ITEM
1. FINANCIAL STATEMENTS
ADVAXIS,
INC.
CONDENSED
BALANCE SHEETS
|
|
January 31, 2017
|
|
|
October 31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
57,566,606
|
|
|
$
|
112,750,980
|
|
Investments – Held-to-Maturity
|
|
|
79,295,379
|
|
|
|
39,336,548
|
|
Interest Receivable
|
|
|
180,964
|
|
|
|
80,142
|
|
Prepaid Expenses
|
|
|
577,770
|
|
|
|
812,830
|
|
Income Tax Receivable
|
|
|
-
|
|
|
|
2,549,862
|
|
Deferred Expenses - current
|
|
|
4,435,025
|
|
|
|
4,291,385
|
|
Other Current Assets
|
|
|
132,797
|
|
|
|
53,451
|
|
Total Current Assets
|
|
|
142,188,541
|
|
|
|
159,875,198
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment (net of accumulated depreciation)
|
|
|
5,242,857
|
|
|
|
4,389,074
|
|
Intangible Assets (net of accumulated amortization)
|
|
|
4,336,143
|
|
|
|
4,329,121
|
|
Other Assets
|
|
|
426,287
|
|
|
|
450,667
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
152,193,828
|
|
|
$
|
169,044,060
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
3,534,440
|
|
|
$
|
1,720,428
|
|
Accrued Expenses
|
|
|
7,676,443
|
|
|
|
10,905,003
|
|
Deferred Revenue
|
|
|
14,047,906
|
|
|
|
15,020,576
|
|
Lease Incentive Obligation
|
|
|
40,226
|
|
|
|
40,226
|
|
Common Stock Warrant Liability
|
|
|
10,652
|
|
|
|
20,156
|
|
Total Current Liabilities
|
|
|
25,309,667
|
|
|
|
27,706,389
|
|
|
|
|
|
|
|
|
|
|
Deferred Rent
|
|
|
534,160
|
|
|
|
475,749
|
|
Deferred Revenue
|
|
|
18,666,396
|
|
|
|
21,234,568
|
|
Lease Incentive Obligation- net of current portion
|
|
|
315,104
|
|
|
|
325,160
|
|
Total Liabilities
|
|
|
44,825,327
|
|
|
|
49,741,866
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par value; 5,000,000 shares authorized; Series B Preferred Stock; 0 shares issued and outstanding at January 31, 2017 and October 31, 2016. Liquidation preference of $0 at January 31, 2017 and October 31, 2016.
|
|
|
-
|
|
|
|
-
|
|
Common Stock - $0.001 par value; 65,000,000 shares authorized, 40,186,693 shares issued and outstanding at January 31, 2017 and 40,057,067 shares issued and 40,041,047 shares outstanding at October 31, 2016.
|
|
|
40,187
|
|
|
|
40,057
|
|
Additional Paid-In Capital
|
|
|
332,116,142
|
|
|
|
327,098,749
|
|
Treasury Stock, at cost, 0 shares at January 31, 2017 and 16,020 shares October 31, 2016
|
|
|
-
|
|
|
|
(129,787
|
)
|
Accumulated Deficit
|
|
|
(224,787,828
|
)
|
|
|
(207,706,825
|
)
|
Total Shareholders’ Equity
|
|
|
107,368,501
|
|
|
|
119,302,194
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
152,193,828
|
|
|
$
|
169,044,060
|
|
The
accompanying notes are an integral part of these condensed financial statements.
ADVAXIS,
INC.
CONDENSED
STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three Months Ended
January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,790,842
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Research and Development Expenses
|
|
|
13,648,554
|
|
|
|
13,064,954
|
|
General and Administrative Expenses
|
|
|
7,327,809
|
|
|
|
7,136,823
|
|
Total Operating Expenses
|
|
|
20,976,363
|
|
|
|
20,201,777
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(17,185,521
|
)
|
|
|
(19,951,777
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
145,137
|
|
|
|
71,800
|
|
Net Changes in Fair Value of Derivative Liabilities
|
|
|
9,504
|
|
|
|
49,282
|
|
Other Income (Expense), Net
|
|
|
(123
|
)
|
|
|
(4
|
)
|
Loss before benefit for income taxes
|
|
|
(17,031,003
|
)
|
|
|
(19,830,699
|
)
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
|
50,000
|
|
|
|
14,236
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(17,081,003
|
)
|
|
$
|
(19,844,935
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share, Basic and Diluted
|
|
$
|
(0.43
|
)
|
|
$
|
(0.59
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding, Basic and Diluted
|
|
|
40,115,178
|
|
|
|
33,684,715
|
|
The
accompanying notes are an integral part of these condensed financial statements.
ADVAXIS,
INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Three Months Ended
January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,081,003
|
)
|
|
$
|
(19,844,935
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock compensation
|
|
|
5,110,425
|
|
|
|
9,529,008
|
|
(Gain) on change in fair value of derivative liabilities
|
|
|
(9,504
|
)
|
|
|
(49,282
|
)
|
Employee stock purchase plan
|
|
|
67,923
|
|
|
|
9,673
|
|
Depreciation expense
|
|
|
157,580
|
|
|
|
46,034
|
|
Amortization of intangible assets
|
|
|
74,410
|
|
|
|
57,946
|
|
Deferred rent
|
|
|
58,411
|
|
|
|
11,182
|
|
Lease incentive obligation
|
|
|
(10,056
|
)
|
|
|
|
|
Amortization of premium on held to maturity investments
|
|
|
44,005
|
|
|
|
82,491
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Interest receivable
|
|
|
(100,822
|
)
|
|
|
(7,008
|
)
|
Prepaid expenses
|
|
|
235,060
|
|
|
|
132,075
|
|
Income tax receivable
|
|
|
2,549,862
|
|
|
|
1,609,349
|
|
Other current assets
|
|
|
(79,346
|
)
|
|
|
(135,823
|
)
|
Deferred expenses
|
|
|
(143,640
|
)
|
|
|
569,284
|
|
Other assets
|
|
|
24,380
|
|
|
|
(152,375
|
)
|
Accounts payable and accrued expenses
|
|
|
(1,454,011
|
)
|
|
|
3,250,088
|
|
Deferred revenue
|
|
|
(3,540,842
|
)
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
(14,097,168
|
)
|
|
|
(4,892,293
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of held to maturity investments
|
|
|
(46,525,169
|
)
|
|
|
(5,068,339
|
)
|
Proceeds from maturities and redemptions on held to maturity investments
|
|
|
6,522,333
|
|
|
|
2,450,000
|
|
Purchase of property and equipment
|
|
|
(1,127,000
|
)
|
|
|
(445,197
|
)
|
Cost of intangible assets
|
|
|
(81,432
|
)
|
|
|
(170,391
|
)
|
Net cash used in investing activities
|
|
|
(41,211,268
|
)
|
|
|
(3,233,927
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
-
|
|
|
|
614,368
|
|
Taxes paid related to net share settlement of equity awards
|
|
|
(9,810
|
)
|
|
|
(17,709
|
)
|
Employee tax withholdings paid on equity awards
|
|
|
(204,614
|
)
|
|
|
(698,398
|
)
|
Tax shares sold to pay for employee tax withholdings on equity awards
|
|
|
338,486
|
|
|
|
336,754
|
|
Net cash provided by financing activities
|
|
|
124,062
|
|
|
|
235,015
|
|
Net decrease in cash and cash equivalents
|
|
|
(55,184,374
|
)
|
|
|
(7,891,205
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
112,750,980
|
|
|
|
66,561,683
|
|
Cash and cash equivalents at end of period
|
|
$
|
57,566,606
|
|
|
$
|
58,670,478
|
|
The
accompanying notes are an integral part of these condensed financial statements.
Supplemental
Disclosures of Cash Flow Information
|
|
Three months ended
January 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash paid for taxes
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Supplemental
Schedule of Non-Cash Investing and Financing Activities
|
|
Three months ended
January 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accrued expenses from consultants settled with Common Stock
|
|
$
|
75,000
|
|
|
$
|
55,000
|
|
Sale of treasury shares pending settlement
|
|
$
|
-
|
|
|
$
|
2,144
|
|
Property and equipment included in accounts payable and accrued expenses
|
|
$
|
115,637
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these condensed financial statements.
ADVAXIS,
INC.
NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
(unaudited)
1.
NATURE OF OPERATIONS
Advaxis,
Inc. (“Advaxis” or the “Company”) is a clinical stage biotechnology company focused on the discovery,
development and commercialization of proprietary
Lm
-based antigen delivery system. These immunotherapies are based on a
platform technology that utilizes live attenuated
Listeria monocytogenes
(“
Lm
” or “Listeria”
or “
Lm
Technology
TM
”) bioengineered to secrete antigen/adjuvant fusion proteins. These
Lm
-based
strains are believed to be a significant advancement in immunotherapy as they integrate multiple functions into a single immunotherapy
as they access and direct antigen presenting cells to stimulate anti-tumor T-cell immunity, stimulate and activate the immune
system with the equivalent of multiple adjuvants, and simultaneously reduce tumor protection in the tumor microenvironment to
enable the T-cells to eliminate tumors.
Axalimogene
filolisbac is our lead
Lm
–based product candidate for the treatment of Human Papilloma Virus (“HPV”)
- associated cancers. The Company completed a randomized Phase 2 study in 110 patients with recurrent cervical cancer that was
shown to have a manageable safety profile, apparent improved survival and objective tumor responses. In addition, the Gynecologic
Oncology Group (“GOG”) Foundation, Inc., now part of NRG Oncology, conducted a cooperative group / Company sponsored
Phase 2 open-label clinical study of axalimogene filolisbac in patients with persistent or recurrent cervical cancer with documented
disease progression. The study, known as GOG-0265, has successfully completed the first and second stages in its Simon 2-stage
design. The results from both stages combined demonstrate a 38% 12-month overall survival. Upon early closure of this study, a
total of 50 patients were dosed resulting in a 12-month survival rate of 38.0% with a manageable safety profile. The Company has
initiated a registrational Phase 3 clinical trial for the adjuvant treatment of women with high-risk locally advanced cervical
cancer and is planning to initiate a registrational Phase 3 clinical trial in 2017 in the metastatic cervical cancer setting.
The Company also plans to pursue registrational opportunities in Europe in 2017 for the metastatic cervical cancer setting.
