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SENESCO TECHNOLOGIES INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

May 9, 2014

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q. The discussion and analysis may contain forward-looking statements that are based upon current expectations and entail various risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this report. Overview Our Business

The primary business of Senesco Technologies, Inc., a Delaware corporation incorporated in 1999, and its wholly-owned subsidiary, Senesco, Inc., a New Jersey corporation incorporated in 1998, collectively referred to as "Senesco," "we," "us" or "our," is to utilize our patented and patent-pending technology related to certain genes, primarily eukaryotic translation initiation Factor 5A, or Factor 5A, and deoxyhypusine synthase, or DHS, and related technologies for human therapeutic applications to develop novel approaches to treat cancer

and inflammatory diseases.

For agricultural applications, we have licensed applications of the Factor 5A, DHS and Lipase platforms to enhance the quality, productivity and stress resistance of fruits, flowers, vegetables, agronomic and biofuel feedstock crops through the control of cell death, referred to herein as senescence, and growth in plants.



Human Therapeutic Applications

We believe that our Factor 5A gene regulatory technology could have broad applicability in the human therapeutic field, by either inducing or inhibiting programmed cell death, also known as apoptosis, which is the natural process the human body goes through in order to eliminate redundant or defective cells. Inducing apoptosis is useful in treating cancer where the defective cancer cells have failed to respond to the body's natural apoptotic signals. Conversely, inhibiting apoptosis may be useful in preventing, ameliorating or treating an exaggerated, acute immune response in a wide range of inflammatory and ischemic diseases attributable to or aggravated by premature apoptosis. SNS01-T for Multiple Myeloma

We have developed a therapeutic candidate, SNS01-T, an improved formulation of SNS01, for the potential treatment of multiple myeloma and non-Hodgkin B-cell lymphomas. SNS01-T utilizes our Factor 5A technology and comprises two active components: a DNA plasmid, or pDNA, expressing human eIF5A containing a lysine to arginine substitution at amino acid position 50, or eIF5AK50R, and a small inhibitory RNA, or siRNA. These two components are combined in a fixed ratio with a polymer, polyethyleneimine, or PEI, which enables self-assembly of the DNA and RNA into nanoparticles with demonstrated enhanced delivery to tissues and protection from degradation in the blood stream. Under the control of a malignant B cell selective promoter, SNS01-T's DNA plasmid up-regulates the apoptotic pathways within B cells by preferentially expressing the stable arginine form of the Factor 5A death message in target cells. The siRNA, by down-regulating the eIF5A gene, reduces accumulation of the hypusine form of Factor 5A that supports cell survival and proliferation. The down-regulation of the eIF5A gene by an eIF5A siRNA also down-regulates anti-apoptotic proteins, such as NF-kB, ICAM and pro-inflammatory cytokines, which protect malignant cells from apoptosis and promote cell growth in multiple myeloma. The PEI, a cationic polymer, promotes auto-assembly of a nanoparticle with the other two components for intravenous delivery and protects the combination from degradation in the bloodstream until it is taken up by the tumor cell, where the siRNA and DNA plasmid are released. 13

We have performed efficacy, toxicological and dose-finding studies in vitro in non-human and human cells and in vivo in mice with SNS01. We have also completed our pivotal GLP toxicology studies in mice and dogs, employing SNS01-T, an improved formulation of SNS01, and have an open investigational new drug application, or IND, with the United States Food and Drug Administration, or FDA.

We have also been granted orphan drug status for SNS01-T by the FDA for the potential treatment of multiple myeloma, mantle cell lymphoma (MCL) and diffuse large B-cell lymphoma (DLBCL). We are the sponsor of the Phase 1b/2a clinical study that is evaluating our drug, SNS01-T, in patients suffering from multiple myeloma and non-Hodgkins B-cell lymphomas. The clinical study is an open-label, multiple-dose, dose-escalation study, which is evaluating the safety and tolerability of SNS01-T when administered by intravenous infusion to relapsed or refractory patients. The study design calls for four cohorts of three to six patients each. Patients in each cohort will receive twice-weekly dosing for six weeks followed by up to a four-week safety data review period before escalating to a higher dose level in the next cohort. While the primary objective of this study is to evaluate safety and tolerability, the effect of SNS01-T on tumor response and time to relapse or progression will be assessed using multiple well-established metrics including measurement of monoclonal protein in multiple myeloma and CT imaging in MCL

and B-cell lymplomas.

