TENX US Equity☆

ITEM 1A—RISK FACTORS 8

ITEM 1B—UNRESOLVED STAFF COMMENTS 24

ITEM 2—PROPERTIES 24

ITEM 3—LEGAL PROCEEDINGS 24

ITEM 4—MINE SAFETY DISCLOSURES 24

ITEM 6—SELECTED FINANCIAL DATA 24

ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 34

ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 34

ITEM 9A—CONTROLS AND PROCEDURES 58

ITEM 9B—OTHER INFORMATION 59

PART III 59

PART I

FORWARD-LOOKING STATEMENTS

This

Annual Report on Form 10-K contains forward-looking statements

within the meaning of Section 27A of the Securities Act of 1933, as

amended, or the Securities Act, and Section 21E of the Securities

Exchange Act of 1934, as amended, or the Exchange Act, which are

subject to the “safe harbor” created by those sections.

Forward-looking statements are based on our management’s

beliefs and assumptions and on information currently available to

them. In some cases, you can identify forward-looking statements by

terminology such as “may”, “will”,

“should”, “expects”, “plans”,

“anticipates”, “believes”,

“estimates”, “predicts”,

“potential” or “continue” or the negative

of such terms or other comparable terminology. These statements are

only predictions and involve known and unknown risks, uncertainties

and other factors, including, but not limited to, progress in our

product development activities, obtaining financing for operations,

development of new technologies and other competitive pressures,

legal and regulatory initiatives affecting our products, conditions

in the capital markets, and the risks discussed in

“Item 1A – Risk

Factors” and elsewhere in this report that may cause

our or our industry’s actual results, levels of activity,

performance or achievements to be materially different from any

future results, levels of activities, performance or achievements

expressed or implied by such forward-looking

statements.

Although

we believe that the expectations reflected in the forward-looking

statements are reasonable, we cannot guarantee future results,

levels of activity, performance or achievements. The

forward-looking statements represent our views as of the date of

this Annual Report on Form 10-K. We undertake no obligation to

update any of the forward-looking statements after the date of

filing of this report or to conform such statements to actual

results, except as may be required by law.

All

references in this Annual Report on Form 10-K to the

“Company,” “Tenax Therapeutics”,

“we”, “our” and “us” means

Tenax Therapeutics, Inc.

ITEM

1—BUSINESS

Overview

Tenax

Therapeutics was originally formed as a New Jersey corporation in

1967 under the name Rudmer, David & Associates, Inc., and

subsequently changed its name to Synthetic Blood International,

Inc. Effective June 30, 2008, we changed the domiciliary state of

the corporation to Delaware and changed the company name to Oxygen

Biotherapeutics, Inc. On September 19, 2014, we changed the company

name to Tenax Therapeutics, Inc.

We are

a specialty pharmaceutical company focused on identifying,

developing and commercializing products that address

cardiovascular and pulmonary diseases of high unmet medical

need. On November 13, 2013, through our wholly owned

subsidiary, Life Newco, Inc., or Life Newco, we acquired a license

granting Life Newco an exclusive, sublicensable right to develop

and commercialize pharmaceutical products containing levosimendan,

2.5 mg/ml concentrate for solution for infusion / 5ml vial

in the United States and

Canada. On October 9, 2020, we entered into an amendment to

the license to include two new oral products containing

levosimendan, in capsule and solid dosage form, and a

subcutaneously administered product containing levosimendan, to the

scope of the license, subject to specified

limitations.

On

January 15, 2021, through our wholly owned subsidiary, Life Newco

II, Inc., or Life Newco II, we acquired 100% of the equity of

PHPrecisionMed Inc., a Delaware corporation, or PHPM. In accordance

with the terms of the merger agreement between Life Newco II and

PHPM, Life Newco II merged with and into PHPM, with PHPM surviving

as our wholly-owned subsidiary. As a result of the merger, we plan

to develop and commercialize pharmaceutical products containing

imatinib for the treatment of pulmonary arterial

hypertension.

