UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2019

or

☐ 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. 000-16929

SOLIGENIX, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	41-1505029
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
29 EMMONS DRIVE, SUITE B-10 PRINCETON, NJ	08540
(Address of principal executive offices)	(Zip Code)

	(609) 538-8200
(Registrant’s telephone number, including area code)

Indicate by check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 8, 2019, 20,300,485 shares of the registrant’s common stock (par value, $.001 per share) were outstanding.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.001 per share	SNGX	The Nasdaq Capital Market
Common Stock Purchase Warrants	SNGXW	The Nasdaq Capital Market

SOLIGENIX, INC.

Index

	Description	Page
Part I	FINANCIAL INFORMATION
Item 1	Consolidated Financial Statements	1
	Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018	1
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)	2
	Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)	3
	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4	Controls and Procedures	36
Part II	OTHER INFORMATION
Item 1A	Risk Factors	37
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 6	Exhibits
SIGNATURES		38

i

PART I - FINANCIAL INFORMATION

ITEM 1 - Financial Statements

Soligenix, Inc. and Subsidiaries

Consolidated Balance Sheets

	June 30, 2019			December 31, 2018
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	6,986,289		$	8,983,717
Contracts and grants receivable		1,675,545			1,201,715
Prepaid expenses		149,749			157,278
Total current assets		8,811,583			10,342,710
Security deposit		22,734			22,734
Office furniture and equipment, net		12,290			19,634
Deferred issuance costs		74,375			59,761
Intangible assets, net		33,281			46,863
Right-of-use assets		192,200			-
Other assets		46,500			-
Total assets	$	9,192,963		$	10,491,702
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	2,451,632		$	2,126,215
Deferred revenue		69,976			-
Accrued expenses		2,791,511			1,790,689
Accrued compensation		50,162			294,628
Lease liabilities – current		136,890			-
Total current liabilities		5,500,171			4,211,532
Non-current liabilities:
Lease liabilities, net of current		56,558			-
Total liabilities		5,556,729			4,211,532
Shareholders’ equity:
Preferred stock, 350,000 shares authorized; none issued or outstanding		-			-
Common stock, $.001 par value; 50,000,000 shares authorized; 18,741,210 shares and 17,682,839 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		18,741			17,683
Additional paid-in capital		173,557,669			172,436,176
Accumulated other comprehensive loss		(7,008	)		(3,669	)
Accumulated deficit		(169,933,168	)		(166,170,020	)
Total shareholders’ equity		3,636,234			6,280,170
Total liabilities and shareholders’ equity	$	9,192,963		$	10,491,702

The accompanying notes are an integral part of these consolidated financial statements.

1

 Soligenix, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2019 and 2018

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Contract revenue	$	1,060,877		$	1,367,574		$	1,700,435		$	2,144,858
Grant revenue		484,087			357,971			989,317			700,460
Total revenues		1,544,964			1,725,545			2,689,752			2,845,318
Cost of revenues		(1,086,814	)		(1,493,676	)		(2,014,738	)		(2,472,597	)
Gross profit		458,150			231,869			675,014			372,721
Operating expenses:
Research and development		1,853,950			1,170,333			3,496,668			2,973,693
General and administrative		769,091			650,826			1,643,300			1,382,419
Total operating expenses		2,623,041			1,821,159			5,139,968			4,356,112
Loss from operations		(2,164,891	)		(1,589,290	)		(4,464,954	)		(3,983,391	)
Other income, net		41,370			32,948			91,130			49,843
Net loss before income taxes		(2,123,521	)		(1,556,342	)		(4,373,824	)		(3,933,548	)
Income tax benefit		-			-			610,676			-
Net loss applicable to common stockholders	$	(2,123,521	)	$	(1,556,342	)	$	(3,763,148	)	$	(3,933,548	)
Basic & diluted net loss per share	$	(0.12	)	$	(0.18	)	$	(0.21	)	$	(0.45	)
Basic & diluted weighted average common shares outstanding		18,436,894			8,742,569			18,258,932			8,738,728

The accompanying notes are an integral part of these consolidated financial statements.

2

Soligenix, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

For the Three and Six Months Ended June 30, 2019 and 2018

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net loss	$	(2,123,521	)	$	(1,556,342	)	$	(3,763,148	)	$	(3,933,548	)
Other comprehensive loss:
Foreign currency translation adjustments		(3,988	)		-			(3,339	)		-
Comprehensive loss	$	(2,127,509	)	$	(1,556,342	)	$	(3,766,487	)	$	(3,933,548	)

The accompanying notes are an integral part of these consolidated financial statements.

3

Soligenix, Inc. and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

For the Six Months Ended June 30, 2019 and 2018

(Unaudited)

	Common Stock				Additional Paid-In			Accumulated Other Comprehensive			Accumulated
	Shares		Par Value		Capital			Loss			Deficit			Total
Balance, December 31, 2018		17,682,839	$	17,683	$	172,436,176		$	(3,669	)	$	(166,170,020	)	$	6,280,170
Issuance of common stock pursuant to FBR At Market Sales Issuance Agreement		861,352		861		841,383			-			-			842,244
Issuance costs associated with FBR At Market Sales Issuance Agreement		-		-		(33,215	)		-			-			(33,215	)
Issuance of common stock to vendors		197,019		197		160,860			-			-			161,057
Share-based compensation expense		-		-		152,465			-			-			152,465
Foreign currency translation adjustment		-		-		-			(3,339	)		-			(3,339	)
Net loss		-		-		-			-			(3,763,148	)		(3,763,148	)
Balance, June 30, 2019		18,741,210	$	18,741	$	173,557,669		$	(7,008	)	$	(169,933,168	)	$	3,636,234

	Common Stock				Additional Paid-In		Accumulated
	Shares		Par Value		Capital		Deficit			Total
Balance, December 31, 2017		8,730,640	$	8,731	$	163,581,026	$	(157,270,045	)	$	6,319,712
Issuance of common stock pursuant to Lincoln Park Equity Line		20,161		20		38,380		-			38,400
Share-based compensation expense		-		-		198,395		-			198,395
Net loss		-		-		-		(3,933,548	)		(3,933,548	)
Balance, June 30, 2018		8,750,801	$	8,751	$	163,817,801	$	(161,203,593	)	$	2,622,959

The accompanying notes are an integral part of these consolidated financial statements.

4

Soligenix, Inc. and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

For the Three Months Ended June 30, 2019 and 2018

(Unaudited)

	Common Stock				Additional Paid-In			Accumulated Other Comprehensive			Accumulated
	Shares		Par Value		Capital			Loss			Deficit			Total
Balance, March 31, 2019		18,189,208	$	18,189	$	173,076,044		$	(3,020	)	$	(167,809,647	)	$	5,281,566
Issuance of common stock pursuant to FBR At Market Sales Issuance Agreement		414,983		415		319,245			-			-			319,660
Issuance costs associated with FBR At Market Sales Issuance Agreement		-		-		(13,832	)		-			-			(13,832	)
Issuance of common stock to vendor		137,019		137		103,320			-			-			103,457
Share-based compensation expense		-		-		72,892			-			-			72,892
Foreign currency translation adjustment		-		-		-			(3,988	)		-			(3,988	)
Net loss		-		-		-			-			(2,123,521	)		(2,123,521	)
Balance, June 30, 2019		18,741,210	$	18,741	$	173,557,669		$	(7,008	)	$	(169,933,168	)	$	3,636,234

	Common Stock				Additional Paid-In		Accumulated
	Shares		Par Value		Capital		Deficit			Total
Balance, March 31, 2018		8,740,723	$	8,741	$	163,708,786	$	(159,647,251	)	$	4,070,276
Issuance of common stock pursuant to Lincoln Park Equity Line		10,078		10		18,590		-			18,600
Share-based compensation expense		-		-		90,425		-			90,425
Net loss		-		-		-		(1,556,342	)		(1,556,342	)
Balance, June 30, 2018		8,750,801	$	8,751	$	163,817,801	$	(161,203,593	)	$	2,622,959

The accompanying notes are an integral part of these consolidated financial statements.

5

Soligenix, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Six Months Ended June 30,

(Unaudited)

	2019			2018
Operating activities:
Net loss	$	(3,763,148	)	$	(3,933,548	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation		22,992			22,384
Non-cash lease expenses		60,041			-
Share-based compensation		152,465			198,395
Issuance of common stock for services		114,557			-
Realized gain on sale of office furniture		(3,843	)		-
Change in operating assets and liabilities:
Contracts and grants receivable		(473,830	)		(604,484	)
Prepaid expenses		7,504			140,356
Income tax receivable		-			416,810
Operating lease liability		(59,197	)		-
Deferred revenue		69,976			56,692
Accounts payable and accrued expenses		1,308,577			379,206
Accrued compensation		(244,466	)		(276,903	)
Total adjustments		954,776			332,456
Net cash used in operating activities		(2,808,372	)		(3,601,092	)
Investing activities:
Purchases of office furniture and equipment		-			(1,924	)
Proceeds from the sale of office furniture		5,500			-
Net cash provided by (used in) investing activities		5,500			(1,924	)
Financing activities:
Proceeds from issuance of common stock pursuant to FBR At Market Sales Issuance Agreement		842,244			-
Costs associated with FBR At Market Sales Issuance Agreement		(29,291	)		-
Proceeds from issuance of common stock pursuant to the equity line		-			38,400
Financing lease principal repayments		(3,317	)		-
Net cash provided by financing activities		809,636			38,400
Effect of foreign exchange rate on cash and cash equivalents		(4,192	)		-
Net decrease in cash and cash equivalents		(1,997,428	)		(3,564,616	)
Cash and cash equivalents at beginning of period		8,983,717			7,809,487
Cash and cash equivalents at end of period	$	6,986,289		$	4,244,871
Supplemental information:
Cash paid for state income tax	$	5,000		$	-
Cash paid for lease liabilities:
Operating lease	$	69,750		$	-
Financing lease		4,272			-
Non-cash activities:
Right-of-use assets and lease liabilities recognized on January 1, 2019	$	255,962		$	-
Deferred issuance cost included in accounts payable		18,537			140,246
Deferred issuance cost reclassified to additional-paid-in capital		7,679			-
Issuance of restricted common stock to vendor for website re-development		46,500			-

The accompanying notes are an integral part of these consolidated financial statements.

6

Soligenix, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Nature of Business

Basis of Presentation

Soligenix, Inc. (the “Company”) is a late-stage biopharmaceutical company focused on developing and commercializing products to treat rare diseases where there is an unmet medical need. The Company maintains two active business segments: Specialized BioTherapeutics (formerly “BioTherapeutics”) and Public Health Solutions (formerly “Vaccines/BioDefense”).

The Company’s Specialized BioTherapeutics business segment is developing a novel photodynamic therapy (SGX301) utilizing topical synthetic hypericin activated with safe visible fluorescent light for the treatment of cutaneous T-cell lymphoma (“CTCL”), its first-in-class innate defense regulator (“IDR”) technology, dusquetide (SGX942) for the treatment of oral mucositis in head and neck cancer, and proprietary formulations of oral beclomethasone 17,21-dipropionate (“BDP”) for the prevention/treatment of gastrointestinal (“GI”) disorders characterized by severe inflammation, including pediatric Crohn’s disease (SGX203) and acute radiation enteritis (SGX201).

The Company’s Public Health Solutions business segment includes active development programs for RiVax^®, its ricin toxin vaccine candidate and SGX943, a therapeutic candidate for antibiotic resistant and emerging infectious disease. The development of the vaccine program is currently supported by the heat stabilization technology, known as ThermoVax^®, under existing and on-going government contract funding. With the government contract from the National Institute of Allergy and Infectious Diseases (“NIAID”), the Company will attempt to advance the development of RiVax^® to protect against exposure to ricin toxin.

The Company generates revenues under government grants primarily from the National Institutes of Health (“NIH”) and government contracts from NIAID. The Company is currently developing RiVax^® under a NIAID contract of up to $24.7 million over six years, and SGX301 and SGX942 under two separate NIH grants of approximately $1.5 million each over two years. The Company will continue to apply for additional government funding.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, development of new technological innovations, dependence on key personnel, protections of proprietary technology, compliance with the United States Food and Drug Administration (the “FDA”) regulations, and other regulatory authorities, litigation, and product liability. Results for the six months ended June 30, 2019 are not necessarily indicative of results that may be expected for the full year.

Liquidity

In accordance with Accounting Standards Codification 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date the consolidated financial statements are issued. As of June 30, 2019, the Company had an accumulated deficit of $169,933,168. During the six months ended June 30, 2019, the Company incurred a net loss of $3,763,148 and used $2,808,372 of cash in operating activities. The Company expects to continue to generate losses in the foreseeable future. The Company’s liquidity needs will be largely determined by the budgeted operational expenditures incurred in regards to the progression of its product candidates. The Company’s plans to meet its liquidity needs primarily include its ability to control the timing and spending on its research and development programs and raising additional funds through potential partnership and/or financings. Management is evaluating all options to raise sufficient funds to fund the Company’s working capital requirements. These options include proceeds from government contract and grant programs, proceeds available from the At Market Issuance Sales Agreement (“FBR Sales Agreement”) with B. Riley FBR Inc. (“FBR”) and raising additional funds through potential partnerships and /or debt and equity financings. There can be no assurances, however, that management will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be on terms satisfactory to the Company. The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

7

As of June 30, 2019, the Company had cash and cash equivalents of $6,986,289 as compared to $8,983,717 as of December 31, 2018, representing a decrease of $1,997,428 or 22%. As of June 30, 2019, the Company had working capital of $3,311,412 as compared to working capital of $6,131,178 as of December 31, 2018, representing a decrease of $2,819,766 or 46%. The decrease in cash and working capital was primarily related to expenditures incurred in the expansion of the pivotal Phase 3 trial of SGX942 in addition to the ongoing expenditures incurred in the pivotal Phase 3 clinical trial of SGX301.

