ITEM
1. FINANCIAL STATEMENTS
ADVAXIS,
INC.
CONDENSED
BALANCE SHEETS
|
|
July
31, 2017
|
|
|
October
31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
15,013,455
|
|
|
$
|
112,750,980
|
|
Investments
– Held-to-Maturity
|
|
|
74,391,856
|
|
|
|
39,336,548
|
|
Interest
Receivable
|
|
|
226,798
|
|
|
|
80,142
|
|
Prepaid
Expenses
|
|
|
1,283,010
|
|
|
|
812,830
|
|
Income
Tax Receivable
|
|
|
-
|
|
|
|
2,549,862
|
|
Deferred
Expenses
|
|
|
5,368,234
|
|
|
|
4,291,385
|
|
Other
Receivable
|
|
|
1,500,000
|
|
|
|
-
|
|
Other
Current Assets
|
|
|
99,903
|
|
|
|
53,451
|
|
Total
Current Assets
|
|
|
97,883,256
|
|
|
|
159,875,198
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment (net of accumulated depreciation)
|
|
|
7,337,337
|
|
|
|
4,389,074
|
|
Intangible
Assets (net of accumulated amortization)
|
|
|
4,942,161
|
|
|
|
4,329,121
|
|
Deferred
Expenses- net of current portion
|
|
|
59,487
|
|
|
|
-
|
|
Other
Assets
|
|
|
499,427
|
|
|
|
450,667
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
110,721,668
|
|
|
$
|
169,044,060
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
2,981,478
|
|
|
$
|
1,720,428
|
|
Accrued
Expenses
|
|
|
6,162,454
|
|
|
|
10,905,003
|
|
Deferred
Revenue
|
|
|
12,106,973
|
|
|
|
15,020,576
|
|
Lease
Incentive Obligation
|
|
|
40,226
|
|
|
|
40,226
|
|
Common
Stock Warrant Liability
|
|
|
-
|
|
|
|
20,156
|
|
Total
Current Liabilities
|
|
|
21,291,131
|
|
|
|
27,706,389
|
|
|
|
|
|
|
|
|
|
|
Deferred
Rent
|
|
|
646,025
|
|
|
|
475,749
|
|
Deferred
Revenue- net of current portion
|
|
|
14,130,329
|
|
|
|
21,234,568
|
|
Lease
Incentive Obligation – net of current portion
|
|
|
294,991
|
|
|
|
325,160
|
|
Total
Liabilities
|
|
|
36,362,476
|
|
|
|
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 July 31,
2017 and October 31, 2016. Liquidation preference of $0 at July 31, 2017 and October 31, 2016.
|
|
|
-
|
|
|
|
-
|
|
Common
Stock - $0.001 par value; 65,000,000 shares authorized, 40,996,342 shares issued and outstanding at July 31, 2017 and 40,057,067
shares issued and 40,041,047 shares outstanding at October 31, 2016.
|
|
|
40,996
|
|
|
|
40,057
|
|
Additional
Paid-In Capital
|
|
|
352,199,274
|
|
|
|
327,098,749
|
|
Treasury
Stock, at cost, 0 shares at July 31, 2017 and 16,020 shares at October 31, 2016.
|
|
|
-
|
|
|
|
(129,787
|
)
|
Accumulated
Deficit
|
|
|
(277,881,078
|
)
|
|
|
(207,706,825
|
)
|
Total
Shareholders’ Equity
|
|
|
74,359,192
|
|
|
|
119,302,194
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
110,721,668
|
|
|
$
|
169,044,060
|
|
The
accompanying notes are an integral part of these condensed financial statements.
ADVAXIS,
INC.
STATEMENTS
OF OPERATIONS
(unaudited)
|
|
Three
Months Ended
July 31,
|
|
|
Nine
Months Ended
July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,051,620
|
|
|
$
|
-
|
|
|
$
|
10,267,842
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and Development Expenses
|
|
|
17,798,139
|
|
|
|
10,142,232
|
|
|
|
47,755,429
|
|
|
|
31,965,596
|
|
General
and Administrative Expenses
|
|
|
18,063,555
|
|
|
|
6,423,988
|
|
|
|
33,171,062
|
|
|
|
20,395,635
|
|
Total
Operating Expenses
|
|
|
35,861,694
|
|
|
|
16,566,220
|
|
|
|
80,926,491
|
|
|
|
52,361,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(32,810,074
|
)
|
|
|
(16,566,220
|
)
|
|
|
(70,658,649
|
)
|
|
|
(52,111,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
184,479
|
|
|
|
73,872
|
|
|
|
514,363
|
|
|
|
216,061
|
|
Net
Changes in Fair Value of Derivative Liabilities
|
|
|
-
|
|
|
|
6,340
|
|
|
|
20,156
|
|
|
|
56,214
|
|
Other
Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(123
|
)
|
|
|
(201
|
)
|
Net
Loss Before Income Taxes
|
|
|
(32,625,595
|
)
|
|
|
(16,486,008
|
)
|
|
|
(70,124,253
|
)
|
|
|
(51,839,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Tax Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
14,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(32,625,595
|
)
|
|
|
(16,486,008
|
)
|
|
|
(70,174,253
|
)
|
|
|
(51,853,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Per Share, Basic and Diluted
|
|
$
|
(0.80
|
)
|
|
$
|
(0.48
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(1.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding, Basic and Diluted
|
|
|
40,609,794
|
|
|
|
34,375,814
|
|
|
|
40,315,356
|
|
|
|
34,061,127
|
|
The
accompanying notes are an integral part of these condensed financial statements.
