to volatility.

9

Financial Overview and Projections

Coronado ended 3Q12 with a cash balance of $27M. We are estimating cash burn from

operations to increase from ~$2.5-3M/quarter over the last two quarters to $4.5-

5M/quarter going forward due to increasing clinical trial activities. In the 3Q11 10Q filing

management stated that current cash balance is adequate to maintain operations through

2012. Consistent with financial operations of a development-stage biotechnology

company, we are assuming that Coronado Biosciences may require additional capital in

2H12. We believe that the company may be favorably positioned to raise equity capital

and/or non-dilutive capital from potential partnership in 2H12 due to anticipated milestones

for CNDO-201. Specifically, the key value creating milestones that we are anticipating

include results from the company-conducted Phase II study in Crohn‟s disease (2H12)

and the results from a large Crohn‟s study conducted by partner Dr. Falk Pharma (4Q12).

Additionally, initial MRI results from the HINT-2 study are anticipated in April of this year,

which can further generate investor interest in CNDO-201. In our model we are assuming

an equity financing in 3Q12, and as we discussed in the valuation section, our price target

assessment includes this financing dilution.

.

10

Financial Statements

Exhibit 3: Historical and Projected Income Statement

Historical and Projected Income Statement Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13

FY Ending Dec 31st 1QA 2QA 3QA 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE

REVENUE

Total Revenue

OPERATING EXPENSES

Research and development 8,341 1,246 2,142 1,753 2,500 7,641 3,000 3,000 3,500 3,500 13,000 4,000 4,200 4,500 4,500 17,200

General and administrative 900 593 1,594 1,778 2,000 5,965 2,200 2,200 2,200 2,200 8,800 2,500 2,500 2,500 2,500 10,000

In-Process Research and Development 20,706 0 0 0 20,706

Total Operating Expenses 9,241 22,545 3,736 3,531 4,500 34,312 5,200 5,200 5,700 5,700 21,800 6,500 6,700 7,000 7,000 27,200

(Loss) from operations (9,241) (22,545) (3,736) (3,531) (4,500) (34,312) (5,200) (5,200) (5,700) (5,700) (21,800) (6,500) (6,700) (7,000) (7,000) (27,200)

Other income (expenses)Interest income 61 2 3 51 56 25 25 25 25 100 25 25 25 25 100Change in fair value of warrant liability (1,535)Other income 733 115 115Common Stock dividents to Series A Convertible Preferred (5,861) (5,861)

Net (loss) income (9,982) (22,543) (9,594) (3,365) (4,500) (40,002) (5,175) (5,175) (5,675) (5,675) (21,700) (6,475) (6,675) (6,975) (6,975) (27,100)

Basic and diluted income (loss) per share (2.24) (4.71) (1.63) (0.48) (0.27) (4.66) (0.28) (0.27) (0.21) (0.17) (0.82) (0.19) (0.19) (0.20) (0.20) (0.78)

Weighted average shares outstanding 4,454 4,791 5,874 7,028 16,608 8,575 18,649 18,874 26,574 34,274 26,449 34,474 34,674 34,899 35,149 34,824

FY10A FY11E FY12E FY13E

Source: Company reports, Oppenheimer & Co. Inc. estimates.

11

Exhibit 4: Historical Balance Sheet

ASSETS Mar-11 Jun-11 Sep-11

Current Assets 1QA 2QA 3QA

Cash and equivalent 14,862 9,269 29,647 26,708

Prepaid expenses and other current assets 55 85 92 98

Total current assets 14,917 9,354 29,739 26,806

Long-term assets

Property, plant and equipment 22 19 17 0

Total Assets 14,939 9,373 29,756 26,806

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable 522 523 781 950

Accrued expenses 1,037 912 1,472 1,554

Warrant liabilities 1,286 1,170

PCP Interest payable to a related party 17 19

Total current liabilities 1,559 1,452 3,539 3,693

PCP Notes payable to a related party 750 750 750

Total Liabilities 1,559 2,202 4,289 4,443

STOCKHOLDERS' EQUITY

Convertible Preferred Series A 29,277 29,277 29,277 29,277

Convertible Preferred Series B 16,114 16,114 16,114

Convertible Preferred Series C 21,620 21,614

Common Stock 5 5 7 7

Paid In Capital 4,312 4,532 4,939 5,206

Accumulated deficit (20,214) (42,757) (46,490) (49,855)

Total Stockholders' Equity 13,380 7,171 25,467 22,363

Total Liabilities and Stockholder's Equity 14,939 9,373 29,756 26,806

FY10A

Source: Company reports, Oppenheimer & Co. Inc.

12

Hygiene Hypothesis Background

The Downside of Cleanliness

The wide introduction of indoor plumbing, refrigeration, food handling standards, anti-

bacterial products, frequent bathing and hand washing over the last century may be

considered as one of the greater public health accomplishments in the developed world.

The benefits include reduction in infectious diseases and a safer food supply, resulting in

longer life expectancy and dramatic decline in infectious disease. While many of these

benefits profoundly improved our standard of living, novel diseases that were rare or

nonexistent prior to this public health advancement began to appear. Specifically, the

incidence of autoimmune diseases such as asthma, multiple sclerosis, ulcerative colitis,

Crohn‟s disease, rheumatoid arthritis, and many others increased dramatically over the

last century. While one can reasonably implicate many environmental factors in

contributing to the rise of autoimmune disease and asthma, one interesting theory, the

“hygiene hypothesis,” was postulated in the late 1980‟s. The initial hypothesis suggested

that the reduced exposure to allergens in young children due to improved public health

practices may result in hypersensitivity to such allergens in the future and development of

diseases such as asthma and hayfever. The foundation for this hypothesis was based on

the observation of negative correlation between the incidence of infectious disease in

early childhood and prevalence of allergic disease later in life1.

The hypothesis was later expanded beyond allergens to include autoimmune diseases,

suggesting that exposure to allergens, bacteria, viruses, and parasites at an early age

may be helpful for the proper development of the immune system. While today‟s children

in the developed world are exposed to less infectious diseases than their ancestors only a

few generations ago, confirming the “hygiene hypothesis” in scientific studies is not an

easy task. The primary challenge is finding comparison populations where most

environmental factors are relatively similar except for pathogen/allergen exposure. Studies

comparing third world and westernized countries consistently show a greater prevalence

of autoimmune and allergic diseases in Western countries2, but there can be many factors

responsible for this observation beyond simple hygiene. Other studies have found a

protective effect against allergy and autoimmune conditions associated with day care

within the first 6 months of life3, presence of older siblings

4, exposure to farm animals

5 and

house pets6, endotoxins

7, and parasites

8.

The basic reasoning underlying the hygiene hypothesis is based on the premise that many

parasites have evolved to suppress the host‟s immune system to survive. However, in

order for these pathogens to reproduce, they had to fine tune their modulation of the

human immune system to avoid being killed, but at the same time avoiding significant

damage to the host since a sick or a dead host generally harms the parasite as well. In

parallel, over millions of years the human immune system evolved and developed in the

1 Martinez F.D. The Coming-of-Age of the Hygiene Hypothesis. Respiratory Research (2001) 2:129-132.

2 Okada H. et al., The “Hygiene Hypothesis” for Autoimmune and Allergic Diseases: an Update. Clinical &

Experimental Immunology (2010) 160(1): 1 – 9. 3 Ball T.M. at al., Siblings, Day-Care Attendance, and the Risk of Asthma and Wheezing During Childhood. New

England Journal of Medicine (2000):343: 538 – 543. 4 Karmaus W. et al., Does a Higher Number of Siblings Protect Against the Development of Allergy And Asthma?

Journal of Epidemiology and Community Health (2002) 56(3): 209-217. 5 Kilpelainen M. et al., Farm Environment in Childhood Prevents the Development of Allergies. Clinical &

Experimental Allergy (2000): 30(2): 201-208. 6 Karjalainen J. et al., Childhood Cat Exposure-Related Tolerance is Associated with IL1A and IL10 Polymorphisms.

