NanoViricides, Inc. (NYSE: NNVC), headquartered in Shelton, CT is an early stage nano-pharmaceutical company that is involved in discovering and developing therapeutics for treating viral infections. The company anticipates submitting an IND to the FDA for conducting a Phase I study of its drug candidate for the treatment of shingles in 2019.
With $6 million in cash and cash equivalents as of September 30, 2018. We are initiating coverage on NNVC with a price target of $0.60/share.
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Our 10-year discounted cash flow analysis using an 18% discount rate and a 10% probability of approval, values the company at approximately $40 million. Our financial model and assumptions will be updated based on relevant news.
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INITIATING COVERAGE
NanoViricides, Inc. (NYSE: NNVC) is an early stage nano-pharmaceutical company that was first listed in 2005 and became a reporting company the following year. The company is involved in discovering and developing therapeutics for treating viral infections with drug candidates in the preclinical stage.
NanoViricides is currently focused on the development of a potential candidate for the treatment of shingles (herpes zoster), which is caused by the reactivation of varicella zoster virus (VZV). The incidence of shingles is about one million new cases every year and it continues to rise. The number of cases is driven by an aging population and immunocompromised adults. The increase in incidence of viral infections highlights an unmet need for novel therapies such as NanoViricides that could potentially offer advantages to traditional therapies. NanoViricides has candidates for shingles treatment, which addresses a market of close to one billion dollars annually. The company also intends to further develop this lead candidate for the prevention of post-herpetic neuralgia (PHN), a debilitating neuropathic pain syndrome that is the most common complication of shingles and occurs long after the blisters disappear.
The company has made significant capital investment in building their own manufacturing plant in Shelton, CT. The company has demonstrated activity in two drug candidates (NV-118 and NV-173), and has continued to further optimize them. The optimized candidate will be advanced into IND-enabling activities. The candidates have demonstrated significant therapeutic potential in preclinical models for the treatment of shingles and additional studies are being planned to determine therapeutic potential for the treatment of PHN. An IND is expected to be filed for this treatment in 2019. Currently, the company is developing a clinical plan for their candidate and anticipates initiating a Phase I clinical trial in shingles patients within the next year. The company is developing variations of the drug for several other diseases caused by herpes viruses, including oral and genital herpes, external eye viral infections and others. The firm has a number of potential product candidates in the pipeline targeting antiviral therapies for a variety of influenza, HIV, Rabies, Ebola, and Marburg viruses. The firm is open to potential collaboration opportunities for their drug candidates.
The company has built a formidable IP portfolio, which covers the basic technology into late 2020s. Additional drug-specific patents are expected to be filed as the company enters clinical studies, and these would be expected to provide protection beyond 2038.
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BACKGROUND
NanoViricides is currently developing drug candidates against several human viral infections using their proprietary polymeric micelle technology. Viruses, in general, infect host cells by injecting their genetic material and utilizing the cell's metabolism for reproduction. NanoViricides drug candidates are polymeric micelles that attack virus particles directly by binding to a virion, encapsulating and destroying them. This makes a nanoviricide particle effective against rapidly developing viral mutants.
Exhibit 1 Illustration of an enveloped icosahedral virus
A virion contains a nucleic acid (RNA/DNA) genome and is surrounded by a protective protein shell called the capsid. Virions are metabolically inactive and have a parasitic existence in that they cannot reproduce without a host cell. A virus particle directs the host cell s machinery to synthesize more viruses. The following mechanisms are involved in a viral replication cycle:
2. Penetration: A virion penetrates the cell wall and releases the nucleic acid into the host cell. 3. Transcription and Replication: This process involves intricate strategies to replicate genome and synthesize
proteins for multiplication. 4. Assembly: The components of the virus particle are assembled in an organized fashion. 5. Release: Virus particles are released into the blood stream.
Although symptoms of a viral infection manifest at the site of viral replication, in some cases they are noticeable at a secondary site where the virions have spread via the blood stream, lymphatic, bronchial, or neural routes. Recovery from an infection occurs when the virus has been completely eliminated from the body. However, some remain latent in tissues after the primary infection and are responsible for recurrent infections periodically.
Antivirals role in therapy Different viruses have unique characteristics in their pathogenesis, transmission, and epidemiology. The development of new antiviral agents is evolving. Every step of the viral replication cycle is dependent on the host cell. A viral infection commences when the virus binds to a receptor on the host cell. In a viral replication cycle, adsorption, penetration and uncoating stages are unique to the virus. The antiviral agent is designed to disrupt one of the specific steps in the replication cycle. Antiviral drug molecules either bind to the cell surface receptor and inactivate it (anti-receptor antibodies) or bind to the virus and inactivate it (anti-virus antibodies). Certain molecules block the receptor on the host cell surface. Others target the proteins on the capsid surface responsible for uncoating. Some even inhibit the activity of neuraminidase, an enzyme on the viral surface that catalyzes release of the virus from the host cell. Due to the lack of bioavailability of currently available drugs as well as the rapid mutation of the virus, the patient is treated with combination therapies (multiple steps in the virus life cycle are targeted). Nevertheless, they are still not completely efficient in hampering the virus ability to attack.
Exhibit 3 Strategies used in the development of antiviral drugs
Left panel: direct-acting antivirals that target a specific viral protein and are aimed at a single virus target or a target for multiple viruses. Right panel: drugs that target cellular processes that are essential for replication of one of several viruses. (Source: Viral Pathogenesis, Antiviral Therapy, Douglas D. Richman, Neal Nathanson)
Drawbacks of traditional antiviral therapy The most effective antiviral agents should preferentially inhibit synthesis of virus alone. However, there are some challenges associated with currently available therapies, as listed below.
1. Many currently available antiviral agents are unable to preferentially inhibit virus replication and therefore affect the host cell function resulting in toxicity.
2. In general, viruses are known to have a short incubation period and high mutation rates. Consequently, viral mutants are significantly resistant to drug and cause recurring infections.
3. Most currently marketed antiviral agents are able to inhibit only an ongoing viral replication. These agents are ineffective in addressing latent viruses as viral replication resumes when therapy is discontinued.
Nanotechnology for Antivirals The size of a virus particle ranges between 20 to 400 nanometers. A nanoparticle is about a billionth of a meter (10-
9 m). It has the characteristics of being especially small in size, having a large surface area to mass ratio, and highly reactive. A nanoparticle can exert its antiviral capabilities by one of the following mechanisms
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1. Specificity of the nanoparticle can be tailored for desired cell type 2. Cellular surface can be modified to enter host cell 3. Drug can be encapsulated for requisite payloads
A micelle is a type of nanoparticle ranging in size from 10 to 100 nm. It is composed of an inner hydrophobic core surrounded by an outer hydrophilic polymer. PEG-based micelles are biocompatible and biodegradable. Advantages of using micelles in drug delivery are listed below
Its structural flexibility provides protection from possible inactivation by macrophages.
Polymeric micelles are known to increase solubility and decrease systemic toxicity of hydrophobic drugs.
