ITEM 1. BUSINESS.

This description contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results discussed in the forward-looking statements as a result of certain of the risks set forth herein. We assume no obligation to update any forward-looking statements contained herein.

Overview

Over the last year we have repositioned the Company as a probiotic nutraceutical company focused on becoming the world leader in oral care probiotics for humans and companion pets. We are focusing the majority of our efforts and resources on growing our oral probiotic business both with our branded Evora products and through licensing and private label sales (with ProBiora3). In so doing, we seek to increase our share of a growing probiotic market that according to ‘Probiotics Market (2009-2014),’ published by MarketsandMarkets is expected to reach $36 billion worldwide by 2014.

The Company is the 2011 recipient of a competitive award from Frost and Sullivan for excellence in oral care probiotics. We expect this prestigious award to help us to gain awareness both in the marketplace and with new potential customers. To further support recognition of our products, the Company has initiated clinical studies at the University of Washington and Loma Linda University with the intent of submitting the results from the trials to Food & Drug Administration for approval to make certain health claims about ProBiora3. We are also expanding our product line to include new delivery vehicles for our products such a gum, fast dissolving mints and melting strips. We are also increasing our efforts to gain regulatory approval in certain regions of the world and are engaging Key Opinion Leaders (KOL’s) in the dental profession to help gain awareness about the benefits of oral care probiotics.

The business plan assumes we can grow revenues both within the United States and throughout the rest of the world. To do so, we have revised our focus to those opportunities that best support our mission to become the world leader in oral care probiotics for humans and companion pets. We have also discontinued selling our Evora products through mass retail channels and instead are focused on the dental professional channel with an emphasis on building awareness in this channel through education and new clinical data. We are also continuing to sell our Evora human and pet products through the internet.

Stemming from over thirty years of leadership in oral care research, Oragenics has developed through its research and development (“R&D”) a suite of patented technologies outside of its probiotics business. Our activities with these technologies will be limited. These R&D projects will be taken to an appropriate point where they can be licensed, sold, partnered, or spun-out. Future R&D will focus primarily on getting claims, new delivery vehicles, and new data to support our probiotics business.

In early 2012, we announced the successful completion of a weight loss clinical trial utilizing its LPT3-04 compound. In a double blinded placebo controlled study, LPT3-04 caused a statistically significant weight loss in the active group as compared to the placebo group. We are actively looking for a partner(s) for this product at this time. LPT3-04 is a completely natural ingredient which all of us ingest and actually produce in small amounts every day. We believe it to be safe and potentially useable alongside other weight loss regimens.

Our SMaRT Replacement Therapy is designed to be a painless, one-time, topical treatment applied to the teeth that has the potential to offer lifelong protection against dental caries, or tooth decay. Dental diseases are the most prevalent chronic infectious diseases in the world, affecting up to 90% of schoolchildren and the vast majority of adults. In the United States alone, the annual cost to treat tooth decay is estimated to be $40 billion. SMaRT is based on the creation of a genetically modified strain of bacteria that colonizes in the oral cavity and replaces native decay-causing bacteria. The plan for the SMaRT replacement therapy is to attempt to complete the ongoing Phase 1b study in 2012 and find a development partner to continue its journey toward commercialization.

While developing SMaRT Replacement Therapy, members of our scientific team discovered that the SMaRT bacterial strain produces MU1140, a molecule belonging to the novel class of antibiotics known as lantibiotics. MU1140 has proven active in preclinical studies against Gram positive bacteria responsible for a number of healthcare-associated infections, HAIs. The direct cost to the U.S. healthcare system from HAIs is estimated to be up to $45 billion annually. After several technical setbacks, the synthesis of MU-1140 is nearing completion. We have engaged Bachem, a well-regarded peptide synthesis company, to help us increase our yield and efficiency and produce enough material to complete preclinical proof-of-concept. As with SMaRT therapy we will look for a development partner once we have suitable preclinical data.

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Oragenics was founded in 1996 to commercialize the results of more than 30 years of research in oral biology by our principal founder and retired Chief Scientific Officer, Dr. Jeffrey Hillman. Dr. Hillman earned a DMD from Harvard School of Dental Medicine and a PhD in Molecular Genetics from Harvard University. He began his research career at the Harvard-affiliated Forsyth Institute in Boston, Massachusetts, where he introduced the concept of replacement therapy to prevent tooth decay by using a genetically modified strain of Streptococcus mutans , or S. mutans , to replace the decay-causing strains of S. mutans that are present on human teeth. He subsequently continued this research, now called SMaRT Replacement Therapy, at the University of Florida College of Dentistry. Under Dr. Hillman’s leadership, our scientific team has also developed other technologies such as ProBiora3, LPT3-04 Weight Loss Agent, MU1140 and our DPOLT platform. Additionally, we are developing non-core technologies that originated from the discoveries of our scientific team, including CMAT, which is a biomarker discovery platform, which we believe could provide significant potential opportunities for us. Dr. Hillman retired from the Company and resigned from our Board of Directors in late 2011. He is currently acting as and remains a consultant to the Company. Dr. Martin Handfield has assumed the role of Vice President of R&D. Dr. Handfield has worked with Dr. Hillman for over 13 years and is now responsible for moving our efforts forward.

Our Product Portfolio

We are currently developing and seeking partners or commercializing four primary products or product candidates, including ProBiora3, LPT3-04, SMaRT Replacement Therapy, and MU1140-S. Our product portfolio is protected by ten issued U.S. patents and twelve filed U.S. patent applications, including patents exclusively licensed from the University of Florida Research Foundation, Inc., or UFRF. We are the exclusive worldwide licensee to the patents for SMaRT Replacement Therapy and MU1140, which are owned by the UFRF. We have retained worldwide commercialization rights to each of these products. Additionally, we believe that our SMaRT Replacement Therapy will qualify for a 12-year data exclusivity period within the United States FDA under the recently passed Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act.

ProBiora3 Oral Care Probiotics

ProBiora3 is a proprietary blend of three naturally occurring strains of beneficial bacteria, including Streptococcus oralis KJ3 , Streptococcus uberis KJ2 , and Streptococcus rattus JH145, which promotes fresher breath, whiter teeth, and supports overall

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oral health. We believe that ProBiora3 is the most comprehensive oral care probiotics technology currently available in the oral healthcare market. The scientific basis for the oral health benefits provided by these three strains of bacteria has been documented in numerous peer-reviewed publications over the last 30 years. We promote ProBiora3 as the active ingredient in our consumer branded products, including EvoraPlus, EvoraKids and EvoraPet, and the professional branded product, EvoraPro. EvoraPlus and EvoraKids are flavored probiotic mints intended for daily use by adults and children, respectively, after brushing their teeth. EvoraPet is intended for companion pets such as cats and dogs, and comes in a tasteless and odorless powder form. The powder is intended to be sprinkled on a pet’s food once per day. EvoraPro is a professional strength product designed for the dental office channel. In addition to our house-branded products, we also market ProBiora3 as an active ingredient for private label products, as well as in bulk for licensing applications.

Market Opportunity

Probiotics are live microorganisms that confer a health benefit to their host when administered in sufficient amounts. The beneficial bacteria in a probiotic formulation help to maintain a healthy balance of bacteria in the body. Examples of common probiotic applications are yogurt containing live cultures, acidophilus capsules to improve digestion, and products for improved immune system and vaginal and urinary tract health. According to MarketsandMarkets, the global probiotics market is expected to reach $36 billion by 2014, representing a CAGR of 12.6% from 2009 to 2014. Probiotics products are relatively more common in Asia and Europe, with Europe accounting for nearly 42% and Asia accounting for 30% of the global market. The probiotics market in the United States, however, is emerging, and products that address gastrointestinal problems and other uses are rapidly becoming available, especially as dietary supplements and cultured foods and beverages. The Probiotic Foods & Beverages category currently represents over 75% of the overall probiotics market in the United States.

Our Solution

ProBiora3 is a blend of three naturally occurring strains of bacteria for use in the promotion of oral health, including Streptococcus oralis strain KJ3, or S. oralis ; Streptococcus uberis strain KJ2, or S. uberis ; and Streptococcus rattus strain JH145, or S. rattus . In a healthy human oral cavity, S. oralis and S. uberis are commonly found in significant amounts, and conversely, the levels of bacteria associated with a disruption of gum health are usually quite low. The opposite situation prevails in periodontal disease sites, where the beneficial bacteria, S. oralis and S. uberis , are usually undetectable. Our scientists have demonstrated that S. oralis and S. uberis produce hydrogen peroxide, which interferes with the growth of certain potentially harmful anaerobic bacteria, and also gently and naturally whitens teeth. The third bacterial strain in our ProBiora3 blend, S. rattus , is able to establish and maintain a healthy balance of bacteria on the tooth surfaces by competing with certain other potentially harmful bacteria that are (known to challenge tooth health).