Journal of Allergy and Clinical Immunology (2005): 116(1): 223-225. 7 Braun-Fahrlander C. et al., Environmental Exposure to Endotoxin and its Relations to Asthma in School-Age

Children. New England Journal of Medicine (2002): 347:869-877. 8 Flohr C. et al., Poor Sanitation and Helminth Infection Protect Against Skin Sensitization in Vietnamese Children: A

Cross-Sectional Study. Journal of Allergy and Clinical Immunology (2006) 118:1305-1311.

13

presence of these pathogens. As such, these pathogens may be instrumental in a healthy

immune system perhaps as much as bacterial flora is necessary for a healthy digestive

track. The detailed mechanism of the interactions between parasites and the development

of the immune system are quite complex. There are animal models that confirmed the

hygiene hypothesis and proven to be helpful in research. Specifically, the incidence of

type 1 diabetes (an autoimmune form of diabetes) in mice appears to be inversely

proportional to the cleanliness of their housing facilities. Mice raised in conventional

environment have a very low incidence of type 1 diabetes, while 100% of female mice

bred in pathogen-free conditions developed autoimmune diabetes9. Additionally, infecting

these mice with bacteria, virus, and parasites completely protected them from developing

the disease. Similar protective effects of infection have been shown in mouse models of

allergic asthma10

. Detailed analysis of these animal models helped highlight some

potential underlying immunological mechanisms, but there are many differences between

a human and a mouse immune system, which limit the utility of the mouse model.

The initial suggested molecular mechanism behind the hygiene hypothesis was based on

T-helper cell modulation11

. Specifically, T-helper (Th) cells are divided into two major

categories, Th1 and Th2. Th1 cells produce inflammatory cytokines such as interferon

gamma (IFN-γ), tumor necrosis factor alpha (TNF-α), and interleukin-2 (IL-2). These

factors are believed to mediate autoimmune conditions such as rheumatoid arthritis,

multiple sclerosis, type-1 diabetes, etc. On the other hand Th2 cells produce cytokines

such as IL-4, IL-5, IL-6, and IL-13, which are believed to mediate allergic responses

(immune system response due to benign foreign triggers). The mechanism does explain

some of the observations of the hygiene hypothesis, but it is viewed by some as

incomplete because two immune responses triggered by different antigens at the same

time tend to inhibit each other. Therefore, that would suggest that there may be a tradeoff

in the protection between autoimmune conditions (Th1 response) and asthma (Th2

response). However, that has not been observed, as studies indicate that the incidence of

both autoimmune conditions and asthma are diminished due to foreign antigen exposure.

Additional research into the mechanism of action added multiple layers of complexity

suggesting that parasites may be stimulating regulatory T-cells, which then suppress

immune response via Th1 and Th2 pathways. The theory is further complicated by the

large number of immune cells that appear to be associated with the hygiene hypothesis,

including CD4*CD25, IL-10 producing B cells12

, natural killer cells13

, and many others. The

regulatory T-cell activation appears to be the current theory behind the hygiene

hypothesis, although it may evolve further with additional research. Our general

conclusion is that the protective mechanism in the hygiene hypothesis is quite complex,

and that it will be a while before it is fully elucidated. However, given such complexity, we

believe that it is unlikely that a single small or large molecule can replicate the protective

effect of a biological environmental mediators associated with the hygiene hypothesis,

such as bacteria, viruses, and parasites.

9 Bach J.F. et al., The Effect Of Infections on Susceptibility to Autoimmune and Allergic Diseases. New England

Journal of Medicine (2002) 347:911-920. 10

Hopfenspirger M.T. et al., Mycobacterial Antigens Attenuate Late Phase Response, Airway Hyperresponsiveness, And Bronchoalveolar Lavage Eosinophilia in a Mouse Model of Bronchial Asthma. International Journal of Immunopharmacology (2001) 1: 1743-1751. 11

Okada H. et al., The „Hygiene Hypothesis‟ for Autoimmune and Allergic Diseases: and Update. Clinical & Experimental Immunology (2010) 160:1-9. 12

Fillatreau S. et al., B Cells Regulate Autoimmunity by Provisions of IL-10. Nature Immunology (2002) 3:944-950. 13

Moore K.W. et al., Interleukin-10 and the Interleukin-10 Receptor. Annual Review of Immunology (2001) 19: 683-765.

14

Helminths May Help the Immune System

While the biological details behind the hygiene hypothesis are being investigated,

scientists naturally turned their research toward identifying organisms that may have

therapeutic benefit to individuals born and raised in developed countries and afflicted with

asthma and/or autoimmune disease. Safety was the key criteria in selecting potential

organisms. The safety criteria eliminated bacteria and parasites that themselves can

cause harm and/or are easily commutable to other non-infected individuals. As the

candidate list was narrowed due to safety considerations, a Leiden University study in

2000 of children in Gabon, Africa, showed that infection with intestinal helminth

Schistosoma haematobium appears to be protective against house dust mite asthma14

.

Additionally, protective effects of helminths in irritable bowel disease were further

confirmed in mice, although the model requires chemically-induced inflammation which

may limit its ability to simulate human autoimmune disease.

Helminths are parasitic whipworms that live in the host‟s digestive tract. Intestinal

helminths are believed to be one of the most common parasitic infections in mammals.

Their eggs are spread through feces-contaminated water and food, and it is estimated that

until the industrial revolution, close to 100% of the world‟s population was infected with

these parasites15

. As such, our ancestors evolved with helminths, as well as other

parasites, for millions of years. It is estimated that every mammal in the natural

environment is likely colonized with helminths16

. However, helminth infestations have been

essentially eradicated in the developed world in the 20th

century.

Helminths Are Ideal Therapeutic Organisms

The majority of clinical studies of parasite immune modulation have been conducted with

Trichuris suis, a porcine whipworm, which is closely related to the human whipworm. In

our opinion Trichuris suis is particularly suitable for therapeutic use. The lifecycle requires

the Trichuris suis ova (TSO) to be ingested by the host, it then matures into a fully grown

adult within approximately 1-2 days in the gut, and the female begins to produce several

thousand eggs per day. The eggs then exit the body with the stool and require

embryonation in the soil for a few weeks to mature. The attractive characteristics of TSO

for human therapeutic treatment are:

a) The worm does not multiply in the host. This is important in our view because

many of the symptoms associated with parasite infection occur at high parasite

load. Some parasites may reproduce in the host until they block the intestine

and/or cause malnutrition by consuming vitamins, minerals, and other nutrients.

Trichuris suis does not multiply in the human gut, limiting the concerns about

uncontrolled parasite count.

b) No direct human-to-human transmission. We believe that to obtain an FDA

approval, it is critical that a live agent therapeutic must not be able to infect a

non-treated individual. The requirement for the eggs to mature outside of the

body prior to becoming infective eliminates that possibility of human-to-human

transmission. Additionally, we would like to highlight that in the unlikely case

where a non-treated person is exposed to mature eggs through contact with soil

and or feces, they are unlikely to get sick as they would only pick up a few eggs.

14

Weinstock J. Can Worms Tame the Immune System. Science (2004) 305:170-171. 15

Goncalves M.L. et al., Human Intestinal Parasites in the Past: New Findings and a Review. Memoras do Instituto Oswaldo Cruz (2003) 98(1) 103-118. 16

Weinstock J. Helminths as Governors of Immune-Mediated Inflammation. International Journal for Parasitology (2007) 457-464.

