-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PuS0zxQ+ftegx26mYX/5es0U9QpSgsxYjkDAhYV/3pc6/bcrDo1uxRAmx+/lGzy8 vuNedYhWbLB28sc3EdUnzg== 0000940180-01-500651.txt : 20020410 0000940180-01-500651.hdr.sgml : 20020410 ACCESSION NUMBER: 0000940180-01-500651 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENDOREX CORP CENTRAL INDEX KEY: 0000812796 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 411505029 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16929 FILM NUMBER: 1791154 BUSINESS ADDRESS: STREET 1: 28101 BALLARD DR. CITY: LAKE FOREST STATE: IL ZIP: 60045 BUSINESS PHONE: 847-573-8990 MAIL ADDRESS: STREET 1: 28101 BALLARD DR. CITY: LAKE FOREST STATE: IL ZIP: 60045 FORMER COMPANY: FORMER CONFORMED NAME: IMMUNOTHERAPEUTICS INC DATE OF NAME CHANGE: 19920703 10QSB 1 d10qsb.txt FORM 10-QSB SEC SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Quarterly Period Ended September 30, 2001 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____________ to ____________ Commission File No. 1-14778 ENDOREX CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 41-1505029 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 28101 BALLARD DRIVE, SUITE F, LAKE FOREST, IL 60045 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code (847) 573-8990 (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At November 12, 2001, 12,741,858 shares of the registrant's common stock (par value, $.001 per share) were outstanding. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] PART I. - FINANCIAL INFORMATION ITEM 1 - Financial Statements ENDOREX CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, December 31, 2001 2000 ASSETS Current assets: Cash and cash equivalents $8,090,848 $10,831,266 Marketable securities - available for sale 0 2,014,984 Related party receivable 32,636 126,538 Prepaid expenses 38,038 58,803 ------------ ----------- Total current assets 8,161,522 13,031,591 Leasehold improvements and equipment, net of accumulated amortization of $883,409 378,171 384,162 Patent issuance costs, net of accumulated amortization of $13,030 252,297 253,705 Other Assets: Prepaid Acquisition Cost 1,404,847 0 ------------ ----------- TOTAL ASSETS $10,196,837 $13,669,458 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 320,460 $ 642,440 Accrued compensation 256,744 147,205 Due to joint ventures 2,283,133 2,010,713 Current portion of line of credit 129,638 118,793 ----------- ----------- Total current liabilities 2,989,975 2,919,151 Long-term liabilities: Long-term portion of line of credit 129,236 204,162 ------------ ----------- Total long-term liabilities 129,236 204,162 ------------ ----------- Total Liabilities 3,119,211 3,123,313 Series C exchangeable convertible preferred stock, $.05 par value. Authorized 200,000 shares; 97,603 issued and outstanding at liquidation value 10,176,524 9,665,512 Stockholders' equity: Preferred stock, $.001 par value. Authorized 4,600,000 shares; none issued and outstanding -- -- Series B convertible preferred stock, $.05 par value. Authorized 200,000 shares; 100,410 issued & outstanding at liquidation value 10,641,809 10,041,000 Common stock, $.001 par value. Authorized 50,000,000 shares; 12,860,500 issued, and 12,741,858 outstanding 12,861 12,861 Additional paid-in capital 39,262,334 40,365,410 Unearned compensation (3,758) (4,852) Deficit accumulated during the development stage (52,568,664) (49,090,111) Unrealized gain/(loss) on marketable securities 270 75 ------------ ------------ (2,655,148) 1,324,383 Less: Treasury stock, at cost, 118,642 shares (443,750) (443,750) ------------ ------------ Total Stockholders' Equity (3,098,898) 880,633 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,196,837 $ 13,669,458 ============= ============ See accompanying condensed notes to financial statements. ENDOREX CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Cumulative from Nine Months February 15, 1985 Ended September 30, (date of inception) 2001 2000 to September 30, 2001 Revenue: SBIR contract revenue $ -- $ -- $ 100,000 Expenses: SBIR contract research and development -- -- 86,168 Proprietary research and development 1,766,813 673,044 16,599,818 General and administrative 1,430,979 1,473,260 14,503,023 ------------ ------------ ------------- Total operating expenses 3,197,792 2,146,304 31,189,009 ------------ ------------ ------------- Loss from operations (3,197,792) (2,146,304) (31,089,009) Equity losses in joint ventures (620,053) (2,201,706) (23,266,304) Other income (1,577) -- 253,725 Interest income 376,752 549,527 3,418,340 Interest expense (35,883) (38,637) (349,191) ------------ ------------ ------------- Net loss (3,478,553) (3,837,120) (51,032,439) Preferred stock dividends (1,111,822) (1,034,844) (4,492,622) ------------ ------------ ------------- Net loss available to common stockholders $(4,590,375) $ (4,871,964) $(55,525,061) ============ ============= ============= Basic and diluted net loss per share available to common stockholders $ (0.36) $ (0.41) $ (15.61) Basic and diluted weighted average common shares outstanding 12,741,858 12,009,995 3,557,416 See accompanying condensed notes to financial statements. ENDOREX CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30, 2001 2000 Revenue: SBIR contract revenue $ -- $ -- Expenses: SBIR contract research and development -- -- Proprietary research and development 595,319 204,851 General and administrative 522,710 491,739 ------------ ------------ Total operating expenses 1,118,029 696,590 ------------ ------------ Loss from operations (1,118,029) (696,590) Equity losses in joint ventures (42,392) (622,850) Other income -- -- Interest income 82,066 228,562 Interest expense (8,563) (15,618) ------------ ------------ Net loss (1,086,918) (1,106,496) Preferred stock dividends (374,680) (347,466) ------------ ------------ Net loss available to common stockholders $(1,461,598) $(1,453,962) ============ ============ Basic and diluted net loss per share available to common stockholders $ (0.11) $ (0.11) Basic and diluted weighted average common shares outstanding 12,741,858 12,741,858 See accompanying condensed notes to financial statements. ENDOREX CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Cumulative Period Nine Months February 15, 1985 Ended September 30, (Inception) to 2001 2000 September 30, 2001 ----------- ------------ ------------------ NET CASH USED IN OPERATING ACTIVITIES (2,531,401) (1,732,681) (21,653,569) INVESTING ACTIVITIES: Patent issuance cost (6,534) (68,795) (765,759) Investment in joint ventures (620,053) (1,329,755) (20,583,936) Organizational costs incurred -- -- (135) Purchases of leasehold improvements (7,098) -- (702,711) Purchases of office and lab equipment (104,193) (52,236) (1,101,654) Proceeds from assets sold -- -- 4,790 Purchases of marketable securities--available for sale (3,973,724) (4,967,596) (14,977,804) Proceeds from sale of marketable securities--available for sale 5,988,708 5,500,000 15,088,123 Prepaid acquisition cost (1,404,847) -- (1,404,847) ----------- ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (127,741) (918,382) (24,443,933) FINANCING ACTIVITIES: Net proceeds from issuance of common stock 7,791,239 37,799,270 Net proceeds from issuance of preferred stock -- -- 16,325,712 Proceeds from exercise of options -- 215,888 417,092 Proceeds from borrowings under line of credit 77,193 1,196,534 Repayment of borrowings under line of credit (81,276) (121,116) (954,855) Repayment of long-term note receivable -- -- 50,315 Repayment of note payable issued in exchange for legal service -- (71,968) Purchase and retirement of common stock -- -- (130,000) Purchase of treasury stock -- -- (443,750) ----------- ------------ ------------ NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES (81,276) 7,963,204 54,188,350 ----------- ------------ ------------ NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS (2,740,418) 5,312,141 8,090,848 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 10,831,266 4,995,906 -- ------------ ------------ ------------ CASH AND CASH EQUIVALENTS - END OF PERIOD $ 8,090,848 $10,308,047 $ 8,090,848 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW: Cash paid for interest $ 35,883 $ 38,637 $ 196,224 NON-CASH TRANSACTIONS Issuance of common stock dividends in kind $ -- -- $ 1,536,223 Issuance of preferred stock dividends in kind 1,111,822 1,034,844 4,492,622 The accompanying notes are an integral part of the consolidated financial statements ENDOREX CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED NOTES TO FINANCIAL STATEMENTS We prepared these unaudited interim consolidated financial statements under the rules and regulations for reporting on Form 10-QSB. Accordingly, we omitted some information and footnote disclosures normally accompanying the annual financial statements. You should read these interim financial statements and notes in conjunction with the consolidated financial statements and their notes included in our latest annual report on Form 10-KSB, as amended. It is our opinion that the consolidated financial statements include all adjustments necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods. All adjustments were of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results for the full fiscal year. NET LOSS PER SHARE Net loss per share is presented on the Consolidated Statements of Operations in accordance with SFAS No. 128 for the current and prior periods. Endorex had a net loss for all periods being presented, which resulted in diluted and basic earnings per share being the same for all periods presented. The potential impact of warrants and stock options outstanding was not included in the calculation because their inclusion would have been anti-dilutive. JOINT VENTURE ESTIMATES The preparation of the quarterly consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts related to the activities of InnoVaccines Corporation, or InnoVaccines, and Endorex Newco, Ltd., or Newco, our joint ventures with Elan Corporation, plc, or Elan, including the reported net liabilities related to the joint ventures and the reported amounts of equity in losses from joint ventures. Actual results could differ from those estimates. UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR UNCONSOLIDATED JOINT VENTURES Condensed, unaudited financial statement information of the joint ventures is stated below. The joint ventures had no revenues. Net expenses equaled the net loss for all periods. For the nine months ended September 30, 2001 2000 ------------ ------------ InnoVaccines, net of Endorex mark up on billings to InnoVaccines $ (533,205) $(2,890,170) Newco, net of Endorex mark up on billings to Newco (238,078) (243,723) ------------ ------------ Total net loss $ (771,282) $(3,133,893) ============ ============ Reconciliation to equity in losses from joint ventures: Total joint venture net losses $ (771,282) $(3,133,893) Less: Elan minority interest 151,229 932,188 ------------ ------------ Equity in losses from joint ventures $ (620,053) $(2,201,705) ============ ============ ITEM 2 - Management's Discussion and Analysis or Plan of Operation The following discussion provides information to explain our results of operations and financial condition. You should also read our unaudited consolidated interim financial statements and their notes, our most recent Annual Report on Form 10-KSB, as amended and our registration statement on Form S-4, as amended. This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, and is subject to the safe-harbors created by those sections. These forward-looking statements are subject to significant risks and uncertainties, including those identified in Exhibit 99 "Risk Factors" of this Form 10-QSB, which may cause actual results to differ materially from those discussed in any forward-looking statements. The forward-looking statements within this Form 10-QSB are identified by words such as "believes," "anticipates," "expects," "intends," "may," "will" "plans" and other similar expressions. However, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly release the results of any revisions to forward-looking statements that may be made to reflect events or circumstances occurring subsequent to the filing of this Form 10-QSB with the SEC. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect our business. Endorex is a development stage enterprise and expects no significant revenue from the sale of products in the near future. Material Changes in Results of Operations For the three month period ended September 30, 2001, the Company had a net loss available to common shareholders of $1,461,598 or an increase of 1 percent, as compared to a loss of $1,453,962 for the third quarter ended September 30, 2000. Net loss available to common shareholders includes preferred stock dividends, which are paid-in-kind in shares of preferred stock. Research and development, or R&D expenditures for the third quarter ended September 30, 2001 were $595,319 a 191 percent increase when compared with $204,851 for the corresponding period ended September 30, 2000. This increase in R&D expenditures represents an increase of proprietary pre-clinical R&D drug delivery activities. General and administrative expenses for the third quarter ended September 30, 2001 were $522,710 compared to $491,739 for the same period ended September 30, 2000, a 6 percent increase. This increase is due to increased legal expense related to the SEC filing of Form S-8 for registration of shares related to the Amended and Restated Omnibus Employee Stock Option program. Total operating expenses of $1,118,029 for the third quarter of 2001 increased 61 percent compared to $696,590 for the same period last year, due to increased investment in proprietary R&D pre-clinical drug delivery activities on peptides and small molecule drugs. Operating expense increases in proprietary activities during the third quarter were offset by reductions in equity losses in joint ventures, which totaled $42,392 during the third quarter of 2001, compared with losses of $622,850 during the same period in 2000. This gain reflects a reduction in activities from the two joint ventures with Elan and an increase in proprietary activities. Interest income for the third quarter 2001 was $82,066, a decrease of 64 percent compared with $228,562 for the same period last year, reflecting the reduction in interest rates as well as a reduction in the available cash investment balance. For the nine month period ended September 30, 2001, the Company had a net loss available to common shareholders, including preferred stock dividends, which are paid-in-kind in shares of preferred stock, of $4,590,375 or a 6 percent decrease, as compared to a loss of $4,871,964 for the same nine month period ended September 30, 2000. R&D expenditures for the full year through September 30, 2001 were $1,766,813 a 163 percent increase when compared with $673,044 for the corresponding period ended September 30, 2000. This increase in R&D expenditures represents a continuation of Endorex's investment into proprietary pre-clinical R&D drug delivery activities of peptide and small molecule drugs. General and administrative expenses for the nine months ended September 30, 2001 were $1,430,979 compared to $1,473,260 for the same period ended September 30, 2000, a 3 percent decrease. This decrease is a result of timing differences related to annual meeting costs, which will be incurred in the fourth quarter of 2001, due to the proposed merger with Corporate Technology Development, Inc. Total operating expenses of $3,197,792 for the full year through September 30, 2001 increased 49 percent compared to $2,146,304 for the same period last year, due to the company's increased investment in proprietary pre-clinical drug delivery activities. Consistent with operating results throughout the year, operating expense increases in proprietary activities for the nine months ended September 30, 2001 were more than offset by reductions in equity losses in joint ventures which totaled $620,053 during 2001, compared with losses of $2,201,706 during the same period in 2000. Resources were shifted from R&D activities in the Elan joint ventures and towards proprietary R&D. Net loss for the nine months ended September 30, 2001 was $3,478,553 a decrease of 9% as compared to a loss of $3,837,120 for the same period in 2000. The lower level of net loss year to date versus the prior year reflects an overall decrease in joint venture R&D activities. Year to date interest income of $376,752 decreased 31 percent compared to $549,527 for the same period last year reflecting the decline in interest rates as well as a reduction in the available cash investment balance generated by the April 2000 equity financing. Plan of Operation and Financial Condition On October 19, 2001 we filed a registration statement S-4 with the Securities and Exchange Commission, or SEC, for the proposed merger between a wholly owned subsidiary of Endorex and Corporate Technology Development, Inc, or CTD., If the proposed merger is approved by the requisite vote of the shareholders of Endorex and CTD and if certain conditions are satisfied, upon consummation of the merger, CTD will become a wholly owned subsidiary of Endorex. CTD is a privately held, development-stage specialty pharmaceutical company developing novel oral and mucosal formulations and therapeutic indications of small molecule drugs, based in Miami, Florida. The S-4 became effective with the SEC on Oct. 23, 2001 and stockholders should carefully read the S-4 and the joint proxy statement/prospectus in their entirety. Endorex has been focusing its efforts on oral delivery of macromolecular drugs which are currently available commercially only in an injectable format. Most of Endorex's efforts have focused on the higher molecular weight drugs, generally 20 kilodaltons, or kd, or above. Examples of these types of drugs include vaccines, which generally range from 50 to 100 kd, and human growth hormone, which is 22 kd. This contrasts with traditional orally delivered drugs, most of which are small molecule drugs with molecular weights under .5 kd and for which oral delivery is generally much easier. Endorex's competition is mainly in the area of oral delivery of macromolecular drugs, focusing on drugs ranging from .5 to 10 kd, such as peptides, while most of Endorex's work has focused on protein-based drugs ranging above 10 kd. Endorex is currently in the process of shifting its business strategy, research and development and technology focus to include the oral delivery of small molecule drugs. Over the next 12 months Endorex plans to continue to shift its focus to evaluate its delivery systems for oral delivery of drugs in the lower macromolecular weight range as well as oral delivery of other classes of drugs not currently available in oral formulations. A large number of small molecule drugs also present delivery challenges, particularly water insoluble drugs, such as drugs used for chemotherapy and immunosuppressant drugs. Endorex expects to evaluate a number of such drugs to identify those that are compatible with its oral drug delivery systems and which it may decide to take into human clinical trials in the future. Endorex's proposed acquisition of CTD fits strategically with Endorex's business plans, as CTD has acquired and is developing new formulations of small molecule Approved Chemical Entities, or ACEs for new proprietary therapeutic uses. Its two lead drug candidates are in human clinical trials, including orBec, for which CTD has initiated a multicenter phase III trial in the United States. Endorex envisions that CTD's product candidates will become its key products, with Endorex's proprietary oral delivery systems potentially allowing the oral delivery of such products. CTD's lead product, orBec(TM), is currently in a multi-center phase III clinical trial, and is being studied for the treatment of intestinal graft-versus-host disease, or GVHD, a life-threatening complication affecting the skin, liver, and the gastrointestinal, or GI, tract, following bone marrow transplantation. According to the International Bone Marrow Transplant Registry & Autologous Blood and Marrow Transplant Registry, there were 12,748 allogeneic bone marrow transplants (transplants of blood or bone marrow cells from another person) worldwide from January 1, 2001 through July 31, 2001. According to published studies and despite improved preventive measures, acute GVHD still occurs in 50% to 70% of transplants where the donor was HLA-mismatched and in 30% to 40% of transplants where the donor was HLA-matched. Special blood tests, called human leukocyte antigen, or HLA, typing, determine whether a patient has a suitable donor for bone-marrow-cell transplant. These same studies indicate that intestinal GVHD accounts for 15% to 30% of all cases of GVHD. CTD has recently initiated a phase II clinical trial for the treatment of another GI related disorder, Crohns disease. This disease is estimated by the Crohns and Colitis Society to affect 800,000 persons in the United States. The FDA has granted orBec(TM) "fast track" status for the treatment of intestinal GVHD, allowing for an expedited review process. orBec(TM) has also been designated as an "orphan drug" by the FDA for the prevention of Intestinal GVHD. orBec(TM) is an oral dual-release formulation of beclomethasone dipropionate, or "BDP," a potent site-active corticosteroid drug. BDP has already been approved by the FDA and is sold by GlaxoSmithKline, as Beconase(R), in an inhaled and nasal formulation for the treatment of asthma, allergic rhinitis, and nasal polyposis. orBec(TM) allows for larger doses of BDP to be delivered to the afflicted GI area without systemic side effects associated with other steroids used to treat intestinal GVHD. CTD's second clinical-stage compound is Oraprine(TM), a liquid formulation of a commonly prescribed immunosuppressant, azathioprine, the active pharmaceutical ingredient in Imuran(R). Imuran(R) is currently marketed in tablet form for the treatment of transplant rejection by Faro Pharmaceuticals, Inc. in North America and GlaxoSmithKline worldwide. Oraprine(TM) has recently completed a phase I bioequivalency trial which demonstrated that Oraprine(TM) is equivalent to Imuran(R). In addition, a pilot phase I/II trial has been completed for the treatment of chronic oral autoimmune diseases, such as oral GVHD. Oraprine(TM) has been designated an "orphan drug" for the treatment of oral GVHD. The acquisition of CTD may require Endorex to enhance its regulatory, clinical development and manufacturing skills by either hiring additional employees or hiring specialized consultants to assist the combined company over the next 12 months. Additionally, Endorex is considering assembling a small sales and marketing group to directly market these