Chris Stern Blog

We have been getting questions from shareholders about the financing agreement we announced on Monday with a news release and a detailed 8-K filing. If you have not taken the time to read the 8-K, you should do so.

First, let me say that the securities regulations are pretty strict about what we can and cannot say during the next month. So I am limited, for now, in the details I can give in answer to your questions and what I can say about the company’s plans.

In that context, here is some information that might be helpful to you in understanding what this announcement means.

Who are the people providing the company the money? If you look at the exhibits filed with the 8-K, you will see that the agreement is signed for Vatea Fund by Gregory Pepin. Then, if you go to the website Seekingalpha.com and do a search on his name, you will find several articles he has written on investing and you will see his public profile, which says Gregory Pepin is Senior Vice President of a wealth management company in Switzerland.

What does this deal mean?  On July 10, Vatea Fund has agreed to pay us $5 million for 20 million shares of our restricted common stock. Then, depending on events and whether the company achieves certain product milestones, they would end up providing us with up to an other $15 million in cash.

Some have asked why we are doing this deal. Again, I am referring to the 8k statement as filed. If you read our periodic public filings with the SEC, you will know that we have said in those filings that we will need additional funds to finance our planned product development activities.

We will use cash from the first tranche of $5 million partly to fund the warrant exchange offer. While I don’t know and won’t guess how many warrants, if any, will be offered to us for exchange, I do expect that the exchange will leave us with cash in the bank that we can use for our business needs and product pipeline.

Well, this apparently is all the freedom of speech I have here. Bear with me, I’ll be much more open as soon as securities regulations allow me to be myself again.

You may have noticed the numerous acronyms in our latest press release. We have always had strong backing in the military, but we did not consequently follow a strategy towards a goal in this sector. That has changed. As part of our Purple Heart Injury Laboratories (PHIL) initiative we have defined Defense Medicine™ as an important part of our business model and will position Oxycyte whenever used by warfighters as a Defense Biomedical™.

Only results count, so I am really excited about our signing of a Limited Purpose Cooperative Research and Development Agreement (LP-CRADA) with the Naval Medical Research Center (NMRC) and the Walter Reed Army Institute of Research (WRAIR).

As we said in our news release, our company will provide information that would be used by NMRC and WRAIR for preparation, writing, and submission to the FDA of an Investigational New Drug (IND) application for the use of Oxycyte® for the treatment of decompression sickness (DCS). We are providing information but retaining ownership of the underlying intellectual property.

What this means to the company is that the U. S. Navy wants to formally begin testing Oxycyte to determine whether it is safe and effective in treating decompression sickness and arterial gas embolism (AGE) and, with positive outcomes, to submit an application package to the FDA for approval to use Oxycyte in humans. The Navy’s research effort is budgeted at about $3.8 million. That is research money to develop Oxycyte that the company does not have to come up with.

The Navy is undertaking this research because there is currently no proven adjunctive therapy for DCS and AGE available.  The gold standard for treatment (recompression therapy) may not be readily available under a variety of circumstances, for instance if a disabled submarine is on the seafloor in a remote or dangerous location. Researchers who have been looking at this believe the most promising candidate for adjunctive therapy is emulsified PFC - Oxycyte.  However, it is not currently known if Oxycyte or any other PFC can actually treat DCS and AGE nor is there an FDA-approved PFC product available.

When you are an early-stage company, it is great to have someone with urgent needs and the funds to finance the research on using your product for an unsolved problem.

If their research is successful and the Navy gets FDA approval to use Oxycyte this way, the company will have an exclusive option to license the rights to these new indications.

NMRC and our primary research partner, Virginia Commonwealth University Reanimation Shock Center (VCURES), have developed a coordinated, comprehensive, multi-center, $3.8 million research program dedicated to determining the efficacy of PFCs for treating DCS and AGE. The planned studies are aimed at providing the necessary components to support an FDA application for Oxycyte use in DCS and AGE under the “two animal rule,” which is used when human efficacy studies are not feasible or ethical.  The program’s ultimate goal is to make a PFC preparation - Oxycyte - available for the operational treatment of DCS and AGE in the Fleet by the fiscal year 2012.

In my next Blog I am planning to discuss our upcoming TBI trials in Switzerland and Israel in more detail. We are on target with our efforts to gain approval in both countries. We will bring site after site “online” to take advantage of our learning curve. The first site under contract is the Insel Hospital of Berne in Switzerland, where we already have submitted to the Ethics Committee. Eleven other sites in Switzerland and Israel are being added as you are reading this.

