Item 1. Business

Summary

We are a clinical-stage pharmaceutical company focused on developing differentiated antibiotics for the acute care and community settings to meet critical medical needs in the treatment of bacterial infectious diseases, particularly respiratory tract infections and chronic staphylococcal infections. Our goal is to develop antibiotics with broad therapeutic potential and the right spectrum of activity to target pathogenic bacteria in adults and children. Broad therapeutic potential means addressing several disease indications.  The right spectrum of activity means that, in addition to having activity against bacteria that have become resistant to many currently available antibiotics, the drug does not cause collateral damage to important bacteria such as intestinal microflora so that unintended side effects do not occur.

Our lead product, solithromycin (CEM-101), is being developed in oral capsules, intravenous, or IV, and suspension formulations, initially for the treatment of community acquired bacterial pneumonia, or CABP, one of the most serious infections of the respiratory tract. We have completed one Phase 3 clinical trial for the oral treatment of CABP and are enrolling in a second Phase 3 clinical trial for intravenous-to-oral treatment of CABP. Solithromycin is a potent new fourth generation macrolide and the first fluoroketolide in clinical development. As a macrolide, solithromycin has broad use potential against many types of infections and in many patient populations, including pediatrics and pregnancy. Solithromycin’s potency comes from its unique chemical structure, which provides greater ability to fight resistant bacteria. Increasingly, resistance is a major threat to the efficacy of currently available antibiotics.  Solithromycin has excellent organ and tissue distribution and intracellular activity, which allows it to reach bacteria at body sites that other antibiotics may not. Solithromycin is active against many key CABP pathogens as well as against pneumococcal strains resistant to other macrolides. Our pre-clinical and clinical studies to date have demonstrated solithromycin’s efficacy and safety.  This record makes solithromycin a possible treatment for all age groups, including pediatrics. Finally, solithromycin offers flexibility of dosing, whether IV, oral capsule, or oral suspension which we believe will be attractive to both physicians and patients.

We have undertaken two Phase 3 trials which we believe will support our planned new drug application, or NDA, for solithromycin to treat CABP: one trial with oral solithromycin, which we initiated in December 2012, and another with IV solithromycin progressing to oral solithromycin that we began in December 2013. This development program was structured through the draft guidance published by and dialogue with the U.S. Food and Drug Administration, or FDA. We also have received feedback from several European Union, or EU, member countries regarding our plan to submit a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, within a short period of time after our planned filing of the NDA for solithromycin with the FDA.

In January 2015, we reported the results of the Phase 3 trial for oral solithromycin.  The trial met the primary objective of statistical non-inferiority (10% non-inferiority margin) of the early clinical response at 72 (-12/+36) hours after initiation of therapy compared to moxifloxacin. Solithromycin also met the secondary objectives of non-inferiority in clinical success at the short term follow up, or SFU, visit, 5-10 days after the end of therapy, both in the ITT and clinically evaluable populations.  The point estimates for the primary endpoint of early clinical response were 78.2% for solithromycin and 77.9% for moxifloxacin. The results were similar in the combined total patient population, however, initial sub-groups analysis by age, indicate that the difference in point estimates became larger with increasing age and favored solithromycin in the ITT early clinical response groups. The results for the secondary efficacy endpoints supported results from the primary endpoint. Serious adverse effects, or SAEs, occurred with equal frequency in both arms (< 7% of patients) and no SAEs were considered study drug related. The most frequently reported adverse events for solithromycin were headache (4.5%, versus 2.5% incidence with moxifloxacin), diarrhea (4.2%, versus 6.5% with moxifloxacin), nausea (3.5%, versus 3.9% with moxifloxacin), emesis (2.4% versus 2.3% with moxifloxacin) and dizziness (2.1% versus 1.6% with moxifloxacin). No other treatment emergent adverse events occurred, in either arm, with 2.0% incidence or greater. C. difficile associated diarrhea was diagnosed in two patients, both of whom received moxifloxacin. Asymptomatic, reversible ALT elevation was observed in both treatment arms. Grade 4 ALT elevation (> 8xULN) occurred in 1.2% of moxifloxacin patients and 0.5% of solithromycin patients. No patient in either arm of the study had treatment emergent concomitant ALT and bilirubin elevation meeting Hy’s Law criteria.

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We also are pursuing the development of solithromycin as a treatment for pediatric populations suffering from CABP and other respiratory infections as well as other infections. There is an urgent need for a new antibiotic for use in pediatric infections. The Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services, or BARDA, is funding the development of oral, IV and suspension formulations of solithromycin for pediatric use in bacterial pneumonia. Solithromycin is the first new antibiotic being developed as a suspension for all pediatric age groups in over 20 years.

In addition to CABP, we are pursuing a second indication, uncomplicated bacterial urethritis, primarily Neisseria gonorrheae and Chlamydia trachomatis , for which there is an urgent public health need. In this indication, our Phase 2 trial demonstrated that solithromycin was highly effective in treating uncomplicated gonorrhea, with successful treatment of all 43 evaluable patients.  In August 2014, we initiated a Phase 3 clinical trial in patients with uncomplicated gonorrhea and chlamydia.

BARDA also is funding studies to test the efficacy of solithromycin in treating bioterror pathogens such as tularemia and anthrax. Studies were conducted with inhalation exposure in non-human primates in which it was demonstrated that solithromycin was effective in treating both of these infections.    

We have global rights (other than the Association of South East Asian Nations, or ASEAN, countries, which are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand and Vietnam) to solithromycin. We have licensed solithromycin to Toyama Chemical Co., Ltd., or Toyama, for development and commercialization in Japan while retaining the rights to the rest of the world. Toyama successfully completed a Phase 1 trial in healthy Japanese volunteers and has begun a Phase 2 trial in other respiratory tract infections. Toyama and we are sharing the results of our respective development activities.

The FDA has designated each of oral and intravenous solithromycin as a Qualified Infectious Disease Product, or QIDP, for the indication of CABP, and also has designated the oral form as a QIDP for the treatment of uncomplicated gonococcal infections. The QIDP designation is expected to enable us to benefit from certain incentives for the development of new antibiotics, including priority review.

Our second product is Taksta, an antibiotic known as fusidic acid, that has been used for decades outside the U.S., including Western Europe, but which has never been approved in the U.S. We are developing Taksta exclusively in the U.S. as a long term oral treatment of refractory bone and joint infections, including prosthetic joint infections, or PJI, caused by staphylococci, including S. aureus and methicillin-resistant Staphylococcus aureus , or MRSA. Currently, there is no optimal oral, chronic antibiotic for treating these infections. We hope to develop Taksta as an oral treatment with the same efficacy of currently available IV drugs but with the safety and convenience of oral long-term administration. Taksta successfully completed a Phase 2 clinical trial in patients with acute bacterial skin and skin structure infections, or ABSSSI, which is frequently caused by MRSA, demonstrating a tolerability profile and efficacy comparable to linezolid (sold under the brand name Zyvox ^® ), the only oral antibiotic currently approved for the treatment of MRSA approved by the FDA. Having shown that Taksta is well tolerated and is active against current strains of MRSA in the U.S., in December 2012, we initiated a Phase 2 trial with Taksta for the treatment of primarily stapylococcal infections of infected prosthetic joint infections, hip and knee joints.  The Phase 2 trial demonstrated that fusidic acid in combination with rifampin was generally comparable to intravenous standard of care antibiotics. We noted that rifampin decreased the blood levels of fusidic acid significantly and therefore concluded the trial after determining that fusidic acid should be used alone at the loading dose and maintenance dose regimen that was used successfully in the Phase 2 ABSSSI trial. There is no FDA guidance on the design of bone and joint infection or PJI trials and also no FDA-approved antibiotic for bone and joint infections.

In October 2013, the FDA granted orphan drug designation for fusidic acid for the treatment of PJI, which confers regulatory and economic benefits in the development process. In December 2013, PJI was classified as a very rare disease by the National Institutes of Health, or NIH. With these designations in hand, we submitted a proposal for a Phase 3 trial for Tasksta as a treatment for PJI, which could lead to an NDA.  In December 2014, we met with the FDA to review the study design and dosing of the pivotal Phase 3 trial in patients who have failed prior therapy and cannot tolerate another surgery.  In other words, they have no good options for treatment.  Based on that meeting, our plan involves testing Taksta in a superiority trial for long-term suppressive therapy of refractory bone and joint infections, including PJI. Also based on our discussions with the FDA, we plan to conduct a Phase 3 trial for the treatment of ABSSSI to determine Taksta’s safety and efficacy, which would support the NDA for the treatment of refractory bone and joint infections as well as for ABSSSI.

Overview of Solithromycin (CEM-101)

Solithromycin is a potent new fourth generation macrolide, the first fluoroketolide, that we are developing in oral capsule, IV and suspension formulations (for pediatric use) for the treatment of respiratory tract infections, including CABP, which is one of the most common serious infectious diseases of the respiratory tract and the primary cause of death from an infection, and bacterial urethritis, including gonorrhea, the second most common reportable infectious disease in the world. Solithromycin is differentiated from other antibiotics because of its broad therapeutic potential and the right spectrum of activity to target pathogenic bacteria. Broad

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therapeutic potential means a drug that can be used in the treatment of several disease indications, in this case, such as bacterial pneumonia, chronic obstructive pulmonary disease, or COPD, cystic fibrosis, other respiratory tract infections, infections in children, infections caused by bacterial urethritis, Helicobacter gastritis, eye infections, infections in pregnancy, and others. Targeting the bacteria responsible for CABP and other respiratory infections without causing major effects on the intestinal microflora is a benefit of the macrolide class.

Macrolides, as a class, have been used broadly for treating respiratory and other infections in adults and children because of their excellent safety and efficacy profile. However, resistance to the older macrolides, like azithromycin (Zithromax, Z-Pak) is increasingly common, as high as 44% in the U.S. and 95% in some parts of Asia. A new macrolide which is active against resistant strains, while maintaining the safety of older macrolides, is needed. Solithromycin has the potency and spectrum to characterize it as a fourth generation macrolide. Solithromycin owes its potency to its unique chemical structure that binds to bacterial ribosomes in three sites while earlier generation macrolides bind in only one or two sites on the ribosome. Therefore, bacteria must mutate at three sites on the ribosome to become resistant to solithromycin. To date, we have seen no resistance to solithromycin in our clinical trials, and resistance was rare in our pre-clinical studies. Macrolide use for serious infections has generally been replaced by fluoroquinolones, despite this class having a less desirable safety and tolerability profile than macrolides. The current oral standard of care for CABP is levofloxacin or moxifloxacin, which are fluoroquinolones. As with respiratory tract pathogens, gonorrhea, has become resistant to macrolides, including azithromycin, a widely used macrolide, and other classes of oral antibiotics . Solithromycin could be used in monotherapy to treat CABP and also gonorrhea, chlamydia and mycoplasma infections. We believe solithromycin, with its unique chemical structure, retains and improves on the beneficial features of macrolides and can overcome the shortcomings of existing therapies.

We have undertaken two pivotal Phase 3 trials for solithromycin to treat CABP.  The first was a Phase 3 trial for oral solithromycin, which was designed based on FDA guidance documents and comments from the FDA, which we initiated in December 2012 and completed in late 2014.  We also began in December 2013 a second Phase 3 trial to treat CABP with IV solithromycin progressing to oral solithromycin. Based on the FDA draft guidelines and our discussions with the FDA we believe that these two Phase 3 trials will be sufficient to support our planned NDA for solithromycin to treat CABP. These trials are randomized, double-blinded studies using a respiratory fluoroquinolone, moxifloxacin (Avelox), for which we will have to show non-inferiority for efficacy and acceptable safety and tolerability. Moxifloxacin was selected as the comparator because it is administered at the same dose, 400 mg once a day worldwide, while levofloxacin, the respiratory fluoroquinolone used in our Phase 2 trial, is used at 750 mg once daily in the U.S. and 500 mg twice daily in the rest of the world. Being a global study, the same dose was required to be used in our Phase 3 trials. Non-inferiority for efficacy means solithromycin will have to prove it is statistically as effective as a comparator drug within a pre-defined margin.

On January 5, 2015, we announced positive topline results from our global, pivotal Phase 3 clinical trial of solithromycin oral capsules in the treatment of patients with CABP. In the intent-to-treat, or ITT, population (which was all randomized patients), solithromycin met the primary objective of statistical non-inferiority (10% non-inferiority margin) of the early clinical response at 72 (-12/+36) hours after initiation of therapy compared to moxifloxacin. Solithromycin also met the secondary objectives of non-inferiority in clinical success at the short term follow up, or SFU, visit, 5-10 days after the end of therapy, both in the ITT and clinically evaluable populations. The point estimates for the primary endpoint of early clinical response were 78.2% for solithromycin and 77.9% for moxifloxacin. The 95% confidence interval for the treatment difference had lower and upper bounds of -5.5% and 6.1%, respectively. The results were similar in the combined total patient population, however, initial sub-groups analysis by age, indicate that the difference in point estimates became larger with increasing age and favored solithromycin in the ITT early clinical response groups. The results for the secondary efficacy endpoints supported results from the primary endpoint.

This Phase 3 trial was an active-controlled global, multi-center trial that enrolled 860 adult patients with moderate to moderately severe CABP (pneumonia of PORT Class II, III and IVa severity classification). Enrollment of PORT Class II pneumonia patients was limited to 50% of the study population. Patients were randomized to receive either oral solithromycin, as an 800 mg loading dose followed by 400 mg once daily for a total of five days, while oral moxifloxacin was dosed at 400 mg once daily for seven days. The primary objective was demonstration of non-inferiority of early clinical response at 72 (-12/+36) hours, as specified by FDA guidance, defined as having improvement in at least two of the following four symptoms (without worsening of any); cough, shortness of breath, chest pain and sputum production in the ITT population. The study was designed to provide 90% power to demonstrate non-inferiority in early clinical response rate for solithromycin versus moxifloxacin utilizing a 10% non-inferiority margin. Secondary endpoints included the clinical success rate at the short term follow up visit 5 to 10 days following the last dose of study drug in the ITT and clinically evaluable populations, the microbial ITT population, and a comparison of safety and tolerability of solithromycin compared to moxifloxacin.  

In this clinical trial, serious adverse events, or SAEs, occurred with equal frequency in both arms (< 7% of patients) and no SAEs were considered study drug related. The most frequently reported adverse events for solithromycin were headache (4.5%, versus 2.5% incidence with moxifloxacin), diarrhea (4.2%, versus 6.5% with moxifloxacin), nausea (3.5%, versus 3.9% with moxifloxacin), emesis (2.4% versus 2.3% with moxifloxacin) and dizziness (2.1% versus 1.6% with moxifloxacin) No other treatment emergent

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adverse events occurred, in either arm, with 2.0% incidence or greater. C. difficile associated diarrhea was diagnosed in two patients, both of whom received moxifloxacin. Asymptomatic, reversible ALT elevation was observed in both treatment arms. Grade 3 ALT elevation (>3-8xULN) occurred in 2.1% of moxifloxacin patients and 4.6% of solithromycin patients and Grade 4 ALT elevation (> 8xULN) occurred in 1.2% of moxifloxacin patients and 0.5% of solithromycin patients. No patient in either arm of the study had treatment emergent concomitant ALT and bilirubin elevation meeting Hy’s Law criteria.

CABP is the number one cause of death from an infection and the sixth most common cause of death from all causes in the U.S. and a leading cause of death worldwide. There are 5 to 10 million CABP cases annually, with 1.1 million patients hospitalized per year. Mortality rates are higher in hospitalized CABP patients. Most cases occur in adults 65 years and older, which is a growing population in the U.S. Pneumococcal infections cause more deaths per year in U.S. than breast or prostate cancer. In addition, respiratory disease incidence is increasing because of the growing numbers of COPD and asthma patients. CABP infection in pediatrics is quite common. The rate ranges from 74–92 ( < 2yrs) and 33–52 (3–6 yrs) per 1,000 children.  Early appropriate therapy is critical to positive outcomes and the treatment is empiric because, in clinical practice, establishing a definitive microbial diagnosis for CABP cases is not always feasible, which leads to selection of empiric therapy to provide broad spectrum coverage to treat the pathogen (with both common and worse-case scenarios often in mind).   Multiple pathogens can be involved, including Gram-positive, Gram-negative and atypical bacteria. Although pneumococcus is the most frequent cause of CABP, because of the multiple pathogens that could cause the disease, broad spectrum antibiotics and multiple antibiotics are typically used to treat CABP. For this reason, the American Thoracic Society, or ATS, and the Infectious Diseases Society of America, or IDSA, recommend treating moderately severe CABP with broad spectrum coverage consisting of intravenous cephalosporin (e.g., ceftriaxone) plus a macrolide, or with a quinolone, typically with hospitalization. Macrolide (for instance,, azithromycin) therapy is added to beta-lactam therapy (such as ceftriaxone) to provide coverage for Legionella and Mycoplasma , so called ‘atypical pathogens’ that are not susceptible to beta-lactam antibiotics.  Notably, pneumoccocci have become increasingly resistant to macrolides, thus making monotherapy with azithromycin, erythromycin, or clarithromycin an inappropriate therapeutic regimen for empiric coverage.  

As noted, the second choice is to use fluoroquinolones that are available in oral and IV formulations, such as levofloxacin or moxifloxacin.  While these products are available in IV and oral form and have broad spectrum activity, they are not in favor for treating CABP because:

Solithromycin’s spectrum of activity includes most of the pathogens involved in CABP and has demonstrated potent activity in vitro in animal models of infection and in our Phase 2 trial using solithromycin to treat CABP in monotherapy and our Phase 3 trial for oral solithromycin as a treatment for CABP.

Solithromycin is intended for both intravenous and oral administration, to allow patients started on IV therapy to be switched to oral therapy when appropriate, which could lead to early discharge from the hospital.  The FDA has designated each of oral and intravenous solithromycin as a QIDP for the indication of CABP. The QIDP designation is expected to enable us to benefit from certain incentives for the development of new antibiotics, including priority review, and a five-year extension of NCE exclusivity.

We also are studying solithromycin for the treatment of bacterial urethritis, including uncomplicated gonorrhea. The current standard of treatment for gonorrhea requires an intramuscular injection of ceftriaxone. Until recently, oral cefixime (Suprax) had been recommended as an alternative for treatment of patients as well as for treatment of their potentially infected partners. However, as of August 2012, the Centers for Disease Control, or CDC, no longer recommends cefixime for the treatment of gonorrhea, which leaves no oral treatment option. In our Phase 2 open-label study completed in 2013 in patients with suspected gonococcal infection, microbiological eradication of gonococci was achieved in 100% of all evaluable patients at all body sites.  In addition to detecting the gonococcus, we also diagnosed Chlamydia trachomatis and Mycoplasma genitalium , which are atypical bacteria that can cause sterility in young girls as well as other ill effects. In most cases when diagnosed, solithromycin was effective against these pathogens also.  Current treatment of bacterial urethritis includes two drugs: ceftriaxone administered intramuscularly and oral azithromycin, which is added to treat co-infections with chlamydia. Azithromycin at the 1000 mg dose that is recommended is not well tolerated. The FDA had asked that both gonococcus and chlamydia be monitored in our ongoing Phase 3 trial and has indicated that a single Phase 3 trial in bacterial urethritis could be sufficient for approval.  In August of 2014, we initiated a Phase 3 clinical trial, called Solitaire-U, of a single 1000 mg dose of oral solithromycin in patients with uncomplicated gonorrhea and chlamydia infections compared with intramuscular ceftriaxone plus oral azithromycin.  We expect to complete enrollment in the fourth quarter of 2015.

