Kalytera Therapeutics, Inc. (TSX VENTURE: KLY and OTCQB: KALTF) (the “Company” or “Kalytera”) announced today that it has signed a binding Letter of Intent dated May 12, 2020 (the “LOI”) to acquire Salzman Group, Inc., a privately held company located in West Tisbury, MA (“Salzman Group”). Salzman Group is the owner of R-107, a proprietary drug with issued and pending composition of matter and method of use patents in approximately 40 countries, including the U.S., Australia, Brazil, China, Europe, India, Japan, Russia and South Korea. Salzman Group is developing R-107 for treatment of COVID-19 associated lung disease, chlorine inhalation lung injury (“CILI”) and pulmonary arterial hypertension (“PAH”). Subject to completion of customary due diligence, the Company expects that definitive agreements will be executed by June 15, 2020. In connection with this announcement, the Company has requested that a trading halt of the Company’s common shares be affected in compliance with the requirements of the TSX Venture Exchange.
- R-107 is a liquid prodrug of nitric oxide. Based on the fact that nitric oxide is an approved treatment for acute respiratory failure in newborns, and the clinical evidence of nitric oxide’s antiviral activity against strains of coronavirus, Salzman Group will develop R-107 for treatment of COVID-19 associated lung disease.
- Salzman Group is also developing R-107 for chlorine inhalation lung injury (“CILI”). This project has been funded in whole or in part with Federal funds from the Department of Health and Human Services; Office of the Assistant Secretary for Preparedness and Response; Biomedical Advanced Research and Development Authority, under Contract No. HHSO100201600016C (the “BARDA Contract”).
- Salzman Group will make an application for an additional BARDA contract to develop R-107 for treatment of COVID-19 associated lung disease.
- The potential total funding under the BARDA Contract for development of R-107 for CILI is USD $84.9 million.
- If Salzman Group’s application for a new BARDA contract for development of R-107 for COVID-19 associated lung disease is successful, Salzman Group may receive an additional USD $20 million under this new BARDA contract.
- Kalytera would recognize approximately USD $4.2 million of net operating profits under the BARDA Contract over the next 36 months if all developmental milestones under the contract are met. If the application for the new BARDA contract to fund the COVID-19 indication is approved, Kalytera would recognize approximately an additional USD $1.2 million of net operating profits over the same period if all developmental milestones under the new contract are met.
- The acquisition of Salzman Group will be completed by issuance of 130 million Kalytera common shares within 30 days after execution of definitive agreements, with approximately 394 million additional shares to be issued upon shareholder approval, after which the former shareholders of Salzman Group would own 49.9% of Kalytera’s outstanding common shares. After issuance of the additional shares, the former shareholders of Salzman Group would become new Control Persons of the Company, which is a matter that will require shareholder approval.
- As additional consideration for the initial issuance of the 130 million common shares, Salzman Group will grant to Kalytera a license to develop and commercialize R-107 for treatment of COVID-19 associated lung disease in Canada.
- Kalytera also announces a private placement to raise up to CDN $5,000,000 by issuing Units at CDN $0.015 per Unit. Each Unit will be comprised of one (1) common share of Kalytera and one (1) common share purchase warrant, with each warrant exercisable at CDN $0.05 for 24 months.
Disclaimer Regarding Future-Oriented Financial Information and Financial Outlooks
This press release contains future-oriented financial information and financial outlooks for the Company. Readers are advised to look at the discussion below regarding these matters in the section entitled “Important Information About Future-Oriented Financial Information and Financial Outlooks“, and the disclaimer information at the end of this press release entitled “Cautionary Statements”.
Chlorine Inhalation Lung Injury
Salzman Group is developing R-107 as a treatment for acute lung injury resulting from inhalation of chlorine gas.
The Biomedical Advanced Research and Development Authority (BARDA) is a division of the U.S. Department of Health and Human Services. In 2016, BARDA awarded Salzman Group a USD $15.9 million contract to develop R-107 as a treatment for chlorine inhalation lung injury (“CILI”). An additional USD $69.9 million could be released to Salzman Group over the next 36 months, as developmental milestones are achieved. Under GAAP, these U.S. government funds would be recognized as contract revenues as received over that period. The majority of these funds would be paid to third parties for manufacturing, pharmacology, toxicology, laboratory work, a registration efficacy study in sheep, and a Phase 1 clinical safety study in humans. Out of the total of USD $69.9 million of potential future contract funding, Salzman Group anticipates that it will recognize net operating profits of approximately USD $1.4 million per year.