ADVAXIS,
INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Nine
Months Ended
July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(70,174,253
|
)
|
|
$
|
(51,853,393
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock
compensation
|
|
|
24,694,464
|
|
|
|
19,369,948
|
|
Gain
on change in value of warrants and embedded derivative
|
|
|
(20,156
|
)
|
|
|
(56,214
|
)
|
Loss
on disposal of property and equipment
|
|
|
3,187
|
|
|
|
-
|
|
Impairment
of intangible assets
|
|
|
107,626
|
|
|
|
-
|
|
Employee
stock purchase plan
|
|
|
223,119
|
|
|
|
28,189
|
|
Depreciation
expense
|
|
|
553,779
|
|
|
|
163,581
|
|
Amortization
expense of intangible assets
|
|
|
239,155
|
|
|
|
183,184
|
|
Lease
incentive obligation
|
|
|
(30,169
|
)
|
|
|
375,443
|
|
Amortization
of premium on held-to-maturity investments
|
|
|
150,062
|
|
|
|
218,733
|
|
Deferred
rent
|
|
|
170,276
|
|
|
|
374,724
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
(146,656
|
)
|
|
|
5,128
|
|
Prepaid
expenses
|
|
|
(470,180
|
)
|
|
|
(428,788
|
)
|
Income
tax receivable
|
|
|
2,549,862
|
|
|
|
1,609,349
|
|
Other
receivable
|
|
|
(1,500,000
|
)
|
|
|
-
|
|
Other
current assets
|
|
|
(46,452
|
)
|
|
|
(13,714
|
)
|
Deferred
expenses
|
|
|
(1,136,336
|
)
|
|
|
(3,614,485
|
)
|
Other
assets
|
|
|
(48,760
|
)
|
|
|
(320,109
|
)
|
Accounts
payable and accrued expenses
|
|
|
(3,634,230
|
)
|
|
|
2,817,033
|
|
Deferred
revenue
|
|
|
(10,017,842
|
)
|
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(58,533,504
|
)
|
|
|
(31,141,391
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases
of held-to-maturity investments
|
|
|
(73,425,703
|
)
|
|
|
(24,248,963
|
)
|
Proceeds
from maturities and redemptions on held-to-maturity investments
|
|
|
38,220,333
|
|
|
|
20,649,000
|
|
Purchase
of property and equipment
|
|
|
(3,419,298
|
)
|
|
|
(2,003,804
|
)
|
Cost
of intangible assets
|
|
|
(959,821
|
)
|
|
|
(602,827
|
)
|
Net
cash used in investing activities
|
|
|
(39,584,489
|
)
|
|
|
(6,206,594
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
proceeds of issuance of common stock
|
|
|
705,868
|
|
|
|
-
|
|
Proceeds
from exercise of warrants
|
|
|
1,125
|
|
|
|
614,368
|
|
Taxes
paid related to net share settlement of equity awards
|
|
|
(354,262
|
)
|
|
|
(52,752
|
)
|
Employee
tax withholdings paid on equity awards
|
|
|
(1,547,612
|
)
|
|
|
(1,926,763
|
)
|
Tax
shares sold to pay for employee tax withholdings on equity awards
|
|
|
1,575,349
|
|
|
|
1,893,645
|
|
Net
cash provided by financing activities
|
|
|
380,468
|
|
|
|
528,498
|
|
Net
decrease in cash and cash equivalents
|
|
|
(97,737,525
|
)
|
|
|
(36,819,487
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
112,750,980
|
|
|
|
66,561,683
|
|
Cash
and cash equivalents at end of period
|
|
$
|
15,013,455
|
|
|
$
|
29,742,196
|
|
The
accompanying notes are an integral part of these condensed financial statements.
Supplemental
Disclosures of Cash Flow Information
|
|
Nine
months ended
July 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash
paid for taxes
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Supplemental
Schedule of Non-Cash Investing and Financing Activities
|
|
Nine
months ended
July 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accrued
expenses from consultants settled with common stock
|
|
$
|
75,000
|
|
|
$
|
55,000
|
|
Conversion
of notes payable into common stock
|
|
$
|
-
|
|
|
$
|
29,549
|
|
Property
and equipment included in accounts payable and accrued expenses
|
|
$
|
85,931
|
|
|
$
|
34,797
|
|
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 late-stage biotechnology company focused on the discovery, development
and commercialization of proprietary
Lm
-based antigen delivery products. These immunotherapies are based on a platform
technology that utilizes live attenuated
Listeria monocytogenes
(“
Lm
” 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.
Advaxis
has developed a strong foothold in the development of immunotherapies, including both axalimogene filolisbac and
ADXS-DUAL (ADXS-602) for HPV-related cancers. Axalimogene filolisbac is an
Lm
–based antigen delivery product
directed against the Human Papilloma Virus (“HPV”) and designed to target cells expressing the HPV. ADXS-DUAL, the
Company’s second immunotherapy targeting HPV-associated cancers, is an
Lm
-based immunotherapy that secretes a fusion
protein containing E7 protein antigens from both major families of HPV.
The
Company completed a randomized Phase 2 study in 110 patients with recurrent metastatic 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 metastatic 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.
Upon early closure of this study, the results from both stages totaling 50 patients dosed resulted 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, pending FDA feedback, is planning to initiate a global,
randomized, registrational quality clinical trial in 1H 2018 in the metastatic cervical cancer setting with ADXS-DUAL in
combination with Bristol-Myers Squibb’s (“BMS”) PD-1 immune checkpoint inhibitor, OPDIVO
®
(nivolumab).
The Company also plans to pursue registrational opportunities in Europe in 2017 for the metastatic cervical cancer setting as
a monotherapy with axalimogene filolisbac.
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
(ADXS31-142) 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
(ADXS31-164) 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 was evaluated in
a Phase 1b clinical trial in patients with metastatic HER2 expressing solid tumors. The Company has evaluated the data, and based
on the Company’s priorities, has determined not to pursue further clinical study of ADXS-HER2 at this time but remains
open to investigator-initiated research or licensing proposals. 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 product 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 for clinical investigation of a new precision immunotherapy for the treatment of cancers. The Company plans
to initiate a Phase 1 study in first half of 2018.
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 canine 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,
which it refers to as ADXS-HOT. Lastly, the Company completed construction for its pilot plant 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 July 31 2017, the Company had
approximately $89.4 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 into approximately 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. 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 intangible assets (patents and licenses), the fair value of stock options,
the fair value of embedded conversion features, 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.
Reclassifications
Certain
amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial
statements. These reclassifications had no effect on the previously reported net loss.
Collaboration
Agreements
The
Company evaluates whether an arrangement is a collaborative arrangement under the Financial Accounting Standards Board (the “FASB”)
Accounting Standards Codification (“ASC”) Topic 808,
Collaborative Arrangements
, at its inception based
on the facts and circumstances specific to the arrangement. The Company also reevaluates whether an arrangement qualifies or continues
to qualify as a collaborative arrangement whenever there is a change in either the roles of the participants or the participants’
exposure to significant risks and rewards dependent on the ultimate commercial success of the endeavor. For those collaborative
arrangements where it is determined that the Company is the principal participant, costs incurred and revenue generated from third
parties are recorded on a gross basis in the financial statements.
From
time to time, the Company enters into collaborative arrangements for the research and development, manufacture and/or commercialization
of products and product candidates. These collaborations generally provide for non-refundable, upfront license fees, research
and development and commercial performance milestone payments, cost sharing, royalty payments and/or profit sharing. The Company’s
collaboration agreements with third parties are performed on a ‘‘best efforts’’ basis with no guarantee
of either technological or commercial success.