Business Strategy

Our

principal business objective is to identify, develop, and

commercialize novel therapeutic products for disease indications

that represent significant areas of clinical need and commercial

opportunity. The key elements of our business strategy are outlined

below.

1

Efficiently conduct clinical development to establish clinical

proof of concept with our current product candidates.

Levosimendan and imatinib both represent novel therapeutic

modalities for the treatment of pulmonary hypertension and other

cardiovascular and

pulmonary diseases of high unmet medical need. We are

conducting clinical development with the intent to establish proof

of concept in several important disease areas where these

therapeutics would be expected to have benefit. Our focus is on

conducting well-designed studies to establish a robust foundation

for subsequent development, partnership and expansion into

complementary areas.

Efficiently explore new high potential therapeutic applications,

leveraging third-party research collaborations and our results from

related areas. Levosimendan has shown promise in multiple

disease areas. We are committed to exploring potential clinical

indications where our therapies may achieve best-in-class profile,

and where we can address significant unmet medical needs. In order

to achieve this goal, we have established collaborative research

relationships with investigators from research and clinical

institutions and our strategic partners. These collaborative

relationships have enabled us to cost effectively explore where our

product candidates may have therapeutic relevance, and how it may

be utilized to advance treatment over current clinical care.

Additionally, we believe we will be able to leverage clinical

safety data and preclinical results from some programs to support

accelerated clinical development efforts in other areas, saving

substantial development time and resources compared to traditional

drug development.

Continue to expand our intellectual property portfolio. Our

intellectual property is important to our business and we take

significant steps to protect its value. We have ongoing research

and development efforts, both through internal activities and

through collaborative research activities with others, which aim to

develop new intellectual property and enable us to file patent

applications that cover new applications of our existing

technologies or product candidates.

Enter into licensing or product co-development arrangements.

In addition to our internal development efforts, an important part

of our product development strategy is to work with collaborators

and partners to accelerate product development, reduce our

development costs, and broaden our commercialization capabilities.

We believe this strategy will help us to develop a portfolio of

high-quality product development opportunities, enhance our

clinical development and commercialization capabilities, and

increase our ability to generate value from our proprietary

technologies.

Our Current Programs

Levosimendan Background

Levosimendan

was discovered and developed by Orion Corporation, a Finnish

company, or Orion. Levosimendan is a calcium sensitizer/K-ATP activator

developed for intravenous use in hospitalized patients with acutely

decompensated heart failure. It is currently approved in over 60

countries for this indication and not available in the United

States or Canada. It is estimated that to date over 1.5 million

patients have been treated worldwide with levosimendan.

Levosimendan

is a novel, first in class calcium

sensitizer/K-ATP activator. The therapeutic effects of

levosimendan are mediated through:

-

Increased cardiac

contractility by calcium sensitization of troponin C, resulting in

a positive inotropic effect which is not associated with

substantial increases in oxygen demand.

-

Opening of

potassium channels in the vasculature smooth muscle, resulting in a

vasodilatory effect on all vascular beds.

-

Opening of

mitochondrial potassium channels in cardiomyocytes, resulting in a

cardioprotective effect.

This

triple mechanism of action helps to preserve heart function during

cardiac surgery. Several studies have demonstrated that

levosimendan protects the heart and improves tissue perfusion while

minimizing tissue damage during cardiac surgery.

In

2013, we acquired certain assets of Phyxius Pharma, Inc., or

Phyxius, including its North American rights to develop and

commercialize levosimendan for any indication in the United States

and Canada. In the countries where levosimendan is marketed,

levosimendan is indicated for the short-term treatment of acutely

decompensated severe chronic heart failure in situations where

conventional therapy is not sufficient, and in cases where

inotropic support is considered appropriate. In acute decompensated heart failure patients,

levosimendan has been shown to significantly improve

patients’ symptoms as well as acute hemodynamic measurements

such as increased cardiac output, reduced preload and reduced

afterload.