Management’s business strategy can be outlined as follows:

● Following positive interim analysis, complete enrollment and report final results in the Company’s pivotal Phase 3 clinical trial of SGX301 for the treatment of CTCL;

● Continue enrollment of the pivotal Phase 3 clinical trial of SGX942 for the treatment of oral mucositis in head and neck cancer;

● Continue development of RiVax^® in combination with the Company’s ThermoVax^® technology to develop a new heat stable vaccine in biodefense with NIAID funding support;

● Continue to apply for and secure additional government funding for each of the Company’s Specialized BioTherapeutics and Public Health Solutions programs through grants, contracts and/or procurements;

● Pursue business development opportunities for the Company’s pipeline programs, as well as explore merger/acquisition strategies; and

● Acquire or in-license new clinical-stage compounds for development.

The Company’s plans with respect to its liquidity management include, but are not limited to, the following:

● The Company has up to $12.4 million in active government contract and grant funding still available as of June 30, 2019, to support its associated research programs through 2019 and beyond, provided the federal agencies exercise all options and do not elect to terminate the contracts or grants for convenience. The Company plans to submit additional contract and grant applications for further support of its programs with various funding agencies;

● The Company has continued to use equity instruments to provide a portion of the compensation due to vendors and collaboration partners and expects to continue to do so for the foreseeable future;

● The Company will continue to pursue Net Operating Loss (“NOL”) sales in the state of New Jersey pursuant to its Technology Business Tax Certificate Transfer Program if available;

● The Company plans to pursue potential partnerships for pipeline programs. However, there can be no assurances that it can consummate such transactions;

● The Company has up to $6.6 million remaining from the FBR Sales Agreement as of August 8, 2019 under the prospectus supplement updated October 3, 2018; and

● The Company may seek additional capital in the private and/or public equity markets, to continue its operations, respond to competitive pressures, develop new products and services, and to support new strategic partnerships. The Company is evaluating additional equity/debt financing opportunities on an ongoing basis and may execute them when appropriate. However, there can be no assurances that the Company can consummate such a transaction, or consummate a transaction at favorable pricing.

8

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include Soligenix, Inc., and its wholly and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated as a result of consolidation.

Operating Segments

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing the performance of the segment. The Company divides its operations into two operating segments: Specialized BioTherapeutics and Public Health Solutions.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Contracts and Grants Receivable

Contracts and grants receivable consist of amounts due from various grants from the NIH and contracts from NIAID, an institute of NIH, for costs incurred prior to the period end under reimbursement contracts. The amounts were billed to the respective governmental agencies in the month subsequent to period end and collected shortly thereafter. Accordingly, no allowance for doubtful amounts has been established. If amounts become uncollectible, they are charged to operations.

Intangible Assets

One of the most significant estimates or judgments that the Company makes is whether to capitalize or expense patent and license costs. The Company makes this judgment based on whether the technology has alternative future uses, as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 730, Research and Development. Based on this consideration, the Company capitalizes payments made to legal firms that are engaged in filing and protecting rights to intellectual property and rights for its current products in both the domestic and international markets. The Company believes that patent rights are one of its most valuable assets. Patents and patent applications are a key component of intellectual property, especially in the early stage of product development, as their purchase and maintenance gives the Company access to key product development rights from Soligenix’s academic and industry partners. These rights can also be sold or sub-licensed as part of its strategy to partner its products at each stage of development as the intangible assets have alternative future use. The legal costs incurred for these patents consist of work associated with filing new patents designed to protect, preserve and maintain the Company’s rights, and perhaps extend the lives of the patents. The Company capitalizes such costs and amortizes intangibles on a straight-line basis over their expected useful life – generally a period of 11 to 16 years.

The Company did not capitalize any patent related costs during the six months ended June 30, 2019 and 2018.

These intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or if the underlying program is no longer being pursued. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the related asset or group of assets. No such write downs have occurred for the six months ended June 30, 2019 and 2018.

Website Development Costs

In February 2019, the Company engaged a third party vendor to re-develop its website. Upon completion of the project in June 2019, the Company capitalized the related website development costs of $46,500 in accordance with FASB Codification ASC 350-50 “Accounting for Web Site Development Costs”, which was reported in other assets in the consolidated balance sheet as of June 30, 2019. Beginning in the quarter ending September 30, 2019, the Company will amortize the website development costs on a straight-line basis over three years, the estimated useful life of the website. The Company will also review its capitalized website development costs periodically for impairment.

9

Impairment of Long-Lived Assets

Office furniture and equipment and intangible assets with finite lives are evaluated and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company recognizes impairment of long-lived assets in the event the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to such assets. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and the carrying value of the related asset or group of assets. Such analyses necessarily involve significant judgment.

The Company did not record any impairment of long-lived assets for the six months ended June 30, 2019 and 2018.

Fair Value of Financial Instruments

FASB ASC 820 — Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on June 30, 2019. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments.

FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of the fair value hierarchy are as follows:

● Level 1 — Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.

● Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models consider various assumptions, including volatility factors, current market prices and contractual prices for the underlying financial instruments. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

● Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, contracts and grants receivable, accounts payable, accrued expenses, and accrued compensation approximate their fair value based on the short-term maturity of these instruments.

Revenue Recognition

The Company’s revenues are primarily generated from government contracts and grants. The revenue from government contracts and grants is based upon subcontractor costs and internal costs incurred that are specifically covered by the contracts and grants, plus a facilities and administrative rate that provides funding for overhead expenses and management fees. These revenues are recognized when expenses have been incurred by subcontractors or when the Company incurs reimbursable internal expenses that are related to the government contracts and grants.

10

Research and Development Costs

Research and development costs are charged to expense when incurred in accordance with FASB ASC 730, Research and Development. Research and development includes costs such as clinical trial expenses, contracted research and license agreement fees with no alternative future use, supplies and materials, salaries, share-based compensation, employee benefits, equipment depreciation and allocation of various corporate costs. Purchased in-process research and development expense represents the value assigned or paid for acquired research and development for which there is no alternative future use as of the date of acquisition.

Share-Based Compensation

Stock options are issued with an exercise price equal to the market price on the date of grant. Stock options issued to directors upon re-election vest quarterly for a period of one year (new director issuances are fully vested upon issuance). Stock options issued to employees generally vest 25% on the grant date, then 25% each subsequent year for a period of three years. These options have a ten year life for as long as the individuals remain employees or directors. In general, when an employee or director terminates their position, the options will expire within three months, unless otherwise extended by the Board.

From time to time, the Company issues restricted shares of common stock to vendors and consultants as compensation for services performed. In June 2018, the FASB amended the accounting for share-based compensation issued to nonemployees in ASU 2018-07. Under the revised guidance, the scope of Topic 718 was expanded to include share-based payments issued to nonemployees, supersedes Subtopic 505-50 and generally aligns the accounting for awards issued to nonemployees to the accounting for employee awards. The Company adopted the new guidance effective January 1, 2019, and in accordance with the new guidance, stock compensation expense for equity-classified awards to nonemployees is measured on the date of grant and is recognized when the services are performed. The adoption of ASU 2018-07 did not have a material impact on the Company’s financial statements.

During the six months ended June 30, 2019 and 2018, the Company issued 74,300 common stock options at a weighted average exercise price of $0.93 per share, and 600 common stock options at a weighted average exercise price of $1.59 per share, respectively. The fair value of options issued during the six months ended June 30, 2019 and 2018 were estimated using the Black-Scholes option-pricing model and the following assumptions:

● a dividend yield of 0%;

● an expected life of 4 years;

● volatility ranging from 90.87% - 92.93% for 2019 and from 91.17%-91.18% for 2018;

● forfeitures at a rate of 12%; and

● risk free interest rates ranging from 1.84% - 2.50% for 2019 and from 2.68%-2.85% for 2018.

The fair value of each option grant made during 2019 was estimated on the date of each grant using the Black-Scholes option pricing model and recognized as share-based compensation expense ratably over the option vesting periods, which approximates the service period.

For the six months ended June 30, 2019, the Company issued 197,019 shares of common stock to third-party vendors as partial consideration for services performed. In accordance with ASU 2018-07, the Company recognized $107,447 of share-based compensation expenses, capitalized $46,500 of website development costs, and recorded $7,110 of prepaid vendor service expenses based on the market prices of the Company’s common stock on the issue dates. The Company did not issue shares of common stock to third party vendors during the six months ended June 30, 2018.

Foreign Currency Transactions and Translation

In 2018, the Company changed the status of a wholly owned subsidiary in the United Kingdom (“UK”) from inactive to active and incurred expenditures in multiple currencies including the U.S. dollar, the British Pound and the Euro to fund its clinical trial operations in the UK and select countries in Europe. In accordance with ASC 830 Foreign Currency Matters, the UK subsidiary expresses its U.S. dollar and Euro denominated transactions in its functional currency, the British Pound, with related transaction gains or losses included in net loss. On a quarterly basis, the financial statements of the UK subsidiary are translated into U.S. dollars and consolidated into the Company’s financials, with related translation adjustments reported as a cumulative translation adjustment (“CTA”), which is a component of accumulated other comprehensive loss. During the six months ended June 30, 2019, the Company did not incur any material foreign currency transaction or translation gain or loss. No foreign currency transaction or translation gain or loss was recorded in the six months ended June 30, 2018.

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Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence is considered, including the Company’s current and past performance, the market environment in which the Company operates, the utilization of past tax credits, and the length of carryback and carryforward periods. Deferred tax assets and liabilities are measured utilizing tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company recognized an income tax benefit of $610,676 from the sale of New Jersey NOL carryforward during the six months ended June 30, 2019. No income tax benefit was recognized for the six months ended June 30, 2018. The Company recognizes accrued interest and penalties associated with uncertain tax positions, if any, as part of the income tax provision. There were no tax related interest and penalties recorded for the periods ended June 30, 2019 or 2018. Additionally, the Company has not recorded an asset for unrecognized tax benefits or a liability for uncertain tax positions at June 30, 2019 and December 31, 2018.

Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the entity. Since there is a significant number of options and warrants outstanding, fluctuations in the actual market price can have a variety of results for each period presented.

The following table summarizes potentially dilutive adjustments to the weighted average number of common shares which were excluded from the calculation because their effect would be anti-dilutive:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Common stock purchase warrants		6,303,643		2,575,988		6,303,643		2,575,988
Stock options		1,093,032		761,855		1,093,032		761,855
Total		7,396,675		3,337,843		7,396,675		3,337,843

The weighted average exercise price of the Company’s stock options and warrants outstanding at June 30, 2019 were $4.97 and $3.09 per share, respectively, and at June 30, 2018 were $7.25 and $4.38 per share, respectively.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions such as the fair value of warrants and stock options and the useful life of intangibles that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

Accounting for Leases

On January 1, 2019, the Company adopted ASC No. 2016-02, “Leases” (Topic 842) (the “Lease Standard”), a new FASB standard which requires all leases with terms longer than 12 months be recognized by the lessee on its balance sheet as a right-of-use asset and a corresponding lease liability, including leases currently accounted for as operating leases, and key information about leasing arrangements to be disclosed.

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The Company adopted the Lease Standard under the alternative transition method permitted by ASU 2018-11. This transition method allowed the Company to initially apply the requirements of the Lease Standard at the adoption date, versus at the beginning of the earliest period presented. The Company elected the transition package of practical expedients, which permits not separating lease and non-lease components for all of its leases and the short-term lease recognition exemption for all of its leases that qualify; it did not elect the use of hindsight practical expedient.

As a result of the adoption of the Lease Standard, the Company classified a lease for its office space at 29 Emmons Drive, Suite B-10 in Princeton, New Jersey and a lease for a copier machine in the office as an operating lease and a financing lease, respectively, and recorded related right-of-use assets and lease liabilities accordingly. As of June 30, 2019, the Company’s consolidated balance sheet included a right-of-use asset of $175,453 for the office space and $16,747 for the copier machine. Lease liabilities in the Company’s consolidated balance sheet included corresponding lease liabilities of $176,297 and $17,151, respectively. During the six months ended June 30, 2019, the Company recognized lease expense of $70,594 for the operating lease, in addition to amortization expense of $3,721 and interest expense of $955 for the financing lease in the Company’s consolidated statement of operations.