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 July 31, 2017 and October 31, 2016, the Company had approximately $8.3 million and $106.7 million, respectively, 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 $13.7
million is subject to credit risk at July 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, accounts payable and accrued expenses 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 July 31,
|
|
|
|
2017
|
|
|
2016
|
|
Warrants
|
|
|
3,094,173
|
|
|
|
3,110,575
|
|
Stock
Options
|
|
|
3,893,558
|
|
|
|
3,351,794
|
|
Restricted
Stock Units
|
|
|
1,527,693
|
|
|
|
762,909
|
|
Total
|
|
|
8,515,424
|
|
|
|
7,225,278
|
|
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 FASB issued 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, in May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, and in December 2016
the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, 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 the Company’s financial statements.
In
February 2016, the FASB issued ASU 2016-02, Leases (“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
June 2016, the FASB issued 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.
In
January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.”
The amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The amendments in this Update
provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that to be considered a
business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability
to create output and (2) removes the evaluation of whether a market participant could replace the missing elements. This Update
is the final version of Proposed ASU 2015-330 Business Combinations (Topic 805) – Clarifying The Definition of a Business,
which has been deleted. The amendments in this Update are effective for all entities for annual periods, and interim periods within
those annual periods, beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected to have a material
impact on the Company’s financial statements.
In
May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”
to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718,
Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in
this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to
apply modification accounting in Topic 718. This Update is the final version of Proposed ASU 2016-360—Compensation—Stock
Compensation (Topic 718)—Scope of Modification Accounting, which has been deleted. The amendments in this Update are effective
for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early
adoption is permitted. 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 July 31, 2017 and October 31, 2016:
|
|
July
31, 2017
|
|
|
|
Amortized
cost,
as adjusted
|
|
|
Gross
unrealized
holding
gains
|
|
|
Gross
Unrealized
holding
losses
|
|
|
Estimated
fair
value
|
|
Short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of Deposit
|
|
$
|
17,185,953
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17,185,953
|
|
Domestic
Governmental Agency Loans
|
|
|
2,666,361
|
|
|
|
-
|
|
|
|
795
|
|
|
|
2,665,566
|
|
U.S
Treasury Notes
|
|
|
54,539,542
|
|
|
|
-
|
|
|
|
50,347
|
|
|
|
54,489,195
|
|
Total
short-term investment securities
|
|
$
|
74,391,856
|
|
|
$
|
-
|
|
|
$
|
51,142
|
|
|
$
|
74,340,714
|
|
|
|
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:
|
|
July
31, 2017
|
|
|
October
31, 2016
|
|
Leasehold
Improvements
|
|
$
|
2,010,952
|
|
|
$
|
1,835,602
|
|
Laboratory
Equipment
|
|
|
4,028,027
|
|
|
|
2,038,704
|
|
Furniture
and Fixtures
|
|
|
721,577
|
|
|
|
549,025
|
|
Computer
Equipment
|
|
|
394,523
|
|
|
|
240,910
|
|
Construction
in Progress
|
|
|
1,152,067
|
|
|
|
151,368
|
|
Total
Property and Equipment
|
|
|
8,307,146
|
|
|
|
4,815,609
|
|
Accumulated
Depreciation
|
|
|
(969,809
|
)
|
|
|
(426,535
|
)
|
Net
Property and Equipment
|
|
$
|
7,337,337
|
|
|
$
|
4,389,074
|
|
Depreciation
expense for the three and nine months ended July 31, 2017 and 2016 was $216,376, $553,779, $68,457 and $163,581, respectively.
5.
INTANGIBLE ASSETS
Pursuant
to our license agreement with the University of Pennsylvania (“Penn”), 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:
|
|
July
31, 2017
|
|
|
October
31, 2016
|
|
License
|
|
$
|
776,992
|
|
|
$
|
776,992
|
|
Patents
|
|
|
5,763,542
|
|
|
|
4,980,610
|
|
Software
|
|
|
83,639
|
|
|
|
19,625
|
|
Total
Intangibles
|
|
|
6,624,173
|
|
|
|
5,777,227
|
|
Accumulated
Amortization
|
|
|
(1,682,012
|
)
|
|
|
(1,448,106
|
)
|
Intangible
Assets
|
|
$
|
4,942,161
|
|
|
$
|
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. Patent applications having a
net book value of $17,745 and $107,626 were abandoned and charged to
Research and Development Expenses
in the statement
of operations for the three and nine months ended July 31, 2017. No patent applications were abandoned during the three or nine
months ended July 31, 2016. Amortization expense for intangible assets is included in research and development expenses and aggregated
$87,000, $239,155, $64,440 and $183,184 for the three and nine months ended July 31, 2017 and 2016, respectively.
At
July 31, 2017, the estimated amortization expense by fiscal year based on the current carrying value of intangible assets is as
follows:
2017
(Remaining)
|
|
$
|
87,001
|
|
2018
|
|
|
348,003
|
|
2019
|
|
|
345,603
|
|
2020
|
|
|
329,959
|
|
2021
|
|
|
320,124
|
|
Thereafter
|
|
|
3,511,471
|
|
Total
|
|
$
|
4,942,161
|
|
6.
ACCRUED EXPENSES:
The
following table represents the major components of accrued expenses:
|
|
July
31, 2017
|
|
|
October
31, 2016
|
|
Salaries
and Other Compensation
|
|
$
|
2,834,381
|
|
|
$
|
2,467,650
|
|
Vendors
|
|
|
516,648
|
|
|
|
2,098,792
|
|
Professional
Fees
|
|
|
2,811,425
|
|
|
|
6,338,561
|
|
|
|
$
|
6,162,454
|
|
|
$
|
10,905,003
|
|
7.
DERIVATIVE INSTRUMENTS
Warrants
A
summary of changes in warrants for the nine months ended July 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
|
|
|
(225
|
)
|
|
$
|
5.00
|
|
Expired
|
|
|
(16,177
|
)
|
|
$
|
10.63
|
|
Outstanding
Warrants at July 31, 2017
|
|
|
3,094,173
|
|
|
$
|
5.01
|
|
At
July 31, 2017 and October 31, 2016, the Company had 3,092,395 and 3,092,619 outstanding warrants classified as equity (equity
warrants) out of it total 3,094,173 and 3,110,575 warrants, respectively. 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 equity
warrants can only be settled through the issuance of shares and are not subject to anti-dilution provisions.
