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Griffin Securities Initiation Report on Oragenics Inc. - November 27, 2012

Griffin Securities Initiation Report on Oragenics Inc. - November 27, 2012



Initiation report from Griffin Securities about Oragenics Inc. Griffin is initiating coverage with a BUY recommendation and $5.00 price target.

Initiation report from Griffin Securities about Oragenics Inc. Griffin is initiating coverage with a BUY recommendation and $5.00 price target.



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    Griffin Securities Initiation Report on Oragenics Inc. - November 27, 2012 Griffin Securities Initiation Report on Oragenics Inc. - November 27, 2012 Document Transcript

    • INITIATION REPORT Biotechnology Industry ● November 27, 2012 KEITH A. MARKEY, PH.D., M.B.A. 212-514-7914 KMARKEY@GRIFFINSECURITIES.COM ORAGENICS, INC. (OTCBB: OGEN) INTREXON COLLABORATION ADDS SIGNIFICANT VALUE Oragenics & Intrexon are targeting the multi-billion dollar antibiotics market. The collaboration grants Oragenics exclusive access to Intrexon’s advanced industrial engineering platform for lantibiotics, a family of more than 50 naturally occurring antibiotics. o The lead drug candidate is Oragenics’s mutacin 1140 (MU1140), which has a broad spectrum of activity against such virulent bacteria as multi-drug resistant Staphylococcus aureus (MRSA), Mycobacterium tuberculosis, and Clostridium difficile. o Intrexon, the leading synthetic biology company, will contribute advanced transgene and cellular engineering expertise to enable lantibiotic production. Success with MU1140 will position the collaborators to produce lantibiotics as active pharmaceutical ingredients for a wide range of antibiotic drug products. Recent $13 million financing brings Fidelity and Randal J. Kirk as investors. We expect current cash to last until mid-2014 supporting the Intrexon lantibiotics collaboration and growth of the oral probiotics products. Probiotics sales are poised for substantial growth. Oragenics has proprietary products based on beneficial bacteria that protect against tooth decay and gum disease. Two clinical trials should soon show the Evora® line favorably alters the bacterial composition of the human mouth, leading to better health, improved breath, and whiter teeth. Meanwhile, EvoraPets should increase its penetration of the $47 billion pet market. We are initiating coverage with a BUY recommendation and $5.00 price target. Share Price (11/26/2012) $1.80 52-Week Price Low / High $0.75-$3.20 Mkt. Capitalization (issued) $49.3 million Shares Outstanding (issued) 27.38 million 12-month Target Price $5.00 Average Daily Volume (3 mos.) 14,225 Website www.oragenics.com Est’d 2012 Earn’s (Loss)/shr ($0.40) Est’d 2013 Earn’s (Loss)/shr ($0.20) Source: BigCharts.comOragenics, Inc. (OTCBB:OGEN) is a biotechnology professional dental markets and under and the privatecompany with commercial probiotic products for labels of other distributors.humans and pets and an R&D pipeline focused onantibiotics through a collaboration with Intrexon The R&D pipeline consists of proven lantibiotics thatCorporation. The four probiotic products contain the are the subject of a recently announced, exclusivefirst comprehensive patented probiotic technology for channel collaboration with Intrexon. The two ®oral care, ProBiora3 . These products are sold under companies are developing new therapies for the ®the Evora brand with the support of Henry Schein, multi-billion dollar antibiotics market to address thePatterson Dental, and Benco Dental for the growing health crisis posed by drug-resistant bacteria.Griffin Securities, Inc., 17 State Street, New York, NY, 10004  www.GriffinSecurities.com 1 Please Review Disclosures on Page 29 of this Research Report
    • Oragenics, Inc. November 27, 2012TABLE OF CONTENTSInvestment Thesis ......................................................................................................................................... 3Management Team ....................................................................................................................................... 4Board of Directors ......................................................................................................................................... 4Oragenics Key Investors ............................................................................................................................... 5Recent Milestones ......................................................................................................................................... 6Near-Term Milestones ................................................................................................................................... 6The Rationale Behind the Oragenics – Intrexon Collaboration..................................................................... 7The Promise of Natural Antibiotics ................................................................................................................ 8 Lantibiotics – A New Approach to Fighting Infections ............................................................................... 9 A Sound Basis for Pursing Commercialization of Mutacin 1140 ............................................................. 10 The Large Commercial Potential of Lantibiotics ...................................................................................... 12Probiotics for Oral Health ............................................................................................................................ 14 The Challenge Posed by Oral Pathogens ............................................................................................... 14 The Probiotics Market and the New Regulatory Environment ................................................................ 15 ProBiora3 – A Proprietary Combination of Probiotics ............................................................................. 17 Evora Products – Well Positioned in the Market ..................................................................................... 18 New Clinical Data to Spur Demand for Evora Products .......................................................................... 20SMaRT Technology .................................................................................................................................... 21A Natural Approach to Weight Loss ............................................................................................................ 21Investment Considerations.......................................................................................................................... 22Financial Forecasts & Valuation ................................................................................................................. 23 Revenue Estimates ................................................................................................................................. 23 Evora products for human oral health.................................................................................................. 23 ProBiora3 for pets ................................................................................................................................ 23 MU1140 ............................................................................................................................................... 23 Annual Income Statements ..................................................................................................................... 24 Quarterly Income Statements .................................................................................................................. 25 Balance Sheet ......................................................................................................................................... 26 Valuation Analysis ................................................................................................................................... 27 Probiotics Contribution: ........................................................................................................................ 27 Lantibiotics Contribution: ..................................................................................................................... 27 Today’s Market Capitalization: ............................................................................................................. 28 12-Month Price Target: ........................................................................................................................ 28Disclosures .................................................................................................................................................. 29GRIFFIN SECURITIES EQUITIES RESEARCH 2
    • Oragenics, Inc. November 27, 2012INVESTMENT THESISOragenics has three business initiatives based on its ground-breaking research in oral microbiology. Eachhas considerable commercial potential and near-term valuation drivers that merit investors’ consideration: DEVELOPMENT OF NATURAL ANTIBIOTICS ADDRESSES A HIGH-PRIORITY MEDICAL NEED. Through its work with oral bacteria, Oragenics has gained considerable experience with compounds used by bacteria to compete for resources needed to thrive. Among them is a family of more than 50 unusual peptides called lantibiotics that have a broad spectrum of activity against such infectious agents as Streptococcus pneumoniae, multi-drug resistant Staphyloccocus aureus (MRSA), Mycobacterium tuberculosis, and Clostridium difficile. The Company’s lead compound, mutacin 1140 (MU1140) has demonstrated an ability to kill the growing number of drug-resistant bacteria that exact a toll on untold thousands of people worldwide each year. Yet, no lantibiotic has been produced in sufficient quantity or purity to complete clinical trials and be commercialized as a medicine to date. Intrexon provides the potential means to achieve that end in a market that is primed to accept them where significant valuations are being realized early in the development cycle. o THE BASIS OF A LARGE-SCALE LANTIBIOTIC PRODUCTION SYSTEM SHOULD BE COMPLETED BY NEXT SPRING. Oragenics is collaborating with Intrexon, a specialist in synthetic biology, to create an approach for producing commercial-scale quantities of MU1140. Success in that endeavor will pave the way for commencement of clinical testing of the antibiotic. It will also establish the potential for a pipeline of new antibiotic drug candidates derived from the Intrexon technology. We believe the investment community and other drug companies will quickly take note of this important milestone. o CLINICAL TRIALS OF MU1140 WILL LIKELY COMMENCE IN 2014. Preclinical work on this antibiotic will probably be completed fairly quickly once a source is established, since Oragenics already has promising data from studies performed on small quantities obtained from bacteria. Submission of the IND, followed by results from the Phase 1 trial, will be important value-driving events for the lantibiotic program. ORAL PROBIOTICS SALES ARE POISED TO ACCELERATE. An important part of this year’s work has been ® conducting two small clinical trials of the bacteria used in the Evora product line to demonstrate this ® combination of bacteria, dubbed ProBiora3 , offers a new approach to better health. The trials are evaluating the impact of the probiotic on pathogens associated with dental caries and periodontal disease, as well as its effect on breath odor and tooth whiteness. While the focus is on oral health, the benefit may be extrapolated to a person’s overall health, since the mouth is an entry point for pathogens to the body. The initial data, which