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Item 2.
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Management’s Discussion
and Analysis of Financial Condition and Results of Operations
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This quarterly report on Form 10-Q contains
forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, that involve
risks and uncertainties. All statements other than statements relating to historical matters including statements to the effect
that we “believe”, “expect”, “anticipate”, “plan”, “target”, “intend”
and similar expressions should be considered forward-looking statements. Our actual results could differ materially from those
discussed in the forward-looking statements as a result of a number of important factors, including factors discussed in this section
and elsewhere in this quarterly report on Form 10-Q, and the risks discussed in our other filings with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s
analysis, judgment, belief or expectation only as the date hereof. We assume no obligation to update these forward-looking statements
to reflect events or circumstance that arise after the date hereof.
As used in this quarterly report: (i)
the terms “we”, “us”, “our”, “Marker” and the “Company” mean Marker
Therapeutics, Inc. and its wholly owned subsidiaries, Marker Cell Therapy, Inc. and GeneMax Pharmaceuticals Inc. which wholly owns
GeneMax Pharmaceuticals Canada Inc., unless the context otherwise requires; (ii) “SEC” refers to the Securities and
Exchange Commission; (iii) “Securities Act” refers to the Securities Act of 1933, as amended; (iv) “Exchange
Act” refers to the Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars
unless otherwise indicated.
The following should be read in conjunction
with our unaudited condensed consolidated interim financial statements and related notes for the three and nine months ended September
30, 2018 included in this quarterly report, as well as our Annual Report on Form 10-K for the year ended December 31, 2017 filed
on March 23, 2018.
Company Overview
We are a clinical-stage immuno-oncology
company specializing in the development and commercialization of innovative cell-based immunotherapies for the treatment of hematological
malignancies and solid tumor indications and novel peptide-based vaccines for the treatment of breast and ovarian cancers.
Our cell-based immunotherapy technology
is based on the selective expansion of non-engineered, tumor-specific T cells that recognize tumor associated antigens (i.e. tumor
targets) and kill tumor cells expressing those targets. Once infused into patients, this population of T cells recognizes multiple
tumor targets to produce broad spectrum anti-tumor activity. Because we do not genetically engineer its T cells, when compared
to current engineered CAR-T and TCR-based approaches, its products (i) are significantly less expensive and easier to manufacture,
(ii) appear to be markedly less toxic, and (iii) are associated with potentially meaningful clinical benefit. As a result, we believe
our portfolio of T cell therapies has a potentially compelling therapeutic product profile, as compared to current gene-modified
CAR-T and TCR-based therapies. In addition, our legacy Folate Receptor Alpha program (TPIV200) for breast and ovarian cancers and
its HER2/neu program (TPIV100/110) are in five Phase II clinical trials. In parallel, we have been working on a proprietary nucleic
acid-based antigen expression technology named PolyStart™ to improve the ability of the immune system to recognize and destroy
diseased cells.
Immuno-oncology, which utilizes a patient’s
own immune system to combat cancer, is one of the most actively pursued areas of research by biotechnology and pharmaceutical companies
today. Interest and excitement about immunotherapy is driven by compelling efficacy data in cancers with historically bleak outcomes,
and the potential to achieve a cure or functional cure for some patients. Harnessing the power of the immune system is an important
component of fighting cancerous cells in the body. Our MultiTAA T cell therapy platform identifies and selects for effectively
all T cells that are specific for any peptide from the antigens that our targets (e.g., WT1, MAGE-A4, PRAME, Survivin, NY-ESO-1,
and SSX2). Our in-vitro manufacturing process promotes proliferation of very rare cancer-killing T cells to augment their anti-tumor
properties and provide benefit to patients following their infusion. By using the multi-antigen targeted approach, our proprietary
technology can kill heterogeneous tumor cell populations more effectively than single-antigen targeted approaches, thereby reducing
the likelihood of tumor escape and potentially increasing the durability of a patient’s response to therapy.