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In May 2013, we entered into a license agreement with Toyama whereby we licensed to Toyama the exclusive right, with the right to sublicense, to make, use and sell any product in Japan that incorporates solithromycin as its sole active pharmaceutical ingredient, or API, for human therapeutic uses, other than for ophthalmic indications or any condition, disease or affliction of the ophthalmic tissues. Toyama also has a nonexclusive license in Japan and certain other countries, with the right to sublicense, to manufacture or have manufactured API for solithromycin for use in manufacturing such products, subject to limitations and obligations of the concurrently executed supply agreement.  Toyama has granted us certain rights to intellectual property generated by Toyama under the license agreement with respect to solithromycin or licensed products for use with such products outside Japan or with other solithromycin-based products inside or outside Japan.  Toyama has completed a Phase 1 study in healthy Japanese volunteers and has begun a Phase 2 trial in other respiratory tract infections.  Toyama and we are sharing the results of our respective development activities.

In May 2013 we entered into an agreement with BARDA for the evaluation and development of solithromycin for the treatment of bacterial infections in pediatric populations and infections caused by bioterror threat pathogens, specifically anthrax and tularemia. BARDA is funding the development of solithromycin suspension formulation for pediatric use in CABP.  This is the first new antibiotic being developed as a suspension for pediatric use in over 20 years.  The pediatric study plan, or PSP, was submitted and accepted by the FDA and a pediatric investigation plan, or PIP has been accepted by the EMA.  There is an urgent need for a new oral and intravenous antibiotic for use in pediatric infections. Together with Toyama, we have completed pilot suspension formulation and taste masking work and we have completed taste testing in the U.S. and have manufactured the power for suspension for use in Phase 1 studies.  We also have completed a Phase 1 study in adolescent children in the U.S., using the oral capsule formulation. In that study, conducted in pediatric patients age 12 to 17 years, solithromycin oral capsules were well tolerated and demonstrated a pharmacokinetic profile similar to that seen in adults.   The IV formulation is also being tested in these Phase 1 trials. The ongoing Phase 1b study will enroll 64-96 pediatric patients aged newborn to 17 years with suspected or confirmed bacterial infections. Patients will be enrolled in eight arms of up to 12 patients each, with the ultimate number of patients dependent on an interim analysis of each arm.  Patients will receive oral capsules, oral suspension or intravenous solithromycin dosed by weight once per day as add on therapy for up to 5 days. The study is open label and the primary endpoint will be to determine pharmacokinetics in the pediatric population. Safety data will also be collected. On-going with this program as part of this funding is the optimization of the commercial pediatric suspension product and we are expected to begin the start-up activities for a global Phase 2/3 study.

BARDA also funded studies in non-human primates to test the efficacy of solithromycin in treating bioterror pathogens such as tularemia and anthrax. Successful pilot studies were conducted in 2014.

Infections in pregnancy are difficult to treat because of the nature of the infecting pathogens, such as Group B beta hemolytic streptococci and Ureaplasma. These infections can cause sepsis and also preterm birth.    All pregnant women are screened for Group B beta hemolytic streptococci infections and, if not penicillin-allergic, can be treated with penicillin successfully. In penicillin-allergic patients there is no viable option today because of resistance. In patients infected with ureaplasma, penicillin is not effective and azithromycin has been the drug of choice. Recently resistance to azithromycin has increased and there is no optimal treatment option for these infections. In addition drugs that penetrate the amniotic fluid and placenta, in sufficient levels are important to fight infection and azithromycin has low penetration, which inhibits its efficacy in treating the infection. Consequently, there is a need for a safe and effective antibiotic that can be administered maternally but reach effective concentrations in fetal blood so that the infection at these sites can be effectively treated. Solithromycin has demonstrated in vitro activity against Group B beta hemolytic streptococci as well as ureaplasma. In November 2013, we reported that solithromycin may provide an effective antimicrobial approach for the prevention and treatment of intrauterine infections during pregnancy, including ureaplasma and Group B hemolytic streptococcus. A study in which the IV formulation of solithromycin was administered to pregnant sheep, which is a validated model for human pregnancy, resulted in effective concentrations of solithromycin in fetal plasma and amniotic fluid. According to the CDC, preterm births account for 75% of perinatal mortality. Bacterial infection of amniotic cavity is associated with preterm birth, or PTB. It is estimated that infection may be implicated in as many as 40% of PTB cases. In a 2007 study, bacterial vaginosis was shown to approximately double the risk of PTB and miscarriages were six times more likely. Pregnant women could be an additional patient population for solithromycin. BARDA funded a segment 3 toxicology study that was completed successfully and these results could allow solithromycin to be tested in pregnancy.

Our prior Phase 1, Phase 2 and Phase 3 (for oral solithromycin) clinical trials and pre-clinical studies to date have shown that solithromycin has the following attributes:

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Overview of Taksta

Taksta is a therapy that we are developing exclusively in the U.S. for the oral chronic, or long term, treatment, of refractory bone and joint infections, including PJI, which are frequently caused by staphylococci, including S. aureus , MRSA, coagulase negative staphylococci and other Gram-positive bacteria. Taksta is a novel and proprietary dosing regimen of fusidic acid, which is an approved antibiotic that has been sold by Leo Laboratories, Ltd. primarily for staphylococcal infections, including skin, soft tissue and bone infections, for several decades in Europe and other countries outside the U.S. and has a long-established safety and efficacy profile. Fusidic acid, however, has never been approved for use in the U.S. We believe Taksta has the potential to be used in hospital and community settings on both a short-term and chronic basis. Since bone and joint infections are primarily treated with a combination of IV and oral drugs, we believe that Taksta would enable out-patient treatment of many patients who would otherwise require hospitalization and/or intravenous therapy, which we also believe would provide pharmacoeconomic advantages, be well received by doctors and be more convenient for patients. In May 2013, we were issued a patent for our proprietary dosing regimen which has been shown with pharmacodynamics experiments to limit resistance development. In addition, in the Phase 2 study for ABSSSI, Taksta was well tolerated and no resistant strains were isolated.  Further, fusidic acid is eligible for market exclusivity under the Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act. In October 2013, the FDA designated Taksta as an orphan drug for the treatment of prosthetic joint infections, which will provide seven years of market exclusivity if Taksta is approved by the FDA for such treatment.  We will work to have orphan drug designation granted for Taksta for refractory bone and joint infections, which will provide the same additional two years of market exclusivity if Taksta is approved by the FDA for such treatment.   In addition, orphan drug designation would give us an opportunity to develop an NDA study design acceptable to the FDA for our planned NDA. In December 2013, PJI was classified as a very rare disease by the NIH.

As an orphan drug, we would also be eligible for a tax credit for 50% of the clinical cost for the continued development of Taksta and a possible waiver of PDUFA fees for an NDA. Taksta would also be eligible for an additional five years of exclusivity based upon the Generating Incentives for Antibiotics Now, or GAIN Act, since MRSA is listed in the law as a qualified infectious disease pathogen. Therefore, Taksta could qualify for as much as 12 years of statutory exclusivity in total. Taksta also could receive an additional six months exclusivity if approved for pediatric indications. In addition, our patent on our loading dose regimen for Taksta provides patent protection tom 2029.

According to a survey of physicians conducted by Decision Resources, MRSA is the most important pathogen of concern in patients with osteomyelitis and prosthetic joint infection. Bone infections often begin with skin infections where bacteria enter the bloodstream through breaks in the skin or mucous membrane that occur as a result of a wound or due to a surgical, medical or dental procedure.

In 2010, we successfully completed a Phase 2 clinical trial with Taksta in ABSSSI patients. In this trial, the Taksta loading dose regimen demonstrated efficacy, safety and tolerability that was numerically comparable (this Phase 2 trial was not powered for formal statistical comparisons) to linezolid, the only FDA-approved oral treatment for MRSA. Like ABSSSI, prosthetic joint infections are often caused by staphylococci, including MRSA. In December 2012, we initiated a Phase 2 trial of Taksta for treatment of primarily stapylococcal infections of infected prosthetic joint infections, hip and knee joints. There were 15 sites in the U.S. Despite the lack of FDA guidance for clinical trial design for treating PJI we designed a Phase 2 trial that compares vancomycin, which is the standard of care, with oral fusidic acid and rifampin.  Based on the results of the 14 patients enrolled in this study, we concluded that the fusidic acid in combination with rifampin was generally comparable to intravenous standard of care antibiotics.  During the conduct of this trial, we noted that rifampin significantly diminished the blood levels of fusidic acid and, in one case, the emergence of a  S.aureus resistant to rifampin (i.e., the fusidic acid/rifampin combination produced therapeutic exposures to both drugs that were comparable to monotherapy with rifampin).  The Phase 2 trial was concluded after our determination that fusidic acid should be optimally dosed in monotherapy even in bone and joint infections, using the loading dose and maintenance dose regimen which was successfully used in the ABSSSI Phase 2 trial.

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In December 2014, we met with the FDA to review the study design and dosing of the pivotal Phase 3 trial in patients who have failed in therapy and cannot tolerate another surgery.  In other words, they have no other optimal options.  Based on that meeting, our plan involves testing Taksta for long-term suppressive therapy of refractory bone and joint infections, including PJI in a superiority trial. Also based on our discussions with the FDA, we plan to conduct a Phase 3 non-inferiority trial for the treatment of ABSSSI to determine Taksta’s safety and efficacy, which would support the NDA for the treatment of refractory bone and joint infections and ABSSSI.

Our prior clinical trials and pre-clinical studies, as well as historical data from outside the U.S., have shown that Taksta has the following attributes:

The Limitations Associated with Antibiotics

The widespread use of antibiotics has led to development of resistant strains of bacteria, which limits the effectiveness of existing drugs. This led the World Health Organization to state in 2010 that antibiotic resistance is one of the three greatest threats to human health. The CDC estimates that more than 70% of U.S. hospital infections are resistant to at least one of the antibiotics most commonly used to treat them. The CDC also estimates that each year more than 2,000,000 people are sickened with antibiotic-resistant infections, with at least 23,000 dying as a result. Antibiotic-resistant infections also increase the costs to the U.S. healthcare system.

Antibiotic resistance is primarily caused by genetic mutations in bacteria selected by exposure to antibiotics where the drug does not kill all of the bacteria. In addition to mutated bacteria being resistant to the drug used for treatment, many bacterial strains can also be cross-resistant, meaning that the use of a particular treatment to address one kind of bacteria can result in resistance to other kinds of bacteria as well as to other antibiotics. As a result, the effectiveness of many antibiotics has declined, limiting physicians’ options to treat serious infections and creating a global health issue. For example, it is estimated that in the U.S. approximately 44% of pneumococci, the primary pathogen involved in respiratory tract infections, are resistant to azithromycin and other macrolides commonly used to treat them. In addition, no new antibiotic has been developed for pediatric use in 20 years and this population also is showing growing resistance to currently available antibiotics. Resistance also is growing to antibiotics currently used to treat infections in pregnant women.   Antibiotic resistance has a significant impact on mortality and morbidity and contributes heavily to health care system costs worldwide.

In addition to resistance issues, current antibiotic therapies also have other limitations, including serious side effects. These side effects may include: severe allergic reaction, decreased blood pressure, nausea and vomiting, suppression of platelets, pain and inflammation at the site of injection, muscle, renal and oto toxicities, optic and peripheral neuropathies and headaches. Some of these side effects may be significant enough to require that therapy be discontinued or not used. As a result, some treatments require clinicians to closely monitor patients’ blood levels and other parameters, increasing the expense and inconvenience of treatment.

Further, many of the existing antibiotics used to treat serious infections are difficult or inconvenient to administer. Many drugs are given twice daily for seven to 14 days or more and patients can be hospitalized for much or all of this period or require in-home IV therapy. While IV treatment can deliver the drug more rapidly and in a larger dose than is possible orally, once a patient is stabilized, a switch to oral treatment allows for more convenient and cost-effective out-patient treatment. We believe that there is a need for new antibiotics that have improved potency and pharmacokinetics, effectiveness against resistant bacterial strains, improved side effect profiles and more flexible administration formulations.

Recognizing the seriousness of growing antibiotic resistance, in July 2012, Congress passed the GAIN Act to provide economic incentives to promote the development of antibiotics designed to treat specific qualified infections disease pathogens identified by the FDA.  Among the pathogens that the FDA has identified as qualified infectious disease pathogens are MRSA, vancomycin-resistant Staphylococcus aureus and vancomycin-resistant Enterococcus . The incentives will be granted for an antibiotic that is designated by the FDA as a qualified infectious disease product or QIDP.   QIDP designation provides certain incentives for the development of new antibiotics, including priority review, and a five year extension of new chemical entity exclusivity.  Pursuant to the GAIN Act, in 2013, the FDA designated each of the oral and IV formulations of solithromycin as a QIDP for the indication of CABP, which was designated a qualified infectious disease pathogen by the FDA in 2013. In 2014, the FDA designated oral solithromycin as a QIDP for the treatment of uncomplicated gonococcal infections, which were designated as a qualified infectious disease pathogen by the FDA in 2014.

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Solithromycin

Overview

We are developing solithromycin, a fourth generation macrolide and the first fluoroketolide, to treat multiple infectious diseases in multiple patient populations.  We are initially developing solithromycin for respiratory tract infections, including CABP and also for treating chronic staphylococcal infections, including bacterial urethritis. Traditionally, macrolides have been among the most commonly prescribed drug for respiratory tract infections because of their combination of spectrum of activity, safety for use in adult and pediatric patients, tissue distribution and activity against intracellular pathogens, pharmacokinetics allowing use in oral and IV formulations, and anti-inflammatory properties. However, the effectiveness of macrolides for treating serious respiratory tract infections such as CABP has declined due to resistance issues related to earlier generations of macrolides. We believe our clinical and pre-clinical results suggest that solithromycin retains and improves on the benefits of, and overcomes the shortcomings of, earlier generation macrolides.

We also believe that solithromycin can be used as a monotherapy to treat CABP, due to its potency and planned availability in IV and oral formulations.

Solithromycin Market Opportunity

We are developing solithromycin in both oral (including a suspension formulation) and IV formulations initially as a treatment for CABP, which is a respiratory tract bacterial infection acquired outside of a hospital setting. Respiratory tract infections can range from severe diseases such as pneumonia (CABP), to similar infections of the respiratory tract such as pharyngitis (which is usually referred to as strep throat), bronchitis, chronic sinusitis and middle ear infections (which are especially common in children). CABP is one of the most common serious infectious diseases of the respiratory tract and is the most frequent cause of death due to bacterial infections. There are 1.6 million fatal cases of pneumococcal disease annually worldwide which is more than the deaths caused annually by breast or prostate cancer. There are approximately five to six million cases of CABP in the U.S. every year, approximately one million of which require hospitalization. Typical bacteria that cause CABP include Streptococcus pneumoniae , Haemophilus influenzae , Moraxella catarrhalis and Staphylococcus aureus . These four bacteria account for approximately 85% of CABP cases. Other organisms, called atypical bacteria, may be involved in CABP and include Legionella pneumophila , S. aureus , Chlamydophila pneumoniae and Mycoplasma pneuomoniae .

Many respiratory tract infections, including CABP, involve multiple bacteria. The routine diagnostic tests available to a physician can only identify a pathogen in 10% to 25% of cases and that diagnosis can take several days. Since infections can be serious and potentially life threatening, physicians cannot delay treatment while waiting for the results of these diagnostic tests to identify the pathogens involved in the disease. As a result, physicians seek to begin treatment with the antibiotic or combination of antibiotics that has the broadest activity against the bacteria thought to be causing the infection.

CABP and other respiratory tract infections can be treated with numerous classes of antibiotics, including macrolides, tetracyclines, fluoroquinolones, penicillins and cephalosporins. Each class has a different mechanism of action and resulting spectrum of activity. Each class, however, whether used alone or in combination, has limitations that can impede the treatment of CABP infections. Historically, macrolides have been among the most commonly prescribed drug for respiratory tract infections because of their broad spectrum of activity and relative safety. Azithromycin, a second generation macrolide which is sold as Zithromax and Z-PAK and as a generic, is the most widely prescribed macrolide with total U.S. prescriptions of 52 million in 2010, according to IMS Health, and sales of $1.1 billion, according to Medical Marketing & Media.

In recent years, the effectiveness of earlier generation macrolides, including azithromycin, to treat serious infections such as CABP has declined due to resistance issues. The most recently approved macrolide, telithromycin (Ketek), has seen limited use because of serious side effects. For these reasons, fluoroquinolones, such as levofloxacin, now are commonly used for serious CABP infections. Although levofloxacin is efficacious, it has serious side effects including C. difficile enterocolitis, tendonitis, hepatotoxicity and central nervous system effects. Beta-lactams, such as cephalosporins, which are commonly used in CABP, also have limitations, including limited coverage against several important bacteria such as Legionella and Mycoplasma . In addition, the newer cephalosporins can only be administered intravenously, which is a disadvantage if the patient does not need to be hospitalized or needs to move to oral therapy to enable treatment on an out-patient basis. The American Thoracic Society, or ATS, and the Infectious Diseases Society of America, or IDSA, recommend a macrolide together with a beta-lactam (such as a cephalosporin) to treat CABP; the macrolide is added to cover atypical bacteria. Alternatively, ATS and IDSA recommend physicians treat CABP with fluoroquinolones. The recommended combination of a macrolide with a beta-lactam has been shown to enhance survival; when a macrolide is not used, an increase in mortality has been shown.

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We believe that the initial market acceptance of Ketek, which, according to IMS Health, in 2005, its first full year after FDA approval, generated 3.4 million prescriptions and $193 million in sales in the U.S., demonstrates the potential for a new macrolide therapy. However, soon after its U.S. approval in 2004, Ketek was found to cause reversible visual disturbances, loss of consciousness, exacerbate myasthenia gravis (a neurological disorder characterized by improper muscle regulation) and cause liver toxicity resulting in liver failure. Ketek was withdrawn in 2007 for use in all infections other than CABP, and as a result, the large market predicted for Ketek has not developed. While Ketek is a macrolide, solithromycin has a different chemical structure from Ketek, and therefore we believe is not likely to have the safety issues associated with Ketek. Our research, which was published in a peer-reviewed article in Antimicrobial Agents and Chemotherapy , suggests that pyridine, a chemical component of Ketek, is the agent that causes liver toxicity and other problems associated with Ketek. Solithromycin and older generation macrolides, including azithromycin and clarithromycin, do not have a pyridine component and have a safety profile distinct from that associated with Ketek. We believe that solithromycin has the potential to be more successful than older macrolides because of the activity against resistant pathogens and potency if our ongoing Phase 3 trials for CABP and gonorrhea confirm the efficacy and safety profile demonstrated in our previous trials.

As a result of the limitations of current therapies for CABP, we believe there is an opportunity to introduce the fourth generation macrolide that is more potent and effective against bacteria that are resistant to older generations of macrolides, while retaining the traditional safety and anti-inflammatory properties that macrolides are known to exhibit. To date, our Phase 1, Phase 2 and Phase 3 (for oral solithromycin) clinical trials have demonstrated that solithromycin is potent and effective against resistant bacteria and is well tolerated, with no serious adverse events. We also believe that developing IV and oral formulations will provide flexibility to physicians to treat patients according to the severity of their disease and transition some patients from IV to oral, enabling them to leave the hospital sooner. If approved by the FDA, solithromycin would be the first macrolide approved with both IV and oral capsule and suspension formulations since azithromycin was approved more than 20 years ago.