is expected in early 2013, should provide marketing ® ® support for the two OTC products, EvoraPlus for adults and EvoraKids , as well as EvoraPro, which is sold by dentists’ offices. Meanwhile, the Company has been working to gain more distributors of its Evora products and to expand the use of ProBiora3 via more private-label products in the $27 billion worldwide market for probiotics. SUPPLY CONTRACTS SHOULD EXTEND THE USE OF ORAGENICS’S PROBIOTICS IN THE PET-CARE MARKET. The keys to expanding the use of the Company’s oral probiotic technology in the pet-care market are additional distribution contracts and supply agreements with pet food manufacturers. Oragenics is already working with several distributors worldwide to promote its probiotic formulation for improving a pet’s breath odor and tooth whiteness. We believe the contracting work that is under way will pay off in the months ahead, leading to greater penetration of the $47 billion pet market.ORAGENICS HAS THE WHEREWITHAL TO SUCCEED. Besides its expertise in microbiology, its leading positionin the oral probiotics market and its exclusive access to Intrexon’s cutting-edge technology for lantibiotics,the Company has ample cash to support operations through mid-2014. By that time, we believe theprobiotics business will begin generating excess cash, which should reduce, if not eliminate, the need forexternal financing. A Phase 2 trial of MU1140, which may commence in late 2014, should be relativelyinexpensive since the antibiotic probably will be developed as a rapid-acting therapy for acute, life-threatening infections of drug-resistant bacteria. We believe the time is right for savvy investors to takepositions in Oragenics (OTCBB: OGEN) and are therefore initiating coverage of with a BUY rating.GRIFFIN SECURITIES EQUITIES RESEARCH 3
    • Oragenics, Inc. November 27, 2012MANAGEMENT TEAMJohn Bonfilglio, Ph.D. – Chief Executive Officer, President, and Director  Recruited to transform Oragenics business in May 2011, with more than 30 years of experience in the pharmaceutical industry  Held the positions of President and CEO with Transdel Pharmaceuticals, Argos Therapeutics, The Immune Response Corporation, and Peregrine Pharmaceuticals. Also served in senior management positions with Cypress Biosciences, Baxter Healthcare, and AllerganMichael Sullivan, CPA – Chief Financial Officer  Joined Oragenics’ management in February 2012 with extensive experience in finance  Has held senior level financial positions with public and private companies including First Advantage Corporation, Utek Corporation, eANGLER, and HSN Direct InternationalMartin Handfield, M.S., Ph.D. – Vice President of Research & Development  Promoted to his current position in December 2011 after serving as Oragenics’s Director of R&D since January 2009  Held the title of Associate Professor at the University of Florida College of Dentistry, where he co- invented IVIAT and co-founded IviGene Corporation and Epicure CorporationBOARD OF DIRECTORSFrederick W. Telling, Ph.D. – Chairman of the Board  Joined the Oragenics Board as a Director in June 2010 and accepted the position of Chairman in February 2011  Held senior executive positions during his 30 years with Pfizer and presently serves as a director for Cell TherapeuticsJohn Bonfilglio, Ph.D. – Chief Executive Officer, President, and DirectorAlan W. Dunton, MD – Director  Has served on the Oragenics board since April 2011 and is also a member of the board of directors of Targacept and principal owner of the biotechnology consulting firm Danerius, LLC  Has extensive experience in the pharmaceutical industry in various executive positions with Panacos Pharmaceuticals, Metaphore Pharmaceuticals, Emisphere Technologies, Johnson & Johnson, Syntex Corporation, CIBA-GEIGY Corporation, and Hoffmann La RocheRobert Koski – Director  Joined the Oragenics board in June 2009 with more than 20 years of experience as a practicing attorney  Serves as a partner in the Koski Family Limited Partnership, which beneficially owns a significant interest in Oragenics, and as a director for the Koski Family FoundationGRIFFIN SECURITIES EQUITIES RESEARCH 4
    • Oragenics, Inc. November 27, 2012Christine Koski – Director  Has served on the board since June 2009, including holding the office of Chairperson between June 2009 and February 2011  Serves as CEO of nMetrics, a director of Sun Hydraulics and Cheltec, and managing partner of the Koski Family Limited Partnership, which beneficially owns a significant interest in OragenicsCharles L. Pope, CPA – Director  Joined Oragenics board in June 2010 with more than 30 years of experience in finance and accounting fields, having held the position of chief financial officer for Aerosonic, Reptron, SRI/Surgical Express, and Innovaro  Is a director of Inuvo, Inc. and Innovaro, Inc.ORAGENICS KEY INVESTORSComplementing Oragenics management team and board are investors who participated in an equityfinancing that garnered $13 million in August. Among these investors are the highly regarded Fidelitybiotechnology investment funds (1.67 million shares) and one of the world’s most successfulbiotechnology entrepreneurs, Randal J. Kirk (5.25 million shares), who is also the Chairman of Intrexon 1Corporation. Mr. Kirk’s accomplishments include co-founding General Injectables & Vaccines (soldto Henry Shein in 1998) and King Pharmaceuticals (acquired by Pfizer in 2010), and foundingNew River Pharmaceuticals (sold to Shire in 2007) and Third Security LLC. He also served asChairman of Scios (sold to Johnson & Johnson in 2003) and Clinical Data ( sold to Forest Labsin 2011).The monies raised in August will support the work on lantibiotic production and accelerate revenuegrowth of the probiotic products in the human and animal markets. Oragenics expects the cash on hand thas of September 30 (see page 26 for the balance sheet), to finance operations through mid-2014. Bythat time, we estimate that the probiotics business will begin generating excess cash and milestonesrelated to MU1140 should have already been achieved through the Intrexon collaboration.1 Oragenics Schedule 14A filed September 17, 2012.GRIFFIN SECURITIES EQUITIES RESEARCH 5
    • Oragenics, Inc. November 27, 2012RECENT MILESTONES√Jan,’11 Oragenics enlists a distributor for its four probiotic products in Poland√Jan,’11 Probiotic products marketer signs deal to incorporate ProBiora3 into private-label products for Denmark and Finland√Feb,’11 Patterson Dental agrees to distribute EvoraPro, EvoraPlus, and EvoraKids to dentists in North America√Apr,’11 U.S. Patent & Trademark Office grants the first patent on ProBiora3√Oct,’11 Frost & Sullivan honors Oragenics with its 2011 North American Product Differentiation Award for ProBiora3√Feb,’12 Phase 1 study of LPT3-04 shows that the weight-loss product is safe and well tolerated by overweight and mildly obese adults, and it provides early evidence of efficacy√ Feb,’12 Independent trial of EvoraKids yields excellent safety profile and a significant decrease in bacterial species associated with dental caries over a 48-week treatment period√Apr,’12 Oragenics signs a distributor for its four probiotic products in Japan√Jun,’12 Oragenics forms exclusive channel collaboration with Intrexon Corporation to develop a production system for lantibiotics via synthetic biology√Jun,’12 Distribution partnership is formed for the use of ProBiora3 in private-label probiotic products for adults and kids in Mexico√Jun,’12 EvoraPro is launched in 90-day supply√Aug,’12 A 3-year distribution agreement is signed with Central Business USA for the distribution of ProBiora3 products for humans and pets in South America√Aug,’12 Balance sheet is strengthened via $13 million equity offering and conversion of $2.5 million of debt to equity√Nov,’12 An exclusive distribution agreement is signed with Pharmacos Exakta, a subsidiary of Opco Health, for Probiora3 in private-label pet productsNEAR-TERM MILESTONES Q4,’12 Complete a trial of ProBiora3 to provide clinical evidence that EvoraPro and EvoraPlus improve oral bacteria, teeth whitening, and breath odor Q4,’12 Initiate 1-year clinical study of EvoraKids in 2-year old children in Scandinavia Q1,’13 Sign international distribution agreement for ProBiora3 Q2,’13 Complete a production system for lantibiotics via the Intrexon collaboration H1,’13 Present data from the ProBiora3 clinical trial at a dental meeting Q3,’13 Partner with an experienced pharmaceutical company to support large-scale production and development of MU1140 Q4,’13 Complete expansion of the bacteria for producing MU1140 H2,’13 Submit documentation supporting the use of ProBiora3 as a food additive in Europe 2014 Initiate Phase 1 clinical study of MU1140GRIFFIN SECURITIES EQUITIES RESEARCH 6
    • Oragenics, Inc. November 27, 2012THE RATIONALE BEHIND THE ORAGENICS – INTREXON COLLABORATIONIntrexon Corporation is a privately held company, established by one of the world’s most successfulinvestors in biotechnology, Randal J. Kirk, to realize the full potential of synthetic biology. The companycombines platform technologies in biology, engineering, and informatics to facilitate the rational designand programming of DNA, proteins, and cells to rapidly produce a desired function for human, industrial,agricultural, or veterinary applications. Intrexon’s areas of expertise include the following:  ® UltraVector Platform that utilizes a library of modular components to customize complex transgene assemblies  Genomic engineering that offers complete control over gene expression  Protein engineering that improves upon a native protein’s functionality  Cell identification and selection based upon a laser-enabled analysis and processing instrumentation  Cell system informatics that utilizes a proprietary software and database for mapping cellular pathways to facilitate the design of new gene targets or product pathwaysGiven the breadth of these best-in-class capabilities, it is not surprising that Oragenics entered into acollaboration with Intrexon last June. Through this agreement, Oragenics intends to develop andcommercialize lantibiotics, a family of potent, broad-spectrum antibiotics, as active pharmaceuticalingredients (APIs) for the treatment of infectious diseases in humans and companion animals. Intrexon isresponsible for technology discovery efforts, cell-engineering development, and certain aspects of themanufacturing process. Oragenics is responsible for conducting preclinical and clinical development ofcandidate lantibiotics, as well as for other aspects of manufacturing and the commercialization of theproduct(s). The first compound in development is MU1140. Using Intrexon’s bioindustrial processes,Oragenics expects to produce enough API to advance development of this promising lantibiotic. Figure 1provides an overview of the solution Intrexon provides Oragenics for its lantibiotic franchise. Figure 1. Oragenics’ Solution for Commercial-Scale Lantibiotic Production Challenge: Natural production of lantibiotics by bacteria yields amounts insufficient for commercial use, and Oragenics has not as yet been able to produce enough of these molecules via its methods to obtain a commercially viable supply. Solution: The production of lantibiotics through cell engineering and proprietary technologies (combining biology, engineering and informatics) provided by Intrexon. Source: Griffin Securities & OragenicsGRIFFIN SECURITIES EQUITIES RESEARCH 7