product candidates in the United States, since the initial product indications are for niche markets with limited number of specialists (requiring a small but targeted sales force), such as organ transplant specialists and hematologists. With its own sales force, Endorex could potentially capture more of the product revenue stream than it would by using a sales and marketing partner. Upon closing, CTD's Chairman, Colin Bier, Ph.D., will join our organization as Chairman of the Board and Chief Executive Officer. The current Chairman, Kenneth Tempero, M.D., Ph.D., will continue to serve as a director on our board. Michael S. Rosen, our current President and Chief Executive Officer, will remain as President and assume the newly created position of Chief Operating Officer. Steve H. Kanzer, currently CTD's President and Chief Executive Officer and an Endorex director, will remain on our board. Additionally, three members of the CTD board, including Dr. Bier, will become members of the Endorex board. In September, 2001, we presented the parameters of the proposed merger as well as an overview of the combined companies management team, product pipeline, expanded patent portfolios, and enhanced balance sheet at the Wells Fargo Van Kasper investor conference, held in San Francisco. As of September 30, 2001, CTD had approximately $4.4 million in cash and no debt. CTD believes this will be sufficient to fund development of their two primary products in the near term as well as to take orBec(TM), its lead drug candidate in phase III clinical trials, through the FDA approval process. The proposed merger with CTD and the renewed focus on proprietary R&D activities have prompted a review of our existing joint ventures to determine the progress to date and strategic rationale. InnoVaccines, the oral/mucosal vaccine delivery joint venture, has been developing several delivery systems for oral and mucosal vaccines. Newco has been developing Elan's Medipad(R), a small, disposable microinfusion pump, for the delivery of iron chelation drugs to treat a type of genetic blood disease known as iron overload disorders (e.g. Cooley's anemia, and sickle cell anemia). Our share of the research, development and business expenditures through these joint ventures has been recorded as equity losses in joint ventures. Activities to evaluate the efficacy of selected oral vaccines were still underway in Innovaccines in the third quarter, however, both partners in the joint venture are discussing its possible termination. We anticipate a resolution by the end of the year, 2001. InnoVaccine development activities during the third quarter included evaluation of development work of oral and mucosal delivery of the PLGA microparticle system licensed from the Southern Research Institute for an influenza vaccine. Newco is assessing its commercial relationship with Watson Pharmaceuticals. Watson, the marketing and development partner to the joint venture, has verbally expressed its intent to discontinue its iron chelation therapy program with the Medipad(R) device. As a result, the joint venture partners are reviewing the future direction of Newco. We are also exploring other commercial collaborations with Elan, including the possibility of licensing the MEDIPADs technology from Elan. During the third quarter Endorex and Novo Nordisk A/S mutually agreed to end their joint research collaboration on the oral delivery of Norditropin(R) (Novo brand of human growth hormone) and terminate the joint research and option agreement. On September 30, 2001 and December 31, 2000, Endorex had cash, cash equivalents, and marketable securities of approximately $8.1 million and $12.8 million, respectively, and working capital of approximately $5.2 million and $10.1 million, respectively. We believe that our cash and cash equivalents are sufficient to satisfy our cash requirements for the next eighteen months to twenty four months, independent of the merger with CTD. We believe that the cash of the combined companies is sufficient to fund operations and the research and development of certain key product candidates and programs of the combined companies for the next 24 months. Additionally, we expect that we will need to seek additional funding for the development of the drugs for additional therapeutic indications for larger market segments and diseases with greater prevalence, particularly in the area of gastrointestinal disorders. Endorex will seek to prioritize the research and development programs of the combined companies after the merger to best utilize the combined assets of the companies. We will also seek to reduce and eliminate duplicative administrative expenses between the companies after the merger. Additionally, from time to time in the future, we intend to seek to expand our research and development activities into other drug delivery technologies and/or products that we either may license from other persons or develop, depending on our financial resources to support such programs. Any such activities may require the expenditure of funds not presently available and may deplete our cash resources sooner than anticipated. We also may seek to obtain funds from possible future public or private sales of our securities or other sources. See Exhibit 99--"Risk Factors." PART II. - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit No. Description -------------------------------- 10.1 Second Amendment, dated October 31, 2001 to the License Agreement dated September 16, 1996 between Massachusetts Institute of Technology and Orasomal Technologies, Inc. 99.1 Risk Factors -------------------- (b) On August 1, 2001, Endorex filed a Current Report on Form 8-K, reporting under Item 5 thereof. Endorex's execution of the Agreement and Plan of Merger dated as of July 31, 2001 by and among Endorex, Roadrunner Acquisition Inc. and Corporate Technology Development Inc. ("CTD") and filing as an exhibit under Item 7 thereof the press release issued by Endorex and CTD regarding the execution of the agreement. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ENDOREX CORPORATION November 14, 2001 /s/ Michael S. Rosen -------------------- Michael S. Rosen President and Chief Executive Officer (Principle executive officer) November 14, 2001 /s/ Steve Koulogeorge --------------------- Steve Koulogeorge Controller and Assistant Treasurer (Principle financial officer) EX-10.1 3 dex101.txt LICENSE AGREEMENT Exhibit 10.1 SECOND AMENDMENT ---------------- This Second Amendment pertains to the License Agreement (hereinafter the "License Agreement") effective December 16, 1996 and the First Amendment to the License Agreement effective December 30, 1999 by and between the MASSACHUSETTS INSTITUTE OF TECHNOLOGY (hereinafter referred to M.I.T.) and ORASOMAL TECHNOLOGIES, INC., a subsidiary of Endorex Corporation, (hereinafter referred to as LICENSEE) WHEREAS, LICENSEE has pursued diligently the development of the polymerized liposome technology for both orally and intranasally administered vaccines and orally administered peptide and protein therapeutics as described in ATTACHMENT A, but is not yet ready to enter, per the terms of section 3.4, into clinical trials. NOW, THEREFORE, inconsideration of the modifications contained herein, the parties hereby agree: 1. To modify the License Agreement by deleting Paragraph 3.4 in its entirety and substituting therefore the following: 3.4 On or before January 1, 2006, LICENSEE will enter Phase I clinical trials or equivalent on the U.S. or other Major Country for at least one application of the technology described in the Patent Rights. 2. To modify Sections 4.1c and 4.1d, such that the License Maintenance Fees due on January 1st in each of the years through, and including, the year in which the obligation of Section 3.4 is fulfilled, will be Twenty Thousand Dollars ($20,000). 3. Should LICENSEE enter into Phase I clinical trials on or before the above January 1, 2006, the license maintenance fee(s) due on any forthcoming January 1st shall again be Ten Thousand Dollars ($10,000). All other terms and conditions of the above referenced License Agreement remain unchanged and in full force and effect. The Effective Date of this Second Amendment as October 31, 2001. Agreed to for M.I.T. by: Agreed to for LICENSEE by: MASSACHUSETTS INSTITUTE OF ORASOMAL TECHNOLOGIES, INC. TECHNOLOGY /s/ Lita Nelsen /s/ Michael S. Rosen By___________________________________ By_______________________________________ Lita L. Nelsen Michael S. Rosen Name_________________________________ Name_____________________________________ Director Technology Licensing Office President/CEO Title________________________________ Title____________________________________ October 26, 2001 October 29, 2001 Date_________________________________ Date_____________________________________ ATTACHMENT A Oral Delivery of Peptide/Protein Drugs and Vaccines in Polymerized Liposomes Progress Report on MIT license #6388 October 31, 2001 In November of 1999, Orasomal Technologies (Orasomal), a subsidiary of Endorex Corporation, requested a two-year extension under clause 3.4 of its exclusive license agreement with M.I.T., which stipulates a requirement to enter into human clinical development with the licensed technology. This extension will be effective until January 1, 2002. At this time, Orasomal has not yet entered into clinical trials with the technology and is requesting a further extension. Preclinical development Orasomal and Endorex Corporation have pursued diligently the development of the polymerized liposome technology for both orally and intranasally administered vaccines and orally administered peptide and protein therapeutics. Studies to date have been confined to either peroral and intranasal administration of vaccines in inbred mice or peroral and intraduodenal administration of drugs in rats. As Orasomal identifies suitable candidates, further animal models will be employed in advancing the technology to clinical development. Vaccines: Joint venture with Elan. As mentioned in the progress report of November 1999, Orasomal had entered into a corporate joint venture with Elan Corporation (Dublin, Ireland) to develop technology exclusively for human oral or mucosal vaccines. The joint venture (Innovaccines Corporation) has been operational since January of 1998. Innovaccines consists of R&D operations in both Dublin, where cellular ligands for gastrointestinal targeting and process development and scale-up occurs and in Orasomal headquarters in Illinois, where liposome formulations have been developed, analyzed, and evaluated in animals. For purposes of conducting proof of concept human clinical trials, Innovaccines sought to develop either an orally or intranasally administered prototype vaccine for tetanus. Successful demonstration of tetanus vaccine safety and immunogenicity would be followed by further efficacy trials with tetanus or antigen combinations. Concurrently, Innovaccines began work for the development of an oral pertussis vaccine and sought ways to combine antigens into a single oral vaccine. The JV conducted numerous animal efficacy trials during 1999, 2000 and 2001, demonstrating the potential of antigen encapsulated in polymerized liposomes to deliver tetanus antigen orally as well as intranasally. Animal experiments in mice indicated modest immunogenicity with tetanus antigen encapsulated in polymerized liposomes, whereas best results