Investment Opportunities

1. Executive Summary

The Company

BREONICS, Inc. is an emerging biomedical research and discovery company developing innovative products for the clinical organ transplantation and tissue replacement markets. Incorporated in 1996, the Company has built strong collaborative and strategic relationships with world-renown clinical transplantation & research centers to overcome development obstacles and rapidly advance the Company’s technologies to market.  BREONICS’ primary focus is on two of the major problems facing clinical transplantation today; the chronic shortage of organs and the adverse effects of systemic immunosuppression. Based upon more than fifteen years of research by its founding personnel, the Company’s intellectual property portfolio includes 12 issued and 15 pending patents related to novel compounds, equipment and processes that will substantially increase the donor pool and for the first time provide a means to evaluate and pre-treat organs prior to transplantation.

BREONICS is a privately held corporation funded by grants, contracts and venture capital. Grant funding sources include the National Institutes of Health (NIH), the National Medical Test Bed (NMTB) and the Dutch Kidney Foundation. Research & development support has come from collaborations with Abbott Laboratories, Abbott Park, Illinois and SangStat Medical Corp., Fremont, California. Initial investors include Techno Ventures Management GmbH, Munich (TVM), Alpinvest International B.V. and Kriedetbank S.A. Luxembourg (KBL).  Research revenues for fiscal years 2008 and 2009 were approximately $1.75 million.

BREONICS’ corporate offices are located at its research and manufacturing park located at 239 Old Mountain Road, Otisville, New York. The facility offers FDA compliant GMP (Good Manufacturing Procedure) and GLP (Good Laboratory Procedure) resources for advanced product development & manufacture. The Company also maintains cell culture and perfusion laboratories in Schenectady, New York and a pre-clinical and clinical research unit at East Carolina University Medical Center, Greenville, North Carolina. 

The Company’s technology development program includes Exsanguinous Metabolic Support (EMS) consisting of proprietary solutions, disposables, processes and equipment to resuscitate, evaluate and repair warm ischemically (WI) damaged organs and tissues. Organ Specific Immunosuppression is a three-pronged strategy for treating grafts to induce tolerance and avoid systemic immunosuppression.   

Medical Need

In the U.S. there are approximately 350,000 patients with End Stage Renal Disease (ESRD) for whom the number of cadaveric kidneys available for transplantation has not exceeded more than 12,000 in any given year. Current hypothermic organ preservation technology limits organ donation primarily to heart-beating cadaveric donors (HBD), patients who have suffered trauma and are maintained on life support in an Intensive Care Unit  (ICU) prior to declaring death by brain criteria. This accounts for less than 5% of the trauma patient population who expire. The greatest potential for procuring more organs is in the greater than 95 % of the trauma patients with circulatory arrest of >30 minutes postmortem without any intervention. These are considered the non-retrievable donors (NRD) because the damage precludes organ donation by current criteria. EMS technology makes accessing this untapped pool of donors feasible. Therefore, the EMS technology may be the solution to the worldwide organ shortage. 

Scientific Approach

The EMS technology intervenes to reverse the injury cascade following cardiac arrest by reestablishing cellular equilibrium and restoring metabolic functions. EMS provides the substrates and nutrients to reestablish oxidative metabolism during ex vivo organ perfusion at near- physiologic temperature. Pre-clinical studies revealed that active reparative processes occur during EMS perfusion, resuscitating kidneys damaged by as much as 2 hours of postmortem warm ischemia. When resuscitated kidneys are transplanted they provide life-sustaining, normal renal function demonstrating “Proof of Concept” for the EMS approach.

Technologies

Other EMS Applications -The ability to maintain an organ, or any vascularized anatomy, in a metabolically active state while isolated from its physiologic system presents a unique opportunity to use EMS as a platform technology to develop novel medical treatments and therapies. Applications that are now in the development pipeline include: pre-transplant treatment of allografts with immunosuppressive and/or gene therapies, a bridge system to support patients with acute liver failure through the fulminate stage, as a targeted drug delivery system and as a platform technology for tissue engineering & development of bio-hybrids.

Organ-Specific Immunosuppression - All immunosuppressive agents currently used to prevent rejection of transplanted allografts are administered systemically. These non-specific systemic agents have substantial toxicity leading to high rates of side effects.  BREONICS’ approach is to instead immunomodify the organ with the goal of inducing hyporesponsiveness or tolerance.  BREONICS has developed a 3-pronged strategy for developing organ-specific immunosuppression. Endomatrix is a bio engineered matrix membrane therapy that is applied to the graft prior to transplanting to interrupt recipient/donor interface.  Anti-Endothelial Cell Globulin (AEG) is an adjunct therapy that provides supplemental protection and can be given following transplantation as needed. Micro-Tac is a rejection therapy that targets the specific sites in the graft where rejection is occurring and allows for targeted drug delivery.