    • Oragenics, Inc. November 27, 2012We believe successful completion of this initial bioindustrial production method will constitute an importantvaluation inflection point for Oragenics, since it would be first time a pharmaceutical-grade lantibiotic willbe produced in commercial quantities. As discussed below, MU1140 has considerable commercialpotential. Early success here will also position the Company to quickly advance additional lantibioticcandidates and develop a potentially very valuable pipeline of antimicrobial medicines.THE PROMISE OF NATURAL ANTIBIOTICSDrug resistant microorganisms are a major and growing health threat that has been gaining greaterattention over the past decade. A part of the problem can be traced to inappropriate use of antibiotics(e.g., excessive prescribing or incomplete dosing) that favor the selection of drug-resistant strains.Another contributor has been a lack of interest in antibiotics, partly because chronic diseases for which 2,3there have been few options have become treatable via the latest technologies. (See Figure 2. )The World Health Organization considers antimicrobial resistance to be one of the three greatest threatsto human health, and reports from the Infectious Diseases Society of America and European Center forDisease Prevention & Control indicate that there are too few antibiotic candidates under development totreat the infectious agents posing the greatest threat (i.e., Enterococcus faecium, Staphylococcus aureus,Klebsiella pneumonia, Acinetobacter baumannii, Pseudomonas aeruginosa, and Enterobacter species).The Infectious Diseases Society of America has launched a collaboration with other healthcareorganizations to promote the development of 10 new antibiotics by 2020.The U.S. federal government also has a large number of initiatives under way with the aim of improvingsurveillance, preventing infection, expanding our understanding of the threat through research, and 4facilitating new drug development. The last of these goals was recently addressed in the FDA Safety andInnovation Act via a provision for the Generating Antibiotic Incentives Now (GAIN) program. As set forthby this legislation, the FDA is to give any antibiotics meeting certain criteria a six-month priority review,fast-track approval, and an additional five years of exclusivity. These measures, plus better guidance onthe drug development process, should reduce antibiotic drug development time and provide the potentialfor an extra financial reward. Figure 2. Left panel: Incidence rates of MRSA bacteremia reported by U.S. medical centers to the SENTRY Program provide an example of the upward trend in drug-resistant infections. Right panel: FDA approvals of antibiotics over the past three decades declined, resulting in few new drugs available to combat bacterial infections. Source: Flamm, RK.2 and IDSA3Oragenics is well positioned to benefit from the growing interest in new antibiotics. It has many years ofexperience working with bacteria-derived compounds called lantibiotics. These small peptides, whichhave a broad spectrum of activity, probably evolved as bacteria competed for food and hospitableenvironments. The first lantibiotic discovered was nisin in 1927, which paved the way for the identification2 Flamm, RK, The challenge of antimicrobial resistance in human health. Presented at the 2011 Antibiotic Use in Food AnimalsConference, October 2012.3 IDSA. Combating antimicrobial resistance: Policy recommendations to save lives. Clin Infect Dis 2011; 52 (suppl 5): S397.4 A Public Health Action Plan to Combat Antimicrobial Resistance, 2011. Accessed at www.cdc.gov/drugresistance/annualReports.htmlGRIFFIN SECURITIES EQUITIES RESEARCH 8
    • Oragenics, Inc. November 27, 2012of more than 50 related compounds. Attempts to commercialize these natural antibiotics have beenlargely unsuccessful, with nisin being the one exception, but that is only because it is used in minutequantities as a food preservative. The single greatest challenge to developing lantibiotics for medicalpurposes has been their production – they are so potent that they kill the bacteria producing them atconcentrations below the levels needed for large-scale manufacturing. Accordingly, lantibiotics remain apotentially huge, untapped treasure trove in the field of pharmaceutics. Oragenics recent exclusivecollaboration with Intrexon was designed specifically to address this manufacturing challenge. We expectOragenics to leverage Intrexon’s advanced synthetic biology platform technologies to unlock thisenormous opportunity.LANTIBIOTICS – A NEW APPROACH TO FIGHTING INFECTIONSLantibiotics are a group of compounds within a broader group of toxins called bacteriocins that are usedby a bacterium against other microorganisms. Lantibiotics, which number more than 50, have beencategorized into subgroups based on differences in their structures and biological activities, but onecommon feature is the unique amino acids called lanthionine (Ala-S-Ala circled in yellow in the A ring)and methyl-lanthionine (Abu-S-Ala circled in orange in the B ring). Depicted in Figure 3 are the structuresof the predominant forms of nisin and mutacin 1140 (MU1140), which was discovered by Oragenics, 5along with the toxins’ novel amino acids. The diagrams also identify the common portion of thesemolecules that is used to bind a bacterial cell wall component called Lipid II. 6 Figure 3. Structures of MU1140 and Nisin AThe lanthionines are not the only unusual amino acids in these molecules. Other structures includedehydrated amino acids, designated by Dha (a derivative of alanine, circled in green) and Dhb (aderivative of threonine, circled in blue). Investors need not understand these structures, but it is importantto comprehend their effect on lantibiotic commercialization. Bacteria utilize highly specific enzymes to 7create lantibiotics through post-translational modification (i.e., after the protein is assembled). It isbecause of these unique structures that attempts to produce them through alternative means (e.g.,synthetically and in yeast) have met with limited success.Fortunately, lantibiotics are derived from bacterial genes which means the emerging field of geneticengineering offers a new approach to commercial production. Research has already determined that nisinexists in two forms naturally, and genetically modified variants have been created with differences in their5 Smith, L, et al. Covalent structure of mutacin 1140 and a novel method for the rapid identification of lantibiotics. Eur J Biochem2000; 267(23): 6810.6 Smith, L and Hillman, JD. Therapeutic potential of type A(I) lantibiotics, a group of cationic peptide antibiotics. Curr Opin Microbiol2008; 11(5): 401.7 Nagao, J, et al. Lantibiotics: Insights and foresight for new paradigm. J Biosci Bioeng 2006; 102(3): 139.GRIFFIN SECURITIES EQUITIES RESEARCH 9
    • Oragenics, Inc. November 27, 2012 8,9,10,11solubility, secretion, and antibiotic activities. Yet, production is still thwarted by nisin’s toxic nature.Accordingly, Oragenics is collaborating with Intrexon to accomplish what no one else has achieved,establish a method of producing commercial quantities of a pharmaceutical-grade lantibiotic.A SOUND BASIS FOR PURSING COMMERCIALIZATION OF MUTACIN 1140The commercial potential of MU1140 can be traced to the compound’s mechanism of action. As shown inFigure 3, the lantibiotic contains a binding site for its biological target called Lipid II. That compound is anessential component of all gram positive bacteria, as it is required for the insertion of certain newlysynthesized components into the cell wall. Without it, cell wall formation is inhibited and the bacteria die.MU1140 forms a very stable complex with Lipid II and removes it from its physiological domain in thebacterial membrane where active cell wall formation is taking place.MU1140’s mechanism of action seems straightforward, but other factors will likely play a role in defining abacterium’s sensitivity. The initial interaction between a lantibiotic and bacterium occurs at the cell wall,probably through electrostatic interaction of the compound’s positively charged amino acids (i.e., lysineand arginine) and anionic members of the cell wall. But then, the thickness and composition of the cellwall and the accessibility of Lipid II may alter the bacterial susceptibility. Listeria monocytogenes, forexample, is relatively insensitive to nisin A, even though its cell wall has a relatively high concentration of 12negatively charged lipids. In addition, the lantibiotic’s high potency is dependent on its lateral assemblyinto islands in the cell membrane where Lipid II may be trapped more effectively away from growth points 13of the bacterial cell wall. Given the various factors that may affect the molecule’s activity, a combinationof Intrexon technologies provides a powerful means of developing new lantibiotics to treat the mostvirulent bacteria.MU1140 has already shown certain traits that indicate it is an attractive drug candidate. The molecule isresistant to inactivation by proteases due to its three-dimensional structure, and bacteria have remained 14,15,16sensitive to the drug under conditions favoring the development of resistance. More important,MU1140 has demonstrated activity against a broad range of Gram-positive bacteria, includingStreptococcus pneumoniae, multi-drug resistant Staphylococcus aureus (MRSA), Mycobacteriumtuberculosis, and Clostridium difficile. (See Table 1, which shows the minimum inhibitory concentration[MIC] of MU1140 needed to prevent growth of various Gram-positive microorganisms.)8 Mulders, JW et al. Identification and characterization of the lantibiotic nisin Z, a natural nisin variant. Eur J Biochem 1991; 201(3):581.9 de Vos, WM, et al. Properties of nisin Z and distribution of its gene, nisZ, in Lactococcus lactis 1993; 59(1): 213.10 Rollema, HS, et al. Improvement of solubility and stability of the antimicrobial peptide nisin by protein engineering. Appl EnvironMicrobiol 1995; 61(8): 2873.11 Carroll, J, et al. Gene encoded antimicrobial peptides, a template for the design of novel anti-mycobacterial drugs. Bioeng Bugs2010; 1(6): 408.12 Smith, L, et al. Elucidation of the antimicrobial mechanism of mutacin 1140. Biochem 2008; 47(10): 3308.13 Hasper, HE, et al. An alternative bactericidal mechanism of action for lantibiotic peptides that target Lipid II. Science 2006;313(5793): 1636.14 Hillman, JD, et al. Isolation of a Streptococcus mutans strain producing a novel bacteriocin. Infect Immun 1984; 44(1): 141.15 Smith, L, et al. Structure and dynamics of the lantibiotic mutacin 1140. Biochem 2003; 42(35): 10372.16 Ghorbrial, OG, et al. Pharmacodynamic activity of the lantibiotic MU1140. Int J Antimicrob Agents 2009; 33(1): 70.GRIFFIN SECURITIES EQUITIES RESEARCH 10
    • Oragenics, Inc. November 27, 2012 16 Table 1. MU1140 Minimum Inhibitory Concentrations for Various Bacteria Microorganism MIC Microorganism MIC (# of isolates tested) (μg/mL) (# of isolates tested) (μg/mL) Enterococcus faecalis (3) 16-32 Streptococcus agalactiae (2) 4 E. faecalis ATCC 29212(1) 32 Streptococcus intermedius (1) 2 Enterococcus faecium (4) 8-32 Streptococcus mitis (1) 4 Staphylococcus aureus (4) 16 Streptococcus pneumoniae (3) 1 S. aureus ATCC 29213 (1) 16 S. pneumoniae ATCC 49619 (1) 4 Staphylococcus epidermidis (4) 16 Streptococcus pyogenes (2) 0.5 Staphyloccocus saprophyticus (2) 4-16 Clostridium difficile (2) 1Oragenics has also investigated the pharmacokinetics of MU1140 and the results were used in a 17simulation analysis to predict the optimal method of administering the drug. As shown in Figure 4,plasma levels of MU1140 were measured at various times after a single, intravenous bolusadministration. The drug’s half-life was determined to be in the range of 1.5 – 1.7 hours. Figure 4. Pharmacokinetic profiles of MU1140 in the plasma of rats after a single, 12.5 (circles) or 25 (squares) mg/kg, IV bolus dose. Source: Ghorbrial, O, et al. 17Other research assessed the drug’s ability to kill Staphylococcus aureus in vivo. The results of thispharmacodynamic analysis indicated that MU1140 administration caused a rapid, significant drop inbacterial counts within 2 hours, regardless of the dose used. (Four doses were tested to achieve plasmalevels of 32, 64, 128, and 256 μg/mL.) The half-maximal concentration for this bacterium was 0.01 μg/mL.Further analysis of this data and the pharmacokinetic profile found that there was a strong correlationbetween the time the drug’s plasma concentration was above the minimum inhibitory concentration(T>MIC) for S. aureus and bacterial cell counts 24 hours later. (See Figure 5.) This suggests that T>MICover a 24 hour period is a predictive index for therapeutic success.17 Ghobrial, O, et al. Pharmacokinetic and pharmacodynamic evaluation of the lantibiotic MU1140. J Pharm Sci 2010; 99(5): 2521.GRIFFIN SECURITIES EQUITIES RESEARCH 11