15

Since the hatched parasites can‟t reproduce in the host, the infection would be

very limited and short-term.

c) Easy elimination of the parasite. There are several available drugs that can be

taken orally to kill adult whipworms in the gut within three days. We believe that

this offers a significant safety advantage, allowing treatment to be terminated

very quickly after the last dose of TSO if necessary. Arguably this is a

substantially higher margin of safety than that available for most biological

injected drugs which generally remain in the body for more much more than three

days and cannot be removed once injected.

d) The worm remains in the gut, with no systemic exposure. There are human

parasites that colonize the gut but travel through the circulatory system as part of

their lifecycle. We believe that lack of systemic exposure significantly reduces the

safety risks of TSO treatment compared to other potential pathogens that are

systemic.

e) The ova remain stable and are easy to store. Stability while in storage and

transport of a live therapeutic organism is likely a great concern for the FDA. We

believe that it is critical that the organism can tolerate conditions likely to be

encountered in the distribution chain, such as prolonged storage and physical

handling. TSO meets such characteristic and the ova do not begin maturation

into the adult until it is in the human gut.

f) TSO is a common parasite. We believe that it is also important that the selected

organism is, or was, a relatively common parasite. In our view a rare or exotic

organism may carry a substantially higher risk of unexpected side effects than

one that humans have had extensive exposure. The porcine TSO selected by

Coronado is commonly found on pig farms, and humans that have contacts with

live pigs or pig farming are believed to be constantly exposed to this strain of

TSO without significant side effects.

g) Validated manufacturing technique. TSO can be readily obtained from pigs

raised in a pathogen-free environment in large quantities. The eggs are then

embryonated in a controlled environment, and washed extensively prior to

formulation and packaging. This process is conducive to large-scale industrial

manufacturing and Coronado has a GMP facility (OvaMed) in Germany

producing pharmaceutical-grade TSO.

16

TSO (CNDO-201) Shows Encouraging Data in Irritable Bowel Disease

Initial human studies of TSO were focused on patients with irritable bowel disease (IBD).

This indication was attractive because the TSO could be delivered directly to the gut

where the inflammatory process takes place. The first IBD study enrolled seven

subjects17

, four with ulcerative colitis (UC) and three with Crohn‟s disease (CD). Initially

every patient received an oral dose of 2,500 TSO. Two patients with CD and two with UC

were given repetitive doses of 2,500 ova every three weeks to assess safety of repeat

dosing. The results at the end of 12 weeks showed that all patients improved clinically

without any adverse events or laboratory abnormalities. Three of the four CD patients

experienced complete remission and a fourth had a strong clinical response. Of the seven

UC patients, six achieved a remission. As expected, the clinical benefit in patients that

only received one dose of TSO was temporary. However, all patients treated with multiple

doses maintained their clinical improvement for over 28 weeks. In our view, this data is

encouraging. Despite the limitations due to small trial size and the open-label nature of the

study, the relapse observed in patients treated with a single dose vs. long-term benefits in

patients with repeated dosing further confirms the activity of TSO. Lastly, the lack of

adverse events is also very encouraging.

The investigators involved in the seven-subject IBD study described above followed their

success with a larger trial in Crohn‟s disease18

. This trial enrolled 29 subjects with a

baseline Crohn‟s disease activity index (CDAI) ≥220 but <450. For reference, the CDAI is

a combination of clinical and laboratory variable using a predefined weighing formula. A

CDAI score of <150 is considered a remission of disease, CDAI >150 but <450 is active

disease, and above 450 is extremely severe disease. As such, a cutoff of ≥220 assures

that patients have active disease. Additionally, a confirmation of Crohn‟s diagnosis via

colonoscopy was required within a year prior to study enrollment. A patient was classified

as a responder if their CDAI score decreased by at least 100 points or dropped below 150.

A remission was defined as reaching a score of <150 regardless of the baseline score. As

in the prior study, patients were allowed to remain on stable background medication that

they were taking prior to the study. However, patients that took certain immunomodulatory

drugs and/or anti-infective or anti-parasitic medication were excluded. Similar to the prior

study, the TSO dose used was 2,500 ova every three weeks.

A total of 29 subjects were enrolled with a median age of 34 and baseline CDAI score of

297±47. The median duration of disease prior to the study was 2.9 years (range 1.5 – 6.8)

and 12 subjects were on corticosteroids and/or azathioprine. Only five subjects were not

on any medications. Four subjects withdrew from the study at or before week 12 for

ongoing disease activity and another discontinued treatment due to pregnancy. At week

12, 22 patients (76%) responded to therapy and 19/29 (66%) were in remission

(CDAI<150). At the 24-week follow-up, the response and remission rates were 79% and

72%, respectively. The data are summarized in Exhibit 5.

17

Summers R.W. Trichuris Suis Seems to be Safe and Possibly Effective in the Treatment of Inflammatory Bowel Disease. The American Journal of Gastroenterology (2003) 98: 2034.2041. 18

Summers R.W. et al., Trichuris suis Therapy in Crohn‟s Disease. Gut (2005) 54(1):87-90.

17

Exhibit 5: 29-Patient, Open-Label, Crohn’s Disease Efficacy Results

Source: Summers R.W. et al., Trichuris Suis Therapy in Crohn‟s Disease. Gut (2005) 54(1): 87-90.

The investigators performed a sub-population analysis based on sex, age, disease

severity at baseline, smoking status, etc., and did not find a correlation with response. The

only trend observed was correlation between immunosuppressive drug usage and

response. Additionally, patients with prior ileum resection were less responsive. The

safety findings from this trial were consistent with the results in the initial 7-subject study.

Specifically, patients did not develop any new symptoms associated with the treatment.

Additionally, laboratory data including complete blood count, urea, nitrogen, and liver

function enzymes showed no significant changes.

In our view, the efficacy data is once again encouraging and suggests potential activity of

TSO in Crohn‟s disease. As in the prior study, we must keep in mind the caveat that this is

an open label trial based on patient reported symptomatic outcomes. Furthermore, we are

cautious about suggesting a potential synergy between immunosuppressive drugs and

TSO despite the observed trend in response. Immunosuppressive drugs may be largely

responsible for the observed efficacy, despite maintenance of a constant dose, and the

individual effects of TSO vs. immunosuppressive drugs would need to be investigated in a

randomized trial. From the safety perspective, once again, the data shows that the

treatment appears to be very well tolerated. Due to the lack of a placebo in the study it

would be difficult to identify treatment-related adverse effects, particularly associated with

the intestinal track, because many of these subjects already suffer pain and discomfort

due to Crohn‟s disease itself.

Randomized, Placebo-Controlled Study Confirms Open Label Efficacy

Based on the success of the 7-subject and 29-subject open-label trials described above, a

larger (54 subject) trial of TSO in patients with ulcerative colitis (UC) was conducted19

. The

recruited patient must have had active UC, defined by an Ulcerative Colitis Disease

19

Summers R.W. Trichuris suis Therapy for Active Ulcerative Colitis: A Randomized Controlled Trial. Gastroenterology (2005) 128: 825-832.

18

Activity Index (UCDAI) of ≥4. The UCDAI index monitors four parameters: stool frequency,

bleeding severity, mucosal appearance, and physician‟s overall assessment. The scale is

zero to 12. Clinical response was defined as a UCDAI decrease of 4+, and remission was

defined as a UCDAI decrease of 2+. Mucosal appearance was assessed via

sigmoidoscopy at time zero and week 12. Subjects were treated with TSO doses of 2,500

ova every two weeks. Subjects returned to study center every two weeks to obtain the

next dose of treatment and for safety and efficacy assessment.

Patients were well randomized (Exhibit 6), with an average UCDAI score of 8.7-8.8, age of

38-40 years old, and weight of 83-84kg. Twenty-four patients were treated with placebo

and 30 with TSO. Two patients (one from each arm) were discontinued due to protocol

violation. The data was analyzed on an intend-to-treat basis (all patients) and per protocol

basis (those that completed treatment). Regardless of the analysis, patients treated with

TSO saw a response rate of 43-45% vs. 17% for placebo with a p = 0.04. The similarity

between the intend-to-treat results and per protocol analysis is expected since only one

patient in each group was discontinued, and all others completed the protocol.