Micelles dissociate at a slower rate that enables a longer drug retention time and a higher accumulation of the drug at the target site.
It enhances permeability across physiological barriers thereby improving drug s PK profile
The hydrophobic core improves water solubility of a drug and the hydrophilic shell protects the drug by preventing phagocytosis thereby increasing its bioavailability.
NNVC s platform technology
Exhibit 5 A nanoviricide
(Source: www.nanoviricides.com)
The Nanoviricide technology is being developed to render a virus completely incapable of invading the host cell. The company describes a nanoviricide as a polymeric nano-micelle made from polyethylene glycol and alkyl pendants1 . Virus-specific ligands are attached covalently to the basic structure to mimic the binding site on the cell surface receptor(s). NNVC s platform technology to attack viruses is based on a war-like strategy called Bind-Encapsulate-Destroy . A nanoviricide is designed to seek a specific virus type and attack only the virus-infected cells, thus sparing normal cells.
1 Side chains of molecule attached to the primary chain of a long molecule
A nanoviricide micelle can recognize and bind with up to three sites on the virus. Although its mechanism of action is similar to that of an antibody in that they both identify the virus, a nanoviricide has the ability to grasp and encapsulate the virus particle. This ability makes the nanoviricide self-sufficient in its capabilities to thwart the mechanism of viruses without the support of the immune system. Not only does it block the binding sites, but it also has molecular chisels that have the ability to dismantle the virus particle and completely disintegrate it. The nanoviricide technology can contain active pharmaceutical ingredients (APIs) that could kill or disrupt virus production inside infected cells. Nanovircides are biodegradable and are excreted through the body s natural mechanisms of elimination. A nanoviricide can be developed as a topical gel or administered intravenously or as eye drops to treat influenzas, HIV, HCV, rabies and other viruses.
HERPECIDETM PROGRAM
NanoViricides is primarily focused on the HerpeCide program which involves clinical development of drugs against Cold sores, genital herpes and shingles. The drug candidates for these indications exhibit similar chemistry profile and are based on the same family of ligands and polymers, thus enabling parallel development.
Herpes Simplex Virus (HSV) is a 200nm structure that contains a linear double-stranded DNA genome comprised of more than 80 genes. The incubation period of HSV is less than one week. HSV is transmitted seamlessly without occurrence of symptoms. HSV almost exclusively infects humans and establishes latency in the host cells. This makes the virus persistent in causing intermittent infections and it is unlikely that the HSV s DNA is eliminated during therapy. Therefore, treatment is most often directed at the symptoms including antiviral medications that help in reducing the likelihood of transmission to other individuals.
There are two categories of HSV. HSV-1 is transmitted through direct skin or oral contact and causes infections such as keratitis, facial blisters that result in skin lesions and cold sores. HSV-2 is transmitted sexually via direct exposure to an infected patients genital skin/fluids. It causes genital lesions that result in blister formation and pain during urination. According to the World Health Organization s (WHO s) global estimates, about 4 billion people and 400 million people under the age of 50 are affected by HSV-1 and HSV-2 respectively.
Indications:
Cold Sores (Oral Herpes) are caused by HSV-1. Fluid-filled blisters appear around the facial region that crust and heal in two to four weeks time period without leaving a scar. Cold sores are contagious during an outbreak as well as during viral shedding. The blisters cause itching and burning, and are painful when they burst open. Center for Disease Control (CDC) data find that 48% of people between the ages of 14 and 49 are affected by HSV-1.
Herpes Keratitis HSV-1 infection of the eye causes herpes keratitis and inflammation of the cornea that can lead to blindness in some cases. The infection can be recurrent and complicates clinical management. There are approximately 500,000 cases in the U.S. alone2.
Acute Retinal Necrosis (ARN) is an infection of the cornea. Recurrences are common that lead to severe loss of vision. Both VZV and HSV-2 are potential culprits for this condition. As with all HSV infections, it is believed that ARN in children and adolescents results from an undiagnosed primary infection followed by reactivation of the latent virus. Currently, IV or oral acyclovir for 7 to 10 days serves as a therapeutic option. There are approximately 2,500 cases of neonatal herpes virus infections in the U.S. annually.
Genital Lesions (Genital Herpes) is caused by HSV-2. About 16% of people between the ages of 14 and 49 are affected by HSV-2 as per CDC statistics. HSV-2 infection is very challenging to cure as it can be recurrent. Those infected with HSV-2 are two-to-three times more likely to acquire HIV.
Varicella-Zoster Virus (VZV)
is also from the same family of viruses as HSV and has a similar size and structure and affects humans exclusively. The virus has an incubation period of one to two weeks. It is transmitted via direct contact with respiratory secretions or lesions and causes chickenpox in children and shingles (herpes zoster) in older adults.
NanoViricides is developing other drug candidates under the HerpeCide program to treat shingles caused by VZV, cold sores (orolabial herpes and recurrent herpes labialis), genital ulcers, ocular herpes keratitis and acute retinal necrosis caused by HSV. The drug candidates for these indications have common chemistry features as they are based on the same family of ligands and polymers. This enables parallel development of potential candidates.
Indications:
Shingles: Initial infection by VZV establishes the virus in the sensory nerve ganglia. In immunocompromised patients, the elderly and those who have already had chickenpox, the virus is reactivated and causes shingles. Since the virus has invaded the nervous system, the symptoms of shingles are more severe than those of chickenpox. Shingles usually develops as a unilateral dermal pain around the waistline. The pain could be tingling, numbing and precedes the appearance of rash. Its symptoms are characterized by blisters that burn, are itchy and painful. The rash develops over the course of about one week, evolves into fluid-filled blisters which dry up and forms crusts. The scabs clear in two to three weeks
timeframe.
PHN: PHN, a complex neuropathic pain, is the most common complication of shingles and can last for months or years, long after the rash has cleared. The pain resulting from a peripheral-nerve damage from VZV infection is burning, throbbing and sharp in nature accompanied by an exaggerated response to a painful stimuli (hyperalgesia) and altered sensitivity to touch (allodynia). Such pain that lasts beyond 120 days is classified as PHN. Treatment for PHN involves either topical analgesics (lidocaine or capsaicin) or systemic therapy with gabapentin (Neurontin®, Gralise®), pregabalin (Lyrica®). These drugs have been approved for use by the FDA. At times, opioid analgesics and tricyclic antidepressants are also used. However, no drugs have been effective in relieving pain from PHN.
Currently available treatment options
Vaccines: As in any anti-viral therapy, early intervention and treatment can reduce or prevent severe pain and help clear the blisters. Temporary relief from pain and quick drying of blisters can be achieved by placing a cool, damp washcloth on the blisters and keeping the area clean. This treatment also can help avoid a secondary bacterial infection. The goal in treating viral infections such as shingles is to reduce viremia.
Vaccination against shingles is recommended for persons who have already experienced primary VZV infection (chickenpox). The Centers for Disease Control and Prevention (CDC) Advisory Committee on Immunization Practices (ACIP) recommends zoster vaccine for all persons aged 60 years and above who have no contraindications. Currently, there are two vaccines available in the market: the Shingrix® vaccine by GlaxoSmithKline (NYSE: GSK) and the Zostavax® vaccine by Merck (NYSE: MRK).