were obtained with liposomes containing lipophilic immunostimulatory adjuvants. A variety of liposomal formulations were developed and evaluated using a clinically relevant lipophilic adjuvant (monophosphoryl Lipid A, MPL) and a muramyldipeptide-based adjuvant (Theramide(TM)). In separate animal experiments with adjuvant containing formulations, 10% to 100% seroconversion was observed by oral vaccination. A greater proportion of animals usually seroconverted by the nasal route. Minimum criteria of animal efficacy were set such that an orally administered formulation would not be advanced to clinical testing unless it had reproducibly demonstrated at least 60% seroconversion with no more than 10-fold the amount of antigen of the injected vaccine dose. As these criteria were not uniformly met, Innovaccines developed more rigorous process controls and analytical procedures for physically testing formulations. At this time, rigorous evaluation of polymerized liposomes in comparison to unpolymerized liposome controls has been completed. These results indicate that highly stable polymerized liposomes are not effective for oral vaccination, with tetanus antigen. Consequently, less stable liposome vehicles are thought to be potentially more relevant for clinical development. As stability of encapsulated antigen in the gastrointestinal tract is still considered important for oral vaccination, Innovaccines is developing polymerized liposomes with low to moderate degrees of stability and has switched its focus to lipophilic antigens (such as influenza virus hemagglutinin). Synthetic enterocyte of M-cell binding peptides have been identified. Several of these peptides further characterized in rat ileal loop experiments have been modified and covalently linked to the surface of vaccine candidate liposomes. Evaluation of the targeting aspect of polymerized liposome vaccine development is ongoing and will be reported in the next update. In summary, none of the polymerized liposome tetanus vaccine formulations has met minimum criteria for clinical development. Continuing work for increasing absorption of large molecules into mucosal lymphoid tissue will identify a suitable clinical candidate. Toxicology As polymerizable phospholipids and fatty acids have not yet been classified as "GRAS" (generally regarded as safe), proper in vivo and in vitro toxicology studies are necessary prior to clinical evaluation. All of the candidate highly polymerized liposomes as well as the unpolymerized counterparts have passed initial Ames testing, indicating little potential of these lipids for mutagenicity or carcinogenicity. A full battery of toxicology tests will be performed when an efficacious clinical candidate is identified. Delivery of other protein or peptide therapeutics. Human Growth Hormone In December of 1999, Orasomal entered into R&D collaboration with Novo Nordisk (NN) for the evaluation and development of orally administered human growth hormone (hGH). Orasomal provided NN with preliminary preclinical data demonstrating significant oral bioavailability of human growth hormone encapsulated in polymerized liposomes. NN has since provided Orasomal with sufficient quantities of purified growth hormone for both basic and scaled-up formulations to replicate the original preliminary results and to move into oral bioavailability testing in dogs and subsequently humans. Using the process improvements and assay methodology developed for encapsulation and analysis of tetanus toxoid antigen. Orasomal has applied similar techniques to growth hormone and has achieved liposomal entrapment of biologically active growth hormone in sufficient quantities for further animal evaluation. A rat model for oral and regional gastrointestinal absorption has been employed in the latest studies, in which formulations have been directly administered into the duodenum via a surgically implanted cannula. Similar to tetanus vaccine studies, highly stable polymerized liposomes are not effective to deliver growth hormone intraduodenally or upon peroral administration. Unpolymerized or partially polymerized liposomes, however, can deliver less than 1% hGH in the plasma relative to injected controls. However, inconsistency and irreproducibility in the absorption data were observed. Currently, the levels of hGH achieved in the blood are not at the stage for clinical development. Small Peptide and Lipophilic Drugs The original hypothesis for the use of polymerized liposomes involved high stability in the gastrointestinal tract and high level of uptake of the intact liposomes through endocytotic mechanism through enterocytes or M cells in the intestinal Peyer's patches. In that case, size of the molecular payload was secondary to the mechanism of particle endocytosis. Orasomal, based on available data to date, believes that other mechanism(s) for liposome interaction with GI mucosa are possible. Thus, molecular size may be an additional factor to consider as it has been demonstrated in the literature for the intestinal permeation of peptides and protein molecules using particulate systems. Consequently, smaller therapeutic peptides may be more suitable candidates than tetanus toxoid (M.W. - 150 kd) of hGH (M.W. 21 kd). Orasomal is pursuing that hypothesis with low to moderately polymerized liposomes as well as tightly cross-linked liposomes with LHRH (lutenizing hormone releasing hormone) as a potential oral peptide to replace current implantable LHRH for endometriosis or prostate cancer. In addition to LHRH, Orasomal is also pursuing oral insulin (M.W. - 5000 kd). Results of these evaluations will be provided during the next progress report. Patents Orasomal has been responsible for prosecution of the original Langer polymerized liposome application. There are currently three issued U.S. patents and one C.I.P. pending for the technology licensed. One patent issued in 1998 (5,762,904). Since 1999, two of these patents have issued in the U.S.: 6,004,534 (12/21/99) and 6,060,082 (5/9/00). The latter two patents describe the use of polymerized liposomes targeted with specific lectins. Claims directed as use of any targeting ligand and any lectin are being aggressively pursued in the C.I.P. Expenses On the attached page, the total accumulated expenses for the development of the polymerized liposome technology are detailed. Infrastructure Orasomal has been operated as a subsidiary of Endorex Corporation since inception. Meetings and Publications Since the last update, data describing oral and nasal vaccines and drug delivery has been presented at several scientific meetings: 1. UK/Ireland CRS meeting 1/00. 2. ACS drug delivery meeting, San Francisco, 3/00. Additional presentations in numerous corporate business development meetings and investor meetings have also occurred. Recent publications from Orasomal or Innovaccines describing this technology are as follows. Clark, M.A., Blair, H., Liang, L., Brey, R.N. et al. 2001. Targeting polymerized liposome vaccine carriers to intestinal M cells. Vaccine, in press. Lasic, D.D., E. Bolotin, and R. N. Brey. 2000. Polymerized liposomes: from biophysics to applications. Part 1. Chemistry Today. November/December, 2000. Part 2, Feb-March 2001. Brey, R. N. 2000. Polymerized liposomes as vehicles for mucosal delivery of complex molecules. 2000. Pharma Tech. 2000. 172-176. ATTACHMENT B Orasomal Technologies, Inc. Contributions by Endorex Corporation as of October 18, 2001 License fees to MIT $ 38,328 Research funding to John Hopkins 134,332 Other outside research 536,795 Consulting by Dr. Robert Langer and Dr. Henry Brem 1,049,996 Other consultants and Scientific Advisory Board 205,893 R&D personnel 3,121,095 R&D laboratory 1,243,927 Patent expenditures 42,513 Senior management, finance and business development 1,546,647 Interest on loan from Endorex 1,158,530 ---------- Total contributions $9,078,055 ==========
EX-99.1 4 dex991.txt RISK FACTORS EXHIBIT 99.1 RISK FACTORS Risks Related to Endorex If Endorex cannot obtain additional funding, Endorex may reduce or discontinue its product development and commercialization efforts. Until it is able to generate sufficient revenue from the sale and/or licensing of its products, Endorex will require additional funding to sustain its research and development efforts, provide for future clinical trials, and continue its operations. Endorex cannot be certain whether it will be able to obtain additional required funding on terms satisfactory to it, if at all. In addition, Endorex has expended, and will continue to expend, substantial funds developing its product candidates and for clinical trials. Endorex currently has commitments to spend additional funds in connection with development of its oral delivery systems, licenses, severance arrangements, employment agreements and consulting agreements. If Endorex is unable to raise additional funds when necessary, Endorex may have to reduce or discontinue development, commercialization or clinical testing of some or all of its product candidates or enter into financing arrangements on terms that Endorex would not otherwise accept. Endorex has had significant losses and anticipates future losses. Endorex is a development stage company that has experienced significant losses since inception and has a significant accumulated deficit. Endorex expects to incur significant additional operating losses in the future and expects cumulative losses to substantially increase due to expanded research and development efforts, preclinical studies and clinical trials. All of Endorex's products are currently in development, preclinical studies or clinical trials and Endorex has not generated significant revenues from product sales or licensing. There can be no guarantee that Endorex will ever generate product revenues sufficient to become profitable or to sustain profitability. Endorex is dependent on its joint ventures, corporate partners and future joint ventures or corporate partnerships. Endorex's strategy for research, development and commercialization of certain of its technologies is to rely on arrangements with corporate partners. As a result, Endorex's ability to commercialize future products is dependent upon the success of third parties in performing preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and successfully marketing Endorex's products. In connection with Endorex's two joint ventures with Elan, InnoVaccines Corporation, or InnoVaccines, and Endorex Newco, Ltd., or Newco, Endorex is obligated to fund research and development activities in proportion to Endorex's ownership interest in each joint venture, currently 80.1% of each joint venture. If Endorex does not have sufficient resources to meet its funding obligations under each of the two Elan joint ventures, Endorex may have to terminate the joint ventures prior to commercialization of its technologies or renegotiate the terms of the joint ventures, and Endorex's interest in the joint ventures may be diluted. Endorex cannot assure you that its joint ventures, corporate collaborations or corporate partnerships will be successful or that the development efforts carried out by them will continue. Endorex is currently in discussions with Elan regarding terminating InnoVaccines and Newco, although no definitive agreements have been reached by Endorex and Elan with respect to such terminations. Endorex cannot assure you that the results of these discussions will be