Phase 2 and Phase 3 clinical studies of R-107 will not be required for FDA approval for treatment of CILI under the FDA’s “Animal Rule” (21 CFR Part 314.600) that allows a drug to be registered without such studies if it is not ethical or feasible to test its efficacy in humans. It will not be possible to test R-107 for clinical efficacy in CILI, because it is not feasible to evaluate the drug’s effectiveness in patients exposed to potentially fatal levels of chlorine gas. Instead, FDA approval for CILI will be based on a demonstration of safety in a Phase 1 study in human volunteers, and 2 efficacy studies of R-107 in the treatment of CILI in sheep. The in vivo portion of the first study in sheep has been completed, with positive survival data. If both efficacy studies in sheep are positive, and, because Phase 2 and Phase 3 studies in humans will not be required, Salzman Group expects the timeline for FDA approval to be relatively brief, about 2.5 years.
BARDA makes the majority of its purchases for the Strategic National Stockpile (the “National Stockpile”), and, following approval of R-107, Kalytera expects that BARDA could become a major buyer of the drug. R-107 potentially purchased by BARDA may be stored in the National Stockpile and at regional medical centers throughout the U.S. in sufficient quantities to respond to multiple large-scale emergencies simultaneously.
R-107 is a proprietary and novel molecule that acts as a nitric oxide donor. Nitric oxide normally exists in a gaseous state, and is approved as such by the FDA for administration to patients via inhalation therapy requiring a special type of delivery device, and complex administration by trained respiratory therapists. R-107, in contrast, is a liquid that is readily administered by a single intramuscular injection. In addition to its clear advantages in simplicity of administration, R-107 does not lose its potency after prolonged periods of administration. In contrast, other nitric oxide donors in liquid form, such as nitroglycerin, rapidly induce tolerance and lose biological activity after more than a single dose. Accordingly, R-107 is poised to be the first liquid nitric oxide donor that is easy and inexpensive to administer and provides sustained and biologically effective delivery.
Gaseous nitric oxide is already approved by the FDA as an inhalation therapy for treating newborns with acute pulmonary hypertension and respiratory failure, and has shown clinical evidence of antiviral activity against strains of coronavirus. For example, inhaled nitric oxide has demonstrated an inhibitory effect on the replication of the SARS virus (“SARS-CoV”).1 The SARS virus is a coronavirus. Inhalable nitric oxide will also be evaluated in a Phase 2 clinical study sponsored by Massachusetts General Hospital in severe acute respiratory syndrome in COVID-19.2
Respiratory viruses, such as SARS-CoV and COVID-19, can cause acute respiratory distress syndrome (“ARDS”), in which fluid leaks into the lungs, making breathing difficult or impossible. The prognosis with COVID-19 can be poor if the patient develops respiratory disease. R-107 will be developed for COVID-19 associated lung disease, and, because there are no existing therapies or vaccines to effectively treat or prevent COVID-19, it is anticipated that the FDA will allow an expedited clinical development pathway for R-107 in this indication.
There is currently a critical global shortage of devices for delivery of inhalable nitric oxide, and, even if such devices were to become available, administration of gaseous nitric oxide would be complex and labor-intensive, substantially limiting the number of patients that could be treated at any one time.
The Company believes that its R-107 drug will allow for multiple patients to be treated simultaneously, in a potentially safe and less labor-intensive manner, without the need for special delivery equipment.
Salzman Group has spoken to its program officer at BARDA regarding a new BARDA contract to support the development of R-107 for COVID-19 associated lung disease. Salzman Group will submit a formal application for this new contract by July of this year. If awarded, the new contract would support a clinical trial in intubated and mechanically ventilated patients with COVID-19 associated pulmonary failure. The goals of this treatment would be to reduce fluid congestion in the lungs, improve oxygenation, decrease length of mechanical ventilation and ICU care, and reduce mortality. The Company is not making any express or implied claims that its product has the ability to eliminate, cure, or contain the COVID-19 (or SARS-2 Coronavirus) at this time.
Pulmonary Arterial Hypertension (“PAH”)
PAH is a lethal condition that inexorably progresses to end-stage heart failure and death within 5-10 years. Current therapies have marginally improved the quality of life and decreased symptoms of PAH, but are not a cure, and do not alter long-term prognosis. All of the currently registered agents have significant side effects that limit their acceptability. A novel therapy for PAH that halts disease progression and is well tolerated would address an important unmet medical need, of nearly 200,000 Americans.