ProBiora3 has been extensively tested for safety and efficacy in the laboratory and in animal and human trials. In our pilot human study, a twice-daily administration of ProBiora3 was well tolerated by subjects and no safety issues were observed. ProBiora3 produced substantial decreases in the numbers of key potentially harmful bacteria, associated with disruptions from tooth and periodontal health, in young healthy adults.

We market products containing ProBiora3 under our own house brand names, and have branded ProBiora3 as an active ingredient for licensing and private labeling. Our house brand products contain different ratios, or blends, of the three natural strains contained in ProBiora3, which vary depending on the intended use of the product. Our ProBiora3 products are designed for repetitive use in order to achieve the intended benefits, which we believe provides us with the potential for recurring revenues as consumers who continue to seek the benefits of our products will continue to make purchases. Our ProBiora3 products include:

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Package and Delivery Transition

We are continually attentive to the needs of the market and ultimate consumers regarding the use of our ProBiora3 products and as such continue to seek ways to revise and improve on our product delivery mechanisms. For 2012, we will institute a change in EvoraPro to a 90-day package to correlate more closely to consumer’s visit to dental offices.

Our Regulatory Strategy

We market ProBiora3 as a food ingredient under self-affirmed Generally Recognized as Safe, or GRAS, status. GRAS is available for food ingredients that are generally recognized as being safe for human use and do not claim to treat, prevent, or cure a disease. Furthermore, food products that make only cosmetic or structure-function claims are typically able to enter the market through what is known as self-affirmed GRAS status, which designates that we have performed all necessary research, including the formation of an expert panel to review safety concerns, and are prepared to use these findings to defend ProBiora3’s self-affirmed GRAS status. In 2008, we convened a panel, the members of whom we believed to be qualified as experts by their scientific training and professional experience, to analyze and evaluate the safety data for ProBiora3. After review, the panel concluded that the safety data of ProBiora3 was sufficient to support our claim to self-affirmed GRAS status for human consumption. The same data dossier could be applied to support the safety for companion pet consumption of ProBiora3.

Our marketing for ProBiora3 includes the cosmetic claims of teeth whitening and breath freshening, along with the general structure-function claim that ProBiora3 supports oral health. Regulations vary in markets outside the United States and it may be possible to assert other benefits including health and disease prevention claims associated with probiotics use, especially

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after independent clinical studies have been completed and appropriate regulatory fillings are approved. At present, we are aware of several independent academic studies that have been initiated on a variety of potential health and cosmetic benefits associated with ProBiora3 probiotics use by humans.

Sales, Marketing and Distribution

All of our house-branded ProBiora3 products have been launched and are currently available through direct-to-consumer channels. Because our available capital resources limited our ability to engage in significant advertising and marketing campaigns, we made a strategic decision to leave the mass retail channel during the first quarter of 2011. Instead, we refocused our strategy on selling our house-branded consumer ProBiora3 products through multiple direct-to-consumer channels.

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Manufacturing

When produced, ProBiora3 comes in powder form. ProBiora3 is manufactured by separate fermentation of each of the three strains. The cells are recovered by centrifugation or filtration and freeze dried. Experimentally determined amounts of the resulting powders are blended with natural bulking agents to deliver the proper number of viable cells of each strain per unit weight. ProBiora3 for human use may be incorporated into various delivery vehicles; for example, in the case of EvoraPlus and EvoraKids, flavoring agents are added and the powder is pressed into tablets, which are sealed in plastic bottles. In the case of EvoraPet, the powder is not flavored and is simply added in bulk to a plastic container. Freeze-dried cells in ProBiora3-containing products are stable for up to 18 months after manufacture when kept in cool, dry conditions. The cells are revitalized when they come in contact with moisture, for example the saliva present in the oral cavity.

We have contracted with multiple manufacturers to: (i) produce our active ingredient, ProBiora3, (ii) blend and tablet EvoraPlus, EvoraKids, EvoraPet and EvoraPro, and (iii) package our products. Each of our contract manufacturers has the ability to scale production as needed. With each manufacturer, we place orders for components or finished product to be produced for a fixed fee which we are expected to pay upon completion of the manufacturing process. Packaged probiotics products are shipped to us or to a destination specified by us, or to a private label distributor. We currently maintain an inventory of our products for internet sales and other sales to distributors. We believe our arrangements with our contract manufacturers are satisfactory to meet our current and expected future needs. We have qualified and used at least two contract manufacturers for each step in our manufacturing process, although we do not have a long-term supply agreement or commitment with any of our manufacturers.

LPT3-04 Weight Loss Product

LPT3-04 is a naturally occurring compound, which is normally consumed in the human diet in small amounts. In the course of our SMaRT Replacement Therapy research, we discovered that consumption of significantly larger amounts of LPT3-04 resulted in dose-dependent weight loss in experimental animal models. The mechanism of action appears to be induction of apoptosis, or programmed cell death, specifically in white fat cells. LPT3-04 consumption in the required amounts has been shown to be safe in humans. Anecdotally, weight loss has been observed in human volunteers. Due to the natural sweetness of LPT3-04 and the relatively large amounts of it that need to be consumed on a daily basis to achieve the desired weight loss effect, product development efforts focused on incorporating the compound into bars, milkshakes, and other food products. We have used these food products in a blinded placebo-controlled human safety and efficacy study that began in the third quarter of 2011. We conducted a human clinical trial on LPT3-04. Adult volunteers in the trial experienced a statistically significant reduction in body weight following 12 weeks of daily supplementation with LPT3-04. Further, there were no safety concerns as the volunteers experienced no serious adverse events during the trial, including depression. We have submitted a patent application for the use of LPT3-04 for weight regulation with the United States Patent and Trademark Office, or U.S. PTO.

Market Opportunity

The World Health Organization estimated that by 2015, there will be more than 1.5 billion overweight consumers. Further, according to a 2012 healthcare market research report published by MarketsandMarkets, the total global weight loss market is expected to be $586.3 billion by 2014, with a compound growth rate of 10.9% from 2009 to 2014.

Our Solution

With the successful completion of the pivotal proof-of-concept human clinical trial, and the additional supporting laboratory and animal safety and effectiveness studies, we are currently seeking licensing partners that will further develop this technology and commercialize food and beverage products, on a global basis, that encourage the weight management of both humans and companion pets.

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SMaRT Replacement Therapy

SMaRT Replacement Therapy is designed to be a painless, one-time, five-minute topical treatment applied to the teeth that has the potential to offer lifelong protection against tooth decay caused by S. mutans , the principal cause of this disease. We have extensively and successfully tested the SMaRT strain for safety and efficacy in laboratory and animal models and, in the first quarter of 2011 we initiated a second Phase 1 clinical trial in the United States with an attenuated version of our SMaRT Replacement Therapy, at the Phase 1 facilities of our Clinical Research Group (CRO) partner, PRA International.

Market Opportunity

Dental diseases are the most prevalent chronic infectious diseases in the world, affecting up to 90% of schoolchildren and the vast majority of adults. Annual expenditures on the treatment of dental caries in the U.S. are estimated to be $40 billion a year according to the Dental, Oral and Craniofacial Data Resource Center. Tooth decay is characterized by the demineralization of enamel and dentin, eventually resulting in the destruction of the teeth. Dietary sugar is often misperceived as the cause of tooth decay; however, the immediate cause of tooth decay is lactic acid produced by microorganisms that metabolize sugar on the surface of the teeth. Studies suggest that of the approximately 700 oral microorganisms, S. mutans , a bacterium found in virtually all humans, is the principal causative agent in the development of tooth decay. Residing within dental plaque on the surface of teeth, S. mutans derives energy from carbohydrate metabolism as it converts dietary sugar to lactic acid which, in turn, promotes demineralization in enamel and dentin, eventually resulting in a cavity. The rate at which mineral is lost depends on several factors, most importantly the frequency and amount of sugar that is consumed.