Further, we believe that the designation by the FDA of solithromycin as a QIDP for the treatment of CABP provides us with advantages in its development, namely priority review, and a five year extension of new chemical entity (NCE) exclusivity.  

In addition to CABP, there is a large public health need for a new and effective oral treatment for treating bacterial urethritis. Resistance has emerged to cefixime, which was the only remaining oral therapy for gonococci infections, such as bacterial urethritis. Our Phase 2 trial conducted in 2013 demonstrated that solithromycin is active against most bacterial pathogens known to be involved in bacterial urethritis including gonococci, chlamydia and mycoplasma. The CDC has identified N. gonorrhea as one of the three pathogens that pose an immediate public health threat that require urgent and aggressive action.  In addition, the CDC and key opinion leaders have expressed the need for an oral antibiotic as a replacement for cefixime because of resistance development. The development of solithromycin for bacterial urethritis would present an additional market opportunity for solithromycin and all of the patient data gathered in any trials would also contribute to the safety data base for CABP development. The FDA has indicated to us that a single Phase 3 trial for solithromycin in bacterial urethritis could be sufficient for approval.  In 2014, the FDA designated solithromycin as a QIDP for the treatment of uncomplicated gonococcal infections, which would provide us with the same development advantages discussed above for solithromycin as a treatment for CABP.

We also believe that solithromycin, because of its safety and tolerability as a macrolide, as well as its excellent tissue distribution and intracellular activity, may be effective in the treatment of infections in special populations, including pediatric and pregnant patients.

Key Attributes of Solithromycin

We believe the following key attributes of solithromycin will make it a safe and effective treatment for CABP and bacterial urethritis/gonorrhea as well as other infectious diseases and in many patient populations, including pediatrics and pregnancy.

Solithromycin has demonstrated a favorable safety and tolerability profile . Solithromycin has been tested in over 1,300 subjects in our Phase 1, Phase 2 and Phase 3 (for oral solithromycin) clinical trials and has been shown to be safe and well tolerated to date. There were no clinically significant laboratory abnormalities in the Phase 1 trials. In the Phase 2 trial, there were fewer adverse events compared to levofloxacin, none of which required the patient to prematurely discontinue treatment with solithromycin, and no serious adverse events determined by the investigator to be related to solithromycin. In the Phase 3 trial for oral solithromycin, se rious adverse effects, or SAEs, occurred with equal frequency in both the solithromycin and moxifloxacin arms (< 7% of patients) and no SAEs were considered study drug related. In this trial, the overall safety and tolerability profile of solithromycin was comparable to that of moxifloxacin, although more patients receiving moxifloxacin had Grade 4 ALT elevation (>8xULN) (1.2% of patients, versus 0.5% among solithromycin recipients), and more patients receiving moxifloxacin had documented C. difficile associated diarrhea/colitis (n=2, versus 0 with solithromycin). Safety and tolerability also were demonstrated in our Phase 2 trial for bacterial urethritis as well as in our study in patients with mild to severe chronic liver disease. We have completed Phase 1a studies in adolescent children as part of the pediatric development program funded by BARDA.  In this study solithromycin demonstrated the same safety and pharmacokinetics as demonstrated in our adult programs. We believe that solithromycin’s safety and tolerability profile will allow it to be used in many patient populations, including pediatrics and pregnancy.

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Solithromycin has demonstrated comparable efficacy to the current standard of care for CABP and non-inferiority compared to another widely used treatment for CABP . In our Phase 2 trial in 132 CABP patients comparing the oral formulation of solithromycin to levofloxacin, solithromycin successfully demonstrated efficacy comparable to levofloxacin. In addition, solithromycin was highly effective in our Phase 2 trial of bacterial urethritis. In our Phase 3 CABP trial which enrolled 860 CABP patients,solithromycin met the primary objective of statistical non-inferiority compared to moxifloxacin.

Solithromycin is potent against a broad range of bacteria and has excellent tissue distribution and intracellular activity . In pre-clinical studies, solithromycin was shown to be generally eight to 16 times more potent against respiratory tract bacteria in vitro than azithromycin as well as retains activity against azithromycin resistant strains. These pre-clinical studies also showed that solithromycin is potent against many bacteria that are resistant to levofloxacin and other fluoroquinolones. In addition to respiratory tract infections, solithromycin is active against bacteria causing other types of infections such as urethritis, malaria, and tuberculosis. Solithromycin has demonstrated activity against bacterial strains that are not susceptible to older generations of macrolides. In pre-clinical studies, solithromycin has demonstrated a longer post-antibiotic effect, meaning that after exposure to solithromycin, bacteria take longer to regrow than after exposure to other macrolides, supporting the potential for once-daily dosing. Solithromycin has also demonstrated excellent organ and tissue distribution and intracellular activity, addressing not only bacteria located in the blood but also in organs and cells in which they multiply. Bacteria therefore cannot escape from the action of the drug. As a result of its potency, spectrum of activity and pharmacokinetic and pharmacodynamic properties, we believe that solithromycin could eventually be used as a monotherapy for the treatment of CABP.

Solithromycin has a greater ability to fight resistant bacteria and to overcome resistance development due to its chemical structure . Solithromycin has a unique structure that binds to bacterial ribosomes in three sites while earlier generation macrolides have only one or two binding sites. Therefore, bacteria must mutate at three sites on the ribosome to become resistant to solithromycin. To date, we have seen no resistance to solithromycin in our clinical trials, and resistance was rare in our pre-clinical studies.

Solithromycin has the potential for IV, oral and suspension formulations . We are developing oral (including suspension) and IV formulations to allow patients with severe CABP to be treated in both hospital and out-patient settings. Providing both the IV and oral formulations will enable IV-to-oral step-down therapy. We believe this would be more convenient and cost-effective for patients and provide pharmacoeconomic advantages to health care systems. The suspension formulation would be used to treat bacterial infections in the pediatric population as well as elderly patients who may be unable to swallow a capsule.

Solithromycin has improved anti-inflammatory qualities . In CABP and other bacterial infections, the body’s immune response to the bacteria results in inflammation and tissue damage, which worsens symptoms. In addition to their antibacterial effects, macrolides also have anti-inflammatory properties which help patients feel better earlier. Our pre-clinical data suggest that solithromycin could have significantly greater anti-inflammatory properties than azithromycin and clarithromycin, which are used to treat patients with cystic fibrosis, or CF, and COPD, primarily for their anti-inflammatory properties.  In 2015, we expect to initiate a Phase 2 study in COPD patients to determine the anti-inflammatory effects of solithromycin in this patient group.

Clinical Data

Phase 3 Oral CABP Trial. We successfully completed our global, pivotal Phase 3 clinical trial of solithromycin oral capsules in the treatment of patients with CABP. This Phase 3 trial was a double-blind, active-controlled global, multi-center trial that enrolled 860 adult patients with moderate to moderately severe CABP (pneumonia of PORT Class II, III and IVa severity classification).  This would be pneumonia severity scores of 51-105. Enrollment of PORT Class II pneumonia patients was limited to 50% of the study population. Patients were randomized to receive either oral solithromycin, as an 800 mg loading dose followed by 400 mg once daily for a total of five days, while oral moxifloxacin was dosed at 400 mg once daily for seven days. The primary objective was demonstration of non-inferiority of early clinical response at 72 (-12/+36) hours, as specified by FDA guidance, defined as having improvement in at least two of the following four symptoms (without worsening of any); cough, shortness of breath, chest pain and sputum production in the ITT population. The study was designed to provide 90% power to demonstrate non-inferiority in early clinical response rate for solithromycin versus moxifloxacin utilizing a 10% non-inferiority margin. Secondary endpoints included the clinical success rate at the short term follow up visit 5 to 10 days following the last dose of study drug in the ITT and clinically evaluable populations, and importantly, a comparison of safety and tolerability of solithromycin compared to moxifloxacin.  

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In the ITT population (which was all randomized patients), solithromycin met the primary objective of statistical non-inferiority (10% non-inferiority margin) of the early clinical response at 72 (-12/+36) hours after initiation of therapy compared to moxifloxacin. Solithromycin also met the secondary objectives of non-inferiority in clinical success at the short term follow up, or SFU, visit, 5-10 days after the end of therapy, both in the ITT and clinically evaluable populations. The point estimates for the primary endpoint of early clinical response were 78.2% for solithromycin and 77.9% for moxifloxacin. The 95% confidence interval for the treatment difference had lower and upper bounds of -5.5% and 6.1%, respectively. The results were similar in the combined total patient population, however, initial sub-groups analysis by age, indicate that the difference in point estimates became larger with increasing age and favored solithromycin in the ITT early clinical response groups. The results for the secondary efficacy endpoints supported results from the primary endpoint.

SAEs occurred with equal frequency in both arms (< 7% of patients) and no SAEs were considered study drug related. The most frequently reported adverse events for solithromycin were headache (4.5%, versus 2.5% incidence with moxifloxacin), diarrhea (4.2%, versus 6.5% with moxifloxacin), nausea (3.5%, versus 3.9% with moxifloxacin), emesis (2.4% versus 2.3% with moxifloxacin) and dizziness (2.1% versus 1.6% with moxifloxacin) No other treatment emergent adverse events occurred, in either arm, with 2.0% incidence or greater. C. difficile associated diarrhea was diagnosed in two patients, both of whom received moxifloxacin. Asymptomatic, reversible ALT elevation was observed in both treatment arms. Grade 3 ALT elevation (>3-8xULN) occurred in 2.1% moxifloxacin patients and 4.6% of solithromycin patients and Grade 4 ALT elevation (> 8xULN) occurred in 1.2% of moxifloxacin patients and 0.5% of solithromycin patients. No patient in either arm of the study had treatment emergent concomitant ALT and bilirubin elevation meeting Hy’s Law criteria.

Phase 2 Oral CABP Trial. We successfully completed a Phase 2 trial of the oral formulation of solithromycin in the third quarter of 2011. The trial was a randomized, double-blinded, multi-center study to evaluate the efficacy and safety of oral solithromycin compared to oral levofloxacin in 132 patients with CABP. Levofloxacin, which is a respiratory fluoroquinolone, is the current standard of care and widely prescribed for the treatment of CABP. Patients were randomized to receive solithromycin or levofloxacin for five days. Solithromycin patients received once-daily dosing of 800 mg on Day 1 and 400 mg on Days 2 through 5. Patients randomized to levofloxacin treatment received the standard dosing regimen of 750 mg per day for five days. The trial compared clinical success rates and safety and tolerability parameters for solithromycin and levofloxacin. The primary outcome measure was continued improvement or complete resolution of baseline signs and symptoms in the intent to treat, or ITT, and the clinically evaluable, or CE, populations at the Test of Cure, or TOC, visit, which was completed five to 10 days after the last dose of the drug.

Outcomes were assessed for several populations within the study. The ITT population consisted of all randomized patients, among whom 85.6% were in the CE group. To be clinically evaluable, key inclusion and exclusion criteria had to be validated, confounding antibiotics for other infections could not have been administered, and key visits and assessments had to have been performed. Patients for whom a microbial pathogen, or the bacteria responsible for the pneumonia, had been identified comprised the microbial-ITT, or mITT, population. Those mITT patients who were also in the CE study group constituted the microbial-evaluable or ME group. Since pneumonia can also be caused by viruses which antibiotics cannot treat, the FDA has placed emphasis on proof of clinical success in the mITT and ME groups.

Solithromycin demonstrated comparable efficacy to levofloxacin. The clinical response rate in the ITT population was 84.6% for solithromycin and 86.6% for levofloxacin. Similarly, clinical response rates for solithromycin and levofloxacin in the mITT and ME populations were well balanced (77.8% vs. 71.4% and 80.0% vs. 76.9%, respectively). The clinical response rates at TOC for the ITT, CE, mITT and ME populations are presented in Table 1.

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Table 1. Solithromycin Oral Phase 2 Results: Clinical Response at Test of Cure (Days 5 to 10 after Last Dose).

In the CE population, the numerical success rate was higher in the levofloxacin arm (93.1%), with broadly overlapping confidence intervals. This in large part is due to exclusion of a larger number of failure patients from the levofloxacin arm and exclusion of treatment successes from the solithromycin arm on the basis of pre-established study criteria including validation of key inclusion and exclusion criteria and the completion of key visits and assessments.

Under the proposed FDA guidance for the conduct of CABP clinical trials, drug developers will be required to assess early responses to therapy as a primary endpoint. Therefore, we assessed markers of clinical success at the Day 3 visit. A clinical response was achieved if a patient was clinically stable and had experienced an improvement in severity without worsening in any of these signs or symptoms. The early clinical response rate in the ITT population was 72.3% for solithromycin patients, and 71.6% for levofloxacin patients.

Safety was an important focus of this Phase 2 trial. In the trial, patients receiving levofloxacin reported more adverse events and severe adverse events than solithromycin patients. There were 19 patients (29.7%) in the solithromycin group with treatment emergent adverse events, or TEAE, compared with 31 patients (45.6%) in the levofloxacin group. There were no patients in the solithromycin group that discontinued the study due to a TEAE as compared to six patients (8.8%) in the levofloxacin group. The overall incidence of TEAE was greater in the levofloxacin arm, at all degrees of severity. Notably, gastrointestinal disorders, including abdominal discomfort, nausea, and vomiting, all occurred with greater frequency among levofloxacin recipients. The results are summarized in Table 2 below.

Table 2. Solithromycin Oral Phase 2 Results: Treatment-emergent Adverse Events with 2% Incidence in Any Treatment Group.

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In addition to TEAEs, the trial also recorded serious adverse events, which are adverse events of particular severity that, among other defining criteria, might result in hospitalization or threaten overall health or survival. There were nine patients who experienced one or more serious adverse events during the study, two solithromycin recipients and seven levofloxacin recipients. The study site trial investigator determined that both of the serious adverse events reported in solithromycin recipients were unrelated to solithromycin, while one of the seven reported in levofloxacin recipients was unrelated to levofloxacin.

Patients treated with solithromycin had no drug-related clinically significant liver toxicities and reported no visual adverse events.

Phase 1 IV Trial . The objective of our Phase 1 IV trial for solithromycin was to demonstrate safety and tolerability as well as to select the therapeutic dose after IV administration for our planned second Phase 3, IV to oral trial. We tested escalating IV doses of 25 mg, 50 mg, 100 mg, 200 mg, 400 mg, 800 mg and 1000 mg administered as single doses or 200, 400, 600 and 800 mg doses administered once daily for seven days. Patients were randomized into solithromycin and placebo arms. In the trial, the most common adverse events, or AEs, were general disorders and administration site conditions related to infusion discomfort or pain. Our Phase 1 trial also tested infusion solutions designed to minimize injection site pain. No AEs were reported in any of the studies that resulted from clinically significant changes in vital signs or ECG data. In healthy subjects who received repeat-dose IV solithromycin (200, 400, or 800 mg QD for up to seven days) in the Phase 1 study 20% had asymptomatic and reversible ALT elevations. One subject, who received three daily doses of 800 mg, had a reversible and asymptomatic Grade 4 ALT elevation without bilirubin elevation. These ALT elevations were reversible and not associated with symptoms, bilirubin elevation or cholestasis. No loss-of-consciousness or myasthenia exacerbations were observed. Among patients receiving repeated doses of 400 mg daily for up to seven days, no clinically significant systemic adverse events were observed, except injection site pain in some subjects. In addition, the desired PK profile was achieved, with clinically relevant mean peak solithromycin concentrations of 4 micrograms/mL. Modeling of the PK data suggest that initial intravenous dosing with 400 mg once-daily, with a switch to oral administration when clinically appropriate to the same dose as in the oral program, i.e. 800 mg loading dose and 400 mg maintenance dose, will achieve concentrations of the drug that warrant its evaluation in the treatment of moderate to severe community acquired bacterial pneumonia caused by pathogens including azithromycin-resistant pneumococcus , Legionella, Mycoplasma, Moraxella, Hemophilus influenzae, and Staphylococcus aureus , including methicillin susceptible and community-acquired methicillin-resistant Staphylococcus aureus , all of which are infections that could require elevated concentrations of antibiotics. Based on this study, we selected a therapeutic dose of 400 mg administered intravenously once daily for up to seven days for our Phase 3 IV-to-oral trial with the option of stepping down to oral treatment of solithromycin when appropriate as decided by the physician based on decreased symptoms.

Phase 1 Oral Trials. In earlier Phase 1 oral trials beginning in 2008 and continuing into 2011, 159 subjects were exposed to solithromycin. The Phase 1 trials were designed to examine the safety of solithromycin and the properties of the drug when absorbed into the bloodstream. There were no clinically relevant changes in patient laboratory values, including liver enzymes. There were very limited gastrointestinal adverse events and no dose-limiting nausea or vomiting, a common side effect of macrolides. Absorption of solithromycin into the bloodstream after oral administration was not affected by food, meaning solithromycin may be taken with or without food.

The results from our first Phase 1 dose escalation study demonstrated that doses of solithromycin from 200 mg to 600 mg had a favorable safety profile and were well tolerated in healthy subjects and that the compound’s pharmacokinetic profile was supportive of once-daily dosing. In this study, solithromycin was administered orally once-daily for seven days at 200 mg, 400 mg and 600 mg. The bioavailability of solithromycin was calculated to be 67% whereas azithromycin’s bioavailability is 38% as reported in its package insert. The concentration of solithromycin was measured in the plasma on Day 1 and Day 7. The compound showed moderate accumulation over the seven days of dosing, indicating that a loading dose regimen followed by a maintenance dose would be suitable, as has been noted with macrolides like azithromycin in the past. These blood levels were subjected to a sophisticated computer model based on efficacy studies in mouse models, which led to identifying a loading dose of 800 mg with a maintenance dose of 400 mg as the therapeutic dose. At these doses solithromycin is expected to be clinically effective against 99.99% of pneumococci with a minimum inhibitory concentration, or MIC, of 2 µg/ml or less, while no pneumococcal strains with an MIC of >1 mcg/ml have been identified in any of the surveillance programs. Mild, clinically insignificant gastrointestinal side effects were the most common adverse events observed in each dose group. Importantly, there were no clinically significant adverse events.

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In CABP, the lung is the target organ where pathogens replicate. Therefore, in the first quarter of 2010, we conducted a Phase 1 pharmacokinetic study of solithromycin in 31 healthy human volunteers to measure the concentration of solithromycin in the epithelial lining fluid, or ELF, and in alveolar macrophages, or AM, compared to the concentration in plasma. After five days of dosing (400 mg per day, without loading), we performed bronchoalveolar lavage (BAL), a medical procedure to collect fluid and cells in the lung. BAL analysis was performed in groups of six at 3, 6, 9, 12 or 24 hours following the last solithromycin dose on Day 5, and solithromycin concentrations were measured in each of the ELF, AM, and plasma. The concentration of solithromycin in ELF was 10 times that of plasma and in AM it was 100 times that of plasma. As shown in Table 3, solithromycin’s drug levels are higher than those achieved by azithromycin and solithromycin reaches the site of infection at concentration levels several fold in excess of the levels necessary to kill the relevant bacteria according to our pre-clinical studies. Higher drug levels also inhibit bacterial regrowth and resistance development during intervals between dosages.

Table 3: Solithromycin Oral Phase 1 Results: Pulmonary Levels of Solithromycin and Azithromycin at Time of BAL.