Shingrix was approved by the FDA in 2017 for individuals over 50 years of age and contains VZV glycoprotein E and the AS01B adjuvant system. It is recommended to administer two doses (0.5 mL each) annually with a cost of roughly $280 per 2-dose course.
Two pivotal placebo-controlled, observer-blinded trials investigating Shingrix was published in the New England Journal of Medicine in 2015 and 2016. In the 2015 study, researchers administered Shingrix vaccine to 7,344 participants and a placebo vaccine to 7,415 subjects, with both groups having 50 years of age or older individuals. Shingrix was 97% effective in reducing shingles as compared to the placebo group. In the 2016 study, the vaccine was administered to subjects aged 70 and older (6,541) and a placebo to 6,622 subjects. They found that Shingrix was 85% effective for reducing shingles. For those in their 80s, who are most at risk of developing singles related complications, the vaccine was found to be 91% effective.
The second vaccine is Merck s (NYSE: MRK) Zostavax
which was approved by the FDA in 2005. Zostavax is a
single dose, lyophilized, live, attenuated VZV (Oka/Merck) vaccine indicated for individuals greater than 50 years of age for the prevention of shingles and shingles-related PHN3. It is priced at $213 for a single dose.
The Shingles Prevention Study (SPS) and ZOSTAVAX Efficacy and Safety Trial (ZEST) were the two pivotal Phase III studies that demonstrated the efficacy of Zostavax against shingles. Zostavax had been found to be just over 51% effective for people over 50, approximately 38% effective in those aged 70 and older and 18% effective in those aged 80 and older. The vaccine s efficacy lasted up to eight years post vaccination and decreased the incidence of shingles over time. Several post-marketing observational studies were conducted that confirmed the effectiveness of the vaccine. The results were consistent with clinical trial data.
Antiviral medications: Antiviral prescriptions include acyclovir, valacyclovir, and famciclovir, which are guanosine analogs, that are competitive inhibitors of viral DNA polymerase causing viral replication to terminate. They are dosed at ~800 mg three times a day for one week to ten days and inhibit replication of both HSV and VZV. Clinical trials have indicated that these oral agents reduce the duration of viral shedding and lesion formation, time to rash healing, severity and duration of acute pain as well as the risk for progression to PHN. Of the three, valacyclovir improves bioavailability to more than 53%, yielding peak plasma levels that are three to fivefold higher than those achieved with oral acyclovir. All three antiviral agents are safe and well tolerated and treatment is specifically recommend treatment for persons aged >50 years who have moderate or severe pain, moderate or severe rash. Other treatments including anti-inflammatory corticosteroids such as prednisone are considered when facial nerves are affected.
Challenges with currently available treatment options Treatment with antiviral therapies are required to be initiated within the first 72 hours of onset of shingles rash for maximum benefits. Clinical trials have demonstrated that antiviral therapies must be taken as multiple doses per day to minimize the intensity of pain and duration of healing. For both acyclovir and valacyclovir, dosage alterations are required for patients with significant renal dysfunction4. Further, antiviral therapies are not effective in PHN and require patients to resort to analgesics to alleviate pain temporarily.
The zoster vaccine cannot be administered to immunocompromised individuals. While Shingrix reduced PHN by 90%, Zostavax had shown just a 67% reduction in adults aged 60 or older, according to the SPS study5. Given the complex nature of the condition and its high variability in manifestation among patients, it might be worthwhile to treat patients with drugs that could potentially inhibit the onset of action.
Market Potential Anyone who has been afflicted with chickenpox, is a potential candidate for shingles. As per CDC statistics, one-third of Americans will get shingles in their lifetime and 15% of those will experience PHN and there are about 1 million new cases annually. The immune system is compromised in function with increasing age and therefore the incidence of shingles is greater (more than 50% of cases) in people over the age of 60. Shingles most often occurs once in most people. However, about 4% of the affected population has recurrent attacks.
Rate (per 1000 person-years) of HZ and PHN by age in the U.S.6
VZV complications can cause hospitalization in about 1-4% of patients7. A study was conducted in 20098 to assess the healthcare cost associated with shingles. The annual cost of treating shingles in patients 50 years and older immunocompetent adults was estimated at roughly $1 billion. Sales of Valtrex (valacyclovir), the high-value growth product for herpes from GSK, was around $1.5 billion and accounted for roughly 43% market share in 20089. Valtrex is indicated for the treatment of shingles as well as cold sores.
CLINICAL DEVELOPMENT PLAN
Preclinical data supporting drug candidates for the treatment of Shingles and PHN NanoViricides is developing drug candidates for the treatment of Shingles and PHN. The drug candidates are developed based on NanoViricides proprietary technology that possess a VZV specific ligand on the surface of a nanoviricide polymeric micelle. The company s lead clinical drug candidates for VZV were evaluated in the following preliminary in-vitro studies and have demonstrated superior efficacy. The drug candidates differ only in the chemical structures of their ligands, demonstrating ligand-directed virus specificity.
Study 1: In late 2016, NanoViricides entered into an agreement with SUNY Upstate Medical University to test its novel drug candidates against VZV. The research conducted by Dr. Jennifer Moffat included in vitro and ex vivo studies. Dr. Moffat has extensive experience in VZV infection and antiviral agent discovery.
Evaluation in cell cultures:
The study was conducted using retinal cell lines (ARPE-19). Retinal pigment epithelial (RPE) cells are a layer of antigen-presenting cells that play a crucial role in maintaining immune response within the eye. RPE cells provide a physical barrier, express immunosuppressive factors and suppress systemic immune responses to antigen. VZV are capable of infecting RPE cells. Due to challenges associated with obtaining RPE cells, researchers used ARPE-19, a retinal pigmented epithelia (RPE) cell line to understand the effect of drug candidates to VZV infection. ARPE-19 cells possess structural and functional properties characteristic of RPE in vivo. In this study, the effect of drug candidates on VZV infected ARPE-19 cells was evaluated.
6 www.cdc.gov/mmwr/preview/mmwrhtml/rr57e0515a1.htm 7 https://www.cdc.gov/shingles/hcp/clinical-overview.html 8 Yawn BP, Itzler RF, Wollan PC, Pellissier JM, Sy LS, Saddier P. Health care utilization and cost burden of herpes zoster in a community population. Mayo Clin Proc. 2009;84(9):787-94. 9 Express Scripts, 2009 drug trend report
VZV was pre-incubated with the compounds or vehicle for an hour, then added to ARPE-19 cells and cultured for six days. ARPE-19 cells were seeded in 96-well plates 24 hours prior to infection. Serial dilutions of VZV stock virus preps were tested and plates were fixed in formalin at various time points. Absorbance was measured to determine optimum concentration of virus to be used in studies. Based on the graphic below, plates were infected with either 1:4 or 1:8 dilution of virus stock, and fixed in formalin after 6 days. Four different primary antibody (Ab) dilutions and 2 different secondary Ab concentrations were used to optimized the assay.