Fluoride is used to reduce the effect of lactic acid-based demineralization of enamel and dentin. Despite the widespread use of fluoride in public water systems, toothpastes, dental treatments and sealants, and the use of antiseptic mouth rinses, over 50% of 5-to-9-year-olds and almost 80% of 17-year-olds in the United States have at least one cavity or filling, according to the U.S. Surgeon General. In addition to non-compliance with the behavioral guidelines of the American Dental Association such as routine brushing and flossing, there are several factors that are likely to increase the incidence and frequency of tooth decay, including increasing consumption of both dietary sugar and bottled water. Bottled water generally does not contain fluoride, and thus does not impart any of the protective effects of fluoridated water from public systems. In 2008, U.S. consumers drank more bottled water than any other alcoholic or non-alcoholic beverage, with the exception of carbonated soft drinks, according to the Beverage Marketing Corporation.

Our Solution

Our replacement therapy technology is based on the creation of a genetically altered strain of S. mutans, called SMaRT, which does not produce lactic acid. Our SMaRT strain is engineered to have a selective colonization advantage over native S. mutans strains in that SMaRT produces minute amounts of a lantibiotic that kills off the native strains but leaves the SMaRT strain unharmed. Thus SMaRT Replacement Therapy can permanently replace native lactic acid-producing strains of S. mutans in the oral cavity, thereby potentially providing lifelong protection against the primary cause of tooth decay. The SMaRT strain has been extensively and successfully tested for safety and efficacy in laboratory and animal models.

SMaRT Replacement Therapy is designed to be applied topically to the teeth by a dentist, pediatrician or primary care physician during a routine office visit. A suspension of the SMaRT strain is administered using a cotton-tipped swab during a single five-minute, pain-free treatment. Following treatment, the SMaRT strain should displace the native, decay-causing S. mutans strains over a six to twelve month period and permanently occupy the niche on the tooth surfaces normally occupied by native S. mutans .

Tooth decay is a largely preventable disease through implementation of an appropriate oral care hygiene program including brushing, flossing, irrigation, sealants and antiseptic mouth rinses. Nevertheless, tooth decay remains the most common chronic infectious disease in the world, which indicates that the lack of patient compliance with an overall oral care regimen remains a critical issue in tooth decay prevention. We believe that SMaRT Replacement Therapy addresses the issue of patient compliance by requiring only a one-time, five-minute treatment for the potential lifelong prevention of tooth decay.

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Regulatory Status

We initiated our first Phase 1 clinical trial in April 2005, but we found it difficult to find subjects who fit the trial’s highly cautious inclusion and exclusion criteria, particularly with respect to the subjects’ lack of dentition. We concluded this trial early after enrolling only two of the 15 planned subjects. The FDA then recommended that we revise the protocol for the evaluation of ten healthy male subjects, ranging from 18 to 30 years old and with normal dentition, in an institutionalized setting. After we submitted additional information, the FDA issued a clinical hold letter in June 2007 for the proposed trial with the attenuated strain, citing the need for a plan with respect to serious adverse effects; a plan for the eradication of the attenuated strain in trial subjects’ offspring; and a required pregnancy test for female partners of subjects. We submitted additional protocols in response to the FDA’s concerns. In August 2007, the FDA issued a clinical hold letter with required revisions to the protocol for offspring of subjects. We submitted a response to the clinical hold letter in September 2007, and the FDA removed the clinical hold for our Phase 1 trial in the attenuated strain in October 2007.

We have commenced a second Phase 1 clinical trial of an attenuated version of our SMaRT Replacement Therapy, which will examine the safety and genetic stability of the SMaRT strain during administration to ten healthy adult male subjects over a two-week institutionalized period, with a 4-week post-clinic follow-up period of both the treated subjects and their partners. As a precautionary measure, this trial uses an attenuated version of the SMaRT strain that is dependent on D-alanine, which is a specific amino acid not normally found in the human diet. D-Alanine is being administered though a mouthwash provided to the patient group, and must be administered daily or the attenuated strain will perish in the oral cavity. We expect the second Phase 1 clinical trial of the attenuated strain, including a six-month follow-up examination of subjects after the active phase of the trial, to be concluded in the second half of 2012. If the second Phase 1 trial of the attenuated strain is successful and if the FDA lifts the clinical hold on the IND for the non-attenuated version of the SMaRT strain, we anticipate that we would conduct a third Phase 1 trial using the non-attenuated SMaRT strain instead of the attenuated version.

Our Strategy

Our strategy is to develop our SMaRT Replacement Therapy through Phase 1 clinical safety trials, while actively seeking to license our SMaRT Replacement Therapy to, or partner with, a major pharmaceutical company. While we believe that the completion of Phase 1 trials would definitively represent a significant milestone in the development of SMaRT Replacement Therapy, and would result in a substantial increase in the value of this technology, partnering at the earliest possible time would provide the necessary resources to actively continue clinical testing. It is possible that we will be unable to negotiate acceptable terms with a licensee or partner until Phase 1 trials have been completed. However, we anticipate that we would need to partner with a major pharmaceutical company prior to undertaking Phase 2/3 trials and the subsequent marketing of the product if our SMaRT Replacement Therapy ultimately achieves FDA approval. For our on-going second Phase 1 clinical trial we have retained PRA International as the clinical research organization, CRO, for clinical trials management services.

Manufacturing

The manufacturing methods for producing the SMaRT strain of S. mutans are standard Good Manufacturing Practice, or GMP, fermentation techniques. These techniques involve culturing bacteria in large vessels and harvesting them at saturation by centrifugation or filtration. The cells are then freeze dried or suspended in a pharmaceutical medium appropriate for application in the human oral cavity. These manufacturing methods are commonplace and readily available within the pharmaceutical industry. A single dose of our SMaRT Replacement Therapy contains approximately 100 billion S. mutans cells, in approximately 5 milliliters of formulated product. The SMaRT strain grows readily in a variety of cultivation media and under a variety of common growth conditions including both aerobic and anaerobic incubations. The SMaRT strain can also utilize various carbon and nitrogen sources and is highly acid tolerant. There is no significant limitation to the manufacturing scale of our SMaRT strain other than the size of the containment vessel. For our first Phase 1 clinical trial, we engaged a contract manufacturer to produce an attenuated version our SMaRT strain, using a standard operating procedure provided by us that we believe is readily transferable to outside contract manufacturers with large scale GMP fermentation capabilities.

MU1140 and Other Lantibiotics

Our retired founder and Chief Scientific Officer, Dr. Jeffrey Hillman discovered our lantibiotic, MU1140, in the course of developing SMaRT Replacement Therapy. MU1140 is a potent antibiotic that is naturally produced by the parent of the SMaRT strain, and we have produced a synthetic version of MU1140 known as MU1140-S. MU1140 is active against all Gram positive

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bacteria against which it has been tested, including those responsible for a variety of healthcare-associated infections, or HAIs. The key technology that enables our production of MU1140-S is our Differentially Protected Orthogonal Lanthionine Technology, or DPOLT, which is a patented, novel organic chemistry synthesis platform developed by our scientific team. We reported the successful, analytical scale synthesis of MU1140-S using DPOLT in October 2008, and thus achieved what we believe will lead to the first-ever synthetic route to commercial-scale production of lantibiotics.

Market Opportunity

The most common HAIs are caused by drug-resistant bacteria, including methicillin-resistant Staphylococcus aureus , or MRSA; vancomycin-resistant Enterococcus faecalis , or VRE; and Clostridium difficile, or C. diff . According to the Centers for Disease Control and Prevention, or CDC, HAIs are estimated to occur in approximately 5% of all acute-care hospitalizations, based on the 35 million patients admitted to 7,000 acute-care institutions in the United States, with an annual incidence of approximately 1.7 million cases, which result in 99,000 deaths. The CDC also estimates that the total direct medical cost to the U.S. healthcare system from HAIs is between $35.7 billion to $45 billion annually. HAIs are estimated to more than double the mortality and morbidity risks of any admitted patient in a U.S. hospital, which is the equivalent of 350,000 years of life lost annually. The critical care market for antibiotics is approximately $7 billion in the United States alone. Cubicin, a Gram positive lipopeptide antibiotic which was launched in the US market in November 2003 by the biotechnology company Cubist, had 2011 global sales of $735.5 million.

The need for novel antibiotics is increasing as a result of the growing resistance of target pathogens. The CDC has estimated that pathogenic bacteria resistant to known antibiotics cause between 6.3% and 89.1% of HAIs, and individual hospitals have resistance rates as high as 70% for many Gram positive infections. HAIs are not exclusively a problem in the United States as the rest of the world has also seen a dramatic rise in HAIs during the last decade. Vancomycin, which was introduced in 1956, has served as the last line of defense against certain life-threatening infections, and, more recently, Cubicin has also served in this capacity, but bacterial resistance to these drugs has been growing at an increasing rate. Novel antibiotics have become increasingly scarce as major pharmaceutical companies have focused more research and development resources on lifestyle drugs and fewer resources on specialty pharmaceuticals such as antibiotics. Between 1983 and 1987, 16 new antibiotics were approved by the FDA. Twenty years later, from 2003 to 2007, only five new antibiotics were approved, of which only two possessed a novel mechanism of action.