Axalimogene
filolisbac has received United States Food and Drug Administration (“FDA”) orphan drug designation for three HPV-associated
cancers: cervical, head and neck, and anal cancer, and has received European Medicines Agency (“EMA”) orphan drug
designation for anal cancer. Axalimogene filolisbac has been designated by the FDA as a Fast Track product for adjuvant therapy
for high-risk locally advanced cervical cancer patients. It has also been classified as an advanced-therapy medicinal product
(“ATMP”) for the treatment of cervical cancer by the European Medicines Agency’s Committee for Advanced Therapies
(“CAT”). Axalimogene filolisbac is subject to an agreement with the FDA, under the Special Protocol Assessment (“SPA”)
process, for the Phase 3 AIM2CERV trial in patients with high-risk, locally advanced cervical cancer. It is also being evaluated
in Company-sponsored trials executed under an Investigational New Drug (“IND”) which include the following: (i) a
Phase 1/2 clinical trial alone and in combination with MedImmune, LLC’s (“MedImmune”) investigational anti-PD-L1
immune checkpoint inhibitor, durvalumab (MEDI4736), in patients with previously treated metastatic cervical cancer or patients
with HPV-associated head and neck cancer; and (ii) a single arm Phase 2 monotherapy study in patients with metastatic anal cancer.
In addition to the Company-sponsored trials, axalimogene filolisbac is also being evaluated in two investigator-initiated clinical
trials as follows: neoadjuvant treatment of HPV-positive head and neck cancer (Mount Sinai & Baylor College of Medicine),
and locally advanced high risk anal cancer (Brown University).
ADXS-PSA
is the Company’s
Lm
–based product candidate designed to target the Prostate Specific Antigen (“PSA”)
associated with prostate cancer which is being evaluated in a Phase 1/2 clinical trial alone and in combination with KEYTRUDA®
(pembrolizumab), Merck & Co.’s (“Merck”) humanized monoclonal antibody against PD-1, in patients with previously
treated metastatic castration-resistant prostate cancer.
ADXS-HER2
is the Company’s
Lm
-based product candidate designed for the treatment of Human Epidermal Growth Factor Receptor
2 (“HER2”) expressing cancers, including human and canine osteosarcoma. ADXS-HER2 is being evaluated in a Phase 1b
clinical trial in patients with metastatic HER2 expressing solid tumors. The Company received orphan drug designation from both
the FDA and EMA for ADXS-HER2 in osteosarcoma and have received Fast Track designation from the FDA for patients with newly-diagnosed,
non-metastatic, surgically-resectable osteosarcoma. Clinical research with ADXS-HER2 in canine osteosarcoma is being developed
by the Company’s pet therapeutic partner, Aratana Therapeutics Inc. (“Aratana”), who holds exclusive rights
to develop and commercialize ADXS-HER2 and three other
Lm
-LLO immunotherapies for pet health applications. Aratana has
announced that a product license application for use of ADXS-HER2 in the treatment of canine osteosarcoma has been filed with
the United States Department of Agriculture (“USDA”). Aratana received communication from the USDA in March 2015 stating
that the previously submitted efficacy data for product licensure for AT-014 (ADXS-HER2), the cancer immunotherapy for canine
osteosarcoma, was accepted and that it provides a reasonable expectation of efficacy that supports conditional licensure. While
additional steps need to be completed, including in the areas of manufacturing and safety, Aratana anticipates that AT-014 could
receive conditional licensure from the USDA in 2017.
ADXS-NEO
is the Company’s individual
Lm
-based antigen delivery technology combined with a fusion protein based on information
captured by comparing a patient’s own DNA with the DNA from that patient’s tumor. The FDA has cleared the Company’s
IND application of a new precision immunotherapy for the treatment of cancers. The Company plans to initiate a Phase 1 study in
2017.
The
Company has focused its development efforts on establishing a drug development pipeline that incorporates this technology into
therapeutic cancer immunotherapies, with clinical trials currently targeting HPV-associated cancers (cervical cancer, head and
neck cancer, and anal cancer), prostate cancer, and osteosarcoma. Although no immunotherapies have been commercialized to date,
the Company continues to invest in research and development to advance the technology and make it available to patients with many
different types of cancer. Pipeline development and the further exploration of the technology for advancement entails risk and
expense. The Company anticipates that its ongoing operational costs will increase significantly as it continues conducting and
expanding its clinical development programs. In addition to its existing single antigen vectors that target one tumor associated
antigen, the Company is actively engaged in the development of new constructs that will address multiple targets that are common
to tumor types, as well as mutation-associated epitopes that are specific to an individual patient’s tumor. The Company
is also leveraging its
Lm
Technology™ to target common (public or shared) mutations (hotspots) in tumor driver genes.
The Company is exploring a preclinical infectious disease program as well to examine potential applications of its
Lm
Technology™.
Lastly, the Company is continuing to build-out its manufacturing capabilities at the state-of-the-art manufacturing facility in
Princeton, NJ, to produce supplies for its neoepitope and other development programs.
Liquidity
and Financial Condition
The
Company’s products are being developed and have not generated significant revenues. As of January 31, 2017, the Company
had approximately $136.9 million in cash, cash equivalents and investments on its balance sheet. The Company believes its current
cash position is sufficient to fund its business plan approximately through the second quarter of fiscal 2019. The estimate is
based on assumptions that may prove to be wrong, and the Company could use available capital resources sooner than currently expected.
Because of the numerous risks and uncertainties associated with the development and commercialization of its product candidates,
the Company is unable to estimate the amount of increased capital outlays and operating expenses associated with completing the
development of its current product candidates.
The
Company recognizes it may need to raise additional capital in order to continue to execute its business plan. There is no assurance
that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable
to the Company or whether the Company will become profitable and generate positive operating cash flow. If the Company is unable
to raise sufficient additional funds, it will have to scale back its business plan.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis
of Presentation - Unaudited Interim Financial Information
The
accompanying unaudited interim condensed financial statements and related notes have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) for interim financial information, and in accordance
with the rules and regulations of the SEC with respect to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed
financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of
management, necessary to represent a fair statement of the results for the interim periods presented. Interim results are not
necessarily indicative of the results for the full year. These unaudited interim condensed financial statements should be read
in conjunction with the financial statements of the Company for the year ended October 31, 2016 and notes thereto contained in
the Company’s annual report on Form 10-K for the year ended October 31, 2016, as filed with the SEC on January 9, 2017.
The
information presented in the accompanying unaudited condensed balance sheet as of October 31, 2016 has been derived from the Company’s
October 31, 2016 audited financial statements.
Estimates
The
preparation of financial statements in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) involves
the use of estimates and assumptions that affect the recorded amounts of assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ substantially
from these estimates. Significant estimates include the fair value and recoverability of the carrying value of property and equipment
intangible assets (patents and licenses), the fair value of investments, the fair value of options, the fair value of warrants
and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, based
on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results
may differ from estimates.
Revenue
Recognition
The
Company is expected to derive the majority of its revenue from patent licensing and research and development services associated
with patent licensing. In general, these revenue arrangements provide for the payment of contractually determined fees in consideration
for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company. The intellectual
property rights granted may be perpetual in nature, or upon the final milestones being met, or can be granted for a defined, relatively
short period of time, with the licensee possessing the right to renew the agreement at the end of each contractual term for an
additional minimum upfront payment. The Company recognizes licensing fees when there is persuasive evidence of a licensing arrangement,
fees are fixed or determinable, delivery has occurred and collectability is reasonably assured.
Revenue
associated with nonrefundable upfront license fees under arrangements where the license fees and research and development activities
cannot be accounted for as separate units of accounting is deferred and recognized as revenue on a straight-line basis over the
expected period of performance.
Revenues
from the achievement of research and development milestones, if deemed substantive, are recognized as revenue when the milestones
are achieved and the milestone payments are due and collectible. If not deemed substantive, the Company recognizes such milestones
as revenue on a straight-line basis over the remaining expected performance period under the arrangement. All such recognized
revenues are included in collaborative licensing and development revenue in the Company’s statements of operations.
Milestones
are considered substantive if all of the following conditions are met: (1) the milestone is nonrefundable; (2) achievement of
the milestone was not reasonably assured at the inception of the arrangement; (3) substantive effort is involved to achieve the
milestone; and (4) the amount of the milestone appears reasonable in relation to the effort expended, and the other milestones
in the arrangement and the related risk associated with the achievement of the milestone and any ongoing research and development
or other services are priced at fair value.
If
product development is successful, the Company will recognize revenue from royalties based on licensees’ sales of its products
or products using its technologies. Royalties are recognized as earned in accordance with the contract terms when royalties from
licensees can be reasonably estimated and collectability is reasonably assured. If royalties cannot be reasonably estimated or
collectability of a royalty amount is not reasonably assured, royalties are recognized as revenue when the cash is received.
Deferred
revenue represents the portion of payments received for which the earnings process has not been completed. Deferred revenue expected
to be recognized within the next 12 months is classified as a current liability.
An
allowance for doubtful accounts is established based on the Company’s best estimate of the amount of probable credit losses
in the Company’s existing license fee receivables, using historical experience. The Company reviews its allowance for doubtful
accounts periodically. Past due accounts are reviewed individually for collectability. Account balances are charged off against
the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To date,
this is yet to occur.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
As of January 31, 2017 and October 31, 2016, the Company had approximately $49.0 million and $106.7 million in cash equivalents.
Concentration
of Credit Risk
The
Company maintains its cash in bank deposit accounts (checking) that at times exceed federally insured limits. Approximately $53.9
million is subject to credit risk at January 31, 2017. However, these cash balances are maintained at creditworthy financial institutions.
The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.
Fair
Value of Financial Instruments
The
carrying amounts of financial instruments, including cash and accounts payable approximated fair value
as of the balance sheet date presented, because of the relatively short maturity dates on these instruments. The carrying amounts
of the financing arrangements issued approximate fair value as of the balance sheet date presented, because interest rates on
these instruments approximate market interest rates after consideration of stated interest rates, anti-dilution protection and
associated warrants.
Net
Loss per Share
Basic
net income or loss per common share is computed by dividing net income or loss available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per share give effect to dilutive options, warrants,
convertible debt and other potential Common Stock outstanding during the period. In the case of a net loss the impact of the potential
Common Stock resulting from warrants, outstanding stock options and convertible debt are not included in the computation of diluted
loss per share, as the effect would be anti-dilutive. In the case of net income the impact of the potential Common Stock resulting
from these instruments that have intrinsic value are included in the diluted earnings per share. The table sets forth the number
of potential shares of Common Stock that have been excluded from diluted net loss per share.
|
|
As of January 31,
|
|
|
|
2017
|
|
|
2016
|
|
Warrants
|
|
|
3,110,575
|
|
|
|
3,110,575
|
|
Stock Options
|
|
|
3,897,558
|
|
|
|
3,357,074
|
|
Restricted Stock Units
|
|
|
1,111,059
|
|
|
|
975,256
|
|
Convertible Debt (using the if-converted method)
|
|
|
-
|
|
|
|
1,576
|
|
Total
|
|
|
8,119,192
|
|
|
|
7,442,905
|
|
Stock
Based Compensation
The
Company has an equity plan which allows for the granting of stock options to its employees, directors and consultants for a fixed
number of shares with an exercise price equal to the fair value of the shares at date of grant. The Company measures the cost
of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors,
the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally measured
based on contractual terms. The fair value amount is then recognized over the requisite service period, usually the vesting period,
in both research and development expenses and general and administrative expenses on the statement of operations, depending on
the nature of the services provided by the employees or consultants.