favorable or that the joint ventures with Elan will continue. If Elan chooses to discontinue its collaborations with Endorex, Endorex may not be able to continue to license certain proprietary technology from Elan and obtain Elan's expertise and research and development services on reasonable terms, if at all. Newco is Endorex's joint venture with Elan that has focused on developing a product to deliver iron chelation compounds using Elan's MEDIPADs delivery device. Newco licensed Elan's MEDIPADs device on a worldwide basis to Schein Pharmaceutical, Inc., or Schein, which has been acquired by Watson Pharmaceuticals, Inc., or Watson, for use with Schein's iron chelation compound. Schein agreed to develop and market the MEDIPADs iron chelation product in the United States, and Newco and Schein agreed to jointly seek partners for marketing the product outside the United States. In June 2001, Watson indicated to Endorex that it will not continue to meet the obligations originally agreed to by Schein in connection with the license, although no definitive agreements have been reached by Newco and Watson. Subsequently, Watson discontinued its collaboration efforts. Endorex cannot assure you that Watson and Newco will renew their efforts to develop, market, commercialize or obtain the necessary regulatory approvals for the MEDIPADs delivery device in the United States or internationally or that the agreement with Watson will continue. Thus, Endorex cannot assure you that Newco's MEDIPADs iron chelator product will be marketed and sold in the near future or at all. If the collaboration with Watson does not continue, Endorex cannot assure you that Newco will be able to find another corporate partner to develop and market an iron chelation product or that Endorex will continue with its MEDIPADs iron chelator joint venture with Elan. In the event that Endorex and Elan terminate their Newco joint venture, Endorex may lose its rights to use Elan's MEDIPADs technology and its supply of MEDIPADs devices. Endorex intends to pursue additional corporate partnerships and collaborations in the future; however, the terms available may not be acceptable to Endorex and the corporate partnerships or collaborations may not be successful. In addition, the amount and timing of resources that Endorex's collaborators devote to these activities are not within Endorex's control. If any of Endorex's current corporate partnerships, such as those discussed above, are discontinued, Endorex cannot assure you that it will be able to find others to develop and commercialize its current product candidates. If any of Endorex's corporate partnerships and collaborations for its current product candidates are discontinued, Endorex may not be able to continue the development of such product candidates due to the loss of technology, intellectual property or expertise or due to contractual restrictions. Furthermore, the successful development and commercialization of Endorex's drug delivery technology depends upon entering into corporate partnerships, collaborations or license agreements that provide rights to drug candidates that are compatible with Endorex's drug delivery technology and that are safe and proven effective for medical conditions. Endorex cannot assure you that it will be able to enter into such new corporate partnerships, collaborations or license agreements to develop and commercialize any future product candidates using its drug delivery technology. Problems in product development may increase and vary the rate at which Endorex spends its funds. Endorex has limited experience with preclinical development, clinical trials and regulatory affairs and if it encounters unexpected difficulties with its operations or clinical trials, Endorex may have to spend additional funds, which would increase its cash depletion rate. Endorex's cash depletion rate will vary substantially from quarter to quarter as Endorex funds non-recurring items associated with clinical trials, product development, patent expenses, legal fees and consulting fees. Endorex's product development and commercialization efforts may not be successful. Endorex's product candidates, which have not received regulatory approval, are in the early stages of development. If the initial results from any of the evaluations for these product candidates are poor, those results could seriously harm Endorex's business and its ability to raise additional capital which may be necessary to continue research and development for its oral delivery technology. In addition, product candidates resulting from Endorex's research and development efforts, if any, are not expected to be available commercially for several years, if at all. Although Endorex is involved in developing oral versions of injectable drugs and vaccines that have already been approved by the FDA, the products Endorex is currently developing will require significant additional laboratory and clinical testing and investment for the foreseeable future. Endorex's product candidates may not show sufficient efficacy in animal models to justify continuing research into clinical testing stages or may not prove to be effective in clinical trials or may cause serious harmful side effects. In addition, Endorex's product candidates, if approved, may prove impracticable to manufacture in commercial quantities at a reasonable cost and/or with acceptable quality. Any of these results could seriously harm Endorex's business. Endorex's products, if approved, may not be immediately used by doctors unfamiliar with Endorex's product applications. Endorex or its commercialization partner may be required to implement an aggressive education and promotion plan with doctors in order to gain market recognition, understanding and acceptance of Endorex's products. Any such effort may be time consuming and costly and might not be successful. Endorex's product development and commercialization efforts may be reduced or discontinued due to difficulties or delays in clinical trials. Endorex may encounter unanticipated problems, including development, manufacturing, distribution, financing and marketing difficulties, during the product development, approval and commercialization process. Endorex's product candidates may take longer than anticipated to reach and progress through clinical trials. In addition, patient enrollment in the clinical trials may be delayed or prolonged significantly, thus delaying the clinical trials and causing increased costs. If Endorex experiences any such difficulties or delays, Endorex may have to reduce or discontinue development, commercialization or clinical testing of some or all of Endorex's product candidates. Endorex depends on a limited number of suppliers and manufacturers. Prior to commercial distribution of any of its products, if approved, Endorex will need to enter into contracts with commercial suppliers or manufacturers for production of commercial volumes of its products. Endorex cannot guarantee that such suppliers or manufacturers will be able to qualify their facilities under regulations imposed by the FDA or that they will be able to label and supply Endorex in a timely manner, if at all, with drugs that meet regulatory and commercial requirements. Accordingly, any failure to enter into supply or manufacturing agreements, any failure of such suppliers and manufacturers to perform, and any change in Endorex's existing or future contractual relationships with, or an interruption in supply from, any third-party service provider or supplier could seriously harm Endorex's ability to develop and commercialize its products. Endorex does not have agreements with third parties or a sales force to market its products. If Endorex receives approval from the FDA for Endorex's initial product candidates, the commercialization of these products will depend upon Endorex's ability to enter into marketing agreements with companies that have sales and marketing capabilities or to recruit, develop, train and deploy its own sales force. Endorex currently intends to sell its products in the United States and internationally in collaboration with one or more marketing partners. Endorex cannot assure you that it will be able to enter into any such collaborations to commercialize products in a timely manner or on commercially reasonable terms, if at all. Additionally, Endorex does not currently have a sales force, or possess the resources or experience necessary to market any of its product candidates, if they are approved. Development of an effective sales force requires significant financial resources, time and expertise. Endorex cannot assure you that it will be able to obtain the financing necessary to establish such a sales force in a timely or cost effective manner, if at all, or that such a sales force will be capable of generating demand for Endorex's product candidates, if they are approved. Endorex maintains limited product liability insurance and may be exposed to claims if its insurance coverage is insufficient. The clinical testing, manufacture and sale of Endorex's products involves an inherent risk that human subjects in clinical testing or consumers of Endorex's products may suffer serious bodily injury or death due to side effects, allergic reactions or other unintended negative reactions to Endorex's products. Endorex currently has clinical trial and product liability insurance with limits of liability of $10 million. Because liability insurance is expensive and difficult to obtain, Endorex cannot assure you that it will be able to maintain existing insurance or obtain additional liability insurance on acceptable terms or with adequate coverage against potential liabilities. Endorex's inability to obtain sufficient insurance coverage on acceptable terms or to otherwise protect against potential liability claims in excess of Endorex's insurance coverage could seriously harm Endorex's business. Endorex uses hazardous materials in its business. Any claims relating to improper handling, storage, or disposal of these materials could be costly. Endorex's research and development processes involve the controlled use of hazardous materials, including hazardous chemicals and radioactive and biological materials. Endorex's operations also produce hazardous waste products. Endorex cannot fully eliminate the risk of accidental contamination or discharge of such materials and any resulting injury. Endorex could be subject to civil damages in the event of improper or unauthorized release of, or exposure of individuals to, hazardous materials. In addition, Endorex could be sued for injury or contamination that results from its use of hazardous materials or their use by third parties or Endorex's collaborators, and Endorex's liability may exceed its assets. Federal, state, and local laws and regulations govern the use, manufacture, storage, handling, and disposal of these materials. Endorex believes that its current operations comply in all material respects with these laws and regulations. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair Endorex's research, development, or commercialization efforts. Endorex may not be able to compete with its competitors in the biotechnology industry. The biotechnology industry is intensely competitive, subject to rapid change and sensitive to new product introductions or enhancements. Virtually all of Endorex's existing competitors have greater financial resources, larger technical staffs, and larger research budgets than Endorex has, as well as greater experience in developing products and conducting clinical trials. Endorex's competitors in the field of oral and nasal delivery of protein and peptide-based drugs include Emisphere Technologies, which has started phase III trials for oral heparin and phase I trials for oral calcitonin (through its collaborator Novartis) and oral insulin; Unigene Laboratories, which has an oral calcitonin product in phase I/II trials; Nobex Corp. (formerly known as Protein Delivery), which has an oral insulin in phase II trials, and Generex, which has an oral insulin spray in phase I trials. Endorex's competitors in the vaccine delivery field include Aviron, which is developing a nasal flu vaccine that is in phase III clinical trials, I.D. Biomedical, which is in phase I/II trials with an intranasal flu vaccine and another major vaccine, specialized biotechnology firms, universities, and governmental agencies. Endorex's competitors in the liposomal formulation field include The Liposome Company (owned by Elan Corporation), NexStar (owned by Gilead Sciences, Inc.) and Sequus (owned by ALZA Corporation). In addition, there may be other companies which are currently developing competitive technologies and products or which may in the future develop technologies and products that are comparable or superior to Endorex's technologies and products. Accordingly, Endorex cannot assure you that it will be able to compete successfully with its existing and future competitors or that competition will not negatively affect Endorex's financial position or results of operations in the future. Endorex may not be successful if it is unable to obtain and maintain proprietary positions in its products and technology. Endorex's success depends, in large part, on its ability to obtain and maintain a proprietary position in Endorex's products through patents, trade secrets and orphan drug designations. Endorex has been granted several United States patents and has submitted several United States patent applications and numerous corresponding foreign patent applications, and has also obtained licenses to patents and patent applications owned by other entities. However, Endorex cannot assure you that any of these patent applications will be granted or that Endorex's patent licensors will not terminate any of its patent licenses. Endorex also cannot guarantee that any issued patents will provide competitive advantages for its products or that any issued patents will not be successfully challenged or circumvented by Endorex's competitors. Further, the laws of certain countries may not protect Endorex's proprietary rights to the same extent as United States law and Endorex cannot assure you it will obtain patent protection outside the United States. To the extent that Endorex relies on trade secret protection and confidentiality agreements to protect Endorex's technology, others may independently develop similar or superior technology, or otherwise obtain access to Endorex's findings or research materials embodying those findings, thus diminishing the value of such trade secrets and confidentiality obligations. The application of patent law to the field of biotechnology is relatively new and has resulted in considerable litigation. In addition, since patent applications in the United States are maintained in secrecy until patents issue, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, Endorex cannot be certain that it and its licensors are the first creators of inventions covered by any licensed patent applications or patents or that they are the first to file. Moreover, the United States Patent and Trademark Office, or PTO, may commence interference proceedings involving Endorex's patents or patent applications, in which the question of first inventorship is contested. There is a substantial risk in the rapidly developing biotechnology industry that patents and other intellectual property rights held by Endorex could be infringed by others or that products developed by Endorex or its method of manufacture could be covered by patents owned by other companies. Although Endorex believes that its products and services do not infringe on any third party's patents or other intellectual property rights, Endorex cannot be certain that it can avoid litigation involving such proprietary rights. Intellectual property litigation entails substantial legal and other costs and may take years to resolve, and Endorex may not have the necessary financial resources to defend or prosecute Endorex's rights in connection with any litigation. Responding to, defending or bringing claims related to patents and other intellectual property rights may require Endorex's management to redirect its human and monetary resources to address these claims and may take years to resolve. Endorex depends on licenses from third parties. Endorex's business depends on its license of polymerized liposome technology from the Massachusetts Institute of Technology, or MIT, licenses from Elan in connection with Endorex's two joint ventures with Elan, and the technology licensed by InnoVaccines from Southern Research Institute. Endorex's license agreement with MIT provides that Endorex will commence phase I clinical trials with the MIT liposome technology prior to January 1, 2002. Endorex cannot assure you that it will be able to meet this commitment. If Endorex fails to meet this commitment and fails to obtain a waiver or extension from MIT, then MIT will have a right to terminate Endorex's license to the MIT liposome technology and have a claim against Endorex for breach of contract. In addition, Endorex cannot assure you that the technology underlying these licenses will be profitable, or that Endorex will be able to retain licenses for these technologies. If Endorex is unable to retain these licenses and rights to third party technology, or if Endorex is unable to obtain rights to substitute technology on reasonable terms, Endorex's development efforts and business will be seriously harmed. Endorex may be forced to reduce or discontinue product development and commercialization efforts due to delays or failure in obtaining regulatory approvals. Endorex will need to do substantial additional development and clinical testing prior to seeking any regulatory approval for commercialization of Endorex's product candidates. Testing, manufacturing, commercialization, advertising, promotion, exporting and marketing, among other things, of Endorex's proposed products are subject to extensive regulation by governmental authorities in the United States and other countries. The testing and approval process requires substantial time, effort and financial resources and Endorex cannot guarantee that any approval will be granted on a timely basis, if at all. At least initially, Endorex intends, to the extent possible, to rely on licensees to obtain regulatory approval for marketing Endorex's products. Failure by Endorex or its licensees to adequately demonstrate the safety and efficacy of any of its product candidates under development could delay, limit or prevent regulatory approval of the product, which may require Endorex to reduce or discontinue development, commercialization or clinical testing of some or all of its product candidates. Companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in conducting advanced human clinical trials, even after obtaining promising results in earlier trials. Furthermore, the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Also, even if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which the product may be marketed. Accordingly, Endorex may be unable to, or experience difficulties and delays in obtaining, necessary governmental clearances and approvals to market a product. Endorex's products, if approved, may not be commercially viable due to health care changes and third party reimbursement limitations. Recent initiatives to reduce the federal deficit and to change health care delivery are increasing cost-containment efforts. Endorex anticipates that Congress, state legislatures and the private sector will continue to review and assess alternative benefits, controls on health care spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, price controls on pharmaceuticals, and other fundamental changes to the health care delivery system. Any such changes could negatively impact the commercial viability of Endorex's products, if approved. Endorex's ability to successfully commercialize its product candidates, if they are approved, will depend in part on the extent to which appropriate reimbursement codes and authorized cost reimbursement levels of such products and related treatment are obtained from governmental authorities, private health insurers and other organizations, such as health maintenance organizations. In the absence of national Medicare coverage determination, local contractors that administer the Medicare program, within certain guidelines, can make their own coverage decisions. Accordingly, there can be no assurance that any of Endorex's product candidates, if approved and when commercially available, will be included within the then current Medicare coverage determination or the coverage determination of state Medicaid programs, private insurance companies and other health care providers. In addition, third-party payers are increasingly challenging the necessity and prices charged for medical products, treatments and services. Also, the trend toward managed health care and the growth of health maintenance organizations in the United States may result in lower prices for Endorex's products, if approved and when commercially available, than Endorex currently expects. The cost containment measures that health care payers and providers are instituting and the effect of any health care changes could negatively affect Endorex's financial performance, if one or more of Endorex's products are approved and available for commercial use. Endorex's business could be seriously harmed if Endorex cannot attract and retain key personnel. Endorex's success is dependent, in part, upon Michael S. Rosen, Endorex's President and Chief Executive Officer, Panayiotis Constantinides, Ph.D., Endorex's Vice President of Research and Development, John McCracken, Endorex's Vice President of Business Development, and Steve Koulogeorge, Endorex's Controller, Assistant Secretary and Assistant Treasurer. Endorex also believes that its future success will depend largely upon its ability to attract and retain highly skilled research and development and technical personnel. Although Endorex maintains and is the beneficiary of key man life insurance for Mr. Rosen, Endorex does not believe the proceeds would be adequate to compensate it for his loss. Endorex faces intense competition in its recruiting activities, including competition from larger companies with greater resources. Endorex cannot assure you that it will be successful in attracting or retaining skilled personnel. The loss of certain key employees or Endorex's inability to attract and retain other qualified employees could seriously harm its business. Endorex's stock price is highly volatile and its stock is thinly traded. The market price of Endorex's common stock, like that of many other development stage public pharmaceutical and biotechnology companies, has been highly volatile and may