The following represented a reconciliation of contractual lease cash flows to the right-of-use lease assets and liabilities recognized in the financial statements upon adoption:

	Operating Lease			Financing Lease
Contractual cash payments for the remaining lease term as of January 1, 2019:
2019	$	140,016		$	8,544
2020		118,830			8,544
2021		-			6,408
Total	$	258,846		$	23,496
Discount rate applied		10	%		10	%
Present value of contractual cash payments for the remaining lease term as of January 1, 2019	$	235,494		$	20,468
Right-of-use lease asset:
Right-of-use lease asset, January 1, 2019	$	235,494		$	20,468
Less: reduction/amortization		60,041			3,721
Right-of-use lease asset, June 30, 2019	$	175,453		$	16,747
Lease liability:
Lease liability, January 1, 2019	$	235,494		$	20,468
Less: principal repayments		59,197			3,317
Lease liability, June 30, 2019	$	176,297		$	17,151
Lease expenses for the six months ended on June 30, 2019:
Lease expense	$	70,594		$	-
Amortization expense		-			3,721
Interest expense		-			955
Total	$	70,594		$	4,676
Contractual cash payments for the remaining lease term as of June 30, 2019:
July through December 2019	$	70,266		$	4,272
2020		118,830			8,544
2021		-			6,408
Total	$	189,096		$	19,224
Remaining lease term (months) as of June 30, 2019		16			27

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Note 3. Intangible Assets

The following is a summary of intangible assets which consists of licenses and patents:

	Cost		Accumulated Amortization		Net Book Value
June 30, 2019
Licenses	$	462,234	$	428,953	$	33,281
Patents		1,893,185		1,893,185		-
Total	$	2,355,419	$	2,322,138	$	33,281
December 31, 2018
Licenses	$	462,234	$	415,371	$	46,863
Patents		1,893,185		1,893,185		-
Total	$	2,355,419	$	2,308,556	$	46,863

Amortization expense was $6,791 and $6,791 for the three months ended June 30, 2019 and 2018, respectively, and $13,582 and $13,507 for the six months ended June 30, 2019 and 2018, respectively.

Based on the balance of licenses and patents at June 30, 2019, future annual amortization expense is expected to be as follows:

	Amortization Expense
July 1 through December 31, 2019	$	13,582
2020	$	19,699

License fees and royalty payments are expensed as incurred, as the Company does not attribute any future benefits to such payments.

Note 4. Accrued Expenses

The following is a summary of the Company’s accrued expenses:

	June 30, 2019		December 31, 2018
Clinical trial expenses	$	2,655,845	$	1,633,713
Other		135,666		156,976
Total	$	2,791,511	$	1,790,689

Note 5. Income Taxes

The Company had gross NOLs at December 31, 2018 of approximately $104,131,000 for federal tax purposes, approximately $14,028,000 for state tax purposes and approximately $688,000 for foreign tax purposes. Portions of these NOLs will begin to expire in 2019. In addition, the Company has $8,333,000 of various tax credits which expire from 2019 to 2037. The Company may be able to utilize its NOLs to reduce future federal and state income tax liabilities. However, these NOLs are subject to various limitations under Internal Revenue Code (“IRC”) Section 382. IRC Section 382 limits the use of NOLs to the extent there has been an ownership change of more than 50 percentage points. In addition, the NOL carryforwards are subject to examination by the taxing authority and could be adjusted or disallowed due to such exams. Although the Company has not undergone an IRC Section 382 analysis, it is likely that the utilization of the NOLs may be substantially limited.

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The State of New Jersey’s Technology Business Tax Certificate Program allows certain high technology and biotechnology companies to sell unused NOL carryforwards to other New Jersey-based corporate taxpayers. In accordance with this program, the Company sold our 2017 New Jersey NOL carryforwards in March 2019, resulting in the recognition of $610,676 of income tax benefit, for which the Company subsequently received payment in April 2019. There can be no assurance as to the continuation or magnitude of this program in future years. Other than this tax benefit, there was no additional tax provision for the periods ended June 30, 2019 or 2018 due to losses incurred and the recognition of a full valuation allowance recorded against net deferred tax assets.

On July 1, 2018, the New Jersey governor signed into law a bill which included significant changes to the New Jersey taxation of corporations. Chiefly, this legislation imposes a 2.5% surtax on taxpayers with allocated net income over $1 million for 2018 and 2019, and a 1.5% surtax for taxpayers with allocated net income over $1 million for 2020 and 2021. Further, there are changes to the state’s computation of its dividend received deduction and application of IRC section 163(j). The Company has considered these changes and does not believe this change in law will have a material impact on its tax provision going forward, due to the full valuation allowance and current year losses.

Note 6. Shareholders’ Equity

Preferred Stock

The Company has 350,000 shares of preferred stock authorized, none of which are issued or outstanding.

Common Stock

During the six months ended June 30, 2019, the Company issued the following shares of common stock:

● On January 2, 2019, the Company issued 60,000 shares of common stock to a vendor as partial consideration for its service performed. The fair value of the shares was $0.96 per share.

● From January 4 to January 23, 2019, the Company issued 446,369 shares of common stock pursuant to the FBR Sales Agreement at a weighted average price of $1.17 per share.

● On April 29, 2019, the Company issued 8,681 shares of common stock to a vendor as consideration for its service performed. The fair value of the shares was $0.73 per share.

● On May 15, 2019, the Company issued 50,000 shares of common stock to a vendor as partial consideration for its service performed. The fair value of the shares was $0.83 per share.

● On June 28, 2019, the Company issued 78,338 shares of common stock to Altamont Pharmaceutical Holdings, LLC (“Altamont”), a company which owns 5% or more of the Company’s shares of common stock, as reimbursement for its cost incurred related to the re-development of the Company’s website and partial consideration for its service performed. The fair value of the shares was $0.71 per share.

● During the quarter ended June 30, 2019, the Company issued 414,983 shares of common stock pursuant to the FBR Sales Agreement at a weighted average price of $0.77 per share.

FBR At Market Issuance Sales Agreement

On August 11, 2017, the Company entered into the FBR Sales Agreement to sell shares of its common stock from time to time, through an “at-the-market” equity offering program under which FBR acts as sales agent. Under the FBR Sales Agreement, the Company sets the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales may be requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. The FBR Sales Agreement provides that FBR is entitled to compensation for its services in an amount equal to 3% of the gross proceeds from the sale of shares sold under the FBR Sale Agreement. The Company has no obligation to sell any shares under the FBR Sales Agreement, and may suspend solicitation and offers under the FBR Sales Agreement at any time.

Sales of common stock made pursuant to the FBR Sales Agreement, if any, will be made pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-217738) filed on May 5, 2017 with the SEC, the base prospectus filed as part of such registration statement, and any prospectus supplements. The shares sold pursuant to the FBR Sales Agreement have been and will be issued pursuant to General Instruction I.B.6 of Form S-3, which permits the Company to sell shelf securities in a public primary offering with a value not exceeding one-third of the average market value of the Company’s voting and non-voting common equity held by non-affiliates in any 12-month period as long as the aggregate market value of the Company’s outstanding voting and non-voting common equity held by non-affiliates is less than $75 million.

On August 11, 2017, the Company filed a prospectus supplement for the sale of up to $4.8 million of shares of common stock pursuant to the FBR Sales Agreement, and sold an aggregate of approximately $1 million of shares thereunder. The offering costs incurred to register the shares pursuant to the prospectus supplement dated August 11, 2017 were $164,825. On October 3, 2018, the Company filed an updated prospectus supplement with the SEC and may offer and sell shares of the Company’s common stock pursuant to the FBR Sales Agreement having an aggregate offering price of up to $9.0 million, from time to time. The prospectus supplement filed on October 3, 2018, supersedes the prospectus supplement dated August 11, 2017, and no additional shares will be offered or sold pursuant to the prospectus supplement dated August 11, 2017. As of August 8, 2019, there was $6.6 million available for the sale of common stock under the FBR Sales Agreement.

Subsequent to June 30, 2019, the Company sold 1,525,594 shares of common stock pursuant to the FBR Sales Agreement for gross proceeds of $1,567,709.

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Note 7. Related Party Transaction

In February 2019, Altamont Pharmaceutical Holdings, LLC (“Altamont”), a company which owns 5% or more of the Company’s shares of common stock, signed a service agreement with a third-party vendor to re-develop the Company’s website. Upon completion of the project at the end of June 2019, the Company issued 78,338 shares of common stock of the Company, including 65,493 shares with a fair value of $46,500 to Altamont as reimbursement for the website development costs incurred by Altamont on behalf of the Company. In accordance with FASB Codification ASC 350-50 “Accounting for Web Site Development Cost”, the Company has capitalized the website development costs of $46,500, which are included in other assets in the accompanying consolidated balance sheet as of June 30, 2019, and will amortize the cost over the estimated useful life of the website beginning in the quarter ending September 30, 2019. The balance of 12,845 shares with a fair value of $9,120 was issued to Altamont as consideration for its contractual investor relation and web hosting services, $2,010 of which was expensed during the six months ended June 30, 2019.

Note 8. Commitments and Contingencies

The Company has commitments of approximately $450,000 as of June 30, 2019 for several licensing agreements with consultants and universities. Additionally, the Company has collaboration and license agreements, which upon clinical or commercialization success, may require the payment of milestones of up to $7.9 million and/or royalties up to 6% of net sales of covered products, if and when achieved. However, there can be no assurance that clinical or commercialization success will occur.

The Company currently leases approximately 6,200 square feet of office space at 29 Emmons Drive, Suite B-10 in Princeton, New Jersey pursuant to a lease that was amended in October 2017 and expires in October 2020. This office space currently serves as the Company’s corporate headquarters. The rent for the first 12 months was $11,367 per month, or approximately $22.00 per square foot. The rent increased to $11,625 per month, or approximately $22.50 per square foot, for the 12 months beginning November 1, 2018 and will increase beginning November 1, 2019 to $11,883 per month, or approximately $23.00 per square foot for the remainder of the lease.

On September 3, 2014, the Company entered into an asset purchase agreement with Hy Biopharma, Inc. (“Hy Biopharma”) pursuant to which the Company acquired certain intangible assets, properties and rights of Hy Biopharma related to the development of Hy BioPharma’s synthetic hypericin product. As consideration for the assets acquired, the Company paid $275,000 in cash and issued 184,912 shares of common stock with a fair value based on the Company’s stock price on the date of grant of $3,750,000. These amounts were charged to research and development expense during the third quarter of 2014 as the assets will be used in the Company’s research and development activities and do not have alternative future use pursuant to generally accepted accounting principles in the U.S. Provided all future success-oriented milestones are attained, the Company will be required to make additional payments of up to $10.0 million, if and when achieved. Payments will be payable in restricted securities of the Company provided they do not exceed 19.9% ownership of the Company’s outstanding stock. As of June 30, 2019, no milestone or royalty payments have been paid or accrued.

In February 2007, the Company’s Board of Directors authorized the issuance of 5,000 shares of common stock to Dr. Schaber immediately prior to the completion of a transaction, or series or a combination of related transactions, negotiated by its Board of Directors whereby, directly or indirectly, a majority of its capital stock or a majority of its assets are transferred from the Company and/or its stockholders to a third party. Dr. Schaber’s amended employment agreement includes the Company’s obligation to issue such shares if such event occurs.

In May 2019, the Company entered into a four-month service agreement with a third party vendor, which requires the Company to issue at pre-determined intervals an aggregate 100,000 restricted shares of common stock as partial compensation for the services provided. In accordance with the agreement, the Company issued 50,000 shares of common stock with a fair value of $0.83 per share on May 15, 2019 and 25,000 shares of common stock with a fair value of $0.98 on July 15, 2019. The Company will issue the remaining 25,000 shares of common stock on August 15, 2019. The service agreement may be terminated at any time upon written notice.

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As a result of the above agreements as of June 30, 2019, the Company has future contractual obligations over the next five years as follows:

Year	Research and Development		Property and Other Leases		Total
July 1 through December 31, 2019	$	50,000	$	74,538	$	124,538
2020		100,000		127,374		227,374
2021		100,000		6,408		106,408
2022		100,000		-		100,000
2023		100,000		-		100,000
Total	$	450,000	$	208,320	$	658,320

Note 9. Operating Segments

The Company maintains two active operating segments: Specialized BioTherapeutics and Public Health Solutions. Each segment includes an element of overhead costs specifically associated with its operations, with its corporate shared services group responsible for support functions generic to both operating segments.