Spring is the period of growing and blooming, and I love this season. That is a good theme for this Blog as I believe the next three months will mark a period of productive growth for our company.

First, I would like to report on the progress of our trials abroad. As you know, we had our investigator meeting in Zurich, Switzerland. Neurosurgeons and emergency physicians from the following institutions attended: University hospitals of Aarau, Basle, Berne, Geneva, and Zurich, all Switzerland. Hadassah Medical Organization of Jerusalem, Tel Aviv Sourasky Medical Center, and Sheba Medical Center of Tel-Hashomer, all Israel. Doctors Spiess and Bullock presented the science and the study plan, Dr. Michael Reinert presented the protocol, and the trial manager, Annette Magnin, explained the specifics and logistics of a combined Swiss-Israeli study.

Although the trial will be complicated in terms of patient inclusion and exclusion, informed consents, and equipment involved, we expect enrollment to begin as of June 1. Several hurdles need to be passed yet, of which the next one is regulatory approval. PFC Pharma-Focus AG, our clinical research organization with offices in Zurich and Tel-Aviv, now has taken the lead in the process. They have taken over a well-prepared protocol and are working on the necessary adaptations and inputs from the investigator meeting. We expect the documentation to be filed in due course for a timely trial start.

In a dose escalation study, data will be available after every dose cohort is evaluated. This is important not only from a research perspective, since it influences our research tree directly, but also because it provides a basis to contact potential future partners.

If a trial is conducted under good clinical practices, the data will be accepted in all countries, including by the FDA in the U.S. We are already working on performing the additional platelet studies in parallel, and our new friends and hospital partners in Israel have a lot of inputs to give in that respect. This potentially can save us a lot of time and effort. We consequently have established a “platelet and thrombocytopenia” task force chaired by Dr. Spiess. The task force will design and conduct the studies and has the assignment of coming up with the data requested by the FDA. World-class scientists as they are, they are hopeful of resolving once and for all a big medical challenge. As soon as we have safely reached the 3ml dose level in these trials, it is our plan to add the U.S. to the trial and roll the protocol forward into the next phase. That could still be phase II, or possibly be a combined phase II/III.

The initial supplies of clinical grade Oxycyte will come from a small contract manufacturer close to our labs in California. They, however, cannot make the larger batches we will need as we progress. That is why we explored options for larger-scale manufacturing. Last week we closed on the manufacturing contract for future supplies of clinical grade Oxycyte. As of next year we will be ready for continuous supply and will be able to satisfy all of our forecast demand. Controlling the supply chain is an important part of our strategy. Our licensees and partners will have to buy the Oxycyte from us. It’s like the model Coca Cola uses to control their compound by supplying the syrup to their bottlers.

Our growth plans will require additional capital. In addition to the international clinical TBI trial, we intend to scale up our topical division to produce income from the cosmetic application of Oxycyte and to begin clinical work on the wound care indication. The market potential of topical applications warrants a very aggressive marketing plan for our gel, which we have named Oxybiocyte^TM, and its many indications. We believe that funds from our topical product could potentially be high enough to carry our operating costs soon.

We also want to accelerate the process to bring at least two other indications into Phase II. We have more than 50 patents and patents pending that we should harvest. Our Sickle Cell Crisis Pain indication is dependent and waiting on the dose escalation data from TBI. As you know, we have very promising data for Stroke and Cardiovascular indications and these indications, from a research perspective, should ideally get on the move now. Those are on top of the initiatives to explore Oxycyte in Decompression Sickness conducted entirely by the U.S. Navy. Dr. Bullock also showed initial promising data about Oxycyte in spinal cord injuries - a sector we intend to push towards a phase I trial.

That all will cost money. So our finance team is working on getting sufficient capital into the company to reach our goals. There are several ways of doing this without triggering further dilution and we are currently exploring several avenues in parallel. It is still our intention to move our listing away from OTC BB to a major exchange to get better access to institutional investors.

Something else we’re doing with a promising financial impact is changing our approach to research and development grants. Previously, we always got the grants for Oxycyte through our research university partners. However, nothing prevents us from getting grants ourselves and not solely through the universities.  The fact is that academic institutions typically take between 25% and 45% of the grant for administration. We can do this ourselves.