Exhibit 6: 54-Subject Randomized Trial of TSO in Ulcerative Colitis

Source: Summers R.W. Trichuris suis Therapy for Active Ulcerative Colitis: A Randomized Controlled Trial. Gastroenterology (2005) 128: 825-832.

The investigators also analyzed the outcome of each component of the UCDAI score. The

data showed that patients treated with TSO improved on all the four components of

UCDAI: stool frequency (p = 0.0011), blood in stool (p = 0.0413), mucosal appearance (p

= 0.00008), and overall assessment (p = 0.0011). The UCDAI score decreased from

8.77±0.35 to 6.1±0.61 (p=0.0004) over the 12-week study duration. The placebo patients

showed a statistically significant reduction only in stool frequency, and their UCDAI score

decreased substantially less, from 8.75 ± 0.46 at baseline to 7.5 ± 0.66 after 12 weeks of

19

participating in the study. One interesting observation was that the mean duration of

current disease exacerbation for TSO responders was 7.3 ± 1.6 months vs. 16.9 ± 3.9

months (p=0.05) for non-responders. Consistent with the prior studies, TSO treatment

showed an excellent safety profile. There were a few safety findings in the placebo group

and one case of mild hydrochlorothiazine-induced pancreatitis that resolved after the drug

was stopped.

At the end of the 12-week treatment period, patients with active disease (UCDAI≥4) were

further enrolled in a crossover study. Specifically, subjects that were on placebo were

switched to TSO and those on TSO to placebo. The blinding of the study was maintained

during the first and crossover stage. A total of 31 subjects were included in the crossover

phase (16 on TSO and 15 on placebo), and after 12 weeks of treatment patients on TSO

had a response rate of 56% vs. 13% for placebo (p=0.02).

Overall we find the data from this double blind study quite encouraging. Although the

statistical power of the trial is limited by its relatively small size, we believe that the

observation of statistically significant improvement on each of the four parameters of the

UCDAI score for TSO patients vs. only one parameter (marginally, p = 0.0488) for placebo

adds a degree of robustness to the findings. This is further underscored by the

observation of statistically significant response in subjects after the crossover.

Additionally, the investigators observed a large difference in the duration of disease prior

to treatment in the responders vs. non-responders which suggests that TSO is more

effective in patients with recent onset disease than in those that had UC for many years.

There are many potential explanations for this observation, but we believe that patients

with longer duration of disease have more intestinal damage, and as such TSO alone may

not be adequate, or require longer than 12 weeks of treatment, to cause a substantial

improvement. The fact that responders and non-responders had such a significant

difference in the duration of their symptoms further suggests that the observed responses

were not random, and longer treatment may potentially be required for patients with longer

duration of disease.

From the safety perspective, we are once again encouraged by the positive findings in this

trial. As we mentioned in our discussion of the prior studies of TSO, we anticipate seeing

some adverse events in these trials simply due to nature of the disease and patients that

are recruited. Furthermore, some of the adverse events may be caused by the

background medications. Although the dose of the background medication is not altered,

even constant dosing of immunomodulatory drugs may result in periodic adverse events.

New Studies Investigating TSO in Irritable Bowel Disease

Based on the open label and the placebo controlled trials described above, Coronado and

its partner OvaMed met with the FDA to discuss the regulatory strategy. The agency

stated that preclinical studies are unnecessary at this time given the existing clinical data,

and following a small, single-dose, dose-ranging, placebo-controlled trial20

the company

may commence a larger, Phase II study in Crohn‟s disease. Three doses are being tested

in this single-dose, dose-ranging study: 500 ova, 2,500 ova, and 7,500 ova. The study

also has a placebo arm, and the total enrollment is estimated at 36 subjects (n = 8 per

arm). Patients are monitored closely for the first 14 days and then contacted on day 30

and day 180 for additional follow-up. As in prior studies, the trial allows patients to

maintain a stable dose of background medication. The trial is being conducted at five

20 www.clinicaltrials.gov identifier #:NCT01434693

20

clinical sites in the US, and according to clinicaltrials.gov, the results are anticipated in

May 2012. Following the results of this dose-ranging study, the company plans to

commence a Phase II trial in 2Q12, which we estimate will yield results in 2H12.

Coronado‟s partner, Dr. Falk Pharma GmbH is conducting a Phase II double-blind,

randomized, placebo controlled, multi-center trial of TSO in patients with active Crohn‟s

disease21

. This trial is currently ongoing in Germany. The target enrollment is 212

subjects, which will be monitored for 12 weeks. The primary endpoint is the reduction of

CDAI score, which was utilized as an endpoint in prior trials. This study will investigate

three different doses of TSO as well (500, 2,500, and 7,500 ova every two weeks for three

months) and will have a placebo arm. According to clinicaltrials.gov (updated on Sept 5th

,

2011), the final data collection for the primary outcome measure will be in June 2012.

Coronado is estimating data from this trial in 4Q12.

Initial Data Suggestive of Systemic Autoimmune Disease Benefit

Initial studies of TSO were focused on autoimmune diseases of the bowel due to the

ability of delivering TSO directly to the target tissue. Although the detailed biological

process that may enable TSO to down regulate autoimmune conditions is not fully

elucidated, one key outstanding question is whether the effect is only local or systemic.

The ability to treat systemic autoimmune diseases such as multiple sclerosis, rheumatoid

arthritis, lupus, and psoriasis could potentially drastically expand the target market and

commercial value of TSO. As such, studies of TSO in MS were conducted.

Before we discuss the data in MS, we just wanted to highlight that mechanistically, the

regulatory T-cell suppression mechanism that is presently the leading theory for the

explanation of the observed TSO effect in IBD may also play a role in multiple sclerosis.

Specifically, regulatory T cells have been identified as essential components in the

pathogenesis in multiple sclerosis22

.

There are two published studies of parasite effects in MS to date that we are aware of.

One was a prospective TSO trial in treatment-naïve patients and the second was an

observational study of MS patients that were randomly infected by an intestinal parasite.

The Phase I study (Helminth-induced Immunomodulatory Therapy, HINT I) of TSO in

treatment-naïve relapsing-remitting multiple sclerosis patients (RRMS) enrolled five

subjects23

. Each dose of TSO contained 2,500 ova and was administered orally every two

weeks for three months. Patients were followed for an additional two months after the

TSO dosing was stopped. The primary endpoint in the study was the number of

gadolinium-enhanced lesions under MRI. The data showed that new lesion count

decreased from 6.6 at baseline to 2.0 at the end of the treatment period and rose back to

5.8 at the end of the two-month follow-up (Exhibit 7). Additionally, increases in IL-4 and IL-

10 cytokines were noted in four of the five subjects. Overall we view these efficacy

findings as very encouraging. Keeping in mind the statistical limitation of the data due to

the small study size, we put more confidence in this dataset than we would from an

equivalent IBD study because the endpoint (MRI lesions) is objective. As such, the open-

21

www.clinicaltrials.gov, identifier #: NCT01279577 22

Zozulya A.L. et al., The Role of Regulatory T Cells in Multiple Sclerosis. Nature Clinical Practice Neurology (2008) 4: 384-398. 23

www.clinicaltrials.gov, identifier #: NCT00645749

21

label nature of the study is less likely to skew the data than for a patient-reported

endpoint. Additionally, the rise in lesions after treatment discontinuations further confirms

to us the activity of the treatment. Lastly, we believe that it is important to keep in mind

that the changes in disease activity observed with TSO treatment must have been

systemic. We believe that this is important because one could potentially argue that the

efficacy effect observed in the IBD trials was due to a local interaction of TSO (or a

secretion by the parasite) with the intestinal lining. However, in this MS trial the effect had

to have a significant systemic immunomodulation.

The safety findings from the HINT I study were consistent with prior TSO trials, and

treatment was well tolerated. Three subjects did experience mild gastrointestinal

symptoms that did not interfere with activities of daily living.

