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Claritas Pharmaceuticals Issues Letter to Shareholders
BY GlobeNewswire
— 8:30 AM ET 05/11/2021
SAN FRANCISCO and TORONTO, May 11, 2021 (GLOBE NEWSWIRE) -- Claritas Pharmaceuticals, Inc. ( KALTF ) (TSX VENTURE EXCHANGE (TSXV): CLAS and OTC: KALTF) (the “Company” or “Claritas”) today issued the following letter to shareholders from Robert Farrell, the Company’s President and CEO.

Dear Fellow Shareholders,

Claritas is well on its way to becoming the industry leader in nitric oxide therapeutics.

Nitric oxide is one of the most promising molecules in medicine, however, for reasons I will discuss below, its full potential has never been realized. Our drug, R-107, holds the key to unlocking the full potential of nitric oxide, and I, believe R-107 is the only drug in development that is capable of doing this. R-107, is a patented nitric oxide-releasing compound.

The challenge for any biotech company is to demonstrate that its products are safe and effective. This challenge is difficult. More than 90% of all new drugs fail, because they are found to be either unsafe or ineffective.

However, where there is high risk, there can also be high reward, and, if a new drug is approved for a large commercial market, the rewards will be substantial. This is exactly why we are developing R-107.

I have spent the past 30 years of my career in the biotech industry. I have seen drugs fail, and I have seen drugs succeed. At Claritas, we are mitigating the risk of failure by focusing on nitric oxide, a molecule we know to be safe, and we are focusing on the rewards of success by targeting large commercial markets where we know nitric oxide can be effective.

After 30 years in this business, I have never been as optimistic as I am now. I believe that R-107 has potential to transform nitric oxide therapy from a niche treatment to a mainstream therapy in several large market indications.

I frequently hear from investors who want to better understand our chances for success. I will address some of their questions below.

Why am I so Optimistic Regarding the Potential for R-107?
My optimism is based on the exceptionally positive data we have seen with R-107 in animal models of pulmonary arterial hypertension (“PAH”) and in sepsis, as well as the data we have seen from Massachusetts General Hospital with nitric oxide in treatment of COVID-19 infection. Based on these data, I believe R-107 will be successful in all of the above indications. However, it is R-107’s potential in PAH that I am most excited about.

I am excited about our chances for success in PAH for the following reasons: (1) the data we have with R-107 are far superior to similar data seen with other drugs in this disease; (2) the commercial opportunity in PAH is large; and (3) we have a plan to monetize this program in the near-term, within the next 18-months, through an out-license or sale to a larger pharmaceutical company.

We can create the greatest value in the shortest time in PAH, and I will explain below why this is so. At the same time, we will also make progress with R-107 for treatment of sepsis and vaccine-resistant COVID-19 infection.

What is The Opportunity in PAH?
PAH is a life-threatening disease characterized by a profound elevation in blood pressure in the arteries of the lungs. Approved drugs can only ease the symptoms of the disease and slow its progression. PAH is fatal, and there is no cure.

The Likelihood of Our Success in PAH is Based on Our Exceptional Data in Animals: R-107 was tested in the same animal model of PAH in which the currently approved drugs for PAH were also tested. The results of this study were exceptional. R-107 was seen to be superior to all of the approved drugs in reducing pulmonary arterial blood pressure. R-107 was also seen to durably reverse disease severity after a short course of therapy. R-107 is the first and only drug to demonstrate the ability to reverse established disease. Based on these exceptionally positive and unique findings, I believe that R-107 could become the best-in-class, front-line therapy for PAH.