Recent Developments
Merger Agreement
On October 17, 2018, the Company completed
its previously announced business combination with Marker Cell Therapy, Inc., formerly known as Marker Therapeutics, Inc., a privately-held
Delaware corporation (“Marker Cell”), in accordance with the terms of an Agreement and Plan of Merger and Reorganization
dated as of May 15, 2018 (the “Merger Agreement”) by and among the Company, Timberwolf Merger Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company (“Merger Sub”), and Marker. On October 17, 2018, pursuant to
the Merger Agreement, Merger Sub was merged with and into Marker Cell (the “Merger”), with Marker Cell being the surviving
corporation and becoming a wholly-owned subsidiary of the Company. In connection with the Merger, the Company changed its name
to Marker Therapeutics, Inc. and Marker Cell changed its name to Marker Cell Therapy, Inc. At the effective time of the Merger,
the former Marker Cell stockholders received (i) an aggregate of 13,914,255 shares of the Company’s common stock which equaled
the number of shares of the Company’s common stock issued and outstanding immediately prior to the effective time of the
Merger, and (ii) an aggregate of 5,046,003 warrants which equaled the number of the Company’s warrants and stock options
issued and outstanding immediately prior to the effective time of the Merger.
The issuance of the shares of Company common
stock to the former stockholders of Marker Cell in connection with the Merger and related transactions was approved by the Company’s
stockholders at the 2018 annual meeting of stockholders (the “2018 Annual Meeting”) held on October 16, 2018.
In connection with the Merger, the Company
filed an amendment to its articles of incorporation in Nevada to increase the authorized shares of common stock from 41,666,667
shares to 150,000,000 shares and to change the Company’s name to Marker Therapeutics, Inc. (“Certificate of Amendment”).
The Company then reincorporated from a Nevada corporation to a Delaware corporation and filed its certificate of incorporation
in Delaware. Finally, a certificate of merger was filed in Delaware to merge Marker Cell Therapy, Inc. (f/k/a Marker Therapeutics,
Inc.) with and into Merger Sub, with Marker Cell Therapy, Inc. being the surviving corporation and wholly owned subsidiary of the
Company. The name change, reincorporation and Merger were all effective as of October 17, 2018. Beginning as of the market open
on October 18, 2018, shares of the Company’s common stock commenced trading on The Nasdaq Capital Market under its new ticker
symbol “MRKR”.
Securities Purchase Agreements
On October 17, 2018, concurrent with the
completion of the Merger, the Company issued to certain accredited investors in a private placement transaction (the “Financing”),
an aggregate of 17,500,000 shares of its common stock, and warrants to purchase 13,437,500 shares of common stock at an exercise
price of $5.00 per share with a five-year term, for aggregate proceeds of $70 million pursuant to the terms of the Securities Purchase
Agreements, dated June 8, 2018, by and among the Company and certain accredited investors (the “Securities Purchase Agreements”).
Upon consummation of the Financing, and as a condition to the Securities Purchase Agreements, the Company is, among other things,
obligated to file a resale registration statement with the SEC within 15 days following completion of the Financing.
After taking into account the issuance
of shares in the Financing described above, immediately following the effective time of the Merger, the pro forma ownership of
the issued and outstanding shares of Company common stock on a fully diluted basis (assuming all issued and outstanding warrants
and options are exercised) will be approximately as follows: Marker Cell’s former stockholders 27.5%, Company stockholders
prior to the Merger 27.5%, and the private placement stockholders 45%. Following the completion of the Merger and the Financing,
there were 45,328,510 issued and outstanding shares of the Company’s common stock.
Products and Technology in Development
The following chart sets forth our products
and technologies under development.
Our MULTI TAA T Cell Products
We are advancing two legacy Marker Cell
products through clinical development:
1)
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Mixed Antigen Peptide Pool (“MAPP”) T cells, which are currently used for
patients with lymphoma, multiple myeloma and selected solid tumors, is an autologous product that targets the NY-ESO-1, PRAME,
MAGE-A4, Survivin and SSX2 antigens, and
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2)
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Leukemia Antigen Peptide Pool (“LAPP”) T cells, which are used for patients
with AML, is an allogeneic product targeting the WT1, NY-ESO-1, PRAME, and Survivin antigens using the blood of the stem cell
donor as a source of the cells used for therapy.
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While the blood source and the antigens
for stimulation differ between the LAPP and the MAPP products, the manufacturing process for each product is otherwise identical.
Even if the single-antigen specific therapy
can eliminate all the tumor cells expressing the targeted antigen, the residual tumor cells that do not express that antigen may
survive and expand. In addition, tumor cells may also downregulate or mutate the targeted antigen, thus becoming invisible to the
T cell therapy. Both phenomena create a transformed tumor that is impervious to that therapy. This process is referred to as antigen-negative
tumor immune escape.