With the passage of the budget in Congress, we are hopeful of getting the funding for PHIL. That would be another important milestone for the company. For us, PHIL will potentially generate enormous leverage and without significant investments give us exclusive access to what will be one of the biggest think-tanks in the industry. PHIL will have more than 80 researchers and state-of-the-art infrastructure. Dr. Spiess showed a diagram about the planned research on his last slide in Zurich and one can easily imagine what all these initiatives could mean for us.

It now is starting to come together and that thrill is a good reward for all the hard work our people are putting into this venture. In the past we had worked with a lot of consultants to get things done. That is scalable, but it becomes relatively expensive once you engage providers more. As I said at the meeting, we are changing this now. Additional capital and generating revenue will allow us to properly staff our company. This will also take a lot of “people dependency risk” out of the organization and is key to making an aggressive growth plan realistic.

If you haven’t yet done so, I suggest you listen to the replay of the webcast of our Zurich investor meeting. We will leave it up on the investor relations portion of our website through the end of April. It runs more than an hour, but is loaded with information. It will help your understanding of our science, where we’re headed, our business strategy to get there, and why I’m excited about the future of this company.

As always, thank you for your attention. My best wishes for happy Passover and Easter holidays.

In this Blog I want to talk about our Swiss Oxycyte® Traumatic Brain Injury trials. Some readers may remember that our original plans in December 2007 were to conduct a multinational study in Europe as well as the USA. When we decided in October 2008 to conduct our phase II-b trial as a dose escalation study we initially felt it would be easier to do this in the U.S. alone. Switzerland has always been an option for trials and early this year it became evident that it was actually the better and faster way to get the data we need to move Oxycyte forward in severe TBI. So we redirected our resources and decided to move forward as aggressively as possible.

An article published in Swiss Med Weekly in 2008 discovered stunning data about the feasibility in cohort studies for severe TBI in Switzerland: The incidence of severe TBI is 8.2 per 100,00 person years. The overall case fatality is 70%: 41 of 101 persons died at the scene of accident. 23 of 60 hospitalized patients died within 48 hours, and 31 within six months. The conclusion was what we knew already: Severe TBI was associated with high case fatality and considerable morbidity in survivors. Our phase 2-a study data suggests that Oxycyte has the potential to reduce the morbidity of survivors significantly, maybe up to 50%. Every patient being better than he/she would have been without Oxycyte is a success for the survivors, their families, and the social network, or institution that finally has to carry the burden of responsibility to give these people a decent life.

The reason why we choose Switzerland for our trials is first and foremost the quality of medical research in there. The country is home to some of the largest pharmaceutical and biomedical companies in the world. Due to the high level of standard of care, the costs to enroll a patient to a study in Switzerland is only about 25% of what it is in the U.S. Also, the Swiss population lives a healthier lifestyle than the average American and thus complexity in selecting patients will be reduced.

The second reason is the regulatory process, which is more tailored to a sponsor’s needs. It is an overall reasonable approach managed by a two-tier regulatory body. The first tier is the cantonal (state) ethics committee of every canton where a trial is intended to take place. The advantage of these committees is that only doctors currently in active clinical duty staff them. The disadvantage is that, in our case, we have to go to up to five cantonal boards to get approval. However, once the first ethical committee has issued a positive review, the file is submitted to Swissmedic, the national regulatory body.

Swissmedic has set a benchmark in regulatory professionalism and are extremely well organized. They typically follow recommendations of the ethic committees. Data gathered in international trials is generally accepted by the FDA, if the protocol is adhered to.

The CRO we have hired is a company called PFC, which just by coincidence is the shorthand for Perfluocarbons. But despite the common acronym there is no relation. The principal investigator of our Swiss trials is Dr. Michael Reinert, a highly renowned and awarded neurosurgeon at the Insel Hospital of Berne. Dr. Reinert has been involved in the treatment of many local headline news cases. Our global primary investigator, Dr. Ross Bullock, has been working and publishing with Swiss colleagues for many years. Several of his recent publications include Swiss neurosurgeons as co-authors or contributors. An announcement about our final selection of trials sites will be made after the investigator meeting of March 31.

Following the investigator meeting we have scheduled an investor conference for April 1 from 1PM to 3PM CET (7AM to 9AM EDT) at the Zurich Airport Radisson SAS hotel. The event will be webcast live and include a short business update and sufficient time for an extensive question and answer part with Dr. Bullock, and Dr. Spiess.