2

The European Society of Cardiology, or the ESC, recommends

levosimendan as a preferable agent over dobutamine to reverse the

effect of beta blockade if it is thought to be contributing to

hypotension. The ESC guidelines also state that levosimendan is not

appropriate for patients with systolic blood pressure less than

85mmHg or in patients in cardiogenic shock unless it is used in

combination with other inotropes or vasopressors. Other unique

properties of levosimendan include sustained efficacy through the

formation of a long-acting metabolite, lack of impairment of

diastolic function, and evidence of better compatibility with beta

blockers than dobutamine.

Levosimendan Development for Pulmonary Hypertension

Patients

We

recently completed a Phase 2 clinical trial of levosimendan in

North America for the treatment of patients with pulmonary

hypertension associated with heart failure with preserved ejection

fraction, or PH-HFpEF. PH-HFpEF is defined hemodynamically by

a mean pulmonary artery pressure, or mPAP, ≥25 mmHg, and a

pulmonary capillary wedge pressure, or PCWP, >15 mmHg. Pulmonary

hypertension in these patients is believed to arise from a passive

backward transmission of elevated filling pressures from left-sided

heart failure. These mechanical components of pulmonary venous

congestion may trigger pulmonary vasoconstriction, decreased nitric

oxide availability, increased endothelin expression,

desensitization to natriuretic peptide induced vasodilation, and

vascular remodeling. Over time, these changes often lead to

advanced pulmonary arterial and venous disease, increased right

ventricle afterload, and right ventricle failure.

PH-HFpEF

is a common form of pulmonary hypertension with an estimated U.S.

prevalence exceeding 1.5 million patients. Currently, no

pharmacologic therapies are approved for treatment of

PH-HFpEF. Despite the fact that many therapies have been

studied in PH-HFpEF patients, including therapies approved to treat

pulmonary arterial hypertension patients, no therapies have been

shown to be effective in treating PH-HFpEF patients.

Published

pre-clinical and clinical studies indicate that levosimendan may

provide important benefits to patients with pulmonary hypertension.

Data from these published trials indicate that levosimendan may

reduce pulmonary vascular resistance and improve important

cardiovascular hemodynamics such as reduced pulmonary capillary

wedge pressure and pulmonary artery pressure in patients with

pulmonary hypertension. In addition, several published studies

provide evidence that levosimendan may improve right ventricular

dysfunction which is a common comorbidity in patients with

pulmonary hypertension. While none of these studies have focused

specifically on PH-HFpEF patients, the general hemodynamic

improvements in these published studies of various types of

pulmonary hypertension provide a basis to believe that levosimendan

may be beneficial in PH-HFpEF patients.

In

March 2018, we met with the United States Food and Drug

Administration, or FDA, to discuss development of levosimendan in

PH-HFpEF patients. The FDA agreed with our planned Phase 2 design,

patient entry criteria, and endpoints. It was agreed the study

could be conducted under the existing investigational new drug

application with no additional nonclinical studies required to

support full development. The FDA recognized there were no approved

drug therapies to treat PH-HFpEF patients and acknowledged this

provided an opportunity for a limited Phase 3 clinical program.

This topic was discussed further at the End-of-Phase 2 Meeting

following completion of the Phase 2 study in PH-HFpEF patients,

which is known as the HELP Study – Hemodynamic Evaluation of Levosimendan in PH-HFpEF.

We

initiated the first of our expected 10-12 HELP Study clinical sites

in November 2018 and the first of 37 patients were enrolled in the

HELP Study in March 2019. Enrollment in the HELP Study was

completed in March 2020. The primary endpoint of the HELP Study was

based on the change in PCWP during exercise versus baseline

compared to placebo. The HELP Study utilized a double-blind

randomized design following five weekly outpatient infusions of

levosimendan.