Our solution to the problem of tumor heterogeneity
was to develop T cell products that simultaneously attack multiple tumor-expressed antigens and thereby enable more complete initial
tumor targeting, thus minimizing the subsequent opportunity for the cancer to engage escape mechanisms. Of note, data suggest this
strategy may be responsible for recruitment and activation of unique cancer-killing cells from the patient’s own immune repertoire
to participate in cancer eradication, further minimizing the possibility for tumor cell escape.
Our proprietary MultiTAA T cell platform
may have meaningful advantages over current CAR-T and TCR cell therapy approaches. Compared to current gene-modified T cell therapies,
our programs are characterized by the following:
•
Demonstrated
clinical benefit, without the need for lymphodepletion before infusion:
In our Phase I lymphoma study, we saw complete
responses (“CRs”) in 50 – 60% of its evaluable patients. We believe it is significant that no
patient with a CR has subsequently relapsed with disease, whereas typically 30% or more of patients with CR in reported CAR-T
studies relapse within one year. In patient results to date, observed therapeutic responses appear to be highly durable, with
some patients being relapse-free beyond two years.
•
Non-gene-modified
: Unlike CAR-T and TCR approaches, our therapy requires no genetic modification of T cells, a costly and
complex process that significantly complicates the manufacturing of a patient product. We believes our therapy can be
manufactured at a fraction of the cost of a gene-modified T cell product, with substantially reduced complexity of
manufacturing.
•
Low incidence
rate of adverse events
: In approximately 60 patients treated to date, we have seen only one grade III adverse reaction
possibly related to our therapy. This appears to compare favorably with published CD19 CAR-T studies, wherein up to 95% of
patients had associated grade III or higher adverse events during treatment. We believe that it is notable that there have
been no cases of cytokine-release syndrome (“CRS”), or related serious adverse events (“SAEs”) in
patients treated with its therapy to date.
•
Capable of
addressing a broad repertoire of cancer cells
: While CAR-T and TCR therapies generally target a single epitope, our
manufacturing process selects for T cells that are specific for multiple peptides derived from several targeted antigens.
Deep gene sequencing of our products shows that a typical patient dose usually consists of approximately 4,000 unique T cell
clonotypes targeting up to five different tumor-associated antigens. In layman’s terms, the five antigen targets can be
recognized by a very wide range of T cells, facilitating robust killing of targeted cancer cells.
•
Appears to drive
endogenous immune responses
: We see evidence of “epitope spreading” in its patients, meaning that our therapy
is potentially inducing an enhanced response by the patient’s own T cells (specific for an expanded set of
tumor-associated antigens beyond those targeted by our infused product). Our correlative analyses show expansion of
endogenous T cells, other than those present in our product, in the months following the infusion of our product. This
phenomenon, also known as “antigen spreading,” is potentially important in generating a durable response for a
patient, because it enables the killing of tumors that do not express any of the antigens initially targeted by our
product.
Our Folate Products
Folate Receptor alpha (“FRa”)
is overexpressed in over 80% of breast cancers and in addition, over 90% of ovarian cancers, for which the only treatment options
are surgery, radiation therapy and chemotherapy, leaving a very important and urgent clinical need for a new therapeutic strategy.
Time to recurrence is relatively short for ovarian cancer and survival prognosis is extremely poor after recurrence. In the United
States alone, there are approximately 30,000 ovarian cancer patients and 40,000 triple-negative breast cancer patients newly diagnosed
every year. The FRa vaccine (now called TPIV200) intended to treat these conditions is composed of a mixture of five FRa immunogenic
peptides adjuvanted with low-dose granulocyte-macrophage colony-stimulating factor GM-CSF.
GMP Manufacturing Scale Up of TPIV200
and Production to Supply Additional Phase II Clinical Trials
We have developed a commercial-quality
lyophilized formulation of the TPIV200 peptides in a single vial for reconstitution and injection. Multi-gram peptide production
scale-up has been successfully concluded, as well as GMP manufacturing of a second clinical lot of the TPIV200 peptides. The supply
will be used in the company’s ongoing Phase II study in platinum-sensitive ovarian cancer, as well as the 280-patient Phase
II study sponsored by the Mayo Clinic and funded by the U.S. Department of Defense (DoD) for treating triple-negative breast cancer.