Our “Phase 2 Proof of Concept Study” Will be Designed to Deliver Results in the Shortest Possible Time: We will complete the R-107 Phase 1 study later this year, and initiate our Phase 2 Proof of Concept Study in PAH early next year. The study will be designed to be completed quickly so we can potentially out-license or sell the program to a larger pharmaceutical company by year-end 2022. The study design will be as follows:

Small Number of Patients to Enable Fast Recruitment: The study will enroll only 12 patients with stable PAH. With this small number of patients, we believe we will be able to complete enrollment within two months.
Study to be Conducted at Royal Adelaide Hospital for Ease of Recruitment: The study will enroll patients with stable PAH who are regularly admitted to hospital for routine right heart catheterization. Patients will be administered R-107 during the catheterization procedure. The study will be conducted at the Royal Adelaide Hospital in Adelaide, Australia, where there is a registry of stable PAH patients who routinely receive such catheterizations, so it will be easy to identify patients who meet the criteria for enrollment.
Short Duration of Study Will Enable Quick Completion: Each patient will be in the study for no more than 12-hours, during which time they will receive R-107 by intramuscular injection. Due to the short period of observation (12 hours) and the small number of patients (12), we believe the study can be completed within two months.
Single Study Endpoint to Enable Quick Evaluation of Data: The endpoint of the study will be the measured drop in arterial blood pressure in the lungs, without a reduction in peripheral blood pressure. Based on the data that were obtained in the validated animal model study, we expect to observe a reduction in pulmonary blood pressure within minutes of R-107 administration.
The Goal of the Study is to Position R-107 in PAH for Near-Term Out-license or Sale: The goal of the study is simple: we want to see a drop in pulmonary arterial blood pressure that will be similar to the profound drop in arterial blood pressure that we saw in the animal model study. If we can demonstrate a drop in blood pressure similar to the drop we saw in the validated animal model study, this study will be a success. If we can do this, I believe R-107 will be viewed as a potentially valuable pharmaceutical asset, and perhaps a game-changer in treatment of PAH. This could enable an immediate out-license or sale of R-107 in PAH to a larger pharmaceutical company.

PAH is a Large Commercial Opportunity: The worldwide market for treatment of PAH currently exceeds $6 billion per year and is projected to grow to $9.8 billion by 2027.

The Potential for Near-Term Monetization: Our business strategy for R-107 in PAH is to complete the Phase 2 Proof of Concept Study as quickly as possible, and then out-license or sell the PAH program. We have already begun outreach to pharmaceutical companies in the PAH space in order to build the relationships for a potential transaction of this nature.

Keys to Success: The two requirements for a successful out-license or sale of R-107 for treatment of PAH are: (1) strong patent protection (“IP”) for R-107 in PAH; and (2) positive data in our planned Phase 2 Proof of Concept Study.

IP Protection for R-107 in PAH: We have strong patent protection, with both issued and pending patents in multiple large market countries throughout the world;
Data in Phase 2 Proof of Concept Study: Our plan is to complete the Phase 2 Proof of Concept Study by mid-2022. If we see a drop in arterial blood pressure similar to what we saw in the animal model study, such data would provide the scientific foundation for an immediate sale or strategic out-licensing of R-107 on highly favorable terms. Data of this type are exceedingly rare in the entire industry. If we see that happen, that is enough to generate serious interest from larger pharmaceutical companies.
What Will the Company do in the Short-Term?
In the short-term, we will complete the Phase 1 study with R-107, to be followed by multiple Phase 2 Studies. The purpose of the Phase 1 study is to demonstrate that R-107 is safe for human use. The purpose of the Phase 2 studies is to demonstrate that R-107 can be developed as a nitric oxide therapy in multiple large market opportunities, such as PAH, sepsis, and vaccine-resistant COVID-19 infection.

We will complete the Phase 1 study later this year, and, based on the extensive investigations undertaken in the preclinical setting with R-107 which demonstrated that it was well tolerated in multiple species, and, taken together with the fact that nitric oxide is a molecule produced naturally by the body, we have every reason to believe that R-107 will be found to be safe and well tolerated in man.

Following the Phase 1 study, we will initiate Phase 2 studies in multiple indications, including the Phase 2 Proof of Concept in PAH.

What is Nitric Oxide, and Why do I Believe R-107 Nitric Oxide Therapy has Great Potential?
R-107 is a nitric oxide-releasing compound that can be administered orally in a capsule, or by nasal spray, or by injection.