We have selected Mayo Clinic, University of Arkansas for Medical Sciences, the Randolph Cancer Center at West Virginia University, the Fred Hutchinson Cancer Research Center, and the John Theurer Cancer Center at Hackensack University Medical Center as our clinical sites in the United States and Pretoria East Hospital and Groote Schuur Hospital in Cape Town as our clinical sites in South Africa. We are also considering adding additional sites to increase the rate of enrollment.



The study is open and we have completed our first, second and the third cohorts and cohort four is open for enrollment and patients are being treated with SNS01-T.

The results of cohort three showed that four heavily pre-treated, relapsed or refractory patients, two with diffuse large B-cell lymphoma (DLBCL) and two with multiple myeloma, at a dosage of 0.2 mg/Kg, completed treatment. Three of the four patients were evaluable for safety. One patient had a dose reduction to 0.05 mg/kg due to pre-existing thrombocytopenia and was not evaluable for safety. No dose-limiting toxicities have been observed in any of the first three cohorts. In addition to the absence of dose-limiting toxicity, since all patients in cohort 3 completed the full protocol-specified 6-week treatment period, we appear to be seeing longer treatment durations and fewer dropouts compared to cohorts one and two. The most frequent adverse events were manageable infusion reactions, which may decrease with repeated treatments and platelet count decreases, which may recover over time. One myeloma patient had reductions in disease-related proteins in his blood and a second patient with DLBCL had evidence of tumor shrinkage in some lesions. Like the previous treatment group, all four patients included at this dose level were refractory to, or had relapsed on, a significant number of previous treatments. Upon treatment with SNS01-T, three of the four patients exhibited stable disease at week 3 and two of the four were stable at week 6, the end of treatment. 14 The results of the first and second cohorts showed that SNS01-T was safe and relatively well tolerated and had met the criteria for Stable Disease in 2 of the 6 evaluable patients.



SNS01-T used in combination with other drugs

We have demonstrated that the combination of lenalidomide and SNS01-T performs better than either treatment alone in mouse xenograft models of human mantle cell lymphoma. When SCID mice, implanted with an aggressive human mantle cell lymphoma cell line (JVM2), were treated with either 15 mg/kg lenalidomide (5 times weekly by intra-peritoneal injection) or 0.375 mg/kg SNS01-T (twice weekly by intravenous injection) there was a growth delay of 4 days and 14 days, respectively. Mice treated with a combination of both drugs using the same dose levels and dosing regimens exhibited a tumor growth delay of 27 days (p value = 0.0008).

The median survival of mice treated with control nanoparticles was 21 days. Mice treated with lenalidomide or SNS01-T had a median survival of 28 days (33% increase) and 37 days (76% increase), respectively. Mice treated with the drug combination had a median survival of 52 days, an increase in survival of 148%. Survival analysis using the Kaplan-Meier method revealed that treatment of mice with the drug combination resulted in statistically significant increases in survival compared to both SNS01-T (p value = 0.002) and lenalidomide (p value = 0.007) alone. We believe that the results of these studies not only supported moving forward in multiple myeloma, but also supported extending our clinical evaluation of SNS01-T in other B-cell cancers. We may consider other human diseases in order to determine the role of Factor 5A and the potential of SNS01-T. We may further expand our research and development program beyond the initiatives listed above to include other diseases and research centers. Agricultural Applications



Our agricultural research focuses on the discovery and development of certain gene technologies, which are designed to confer positive traits on fruits, flowers, vegetables, forestry species and agronomic crops.

We have licensed this technology to various strategic partners. We may continue to license this technology, as opportunities present themselves, to additional strategic partners and/or enter into joint collaborations or ventures.



Our ongoing research and development initiatives for agriculture include assisting our license partners to:

further develop and implement the DHS and Factor 5A gene technology in banana,

canola, cotton, turfgrass, rice, alfalfa, corn, soybean and trees; and



test the resultant crops for new beneficial traits such as increased yield,

increased tolerance to environmental stress, disease resistance and more efficient use of fertilizer. 15



Agricultural Development and License Agreements

As of March 31, 2014, we had six (6) active license agreements with established agricultural biotechnology companies.