On June 2, 2020, we announced preliminary, top-line data from the

study. The primary efficacy analysis, pulmonary capillary wedge

pressure (PCWP) during exercise did not demonstrate a statistically

significant reduction from baseline. Levosimendan did demonstrate a

statistically significant reduction in PCWP compared to baseline

(p=<0.0017) and placebo (p=<0.0475) when the measurements at

rest, with legs up and on exercise were combined. Levosimendan also

demonstrated a statistically significant improvement in 6-minute

walk distance as compared to placebo (p=0.0329). These findings

from the HELP Study represent important discoveries related to the

use of levosimendan in PH-HFpEF patients since this is the first

study to evaluate levosimendan in PH-HFpEF patients and this is the

first study ever conducted of any therapy in PH-HFpEF patients to

show such positive improvements in hemodynamics and 6-minute walk

distance.

3

Hemodynamic Results

Hemodynamic measurements were made at rest (supine), after leg

raise on a supine bicycle (a test of rapid increase in ventricular

filling) and during exercise (25 watts for 3 minutes or until the

patient tired). In the initial open-label phase, 84% of the

patients had a significant reduction in right atrial pressure, or

RAP, pulmonary artery pressure, or PAP and PCWP at rest and during

exercise. In the randomized double-blinded 6-week trial,

levosimendan demonstrated a statistically significant reduction in

PCWP compared to baseline (p=<0.0017) and placebo (p=<0.0475)

when the measurements at rest, with legs up and on exercise were

combined. While there was no significant change in PCWP during

exercise, patients receiving levosimendan had reductions from

baseline at Week 6 in PCWP, PAP, and RAP that were significant when

patients were “at rest” and/or with their “legs

raised” (p<0.05).

Clinical Results (6-Minute Walk Distance)

The clinical efficacy was confirmed by a statistically significant

improvement in 6-minute walk distance of 29 meters (p=0.0329). The

6-minute walk distance was a secondary endpoint in the trial and is

a validated and accepted endpoint used in many pulmonary

hypertension registration trials. Levosimendan was given in

once-weekly home infusions for six weeks.

Safety

The incidence of adverse events or serious adverse events between

the control and treated groups were similar. In addition, there

were no arrhythmias observed, atrial or ventricular, when comparing

baseline electrocardiographic monitoring with 72-hour monitoring

after five weeks of treatment.

The detailed results from the Phase 2 HELP Study of levosimendan in

PH-HFpEF were presented at the Heart Failure Society of America

Virtual Annual Scientific Meeting on October 3, 2020 and at the

American Heart Association Scientific Sessions 2020 on November 13,

2020. Additionally, the full manuscript has been accepted for

publication in the peer-reviewed journal JACC:Heart

Failure.

Next Steps

On

October 9, 2020, we entered into an amendment, or the Amendment, to

the License between the Company and Orion to include two new

product formulations containing levosimendan, in a capsule solid

oral dosage form, and a subcutaneously administered dosage form

containing levosimendan, to the scope of the License, subject to

specified limitations.

We plan

to study the utility of the levosimendan oral capsule dosage form

in patients who have participated in the open-label extension of

the HELP Study and who continue to receive weekly infusions of

intravenous levosimendan. These patients are now eligible to

participate in the amendment to the HELP Study that will transition

them from the intravenous to an oral formulation. The investigators

at the centers that participated in the HELP Study have been

invited to participate and enroll their patients into this

study.

In October 2020, we met with the FDA for an End-of-Phase 2 Meeting

to discuss the Phase 2 clinical data and further development of

levosimendan in PH-HFpEF patients. The FDA agreed that one or two

Phase 3 clinical studies (depending on the size) with a primary

endpoint of change in 6-minute walk distance over 12 weeks or a

single Phase 3 trial with clinical worsening (e.g., death,

hospitalization for heart failure, or decline in exercise capacity)

over 24 weeks would be sufficient to demonstrate the effectiveness

of levosimendan in PH-HFpEF. The FDA also agreed to a plan to

replace weekly intravenous levosimendan dosing with daily oral

levosimendan doses in a Phase 3 clinical study. The FDA expressed

concern about a safety database as potentially necessary and

indicated that the need for a further safety database could be

dependent on the final design of the Phase 3 study. We expect that

this will be addressed when the final Phase 3 protocol is submitted

which will better characterize the trial design and primary

endpoints.