	Three Months Ended June 30,
	2019			2018
Revenues
Public Health Solutions	$	1,095,865		$	1,449,044
Specialized BioTherapeutics		449,099			276,501
Total	$	1,544,964		$	1,725,545
Income (Loss) from Operations
Public Health Solutions	$	204,121		$	30,299
Specialized BioTherapeutics		(1,463,334	)		(923,960	)
Corporate		(905,678	)		(695,629	)
Total	$	(2,164,891	)	$	(1,589,290	)
Amortization and Depreciation Expense
Public Health Solutions	$	4,316		$	4,512
Specialized BioTherapeutics		4,168			5,345
Corporate		4,448			1,313
Total	$	12,932		$	11,170
Interest Income, Net
Corporate	$	39,851		$	32,948
Share-Based Compensation
Public Health Solutions	$	8,072		$	12,818
Specialized BioTherapeutics		19,094			21,898
Corporate		45,726			55,709
Total	$	72,892		$	90,425

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	Six Months Ended June 30,
	2019			2018
Revenues
Public Health Solutions	$	1,776,218		$	2,258,300
Specialized BioTherapeutics		913,534			587,018
Total	$	2,689,752		$	2,845,318
Income/(Loss) from Operations
Public Health Solutions	$	195,110		$	(55,906	)
Specialized BioTherapeutics		(2,798,891	)		(2,445,308	)
Corporate		(1,861,173	)		(1,482,177	)
Total	$	(4,464,954	)	$	(3,983,391	)
Amortization and Depreciation Expense
Public Health Solutions	$	8,718		$	8,992
Specialized BioTherapeutics		8,845			10,729
Corporate		5,429			2,663
Total	$	22,992		$	22,384
Interest Income, Net
Corporate	$	84,604		$	49,843
Share-Based Compensation
Public Health Solutions	$	13,268		$	28,486
Specialized BioTherapeutics		40,002			50,216
Corporate		99,195			119,693
Total	$	152,465		$	198,395

	As of June 30, 2019		As of December 31, 2018
Identifiable Assets
Public Health Solutions	$	1,564,020	$	1,181,114
Specialized BioTherapeutics		150,782		78,336
Corporate		7,478,161		9,232,252
Total	$	9,192,963	$	10,491,702

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ITEM 2 – Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information to explain our results of operations and financial condition. You should also read our unaudited consolidated interim financial statements and their notes included in this Form 10-Q, and our audited consolidated financial statements and their notes, Risk Factors and other information included in our Annual Report on Form 10-K for the year ended December 31, 2018. This report contains forward-looking statements. Forward-looking statements within this Form 10-Q 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. These forward-looking statements are subject to significant risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed in, or implied by, these forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements to reflect events, circumstances or developments occurring subsequent to the filing of this Form 10-Q with the U.S. Securities and Exchange Commission or for any other reason and you should not place undue reliance on these forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the U.S. Securities and Exchange Commission that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business. We provide addresses to internet sites solely for the information to investors. We do not intend any addresses to be active links or to otherwise incorporate the contents of any website into this report.

Our Business Overview

We are a late-stage biopharmaceutical company focused on developing and commercializing products to treat rare diseases where there is an unmet medical need. We maintain two active business segments: Specialized BioTherapeutics (formerly “BioTherapeutics”) and Public Health Solutions (formerly “Vaccines/BioDefense”).

Our Specialized BioTherapeutics business segment is developing a novel photodynamic therapy (SGX301) utilizing topical synthetic hypericin activated with safe visible fluorescent light for the treatment of cutaneous T-cell lymphoma (“CTCL”), our first-in-class innate defense regulator technology, dusquetide (SGX942) for the treatment of oral mucositis in head and neck cancer, and proprietary formulations of oral beclomethasone 17,21-dipropionate (“BDP”) for the prevention/treatment of gastrointestinal (“GI”) disorders characterized by severe inflammation, including pediatric Crohn’s disease (SGX203) and acute radiation enteritis (SGX201).

Our Public Health Solutions business segment includes active development programs for RiVax^®, our ricin toxin vaccine candidate and SGX943, our therapeutic candidate for antibiotic resistant and emerging infectious disease. The development of our vaccine programs currently is supported by our heat stabilization technology, known as ThermoVax^®, under existing and on-going government contract funding. With the government contract from the National Institute of Allergy and Infectious Diseases (“NIAID”), we will attempt to advance the development of RiVax^® to protect against exposure to ricin toxin. 

An outline of our business strategy follows:

● Following positive interim analysis, complete enrollment and report final results in our pivotal Phase 3 clinical trial of SGX301 for the treatment of CTCL;

● Continue enrollment of the pivotal Phase 3 clinical trial of SGX942 for the treatment of oral mucositis in head and neck cancer;

● Continue development of RiVax^® in combination with our ThermoVax^® technology to develop a new heat stable vaccine in biodefense with NIAID funding support;

● Continue to apply for and secure additional government funding for each of our Specialized BioTherapeutics and Public Health Solutions programs through grants, contracts and/or procurements;

● Pursue business development opportunities for our pipeline programs, as well as explore merger/acquisition strategies; and

● Acquire or in-license new clinical-stage compounds for development.

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Corporate Information

We were incorporated in Delaware in 1987 under the name Biological Therapeutics, Inc. In 1987, we merged with Biological Therapeutics, Inc., a North Dakota corporation, pursuant to which we changed our name to “Immunotherapeutics, Inc.” We changed our name to “Endorex Corp.” in 1996, to “Endorex Corporation” in 1998, to “DOR BioPharma, Inc.” in 2001, and finally to “Soligenix, Inc.” in 2009. Our principal executive offices are located at 29 Emmons Drive, Suite B-10, Princeton, New Jersey 08540 and our telephone number is (609) 538-8200.

Our Product Candidates in Development

The following tables summarize our product candidates under development:

Specialized BioTherapeutic Product Candidates

Soligenix Product Candidate	Therapeutic Indication	Stage of Development
SGX301	Cutaneous T-Cell Lymphoma	Phase 2 trial completed; demonstrated significantly higher response rate compared to placebo; Phase 3 clinical trial enrolled first patient in December 2015, with positive interim analysis received in October 2018, and final results expected in the first quarter of 2020
SGX942	Oral Mucositis in Head and Neck Cancer	Phase 2 trial completed; demonstrated significant response compared to placebo with positive long-term (12 month) safety also reported; Phase 3 clinical trial enrolled first patient in December 2017, with interim analysis enrollment completed in the first half of 2019 and the interim analysis anticipated in the third quarter of 2019 ; final results expected in the first half of 2020
SGX203**	Pediatric Crohn’s disease	Phase 1/2 clinical trial completed; efficacy data, pharmacokinetic (PK)/pharmacodynamic (PD) profile and safety profile demonstrated; Phase 3 clinical trial initiation contingent upon additional funding, such as through partnership
SGX201**	Acute Radiation Enteritis	Phase 1/2 clinical trial completed; safety profile and preliminary efficacy demonstrated; further clinical development contingent upon additional funding, such as through partnership

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Vaccine Thermostability Platform**

Soligenix Product Candidate	Indication	Stage of Development
ThermoVax®	Thermostability of aluminum adjuvanted vaccine for ricin	Pre-clinical

Public Health Solutions Products**

Soligenix Product Candidate	Indication	Stage of Development
RiVax®	Vaccine against Ricin Toxin Poisoning	Phase 1a and 1b trials completed, safety and neutralizing antibodies for protection demonstrated; Phase 2 trial planned for the second half of 2019
OrbeShield®	Therapeutic against GI ARS	Pre-clinical
SGX943	Therapeutic against Emerging Infectious Diseases	Pre-clinical

** Contingent upon continued government contract/grant funding or other funding source.

Specialized BioTherapeutics Overview

SGX301 – for Treating Cutaneous T-Cell Lymphoma

SGX301 is a novel, first-in-class, photodynamic therapy that utilizes safe visible light for activation. The active ingredient in SGX301 is synthetic hypericin, a photosensitizer which is topically applied to skin lesions and then activated by fluorescent light 16 to 24 hours later. Hypericin is also found in several species of Hypericum plants, although the drug used in SGX301 is chemically synthesized by a proprietary manufacturing process and not extracted from plants. Importantly, hypericin is optimally activated with visible light thereby avoiding the negative consequences of ultraviolet light. Other light therapies using UVA light result in serious adverse effects including secondary skin cancers.

Combined with photoactivation, in clinical trials synthetic hypericin has demonstrated significant anti-proliferative effects on activated normal human lymphoid cells and inhibited growth of malignant T-cells isolated from CTCL patients. In both settings, it appears that the mode of action is an induction of cell death in a concentration as well as a light dose-dependent fashion. These effects appear to result, in part, from the generation of singlet oxygen during photoactivation of hypericin.

Hypericin is one of the most efficient known generators of singlet oxygen, the key component for phototherapy. The generation of singlet oxygen induces necrosis and apoptosis in adjacent cells. The use of topical synthetic hypericin coupled with directed visible light results in generation of singlet oxygen only at the treated site. We believe that the use of visible light (as opposed to cancer-causing ultraviolet light) is a major advance in photodynamic therapy. In a published Phase 2 clinical study in CTCL, after six weeks of twice weekly therapy, a majority of patients experienced a statistically significant (p<0.04) improvement with SGX301 whereas the placebo was ineffective: 58.3% compared to 8.3%, respectively.

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SGX301 has received Orphan Drug designation as well as Fast Track designation from the U.S. Food and Drug Administration (“FDA”). The Orphan Drug Act is intended to assist and encourage companies to develop safe and effective therapies for the treatment of rare diseases and disorders. In addition to providing a seven-year term of market exclusivity for SGX301 upon final FDA approval, Orphan Drug designation also positions us to be able to leverage a wide range of financial and regulatory benefits, including government grants for conducting clinical trials, waiver of FDA user fees for the potential submission of a New Drug Application (“NDA”) for SGX301, and certain tax credits. In addition, Fast Track is a designation that the FDA reserves for a drug intended to treat a serious or life-threatening condition and one that demonstrates the potential to address an unmet medical need for the condition. Fast Track designation is designed to facilitate the development and expedite the review of new drugs. For instance, should events warrant, we will be eligible to submit a NDA for SGX301 on a rolling basis, permitting the FDA to review sections of the NDA prior to receiving the complete submission. Additionally, NDAs for Fast Track development programs ordinarily will be eligible for priority review. SGX301 for the treatment of CTCL also was granted Orphan Drug designation from the European Medicines Agency (“EMA”) Committee for Orphan Medical Products and Promising Innovative Medicine (“PIM”) designation from the Medicines and Healthcare Products Regulatory Agency (“MHRA”) in the United Kingdom (“UK”).

In August 2018, the U.S. Patent Office granted us a patent titled “Systems and Methods for Producing Synthetic Hypericin” for the unique proprietary process manufacturing the highly purified form of synthetic hypericin, the active pharmaceutical ingredient in SGX301.

We initiated our pivotal Phase 3 clinical study of SGX301 for the treatment of CTCL during December 2015. This trial, referred to as the “FLASH” study (Fluorescent Light Activated Synthetic Hypericin), aims to evaluate the response to SGX301 as a skin directed therapy to treat early stage CTCL. We are actively enrolling patients with approximately 35 CTCL centers across the U.S. participating in this pivotal trial. The Phase 3 protocol is a highly powered, double-blind, randomized, placebo-controlled, multicenter trial and seeks to enroll approximately 160 evaluable subjects. The trial consists of three treatment cycles, each of eight weeks duration. Treatments are administered twice weekly for the first six weeks and treatment response is determined at the end of the eighth week. In the first treatment cycle, approximately 107 subjects receive SGX301 and 53 receive placebo treatment of their index lesions. In the second cycle, all subjects receive SGX301 treatment of their index lesions, and in the third cycle all subjects receive SGX301 treatment of all of their lesions. The majority of subjects enrolled to date have elected to continue into the third optional, open-label cycle of the study. We continue to work closely with the Cutaneous Lymphoma Foundation, as well as the National Organization for Rare Disorders. Subjects are followed for an additional six months after their last evaluation visit. The primary efficacy endpoint is assessed on the percentage of patients in each of the two treatment groups (i.e., SGX301 and placebo) achieving a partial or complete response of the treated lesions, defined as a ≥ 50% reduction in the total Composite Assessment of Index Lesion Disease Severity (“CAILS”) score for three index lesions at the Cycle 1 evaluation visit (Week 8) compared to the total CAILS score at baseline. Other secondary measures assess treatment response including duration, degree of improvement, time to relapse and safety.

During September 2017, the National Cancer Institute (“NCI”), part of the National Institutes of Health (“NIH”) awarded us a Small Business Innovation Research (“SBIR”) grant of approximately $1.5 million over two years to support the conduct of our pivotal, Phase 3, randomized, double-blind, placebo-controlled study evaluating SGX301 (synthetic hypericin) as a treatment for CTCL.

During October 2018, an Independent Data Monitoring Committee (“DMC”) completed an unblinded interim analysis with data from approximately 100 subjects, including an assessment of the Phase 3 FLASH study’s primary efficacy endpoint. The DMC provided a positive recommendation to randomize approximately 40 additional subjects into the trial to maintain the rigorous assumption of 90% statistical power for the primary efficacy endpoint. No safety concerns were reported by the DMC based on the interim analysis.

We estimate the potential worldwide market for SGX301 is in excess of $250 million for all applications, including the treatment of CTCL. This potential market information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have determined this potential market size based on assumptions that we believe are reasonable, there are a number of factors that could cause our expectations to change or not be realized.

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Cutaneous T-Cell Lymphoma

CTCL is a class of non-Hodgkin’s lymphoma (“NHL”), a type of cancer of the white blood cells that are an integral part of the immune system. Unlike most NHLs, which generally involve B-cell lymphocytes (involved in producing antibodies), CTCL is caused by an expansion of malignant T-cell lymphocytes (involved in cell-mediated immunity) normally programmed to migrate to the skin. These skin-trafficking malignant T-cells migrate to the skin, causing various lesions to appear that may change shape as the disease progresses, typically beginning as a rash and eventually forming plaques and tumors. Mycosis fungoides (“MF”) is the most common form of CTCL. It generally presents with skin involvement only, manifested as scaly, erythematous patches. Advanced disease with diffuse lymph node and visceral organ involvement is usually associated with a poorer response rate to standard therapies. A relatively uncommon sub-group of CTCL patients present with extensive skin involvement and circulating malignant cerebriform T-cells, referred to as Sézary syndrome. These patients have substantially graver prognoses (expected five-year survival rate of 24%), than those with MF (expected five-year survival rate of 88%).

