CORRECTING and REPLACING NAPO Learns FDA to Continue Review of Crofelemer NDA

NAPO Surprised To Learn Of Salix’s Claim That Crofelemer Is A Complex Mixture

SAN FRANCISCO--(BUSINESS WIRE)--First graph, second sentence of release now includes the Salix Pharmaceuticals, Inc. ticker: SLXP.

“We are proceeding with efforts to submit a New Drug Application (“NDA”

NAPO LEARNS FDA TO CONTINUE REVIEW OF CROFELEMER NDA

NAPO Surprised To Learn Of Salix’s Claim That Crofelemer Is A Complex Mixture

Napo Pharmaceuticals, Inc. (“Napo”) was informed today that the Food and Drug Administration (“FDA”) is continuing its review of the new drug application (“NDA”) seeking approval of crofelemer for the treatment of chronic diarrhea in people living with HIV/AIDS on anti-retroviral therapy. Salix Pharmaceuticals, Inc. (“Salix” -  SLXP) never informed Napo that Salix had filed the NDA for approval of crofelemer as a botanical drug. According to the FDA website, “botanical drug products are complex mixtures with a lack of a distinct active ingredient and substantial prior human use as a complex mixture. Fermentation products and highly purified or chemically modified botanical substances are not considered botanical drug products.” The FDA has never previously approved an orally acting botanical drug.

Crofelemer is a natural product isolated and purified from a tree found in the Amazon Basin, Croton lechleri. In contrast to the FDA definition of a “botanical drug product” – which indicates a “substantial prior human use as a complex mixture” - crofelemer has been developed since 1992 as a highly purified and characterized “new chemical entity” (or “NCE”) under strict development and manufacturing guidelines that included 20 years of FDA-approved human clinical trials. According to the FDA, “some 25% of all NCEs approved by the FDA between 1981 and 2006 were unaltered natural products [like crofelemer] or derived from natural products.” This highly purified chemical entity is substantially different, safer, and more effective than the raw natural sap of Croton lechleri – known locally as dragon’s blood. In substantial and documented communication with the FDA from 1991 through 2011, crofelemer was described and referred to by all parties – including Salix - as a NCE drug, not a botanical drug.

In late 2010, Napo and Salix – with rights licensed from Napo to develop and sell crofelemer - completed a Phase 3 clinical trial (know as the “ADVENT trial”) that exceeded endpoints for efficacy and demonstrated the same safety/tolerance profile as the placebo. Salix stated in November 2010, after announcing top-line results of this study, “We are proceeding with efforts to submit a New Drug Application (“NDA”) based on the results of this trial. We have requested a pre-NDA meeting with the FDA and believe that a meeting could be scheduled by mid-first quarter of 2011. The ADVENT trial was conducted under a ‘fast track’ status and has been part of a ‘special protocol assessment’ (SPA) agreement.”

Following this successful trial, shareholders from both companies – and the 350,000 people living with HIV/AIDS in the US and ~30 million worldwide who would benefit from this drug – no doubt expected a timely filing by Salix with the FDA for approval of this fast-tracked drug. Nearly two years has passed and today’s news means that the wait will continue until at least the end of the first quarter of 2013 – over two years after the successful trials were completed.

Since 2011, Salix has refused to share any information with Napo about its filing with the FDA or their claimed characterization of the product as a botanical, despite contractual obligations and Napo’s ownership of this drug. Given this and other alleged breaches of the contract between Napo and Salix, Napo filed suit in May, 2011 to terminate the contract, which is proceeding in the New York State Supreme Court. During this period Salix - a $3 billion company - has been selling a product, rifaximin, that many analysts believe overlaps with a market indication for crofelemer.

Lisa Conte, Napo CEO, commented, “We are dismayed that Salix would take action that may negate and undermine almost two decades of work on crofelemer as a new chemical entity by proceeding with a regulatory filing as a botanical in light of the strong objections, regulatory precedents, and scientific integrity presented by Napo and Shaman. This recent development only strengthens Napo’s resolve in its litigation with Salix as well as Napo’s effort to serve patients globally who desperately need this drug. We are also ensuring we meet our obligation to Napo’s shareholders.”