Lantibiotics such as MU1140 are highly modified peptide antibiotics made by a small group of Gram positive bacterial species. Approximately 50 lantibiotics have been discovered since 1927 when the first lantibiotic, nisin, was discovered. Lantibiotics are known to be potent antibiotic agents; however, all attempts to investigate their clinical usefulness have met with uniform failure due to the inability to produce sufficient pure amounts of any of these molecules to be able to test them as a therapeutic agent for the treatment of infectious diseases. Standard fermentation methods, such as those used to make a variety of other antibiotics, typically result in production of only minute amounts of the lantibiotic. In cases where large amounts of a lantibiotic are made, such as with nisin, the unique chemical structure of lantibiotics has prevented the necessary purification needed for clinical testing.

Our Solution

MU1140 has demonstrated activity against a wide variety of disease-causing Gram positive bacteria, including MRSA, VRE, C. diff . , Mycobacterium tuberculosis, or M. tuberculosis, and anthrax. We have performed extensive preclinical testing on MU1140, which has demonstrated the molecule’s novel mechanism of action. In order to produce sufficient quantities for our clinical trials and commercialization efforts, we intend to use a synthetic version of MU1140, known as MU1140-S.

We created MU1140-S using our patented, novel organic chemistry synthesis platform known as DPOLT. We believe that DPOLT will enable large-scale, cost-effective production of clinical grade MU1140-S. We reported the successful, analytical scale synthesis of MU1140-S using DPOLT in October 2008, which we believe will lead to the first-ever synthetic route to commercial-scale production of a lantibiotic. In addition, we believe that DPOLT will allow us to synthetically produce any of the 50 known lantibiotics due to the shared chemical structure features of this class of molecule. We intend to use DPOLT to create a pipeline of lantibiotics for therapeutic use.

Regulatory Status

We have performed extensive preclinical testing using native MU1140, which demonstrated the following features:

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It will be necessary to conclude the preclinical testing of MU1140-S, including toxicity testing in rodent and non-rodent animal models before filing an Investigational New Drug, or IND, application with the FDA. We estimate that, once commenced, the regulatory process will require at least four years of clinical testing and the application and FDA approval of a New Drug Application, or NDA, before MU1140-S would be commercially available.

Our Strategy

We intend to complete the commercially viable synthetic route for MU1140-S and then continue preclinical testing of MU1140-S while we seek to license MU1140-S to, or partner with, a major pharmaceutical company.

Analysis of the 50 known lantibiotics suggests that there are possibly six to ten subclasses of lantibiotics as classified by known mechanisms of action, spectra of activity, or structural characteristics. In addition to MU1140-S, we intend to pursue licensing/partnering opportunities for the DPOLT platform technology in order to achieve the synthesis of additional lantibiotics of pharmaceutical interest.

Manufacturing

We have retained Bachem, a leading contract manufacturer, to refine and scale-up GMP production of MU1140-S. Through this relationship, we expect to have access to sufficient amounts of MU1140-S during the first half of 2012 which will enable preliminary preclinical testing to demonstrate equivalence between the synthetic and native molecule.

Additional Area of Development

As part of our past research efforts, we have identified and filed patent applications covering a technology that we may seek to further develop internally or monetize through a sale, license, or partnership in the future. This technology is referred to as CMAT, our biomarker discovery platform.

Biomarker Discovery Platform (CMAT)

Our biomarker discovery platform is based on our Change Mediated Antigen Technology, or CMAT, and was discovered by members of our scientific team while searching for protein targets associated with the diagnosis of periodontal disease. This technology rapidly identifies proteins that are expressed when a cell undergoes any sort of change. Such proteins are excellent targets for medical diagnostics and therapeutic strategies. CMAT is able to identify proteins shed from diseased tissues into bodily fluids such as blood, saliva and urine. We believe that CMAT is faster, more cost-efficient and significantly more sensitive than competing technologies such as differential proteomics and microarrays. In addition, our technology uses the actual diseased host rather than an animal model, so that biomarkers that we discover are more likely to be of high clinical value.

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Our In-Licensed Technology Agreements

SMaRT Replacement Therapy

We have exclusively licensed the intellectual property for our replacement therapy technology from the University of Florida Research Foundation, Inc., or the UFRF. The original license agreement was dated August 4, 1998 and was subsequently amended on September 15, 2000, July 10, 2002, September 25, 2002 and March 17, 2003. The amended license agreement provides us with an exclusive worldwide license to make, use and sell products and processes covered by Patent No. 5,607,672, entitled “Replacement Therapy for Dental Caries”, which was filed in the U.S. PTO on June 7, 1995 and made effective on March 4, 1997. The patent will expire on June 7, 2015. Our license is for the period of the patent, subject to the performance of terms and conditions contained therein. The patent covers the genetically altered strain of S. mutans which does not produce lactic acid, a pharmaceutical composition for administering the genetically altered strain and the method of preventing tooth decay by administering the strain. See “Our Intellectual Property.”

We issued 29,997 shares of our common stock to the UFRF as partial consideration for the initial license.

MU1140

We have exclusively licensed the intellectual property for our MU1140 lantibiotic technology from the UFRF. The original license agreement was dated June 22, 2000 and was subsequently amended on September 15, 2000, July 10, 2002, September 25, 2002 and March 17, 2003. The amended license agreements provides us with an exclusive worldwide license to make, use and sell products and processes covered by Patent No. 5,932,469 entitled “Antimicrobial Polypeptide, Nucleic Acid and Methods of Use.” Our license is for the period of the patent, subject to the performance of terms and conditions contained therein. See “Our Intellectual Property.”

Additional Terms of License Agreements

In the amended license agreements for SMaRT Replacement Therapy and MU1140 the UFRF has reserved the right to use and sell products and services for research purposes only. The amended license agreements also provide the UFRF with a license, for research purposes only, to any improvements that we make to the products and processes covered by the patents.

We are obligated to pay 5% of the selling price of any products developed from the licensed technologies that we may sell as royalty to the UFRF. In addition, if we sublicense any rights granted by the amended license agreements, we are obligated to pay the UFRF 20% of all revenues received from the sublicenses, excluding monies received solely for development costs.

We are also obligated to make minimum annual royalty payments to the UFRF for the term of the amended license agreement in the amount of $50,000 by the end of each year for each license agreement. The minimum royalty payments are required to be paid in advance on a quarterly basis. For the SMaRT Replacement Therapy and MU1140 minimum royalty payments, we must pay the UFRF an aggregate of $100,000 which is required to be paid in equal quarterly installments of $25,000.

Under the terms of the amended license agreements, in each calendar year and in addition to the royalty payment obligations, we are obligated to spend, or cause to be spent, an aggregate of $1,000,000 on the research, development, and regulatory prosecution of our SMaRT Replacement Therapy and MU1140 technologies combined, until a product which is covered wholly or partially by the claims of the patent, or is manufactured using a process which is covered wholly or partially by the claims of the patent, is sold commercially. If we fail to make these minimum research and development expenditures, the UFRF may terminate our license agreement.

We must also pay all patent costs and expenses incurred by the UFRF for the preparation, filing, prosecution, issuance and maintenance of the patent.

We have agreed to indemnify and hold the UFRF harmless from any damages caused as a result of the production, manufacture, sale, use, lease, consumption or advertisement of the product.

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We are required to maintain liability insurance coverage appropriate to the risk involved in marketing our products. Our liability insurance has been renewed through March 2013, however, there is no assurance that we can obtain continued coverage on reasonable terms.

The amended license agreements further provide that the U.S. government funded research grant No. RO1 DE04529 during the course of or under which the licensed inventions covered by the patent were conceived. As such the U.S. government is entitled, as a right, to a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced the inventions of such patents for governmental purposes.

In order to protect our license rights and their patents, we or the UFRF may have to file lawsuits and obtain injunctions. If we do that, we will have to spend large sums of money for attorney fees in order to obtain the injunctions. Even if we do obtain the injunctions, there is no assurance that those infringing on our licenses or the UFRF’s patents will comply with the injunctions. Further, we may not have adequate funds available to prosecute actions to protect or to defend the licenses and patents, in which case those infringing on the licenses and patents could continue to do so in the future .