Warrant
Liability
At
July 31, 2017, the Company had approximately 2,000 of its total approximately 3.09 million outstanding warrants classified as
liabilities (liability warrants). At October 31, 2016, the Company had approximately 18,000 of its total approximately 3.11 million
outstanding warrants classified as liabilities (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
July 31, 2017 and October 31, 2016, the fair value of the warrant liability was $0 and $20,156, respectively. For the three months
ended July 31, 2017 and 2016, the Company reported a gain of $0 and $6,340, respectively, due to changes in the fair value of
the warrant liability. For the nine months ended July 31, 2017 and 2016, the Company reported a gain of $20,156 and $56,214, respectively,
due to changes in the fair value of the warrant liability. In determining the fair value of the warrant liability at July 31,
2017 and October 31, 2016, the Company used the following inputs in its BSM:
|
|
July
31, 2017
|
|
|
October
31, 2016
|
|
Exercise
Price
|
|
$
|
18.75
|
|
|
$
|
10.63-18.75
|
|
Stock
Price
|
|
$
|
6.47
|
|
|
$
|
8.09
|
|
Expected
term
|
|
|
0.01
years
|
|
|
|
0.55-0.75
years
|
|
Expected
Volatility
|
|
|
67.34
|
%
|
|
|
81.84%-87.09
|
%
|
Risk
Free Interest Rate
|
|
|
1.00
|
%
|
|
|
0.51%-0.66
|
%
|
8.
SHARE BASED COMPENSATION
Restricted
Stock Units (RSUs)
A
summary of the Company’s RSU activity and related information for the nine months ended July 31, 2017 is as follows:
|
|
Number
of
|
|
|
Weighted-Average
|
|
|
|
RSUs
|
|
|
Grant
Date Fair Value
|
|
Balance
at October 31, 2016:
|
|
|
719,448
|
|
|
$
|
10.77
|
|
Granted
|
|
|
1,579,934
|
|
|
$
|
7.95
|
|
Vested
|
|
|
(722,089
|
)
|
|
$
|
9.03
|
|
Cancelled
|
|
|
(49,600
|
)
|
|
$
|
8.89
|
|
Balance
at July 31, 2017
|
|
|
1,527,693
|
|
|
$
|
8.73
|
|
As
of July 31, 2017, there was approximately $11,266,000 of unrecognized compensation cost related to non-vested RSUs, which is expected
to be recognized over a remaining weighted average vesting period of approximately 2.18 years.
As
of July 31, 2017, the aggregate intrinsic value of non-vested RSUs was approximately $9,884,000.
Employee
Stock Awards
Common
Stock issued to executives and employees related to vested incentive retention awards, employment inducements, management purchases
and employee excellence awards totaled 463,985 shares (452,084 shares on a net basis after employee taxes) and 152,056 shares
(149,833 shares on a net basis after employee taxes) for the three months ended July 31, 2017 and 2016, respectively. Total stock
compensation expense associated with these awards for the three months ended July 31, 2017 and 2016 was $4,259,656 and $1,220,832
respectively.
Common
Stock issued to executives and employees related to vested incentive retention awards, employment inducements, management purchases
and employee excellence awards totaled 717,505 shares (674,543 shares on a net basis after employee taxes) and 539,512 shares
(532,933 shares on a net basis after employee taxes) during the nine months ended July 31, 2017 and 2016, respectively. Total
stock compensation expense associated with these awards for the nine months ended July 31, 2017 and 2016 was $7,328,591 and $4,075,393,
respectively.
Furthermore,
employees were entitled to receive a performance-based year-end cash bonus. Several 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 nine months ended July 31,
2016, the total fair value of these equity purchases were $102,022, or 9,150 shares of the Company’s Common Stock.
Director
Stock Awards
Common
stock issued to Directors for compensation related to board and committee membership totaled 0 shares and 31,767 shares for the
three months ended July 31, 2017 and 2016, respectively. Total Director stock compensation expense for the three months ended
July 31, 2017 and 2016 was $101,628 and $311,205, respectively.
Common
stock issued to Directors for compensation related to board and committee membership totaled 30,000 and 125,501 shares for the
nine months ended July 31, 2017 and 2016, respectively. Total Director stock compensation expense for the nine months ended July
31, 2017 and 2016 was $301,572 and $933,615, respectively.
Stock
Options
A
summary of changes in the stock option plan for the nine months ended July 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
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled
|
|
|
(4,000
|
)
|
|
$
|
3.42
|
|
Expired
|
|
|
(11,189
|
)
|
|
$
|
17.88
|
|
Outstanding
at July 31, 2017
|
|
|
3,893,558
|
|
|
$
|
12.51
|
|
Vested
and Exercisable at July 31, 2017
|
|
|
2,795,826
|
|
|
$
|
13.05
|
|
Total
compensation cost related to the Company’s outstanding stock options, recognized in the statement of operations for the
three months ended July 31, 2017 and 2016, was approximately $9,698,000 and $3,108,000, respectively. For the nine months ended
July 31, 2017 and 2016, compensation cost related to the Company’s outstanding stock options was approximately $15,889,000
and $13,060,000, respectively.
During
the nine months ended July 31, 2017, 556,952 options were granted with a total grant date fair value of approximately $3,542,000.
During the nine months ended July 31, 2016, 1,385,000 options were granted with a total grant date fair value of approximately
$14,838,000.
As
of July 31, 2017, there was approximately $6,342,000 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 1.29 years.
As
of July 31, 2017, the aggregate intrinsic value of vested and exercisable options was approximately $27,000.
In
determining the fair value of the stock options granted during the nine months ended July 31, 2017 and 2016, the Company used
the following inputs in its BSM:
|
|
Nine
Months Ended
|
|
|
|
July
31, 2017
|
|
|
July
31, 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 July 31, 2017, 48,737 shares of Common Stock valued at $416,000 were issued to consultants for services,
of which $247,100 represented shares issued for amounts previously accrued. The Company recorded a liability on its balance sheet
for $141,800 for shares earned pursuant to consulting agreements but not delivered. During the three months ended July 31, 2016,
31,030 shares of Common Stock valued at $252,000 were issued to consultants for services. The common stock share values were based
on the dates the shares vested.
During
the nine months ended July 31, 2017, 125,549 shares of Common Stock valued at $1,108,950 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 $141,800 for shares earned pursuant to consulting agreements but not delivered. During the nine months ended July 31, 2016,
120,047 shares of Common Stock valued at $1,097,088 were issued to consultants for services. 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 and nine months ended July 31, 2017 and 2016, respectively:
|
|
Three
Months Ended July 31,
|
|
|
Nine
Months Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Research
and development
|
|
$
|
1,517,585
|
|
|
$
|
1,014,034
|
|
|
$
|
4,271,073
|
|
|
$
|
7,088,377
|
|
General
and administrative
|
|
|
12,852,729
|
|
|
|
3,994,331
|
|
|
|
20,423,391
|
|
|
|
12,281,571
|
|
Total
|
|
$
|
14,370,314
|
|
|
$
|
5,008,365
|
|
|
$
|
24,694,464
|
|
|
$
|
19,369,948
|
|
9.
