Azitra, Inc.: Form 10-Q for the period ended Jun 30, 2024

Cautionary Statement

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto contained elsewhere in this report. The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other filings with the Securities and Exchange Commission, or SEC, including our Form 10-K for the year ended December 31, 2023 and filed with the SEC on March 15, 2024.

In this report we make statements, and from time to time we otherwise make written and oral statements regarding our business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions identify forward-looking statements, which may appear in our documents, reports, filings with the SEC, and news releases, and in written or oral presentations made by officers or other representatives to analysts, stockholders, investors, news organizations and others, and in discussions with management and other of our representatives.

Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties, including those risks included in the “Risk Factors” section in our Form 10-K for the year ended December 31, 2023 and filed with the SEC on March 15, 2024. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement.

General

We were formed in January 2014 as a biopharmaceutical company focused on developing innovative therapies for precision dermatology using engineered proteins and live biotherapeutic products. We are an early-stage clinical biopharmaceutical company and have not commenced commercial operations.

To date, we have capitalized our operations primarily through a series of private placements of our convertible preferred stock and convertible promissory notes and our initial public offering, IPO, of common stock which closed on June 21, 2023. In connection with our IPO, we issued 50,000 shares of our common stock at a public offering price of $150 per share. Concurrent with the close of our IPO, all of our outstanding shares of convertible preferred stock and convertible promissory notes converted into a total of 298,384 shares of our common stock. In February 2024, we completed a follow-on public offering in which we issued and sold 555,567 shares of our common stock at a price to the public of $9.00 per share. On July 25, 2024, the Company completed a follow-on offering of an aggregate of 6,665,000 shares of its common stock, and Class A warrants to purchase up to 13,330,000 shares of common stock, at a combined public offering price of $1.50 per share and accompanying warrants.

As of August 12, 2024, we had 7,625,056 shares of our common stock issued and outstanding. Except as otherwise indicated, all share and share price this report gives effect to a reverse stock split effected on July 1, 2024 at a ratio of 30-for-1.

Overview

We focus on developing innovative therapies for precision dermatology using engineered proteins and topical live biotherapeutic products. We have built a proprietary platform that includes a microbial library comprised of approximately 1,500 unique bacterial strains that can be screened for unique therapeutic characteristics. The platform is augmented by an artificial intelligence and machine learning technology that analyzes, predicts and helps screen our library of strains for drug like molecules. The platform also utilizes a licensed genetic engineering technology, which can enable the transformation of previously genetically intractable strains. Our initial focus is on the development of genetically engineered strains of Staphylococcus epidermidis, or S. epidermidis, which we consider to be an optimal therapeutic candidate species for engineering of dermatologic therapies. The particular species demonstrates a number of well-described properties in the skin. As of the date of this report, we have identified among our microbial library over 60 distinct bacterial species that we believe are capable of being engineered to create living organisms or engineered proteins with significant therapeutic effect.

We are a pioneer in genetically engineered bacteria for therapeutic use in dermatology. Our goal is to leverage our platforms and internal microbial library bacterial strains to create new therapeutics that are either engineered living organisms or engineered proteins or peptides to treat skin diseases. Our initial focus is on the development of our current product candidates, including:

• ATR-12, a genetically modified strain of S. epidermidis for treating the orphan disease, Netherton syndrome, a chronic and sometimes fatal disease of the skin estimated to affect approximately one in every 100,000, but its prevalence may be underestimated due to misdiagnosis caused by similarities to other skin diseases. We received Pediatric Rare Disease Designation for ATR-12 by the United States Food and Drug Administration, or FDA, in 2019. In December 2022, we submitted an investigational new drug application, or IND, for a Phase 1b clinical trial of ATR-12 in Netherton syndrome patients, and on January 27, 2023 we received notification from the FDA that the “study may proceed” with respect to the proposed Phase 1b clinical trial. After submitting post-IND manufacturing reports, we have commenced operating activities for our Phase 1b clinical trial in December 2023 and the trial has been opened for patient enrollment. We expect to report initial safety results by year-end 2024.
• ATR-04, a genetically modified strain of S. epidermidis for treating the papulopustular rash experienced by cancer patients undergoing epidermal growth factor receptor inhibitor, or EGFRi, targeted therapy. We intend to submit an IND for a Phase 1b clinical trial in certain cancer patients undergoing EGFRi targeted therapy in the third quarter of 2024. Subject to FDA clearance of our IND, we expect to commence our Phase 1b clinical trial in the fourth quarter of 2024.
• ATR-01, a genetically modified strain of S. epidermidis that expresses an engineered recombinant human filaggrin protein for treating ichthyosis vulgaris, a chronic, xerotic (abnormally dry), scaly skin disease with an estimated incidence and prevalence of 1 in 250, which suggests a total patient population of 1.3 million in the United States. We are planning to perform lead optimization and IND-enabling studies in 2024 to support an IND filing targeted for the second half of 2025.
• Two separate strains of bacterial microbes being investigated and developed by us and Bayer Consumer Care AG, the consumer products division of Bayer AG, or Bayer, the international life science company. We entered into a Joint Development Agreement, or JDA, with Bayer in December 2019. Under the terms of the JDA, we are responsible for testing our library of bacterial strains and their natural products for key preclinical properties. After screening through hundreds of strains, we and Bayer have selected two particular strains to move forward into further development. Bayer holds the exclusive option to license the patent rights to these strains. In December 2020, Bayer purchased $8 million of our Series B preferred stock, which converted into 48,324 shares of our common stock.