The
process of estimating the fair value of stock-based compensation awards and recognizing stock-based compensation cost over their
requisite service period involves significant assumptions and judgments. The Company estimates the fair value of stock option
awards on the date of grant using the Black Scholes Model (“BSM”) for the remaining awards, which requires that the
Company makes certain assumptions regarding: (i) the expected volatility in the market price of its Common Stock; (ii) dividend
yield; (iii) risk-free interest rates; and (iv) the period of time employees are expected to hold the award prior to exercise
(referred to as the expected holding period). As a result, if the Company revises its assumptions and estimates, stock-based compensation
expense could change materially for future grants.
The
Company accounts for stock-based compensation using fair value recognition and records stock-based compensation as a charge to
earnings net of forfeited awards. As such, the Company recognizes stock-based compensation cost only for
those stock-based awards that vest over their requisite service period, based on the vesting provisions
of the individual grants.
Recent
Accounting Pronouncements
In
May 2014, as part of its ongoing efforts to assist in the convergence of GAAP and International Financial Reporting Standards,
the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
“Revenue from Contracts with Customers”, which is a new standard related to revenue recognition. Under the new standard,
recognition of revenue occurs when a customer obtains control of promised services or goods in an amount that reflects the consideration
to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure
of the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. The standard must be
adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective
approach. In July 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers - Deferral of the Effective
Date”, which defers the implementation of this new standard to be effective for fiscal years beginning after December 15,
2017. Early adoption is permitted effective January 1, 2017. In March 2016, the FASB issued ASU 2016-08, “Principal versus
Agent Considerations”, which clarifies the implementation guidance on principal versus agent considerations in the new revenue
recognition standard pursuant to ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations
and Licensing”, and in May 2016, the FASB issued ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients”,
which amend certain aspects of the new revenue recognition standard pursuant to ASU 2014-09. We are currently evaluating which
transition approach we will utilize and the impact of adopting this accounting standard on our unaudited condensed financial statements.
In
February 2016, the FASB issued ASU 2016-02, “Leases (“Topic 842”) (“ASU 2016-02”). The standard
amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance
sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of 2019.
Early adoption of ASU 2016-02 is permitted. The new leases standard requires a modified retrospective transition approach for
all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief.
The Company is currently evaluating the impact of adopting ASU 2016-02 on the Company’s financial statements.
In
March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting”. This ASU makes targeted amendments to the accounting for employee share-based payments. This guidance
is to be applied using various transition methods such as full retrospective, modified retrospective, and prospective based on
the criteria for the specific amendments as outlined in the guidance. The guidance is effective for annual periods, and interim
periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted, as long as all of the amendments
are adopted in the same period. The Company has evaluated this standard and chose early adoption effective March 30, 2016. The
Company elected to record for forfeitures as they occur. This ASU has not had a material impact on the Company’s financial
statements.
In
June 2016, the FASB issued Accounting Standards Update ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments”. The standard significantly changes how entities will measure credit
losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The
standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments
measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than
reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting
model for purchased credit-impaired debt securities and loans. This ASU is effective for annual periods beginning after December
15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim
periods therein. This ASU is not expected to have a material impact on the Company’s financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
impact on the accompanying condensed financial statements.
3.
INVESTMENTS
The
following table summarizes the Company’s investment securities at amortized cost as of January 31, 2017 and October 31,
2016:
|
|
January 31, 2017
|
|
|
|
Amortized
cost, as adjusted
|
|
|
Gross unrealized holding gains
|
|
|
Gross unrealized holding losses
|
|
|
Estimated fair value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit
|
|
$
|
25,010,270
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25,010,270
|
|
Domestic Governmental Agency Loans
|
|
|
5,664,336
|
|
|
|
49
|
|
|
|
512
|
|
|
|
5,663,873
|
|
U.S Treasury Notes
|
|
|
48,620,773
|
|
|
|
3,591
|
|
|
|
8,569
|
|
|
|
48,615,795
|
|
Total short-term investment securities
|
|
$
|
79,295,379
|
|
|
$
|
3,640
|
|
|
$
|
9,081
|
|
|
$
|
79,289,938
|
|
|
|
October 31, 2016
|
|
|
|
Amortized
cost, as adjusted
|
|
|
Gross unrealized holding gains
|
|
|
Gross unrealized holding losses
|
|
|
Estimated fair value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit
|
|
$
|
10,737,563
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,737,563
|
|
Domestic Governmental Agency Loans
|
|
|
2,500,000
|
|
|
|
-
|
|
|
|
250
|
|
|
|
2,499,750
|
|
U.S Treasury Notes
|
|
|
26,098,985
|
|
|
|
2,404
|
|
|
|
7,556
|
|
|
|
26,093,833
|
|
Total short-term investment securities
|
|
$
|
39,336,548
|
|
|
$
|
2,404
|
|
|
$
|
7,806
|
|
|
$
|
39,331,146
|
|
All
of the Company’s investments mature within the next 12 months.
4.
PROPERTY AND EQUIPMENT
Property
and equipment consists of the following:
|
|
January 31, 2017
|
|
|
October 31, 2016
|
|
|
|
|
|
|
|
|
Leasehold Improvements
|
|
$
|
1,972,498
|
|
|
$
|
1,835,602
|
|
Laboratory Equipment
|
|
|
2,839,843
|
|
|
|
2,038,704
|
|
Furniture and Fixtures
|
|
|
637,761
|
|
|
|
549,025
|
|
Computer Equipment
|
|
|
285,209
|
|
|
|
240,910
|
|
Construction in Progress
|
|
|
91,661
|
|
|
|
151,368
|
|
Total Property and Equipment
|
|
|
5,826,972
|
|
|
|
4,815,609
|
|
Accumulated Depreciation and Amortization
|
|
|
(584,115
|
)
|
|
|
(426,535
|
)
|
Net Property and Equipment
|
|
$
|
5,242,857
|
|
|
$
|
4,389,074
|
|
Depreciation
expense for the three months ended January 31, 2017 and 2016 was $157,580 and $46,034 respectively.
5.
INTANGIBLE ASSETS
Pursuant
to our license agreement with the University of Pennsylvania, the Company is billed actual patent expenses as they are passed
through from Penn and are billed directly from our patent attorney. The following is a summary of intangible assets as of the
end of the following fiscal periods:
|
|
January 31, 2017
|
|
|
October 31, 2016
|
|
|
|
|
|
|
|
|
License
|
|
$
|
776,992
|
|
|
$
|
776,992
|
|
Patents
|
|
|
5,056,042
|
|
|
|
4,980,610
|
|
Software
|
|
|
25,625
|
|
|
|
19,625
|
|
Total intangibles
|
|
|
5,858,659
|
|
|
|
5,777,227
|
|
Accumulated Amortization
|
|
|
(1,522,516
|
)
|
|
|
(1,448,106
|
)
|
Intangible Assets
|
|
$
|
4,336,143
|
|
|
$
|
4,329,121
|
|
The
expirations of the existing patents range from 2017 to 2037 but the expirations can be extended based on market approval if granted
and/or based on existing laws and regulations. Capitalized costs associated with patent applications that are abandoned without
future value are charged to expense when the determination is made not to pursue the application. No patent applications with
future value were abandoned or expired and charged to expense in the three months ended January 31, 2017 or 2016. Amortization
expense for intangible assets is included in research and development expenses and aggregated $74,410 and $57,946 for the three
months ended January 31, 2017 and 2016, respectively.
Estimated
amortization expense for the next five years is as follows:
Year
ended October 31,
2017 (Remaining)
|
|
$
|
223,000
|
|
2018
|
|
|
299,000
|
|
2019
|
|
|
296,000
|
|
2020
|
|
|
290,000
|
|
2021
|
|
|
290,000
|
|
6.
ACCRUED EXPENSES:
The
following table represents the major components of accrued expenses:
|
|
January 31, 2017
|
|
|
October 31, 2016
|
|
|
|
|
|
|
|
|
Salaries and Other Compensation
|
|
$
|
2,799,348
|
|
|
$
|
2,467,650
|
|
Vendors
|
|
|
2,882,186
|
|
|
|
2,098,792
|
|
Professional Fees
|
|
|
1,994,909
|
|
|
|
6,338,561
|
|
|
|
$
|
7,676,443
|
|
|
$
|
10,905,003
|
|
7.
DERIVATIVE INSTRUMENTS
Warrants
A
summary of changes in warrants for the three months ended January 31, 2017 is as follows:
|
|
Number of
|
|
|
Weighted-Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Outstanding Warrants at October 31, 2016
|
|
|
3,110,575
|
|
|
$
|
5.04
|
|
Issued
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding Warrants at January 31, 2017
|
|
|
3,110,575
|
|
|
$
|
5.04
|
|
At
January 31, 2017 and October 31, 2016, the Company had approximately 3.09 million of its total 3.11 million outstanding warrants
classified as equity (equity warrants). At issuance, equity warrants are recorded at their relative fair values, using the Relative
Fair Value Method, in the shareholders’ equity section of the balance sheet. The Company’s equity warrants can only
be settled through the issuance of shares and are not subject to anti-dilution provisions.
Warrant
Liability
At
January 31, 2017 and October 31, 2016, the Company had approximately 18,000 of its total approximately 3.11 million outstanding
warrants classified as liability warrants (liability warrants). The Company utilizes the BSM to calculate the fair value of these
warrants at issuance and at each subsequent reporting date. The liability warrants contain a cash settlement provision in the
event of a fundamental transaction (as defined in the Common Stock purchase warrant). Any changes in the fair value of the warrant
liability (i.e. - the total fair value of all outstanding liability warrants at the balance sheet date) between reporting periods
will be reported on the statement of operations.
At
January 31, 2017 and October 31, 2016, the fair value of the warrant liability was $10,652 and $20,156, respectively. For the
three months ended January 31, 2017 and 2016, the Company reported a gain of $9,504 and $49,282, respectively, due to changes
in the fair value of the warrant liability. In determining the fair value of the warrant liability, at January 31, 2017 and October
31, 2016, the Company used the following inputs in its BSM:
|
|
January 31, 2017
|
|
|
October 31, 2016
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
$
|
10.63-18.75
|
|
|
$
|
10.63-18.75
|
|
Stock Price
|
|
$
|
8.96
|
|
|
$
|
8.09
|
|
Expected term
|
|
|
0.29-0.50 years
|
|
|
|
0.55-0.75 years
|
|
Expected Volatility
|
|
|
60.72%-81.39
|
%
|
|
|
81.84%-87.09
|
%
|
Risk Free Interest Rate
|
|
|
0.52%-0.64
|
%
|
|
|
0.51%-0.66
|
%
|
As
of January 31, 2017, there were outstanding warrants to purchase 3,110,575 shares of the Company’s Common Stock with exercise
prices ranging from $3.75 to $18.75 per share.