COLLABORATION AND LICENSING AGREEMENTS
Amgen
On
August 1, 2016, the Company entered into a global agreement (the “Amgen Agreement”) with Amgen for the development
and commercialization of the Company’s ADXS-NEO, a novel, preclinical investigational immunotherapy, using the Company’s
proprietary Listeria monocytogenes attenuated bacterial vector which activates a patient’s immune system to respond against
unique mutations, or neoepitopes, contained in and identified from an individual patient’s tumor. Under the terms of the
Amgen Agreement, Amgen receives an exclusive worldwide license to develop and commercialize ADXS-NEO. Advaxis and Amgen will collaborate
through a joint steering committee for the development and commercialization of ADXS-NEO. Under the Amgen Agreement, Amgen will
fund the clinical development and commercialization of ADXS-NEO and Advaxis will retain manufacturing responsibilities. The Company
considered the provisions of the research and development and collaboration guidance in determining how to recognize the clinical
development payments to be received from Amgen. The Company determined the clinical development payments should be accounted for
within the scope of collaboration arrangement accounting guidance. As a result, the Company will account for the clinical development
payments as a reduction of
Research and Development Expenses
in the statement of operations. During the nine months ended
July 31, 2017, the Company received clinical development payments from Amgen totaling $4,500,000. In addition, the Company recorded
an expected clinical development payment of $1,500,000 as
Other Receivables
on the balance sheet. In August 2017, the Company
received the $1,500,000 expected clinical development payment from Amgen.
Especificos
Stendhal SA de CV
On
February 3, 2016, the Company entered into a Co-Development and Commercialization Agreement (the “Stendhal Agreement”)
with Especificos Stendhal SA de CV (“Stendhal”), for Advaxis’ lead
Lm
Technology™ immunotherapy,
Axalimogene filolisbac , in HPV-associated cancers. Under the terms of the Stendhal Agreement, Stendhal will pay $10 million (“Support
Payments”) towards the expense of AIM2CERV over the duration of the trial. Certain internal expenses of Stendhal up to $1
million shall be counted towards the $10 million in Support Payments. The Support Payments are contingent upon Advaxis achieving
annual project milestones. The Company considered the provisions of the research and development and collaboration guidance in
determining how to recognize the Support Payments to be received from Stendhal. The Company determined the Stendhal Agreement
should be accounted for within the scope of collaboration arrangement accounting guidance. Furthermore, the Company determined
that Advaxis is the principal in the Stendhal Agreement. As a result, the Company will account for the Support Payments as a reduction
of
Research and Development Expenses
in the statement of operations. During the nine months ended July 31, 2017, the Company
reached the annual project milestones and received a $3,000,000 Support Payment from Stendhal.
Sellas
Life Science Group
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 product 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.
10.
COMMITMENTS AND CONTINGENCIES
Legal
Proceedings
Knoll
On
August 21, 2015, Knoll Capital Management L.P. filed a complaint against the Company in the Delaware Court of Chancery. In lieu
of continuing to unnecessarily incur litigation expenses, on April 27, 2017, the Company settled the matter for a non-material
amount, predominately reimbursed by the Company’s insurance, and the parties entered into a definitive confidential settlement
agreement. The Company expressly denies any admission or wrongdoing and the settlement was entered into solely for the purpose
of avoiding the burden, inconvenience, and expense of further litigation. On May 11, 2017, following resolution of the matter
by the parties, the Court granted a Stipulation Of Dismissal With Prejudice.
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. Specifically, 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 [O’Connor, Khleif, McKearn, Patton, Bonstein, Mauro, Mayes, and Petit]. 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. On April 13, 2017, the parties advised the Court that they had reached a tentative
agreement in principle to settle the action, which is still subject to negotiating an award of attorneys’ fees and expenses
to Plaintiffs’ counsel and a stipulation of settlement, and, ultimately, Court approval.
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.
At
July 31, 2017 future minimum lease payments by fiscal year of the Company’s operating leases are as follows:
2017
(Remaining)
|
|
$
|
245,466
|
|
2018
|
|
|
1,041,895
|
|
2019
|
|
|
1,107,385
|
|
2020
|
|
|
1,232,907
|
|
2021
|
|
|
1,317,640
|
|
Thereafter
|
|
|
5,747,340
|
|
Total
|
|
$
|
10,692,633
|
|
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
Advaxis
is a late-stage biotechnology company focused on the discovery, development and commercialization of proprietary
Lm
-based
antigen delivery products with the 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.
Advaxis
will continue to invest in its core clinical franchises and will also remain opportunistic based on Investigator Sponsored Trials
(“ISTs”) as well as licensing opportunities. Our proprietary
Lm
Technology platform is protected by
a range of patents, covering both product and process, some of which we believe can be maintained into 2037.
HPV
Related Cancers
We
have developed a strong franchise in HPV-related cancers including both axalimogene filolisbac and ADXS-DUAL. Axalimogene filolisbac
is an
Lm
–based antigen delivery product directed against HPV and designed to target cells expressing the HPV.
ADXS-DUAL, our second immunotherapy targeting HPV-associated cancers, is an
Lm
–based immunotherapy that secretes
a fusion protein containing E7 protein antigens from both alpha 7 (HPV18) and alpha 9 (HPV 16) families, and has the potential
to promote more potent T-cell responses for patients with metastatic cancer and a greater disease burden. We developed ADXS-DUAL
by building on our learnings from the clinical development of axalimogene filolisbac and have incorporated an additional HPV target
antigen into our
Lm
bacterial vector. Our HPV-related products are 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 approximately 527,000 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 2017 (“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 30% of young women and 7% of young men being vaccinated in the United
States with even lower vaccination rates 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 showed that 34.9% (38/109) of patients were alive at 12 months, 24.8% (27/109) of patients
were Long-term Survivors (“LTS”) alive greater than 18 months. Of the 15 patients consenting to further follow-up
beyond 18 months, 12 (11%) achieved 24-month OS status (range 24 – 34+ months) at the time of study closure. LTS included
not only patients with tumor shrinkage but also patients who had experienced stable disease or increased tumor burden. Investigator
assessment of best Overall Response (“OR”) was assessed in the efficacy population. These data demonstrated a best
objective response rate (ORR; CR + PR) of 17.1% (
N
= 6). The mean duration of OR was 7.2 months. The disease control rate
(CR + PR + SD) was 62.9% (
N
= 22) and the mean duration of stable disease was 5.2 months. The addition of cisplatin chemotherapy
to axalimogene filolisbac (N=54) 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
the majority of the AEs were mild to moderate in severity (566 of 704 reported AEs, 80.4%) and were not related to study drug
(539 of 704 reported AEs, 76.6%). Four patients experienced a Grade 3 treatment-associated Serious Adverse Events (“SAE”).
All observed treatment-related adverse events were infusion related and either self-resolved or responded readily to symptomatic
treatment.
We
have reached an agreement with the FDA, under the Special Protocol Assessment (“SPA”) process, to conduct a
Phase 3 trial evaluating axalimogene filolisbac in patients with high-risk, locally advanced cervical (“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 if successful. 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,
and 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. The study is active in
eight countries and is currently enrolling.