    • Oragenics, Inc. November 27, 2012 Figure 5. The relationship between MU1140 T>MIC and predicted viable S. aureus counts, based on the pharmacokinetic and pharmaco- dynamic data. Source: Ghobrial, O, et al.17The preclinical research concluded that the best route of administration of MU1140 is slow infusion, sincethat will increase the T>MIC and maximize the therapeutic effect. A slow infusion will also minimize ahypersensitivity reaction seen with the drug in the first 5 minutes after bolus dosing. (No other adverseeffects were observed.) Alternatively, pretreatment with the antihistamine diphenhydramine (20 mg/kg)can be used to block most of the symptoms associated with bolus dosing. Further experiments withMU1140 await a method for producing the lantibiotic in quantity.THE LARGE COMMERCIAL POTENTIAL OF LANTIBIOTICSThe growing threat posed by infectious agents gained the attention of the U.S. public at the turn of thecentury with reports of community-acquired methicillin-resistant Staphylococcus aureus (MRSA)infections by athletes and prisoners. Until then, the focus was on hospital-acquired infections. But timeshave changed and with them have come concerns over other resistant microbes around the world.Indeed, a mathematical model predicts that community-acquired MRSA will displace hospital-acquiredstrains as the predominant source of infections, given the larger reservoir of bacteria outside of 18healthcare facilities. This appears to be taking place already in select locations. New resistant strainsare likely, as MRSA “represents a continuously emergent phenomenon driven by multi-factorial 19interactions between the classic triad of host, pathogen, and environment.” There is no reason to thinkthat this statement applies solely to MRSA, however, given the presence of other drug-resistantmicroorganisms, such as vancomycin-resistant Enterococcus. (Note that vancomycin is considered adrug of last resort, since it has traditionally been reserved for only the most serious infections.)The impact of drug resistant infections can be measured in lives lost and in excess healthcare costs.Studies have found that patients with drug-resistant infections experience prolonged illnesses that resultin extended hospital stays, higher healthcare costs, and increased mortality. For instance, a meta-analysis found that patients with vancomycin-resistant enterococci infections spent 10 – 46 more days inthe hospital than did similar patients with no infection or with vancomycin-sensitive infections. This wasassociated with excess healthcare costs (range: $27,190 - $86,290, depending on whether the patient 20was treated in the intensive care unit) and a higher average mortality rate (45.2% versus 19.0%).Alternative therapies for vancomycin-resistant enterococci infections are available, but they are not well 21tolerated, as indicated in Table 2. But use of inappropriate antibiotics also comes at a price that has18 D’Agata, EMC, et al. Modeling the invasion of community-acquired methicillin-resistant Staphylococcus aureus into hospitals. ClinInfect Dis 2009; 48(3): 274.19 Mediavilla, JR, et al. Global epidemiology of community-acquired methicillin resistant Staphylococcus aureus. Curr Opin Microbiol,preprint dated October 5, 2012.20 Salgado, CD and Farr, BM. Outcomes associated with vancomycin-resistant enterococci: A meta-analysis. Infect Control HospEpidemiol 2003; 24(9): 690.21 Rivera, AM and Boucher, HW. Current concepts in antimicrobial therapy against select Gram-positive organisms: Methicillin-resistant Staphylococcus aureus, penicillin-resistant pneumonococci, and vancomycin-resistant enterococci. Mayo Clin Proc 2011;86(12): 1230.GRIFFIN SECURITIES EQUITIES RESEARCH 12
    • Oragenics, Inc. November 27, 2012 22been measured as a significant increase in mortality. Overall, antibiotic-resistant infections result in 8million excess hospital days and $21 billion to $34 billion in additional healthcare costs in the United 3States annually. 20 Table 2. Drugs for Infections Caused by Gram-Positive BacteriaIn 2009, sales of antibiotics amounted to approximately $42 billion, which represented 5% of the 23pharmaceutical market. Sales trends in other sectors have been either declining or growing much moreslowly over the past few years, and these trends are not expected to change much during this decade 24partly because 152 drugs will lose patent protection between 2012 and 2020. This should not be anissue in the antibiotics sector, though, since the rising prevalence of multi-drug resistant bacteria arerendering many of today’s medicines ineffective.New antibiotics should enter a market that is primed to accept them. We believe this is an important factorbehind the success of Cubist’s daptomycin, which was launched in 2003 and is expected to achieve salesapproaching $850 million in the United States this year, despite the toxicities listed in Table 2 and a 25premium price to vancomycin (average wholesale price: $2,800 versus $1,500) . Furthermore, Rib-X andSanofi signed a research collaboration agreement potentially worth more than $772 million (more than$186 million per drug candidate) on July 6, 2011 for Rib-X’s RX-04 program, which consists of a class ofantibiotics in preclinical development that target the bacterial protein synthetic machinery. This isimportant because the market is so in need of new antibiotics that sizeable valuations are being procuredearly in the development cycle. Based on this kind of valuation metric, MU1140 could have a totalvaluation of more than $186 million by 2014 (the estimated time required for Intrexon to set up thebioindustrial process and for preclinical research to be completed). Additionally, each subsequentlantibiotic candidate (more than 50 are known) could also be valued more than $186 million per candidatefollowing manufacturing validation (3 to 6 months) and preclinical testing (12 – 24 months). This bodeswell for early partnering opportunities and sizable deal valuation metrics.22 Tabah, A, et al. Characteristics and determinants of outcome of hospital-acquired bloodstream infections in intensive care units:the EUROBACT International Cohort Study. Intensive Care Med, preprint September 26, 2012.23 Hamad, B. The antibiotics market. Nat Rev Drug Discov 2010; 9(9): 675.24 Long, D. The US pharmaceutical market: Trends, issues, & outlook. Presented at the National Conference of PharmaceuticalOrganizations annual meeting, January 7, 2011.25 McCallister, E. Antibiotics economics. BioCentury on BioBusiness, published August 1, 2011.GRIFFIN SECURITIES EQUITIES RESEARCH 13
    • Oragenics, Inc. November 27, 2012PROBIOTICS FOR ORAL HEALTHThe pioneering work of Dr. Jeffery Hillman, a founder of Oragenics, laid the foundation for probiotics inoral health over a period spanning more than three decades. (Dr. Hillman retired from his position asChief Scientific Officer with Oragenics in late 2011 and passed the baton to one of his protégés, Dr.Martin Handfield.)THE CHALLENGE POSED BY ORAL PATHOGENSThe human mouth is the home to a vast diversity of bacteria (as many as 25,000 phylotypes), although 26,27,28the average adult person harbors about 265 different species. This population of microbes differsbetween individuals and changes over time in a single individual. Such factors as a person’s genetic 29,30,31make-up, age, oral health, general health status, diet, and smoking status contribute to the diversity. 32Even within a single mouth, there are marked differences in local populations. That is attributable to thedistinctions between the environments provided by the soft cheek tissue, hard enamel surface of a tooth,and anaerobic conditions at the juncture of the tooth and gum.While there is considerable variation between oral bacteria populations, there is also a group of about 11genera that are common in adults; these are Streptococcus, Neisseria, Corynebacterium, Rothia,Actinomyces, Haemophilus, Prevotella, Fusobacterium, Granulicatella, Capnocytophaga, and 26,28Veillonella. Among these bacteria are some that are harmful, notably S. mutans, which is the principalpathogen causing dental caries, and others that are beneficial, including S. gordonii. The most prevalentgenus is Streptococcus, which accounts for about 20% of the oral bacteria. These microbes do not existas individuals, and often form a biofilm that is resistant to antimicrobial agents and to invasion by otherbacteria. In the competition for a hospitable environment, bacteria release a variety of chemicals to gainan advantage, including hydrogen peroxide, acids, and small peptides with antibiotic properties. 33Despite the competition, biofilm formation reflects a series of cooperative events. For instance, dentalplaque is formed via interactions that lead to a three-dimensional structure with distinctmicroenvironments for various bacteria. Briefly, an important early event in plaque formation is theadhesion of bacterial enzymes to the tooth surface, along with various saliva-derived proteins that may 34serve as binding sites for some microorganisms. That is followed by the creation of an insoluble, glucanmatrix (sugar-derived polymer) on the surface of the tooth, in part by enzymes secreted by S. mutans.That matrix lays down a three-dimensional structure, which permits acidic micro-environments favoring 35bacterial adherence and growth. These acidic microenvironments also lead to dental caries viademineralization of the tooth enamel and dentin. A variety of adhesion molecules on the surfaces of 36bacteria enable them to bind to the tooth and the extracellular matrix. Adhesins and extracellular matrixalso play a role in more advanced stages of plaque formation by enabling inter-bacterial binding. It is thisprocess, dubbed positive cooperativity, that figures importantly in the multi-layered structure of a dentalplaque, shown in Figure 6.26 Keijser, BJF, et al. Pyrosequencing analysis of the oral microflora of healthy adults. J Dent Res 2008; 87(11): 1016.27 Zaura, E, et al. Defining the healthy “core microbiome” of oral microbial communities. BMC Microbiol 2009; 9: 259.28 Bik, EM, et al. Bacterial diversity in the oral cavity of ten healthy individuals. ISME J 2010; 4(8): 962.29 Crielaard,W, et al. Exploring the oral microbiota of children at various developmental stages of their dentition in the relation to theiroral health. BMC Med Genomics 2011; 4: 22.30 Hsiao, WW, et al. Microbial transformation from normal oral microbiota to acute endodontic infections. BMC Genomics 2012; 13:345.31 Dang, AT, et al. Evidence of an increased pathogenic footprint in the lingual microbiome of untreated HIV infected patients. BMCMicrobiol 2012; 12: 153.32 Aas, JA, et al. Defining the normal bacterial flora of the oral cavity. J Clin Microbiol 2005; 43(11): 5721.33 Rosan, B and Lamont, RJ. Dental plaque formation. Microb Infect 2000; 2: 1599.34 Bowen, WH and Koo, H. Biology of Streptococcus mutans-derived glucosyltransferases: Role in extracellular matrix formation ofcariogenic biofilms. Caries Res 2011; 45; 69.35 Xiao, J, et al. The exopolysaccharide matrix modulates the interaction between 3D architecture and virulence of a mixed-speciesoral biofilm. PLoS Pathog 2012; 8(4): e1002623.36 Nobbs, AH, et al. Stick to your gums: Mechanisms of oral microbial adherence. J Dent Res 2011; 90(11): 1271.GRIFFIN SECURITIES EQUITIES RESEARCH 14