As
of January 31, 2017, the aggregate intrinsic value of outstanding warrants was approximately $12,248,000.
8.
SHARE BASED COMPENSATION
Employment
Agreements
Management
voluntarily purchases restricted stock directly from the Company at market price. The respective stock purchases occur on the
last trading day of each month. This voluntary election is outlined in each of Daniel J. O’Connor, Chief Executive Officer
and President, Robert G. Petit, Executive Vice President, Chief Scientific Officer, and Sara M. Bonstein, Executive Vice President
and Secretary, Chief Financial Officer, (each an “Executive”), employment agreements. The table below reflects the
purchases of each Executive:
|
|
ANNUALIZED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Amount
|
|
|
For the Three Months Ended January 31, 2017
|
|
|
|
to be Purchased
|
|
|
Gross Purchase
|
|
|
Net Purchase
|
|
Executive
|
|
$
|
|
|
$
|
|
|
# of shares
|
|
|
$
|
|
|
# of shares
|
|
Daniel J. O’Connor
|
|
$
|
54,547
|
|
|
$
|
13,627
|
|
|
|
1,713
|
|
|
$
|
10,644
|
|
|
|
1,335
|
|
Robert G. Petit
|
|
$
|
33,061
|
|
|
$
|
8,212
|
|
|
|
1,032
|
|
|
$
|
6,699
|
|
|
|
842
|
|
Sara M. Bonstein
|
|
$
|
29,261
|
|
|
$
|
7,333
|
|
|
|
922
|
|
|
$
|
5,033
|
|
|
|
623
|
|
For
the three months ended January 31, 2017, the Company recorded stock compensation expense of $42,016 in the statement of operations
for the portion of management salaries voluntarily paid in stock representing 5,316 shares of its Common Stock (4,071 shares on
a net basis after employee payroll taxes). For the three months ended January 31, 2016, the Company recorded a similar stock compensation
expense of $64,332 in the statement of operations representing 7,060 shares of its Common Stock (4,947 shares on a net basis after
employee payroll taxes).
From
2013 to present, in addition to the purchases of Common Stock set forth in the above table, Mr. O’Connor has also purchased
an additional 164,909 shares of Common Stock out of his personal funds at the then market price for an aggregate consideration
of $689,004. These purchases consisted of the conversion of amounts due to Mr. O’Connor under a promissory note given by
Mr. O’Connor to the Company in 2012 of approximately $66,500 for 21,091 shares, 2013 base salary which he elected to receive
in Common Stock of approximately $186,555 for 34,752 shares (21,489 on a net basis after employee payroll taxes), 2013 and 2014
cash bonuses voluntarily requested to receive in equity of $214,359 for 62,064 shares (57,990 on a net basis after employee payroll
taxes), fiscal 2014 voluntary request to purchase stock directly from the Company at market price purchases of $68,750 for 21,687
shares (15,950 on a net basis after employee payroll taxes), fiscal 2015 voluntary request to purchase stock directly from the
Company at market price purchases of $88,840 for 8,482 shares (7,556 on a net basis after employee payroll taxes), and purchases
of the Company’s Common Stock in the October 2013 and March 2014 public offerings of 13,500 shares for $54,000 and 3,333
shares for $10,000.
Restricted
Stock Units (RSUs)
A
summary of the Company’s RSU activity and related information for the three months ended January 31, 2017 is as follows:
|
|
Number of
|
|
|
Weighted-Average
|
|
|
|
RSUs
|
|
|
Grant Date Fair Value
|
|
|
|
|
|
|
|
|
Balance at October 31, 2016:
|
|
|
719,448
|
|
|
$
|
10.77
|
|
Granted
|
|
|
487,282
|
|
|
$
|
8.35
|
|
Vested
|
|
|
(87,235
|
)
|
|
$
|
8.62
|
|
Cancelled
|
|
|
(8,436
|
)
|
|
$
|
8.31
|
|
Balance at January 31, 2017
|
|
|
1,111,059
|
|
|
$
|
9.89
|
|
As
of January 31, 2017, there was approximately $9,175,000 of unrecognized compensation cost related to non-vested RSUs, which is
expected to be recognized over a remaining weighted average vesting period of approximately 2.28 years.
As
of January 31, 2017, the aggregate intrinsic value of non-vested RSUs was approximately $9,955,000.
Employee
Stock Awards
During
the three months ended January 31, 2017, 88,660 shares of Common Stock were issued to executives and employees related to vested
incentive retention awards, employment inducements and employee excellence awards. Total stock compensation expense associated
with these awards was $1,314,623.
During
the three months ended January 31, 2016, 238,129 shares of Common Stock were issued to executives and employees related to vested
incentive retention awards, employment inducements and employee excellence awards. Total stock compensation expense associated
with these awards was $1,857,076.
Furthermore,
non-executive employees were entitled to receive a performance-based year-end cash bonus. Several non-executive employees voluntarily
requested to be paid all or a portion of their cash bonus in the Company’s Common Stock instead of cash. During the three
months ended January 31, 2016, the Company recorded a liability on its balance sheet for $102,022 for bonuses that will be paid
in Common Stock.
Director
Stock Awards
During
the three months ended January 31, 2017, total stock compensation expense to the Directors for amortization of unvested awards
was $101,628.
During
the three months ended January 31, 2016, 31,767 shares of Common Stock were issued to the Directors for compensation related to
board and committee membership. Total stock compensation expense to the Directors was $311,205.
Stock
Options
A
summary of changes in the stock option plan for the three months ended January 31, 2017 is as follows:
|
|
Number of
|
|
|
Weighted-Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
Outstanding at October 31, 2016:
|
|
|
3,351,795
|
|
|
$
|
13.31
|
|
Granted
|
|
|
556,952
|
|
|
$
|
7.71
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
(11,189
|
)
|
|
$
|
17.88
|
|
Outstanding at January 31, 2017
|
|
|
3,897,558
|
|
|
$
|
12.50
|
|
Vested and Exercisable at January 31, 2017
|
|
|
1,800,252
|
|
|
$
|
13.46
|
|
Total
compensation cost related to the Company’s outstanding stock options, recognized in the statement of operations for the
three months ended January 31, 2017 was $3,183,458. For the three months ended January 31, 2016, compensation cost related to
the Company’s outstanding stock options was $6,671,986.
During
the three months ended January 31, 2017, 556,952 options were granted with a total grant date fair value of $3,542,215. During
the three months ended January 31, 2016, 1,385,000 options were granted with a total grant date fair value of $14,837,970.
As
of January 31, 2017, there was approximately $19,688,000 of unrecognized compensation cost related to non-vested stock option
awards, which is expected to be recognized over a remaining weighted average vesting period of approximately 1.65 years.
As
of January 31, 2017, the aggregate intrinsic value of vested and exercisable options was approximately $74,000.
In
determining the fair value of the stock options granted during the three months ended January 31, 2017 and 2016, the Company used
the following inputs in its BSM:
|
|
Three Months Ended January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Expected Term
|
|
|
5.50-6.50 years
|
|
|
|
5.51-6.51 years
|
|
Expected Volatility
|
|
|
107.07%-110.93
|
%
|
|
|
109.23%-115.25
|
%
|
Expected Dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk Free Interest Rate
|
|
|
1.26-1.58
|
%
|
|
|
1.65-2.00
|
%
|
Shares
Issued to Consultants
During
the three months ended January 31, 2017, 32,500 shares of Common Stock valued at $313,600 were issued to consultants for services,
of which $75,000 represented shares issued for amounts previously accrued. The Company recorded a liability on its balance sheet
for $230,100 for shares earned pursuant to consulting agreements but not delivered. The common stock share values were based on
the dates the shares vested.
During
the three months ended January 31, 2016, 23,124 shares of Common Stock valued at $275,087 were issued to consultants for services,
of which $55,000 represented shares issued for amounts previously accrued. The Company recorded a liability on its balance sheet
for $302,300 for shares earned pursuant to consulting agreements but not delivered. The common stock share values were based on
the dates the shares vested.
The
following table summarizes share-based compensation expense included in the Statement of Operations by expense category for the
three months ended January 31, 2017 and 2016, respectively:
|
|
Three Months Ended January 31,
|
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
1,222,483
|
|
|
$
|
5,106,640
|
|
General and administrative
|
|
|
3,887,942
|
|
|
|
4,422,368
|
|
Total
|
|
$
|
5,110,425
|
|
|
$
|
9,529,008
|
|
9.
COMMITMENTS AND CONTINGENCIES
:
Legal
Proceedings
Knoll
On
August 21, 2015, Knoll Capital Management L.P. (“KCM”) filed a complaint against the Company in the Delaware Court
of Chancery. The complaint alleges the existence of an oral agreement for the purchase by Knoll from the Company of 1,666,666.67
shares of Company stock at a price of $3.00 per share. KCM alleges that the Company breached this alleged agreement and seeks
specific performance or, alternatively, money damages for breach of contract. KCM served the Company with the complaint on August
31, 2015, and then served an amended complaint on October 16, 2015. The Company moved to dismiss the amended complaint on October
26, 2015 and that motion was denied on January 29, 2016. The Company filed an answer to the amended complaint on February 12,
2016. The parties are currently in the process of producing document discovery. A bench trial has been set for November 7, 2017.
The Company intends to defend itself vigorously.
Larkin
and Bono
On
August 20, 2015, a derivative complaint was filed by a purported Company shareholder in the United States District Court for the
District of New Jersey styled David Bono v. O’Connor, et al., Case No. 3:15-CV-006326-FLW-DEA (D.N.J. Aug. 20, 2015) (the
“Bono Action”). The complaint is based on general allegations related to certain stock options granted to the individual
defendants and generally alleges counts for breaches of fiduciary duty and unjust enrichment. The complaint also alleges additional
claims for violation of Section 14(a) of the Securities Exchange Act of 1934 and for waste of corporate assets. The complaint
seeks damages and costs of an unspecified amount, disgorgement of compensation obtained by the individual defendants, and injunctive
relief.
Defendants
filed a motion to dismiss the Bono Action. On May 23, 2016, the United States District Court for the District of New Jersey issued
an opinion and order granting in part and denying in part defendants’ motion to dismiss. The court denied the motion to
dismiss as to the breach of fiduciary duty claim and unjust enrichment claim against the three members of the Compensation Committee,
but dismissed without prejudice the breach of fiduciary duty and unjust enrichment claims against the other eight individual defendants.
The court dismissed without prejudice the Section 14(a) disclosure claim and waste claims against all defendants. On October 5,
2016, the court denied plaintiff’s motion for reconsideration of its May 23 order.