VZV-infected cells were detected by immunocytochemistry and measured by ELISA. The percent infection relative to untreated infected controls was determined by measuring absorbance. The graph above shows NV-118 demonstrated close to five times superiority in inhibiting VZV at the highest drug dose as compared to acyclovir. Additional studies with another cell line, namely BS-C-1 produced comparable results. In order to determine if the drug compound, control, or vehicle were toxic to the cells themselves, a cell-viability assay was performed. Cell viability was determined by Promega s CellTiter-Glo Luminescent Cell Viability Assay. No cytotoxicity was observed at any of the doses tested.
In randomized clinical trials involving acyclovir, the mean time to full crusting of lesions was roughly 15 days. NV-118 inhibited VZV infection in ARPE-19 cell lines in 6 days.
Evaluation in human skin organ culture:
The human skin organ culture (SOC) is composed of all the major cell types including dermis, epidermis, hair follicles and sebaceous glands that are correctly positioned and differentiated. There is growing evidence that hair follicles are the site of VZV transfer to the skin from infected T cells. An ex vivo human skin patch model involving VZV infection is considered to be a close representation of natural course of shingles. Researchers found that VZV infection in an SOC model closely mimicked viral replication in vivo,
where all layers of the skin were infected causing typical lesions and producing abundant virions10. The panel of the drug candidates evaluated in cell cultures previously were evaluated in human skin organ culture. The effectiveness of the candidate in reducing viral yield was observed and compared to cidofovir which was used as a positive control.
Exhibit 9
Human skin patch (ex vivo study): Left -VZV lesion in the epidermis with multinucleated
giant cells and breach of the basal cell layer. Right - Normal Dermis and Epidermis. No viral infiltration or lesions seen
(Source: www.nanoviricides.com)
The drug candidate was applied to the skin five minutes after VZV inoculation. The tissue was stained with hematoxylin and eosin (HE) for contrast. In the above graphic, the infected skin shows VZV lesion in the epidermis (circled), multinucleated giant cells (orange arrow), breach of the basal cell layer (black arrow) and the vesicle forming in lesion in between the arrows (*). In the patch treated with NV-118, no VZV lesions were observed. The skin appeared to have normal skin layers and hair follicles were abundant. The black arrow shows needle track where VZV was inoculated.
Exhibit 10
Bioluminescence of cell treated with NanoViricide and Cidofovir
(Source: www.nanoviricides.com)
10 Taylor SL, Moffat JF. Replication of varicella-zoster virus in human skin organ culture. J Virol. 2005;79(17):11501-6.
The infected skin tissue was analyzed using bioluminescence imaging to observe the kinetics of VZV replication. Overall, results revealed that NV-118 inhibited VZV infection, replication and spread in human skin cultures. This was shown by direct assay of viral infection of human skin. In addition, normal skin architecture was found to be preserved in microscopic tissue analysis of VZV-infected, nanoviricide-treated human skin, indicating excellent preliminary tolerability and safety.
The data suggest that select NanoViricides
drug candidates may have direct viricidal activity based on their antiviral effects within the first 24 hours after viral infection. These findings corroborate the previously reported findings of inhibition of VZV infection of human cells in culture.
A topical skin cream containing 2% cidofovir is clinically used in very severe cases of shingles. The antiviral effect of the drug candidates was found to be equivalent to the effect of a topical formulation of 1% cidofovir applied directly onto the skin patch. The cytotoxicity of cidofovir is known to cause scarring and pigmentary changes in the skin.
Study 2 (non-GLP safety and toxicology): AR Biosystems of Beverly, MA conducted this study in April 2018 to evaluate the effect of drug candidates on skin and organs as well as to assess its potential effect on organs in uninfected animals. Nanoviricide drug candidates were applied as skin cream, and were also injected subcutaneously and intravenously in different groups of animals. Full blood pathology analysis, gross histology of various organs, and microscopic histology were performed. There were no adverse effects on the skin at the treatment sites, and no overall observable systemic effects or direct effects on liver and kidney function. The results were consistent with the strong safety observed in the human skin patch model.
Study 3 (Direct Pain Effect Study): Following reactivation of VZV, PHN develops and persists after the disappearance of skin lesions. Persistent pain from PHN increases in incidence with age and responds poorly to analgesics. AR Biosystems of Beverly, MA conducted a study in 2018 using a standard rat model of neuropathic pain. The rats were not infected with VZV. The results from the investigation demonstrated that the anti-VZV compounds significantly reduced abnormal pain sensations in the animals. The results suggest that the nanoviricide compound could be instrumental in resolving PHN without resorting to aggressive pain medications such as gabapentin or morphine derivatives.
How do NanoViricides
candidates compare to currently available therapies for shingles?
As compared to current standard of care, NanoViricides
drug candidate for shingles is being developed as a topical treatment. A localized treatment at the site of infection is expected to be more efficient than systemic drug that is administered either orally or intravenously. The effective concentration of a systemically delivered drug at the site of rash would generally be suboptimal. Although acyclovir is
available in topical formulations, it is not recommended by current guidelines as there is no clinical benefit associated with it.
Initial studies have shown that NanoViricides
two active candidates inhibited VZV activity up to five fold
better than the current standard of care (acyclovir) in cell cultures. In human skin organ culture studies, the NanoViricide drug candidates were equivalent to a topical formulation of 1% cidofovir applied directly onto the skin patch. Clinically, 2% cidofovir is prescribed for patients with severe symptoms.
NanoViricides
drug candidates did not cause ulcerations in the skin patch model. Cidofovir (current
standard of care) is cytotoxic, causes ulceration at site, and has dose-limiting renal toxicity. Although the wound heals naturally, it results in scarring of the skin.
While most of the currently available anti-herpes drugs inhibit viral replication by competitive inhibition, a nanoviricide particle exclusively targets the virus leaving the host cell intact, which contributes towards an inherent safety profile.
The components of a nanoviricide are biodegradable which contributes to its safety profile. In contrast, acyclovir is not readily biodegradable which warrants a lower dosage in elderly patients or those with impaired renal function. Furthermore, the zoster vaccine administration is contraindicated in any individual who is actively undergoing high-dose immunosuppressive therapy such as chemotherapy or radiation.
DRUG CANDIDATE PIPELINE
The company has a unique platform that is driving the identification of novel drug candidates for a broad range of indications including cold sores, genital ulcers, herpes keratitis and acute retinal necrosis in the HerpeCide program. Some have shown significant success in cell culture as well as animal models. The lead pre-clinical drug candidate would be the development of topical gel for indications in the HerpeCide program, followed by HIVCide and potentially other indications including influenza (FluCide ), Dengue, Ebola and Marburg viruses.