We also conducted three drug-drug interaction studies in 2010 and 2011 in which solithromycin was co-administered with rifampin, midazolam or ketoconazole to test its effects on these drugs. These studies have been successfully concluded and the data confirm that solithromycin’s interactions with CYP3A4, an enzyme in the liver that metabolizes a number of drugs, are consistent with older macrolides’ interactions with CYP3A4.

Thorough QT (TQT) Study .  Macrolides are known to cause QT prolongation that may be associated with risk of arrhythmia. In 2013, the U.S. drug label for azithromycin, the most commonly prescribed macrolide antibiotic in the U.S., was updated to include a warning of possible QTc prolongation and the risk for sudden death. This label change followed publication of a study that suggested a higher risk of cardiovascular death in persons treated with a 5-day course of azithromycin compared to persons treated with amoxicillin, ciprofloxacin, or no drug. We conducted a TQT study of solithromycin, the top line results of which demonstrated no QT effects at single intravenous (IV) doses of 800 mg infused over 40 minutes (achieving a geometric mean Cmax of 5.7 µg/mL).  In our solithromycin TQT study, 48 subjects were enrolled in a three-way randomized dosing sequence cross-over design to receive 800 mg of IV solithromycin infused over 40 minutes to obtain maximal cardiac exposure (Cmax), 400 mg of oral moxifloxacin, which was used as the positive control along with IV physiologic saline to maintain study blinding, or IV physiologic saline as the negative control. There was a seven-day washout period between dosing intervals. Data were collected continuously for 25 hours, starting one hour before dosing, using 12-lead ECG Holter monitors. Electrocardiograms were analyzed by a core laboratory. The study’s assay sensitivity was confirmed by the observation of QTc prolongation following dosing with moxifloxacin. The study thereby constitutes a solidly negative TQT study as defined by the ICH E14 guidance. Solithromycin at the supratherapeutic exposures achieved in this study had no significant effect on the QT interval.

Hepatic Insufficiency Phase 1 Study . In 2013, we conducted a safety and pharmacokinetic study of oral solithromycin in patients with chronic liver disease. The study demonstrated that no dosage adjustment is needed when administering solithromycin to patients with mild, moderate, or severe hepatic impairment.  Solithromycin was well tolerated in this patient population and no significant differences in safety, compared to healthy controls, were noted.  The most commonly reported adverse effects were mild diarrhea and mild headache.

Phase 2 Trial in Gonorrhea. Emerging resistance to available therapies, including oral and intramuscular cephalosporins and azithromycin, has resulted in an urgent medical need for new therapies for gonorrhea. Solithromycin, a new fourth generation macrolide with three ribosomal binding sites, has greater in vitro potency against gonococci than azithromycin and is active against most azithromycin- and cephalosporin-resistant strains. In our Phase 2 trial in patients with suspected gonococcal infection, microbiological eradication of gonococci was achieved in 100% of all evaluable patients.  In addition to detecting the gonococcus, we also diagnosed Chlamydia trachomatis and Mycoplasma genitalium , an atypical bacteria that can sterility in young girls as well as other ill effects. In most cases when diagnosed, solithromycin was effective against these pathogens also.  Current treatment of bacterial urethritis includes two drugs: ceftriaxone administered intramuscularly and oral azithromycin. Azithromycin at 1000 mg dose that is recommended is not well tolerated. Solithromycin was generally well-tolerated, with mild gastrointestinal AEs, the most common of which was mild diarrhea followed by mild nausea.  Solithromycin could be used as a monotherapy that would cover gonorrhea and chlamydia, rather than the current treatment with two drugs, replacing the need for intramuscular injection of ceftriaxone.

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Pediatric trials. Pediatric clinical trials funded by the BARDA were initiated as a Phase 1a trial by enrolling adolescents with suspected or confirmed bacterial infections who received solithromycin capsules (12 mg/kg on Day 1 [up to 800 mg], 6 mg/kg daily on Days 2-5 [up to 400 mg]). The safety and pharmacokinetics were similar to that noted in adults. A suspension formulation has been developed and Phase 1b testing has been initiated using the suspension, capsules and intravenous formulations in children ages 0-17 years with suspected or confirmed bacterial infections.

Pre-Clinical Data Our pre-clinical studies support four of the key attributes of solithromycin: potency against a broad range of bacteria, potential to have a low incidence of resistance, intracellular activity and anti-inflammatory qualities associated with macrolides.

Potency . We have extensively studied solithromycin’s in vitro activity and potency against a variety of respiratory and non-respiratory bacteria. solithromycin was tested against clinical isolates including pneumococci, Hemophilus , Legionella , Moraxella , Chlamydia , Neisseria , beta-hemolytic streptococci, Mycoplasma , S. aureus (including MRSA), coagulase negative staphylococci, enterococci and many other bacteria. These studies found that solithromycin exhibited two to four times greater potency compared to Ketek, and superior potency compared to other macrolides against most bacteria causing CABP. In another study, solithromycin demonstrated superior activity against several serotypes of Legionella pneumophila compared to other macrolides, particularly erythromycin and azithromycin, which are commonly used to treat Legionellosis. Legionella are atypical bacteria and are not susceptible to penicillins and cephalosporins commonly used to treat CABP, but are susceptible to fluoroquinolones such as levofloxacin. The results of these studies are presented in Table 4 below. Potency against a panel of bacterial strains is measured by MIC ₉₀ , which refers to the concentration needed to inhibit the growth of 90% of a panel of bacterial strains isolated from patients. A lower MIC ₉₀ indicates greater potency against a particular bacterium.

Table 4. Solithromycin Pre-Clinical Data: Solithromycin in vitro Activity Against CABP Bacteria.

NE = Not effective, as the target of these antibiotics do not exist in these pathogens.

NT = Not tested.

Resistance . Solithromycin was tested against pneumococcal strains that have become resistant to older macrolides as a result of mutations called erm(B), mef(A), a combination of erm(B) with mef(A) , and L4 mutations. As shown by the in vitro potency data in Table 5 below, solithromycin was active against all tested pneumococcal strains that are resistant to older macrolides.

Table 5. Solithromycin Pre-Clinical Data: MIC ₅₀ and MIC ₉₀ Values (µg/ml) of Pneumococci with Defined Macrolide-Resistant Mechanism.

The ability to become resistant to solithromycin was analyzed by exposing eight pneumococcal bacterial strains from the above study to solithromycin. Only one strain which was already resistant to the older macrolides and were erm and mef strains developed a high-level resistance to solithromycin and only after 18 passes. This suggests that selection of resistant strains would be infrequent and additional mutations are necessary for resistance to develop to solithromycin.

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We also tested a number of Group A beta-hemolytic streptococci that have become resistant to older macrolides. The data indicate that solithromycin is active against these organisms, which have different mechanisms of resistance, including erm(B), mef(A) and erm(A). The frequency of resistance was low at <10 ^-10 , but importantly there was no cross-resistance with these organisms once they had become resistant to older macrolides. Solithromycin is active against all these resistant strains. While the strains are resistant to older generations of macrolides, no strains resistant to solithromycin could be isolated after 50 transfers in a growth medium containing solithromycin.

We have continued to study global susceptibility and resistance patterns against relevant pathogens in CABP and tested solithromycin against pathogens collected in 2011 from respiratory tract infections. Solithromycin displayed coverage against 100.0% of S. pneumoniae strains (2,418 strains collected from the U.S. and Europe) at £ 1 µg/mL (a level which is achievable in the plasma and tissues). The MIC ₉₀ against S. pneumoniae was 0.12 µg/mL in these studies. Resistance rates in the U.S. to macrolides have been noted to increase from previous results to 44% in 2012. The activity of solithromycin against other respiratory tract associated pathogens, such as H. influenzae and M. catarrhalis, was stable during four consecutive surveillance years (2008-2011). We believe this confirms that solithromycin could be a promising antibiotic for treatment of bacterial pathogens causing respiratory tract and other infections.

Intracellular Activity . Bacteria that cause infections can be inside cells or in tissue. During treatment if the antibiotic does not penetrate into tissues and cells, the bacteria can escape the effect of the antibiotic. Consequently, it is important that antibiotics be distributed from the blood to the tissues and intracellularly. Macrolides have been known to be effective against intracellular bacteria, which is one of their advantages. Solithromycin accumulates to concentrations that are several times higher than azithromycin, as shown below in Figure 1a, and the intracellular drug is potent against intracellular bacteria and is more active than azithromycin in killing intracellular pathogens such as Legionella pneumophila as shown in Figure 1b.

Anti-Inflammatory Properties . We conducted studies comparing solithromycin’s anti-inflammatory properties to older macrolides. Solithromycin was more effective than the older macrolides in decreasing the production of cytokines, which are cell-signaling molecules involved in the process of inflammation. Reduction of cytokine activity would be expected to reduce inflammation and resulting tissue damage. Thus, solithromycin is expected to be effective in eradicating the infecting bacteria and reducing the inflammation resulting from the infection, which should result in a faster recovery. Older generation macrolides have also been used in the treatment of diseases like late-stage COPD and CF because of their anti-inflammatory properties. Our pre-clinical data suggest solithromycin could also be used in the treatment of these diseases.

In addition, investigators at the University of North Carolina, Chapel Hill, through funding from the National Institute of Allergy and Infectious Diseases, or NIAID are for studying solithromycin’s mucin inhibitory properties and ability to restore lung physiology in cystic fibrosis model systems.  

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Ongoing and Planned Clinical Trials

Solithromycin as a Treatment for CABP . We have undertaken our pivotal clinical trial program, which consists of two Phase 3 trials, including one trial with oral solithromycin and one trial with IV solithromycin progressing to oral solithromycin, for the approval of both IV and oral products under separate NDAs.  The FDA’s Anti-Infective Drugs Advisory Committee (AIDAC) convened in November 2011 to review anticipated changes in guidance to the industry for conducting clinical trials for CABP. The proposed guidance follows several FDA advisory meetings as well as recommendations of an independent advisory body called the FNIH that involved industry and academic infectious disease physicians. According to the proposed guidelines, the primary endpoint for Phase 3 CABP trials would be clinical success at an early timepoint (day 3-5 post study drug initiation). Clinical success is defined as improvement in at least two of the following symptoms: cough, shortness of breath, chest pain, and sputum production, without worsening in any other symptom. The proposed guidelines also clarify the patient population required for these trials by specifying the percent of patients to be enrolled based on the severity of their disease. We designed our Phase 3 trials in accordance with these guidelines and met with the FDA to finalize the design. Subsequently, in January 2014, the FDA issued new draft guidelines which may decrease the number of PORT II patients as well as the overall margin which would allow a smaller study size and data base.  However, we have continued our Phase 3 trials as previously agreed upon with the FDA.  The EMA has not changed its guidelines.  The Phase 3 trial for oral solithromycin was initiated in the fourth quarter of 2012 and the Phase 3 trial for IV-to-oral solithromycin was begun in December 2013. The Phase 3 trials are randomized, double-blinded studies conducted against a comparator drug agreed upon with the FDA, for which we will have to show non-inferiority from an efficacy perspective and acceptable safety and tolerability. We completed enrollment of the Phase 3 oral trial in the fourth quarter of 2014 and reported top line data for the Phase 3 oral trial in January 2015, as reported above.

In October 2012, we reported results from our Phase 1 trial for the IV formulation of solithromycin in which we demonstrated that IV solithromycin was well tolerated, showed a favorable pharmacokinetic (PK) profile and achieved relevant plasma concentrations. Based on this study, we selected a therapeutic dose of 400 mg administered once daily for up to seven days for the Phase 3 IV-to-oral trial which we initiated in December 2013.

We are working on pediatric studies for solithromycin in a range of indications for CABP through our agreement with BARDA. BARDA is funding the development of solithromycin in oral, IV and suspension formulations for pediatric use in CABP.  This is the first antibiotic being developed as a suspension for all pediatric age groups in over 20 years.  The pediatric plan was submitted and accepted by the FDA and a similar plan has been submitted to the EMA.  There is an urgent need for a new antibiotic for use in pediatric infections. Together with Toyama, we made a suspension formulation that has been taste tested and demonstrated to be bioavailable in a bioavailability study in adults. We also have completed a Phase 1 study in adolescent children in the U.S.  In that study, conducted in pediatric patients age 12 to 17 years, solithromycin oral capsules were well tolerated and demonstrated a pharmacokinetic profile similar to that seen in adults.  The Phase 1b study will enroll 64-96 pediatric patients aged newborn to 17 years with suspected or confirmed bacterial infections. Patients will receive oral capsules, oral suspension or intravenous solithromycin dosed by weight once per day as add on therapy for up to 5 days. The study is open label and the primary endpoint will be to determine pharmacokinetics in the pediatric population. Safety data will also be collected. On-going with this program, as part of this funding is the optimization of the commercial pediatric suspension product and we are expected to begin the start-up activities for a global Phase 2/3 study.

Solithromycin as a Treatment for Bacterial Urethritis . We have demonstrated that solithromycin has in vitro activity against a broad spectrum of pathogens that cause bacterial urethritis, including N. gonorrhoeae, Chlamydia trachomatis, Mycoplasma genitalium, Ureaplasma urealyticum etc. In our Phase 2 trial, we demonstrated that solithromycin is effective in treating gonococcal urethritis/cervicitis, and pharyngeal and rectal gonococcal infections. In 2013, the CDC identified N. gonorrhoeae as an urgent public health threat that requires urgent and aggressive action.   The CDC no longer recommends oral cefixime to be used in the treatment of gonorrhea and the recommended treatment is intramuscular injection of ceftriaxone, plus either azithromycin or doxycycline. Resistance to ceftriaxone has been reported. There is no oral antibiotic currently recommended for treating gonorrhea as well as for treatment of sexual partners of infected patients. This need has become a public health crisis and the WHO and U.S. government are looking for alternative treatments. We have initiated a Phase 3 trial testing a single dose of oral solithromycin in patients with gonorrhea in two study centers provided by the Australian Health Agency and two study centers in the United States.  We are also working with the NIAID to determine if they can add additional centers to the trial in the U.S.  The FDA has asked that both gonococcus and chlamydia be monitored in our Phase 3 trial and has indicated that a single Phase 3 trial in bacterial urethritis could be sufficient for approval.  

Potential Biodefense Application for Solithromycin. Solithromycin is active against bioterror threat pathogens such as B. anthracis, Yersinia pestis and Francisella tularensis . BARDA funded studies to test the efficacy of solithromycin in treating bioterror pathogens such as tularemia and anthrax. These tests have been completed in non-human primates and have shown that solithromycin is effective in treating anthrax and tularemia when the infection was initiated by the pulmonary route.

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Taksta (Fusidic Acid)

Overview

Taksta, our fusidic acid product candidate, is an antibiotic that we are developing in the U.S. for the oral chronic treatment of refractory bone and joint infections, including PJI, which are frequently caused by staphylococci, including coagulase-negative and coagulase-positive staphlycocci and MRSA. Fusidic acid is the only member of a unique class of antibiotics, called fusidanes, and has a mechanism of action that differs from any other antibiotic. Fusidic acid has been approved and sold for several decades in Europe and other countries outside the U.S. and has a long-established safety and efficacy profile, but has never been approved in the U.S. We have conducted in vitro tests of Taksta’s activity against thousands of strains of S. aureus found in the U.S. and our data show that virtually all of those strains tested (99.6%) are susceptible to Taksta. In addition, we believe Taksta has the potential to be used in hospital and community settings on both a short-term and chronic basis. Our completed Phase 2 clinical study has shown Taksta to be comparably effective to linezolid, a treatment for the common skin infection S. aureus and the only oral antibiotic approved by the FDA to treat MRSA. Based on our discussions with the FDA for the trial design of our planned Phase 3 trial in refractory bone and joint infections, we also plan to conduct a Phase 3 trial for the treatment of ABSSSI to determine Taksta’s safety and efficacy, which trial would support the NDA for the treatment of refractory bone and joint infections. As a result, we also may seek approval of Taksta for the treatment of ABSSSI.

Taksta Market Opportunity

According to the IDSA, MRSA infections account for approximately 60% of skin infections seen in U.S. emergency rooms. The most common treatments for prosthetic joint infection with MRSA currently are vancomycin (available as a generic) and sometimes daptomycin (sold under the brand name Cubicin ^® ), both of which are available only as IV formulations for systemic infections. Linezolid, which is also prescribed for prosthetic joint infections, is available in both IV and oral formulations and is the only oral antibiotic approved by the FDA for MRSA. Linezolid, however, has significant side effects, which include irreversible peripheral neuritis, or the inflammation of nerves and thrombocytopenia, or a relative decrease of platelets in blood. It is recommended that linezolid not be taken for more than 14 days without additional monitoring because of the increased possibility of these side effects. In addition, on July 26, 2011, the FDA published a drug safety communication letter regarding the use of linezolid in patients on serotonergic drugs such as SSRIs (including Prozac, Paxil and Zoloft), which are taken for depression, bipolar disease, schizophrenia and other psychiatric disorders. Given the widespread use of SSRIs and some of the other side effects associated with linezolid, we do not believe that linezolid is an option for many patients. We believe there is an opportunity to develop an oral drug that is effective against MRSA and has a safety profile that supports out-patient use, use for chronic indications and use in children.

In 2006, nearly 800,000 total knee or hip arthroplasty procedures were performed in the U.S., with an overall infection rate of approximately 1.0%. It has been predicted that the demand for knee revision surgery will double by 2015, and increase by 673% by the year 2030 as the population ages. With steadily increasing numbers of patients in the U.S. undergoing prosthetic joint surgery, we expect there will be a corresponding increase in the overall incidence of prosthetic joint infections. Prosthetic joint infections usually occur when bacteria enter the area of the prosthesis during implantation. However, they may also occur through other surgical, medical or dental procedures or by accident when the skin or mucous membrane is broken, enabling surface-level bacteria to travel to the prosthesis. S. aureus species, including MRSA, are the most commonly identified bacterial pathogens involved in prosthetic joint infections.

The methods for the treatment for PJI are variable depending on the severity of the infection and the patient’s condition. The infected prosthesis could be saved or could be replaced. The antibiotics used to treat these infections depend on the pathogens involved. Staphylococci are the most frequently identified pathogen in PJI. IDSA has recently issued guidelines for the treatment of PJI (Osmon, et al., 2013). In almost all cases intravenous vancomycin is administered for two to eight weeks, in combination with oral antibiotics such as rifampin, ciprofloxacin, levofloxacin, cefazolin, clindamycin or trimethoprim/sufamethoxazole (Bactrim).  The choice of the oral antibiotic is dependent on whether the staphylococcus is MRSA. Rifampin is commonly used with other antibiotics, such as intravenous vancomycin, as its use has been noted to have better outcome. Two-stage revision replacement of an infected prosthesis is most commonly practiced in the U.S. It has been noted that greater than 85% success could be achieved by two-stage revision versus 45% success rate if the prosthesis is retained. These results are in the U.S. where fusidic acid is not available for use. In the two-stage method of treatment, the infected prosthesis is removed, an antibiotic impregnated spacer is installed and the patient is then treated with IV vancomycin for four to six weeks. After that time, the antibiotic is stopped and after six weeks, the joint is cultured to determine if the infection is cleared and a new prosthesis is introduced. Thus, in the U.S., patients undergo at least two surgeries, several weeks of intravenous therapy, as well as oral antibiotics. In Europe and Australia, two-stage revision is less common and the strategy is to debride and treat with intravenous vancomycin and oral rifampin for one to four weeks followed by oral rifampin plus fusidic acid for three months to one to two years. Other oral antibiotics have been used with less success. In the U.S., the debride and retention method is less often used in PJI patients, but when used in these patients, chronic suppression is used for years with a combination of intravenous and oral antibiotics and the treatment is often a failure. According to Data Monitor, physicians indicate that safety is a significant factor for them in choosing antibiotic therapy for osteomyelitis and prosthetic joint infections because the population of patients receiving prosthetic joints tends to be older and the treatment duration is longer. As a result, we believe there is

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a significant opportunity for a treatment for prosthetic joint infection that is effective against staphylococci, including MRSA, and can be used safely on a long-term basis. Outside of the U.S., fusidic acid has been used successfully in combination with rifampin to achieve high cure rates in selected patients with prosthetic joint infections, without requiring replacement of the prosthesis. In a recent review of clinical experience at an Australian teaching hospital, as well as in the Swiss teaching hospital, treatment of staphylococcal prosthetic joint infection with debridement, prosthesis retention, and oral fusidic acid and rifampin therapy achieved an approximately 88% treatment success rate at one year.  Fusidic acid has also been used in other bone and join infections for long-term chronic suppressive therapy, generally in combination with rifampin.  Based on our Phase 2 trial comparing fusidic acid in combination with rifampin to vancomycin, we determined that rifampin reduced fusidic acid levels in the blood.  Consequently, we concluded that fusidic acid should be optimally dosed in monotherapy, even in bone and joint infections.  