At
this stage of the proceeding, the Company does not express any opinion as to likely outcome, but the Company intends to defend
the action vigorously.
General
The
Company is from time to time involved in legal proceedings in the ordinary course of its business. The Company does not believe
that any of these claims and proceedings against it is likely to have, individually or in the aggregate, a material adverse effect
on its financial condition or results of operations.
Operating
Leases
The
Company’s corporate offices are currently located at 305 College Road East, Princeton, New Jersey 08540.
Future
minimum payments of the Company’s operating leases are as follows:
Year
ended October 31,
2017 (Remaining)
|
|
$
|
736,397
|
|
2018
|
|
|
1,041,895
|
|
2019
|
|
|
1,107,385
|
|
2020
|
|
|
1,232,907
|
|
2021
|
|
|
1,317,640
|
|
Thereafter
|
|
|
5,747,340
|
|
Total
|
|
|
11,183,564
|
|
10.
FAIR VALUE
The
authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance
describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value which are the following:
●
Level 1 — Quoted prices in active markets for identical assets or liabilities.
●
Level 2— Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable
market data or substantially the full term of the assets or liabilities.
●
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the value of
the assets or liabilities.
The
following table provides the liabilities carried at fair value measured on a recurring basis as of January 31, 2017 and October
31, 2016:
January 31, 2017
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability, warrants exercisable at $10.63- $18.75 from February 2017 through August 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,652
|
|
|
$
|
10,652
|
|
October 31, 2016
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability, warrants exercisable at $10.63- $18.75 from November 2016 through August 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,156
|
|
|
$
|
20,156
|
|
Common
stock warrant liability:
|
|
January 31, 2017
|
|
|
|
(Unaudited)
|
|
Beginning balance: October 31, 2016
|
|
$
|
20,156
|
|
Change in fair value
|
|
|
(9,504
|
)
|
|
|
|
|
|
Balance at January 31, 2017
|
|
$
|
10,652
|
|
11.
SUBSEQUENT EVENTS
On
February 27, 2017, the Company entered into a license agreement with Sellas Life Science Group (“Sellas”) to develop
a novel cancer immunotherapy agent using Advaxis’ proprietary
Lm
-based antigen delivery technology with SELLAS’
patented WT1 targeted heteroclitic peptide antigen mixture (galinpepimut-S)). Pursuant to the agreement, Advaxis will conduct
all pre-clinical activities required for an IND filing and Sellas will be responsible for all clinical development and commercial
activities. Advaxis will receive future payments of up to $358 million from SELLAS if certain development, regulatory, and
commercial milestones are met. SELLAS has agreed to pay Advaxis single-digit to low double-digit royalties based on worldwide
net sales upon commercialization. If SELLAS sublicenses its rights, Advaxis will receive a percentage of applicable sublicense
revenue paid.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the
future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant
risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements
as a result of many known or unknown factors, including, but not limited to, those factors discussed in “Risk Factors”
and incorporated by reference herein. See also the “Special Cautionary Notice Regarding Forward-Looking Statements”
set forth at the beginning of this report.
You
should read the following discussion and analysis in conjunction with the unaudited financial statements, and the related footnotes
thereto, appearing elsewhere in this report, and in conjunction with management’s discussion and analysis and the audited
financial statements included in our annual report on Form 10-K for the year ended October 31, 2016.
Overview
We
are a clinical-stage biotechnology company focused on the discovery, development and commercialization of our proprietary
Lm
-based
antigen delivery system with our lead program in Phase 3 development. These immunotherapies are based on a platform technology
that utilizes live attenuated
Listeria monocytogenes
bioengineered to secrete antigen/adjuvant fusion proteins. These
Lm
-based
strains are believed to be a significant advancement in immunotherapy as they integrate multiple functions into a single immunotherapy
as they access and direct antigen presenting cells to stimulate anti-tumor T-cell immunity, stimulate and activate the immune
system with the equivalent of multiple adjuvants, and simultaneously reduce tumor protection in the tumor microenvironment to
enable the T-cells to eliminate tumors.
Axalimogene
filolisbac Franchise
Axalimogene
filolisbac is an
Lm
–based directed against HPV and designed to target cells expressing the HPV. It is currently under
investigation in three HPV-associated cancers: cervical cancer, head and neck cancer, and anal cancer, either as a monotherapy
or in combination.
Cervical
Cancer
There
are 527,624 new cases of cervical cancer caused by HPV worldwide every year, and 12,000 new cases in the U.S. alone, according
to the WHO Human Papillomavirus and Related Cancers in the World Summary Report 2016 (“WHO”). Current preventative
vaccines cannot protect all women who are infected with this very common virus. Challenges with acceptance, accessibility, and
compliance have resulted in approximately a third of young women being vaccinated in the United States and even less in other
countries around the world.
We
completed a randomized Phase 2 clinical study (
Lm
-LLO-E7-15), conducted exclusively in India, in 110 women with recurrent/refractory
cervical cancer. The final results were presented at the 2014 American Society of Clinical Oncology (“ASCO”) Annual
Meeting, and showed that 32% (35/109) of patients were alive at 12 months, 22% (24/109) of patients were Long-term Survivors (“LTS”)
alive greater than 18 months, and 18% (16/91) evaluable with adequate follow-up of patients were alive for more than 24 months.
Of the 109 patients treated in the study, LTS included not only patients with tumor shrinkage but also patients who had experienced
stable disease or increased tumor burden. 17% (19/109) of the patients in the trial had recurrence of disease after at least two
prior treatments for their cervical cancer; these patients comprised 8% (2/24) of LTS. Among the LTS, 25% (3/12) of patients had
a baseline ECOG performance status of 2, a patient population that is often times excluded from clinical trials. Furthermore,
a 10% objective response rate (including 5 complete responses and 6 partial responses) and a disease control rate of 38% (42/109)
were observed. The addition of cisplatin chemotherapy to axalimogene filolisbac in this study did not significantly improve overall
survival or objective tumor response (
p
=0.9981).
In
this study, 109 patients received 254 doses of axalimogene filolisbac. Axalimogene filolisbac was found to be well tolerated with
38% (41/109) of patients experiencing mild to moderate Grade 1 or 2 transient adverse events associated with infusion; 1 patient
experienced a Grade 3 Serious Adverse Events (“SAE”). All observed treatment-related adverse events either self-resolved
or responded readily to symptomatic treatment.
We
have reached an agreement with the FDA, under the Special Protocol Assessment (“SPA”) process, for a Phase 3 trial
evaluating axalimogene filolisbac in patients with high-risk, locally advanced cervical cancer (“AIM2CERV” or “
A
dvaxis
Im
munotherapy
2
Prevent
Cerv
ical Recurrence”). Pursuant to the SPA, the study has been determined by
FDA to be adequate, well-designed, and suitable for registration. This study will be conducted in collaboration with the GOG/NRG
Oncology, an independent international non-profit organization with the purpose of promoting excellence in the quality and integrity
of clinical and basic scientific research in the field of gynecologic malignancies, we have initiated the AIM2CERV study to support
a Biologics License Application (“BLA”) submission in the U.S. and regulatory registration in other territories around
the world.
AIM2CERV
is a double-blind, randomized, placebo-controlled, Phase 3 study of adjuvant axalimogene filolisbac, following primary chemoradiation
treatment of women with high-risk locally advanced cervical cancer (“HRLACC”). The primary objective of AIM2CERV is
to compare the disease free survival of axalimogene filolisbac to placebo administered in the adjuvant setting following standard
concurrent chemotherapy and radiotherapy (“CCRT”) administered with curative intent to patients with HRLACC. Secondary
endpoints include examining overall survival and safety. Our goal is to develop a treatment to prevent or reduce the risk of cervical
cancer recurrence after primary, standard of care treatment in women who are at high risk of recurrence.
Biocon
Limited (“Biocon”), our co-development and commercialization partner for axalimogene filolisbac in India and key emerging
markets, filed a Marketing Authorization Application (“MAA”) for licensure of this immunotherapy in India. The Drug
Controller General of India (“DCGI”) accepted this MAA for review. The filing of the MAA was driven by several factors:
(i) results from the
Lm
-LLO-E7-15 Phase 2 trial indicated that axalimogene filolisbac was well tolerated and showed significant
clinical activity in recurrent/refractory cervical cancer; (ii) cervical cancer is the second most common cancer among Indian
women (according to WHO, there are 122,844 new cases per year with 67,544 deaths reported); and (iii) current treatment options
for non-operable refractory/recurrent disease are limited in India. As part of the MAA review process, Biocon met with the Scientific
Expert Committee (the “Committee”). The Committee indicated that proof of concept for this novel immunotherapy has
been established. The Committee advised Biocon to obtain data from a Phase 3 clinical trial in patients with recurrent cervical
cancer who have failed prior chemo and radiation therapies. The face-to-face interaction with the Committee provided Biocon and
Advaxis with valuable insight for future development and the companies are evaluating next steps.
We
have a clinical trial collaboration agreement with MedImmune, the global biologics research and development arm of AstraZeneca,
and are conducting a Phase 1/2, open-label, multicenter, two-part study to evaluate the safety and efficacy of axalimogene filolisbac,
in combination with MedImmune’s investigational anti-PD-L1 immune checkpoint inhibitor, durvalumab, as a combination treatment
for patients with metastatic squamous or non-squamous carcinoma of the cervix and metastatic HPV-associated Squamous Cell Carcinoma
of the Head and Neck (“SCCHN”). For the axalimogene filolisbac and durvalumab dose escalation portion of the study,
the dose-escalation phase has been completed. As reported at the Society for Immunotherapy of Cancer (“SITC”) 2016
annual meeting, preliminary results from the dose escalation portion of the study showed that there were no dose limiting toxicities
observed, and the safety profile was consistent with previous findings for both axalimogene filolisbac and durvalumab. The recommended
phase 2 dose was established as 1x10
9
CFU for axalimogene filolisbac and 10 mg/kg for durvalumab. In early data reported
from this ongoing trial, one patient with cervical cancer achieved a complete response, which remains ongoing after 16 months
of follow-up and one patient, also with cervical cancer, achieved a partial response with subsequent disease progression. In addition,
two patients with HNSCC achieved stable disease. Treatment related adverse events (“TRAE”) were reported in 91 percent
of patients; the majority were either grade 1 or grade 2 events such as chills, fever, nausea and hypotension. Grade 3 TRAEs occurred
in three patients, and one patient experienced a grade 4 event. We have commenced enrollment in the Part A (20 patients with SCCHN)
and B (90 patients with cervical cancer) expansion phases. Accrual is ongoing.