Exhibit 12
NanoViricides
Pipeline
(Source: www.nanoviricides.com)
The company has performed preliminary safety studies of injectable FluCide drug candidate in both mouse and rat models. Efficacy was demonstrated in a preclinical study involving FluCide where FluCide-treated mice, Standard of Care-treated mice (TamiFlu), and untreated mice, were subjected to lethal doses of Influenza strain. One hundred percent (100%) of the FluCide-treated animals survived while none of the mice from the other two control groups survived. In another preclinical study of the viral load in lungs, animals treated with FluCide experienced
greater than a 1000-fold lung viral load reduction compared with a twofold reduction with those treated withTamiflu and an increase in viral load in untreated animals.
MANUFACTURING
The company spent a little over $15 million in designing and renovating an existing 18,000 square foot facility into an R&D laboratory with cGMP-capable manufacturing facility in Shelton, CT in 2014. The plant is yet to be validated by the U.S. FDA as a cGMP facility. We visited the manufacturing facility at Shelton and met with the leadership team and their employees who were involved in R&D.
The new facility comprises a small office space, Chemistry Labs, Biology Testing Labs, Analytical Lab and a cGMP-supporting Analytical Lab, a cGMP-compliant raw materials handling and dispensing area, and cGMP-compliant Clean Room Suites for nanomedicines production and packaging processes. All of the R&D labs employ class11
100,000 equivalent or cleaner air systems. The clean room suites12 comprise class 10,000 air quality areas as well as class 1,000 and the ultra-clean class 100 air quality areas. This allows production and handling of nanomedicines with minimal risk of introducing foreign particles. All of the R&D labs employ deionized water; WFI-quality13 water is also produced on site for critical processes in quantities needed to support the production scale.
Manufacturing of drug candidates in the form of skin creams/lotions, oral solution or injectables are possible at this facility. The facility is capable of producing up to 2 Kg of drug per batch that would be sufficient for use in pre-clinical toxicology and clinical studies.
Exhibit 13
Manufacturing Facility in Shelton, CT
(Source: www.nanoviricides.com)
11 The class specifies the number of particles per 1,000 liters of air. 12 A clean room is a controlled environment with low level of pollutants such as dust, airborne microbes, aerosol particles, and chemical vapors. 13 WFI = water for injection, comprises a specification of water quality that specifies minimal endotoxins and maximum sterility
The company has commenced the first large-scale batch for manufacturing sufficient quantities (~750g) of a drug candidate for the ensuing IND-enabling safety and toxicology studies. NanoViricides is planning a pre-IND Meeting with the FDA which, upon approval, will allow the company to begin manufacturing clinical trial batches for Phase I and Phase II clinical trials.
NanoViricides intends to advance the same drug candidates or closely related variants for the treatment of cold sores (orolabial herpes) primarily caused by HSV-1, genital ulcers caused by HSV-2, external eye infections caused primarily by HSV-1 (herpes keratitis), and internal ocular herpesvirus infections that are the probable cause for acute retinal necrosis. The studies are expected to be conducted by Professor Curtis Brandt, Collaborative Ophthalmic Research Laboratories (CORL), at the University of Wisconsin. Dr. Brandt is Professor in the Departments of Ophthalmology and Visual Sciences, Medical Microbiology and Immunology, and Director of the Vision Research Core at the University of Wisconsin.
NanoViricides is open for partnership opportunities as the drug candidates mature to late-stage clinical candidates. The company is currently at an inflection point, moving from a preclinical to a clinical stage company.
INTELLECTUAL PROPERTY
NanoViricides is developing both broad-spectrum drug candidates as well as strain specific ones. The company has obtained exclusive licenses to develop antiviral nanomedicines for several indications based on the polymeric micelle technology from TheraCour Pharma Inc. Dr. Diwan and his colleagues hold the patent Solubilization and Targeted delivery of drugs with Self-Assembling Amphiphilic Polymers , which was issued in May 2012. The first of the fundamental patents begin to expire in 2026. TheraCour has developed technology for a variety of virus types including HIV, influenza including Asian Bird Flu Virus (INF), HSV, HCV, HBV, Rabies, Dengue, Japanese Encephalitis (JEV), West Nile Virus (WNV), viruses causing viral Conjunctivitis (a disease of the eye), herpes keratitis, and Ebola/Marburg viruses.
Exhibit 14
Intellectual Property, Patents, and Pending Patents Licensed by NanoViricides
(Source: www.nanoviricides.com)
Currently, the company is working towards obtaining a license for developing a candidate against VZV. The drug candidates that are currently under development do not contain an encapsulated API for delivery. The company intends to patent each of the drug candidates separately.
Collaborators Management relies on strategic R&D collaborations for testing of the drug candidates. Cost containment has been central for NanoViricides and collaborations with academic centers has aided in conducting the preclinical studies in a cost efficient manner. Additionally, the company is able to tap into the universities multidisciplinary scientific community in order to validate novel drug candidates. The company s collaborators are listed below -
Herpes Virus Infections, Shingles, and for Viral Diseases of the Eye (Adenoviruses, Herpesviruses - Epidemic Kerato-conjunctivitis (EKC), Herpes Keratitis, viral Acute Retinal Necrosis (vARN)):
The Moffat Lab at SUNY Upstate Medical Center, Syracuse, NY.
The CORL at the University of Wisconsin, Madison, WI
Influenza Viruses:
The Webster Lab at St Jude Children s Hospital, TN
IND-enabling non-GLP and cGLP Safety/Toxicology Studies:
AR Biosystems, Inc., Odessa, FL (non-GLP studies)
Bio-Analytical Services, Inc., MI, ( BASi ) IND-Enabling non-GLP and GLP Tox Package studies
Regulatory Pathway and Business Development:
Biologics Consulting Group (BCG), Alexandria, Virginia (FDA regulatory pathway)
Bio-Ensemble, LLC, NJ (Business Development)
REGULATORY PATHWAY
Complete documentation to support IND filing: Thus far, NanoViricides has conducted small animal (rodent models) and skin patch studies to generate data for their shingles drug candidate. IND-enabling activities including preclinical toxicology, safety pharmacology, and PK studies as well as manufacturing of drug substance and formulation in accordance with current good manufacturing practices (cGMP) standards are underway. We estimate that these activities could be accomplished within the next six months period and cost roughly between $1 and $2 million.
There is clearly an unmet medical need in shingles. There may be a strong rationale to obtain approval for the shingles drug candidate that addresses comorbidities such as persons with autoimmune diseases. Therefore, it is essential to account for the comorbidities in clinical trials to assess the efficacy of shingles drugs.
The general guidance for developing shingles drugs is that the clinical end-points include reducing the time to lesion scabbing, healing and cessation of pain as well as reduction in the duration of viral shedding and new lesion formation. The mild-to-moderate pain associated with shingles and PHN could be controlled with a short-acting opioid and acetaminophen or a nonsteroidal anti-inflammatory agent (NSAID) and gabapentinoids,
Management is in the process of meeting with the regulatory authorities to seek guidance on the continued development of shingles drug candidates. The pre-IND meeting will help address questions related to candidate chosen to develop for the treatment of shingles, including study designs in monotherapy as well as acceptable trial endpoints. Management will communicate the anticipated clinical path forward for use of this candidate once it is better defined by the FDA. Management hopes to launch a Phase I study for a potential shingles candidate in 2019.
