Overview

In order to offer the InBreath System widely, we will need to successfully complete clinical trials. The first indication for which we intend to seek approval is to repair or replace the airway in a patient who has had a cancerous trachea removed or other severe damage to the trachea. Because trachea and bronchus cancers are relatively rare diseases, affecting only approximately 2,400 patients per year in the developed world but are quickly fatal, (e.g., median survival in trachea cancer is only 10 months) we anticipate that our clinical trials will involve relatively few patients and will have a relatively short follow up period. If, as we expect, in the U.S. the regulatory pathway is the biologics pathway, then we will seek approval under the Orphan Drug pathway. The Orphan Drug pathway can be used if the disease or condition for which the regenerated trachea is intended affects fewer than 200,000 people in the U.S. This pathway is advantageous because, although the safety and efficacy standards for orphan drug products are the same as for all biologics, approval under this pathway could grant the company a seven year exclusivity on marketing the product for that indication in the U.S.

As regenerated trachea products are implantable products, if they were classified as medical devices in the EU, we would need to conduct related clinical studies, unless we can justify relying on already-existing clinical data. If, in the EU, the regenerated trachea products are classified as medicinal products, it would be possible to seek orphan medicinal product classification if we can demonstrate that the products are intended to treat a condition affecting no more than five per 10,000 persons in the EU, or that they are intended for treating a serious or debilitating disease and it is unlikely that without incentives marketing the products would generate sufficient return to justify the necessary related investment. If the regenerated trachea products were classified as orphan medicinal products, they could be entitled to market exclusivity for ten years. We believe we meet the standard to be classified as an orphan medicinal product in the EU.

Russian and EU Clinical Trials

There have been three patients treated in five Russian transplant surgeries, in 2012 and 2013, that began a clinical trial of trachea transplants for patients with either trachea cancer or trachea damage. This clinical trial is a single arm, open-label study. This means that there is no control group of patients that are being used to compare the treatment to standard of care. The outcome of the trial is being measured principally on the basis of survival.

The first two patients treated have already reached the one-year survival point. Six-month follow-up on these two patients has been presented at the European Society of Thoracic Surgeons conference. In summary, the patients are both alive, mobile, with fluent breathing and with no signs of external infection. Proliferating epithelial tissue was seen on the inside of the scaffold. Both patients developed granulation tissue at the anastomoses (i.e., at the joins between the natural trachea and the scaffold) which was treated with mitomycin therapy. At approximately four months post-surgery both patients developed critical scaffold malformations which were treated using stents. The authors concluded that “The first transplantation of nanocomposite tracheao-laryngeal complex covered with patient own stem cells (a 6-month follow-up period) demonstrated reliable immediate results, but the technology of the nanocomposite scaffold needs to be improved.” The scaffolds used in these two patients were not made by us but were made by a third party. We developed our own scaffold technology in part in order to improve the quality of the scaffolds. We believe that the scaffolds that we made that were used in the first U.S. surgery in April 2013 and other 2013 surgeries were a significant improvement over the prior generation of scaffolds.

We anticipate that at least additional surgeries will take place in this clinical trial during 2014.

The Russian clinical trial is funded by a $5 million grant from the Russian government to the Krasnodar Regional Hospital, one of Russia’s leading transplant centers.

The EU has also approved a separate $5 million grant, with Dr. Macchiarini as the principal investigator, to fund two clinical trials in trachea transplant, using our bioreactors. We expect the first of these two EU trials to begin in 2014.

We intend to combine the Russian and EU clinical data with U.S. clinical data in a single clinical trial to support the approval to market the InBreath System in the U.S. and overseas.

There have been three patients treated in five four Russian transplant surgeries, two in June 2012 and two more in August 2013, that began a clinical trial of trachea transplants for patients with either trachea cancer or trachea damage. This clinical trial is a single arm, open-label study. This means that there is no control group of patients that are being used to compare the treatment to standard of care. The outcome of the trial is being measured principally on the basis of survival.