CTCL mortality is related to stage of disease, with median survival generally ranging from about 12 years in the early stages to only 2.5 years when the disease has advanced. There is currently no FDA-approved drug for front-line treatment of early stage CTCL. Treatment of early-stage disease generally involves skin-directed therapies. One of the most common unapproved therapies used for early-stage disease is oral 5 or 8-methoxypsoralen (“Psoralen”) given with ultraviolet A (“UVA”) light, referred to as PUVA, which is approved for dermatological conditions such as disabling psoriasis not adequately responsive to other forms of therapy, idiopathic vitiligo and skin manifestations of CTCL in persons who have not been responsive to other forms of treatment. Psoralen is a mutagenic chemical that interferes with DNA causing mutations and other malignancies. Moreover, UVA is a carcinogenic light source that when combined with the Psoralen, results in serious adverse effects including secondary skin cancers; therefore, the FDA requires a Black Box warning for PUVA.

CTCL constitutes a rare group of NHLs, occurring in about 4% of the approximate 500,000 individuals living with NHL. We estimate, based upon review of historic published studies and reports and an interpolation of data on the incidence of CTCL, that it affects over 20,000 individuals in the U.S., with approximately 2,800 new cases seen annually.

Dusquetide

Dusquetide (research name: SGX94) is an innate defense regulator (“IDR”) that regulates the innate immune system to simultaneously reduce inflammation, eliminate infection and enhance tissue healing.

Dusquetide is based on a new class of short, synthetic peptides known as IDRs. It has a novel mechanism of action in that it modulates the body’s reaction to both injury and infection and is both simultaneously anti-inflammatory and anti-infective. IDRs have no direct antibiotic activity but modulate host responses, increasing survival after infections with a broad range of bacterial Gram-negative and Gram-positive pathogens including both antibiotic sensitive and resistant strains, as well as accelerating resolution of tissue damage following exposure to a variety of agents including bacterial pathogens, trauma and chemo- or radiation-therapy. IDRs represent a novel approach to the control of infection and tissue damage via highly selective binding to an intracellular adaptor protein, sequestosome-1, also known as p62, which has a pivotal function in signal transduction during activation and control of the innate defense system. Preclinical data indicate that IDRs may be active in models of a wide range of therapeutic indications including life-threatening bacterial infections as well as the severe side-effects of chemo- and radiation-therapy. Additionally, due to selective binding to p62, dusquetide may have potential anti-tumor action.

Dusquetide has demonstrated efficacy in numerous animal disease models including mucositis, colitis, skin infection and other bacterial infections and has been evaluated in a double-blind, placebo-controlled Phase 1 clinical trial in 84 healthy volunteers with both single ascending dose and multiple ascending dose components. Dusquetide was shown to have a good safety profile and be well-tolerated in all dose groups when administered by IV over 7 days and was consistent with safety results seen in pre-clinical studies. We believe that market opportunities for dusquetide include, but are not limited to, oral and gastrointestinal mucositis, acute Gram-positive bacterial infections (e.g., methicillin resistant Staphylococcus aureus (MRSA)), acute Gram-negative infections (e.g., acinetobacter, melioidosis), and acute radiation syndrome.

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SGX942 – for Treating Oral Mucositis in Head and Neck Cancer

SGX942 is our product candidate containing our IDR technology, dusquetide, targeting the treatment of oral mucositis in head and neck cancer patients. Oral mucositis in this patient population is an area of unmet medical need where there are currently no approved drug therapies. Accordingly, we received Fast Track designation for the treatment of oral mucositis as a result of radiation and/or chemotherapy treatment in head and neck cancer patients from the FDA. In addition, dusquetide has been granted PIM designation in the UK by the MHRA for the treatment of severe oral mucositis in head and neck cancer patients receiving chemoradiation therapy. The U.S. Patent and Trademark Office and the European Patent Office granted us the patent titled “Novel Peptides and Analogs for Use in the Treatment of Oral Mucositis” on August 16, 2016 and January 23, 2019, respectively. The newly issued patent claims therapeutic use of dusquetide and related IDR analogs, and adds to composition of matter claims for dusquetide and related analogs that have been granted in the U.S. and worldwide.

We initiated a Phase 2 clinical study of SGX942 for the treatment of oral mucositis in head and neck cancer patients in December of 2013. We completed enrollment in this trial in the second half of 2015, and in December 2015 released positive preliminary results. In this Phase 2 proof-of-concept clinical study that enrolled 111 patients, SGX942, at a dose of 1.5 mg/kg, successfully reduced the median duration of severe oral mucositis by 50%, from 18 days to 9 days (p=0.099) in all patients and by 67%, from 30 days to 10 days (p=0.040) in patients receiving the most aggressive chemoradiation therapy for treatment of their head and neck cancer. The p-values met the prospectively defined statistical threshold of p<0.1 in the study protocol. A less severe occurrence of oral mucositis, ulcerative oral mucositis (defined as oral mucositis with a WHO score ≥2 corresponding to the occurrence of overt ulceration in the mouth), was also monitored during the study. In the patients receiving the most aggressive chemoradiation therapy, the median duration of oral mucositis was found to decrease from 65 days in the placebo treated patients to 51 days in the patients treated with SGX942 1.5 mg/kg (p=0.099).

In addition to identifying the best dose of 1.5 mg/kg, this study achieved all objectives, including increased incidence of “complete response” of tumor at the one month follow-up visit (47% in placebo vs. 63% in SGX942 at 1.5 mg/kg). Decreases in mortality and decreases in infection rate were also observed with SGX942 treatment, consistent with the preclinical results observed in animal models.

SGX942 was found to be generally safe and well tolerated, consistent with the safety profile observed in the prior Phase 1 study conducted in 84 healthy volunteers. The long-term (12 month) follow-up data was consistent with the preliminary positive safety and efficacy findings. While the placebo population experienced the expected 12-month survival rate of approximately 80%, as defined in the Surveillance, Epidemiology, and End Results statistics 1975-2012 from the National Cancer Institute, the SGX942 1.5 mg/kg treatment group reported a 12-month survival rate of 93% (7% mortality in the SGX942 1.5 mg/kg group compared to 19% in the placebo group). Similarly, tumor resolution (complete response) at 12 months was better in the SGX942 1.5 mg/kg treatment group relative to the placebo population (80% in the 1.5 mg/kg group compared to 74% in the placebo group). Moreover, in the patients receiving chemotherapy every third week, the SGX942 1.5 mg/kg treatment group had a tumor resolution rate (complete response) of 82% throughout the 12 months following chemoradiation therapy, while the placebo group experienced a 64% complete response rate. The long-term follow-up results from the Phase 2 study are reviewed in “Dusquetide: Reduction in Oral Mucositis associated with Enduring Ancillary Benefits in Tumor Resolution and Decreased Mortality in Head and Neck Cancer Patients” published online in Biotechnology Reports and available at the following link: https://doi.org/10.1016/j.btre.2017.05.002. In addition to safety, evaluations of other secondary efficacy endpoints, such as the utilization of opioid pain medication, indicated that the SGX942 1.5mg/kg treatment group had a 40% decrease in the use of opioids at the later stage of the treatment phase of the trial, when oral mucositis is usually most severe and expected to increase pain medication use. This was in contrast to the placebo group, which demonstrated a 10% increase in use of opioids over this same period. Data from this Phase 2 trial was published online in the Journal of Biotechnology. The publication also delineates the supportive nonclinical data in this indication, demonstrating consistency in the qualitative and quantitative biological response, including dose response, across the nonclinical and clinical data sets. The results are available at the following link: http://authors.elservier.com/sd/article/S01681656116315668.

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On September 9, 2016, we and SciClone Pharmaceuticals, Inc. (“SciClone”) entered into an exclusive license agreement, pursuant to which we granted rights to SciClone to develop, promote, market, distribute and sell SGX942 in defined territories. Under the terms of the license agreement, SciClone will be responsible for all aspects of development, product registration and commercialization in the territories, having access to data generated by us. In exchange for exclusive rights, SciClone will pay us royalties on net sales, and we will supply commercial drug product to SciClone on a cost-plus basis, while maintaining worldwide manufacturing rights.

We have received clearance from the FDA to advance the pivotal Phase 3 protocol for SGX942 in the treatment of oral mucositis in patients with head and neck cancer receiving chemoradiation therapy. Additionally, we have received positive Scientific Advice from the EMA for the development of SGX942 as a treatment for oral mucositis in patients with head and neck cancer. The Scientific Advice from the EMA indicates that a single, double-blind, placebo-controlled, multinational, Phase 3 pivotal study, if successful, in conjunction with the Phase 2 dose-ranging study, is generally considered sufficient to support a marketing authorization application (“MAA”) to the EMA for potential licensure in Europe. The advice also provided several suggestions to strengthen the study design and data collection that were integrated into the final protocol. Scientific Advice is offered by the EMA to stakeholders for clarification of questions arising during development of medicinal products. The scope of Scientific Advice is limited to scientific issues and focuses on development strategies rather than pre-evaluation of data to support an MAA. Scientific Advice is legally non-binding and is based on the current scientific knowledge which may be subject to future changes.

We are working with leading oncology centers, a number of which participated in the Phase 2 study, to advance this Phase 3 clinical trial referred to as the “DOM–INNATE” study (Dusquetide treatment in Oral Mucositis – by modulating INNATE immunity). Based on the positive and previously published Phase 2 results (Study IDR-OM-01), the pivotal Phase 3 clinical trial (Study IDR-OM-02) is a highly powered, double-blind, randomized, placebo-controlled, multinational trial that will seek to enroll approximately 190 subjects with squamous cell carcinoma of the oral cavity and oropharynx who are scheduled to receive a minimum total cumulative radiation dose of 55 Gy fractionated as 2.0-2.2 Gy per day with concomitant cisplatin chemotherapy given as a dose of 80-100 mg/m² every third week. Subjects are randomized to receive either 1.5 mg/kg SGX942 or placebo given twice a week during and for two weeks following completion of chemoradiation therapy (“CRT”). The primary endpoint for the study is the median duration of severe oral mucositis, which is assessed by oral examination at each treatment visit and then through six weeks following completion of CRT. Oral mucositis is evaluated using the WHO Grading system. Severe oral mucositis is defined as a WHO Grade of ≥3. Subjects are followed for an additional 12 months after the completion of treatment.

During July 2017, we initiated our pivotal Phase 3 study with a controlled roll-out of U.S. study sites, followed by the addition of European centers in 2018. We anticipate that approximately 50 U.S. and European oncology centers will be participating in this pivotal Phase 3 study, and that an interim analysis report from an independent data monitoring committee will become available in September 2019.

During September 2017, the National Institute of Dental and Craniofacial Research (“NIDCR”), part of the NIH, awarded us a SBIR grant of approximately $1.5 million over two years to support the conduct of our Phase 3, multinational, randomized, double-blind, placebo-controlled study evaluating SGX942 (dusquetide) as a treatment for severe oral mucositis in patients with head and neck cancer receiving CRT.

On April 9, 2019, the U.S. Patent Office issued a new patent No. 10,253,068 titled “Novel Peptides for Treating and Preventing Immune-Related Disorders, Including Treating and Preventing Infection by Modulating Innate Immunity” for our dusquetide related analogs.

In April, 2019, the Paediatric Committee of the EMA approved our Paediatric Investigation Plan (“PIP”) for SGX942, a prerequisite for filing a Marketing Authorization Application (“MAA”) for any new medicinal product in Europe. The EMA also agreed that we may defer conducting the PIP until successful completion of our ongoing pivotal Phase 3 clinical trial of SGX942, which allows us to file the adult indication MAA prior to completion of the PIP.

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During the month of April 2019, we reached a significant milestone by enrolling sufficient patients to support the planned interim efficacy analysis by the independent Data Monitoring Committee (DMC).

We estimate the potential worldwide market for SGX942 is in excess of $500 million for all applications, including the treatment of oral mucositis. This potential market information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have determined this potential market size based on assumptions that we believe are reasonable, there are a number of factors that could cause our expectations to change or not be realized.

Oral Mucositis

Mucositis is the clinical term for damage done to the mucosa by anticancer therapies. It can occur in any mucosal region, but is most commonly associated with the mouth, followed by the small intestine. We estimate, based upon our review of historic studies and reports, and an interpolation of data on the incidence of mucositis, that mucositis affects approximately 500,000 people in the U.S. per year and occurs in 40% of patients receiving chemotherapy. Mucositis can be severely debilitating and can lead to infection, sepsis, the need for parenteral nutrition and narcotic analgesia. The GI damage causes severe diarrhea. These symptoms can limit the doses and duration of cancer treatment, leading to sub-optimal treatment outcomes.

The mechanisms of mucositis have been extensively studied and have been recently linked to the interaction of chemotherapy and/or radiation therapy with the innate defense system. Bacterial infection of the ulcerative lesions is regarded as a secondary consequence of dysregulated local inflammation triggered by therapy-induced cell death, rather than as the primary cause of the lesions.