Key Attributes of Taksta

We believe Taksta can be an effective treatment for refractory bone and joint infections because of the following key attributes.

Taksta has an established safety profile outside the U.S. Fusidic acid has been approved and used in certain countries in Europe and in Australia for many years, in some countries as many as 40 years, both for short-term use in complicated skin infections as well as for long-term use in other types of infections requiring long-term therapy, such as bone and joint infections including osteomyelitis and prosthetic joint infections. Further, fusidic acid has been used in pediatric populations outside the U.S. and has been safe and well tolerated. As fusidic acid has been in clinical use outside the U.S. for several decades, a substantial body of safety data is in the public domain. Safety data from over 100 published clinical study results involving the oral administration of fusidic acid to over an aggregate of 4,000 patients demonstrated a safety profile consistent with non-U.S. approved product labeling. These data indicate significant worldwide use of fusidic acid, capture clinical experience in the public domain and characterize the safety profile of fusidic acid. The safety data from our Phase 1 and Phase 2 clinical trials are consistent with available historical data and establish that Taksta has a favorable safety and tolerability profile.

Taksta has demonstrated comparable efficacy to the only FDA-approved oral treatment for MRSA. In a Phase 2 trial in 155 ABSSSI patients comparing Taksta to linezolid, Taksta successfully demonstrated efficacy comparable to linezolid and confirmed its effectiveness against S. aureus and MRSA. Furthermore, in vitro data have demonstrated that Taksta has potent activity against more than 7,300 strains of S. aureus , including MRSA strains that are community-acquired MRSA, or CA-MRSA, hospital-acquired MRSA, or HA-MRSA, and other known types of MRSA . We have also conducted tests of Taksta’s activity against strains of S. aureus that are found in the U.S. and our data show that virtually all of those strains (99.6%) are susceptible to Taksta. As a result of Taksta’s broad range of activity against S. aureus , physicians could use Taksta to treat a patient with an infected wound or cellulitis without identifying the particular type of S. aureus causing the infection. Since fusidic acid has a unique structure and target, there is no known cross-resistance with other antibiotics.

Taksta is an oral therapy for all types of S. aureus, including MRSA. The leading treatments for bone and joint and prosthetic joint infections and ABSSSI caused by MRSA are available only in IV formulations. Linezolid is the only drug currently approved for use against MRSA with an oral formulation. However, its use is associated with serious side effects and cannot be used in certain patient populations without additional monitoring. We believe our Phase 2 trial in PJI and other clinical studies and historical data on fusidic acid demonstrate that Taksta has the potential to be a safe and effective oral treatment for refractory bone and joint infections and ABSSSI caused by MRSA. We believe Taksta would enable physicians to treat patients not otherwise needing hospitalization on an outpatient basis, thereby reducing hospitalization costs and avoiding the unnecessary introduction of resistant bacteria into the hospital setting.

Taksta has a lower incidence of resistance due to our proprietary loading dose regimen. Our in vitro studies have shown that the reason for resistance to fusidic acid that was reported to occur during oral treatment outside the U.S. is that it was not dosed optimally. In addition, published studies of resistance during oral treatment with fusidic acid outside the U.S. conclude that the frequency of resistance is related to the lack of initial potency, which has been addressed in the past by combination therapy. Our innovative loading dose regimen, for which we received a U.S. patent in May 2013, minimizes the development of resistance by increasing the amount of drug initially delivered to the bacteria.

Taksta can be used in patient populations not well served by current treatments. We believe Taksta could also be used for patients that are anemic, as well as patients on serotonergic drugs such as SSRIs who could be treated with an oral antibiotic, but for whom linezolid may not be a viable or convenient treatment option due to side effects and/or increased monitoring requirements. In addition, none of the antibiotics currently on the market can be used for prolonged periods of time to treat chronic staphylococcal infections due to safety concerns. We believe Taksta could fulfill the need for a safe, long-term oral therapy to treat chronic infections such as refractory bone and joint infections and osteomyelitis. Furthermore, there are few treatment options for children infected with S. aureus , especially MRSA, because in children, IV antibiotics have unpredictable blood levels and are inconvenient to dose. Fusidic acid is available in an oral formulation and has been used in pediatric populations outside the U.S. We intend to develop a pediatric formulation of Taksta to address the need for a safe and effective oral treatment of staphylococci and streptococci in children.

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Clinical Data

Fusidic acid has been used outside the U.S. for approximately four decades. However, fusidic acid has never been approved in the U.S. As a result, we must demonstrate that Taksta is active against current strains of staph, including MRSA, that are responsible for infections in the U.S., as well as to show that it is well tolerated at the dosing regimen that we are developing.

Phase 2 Clinical Trial in PJI .  We initiated, in December 2012, a Phase 2 clinical trial of Taksta for the treatment of prosthetic joint infections. In October 2013, the FDA granted orphan drug designation to Taksta for the treatment of PJI. There is no published FDA guidance for clinical trials for PJI. Further, we need to determine the impact of the orphan drug designation on our clinical development plan and the planned Phase 3 clinical trial to support an NDA.  The Phase 2 trial was an open-label, randomized controlled trial that compared intravenous standard-of-care antibiotic therapy with an oral regimen comprised of fusidic acid plus rifampin for treatment of hip or knee PJI attributed to staphylococci that was managed with two-stage exchange or debride and retain surgical treatment strategies. At the time of initial debridement or explant surgery, empiric IV-standard of care therapy was initiated. Oral antibiotic therapy was initiated post-operatively during a four day window while intravenous antibiotics were continued. Fusidic acid was administered twice daily, with an initial loading dose of 3000 mg (1500 mg BID) followed by a total daily dose (TDD) of 1800 mg (900 mg BID) thereafter, with allowed reduction to 1500 or 1200 mg TDD in case of intolerability. On the second day of oral antibiotic dosing, rifampin was added, at a dose of 450 mg BID, with allowed reduction to 300 mg BID for renal insufficiency or intolerability. If oral therapy with fusidic acid/rifampin was well tolerated and the pathogen was fusidic acid and rifampin sensitive, randomization to continued therapy with IV standard of care versus fusidic acid/rifampin was permitted. At the time of hospital discharge (Day 5-7), Day14 and Day 28 of oral antibiotic therapy, multiple blood samples were obtained from 6 of the study subjects randomized to fusidic acid/rifampin combination therapy to determine fusidic acid and rifampin plasma concentrations, using validated analytical methods. Overall, the efficacy of the fusidic acid/rifampin arm was generally comparable to that of intravenous standard of care antibiotics in the group of 14 randomized patients. Based on prior Phase 1 PK trials with fusidic acid dosing alone, fusidic acid trough concentrations of 100-200 µg/mL were expected at steady state. In our Phase 2 trial, fusidic acid levels were substantially lower, and showed progressive decline from Day 5-7 to 14-28. In one patient for whom rifampin dosing was discontinued following collection of PK blood samples on Day14, a substantial rebound of fusidic acid levels was observed. This observation and a cross-study comparison of fusidic acid exposures (with and without concomitant rifampin) suggest that rifampin reduces fusidic acid exposures by approximately 50-80%.  This circumstance can be equivalent to rifampin monotherapy, and may be associated with rapid emergence of staphylococcal rifampin resistance, as has been previously observed in clinical trials of fusidic acid/rifampin for PJI. In light of these data, weconcluded the study and proposed a Phase 3 trial in bone and joint infections in which fusidic acid (alone) would be used in the loading dose and maintenance dose regimen that we used in the ABSSSI Phase 2 trial.  A Phase 3 superiority trial in refractory bone and joint infections was proposed to the FDA in December 2014. The FDA has provided a positive response to the protocol synopsis provided we conduct a Phase 3 ABSSSI trial in order to have sufficient safety and efficacy data at the NDA submission.

Phase 2 Clinical Trial in ABSSSI. We have successfully completed a Phase 2 clinical trial in ABSSSI, comparing Taksta to linezolid, which is the only oral antibiotic approved by the FDA for treating MRSA infections. The trial demonstrated that our Taksta loading dose regimen has a favorable safety and tolerability profile with efficacy comparable to linezolid. In this study, patients were stratified by the type of infection, such as wounds and cellulitis, and, through the first 127 patients, were randomized in a 1:1:1 ratio to receive a Taksta non-loading regimen (Taksta 600 mg twice per day which is similar to the dose practically used in the E.U.), a Taksta loading dose regimen (Taksta 1500 mg twice per day on Day 1, followed by 600 mg twice per day), or linezolid (600 mg twice per day, which is the standard approved dose), each administered for 10-14 days. After interim analysis of the initial 127 patients demonstrated comparable safety and tolerability of the two Taksta regimens, the Taksta non-loading dose regimen was dropped in favor of the Taksta loading dose regimen, which was shown to have a lower resistance profile in in vitro models, and the remaining patients were randomized in a 1:1 ratio to receive the Taksta loading dose regimen or the linezolid regimen. A total of 155 patients received either the Taksta loading dose regimen or linezolid. The loading dose followed by maintenance dose strategy was designed to ensure a higher concentration of Taksta in the bloodstream at the beginning of the treatment period to rapidly reduce the bacterial population load in an infection, thus limiting resistance development, and to then allow a reduced dose to maintain steady state levels of Taksta in the bloodstream, which increases tolerability.

The results from the Phase 2 trial demonstrated a clinical cure rate comparable to linezolid as described in Table 6 below. The clinical success rates for the Taksta loading dose regimen were comparable to those for the linezolid regimen in the ITT, mITT, CE and ME populations. Respective clinical success rates at the TOC in Taksta loading dose and linezolid treatment groups in the ITT population were 85.9% and 94.8%; in the mITT population, they were 88.1%, and 93.1%; in the CE population, they were 92.3% and 98.5%; and in the ME population, they were 96.0% and 98.0%. Importantly, in patients with documented S. aureus infection at baseline, clinical success rates were 95.8% and 97.9%, and with MRSA 96.8% and 100.0%, in the ME population in the Taksta loading dose and linezolid groups, respectively.

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Table 6. Taksta Phase 2 Results: Clinical Response at the TOC.

In August 2010, the FDA published new guidance regarding assessment of outcomes for ABSSSI clinical trials, with an emphasis on assessment of the early response to therapy in the ITT population. Following this guidance, 87.2% of study subjects randomized to the Taksta loading dose arm achieved an early response (defined as both cessation of spread of lesion and absence of fever on treatment Day 3, in patients not otherwise considered a treatment failure) compared to 90.9% of the linezolid subjects, as shown in Table 7 below.

Table 7. Taksta Phase 2 Results: Early Clinical Response (Day 3 Visit) in the ITT Population.

The results of the trial demonstrated Taksta has a favorable safety and tolerability profile with data comparable to linezolid as shown in Table 8 below. Since the study was blinded, we were required to exclude any patient taking SSRIs, who would have required additional monitoring if administered linezolid. Adverse events were reported in 61.5% of patients in the Taksta loading dose group and in 63.6% of patients in the linezolid group. There were no clinically relevant differences between treatment groups in the types or frequency of adverse events, including gastrointestinal events. Notably, the frequency and intensity of nausea and/or vomiting were similar in the Taksta loading dose and the linezolid treatment groups. There were more nervous system adverse events reported for linezolid (16.9% vs. 10.3%) than for Taksta, the majority of which were headaches.

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Table 8. Taksta Phase 2 Results: Adverse Events.

Three patients in the Taksta loading dose group had at least one serious adverse event ( Herpes simplex , a serious kidney infection, and head injury and back pain) none of which were considered by the investigator to be related to the study medication. Three patients in the Taksta group discontinued the study medication due to adverse events (nausea and chills; blister and maculopapular rash; and nausea, vomiting and anorexia).

Phase 1 Results . We previously completed Phase 1 single dose, multi-dose and loading dose trials with Taksta between 2007 and 2009. These trials were randomized, double-blinded, placebo-controlled, dose-escalation studies to determine the pharmacokinetics and tolerability of single and multiple doses of Taksta. The effect of food on oral bioavailability was measured and food did not have a significant effect on the oral bioavailability, meaning Taksta can be taken with or without food. There were few adverse events and all were mild in severity. No serious adverse events were seen at the 1650 mg dose. Based on these data, loading dose regimens followed by maintenance dose regimens were considered safe and well tolerated up to a combination of 1650 mg/825 mg of Taksta.

The pharmacokinetics, or PK, of Taksta were investigated in three Phase 1 trials. The first trial of 28 subjects evaluated the relative bioavailability of Taksta 250 mg tablets compared to Fucidin ^® tablets, the marketed product in Europe, which contains the same API as Taksta but is a different sized tablet, manufactured with different components and dosed differently. This trial also compared the PK of a single oral dose of Taksta 500 mg in the fed versus fasted states. The second trial assessed the PK of multiple oral doses of Taksta 500 mg (2 × 250 mg) administered three times a day for 4.5 consecutive days in 24 healthy subjects. The third trial evaluated the PK of single, multiple, and loading dose regimens of Taksta administered to healthy subjects.

In each trial, Taksta was shown to be generally safe and well tolerated. These trials showed that Taksta had a long plasma half-life and therefore the drug accumulates in the blood over time when administered at the same high dose daily, as evidenced by Taksta showing higher PK after the dose in the second and subsequent periods as compared to the first period. The results of the trial led to the design of the loading dose which would provide high drug levels on Day 1 followed by a steady concentration of Taksta of approximately 80 mcg/ml, which is well over 10 times the MIC ₉₀ , or the concentration level needed to inhibit 90% of staphylococci and streptococci, the two organisms most frequently found in skin infections.

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Pre-Clinical Data

We evaluated the in vitro activity of Taksta against prevalent community-acquired, hospital-acquired, and epidemic clones including strains non-susceptible to anti-MRSA agents. We have conducted tests of Taksta’s activity against strains of S. aureus that are found in the U.S. and our data show that virtually all of those strains (99.6%) are susceptible to Taksta. A collection of 56 MRSA strains from the Network on Antimicrobial Resistance in Staphylococcus aureus , or NARSA, and Eurofins Medinet repositories were tested for susceptibility to Taksta and comparators by broth microdilution, a method of testing susceptibility using a semi-solid or liquid growth medium to conduct dilutions in small volumes, in accordance with current Clinical and Laboratory Standards Institute, or CLSI, guidelines. Isolates included those with rare resistance phenotypes, linezolid and daptomycin non-susceptible isolates and isolates from prevalent community, hospital, and epidemic clones. Against the selected resistant MRSA, Taksta had an MIC range of 0.06-8 µg/mL with an MIC ₅₀ and MIC ₉₀ of 0.12 µg/mL. With the exception of one vancomycin intermediate Staphylococcus aureus , or VISA, isolate (with an MIC of 1 µg/mL), two daptomycin non-susceptible isolates (with MICs of 4 µg/mL), and one linezolid non-susceptible isolate (with an MIC of 8 µg/mL), Taksta’s MICs were 0.06-0.12 µg/mL against MRSA with rare but emerging resistance phenotypes. Against a subset of 10 community, 10 hospital, and five epidemic clones, Taksta’s MICs were 0.06-0.12 µg/mL. Taksta had potent in vitro activity against MRSA non-susceptible to currently approved antibiotics vancomycin, linezolid, and daptomycin. Taksta was also active against USA100 and USA300 MRSA clones of MRSA most likely to be encountered clinically in the U.S. today. Based on its potency and activity, these results highlight the potential of Taksta for the treatment of MRSA in the U.S.

We have continued to determine in vitro activity of Taksta against recent strains S. aureus including MRSA collected in the U.S. The activity of Taksta against S. aureus was stable over the four surveyed years (2008-2011). Taksta showed excellent activity against S. aureus 3,539 strains collected in the U.S. in 2011, including MRSA strains, with 100% of MRSA from the U.S. susceptible to Taksta. Only eight (0.2%) S. aureus strains displaying elevated Taksta MIC values (>1 µg/mL) were detected in the U.S., which likely carried acquired genes fusB and fusC that confer low level resistance (MIC, 2-8 µg/mL). These genes are usually part of plasmids that can be co-selected by other antimicrobial agents due to the presence of additional resistance genes. These results continue to demonstrate that Taksta could be a valuable alternative for the treatment of staphylococcal infections in the U.S. since the population has not been previously exposed to fusidic acid and resistance is rarely observed among endemic S. aureus . Furthermore, low S. aureus resistance rates of fusidic acid in Europe are encouraging and suggest that after many years of clinical use, fusidic acid is still a reliable option for the treatment of serious staphylococcal infections.

As required by FDA regulations, we conducted pre-clinical animal studies of Taksta to determine its absorption. The studies indicated that Taksta was not very well absorbed and has a short half-life in animals, resulting in minimum exposure levels which limited the ability to test Taksta in animal models. All pre-clinical tests were benign and indicated no safety or tolerability issues. However, because fusidic acid has been used for several decades in humans outside the U.S. and there is sufficient human clinical trial data for Taksta, we believe that this animal absorption data will not adversely impact our development efforts for Taksta at the FDA.

Compassionate Use Data . We have treated one patient with severe chronic osteomyelitis under a single-patient compassionate use (expanded access) protocol with Taksta. This patient had been treated unsuccessfully with many approved antibiotics over a period of two years and was scheduled for a leg amputation. After being treated with Taksta, the patient recovered and the large leg lesion healed; the patient was treated with Taksta for approximately two years.  In Canada, where fusidic acid tablets are available, a single patient with S. aureus infected prosthetic joints in both elbows following severe rheumatoid arthritis had failed on all possible oral medications and was scheduled for amputation of one arm. After treatment with higher doses than recommended in Canada and similar to our loading dose regimen, the arm was saved from amputation and the patient has continued on fusidic acid therapy for over four years to date.  These results, while encouraging, are preliminary, from a small number of patients and of limited value because they were not obtained in a controlled clinical trial. Furthermore, these results may not be predictive of our future trial results, including the results of our planned Phase 3 trial regarding refractory bone and joint infections.  To date, we have enrolled two patients diagnosed with chronic MRSA infections in their hips in an intermediate-size expanded access trial.  Both patients received Taksta chronically for several months.