Reimbursement: Since NanoViricides is developing its platform technology that could qualify for product labeling covering more than one indication (since shingles and PHN are inter-related), the novel mechanism of action could be the primary point of differentiation, notwithstanding that the drug is completely biodegradable and therefore may be much safer. Although preclinical studies have demonstrated remarkable results in disappearing of lesion, it remains to be seen if future trials replicate these results in human subjects. If sufficient evidence is demonstrated, we think there is a good potential for reimbursement for the shingles candidate.
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RECENT AND NEAR-TERM MILESTONES
Declare a clinical candidate as the lead drug for Shingles Q2 2019
Complete cGMP-like production of the drug as required for toxicology studies Q2/Q3 2019
Complete toxicology studies Q2/Q3 2019
File an IND Q3 2019
Commence Phase I clinical trial 2H2019
FINANCIAL CONDITION AND CAPITAL STRUCTURE
As of September 30, 2018, the company maintained cash and cash equivalents of about $6 million and an accumulated deficit of more than $80 million. The company does not have any long-term debt. The current cash burn rate is approximately $8 million annually.
Clinical trials for NanoViricides, if and when they commence, will require substantial capital. The trials are expected to begin sometime in the mid to early second half of 2019. Management has guided that the current cash position will be sufficient to fund operations until this time. Nevertheless, management will need to raise additional financing prior to the start of Phase I trial.
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MANAGEMENT PROFILE
Irach Taraporewala, PhD Chief Executive Officer Dr. Taraporewala was previously the founding CEO and President of Ohr Pharmaceutical, Inc. ("Ohr"), from April 2010 until December 2015. During his 5 years of leadership at Ohr, he played a critical role in taking the company from preclinical stage through successful Phase II clinical trials. Dr. Taraporewala ensured that the Company was well capitalized, oversaw the up-listing of the Company's common stock to the NASDAQ exchange, and completed several successful rounds of financing.
Prior to Ohr, Dr. Taraporewala was Vice President of Regulatory Affairs and Clinical Research at Mystic Pharmaceuticals Inc., Austin, TX, from April 2008 to March 2010. At Mystic, he led the regulatory strategy for the Company's ophthalmic and intranasal drug products, as well as drug delivery systems. Earlier, Dr. Taraporewala served at a well-known pharmaceutical consulting and clinical research organization, PAREXEL International Corp., as Senior Consultant in the Drug Development Consulting Division. In this position, he provided technical expertise and regulatory advice to small and large biotechnology and pharmaceutical company clients worldwide.
Dr. Taraporewala has a track record of being awarded multiple Small Business Innovation Research (SBIR) grants on the development of antiviral drugs, DNA-based oncogene diagnostics from the National Institutes of Health and from the Department of Defense (DoD) for antimalarial drug development, all as Principal Investigator. He has published several papers in leading journals and is a inventor of several United States and international patents.
Dr. Taraporewala holds a Ph.D. degree in Medicinal Chemistry from the Philadelphia College of Pharmacy, University of the Sciences in Philadelphia (1984). He holds a Master of Science degree in Organic Chemistry, and a Bachelor of Science degree in Chemistry and Microbiology, both from the University of Bombay, India.
Anil R. Diwan, PhD President and Chairman Dr. Diwan has been President and Chairman of the Board of the Company since its founding in 2005 Dr. Diwan spearheaded the efforts for the Company's 2013 uplisting from the OTC Markets to NYSE-American. Dr. Diwan has led several of the Company's financing efforts since 2010.
Dr. Diwan invented novel polymeric micelle-based nanomedicine technologies as early as 1991. Dr. Diwan is a prolific inventor and a serial entrepreneur. Prior to co-founding NanoViricides, Inc., he founded TheraCour Pharma, Inc., a privately held company focused in nanomedicines and cell-targeted drug delivery, and AllExcel, Inc., a company with diverse portfolios including nanomedicines, small chemicals, device technologies, as well as informatics. He has won several NIH SBIR (small business innovation research) grant awards. Anil holds a Ph.D. from Rice University, Houston, TX, a B.Tech. from Indian Institute of Technology, Mumbai (IIT-B), India, and has consistently held high scholastic ranks and honors. Dr. Diwan has over 25 years of Bio-Pharmaceutical R&D experience with over 20 years as an entrepreneur.
He has several patents issued internationally resulting from three fundamental international patent applications. Under Dr. Diwan's leadership, NanoViricides, Inc. has been able to keep both administrative and R&D costs at extremely low levels while robustly expanding the drug pipeline every year. Dr. Anil R. Diwan was recognized as "Researcher of the Year" by BusinessNewHaven, a Connecticut Area Business Journal, in 2014.
Meeta R. Vyas, SB, MBA Chief Financial Officer Ms. Vyas is known as a strong leader with board level experience and successful achievements as a Senior Executive in a broad range of entities including publicly listed corporations, non-revenue generating entities, and medium to large size companies. Meeta has over twenty-five years of experience in performance and process improvement of both publicly listed companies and non-revenue producing entities, in areas ranging from Finance and Operations to Strategy and Management. Meeta holds the distinction of being the first Indian woman to be named CEO of a publicly listed US corporation, Signature Brands, Inc., best known for "Mr. Coffee" and "Health-O-Meter" brand products. As CEO, acting COO and Vice Chairman of the Board of Signature Brands, Inc., she was responsible for the development and implementation of a turnaround plan, resulting in a return to profitability and growth within a short period of time. Later, as the CEO of the World-Wide Fund for Nature - India (WWF-India) and then as a Vice President of the National Audubon Society (USA), both non-revenue generating entities, Meeta successfully raised unrestricted funding that significantly exceeded annual requirements and also instituted financial
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processes to measure a variety of performance metrics. Earlier in her career, she was responsible for designing the strategy and initiating the implementation plan for the highly successful information technology outsourcing program at General Electric (GE). Also at GE, Ms. Vyas ran GE Appliances' Range Products business unit having revenues exceeding $1 Billion where her team doubled operating income in less than two years. Prior to that, as a management consultant with McKinsey and Company, she served publicly listed companies in chemicals, industrial, and technology markets, primarily focusing on growth strategies, valuations, post-merger integrations, and logistics operations.
Ms. Vyas holds a MBA in Finance from Columbia University's Graduate School of Business, and a BS in Chemical Engineering from the Massachusetts Institute of Technology.
Randall W. Barton, PhD Chief Scientific Officer Dr. Barton has experience in drug discovery and development of both small molecule and biological drug candidates in virology, immunology, inflammation, and cardiovascular diseases in the pharmaceutical and biotech industry as well as academic research and teaching experience. Most recently, he was Vice-President of Drug Discovery at A&G Pharmaceuticals, a biologics and diagnostics company. He retired at the Director level after 20 years at Boehringer Ingelheim Pharmaceuticals. During his time at Boehringer Ingelheim he performed drug development pre-clinical studies on nevirapine (Viramune), a non-nucleoside inhibitor of HIV reverse transcriptase and an important HIV drug.