Intellectual Property We have thirty (30) issued patents from the United States Patent and Trademark Office, or PTO, and seventy-four (74) issued patents from foreign countries. Of our one hundred and four (104) domestic and foreign issued patents, sixty-four (64) are for the use of our technology in agricultural applications and forty (40) relate to human therapeutics applications. In addition to our one hundred and four (104) patents, we have a wide variety of patent applications, including divisional applications and continuations-in-part, in process with the PTO and internationally. We intend to continue our strategy of enhancing these new patent applications through the addition of data as it is collected. The first of our agricultural patents are set to expire in 2019 in the United States and 2025 outside the United States. The first of our core human therapeutic technology patents are set to expire in 2021 in the United States and 2025 outside the United States, and our patents related to multiple myeloma are set to expire, both in and outside the United States in 2029. During the nine months ended March 31, 2014 and the 2013, 2012 and 2011 fiscal years, we reviewed our patent portfolio in order to determine if we could reduce our cost of patent prosecution and maintenance. We identified several patents and patents pending that we believe we no longer need to maintain without having a material impact on the portfolio. We determined that we would no longer incur the cost to prosecute or maintain those patents or patents pending. 16



Liquidity and Capital Resources

Overview For the nine months ended March 31, 2014, net cash of $3,649,873 was used in operating activities primarily due to a net loss of $5,550,725 which was reduced by non-cash expenses of $1,160,042. Cash used in operating activities was increased by changes in operating assets and liabilities in the amount of $740,810. The $740,810 change in operating assets and liabilities was the result of a decrease in prepaid research supplies and expenses in the amount of $719,349 and an increase in accounts payable and accrued expenses in the amount of $21,461 due to the timing of expenses and payments.



During the nine months ended March 31, 2014, cash used for investing activities amounted to $409,637, which was related to patent costs incurred.

Cash provided by financing activities during the nine months ended March 31, 2014 amounted to $8,655,243 which is composed of $10,842,325 as a result of the issuance of common stock and warrants and the exercise of certain warrants offset by the repayment and cancellation of the line of credit in the amount of $2,187,082.



As of March 31, 2014, our cash balance totaled $6,198,027, and we had working capital of $6,642,577.

We expect our capital requirements to increase significantly over the next several years as we commence new research and development efforts, increase our business and administrative infrastructure and embark on developing in-house business capabilities and facilities. Our future liquidity and capital funding requirements will depend on numerous factors, including, but not limited to, the levels and costs of our research and development initiatives and the cost and timing of the expansion of our business development and administrative staff. We anticipate that, based upon our cash balance at March 31, 2014, we will be able to fund our operations through at least March 31, 2015. Over such period, we plan to fund our research and development and commercialization activities by:



utilizing our current cash balance and investments;

the exercise of outstanding warrants;

the placement of additional equity or debt instruments; and

the possible execution of additional licensing agreements for our technology.

We cannot assure you that we will be able to raise money through any of the foregoing transactions on favorable terms, if at all.

Changes to Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies and estimates as set forth in our Annual Report on Form 10-K for the fiscal year ended June

30, 2013. 17 Results of Operations



Three Months Ended March 31, 2014 andThree Months Ended March 31, 2013

The net loss for the three months ended March 31, 2014 was $2,146,754. The net loss for the three months ended March 31, 2013 was $836,583. Such a change represents an increase in net loss of $1,310,171, or 156.6%. This increase in net loss was primarily the result of an increase in general and administrative expenses and research and development expenses, and a decrease in the gain from a change in the fair value of a warrant liability. Revenue



There was no revenue during the three months ended March 31, 2014 and 2013.

We may receive future milestone payments in connection with our current agricultural development and license agreements. Additionally, we may receive future royalty payments from our license agreements when our partners commercialize their crops containing our technology. However, it is difficult for us to determine our future revenue expectations because our future milestone payments are primarily contingent on our partners successful implementation of their development plan, we have no history of receiving royalties and the timing and outcome of our experiments, the timing of signing new partner agreements and the timing of our partners moving through the development process into commercialization is difficult to accurately predict.



General and Administrative Expenses

Three Months Ended March 31, 2014 2013 Change % (in thousands, except % values) Payroll and benefits $ 158 $ 156 $ 2 1.3 % Investor relations 147 118 29 24.6 % Professional fees 471 (50 ) 521 471.0 %

Depreciation and amortization 86 72 14 19.4 % Other general and administrative 103

79 24 30.4 % 965 375 590 157.3 % Stock-based compensation 289 176 113 64.2 %



Total general and administrative $ 1,254 $ 551$ 703 127.6 %

Investor relations fees were higher primarily as a result of a new investor

relations program started in October 2013.



Professional fees were higher primarily as a result of an increase in legal

fees and consulting costs in connection with the activity related to a potential acquisition.



Depreciation and amortization was higher primarily as a result of an increase

in amortization of patent costs.



Other general and administrative expenses were higher primarily due to an

increase in travel and conferences.

Stock-based compensation was higher primarily due to common stock issued in

connection with certain consulting agreements. 18

We expect cash-based general and administrative expenses to decrease over the next twelve months as we do not expect to continue to incur substantial costs related to the potential acquisition. However, if we close on the acquisition, we expect cash-based general and administrative expenses to increase substantially over the next twelve months.