We also made various improvements to the vaccine manufacturing process, resulting in what we believe to be a superior formulation
of the vaccine that is more amenable to large-scale manufacturing and commercialization. Thus, Good Manufacturing Practice (“GMP”)
manufacturing development for the Phase II trials has been completed.
Phase I Human Clinical Trial –
Folate Alpha Breast and Ovarian Cancers – Mayo Clinic
On July 27, 2015, we exercised our option
agreement with Mayo Foundation with the signing of a worldwide exclusive license agreement to commercialize the proprietary FRa
vaccine technology for all cancer indications. As part of this agreement, the IND for the Folate Receptor alpha Phase I trial was
transferred from Mayo Foundation to the Company for Phase II clinical trials as our lead product.
The results from the initial 21-patient
Phase I clinical trial for the FRa vaccine have now been reported. Twenty-one patients with breast or ovarian cancer, who had undergone
standard surgery and adjuvant treatment, were treated with one cycle of cyclophosphamide. Following this, patients were vaccinated
intradermally with TPIV200 on day one of a 28-day cycle for a maximum of six vaccination cycles. On March 15, 2018, we announced
the publication of the clinical data from this trial. The results show that over 90% developed robust and durable antigen-specific
immune responses against FRa without regard for HLA type, which aligns with the intended mechanism of action of the vaccine. TPIV200
vaccine was safe and well-tolerated; 20 out of 21 evaluable patients showed positive immune responses, providing a strong rationale
for progressing to Phase II trials. Further, the data showed that 16 out of 16 patients in the observation stage showed persistent
immune responses (Source: published online 15Mar2018; DOI: 10.1158/1078-0432.CCR-17-2499).
Phase II Development of TPIV200 for
Triple-negative Breast Cancer
Triple-negative breast cancer (TNBC) is
one of the most difficult cancers to treat and represents a clear unmet medical need. On September 15, 2015, we announced that
our collaborators at the Mayo Foundation had been awarded a grant of $13.3 million from the DoD. This grant led by Dr. Keith Knutson
of the Mayo Clinic in Jacksonville, Florida covers the costs for a 280-patient Phase II clinical trial of the FRa vaccine in patients
with TNBC. We are working closely with Mayo Foundation on this clinical trial by providing clinical and manufacturing expertise,
as well as providing GMP vaccine formulations under contract. This Phase II study of TPIV200 in the treatment of triple-negative
breast cancer began enrolling patients in late 2017 and enrollment continues. Details regarding this trial can be found at www.clinicaltrials.gov
under identifier numbers NCT03012100 and RU011501I.
On June 21, 2016, we announced the initiation
of a randomized four-arm Phase II trial of TNBC that is sponsored and conducted by the Company (FRV-002), enrolling women with
stage I-III disease who have completed initial surgery and chemo/radiation therapy. This open-label, 80-patient clinical trial
is designed to evaluate dosing regimens, pre-treatment, efficacy, and immune responses. The study is evaluating two doses of TPIV200
(a high dose and a low dose), each of which will be tested both with and without immune priming with cyclophosphamide prior to
vaccination. Key data from the trial is expected to be included in a future Biologics License Application submission to the FDA
for marketing clearance. We completed enrollment in late 2017 and are now treating and following the patients. An independent Data
Safety Monitoring Board (DSMB) reviews the safety in this ongoing Phase II study; no safety issues have been identified to date.
Details regarding this trial can be found at www.clinicaltrials.gov under the identifier number NCT02593227.
Phase II Development of TPIV200 for
Ovarian Cancer
On December 9, 2015, we announced that
we received Orphan Drug Designation from the U.S. Food & Drug Administration’s Office of Orphan Products Development
(“OOPD”) for our cancer vaccine TPIV200 in the treatment of ovarian cancer. The TPIV200 ovarian cancer clinical program
will now receive benefits including tax credits on clinical research and seven-year market exclusivity upon receiving marketing
approval. TPIV200 is a multi-epitope peptide vaccine that targets Folate Receptor alpha which is overexpressed in multiple cancers
including over 90% of ovarian cancer cells. On February 3, 2016, we announced that the U.S. FDA designated the investigation of
the multiple-epitope TPIV200 vaccine for maintenance therapy in subjects with platinum-sensitive advanced ovarian cancer who achieved
stable disease or partial response following completion of standard-of-care chemotherapy, as a Fast Track Development Program.