    • Oragenics, Inc. November 27, 2012 A Figure 6. Panel A shows diagrammatically how the interaction between bacteria results in the multiple layers of dental plaque. Early colonizers (green spheres), including S. mutans, bind to a tooth and express adhesion sites to which another bacterium, such as Fusobacterium nucleatum (orange ellipse) binds. That microbe then serves as a substrate to which late colonizers, such as Aggregatibacter actinomycetemcomitans [purple] or Tropenema denticola [blue], bind. Panel B is a picture of subgingival biofilms created with a fluorescent in situ hybridization (FISH) probe for F. nucleatum (orange) between early- and late-colonizers (green). Source: Nobbs, AH, et al.36Based upon the structure of dental plaque and the steps involved in its formation, there are severalpossible approaches to interceding to improve oral health, including dietary changes that reduce sugar(especially sucrose) consumption, mouthwashes with antimicrobial properties, and clinical intervention.An alternative type of intervention is available through probiotics. These non-pathogenic, livingmicroorganisms confer a health benefit and prevent or improve some diseases when administered inadequate amounts. There are a variety of means by which probiotics may affect oral health – at the tooth 37surface and at the tooth-gum interface. These are summarized in Figure 7. 37 Figure 7. Possible Mechanisms of Probiotic Action for Oral HealthTHE PROBIOTICS MARKET AND THE NEW REGULATORY ENVIRONMENTProbiotics are defined as non-pathogenic microorganisms, mostly of human origin, that confer a health 38benefit and prevent or improve some diseases when administered in adequate amounts. These live37 Haukioja, A. Probiotics and oral health. Eur J Dent 2010; 4: 348.38 FAO-WHO, 2001. Health and nutritional properties of probiotics in food including powder milk with live lactic acid bacteria. Foodand Agriculture Organization of the United Nations and World Health Organization, Cordoba, Argentina.GRIFFIN SECURITIES EQUITIES RESEARCH 15
    • Oragenics, Inc. November 27, 2012organisms may be regulated as either a cosmetic, dietary supplement or drug, based on the nature of theclaims made, the intended use, and the country where they are distributed. A probiotic is regulated as adrug if it is intended for the “diagnosis, cure, mitigation, treatment, or prevention of disease in man” or if 39the probiotic is administered via any route other than orally. The most common uses of probiotics are asdietary supplements to aid in gastrointestinal performance of patients cancer or an inflammatory bowel 40,41,42disease. The most common probiotics are lactobacilli and bifidobacteria that are included in variousbrands of yogurt and other fermented milk products. This market is huge, accounting for an estimated $27billion in sales this year and growing at a compound annual growth rate of 6.4% through 2015, one of the 43fastest expanding food segments. But then, general interest in probiotics has also been rising quicklyover the past decade, as evidenced by the upturn in scientific publications on the field (see Figure 8). 44 Figure 8. Scientific publications on probiotics by yearThe success of probiotics to date has spawned unsubstantiated claims in some cases, and that haselicited the customary response from major regulatory agencies – the FDA and its European counterparthave begun to impose more exacting requirements on probiotics. Moreover, the U.S. Federal TradeCommission has leant its support in demanding that some of the industry’s largest participants, including 45,46Dannon and Nestle, remove certain claims from their product labels. Companies are now required toprovide evidence that functional foods are safe and scientifically address the health issue(s) advertised.To meet these edicts, a company must identify the food and the specific probiotic(s), since each bacterialstrain is considered unique. More important, the proposed health relationship must be assessed throughrelevant studies, including a human intervention study and preclinical tests that provide an insight into theprobiotic’s mechanism of action.39 FAO-WHO, 2002. Guidelines for the evaluation of probiotics in food. Food and Agriculture Organization of the United Nations andWorld Health Organization, London Ontario, Canada.40 Wada, M, et al. Effects of the enteral administration of Bifidobacterium breve on patients undergoing chemotherapy for pediatricmalignancies. Support Care Cancer 2010; 18(6): 751.41 Prisciandaro, LD, et al. Evidence supporting the use of probiotics for the prevention and treatment of chemotherapy-inducedintestinal mucositis. Crit Rev Food Sci Nutr 2011; 51(3): 239.42 Bassaganya-Riera, J, et al. Probiotic bacteria produce conjugated linoleic acid locally in the gut that targets macrophage PPAR γto suppress colitis. PLoS ONE 2012; 7(2): e31238.43 Steele, P. Consumer insights from the industry perspective. Presented at the Institute of Medicine Food Forum Workshop,February 22-23, 2012.44 AHRQ Publication No. 11-E0007, April 2007.45 FTC press release: Dannon Agrees to drop exaggerated health claims for Activia Yogurt and DanActive Dairy Drink, December15, 2010.46 FTC press release: Nestle subsidiary to settle FTC false advertising charges; will drop deceptive health claims for Boost KidEssentials, July 14, 2010.GRIFFIN SECURITIES EQUITIES RESEARCH 16
    • Oragenics, Inc. November 27, 2012PROBIORA3 – A PROPRIETARY COMBINATION OF PROBIOTICSPioneering work by Dr. Jeffrey Hillman and Oragenics led to the development of the first probiotic fordental caries and periodontal disease. Three non-infective bacteria were chosen for this purpose,specifically proprietary strains of Streptococcus rattus, S. uberis, and S. oralis.  A spontaneous mutant of Streptococcus rattus was isolated from a human subject and investigated for its ability to produce lactic acid, which is the active agent used by S. mutans to erode enamel in the tooth. The mutant strain, called JH145™, was found to lack the enzyme lactate dehydrogenase (LDH) because of a point mutation and premature stop codon in the LDH gene and, hence, it produces less than 3% as much lactic acid as the normal wild- 47 type strain. Accordingly, JH145 lacked the ability to produce dental caries in vitro and in 48 vivo, even though it adhered to teeth as well as the normal strain and S. mutans. The LDH deficient bacteria still competed effectively against S. mutans when administered as a probiotic in a preclinical study. (See Figure 9.) Figure 9. Effect of oral dosing with JH145 on the proportions of the S. mutans strain NG8 in plaque/ saliva samples at different times after initiation of probiotic treatment. NG8 bacteria were given to rats at a daily dose of 109 colony-forming units or cfu for three days and then allowed four weeks to establish stable colonies. Weekly assessments found that JH145 therapy (109 cfu per day for five days per week) significantly lowered the numbers of NG8 bacteria as a proportion of total bacteria present within 6-8 weeks and maintained that relative proportion for 26 weeks. Source: Hillman, JD et al.47 Based on the mechanisms of intervention shown in Figure 7, JH145 interferes at two steps against S. mutans, at the point of adhesion to the tooth and by competing for nutrients.  Oragenics evaluated other strains of bacteria to protect against periodontal disease. These bacteria are also within the genus Streptococcus. The strains isolated by the Company are S. uberis KJ2™ and S. oralis (previously known as S. sanguinis type II) KJ3™. Both are found 49 in abundance in healthy periodontal sites, but rarely in diseased sites. This finding suggested that the strains may inhibit the growth of periodontal pathogens. Indeed, KJ2 and KJ3 produce hydrogen peroxide, a reactive oxygen species that inhibits the bacterium Aggregatibacter actinomycetemcomitans, an important participant in the etiology of 50 aggressive periodontitis. Local production of hydrogen peroxide by these bacteria probably 51 complements the release of the chemical by human oral tissue. Indeed, successful treatment of active periodontal lesions is correlated with recolonization of the site with S. 52 oralis. Turning back to Figure 7, we see that KJ2 and KJ3 may act at all three primary levels in combating periodontal disease, by competing for suitable microenvironments, competing for nutrients, and complementing the human body’s defensive measures.47 Hillman, JD, et al. A spontaneous lactate dehydrogenase deficient mutant of Streptococcus rattus for use as a probiotic in theprevention of dental caries. J Appl Microbiol 2009; 107(5): 1551.48 Johnson, CP, et al. Cariogenic potential in vitro in man and in vivo in the rate of lactate dehydrogenase mutants of Streptococcusmutans. Arch Oral Biol 1980; 25(11-12): 707.49 Hillman, JD and Socransky, SS. Bacterial interference in the oral ecology of Actinobacillus actinomycetemcomitans and itsrelationship to human periodontosis. Arch Oral Biol 1982; 27(1): 75.50 Hillman, JD and Shivers, M. Interaction between wild-type, mutant and revertant forms of the bacterium Streptococcus sanguinisand the bacterium Actinobacillus actinomycetemcomitans in vitro and in the gnotobiotic rat. Arch Oral Biol 1988; 33(6): 395.51 Zhu, L and Kreth, J. The role of hydrogen peroxide in environmental adaptation of oral microbial communities. Oxid Med CellLongev 2012; Article #717843.52 Haffajee, AD, et al. Clinical, microbiological and immunological features associated with the treatment of active periodontosislesions. J Clin Periodontol 1984; 11(9): 600.GRIFFIN SECURITIES EQUITIES RESEARCH 17
    • Oragenics, Inc. November 27, 2012The Company’s ProBiora3 is the active ingredient in its four products sold under the Evora brand name,as well as probiotics commercialized under private labels by licensees. Formulations vary according totheir application.EVORA PRODUCTS – WELL POSITIONED IN THE MARKETOragenics sells its probiotics under the Evora label, as shown below: Adults - Consumer Pets  Whitens without causing tooth  Freshens breath, cleans and or gum sensitivity whitens teeth  Freshens breath  Tasteless, odorless powder  Supports gum and tooth health Adults - Professional Children  Exclusively sold to dental  Natural “Wild Very Cherry Berry” professionals flavor that kids love  “Supercharged” version of  Supports gum and tooth health EvoraPlus – higher dosage  Freshens breath, cleans and  Whitens without causing tooth or whitens teeth gum sensitivity  Freshens breath  Supports gum and tooth healthThe differences between these products are related to the numbers of bacteria. For instance, EvoraPro,which is sold directly through dentists’ offices, has >125 million cfu of Probiora3 per tablet, while the tworetail products, the adult-strength probiotic EvoraPlus and EvoraKids, contain >100 cfu of ProBiora3 pertablet. These products are available through such online retailers as CVS Pharmacy, Amazon,Walgreens, Target, DrugStore.com, ProbioticSmart.com, ForeverActive.com, Swanson Health Products,and ProHealth. They are also sold through international distributors: Australian PharmaceuticalsIndustries (Australia, New Zealand), Benelux Cosmetics (Belgium, Netherlands, Luxembourg), andVetcom (Korea). Competition currently comes from two sources, New Zealand-based Dr. Harold Katz ®LLC sells a probiotic formulation under its TheraBreath label and BioGaia, which is based in Sweden, ® ®has two versions of an oral health probiotic on the market, GUM ProDentis Daily Balance Lozenges ® ®and GUM Periobalance chewing gum. One or both products are sold in North America, parts of Europe,and Japan along with health-related offerings that do not include probiotics. ®EvoraPets is also sold as Teddy’s Pride Oral Care through retail distribution channels, including ®Amazon. Its nearest competitor is SCD Probiotics Breath Spray, which is administered into the animal’smouth directly or sprayed onto food. SCD, which is based in the United States, has a broad range ofproducts largely for the farming community. Other companies sell products that address companionanimals’ breath, but these do not appear to contain probiotics.Oragenics EvoraPlus and EvoraPet are compared to probiotic products from the aforementionedcompanies in Table 3. EvoraPlus was selected for this purpose since the competitors do not offerversions specifically for the professional or children’s markets. In addition, the comparisons have beenmade between products of a similar formulation; that is, lozenges were chosen over alternative products,notably chewing gum, for this purpose.GRIFFIN SECURITIES EQUITIES RESEARCH 18