We also have established partnerships with teams from Carnegie Mellon University and the Fred Hutchinson Cancer Center, or Fred Hutch, two of the premier academic centers in the United States. Our collaboration with the Carnegie Mellon based team also takes advantage of the power of whole genome sequencing. This partnership is mining our proprietary library of bacterial strains for novel, drug like peptides and proteins. The artificial intelligence/machine learning technology developed by this team predicts the molecules made by microbes from their genetic sequences. The system then compares the predictions to the products actually made through tandem mass spectroscopy and/or nuclear magnetic resonance imaging to refine future predictions. The predictions can be compared to publicly available 2D and 3D protein databases to select drug like structures.

We hold an exclusive, worldwide license from Fred Hutch regarding the use of its patented SyngenicDNA Minicircle Plasmid, or SyMPL, technologies for all fields of genetic engineering, including to discover, develop and commercialize engineered microbial therapies and microbial-derived peptides and proteins for skin diseases. We are utilizing our licensed patent rights to build plasmids in order to make genetic transformations that have never been previously achieved. To date, our team has successfully engineered our lead therapeutic candidates without the SyMPL technology. However, we believe that SyMPL will open up the ability to make genetic transformations of an expanded universe of microbial species, and we expect that some or all of our future product candidates will incorporate the SyMPL technology.

Our Strategy

Beyond our three lead product candidates and collaboration with Bayer, our goal is to develop a broad portfolio of product candidates focused on expanding the application of our platforms for precision dermatology. We believe that we have established a unique position in advancing the development of biologics for precision dermatology.

We intend to create a broad portfolio of product candidates for precision dermatology through our development of genetically engineered proteins selected from our proprietary microbial library of approximately 1,500 unique bacterial strains. Our strategy is as follows:

• Build a sustainable precision dermatology company. Our goal is to build a leading precision dermatology company with a sustainable pipeline of product candidates. To that end, we are focused on rapidly advancing our current pipeline of live biotherapeutic candidates while actively developing additional product candidates. Each of our current product candidates are

proprietary and subject to pending patent applications. We expect that most, if not all, genetically engineered product candidates we develop will be eligible for patent protection.