The preclinical evidence in support of R-107 therapy for PAH is promising. Treatment with R-107, for example, has shown sustained relief in classic animal models of PAH, wherein a single dose induces a 70% reduction in pulmonary arterial blood pressure that persists for more than 48 hours. These preclinical findings are significantly superior in both their potency and duration of activity compared to results of currently marketed agents evaluated in the same animal models of PAH.
All rights under U.S. issued patents covering the use of R-107 in the treatment of PAH are owned by Salzman Group. All rights under EU, Australian and other issued patents covering the use of R-107 in the treatment of PAH are owned by other companies affiliated with Salzman Group. These affiliates of Salzman Group have agreed to grant to Kalytera an option (the “Option”) for Kalytera to acquire all rights for the use of R-107 in the treatment of PAH under the EU, Australian, and other patents. The Option exercise price is USD $5 million payable in cash or shares of Kalytera’s common stock on or prior to expiration of the Option on December 31, 2020. If Kalytera exercises this option and acquires R-107 for the treatment of PAH in the EU, Australia, and other jurisdictions, Kalytera will become obligated to pay additional milestone payments to the affiliates on achievement of certain milestone events, including regulatory approvals of R-107 for treatment of PAH.
Kalytera will purchase all shares of Salzman Group on the terms set forth in the binding LOI (the “Acquisition”). The essential terms of the transaction are as follows:
- Common Shares to be Issued Within 30 Days of Execution of the Definitive Agreements: Within 30 days following execution of the definitive agreements, Kalytera will issue to the former shareholders of Salzman Group 130 million common shares (the “Closing Shares”). The deemed value of the Closing Shares, based on the $0.015 closing price of the shares on May 12, 2020 on the TSX-V Exchange, would be $1,950,000. As additional consideration for the issuance of the Closing Shares, Salzman Group will grant to Kalytera a license to commercialize R-107 for treatment of COVID-19 in Canada.
- Additional Shares to be Issued Upon Shareholder Approval: Within 120 days following execution of the definitive agreements, Kalytera will schedule a special meeting of shareholders (the “Shareholders Meeting”), at which Kalytera’s shareholders will be asked to approve the issuance of approximately 394 million additional shares of Kalytera common stock to the shareholders of Salzman Group (the “Additional Shares”). The sum of the Closing Shares plus the Additional Shares will be equal to 49.9% of Kalytera’s issued and outstanding shares of common stock as of the date of the execution of the definitive agreements. The deemed value of the Additional Shares, based on the $0.015 closing price of the shares on May 12, 2020 on the TSX-V Exchange, would be $5,910,000. After issuance of the Additional Shares, the former shareholders of Salzman Group would become new Control Persons of the Company, which is a matter that will require shareholder approval.
- Share Consolidation: At the Shareholders Meeting, Kalytera will also seek shareholder approval for a share consolidation or reverse stock split in the range of 10:1 to 20:1 (the “Share Consolidation”).
- Events of Default: The failure of shareholders to approve either the issuance of the Additional Shares, or the Share Consolidation, will constitute an event of default, entitling the former shareholders of Salzman Group to recover all shares of Salzman Group. Similarly, failure of the Company to complete the Private Placement Offering described below by July 31, 2020 would also constitute an event of default, entitling the former shareholders of Salzman Group to recover all shares of Salzman Group. If an event of default occurs, and the former shareholders of Salzman Group recover all shares of Salzman Group, Kalytera will retain its license to commercialize R-107 for treatment of COVID-19 in Canada.
- Contingent Milestone Payments: Kalytera will be obligated to make milestone payments to the former shareholders of Salzman Group upon achievement of certain developmental milestones with respect to the development of R-107 in: (1) CILI; (2) COVID-19 associated lung disease; and (3) PAH (the “Milestone Payments”). If any milestones are not achieved, the related Milestone Payment will not be made, and the aggregate cash Milestone Payments that would have otherwise been paid would be reduced by such amount. If all milestones in all indications are achieved, including FDA approval of R-107 in all indications, Kalytera will make aggregate cash Milestone Payments to the former shareholders of Salzman Group of USD $29 million.
Private Placement Offering
Through a non-brokered private placement Kalytera will offer up to CDN $5,000,000 of units at a price of CDN $0.015 per unit (the “Offering”). Each unit will consist of one common share and one common share purchase warrant (the “Units”). Each warrant will be exercisable to acquire one common share at an exercise price of $0.05 for a period of 2 years, subject to customary adjustments in certain events (the “Warrants”).