Exhibit 7: MS Study of TSO (HINT I), Lesion Count Throughout the Study

Source: Fleming J. O. et al., Probiotic Helminth Administration in Relapsing-Remitting Multiple Sclerosis: a Phase I Study. Multiple Sclerosis Journal (2011)17: 743-754.

Although the Phase I (HINT I) MS study produced encouraging MRI data, the more

important endpoints of MS disease progression are number of exacerbation and changes

in EDSS score (Expanded Disability Status Scale, a validated quantitative symptomatic

assessment scale). These endpoints were assessed in an observational controlled study

of the effects of intestinal parasites on MS progression24

. The study was motivated by an

24

Correale J. et al., The Impact of Parasite Infections on the Course of Multiple Sclerosis. Journal of Neuroimmunology (2011) 233: 6-11.

22

observation that patients with relapsing-remitting multiple sclerosis (RRMS) who

developed asymptomatic gastrointestinal helminth infection experienced a reduced MS

activity25

. Specifically, in this trial three groups of subjects were enrolled: uninfected MS

patients in remission, MS patients infected with different helminths, and healthy matched

controls. Each group had 12 subjects that were demographically matched. Helminth-

infected subjects were identified via observation of eosinophilia (increased blood count of

eosinophil, a type of white blood cell). All infestations were confirmed via stool test. Of the

12 infected subjects, three were infected with Hymeholepis nana, three with Trichuris

trichiura, three with Ascaris lumbricoides, two with Strongyloides stercolaris, and one with

Enterobius lumbricode. The average duration of disease at diagnosis was 7.3±1.01 years

for the infected group and 6.6 ± 1.06 for the MS control group. Patients were followed for

an average of 90.0 ± 1.2 months (range 90-93 months), with a comprehensive

neurological assessment every 3 months and a brain MRI every 6 months. After 63

months of follow-up four subjects required antiparasitic treatment due to helminth

symptom exacerbation. The elimination of the parasites in these subjects provided an

opportunity to use the subjects as their own control.

The data from this long-term study is quite dramatic, in our view. Specifically, the number

of exacerbations (per year) fluctuated between ~0.4 and 0.8 for the active uninfected

controls, Exhibit 8. (As a reminder, all groups had to start at zero because the recruiting

criteria required patients to be in remission.) However, infected patients did not experience

any relapses after 18 months of parasite infestation, and they maintained control of their

disease until an antiparasitic treatment was administered at 63 months. Following the

antiparasitic treatment, patients saw their disease activity quickly reach the level of the

uninfected individuals. Of the remaining infected but untreated subjects, there was a slight

spike in the events at month 78, which quickly came back down to zero. Other endpoints

(EDSS score, new and enlarging T2 lesions, and number of gadolinium enhancing

lesions) closely followed the exacerbation data (Exhibits 9-11).

25

Correale J. et al., Association Between Parasite Infection and Immune Responses in Multiple Sclerosis. Annals of Neurology (2007) 61: 97-108.

23

Exhibit 8: Helminths in MS Observational Study, Number of Exacerbations

Source: Correale J. et al., The Impact of Parasite Infections on the Course of Multiple Sclerosis. Journal of Neuroimmunology (2011) 233: 6-11.

Exhibit 9: Helminth in MS Observational Study, Change in EDSS Score

Source: Correale J. et al., The Impact of Parasite Infections on the Course of Multiple Sclerosis. Journal of Neuroimmunology (2011) 233: 6-11.

24

Exhibit 10: Helminth in MS Observational Study, New and Enlarging T2 Lesions

Source: Correale J. et al., The Impact of Parasite Infections on the Course of Multiple Sclerosis. Journal of Neuroimmunology (2011) 233: 6-11.

Exhibit 11: Helminth in MS Observational Study, # of Gd+ Lesions

Source: Correale J. et al., The Impact of Parasite Infections on the Course of Multiple Sclerosis. Journal of Neuroimmunology (2011) 233: 6-11.

25

We believe that these findings are quite profound. Despite the small patient population,

difference in parasite species and total parasite burden, infected individuals consistently

did better than their uninfected counterparts. The observation of rapid disease activity

following antiparasitic treatment further confirms the hypothesis that helminths are

modulating the immune system systemically. Additionally, cytokine data showed that

uninfected individuals had a much higher count of pro-inflammatory cells and cytokines,

which was consistent with the observed disease activity data.

Next Steps in Multiple Sclerosis Development

Following the encouraging data in the HINT-1 study (5 MS patients followed for MRI

disease progression), the investigators are expanding this study further (HINT-2). The

objective is to enroll more patients and to follow them for up to 10 months. MRI

progression will remain the primary endpoint, although we may get some outcome data as

well. From a practical perspective, we believe relapse data is likely to be limited given the

short duration of the trial. We anticipate initial reports from the study at the American

Academy of Neurology meeting in April 2012, with fill results in 1H13.

Interview With Thought Leaders

We spoke at length with two thought leaders in the TSO treatment field, Dr. Joel

Weinstock and Dr. John Fleming, to gain their insights and perspective on this novel

therapeutic approach.

Joel Weinstock M.D. is the Chief of the Division of Gastroenterology/Hepatology at the

Tufts New England Medical Center. He is an expert on the hygiene hypothesis and

conducted extensive research on the study of TSO in irritable bowel disease. He was the

lead investigator in the 54-subject ulcerative colitis study and the 24-patient Crohn‟s

disease study in addition to publishing extensively on TSO treatment in many peer

reviewed journals. He is also on Coronado‟s scientific advisory board. Based on Dr.

Weinstock‟s experience in the field, we view him as one of the leading experts on TSO

and irritable bowel disease.

John Fleming, M.D. is a professor of Neurology at the University of Wisconsin School of

Medicine and Public Health. He is the lead investigator on the 5-subject Phase I study of

TSO and also has published extensively on the subject. We believe that Dr. Fleming is

one of the world‟s leading thought leaders on the effects of parasitic infections on the

progression of multiple sclerosis.

One of the topics we discussed was the suitability of helminths for human immune system

modulation and the possibility of other organisms to deliver similar, or even improved,

results. This is particularly interesting in the context of the controlled observational MS

study that we described above, where parasites included whipworms, tapeworms,

roundworms, threadworms, and pinworms. Although the study results did not show a

difference of efficacy between parasite species, such fine efficacy resolution is unlikely

given the trial size (1-3 patients infected with each worm type). However, both experts

agreed that Trichuris suis is likely to be the ideal organism for clinical use. Both doctors

immediately focused on the safety profile of TSO, and stated that it is unlikely that

alternative parasites would be safer. Specifically, the requirement for soil incubation to

complete a reproductive cycle was viewed as a key safety feature of TSO since it prevents

uncontrolled growth and intestinal crowding. Additionally, our experts noted that another

26

key advantage of TSO is the established GMP manufacturing facility. Besides a

requirement of an approved facility to gain FDA approval, it turns out that obtaining an IND

to commence human studies of TSO based on samples available from the USDA was met

with concerns and challenges by local Institutional Review Boards (IRBs) and the FDA.

One of our experts noted that other companies were intrigued by the data and commercial

opportunity in developing TSO for therapeutic uses, but were unsuccessful in even gaining

approval for their IND due to lack of a GMP-grade material. As such, we believe that the

existing approved GMP facility (via partnership with OvaMed) is a significant hurdle for

competitors attempting to compete with Coronado by potentially utilizing a different

parasitic organism.

We‟ve also discussed the mechanism of interaction between helminths and the human

immune system. Both experts believe that regulatory T cells are likely involved instead of

direct Th1 or Th2 suppression. While the details are yet to be elucidated, both experts

also agreed that it is unlikely that the interaction can be replication with one or

combination of several locally delivered drugs.