Nitric oxide is produced by many cells throughout the body. It is produced in small amounts where it is needed, and it is essential to maintain health. Its function in the body is to heal many types of infections, disorders and disease.

Nitric oxide acts within the cardiovascular system to keep blood vessels healthy and regulate blood pressure. It acts within the immune system to eliminate or disable bacterial and certain viral infections. It is also active in many chronic conditions and diseases (such as chronic inflammation, erectile dysfunction, dermatological disorders and cancer).

Nitric oxide has been the subject of intense medical research. It was the subject of the 1998 Nobel prize in medicine, and more than 130,000 published scientific and medical papers have been published regarding its biological functions.

Much of this research has focused on nitric oxide as a potential pharmaceutical therapy. However, the full potential of nitric oxide as a pharmaceutical has not been realized.

Why Hasn’t the Full Potential of Nitric Oxide Been Realized?
The historical challenge with nitric oxide therapy has been the difficulty of delivering the molecule in an effective and practical manner.

Nitric oxide exists as a gas that must be stored in large, pressurized cylinders. These cylinders are cumbersome, expensive, and potentially dangerous when moved around.

Furthermore, because nitric oxide is a gas, it must be delivered by inhalation therapy requiring use of a CPAP-like device and administration by trained respiratory therapists.

For these reasons, use of nitric oxide gas use is expensive, complex, and cumbersome, and its application has therefore been quite limited.

Our drug, R-107, is a liquid nitric oxide-releasing compound. R-107 was designed to solve the problems associated with nitric oxide gas.

What Advantages Does R-107 Have Over Nitric Oxide Itself?
R-107 is a nitric oxide-releasing compound. Unlike gaseous nitric oxide, R-107 is a liquid that can be administered orally in a capsule, or by nasal spray, or by injection. Whereas the advantages of liquid R-107 over gaseous nitric oxide in ease of administration are obvious, this is far from the whole story. R-107’s important medical advantages over nitric oxide include the following:

R-107 Acts Throughout the Body – Not Only in the Lungs: When nitric oxide gas is inhaled, it is absorbed into the lung tissues and enters the bloodstream, where it has a half-life of only a few seconds. It does not survive long enough in the bloodstream to reach peripheral organs and tissues. Therefore, the activity of inhaled nitric gas is restricted to the lungs. In contrast, liquid R-107 enters the bloodstream, travels throughout the body, and releases nitric oxide systemically throughout the body.
R-107 Provides Continuous Systemic Release of Nitric Oxide Over a 24-Hour Period: Upon entering the bloodstream, R-107 slowly releases nitric oxide throughout the body over a 24-hour period. Unlike inhaled nitric oxide, which is metabolized within seconds, R-107’s sustained systemic release of nitric oxide would allow elimination of bacterial and certain viral infections in all organs and tissues throughout the body.
R-107 Does Not Lose Potency: R-107 does not lose potency after prolonged periods of clinical use. In contrast, other nitric oxide donors in liquid form, such as nitroglycerin and amyl nitrate, rapidly induce tolerance and lose their biological activity after more than a single dose.
R-107 Is Patented: One of the biggest barriers to the successful commercialization of a nitric oxide pharmaceutical is the fact that nitric oxide is a naturally occurring molecule, and therefore unpatentable. In contrast, R-107 is 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.
What Is Our Approach? How Will R-107 Be Used?
Our approach is to supplement the body’s natural production of nitric oxide with additional nitric oxide that will be delivered by our drug, R-107.

The idea of delivering supplemental nitric oxide is not new. There are other nitric oxide releasing compounds, such as nitroglycerin. However, these other compounds rapidly induce tolerance and lose biological activity after more than a single dose. In contrast, R-107 does not lose its potency, even after prolonged periods of use.

With R-107, we have found a way to supplement the body’s own nitric oxide defense system, and we can do this in a simple patient-friendly manner with a drug that will not lose potency after a single dose.

Who Are the New People You Added to The Team?