Closing of the Offering is expected to occur on or about July 31, 2020. The Offering is subject to certain conditions including, but not limited to, the receipt of all necessary regulatory and stock exchange approvals, including the approval of the TSX Venture Exchange.
The securities being offered have not been, nor will they be, registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States to, or for the account or benefit of, U.S. persons absent registration or an applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any State in which such offer, solicitation or sale would be unlawful.
The Company may use the assistance of finders or similar parties to assist it with the Offering, in which case the Company will provide further disclosure as required by the TSX Venture Exchange and applicable laws with respect of any such arrangements.
Important Information About Future-Oriented Financial Information and Financial Outlooks
This press release contains “FOFI”, or “future-oriented financial information”, which are forward-looking statements about prospective financial performance, financial position or cash flows of the Company, based on assumptions about future economic conditions and courses of action. “Forward-looking information” means disclosure regarding possible events, conditions or financial performance that is based on assumptions about future economic conditions and courses of action, and includes future-oriented financial information with respect to prospective financial performance, financial position or cash flows that is presented as a forecast or a projection.
Readers are cautioned that any and all forward-looking information about prospective financial performance, and financial position or cash flows of the Company in this press release are based on assumptions about future economic conditions and courses of action taken by the Company may or may not materialize or materialize as currently expected.
Projected funding and any additional funding through or by any governmental entity for any current or proposed research, development or other activities or project disclosed in this press release, and any projected revenues, or net operating profits that the Company anticipates receiving under any contract with any such governmental entity, are forward looking information and FOFI.
It is the management’s reasonable belief, as of the date of this press release, that such forward-looking information and financial outlooks are reasonable for any future period indicated.
Based on the foregoing, management has approved as of the date of this press release the future-oriented financial information and financial outlooks contained in this press release but cautions readers that actual results may vary from the forward-looking information if the assumptions on which they are based do not materialize or future events adversely affect their outcome, in which case they each could negatively impact any future financial projection, information or outlook that management currently expects; and, as such, those assumptions are material risk factors that could cause actual results to differ materially from the forward-looking information stated in this press release.
Please also see the section entitled “Cautionary Statements” at the end of this press release.
About Salzman Group
The Salzman Group is a privately held GMP and GCP compliant pharmaceutical development firm located in West Tisbury, MA. Based on over two decades of drug development experience and a strong track record, Salzman Group continues to generate groundbreaking pharmaceutical opportunities.
- Akerstrom S et. Al. Nitric oxide inhibits the Replication Cycle of Severe Acute Respiratory Syndrome Coronavirus. J Virol 2005; 79(3):1966-9.
- ClinicalTrials.gov Identifier: NCT04306393
Through its proven leadership, drug development expertise, and intellectual property portfolio, Kalytera seeks to establish a leading position in the development of novel medicines for a range of important unmet medical needs.
President and CEO
Phone: (888) 861-2008
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
This press release may contain certain forward-looking information and statements (“forward-looking information”) within the meaning of applicable Canadian securities legislation, that are not based on historical fact, including without limitation in respect of its product candidate pipeline, planned clinical trials, regulatory approval prospects, intellectual property objectives, success of any funding applications, private placements, and the acquisition and licensing transaction with Salzman, and other statements containing the words “believes”, “anticipates”, “plans”, “intends”, “will”, “should”, “expects”, “continue”, “estimate”, “forecasts” and other similar expressions. Readers are cautioned to not place undue reliance on forward-looking information. Actual results and developments may differ materially from those contemplated by these statements depending on, among other things, the risk that future clinical studies, licensing and acquisition transaction with Salzman, and/or the private placement may not proceed as expected or may produce unfavorable results, or that any financing may not proceed as planned, and the risk of the contemplated transactions not proceeding or closing on the terms initially contemplated. Kalytera undertakes no obligation to comment on analyses, expectations or statements made by third parties, its securities, or financial or operating results (as applicable). Although Kalytera believes that the expectations reflected in forward-looking information in this press release are reasonable, such forward-looking information has been based on expectations, factors and assumptions concerning future events which may prove to be inaccurate and are subject to numerous risks and uncertainties, certain of which are beyond Kalytera’s control. The forward-looking information contained in this press release is expressly qualified by this cautionary statement and is made as of the date hereof. Kalytera disclaims any intention and has no obligation or responsibility, except as required by law, to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.