The
GOG Foundation, Inc. (now a member of NRG Oncology), under the sponsorship of the Cancer Therapy Evaluation Program (“CTEP”)
of the National Cancer Institute (“NCI”), conducted GOG-0265, an open-label, single arm Phase 2 study of axalimogene
filolisbac in persistent or recurrent cervical cancer (patients must have received at least 1 prior chemotherapy regimen for the
treatment of their recurrent/metastatic disease, not including that administered as a component of primary treatment) at numerous
clinical sites in the U.S. The study was a Simon 2-stage design. The primary efficacy endpoint was the 12-month survival rate,
with the objective of the secondary efficacy endpoints to evaluate progression-free survival, overall survival
and objective tumor response. The primary safety endpoints were to evaluate the number of patients with dose-limiting toxicities
and the frequency and severity of adverse effects.
In
order to evaluate the study’s primary endpoint of the 12-month overall survival rate, the GOG’s protocol
featured a prospectively-defined logistic model-based calculation of the expected 12-month survival rate using key predictive
factors significantly related to survival and derived from 17 serially conducted GOG/NRG 2-stage studies of inactive agents in
PRmCC involving approximately 500 patients. This accumulated data by GOG used a consistent protocol design and a similar data
collection methodology resulting in a robust and homogeneous patient dataset for the per protocol analysis of the primary endpoint.
Per the study protocol, this logistic model-based calculation was then used as a comparator for evaluating the 12-month
survival rate of axalimogene filolisbac actually observed.
The
first stage of enrollment in GOG-0265 was successfully completed with 26 patients treated and met the predetermined safety and
efficacy criteria required to proceed into the second stage of patient enrollment. Clinical data from the first stage of GOG-0265
was presented at the American Gynecological & Obstetrical Society (“AGOS”) annual meeting on September 17, 2015.
Overall survival at 12 months was 38.5% (10/26) (the conditional power needed in order to progress to Stage 2 was ≥20%), and,
among patients who had received the full treatment regimen of 3 doses of axalimogene filolisbac, the 12-month survival rate was
55.6% (10/18). The adverse events observed in the first stage of the study have been consistent with those reported in other clinical
studies with axalimogene filolisbac. It was well-tolerated, with Grade 1-2 fatigue, chills, and fever the most commonly reported
Adverse Events (“AE”); six patients experienced a treatment-related Grade 3 or Grade 4 AE, which was considered possibly-related
to axalimogene filolisbac.
Stage
2 of the study began enrollment in February 2015 which included a protocol amendment to allow patients to continue to receive
repeat cycles of therapy until disease progression. Stage 2 enrollment was temporarily suspended with the clinical hold in October
2015. Prior to re-initiating enrollment of a new cohort of Stage 2 patients, Advaxis and the GOG Foundation/NRG Oncology examined
the 12-month survival rate and safety data obtained from the 24 patients who had previously enrolled in Stage 2. The Stage 2 population
demonstrated that treatment with axalimogene filolisbac resulted in a 37.5% (9/24) 12-month survival rate. This data was consistent
with the findings in Stage 1 that showed a 38.5% 12-month survival rate, despite a greater proportion of Stage 2 patients having
failed bevacizumab treatment. Taken together, the available data from both stages of GOG-0265 comprise a Phase 2 clinical trial
with 50 subjects with a 12 month survival rate of 38% (19/50). The protocol defined logistic model-based calculation of the expected
12-month milestone survival rate was calculated to be 24.5 percent using the key predictors from the patients enrolled in the
study. The 12 month survival rate of 38 percent of axalimogene filolisbac represents a 52 percent improvement over the expected
12-month milestone survival rate of 24.5 percent. In the second stage of the study, 15 out of 24 patients experienced a Grade
1 or Grade 2 TRAE associated with axalimogene filolisbac infusion. The most common Grade 1 or Grade 2 TRAEs were hypotension and
symptoms related to cytokine release (e.g., nausea, chills, fever). Nine out of 24 patients experienced a Grade 3 TRAE and two
out of 24 patients experienced a Grade 4 TRAE, which were hypotension and symptoms related to cytokine release.
In
October 2016, upon review of these findings, the Company announced early closure of GOG-0265. Based on these data, the Company
plans on pursuing regulatory opportunities for this unmet medical need in Europe in 2017, and is planning to initiate a Phase
3 registrational trial in 2017 in the metastatic cervical cancer setting. Results from the GOG-0265 study will be presented at
the Society of Gynecologic Oncology (“SGO”) meeting on March 14, 2017 and was selected for an oral late-breaker presentation.
Axalimogene
filolisbac has received FDA orphan drug designation for invasive FIGO Stage II-IV cervical cancer, and has received Fast Track
designation from the FDA for high-risk locally advanced cervical cancer patients. Axalimogene filolisbac has also been classified
as an advanced-therapy medicinal product (“ATMP”) for the treatment of cervical cancer by the European Medicines Agency’s
Committee for Advanced Therapies (“CAT”). The CAT is the EMA’s committee responsible for assessing the quality,
safety and efficacy of ATMPs. The Company has commenced the CAT certification procedure and review of preclinical and CMC information
is underway for potential inclusion in the Marketing Authorization Application.
Head
and Neck Cancer
SCCHN
is the most frequently occurring malignant tumor of the head and neck and is a major cause of morbidity and mortality worldwide.
More than 90% of SCCHNs originate from the mucosal linings of the oral cavity, pharynx, or larynx and 70% of these cancers are
caused by HPV, with the incidence increasing every year. According to the American Cancer Society, head and neck cancer accounts
for about 3% of all cancers in the United States. Approximately 12,000 new cases will be diagnosed in the United Stated in 2016
according to the Surveillance, Epidemiology, and End Results (“SEER”) database.
The
safety and immunogenicity of axalimogene filolisbac is being evaluated in a Phase 2 study under an investigator-sponsored IND
at Mount Sinai and Baylor College of Medicine in a pre-surgery “window of opportunity” trial in patients with HPV-positive
head and neck cancer. This clinical trial is the first study to evaluate the immunologic and pathologic effects of axalimogene
filolisbac in patients when they are initially diagnosed with HPV-associated head and neck cancer. The study is designed to show
that axalimogene filolisbac is highly immunogenic and worth further investigation if the overall rate of vaccine-induced T-cell
responses is 75 percent or more. Preliminary clinical data from this trial was presented at the American Association of Cancer
Research (“AACR”) annual meeting on April 18, 2016. The data from eight of the nine patients enrolled in Stage 1 who
were treated with axalimogene filolisbac confirmed that the study met the target for the overall rate of vaccine-induced T-cell
response. The results demonstrated that, HPV E7- and/or E6-specific T cell responses increased in the peripheral blood in five
of the study patients. Increased infiltration of both CD4+ and CD8+ T cells were observed in the Tumor Immune Microenvironment
(“TME”) of four patients, with a reduction of FOXP3+ regulatory T cells within the tumors of 3/6 patients. Increased
T cell responses to HPV E6 supports enhanced immune activity against additional tumor targets. Changes to the TME included cytotoxic
T cell infiltration into the post-resection tumor, increased immune activation, a reduction of regulatory T cells, infiltration
of cytotoxic T cells, and increased expression of inflammatory activation markers. In addition, fluctuations of circulating serum
cytokine were observed suggesting consumption by activated T cells and migration of T cells to the TME. This study met its Stage
1 primary objective and is now advancing into the second stage of the clinical study. Stage 2 of the clinical study is currently
accruing patients.
As
stated above, we have entered into a clinical trial collaboration agreement with MedImmune to collaborate on a Phase 1/2, open-label,
multicenter, two part study to evaluate safety and efficacy of axalimogene filolisbac, in combination with durvalumab (MEDI4736),
for patients with metastatic squamous or non-squamous carcinoma of the cervix and metastatic HPV-associated SCCHN.
Axalimogene
filolisbac has received FDA orphan drug designation for HPV-associated head and neck cancer.
Anal
Cancer
According
to the American Cancer Society, nearly all squamous cell anal cancers are linked to infection by HPV, the same virus that causes
cervical cancer. According to the SEER database, approximately 7,500 new cases will be diagnosed in the United States in 2016.
The
safety and efficacy of axalimogene filolisbac was evaluated in a Phase 2 study under an investigator-sponsored IND by Brown University
in patients with high-risk locally advanced anal cancer. As of December 2016, 11 patients were enrolled and all patients who have
completed treatment experienced a six-month complete response (n=9), with no evidence of recurrence. Expected complete response
rate at six-months is approximately 50% and the complete response rate in this study is 90% (9 out of 10 treated patients). The
follow-up duration is six-months to 33 months. In consideration of these data, no further enrollment in this study is planned
and the investigator at Brown University is evaluating the opportunity to transition this study into a NCI-funded cooperative
group trial to evaluate the safety and efficacy of axalimogene filolisbac in a pivotal Phase 2/3 anal cancer trial, to be conducted
by NRG Oncology. In advance of the foregoing, we have entered into a clinical trial collaboration agreement with the Radiation
Therapy Oncology Group (“RTOG”) Foundation for the conduct of such study. Depending on the Company’s ability
to agree upon the study design and budget, the Company plans to initiate a registrational study in high-risk locally advanced
anal cancer.
We
are conducting a Phase 2 multi-center, open-label, Simon two-stage study (“FAWCETT” or “
F
ighting
A
nal-Cancer
w
ith
C
TL
E
nhancing
T
umor
T
herapy”), testing axalimogene filolisbac in patients with persistent
or recurrent metastatic anal cancer. FAWCETT is designed to evaluate the efficacy and safety of axalimogene filolisbac as a monotherapy
in patients with HPV-associated metastatic anal cancer who have received at least one prior treatment regimen for the advanced
disease. Stage 1 of the trial enrolled 36 patients with anal cancer whose disease recurred after receiving treatment. Enrollment
of Stage 2 will begin following the evaluation of Stage 1 and is targeting enrollment of 60 patients. Patients will receive axalimogene
filolisbac 1x10
9
CFU doses every three weeks for up to two years.
Axalimogene
filolisbac has received FDA and EMA orphan drug designation for anal cancer.
ADXS-PSA
Franchise
Prostate
Cancer
According
to the American Cancer Society, prostate cancer is the second most common type of cancer found in American men. Prostate cancer
is the second leading cause of cancer death in men, behind only lung cancer. One man in seven will get prostate cancer during
his lifetime, and one man in 36 will die of this disease. About 180,890 new cases will be diagnosed in the United States in 2016
according to the SEER database and accounts for approximately 11% of all new cancer cases.
ADXS-PSA
is an
Lm
–based antigen delivery system designed to target the PSA antigen commonly overexpressed in prostate cancer.