Texas A&M License Agreement

In December 2011, the Company completed an exclusive licensing agreement with Texas A&M University (College Station, TX) (“Texas A&M”) for access to new analogs of the lantibiotic Mutacin 1140 (MU1140) and other lantibiotics with improved pharmacological properties and structural features. These novel antibiotics may be useful to treat or prevent colonization and/or infections by one or more types of bacteria. The structural changes available to us from this license agreement may improve the bioactivity of MU1140. Under the terms of the Texas A&M license agreement, we filed a new patent application with the US Patent Office to secure the intellectual property related to these new lantibiotic analogs (US Provisional Patent Application Serial No. 61,603,661, on February 27, 2012, entitled “Variants of the Lantibiotic MU1140 and Other Lantibiotics with Improved Pharmacological Properties and Structural Features”. We have had a longstanding relationship with Dr. James Leif Smith, one of the co-authors of the patent application. Dr. Smith is an Assistant Professor in the Department of Biology at Texas A&M University and the Founder and Chair of Biotech Analyst Group, LLC, since 2006.

Under the terms of the license agreement, we made an initial payment of five thousand dollars ($5,000) to Texas A&M. We must also pay to Texas A&M a royalty of five percent (5%) of net sales of products that include the licensed technology, subject to royalty stacking provisions with a two percent (2%) minimum royalty. Additionally, in order to maintain the exclusive license, commencing in 2014 and each year thereafter (up to our first sale of products using the licensed technology), we must pay Texas A&M $15,000 as minimum consideration for the continuation of the license agreement. Once we commence the sale of products that include the technology we license from Texas A&M we must pay a minimum annual amount of $100,000 to Texas A&M and every year thereafter through the expiration of the Agreement. However, once sales begin, any royalty payments we make on net sales will be credited against the $100,000 required maintenance payment.

We must also pay all patent costs and expenses for the preparation, filing, prosecution, issuance and maintenance of the patent rights.

We have agreed to indemnify and hold the Texas A&M harmless from any damages caused as a result of the production, manufacture, sale, use, lease, consumption or advertisement of the product.

Sales by sublicensees are subject to the royalty rate above, and we shall be responsible for certain payments to Texas A&M for any other consideration received that is not in the form of a royalty

Pursuant to the Texas A&M license agreement, we are obligated to meet the following milestones and make milestone payments: (i) enrollment of first patient in a Phase I clinical trial using the licensed technology, to occur on or before June 1, 2015, with a milestone achievement payment of $50,000, (ii) completion of Phase II clinical trial using the licensed technology to occur on or before June 1, 2019, with a milestone achievement payment of $100,000, (iii) completion of Phase III clinical trial of the licensed technology to occur on or before June 1, 2022, with a milestone achievement payment of $150,000, and (iv) first sale of the licensed technology to occur on or before June 1, 2025 with a milestone achievement payment of $400,000. If we fail to accomplish the milestones or fail to achieve net sales of products including the licensed technology for two consecutive calendar years Texas A&M at its sole option may waive the requirement, negotiate the missed milestones or terminate the license agreement.

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The term of the Texas A&M license agreement expires upon (i) the expiration of the applicable patent rights covered by the license agreement, (ii) the failure of any patent filed pursuant to the license agreement to issue, or (iii) the determination by a court that the patent rights are invalid.

Government Regulations

The formulation, manufacturing, processing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by federal agencies, including, but not limited to the Food and Drug Administration, or FDA, and the Federal

Trade Commission, or FTC. These activities also are regulated by various agencies of the states, localities and foreign countries in which our products are sold. In particular, the FDA, under the Federal Food, Drug, and Cosmetic Act, or FDCA, regulates the safety, manufacturing, labeling and distribution of drugs, medical devices, food, and dietary supplements. In addition, the FTC has primary jurisdiction to regulate the advertising of drugs, medical devices, food and dietary supplements.

In foreign countries these same activities may be regulated by Ministries of Health, or other local regulatory agencies. The manner in which products sold in foreign countries are registered, how they are formulated, or what claims may be permitted may differ from similar products and practices in the United States.

FDA Regulation—Food

Under the FDCA, the FDA is responsible for ensuring that foods are safe, wholesome, and correctly labeled. The FDA enforces statutory prohibitions against misbranded and adulterated foods, and establishes safety standards for food processing and ingredients, manufacturing procedures for processed foods, and labeling standards for food products.

All facilities engaged in manufacturing, processing, packing or holding food for consumption in the United States must be registered with FDA before such activities begin. Those who manufacture, package, or hold food must comply with the Good Manufacturing Practices, or GMPs, for foods. The GMPs describe the methods, equipment, facilities, and controls for producing processed food, including requirements for personnel such as education, training and cleanliness requirements; proper maintenance and sanitization of buildings, facilities, and equipment; and processes and controls.

Acceptable claims for foods fall into three categories: health claims, structure/function claims and nutrient content claims. Health claims describe a relationship between a food, food component, or dietary ingredient and reducing the risk of a disease or health-related condition. The FDA authorizes these types of health claims based on an extensive review of the scientific literature, generally as a result of the submission of a health claim petition. Manufacturers also may make certain health claims based on “authoritative statements” from a scientific body of the U.S. Government or the National Academy of Sciences. Structure/function claims describe the role of a nutrient or dietary ingredient intended to affect or maintain normal structure or function of the body, and may characterize the means by which a nutrient or dietary ingredient acts to maintain such structure or function. Nutrient content claims expressly or by implication characterize the level of a nutrient in a food, by using terms such as “free,” “high” or “low.” The FDA’s regulations define the nutrient content claims that may be used and the requirements for making such claims.

Labels for food must not be false or misleading. Required information for labels includes the name of the food, the net quantity, the name and address of the manufacturer, packer or distributor, the ingredient list, and a Nutrition Facts label. In addition to the information required to be in a Nutrition Facts label, other nutrients must be included in the Nutrition Facts label if the nutrients are added as a nutrient supplement to the food, if the label makes a nutrition claim about them, or if advertising or product literature connects the nutrients to the food. The FDA considers information that is required or permitted in the Nutrition Facts label, on the front label or elsewhere on the package to be a nutrition content claim. In such cases, the package label must comply with the regulations for nutrient content claims.

Under the FDCA, any substance that is intentionally added to food is a food ingredient, which is subject to premarket review and approval by the FDA, unless the substance is Generally Recognized As Safe, or GRAS, which means that the substance is generally recognized, among qualified experts, as having been adequately shown to be safe under the conditions of its intended use, or unless the use of the substance is otherwise excluded from the definition of a food ingredient. Under FDA’s regulations, the use of a food substance may be GRAS either through scientific procedures that may be voluntarily submitted to the FDA, or, for a substance used in food before 1958, through experience based on common use in food. General recognition of safety through scientific procedures requires the same quantity and quality of scientific evidence as required to obtain approval of the substance as a food ingredient and ordinarily is based upon published studies, which may be corroborated by unpublished studies and other data and information. General recognition of safety through experience based on common use in foods

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requires a substantial history of consumption for food use by a significant number of consumers. To be considered “safe” for its intended use, there must be a reasonable certainty in the minds of competent scientists that the substance is not harmful under its intended conditions of use. The specific data and information that demonstrate safety depend on the characteristics of the substance, the estimated dietary intake, and the population that will consume the substance.

Registered food facilities that manufacture, process, pack, or hold food for human or animal consumption in the United States are required to submit a report to the FDA’s Reportable Food Registry, or RFR, when there is a reasonable probability that the use of, or exposure to, an article of food will cause serious adverse health consequences or death. The RFR covers all foods regulated by FDA except infant formula and dietary supplements. Registered facilities must report as soon as practicable, but in no case later than 24 hours after it is determined that an article of food is a reportable food.

FDA Regulation—Dietary Supplements

The Dietary Supplement Health and Education Act of 1994, or DSHEA, amended the FDCA by establishing regulatory standards with respect to dietary supplements, and defining dietary supplements as a new category of food. Dietary supplements include vitamins, minerals, amino acids, nutritional supplements, herbs and botanicals intended for ingestion that are labeled as dietary supplements and are not represented for use as a conventional food or as a sole item of a meal or the diet. Under DSHEA, a firm that manufactures or distributes dietary supplements must determine that such products are safe and that any representations or claims made about the products are substantiated by adequate evidence to show that the claims are not false or misleading.