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 companies
are currently 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
Colony Forming Units (“CFU”) for axalimogene filolisbac and 10 mg/kg for
durvalumab. As previously reported in preliminary data reported from this ongoing trial, one patient with cervical
cancer achieved a complete response and one patient, also with cervical cancer, achieved a partial response with subsequent
disease progression. In addition, two patients with SCCHN achieved stable disease. Treatment related adverse
events (“TRAE”) were reported in 91% 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 were consistent with those reported in other clinical
studies with 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 a clinical hold in
October 2015 that resolved in mid-December 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 in 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%
using the key predictors from the patients enrolled in the study. The 12 month survival rate of 38% for patients receiving axalimogene
filolisbac in the study represented a 52% improvement over the expected 12-month milestone survival rate of 24.5%.
Overall,
28 out of 50 (56%) patients experienced a Grade 1 or Grade 2 TRAE associated with axalimogene filolisbac infusion. The most common
(>30%) Grade 1 or Grade 2 TRAEs were fatigue, chills, anemia, nausea and fever. Eighteen (36%) patients experienced a Grade
3 TRAE and two patients experienced a Grade 4 AE, including a Klebsiella lung infection in one patient, and hypotension/cytokine
related symptoms in another patient, which were considered possibly related to treatment.
In
October 2016, upon review of these findings, we announced early closure of GOG-0265. Results from the GOG-0265 study were presented
as an oral late-breaker presentation at the Society of Gynecologic Oncology (“SGO”) annual meeting on March 14, 2017.
Based on these data, we plan on pursuing regulatory opportunities for this unmet medical need in Europe in 2017.
We
have entered into a clinical development collaboration agreement with BMS to evaluate their PD-1 immune checkpoint inhibitor,
OPDIVO
®
(nivolumab), in combination with ADXS-DUAL as a potential treatment option for women with metastatic cervical
cancer. We plan to file our IND application for ADXS-DUAL in 2017. Pending FDA feedback, we plan to initiate a global, randomized,
registrational quality trial in 1H 2018 and will evaluate this combination regimen in women with persistent, recurrent
or metastatic (squamous or non-squamous cell) carcinoma of the cervix who have failed at least one prior line of systemic chemotherapy.
Under the terms of the agreement, each party will bear its own internal costs and provide its immunotherapy agents. Advaxis
will sponsor the study and pay third-party costs. Subject to the positive outcome of this study, we plan to file a BLA
for approval of ADXS-DUAL for metastatic cervical cancer in combination treatment.
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 completed the CAT certification procedure and the CAT has certified the preclinical
and quality information have met the scientific and technical standards for a MAA.
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. According to the 2017 American Cancer Society data report, approximately
30,000 new cases will be diagnosed in the United States in 2017.
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% 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.
We anticipate the expansion phase will be sponsored by Baylor College of Medicine.
We
will continue to be opportunistic as it relates to IST development in HPV-positive head and neck cancer 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 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 2017 American Cancer Society data report, approximately 8,200 new cases will be
diagnosed in the United States in 2017.
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 radiation treatment and received treatment experienced a six-month complete response (n=9), with no evidence of recurrence.
Eight of 9 patients (89%) are disease-free at a median follow-up of 34 months. No further enrollment in this study is planned.
These data were accepted and published in the on-line journal at American Society of Clinical Oncology (“ASCO”) 2017.
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. Patients will receive IV axalimogene filolisbac monotherapy (1x10
9
CFU) every 3 weeks for ≤ 2 years or
until a discontinuation criterion is met. Stage 1 of the trial targeted enrollment of 36 patients with anal cancer whose disease
recurred after receiving treatment, with an interim analysis planned on enrollment of 31 evaluable pts (≥ 1 post-baseline scan)
and met the predetermined safety and efficacy criteria required to proceed into the second stage of patient enrollment.
Preliminary
Stage 1 results from 29 of the planned evaluable patients showed 1 (3.5%) patient had a durable partial response lasting >
6 months (after progression on prior anti-PD-1 therapy) and 7 had stable disease (24%). Disease control rate was 28%. The current
Kaplan Meier 6-month PFS estimate is 22%, indicating the study can proceed to Stage 2 of enrollment. Common (≥ 30%) TRAEs were
grade 1-2 chills/rigors, fever, hypotension and vomiting. Grade 3 TRAEs of cytokine related symptoms (n=1; SAE), infusion related
reactions (n=2; 1 SAE) and hypotension (n=2; 1 SAE) were reported. These results were reported at the annual meeting of the European
Society for Medical Oncology (ESMO) in September 2017.
The
Company is evaluating the potential for collaborative external opportunities to further develop our HPV program in anal
cancer.
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. According to the 2017 American Cancer Society data report, approximately
161,000 new cases will be diagnosed in the United States in 2017.
ADXS-PSA
is an
Lm
–based antigen delivery product 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 dose-determination phases of
the trial have been completed. The Recommendation Phase 2 Dose (“RP2D”) is 1 x 10
9
ADXS-PSA and 200 mg
KEYTRUDA
®
(pembrolizumab). Enrollment in the expansion cohort phase using the RP2D combination is underway.
Preliminary
data identifying potential pharmacodynamics biomarkers of clinical response and preliminary immune correlative data in mCRPC patients
treated with ADXS-PSA monotherapy, as well as preclinical data regarding molecular biomarkers associated with tumor regression
in a murine HPV+ tumor model were presented at the third annual CRI-CIMT-EATI-AACR International Cancer Immunotherapy Conference
in September 2017.
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 individualized
Lm
-based antigen delivery product combined with a fusion protein based on information captured by
whole-genome sequencing of a patient’s tumor and comparing the patient’s DNA from normal tissue with that from the
patient’s tumor. It will target multiple patient-specific neoantigens resulting from those mutations 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 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 first half
of 2018. The initial tumor types for the Phase 1 are metastatic colon, head and neck, and non-small cell lung cancers.
Clinical
studies using ADXS-NEO are in active development in collaboration with our partner, Amgen. Further, we have entered into various
research collaborations, 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 multiple
Lm
-based products 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. DNA sequencing
is not required, and the ADXS-HOT products are expected to be “off the shelf” and ready to administer for multiple
patients. The Company plans to file INDs in 2018.
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 product designed to target HER2 expressing solid tumors including human and canine
osteosarcoma. The dose finding phase of the trial is complete. The Company has evaluated the data and decided not to proceed to
the expansion phase of the trial. In addition, based on the Company’s priorities, the ADXS-HER2 development program, which
includes Pediatric Osteosarcoma, will be discontinued but remains open to investigator-initiated research or licensing proposals.
Canine
Osteosarcoma
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.
