Markets for Our Products

Opioid Analgesics

The 2008 National Survey on Drug Use and Health estimated that 34.9 million people, or more than 10% of the population, have used prescription opioid analgesics non-medically at some point in their lifetime. In addition, it is estimated that more than 75 million people in the U.S. suffer from pain, which is more than the number of people with diabetes, heart disease and cancer combined. For many pain sufferers, opioid analgesics provide their only pain relief. As a result, opioid analgesics are among the largest drug classes in the U.S. with over 254 million tablet and capsule prescriptions dispensed in 2009 of which 238 million were for immediate release opioid products (“IR Opioid Products”) and 16 million were for extended release opioid products (“ER Opioid Products”). However, physicians and other health care providers at times are reluctant to prescribe opioid analgesics for fear of misuse and abuse and possible diversion of legitimate prescriptions for illicit use by people other than their patients.

We expect our Aversion® Technology opioid product candidates to compete primarily in the IR Opioid Product segment of the opioid analgesic market, a segment with a 4% compounded annual prescription growth over the last five years. On average, an IR Opioid Product prescription contains approximately 60 tablets or capsules. According to the 2008 National Survey on Drug Use and Health, prescription drug abusers have supplanted abusers of all illicit drugs except marijuana. Of these abused prescription products, IR Opioid Products, which typically provide rapid onset of analgesia and require dosing every 4 to 6 hours, comprise the vast majority of this abuse compared with ER Opioid Products, which release their opioids gradually, generally over a 12 to 24 hour period. Due to fewer identified competitors and the significantly larger market for dispensed prescriptions for IR Opioid Products compared to ER Opioid Products, we have initially focused on developing IR Opioid Products utilizing Aversion® Technology.

According to IMS Health, in 2009, sales in the IR Opioid Product segment, comprised of 97% generic products, were $1.9 billion. Assuming the FDA approves differentiated label claims of the abuse deterrent features and benefits of our product candidates, of which no assurance can be given, we anticipate that our Aversion® Technology IR Opioid Products will be premium priced compared to generic products resulting in rapid growth of sales in the IR Opioid Product market segment.

Despite considerable publicity regarding the abuse of OxyContin® Tablets and other ER Opioid Products, U.S. government statistics suggest that far more people have used IR Opioid Products non-medically than ER Opioid Products. These statistics estimate that nearly 5 times as many people have misused the IR Opioid Products Vicodin®, Lortab® and Lorcet® (hydrocodone bitartrate/acetaminophen) as have ever abused OxyContin®. We estimate 60-95% of the 34.9 million lifetime US opioid abusers have non-medically used the active ingredients in our IR Opioid product candidates. As indicated in the following chart, the top five abused opioid products are available only as IR Opioid Products.

We have commissioned, through an independent market research firm, three physician market research studies with 282, 401 and 435 opioid prescribing U.S. based physicians, respectively. A sampling of key findings from these approximately 1,100 physicians includes:

Physicians are keenly aware of opioid analgesic abuse

• The 282 physicians surveyed estimated on average that about one out of six prescriptions for oxycodone and hydrocodone containing products are abused.
• 94% of the 435 physicians surveyed experienced at least one suspicious incident regarding opioid abuse in the past month, while nearly 64% experienced four or more discretely different incidents regarding opioid abuse in the past month.

Physicians are personally concerned with opioid abusers impact to their respective practices

• Following the survey of 282 physicians, the researchers concluded, “abuse [of opioid analgesics] is a particular problem for physicians because many are not fully sure who is abusing these opioids, and they view such abuse as a legal threat to their practice.” “More than half [of the physicians surveyed] believe their physician colleagues are more concerned about avoiding state review [of their opioid prescribing habits] than meeting [professional association] pain guidelines [for their patients].”
• After the survey of 435 physicians the researchers concluded “the primary motive for prescribing the Aversion® Technology product[s] is the concern physicians have about opioid abuse and the threat it represents to their practice.”

Physicians are favorably inclined toward prescribing opioids with abuse deterrent features and benefits

• 94% of the 401 physicians surveyed indicated that they would either prescribe one of the Aversion® Technology products (with niacin) profiled in the market research questionnaire for one of their last five patients receiving an opioid prescription or they are aware of a patient in their practice for whom Aversion® Technology products would be an appropriate choice.
• 57% of the 435 physicians indicated that their opioid analgesic prescribing would increase if they were more certain they were not aiding abusers.
• Following the survey of 401 physicians, the researchers concluded “these [Aversion® Technology oxycodone products with niacin] would disproportionately replace current immediate release oxycodone [and oxycodone/acetaminophen] prescriptions, but would also draw substantial volume from hydrocodone/acetaminophen products.”

Overall, we believe the availability of opioid analgesics with the deterrent features, including products using our Aversion® Technology, will greatly impact the selection of products used for relief of pain. Our market research survey of the 401 physicians indicated that of the prescriptions likely to be written for our niacin containing product candidates that utilize the analgesic oxycodone, 59% will be switched from immediate release products containing either oxycodone or hydrocodone, with the remaining 41% being switched from other currently marketed opioid analgesic products such as codeine, propoxyphene, morphine and tramadol.

OxyContin®, Vicodin®, Lortab®, Lorcet®, Darvon®, Darvocet®, Ultram®, Percocet®, Percodan®, Tylox®, Tylenol®, and Demerol® are registered trademarks of others.

Other Abused Drug Classes

The US Drug Enforcement Administration identifies drugs with abuse potential with a DEA Scheduling from I through IV, with I being the most prone to abuse. Other pharmaceutical product categories identified as potentially abuseable include tranquillizers (brand products such as Valium®, Xanax®, Halcion® and Ativan®), stimulants (brand products such as Dexedrine®, Adderall®, Ritalin® and Concerta®) and sedatives (brand products such as Nembutal®, Butisol®, and Seconal®). According to IMS Health, the abused non-opioid drugs have sizable, established U.S. markets. The U.S. Drug Enforcement Administration reports these non-opioid abused drugs may be misused in ways which can be addressed to our Aversion® Technology. While we do not currently focus significant resources on this area, we believe that the application of Aversion® Technology to these non-opioid products may have a similar regulatory process and could result in a significant market opportunity for us.

Xanax®, Valium®, Ativan®, Klonopin®, Ritalin®, Adderall®, Dexedrine®, Concerta®, Seconal®, Halcion®, Nembutol®, and Butisol® are registered trademarks of others.