It was important for me, in turning the company around and making it a world leader in our space, to bring in the very top people in the nitric oxide field. I was fortunate in being able to assemble such a group.

Today we are led by our new independent Board members: Professor Salvatore Cuzzocrea, an internationally renowned expert on nitric oxide who has published more than 600 papers on nitric oxide and worked closely as an advisor with the team that designed and invented R-107, and Professor Perenlei Enkhbaatar, who is an internationally acknowledged expert and leader in the biology of nitric oxide and acute lung disease, including PAH.

In addition, we have added Dr. Garry Southan as head of our Scientific Advisory Board. Dr. Southan is an internationally renowned authority in the biology, biochemistry, and chemistry of nitric oxide, and the author of more than 100 peer-reviewed scientific publications and 25 patents relating to nitric oxide. He was also a member of the team that designed and invented R-107.

With the leadership and guidance of this group, we will move quickly to advance R-107 in treatment of PAH, as well as in vaccine-resistant COVID-19 infection and sepsis.

Our Financial Strategy – Strengthening Our Balance Sheet, and Utilization of Non-Dilutive Financing Sources

Elimination of Debt: Within the last two months, Claritas has taken steps to eliminate the majority of the Company’s indebtedness.
Indebtedness Related to the GVHD Program: The Company expects to sign an agreement this month (the “Debt Forgiveness Agreement”) with the former shareholders of Talent Biotechs Ltd. (the “Talent Shareholders”), under which Claritas will transfer all assets of its program developing cannabidiol for the prevention and treatment of graft versus host disease (the “GVHD Program”) to the Talent Shareholders in exchange for forgiveness of all debt and contingent liabilities owed to the Talent Shareholders, including approximately USD $4.2 million of debt owed to the Talent Shareholders under a Promissory Note.
2019 Convertible Debentures: The holders of the 2019 Convertible Debentures have converted all such debentures to common shares, thereby eliminating approximately CAD $663,000 of indebtedness.
Utilization of Non-Dilutive Financing Sources: The Company is funding R&D expenditures through use of non-dilutive financing sources.
Australian R&D Expense Refund: The Australian Taxation Office (the “ATO”) provides a refund to Australian companies of 43% of qualifying R&D expenditures. Through its Australian subsidiary, Claritas applied for refunds for R&D expenses incurred in 2018 and 2019. In July and September 2020, Claritas received R&D refunds of AUD $1,376,000 and AUD $1,817,000, respectively. We expect to receive a third refund of approximately AUD $700,000 during Q2 this year. The availability of such R&D refunds was a factor in the Company’s decision to conduct much of its research activities in Australia, including the upcoming Phase 1 clinical study with R-107 that will be conducted at CMAX in Adelaide, Australia later this year, and the Phase 2 studies with R-107 that will be conducted in treatment of PAH, vaccine-resistant COVID-19 infection, and sepsis.
U.S. Governmental (“BARDA”) Contracts: Claritas expects to initiate Phase 2 clinical studies of R-107 in treatment of both COVID-19 infection and sepsis early next year, and we will apply to the U.S. Department of Health and Human Services for funding for these studies under BARDA contracts.
Delivering Results and Focusing on 2021 and Beyond: With R-107, Claritas will unlock the true potential of nitric oxide therapy. We have brought together a team of internationally renowned experts in nitric oxide science, and our goal is to position the Company as the leader in nitric oxide pharmaceuticals. Our goal for 2021 is to complete our Phase 1 study in Australia demonstrating that R-107 is safe in humans. From there we will drive value in 2022 as we branch out into Phase 2 studies in PAH, vaccine-resistant COVID-19 infection, and sepsis. Beyond 2022, the Company could expand in a number of clinical directions. Nitric oxide is produced throughout the body in response to many types of infection, disorders, and disease, and Claritas plans to work with its partners to address all of these opportunities.

I will look forward to keeping you updated on our progress.

Sincerely,

Robert E. Farrell, J.D.
President and CEO
Claritas Pharmaceuticals, Inc. ( KALTF )
www.claritaspharma.com