We estimate, based upon our review of historic studies and reports, and an interpolation of data on the incidence of oral mucositis, that oral mucositis is a subpopulation of approximately 90,000 patients in the U.S., with a comparable number in Europe. Oral mucositis almost always occurs in patients with head and neck cancer treated with radiation therapy (greater than 80% incidence of severe mucositis) and is common in patients undergoing high dose chemotherapy and hematopoietic cell transplantation, where the incidence and severity of oral mucositis depends greatly on the nature of the conditioning regimen used for myeloablation.

Oral BDP

Oral BDP (beclomethasone 17,21-dipropionate) represents a first-of-its-kind oral, locally acting therapy tailored to treat GI inflammation. BDP has been marketed in the U.S. and worldwide since the early 1970s as the active pharmaceutical ingredient in a nasal spray and in a metered-dose inhaler for the treatment of patients with allergic rhinitis and asthma. Oral BDP is specifically formulated for oral administration as a single product consisting of two tablets. One tablet is intended to release BDP in the upper sections of the GI tract and the other tablet is intended to release BDP in the lower sections of the GI tract.

Based on its pharmacological characteristics, oral BDP may have utility in treating other conditions of the gastrointestinal tract having an inflammatory component. We are planning to pursue development programs for the treatment of pediatric Crohn’s disease, acute radiation enteritis and GI ARS pending further grant funding. We are also exploring the possibility of testing oral BDP for local inflammation associated with ulcerative colitis, among other indications. 

We estimate the potential worldwide market for oral BDP is in excess of $500 million for all applications, including the treatment of pediatric Crohn’s disease. This potential market information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have determined this potential market size based on assumptions that we believe are reasonable, there are a number of factors that could cause our expectations to change or not be realized.

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SGX203 – for Treating Pediatric Crohn’s Disease

SGX203 is a two tablet delivery system of BDP specifically designed for oral use that allows for administration of immediate and delayed release BDP throughout the small bowel and the colon. The FDA has given SGX203 Orphan Drug designation as well as Fast Track designation for the treatment of pediatric Crohn’s disease. We will pursue a pivotal Phase 3 clinical trial of SGX203 for the treatment of pediatric Crohn’s disease contingent upon additional funding, such as through partnership funding support.

Pediatric Crohn’s Disease

Crohn’s disease causes inflammation of the GI tract. Crohn’s disease can affect any area of the GI tract, from the mouth to the anus, but it most commonly affects the lower part of the small intestine, called the ileum. The swelling caused by the disease extends deep into the lining of the affected organ. The swelling can induce pain and can make the intestines empty frequently, resulting in diarrhea. Because the symptoms of Crohn’s disease are similar to other intestinal disorders, such as irritable bowel syndrome and ulcerative colitis, it can be difficult to diagnose. People of Ashkenazi Jewish heritage have an increased risk of developing Crohn’s disease.

Crohn’s disease can appear at any age, but it is most often diagnosed in adults in their 20s and 30s. However, approximately 30% of people with Crohn’s disease develop symptoms before 20 years of age. We estimate, based upon our review of historic published studies and reports, and an interpolation of data on the incidence of pediatric Crohn’s disease, that pediatric Crohn’s disease is a subpopulation of approximately 80,000 patients in the U.S. with a comparable number in Europe. Crohn’s disease tends to be both severe and extensive in the pediatric population and a relatively high proportion (approximately 40%) of pediatric Crohn’s patients have involvement of their upper gastrointestinal tract.

Crohn’s disease presents special challenges for children and teens. In addition to bothersome and often painful symptoms, the disease can stunt growth, delay puberty, and weaken bones. Crohn’s disease symptoms may sometimes prevent a child from participating in enjoyable activities. The emotional and psychological issues of living with a chronic disease can be especially difficult for young people.

SGX201 – for Preventing Acute Radiation Enteritis

SGX201 is a delayed-release formulation of BDP specifically designed for oral use. In 2012, we completed a Phase 1/2 clinical trial testing SGX201 in prevention of acute radiation enteritis. Patients with rectal cancer scheduled to undergo concurrent radiation and chemotherapy prior to surgery were randomized to one of four dose groups. The objectives of the study were to evaluate the safety and maximal tolerated dose of escalating doses of SGX201, as well as the preliminary efficacy of SGX201 for prevention of signs and symptoms of acute radiation enteritis. The study demonstrated that oral administration of SGX201 was safe and well tolerated across all four dose groups. There was also evidence of a potential dose response with respect to diarrhea, nausea and vomiting and the assessment of enteritis according to National Cancer Institute Common Terminology Criteria for Adverse Events for selected gastrointestinal events. In addition, the incidence of diarrhea was lower than that seen in recent published historical control data in this patient population. This program was supported in part by a $500,000 two-year SBIR grant awarded by the NIH. We continue to work with our Radiation Enteritis medical advisors to identify additional funding opportunities to support the clinical development program.

We have received Fast Track designation from the FDA for SGX201 for acute radiation enteritis.

Acute Radiation Enteritis

External radiation therapy is used to treat most types of cancer, including cancer of the bladder, uterine, cervix, rectum, prostate, and vagina. During delivery of treatment, some level of radiation will also be delivered to healthy tissue, including the bowel, leading to acute and chronic toxicities. The large and small bowels are very sensitive to radiation and the larger the dose of radiation the greater the damage to normal bowel tissue. Radiation enteritis is a condition in which the lining of the bowel becomes swollen and inflamed during or after radiation therapy to the abdomen, pelvis, or rectum. Most tumors in the abdomen and pelvis need large doses, and almost all patients receiving radiation to the abdomen, pelvis, or rectum will show signs of acute enteritis.

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Patients with acute enteritis may have nausea, vomiting, abdominal pain and bleeding, among other symptoms. Some patients may develop dehydration and require hospitalization. With diarrhea, the gastrointestinal tract does not function normally, and nutrients such as fat, lactose, bile salts, and vitamin B12 are not well absorbed.

Symptoms will usually resolve within two to six weeks after therapy has ceased. Radiation enteritis is often not a self-limited illness, as over 80% of patients who receive abdominal radiation therapy complain of a persistent change in bowel habits. Moreover, acute radiation injury increases the risk of development of chronic radiation enteropathy, and overall 5% to 15% of the patients who receive abdominal or pelvic irradiation will develop chronic radiation enteritis.

We estimate, based upon our review of historic published studies and reports, and an interpolation of data on the treatment courses and incidence of cancers occurring in the abdominal and pelvic regions, there to be over 100,000 patients annually in the U.S., with a comparable number in Europe, who receive abdominal or pelvic external beam radiation treatment for cancer, and these patients are at risk of developing acute and chronic radiation enteritis.

Public Health Solutions Overview

ThermoVax^® – Thermostability Technology

ThermoVax^® is a novel method of rendering aluminum salt, (known colloquially as Alum), adjuvanted vaccines stable at elevated temperatures. Alum is the most widely employed adjuvant technology in the vaccine industry. The value of ThermoVax^® lies in its potential ability to eliminate the need for cold chain production, transportation, and storage for Alum adjuvanted vaccines. This would relieve the high costs of producing and maintaining vaccines under refrigerated conditions. Based on historical reports from the World Health Organization and other scientific reports, we believe that a meaningful proportion of vaccine doses globally are wasted due to excursions from required cold chain temperature ranges. This is due to the fact that most Alum adjuvanted vaccines need to be maintained at between 2 and 8 degrees Celsius (“C”) and even brief excursions from this temperature range (especially below freezing) usually necessitates the destruction of the product or the initiation of costly stability programs specific for the vaccine lots in question. ThermoVax^® has the potential to facilitate easier storage and distribution of strategic national stockpile vaccines for ricin exposure in emergency settings.

ThermoVax^® development was supported pursuant to our $9.4 million NIAID grant enabling development of thermo-stable ricin (RiVax^®) and anthrax vaccines. Proof-of-concept preclinical studies with ThermoVax^® indicate that it is able to produce stable vaccine formulations using adjuvants, protein immunogens, and other components that ordinarily would not withstand long temperature variations exceeding customary refrigerated storage conditions. These studies were conducted with our aluminum-adjuvanted ricin toxin vaccine, RiVax^® and our aluminum-adjuvanted anthrax vaccine. Each vaccine was manufactured under precise lyophilization conditions using excipients that aid in maintaining native protein structure of the key antigen. When RiVax^® was kept at 40 degrees C (104 degrees Fahrenheit) for up to one year, all of the animals vaccinated with the lyophilized RiVax^® vaccine developed potent and high titer neutralizing antibodies. In contrast, animals that were vaccinated with the liquid RiVax^® vaccine kept at 40 degrees C did not develop neutralizing antibodies and were not protected against ricin exposure. The ricin A chain is extremely sensitive to temperature and rapidly loses the ability to induce neutralizing antibodies when exposed to temperatures higher than 8 degrees C. When the anthrax vaccine was kept for up to 16 weeks at 70 degrees C, it was able to develop a potent antibody response, unlike the liquid formulation kept at the same temperature. Moreover, we also have demonstrated the compatibility of our thermostabilization technology with other secondary adjuvants such as TLR-4 agonists.

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We also entered into a collaboration agreement with Axel Lehrer, PhD of the Department of Tropical Medicine, Medical Microbiology and Pharmacology, John A. Burns School of Medicine, University of Hawaiʻi at Manoa (“UH Manoa”) and Hawaii Biotech, Inc. (“HBI”) to develop a heat stable subunit Ebola vaccine. Dr. Lehrer, a co-inventor of the Ebola vaccine with HBI, has shown proof of concept efficacy with subunit Ebola vaccines in non-human primates. The most advanced Ebola vaccines involve the use of vesicular stomatitis virus and adenovirus vectors – live, viral vectors which complicate the manufacturing, stability and storage requirements. Dr. Lehrer’s vaccine candidate is based on highly purified recombinant protein antigens, circumventing many of these manufacturing difficulties. Dr. Lehrer and HBI have developed a robust manufacturing process for the required proteins. Application of ThermoVax^® may allow for a product that can avoid the need for cold chain distribution and storage, yielding a vaccine ideal for use in both the developed and developing world. This agreement has expired in accordance with its terms.

On December 21, 2010, we executed a worldwide exclusive license agreement with the University of Colorado (“UC”) for certain patents relating to ThermoVax^® in all fields of use. In April 2018, the UC delivered a notice of termination of our license agreement based upon our failure to achieve one of the development milestones: initiation of the Phase 1 clinical trial of the heat stabilization technology by March 31, 2018. After negotiating with the UC, we and the UC agreed to extend the termination date to October 31, 2018 in order to allow us time to agree upon a potential agreement that would allow us to keep the rights to, and to continue to develop, the heat stabilization technology or a product candidate containing the heat stabilization technology in our field of use.

On October 31, 2018, in a series of related transactions, (a) we and the UC agreed to terminate the original license agreement, (b) the UC and VitriVax, Inc. (“VitriVax”) executed a worldwide exclusive license agreement for the heat stabilization technology for all fields of use, and (c) we and VitriVax executed a worldwide exclusive sublicense agreement for the heat stabilization technology for use in the fields of ricin and Ebola vaccines. We paid a $100,000 sublicense fee on the effective date of the sublicense agreement. To maintain the sublicense we are obliged to pay a minimum annual royalty of $20,000 until first commercial sale of a sublicensed product, upon which point, we shall pay an earned royalty of 2% of net sales subject to a minimum royalty of $50,000 each year. We are also required to pay royalty on any sub-sublicense income based on a declining percentage of all sub-sublicense income calculated within the contractual period until reaching a minimum of 15% after two years. In addition, we are required to pay VitriVax milestone fees of: (a) $50,000 upon initiation of a Phase II clinical trial of the sublicensed product, (b) $200,000 upon regulatory approval of a sublicensed product, and (c) $1 million upon achieving $10 million in aggregate net sales of a sublicensed product in the U.S. or equivalent. To date none of these milestones have been met.

During September 2017, we announced that we would be participating in a NIAID Research Project (R01) grant awarded to UH Manoa for the development of a trivalent thermostabilized Ebola vaccine, with our awarded funding of approximately $700,000 over five years. Previous collaborations demonstrated the feasibility of developing a heat stable subunit Ebola vaccine. Under the terms of the subaward, we will continue to support vaccine formulation development with our proprietary vaccine thermostabilization technology, ThermoVax^®. Ultimately, the objective is to produce a thermostable trivalent filovirus vaccine for protection against Ebola and related diseases, allowing worldwide distribution without the need for cold storage.

On February 7, 2019, European Journal of Pharmaceutics and Biopharmaceutics published a scientific article demonstrating the successful thermostabilization of an Ebola subunit vaccine candidate.