Strategic
Clinical Collaborations, focused on combination therapies
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-DUAL
and OPDIVO
®
(nivolumab)
As
further described above, we have entered into a clinical development collaboration agreement with BMS to evaluate their PD-1 immune
checkpoint inhibitor, OPDIVO
®
(nivolumab), in combination with ADXS-DUAL as a potential treatment option for women
with metastatic cervical cancer. Pending FDA feedback, we plan to initiate a global, randomized, registrational quality trial
in 1H 2018 and will evaluate this combination regimen in women with persistent, recurrent or metastatic (squamous or non-squamous
cell) carcinoma of the cervix who have failed at least one prior line of systemic chemotherapy.
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).
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 31, 2017 AND 2016
Revenue
During
the quarter ended July 31, 2017, the Company recorded revenue of $3,051,620. The Company recognized revenue from the collaboration
agreement with Amgen related to amortization of the upfront fees received.
We
did not record any revenue for the three months ended July 31, 2016.
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 July 31,
2017 and 2016 were categorized as follows:
|
|
Three
Months Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Axalimogene filolisbac Franchise
|
|
$
|
5,686,197
|
|
|
$
|
2,698,005
|
|
ADXS-PSA Franchise
|
|
|
1,366,225
|
|
|
|
564,831
|
|
ADXS-HER2 Franchise
|
|
|
519,790
|
|
|
|
476,644
|
|
ADXS-NEO Franchise
|
|
|
553,289
|
|
|
|
373,006
|
|
Personnel Expenses
|
|
|
6,455,302
|
|
|
|
3,301,179
|
|
Professional Fees
|
|
|
5,751,377
|
|
|
|
1,520,417
|
|
Laboratory Costs
|
|
|
2,560,697
|
|
|
|
994,686
|
|
Other Expenses
|
|
|
905,262
|
|
|
|
213,464
|
|
Partner Reimbursements
|
|
|
(6,000,000
|
)
|
|
|
-
|
|
Total Research
& Development Expense
|
|
$
|
17,798,139
|
|
|
$
|
10,142,232
|
|
Axalimogene
Filolisbac Franchise
Axalimogene
filolisbac expenses were $5,686,197 for the three months ended July 31, 2017 compared to $2,698,005 for the three months ended
July 31, 2016, an increase of $2,988,192. The increase resulted from startup activities for additional countries in the Phase
3 AIM2CERV study.
ADXS-PSA
Franchise
PSA
expenses were $1,366,225 for the three months ended July 31, 2017 as compared to $564,831 for the three months ended July 31,
2016, an increase of $801,394. The increase resulted from higher costs incurred due to the active enrollment of an expansion cohort
on the Phase 1/2 study in combination with Merck’s KEYTRUDA
®
(pembrolizumab).
ADXS-HER2
Franchise
HER2
expenses were $519,790 for the three months ended July 31, 2017 compared to $476,644 for the three months ended July 31, 2016,
an increase of $43,146. HER2 expenses during the three months ended July 31, 2017 were consistent with the comparable prior period.
ADXS-NEO
Franchise
NEO
expenses were $553,289 for the three months ended July 31, 2017 compared to $373,006 for the three months ended July 31, 2016,
an increase of $180,283. The increase was attributable to Phase 1 start-up costs incurred during the three months ended July 31,
2017.
Personnel
Expenses
Personnel
expenses were $6,455,302 for the three months ended July 31, 2017 compared to $3,301,179 for the three months ended July 31, 2016,
an increase of $3,154,123. The increase was attributable to an increase in headcount.
Professional
Fees
Professional
fees were $5,751,377 for the three months ended July 31, 2017 compared to $1,520,417 for the three months ended July 31, 2016,
and increase of $4,230,960. The increase was attributable to an increase in drug manufacturing process validation costs and drug
stability studies.
Laboratory
Costs
Laboratory
costs were $2,560,697 for the three months ended July 31, 2017 compared to $994,686 for the three months ended July 31, 2016,
an increase of $1,566,011. An increase in technical operation support as well as the expansion of laboratory space accounted
for the increase.
Other
Expenses
Other
expenses were $905,262 for the three months ended July 31, 2017 compared to $213,464 for the three months ended July 31, 2016,
an increase of $691,798. The increase was due to additional infrastructure costs incurred to support the increased headcount and
laboratory expansion.
Partner
Reimbursements
Partner
reimbursements for the three months ended July 31, 2017 were $6,000,000. For the three months ended July 31, 2017, the Company
received clinical development payments from Amgen for ADXS-NEO totaling $4,500,000 and recorded an additional expected payment
of $1,500,000, which was received in August 2017.
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
$18.1 million for the three months ended July 31, 2017, compared with approximately $6.4 million for the three months ended July
31, 2016, an increase of approximately $11.7 million. The increase is primarily attributable to stock and cash compensation expense
for past employees, of which approximately $9.5 million was a non-cash expense. In addition, there was an increase to legal costs
on general corporate matters.
Interest
Income
Interest
income was $184,479 for the three months ended July 31, 2017, compared with $73,872 for the three months ended July 31, 2016.
The increase in interest income earned was attributable to an increase in interest rates as well as cash resulting from sales
of the Company’s common share and an up-front payment received in conjunction with the collaboration agreement with Amgen.
The cash was invested in held-to-maturity investments and a savings account.
Changes
in Fair Values
For
the three months ended July 31, 2017, the Company recorded $0 non-cash income as the fair value of the warrant liability remained
$0. Most of the liability warrants have expired and the remaining liability warrants expire in August 2017.
For
the three months ended July 31, 2016, the Company recorded non-cash income from changes in the fair value of the warrant liability
of $6,340 due to a decrease in the fair value of liability warrants as a smaller range of share prices used in the calculation
of the BSM volatility input offset a modest increase in our share price from $7.74 at April 30, 2016 to $8.34 at July 31, 2016.
RESULTS
OF OPERATIONS FOR THE NINE MONTHS ENDED JULY 31, 2017 AND 2016
Revenue
During
the nine months ended July 31, 2017, the Company recorded revenue of $10,267,842. The Company recognized $10,017,842 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 nine months ended July 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 nine months ended July 31,
2017 and 2016 were categorized as follows:
|
|
Nine
Months Ended July 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Axalimogene
filolisbac Franchise
|
|
$
|
14,652,010
|
|
|
$
|
8,232,741
|
|
ADXS-PSA
Franchise
|
|
|
3,015,505
|
|
|
|
1,582,037
|
|
ADXS-HER2
Franchise
|
|
|
1,510,336
|
|
|
|
1,409,379
|
|
ADXS-NEO
Franchise
|
|
|
1,597,141
|
|
|
|
780,092
|
|
Personnel
Expenses
|
|
|
17,010,426
|
|
|
|
13,600,354
|
|
Professional
Fees
|
|
|
10,450,279
|
|
|
|
4,117,140
|
|
Laboratory
Costs
|
|
|
6,661,265
|
|
|
|
1,632,662
|
|
Other
Expenses
|
|
|
1,858,467
|
|
|
|
611,191
|
|
Partner
Reimbursements
|
|
|
(9,000,000
|
)
|
|
|
-
|
|
Total
Research & Development Expense
|
|
$
|
47,755,429
|
|
|
$
|
31,965,596
|
|
Axalimogene
Filolisbac Franchise
Axalimogene
filolisbac expenses were $14,652,010 for the nine months ended July 31, 2017 compared to $8,232,741 for the nine months ended
July 31, 2016, an increase of $6,419,269. The increase resulted from an increase in startup activities for additional countries
in AIM2CERV.