• Advance our lead product candidates, ATR-12 and ATR-04, through clinical trials. In 2022, we obtained pre-IND correspondence with the FDA for purposes of discussing our proposed regulatory pathway for ATR-12 and obtaining guidance from the FDA on the preclinical plan leading to the filing and acceptance of an IND for ATR-12. In December 2022, we filed an IND for a first-in-human trial of ATR-12 in Netherton syndrome patients. On January 27, 2023, we received notification from the FDA that the “study may proceed” with respect to the proposed Phase 1b clinical trial. In April 2024, we held a pre-IND meeting with the FDA to discuss an IND filing for a first-in-human Phase 1b/2a clinical trial in patients with EGFRi-associated rash. We expect to report initial safety results of our Phase 1b clinical trial for our ATR-12 in Netherton syndrome patients by year-end and are currently planning to commence a Phase 1b trial of our ATR-04 in certain cancer patients undergoing EGFRi therapy in the fourth quarter of 2024. We have a cleared IND for ATR-12 and expect to file an IND for ATR-04 in the third quarter of 2024.
• Broaden our platform by selectively exploring strategic partnerships that maximize the potential of our precision dermatology programs. We intend to maintain significant rights to all of our core technologies and product candidates. However, we will continue to evaluate partnering opportunities in which a strategic partner could help us to accelerate development of our technologies and product candidates, provide access to synergistic combinations, or provide expertise that could allow us to expand into the treatment of different types of skin diseases. We may also broaden the reach of our platform by selectively in-licensing technologies or product candidates. In addition, we will consider potentially out-licensing certain of our proprietary technologies for indications and industries that we are not ourselves pursuing. We believe our genetic engineering techniques and technologies have applicability outside of the field of medicine, including cosmetics and in the generation of clean fuels and bioremediation.
• Leverage our academic partnerships. We currently have partnerships with investigators at the Fred Hutchinson Cancer Center, Yale University, Jackson Laboratory for Genomic Medicine, and Carnegie Mellon University. We expect to leverage these partnerships and potentially expand them or form other academic partnerships to bolster our engineering platforms and expand our research and development pipeline.
• Expand on our other potential product candidates. Beyond our three lead product candidates, our goal is to develop a broad portfolio of product candidates focused on expanding the application of our platforms for precision dermatology. We have a proprietary platform for discovering and developing therapeutic products for precision dermatology. Our platform is built around a microbial library comprised of approximately 1,500 unique bacterial strains to allow screening for unique therapeutic characteristics and utilizes a microbial genetic technology that analyzes, predicts and engineers the proteins, peptides and molecules made by skin microbes. Our ability to genetically engineer intractable microbial species is uniquely leveraged by our exclusive license to the SyMPL technology.

Results of Operations

We are an early-stage clinical biopharmaceutical company, formed in January 2014, and have limited operating history. We have not commenced revenue-producing operations apart from limited service revenue derived through our JDA with Bayer. Under the terms of the JDA, we are responsible for testing our library of microbial strains and their natural products for key preclinical properties and Bayer reimburses us for our development costs. To date, our operations have consisted of the development of our proprietary microbial library, the identification, characterization and testing of certain bacterial species from our microbial library that we believe are capable of being engineered to provide significant therapeutic effect and the development of our initial product candidates.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

The following table summarizes our results of operations with respect to the items set forth below for the three months ended June 30, 2024 and 2023, together with the percentage change for those items.

Service Revenue - Related Party

We generated $7,500 of service revenue under the Bayer JDA during the second quarter of fiscal 2024 compared to service revenue of $172,000 under the JDA for the comparable period in fiscal 2023. The decrease of $164,500 in service revenue is attributable to a decrease in the amount of reimbursable development costs incurred in 2024.

General and Administrative

General and administrative costs during the second quarter of fiscal 2024 increased by $704,589, or 83%, to $1,549,228 from the comparable prior period. The increase was primarily related to the costs incurred following, and as a result of, our emergence as a public company in June 2023, including $157,000 of salaries and benefits primarily related to the hiring of our COO, an increase of $139,000 primarily related to the hiring of our CFO consultant, an increase of $257,000 primarily related to costs associated with listing on the NYSE, an increase of $89,000 primarily related to the cost of directors and officers insurance, an increase of $88,000 in public relations expenditures, an increase of $77,000 in legal costs, an increase of $18,000 in Board member costs, an increase of $18,000 in conference expense offset by a decrease of $136,000 in accounting and audit expenses and a net decrease of $2,409 in other overhead expenses.

Research and Development

Research and development expenses include salaries and benefits of all research personnel, payments to contract research organizations, payments to research consultants, and the purchase of lab supplies. These expenses are offset by income earned from government grant payments and research and development tax credits. We generate grant revenue on contracts with various federal agencies and nonprofit research institutions for general research conducted by us. These grant arrangements also do not meet the criteria for revenue recognition and amounts earned under these grant contracts are recorded as a negative research and development expense.

During the second quarter of fiscal 2024, research and development expenses increased by $363,601, or 48%, to $1,118,552 from the comparable prior period. The increase was primarily related to an increase of $12,000 in research and development related costs attributable to our efforts in moving our ATR-12 program forward into the clinic, an increase of $149,000 attributable to the use of clinical consultants, an increase of $191,000 attributable to moving our ATR-04 program forward and a net increase of $11,601 in other costs. There was no government and nonprofit grant revenue received by us during the second quarter of fiscal 2024 and 2023. There were no refundable tax credits for the three-month periods ended June 30, 2024 and 2023.