Meanwhile, we continue to work with the FDA to conduct clinical trials in the USA. We are certainly being careful to follow procedures with the FDA by the book and I will not comment on my thoughts or express opinions on this. Many companies have hurt themselves by fighting the FDA via public opinion. That is why we are not going this route. The FDA Ombudsperson has received our rebuttal to conclusions that were presented to us and the review process is under way.

We know we have an indication with a favorable risk-benefit profile in a critically ill population for which there is currently no therapy available. TBI has a mortality and major morbidity rate of at least 50% and it remains the largest cause of death and disability in young persons under 40 worldwide. In an indication with significant mortality with no approved single drug intervention, our nine- patient feasibility study with Oxycyte in severe TBI showed evidence of biological efficacy and cerebral neurochemical improvement after the drug, with no patient suffering harm as a consequence of the drug. We are optimistic that we will end up with permission to begin our trials in this country. Be assured that we will keep you informed of the developments.

Here is the question I hear most often from shareholders: How much do I personally believe in the future of OXBO?

The answer very straight forward: Absolutely. Our company is one of the few very-small biomedical ventures having a multi-pillar strategy in the clinical and the topical sector. As a result, we have strategic alternatives for all the speed bumps we currently have to circumvent. What our team has accomplished in just a year is impressive and it is making me very confident for our future.

So why was I not an employee of the company in the past? As a matter of fact, I have already received a major portion of my compensation in restricted stock. The reason why I have been working based on a consulting agreement since joining the company was that I could not simply or quickly wind down all my other mid-term obligations after the unexpected passing of then CEO Bob Larsen in March 2008. I have always said that once these obligations were over, I would be willing to become an employee of the company. Subsequently the board has asked me to follow-through and we have already agreed on terms and conditions effective February 1, 2009, as you will see in our 8-K filing today.

As I said, I believe absolutely in the future of this company. That’s why I am now an employee.

I also want to use this blog to address the status of our dealings with the FDA and our plans for Oxycyte.

Many people think we are completely dependent on the FDA. I do not think that this is the case. When we received the recent letter from the FDA informing us, that after reviewing our data, they are not yet ready to allow us to resume clinical trials in traumatic brain injury, we were surprised with their conclusion. We were especially surprised since the FDA made very specific comments in the letter about the data which suggest that not all the information in our package had been considered. At the FDA’s request, we had submitted computer-generated data files with written discussion of the risk-benefit profile. The comments we received back appear to reach mathematically unexpected conclusions and do not address the evidence of benefit which strongly suggests a continuing misunderstanding of the data. We feel this is a strong basis from which to seek reconsideration and are moving to bring that about.

However, just focusing on additional TBI trials in the United States as the only avenue to develop Oxycyte could mean missing other opportunities. When we prepared our dose escalation study protocol, we did so with a conservative posture to evaluate efficacy of lower doses already found to be not associated with safety concerns. Rather than lose any more time, we will be filing the same protocol we intend to submit to the FDA in three other countries, two of which are in Europe, as initially planned. We will then be just very opportunistic. Wherever we get the first go-ahead, we will start and then may, or may not add the other test areas to the ongoing trial. Interestingly enough, other drug development companies often use this avenue to expedite clinical trials since companies can submit certified trial data from anywhere in the world.

In addition to our clinical products, we are working on our topical products. There, we have a step-by-step approach, starting with a very simple ointment, then scaling the complexity through oxygen delivery with hydrogen peroxide, and going on to clinical and battlefield products in the wound sector. We think dermatology and even cosmetic indications could follow.

These other product channels should have a shorter time frame for testing and getting to market. Our goal is to generate income from the topical sector as soon as possible to carry the company’s ongoing expenses.

The key to any business entity is financial independence. That is what we intend to accomplish with our strategy. We think that a prudent and conservative business behavior, mitigating risks for the company, is just the right thing to do

In this Blog I want to discuss a few things about our Oxycyte meeting with the FDA.

Going into our October meeting with the FDA in Rockville, MD , we felt that there were some safety issues concerning Oxycyte that we would have to overcome. In the meeting, we provided additional data and were able to clearly convey the message that there are medically compelling reasons to evaluate a potentially beneficial therapeutic intervention against the effects of traumatic brain injury (TBI) because this is an area of terribly unmet medical need.