    • Oragenics, Inc. November 27, 2012 Table 3. Comparison of Probiotics for Oral Care Company Product Probiotic ** Price ҂ Claims Complete oral care Supports gum & tooth health Oragenics EvoraPlus Probiora3 $14.95 Freshens breath Whitens teeth Helps body protect against: cavities, bad TheraBreath Multi- Streptococcus $21.99 for a 7- breath, plaque, sensitive teeth, biofilm, Dr. Harold Katz LLC Symptom Probiotics salivarius K12 & M18 day therapy gum problems, tooth stains, sore throat, earaches Lactobacillus reuteri Promotes healthy teeth & gums GUM PerioBalance Daily BioGaia DSM 17938 & ATCC $19.99 Reduces plaque Dental Probiotic Lozenge PTA5289 Fights bad breath Freshens breath Oragenics EvoraPets & Teddys Pride ProBiora3 $8.44 Cleans & whitens teeth Bifidobacterium ** SCD Probiotics Breath Lactobacillus $9.95 for 7.2 oz. SCD Use as needed to control bad breath Spray Saccharomyces (180 sprays) cerevisiae ** Probiotics shown for the SCD Probiotics Breath Spray are approximations based on the two primary types of bacteria and yeast in the company’s livestock products. ҂ Prices are for a monthly supply and were obtained from www.drugstore.com for human products and from Amazon for the pet products.As shown in the table, the four companies use different beneficial microbes in their products. We believeeach of the comparators has drawbacks. For instance, S. salivarius K12 and M18 in the TheraBreathprobiotics produce natural antibiotics, but no scientific data has been published on the oral benefit(s) of 53,54 55the combination. Alone, the K12 strain has failed to significantly alter the oral microbiota. This may 56be because this bacterium seeks its natural habitat, the pharynx, and is short-lived in the mouth. TheM18 strain grows primarily on the tongue, rather than on dental plaque or in the subgingival space, which 57raises concerns over its ability to aid oral hygiene. Nonetheless, this is the most expensive oralprobiotic, at $21.99 for a 7-day course that is expected to be repeated once per month. (It should benoted that the retail product provides 10%-15% of the M18 dosage used to demonstrate clinical efficacyin the initial patent, and users have to rinse with chlorhexidine, an antibacterial agent that lowers the totalbacterial load, prior to initiation of probiotic intervention.)The microbe L. reuteri that is incorporated in BioGaia’s two probiotic products has been reported to have 58a favorable effect on oral health. However, it is a normal inhabitant of the gastrointestinal flora, andrecent clinical studies by independent labs found less than satisfactory results: BioGaia’s bacteria had noeffect on S. mutans regrowth in chlorhexidine-treated mouths, had no clinical benefit over an 8-weekperiod despite reducing subgingival bacteria, and was quickly eliminated from the human mouth after 59,60,61administration. The monthly price for this product is listed at $19.99 based on the recommendeddaily dose of one lozenge per day.53 Hyink, O, et al. Salifvaricin A2 and the novel lantibiotic salivaricin B are encoded at adjacent loci on a 190-kilobase transmissiblemegaplasmid in the oral probiotic strain Streptococcus salivarius K12. Appl Environ Microbiol 2007; 73(4): 1107.54 Heng, NCK, et al. Genome sequence of the bacteriocin-producing oral probiotic Streptococcus salivarius strain M18 2011;193(22): 6402.55 Burton, JP, et al. Safety assessment of the oral cavity probiotic Streptococcus salivarius K12. Appl Environ Microbiol 2006; 72(4):3050.56 Horz, HP, et al. Distribution and persistence of probiotic Streptococcus salivarius K12 in the human oral cavity as determined byreal-time quantitative polymerase chain reaction. Oral Microbiol Immunol, 22(2), 126 (2007)57 European patent # EP 1 483 366 B1.58 Hasslof, P, et al. Growth inhibition of oral mutans streptococci and candida by commercial probiotic lactobacilli – an in vitro study.BMC Oral Health 2010; 10: 18.59 Keller, MK, et al. Probiotic supplements (Lactobacillus reuteri DSM 17938 and ATCC PTA 5289) do not affect regrowth of mutansstreptococci after full-mouth disinfection with chlorhexidine: a randomized controlled multicenter trial. Caries Res 2012; 46(2): 140.GRIFFIN SECURITIES EQUITIES RESEARCH 19
    • Oragenics, Inc. November 27, 2012We also note that SCD’s product for companion animals’ oral health is derived from probiotics used forthe gastrointestinal health of livestock and that the spray includes numerous herbal extracts that shouldimprove bad breath, even without the probiotic components. This product is slightly more expensive thanEvoraPet.Overall, we believe Oragenics products are positioned well based upon the characteristics of the probioticingredients in ProBiora3 and their prices versus those of the competition.NEW CLINICAL DATA TO SPUR DEMAND FOR EVORA PRODUCTSOragenics is in the midst of completing two small clinical trials to provide additional evidence of thebenefits of ProBiora3. The trials, which are expected to yield data in 2013, are testing the effect of a 12-week course of once-daily mints (akin to EvoraPro or EvoraPlus) on the number of bacteria associatedwith tooth decay and gum disease in young adults. The primary objective is to determine, on a per patient ®basis, if a 12 week course of ProBiora3 -containing mints from Oragenics, can significantly decrease thelevels of S. mutans when compared to their baseline values. The secondary objectives are to determine if ®12 week usage of a ProBiora3 product by the targeted subject population can: (i) significantly decreasethe levels periodontal pathogens when compared to their baseline values, (ii) significantly decrease thelevels S. mutans and periodontal pathogens in the treatment group when compared to the control groupat Week 12, and (iii) significantly change breath odor and teeth whiteness. To accomplish this, PCRanalyses are being conducted to quantify the presence of S. mutans in saliva along with seven otherperiodontal pathogens (i.e., Porphyromonas gingivalis, Tannerella forsythia, Aggregatibacteractinomycetemcomitans, Prevotella intermedia, Campylobacter rectus, Fusobacterium nucleatum, andEikenella corrodens). Secondary endpoints are breath odor and teeth whiteness. These measurementsare being made objectively with a halimeter and VITA Toothguide 3D-Master, respectively.The results should provide ample support for new regulatory submissions and for marketing support. Webelieve they will also be used to secure more distributors for the Evora product line and contracts withmanufacturers of probiotic foods and pet-care products based on ProBiora3. But because the timing andterms of such licensing agreements are uncertain, we have restricted our financial model to Oragenicsexisting business agreements.60 Iniesta, M, et al. Probiotic effects of orally administered Lactobacillus reuteri-containing tablets on the subgingival and salivarymicrobiota in patients with gingivitis. A randomized clinical trial. J Clin Periodontol 2012; 39(8): 736.61 Snel, J, et al. Competitive selection of lactic acid bacteria that persist in the human oral cavity. Appl Environ Microbiol 2011;77(23): 8445.GRIFFIN SECURITIES EQUITIES RESEARCH 20
    • Oragenics, Inc. November 27, 2012SMART TECHNOLOGYOragenics has extended its work in the field of probiotics to combine the attributes of a beneficialbacterium with the power of a lantibiotic. The goal is to use a non-cariogenic strain of bacteria as areplacement therapy for bacteria that normally cause dental decay. The Company has crafted a strain ofStreptococcus mutans that lacks lactate dehydrogenase, which generates lactic acid, the primary causeof tooth decay. The strain also has another favorable attribute – it releases the lantibiotic MU1140 tofacilitate and maintain its colonization of human mouth.Preclinical research has suggested that the strain can be used for the purpose it was created, as a 62replacement therapy. The strain colonized the mouths of rats and was eliminated when the microbialload was reduced with chlorhexidine treatment. This research provided the safety data needed toundertake a clinical trial of the strain.Oragenics initiated a Phase 1 clinical study of a D-alanine dependent version of the bacteria in 2011 withan expected enrollment of ten healthy male subjects. (This dependence was specifically selected for usein the clinical trial to provide a simple, yet effective means of eliminating the bacteria.) The trial involves atwo-week institutionalized period of therapy followed immediately by a four-week follow-up period in whichthe subjects and their partners are monitored. D-alanine is provided in a daily mouthwash to sustain thebacteria. Six months after the treatment has ended, the subjects will have a final evaluation. The trial isongoing.Favorable results (e.g., safety for the subjects and lack of transmission to the partner) should support thenext step, which will likely involve a safety trial of the unattenuated strain, designated as BCS3-L1. Thisstepwise assessment of the bacteria is necessary, as Oragenics is breaking new regulatory ground in itsdevelopment of its replacement therapy. Given uncertainties related to the regulatory path, we have notincluded this technology in our financial analysis.A NATURAL APPROACH TO WEIGHT LOSSDuring Oragenics research with its SMaRT Technology, the Company discovered that administration of acompound (referred to as LPT3-04), caused animals to lose weight. As shown in Figure 10, abdominal fat 63could be eliminated in a dose-dependent manner by LPT3-04. Figure 10. Effect of LPT3-04 diets on abdominal fat in female rats. Groups of three rats each were placed on diets supplemented with various amounts of the compound (0% – 20%) for 30 days and then euthanized so that their abdominal fat could be weighed. Source: Hillman, JD, et al.63 Control 5% 10% 15% 20%The Company has investigated this phenomenon further in a proof-of-concept clinical trial and found thata diet high in LPT3-04 reduced the weight of the human subjects. Efforts are now ongoing to outlicensethis product to a pharmaceutical company for further development and marketing. Since the timing of thisagreement is unknown, we have not included the weight-loss product in our financial analysis.62 Hillman, JD, et al. Modification of an effector strain for replacement therapy of dental caries to enable clinical safety trials. J ApplMicrobiol 2007; 102(5): 1209.63 Hillman, JD, et al. Methods of treating lipomas and liposarcomas. US Patent Appl # US2012/0122984 A1.GRIFFIN SECURITIES EQUITIES RESEARCH 21