We expect our research and development expenses to significantly increase in the future due primarily to our planned clinical trial activity and continued development of product candidates.

Other Income (Expense)

Our other income (expense) consists valuation of warrants, loss on foreign currency translation, change in fair value of the convertible note and interest expense. During the second quarter of fiscal 2024, other income (expense) decreased by $3,030,225, or 101%, compared to the comparable period in fiscal 2023. The decrease was primarily related to a decrease of $2,830,100 attributable to the change in fair value of the convertible note, a decrease of $74,405 attributable to interest expense, a decrease of $98,504 in warrant value and a net decrease of $27,216 attributable to other income and expense.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

The following table summarizes our results of operations with respect to the items set forth below for the for the six months ended June 30, 2024 and 2023 together with the percentage change for those items.

Service Revenue - Related Party

We generated $7,500 of service revenue under the Bayer JDA during the first six months of fiscal 2024 compared to service revenue of $285,300 under the JDA for the comparable period in fiscal 2023. The decrease of $277,800 in service revenue is attributable to a decrease in the amount of reimbursable development costs in 2024.

General and Administrative

General and administrative costs during the first six months of fiscal 2024 increased by $1,350,106, or 80%, to $3,037,755 from the prior year period. The increase was primarily related to the costs incurred following, and as a result of, our emergence as a public company in June 2023, including an increase of $299,000 of salaries and benefits primarily related to the hiring of or COO, an increase of $260,000 primarily related to the hiring of our CFO consultant, an increase of $342,000 primarily related to costs associated with listing on the NYSE, an increase of $204,000 primarily related to the cost of directors and officers insurance, an increase of $123,000 in public relations expenditures, an increase of $147,000 in legal costs, an increase of $48,000 in Board member costs, an increase of $32,000 in conference expense offset by a decrease of $142,000 in accounting and audit expenses and a net increase of $37,106 in other overhead expenses.

Research and Development

Research and development expenses include salaries and benefits of all research personnel, payments to contract research organizations, payments to research consultants, and the purchase of lab supplies. These expenses are offset by income earned from government grant payments. We generate grant revenue on contracts with various federal agencies and nonprofit research institutions for general research conducted by us. These grant arrangements also do not meet the criteria for revenue recognition and amounts earned under these grant contracts are recorded as a negative research and development expense.

During the first six months of fiscal 2024, research and development expenses increased by $1,007,535, or 64%, to $2,591,522 from the prior year period. The increase was primarily related to a increase of $153,000 in research and development related costs attributable to our efforts in moving our ATR-12 program forward into the clinic, an increase of $272,000 attributable to the use of clinical consultants, an increase of $642,000 attributable to moving our ATR-04 program forward offset by a decrease of $56,000 related to the forgiveness of an accounts payable amount and a net decrease of $3,464 in other cost. There was $0 and $1,145 in government and nonprofit grant revenue received by us during the first six months of fiscal 2024 and 2023, respectively.

We expect our research and development expenses to significantly increase in the future due primarily to our planned clinical trial activity and continued development of product candidates.

Other Income (Expense)

Our other income (expense) consists valuation of warrants, loss on foreign currency translation, change in fair value of the convertible note and interest expense. During the first six months of fiscal 2024, other income (expense) decreased by $3,947,565, or 101%, compared to the comparable period in fiscal 2023. The decrease was primarily related to an decrease of $3,630,100 attributable to the change in fair value of the convertible note, an decrease of $163,323 attributable to interest expense, an decrease of $121,138 in warrant value and a net decrease of $33,004 attributable to other income and expense.

Financial Condition

As of June 30, 2024, we had total assets of approximately $3.9 million and working capital of approximately $(0.4) million. As of June 30, 2024, our liquidity included approximately $0.8 million of cash and cash equivalents. Following the quarter end, in July 2024, we completed a follow-on offering of an aggregate of 6,665,000 shares of our common stock and Class A warrants to purchase up to 13,330,000 shares of common stock, at a combined public offering price of $1.50 per share and accompanying warrants, for the net proceeds of $8.95 million. After giving effect to the July 2024 offering we believe that our cash on-hand as of the date of this report may not be sufficient to cover our proposed plan of operations over the next twelve months. We intend to seek additional funds through various financing sources, including the sale of our equity and debt securities, federal grants, licensing fees for our technology and joint ventures with industry partners. In addition, we will consider alternatives to our current business plan that may enable us to achieve revenue producing operations and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, our common stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

As of the date of this filing, management has determined there is substantial doubt about our ability to continue as a going concern based on our lack of revenue from commercial operations, significant losses, and the need to raise additional capital to support ongoing operations.