On April 21, 2016, we announced our participation
in an ovarian cancer study sponsored by Memorial Sloan Kettering Cancer Center (MSKCC) in New York City in collaboration with AstraZeneca
Pharmaceuticals in ovarian cancer patients who are not responsive to platinum, a commonly used chemotherapy for ovarian cancer.
This study, an open-label Phase II study of TPIV200 in 40 patients is designed to look at the effects of combination therapy with
AstraZeneca’s checkpoint inhibitor durvalumab (anti-PD-L1). Because they are unresponsive to platinum, these patients have
no real remaining options. Interim results from the first 27 patients were presented at the AACR-Rivkin Symposium in September
2018; safety of the combination was established in these heavily-pretreated patients and a subset of patients exhibited durable
disease stabilization. ORR and PFS with combination treatment was not superior from the expected efficacy of single-agent PD-1/PD-L1
blockade. However, post-immunotherapy follow-up was suggestive of improved clinical benefit from standard therapies, as the majority
of patients post-progression went on to receive subsequent standard therapy with durable clinical benefit, creating a rationale
for exploration of these agents in combination with chemotherapy. Although we have no business relationship with AstraZeneca, we
are paying for one-half of the costs of the clinical study, in addition to providing our TPIV200 for the study. Details regarding
this trial can be found at www.clinicaltrials.gov under identifier numbers NCT02764333.
On January 10, 2017, we announced the initiation
of a Company-sponsored Phase II study in platinum-sensitive ovarian cancer patients (FRV-004). This multi-center, double-blind
efficacy study is designed to evaluate TPIV200 compared to GM-CSF alone in a randomized, placebo-controlled fashion during the
first maintenance period after primary surgery and chemotherapy. Patients at this stage of their treatment have the highest potential
for an immunotherapeutic effect and no other approved treatment options. We have opened multiple clinical sites and enrollment
of the 120 patients has proceeded ahead of schedule. Safety is reviewed by an independent DSMB quarterly and an interim efficacy
analysis is planned in 2019, once 50 patients have progressed. Details regarding this trial can be found at www.clinicaltrials.gov
under the identifier number NCT02978222.
TPIV 100/110 – HER2/neu
peptides with GM-CSF
Human epidermal growth factor receptor
2 (HER2/neu) amplification/overexpression is an effective therapeutic target in breast and gastric cancer. Over-expressed HER2
is detected predominantly in malignancies of epithelial origin, such as breast, gastric, esophageal, colorectal, salivary gland,
pancreatic, epithelial ovarian, endometrial, and bladder carcinomas, as well as gallbladder and extrahepatic cholangiocarcinomas.
HER2 is over-expressed in approximately 25% of breast cancers and its expression is associated with unfavorable pathologic features
and aggressive disease if not treated with targeted therapies, relative to other forms of breast cancer. While the outcome of patients
with HER2 positive breast cancer has significantly improved in the past few decades with an advent of anti-HER2 therapies, a substantial
number of resected patients still subsequently develop metastatic disease. The continued prevalence of these cancers represents
a high unmet medical need, justifying the targeted development of immunotherapeutic strategies.
Phase I Human Clinical Trial –
HER2/neu+ Breast Cancer – Mayo Clinic
A Phase I study using a vaccine containing
four HER2/neu peptides adjuvanted with GM-CSF (now called TPIV100) was initiated in 2012 at the Mayo Clinic and the primary readout
was completed in 2015. Final safety analysis on all the patients treated showed that the vaccine was safe in that context. In addition,
19 out of 20 evaluable patients showed robust T-cell immune responses to the antigens in the vaccine composition providing a solid
case for advancement to Phase II. Data from the study was presented at the San Antonio Breast Cancer Symposium on December 10,
2015. An additional secondary endpoint incorporated into this Phase I Trial will be a two-year follow-on recording the time to
disease recurrence in the participating breast cancer patients. Details regarding this trial can be found at www.clinicaltrials.gov
under the identifier number NCT01632332.
Transition of the HER2/neu Vaccine
On June 7, 2016, we announced that the
Company had exercised its option agreement with Mayo Clinic and signed a worldwide license agreement to the proprietary HER2/neu
vaccine technology. The license gives the Company the right to develop and commercialize the technology in any cancer indication
in which the Her2/neu antigen is overexpressed. As part of this agreement, the IND for the HER2/neu Phase I Trial was transferred
from Mayo Foundation to the Company for Phase II clinical trials as TPIV100, our second product.