Background

In December 2008, Napo licensed crofelemer, referred to as an NCE in development, to Salix in the U.S., Europe and Japan, and for all human anti-diarrheal indications. Salix was also licensed the rights to other gastrointestinal indications, including diarrhea predominant-irritable bowel syndrome, worldwide. At that time there was already more than $200 million invested in the development, manufacture, and characterization of crofelemer.

Napo filed a legal complaint for breach of contract against Salix in May, 2011, in New York State Supreme Court, and has retained Boies, Schiller & Flexner, LLP (“BSF”), to litigate the claims. “Contrary to the promises made in the December 2008 Collaboration Agreement, Salix has failed to communicate with Napo about regulatory correspondence and failed to collaborate on regulatory strategy and product development. Salix's conduct is inexplicable given Napo's experience with, and knowledge of, natural products, and in particular, the documented characterization and manufacture of crofelemer,” said Bill Ohlemeyer, the BSF partner representing Napo.

Two Decades of Science and Development of Crofelemer

The development of crofelemer as a drug is the result of more than two decades of effort on the part of Napo and dozens of other contractors and licensees who have worked to bring this drug to market. Salix became a formal party to that collaboration in December, 2008, yet has not performed as promised.

Napo believes that Salix has failed to adequately prepare for the approval and commercialization of this important drug, and has failed to make the investments necessary to expand its approved use as a drug for other indications or for approval in Europe and Japan.

“The delays in the development, regulatory process, and commercialization of this drug, which was granted ‘fast-track’ review by the FDA, were not reasonable in light of the promises Salix made to Napo and are a breach of the Collaboration Agreement the parties signed in 2008. We are optimistic that these issues can be resolved or litigated to conclusion in the coming year,” continued Bill Ohlemeyer.

There are no approved or effective treatments for chronic diarrhea in this patient population, which afflicts 350,000 people living with HIV/AIDS in the U.S., and 90 percent of the 33 million people living with HIV/AIDS globally. Crofelemer was fast-tracked by the FDA and considered under priority review as a drug because it addresses a serious unmet medical need.

Crofelemer has been in clinical development since 1992 as a NCE drug. It is a first-in-class anti-secretory agent, which normalizes gut activity, benefiting a broad array of gastrointestinal diseases and watery diarrheas. Crofelemer is a highly characterized natural product, isolated from the plant Croton lechleri, sustainably harvested by Napo under fair-trade work conditions in the rainforest areas of the Amazon Basin. It was initially discovered and developed by Shaman Pharmaceuticals, Inc. (“Shaman”), then by Napo, which purchased the drug asset in 2001. Shaman and Napo have conducted approximately 20 clinical trials in populations around the globe demonstrating benefit in both acute and watery diarrheas, ranging from cholera to diarrhea-predominant irritable bowel syndrome. In conjunction with discussions with the FDA referencing crofelemer as a NCE drug, Napo designed and initiated the implementation of the final Phase 3 trial for this indication, referred to as the “ADVENT” trial, the completion of which was announced in November 2010 with a highly significant result for the primary endpoint of reduction of diarrhea in people living with HIV/AIDS. This first regulatory filing is important; as Napo’s licensees for the emerging and developing markets have anticipated this essential NCE drug approval as a reference point to trigger a cascade of approvals globally. Crofelemer also can benefit the lives of hundreds of millions of sufferers of acute watery diarrhea globally, including approximately two million children who die each year in resource-constrained circumstances.

Napo is also developing crofelemer as a new chemical entity drug for veterinary needs around the globe, focusing initially on companion animals — dogs and cats — and high-value uses in race horses and camels.

About Napo

Napo focuses on the development and commercialization of proprietary NCE pharmaceuticals for the global marketplace. The company’s business model merges traditional high-value markets in the West with the higher volume business models of emerging and developing economies. Napo’s discovery process is based on the knowledge of traditional healers, or shamans, working in rainforest areas and provides benefit sharing to the communities with which it works. Visit Napo at www.napopharma.com.