4

The HELP Study design was novel in several respects. To date, no

other multi-center study has evaluated levosimendan in heart

failure patients with preserved ejection fraction, or HFpEF,

patients or PH-HFpEF patients. Instead, all previous levosimendan

heart failure studies have enrolled heart failure patients with

reduced ejection fraction, or HFrEF, which specifically excluded

HFpEF patients. Also, the HELP Study utilized a unique 24-hour

weekly infusion regimen of 0.075- 0.1μm/kg/min. Finally, the

HELP Study employed a unique home-based intravenous infusion

administration via an ambulatory infusion pump. This home-based

weekly intravenous administration is unlike all other chronic

dosing studies of levosimendan that have typically employed a

shorter duration and less frequent infusion regimen administered in

a hospital setting. Despite the unique patient population,

weekly dosing, and home-based administration, there have been no

reported serious adverse events.

We believe that the combination of the unique HELP Study patient

population, innovative weekly 24-hour dosing, unique home-based

site of administration, and novel findings of efficacy and safety

in PH-HFpEF patients represent unique discoveries and significant

intellectual property. These discoveries, among others from the

HELP Study, form the basis for a U.S. patent application that we

have filed.

Imatinib Background

Imatinib (also known as “Gleevec”), is a tyrosine

kinase inhibitor, which revolutionized the treatment of chronic

myeloid leukemia, or CML, in 2001. The first clinical trial of

imatinib took place in 1998 and the drug received FDA approval in

May 2001. Encouraged by the success of Imatinib in treating CML

patients, scientists explored its effect in other cancers, and it

was found to produce a similar positive effect in other cancers

where tyrosine kinases were overexpressed.

Tyrosine kinases are important mediators of the signaling cascade,

determining key roles in diverse biological processes like growth,

differentiation, metabolism, and apoptosis in response to external

and internal stimuli. Deregulation of protein kinase activity has

been shown to play a central role in the pathogenesis of human

cancers. Imatinib, a 2-phenyl amino pyrimidine derivative, is a

tyrosine kinase inhibitor with activity against ABL, BCR-ABL,

PDGFRA, and c-KIT. Imatinib works by binding close to the ATP

binding site therefore inhibiting the enzyme activity of the

protein. Imatinib also inhibits the ABL protein of noncancer cells.

Imatinib is well absorbed after oral administration with a

bioavailability exceeding 90%. It is extensively metabolized,

principally by cytochrome P450 (CYP)3A4 and CYP3A5 and can

competitively inhibit the metabolism of drugs that are CYP3A4 or

CYP3A5 substrates. Imatinib is generally well tolerated in cancer

patients. Common side effects include fluid retention, headache,

diarrhea, loss of appetite, weakness, nausea and vomiting,

abdominal distention, edema, rash, dizziness, and muscle cramps.

Serious side effects may include myelosuppression, heart failure,

and liver function abnormalities. Novartis is the manufacturer of

Gleevec.

Previous Imatinib Development for Pulmonary Arterial Hypertension

Patients

In pulmonary arterial hypertension, or PAH, a rare disease,

subjects who remain symptomatic despite available therapies have a

high morbidity and mortality. Though several therapies are now

available, there is no cure for the disease, and there is no data

supporting that the existing therapies, all of which are pulmonary

vasodilators, halt progression or induce regression of the disease.

Imatinib is a tyrosine kinase inhibitor that has been shown in

animal models of pulmonary hypertension to induce disease reversal

by an effect on platelet derived growth factor, or PDGF, which

appears to be causal in the disease. After that discovery was made,

several case reports and small case series of patients with

advanced PAH failing combination pulmonary vasodilator therapy were

published showing a dramatic effect of imatinib on stabilizing and

improving these patients. This led Novartis to develop imatinib as

a treatment of PAH.