Prior to joining Boehringer Ingelheim, he was on the faculty at the University of Connecticut Medical School where he was the recipient of an NIH Career Development Award conducting research and teaching in immunology. Dr. Barton has authored over 80 scientific publications, and has been the principal investigator leading to 5 patents. He has a Ph.D. in biochemistry from the University of Tennessee at Oak Ridge National Laboratory and a B.A. from Indiana University.
Jayant Tatake, PhD, Vice President of R&D Jay Tatake is an organic chemist with over 25 years of experience in Research and Process Development of fine chemicals. His experience encompasses production scale-up, and large scale manufacture of raw materials for pharmaceuticals. Before joining NanoViricides, Inc., he was Assistant Director of Analytical R&D at Interpharm, Inc. Prior to that, he was Director of Analytical Services at Pharmax Group, Inc. Dr. Tatake has several years \experience in analytical methods development and Quality Control in cGMP environment. His experience includes bio-analytical methods development. Prior to working at Pharmax Group, he was in the Pharmacology Department, University of Connecticut Health Center, where he synthesized and developed novel bio-conjugates for bio-diagnostics applications.
Jay has a Ph.D. from Department of Chemical Technology, University of Bombay. He is a member of American Chemical Society (ACS). He has published several papers in leading journals and is a co-inventor of several patents.
SCIENTIFIC ADVISORY BOARD
Paul A. Marks, MD Dr. Paul A. Marks is President Emeritus, Memorial Sloan-Kettering Cancer Center (the nation's oldest and largest private institution devoted to cancer prevention, patient care, research and education). He was its President and CEO for almost 20 years, from 1980 until 1999. Dr. Marks is an academic leader in improving health care and medical education and an imaginative and innovative biomedical scientist whose discoveries have demonstrated translational benefits applied to improved patient care. Dr. Marks has the unique honor of having Memorial Sloan-Kettering Cancer Center name an award after him: The Paul Marks Prizes for Cancer Research, which recognizes outstanding young investigators who have made significant contributions to increase the understanding of cancer or improve the treatment of the disease through basic or clinical research.
Dr. Marks' remarkable career in medicine spans over five decades and is marked by extraordinary contributions. Dr. Marks received his A.B. and M.D. degrees from Columbia University and postdoctoral training at the National Institute of Health (NIH) and the Pasteur Institute. Prior to his tenure at Memorial Sloan-Kettering, he was Professor of Human Genetics and Frode Jensen Professor of Medicine and Vice President for Health Sciences at Columbia University. Prior to that, he was named Dean of the Faculty of Medicine and, ultimately Vice President for Health Sciences, simultaneously assuming responsibilities as Director of the Cancer Research Institute, which he helped found. Parallel to his research and administration careers, Dr. Marks has answered repeated calls to public service
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at the highest levels, as a member of the President's Biomedical Research Panel (1975-1976), the President's Cancer Panel (1976-1979), the President's Commission on the Accident at Three Mile Island in 1979, and most recently serving on an advisory committee to the director of the NIH to help overhaul its intramural research program.
Dr. Marks has published over 350 scientific articles in various scholarly journals. Dr. Marks is a member of the National Academy of Sciences and the Institute of Medicine. He is a Fellow of the America Academy of Arts and Sciences. He has been the recipient of a number of honors including the Distinguished Achievement Medal of Columbia University; Medal of the Japan Foundation for the Promotion of Cancer Research; Centenary Medal of the Pasteur Institute, honorary degrees from several universities and the President's National Medal of Science (USA). In addition to his many scientific and academic accomplishments, Dr. Marks is one of the founders of Aton Pharma, a biopharmaceuticals company started in 2001 to develop and commercialize novel therapeutics for cancer and other diseases. The company was acquired by Merck & Co., Inc. in 2004.
Harmon Aronson , PhD Harmon Aronson, Ph.D., has worked in the pharmaceutical industry for the past 26 years. For the past 8 years he has been President of a pharmaceutical consulting firm, specializing in FDA compliance activities for both US and international clients. His firm has helped many companies obtain US FDA approval for their products and maintain their acceptable status according to Good Manufacturing Practices. Prior to this, he held executive positions in Quality Management and in Manufacturing at a leading generic drug company. During the last 5 years, he has also served on the Board of Directors of a drug delivery company and the Scientific Advisory Board of a diagnostic medical device company. He was awarded the Ph.D. degree in Physics from the University of Chicago. Because of his varied background, he brings a deep understanding of science and technology and how it can be applied to the research, manufacturing and quality areas of the pharmaceutical industry.
Prof. Thomas Lentz, MD Yale University School of Medicine research physician, Professor Thomas Lentz, MD, was an early proponent of the possibility of treating viral infections by blocking the virus-receptor interactions. The NanoViricides approach improves upon such earlier approaches by enabling multiple site targeting and multi-point binding, thus mimicking the natural virus particle and cell-surface interaction closely.
Professor Lentz's research has laid the early foundations for developing anti-viral therapies by blocking virus-cell receptor interactions. His work on the binding of rabies virus to the nicotinic acetylcholine receptor has helped in the creation of a rabies-specific nanoviricide. In addition, his extensive studies on the classification of viruses and of their cellular receptors into broad groups provided the basis for the broad-spectrum nanoviricides that NanoViricides, Inc. is developing at present as potent therapeutics against a large number of viruses.
In addition to his research activities, Thomas L. Lentz chaired the Committee on Admissions for the School of Medicine at Yale from 1972 to 2006. He last served as Associate Dean for Admissions and Financial Aid at Yale University. He was Vice Chairman of the Department of Cell Biology at Yale from 1992 to 2006. He retired in 2006 and is now Senior Research Scientist and Professor Emeritus of Cell Biology at Yale University.
Cy Stein, MD, MPH Since 2012 Dr. Cy Stein has been Arthur and Rosalie Kaplan Professor and Chair of Medical Oncology and Experimental Therapeutics, City of Hope Medical Center, Duarte, California. Dr. Cy Stein was Head of Medical Genitourinary Oncology and Professor of Medicine, and Molecular Pharmacology at the Albert Einstein College of Medicine, New York. He also served as an Attending Physician at the Montefiore Medical Center, and is a Diplomate of more than 25 years' standing of both the American Board of Internal Medicine and the American Board of Oncology. Prof. Stein has authored or coauthored over 125 scientific papers, over 85 book chapters, reviews and editorials and is an inventor on more than 10 patents, and patent applications.
Professor Stein is an internationally recognized innovator in the development of drugs based on antisense technology and is authority on the treatment of prostate cancer. In his distinguished career in research and treatment of cancers he has been involved for the past 15 years with leading preclinical and clinical trials of nucleic acid therapies. He is an editorial board member of Clinical Cancer Research, Molecular Cancer Therapeutics, as well as Co-Editor of the journal Nucleic Acid Therapeutics and has published over 150 papers in the field. Dr. Stein holds numerous patents related to experimental therapeutics with antisense and nucleic acids, and he is a world leader in this research area. He has served on numeric scientific advisory board. Prof. Stein was a co-developer of Genta Inc's Genasense antisense drug for BCL-2-dependent melanoma.