    • Oragenics, Inc. November 27, 2012INVESTMENT CONSIDERATIONSFor a complete description of risks and uncertainties related to Oragenics business, see the “RiskFactors” section in Oragenics’s SEC filings, which can be accessed directly from the SEC Edgarfilings at www.sec.gov. Potential risks include: Stock risk and market risk: Trading of the Company’s common stock varies widely on a daily basis. There can be no assurance that an active and liquid trading market will be sustained, which could limit one’s ability to buy or sell the Company’s common stock at a desired price. Investors should also consider technical risks common to many small-cap or micro-cap stock investments, such as float, risk of dilution, dependence upon key personnel, and the strength of competitors that may be larger and better capitalized. Competitive risk: The oral health and antibiotics markets are highly competitive, based on individual product characteristics, pricing, and marketing support. Other companies are actively engaged in the development/commercialization of products to directly or indirectly address the uses being pursued by Oragenics. These companies may have substantially greater research and development capabilities, as well as significantly greater marketing, financial, and human resources than Oragenics. Products still in development phases: Incorporation of ProBiora3 into new products will depend to some extent on licensing and/or supply agreements that have yet to be signed, and the lantibiotic therapy is still at a preclinical stage. Such products may appear to be promising, but may not reach commercialization for various reasons, including failure to achieve regulatory approvals, safety concerns, and/or the inability to be manufactured at a reasonable cost. And even if the products are commercialized, there can be no assurance that they will be accepted, which may prevent the Company from becoming profitable. Dependence on third parties: Oragenics relies on a contract manufacturer for the supply of ProBiora3 and on distributors for the sales of ProBiora3 products. In addition, the Company is dependent on the expertise of Intrexon for the development of a method for producing MU1140. If any of these collaborations should end, the Company’s business prospects may be materially adversely affected. Funding requirements: It is difficult to predict Oragenics’s future capital requirements. The Company may need additional financing to continue to fund operations and expand its business. There is no guarantee that it can secure the desired future capital or, if sufficient capital is secured, that current shareholders will not suffer significant dilution. Regulatory risk: There is no guarantee that the Company’s products under development will be approved by the Food and Drug Administration (FDA) or international regulatory bodies for marketing in the U.S. or abroad. In addition, regulations pertaining to probiotics and drug development may undergo further changes, which may affect the Company’s ability to gain regulatory approvals and/or labeling that supports its marketing strategies. Patent risk: The field of pharmaceuticals and probiotics are very competitive, and although Oragenics has received and/or filed for numerous patents to secure its right to commercialize its technology, these patents may not protect the Company’s rights adequately in the marketplace. Business concentration risk: Because of its distribution and licensing agreements, Oragenics is dependent upon independent agents for sales of its Evora products and private-label products that incorporate ProBiora3. The loss of important customers might have a significant effect on the Company’s financial performance.GRIFFIN SECURITIES EQUITIES RESEARCH 22
    • Oragenics, Inc. November 27, 2012FINANCIAL FORECASTS & VALUATIONOur financial projections reflect the three aspects of Oragenics’s business, the oral care lines (i.e.,EvoraPro, EvoraPlus and EvoraKids), the pet care EvoraPets product, and MU1140. The estimates arelimited to the period of 2012 through 2014, since it is during this time frame that significant changes arelikely to occur in the Company’s business, notably development of a production method for MU1140 thatmay be applied to other lantibiotics, a licensing deal for MU1140, and consummation of additionaldistribution agreements for the probiotics lines. However, we have not included in our analysis the “wildcards” in the Company’s R&D pipeline, which are the weight-loss compound LPT3-04 and the SMaRTReplacement Therapy. Even though these products have considerable commercial potential, they are notincluded because of uncertainty over the timing of their development.REVENUE ESTIMATESThe following assumptions form the basis of our revenue projections:Evora products for human oral health  2012 revenue from these products is expected to exceed $1 million.  2013 and subsequent years benefit from clinical data demonstrating the effectiveness of the probiotic treatment for dental use and expanded marketing support via the Company’s direct sales force, additional distribution agreements, and regulatory approval in more countries.  The aforementioned developments support average annual revenue growth of approximately 50% through 2018.ProBiora3 for pets  2012 revenue from EvoraPet approximates $200,000.  Subsequent years benefit from support of more distributors in the United States and abroad that results in average annual revenue growth of 45%-50% through 2018.MU1140  The collaboration between Oragenics and Intrexon develops a method for producing lantibiotics in the spring of 2013.  An IND is filed in 2014 and a Phase 1 clinical trial is completed that year.  Oragenics follows the path laid by Rib-X in outlicensing MU1140 to a multinational pharmaceutical company in 2014 in exchange for an upfront fee of $8 million and milestones of $5 million and $20 million upon completion of the clinical development program and submission of the NDA, respectively, plus a royalty of 10% of sales. We have further assumed that the milestones are each recognized over a period of 5 years. Note that the Company will share 20% of revenues from this partnering agreement with the University of Florida Research Foundation in accordance with a licensing contract for MU1140 patents.  MU1140 is launched in 2018 in more developed countries as defined by the United Nations with marketing support of Oragenics in the United States and the multinational drug company elsewhere.These assumptions lead to the following revenue projections: 2012 2013 2014 Oral Care $ 1,150 $ 3,485 $ 5,499 Pet Care 250 515 1,003 MU1140 - - 1,600 Total $ 1,400 $ 4,000 $ 8,102GRIFFIN SECURITIES EQUITIES RESEARCH 23
    • Oragenics, Inc. November 27, 2012ANNUAL InCOME STATEMENTS# (FISCAL YEAR ENDS DECEMBER 31ST)# All figures are in thousands, except for per share data. Estimates are in italics. 2011 2012 2013 2014 Total Revenues $ 1,444 $ 1,400 $ 4,000 $ 8,102 Cost of products sold 714 675 2,030 3,216 Gross Profit $ 730 $ 725 $ 1,970 $ 4,886 Operating expenses R&D expense $ 2,449 $ 1,950 $ 2,425 $ 3,000 SG&A 5,628 5,250 5,100 5,100 Total operating costs 8,077 7,200 7,525 8,100 Operating profit/(loss) $ (7,347) $ (6,475) $ (5,555) $ (3,214) Interest income - 10 - - Interest expense (332) (654) - - Other - (9) - - Pretax profit/(loss) $ (7,679) $ (7,128) $ (5,555) $ (3,214) Income taxes - - - - Net profit/(loss) $ (7,679) $ (7,128) $ (5,555) $ (3,214) Earnings (loss) per share $ (1.34) $ (0.40) $ (0.20) $ (0.11) Shares outstanding 5,717 17,756 27,550 29,000Assumptions: The gross profit margin rises at a moderate pace from 55% in 2012 on higher prices on probiotic products and a 2014 milestone payment (amortized over five years) related to the lantibiotic development program. R&D expenses approach $2 million this year and rise gradually through in 2017. In the near term, Oragenics will pay Intrexon to develop the MU1140 production system. In 2013 and 2014, R&D costs will include preclinical testing and a fairly short Phase 1 clinical trial of the lantibiotic for combating an acute, life-threatening infection. Thereafter, we’ve assumed that most of the clinical development of MU1140 is paid by Oragenics’s marketing partner. SG&A costs approximate $5.2 million this year and $5.1 million in 2013, with marketing expenses accounting for a sizable proportion. Subsequently, SG&A costs rise gradually to support the Evora product line and prepare for MU1140’s commercial debut. We have made no estimates for non-operating items. Investors should note that Oragenics should be able to minimize its cash payments for any tax liabilities incurred with net operating loss carryforwards of $36.5 million and tax credits of $551,000 as of December 31, 2011. We use average basic shares outstanding to calculate per-share losses and fully diluted shares in years in which operations are profitable. The number of shares outstanding in 2012 increased as a result of recent equity financings and should rise subsequently as warrants and stock options are exercised.GRIFFIN SECURITIES EQUITIES RESEARCH 24
    • QUARTERLY INCOME STATEMENTS Oragenics, Inc. st Fiscal year ends December 31 . All figures are in thousands, except for per-share data. Estimates are presented in italics in the blue section. 2011 2012 2013 QUARTERLY INCOME STATEMENTSGRIFFIN SECURITIES EQUITIES RESEARCH Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total Revenues $ 350 $ 347 $ 350 $ 397 $ 380 $ 256 $ 264 $ 500 $ 600 $ 750 $ 1,250 $ 1,400 Cost of products sold 95 329 134 156 198 112 164 201 300 380 625 725 Gross Profit $ 255 $ 18 $ 216 $ 241 $ 182 $ 144 $ 100 $ 299 $ 300 $ 370 $ 625 $ 675 Operating expenses R&D expense $ 413 $ 631 $ 563 $ 842 $ 353 $ 379 $ 600 $ 618 $ 625 $ 600 $ 600 $ 600 SG&A 1,357 1,691 1,364 1,216 1,308 835 1,597 1,510 1,500 1,100 1,300 1,200 Total operating costs 1,770 2,322 1,927 2,058 1,661 1,214 2,197 2,128 2,125 1,700 1,900 1,800 Operating profit/(loss) $ (1,515) $ (2,304) $ (1,711) $ (1,817) $ (1,479) $ (1,070) $ (2,097) $ (1,829) $ (1,825) $ (1,330) $ (1,275) $ (1,125) Interest income - - - - - 1 5 4 - - - - Interest expense (44) (68) (97) (123) (138) (60) (456) - - - - - Other - (1) 1 - - (1) (8) - - - - - Pretax profit/(loss) $ (1,559) $ (2,373) $ (1,807) $ (1,940) $ (1,617) $ (1,130) $ (2,556) $ (1,825) $ (1,825) $ (1,330) $ (1,275) $ (1,125) Income taxes - - - - - - - - - - - Net profit/(loss) $ (1,559) $ (2,373) $ (1,807) $ (1,940) $ (1,617) $ (1,130) $ (2,556) $ (1,825) $ (1,825) $ (1,330) $ (1,275) $ (1,125) Earnings/(loss) per share $ (0.28) $ (0.42) $ (0.32) $ (0.33) $ (0.25) $ (0.08) $ (0.11) $ (0.07) $ (0.07) $ (0.05) $ (0.05) $ (0.04) Shares outstanding 5,668 5,683 5,683 5,834 6,449 13,382 23,793 27,400 27400 27500 27500 27800 November 27, 201225
    • Oragenics, Inc. November 27, 2012BALANCE SHEET# (FISCAL YEAR ENDS DECEMBER 31ST)# All data are in thousands.ASSETS 9/30/2012 12/31/2011Current Assets Cash & equivalents $ 11,903 $ 436 Accounts Receivable 72 93 Inventory 280 476 Other 236 113 Total Current Assets $ 12,491 $ 1,118 Property & equipment $ 93 $ 149 Total Assets $ 12,584 $ 1,267LIABILITIESCurrent Liabilities Accounts payable $ 1,399 $ 1,740 Debt due 88 53 Deferred revenue 266 153 Note payable to shareholder - 7,500 Total Current Liabilities $ 1,753 $ 9,446Shareholders Equity Common Stock, par value $ 27 $ 6 Additional Paid-In Capital 62,901 32,811 Accumulated Deficit (52,097) (40,996) Treasury Stock Total Shareholders Equity $ 10,831 $ (8,179) Total liabilities & equity $ 12,584 $ 1,267GRIFFIN SECURITIES EQUITIES RESEARCH 26