We
have entered into a clinical trial collaboration and supply agreement with Merck & Co. (“Merck”) to evaluate the
safety and efficacy of ADXS-PSA as monotherapy and in combination with KEYTRUDA
®
(pembrolizumab), Merck’s
anti PD-1 antibody, in a Phase 1/2, open-label, multicenter, dose escalation and expansion study in patients with previously treated
metastatic, castration-resistant prostate cancer. For the ADXS-PSA monotherapy dose escalation portion of the study, cohorts were
successfully escalated to higher dose levels of 5x10
9
CFU and 1x10
10
CFU without achieving a maximum tolerated
dose. Side effects noted at these higher dose levels were generally consistent with those observed at the lower dose level, other
than a higher occurrence rate of predominantly Grade 2/3 hypotension. The ADXS-PSA monotherapy portion of this clinical trial
has been completed and accrual and patient treatment has begun in the cohort combining ADXS-PSA and KEYTRUDA
®
(pembrolizumab).
ADXS-HER2
Franchise
HER2
Expressing Solid Tumors
HER2
is overexpressed in a percentage of solid tumors including osteosarcoma. According to the SEER database and recent published literature,
approximately 60-70% of osteosarcoma are HER2 positive, which is associated with poor outcomes for patients.
ADXS-HER2
is an
Lm
–based antigen delivery system designed to target HER2 expressing solid tumors including human and canine
osteosarcoma. The FDA has cleared our IND application and we have initiated a Phase 1b study in patients with metastatic HER2-expressing
cancers. Thereafter, we intend to initiate a clinical development program with ADXS-HER2 for the treatment of pediatric osteosarcoma.
Osteosarcoma
Osteosarcoma
affects about 400 children and teens in the U.S. every year, representing a small but significant unmet medical need that has
seen little therapeutic improvement in decades. Osteosarcoma is considered a rare disease and may qualify for regulatory incentives
including, but not limited to, orphan drug designation, patent term extension, market exclusivity, and development grants. Given
the limited availability of new treatment options for osteosarcoma, and that it is an unmet medical need affecting a very small
number of patients in the U.S. annually, we believe that, subject to regulatory approval, the potential to be on the market may
be accelerated.
Based
on encouraging data discussed below from a veterinarian clinical study in which pet dogs with naturally occurring osteosarcoma
were treated with ADXS-HER2, we intend to initiate a clinical development program with ADXS-HER2 for the treatment of human osteosarcoma.
Both veterinary and human osteosarcoma specialists consider canine osteosarcoma to be the best model for human osteosarcoma.
ADXS-HER2
has received FDA and EMA orphan drug designation for osteosarcoma and has received Fast Track designation from the FDA for patients
with newly-diagnosed, non-metastatic, surgically-resectable osteosarcoma.
Canine
Osteosarcoma
Osteosarcoma
is the most common primary bone tumor in dogs, accounting for roughly 85% of tumors on the canine skeleton. Approximately 10,000
dogs a year (predominately middle to older-aged dogs and larger breeds) are diagnosed with osteosarcoma in the United States.
This cancer initially presents as lameness and oftentimes visible swelling on the leg. Current standard of care treatment is amputation
immediately after diagnosis, followed by chemotherapy. Median survival time with standard of care is ten to twelve months. For
dogs that cannot undergo amputation, palliative radiation and analgesics are frequently employed and median survival times range
from three to five months.
Under
the direction of Dr. Nicola Mason, the University of Pennsylvania School of Veterinary Medicine is conducting studies in companion
dogs evaluating the safety and efficacy of ADXS-HER2 in the treatment of naturally occurring canine osteosarcoma. In the initial
study, the primary endpoint was to determine the maximum tolerated dose of ADXS-HER2. Secondary endpoints for the study were progression-free
survival and overall survival. The findings of the Phase 1 clinical trial in dogs with osteosarcoma suggest that ADXS-HER2 is
safe and well tolerated at doses up to 3.3 x 10
9
CFU with no evidence of significant cardiac, hematological, or other
systemic toxicities. The study determined that ADXS-HER2 is able to delay or prevent metastatic disease and significantly prolong
overall survival in dogs with osteosarcoma that had minimal residual disease following standard of care (amputation and follow-up
chemotherapy). This work was recently published in the September 2016 issue of Clinical Cancer Research. Dogs receiving ADXS-HER2
following standard of care (n=18) had a progression free survival of 615 days and a median survival time of 956 days. These results
compared favorably to a historical control group where the median survival time was 423 days. A second study conducted by Dr.
Mason has evaluated the effects of combination palliative radiation with ADXS-HER2 on dogs with primary osteosarcoma who were
unsuitable for amputation (n=15). Preliminary data was presented at the 2015 ACVIM Forum and showed that repeat doses of ADXS-HER2
administered after palliative radiation were well tolerated with no systemic or cardiac toxicity. In long-term follow-up, several
dogs have experienced prolonged survival times ranging from 21 to 30 months.
On
March 19, 2014, we entered into a definitive Exclusive License Agreement with Aratana Therapeutics Inc. (“Aratana”),
where we granted Aratana an exclusive, worldwide, royalty-bearing license, with the right to sublicense, certain of our proprietary
technology that enables Aratana to develop and commercialize animal health products that will be targeted for treatment of osteosarcoma
and other cancer indications in animals. A product license request has been filed by Aratana for ADXS-HER2 (also known as AT-014
by Aratana) for the treatment of canine osteosarcoma with the USDA. Aratana received communication from the USDA in March 2015
stating that the previously submitted efficacy data for product licensure for AT-014 (ADXS-HER2), the cancer immunotherapy for
canine osteosarcoma, was accepted and that it provides a reasonable expectation of efficacy that supports conditional licensure.
While additional steps need to be completed and data, when available, needs to be analyzed, including in the areas of manufacturing
and safety, we understand that Aratana anticipates that AT-014 could receive conditional licensure from the USDA in 2017.
The Company does not anticipate significant revenue from this collaboration in 2017. Aratana has been granted exclusive
worldwide rights by us to develop and commercialize ADXS-HER2 in animals. Aratana is further responsible for the conduct of clinical
research with ADXS-Survivin in canine/feline lymphoma, as well as pending investigations of two additional Advaxis constructs
in animals.
ADXS-NEO
Franchise
In
August 2016, we entered into a global agreement (the “Agreement”) with Amgen Inc. (“Amgen”) for the development
and commercialization of ADXS-NEO, a novel, investigational cancer immunotherapy treatment, using our proprietary
Lm
Technology
™
attenuated bacterial vector which activates a patient’s immune system to respond against multiple potential unique
mutations, or neoepitopes, contained in and identified from an individual patient’s tumor through DNA sequencing.
ADXS-NEO
is an individual
Lm
-based antigen delivery technology combined with a fusion protein based on information captured by comparing
a patient’s own DNA with the DNA from that patient’s tumor. It will target multiple patient specific neoantigens resulting
from mutations found within each individual patient’s tumor that are not present in normal cells. Each ADXS-NEO construct
is designed to target the non-synonymous mutations found in the tumor, which is unique to the each patient’s cancer. ADXS-NEO
works by presenting a large payload of neoantigens directly into dendritic cells within the patient’s immune system and
stimulating a T-cell response against cancerous cells. The FDA has cleared the IND application of our new precision immunotherapy
(ADXS-NEO) for the treatment of cancers and we plan to initiate a Phase 1 study in 2017 under our Agreement with Amgen.
The
goal of MINE™ is to use our
Lm
Technology™ to develop patient specific neo-epitope targeted immunotherapies
based on mutations found in an individual patient’s tumor (“ADXS-NEO”). MINE™ will first focus on a preclinical
study of our new construct approach to evaluate the immunologic effects and anti-tumor activity of a personalized immunotherapy
in mouse tumor models to inform subsequent clinical trials. Clinical studies using ADXS-NEO are in active development in collaboration
with our partner, Amgen. Further, we have entered into various research collaboration, including the Parker Institute for Cancer
Immunotherapy, to advance the study of neoepitope-based, personalized cancer therapy as part of the
T
umor neoantig
E
n
S
e
L
ection
A
lliance (“TESLA”) initiative.
ADXS-HOT
Franchise (preclinical)
We
are developing
Lm
-based constructs that could target common (public or shared) or “hot-spot” mutations in tumor
driver genes. ADXS-HOT products may target acquired public mutations in tumor driver genes that are shared by multiple patients,
and could have greater immunogenicity than the natural sequence peptides in normal cells. ADXS-HOT products are expected to be
“off the shelf” and ready to administer for multiple patients. DNA sequencing is not required and presence of the
hot-spot target can usually be determined by a rapid biomarker test. The ability to combine multiple constructs may increase coverage
and the potential for clinical benefit.
Lm-based
Combination Franchise
Axalimogene
filolisbac and Durvalumab
As
further described above, we have entered into a clinical trial collaboration agreement with MedImmune to conduct a Phase 1/2,
open-label, multicenter, two part study to evaluate safety and efficacy of axalimogene filolisbac, in combination with MedImmune’s
investigational anti-PD-L1 immune checkpoint inhibitor, durvalumab (MEDI4736), as a combination treatment for patients with metastatic
squamous or non-squamous carcinoma of the cervix and metastatic HPV-associated SCCHN. For the axalimogene filolisbac and durvalumab
dose escalation portion of the study, the dose-escalation cohort has been completed. We have commenced enrollment in the Part
A (20 patients with SCCHN) and B (90 patients with cervical cancer) expansion phases. Accrual is ongoing.
ADXS-PSA
and KEYTRUDA® (pembrolizumab
)
As
further described above, we have entered into a clinical trial collaboration agreement with Merck to evaluate the safety and efficacy
of ADXS-PSA as monotherapy and in combination with KEYTRUDA
®
(pembrolizumab), Merck’s anti PD-1 antibody,
in a Phase 1/2, open-label, multicenter, dose escalation and expansion study in patients with previously treated metastatic, castration-resistant
prostate cancer. For the ADXS-PSA monotherapy dose escalation portion of the study, cohorts were successfully escalated to higher
dose levels of 5x10
9
CFU and 1x10
10
CFU without achieving a maximum tolerated dose. Side effects noted at
these higher dose levels were generally consistent with those observed at the lower dose level, other than a higher occurrence
rate of predominantly Grade 2/3 hypotension. The ADXS-PSA monotherapy portion of this clinical trial has been completed and accrual
and patient treatment has begun in the cohort combining ADXS-PSA and KEYTRUDA
®
(pembrolizumab).
Lm-based
Antigen Delivery System- (preclinical)
We
are developing other ways to exploit the potential of our
Lm
Technology™ including, but not limited to, the use of
Lm
Technology™ in Infectious Disease. We have various preclinical collaborations with academic and other centers
of excellence to explore the potential opportunities in this disease area. Preclinical data of detoxified Listeriolysin O (“dtLLO”)
shows potential use as an immunologic adjuvant or carrier for vaccinations. We intend to continue to explore the potential of
dtLLO as an adjuvant molecule in cancer as well as development of potential vaccines for infectious diseases.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 2017 AND 2016
Revenue
During
the quarter ended January 31, 2017, the Company recorded revenue of $3,790,842. The Company recognized $3,540,842 of revenue from
the collaboration agreement with Amgen related to amortization of the upfront fees received. In addition, $250,000 of revenue
was due to the receipt of an annual exclusive license fee from GBP for the development and commercialization of Axalimogene filolisbac.