On March 14, 2017, we announced that our
partners at the Mayo Clinic received a $3.8 million grant from the DoD to conduct a Phase Ib study of the HER2-targeted vaccine
candidate in an early form of breast cancer called ductal carcinoma in situ (DCIS). This is the second Company vaccine to be tested
in a fully-funded study sponsored by the Mayo Clinic. We are working closely with Mayo Foundation on this clinical trial by providing
clinical and manufacturing expertise, as well as providing GMP vaccine formulations under contract. If the study is successful,
our HER2/neu vaccine may eventually augment or even replace standard surgery and chemotherapy, and potentially could become part
of a routine immunization schedule for preventing breast cancer in healthy women. The study is expected to enroll 40 – 45
women with DCIS and begin to commence such enrollment during late 2018.
Phase II Development of the HER2/neu
TPIV110 Vaccine
For subsequent clinical studies, we have
added a Class I peptide, also licensed from the Mayo Clinic on April 16, 2012, to the four Class II peptides, producing TPIV 110
when the five peptides are mixed with GM-CSF. Management believes that the combination of Class I and Class II HER2/neu antigens,
gives us the leading HER2/neu vaccine platform. We are amending the IND to incorporate the fifth peptide in subsequent studies
to produce an even more robust vaccine activating both CD4+ (helper) and CD8+ (killer) T-cells. Discussions with the FDA have resulted
in similar Phase II manufacturing process development that we conducted for TPIV200 that should allow us to file the amended IND
for TPIV110 in late-2018.
On October 10, 2018, we announced that
Mayo Clinic had been awarded a grant of $11 million from the DoD. This grant is intended to cover the costs of a large randomized,
double-blind Phase 2 study of the Company’s HER2/neu-targeted breast cancer vaccine, TPIV110 compared to GM-CSF alone, in
combination with trastuzumab (Herceptin®) and pertuzumab (Perjeta®), for treating up to 190 women with HER2/neu-positive
breast cancer. We are working closely with Mayo Foundation on this clinical trial by providing clinical and manufacturing expertise,
as well as providing GMP vaccine formulations under contract. The study will ask whether the administration of vaccine during trastuzumab
and pertuzumab maintenance therapy in patients with residual disease post-neoadjuvant chemotherapy blocks disease recurrence and
the development of metastatic breast cancer. By prevention of recurrence and metastasis, the expectation is that mortality associated
with breast cancer will be decreased. Aside from the immunization component of the approach, another unique aspect is study of
the role of the immune response, induced by monoclonal antibody therapy, in the neoadjuvant setting by engaging another 190 patients
that demonstrated complete pathologic response to therapy but who do not get vaccine, potentially enabling a better understanding
of mechanisms of immune escape.
Products and Technology – Pre-clinical
Polystart
In addition to the clinical developments,
our peptide vaccine technology can be coupled with our PolyStart™ nucleic acid-based technology, which is designed to make
vaccines significantly more effective by producing four times the required peptides for the immune systems to recognize and act
on.
On February 7, 2017, we announced that
we received a Notice of Allowance from the U.S. Patent and Trademark Office of our patent application titled, “Chimeric nucleic
acid molecules with non-AUG initiation sequences and uses thereof,” which represents our first patent on our Polystart program.
On March 22, 2018, a Notice of Allowance
was received that expanded the claims beyond FRA or Her2/neu peptide epitopes to broadly include any polypeptide portion comprising
any poly-antigen arrays (PAAs) (i.e., for any tumor antigen or any infectious pathogen). We anticipate additional patent filings
in connection with our research and development in this area. We plan to develop Polystart as both a stand-alone therapy and as
a ‘boost strategy’ to be used synergistically with our peptide-based vaccines for breast and ovarian cancers.
Results of Operations
In this discussion
of the Company’s results of operations and financial condition, amounts, other than per-share amounts, have been rounded
to the nearest thousand dollars.