DSHEA does not require manufacturers or distributors to seek approval from the FDA before producing or selling a dietary supplement unless the supplement contains one or more ingredients that are considered to be a “new dietary ingredient.” A “new dietary ingredient” is one that was not marketed in the United States before October 15, 1994. The manufacturer or distributor of a dietary supplement that contains a “new dietary ingredient” must provide the FDA with information, including any citations to published articles, demonstrating why the ingredient is reasonably expected to be safe for use in a dietary supplement at least 75 days before the dietary supplement is introduced or delivered for introduction into interstate commerce. This requirement does not apply if the ingredient has been recognized as a food substance and is present in the food supply.

Because dietary supplements are foods, manufacturers of dietary supplements must register the facilities where the supplements are manufactured, processed, packed or held with the FDA before such activities begin. Those who manufacture, package or hold dietary supplements also must comply with GMPs for dietary supplements. According to the GMPs, dietary supplements must be prepared, packaged, labeled and held in compliance with specific requirements, including detailed quality control requirements, such as those for maintaining and cleaning facilities and instruments, hiring and training personnel and ensuring the appropriate manufacturing environment, testing requirements, recordkeeping requirements and handling of customer complaints. Anyone who manufactures, packages, labels or holds dietary supplements must evaluate and ensure the identity, purity, strength and composition of the products. FDA regulations also require that certain information appear on dietary supplement labels, including the name of the dietary supplement, the amount of the dietary supplement, nutrition labeling, a complete list of ingredients and the name and place of business of the manufacturer, packer or distributor. Manufacturers must ensure, and have substantiation showing, that claims made about dietary supplements are truthful and not misleading. Acceptable claims for dietary supplements are the same as those for conventional foods: health claims, structure/function claims and nutrient content claims. However, additional requirements apply to manufacturers of dietary supplements who make structure/function claims. Manufacturers of dietary supplements must notify the FDA of any structure/function claims made for a dietary supplement within 30 days of first marketing the product with the identified claims. A dietary supplement that includes a structure/function claim on its labeling is also required to bear a prescribed disclaimer: “This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure or prevent any disease.” The manufacturer, packer, or distributor of a dietary supplement must submit to the FDA any report it receives of a serious adverse event associated with the dietary supplement when used in the United States, accompanied by a copy of the label of the dietary supplement, no later than 15 business days after the report is received. A “serious adverse event” is an adverse event that results in death, a life-threatening experience, inpatient hospitalization, a persistent or significant disability or incapacity, a congenital anomaly or birth defect, or requires, based on a reasonable medical judgment, medical or surgical intervention to prevent such outcomes.

The FDA may take action to restrict use of a dietary supplement or to remove it from the marketplace if the agency believes the supplement presents a significant or unreasonable risk of illness or injury under conditions of use suggested in the labeling or

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under ordinary conditions of use. Under DSHEA, the FDA bears the burden of proof to show that a dietary supplement presents a significant or unreasonable risk of illness or injury. The FDA also may take enforcement action against a dietary supplement manufacturer or distributor for unlawful promotion of a dietary supplement, such as making claims that a supplement treats, prevents or cures a specific disease or condition. These claims would subject the dietary supplement to regulation as a drug product. If dietary supplements do not meet applicable requirements, the manufacturer may need to undertake a voluntary recall.

FDA Regulation—Biological Products and New Drug Products

Under the FDCA all new drugs and biological products are subject to pre-market approval by the FDA. In contrast to chemically synthesized small molecular weight drugs, which have a well-defined structure and can be thoroughly characterized, biological products are generally derived from living material—human, animal, or microorganism—are complex in structure, and thus are usually not fully characterized. Biological products include blood-derived products, vaccines, in vivo diagnostic allergenic products, immunoglobulin products, products containing cells or microorganisms, and most protein products. Biological products subject to the Public Health Service, or PHS, Act also meet the definition of drugs under the FDCA, therefore both biological products and drugs are regulated under provisions of the FDCA. However, only biological products are licensed under the PHS Act. The overall development process for biological products is similar to that for drugs. The steps ordinarily required before a biological product or new drug may be marketed in the United States include:

Preclinical tests include laboratory evaluation of the product candidate, its formulation and stability, as well as animal studies. The FDA requires that preclinical tests be conducted in compliance with GLP regulations. The results of preclinical testing are submitted as part of an IND application to the FDA together with manufacturing information for the clinical supply, analytical data, the protocol for the initial clinical trials and any available clinical data or literature. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. FDA may also impose clinical holds at any time before or during studies due to safety concerns or non-compliance.

Clinical trials to support BLAs and NDAs involve the administration of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the efficacy criteria to be evaluated. Clinical trials are typically conducted in three sequential phases, but the phases may overlap.

In Phase 1 clinical trials, the biological or new drug product candidate is initially introduced into human subjects or patients and assessed for safety, dosage tolerance, absorption, metabolism, distribution and excretion, including any side effects associated with increasing doses.

Phase 2 clinical trials usually involve studies in a limited patient population to identify possible adverse effects and safety risks; preliminarily assess the efficacy of the product candidate in specific, targeted indications; and assess dosage tolerance and optimal dosage.

If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken within an expanded patient population at multiple study sites to further demonstrate clinical efficacy and safety, further evaluate dosage and establish the risk-benefit ratio of the product and an adequate basis for product labeling.

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Phase 4, or post-marketing, trials may be mandated by the FDA or may be conducted voluntarily. Phase 4 trials are typically initiated to monitor the safety and efficacy of a biological product or new drug in its approved population and indication over a longer period of time, so that rare or long-term adverse effects can be detected over a much larger patient population and time than was possible during prior clinical trials. Alternatively, Phase 4 trials may be used to test a new method of product administration, or to investigate a product’s use in other indications. Adverse effects detected by Phase 4 trials may result in the withdrawal or restriction of a product.

If the required Phase 1, 2 and 3 clinical testing is completed successfully, the results of product development, preclinical studies and clinical trials, descriptions of the manufacturing process and other relevant information concerning the safety and effectiveness of the biological product or new drug candidate are submitted to the FDA in the form of a BLA or NDA. In most cases, the BLA or NDA must be accompanied by a substantial user fee. The FDA may deny a BLA or NDA if all applicable regulatory criteria are not satisfied or may require additional data, including clinical, toxicology, safety or manufacturing data. It can take several years for the FDA to approve a BLA or NDA once it is submitted, if at all, and the actual time required for any product candidate may vary substantially, depending upon the nature, complexity and novelty of the product candidate. Before approving an application, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve a BLA or NDA unless it determines that the manufacturing processes and facilities are in compliance with GMP requirements.

If the FDA evaluations of the BLA or NDA and the manufacturing facilities are favorable, the FDA will issue an approval letter. If the FDA determines that it will not approve an NDA or BLA in its present form for one or more reasons, the FDA will issue a complete response letter. The complete response letter usually contains a number of conditions that must be met before FDA will approve the BLA or NDA. If the BLA or NDA does not meet the criteria for approval, the FDA may deny the application.

The required testing, data collection, analysis and compilation of an IND and a BLA or NDA are labor intensive and costly and may take a great deal of time. Tests may have to be redone or new tests performed in order to comply with FDA requirements. It can take considerable time (e.g. 5-10 years) and resources to achieve enrollment sufficient to commence such trials and complete Phase 2 or 3 clinical trials. Moreover, there is no guarantee a product will be approved.

FDA Regulation—Medical Devices

Medical devices also are subject to extensive regulation by the FDA. To be commercially distributed in the United States, devices that are not exempt from FDA’s premarket notification, or 510(k) procedures, or are pre-amendment devices, meaning they were on the market prior to May 28, 1976, must receive either 510(k) clearance or pre-market approval, or PMA, from the FDA prior to marketing. Devices are assigned to one of three classes depending on the controls the FDA deems necessary to ensure the safety and effectiveness of the devices. Devices deemed to pose the least risk are placed in Class I. A Class I device is 510(k) exempt unless the device is intended for a use which is of substantial importance in preventing impairment of human health, or the device presents a potential unreasonable risk of illness or injury. Class II devices require the manufacturer to submit a pre-market notification to FDA unless they are 510(k) exempt. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, devices deemed not substantially equivalent to a previously 510(k) cleared device and certain other devices are placed in Class III. Most Class III devices require approved PMAs before marketing, although some Class III devices can get to market through the 510(k) process.

To obtain 510(k) clearance, a manufacturer must submit a pre-market notification demonstrating that the proposed device is “substantially equivalent” to a “predicate device,” which is a previously 510(k) cleared Class I or Class II device, a pre-amendment Class III device for which the FDA has not yet called for PMA applications or a device that was in commercial distribution before May 28, 1976. To demonstrate substantial equivalence, the applicant must show that the device has the same intended use and the same technological characteristics as the predicate, or if the device has different technological characteristics than the predicate, the device does not raise new questions of safety and effectiveness, and is at least as safe and effective as the predicate. The FDA’s 510(k) clearance pathway usually takes from four to twelve months, but it can last longer. After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could require a PMA approval.