In irritable bowel disease, Dr. Weinstock noted that the best target population for TSO

studies is patients with relatively recent onset active disease. Patients that have suffered

from disease for a long period of time and have failed standard drugs are less likely to

respond. Dr. Weinstock also stated that future clinical trials will search for a potential

biomarker of response, but at this time he is not aware of any biomarkers that would

predict a response to TSO therapy in an irritable bowel disease patient.

In MS, Dr. Fleming was particularly excited about the MRI results. He believes that MRI

data is highly predictive of symptomatic response, and given the fact that the MS studies

to date were open-label, an objective metric like MRI may be more meaningful than

subjective scores.

One unanimous message that both experts agreed upon is that current drugs in MS,

Crohn‟s Disease, and Ulcerative Colitis are far from silver bullets. Specifically, the faction

of patients that benefits (vs. placebo) is generally <50%, and compliance is a problem in

many of these indications since some patients do not like injecting themselves on a

regular basis. Additionally, all pharmaceutical treatments for these autoimmune conditions

carry significant risk of side effects, particularly MS drugs. Both doctors believe that even if

TSO offered an equal or even slightly inferior efficacy to current immunomodulatory drugs,

there may still be a significant demand for the treatment commercially. If the efficacy of

TSO in Phase III studies remains consistent with the data observed to date while

maintaining a benign safety profile (at least compared to approved biological agents) then

they anticipate TSO to be a commercial home run. Both our experts are approached by

suffering patients or their family members on a regular basis in the hope of obtaining TSO

therapy and/or participating in a clinical study. Therefore, they don‟t believe that the

potential unsavory thoughts of ingesting worm eggs for therapeutic benefit would deter

most prospective patients.

27

Novel Approach to Cancer Treatment - A Second Shot on Goal for Coronado

Phase I Shows Promising Activity in AML

Coronado‟s second asset in development is CNDO-109, which is a treatment directed at

activating Natural Killer (NK) immune cells. NK cells are a part of the innate immune

system and their primary activity is to kill cells that have become cancerous and/or

infected by viruses. The NK cells circulate the body and the identification of healthy vs.

diseased/infected cells by the NK cells is based on interaction of NK activating and

inhibitory receptors with the target cells. Inhibitory receptors recognize specific cell

markers such as the major histocompatibility complex (MHC) class I, which inhibits the

cytotoxicity (cellular killing function) of the NK cells. However, in order to activate the NK

cells, the activating receptor must be engaged in addition to the suppression of the

inhibitory receptors. It is likely that the two “trigger” requirement of activating NK cells

evolved to provide a margin of safety in preventing the NK cells from targeting healthy

tissue. As such, it is believed that the overall balance of signaling amongst the numerous

activating and inhibiting receptors is skewed in favor of tolerance (i.e. if unsure if the cell is

infected or malignant, don‟t kill it)26

. However, some cancers have adopted to avoid

detection and destruction by the immune system, and as such NK cells overlook them.

There have been several approaches at increasing the immune system‟s ability to kill

cancer cells. One of them was based on administering humanized antibodies targeting

unique antigens found on cancer cells. This includes humanized monoclonal antibodies

against EGFR, CD20, and HER2/Neu. An alternative approach in increasing the ability of

NK cells in attacking the tumor is through activation via natural cytokines such as

interleukin-2 (IL-2). Proleukin (brand name for IL-2) was approved by the FDA in 1992 for

the treatment of metastatic renal cell carcinoma and in 1998 for metastatic melanoma.

Unfortunately Proleukin has shown very high toxicity at its recommended dose and

studies of lower dose regimens did not show significant efficacy. Specifically, the drug‟s

label states that Proleukin must be administered in a hospital setting within easy access of

intensive care facility27

. Proleukin is associated with capillary leak syndrome (loss of fluid

and plasma proteins from capillaries leading to reduced organ perfusion, low blood

pressure and potentially death) and reduced neutrophil function (which can lead to

uncontrolled infections and death). Additionally, the adverse reactions may be delayed

and/or triggered by future treatments, such as exposure to iodinated contrast media. The

lack of activity with lower dose of Proleukin and the extensive list of severe adverse

events suggest that there is a very limited practical therapeutic window where the agent is

both safe and effective. Due to this narrow therapeutic window, Proleukin has seen very

limited commercial adoption28

.

Despite the toxicity and the narrow therapeutic window, Proleukin‟s efficacy in these

difficult to treat cancers was very intriguing. Specifically, 20-year follow-up shows that the

majority of patients that experienced a complete response on Proleukin maintained that

complete response, which suggests that they are essentially “cured” of their cancer29

.

Additionally, Proleukin‟s mechanism of action is believed to be through indirect activation

of the immune system in cancer patients without any direct effects on the tumor itself.

26

Ahn Y-O. et al., Killing the Killer: Natural Killer Cells to Treat Ewing‟s Sarcoma. Clinical cancer Research (2010) 16: 3819-3821. 27

Proleukin product label, accessed in February 2012. 28

Grandinetti C. A. et al., Sorafenib and Sunitinib: Novel Targeted Therapies for Renal Cell Carcinoma. Pharmacotherapy (2007) 27(8): 1125-1144. 29

Rosenberg S.A. et al., The Emergence of Modern Cancer Immunotherapy. Annals of Surgical Oncology (2005)12(5): 344-346.

28

Proleukin is believed to affect many immune cells, and influences the growth of T-cells,

differentiation of regulatory T cells, and augments NK killing activity30

.

As the mechanism of IL-2‟s benefit was slowly uncovered by scientists, the importance of

NK cells to long-term oncology treatment was being recognized in patients with acute

myeloid leukemia (AML). Specifically, investigators noticed that some patients developed

immunity to residual leukemia following chemotherapy31

. This natural immunity against

leukemia cells in peripheral blood samples of patients in remission appeared to be

predictive of duration of the remission (Exhibit 12). The cells that mediate this cancer

immunity were identified as a subset of NK cells, and the natural next scientific step was

to investigate the expansion of these cells in the laboratory and infusing them into patients

that did not naturally develop immunity against residual leukemia cells.

Exhibit 12: Remission Duration in Patients With Acute Leukemia Segmented Based

on Level of Leukemia-Specific Cytotoxicity (LSC) in Peripheral Blood During

Remission After Treatment Completion

Source: Lowdell M.W. Immunotherapy of AML; Future Direction. Journal of Clinical Pathology (2000)53: 49-54.

Further analysis of why some patients mounted an NK cell-based immunological response

and others did not was determined to be due to NK cell activating triggers. As we

discussed in the beginning of this section, the NK cell activation process required a

priming signal (absence of inhibitory signal) and a trigger signal. As such, AML cells that

possessed both were able to activate the NK cells in the lab (in vitro), and other that only

had one trigger were not. The key breakthrough came when Dr. Lowdell at the Royal Free

Hospital in London screened over 200 cancer cell lines in vitro for their ability to both

prime and trigger NK cells32

. He found that the lysate (cell debris after rupture) from CTV-1

leukemia cell line could both activate and trigger NK cells. However, what is particularly

unique about this method of activation is that unlike activation with cytokines, CTV-1

30

Liao W. et al., IL-2 Family Cytokines: New Insights Into the Complex Roles of IL-2 as a Broad regulator of T Helper Cell Differentiation. Current Opinions in Immunology (2011) 23(5): 598-604. 31

Lowdell M.W. Immunotherapy of AML; Future Direction. Journal of Clinical Pathology (2000)53: 49-54. 32

North J. Et al., Tumor-Primed Human Natural Killer Cells Lyse NK-Resistant Tumor Targets: Evidence of a Two-Stage Process in Resting NK Cell Activation. Journal of Immunology (2007) 178 (1): 85-94.

29

lysate activated NK cells maintained their activated state after freezing and thawing. In

contrast, cytokine-activation of NK cells were not as robust. As such, CTV-1 activated NK

cells became an interested therapeutic candidate for the potential treatment of cancer.

Coronado‟s CNDO-109 is a proprietary CTV-1 lysate which may be used to activate a

related donor NK cell to stimulate patient‟s autoimmunity against their tumor.

