Nexafed™ Tablets

Our Nexafed™ product is an immediate release pseudoephedrine HCl tablet which utilizes our patent pending Impede™ Technology. In addition to being a widely-used nasal decongestant available in many non-prescription and prescription cold, sinus and allergy products, PSE is also the starting material in the illicit manufacture of methamphetamine. Impede™ Technology utilizes a proprietary mixture of inactive ingredients intended to impede the extraction of PSE from the tablets for producing methamphetamine or disrupting the direct conversion of PSE in tablets into methamphetamine. Specifically, the Impede™ Technology forms a viscous, gelatinous mixture when our tablets are dissolved in solvents typically used in the PSE extraction or methamphetamine production processes and trapping the PSE or converted methamphetamine to prevent its isolation or purification. The unique mixture of inactive ingredients in Nexafed™ is generally recognized as safe by the FDA.

Product Development and Status

We are developing Nexafed™ 30mg tablets and have demonstrated that our product is bioequivalent to Johnson & Johnson’s Sudafed® 30mg Tablets and a 30mg generic store brand. Laboratory tests, sponsored by us at an independent laboratory and confirmed by a law enforcement agency, demonstrated our Impede™ Technology prevents the extraction of PSE from tablets for conversion into methamphetamine using what we believe are the two most common extraction methods. A third, newer method of methamphetamine production, or “one-pot” method, involves the direct conversion of PSE from tablets into methamphetamine without first extracting and purifying the PSE. Laboratory tests conducted on our behalf by an independent CRO using the “one-pot” method demonstrated that our Impede™ Technology disrupted the direct conversion of PSE from the tablets into methamphetamine. The study compared the amount of pure methamphetamine hydrochloride provided from Nexafed™ and Sudafed® tablets. Using one hundred 30mg tablets of both products, multiple one-pot tests and a variety of commonly used solvents, the study demonstrated an average of 38% of the maximum 2.7 grams of pure methamphetamine hydrochloride was recovered from Nexafed™. Comparatively, approximately twice as much pure methamphetamine hydrochloride was recovered from Sudafed® tablets. Both products yielded a substantial amount of additional solids such that the purity of the total powder provided contained approximately 65% methamphetamine hydrochloride. We expect to make Nexafed™ available to pharmacies later this year.

Most PSE-containing products are classified by the FDA for OTC sale, or without a doctor’s prescription, and many product formulations do not require the approval of an NDA or an Abbreviated New Drug Application, or ANDA, by the FDA for commercial distribution and marketing. Tablet products containing 60 mg or less of PSE are considered by the FDA to be safe and effective for use by the general public without a prescription. We believe 30mg Nexafed™ developed utilizing Impede™ Technology meets or will meet the FDA’s requirements for “Over-the-Counter Human Drugs Which are Generally Recognized as Safe and Effective and Not Misbranded” as set forth in the FDA’s regulations applicable to OTC Monograph products. As such, we intend to commercialize Nexafed™ without submitting a NDA or ANDA to the FDA. We have contracted with a third party manufacturer for the scale up and commercial manufacture of Nexafed™.

PSE is sold in products as the only active ingredient in both immediate and extended release products. In addition, PSE is combined with other cold, sinus and allergy ingredients such as pain relievers, cough suppressants and antihistamines. PSE also competes against phenylephrine, an alternate nasal decongestant available in non-prescription products. We expect our Impede™ Technology products containing PSE to compete in the highly competitive market for cold, sinus and allergy products generally available to consumers without a prescription. In 2009, AC Nielsen reported approximately $1.0 billion in sales of non-prescription products containing either PSE or phenylephrine as a nasal decongestant, of which approximately 47% contained PSE. Products in this category (such as Sudafed®, Claritin-D®, and Zyrtec-D®) have strong consumer brand recognition and, in some cases, prescription drug heritage. Category leading brands are often supported by national mass marketing and promotional efforts. Consumers often have a choice to purchase a less expensive store brand. Store brands contain the same active ingredients as the more popular national brands but are not supported by large marketing campaigns and are offered at a lower price. Non-prescription products are typically distributed through retail outlets including drug store chains, food store chains, independent pharmacies and mass merchandisers. The distribution outlets for PSE products are highly consolidated. According to Chain Drug Review, the top 50 drug, food and mass merchandising chains operate approximately 40,000 pharmacies in the U.S., of which 58% are operated by the four largest chains. Our survey of PSE 30mg tablet prices at these top four drug chains indicates that branded PSE products were priced, on average, to the consumer at approximately $0.25 per tablet as compared to approximately $0.12 per tablet for the corresponding store brand.

In our 2012 survey of 215 chain and independent pharmacists, 164 indicated they had influence over the pharmacies’ product offerings. Of such pharmacists, 70% indicated they were likely to stock or recommend stocking Nexafed™ in their pharmacies. The 215 surveyed pharmacists also indicated a willingness to recommend Nexafed™ to over 50% of their customers who seek a pharmacist’s advice for a single ingredient nasal decongestant. A separate market study conducted on our behalf showed that approximately one-third of consumers seek a pharmacist’s recommendation for their nasal decongestant and, as a result of the CMEA, are required to do so to purchase PSE containing products. We intend to capitalize on this consumer-pharmacist interaction at the point of sale by soliciting distribution to the pharmacies and engaging pharmacists to recommend Nexafed™ to their customers. We may form a small national account sales staff to sell Nexafed™ to regional and national retail drug chains. We are also considering creating Nexafed™ product awareness through local television, radio, and print advertising. No assurance can be given, however, that pharmacy chains will stock our Nexafed™ product or that consumers will purchase our Nexafed™ product.

Product Labeling

We intend to market our Nexafed™ product pursuant to the FDA’s OTC Monograph regulations, which require that our product have labeling as specified in the regulations. We believe, however, we can advertise the extraction characteristics and benefits of our Nexafed™ product which is supported by our research studies.

Competition

Our Impede™ Technology products containing PSE will compete in the highly competitive market for cold, sinus and allergy products generally available to the consumer without a prescription. Some of our competitors will have multiple consumer product offerings both within and outside the cold, allergy and sinus category providing them with substantial leverage in dealing with a highly consolidated pharmacy distribution network. The competing products may have well established brand names and may be supported by national or regional advertising. Nexafed™ will compete directly with Johnson & Johnson’s Sudafed® brand as well as generic formulations manufactured by Perrigo Company and others.

We are aware that some large pharmaceutical companies in the past have sought to develop PSE technologies or products that resist conversion into methamphetamine, but believe those efforts have been discontinued, although there can be no assurance that this is the case. Highland Pharmaceuticals has recently publicized a PSE product that resists PSE extraction. We may consider licensing our Impede™ Technology or products utilizing such technology for commercialization.

Sudafed® is a registered trademark of Johnson & Johnson Corporation.