A product not eligible for 510(k) clearance must follow the PMA pathway, which requires proof that there is a reasonable assurance of a device’s safety and efficacy to the FDA’s satisfaction. The PMA pathway is much more costly and lengthy than the 510(k) pathway. A PMA application typically must provide extensive preclinical and clinical trial data and also information about the device and its components including, among other things, device design, manufacturing and labeling. As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with quality system regulation

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requirements, which impose elaborate testing, control, documentation and other quality assurance procedures. Upon acceptance by the FDA of what it considers a completed filing, the FDA commences an in-depth review of the PMA application, which typically takes from one to two years, but may last longer. Even after approval of a PMA, a new PMA or PMA supplement is required in the event of a modification affecting the safety or effectiveness of the device.

FDA Regulation—Post-Market Requirements

Even if regulatory clearances or approvals for our product candidates are obtained, our products and the facilities manufacturing our products, including foods, will be subject to continued review and periodic inspections by the FDA. The FDA may perform these inspections at any time without advanced notice. For example, as a condition of approval of an NDA, the FDA may require us to engage in post-marketing testing and surveillance and to monitor the safety and efficacy of our products. Holders of an approved NDA, BLA, or PMA, or 510(k) clearance are subject to several post-market requirements, including the reporting of certain adverse events involving their products to the FDA, provision of updated safety and efficacy information, and compliance with requirements concerning the advertising and promotion of their products.

The FDA will inspect manufacturing facilities to confirm that the facilities comply with GMP requirements. To comply with GMP requirements, manufacturers must expend money, time and effort in the area of production and quality control to ensure full compliance. For example, manufacturers of biologic products must establish validated systems to ensure that products meet high standards of sterility, safety, purity, potency and identity, and must report to the FDA any deviations from GMP or any unexpected or unforeseeable event that may affect a product’s safety, purity, or potency. The regulations also impose documentation requirements and require manufacturers of drugs, biologics or devices to investigate and correct any unexplained discrepancy or the failure of a lot or unit to meet any of its specifications.

Failure to comply with the applicable FDA requirements may subject manufacturers and distributors to administrative or judicial sanctions. These sanctions could include, among other things, warning letters, product seizures, total or partial suspension of production or distribution, injunctions, civil money penalties, fines, restitution, disgorgement, or civil or criminal penalties. Further, the FDA has authority to issue mandatory recalls for medical devices and biologics, and we may need to undertake a voluntary recall for any of our products.

In addition to regulations enforced by the FDA, we are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other federal, state and local regulations. Our research and development activities involve the controlled use of hazardous materials, chemicals, biological materials and radioactive compounds.

FTC Regulation

The advertising of our products is subject to regulation by the FTC under the Federal Trade Commission Act, in addition to state and local regulation. The Federal Trade Commission Act prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce. The Federal Trade Commission Act also provides that the dissemination or the causing to be disseminated of any false advertisement pertaining to drugs or foods, which would include dietary supplements, is an unfair or deceptive act or practice. Under the FTC’s Substantiation Doctrine, an advertiser is required to have a “reasonable basis” for all objective product claims before the claims are made. Failure to adequately substantiate claims may be considered either deceptive or unfair practices. Pursuant to this FTC requirement we are required to have adequate substantiation for all advertising claims made for our products.

In recent years the FTC has initiated numerous investigations of dietary supplement and weight loss products and companies. We may be the subject of investigation in the future, and the FTC may impose limitations on our advertising of products. The FTC has a variety of processes and remedies available to it for enforcement, both administratively and judicially, including compulsory processes, cease and desist orders, and injunctions. FTC enforcement can result in orders requiring, among other things, limits on advertising, corrective advertising, consumer redress, divestiture of assets, rescission of contracts and such other relief as may be deemed necessary.

International Regulation

Our product candidates are subject to regulation in every country where they will be tested or used. Whether or not we obtain FDA approval for a product candidate, we must obtain the necessary approvals from the comparable regulatory authorities of foreign countries before we can commence testing or marketing of a product candidate in those countries. The requirements governing the conduct of clinical trials and the approval processes vary from country to country and the time required may be

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longer or shorter than that associated with FDA approval. As in the United States, post-approval regulatory requirements, such as those regarding product manufacture, marketing, or distribution, would apply to any product that is approved outside the United States.

Future Legislation and Regulations

In the future we may be subject to additional laws or regulations by the FDA or other federal, state or foreign regulatory authorities, the repeal of laws or regulations, or more stringent interpretations of current laws or regulations. We are unable to predict the nature of such future laws, regulations, or interpretations, nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business in the future. For example, for dietary supplements, the FDA or other governmental regulatory bodies could require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, imposition of additional record keeping requirements, expanded documentation of the properties of certain products, expanded or different labeling and scientific substantiation. Any or all of such requirements could have a materially adverse effect on our business, financial condition, results of operations and cash flows.

Competition

Our industry is subject to rapid and intense technological change. Competition is intense among manufacturers of nutritional, non-prescription, and prescription pharmaceuticals. We face, and will continue to face, competition from nutraceutical, pharmaceutical, biopharmaceutical, medical device and biotechnology companies developing similar products and technologies both in the United States and abroad, as well as numerous academic and research institutions, governmental agencies and private organizations engaged in drug funding or research and discovery activities both in the United States and abroad. Academic institutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements for discovery, research and clinical development of technologies and products similar to ours. We also face competition from entities and healthcare providers using more traditional methods. We believe there are a substantial number of products under development by numerous nutraceutical, pharmaceutical, biopharmaceutical, medical device and biotechnology companies, and it is likely that other competitors will emerge.

Many of our existing and potential competitors are large, well established pharmaceutical, chemical or healthcare companies with considerably greater research and product development capabilities and financial, scientific, marketing and human resources than we have. As a result, these competitors may succeed in developing competing products earlier than we do; obtain patents that block or otherwise inhibit our ability to further develop and commercialize our product candidates; obtain approvals from the FDA or other regulatory agencies for products more rapidly than we do; or develop treatments or cures that are safer or more effective than those we propose to develop. These competitors may also devote greater resources to marketing or selling their products and may be better able to withstand price competition. In addition, these competitors may introduce or adapt more quickly to new technologies or scientific advances, which could render our technologies obsolete, and may introduce products or technologies that make the continued development, production, or marketing of our product candidates uneconomical. These competitors may also be more successful in negotiating third-party licensing or collaborative arrangements and may be able to take advantage of acquisitions or other strategic opportunities more readily than we can. These actions by competitors or potential competitors could materially affect our business, financial condition and results of operations. We cannot assure you that we will be able to compete successfully.

We have a limited ability to predict how competitive our products, technology platforms and replacement therapy will be in the market place. The competition we believe currently exists with respect to each of our products is as follows:

ProBiora3 Oral Care Probiotics

Many companies sell probiotics that are principally designed for digestive health, vaginal and urinary tract health, and immune system support. Our product will not compete directly with the products of these companies. Recently, researchers at the University of Hiroshima in Japan have published studies indicating that Lactobacillus reuteri , or L. reuteri , a bacterial species isolated from the gastrointestinal tract, can reduce the levels of S. mutans in the mouth and may aid in the prevention of tooth decay . L. reuteri is widely used as a probiotic for other indications and recently has been promoted for dental health. We are aware of a probiotic product from BioGaia AB/Sunstar, containing a strain of L. reuteri , which is on the market today as GUM ^® PerioBalance ^® and is targeted to maintain oral health. Another probiotic bacteria for oral care, known as BLIS K12 probiotic, is commercially available from BLIS Technologies, Ltd., a New Zealand company. BLIS K12 is promoted as a probiotic for bad breath and contains the bacterium, Streptococcus salivarius K12. This bacterium principally colonizes the tongue and

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throat surfaces in the oral cavity, and as such is promoted only for its oral care activity as an aid for halitosis. We believe ProBiora3, with its unique blend of three proprietary probiotic strains, potentially has greater beneficial actions for maintaining oral health than these other products.