Logistically, the treatment includes several states. First, healthy NK cells are harvested

from matched donors (typically family members). This harvesting procedure

(leukapherisis) can be done at most hospitals within 3-4 hours and does not have any

negative consequences for the donor. The process is a form of blood donation and there

is no harm or pain to the donor other than inserting needles into blood vessels. These

cells are then incubated in the lab with CNDO-109 for at least eight hours and further

processed for an overall processing time of ~24 hours from start to finish. The cells can

then be frozen, transported, and infused into the patient.

Initial AML Data Shows Increased Remission Duration

Acute Myeloid Leukemia (AML) seemed like the ideal first indication to investigate the

efficacy of CNDO-109 since this tumor was used as the model during CNDO-109

discovery. The first study is being conducted by Dr. Lowdell (the inventor of CNDO-109) at

the University College London Medical School, UK. The trial enrolled AML patients with

<25% blasts that had either partial or complete response to prior treatment and have

exhausted conventional treatment options. Donor NK cells were from family members,

with a mean donor cell yield of 6.7x109cells and CD56 (metric of cell purity for quality

control) of 99.3%. Subjects were conditioned with fludarabine (25mg/m2/day) for 3 days

followed by 2Gy of total body irradiation on day 4. Of the 15 patients, only 8 were treated

with CNDO-109 because 6 subjects either relapsed during the CNDO-109 manufacturing

process or failed to return for infusion, and one subject due to donor refusal. The

investigators initially wanted to separate the patients into three groups and test three

doses of CNDO-109-treated NK cells. However, due to toxicities dose escalation was

abandoned and all treated patients received 1x106cells/kg. The latest results presented at

the American Society of Hematology meeting in December 2011 showed that all treated

patients experienced a complete response. However, what is very interesting is that the

duration of this complete response was 222 days (range 55 – 845), which is substantially

longer than the duration of the prior complete response of 47 days (range 0-90). Data are

summarized in Exhibit 13.

Exhibit 13: CHDO-109 University College London AML Results

Patient

numberGender Age

Prior Allogeneic

Transplant

Status of

treatment

Duration of prior

CR (days)

Duration of CR post

CNDO-109 treatment

1 F 54 No CR3 30 845

3 M 72 No PR1 NA 250

4 M 51 Yes CR3 30 284

7 M 71 No CR1 60 55

8 M 67 No CR2 62 116

9 F 73 No CR1 47 141

11 M 61 Yes CR3 90 352

12 F 67 No CR2 30 98

Source: ASH 2011 Meeting, Abstract # 946

Some toxicities were observed, including bone marrow suppression in seven of the eight

subjects with a median time for neutrophil recovery of 55 days (range 19-101). Two

patients with prior transplants required additional infusion of CD34+ cells from their

30

original donors, and all patients experienced neutropenic fevers requiring antibiotic

support.

We believe that the results of the Phase I study of CNDO-109 by the University College

London group are very encouraging. The study did suffer some logistical setbacks, and as

such, only eight out of the 15 patients were enrolled. However, we find the increase in

complete response duration compared to prior response upon treatment particularly of

interest. The general trend for AML patients is to show decreasing duration of remission

for following lines of therapy. Additionally, one patient experienced a complete response

following CNDO-109 while only achieving a partial response in prior treatments.

Next Steps In CNDO-109 Development

Coronado recently filed an IND to commence clinical studies of CNDO-109 in the US. The

initial Phase I/II study33

will focus on high risk AML patients in first complete remission and

is expected to start in 2Q12. Target enrollment is 30 subjects, and according to

clinicaltrials.gov, the final data collection for primary outcome measure is currently

anticipated in August 2013. The primary objective is to define maximum tolerated dose

and further explore the safety profile of the treatment. Two doses will be investigated,

1x106cells/kg and 3x10

6cells/kg. Subjects will be followed for up to one year post

treatment for efficacy as well as safety.

Key Licenses and Agreements

North American and Japanese Rights to TSO Therapy (CNDO-201)

In January 2011 Coronado acquired Asphelia Pharmaceutical which gave Coronado rights

to TSO therapy in the Americas and Japan. The commercial rights to TSO in Europe are

owned by Dr. Falk Pharma GmbH (private). Recently Coronado and Dr. Falk signed an

agreement granting each other access to their data on TSO. Additionally, the companies

will collaborate and each will cover the cost of approximately 50% of the patients required

in the clinical program to gain approval in the US and EU. Coronado agreed to pay Dr.

Falk €5M in milestones in 2012 and royalties of 1% of net sales of TSO as part of the

agreement. Both Dr. Falk and Coronado have an agreement with OvaMed GmbH (private)

for clinical and commercial TSO product produced in a GMP compliant facility.

Coronado Biosciences has partnership agreements with OvaMed and Dr. Falk Pharma.

Coronado is required to make milestone payment to OvaMed totaling approximately

$5.5M upon achievement of regulatory milestones for the first approved indication of

CNDO-201. Additionally, Coronado is obligated to pay OvaMed royalties of 4% on net

sales and 10-20% of any revenue from a sub-licensee.

Worldwide Rights to CNDO-109

In 2007 Coronado acquired exclusive worldwide rights to CNDO-109 from the University

College London Business (UCLB). Coronado also has agreements with Progenitor Cell

Therapy, LLC (private) and BioReliance (private) for the manufacturing and supporting

clinical services for CNDO-109. The licensing agreement stipulates that Coronado will pay

UCLB a total of $22M in milestones and royalty rate of 3-5% on net sales of CNDO-109

and 30-50% of any revenues from a sub-licensee.

33

www.clinicaltrials.gov identifier: NCT01520558

31

Management Biography Glenn L. Cooper, M.D.

Executive Chairman and Director

Dr. Cooper has served as a member of the board of directors since October 2009, as

executive chairman since July 2010 and as acting chief executive officer from December

2010 to April 2011. Dr. Cooper has extensive leadership experience in the pharmaceutical

and biotechnology industries with expertise in transforming development stage companies

into commercial organizations. From 1993 to 2009, Dr. Cooper was the chairman and

chief executive officer of Indevus Pharmaceuticals, Inc., a specialty pharmaceuticals

company. Indevus was acquired by Endo Pharmaceuticals, Inc. in March 2009. Prior to

joining Indevus, Dr. Cooper held numerous executive level positions, including president

and chief executive officer of Progenitor, Inc., executive vice president and chief operating

officer of Sphinx Pharmaceuticals Corporation, and various clinical and regulatory

positions with Eli Lilly and Company. Dr. Cooper also serves on the board of directors of

Gentium S.p.A. and Repligen Corporation. Dr. Cooper holds a B.A. from Harvard College

and received his M.D. from Tufts University School of Medicine.

Bobby W. Sandage, Jr., Ph.D.

President, Chief Executive Officer and Director

Dr. Sandage has served as the president and chief executive officer since April 2011 and

has over 30 years of experience in the pharmaceutical industry, most recently as the vice

president and head of oncology research and development for Covidien Pharmaceuticals

(COV, Not Rated), a specialty pharmaceuticals company, a position he held from March

2010 until March 2011. From November 1991 to December 2009, Dr. Sandage held

various positions at Indevus Pharmaceuticals, a specialty pharmaceuticals company,

including executive vice president of research and development and chief scientific officer,

prior to the sale of the company to Endo Pharmaceuticals. Prior to joining Indevus

Pharmaceuticals (private), from 1981 to 1991, Dr. Sandage held senior drug development

positions at DuPont Merck Pharmaceutical Company, DuPont Critical Care (formerly

American Critical Care) and Merrell Dow Pharmaceuticals. Dr. Sandage is currently a

member of the board of directors of Gentium S.p.A., a pharmaceutical company. Dr.

Sandage has also served as a member of the board of directors of Osteologix, Inc. and

Genta Incorporated. Dr. Sandage has a B.S. in pharmacy from the University of Arkansas

and a Ph.D. in clinical pharmacy from Purdue University.