Research Collaborations

The Company through collaborative & contractual arrangements is performing a pilot clinical trial at the East Carolina University Medical Center (ECU). Via Institutional Research Board (IRB) approval, BREONICS is currently working with emergency room personnel to actively procure kidneys from patients who are DOA or expire in the emergency room. Adjunct pre-clinical studies are performed at ECU, the University of Chicago Medical Center (UC) and the University Hospital Center in Maastricht, Netherlands (UHCM). ).  UHCM is the largest transplantation program in the world for expanding the organ donor pool with warm ischemically damaged kidneys and has agreed to be the first clinical trial site for the EMS technology. The Rensselaer Polytechnic Institute (RPI) in Troy, New York and The Jet Propulsion Laboratory of Caltech (JPL), provide bioengineering expertise for the instrumentation package and sensor & control options for the EMS Technology.

2. US Business Model

Government oversight of clinical organ transplantation in the United States is provided  contractually by the United Network of Organ Sharing (UNOS).  Under UNOS there are 65 Organ Procurement Organizations (OPOs) that are geographically distributed throughout the U.S. It is the responsibility of the OPOs to procure organs from within their geographical jurisdiction and offer them to UNOS for allocation to one of the 250 transplant programs within the U.S. based upon donor-recipient selection criteria. Under the mandate of the U.S. Renal Care Act, the OPO’s receive reimbursement on a prospective basis for all expenditures incurred with kidney procurement.

Because EMS represents a new break-through technology, there is currently no expertise in the field. In order to implement the technology in the U.S. BREONICS initially intends to train its own personnel and to offer EMS procurement under contractual arrangements to selected OPOs. The service charge per viable kidney under this type of arrangement would be in the range of $10,000. This approach avoids resistance on the part of the OPO to implementing the technology by eliminating the need for major capital equipment investment and new personnel costs. Likewise, by using BREONICS personnel to control the process at this early stage of introduction, the risk of adverse events will be minimized.  In the future this service could be developed into a BREONICS subsidiary that would facilitate the expansion of EMS procurement throughout the country. For OPOs that may eventually wish to train their own personnel to perform the procurement BREONICS would provide the training and sell them the requisite technology consisting of equipment, disposables and solutions.

Development Status

The foundation of the EMS technology is embodied in BREONICS’ proprietary acellular solution. However, in order to accomplish its technical milestones, BREONICS created the EMS prototype perfusion system by modifying conventional hypothermic organ perfusion equipment available to clinical transplantation today. Starting with the Mox RM-2 pump and organ chamber units available from Waters Instruments (Rochester Minn.) as a base, BREONICS retrofitted the system to maintain a more normothermic temperature range, added its proprietary control module and optimized the oxygenation system.  During the 2-year period 2008 through 2009 BREONICS developed a second-generation prototype system with a more defined specification for the organ chamber and process controller components of the technology.  The system is being evaluated in a pilot clinical trial at ECU Medical Center. The data from the ECU study will be used to establish final parameters (flow rates, pump pressures, O₂ consumption) that will be used in a regulatory filing for a European Hospital Internal Review Board (IRB) in Maastricht, Netherlands and for a U.S. FDA Investigational Device Exemption (IDE). BREONICS estimates that the European study would commence within 18 months with a U.S. filing 6-8 months thereafter. To expedite development the Company is seeking an arrangement with Waters Instruments to provide a modified RM-2 pump unit to which BREONICS’ EMS system controller, organ chamber, sensors and software package will be interfaced. Waters has design capabilities and expertise in equipment manufacture and medical device assembly. The RM-2 pump and Mox cassette units are the only FDA approved organ preservation equipment in the U.S. clinical market today.

During the preclinical development of its EMS technology BREONICS formed a strong collaborative program between BREONICS, the East Carolina University Hospital Center and Medical School (ECU) and the University Hospital Center in Maastricht, The Netherlands UHCM). ECU is a level-1 trauma center with an active kidney transplantation program. ECU also is a surgical teaching hospital with a state-of-the-art veterinary comparative medicine unit. UHCM has one of the largest transplant programs in Europe with expertise in procuring kidneys from patients who have suffered circulatory arrest. Researchers from UHCM are participating with BREONICS and ECU staff in a pilot clinical program at ECU to develop the protocols to be used for the clinical application of the EMS technology. The goal of the project is to define acceptable NRD donor criteria, develop procedures to obtain consent for organ donation from the next-of-kin and obtain a performance assessment for the EMS system.  Both ECU and Maastricht are anticipated clinical trial sites and the data from this project will be used as input for designing both a U.S. and European clinical trial.

Medical Economic Impact and Potential Market

Treatment for ESRD is considered a medical entitlement and paid for under the Federal Government Medicare Program.  A cost comparison (Figure1) illustrates that for every kidney made available by EMS to an ESRD patient the 5-yr Medicare savings for that  patient compared to the cost if that patient remained instead on hemodialysis would be approximately $98,000.  If kidneys were available to transplant 15%, or approximately 45,000 of the ESRD population the U.S. medical cost savings would approach $4.4 billion over 5 years.  Not quantified is the added economic impact relative to the patient’s return to gainful employment and a better quality of life. 

