Update from the CEO. A little long, but after reading this, I still feel very good about the future prospects of the company.
Good Luck
Update from CEO
January 2007
Valued Shareholders:
This is a summary of the company's progress during 2006. The past year was an excellent year for Cytogenix, in which a great deal was accomplished scientifically. Unfortunately, this has not been reflected in our share price, but we are confident that if our rate of progress continues, which we anticipate it will, we can look forward to an even more productive 2007. In summary, our most meaningful accomplishments of 2006 have been:
The generation of our first meaningful revenue stream; at the present time, our customers prefer that we not identify them to preserve their competitive advantage;
Continued improvements in the scaling up of the production of synDNA, an effort spearheaded by Drs. Michael Ma and Fredrick Kendirgi;
Purification of bacteria-free synDNA? to eliminate all but 5% of impurities especially endotoxins, a critical step for the generation of large-volume sales and production of clinical grade material;
The increase in synDNA? scalability and purity has provided us with the potential to fill larger orders from customers with products in clinical trials;
The progression of our valuable synDNA-related intellectual property through the US Patent Office toward granting is a necessary and vital step toward securing the future of Cytogenix, and has been pursued aggressively;
The reorganization of the Cytogenix management, which has already commenced. Candidates for the position of CEO are currently being solicited and contacted;
Cytogenix has established a Business Advisory Board in order to guide the company in its transition from a purely research based organization to a manufacturing and sales oriented business; details concerning this Board will be supplied to investors as they become available, which should be in the very near term;
As part of our effort to improve our communication with our valued investing public, Cytogenix will undertake to provide reports similar to this one on the progress the company is making on an at least monthly basis. We have engaged Stonebridge Holdings, LLC to assist the Company in improving communications and investor awareness. Stonebridge may be reached at (212) 704-6455, (917) 294-5373,
stonebridge.holdings@gmail.com.
Personnel Changes:
Frank Vazquez who had served as Chief Operations Officer and Lawrence Wunderlich who served as Chief Financial Officer resigned and left the Company as of November 17, 2006. Mr. Vazquez and Mr. Wunderlich have brought claims against the Company through arbitration. The Company vigorously denies their allegations and will defend against the claims.
Operations:
The Company has made significant advances in the large-scale synDNA? manufacturing process in terms of process scalability, capacity, efficiency, purification, automation and cGMP (certified Good Manufacturing Practice necessary to manufacture clinical grade compounds) compliance. These efforts allowed us to build the necessary infrastructure and expertise targeting key areas of synDNA? manufacturing including synthesis, purification and analysis. Using these improvements, we are in the process of producing large quantities of clinical-grade materials including our lead product, Simplivir(tm), for our clinical development (e.g., safety, stability, bio-distribution, etc.). We have also sold a number of revenue-generating custom synDNA? orders and are in the position of delivering high-quality synDNA? to the research community as well as our corporate partners. The Company will strongly intensify its efforts to increase sales of synDNA? in the coming year and prepare to achieve GMP certification for the new building.
CytoGenix New Production Facility and Corporate Headquarters:
The Company has contracted with GSL Industrial of Houston, Texas to build a 20,000 square foot facility located in the Westchase district of Houston. The site is close to the Company's present offices. The architectural design activities commenced in November, 2006. Office and laboratory design layouts have been finalized. A certified good manufacturing practice (cGMP) request for proposal (RFP) was compiled in the latter part of December, and, at this writing, the Company is using this RFP to solicit competitive bids from several premier engineering firms to design, build and validate the cGMP portion of the new facility. Groundbreaking for the project will occur in the first quarter of 2007 and target for occupancy is first quarter 2008.
Product Development:
The company continues to grow the contract manufacturing business for synDNA?. Progress is being made in scale-up and purification and commercial scale production is expected to be achieved in the current fiscal year. Simplivir(tm) remains the Company's most advanced product candidate, although several DNA vaccine products are rapidly advancing through discovery and early pre-clinical testing.
Government Outreach by Cytogenix:
The Company has met with federal officials and various agencies of the federal government to explore the possibilities of government funding of development of synDNA? compounds to combat threats from pandemic and biological threats to the security of the United States.
We presented the Company's technology to personnel at the Department of Defense (DoD) including personnel from the office of the Deputy Assistant to the Secretary of Defense for Chemical/Biological Defense. Through efforts to engage the DoD, Cytogenix will enter into a Cooperative Research and Development Agreement (CRADA) with the United States Army Medical Research Institute for Infectious Diseases (USAMRIID) at Ft. Detrick, Maryland to conduct research using synDNA? constructs for DNA vaccines for Ebola, Equine Encephalitis and other pathogens.