Research and Development Expenses

Three Months Ended March 31, 2014 2013 Change % (in thousands, except % values) Payroll $ 42 $ 44$ (2 ) (4.6 )% Research contract with the University of Waterloo 63 165 (102 ) (61.8 )% Consultants 126 62 64 103.2 % Other research and development 626 196

430 219.4 % 857 467 390 83.5 % Stock-based compensation 18 26 (8 ) (30.8 )%

Total research and development $ 875$ 493 $

382 77.5 %



The cost associated with the research contract with the University of Waterloo

was lower primarily due to a decrease in amount being funded for agricultural

and human health research. This was partially offset by an increase in the

amount being funded effective March 1, 2014.



Consultants were higher primarily due to the addition of a Vice President of

Clinical Development in May 2013.



Other research and development costs were higher primarily due to an increase

in the costs in connection with the development of SNS01-T for multiple myeloma

due to the addition of new clinical sites.



Stock-based compensation was lower primarily due to a lower Black-Scholes value

of options vesting during the three months ended March 31, 2014. 19



Nine Months Ended March 31, 2014 andNine Months Ended March 31, 2013

The net loss for the nine months ended March 31, 2014 was $5,550,725. The net loss for the nine months ended March 31, 2013 was $4,191,922. Such a change represents an increase in net loss of $1,358,803, or 32.4%. This increase in net loss was primarily the result of an increase in general and administrative expenses, research and development costs and the write-off of patents abandoned, which was partially offset by a decrease in the loss on settlement of warrant liabilities and in the gain on the change in the fair value of warrant liabilities. Revenue



Total revenue in the amount of $100,000 for the nine months ended March 31, 2014 consisted of a milestone payment in connection with an agricultural license agreement.

General and Administrative Expenses

Nine Months Ended March 31, 2014 2013 Change % (in thousands, except % values) Payroll and benefits $ 452 $ 445 $ 7 1.6 % Investor relations 672 175 497 284.0 % Professional fees 702 418 284 67.9 % Depreciation and amortization 239 202 37 18.3 %

Other general and administrative 259 274

(15 ) (5.5 )% 2,324 1,514 810 53.5 % Stock-based compensation 812 479



333 69.5 % Total general and administrative $ 3,136$ 1,993$ 1,143 57.4 %

Investor relations fees were higher primarily as a result of a new investor

relations program started in October 2013, the termination of an investor

relations consulting agreement in September 2013 and a special meeting of

stockholders held in August 2013.

Professional fees were higher primarily as a result of an increase in legal and

consulting fees in connection with the activity related to a potential acquisition.



Depreciation and amortization was higher primarily as a result of an increase

in amortization of patent costs.



Other general and administrative expenses were lower primarily due to a

decrease in travel and conferences.



Stock-based compensation was higher primarily due to common stock issued in

connection with certain consulting agreements. 20



Research and Development Expenses

Nine Months Ended March 31, 2014 2013 Change % (in thousands, except % values) Payroll $ 129 $ 130 $ (1 ) (0.1 )% Research contract with the University of Waterloo 294 470 (176 ) (37.4 )% Consultants 381 180 201 111.7 % Other research and development 1,394 744 650 87.4 % 2,198 1,524 674 44.2 % Stock-based compensation 51 73 (22 ) (30.1 )% Total research and development $ 2,249$ 1,597

$ 652 40.8 %



The cost associated with the research contract with the University of Waterloo

was lower primarily due to a decrease in amount being funded for agricultural

and human health research. This was partially offset by an increase in the

amount being funded effective March 1, 2014.



Consultants were higher primarily due to the addition of a Vice President of

Clinical Development in May 2013.



Other research and development costs were higher primarily due to an increase

in the costs in connection with the development of SNS01-T for multiple myeloma

due to the timing of patient treatment and the addition of new clinical sites.

Stock-based compensation was lower primarily due to a lower Black-Scholes value

of options vesting during the nine months ended March 31, 2014.



Write-off of patents abandoned

During the nine months ended March 31, 2014, we reviewed our patent portfolio in order to determine if we could reduce our cost of patent prosecution and maintenance. We identified several patents that we believe we no longer need to maintain without having a material impact on the portfolio. We determined that we would no longer incur the cost to prosecute or maintain those patents. Therefore, we wrote-off the net book value of those patents and patents pending in the amount of $185,161.



Off Balance-Sheet Arrangements

We do not have any off balance-sheet arrangements.

21


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