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RiVax^® – Ricin Toxin Vaccine

RiVax^® is our proprietary vaccine candidate being developed to protect against exposure to ricin toxin and if approved, would be the first ricin vaccine. The immunogen in RiVax^® induces a protective immune response in animal models of ricin exposure and functionally active antibodies in humans. The immunogen consists of a genetically inactivated ricin A chain subunit that is enzymatically inactive and lacks residual toxicity of the holotoxin. RiVax^® has demonstrated statistically significant (p < 0.0001) preclinical survival results, providing 100% protection against acute lethality in an aerosol exposure non-human primate model (Roy et al, 2015, Thermostable ricin vaccine protects rhesus macaques against aerosolized ricin: Epitope-specific neutralizing antibodies correlate with protection, PNAS USA 112:3782-3787), and has also been shown to be well tolerated and immunogenic in two Phase 1 clinical trials in healthy volunteers. Results of the first Phase 1 human trial of RiVax^® established that the immunogen was safe and induced antibodies that we believe may protect humans from ricin exposure. The antibodies generated from vaccination, concentrated and purified, were capable of conferring immunity passively to recipient animals, indicating that the vaccine was capable of inducing functionally active antibodies in humans. The outcome of this study was published in the Proceedings of the National Academy of Sciences (Vitetta et al., 2006, A Pilot Clinical Trial of a Recombinant Ricin Vaccine in Normal Humans, PNAS, 103:2268-2273). The second trial which was completed in September 2012 and was sponsored by University of Texas Southwestern Medical Center (“UTSW”), evaluated a more potent formulation of RiVax^® that contained an aluminum adjuvant (Alum). The results of the Phase 1b study indicated that Alum-adjuvanted RiVax^® was safe and well tolerated, and induced greater ricin neutralizing antibody levels in humans than adjuvant-free RiVax^®. The outcomes of this second study were published in the Clinical and Vaccine Immunology (Vitetta et al., 2012, Recombinant Ricin Vaccine Phase 1b Clinical Trial, Clin. Vaccine Immunol. 10:1697-1699). We have adapted the original manufacturing process for the immunogen contained in RiVax^® for thermostability and large scale manufacturing and recent studies have confirmed that the thermostabilized RiVax^® formulation enhances the stability of the RiVax^® antigen, enabling storage for at least 1 year at temperatures up to 40°C (104 °F). The program will pursue approval via the FDA “Animal Rule” since it is not possible to test the efficacy of the vaccine in a clinical study which would expose humans to ricin. Uniform, easily measured and species-neutral immune correlates of protection that can be measured in humans and animals, and are indicative of animal survival to subsequent ricin challenge, are central to the application of the “Animal Rule”. Recent work has identified such potential correlates of immune protection in animals and work to qualify and validate these approaches is continuing, with the goal of utilizing these assays in a planned Phase 1/2 clinical trial with the thermostable RiVax^® formulation. During September 2018, we published an extended stability study of RiVax^®, showing up to 100% protection in mice after 12 months storage at 40°C (104 °F) as well as identification of a potential in vitro stability indicating assay, critical to adequately confirming the long-term shelf life of the vaccine. We have entered into a collaboration with IDT Biologika GmbH to scale-up the formulation/filling process and continue development and validation of analytical methods established at IDT to advance the program. We also have initiated a development agreement with Emergent BioSolutions, Inc. to implement a commercially viable, scalable production technology for the RiVax^® drug substance protein antigen.

The development of RiVax^® has been sponsored through a series of overlapping challenge grants, UC1, and cooperative grants, U01, from the NIH, granted to us and to UTSW where the vaccine originated. The second clinical trial was supported by a grant from the FDA’s Office of Orphan Products to UTSW. To date, we and UTSW have collectively received approximately $25 million in grant funding from the NIH for the development of RiVax^®. In September 2014, we entered into a contract with the NIH for the development of RiVax^® that would provide up to an additional $24.7 million of funding in the aggregate if options to extend the contract are exercised by the NIH. The development agreements with Emergent BioSolutions and IDT are specifically funded under this NIH contract.

During June 2017 NIAID exercised an option for the evaluation of RiVax^® to fund additional animal efficacy studies. The exercised option will provide us with approximately $2.0 million in additional funding. Additionally, during August 2017 NIAID exercised an option to fund good manufacturing practices compliant RiVax^® bulk drug substance and finished drug product manufacturing, which is required for the conduct of future preclinical and clinical safety and efficacy studies. The exercised option will provide us with approximately $2.5 million in additional non-dilutive funding, bringing the total amount awarded to date under this contract to $21.2 million, of which $13.5 million is still available. If all contract options are exercised, the total award of up to $24.7 million will support the preclinical, manufacturing and clinical development activities necessary to advance heat stable RiVax^® with the FDA. In addition to the ongoing funding of up to $24.7 million for the development of RiVax^®, biomarkers for RiVax^® testing have been successfully identified, facilitating potential approval under the FDA Animal Rule.

RiVax^® has been granted Orphan Drug designation by the FDA for the prevention of ricin intoxication. In addition, RiVax^® has also been granted Orphan Drug designation in the EU from the EMA Committee for Orphan Medical Products.

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Assuming development efforts are successful for RiVax^®, we believe potential government procurement contract(s) could reach as much as $200 million. This potential procurement contract information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have determined this potential procurement contract value based on assumptions that we believe are reasonable, there are a number of factors that could cause our expectations to change or not be realized.

As a new chemical entity, an FDA approved RiVax^® vaccine has the potential to qualify for a biodefense Priority Review Voucher (“PRV”). Approved under the 21st Century Cures Act in late 2016, the biodefense PRV is awarded upon approval as a medical countermeasure when the active ingredient(s) have not been otherwise approved for use in any context. PRVs are transferable and can be sold, with sales in recent years in excess of $100 million. When redeemed, PRVs entitle the user to an accelerated review period of nine months, saving a median of seven months review time as calculated in 2009. However, FDA must be advised 90 days in advance of the use of the PRV and the use of a PRV is associated with an additional user fee ($2.7 million in 2017).

Ricin Toxin

Ricin toxin can be cheaply and easily produced, is stable over long periods of time, is toxic by several routes of exposure and thus has the potential to be used as a biological weapon against military and/or civilian targets. As a bioterrorism agent, ricin could be disseminated as an aerosol, by injection, or as a food supply contaminant. The potential use of ricin toxin as a biological weapon of mass destruction has been highlighted in a Federal Bureau of Investigation Bioterror report released in November 2007 titled Terrorism 2002-2005, which states that “Ricin and the bacterial agent anthrax are emerging as the most prevalent agents involved in WMD investigations” (http://www.fbi.gov/stats-services/publications/terrorism-2002-2005/terror02_05.pdf). In recent years, Al Qaeda in the Arabian Peninsula has threatened the use of ricin toxin to poison food and water supplies and in connection with explosive devices. Domestically, the threat from ricin remains a concern for security agencies. In April 2013, letters addressed to the U.S. President, a Senator and a judge tested positive for ricin. As recently as October 2018, an envelope addressed to President Trump was suspected to contain this potent and potentially lethal toxin, which was subsequently confirmed to contain pieces of castor beans used to make ricin.

The Centers for Disease Control and Prevention has classified ricin toxin as a Category B biological agent. Ricin works by first binding to glycoproteins found on the exterior of a cell, and then entering the cell and inhibiting protein synthesis leading to cell death. Once exposed to ricin toxin, there is no effective therapy available to reverse the course of the toxin. The recent ricin threat to government officials has heightened the awareness of this toxic threat. Currently, there is no FDA approved vaccine to protect against the possibility of ricin toxin being used in a terrorist attack, or its use as a weapon on the battlefield nor is there a known antidote for ricin toxin exposure.

SGX943 – for Treating Emerging and/or Antibiotic-Resistant Infectious Diseases

SGX943 is an IDR, containing the same active ingredient as SGX942. Dusquetide is a fully synthetic, 5-amino acid peptide with high aqueous solubility and stability. Extensive in vivo preclinical studies have demonstrated enhanced clearance of bacterial infection with SGX943 administration. SGX943 has shown efficacy against both Gram-negative and Gram-positive bacterial infections in preclinical models, independent of whether the bacteria is antibiotic-resistant or antibiotic-sensitive.

The innate immune system is responsible for rapid and non-specific responses to combat bacterial infection. Augmenting these responses represents an alternative approach to treating bacterial infections. In animal models, IDRs are efficacious against both antibiotic-sensitive and antibiotic-resistant infections, both Gram-positive and Gram-negative bacteria, and are active irrespective of whether the bacteria occupies a primarily extracellular or intracellular niche. IDRs are also effective as stand-alone agents or in conjunction with antibiotics. An IDR for the treatment of serious bacterial infections encompasses a number of clinical advantages including:

● Treatment when antibiotics are contraindicated, such as:

o before the infectious organism and/or its antibiotic susceptibility is known; or

o in at-risk populations prior to infection.

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● An ability to be used as an additive, complementary treatment with antibiotics, thereby:

o enhancing efficacy of sub-optimal antibiotic regimens (e.g., partially antibiotic-resistant infections);

o enhancing clearance of infection, thereby minimizing the generation of antibiotic resistance; and

o reducing the required antibiotic dose, again potentially minimizing the generation of antibiotic resistance.

● An ability to modulate the deleterious consequences of inflammation in response to the infection, including the inflammation caused by antibiotic-driven bacterial lysis; and

● Being unlikely to generate bacterial resistance since the IDR acts on the host, and not the pathogen.

Importantly, systemic inflammation and multi-organ failure is the ultimate common outcome of not only emerging and/or antibiotic-resistant infectious diseases, but also of most biothreat agents (e.g., Burkholderia pseudomallei), indicating that dusquetide would be applicable not only to antibiotic-resistant infection, but also to biothreat agents, especially where the pathogen is not known and/or has been engineered for enhanced antibiotic resistance.

In May 2019, the Company was awarded a subcontract of approximately $600,000 over three years to participate in a biodefense contract for the development of medical countermeasures against bacterial threat agents. As of June 30, 2019, there was no revenue earned or expense incurred related to the DTRA subcontract.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates and judgments on an on-going basis.

Revenue Recognition

Our revenues are primarily generated from government contracts and grants. The revenue from government contracts and grants is based upon subcontractor costs and internal costs incurred that are specifically covered by the contracts and grants, plus a facilities and administrative rate that provides funding for overhead expenses and management fees. These revenues are recognized when expenses have been incurred by subcontractors or when we incur internal expenses that are related to the government contracts and grants.

Research and Development Costs

Research and development costs are charged to expense when incurred in accordance with FASB ASC 730, Research and Development. Research and development includes costs such as clinical trial expenses, contracted research and license agreement fees with no alternative future use, supplies and materials, salaries, share-based compensation, employee benefits, equipment depreciation and allocation of various corporate costs. Purchased in-process research and development expense represents the value assigned or paid for acquired research and development for which there is no alternative future use as of the date of acquisition.

Share-Based Compensation

Stock options are issued with an exercise price equal to the market price on the date of grant. Stock options issued to directors upon re-election vest quarterly for a period of one year (new director issuances are fully vested upon issuance). Stock options issued to employees generally vest 25% on the grant date, then 25% each subsequent year for a period of three years. Stock options vest over each three-month period from the date of issuance to the end of the three-year period. These options have a ten year life for as long as the individuals remain employees or directors. In general, when an employee or director terminates their position the options will expire within three months, unless otherwise extended by the Board.

From time to time, we issue restricted shares of common stock to vendors and consultants as compensation for services performed. Typically these instruments vest upon issuance and therefore the entire share-based compensation expense is recognized upon issuance to the vendors and/or consultants.

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In June 2018, the FASB amended the accounting for share-based compensation issued to nonemployees in ASU 2018-07. Under the revised guidance, the scope of Topic 718 was expanded to include share-based payments issued to nonemployees, supersedes Subtopic 505-50 and generally aligns the accounting for awards issued to nonemployees to the accounting for employee awards. The Company adopted the new guidance effective January 1, 2019, and in accordance with the new guidance, stock compensation expense for equity-classified awards to nonemployees is measured on the date of grant and is recognized when the services are performed.

The fair value of each option grant made during the six months ended June 30, 2019 and 2018 was estimated on the date of each grant using the Black-Scholes option pricing model and amortized ratably over the option vesting periods, which approximates the service period. The fair value of restricted shares of common stock issued to the third-party vendors during the six months ended June 30, 2019 was measured at the market price of the Company’s common stock on the date of grant. Stock compensation expense was recognized on the date of grant since the service had been rendered and all other conditions necessary for the award had been satisfied. The Company did not issue shares of common stock to third party vendors during the six months ended June 30, 2018.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence is considered, including our current and past performance, the market environment in which we operate, the utilization of past tax credits, and the length of carryback and carryforward periods. Deferred tax assets and liabilities are measured utilizing tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. We recognized an income tax benefit of $610,676 from the sale of the New Jersey NOL carryforward during the six months ended June 30, 2019. No income tax benefit was recognized for the six months ended June 30, 2018. We recognize accrued interest and penalties associated with uncertain tax positions, if any, as part of the income tax provision. There were no tax related interest and penalties recorded for June 30, 2019 or 2018. Additionally, we have not recorded an asset for unrecognized tax benefits or a liability for uncertain tax positions at June 30, 2019 and December 31, 2018.

Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the entity. Since there is a significant number of options and warrants outstanding, fluctuations in the actual market price can have a variety of results for each period presented.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions such as the fair value of warrants and stock options and recovery of the useful life of intangibles that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

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Material Changes in Results of Operations

Three and Six months Ended June 30, 2019 Compared to June 30, 2018

For the three months ended June 30, 2019, we had a net loss of $2,123,521 as compared to a net loss of $1,556,342 for the same period in the prior year, representing an increase of $567,179 or 36%. The increase in the quarterly loss was primarily due to higher clinical trial expenses incurred in 2019 to support the pivotal Phase 3 clinical trial of SGX301 for the treatment of CTCL and the pivotal Phase 3 clinical trial of SGX942 for the treatment of oral mucositis in head and neck cancer. For the six months ended June 30, 2019, we had a net loss of $3,763,148 as compared to a net loss of $3,933,548 for the same period in the prior year, representing a decrease in the net loss of $170,400 or 4%. This decrease in year-to-date net loss was primarily the result of the $610,676 income tax benefit from the sale of the New Jersey 2017 NOL carryforwards and $251,212 milestone fee income from the RiVax^® program, offset by higher clinical trial expenses incurred during the six months ended June 30, 2019 for our two Phase 3 clinical trials of SGX301 and SGX942.

Our revenues and associated costs incurred were related to the government contracts and grants awarded in support of our pivotal Phase 3 trials of SGX301 and SGX942 in addition to the development of the ThermoVax^® and RiVax^® programs. For the three months ended June 30, 2019, we had total revenue of $1,544,964 as compared to $1,725,545 for the same period in the prior year, representing a decrease of $180,581 or 10%. For the six months ended June 30, 2019, we had total revenue of $2,689,752 as compared to $2,845,318 for the same period in the prior year, representing a decrease of $155,566 or 5%. We incurred costs related to those revenues for the three months ended June 30, 2019 and 2018 of $1,086,814 and $1,493,676, respectively, representing a decrease of $406,862 or 27%. For the six months ended June 30, 2019, costs related to revenues were $2,014,738 as compared to $2,472,597 for the same period in the prior year, representing a decrease of $457,859 or 19%. As a result, our gross profit for the three months ended June 30, 2019 was $458,150 or 30% of revenue, as compared to $231,869 or 13% of revenue for the same period in 2018, representing an increase of $226,281 or 98%. Gross profit for the six months ended June 30, 2019 was $675,014 or 25% of revenues, as compared to $372,721 or 13% of revenues for the same period in 2018, representing an increase of $302,293 or 81%. The increase in gross profit during the three and six months ended June 30, 2019 was primarily the result of the $251,212 milestone fee income earned in June 2019 from the RiVax^® program and a higher share of reimbursable costs available for contracted fixed overhead reimbursement in 2019, resulting in an increase in gross profit percentage of 16% and 12%, respectively, for the three months and six months ended June 30, 2019 over the comparable periods in 2018.

Research and development expenses were $1,853,950 for the three months ended June 30, 2019 as compared to $1,170,333 for the same period in 2018, representing an increase of $683,617 or 58%. Research and development expenses were $3,496,668 for the six months ended June 30, 2019 as compared to $2,973,693 for the same period in 2018, representing an increase of $522,975 or 18%. The increases in research and development spending for the three and six months ended June 30, 2019 were primarily attributable to higher clinical trial expenditures incurred in 2019 compared to the same periods in 2018 to support the pivotal Phase 3 clinical trial of SGX301 for the treatment of CTCL and the pivotal Phase 3 clinical trial of SGX942 for the treatment of oral mucositis in head and neck cancer.

General and administrative expenses were $769,091 for the three months ended June 30, 2019, as compared to $650,826 for the same period in 2018, representing an increase of $118,265 or 18%. General and administrative expenses were $1,643,300 for the six months ended June 30, 2019, as compared to $1,382,419 for the same period in 2018, representing an increase of $260,881 or 19%. The increase was primarily attributable to higher professional fees incurred during the three and six months ended June 30, 2019.

Other income for the three months ended June 30, 2019 was $41,370 as compared to $32,948 for the same period in 2018, representing an increase of $8,422 or 26%. Other income for the six months ended June 30, 2019 was $91,130 as compared to $49,843 for the same period in 2018, representing an increase of $41,287 or 83%. The increases were due to higher interest and dividend rates on our cash and cash equivalents for both the three and six months ended June 30, 2019 as compared to the same periods in 2018.

Financial Condition

Cash and Working Capital

As of June 30, 2019, we had cash and cash equivalents of $6,986,289 as compared to $8,983,717 as of December 31, 2018, representing a decrease of $1,997,428 or 22%. As of June 30, 2019, we had working capital of $3,311,412 as compared to working capital of $6,131,178 as of December 31, 2018, representing a decrease of $2,819,766 or 46% in working capital. The decrease in cash and cash equivalents and working capital was primarily related to expenditures incurred to support the pivotal Phase 3 clinical trial of SGX301 for the treatment of CTCL and expenditures incurred in the pivotal Phase 3 clinical trial of SGX942 for the treatment of oral mucositis in head and neck cancer.

We expect to continue to incur losses for the foreseeable future and will need to raise additional capital to support ongoing operations. Management is evaluating all options to raise sufficient funds to fund our working capital requirements. These options include proceeds from government contract and grant programs, proceeds available from the At Market Issuance Sales Agreement (“FBR Sales Agreement”) with B. Riley FBR Inc. and raising additional funds through potential partnerships and /or debt and equity financings. There can be no assurances, however, that management will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be on terms satisfactory to us.

Our plans with respect to our liquidity management include, but are not limited to, the following:

● We have up to $12.4 million in active government contract funding still available as of June 30, 2019 to support our associated research programs through 2020 and beyond, provided the federal agencies exercise all options and do not elect to terminate the contracts for convenience. We plan to submit additional contract and grant applications for further support of our programs with various funding agencies;

● We have continued to use equity instruments to provide a portion of the compensation due to vendors and collaboration partners and expect to continue to do so for the foreseeable future;

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● We will continue to pursue Net Operating Loss (“NOL”) sales in the state of New Jersey pursuant to its Technology Business Tax Certificate Transfer Program if the program is available;

● We plan to pursue potential partnerships for pipeline programs. However, there can be no assurances that we can consummate such transactions;

● We have up to $6.6 million remaining from the FBR Sales Agreement as of August 8, 2019 under the prospectus supplement updated October 3, 2018; and

● We may seek additional capital in the private and/or public equity markets, pursue government contracts and grants as well as business development activities, to continue our operations, respond to competitive pressures, develop new products and services, and to support new strategic partnerships. We are currently evaluating additional equity/debt financing opportunities on an ongoing basis and may execute them when appropriate. However, there can be no assurances that we can consummate such a transaction, or consummate a transaction at favorable pricing.

Expenditures

Under our budget and based upon our existing product development agreements and license agreements pursuant to letters of intent and option agreements, we expect our total research and development expenditures for the next 12 months to be approximately $11.1 million before any contract or grant reimbursements, of which $7.3 million relates to the Specialized BioTherapeutics business and $3.8 million relates to the Public Health Solutions business. We anticipate contract and grant reimbursements in the next 12 months of approximately $4.3 million to offset research and development expenses in both the Specialized BioTherapeutics and the Public Health Solutions business segments.

The table below details our costs for research and development by program and amounts reimbursed for the six months ended June 30, 2019:

	2019		2018
Research & Development Expenses
RiVax® and ThermoVax® Vaccines	$	174,039	$	223,975
Dusquetide (SGX94)		2,379,270		1,725,594
SGX301		721,507		909,275
Other		221,852		114,849
Total	$	3,496,668	$	2,973,693
Reimbursed under Government Contracts and Grants
RiVax® and ThermoVax® Vaccines		1,406,500		2,081,239
SGX942		321,461		187,144
SGX301		286,777		204,214
Total	$	2,014,738	$	2,472,597
Grand Total	$	5,511,406	$	5,446,290

Contractual Obligations

We have commitments of approximately $450,000 as of June 30, 2019 for several licensing agreements with entities, consultants and universities. Additionally, we have collaboration and license agreements, which upon clinical or commercialization success may require the payment of milestones of up to $7.9 million and/or royalties up to 6% of net sales of covered products, if and when achieved. However, there can be no assurance that clinical or commercialization success will occur.

We currently lease approximately 6,200 square feet of office space at 29 Emmons Drive, Suite B-10 in Princeton, New Jersey pursuant to a lease that was amended in October 2017 and expires in October 2020. This office space currently serves as our corporate headquarters. The rent for the first 12 months was $11,367 per month, or approximately $22.00 per square foot. The rent increased to $11,625 per month, or approximately $22.50 per square foot, for the next 12 months beginning November 1, 2018 and will increase beginning November 1, 2019 to $11,883 per month, or approximately $23.00 per square foot for the remainder of the lease.

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On September 3, 2014, we entered into an asset purchase agreement with Hy Biopharma, Inc. (“Hy Biopharma”) pursuant to which we acquired certain intangible assets, properties and rights of Hy Biopharma related to the development of Hy BioPharma’s synthetic hypericin product. As consideration for the assets acquired, we paid $275,000 in cash and issued 184,912 shares of common stock with a fair value of $3,750,000. These amounts were charged to research and development expense during the third quarter of 2014 as the assets will be used in our research and development activities and do not have alternative future use pursuant to generally accepted accounting principles in the U.S. Provided all future success-oriented milestones are attained, we will be required to make payments of up to $10.0 million, if and when achieved. Payments will be payable in restricted securities of the Company not to exceed 19.9% ownership of our outstanding stock. As of June 30, 2019, no milestone payments have been made or accrued.

In February 2007, our Board of Directors authorized the issuance of 5,000 shares of our common stock to Dr. Schaber immediately prior to the completion of a transaction, or series or a combination of related transactions, negotiated by our Board of Directors whereby, directly or indirectly, a majority of our capital stock or a majority of our assets are transferred from us and/or our stockholders to a third party. Dr. Schaber’s amended employment agreement includes our obligation to issue such shares if such event occurs. 

In May 2019, the Company entered into a four-month service agreement with a third party vendor, which requires the Company to issue at pre-determined intervals an aggregate of 100,000 restricted shares of common stock as partial compensation for the services provided. In accordance with the agreement, the Company has issued 50,000 shares of common stock with a fair value of $0.83 per share on May 15, 2019 and 25,000 shares of common stock with a fair value of $0.98 on July 15, 2019. The Company will issue the remaining 25,000 shares of common stock on August 15, 2019. The service agreement may be terminated at any time upon written notice.

As a result of the above agreements, we have future contractual obligations over the next five years as follows:

Year	Research and Development		Property and Other Leases		Total
July 1 through December 31, 2019	$	50,000	$	74,538	$	124,538
2020		100,000		127,374		227,374
2021		100,000		6,408		106,408
2022		100,000		-		100,000
2023		100,000		-		100,000
Total	$	450,000	$	208,320	$	658,320

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because the majority of our investments are in short-term marketable securities, in addition to the foreign exchange rate fluctuations related to our foreign currency transactions. We do not have any derivative financial instruments. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the possible controls and procedures.

Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, has concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Controls

There was no change in our internal control over financial reporting identified in connection with the evaluation of such internal controls that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION.

ITEM 1A – RISK FACTORS

Our business faces significant risks. These risks include those disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. If any of the events or circumstances described in the referenced risks actually occur, our business, financial condition or results of operations could be materially adversely affected and such events or circumstances could cause our actual results to differ materially from the results contemplated by the “forward-looking” statements contained in this report. These risks should be read in conjunction with the other information set forth in this Quarterly Report as well as in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and in our periodic reports on Form 10-Q and Form 8-K. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our business, financial condition and results of operations. We do not undertake to update any of the “forward-looking” statements or to announce the results of any revisions to these “forward-looking” statements, except as required by law.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES

During the six months ended June 30, 2019, the Company issued the following restricted shares of common stock to third party vendors as partial compensation for services performed:

On January 2, 2019, 60,000 shares of common stock were issued at the per share issuance price of $0.96.

On April 29, 2019, 8,681 shares of common stock were issued at the per share issuance price of $0.73.

On May 15, 2019, 50,000 shares of common stock were issued at the per share issuance price of $0.83.

On June 28, 2019, 78,338 shares of common stock were issued at the per share issuance price of $0.71.

 The Company believes the issuance of these shares was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving any public offering. The recipient of the securities in the transaction represented its intention to acquire securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificate issued in the transaction. The recipient either has enough knowledge and experience in finance and business matters to be able to evaluate the risks and merits of the investment or is able to bear the investment’s economic risk. The recipient either received or had adequate access, through its business or other relationship with the Company, to information about the Company.

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SOLIGENIX, INC.
August 13, 2019	by	/s/ Christopher J. Schaber
		Christopher J. Schaber, PhD
		President and Chief Executive Officer
		(Principal Executive Officer)
August 13, 2019	by	/s/ Karen Krumeich
		Karen Krumeich
		Chief Financial Officer, Senior Vice President, and Corporate Secretary
		(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

EXHIBIT NO.	DESCRIPTION
31.1	Certification of Chief Executive Officer pursuant to Exchange Act rule 13(a)-14(a) (under Section 302 of the Sarbanes-Oxley Act of 2002).
31.2	Certification of Chief Financial Officer pursuant to Exchange Act rule 13(a)-14(a) (under Section 302 of the Sarbanes-Oxley Act of 2002).
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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