Our doctors told the meeting that the TBI numbers are just frightening: Civilian TBI is the biggest cause of loss of life or ability in the population that is work-force age. Cancer and heart disease strike at older ages while TBI impacts younger people. Of those who suffer a TBI, only about 25-30% survive, and of those, 50% end up with major impairments and will never be able to do what they did before their injury.

Although our Phase 2A study only had a small number of patients treated with our drug, we had a 50% improvement in patients with good, moderate, and severe outcomes compared to the control group. That is certainly promising. Yet due to the small number of patients enrolled, those results can not be statistically relevant. That study was conducted to provide a basis for additional clinical investigation.

In the FDA meeting, we pointed out that our compound has no adverse effects that could not be addressed during treatment. The agency focused on thrombocytopenia – low platelet count that can lead to impaired blood clotting and spontaneous bleeding. Our response was that, while it is a serious adverse event, this effect is well under control in patients with TBI because it is already constantly monitored and if platelets drop below a certain number, a platelet transfusion is usually given anyway to avoid risk of additional bleeding.

As a result of our presentation in the October 22 meeting, the agency asked us to submit additional data for consideration of our clinical plan. They requested three action items for further information and data about thrombocytopenia in our nine patients. The data the agency requested goes beyond the data directed by the test protocol and extends to the entire hospitalization experience of the patients. While this data was not called for collection by the clinical protocol, it is now considered potentially helpful to the agency and to us in assessing the patients’ treatment experience and confirming the safety profile of Oxycyte. We have been going through the hospitalization and treatment files to compile this data and will be including it in our submission.

The idea for the dose escalation study became obvious after discussing safety data from our Phase 1 study. In that early safety study, there was no significant drop in platelet count with a dose of 0.5ml/kg body weight. However, we have more current animal data showing efficacy of Oxycyte in smaller doses. A dose escalation study allows the step-wise evaluation of increasing dose levels of a drug. Systematically, doses are increased and safety is evaluated until effects recommend going back to the previous dose. Then the previous dose is repeated. This is done until enough data is collected to conclude what the most effective safe dose will be. After every step, the safety data is analyzed. This approach should reveal a lot of information more quickly than a traditional double-blind Phase 2B study. I’m hopeful that it will also provide the information that potential licensing partners are waiting for.

Our filing with the response to the agency’s request for information will include a synopsis of the dose escalation protocol we propose. We intend to submit that filing later this month and plan to issue a news release to let you know that the filing has indeed been submitted. After our filing is received, the agency has 30 days to review it and respond to us. If they agree to allow clinical investigations to resume but respond with recommendations for changes or other suggestions, we will then incorporate their findings and then submit (what we hope will be) the final version of the dose escalation protocol. Then, the agency again has 30 days to respond. We will be able to resume clinical investigations when FDA gives a clear agreement with our clinical plan.

Meanwhile, to facilitate progress on the development path for Oxycyte, we are formatting our filings in such a way that they could also be submitted in Canada and in Switzerland. This is a development path taken by many pharmaceutical companies to be able to conduct multinational clinical trials to accelerate clinical development and get robust clinical data that can be representative of more widespread populations of TBI patients.

In parallel we are working on our topical indications as we continue to pursue our goal of getting the company on its own funding feet as soon as possible. We’re making investments in this area because they have what I see as real potential to provide the money to fund our continued development in TBI as well as other areas. I’ll cover more on our progress in topical treatments in future blogs.

I said at our shareholder meeting in June that I would be starting a blog. This forum will become the place where that blog appears.

I’ve long believed that direct communication with management should not just be limited to large institutional investors. Yet the reality is that management of a public company is very limited in what they can say in direct conversations. So we did as all our peers do, primarily communicate through press releases.

On top of that, we have a company to run, products to develop and bring to market, and a business to build to provide real value to our shareholders. So when the idea for this forum was presented to me, I felt that this could be a way to open up our communications, increase transparency, help investors to better value our company, as well as be a counter balance to certain public forums that I believe are frequently misused to spread rumors and questionable information.

So, we are trying to get this going. There will be a learning curve and in the beginning our responses may take some time until they have passed our internal review process.

I hope you’ll participate in this forum. We really are interested in knowing what you think about company-related matters. While I can’t promise that we will respond to every comment or answer every question, I can assure you that the management team will be reading and thinking about and, when appropriate, responding to what’s posted here. As I said, this is an experiment, and we’ll see where the benefits will be.

Cordially,

Chris Stern