Published Ex-U.S. studies of Sodium Fusidate in the Treatment of Bone and Joint Infections. Fusidic acid has been used for more than three decades for treatment of bone and joint infections in Europe and Australia. Atkins and Gottlieb [Atkins 1999] reviewed published experience with fusidic acid in the treatment of bone and joint infections, citing its utility in the treatment of acute and chronic osteomyelitis, vertebral infection, septic arthritis, and prosthetic and other device related infections. The authors considered achievement of effective bone and joint fusidic acid concentrations a key factor in its historical efficacy in the treatment of these conditions.

We used several European and Australian studies as the basis for our Phase 2 study design for Taksta for the treatment of prosthetic joint infections. The study was published in 2007 by the European Society of Clinical Microbiology and Infectious Diseases. Between 1998 and 2003, 20 patients in St. Vincent’s Hospital, a teaching hospital in Melbourne, Australia, were treated for staphylococcal prosthetic joint infection with debridement, prosthesis retention, and IV antibiotic followed by oral fusidic acid and rifampin. Of the patients, 13 had hip joint replacements and seven had knee joint replacements. The median duration of IV treatment

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was 12 days, the median duration of hospitalization was 20 days and the median duration of oral treatment was 12 months. Two patients reported nausea that was severe enough to require a change of treatment. Two patients reported transient nausea, but continued treatment. No hepatotoxicity was reported. There was no evidence of treatment failure for 18 patients and 16 patients retained their original prosthesis without any evidence of infection after 26 months of follow-up. The cumulative success of treatment after one year was approximately 88%. In a retrospective study of patients with MRSA orthopedic device-related infection in Geneva University Hospitals between 2000-2008, of 41 patients with a median follow up of 391 days, 18 patients experienced treatment failure, involving MRSA persistence or recurrence (Ferry et al., 2010) while none of the 12 patients who received a rifampin-fusidic acid combination therapy followed by intravenous vancomycin and oral rifampin therapy experienced treatment failure.

Lautenbach et al. [1975] measured serum and bone fusidic acid concentrations (by agar plate diffusion methods using a susceptible bacterial strain) in 36 patients with chronic osteomyelitis during the course of therapy; bone concentrations of active drug ranged from 1 to 15 µg/g, measured at approximately nine hours after last oral dose (in most cases, 20 to 40 mg/kg/day, divided TID). Hierholzer et al. [1966, 1974] measured bone and soft tissue concentrations at three to six hours after last oral dose (500 mg TID dosing for at least five days) in a series of patients with osteomyelitis and found fusidic acid concentrations of 2 to 15 µg/g in bone and 4 to 17 µg/g in soft tissue. A second group of patients studied by the same group were administered fusidic acid (500 mg TID, orally) for five to thirteen days prior to surgery for non-infected bone disease; concentrations of fusidic acid in bone were on average up to two times higher than those observed in patients with osteomyelitis, and mean concentrations ranged from 46% to 94% of those observed in serum. Chater, et al. [1972] reported fusidic acid concentrations in bone and serum from seven adult patients treated with 500 mg TID oral fusidic acid for osteomyelitis; concentrations of fusidic acid in bone were similar to those described above, and ranged from 4% to 72% of serum concentrations, with consistently higher soft tissue concentrations (ranging from 20% to >100% of serum concentrations). In summary, oral fusidic acid dosing was found to achieve drug concentrations at the infected bone and joint site that were associated with effective treatment of osteomyelitis across a number of studies.

Rifampin has emerged as a critical antibiotic in the treatment of prosthetic joint infection, attributed to its unique ability to penetrate and disperse biofilms on prosthetic material. In a landmark study, Zimmerli and colleagues [Zimmerli 1998] demonstrated the important role of rifampin in the effective treatment of prosthetic joint infection when used in combination with initial IV therapy (vancomycin or flucloxacillin) and follow-on oral antibiotic therapy (ciprofloxacin). In that trial, patients with stable implants and a short duration of infection were effectively treated with the debride and retain strategy, with success in 100% of evaluable patients who received a three to six month course of ciprofloxacin/rifampin therapy. There were no MRSA infections in the study population. Drancourt et al. [1997] demonstrated equivalent efficacy of oral fusidic acid/rifampin to oral ofloxacin/rifampin in a randomized trial of therapy in prosthetic joint infection cases treated with the debride and retain strategy. In a third report of clinical experience with fusidic acid plus rifampin for orthopedic device related infection (comprised principally of joint prostheses and internal fixation devices), Ferry et al. [2010] reported clinical success in 12 of 12 patients.  Based on our Phase 2 trial comparing fusidic acid in combination with rifampin, we determined that rifampin reduced fusidic acid levels in the blood.  Consequently, we concluded that fusidic acid should be optimally dosed in monotherapy, even in bone and join infections.

Planned Clinical Trials

We recently tested Taksta in two-stage revision treatment of PJI, as this is the standard of care in the U.S. In our Phase 2 trial, the infected joint was removed, cultured, a spacer inserted and the patients were then randomized to either intravenous vancomycin only for three to four days, followed by oral rifampin and Taksta for six weeks in the study arm or an intravenous standard of care for six weeks in the comparator arm.  The primary end-point was bacteriologic cure at 12 weeks, at the time the second prosthesis was to be introduced. The secondary end points were retention of the joint for three to six months and safety. Long-term monitoring for infection relapse or recurrence will continue for the subsequent two years. The intent of this study was to show non-inferiority to the standard of care for efficacy and to show that two oral drugs can replace an intravenous drug for four to six weeks of treatment.  We also have a compassionate use program for those PJI patients where two-stage revision is not possible or necessary. Such a study would replicate the use of fusidic acid overseas and could provide even greater pharmacoeconomic advantages.

We began the open-label Phase 2 trial of Taksta in patients with prosthetic joint infections in December 2012.  Based on discussions with the FDA, we revised the protocol to clarify interpretation of end points and expedite trial enrollment. There is no FDA guidance for developing antibiotics for treating PJI, and we designed the Phase 2 trial with a clear endpoint that compares vancomycin, which is the standard of care, to oral fusidic acid and rifampin.  We concluded the trial because we believe we met our primary objectives of the Phase 2 trial, namely safety and efficacy, to determine the study design and dose of our planned Phase 3 trial. We submitted the proposed Phase 3 trial protocol to the FDA in early 2014 and met with the FDA in December 2014 in a Type C meeting. Based on that meeting, our plan involves testing Taksta for long-term suppressive therapy of refractory bone and joint infections, including PJI, as well as a treatment for ABSSSI. The proposed trial would consist of a Phase 3 superiority trial of approximately 30 to 100 patients to test efficacy for chronic suppression of refractory bone and joint infections, and a Phase 3 trial in ABSSSI to provide safety and efficacy data.

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Earlier Stage Pipeline Programs

Our earlier stage programs include developing other uses for solithromycin and Taksta, as well as the development of newly discovered compounds as antibiotics and for the treatment of other diseases.

Solithromycin. In the future we may pursue secondary indications for solithromycin to treat other respiratory tract infections such as pharyngitis, sinusitis and chronic bronchitis, as well as other infectious diseases such as infections in CF patients, otitis media (middle ear infection), Helicobacter gastritis, malaria, tuberculosis, eye infections and COPD. Of these additional indications, we are currently most interested in COPD and CF infections. In COPD, older macroldies are used, because of their anti-inflammatory properties, to lower the dose of steroids. Solithromycin has demonstrated anti-inflammatory properties.    We are planning a Phase 2 trial in patients with COPD, which we expect to begin in the first quarter of 2015.

In CF, the second most common bacteria that infects the lung is S. aureus , against which solithromycin has demonstrated activity. In addition, our pre-clinical work suggests that solithromycin is likely to have greater anti-inflammatory properties than azithromycin, which is commonly used in CF patients for its anti-inflammatory properties.

Taksta . Given the historical use of fusidic acid and its safety profile, we believe Taksta can also address osteomyelitis and infections related to CF, all of which tend to require long-term or chronic treatment, as well as ABSSSI that generally requires seven to 14 days of treatment. Fusidic acid is used in certain countries in Europe to treat S. aureus infections in CF patients and is active against 40 S. aureus strains isolated from CF clinics in the U.S. All S. aureus strains were susceptible to fusidic acid. A CF patient has been treated under our compassionate use program for approximately eight months with some demonstrated symptomatic relief.

Other Research Programs . Shortly after our inception, we entered into a collaborative research and development and license agreement with Optimer Pharmaceuticals, Inc., or Optimer, which was acquired by Cubist Pharmaceuticals, Inc. in October 2013. The license agreement gives us exclusive access to a library of over 500 macrolide compounds, which we have further expanded through our own discovery efforts. Macrolides are complex structures which can be chemically modified to eliminate their antibacterial activities. We intend to use our proprietory macrolide technology platform to develop drugs with no antibiotic effect and replace off-label use of older macrolides in inflammatory conditions and other indications such as diabetic gastroparesis. Several compounds have been identified through our screening programs that could potentially address therapeutic needs in the areas of inflammation, diabetic gastroparesis and cancer.

We are conducting pre-clinical studies for the use of macrolides in treating diabetic gastroparesis, which is related to a lack of neural response in the gastrointestinal tract of diabetic patients, and gastroesophageal reflux disease, or GERD, both likely to be helped by addressing motilin function. Motilin is a naturally occurring peptide that causes the stomach to contract to initiate the migratory motor complex that empties the stomach.  Erythromycin and related antibiotics have known activity as motilin agonists. Through our discovery program, we have selected a lead candidate that is active in the motilin receptor binding assay, functional assays using cloned human motilin receptor in mammalian cells, as well as in rabbit duodenal strip contraction assays. These compounds have been optimized for pharmacokinetic properties and oral bioavailability and are in pre-clinical development.

Our Commercialization Strategy

We will pursue commercialization strategies intended to maximize the value of each product. We plan to develop our product candidates through late-stage clinical studies.  During late stage development, we expect to begin market development activities to prepare for product introduction.  If a product is approved, we plan to either sell our products directly through our own hospital-based and retail sales forces, which we would need to assemble, or through partnerships, which we would need to negotiate with larger pharmaceutical companies.

Solithromycin. We began the commercialization process in 2014 and expect to be actively engaged in the commercialization process in 2015.  This process has involved and will include key opinion leader engagement, commercial assessments and forecasts of key markets, product uptake and penetration studies, pricing and reimbursement research and sales force sizing scenarios. In the U.S., we intend to maximize the solithromycin opportunity by ultimately having a hospital-based sales force, a specialty sales force and a primary care sales force. We believe we could build a sales force to sell directly to the hospital market and in targeted specialty and primary care markets.  In this scenario, segmentation of the key hospitals and most productive retail physicians should allow a targeted sales force to be effective. However, a large pharmaceutical company with an established commercial organization may be better positioned to maximize solithromycin sales in the primary care market. Consequently, there may be an opportunity to partner with a large pharmaceutical company in a manner that enables us to retain either promotion or co-promotion rights in certain markets.

We believe solithromycin represents an attractive commercialization opportunity outside the U.S. and we plan to seek commercial partners in selected regions as appropriate. To that end, in May 2013, we entered into a license agreement with Toyama whereby we licensed to Toyama the exclusive right to make, use and sell any product in Japan that incorporates solithromycin as its sole API for human therapeutic uses, other than for ophthalmic indications or any condition, disease or affliction of the ophthalmic

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tissues. Toyama also has a nonexclusive license in Japan and certain other countries to manufacture or have manufactured API for solithromycin for use in manufacturing such products, subject to limitations and obligations of the concurrently executed supply agreement discussed below. In addition, Toyama has granted us certain rights to intellectual property generated by Toyama under the license agreement with respect to solithromycin or licensed products for use with such products outside Japan or with other solithromycin-based products inside or outside Japan.

The Toyama license is part of our global development program.  We will receive all data and information developed by Toyama in all clinical trials and other studies required in Japan. This will add to our data base, and we expect will be beneficial as we seek approval for solithromycin in markets outside of the U.S. and Japan. While we licensed the rights to solithromycin in Japan to Toyama, we retain the rights to make and sell it elsewhere in the world.

We also plan to conduct the necessary trials to establish the utility of solithromycin for the treatment of a broader variety of respiratory and other infections including sinusitis, bronchitis and other forms of pneumonia, and plan to align our commercial strategy with the product life cycle plan accordingly.

Taksta . The initial market for Taksta will be in the treatment of refractory bone and joint infections. Patients with prosthetic joint infections are generally admitted to the hospital to begin antibiotic treatment and determine whether a debridement procedure that retains the prosthetic joint will be performed or whether the prosthetic joint will be removed. Following whatever procedure is necessary, patients are discharged and treated on an outpatient basis. Additionally, Taksta could be used in the U.S. in the hospital emergency department for treatment of ABSSSI infections. Both markets could also be addressed by the same hospital and community-based sales force we may build to sell solithromycin.  

Competition

Our industry is highly competitive and subject to rapid and significant technological change. Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. Many of our potential competitors have substantially greater financial, technical and human resources than we do and significantly more experience in the discovery, development and regulatory approvals of products, and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval for drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render solithromycin, Taksta or any other product candidates that we have in development obsolete or non-competitive before we can recover the expenses of developing and commercializing any product candidates. We anticipate that we will face intense and increasing competition as new drugs enter the market, as advanced technologies become available and as generic forms of currently branded drugs become available. Finally, the development of new treatment methods for the diseases we are targeting could render our drugs non-competitive or obsolete.

In many cases, however, we believe that competition often will be determined by antibiotic class and any limitations of that antibiotic class in general, and the antibiotic in particular, in treating a particular disease or population.  We believe that the key competitive factors that will affect the development and commercial success of solithromycin, Taksta and any other product candidates that we develop are efficacy, safety and tolerability profile, convenience in dosing, price and reimbursement.

We anticipate that, if approved, solithromycin will compete with other antibiotics that demonstrate CABP activity. These include well established, widely prescribed drugs, including generic versions, such as azithromycin, clarithromycin, moxifloxacin, levofloxacin, linezolid and ceftriaxone. Among macrolides, azithromycin (Zithromax, Z-Pak) is the class leader, and a generic drug.  Azithromycin is available as oral tablets, lyophilized vials for intravenous and a powder for suspension, which has allowed dosing of all age groups and has been used broadly including for simple respiratory tract infections and in combination with ceftriaxone to treat CABP.  Azithromycin and other macrolides are used broadly in COPD for their anti-inflammatory properties to lower the dose of steroids, in bacterial urethritis to treat gonorrhea and Chlamydia infections, and many other infections. Azithromycin is among the most widely used antibiotics. Ceftaroline was approved in CABP, but only the intravenous formulation is available; no oral or powder for suspension for pediatric use is available. For intravenous use in CABP, ceftaroline must be co-administered with azithromycin or another macrolide because it does not provide adequate coverage for atypical bacteria, such as Legionella or Mycoplasma.  Patients can stay in the hospital for IV therapy or be discharged on a different, lower potency second generation cephalosporin. Ceftobiprole has failed to get approval in the U.S. and is being evaluated in Europe for CABP. However, it is very similar to ceftaroline in being available for intravenous use.  Novaxel’s pleuromutilin analog was licensed to Forest Laboratories and returned to them recently. This product could potentially be developed in CABP, but could be cross resistant with the oxazolidinones and chloramphenicol, binding to the same cfr site on the bacterial ribosome, thus potentially having limited ability to fight resistance. We are not aware of any other drugs in development for CABP currently; to our knowledge, the majority in development are being developed for ABSSI and for hospital acquired pneumonia, or HAP.  Fluoroquinolones, such as levofloxacin and moxifloxacin, could be used in CABP and are available in oral and IV formulations. They are not approved for pediatric use because of safety. Levofloxacin is now generic and because of its lower potency, its use in CABP has been taken over by the branded moxifloxacin (Avelox). Fluoroquinolones are

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known for several undesirable effects such as tendonitis, achilles tendon rupture, C. difficile colitis, and hepatotoxicity and central nervous system side effects. These adverse events limit the use of these drugs in CABP.  In the area of bacterial urethritis, gonococcus has become resistant to older macrolides and other drugs and only intramuscular ceftriaxone is currently available for treating these patients. A fluoroquinolone is under development for gonorrhea by Melinta Therapeutics, Inc. but has not been tested in a Phase 2 trial yet.  Gonorrhea also has shown resistance to fluoroquinolones.  We believe that a few companies, such as Paratek Pharmaceuticals, Inc. and Nabriva Therapeutics AG are initiating the development of a new tetracycline and a new pleuromutilin analog in CABP.  Neither of these antibiotic classes have historically been used as first line or second line treatment of CABP patients.

We anticipate that, if approved, Taksta will compete with other antibiotics that demonstrate MRSA activity. These include well established, widely prescribed drugs, including generic versions, such as vancomycin, linezolid, daptomycin, tigecycline and ceftaroline. Among these, intravenous vancomycin is the standard of care. There is no approved oral or intravenous antibiotic for use in PJI. Daptomycin, which is also available for intravenous use only, was tested in PJI and not shown to have an advantage over vancomycin. It is not approved for this indication, but is used in some patients who do not tolerate vancomycin IV.  Linezolid is useful for short term oral use but is not approved for PJI and is not approved for chronic oral use. Tedizolid and other oral antibiotics in development are not being tested for chronic use.

Intellectual Property

Due to the length of time and expense associated with bringing new products to market, biopharmaceutical companies have traditionally placed considerable importance on obtaining and maintaining patent protection for significant new technologies, products and processes. Solithromycin is a new chemical entity developed from the macrolide library of compounds licensed from Optimer (now owned by Cubist) and is covered by a series of patents and patent applications, which claim, among other things, the composition of matter of solithromycin. The original patents covering the composition of matter for fusidic acid have expired. Our proprietary position for Taksta has two bases. For prosthetic joint infections or bone and joint infections, if Taksta is the first fusidic acid product approved by the FDA, it would be a new chemical entity, or NCE, and would receive five years of data exclusivity under the Hatch-Waxman Act, which would be increased to 10 years under the GAIN Act. Taksta was awarded orphan drug status for prosthetic joint infections, which, if approved by the FDA would extend the first exclusivity period to seven years which, together with the five years granted under the GAIN Act, would provide 12 years statutory exclusivity. In addition, we expect that Taksta would also be eligible for pediatric exclusivity.  We will work to have orphan drug status granted to Taksta for the treatment of refractory bone and joint infections, which, if granted, and Takasta is approved by the FDA for treating this indication, Takata would receive this same protection. Our loading dose regimen, which received a U.S. patent in May 2013, provides patent protection to 2029.  

Our success will depend in part on our ability to protect the proprietary nature of solithromycin, Taksta and our other product candidates, technology, and know-how, to operate without infringing on the proprietary rights of others, and to prevent others from infringing our proprietary rights. We seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions, and improvements that are important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation, and in-licensing opportunities to develop and maintain our proprietary position.

We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our technology.

Most of our portfolio consists of intellectual property that we own ourselves or that we exclusively license from Optimer (now owned by Cubist). The intellectual property licensed from Optimer primarily relates to solithromycin and related compounds, and to other macrolide and ketolide compounds. Internally, we typically develop those compounds further and refine them to determine commercial applicability.

We have applied, and are applying, for patents directed to our three main areas of focus: (1) macrolide and ketolide antibiotics, (2) fusidic acid antibiotics, and (3) macrolides and ketolides for non-antibiotic uses, both in the U.S. and, when appropriate, in other countries. As of December 31, 2014, our owned and in-licensed patent portfolio consisted of eight issued patents in the U.S., and approximately 120 other patent applications pending worldwide.