Noah D. Beerman

Executive Vice President and Chief Operating Officer

Noah D. Beerman has served as the executive vice president and chief operating officer

since September 2011 and has over 25 years of experience in the biopharmaceutical

industry. Mr. Beerman, who has been a consultant to Coronado Biosciences since May

2011, served as president and chief executive officer and a director of Galena Biopharma,

formerly RXi Pharmaceuticals Corporation, from November 2009 until April 2011. Prior

thereto, he spent more than 10 years at Indevus Pharmaceuticals, Inc (private), serving

most recently as executive vice president, chief business officer from September 2004

until the sale of the company to Endo Pharmaceuticals, Inc. in 2009. Prior to joining

Indevus, from 1995 to 1997, Mr. Beerman was vice president responsible for health care

at Technology Management and Funding. Mr. Beerman previously served in a variety of

business development and scientific capacities at Creative BioMolecules, Sandoz AG, and

32

Repligen. Mr. Beerman received an M.B.A. from Northeastern University‟s High

Technology Program and a B.S. in molecular genetics from the University of Rochester.

Dale Ritter

Senior Vice President, Chief Financial Officer

Mr. Ritter has served as the senior vice president, finance, chief accounting officer and

acting chief financial officer since May 2011. Mr. Ritter has over 20 years of experience in

the pharmaceutical industry. From September 2009 until joining Coronado Biosciences,

he was an independent consultant, most recently serving as a financial consultant to

Helicos BioSciences Corp., an innovative genetic analysis technologies company, from

January to May 2011. From 1994 to 2009, Mr. Ritter was the senior vice president of

finance and chief accounting officer at Indevus Pharmaceuticals until the sale of the

company to Endo Pharmaceuticals. Mr. Ritter has a B.A. from Syracuse University and an

MBA from Babson College Graduate School of Business Administration.

Karen Hehenberger, M.D., Ph.D.

Senior Vice President of Scientific Affairs

Dr. Hehenberger has served as the senior vice president of Scientific Affairs since

December 2011 and has over 15 years of experience in the healthcare industry. Most

recently, Dr. Hehenberger was senior vice president for Strategic Alliances at the Juvenile

Diabetes Research Foundation (JDRF). She was responsible for advancing the JDRF's

involvement with scientific, financial, and commercial partners in the diabetes community.

Prior to JDRF, Dr. Hehenberger worked at Johnson & Johnson as vice president of

Metabolic Strategy and Business Development. Dr. Hehenberger also has experience in

public and private equity, having been a partner in Scandinavian Life Science Venture, a

buy-side healthcare equity analyst at Brummer & Partners and Argus Partners, on the

senior management team of Eyetech Pharmaceuticals, and earlier in her career as a

strategic management consultant at McKinsey & Co. Dr. Hehenberger holds M.D. and

Ph.D. degrees from the Karolinska Institute in Stockholm, Sweden. She continued her

research as a JDRF post-doctoral fellow at the Joslin Diabetes Center at Harvard Medical

School.

Lucy Lu, M.D.

Executive Vice President & CFO

Dr. Lu joined Coronado as an executive vice president and chief financial officer in

February 2012. She joined the company from Citi Investment Research, where she was a

senior biotechnology equity analyst from February 2007. At Citi, Dr. Lu was responsible

for the coverage of small- and mid-capitalization stocks and the vetting of both public and

private companies. Prior to Citigroup, Dr. Lu was a senior analyst at First Albany Capital

and Vice President and Principal from April 2004 to February 2007. She started her career

at Lehman Brothers as an Associate of Healthcare Investment Banking. Dr. Lu holds an

M.D. degree from the New York University School of Medicine and an M.B.A. from the

Leonard N. Stern School of Business at New York University. Dr. Lu obtained a B.A. from

the University of Tennessee‟s College of Arts and Science.

33

Investment Thesis

Coronado Biosciences Inc. is a development stage biotechnology company focusing on oncology and immunology. Both of Coronado's

assets are aimed at immune system modulation, CNDO-201 for treatment of autoimmune disease and CNDO-190 for treatment of

cancer. Both of these assets are very unique and are highly differentiated from other drugs in development or approved for similar

indication.

Price Target Calculation

Our $12/share 12-18 month price target is based on the assumption that Coronado Biosciences will have robust Phase II

data for CNDO-201 in Crohn's disease in this time frame, and several other studies ongoing. As such, we looked at the

valuation of comparable companies that have strong Phase II data in indications with large commercial potential. Based on

the comparison to these companies and an anticipated share count of 38M at the end of 2012 (this includes a possible

financing round and all outstanding options/warrants), and the average comparables valuation of $459M, we arrive at a

price target of $12/share for Coronado.

Key Risks to Price Target

Key risks include clinical trial risk, regulatory risk, competitive risk, partnership risk, reimbursement risk, and liquidity and

small capitalization risk.

Important Disclosures and CertificationsAnalyst Certification - The author certifies that this research report accurately states his/her personal views about the

subject securities, which are reflected in the ratings as well as in the substance of this report.The author certifies that no

part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views

contained in this research report.

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Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered byOppenheimer & Co. Inc:

Stock Prices as of February 23, 2012

Achillion Pharmaceuticals (ACHN - Nasdaq, 10.32, PERFORM)ArQule, Inc. (ARQL - Nasdaq, 7.26, OUTPERFORM)Idenix Pharmaceuticals (IDIX - Nasdaq, 12.25, PERFORM)Oncolytics Biotech Inc. (ONCY - Nasdaq, 5.01, PERFORM)Celldex Therapeutics (CLDX - Nasdaq, 4.30, OUTPERFORM)Ardea Biosciences, Inc. (RDEA - Nasdaq, 19.45, OUTPERFORM)Endo Pharmaceuticals (ENDP - Nasdaq, 34.70, OUTPERFORM)

34

2

4

6

8

10

12

2009 2010 2011 2012

Rating and Price Target History for: Coronado Biosciences (CNDO) as of 02-22-2012

Created by BlueMatrix

All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer &

Co. Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price

histories, please write to Oppenheimer & Co. Inc., 300 Madison Avenue, New York, NY 10017, Attention: Equity Research

Department, Business Manager.

Oppenheimer & Co. Inc. Rating System as of January 14th, 2008:

Outperform(O) - Stock expected to outperform the S&P 500 within the next 12-18 months.

Perform (P) - Stock expected to perform in line with the S&P 500 within the next 12-18 months.

Underperform (U) - Stock expected to underperform the S&P 500 within the next 12-18 months.

Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential

conflict of interest.

Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008:

Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments,

and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector.

Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to

a perceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than

higher rated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy,

aggressive trading accounts might decide to liquidate their positions to employ the funds elsewhere.

Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness

perceived in the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group.

35

Distribution of Ratings/IB Services Firmwide

IB Serv/Past 12 Mos.

Rating Count Percent Count Percent

OUTPERFORM [O] 334 55.80 146 43.71

PERFORM [P] 258 43.10 88 34.11

UNDERPERFORM [U] 7 1.20 4 57.14

Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do not

correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assigned

buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform.

Company Specific DisclosuresIn the past 12 months Oppenheimer & Co. Inc. has provided investment banking services for RDEA and ZIOP.

Oppenheimer & Co. Inc. expects to receive or intends to seek compensation for investment banking services in the next 3

months from ACHN, ARQL, NBIX, CLDX, and RDEA.

In the past 12 months Oppenheimer & Co. Inc. has managed or co-managed a public offering of securities for RDEA.

In the past 12 months Oppenheimer & Co. Inc. has received compensation for investment banking services from RDEA

and ZIOP.

Oppenheimer & Co. Inc. makes a market in the securities of ACHN, ARQL, IDIX, LGND, NBIX, ONCY, CLDX, RDEA,

ZIOP, ENDP, and GENT.

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36

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