continue to be so in the future due to many factors, including, but not limited to: . actual or anticipated fluctuations in its results of operations; . announcements of innovations by Endorex or its competitors; . introduction of new products by Endorex or its competitors; . additions or departures of key personnel; . commencement of litigation; . developments with respect to intellectual property rights; . conditions and trends in the pharmaceutical and drug delivery industries; . changes in estimates of the development, future size and growth rate of Endorex's markets; o general market conditions; and . future sales of Endorex's common stock. In addition, the stock market has experienced significant price and volume fluctuations that affect the market price for the common stock of Endorex and many other biotechnology companies. These market fluctuations were sometimes unrelated or disproportionate to the operating performance of these companies. Any significant stock market fluctuations in the future, whether due to Endorex's actual performance or prospects or not, could result in a significant decline in the market price of Endorex's common stock. Since it commenced trading on the American Stock Exchange on August 6, 1998, Endorex's common stock has been thinly traded. Endorex cannot assure you that a more active trading market for its common stock will develop. Endorex cannot assure you that it will continue to be listed on the American Stock Exchange. Endorex cannot assure you that it will satisfy the requirements necessary to remain listed on the American Stock Exchange or that the American Stock Exchange will not take actions to delist Endorex's common stock. If such events were to occur, Endorex cannot assure you that it will be able to list its common stock on another national exchange. If Endorex's common stock is not listed on an exchange, Endorex cannot assure you that an active trading market will exist for its common stock. Investors may suffer substantial dilution. Endorex has a number of agreements or obligations that may result in dilution to investors. These include: . warrants to purchase 2,014,001 shares of common stock at $2.54375 per share, subject to adjustment, issued in connection with the October 1997 private placement of Endorex's common stock; . warrants to purchase 230,770 shares of common stock at $10.00 per share, subject to adjustment, held by Elan; . warrants to purchase 43,334 shares of common stock at $2.3125 per share, subject to adjustment, held by Aries Select Ltd. and warrants to purchase 23,334 shares of common stock at $2.3125 per share, subject to adjustment, held by Aries Select I LLC, both issued on May 19, 1997 pursuant to a senior line of credit that has been subsequently retired; . warrants to purchase 452,383 shares of common stock at $5.91, subject to adjustment, held by certain investors pursuant to the April 2000 private placement of Endorex's common stock; . warrants to purchase 226,190 shares of common stock at $5.25, subject to adjustment, issued to Paramount Capital, Inc., as the finder in connection with the April 2000 private placement of Endorex's common stock; . conversion rights and dividend rights of preferred stock held by Elan, consisting of 100,410 shares of Series B preferred stock ($8.0 million original liquidation value) bearing an 8% cumulative payment-in-kind dividend and convertible at the liquidation value into common stock at $7.38 per share and 97,603 shares of Series C preferred stock ($8.4 million original liquidation value) bearing a 7% cumulative payment-in-kind dividend and exchangeable for part of Endorex's interest in the Newco joint ventures with Elan or convertible at liquidation value into common stock at $8.86 per share; . options to purchase approximately 2.2 million shares of common stock issued to participants in Endorex's stock option plan with a weighted average exercise price of approximately $2.01; and . anti-dilution rights under the above warrants and preferred stock, which can permit purchase of additional shares and/or lower exercise/conversion prices under certain circumstances. To the extent that anti-dilution rights are triggered, or warrants, options or conversion rights are exercised, Endorex's stockholders will experience substantial dilution and Endorex's stock price may decrease. Future sales of common stock by its existing stockholders could adversely affect Endorex's stock price. The market price of Endorex's common stock could decline as a result of sales by Endorex's existing stockholders of shares of common stock in the market, or the perception that these sales could occur. These sales also might make it more difficult for Endorex to sell equity securities in the future at a time and at a price that Endorex deems appropriate. Endorex has not paid cash dividends. Endorex has never paid cash dividends on its common stock and it does not anticipate paying any dividends in the foreseeable future. Endorex currently intends to retain earnings, if any, to develop its business. Endorex has certain relationships that may present potential conflicts of interest. Lindsay A. Rosenwald, M.D. is the Chairman and sole stockholder of Paramount Capital Asset Management, Inc., or PCAM, Paramount Capital, Inc., or Paramount, and Paramount Capital Investment LLC, or PCI, a merchant banking and venture capital firm specializing in biotechnology companies. PCAM is the investment manager of Aries Select, Ltd., and the managing member of Aries Select I LLC and Aries Select II LLC, each of which is an affiliate of PCI, PCAM, Paramount and Lindsay Rosenwald. Aries Select I LLC and Aries Select, Ltd. are principal stockholders, and Aries Select II LLC is also a stockholder, of Endorex. Paramount has also acted as a placement agent in connection with private placements of Endorex's common stock, as a finder in connection with a private placement of Endorex's common stock and warrants and as a financial advisor to Endorex. In addition, certain officers, employees and associates of Paramount and its affiliates own securities of a subsidiary of Endorex. In the regular course of its business, PCI identifies, evaluates and pursues investment opportunities in biomedical and pharmaceutical products, technologies and companies. However, PCI is under no obligation to make any additional products or technologies available to Endorex, and Endorex does not expect, and you should not expect, that any biomedical or pharmaceutical product or technology identified by such affiliates or PCI in the future will be made available to it. In addition, certain of Endorex's officers and directors and officers or directors appointed in the future may from time to time serve as officers, directors or consultants of other biopharmaceutical or biotechnology companies and those companies may have interests that conflict with Endorex's interests. Certain directors, officers and stockholders have significant influence. Endorex's directors, executive officers and principal stockholders and certain of their affiliates have the ability to influence the election of directors and most other stockholder actions. This may discourage or prevent any proposed takeover of Endorex, including transactions in which stockholders might otherwise receive a premium for their shares over the then current market prices. Such stockholders may also influence corporate actions, including influencing elections of directors and significant corporate events. Risks Related to the Endorex Merger with CTD The merger will result in an immediate and substantial increase in Endorex's net loss. The merger would, on a pro forma basis, increase Endorex's net loss (before preferred dividends) from a loss of $4.8 million to a loss of $8.1 million for the year ended December 31, 2000. This increase in Endorex's loss from operations could have a negative impact on the market price of Endorex's common stock. Analysts and investors carefully review a company's earnings per share and often base investment decisions on a company's operating profits and losses and per share earnings. Endorex's stockholders will be substantially diluted as a result of the merger. Endorex will issue approximately 9.4 million shares of Endorex common stock and options and warrants exercisable for approximately 0.6 million shares of Endorex common stock in substitution for CTD options and warrants in connection with the merger. As of October 31, 2001, there were 12,741,858 shares of Endorex common stock outstanding. Upon completion of the merger, CTD stockholders will collectively own approximately 44% of Endorex's outstanding common stock assuming exercise of all Endorex options and warrants issued in substitution for CTD options and warrants. Therefore, after the merger, current Endorex stockholders will face immediate and substantial dilution and the CTD stockholders could exert significant influence over the matters of Endorex. The exercise price of certain Endorex warrants and the conversion price of the Series B and Series C preferred stock of Endorex may be subject to adjustment as a result of the merger, thereby diluting Endorex stockholders. Certain warrants issued by Endorex and the Series B and Series C preferred stock of Endorex are subject to anti-dilution provisions that adjust the exercise price of the warrants and the conversion price of the Series B and Series C preferred stock. Depending upon the price per share of Endorex common stock as quoted on AMEX or any other national exchange at the effective time of the merger, the exercise price of the warrants and the conversion price of the Series B and C preferred stock may be adjusted, resulting in the issuance of a greater number of shares of Endorex common stock upon the exercise of the warrants and the conversion of the Series B and Series C preferred stock and diluting Endorex stockholders. Endorex and CTD may not successfully meet the challenges necessary to realize the potential benefits of the merger. Endorex and CTD will need to overcome significant issues in order to realize any benefits or synergies from the merger, including, but not limited to, the following challenges: . developing and commercializing existing product candidates of both companies; . integrating the operations, business models and research and development of both companies; . integrating CTD product candidates and technology with Endorex drug delivery technology; . developing or acquiring new product candidates or technology; successfully commercializing future product candidates or technology; . obtaining FDA approval for the product candidates of both companies; . developing and commercializing products that can successfully compete with similar products; and o raising sufficient funds to develop and commercialize product candidates. The successful completion of these post-merger events will involve considerable difficulty and there can be no assurance that Endorex will be able to overcome these obstacles, or that there will be a market for existing product candidates or new products developed by Endorex after the merger. Endorex's failure to do so could have a material adverse effect on the combined company's business, financial condition and operating results or could result in the loss of key personnel. In addition, the attention and effort devoted to the integration of the two companies may divert management's attention from other important