With respect to solithromycin and a broad group of macrolide antibiotics, our U.S. patent portfolio consists of three issued U.S. patents, U.S. Patent Nos. 7,601,695, 8,012,943 and 8,343,936, each entitled “Novel Antibacterial Agents,” which we exclusively license from Optimer. U.S. Patent No. 7,601,695 (US ‘695) issued on October 13, 2009 and is scheduled to expire in 2025, including a Patent Term Adjustment of 330 days under 35 U.S.C. § 154(b). U.S. Patent No. 8,012,943 (US ‘943) issued on September 6, 2011, is scheduled to expire in 2024, and does not include a Patent Term Adjustment under 35 U.S.C. § 154(b).  U.S. Patent No. 8,343,936 (US‘936) issued on January 1, 2013, is scheduled to expire in 2024, and does not include a Patent Term Adjustment under 35 U.S.C. § 154(b). The exclusively in-licensed portfolio also includes a continuing patent application of US ‘695, US ‘943, and US‘936 pending

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in the U.S., a corresponding issued patent in Canada, corresponding patent applications pending in Europe (European Patent Convention), and patent registrations that have been initiated in Hong Kong. Prosecution is ongoing in each of those patent applications. Each of the foregoing patents and applications ultimately arise from a PCT international application filed on March 5, 2004, which claims a priority benefit to U.S. provisional applications filed on March 10, 2003, and May 6, 2003.

We have filed patent applications in the U.S., Australia, Brazil, Canada, China, Europe, Hong Kong, Israel, India, Japan, Mexico, New Zealand, the Russian Federation, South Africa, and South Korea claiming two new crystalline forms of solithromycin. U.S. Patent No. 8,759,500 (US‘500), entitled “Crystalline Forms of a Macrolide, and Uses Therefor,” issued on June 24, 2014, is scheduled to expire in 2031.We have also filed additional patent applications pending in the U.S., Australia, Brazil, Canada, China, Europe, Hong Kong, Israel, India, Japan, Mexico, New Zealand, the Russian Federation, Singapore, and South Korea covering solithromycin and related compounds.  A few of those applications have already issued as patents.  Those patents and applications claim related chemical compounds, pharmaceutical compositions, pharmaceutical formulations, methods for treating particular infections and other diseases, and/or manufacturing processes. We are seeking to develop a strategy to increase the breadth of solithromycin coverage, particularly in the U.S., Europe, and Asia, and prosecution is ongoing in each case.. In particular, we have filed patent applications in several countries that claim processes for manufacturing solithromycin and related compounds from either clarithromycin or erythromycin. Those same patent applications also claim the composition of matter of various intermediates used in those processes. Solithromycin and related compounds have also been described by us in U.S. and international patent applications claiming their use in (a) treating bacterial infections arising from one or more resistant bacterial strains, including bacterial strains resistant to other macrolides or ketolides, (b) biowarfare and biodefense applications, (c) treating Mycobacterium infections, including tuberculosis and Mycobacterium avium infections, (d) treating bacterial gastrointestinal diseases, (e) treating eye infections, (f) treating NASH, and (g) treating diabetes. We have also filed U.S. and international patent applications claiming pharmaceutical compositions and pharmaceutical formulations of solithromycin and related compounds, including lyophilized forms of solithromycin, parenteral formulations of solithromycin for IV delivery, and topical formulations of solithromycin for ocular delivery. We have filed, or are preparing for filing, U.S. and international patent applications covering solithromycin and other macrolides and ketolides for treating diseases other than infection, including inflammatory diseases, cystic fibrosis, motilin receptor-mediated diseases and malaria to increase the breadth of coverage of other macrolides and ketolides in the U.S., Europe, and Asia.

We have engaged, and continue to engage, in research efforts to exploit the potential of the in-licensed Optimer inventions, including solithromycin and related compounds, in new therapy areas, and to discover new forms and formulations of solithromycin and related compounds. Our research efforts have indicated that solithromycin may also be useful in treating particular bacterial infections that may be considered to be generally untreatable with macrolide antibiotics, including bacterial infections arising from one or more resistant strains. In addition, alternative physical forms and alternative formulations of solithromycin and related compounds are being developed. If we are able to obtain issued patents for those forms and formulations, and the treatment methods, then we will have several years of additional coverage above and beyond the expiration of the patents covering the chemical composition of solithromycin.

With respect to fusidic acid, our U.S. patent portfolio consists of two issued U.S. patents. 8,450,300, entitled "Fusidic Acid Dosing Regimens for Treatment of Bacterial Infections," issued on May 28, 2013, and is scheduled to expire in 2029, including a Patent Term Adjustment of 149 days under 35 U.S.C. § 154(b). U.S. Patent No. 8,247,394, entitled "Methods of Treating Urethritis and Related Infections Using Fusidic Acid," issued on August 21, 2012, and is scheduled to expire in 2031, including a Patent Term Adjustment of 267 days under 35 U.S.C. § 154(b). We are continuing a strategy to increase the breadth of our fusidic acid coverage in the U.S., Europe, and Asia. We have filed patent applications covering fusidic acid in the U.S., Canada and Japan. The fusidate sodium chemical entity itself is a compound which is no longer subject to composition of matter patents in the U.S. Therefore, our pending patent applications claim new dosing protocols and uses of fusidic acid, and new formulations and packaging. The novel loading dose regimen that has been developed to overcome pre-existing limitations on a broader, more effective use of fusidic acid in the treatment of bacterial infections, including infections not previously considered to be susceptible to fusidic acid, like urethritis. We have also filed patent applications covering new formulations of fusidic acid for direct bronchial and pulmonary delivery, and formulations and packaging of fusidic acid dosage units to overcome the storage limitations of fusidic acid.

In addition to filed patent applications claiming new dosing protocols and formulations of fusidic acid for treating infections, we plan to obtain regulatory exclusivity for the first use of fusidic acid through approval with the FDA. We are not aware of any competing applications before the FDA seeking approval for fusidic acid. Therefore, we believe that, if the FDA approves an NDA of ours for Taksta before the FDA approves an NDA or other application for fusidic acid use filed by any competitor, pursuant to amendments to Section 505 of the Food, Drug and Cosmetic Act enacted in 2008, we will have at least five years of regulatory exclusivity in the U.S. for the first approved indication for fusidic acid. We believe that the 2008 amendments will also provide us with three years of exclusivity for any additional uses.

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the U.S., a patent’s term may be lengthened by Patent Term Adjustment, which compensates a patentee for administrative delays by the U.S.

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Patent and Trademark Office in granting a patent, or may be shortened if a patent is terminally disclaimed over another patent. In the U.S. and certain other countries, the patent’s term may also be lengthened by patent term extension or restoration, which compensates a patentee for administrative delays in granting a regulatory approval by the FDA, or similar agency in other countries. For a more comprehensive discussion of patent term and extensions thereto, please see “Business—Government Regulation and Product Approval.”

While we pursue patent protection and enforcement of solithromycin, fusidic acid and our other product candidates, and aspects of our technologies when appropriate, we also rely on trade secrets, know-how and continuing technological advancement to develop and maintain our competitive position. To protect this competitive position, we regularly enter into confidentiality and proprietary information agreements with third parties, including employees, independent contractors, suppliers and collaborators. Our employment policy requires each new employee to enter into an agreement containing provisions generally prohibiting the disclosure of confidential information to anyone outside of our company and providing that any invention conceived by an employee within the scope of his or her employment duties is our exclusive property. We have a similar policy with respect to independent contractors, generally requiring independent contractors to enter into agreements containing provisions generally prohibiting the disclosure of confidential information to anyone outside of our company and providing that any invention conceived by an independent contractor within the scope of his or her services is our exclusive property with the exception of contracts with universities and colleges that may be unable to make such assignments. Furthermore, our know-how that is accessed by third parties through collaborations and research and development contracts and through our relationships with scientific consultants is generally protected through confidentiality agreements with the appropriate parties.

Further, we seek trademark protection in the U.S. and internationally where available and when appropriate. We have a registered trademark in the U.S. for the CEMPRA mark, which we use in connection with our pharmaceutical research and development services, and which we plan to use with our proposed products. We also have filed applications at the U.S. Patent and Trademark Office for the TAKSTA, STRAFEX, and STAFREL marks. We plan to use the TAKSTA mark with our proposed sodium fusidate product. The remaining marks may be used with the sodium fusidate product or other proposed products.  Because solithromycin is being used as monotherapy in our Phase 3 trials for CABP, we selected the trial name of “Solitaire”.

Collaborations and Commercial Agreements

Optimer Pharmaceuticals, Inc (now owned by Cubist Pharmaceuticals) . In March 2006, we entered into a Collaborative Research and Development and License Agreement with Optimer, a biotechnology company focused on discovering, developing and commercializing innovative anti-infective products. Under this agreement, we obtained access to a library of over 500 macrolide compounds, including solithromycin. Optimer was acquired by Cubist in October 2013.  Optimer granted us an exclusive license to these compounds in all countries of the world except ASEAN countries, with the right to sublicense, under Optimer’s patents and know-how related to certain macrolide and ketolide antibiotics and related proprietary technology. The exclusivity of our license is potentially subject to the U.S. government’s right to obtain a non-exclusive, irrevocable, royalty-free, paid-up right to practice and have practiced certain patents worldwide. As partial consideration for granting us such license, we issued shares of our common stock to Optimer. We also have an obligation to make additional payments upon achievement of specified development, regulatory and commercialization milestones. The aggregate amount of such milestone payments we may need to pay is based in part on the number of products developed under the agreement. The aggregate amount would be $27.5 million if four products are developed and gain FDA approval. Additional limited milestone payments would be due if we develop more than four products. In July 2010 and July 2012, we made $0.5 million and $1.0 million milestone payments, respectively to Optimer after our successful completion of the Phase 1 and Phase 2 trials for oral solithromycin, respectively. We are also obligated to make tiered, mid-single-digit royalty payments to Optimer based on annual net sales of licensed products outside the ASEAN countries, which royalties are subject to reduction in the event additional licenses are obtained from third parties in order to practice our rights under the agreement and/or we are required to grant a compulsory license to a third party.

The agreement also includes the grant of an exclusive license to Optimer and its affiliates, with rights of sublicense, under our patents and other intellectual property in any products covered by the agreement to permit Optimer to develop and/or commercialize such products in ASEAN countries. In consideration of such license, Optimer will pay us $1.0 million in milestone payments for the first two products that receive regulatory approval or have a first commercial sale in any ASEAN country, as well as tiered, mid-single-digit royalty payments based on net sales of such products, which royalties are subject to reduction in the event additional licenses are obtained from third parties in order to practice Optimer’s rights under the agreement and/or Optimer is required to grant a compulsory license to a third party. The agreement also included a collaborative research program, to be performed by the parties, which was completed on March 31, 2008.

The Optimer patents and know-how existing as of the effective date of the agreement and improvements thereof remain the property of Optimer. Except for such improvements, any know-how or inventions developed by Optimer pursuant to the agreement or that relate to the licensed products (except those generated by using grant monies provided by the U.S. government) vest in us subject to the license we granted to Optimer. Optimer has the responsibility to prosecute the Optimer patents relating to macrolide antibiotics.

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We will be responsible for prosecuting any patents controlled by us that relate to macrolide antibiotics other than the Optimer patents described above. We will have the first right to prosecute patents claiming joint inventions. We have the first right to control any proceeding involving alleged infringement of Optimer patents with respect to rights granted to us under the agreement and Optimer has such right regarding alleged infringement of our patents with respect to rights granted to Optimer under the agreement. Should we exercise our right to control any proceeding involving alleged infringement of Optimer patents, we will be responsible for the costs of these proceedings.

Subject to certain exceptions, on a country-by-country and product-by-product basis, a party’s rights and obligations under the agreement continue until the later of: (i) the expiration of the last to expire patent rights of a covered product in the applicable country or (ii) ten years from the first commercial sale of a covered product in the applicable country. As a result, the final expiration date of the Optimer license is indeterminable until the last such patents issue and results of potential patent extensions are known, or each of the first commercial sales are made, as applicable. Upon expiration of the agreement with respect to a particular product and country, the licenses granted in the agreement with respect to such product and country will remain in effect and convert to a perpetual, unrestricted, fully-paid, royalty-free, worldwide license. Either party may terminate the agreement (i) in the event of a material breach by the other party, subject to prior notice and the opportunity to cure, (ii) in the event the other party fails to use diligent efforts to develop and commercialize products in its respective territory, or if the other party makes a determination not to develop and commercialize at least one product under the agreement, or (iii) in the event of the other party’s bankruptcy. In the case of these terminations, the terminating party can elect that all licenses granted by the other party survive, subject to continuing royalty, payment and other obligations. Additionally, either party may terminate the agreement for any reason upon 30 days’ prior written notice, in which case the non-terminating party can elect that all licenses granted by the other party survive, subject to continuing royalty, payment, and other obligations.

The Scripps Research Institute. Effective June 12, 2012, we entered into a license agreement with The Scripps Research Institute (“TSRI”), whereby TSRI licensed to the Company rights, with rights of sublicense, to make, use, sell, and import products for human or animal therapeutic use that use or incorporate one or more macrolides as an active pharmaceutical ingredient and is covered by certain patent rights owned by TSRI claiming technology related to copper-catalysed ligation of azides and acetylenes. The rights licensed to us are exclusive as to the People’s Republic of China (excluding Hong Kong), South Korea and Australia, and are non-exclusive in all other countries worldwide, except the member-nations of the Association of Southeast Asian Nations, which are not included in the territory of the license. Under the terms of the agreement with TSRI, we paid a one-time only, non-refundable license issue fee in the amount of $350,000 which was charged to research and development expense in the second quarter of 2012. Our rights under the agreement are subject to certain customary rights of the U.S. government that arise or result from TSRI’s receipt of research support from the U.S. government.

We are also obligated to pay annual maintenance fees to TSRI in the amount of (i) $50,000 each year for the first three years (beginning on the first anniversary of the agreement), and (ii) $85,000 each year thereafter (beginning on the fourth anniversary of the agreement). Each calendar year’s annual maintenance fees will be credited against sales royalties due under the agreement for such calendar year. Under the terms of the agreement, we must pay TSRI low single-digit percentage royalties on the net sales of the products covered by the TSRI patents for the life of the TSRI patents, a low single-digit percentage of non-royalty sublicensing revenue received with respect to countries in the nonexclusive territory and a mid-single-digit percentage of sublicensing revenue received with respect to countries in the exclusive territory, with the sublicensing revenue royalty in the exclusive territory and the sales royalties subject to certain reductions under certain circumstances. TSRI is eligible to receive milestone payments of up to $1.1 million with respect to regulatory approval in the exclusive territory and first commercial sale, in each of the exclusive territory and nonexclusive territory, of the first licensed product to achieve those milestones that is based upon each macrolide covered by the licensed patents. Each milestone is payable once per each macrolide. Each milestone payment made to TSRI with respect to a particular milestone will be creditable against any payment due to TSRI with respect to any sublicense revenues received in connection with the achievement of such milestone. Pursuant to the terms of the Optimer Agreement, any payments made to TSRI under this license for territories subject to the Optimer Agreement can be deducted from any sales-based royalty payments due under the Optimer Agreement up to a certain percentage reduction of the royalties due to Optimer.

Under the terms of the agreement, we are also required to pay additional fees on royalties, sublicensing and milestone payments if we, an affiliate with TSRI, or a sublicensee challenges the validity or enforceability of any of the patents licensed under the agreement. Such increased payments would be required until all patent claims subject to challenge are invalidated in the particular country where such challenge was mounted.

The term of the license agreement (and the period during which we must pay royalties to TSRI in a particular country for a particular product) will end, on a country-by-country and product-by-product basis, at such time as no patent rights licensed from TSRI cover a particular product in the particular country.

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Toyama Chemical Co., Ltd.   On May 8, 2013, we entered into a license agreement with Toyama whereby we licensed to Toyama the exclusive right, with the right to sublicense, to make, use and sell any product in Japan that incorporates solithromycin as its sole API for human therapeutic uses, other than for ophthalmic indications or any condition, disease or affliction of the ophthalmic tissues. Toyama also has a nonexclusive license in Japan and certain other countries, with the right to sublicense, to manufacture or have manufactured API for solithromycin for use in manufacturing such products, subject to limitations and obligations of the concurrently executed supply agreement discussed below. Toyama has granted us certain rights to intellectual property generated by Toyama under the license agreement with respect to solithromycin or licensed products for use with such products outside Japan or with other solithromycin-based products inside or outside Japan.

As consideration for the execution of the license agreement, Toyama paid us an upfront payment of $10.0 million. Toyama is also obligated to pay us up to an aggregate of $60.0 million in milestone payments, depending on the achievement of various regulatory, patent, development and commercial milestones. The first of these milestones was achieved in the third quarter of 2014 for which we received a payment of $10.0 million from Toyama. Under the terms of the license agreement, Toyama must also pay us a royalty equal to a low-to-high first double decimal digit percentage of net sales, subject to downward adjustment in certain circumstances.

The term of the license agreement (and the period during which Toyama must pay royalties under the license agreement) will end, on a product-by-product basis, at the later of: (i) such time as no patent rights under the agreement cover a particular licensed product in Japan; (ii) 15 years after such product is first launched in Japan, or (iii) the first commercial sale in Japan by a third party of a generic equivalent of such licensed product.

Toyama may terminate the license agreement (i) at any time, with or without cause, upon advance notice to us, (ii) upon the occurrence of any serious adverse effect in any human clinical trial of any licensed product that would significantly impact the long term commercial viability of a licensed product in Japan, or (iii) upon our failure to obtain the issuance of certain patents or file for U.S. regulatory approvals by certain dates, or to continue certain key clinical trials. We may terminate the license agreement if Toyama or any of its sublicensees is convicted of a felony relating to the development, manufacture, use, marketing, distribution or sale of a licensed product, or upon Toyama’s failure to (i) initiate certain clinical trials in Japan by certain dates, (ii) obtain regulatory approval in Japan within a certain period of completing certain clinical trials in Japan, (iii) launch and commercialize approved licensed products in Japan within a certain period of approval, (iv) use commercially reasonable efforts to market and sell licensed products, or (v) achieve expected benchmarks for net sales of licensed products. Either party may terminate the license agreement due to the other party’s insolvency or for uncured material breach.

As part of the license agreement, Toyama and we also entered into a supply agreement, whereby we will be the exclusive supplier (with certain limitations) to Toyama and its sublicensees of API for solithromycin for use in licensed products in Japan, as well as the exclusive supplier to Toyama and its sublicensees of finished forms of solithromycin to be used in Phase 1 and Phase 2 clinical trials in Japan. Pursuant to the supply agreement, Toyama will pay us for such clinical supply of finished product and all supplies of API for solithromycin for any purpose, other than the manufacture of products for commercial sale in Japan, at prices equal to our costs. All API for solithromycin supplied by us to Toyama for use in the manufacture of finished product for commercial sale in Japan will be ordered from us at prices determined by our manufacturing costs, and which may, depending on such costs, equal, exceed, or be less than such costs. The supply agreement will continue until the expiration or termination of the license agreement. Either party may terminate the supply agreement for an uncured material breach or in the event of insolvency of the other party, with Toyama’s right to terminate for our breach subject to certain further conditions in the case of our failure to supply API for solithromycin or clinical supply.