In addition to these successful endeavors, we made additional presentations to personnel in the National Institute of Allergy and Infectious Diseases (NIAID) at the National Institutes of Health (NIH); in the Office of the Director of the National Vaccine Program Office at the Department of Health and Human Services (HHS), the HHS' Office of Research and Development Coordination, as well as other HHS officials. These efforts culminated in application submissions for Small Business Innovation Research (SBIR) funding for research on DNA vaccines for seasonal and avian flu. Cytogenix has also conducted joint presentations to HHS in cooperation with Mystic Pharmaceuticals to highlight the potential for mass inoculations in order to expeditiously respond to the threat of avian flu and other pandemic or bioterror threats.
The presentations we made to key members of Congress and congressional committee staff that holds responsibility for national defense and homeland security generated significant interest in the Company's technology. Cytogenix will pursue additional opportunities in this area to help our nation's defense against biological pandemic and potential terror agents.
Legal Actions:
Waldroff and Applied Veterinary Genomics, Inc. - Litigation initiated in March 2004 over the validity of license agreements between CytoGenix (licensor) and William Waldroff (licensee) for use of CytoGenix ssDNA expression technology in shrimp and horse therapeutic applications. AVGI, as sublicensee, was a third party in this action. A jury trial held in February 2005 resulted in entry of a judgment against CytoGenix requiring performance on the contracts and payment of attorney fees. CytoGenix subsequently appealed this decision and in December 2006 the 1st Court of Appeals reversed the trial court's judgment, finding no need for CytoGenix to perform on the contracts and no need for either party to pay the opposing party's attorney fees.
Phanuel Pursuits - Suit was filed in October 2004 claiming that CytoGenix (licensor) had breached a license agreement with Phanuel Pursuits (licensee) for use of the CytoGenix ssDNA expression technology in Indian and Chinese therapeutics. The licenses were dependent upon foreign regulatory approval. The case was dismissed prior to trial for lack of evidence and no appeal was filed. Action on this matter was therefore finalized in March of 2006.
Miscellaneous Defamatory Actions - CytoGenix is actively pursuing legal action against various parties involved in the posting of defamatory comments about the Company and several of its officers on public investor chat-room websites.
Intellectual Property Matters:
synDNA? Production Technology - Our first international (PCT) application covering our proprietary cell-free system and method for the production of large quantities of high-quality DNA published as WO2006/063355. We also filed a second international application covering specific applications of this technology to specific DNA therapeutics involving induction of an immune response. These PCT applications incorporate the technology of several earlier filed US applications filed in 2005 and 2006. In our opinion when these patents issue, the Company's IP position will be very strong and competitive.
In Vivo ssDNA Expression technology - In 2006, we received formalized patent grants covering this proprietary technology, effective in ten countries including China and Europe with validations in Austria, Belgium, Denmark, France, Germany, Great Britain, Ireland, the Netherlands, and Switzerland. An additional grant is forthcoming in India.
ssDNA Expression and Cancer applications - A new US application was filed for use of this ssDNA expression technology to regulate the expression of bcl-2 inside a cell. This technology provides a new approach for research which allows expression of the ssDNA regulator inside the cell.
ssDNA Expression and Sepsis - An international application (PCT) covering the treatment of sepsis published as WO2006/037127. This technology is based upon an earlier filed US application.
Intellectual Property Strategy:
CytoGenix, Inc. currently has 11 granted patents (1 US, 1 China, 9 Europe) covering our basic ssDNA expression technology, with one additional allowance (India) pending. We have an additional 11 applications pending in various countries which are currently progressing through the normal prosecution process (2 US, 2 Australia, 1 Argentina, 1 Brazil, 1 Canada, 1 Israel, 1 Japan, 1 Korea and 1 Mexico).
Since the inception of this technology, the scientists at CytoGenix have applied it in useful therapeutic applications including combating infections caused by Herpes simplex virus (HSV) and multiply resistant bacterial organisms such as Staphylococcus (MRSA). We have used this technology to identify new regulatory oligos that can act as internal cell regulators at the DNA, RNA and protein (aptamer) levels. We have also shown that internal expression of regulatory oligos can act differently from those that are externally applied to the cell, and have applied this to regulate cancer-related gene expression (bcl-2).
We currently have 23 pending national applications covering these therapeutic uses (5 US, 2 Australia, 1 Brazil, 2 Canada, 2 China, 2 Europe, 2 India, 2 Israel, 1 Japan, 2 Korea, 2 Mexico), as well as 2 European Community and 1 International (PCT) application which, according to our current strategic plan, could expand to an additional 30-40 individual foreign patents - providing protection in about 20 different worldwide industrialized markets.