During
the quarter ended January 31, 2016, the Company recorded revenue of $250,000 due to the receipt of an annual exclusive license
fee from GBP for the development and commercialization of Axalimogene filolisbac.
Research
and Development Expenses
We
make significant investments in research and development in support of our development programs both clinically and pre-clinically.
Research and development costs are expensed as incurred and primarily include salary and benefit costs, third-party grants, fees
paid to clinical research organizations, and supply costs. Research and development expenses for the three months ended January
31, 2017 and 2016 were categorized as follows:
|
|
Three Months Ended January 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Axalimogene filolisbac Franchise
|
|
$
|
3,964,585
|
|
|
$
|
2,910,121
|
|
ADXS-PSA Franchise
|
|
|
886,630
|
|
|
|
597,458
|
|
ADXS-HER2 Franchise
|
|
|
470,964
|
|
|
|
35,150
|
|
ADXS-NEO Franchise
|
|
|
397,774
|
|
|
|
310,510
|
|
Personnel Expenses
|
|
|
4,754,838
|
|
|
|
7,412,671
|
|
Professional Fees
|
|
|
1,570,729
|
|
|
|
1,403,138
|
|
Laboratory Costs
|
|
|
1,269,731
|
|
|
|
251,688
|
|
Other Expenses
|
|
|
333,303
|
|
|
|
144,218
|
|
Total Research & Development Expense
|
|
|
13,648,554
|
|
|
|
13,064,954
|
|
Axalimogene
Filolisbac Franchise
Axalimogene
filolisbac expenses were $3,964,585 for the three months ended January 31, 2017 compared to $2,910,121 for the three months ended
January 31, 2016, an increase of $1,054,464. The increase resulted from close-out costs associated with the Phase 2 GOG-0265 trial
and manufacturing related costs to support the clinical program.
ADXS-PSA
Franchise
PSA
expenses were $886,630 for the three months ended January 31, 2017 as compared to $597,458 for the three months ended January
31, 2016, an increase of $289,172. The increase resulted from higher costs incurred on the Phase 1/2 study in combination with
Merck’s KEYTRUDA
®
(pembrolizumab).
ADXS-HER2
Franchise
HER2
expenses were $470,964 for the three months ended January 31, 2017 compared to $35,150 for the three months ended January 31,
2016, and increase of $435,814. The increase was attributable to higher manufacturing costs to support the clinical program.
ADXS-NEO
Franchise
NEO
expenses were $397,774 for the three months ended January 31, 2017 compared to $310,510 for the three months ended January 31,
2016, an increase of $87,264. The increase was attributable to pre-IND activities.
Personnel
Expenses
Personnel
expenses were $4,754,838 for the three months ended January 31, 2017 compared to $7,412,671 for the three months ended January
31, 2016, a decrease of $2,657,833. Stock based compensation pertaining to present and past employees decreased by approximately
$3,778,000 which was partially offset by an increase in headcount.
Professional
Fees
Professional
fees were $1,570,729 for the three months ended January 31, 2017 compared to $1,403,138 for the three months ended January 31,
2016. Professional fees during the quarter ended January 31, 2017 were consistent with the comparable prior period.
Laboratory
Costs
Laboratory
costs were $1,269,731 for the three months ended January 31, 2017 compared to $251,688 for the three months ended January 31,
2016, an increase of $1,018,043. An increase in headcount and the expansion of laboratory space accounted for the increase.
Other
Expenses
Other
expenses were $333,303 for the three months ended January 31, 2017 compared to $144,218 for the three months ended January 31,
2016, an increase of $189,085. The increase was due to additional infrastructure costs incurred to support the increased headcount
and laboratory expansion.
We
anticipate a significant increase in research and development expenses as a result of our intended expanded development and commercialization
efforts primarily related to clinical trials and product development. In addition, we expect to incur expenses in the development
of strategic and other relationships required to license, manufacture and distribute our product candidates when they are approved.
General
and Administrative Expenses
General
and administrative expenses primarily include salary and benefit costs for employees included in our finance, legal and administrative
organizations, outside legal and professional services, and facilities costs. General and administrative expenses were approximately
$7.3 million for the three months ended January 31, 2017, compared with approximately $7.1 million for the three months ended
January 31, 2016, an increase of approximately $0.2 million. Costs pertaining to the Company’s infrastructure expansion,
including leased space and information technology related costs, increased by approximately $0.4 million. Investor relations costs
increased by approximately $0.3 million. This was partially offset by a decrease in legal costs of approximately $0.4 million.
Interest
Income
Interest
income was $145,137 for the three months ended January 31, 2017, compared with $71,800 for the three months ended January 31,
2016. The increase in interest income earned was attributable to an increase in cash resulting from sales of the Company’s
common shares. The cash was invested in held-to-maturity investments and a savings account.
Changes
in Fair Values
For
the three months ended January 31, 2017, the Company recorded non-cash income from changes in the fair value of the warrant liability
of $9,504 due to a smaller range of share prices used in the calculation of the Black-Scholes Model (“BSM”) volatility
input.
For
the three months ended January 31, 2016, the Company recorded non-cash income from changes in the fair value of the warrant liability
of $49,282 due to a decrease in the fair value of liability warrants primarily resulting from a decrease in our share price from
$11.09 at October 31, 2015 to $6.82 at January 31, 2016.
Income
Tax Expense
During
the quarter ended January 31, 2017, we paid $50,000 in Taiwanese withholding taxes in connection with the revenue generated from
an annual exclusive license fee from GBP.
During
the quarter ended January 31, 2016, we paid $50,000 in Taiwanese withholding taxes in connection with the revenue generated from
an annual exclusive license fee from GBP. The taxes paid were offset by receipt of a net cash amount of $35,774 in excess of what
was recorded as Income Tax Receivable at October 31, 2015 from the sale of our state NOLs and research and development tax credits
for the period ended October 31, 2014.
Liquidity
and Capital Resources
Our
major sources of cash have been proceeds from various public and private offerings of our common stock, option and warrant exercises,
and interest income. From October 2013 through February 2017, we raised approximately $221.8 million in gross proceeds from various
public and private offerings of our common stock. We have not yet commercialized any drug, and we may not become profitable. Our
ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain
regulatory approvals for our drug, successfully complete any post-approval regulatory obligations, successfully compete with other
available treatment options in the marketplace, overcome any clinical holds that the FDA may impose and successfully manufacture
and commercialize our drug alone or in partnership. We may continue to incur substantial operating losses even after we begin
to generate revenues from our drug candidates. As of January 31, 2017, the Company had approximately $136.9 million in cash, cash
equivalents and investments on its balance sheet. We believe our current cash position is sufficient to fund our business plan
approximately through the second quarter of fiscal 2019. The actual amount of cash that we will need to operate is subject to
many factors.
Since
our inception through January 31, 2017, we reported accumulated net losses of approximately $224.8 million and recurring negative
cash flows from operations. We anticipate that we will continue to generate significant losses from operations for the foreseeable
future.
Cash
used in operating activities for the three months ended January 31, 2017 was approximately $14.1 million (including proceeds from
the sale of our state NOLs and R&D tax credits of approximately $2.5 million) primarily from spending associated with our
clinical trial programs and general and administrative spending.
Cash
used in operating activities for the three months ended January 31, 2016 was approximately $4.9 million (including proceeds from
the sale of our state NOLs and R&D tax credits of approximately $1.6 million) primarily from spending associated with our
clinical trial programs and general and administrative spending.
Cash
used in investing activities for the three months ended January 31, 2017 was approximately $41.2 million resulting from investments
in held-to-maturity investments, purchases of property and equipment, legal cost spending in support of our intangible assets
(patents) and costs paid to Penn for patents.
Cash
used in investing activities for the three months ended January 31, 2016 was approximately $3.2 million resulting from investments
in held-to-maturity investments, purchases of property and equipment, legal cost spending in support of our intangible assets
(patents) and costs paid to Penn for patents.
Cash
provided by financing activities for the three months ended January 31, 2017 was approximately $124,000, resulting from net cash
received related to employee withholdings of equity awards.
Cash
provided by financing activities for the three months ended January 31, 2016 was approximately $235,000, resulting from approximately
$614,000 in proceeds received on option and warrant exercises. This was partially offset by approximately $379,000 in net cash
paid related to employee withholdings of equity awards.
Our
capital resources and operations to date have been funded primarily with the proceeds from public, private equity and debt financings,
NOL tax sales and income earned on investments and grants. We have sustained losses from operations in each fiscal year since
our inception, and we expect losses to continue for the indefinite future, due to the substantial investment in research and development.
As of January 31, 2017 and October 31, 2016, we had an accumulated deficit of $224,787,828 and $207,706,825, respectively, and
shareholders’ equity of $107,368,501 and $119,302,194, respectively.
The
Company believes its current cash position is sufficient to fund its business plan approximately through second quarter of fiscal
2019. We have based this estimate on assumptions that may prove to be wrong, and we could use available capital resources sooner
than currently expected. Because of the numerous risks and uncertainties associated with the development and commercialization
of our product candidates, we are unable to estimate the amount of increased capital outlays and operating expenses associated
with completing the development of our current product candidates.
The
Company recognizes it may need to raise additional capital in order to continue to execute its business plan. There is no assurance
that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable
to the Company or whether the Company will become profitable and generate positive operating cash flow. If the Company is unable
to raise sufficient additional funds, it will have to scale back its business plan, extend payables and reduce overhead until
sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
Contractual
Commitments and Obligations
The
disclosure of our contractual obligations and commitments was reported in our Annual Report on Form 10-K for the year ended October
31, 2016. There have been no material changes from the contractual commitments and obligations previously disclosed in our Annual
Report on Form 10-K other than the changes described in Note 9, “Commitments and Contingencies” in this Quarterly
Report on Form 10-Q.
Off-Balance
Sheet Arrangements
As
of January 31, 2017, we had no off-balance sheet arrangements.
Critical
Accounting Estimates
The
preparation of financial statements in accordance with GAAP accepted in the U.S. requires management to make estimates and assumptions
that affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate
to be critical if:
|
●
|
it
requires assumptions to be made that were uncertain at the time the estimate was made, and
|
|
|
|
|
●
|
changes
in the estimate of difference estimates that could have been selected could have material impact in our results of operations
or financial condition.
|
While
we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the
circumstances, actual results could differ from those estimates and the differences could be material. The most significant estimates
impact the following transactions or account balances: stock compensation, warrant liability valuation and impairment of intangibles.
See
Note 2 to our financial statements that discusses significant accounting policies.
New
Accounting Pronouncements
See
Note 2 to our financial statements that discusses new accounting pronouncements.