Cash Flows

The following table shows a summary of our cash flows for the periods indicated:

Operating Activities

During the first six months of fiscal 2024, operating activities used $5.1 million of cash primarily driven by our net loss of $5.6 million offset by non-cash items of $0.5 million. During the comparable period of fiscal 2023, operating activities used $3.0 million of cash primarily driven by our net loss of $6.9 offset by non-cash items of $3.9 million.

Investing Activities

During the first six months of fiscal 2024, investing activities used $155,826 of cash driven by $155,826 trademark and patent costs. During the comparable period of fiscal 2023, investing activities used $162,138 of cash driven by $129,297 of trademark and patent costs, $17,578 for the purchase of furniture and equipment, and $15,263 of license costs.

Financing Activities

During the first six months of fiscal 2024, financing activities provided $4.3 million in cash primarily driven by proceeds from our February 2024 follow-on public offering. During the comparable period of fiscal 2023, financing activities used $6.0 million in cash primarily driven by deferred offering costs for our June 2023 IPO.

Critical Accounting Policies

During the six months ended June 30, 2024, there were no material changes to our critical accounting policies previously disclosed in our Form 10-K dated December 31, 2023 and filed with the SEC on March 15, 2024.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our condensed financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our condensed financial statements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the condensed financial statements prospectively from the date of change in estimates. There were no material changes to our critical accounting estimates as reported in our Form 10-K for the year ended December 31, 2023 and filed with the SEC on March 15, 2024.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as of June 30, 2024. In the course of that evaluation, we identified a material weakness as it relates to a lack of adequate segregation of accounting functions. We intend to increase staffing within our accounting infrastructure sufficient to facilitate proper segregation of accounting functions and to enable appropriate review of our internally prepared financial statements. Based upon the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of June 30, 2024.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those forward-looking statements include our expectations, beliefs, intentions and strategies regarding the future. You should carefully consider the risk factors discussed in the “Risk Factors” section in our Form 10-K for the year ended December 31, 2023 as, in light of those risks, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in our forward-looking statements. Other than as set forth below, there have been no material changes in the risk factors included in our 2023 Form 10-K. The risk factors described in our 2023 Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

In December 2019, we entered into a Joint Development Agreement, or JDA, with Bayer pursuant to which we agreed to the joint development of certain strains selected from our proprietary microbial library. We have granted Bayer an option to acquire an exclusive royalty bearing license for up to six strains subject to development activities under the JDA, including an exclusive royalty bearing license to any related patent rights. We continue to conduct joint development work with Bayer and discuss the proposed royalty bearing license. While we remain optimistic concerning the successful completion of a royalty bearing license agreement with Bayer, there can be no assurance we will be able to conclude a licensing agreement or, if we are, that the terms of such license agreement will be favorable to us. Assuming our joint development work is successful, our ability to convert the successful development work into a commercial license with Bayer is dependent on a number of risks and factors, many of which are outside our control, including:

• Bayer’s internal evaluation of the economic benefits of marketing a dermatological product that may be competitive with other products currently in development or commercial sale by Bayer regardless of the perceived benefits or advantages of the microbial strain;
• Pharmaceutical regulations vary by country and, depending on Bayer’s marketing plans for the product based on our microbial strain, the pharmaceutical regulations in countries to be targeted by Bayer may render the clinical development of the product to be too expensive, time consuming or at risk for regulatory approval;
• Bayer’s internal budgetary and product development issues, including their ability to commit the capital and human resources towards the development and commercialization of our microbial strain; and
• Bayer’s willingness to accept our requirements for upfront fees and ongoing royalties.

In addition, we believe that in many cases our potential partners or licensee, including Bayer, may engage with us in the early-stage feasibility testing as part of their evaluation of multiple drug and drug delivery options and prior to making any decision or commitment to the development of a new drug product. Consequently, even if our joint development activities with Bayer are successful, for reasons unrelated to the performance of our technology, we may not be able to conclude a licensing agreement with Bayer.