Our synDNA? technology has quickly evolved since its inception in 2005. Our initial US patent applications have been consolidated into 2 International (PCT) applications. One has already published as WO2006/063355. Both PCT applications are in the process of being examined and each should be expanded into about 10-12 national (including US) and regional applications (European Community) during 2007.
As our basic strategy, we strive to protect our new ideas quickly by filing US provisional patent applications. This allows us a period of one year to file for worldwide protection either by way of filing an International PCT, which can be examined and evaluated for general patentability by a single Examiner, or by filing directly in each country for individual Examinations. Although the findings of the PCT examination are not binding on the individual countries, this examination serves as a basis for identifying major flaws and in many smaller countries is relied upon for determination of patentability in that country.
Once a patent application is filed, a time clock is started; within one year we must decide if this technology warrants the expense of patent protection worldwide. Provisional patent applications must be converted into either a regular US utility filing or an International PCT filing within 1 year. In a similar manner, PCT applications must be filed in all designated individual countries within 30 months of its priority date (usually the date of an earlier US provisional filing). As such, many applications must expire or go abandoned by nature of their existence.
We also continuously monitor our patent portfolio to keep it in line with our ever-changing business objectives. The field of Biotechnology changes rapidly and many early inventions are quickly outdated. The US Patent Office has allowed inventors to update their inventions and technology with new data and improvements by filing continuation applications. Continuation policy has made it possible to abandon original inventions as they become outdated and to redirect those prosecution costs to protection of our newer technology without the company losing its claim to the original technology.
Our portfolio is constantly changing. In 2006, we have made some very positive progress in transforming a protected technology into a commercially useful corporate asset.
Research & Development
Publications:
Benimetskaya, L., Ayyanar, K. Kornblum, N., Castanotto, D., Rossi, J., Wu, S., Lai, J., Brown, B., Popova, N., Miller, P., McMicken, H., Chen, Y. & Stein, C. Bcl-2 protein in 518A2 melanoma cells in vivo and in vitro. Clinical Cancer Research, 12:4940-4948, 2006.
Xing-Xin Tan & Yin Chen, Discovery of Novel Antibiotics By screening of an Oligodeoxynucleotide Expression Library, (invited review article, submitted) "New Research on Antisense Elements (Genetics)." Frank Columbus, Editor-in-Chief, Nova Science Publishers, Inc.
These two publications, the thirteenth and fourteenth we have published in peer reviewed scientific journals are significant because they provide continuing, outside validation of the Company's technology. More importantly, the Clinical Cancer Research paper shows the effect of CytoGenix antisense technology in reducing or preventing growth in melanoma tumors grafted onto experimental animals. This is the first application of CytoGenix technology to cancer in animals. The Screening Library paper presented a new way to use our technology to discover antisense compounds over an extended range of gene targets. This screening technique has already generated valuable results in developing antibacterial compounds.
Sponsored and Cooperative Research Agreements:
Slobodan Paesseler, UT Medical Center in Galveston, In vivo study of DNA vaccines against avian flu (H5N1);
Frank Orson, Baylor College of Medicine, In vivo study of DNA vaccine against seasonal flu (H1N1);
David Weiner, University of Pennsylvania, In vivo studies (mice and monkeys) of DNA vaccines against HIV and smallpox;
Steven Olsen, USDA, In vivo studies of DNA vaccines against Brucellosis Abortus;
Jeffery Actor, UT Health Science Center in Houston, In vivo and in vitro studies of oligonucleotide compounds against methicillin resistant staphylococcus aureus (MRSA) and tuberculosis (TB); and
Cy Stein, Montefiore Medical Center, New York, Inhibition of cancer genes using single-stranded DNA expression vectors.
Successful completion of the first four of these studies will add our store of data and enable us to pursue collaboration with other companies engaged in vaccine development. This additional data will also reinforce our requests for support from the federal government to develop DNA vaccines against bioterror and possible pandemic threats. Progress in the fifth study moves us further along the path of development of new anti-biotics effective against resistant bacterial that represent an increasing threat. Completion of the next phase of Dr Stein's studies will provide additional evidence of the superiority of the Company's single stranded DNA expression vectors as antisense mechanisms to down regulate oncogene expression.
New R & D team members:
Michael Ma, Ph.D, Director of DNA Production
Tera Guidry, Ph.D, Scientist
The potential for DNA vaccines has been steadily growing for the past fifteen years. Our development of synDNA? will have a significant effect on this burgeoning market based on the advantages over bacterially fermented plasmid DNA. Various estimates of this market average approximately one billion dollars. The Company's solid scientific base expanding intellectual property, and increasing focus on business and marketing activities will make and keep us competitive.
Thank you for your support,
Malcolm Skolnick