Novartis sponsored a Phase 2 proof-of-concept trial to evaluate the

safety, tolerability, and efficacy of imatinib as an adjunct to PAH

specific therapy in patients with PAH. This was a 24-week

randomized, double-blind, placebo-controlled study of PAH subjects

who remained symptomatic on one or more PAH therapies in WHO

Functional Class (FC) II-IV. The Phase 2 trial of imatinib in PAH

caused significant hemodynamic improvement in some patients but

failed to meet the primary endpoint of an increase in 6-minute walk

distance (22 meters, p=NS). Novartis then sponsored a Phase 3 trial

(IMPRES) which met its primary endpoint of significant increase in

6-minute walk (32 meters, p=0.002), an effect maintained in the

extension study in patients remaining on imatinib. However, the

data were confounded by a high rate of dropouts in the patients

randomized to imatinib attributed largely to gastric intolerance

during the first eight weeks. The sponsor proposed consideration of

a surrogate endpoint under the subpart H provision as a basis for

approval but was denied. Consequently, Novartis chose to withdraw

the Investigational New Drug application as the drug went off

patent.

5

Current Imatinib Development for Pulmonary Arterial Hypertension

Patients

On May

30, 2019, PHPM met with the FDA to discuss a proposal for a Phase 3

trial of imatinib for PAH. At that meeting, PHPM received agreement

for a single Phase 3 trial using change in 6-minute walk distance

as the primary endpoint (p<0.05). PHPM also received agreement

for submission under the 505(b)(2) regulatory pathway, and

thereafter received orphan designation. In August of 2019, PHPM was

given preliminary advice on its plans to submit an application for

Breakthrough Therapy Designation. In July 2020, PHPM received

agreement from the FDA for the development of a modified release

formulation that would require only a small comparative

PK/bioavailability study in 12 volunteers receiving a single dose

of the modified release formulation to be compared to a single dose

of the existing immediate release formulation. A Phase 3 study is

planned with the modified release formulation of

imatinib.

Suppliers

Pursuant

to the terms of our license for levosimendan, Orion is our sole

manufacturing source for levosimendan. We intend to engage various

third-party suppliers and contract manufacturing organizations for

the supply and manufacture of imatinib for planned, upcoming

clinical trials.

Intellectual Property

We rely

on a combination of patent applications, patents, trade secrets,

proprietary know-how, trademarks, and contractual provisions to

protect our proprietary rights. We believe that to have a

competitive advantage, we must develop and maintain the proprietary

aspects of our technologies. Currently, we require our officers,

employees, consultants, contractors, manufacturers, outside

scientific collaborators and sponsored researchers, and other

advisors to execute confidentiality agreements in connection with

their employment, consulting, or advisory relationships with us,

where appropriate. We also require our employees, consultants, and

advisors who we expect to work on our products to agree to disclose

and assign to us all inventions conceived during the workday,

developed using our property, or which relate to our

business.

To

date, we own or in-license the rights to one U.S. patent and three

foreign patents. In addition, we have three U.S. patent

applications pending related to a product candidate and proprietary

process, method and technology. Our issued and in-licensed patents,

as well as our pending patents, expire between 2023 and

2039.

We

have:

-

one U.S. patent

(8,404,752), one Australian patent (209,271,530) and one European

patent (EPO9798325.8) held jointly with Virginia Commonwealth

University Intellectual Property Foundation for the treatment of

traumatic brain injury; and

-

one Israeli patent

(215516) and numerous patent applications, including one U.S.

patent application, for the formulation of perfluorocarbon emulsion

with an average remaining life of approximately 13

years.