    • Oragenics, Inc. November 27, 2012VALUATION ANALYSISOur valuation analysis was conducted by treating the probiotics business and the lantibiotic projectseparately and then combining the results to arrive at a value for the Company at three time points.Probiotics Contribution: We based our assessment of Oragenics probiotics business on a comparativeanalysis that considered the valuations of other companies in this industry segment and their sales, asshown in Table 4. Specifically, we calculated the market capitalization-to-sales (sales achieved in the last12 months) ratio for each company to obtain an average ratio. We then applied that ratio, 3.19, to oursales estimates for Oragenics for 2012, 2013, and 2014 to arrive at the probiotics contribution to theCompany’s total valuation at those time points. 64 Table 4. Comparator Analysis of Oragenics Business Units Exchange & Company MC/LTM Revenue Ticker AB-Biotics SA CATS: ABB 2.73 BioGaia AB OM: BIOG B 4.52 Biosearch SA CATS: BIO 1.35 Probi AB OM: PROB 4.17 Average Probiotics Sales Multiplier: 3.19This approach had the following limitations: All of the companies, except BioGaia, sell probiotics affectinggastrointestinal performance, rather than improving oral health, and that segment of the market is alreadyfairly mature. Accordingly, the valuations ascribed to those corporations are probably lower than whatmight be expected for an emerging market. Also, a portion of the sales of these companies come fromproducts that are not probiotics. The related impact on the market cap-to-sales ratio is not readilyapparent. Finally, the stocks of these companies are listed on foreign exchanges, where valuations maynot transfer equally to U.S.-listed equities, such as Oragenics shares.Lantibiotics Contribution: Oragenics has notable valuation inflection points on the horizon. We believethe single most important event will be success in developing a production system for MU1140. Thatwould not only move the drug into the lead as the most advanced lantibiotic in development, but it wouldalso position the Company with its collaborator Intrexon to serve as the supplier of these novelcompounds to the industry. (Note that more than 50 lantibiotics have been identified, but they constituteonly a portion of the bacteriocin group of known, natural antibiotics.) The magnitude of the added valuewill ultimately depend on the timing and terms of licensing agreements. However, a deal completed lastyear between another antibiotic company, Rib-X, and Sanofi provides a reasonable basis for an estimate.Their agreement gave Sanofi rights to up to four compounds in exchange for milestones of $744 million,or $186 million apiece. At the time, the most advanced drug was still at a preclinical stage ofdevelopment.To properly address the lantibiotic project’s potential contribution to Oragenics’s valuation, we assumedthat MU1140 would complete preclinical development in 2014 and would therefore be at approximatelythe same stage of development as Rib-X’s antibiotics with a value of $186 million apiece. We discountedthat value back one year at a rate of 30%, thus valuing the antibiotic at $143 million in 2013. We believethat discount rate is appropriate once production of MU1140 is established, given the compound’s knownproperties. The result of that analysis, $143 million, is the contribution we estimate MU1140 should maketo Oragenics market cap in 2013. To assess its contribution to the Company’s current valuation, wediscounted the $143 million back one additional year at a discount rate of 45% and arrived at $99 million.The much higher discount rate between 2013 and 2012 is considered appropriate because we believecreating the production system for lantibiotics is the major hurdle toward commercialization of MU1140and entering into licensing agreements with the industry.64 Prices and sales were obtained from CapitalIQ on November 26, 2012.GRIFFIN SECURITIES EQUITIES RESEARCH 27
    • Oragenics, Inc. November 27, 2012 Figure 11. Estimated Market Capitalization of Oragenics 250.0 Market Capitalizaton, $ million 200.0 150.0 100.0 50.0 0.0 2012 2013 2014Today’s Market Capitalization: We believe that Oragenics current market capitalization does notadequately reflect the value of its probiotics business and the potential of its lantibiotic program. Asshown in Figure 11, our analysis values the Company at $103 million, or $3.36 per share, based on thenumber of fully diluted shares outstanding. This is 86% above its current share price of $1.80 per share.Of the calculated valuation, 96% is contributed by MU1140 and 4% from the probiotics business, partlybecause much of this year’s efforts have been dedicated to preparing for an expansion of probiotics salesthrough R&D and partnering work, rather than promotion of the Evora product line.12-Month Price Target: Our valuation analysis yields a market capitalization of $156 million, or $5.09 perfully diluted share outstanding. The probiotics business is estimated to contribute $13 million to thecorporate value, while MU1140 contributes $143 million. Based on this analysis, we have set our 12-month price target at $5.00.GRIFFIN SECURITIES EQUITIES RESEARCH 28
    • Oragenics, Inc. November 27, 2012DISCLOSURESANALYST(s) CERTIFICATION: The analyst(s) responsible for covering the securities in this report certifythat the views expressed in this research report accurately reflect their personal views about Oragenics,Inc. (the “Company”) and its securities. The analyst(s) responsible for covering the securities in this reportcertify that no part of their compensation was, is, or will be directly or indirectly related to the specificrecommendation or view contained in this research report.MEANINGS OF RATINGS: Our rating system is based upon 12 to 36 month price targets. BUY describesstocks that we expect to appreciate by more than 20%. HOLD/NEUTRAL describes stocks that weexpect to change plus or minus 20%. SELL describes stocks that we expect to decline by more than20%. SC describes stocks that Griffin Securities has Suspended Coverage of this Company and pricetarget, if any, for this stock, because it does not currently have a sufficient basis for determining a ratingor target and/or Griffin Securities is redirecting its research resources. The previous investment rating andprice target, if any, are no longer in effect for this stock and should not be relied upon. NR describesstocks that are Not Rated, indicating that Griffin Securities does not cover or rate this Company.DISTRIBUTION OF RATINGS: Currently Griffin Securities has assigned BUY ratings on 88% ofcompanies it covers, HOLD/NEUTRAL ratings on 12%, and SELL ratings on 0%. Griffin Securities hasprovided investment banking services for 10% of companies in which it has had BUY ratings in the past12 months and 0% for companies in which it has had HOLD/NEUTRAL, NR, or no coverage in the past12 months or has suspended coverage (SC) in the past 12 months.COMPENSATION OR SECURITIES OWNERSHIP: The analyst(s) responsible for covering the securitiesin this report receive compensation based upon, among other factors, the overall profitability of GriffinSecurities, including profits derived from investment banking revenue. The analyst(s) that prepared theresearch report did not receive any compensation from the Company or any other companies mentionedin this report in connection with the preparation of this report. The analyst responsible for covering thesecurities in this report currently does not own common stock in the Company, but in the future may fromtime to time engage in transactions with respect to the Company or other companies mentioned in thereport. Griffin Securities from time to time in the future may request expenses to be paid for copying,printing, mailing and distribution of the report by the Company and other companies mentioned in thisreport. Griffin Securities has received compensation from the Company in the past 12 months forinvestment banking services. Griffin Securities expects to receive, or intends to seek, compensation forinvestment banking and non-investment banking services from the Company in the next three months.FORWARD-LOOKING STATEMENTS: This Report contains forward-looking statements, which involverisks and uncertainties. Actual results may differ significantly from such forward-looking statements.Factors that might cause such a difference include, but are not limited to, those discussed in the “RiskFactors” section in the SEC filings available in electronic format through SEC Edgar filings atwww.SEC.gov on the Internet.OTHER COMPANIES MENTIONED IN THIS REPORT:Henry Schein, Inc. (NasdaqGS: HSIC)Patterson Companies, Inc. (NasdaqGS: PDCO)GRIFFIN SECURITIES EQUITIES RESEARCH 29
    • Oragenics, Inc. November 27, 2012PRICE CHART – 2 Year BUY Source: BigCharts.com11/27/2012 – Initiating Coverage: share price, $1.80; rating, BUY; 12-month price target, $5.00.GENERAL: Griffin Securities, Inc. (“Griffin Securities”) a FINRA (formerly known as the NASD) memberfirm with its principal office in New York, New York, USA is an investment banking firm providingcorporate finance, merger and acquisitions, brokerage, and investment opportunities for institutional,corporate, and private clients. The analyst(s) are employed by Griffin Securities. Our researchprofessionals provide important input into our investment banking and other business selectionprocesses. Our salespeople, traders, and other professionals may provide oral or written marketcommentary or trading strategies to our clients that reflect opinions that are contrary to the opinionsexpressed herein, and our proprietary trading and investing businesses may make investment decisionsthat are inconsistent with the recommendations expressed herein.Griffin Securities may from time to time perform corporate finance or other services for some companiesdescribed herein and may occasionally possess material, nonpublic information regarding suchcompanies. This information is not used in preparation of the opinions and estimates herein. While theinformation contained in this report and the opinions contained herein are based on sources believed tobe reliable, Griffin Securities has not independently verified the facts, assumptions and estimatescontained in this report. Accordingly, no representation or warranty, express or implied, is made as to,and no reliance should be placed on, the fairness, accuracy, completeness or correctness of theinformation and opinions contained in this report.The information contained herein is not a complete analysis of every material fact in respect to anycompany, industry or security. This material should not be construed as an offer to sell or the solicitationof an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Weare not soliciting any action based on this material. It is for the general information of clients of GriffinSecurities. It does not take into account the particular investment objectives, financial situations, or needsof individual clients. Before acting on any advice or recommendation in this material, clients shouldconsider whether it is suitable for their particular circumstances and, if necessary, seek professionaladvice. Certain transactions - including those involving futures, options, and other derivatives as well asnon-investment-grade securities - give rise to substantial risk and are not suitable for all investors. Thematerial is based on information that we consider reliable, but we do not represent that it is accurate orcomplete, and it should not be relied on as such. The information contained in this report is subject tochange without notice and Griffin Securities assumes no responsibility to update the report. In addition,regulatory, compliance, or other reasons may prevent us from providing updates.GRIFFIN SECURITIES EQUITIES RESEARCH 30