issues, and could seriously harm the combined company. The market price of Endorex common stock may decline as a result of the merger. The market price of Endorex common stock may decline as a result of the merger if: . investors or analysts do not view the merger favorably; . the integration of Endorex and CTD is unsuccessful; . Endorex does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by the two companies, financial or industry analysts or investors; . the effect of the merger on Endorex's financial results is not consistent with the expectations of both companies, financial or industry analysts or investors; . the combined company fails to successfully develop or market the product candidates of Endorex and CTD; or . the demand for CTD and Endorex products fails to develop or diminishes. Endorex's and CTD's officers and directors may have interests in the merger different from those of the stockholders of Endorex and CTD that may influence them to support or approve the merger. Endorex's and CTD's current directors and officers may have interests in the merger that are in addition to, or different from, the interests of other Endorex and CTD stockholders. These interests include: . Pursuant to the terms of the merger agreement, CTD's current directors and officers will, after the merger, be indemnified by CTD and, for a period of six years thereafter, benefit from insurance coverage for liabilities that arise from their service as directors and officers of CTD prior to the merger. . Pursuant to the terms of the merger agreement, after the closing of the merger, Dr. Colin Bier, Guy Rico and Peter Kliem, currently directors of CTD, will become directors of Endorex. Mr. Rico and Mr. Kliem, as non-employee directors, will upon appointment and subject to the approval of Proposal Four by the Endorex stockholders at the Endorex annual meeting, receive an option exercisable for 50,000 shares of Endorex common stock and will thereafter each receive options exercisable for an additional 10,000 shares of Endorex common stock at each annual meeting of the Endorex stockholders vesting one year from the date of grant. If Proposal Four is not approved, then each will receive an option exercisable for 42,000 shares of Endorex common stock upon their appointment to the Endorex board of directors and will thereafter each receive an option exercisable for 12,000 shares of Endorex common stock for every two years they serve as a non-employee director of Endorex. . Concurrently with the closing of the merger, Dr. Bier, the Chairman of the board of directors of CTD, will enter into an agreement with Endorex to become the Chairman of the board of directors and the Chief Executive Officer of Endorex. Pursuant to this agreement, Dr. Bier will receive an initial annual base salary of $275,000 and options exercisable for 700,000 shares of Endorex common stock. . Pursuant to the terms of the merger agreement, Steve H. Kanzer, the President and a director of CTD, will receive a payment of 250,000 shares of Endorex common stock upon the closing of the merger. . Concurrently with the closing of the merger, Mr. Kanzer will enter into a noncompetition and nonsolicitation agreement with Endorex whereby he will be paid approximately $250 per hour for any time incurred while assisting Endorex in obtaining and enforcing patents, copyrights or trademarks for any intellectual property acquired or discovered by Mr. Kanzer during the course of performing services for or acting as an employee or officer of CTD. . Pursuant to the terms of the merger agreement, Nicholas Stergiopoulos, the Director of Corporate Development of CTD, will receive a payment of 133,334 shares of Endorex common stock upon the closing of the merger. . Concurrently with the closing of the merger, Mr. Stergiopoulos will enter into a consulting agreement with Endorex whereby he will be paid approximately $8,200 per calendar month for a period of six months. In addition, Mr. Stergiopoulos will receive 1% of the proceeds of any licensing or asset sale transaction between RxEyes, Inc., a majority owned subsidiary of CTD, and a certain third party or its affiliates, if that license agreement or asset sale was consummated due to the efforts of Mr. Stergiopoulos. . Pursuant to a voting agreement in the form attached as Appendix II hereto among Endorex, CTD, Roadrunner and the other parties thereto, certain CTD stockholders, including CTD's directors, executive officers and their affiliates, owning beneficially approximately 63% and 61% of CTD's common stock and Series A preferred stock, respectively, outstanding as of October 15, 2001 have agreed to vote all of their shares of CTD common stock and Series A preferred stock for approval of the merger, the merger agreement and the transactions contemplated thereby. . The officers and directors of CTD own in the aggregate options exercisable for 1,322,725 shares of CTD common stock at an exercise price of $.20 per share which will be assumed by Endorex and exchanged for Endorex options exercisable for 359,042 shares of Endorex common stock at an exercise price of $.74 per share. Mr. Kanzer is a director of Endorex and the President and Chief Executive Officer and a director of CTD. As of October 15, 2001, Mr. Kanzer beneficially owned 1.92% of Endorex's common stock and 21.0% of CTD's common stock. Mr. Kanzer serves on the board of directors of Endorex as a nominee of the Aries Master Fund II and the Aries Domestic Fund, who subsequently transferred their right to nominate a member to the board of directors of Endorex to Aries Select, Ltd., or Aries, and Aries Select I LLC, or Aries I, each of which is a principal stockholder of Endorex. Aries Select II LLC, or Aries II, is also a stockholder of Endorex. Paramount Capital Asset Management, Inc., or PCAM, is the investment manager of Aries and the managing member of each of Aries I and Aries II. Lindsay A. Rosenwald, M.D. is the Chairman and sole stockholder of PCAM and Paramount Capital, Inc., or Paramount. As of October 15, 2001, Dr. Rosenwald beneficially owned 34.0% of Endorex's common stock. Paramount has acted as a placement agent in connection with certain private placements of Endorex's common stock, as a finder in connection with a private placement of Endorex's common stock and warrants, and as a financial advisor to Endorex. In addition, certain officers, employees and associates of Paramount and its affiliates own securities of Endorex and a subsidiary of Endorex. Dr. Rosenwald is also the Chairman and sole stockholder of Huntington Street Company, or Huntington Street, and June Street Company, or June Street, and is the sole member of Paramount Capital Drug Development Holdings LLC, or Paramount Holdings. Paramount Holdings and Dr. Rosenwald's wife are principal stockholders of CTD. Dr. Rosenwald, Huntington Street and June Street are also stockholders of CTD. In addition, certain officers, employees and associates of Paramount and its affiliates own securities of CTD and subsidiaries of CTD. Paramount has also acted as a placement agent in connection with certain private placements of CTD's Series A preferred stock. As of October 15, 2001, Dr. Rosenwald beneficially owned 56.5% of CTD's common stock and 6.0% of CTD's Series A preferred stock. Additionally, as of October 15, 2001, Dr. Rosenwald's wife beneficially owned 8.9% of CTD's common stock. Mr. Peter Kash, an employee of Paramount who beneficially owns 5.0% of CTD's common stock and is a security holder of Endorex, and Mr. Martin Kratchman, an employee of Paramount who is a security holder of both Endorex and CTD, will, at the closing of the merger, receive options to acquire an aggregate of 100,000 shares of common stock of Endorex. Mr. Kash and Mr. Kratchman are receiving the options as compensation for their financial advisory services to Endorex in connection with the merger. For the above reasons, the directors and officers of Endorex and CTD who are entitled to vote at Endorex's annual meeting of stockholders and CTD's special meeting of stockholders could be more likely to vote to approve the merger, the merger agreement and the transactions contemplated thereby than if they did not have these interests. Endorex and CTD stockholders should consider whether these interests may have influenced these directors and officers to support or recommend the merger. Failure to complete the merger could negatively impact Endorex's stock price and Endorex's and CTD's future business and operations. If the merger is not completed for any reason, including, but not limited to, the failure to obtain the requisite approval of the stockholders of Endorex or CTD, or the failure to satisfy any condition required for the closing of the merger, Endorex and CTD may be subject to a number of material risks, including the following: . depending on the reasons for termination of the merger agreement, Endorex may be required to pay CTD, or CTD may be required to pay Endorex, a termination fee of $1,000,000 plus costs and expenses incurred in connection with the merger agreement; . the market value of Endorex common stock may decline if the market views the proposed merger positively and the current market price reflects a market assumption that the merger will be completed; and . costs incurred by Endorex and CTD related to the merger, such as legal and accounting fees, must be paid even if the merger is not completed. In addition, existing and potential corporate partners, investors and suppliers of Endorex or CTD, in response to the announcement of the merger, or any delays in, or failure to consumate the merger may delay, defer or alter their decisions concerning the two companies. Any delay, deferral or changes in those decisions could have a material adverse effect on the business of either company, regardless of whether the merger is ultimately completed. Similarly, current and prospective employees may experience uncertainty about their future roles until strategies with regard to the two companies are announced or executed. This may adversely affect the ability of either company to attract and retain key management, sales, marketing and technical personnel. Further, if the merger is not completed and the board of directors of either company determines to seek another merger or business combination, there can be no assurance that either company will be able to find an acceptable candidate or negotiate a transaction on acceptable terms. Pursuant to the merger agreement, CTD is prohibited from soliciting, initiating or encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination, with any party other than Endorex. Furthermore, pursuant to the merger agreement, Endorex is prohibited from soliciting, initiating or encouraging or entering into any agreement or arrangement to acquire all or substantially all of the outstanding securities or assets of another entity if such acquisition would materially adversely effect Endorex's ability to consummate the merger. The combined company will continue to have the risks that each of Endorex and CTD were subject to before the merger. CTD will represent a substantial portion of the operations, businesses and results of the combined company. As a result, the combined company will be susceptible to the risks to which both Endorex and CTD are subject. These risks are more fully described in this "Risk Factor" section. -----END PRIVACY-ENHANCED MESSAGE-----