Biomedical Advanced Research and Development Authority .  On May 24, 2013 we entered into an agreement with the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services, or BARDA, for the evaluation and development of solithromycin for the treatment of bacterial infections in pediatric populations and infections caused by bioterror threat pathogens, specifically anthrax and tularemia.

The agreement is a cost plus fixed fee development contract, with a base performance segment valued at approximately $17.7 million, and four option work segments that BARDA may request in its sole discretion. If all four option segments are requested, the cumulative value of the agreement would be approximately $58 million. Three of the options are cost plus fixed fee arrangements, while the second to last option is a cost sharing arrangement for which we would be responsible for a designated portion of the costs associated with that work segment. The estimated period of performance for the base performance segment is May 24, 2013 through May 23, 2015. BARDA exercised the second option in November 2014.  The value of the second option work segment is approximately $16.0 million and the estimated period of performance is November 14, 2014 through November 30, 2016. If all option segments are requested, this estimated period of performance would be extended until approximately May 23, 2018.  

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Activities being conducted for the base performance include, among other things, toxicology studies, pharmacokinetics and pharmacodynamics studies, safety studies, animal model efficacy studies, activities to develop a powder for suspension formulation, and select chemical synthesis activities. In the event that BARDA requests one or more of the option work segments, optional activities to be conducted would include, among other things, additional efficacy studies, Phase 1 and Phase 2/3 clinical studies, dose determination studies and filing of new drug applications. BARDA may terminate this agreement upon our uncured default in our performance of the agreement or at anytime if the contracting officer determines that it is in the government’s interest to terminate the agreement.

Manufacturing

We do not own or operate manufacturing facilities for the production of solithromycin, Taksta or other product candidates that we might develop, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturers for all of our required raw materials, API and finished products for our pre-clinical research and clinical trials. We employ internal resources and third-party consultants to manage our manufacturing contractors.

To date, we have ordered pre-clinical and clinical supplies for solithromycin under short-term contract orders. We employ the services of Wockhardt Limited, or Wockhardt, in Mumbai, India, to produce solithromycin API and finished oral and IV product. We do not have long-term contracts for the commercial supply of solithromycin. If solithromycin is approved for treatment of CABP by the FDA, we intend to enter into agreements with third-party contract manufacturers for the commercial production of solithromycin. We believe there are a number of qualified manufacturers who could supply clinical and commercial quantities of solithromycin.

In January 2013, we entered into a supply agreement with Wockhardt whereby we will purchase from Wockhardt at least 70% of our total annual purchases of solithromycin in any year for clinical or commercial use in humans. Pursuant to the agreement, we may develop alternative sources of solithromycin for the other 30% of our annual needs. In the event that we reasonably believe that Wockhardt will be or is unable to manufacture and/or supply us with our required amounts of solithromycin, we have the right to purchase all or any portion of our solithromycin requirements from such alternate sources. The agreement’s initial term runs until December 31, 2019. After the end of the third complete calendar year (i.e. December 31, 2016), and at the end of each calendar year thereafter, the term will automatically extend for an additional year unless either party gives written notice to the other of its intent to terminate prior to the end of such calendar year, in which case the agreement will terminate at the end of the three remaining calendar years of the term.

We have a long term supply arrangement with Ercros, S.A., or Ercros, in Madrid, Spain, in which Ercros agrees to exclusively supply us with fusidic acid in the U.S., and we agree to exclusively obtain our supply of fusidic acid for commercial sale from Ercros, subject to a right to develop a second source for limited supply quantities to produce fusidic acid for Taksta. The supply agreement with Ercros will continue until at least March 2029, subject to earlier termination for our uncured material breach or our bankruptcy or insolvency. In addition, the exclusivity restrictions on Ercros are subject to termination for our failure to file with the FDA an NDA for the sale of Taksta prior to December 31, 2017. We believe Ercros is one of only two currently known manufacturers that can produce fusidic acid compliant with the purity required for human use. Fusidic acid is difficult to produce at these purity levels because of its complex fermentation process. We believe the only other manufacturer of fusidic acid with sufficient purity is Leo Laboratories, which is using its manufacturing capacity for its own needs. We have yet to identify a viable alternate source of fusidic acid but continue to research alternatives. We intend to utilize a third-party manufacturer to produce the finished dosing formulation of Taksta.

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In July 2013, we entered into a development and supply agreement with Hospira Worldwide Inc., or Hospira, whereby Hospira will assist us in the development of an IV form of solithromycin (in glass vials) and will provide our supply of that product for development purposes. If we receive regulatory approval for such form of solithromycin, we will purchase from Hospira at least 80% of our requirements of such product for commercial sale as a human pharmaceutical product in the U.S., the European Union, Canada, Norway and Switzerland (the “Territory”). We will pay one price for clinical supplies of solithromycin and another price for commercial supplies. Beginning in 2014, Hospira may increase the price of the product for commercial use once annually by the increase in Hospira’s manufacture of the product or the annual increase of a specified inflation index. The per unit price of our commercial supply will decrease if we purchase specified volumes in a given year. Additionally, we will pay Hospira certain development fees, with specified amounts becoming payable at defined stages of the development of the product.  Each year during which we sell the product, we are required to purchase a specified minimum percentage of our forecasted amount of product required for that year. We must supply Hospira at no cost the active pharmaceutical ingredient for the product. If Hospira fails to supply a specified percentage of product, we may purchase all or a portion of our requirements of the product from an alternative supplier until Hospira remedies the supply failure.  Unless earlier terminated, the agreement will remain in effect until the end of the third year after the first commercial sale of the product in the Territory. Thereafter, the agreement will automatically renew for an indefinite period. Beginning one year after the first commercial sale of the product in the Territory, either party may terminate the agreement at will upon 24 months’ notice. Prior to the completion of the development of the product or the submission of an application for regulatory approval in the Territory, either party may terminate the development project or the agreement if such party determines the development of intravenous solithromycin under the agreement is not clinically, commercially or technically feasible.

Government Regulation and Product Approval

Government authorities in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. solithromycin, Taksta and any other antibiotic product candidate that we develop must be approved by the FDA through the NDA process before they may be legally marketed in the U.S.

U.S. Drug Development Process

In the U.S., the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or FDCA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a drug may be marketed in the U.S. generally involves the following:

The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources and approvals are inherently uncertain.

Before testing any compounds with potential therapeutic value in humans, the drug candidate enters the pre-clinical testing stage. Pre-clinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. The sponsor must submit the results of the pre-clinical tests, together with manufacturing information, analytical data and any available clinical data or literature, to the FDA as part of the IND. The sponsor will also include a protocol detailing, among other things, the

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objectives of the first phase of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if the first phase lends itself to an efficacy evaluation. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a drug candidate at any time before or during clinical trials due to safety concerns or non-compliance.

Each new clinical protocol must be submitted to the IND for FDA review, and to an Institutional Review Board, or IRB, for approval. Protocols detail, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety. An IRB is charged with protecting the welfare and rights of study participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed.

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

Post-approval studies, or Phase 4 clinical trials, may be conducted after initial marketing approval. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in laboratory animals that suggests a significant risk for human subjects. Phase 1, Phase 2 and Phase 3 testing may not be completed successfully within any specified period, if at all. The FDA or the sponsor or its data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

U.S. Review and Approval Processes

The results of product development, pre-clinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances.

In addition, under the Pediatric Research Equity Act of 2003, or PREA, which was reauthorized under the Food and Drug Administration Amendments Act of 2007, or FDAAA, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted.

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The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be re-submitted with the additional information. The re-submitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether the manufacturing controls are adequate to assure and preserve the product’s identity, strength, quality and purity. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. During the drug approval process, the FDA also will determine whether a risk evaluation and mitigation strategy, or REMS, is necessary to assure the safe use of the drug. If the FDA concludes REMS is needed and notifies the drug sponsor of this decision, the sponsor of the application must submit a proposed REMS; the FDA will not approve a marketing application without a REMS, if required.

In addition, under the FDAAA, all NCEs prior to approval are referred to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions, unless the Secretary of Health and Human Services provides in the action letter on the drug application a summary of the reasons why it was not referred. An advisory committee is a panel of experts who provide advice and recommendations when requested by the FDA on matters of importance that come before the agency. The FDA is not bound by the recommendation of an advisory committee but it generally follows such recommendations.

The approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA will issue a complete response letter if the agency decides not to approve the NDA in its present form. The complete response letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application.

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require Phase 4 testing which involves post-approval clinical trials designed to further assess a drug safety and effectiveness after NDA approval and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized.

Under the Orphan Drug Act, special incentives exist for companies to develop products for rare diseases or conditions, which are defined to include those diseases or conditions that affect fewer than 200,000 people in the U.S. Companies must submit their request that the FDA grant a drug orphan designation prior to submission of an NDA or biologic license application for that product. Products designated as orphan drugs are eligible for special grant funding for research and development, FDA assistance with the review of clinical trial protocols, potential tax credits for research, reduced filing fees for marketing applications, and a special seven-year period of market exclusivity after marketing approval. Orphan drug exclusivity prevents FDA approval of applications by others for the same drug and the designated orphan disease or condition. The FDA may approve a subsequent application from another entity if the FDA determines that the application is for a different drug or different use, or if the FDA determines that the subsequent product is clinically superior, or that the holder of the initial orphan drug approval cannot assure the availability of sufficient quantities of the drug to meet the public’s need. A grant of an orphan designation is not a guarantee that a product will be approved. If a sponsor receives orphan drug exclusivity upon approval, there can be no assurance that the exclusivity will prevent another entity or a similar drug from receiving approval for the same or other uses.

Patent Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of FDA approval of the use of our product candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. Subject to certain limitations, the patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time between the submission date of an NDA and the approval of that application, up to a total of five years. Only one patent applicable to an approved drug is eligible for the extension. The application for such extension must be submitted

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prior to the expiration of the patent and within 60 days of the drug’s approval. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, we may apply for restoration of patent term for one of our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA.

Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications of other companies seeking to reference another company’s NDA. The FDCA provides a five-year period of non-patent data exclusivity within the U.S. to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the pre-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Pediatric exclusivity is another type of exclusivity in the U.S. Pediatric exclusivity, if granted, provides an additional six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study. The current pediatric exclusivity provision was reauthorized in September 2007 as part of the FDAAA.

We believe that both solithromycin and Taksta will benefit from the marketing incentives of the GAIN Act, enacted in 2012. This legislation rewards a Qualified Infectious Disease Product with five years of additional exclusivity (added to the five years of Hatch-Waxman exclusivity) when its NDA is approved. Pursuant to the GAIN Act, in 2013, the FDA designated each of the oral and IV formulations of solithromycin as a QIDP for the indication of CABP, which was designated a qualified infections disease pathogen by the FDA in 2013.  The NDA also receives priority review, which reduces the standard 12-month review time by four months. The FDA has designated each of oral and intravenous solithromycin as a QIDP for the indication of CABP, and also has designated the oral form as a QIDP for the treatment of uncomplicated gonococcal infections.

Fusidic acid has been approved for oral use in many countries, including Western countries, outside the U.S. for more than three decades to treat ABSSSI, as well as other types of infections caused by staphylococci and ß-hemolytic streptococci, but it has never been approved in the U.S. This is because of the general lack of intellectual property protection that was available for the molecule until recently. Significant patent protection expired in the 1980’s, and antibiotics were not eligible for Hatch-Waxman Act data exclusivity, which affords a five-year period of data exclusivity upon approval of a new chemical entity, or NCE, in the U.S. In November 1997, the FDA Modernization Act, or FDAMA, repealed section 507 of the Federal, Food, Drug, and Cosmetic Act, or FDCA, under which marketing applications for antibiotics were previously approved. This law made antibiotics, like other drugs, eligible for Hatch-Waxman Act exclusivity. However, fusidate/fusidic acid was the subject of a marketing application received by FDA under Section 507 of the FDCA before November 21, 1997, the effective date of FDAMA. Antibiotics for which marketing applications were submitted before that date, even if the application was not approved, as was the case with fusidic acid, are known as “old” antibiotics. Old antibiotics were not eligible for the exclusivity provisions afforded by FDAMA. Consequently, although fusidic acid had never been approved in the U.S., as an old antibiotic, it was not eligible for the five-year NCE exclusivity. The passage of Public Law (PL) 110-379 on October 8, 2008, allowed old antibiotics such as fusidic acid to obtain five-year NCE exclusivity upon NDA approval, thereby making development of fusidic acid for the U.S. feasible. In response to our question based on unclear language in PL 110-379 regarding other exclusivities, we received notification from the FDA in January 2011 that old antibiotics such as fusidic acid would also be eligible for orphan and pediatric exclusivity. In October 2013, the FDA granted orphan drug designation for fusidic acid for the treatment of PJI. In December 2013, PJI was classified as a very rare disease by the National Institutes of Health, or NIH.   In addition, the GAIN Act extends the NCE data exclusivity period for QIDPs such as fusidic acid from five years to 10 years. Finally, our loading dose regimen, which received a U.S. patent in May 2013, provides patent protection to 2029.

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Post-Approval Requirements

Any drug product for which we receive FDA approval will be subject to continuing regulation by the FDA, including, among other things, record keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, cGMP requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements. The FDA strictly regulates labeling, advertising, promotion and other types of information on products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.

The FDA may withdraw a product approval if compliance with regulatory standards is not maintained or if problems (quality or safety) occur after the product reaches the market. Later discovery of previously unknown quality, safety, or other problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Further, the failure to maintain compliance with regulatory requirements may result in administrative or judicial actions, such as fines, warning letters, holds on clinical trials, product recalls or seizures, product detention or refusal to permit the import or export of products, refusal to approve pending applications or supplements, restrictions on marketing or manufacturing, injunctions or civil or criminal penalties.

In addition, from time to time, legislation is drafted, introduced and passed in the U.S. Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. For example, in September 2007, the FDAAA was enacted giving the FDA enhanced post-market authority, including the authority to require post-market studies and clinical trials, labeling changes based on new safety information and compliance with a risk evaluation and mitigation strategy. Failure to comply with any requirements under the new law may result in significant penalties. The law also authorized significant civil money penalties for the dissemination of false or misleading direct-to-consumer advertisements and allows the FDA to require companies to submit direct-to-consumer television drug advertisements for FDA review prior to public dissemination. Additionally, the law expanded the clinical trial registry so that sponsors of all clinical trials, except for Phase 1 clinical trials, are required to submit certain clinical trial information for inclusion in the clinical trial registry data bank. In addition to this legislation, the FDA regulations and policies are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative or FDA regulation or policy changes will be enacted or implemented and what the impact of such changes, if any, may be.

Other U.S. Health Care Laws and Compliance Requirements

In the U.S., our activities are subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration), other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local governments. For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, the privacy provisions of the Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Under the Veterans Health Care Act, or VHCA, drug companies are required to offer certain drugs at a reduced price to a number of federal agencies including U.S. Department of Veterans Affairs and U.S. Department of Defense, the Public Health Service and certain private Public Health Service designated entities in order to participate in other federal funding programs including Medicare and Medicaid. Recent legislative changes purport to require that discounted prices be offered for certain U.S. Department of Defense purchases for its TRICARE program via a rebate system. Participation under the VHCA requires submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations.

In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance

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programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities or register their sales representatives, as well as prohibiting pharmacies and other health care entities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing, and prohibiting certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.

Foreign Regulation

In addition to regulations in the U.S., we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products to the extent we choose to sell any products outside of the U.S. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

E.U. member states require both regulatory clearances by the national competent authority and a favorable ethics committee opinion prior to the commencement of a clinical trial. Under the E.U. regulatory systems, we may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, conducted by the EMA, provides for the grant of a single marketing authorization that is valid for all E.U. member states. The centralized procedure is compulsory for medicines produced by certain biotechnological processes, products with a new active substance indicated for the treatment of certain diseases such as neurodegenerative disorder or diabetes and products designated as orphan medicinal products and optional for those products which are highly innovative or for which a centralized process is in the interest of patients. The decentralized procedure of approval provides for approval by one or more other, or concerned, member states of an assessment of an application performed by one member state, known as the reference member state. Under the decentralized approval procedure, an applicant submits an application, or dossier, and related materials (draft summary of product characteristics, draft labeling and package leaflet) to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report, each concerned member state must decide whether to approve the assessment report and related materials. If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points may eventually be referred to the European Commission, whose decision is binding on all member states.

We have presented to and received feedback from several E.U. member countries regarding our plan to submit an MAA to the EMA.  As part of this, our PIP has been accepted by the EMA for the suspension formulation of solithromycin to treat CABP in pediatric patients.  

Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval. In the U.S. and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend considerably on the availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA approvals. Our products may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

In 2003, the U.S. government enacted legislation providing a prescription drug benefit for Medicare recipients, which became effective at the beginning of 2006. Government payment for some of the costs of prescription drugs may increase demand for any products for which we receive marketing approval. However, to obtain payments under this program, we would be required to sell products to Medicare recipients through prescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted prices for our products. In March 2010, the Patient Protection and Affordable Care Act became law, which substantially changed the way healthcare is financed by both governmental and private insurers. We anticipate that this legislation will result in additional downward pressure on coverage and the price that we receive for any approved product. Federal, state and local governments in the U.S. continue to consider legislation to limit the growth of health care costs, including the cost of prescription drugs. Future legislation could limit payments for pharmaceuticals such as the drug candidates that we are developing.

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Different pricing and reimbursement schemes exist in other countries. In the European Community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of our particular drug products to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the U.S. has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Corporate History and Information

We were formed as Cempra Holdings, LLC, a limited liability company under the laws of the State of Delaware, on May 16, 2008. Cempra Holdings, LLC was formed in connection with a reorganization whereby the stockholders of Cempra Pharmaceuticals, Inc., a corporation formed under the laws of the State of Delaware on November 18, 2005, exchanged their shares of Cempra Pharmaceuticals, Inc. stock for shares of Cempra Holdings, LLC, pursuant to a merger of a subsidiary of Cempra Holdings, LLC with and into Cempra Pharmaceuticals, Inc., as a result of which Cempra Pharmaceuticals, Inc. became a wholly owned subsidiary of Cempra Holdings, LLC.

On February 2, 2012, Cempra Holdings, LLC converted from a Delaware limited liability company to a Delaware corporation and was renamed Cempra, Inc. As a result of the corporate conversion, the holders of common shares of Cempra Holdings, LLC became holders of shares of common stock of Cempra, Inc. and the holders of preferred shares of Cempra Holdings, LLC became holders of shares of common stock of Cempra, Inc. Holders of options to purchase common shares of Cempra Holdings, LLC became holders of options to purchase shares of common stock of Cempra, Inc. Holders of notes convertible into preferred shares of Cempra Holdings, LLC and associated warrants exercisable for preferred shares of Cempra Holdings, LLC became holders of shares of common stock and warrants to purchase shares of common stock of Cempra, Inc.

We have two subsidiaries, Cempra Pharmaceuticals, Inc. and CEM-102 Pharmaceuticals, Inc. Our primary executive offices are located at 6320 Quadrangle Drive, Suite 360, Chapel Hill, NC 27517-8149, and our telephone number is (919) 313-6601. Our website address is http://www.cempra.com . The information contained in, or that can be accessed through, our website is not part of this report.

Employees

As of February 23, 2015, we had 55 employees, 16 of whom hold Ph.D. or M.D. degrees. Thirty-seven of our employees were engaged in research and development activities and eighteen were engaged in support administration, including business development and finance. None of our employees is subject to a collective bargaining agreement. We consider our relationship with our employees to be good.

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