The potential market for EMS technology to provide more kidneys for transplantation is substantial (Fig 2). Revenues derived in the 5^th year post approval by using EMS to double the number of available kidneys adding another 12,000/yr from NRD patients is forecast to be in the hundreds of millions of dollars.

Figure 1: COST BENEFIT OF EMS vs DIALYSIS

PER PATIENT COSTS

5-YEAR COST COMPARISON

45,000 TRANSPLANT vs. 45,000  DIALYSIS PATIENTS

TOTAL 5 YEAR COST                     $5,490,000,000                       $9,900,000,000

TOTAL 5 YEAR MEDICARE SAVINGS                                       $4,410,000,000

* Includes cost of transplantation and 1 year of immunosuppression

**Average cost of hemodialysis for 1 year

⁺ Average cost of 1 year of immunosuppression

Figure 2: Potential Market - EMS Transplantation Products

Projected 7 Years from Product Approval

*2009 AOPO Report

**US Renal Data System

***CDC estimates 30% of ESRD would immediately benefit from a transplant

+30% Grafts Lost After 5 Yrs. Necessitating a re-transplant

++ After Cost for EMS. (Solutions, Organ Chamber, Equipment), Personnel cost and overhead.

Management and Scientific Advisors

BREONICS has assembled an experienced management and advisory team with in-depth backgrounds in business, experimental science, clinical research and transplantation. Table 1 list the Company’s Officers, Directors and Key Advisors.

Funding and Use of Proceeds

During the past 7 years BREONICS, Inc. has invested approximately $7.5M into the pre-clinical feasibility and development of the Company’s technologies. Approximately $1M has been received from Small Business Innovative Research (SBIR) and other federal funding. Corporate sponsors have contributed over $5M in cash, internal resources and engineering to the development of EMS. In April of 2008 the Company received $1.5 Million from a Series A Convertible Preferred Stock financing agreement with TVM Techno Ventures Management III GmbH & Co. Medical Ventures Beteiligungs-KG of Munich Germany. Since 2008, BREONICS has achieved its goal of establishing proof of concept for the EMS technology. During this period the company has also developed the collaborative structure to begin a clinical strategy that BREONICS believes will make the technology a medical reality.  In order to implement this program BREONICS will need to raise new capital to underwrite its development activities. 

The Company is seeking to raise an additional $10 million from investment to underwrite its EMS development program for the next 36 months (Figure 3). Three million dollars will be used to add personnel and expand product development capabilities to optimize the solutions and construct the prototype EMS system needed for clinical trials. One million dollars will be used to underwrite the pilot clinical program at ECU by providing the staff, operating rooms and support services and patient cost.  Three million dollars will be used for both the European and American clinical trials. Two million dollars will be used establish manufacturing capabilities for the EMS components and provide resources for market launch.  The Company intends to use the remaining one million investment capital to add certain key corporate personnel, to further the development of its other technologies and to acquire new technologies that are complementary to or can used with BREONICS’ EMS technology platform.

Figure 3: Time and Cost Breakdown for Development of EMS To Clinical Approval

Sat Pad

In 2001 the company acquired from Alliance Pharmaceutical Corp, Alliance’s research & manufacturing complex located in Otisville, NY. Included in the purchase was a license to manufacture and market Sat Pad ^TM an FDA approved Magnetic Resonance Imaging accessory.  The product is being manufactured and sold through a new BREONICS subsidiary, Sat Pad, Inc.  It is anticipated that some revenues derived from Sat Pad will be used by BREONICS to offset operational costs over the next 24-months. 

Other EMS Applications -The ability to maintain an organ, or any vascularized anatomy, in a metabolically active state while isolated from its physiologic system presents a unique opportunity to use EMS as a platform technology to develop novel medical treatments and therapies. Applications that are now in the development pipeline Figure 4 include: pre-transplant treatment of allografts with immunosuppressive and/or gene therapies, a bridge system to support patients with acute liver failure through the fulminate stage, as a targeted drug delivery system and as a platform technology for tissue engineering & development of bio-hybrids.

Table 1: Breonics Technology/Product Pipeline

Corporate Information

State of Incorporation:           Delaware

Operational Locations:              229 Old Mountain Road                        301 Nott Street
                                            Otisville, NY 10963                              Schenectady, NY 12305

Employees:                           15

Subsidiary:                            Sat Pad, Inc.

Legal Consul:                              McNamee, Lochner, Titus and Williams
                                           75 State Street
                                           Albany, New York 12201

Accountant:                          Michael Crowley, C.P.A.
                                            104A Heckler Drive
                                            Glenville, New York 12302

Auditors:                                      Price Waterhouse Coopers
                                             80 State Street
                                             Albany, New York 12207-2591