Note

–

The Company and Description of Business

Windtree Therapeutics, Inc. (referred to as “we,” “us,” or the “Company”) is a biotechnology company focused on developing novel KL

surfactant therapies for respiratory diseases and other potential applications. Surfactants are produced naturally in the lung and are essential for normal respiratory function and survival. Our proprietary technology platform includes a synthetic, peptide-containing surfactant (

surfactant) that is structurally similar to endogenous pulmonary surfactant, and novel drug delivery technologies being developed to enable noninvasive administration of aerosolized

surfactant. We believe that our proprietary technology platform

may

make it possible to develop a pipeline of surfactant products to address a variety of respiratory diseases for which there are few or

approved therapies.

Our lead development program is AEROSURF

(lucinactant for inhalation), an investigational combination drug/device product that combines our

surfactant with our novel aerosol delivery system (ADS). We are developing AEROSURF to improve the management of respiratory distress syndrome (RDS) in premature infants. RDS is a serious respiratory condition caused by a deficiency of natural lung surfactant in lungs of premature infants, and the most prevalent respiratory disease in the neonatal intensive care unit. By enabling administration of aerosolized

surfactant, AEROSURF

may

reduce or eliminate the need for invasive endotracheal intubation and mechanical ventilation, which currently are required to administer life-saving surfactant therapy, but which are associated with serious respiratory conditions and other complications. To avoid the risks of surfactant administration, many neonatologists initially delay surfactant therapy and treat premature infants with noninvasive respiratory support (such as nasal continuous positive airway pressure (nCPAP)). We believe that AEROSURF, if approved, has the potential to address a serious unmet medical need by enabling earlier

surfactant therapy for infants receiving nCPAP alone, reducing the number of premature infants who are subjected to invasive surfactant administration, and potentially providing transformative clinical and pharmacoeconomic benefits.

We recently completed

an AEROSURF phase

clinical trial that was designed to evaluate aerosolized

surfactant administered to premature infants

week gestational age receiving nCPAP, in

two

dose groups (

and

minutes) with up to

two

potential repeat doses, compared to infants receiving nCPAP alone. This trial was conducted in approximately

clinical sites in the U.S., Canada, the European Union and Latin America.

Based on the planned top-line results, data show that AEROSURF did

not

meet the primary endpoint of a reduction in nCPAP failure at

hours, which we believe was due in large part to an unexpected rate of treatment interruptions.

Such interruptions occurred in about

24%

of active enrollments, predominantly in the

minute dose group, and were primarily related to specific lots of disposable cartridge filters in our proprietary ADS that had a tendency to clog. After excluding the patients whose dose was interrupted in the

minute dose group, the data show an nCPAP failure rate of

32%

compared to

44%

in the control group which is a

12%

absolute reduction or a

27%

relative reduction in nCPAP failure compared to control. These data suggest a meaningful treatment effect in line with our targeted outcome.

In addition, in

June 2017,

we and Lee

’s Pharmaceutical (HK), Ltd. (Lee’s) announced an exclusive license and collaboration agreement (License Agreement) for the development and commercialization of

surfactant products in China, Hong Kong and other select Asian markets,

with a future option to potentially add Japan

. The agreement includes AEROSURF as well as the non-aerosol products, SURFAXIN

(approved in the U.S. in

2012

) and SURFAXIN LS™ (an improved lyophilized formulation of SURFAXIN). We also granted Lee’s an exclusive license to manufacture

surfactant in China for use in non-aerosol surfactant products in the licensed territory and a future option to manufacture the device in the licensed territory. In connection with the Loan Agreement (

see,

“– Note

– Liquidity Risks and Management's Plans”), we amended the License Agreement to expand certain of Lee’s rights, including by

immediately adding Japan to the licensed territory,

accelerating the right to manufacture the ADS in and for the licensed territory, reducing or eliminating certain of the milestone and royalty payments and adding an affiliate of Lee’s as a party to the License Agreement. We are presently engaged in a technology transfer of our

surfactant manufacturing process to Lee’s.