We have

filed a patent application for a subcutaneous formulation of

levosimendan that we have developed in collaboration with a

formulation development partner. In addition, we have filed a

patent application for the use of levosimendan in the treatment of

PH-HFpEF patients based on several discoveries that have emerged

from the HELP Study. In addition to levosimendan, we have recently

acquired three patent applications for pharmaceutical compositions

for the treatment of pulmonary hypertension with the use of

imatinib.

The

U.S. trademark registration for Simdax® is owned by

Orion and is licensed to us for sales and marketing purposes for

any intravenous pharmaceutical products containing levosimendan

that are commercialized in the United States and

Canada.

Competition

The

pharmaceutical and biotechnology industries are intensely

competitive. Many companies, including biotechnology, chemical and

pharmaceutical companies, are actively engaged in activities

similar to ours, including research and development of drugs for

the treatment of rare medical conditions. Many of these companies

have substantially greater financial and other resources, larger

research and development staffs, and more extensive marketing and

manufacturing organizations than we do. In addition, some of them

have considerable experience in preclinical testing, clinical

trials and other regulatory approval procedures. There are also

academic institutions, governmental agencies and other research

organizations that are conducting research in areas in which we are

working. We expect to encounter significant competition for any of

the pharmaceutical products we plan to develop.

6

We

believe the concept of using levosimendan to treat patients with

PH-HFpEF is novel. Because no therapies are approved to treat

PH-HFpEF, our ability to succeed in the market is dependent on our

ability to change the established practice paradigm, which is never

an easy task. Key factors on which we will compete with regards to

the development and marketing of levosimendan for the treatment of

pulmonary hypertension include, among others, the ability to obtain

adequate efficacy data, safety data, cost effectiveness data and

hospital formulary approval, as well as sufficient distribution and

handling. Furthermore, while we believe the mechanism of action of

levosimendan is novel, other low-priced, generically available

products possess some similar qualities, which could present

competition in the form of therapeutic substitution.

The use

of imatinib to treat PAH has the potential to be the first disease

modifying treatment of this disease. Novartis developed imatinib

for PAH and conducted a Phase 3 trial in 2013 that succeeded in

meeting its primary endpoint, however, the high number of dropouts

of patients in the trial randomized to imatinib, due primarily to

gastric intolerance, was the basis for the FDA and European

Medicines Agency to request another trial. To address this, we are

developing a delayed release oral formulation to bypass the

stomach, as 98% of imatinib is absorbed in the small intestine. Two

other companies are developing an inhaled route of administration

as their strategy to mitigate against the gastric intolerance. We

believe that our development plan has advantages in that we already

know the effective dose of imatinib administered orally, as the

systemic exposure from an inhaled route remains uncertain.

Pulmonary vasodilators, the only approved medications for PAH, do

not have disease modifying properties.

In

order to compete successfully in this and other therapeutic areas,

we must develop proprietary positions in patented drugs for

therapeutic markets that have not been satisfactorily addressed by

conventional research strategies. Our product candidates, even if

successfully tested and developed, may not be adopted by physicians

over other products and may not offer economically feasible

alternatives to other therapies.

Government Regulation

The

manufacture and distribution of levosimendan will require the

approval of United States government authorities as well as those

of foreign countries. In the United States, the FDA regulates

medical products. The Federal Food, Drug and Cosmetic Act and the

Public Health Service Act govern the testing, manufacture, safety,

effectiveness, labeling, storage, record keeping, approval,

advertising and promotion of our medical products. In addition to

FDA regulations, we are also subject to other federal and state

regulations, such as the Occupational Safety and Health Act and the

Environmental Protection Act. Product development and approval

within this regulatory framework requires a number of years and

involves the expenditure of substantial funds.

Preclinical

tests include evaluation of product chemistry and studies to assess

the safety and effectiveness of the product and its formulation.

The results of the preclinical tests are submitted to the FDA as

part of the application. The goal of clinical testing is the

demonstration in adequate and well-controlled studies of

substantial evidence of the safety and effectiveness of the product