LPT3-04 Weight Loss Agent

The weight loss/management product category contains a host of companies selling solutions for boosting metabolism and thus increasing the body’s rate of burning fat, for affecting satiety, or for blocking the absorption of fats or carbohydrates from the digestive tract. Many of these competitors are large companies with considerable resources and experience in this market area. LPT3-04 appears to work through a novel mechanism of increasing, specifically, the rate of white fat cell apoptosis, or programmed cell death. Therefore, LPT3-04 could not only compete in this marketplace as a novel, stand alone approach to weight management, but it should also be complimentary to many existing products promoted for weight loss. As such, our weight loss agent should be attractive for licensing by an existing company in this field in order to obtain an advantage over other competitors with products that address only one or more of the common modes for promoting the reduction in body mass of its users. The overweight problem affects not only humans but occurs at an alarming frequency in the companion pet population. Again, there are a host of diet plans and aids for helping pets to lose weight, but the opportunities for an additive effect with the incorporation of LPT3-04 into existing pet diets, makes our agent an attractive acquisition candidate for established firms in this market area.

SMaRT Replacement Therapy

We are not aware of any direct competitors with respect to our licensed, patented replacement therapy technology. However, there may be several ways to disable or eradicate S. mutans . We know that certain companies and several academic and research institutions, such as the Forsyth Institute, the University of Alabama, and Guy’s Hospital of London, are developing and testing caries vaccines aimed at eradicating S. mutans . An alternative approach involves topical application of adhesion- blocking synthetic peptides that prevent S. mutans from attaching to the tooth surface. Very recently, a University of California, Los Angeles spin-out C3 Jian announced that it was working on therapeutic candidates designed to specifically target S. mutans within oral plaque. Products that result in the elimination of S. mutans from the natural ecosystem would, however, require major studies to determine whether such eradication of naturally occurring bacteria might not create serious, unintended consequences. The problem with eradicating S. mutans is that it disrupts the natural ecosystem leaving a void for another pathogen potentially more harmful than S. mutans to dominate. We are not aware that any other company has filed an IND with the FDA to test their technology to address the matter. Any product based on our replacement therapy technology will compete against traditional oral care products used to combat tooth decay. These products include fluoride-based toothpastes as well as fluoride treatments and tooth sealants administered by dentists. These competitors could include, among others, Colgate, Procter & Gamble, Unilever, GlaxoSmithKline, and Dentsply.

MU1140-S and Other Lantibiotics

MU1140-S will likely compete directly with antibiotic drugs such as vancomycin and newer drugs, including Cubicin (daptomycin) and Zyvox (linezolid). Given the growing resistance of target pathogens to even new antibiotics, we believe that there is ample room in the marketplace for additional antibiotics. Many of our competitors are taking approaches to drug development differing from our approach, including using traditional screening of natural products; genomics to identify new targets, and combinatorial chemistry to generate new chemical structures. Competition in the pharmaceutical industry is based on drug safety, efficacy, ease of use, patient compliance, price, marketing, and distribution. Commercial success of MU1140-S technology will depend on our ability and/or the ability of our licensees and partners to compete effectively in all of these areas, against other companies with existing and pipeline antibiotics to be commercialized in the future. Producers of antibiotic products include many large, global pharmaceutical companies, who have much greater financial and technical resources than us.

Our Intellectual Property

We rely upon a combination of licenses, patents, trade secrets, know-how, and licensing opportunities to develop our business. Our future prospects depend on our ability to protect our intellectual property, particularly our patents. We also need to operate without infringing the proprietary rights of third parties.

License Agreements

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We have exclusively licensed the intellectual property for our SMaRT Replacement Therapy and MU1140 technologies from the UFRF. The patents to which our exclusive UFRF license applies are U.S. Patent No. 5,607,672, “Replacement Therapy for Dental Caries,” and U.S. Patent No. 5,932,469, “Antimicrobial Polypeptide, Nucleic Acid and Methods of Use” (including derivative patents: 6,391,285, 6,475,771, 6,964,760 and 7,067,125) in addition to many corresponding international patents and applications. In addition, we have exclusively licensed intellectual property for site directed mutagenesis of MU1140 and its effect on bacterial activity for which we have filed a U.S. patent application No. 61,603,661. See “Our In-licensed Technology Agreements.”

Patents

We attempt to protect our technology and products through patents and patent applications. We have built a portfolio of patents and applications covering certain of our technologies. We have rights to ten issued U.S. patents and we have twelve U.S. patent applications on file with the U.S. PTO directed toward our products and technologies, including patents exclusively licensed from the UFRF. Our pending applications cover a range of technologies, including specific embodiments and applications for treatment of various medical indications, improved application methods and adjunctive utilization with other therapeutic modalities. We reassess the value of each patent at the time maintenance fees are due, and in cases where maintaining the patent is judged to be of no significant strategic value we decline to pay the fee. The patents and patent applications we have with respect to our products and technologies are set forth below:

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We also have applications pending and/or allowed in Australia, Canada, China, Hong Kong, Israel, Japan, Mexico, New Zealand, South Africa, South Korea, as well as in the European Patent Office. Because of the differences in patent laws and laws concerning proprietary rights, the extent of protection provided by U.S. patents or proprietary rights owned by us may differ from that of their foreign counterparts.

The recently passed Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act provide a 12-year data exclusivity period within the U.S. FDA for new biologics. We believe that our SMaRT Replacement Therapy technology would qualify for this exclusivity.

Trademarks

Our trademarks are of material importance to our business. We have developed many brand names and trademarks for our products. Accordingly, our future success may depend in part upon the goodwill associated with our brand names. We currently use the following unregistered trademarks: SMaRT Replacement Therapy™, MU1140™, IVIAT™ and CMAT™, LPT3-04™, and DPOLT™. Oragenics™ is among our non-registered trademarks. We currently have pending with the U.S. PTO, applications for registration of the marks for KJ2™, KJ3™, and JH145™. We also hold U.S. trademark registrations for EVORAKID ^® , EVORAPRO ^® , EVORAPLUS ^® , EVORAPET ^® , TEDDY’S PRIDE ^® and PROBIORA3 ^® . We hold a European Community trademark registration for PROBIORA3 ^® . Finally, we have applications pending and/or allowed for key oral care probiotics brand marks in an additional 13 countries.

We also have rights to use other names essential to our business. Federally registered trademarks have a perpetual life, as long as they are maintained and renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the trademarks if they claim priority or confusion of usage. We regard our trademarks and other proprietary rights as valuable assets and believe they have significant value in marketing our products.

Protection of Trade Secrets

We attempt to protect our trade secrets, including the processes, concepts, ideas and documentation associated with our technologies, through the use of confidentiality agreements and non-competition agreements with our current employees and with other parties to whom we have divulged such trade secrets. If our employees or other parties breach our confidentiality agreements and non-competition agreements or if these agreements are not sufficient to protect our technology or are found to be unenforceable, our competitors could acquire and use information that we consider to be our trade secrets and we may not be able to compete effectively. Most of our competitors have substantially greater financial, marketing, technical and manufacturing resources than we have and we may not be profitable if our competitors are also able to take advantage of our trade secrets.

Tax Credit

On November 1, 2010, we received notification that we were awarded federal grant funding for three of its therapeutic development programs under the Qualifying Therapeutic Discovery Project. The Qualifying Therapeutic Discovery Project, was recently enacted by Congress as part of the Patient Protection and Affordable Care Act of 2010, which was designed to provide grants or tax credits to qualified biotechnology companies that demonstrate the potential to either 1) develop new therapies to treat areas of unmet medical needs; 2) prevent, detect or treat chronic or acute diseases and conditions; 3) reduce long-term health care costs in United States; or 4) significantly advance the goal of curing cancer within the 30 year period beginning on May 21, 2010. We applied for funding on three of its programs: Prevention of Tooth Decay using Smart Replacement Therapy, Novel Antibiotics for the Treatment of Healthcare Associated Infections and Rapid and Sensitive Identification of Novel Diagnostic Biomarkers for Cancer and Infectious Diseases. We received a non-taxable cash grant award totaling $733,437 under the program. A payment of $371,219 was made to us in November 2010 and remaining grant award amount of $362,218 was received in February, 2011.

Research and Development Costs

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We have spent $2,449,178 and $2,014,784 on research and development of our technologies during the years ended December 31, 2011 and 2010, respectively.

Employees

We have thirteen full-time and two contracted employees. We enjoy good relations with our employees. None of our employees are a member of any labor union, and we are not a party to any collective bargaining agreement.

Available Information

Our website is www.oragenics.com. On our website we make available at no cost our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished as soon as reasonably practicable after we electronically file such material with, or furnish them to, the United States Securities and Exchange Commission (“SEC”). The information contained on our website is not a part of this annual report on Form 10-K.

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