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Prof Stein is a medical doctor and also has a PhD in chemistry. He is an oncologist and was trained at the New York Hospital/Cornell Medical Center and the National Institutes of Health. He was a professor at the College of Physicians and Surgeons at Columbia University for 13 years prior to taking up the chair at the Albert Einstein College. He is a pioneer in the research on anti-sense therapies against HIV/AIDS.
The science is incredible but what is NanoViricides value today? Are we buyers of this antiviral therapy?
Effectively valuing Nanoviricides is inherently complex given that the company's drug candidates are in relatively early development stages and negative cash flow is expected to persist for the foreseeable future. NanoViricides is primarily focused on advancing the shingles drug candidate into the clinic. Therefore, the other programs may remain on hold until management finds a partner who is interested in pushing forward.
For their lead candidate for the treatment of shingles, we anticipate an IND filing and Phase I dose escalation study in normal healthy volunteers to commence prior to the end of 2019. Assuming favorable clinical outcomes from this study, we expect the company to commence Phase II in 2020 and Phase III trial in 2022. Positive results from these studies could potentially result in filing for a new drug application (NDA) in 2024 followed by an FDA approval one year later.
We believe there are a number of inflection points that could occur over the next three years that could trigger a development and/or commercialization partnership for NanoViricides lead drug candidate. However, at this time, the outcome is binary: if the chosen shingles candidate fails then the team needs to study a different formulation or another nanoviricide particle. If it shows efficacy, it implies the valuation could increase enormously and potentially puts the company in play as a partner with large pharma companies, either with those having an HSV-franchise or complimentary businesses. NanoViricides anticipates pursuing the same drug candidate for a potential indication in PHN, if a partnership opportunity arises.
We've modeled our financial projections primarily for drug candidates addressing VZV and HSV related infections. Shingles occurs in individuals who are more than 60 years of age. In 2016 about 15% of the U.S. population was 60 years of age or older. Of this pool, the lifetime prevalence of shingles and age at occurrence for older adults was estimated to be about 12%14 . As per CDC, 48% and 16% of people between the ages of 14 and 49 (~150 million), are affected by HSV-1 and HSV-2 respectively. Therefore, the estimated 6 million (or more) potential shingles patients and 100 million afflicted with oral or genital herpes in the U.S. presents a sizeable opportunity for NanoViricides candidate.
Almost a decade ago, while it still enjoyed market exclusivity, Valtrex had a market share of ~43%15 and sales in the U.S. exceeded $1.5 billion in 2008. Despite the diversity that could exist in the competitive landscape, we think that with the increasing need for novel therapies, the nanoviricides particle could represent a new standard of care for the prevention of shingles and command as much as 40% share of the market. There could be high appeal from the VZV population in having a topical gel instead of an injection or systemic drug. Further, it may help to remove barriers to adherence and help drive meaningful adoption.
We estimate the drug pricing to be in the ballpark of $290 per patient in 2025 (comparable to the cost of branded antivirals in the market). If the drug candidate can demonstrate a reduction in blister healing time and reduced risk of developing PHN, it could command superior labeling and pricing as compared to currently available antiviral options if and when approved and commercialized.
The historical probabilities of success for the different stages of a clinical drug candidate are shown in the table below. As the studies are still in the developmental stage, we take a conservative stance and assume the probability of success from now until commercialization is ~10%16.
14 THE PREVALENCE OF SHINGLES AMONG OLDER ADULTS IN THE U.S., The Gerontologist, Volume 56, Issue Suppl_3, 1 November 2016, Pages 48 15 Express Scripts 2009 Drug Trend Report 16 http://www.pharmoutsourcing.com/Featured-Articles/166239-Relative-Success-Rates-by-Drug-Class-The-Case-for-Peptides/
We use a risk-adjusted DCF model, to value the company which recognizes the relative probability of development success. We assume a 10% likelihood of commercialization and estimate first sales in 2025. Other inputs to our DCF model include an 18% discount rate. We model peak market share of 40% for the VZV candidate and 10% for the HSV candidate, which we believe could occur in 2031 and would generate approximately $700+ million in revenue.
A mid-stage partnering deal occurred between Chimerix and Merck in 2012. Chimerix received about $18 million upfront and a promise of ~$150 million in milestone payments and Merck, a key player in the HIV space, gained rights to a mid-stage antiviral candidate. One of the early stage partnering deals for antivirals in 2015 was when Merck paid $50 million in cash to partner up on five antiviral treatments in preclinical development from Moderna.
Based on comparable analysis and considering the risk associated with such an early-stage firm, we think a reasonable estimate for a partnering deal focused on shingles could bring in $10 million upfront payment with sequentially increasing development milestones of ~$100 million. We assume that management will sign partnership deals with large pharmaceutical companies and receive roughly mid-teen percent royalties on net sales for their drug candidates.
We forecast free cash flow to be 65% of gross revenues. This gives us a net present value for the company of approximately $40 million. Currently, NanoViricides has a fully diluted share count of 69 million shares, which leads to a fair value of approximately $0.60 per share. This valuation provides a significant upside to the current trading price, which is undervalued. We believe a convergence of the market price towards our intrinsic fair value could occur as the drug candidate successfully makes progress in clinical development.
Concluding Thoughts We believe that the news regarding the potential IND filing will be a noteworthy event for the company. There are no effective FDA-approved topical treatment options for shingles and the U.S. market is a half billion dollar opportunity. We continue to believe that a positive outcome to a Phase I study would cause a revaluation of the shares. If the candidate advances to Phase II trials, we anticipate raising our probability of success from 10% to 15%, bringing the valuation to roughly $60 million. Licensing deals could provide non-dilutive financing through upfront payments that could help NanoViricides with furthering development plans on other candidates.
RISKS
The nanoviricide particle, if successfully developed, would be the first of its kind that eliminates the virus quickly. As such, it could capture a sizeable share of the shingles therapeutics market. However, while the candidate would be novel as compared to currently commercialized shingles drugs, the rapid pace of development of new classes of antivirals implies that competitive landscape could be quite different by the time the nanoviricides particle is eventually commercialized.
The dominant risk to our valuation is the outcome of the clinical studies. Advancing a molecule from the bench to commercialization is time consuming and cost intensive and usually takes longer than expected. Early stage companies such as NanoViricides require substantial financial resources to execute their goals. Currently, the balance sheet shows ~$6 million (cash, cash equivalents and investments) while the firm has a burn rate of $2 million/quarter. We expect that cash required for IND-enabling studies, IND application and toxicology studies will be in the $1 million - $2 million range.
Despite the difficulty associated with forecasting timelines related to completion of clinical trials, our estimates are based on our experience with other trials and management guidance. Protracted clinical trials and a subsequent delay in obtaining regulatory approval can hinder clinical progress in a fast-paced research environment such as the biotech sector.
If the shingles vaccine fails to meet its safety and efficacy endpoints in early stage trials, NanoViricides may have to focus development on one of the other more promising candidates in its portfolio.
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