ADXS-PSA
Franchise
PSA
expenses were $3,015,505 for the nine months ended July 31, 2017 as compared to $1,582,037 for the nine months ended July 31,
2016, an increase of $1,433,468. The increase resulted from higher costs incurred due to the active enrollment of an expansion
cohort on the Phase 1/2 study in combination with Merck’s KEYTRUDA
®
(pembrolizumab).
ADXS-HER2
Franchise
HER2
expenses were $1,510,336 for the nine months ended July 31, 2017 compared to $1,409,379 for the nine months ended July 31, 2016,
an increase of $100,957. HER2 expenses during the nine months ended July 31, 2017 were consistent with the comparable prior period.
ADXS-NEO
Franchise
NEO
expenses were $1,597,141, for the nine months ended July 31, 2017 compared to $780,092 for the nine months ended July 31, 2016,
an increase of $817,049. The increase was attributable to Phase 1 start-up costs incurred during the nine months ended July 31,
2017.
Personnel
Expenses
Personnel
expenses were $17,010,426 for the nine months ended July 31, 2017 compared to $13,600,354 for the nine months ended July 31, 2016,
an increase of $3,410,072. The increase was attributable to an increase in headcount that was somewhat offset by stock based compensation
for past employees in the prior period.
Professional
Fees
Professional
fees were $10,450,279 for the nine months ended July 31, 2017 compared to $4,117,140 for the nine months ended July 31, 2016,
an increase of $6,333,139. The increase was attributable to an increase in drug manufacturing process validation costs and drug
stability studies.
Laboratory
Costs
Laboratory
costs were $6,661,265 for the nine months ended July 31, 2017 compared to $1,632,662 for the nine months ended July 31, 2016,
an increase of $5,028,603. An increase in technical operation support as well as the expansion of laboratory space accounted
for the increase.
Other
Expenses
Other
expenses were $1,858,467 for the nine months ended July 31, 2017 compared to $611,191 for the nine months ended July 31, 2016,
an increase of $1,247,726. The increase was due to additional infrastructure costs incurred to support the increased headcount,
laboratory expansion and abandoned patent applications.
Partner
Reimbursements
Partner
reimbursements for the nine months ended July 31, 2017 were $9,000,000. For the nine months ended July 31, 2017, the Company received
clinical development payments from Amgen for worked performed on ADXS-NEO totaling $4,500,000 and recorded an additional expected
payment of $1,500,000, which was received in August 2017. In addition, the Company received $3,000,000 in Support Payments from
Stendhal for work performed on AXAL.
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 expense were approximately
$33.2 million for the nine months ended July 31, 2017, compared with approximately $20.4 million for the nine months ended July
31, 2016, an increase of approximately $12.8 million. The increase is primarily attributable to stock and cash compensation expense
for past employees, of which approximately $9.5 million was a non-cash expense. In addition, there was an increase to legal costs
on general corporate matters, office expenses that resulted from an increase in headcount, and a litigation settlement.
Interest
Income
Interest
income was $514,363 for the nine months ended July 31, 2017, compared with $216,061 for the nine months ended July 31, 2016. The
increase in interest income earned was attributable to an increase in interest rates as well as cash resulting from sales of the
Company’s common share and an up-front payment received in conjunction with the collaboration agreement with Amgen. The
cash was invested in held-to-maturity investments and a savings account.
Changes
in Fair Values
For
the nine months ended July 31, 2017, the Company recorded non-cash income from changes in the fair value of the warrant liability
of $20,156 due to a smaller range of share prices used in the calculation of the Black-Scholes Model (“BSM”) volatility
input and the expiration of most of the liability warrants.
For
the nine months ended July 31, 2016, the Company recorded non-cash income from changes in the fair value of the warrant liability
of $56,214 due to a decrease in the fair value of liability warrants as a smaller range of share prices were used in the calculation
of the BSM volatility input as well as a decrease in our share price from $11.09 at October 31, 2015 to $8.34 at July 31, 2016.
Income
Tax Expense
During
the nine months ended July 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 nine months ended July 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 August 2017, we raised approximately $222.5 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 July 31, 2017, the Company had approximately $89.4 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 into fiscal 2019. The actual amount of cash that we will need to operate is subject to many factors.
Since
our inception through July 31, 2017, the Company has reported accumulated net losses of approximately $277.9 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 nine months ended July 31, 2017 was approximately $58.5 million (including proceeds from
the sale of our state NOLs and Research and Development (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 nine months ended July 31, 2016 was approximately $31.1 million (including proceeds from
the sale of our state NOLs and Research and Development (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 nine months ended July 31, 2017 was approximately $39.6 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 nine months ended July 31, 2016 was approximately $6.2 million resulting from investments
in held-to-maturity investments, purchases of property and equipment, construction of cleanroom and laboratory facilities, legal
cost spending in support of our intangible assets (patents) and costs paid to Penn for patents.
Cash
provided by financing activities for the nine months ended July 31, 2017 was approximately $380,000. The Company sold 92,145 shares
of common stock under an at-the-market facility for net proceeds of approximately $706,000. This was partially offset by approximately
$354,000 in taxes paid related to the net share settlement of equity awards.
Cash
provided by financing activities for the nine months ended July 31, 2016 was approximately $528,000, resulting from approximately
$614,000 in proceeds received on option and warrant exercises. This was partially offset by approximately $53,000 in taxes paid
related to the net share settlement 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 July 31, 2017 and October 31, 2016, we had an accumulated deficit of $277,881,078 and $207,706,825, respectively, and shareholders’
equity of $74,359,192 and $119,302,194, respectively.
The
Company believes its current cash position is sufficient to fund its business plan approximately into 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 10, “Commitments and Contingencies” in this Quarterly
Report on Form 10-Q.
Off-Balance
Sheet Arrangements
As
of July 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:
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it
requires assumptions to be made that were uncertain at the time the estimate was made, and
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changes
in the estimate of difference estimates that could have been selected could have material impact in our results of operations
or financial condition.
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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.