Three Months Ended September 30, 2018 Compared to Three
Months Ended September 30, 2017
We recorded a net loss of $4.4 million
or ($0.32) basic and diluted per share during the three months ended September 30, 2018 compared to a net loss of $4.0 million
or ($0.39) basic and diluted per share during the three months ended September 30, 2017. The change in net loss period over period
was due to the following changes:
Revenue
Grant income
During the three months ended September
30, 2017, we received $183,000 of a grant awarded to Mayo Foundation from the US Department of Defense for the Phase II Clinical
Trial of TPIV200. The grant compensated us for clinical supplies manufactured by us and provided for the clinical study.
Operating Expenses
Operating expenses incurred during the
three months ended September 30, 2018 were $4.4 million compared to $4.2 million in the prior period. Significant changes in operating
expenses are outlined as follows:
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Research and development costs during the three months ended September 30, 2018 were $1.9 million compared to $1.6 million during the prior year period. The three months ended September 30, 2018 had increased expenses from the prior period relating to our clinical trials.
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General and administrative expenses were $2.6 million during the three months ended September 30, 2018 as compared to $2.5 million during the prior year period. This slight increase was due to increased expenses relating to:
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$0.2 million of headcount-related expenses,
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$0.5 million of legal and other expenses relating to the announced merger agreement, and
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$0.2 million of other miscellaneous general and administrative expenses.
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For the three-month period ended
September 30, 2017, we recorded $0.8 million of stock-based compensation expenses relating to stock grants pursuant to Peter Hoang’s
and Glynn Wilson’s employment agreements. These savings partially offset the increased expenses identified above.
Other Expense
Change in fair value of warrant liabilities
The change in fair value of warrant liabilities
for the three months ended September 30, 2018 was ($40,000) as compared to ($4,000) for the three months ended September 30, 2017.
This decrease by $40,000 for the three months ended September 30, 2018 is reflected by a corresponding other income in the condensed
consolidated statement of operations.
Nine Months Ended September 30, 2018 Compared to Nine
Months Ended September 30, 2017
We recorded a net loss of $12.4 million
or ($1.03) basic and diluted per share during the nine months ended September 30, 2018 compared to a net loss of $8.3 million or
($0.91) basic and diluted per share during the nine months ended September 30, 2017. The change in net loss period over period
was due to the following:
Revenue
Grant income
During the nine months ended September
30, 2018, we received $206,000 of a grant awarded to Mayo Foundation from the US Department of Defense for the Phase II Clinical
Trial of TPIV200. The grant compensated us for clinical supplies manufactured by us and provided for the clinical study. During
the nine months ended September 30, 2017, we received $183,000 of grant income.
Operating Expenses
Operating expenses incurred during the
nine months ended September 30, 2018 were $12.5 million compared to $9.0 million in the prior period. Significant changes in operating
expenses are outlined as follows:
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Research and development costs during the nine months ended September 30, 2018 were $5.3 million compared to $3.8 million during the prior year period. The nine months ended September 30, 2018 had increased expenses from the prior period relating to our clinical trials.
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General and administrative expenses increased to $7.2 million during the nine months ended September 30, 2018 from $5.2 million during the prior year period. This was due to increased expenses relating to:
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$0.2 million of stock-based compensation expenses for employees and outside consultants,
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$0.3 million of headcount-related expenses,
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$2.2 million of expenses relating to the announced merger agreement, and
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$0.1 million of investor relations expenses.
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For the nine-month period ended
September 30, 2017, we recorded $0.8 million of stock-based compensation expenses relating to stock grants pursuant to Peter Hoang’s
and Glynn Wilson’s employment agreements. These savings partially offset the increased expenses identified above.
Other Expense
Change in fair value of warrant liabilities
The change in fair value of warrant liabilities
for the nine months ended September 30, 2018 was $98,000 as compared to ($9,000) for the nine months ended September 30, 2017. This
increase by $98,000 for the nine months ended September 30, 2018 is reflected by a corresponding other expense in the condensed
consolidated statement of operations.
Debt extinguishment gain
In 2003 we entered
into a license agreement with a foreign based third-party for certain adenovirus technology. The license agreement was amended
several times between inception and 2008 at which time it was amended and restated and had a fixed three-year term expiring in
2011. During such time, we did not pursue the technology and have not undertaken further work in the area covered by the technology
license. Neither we nor the third-party took further actions under or pursuant to the license agreement. We carried a historical
accrual of approximately $0.5 million under the amended license agreement related to certain obligations provided for in the license
agreement. The license agreement was governed by the laws of a foreign jurisdiction. We sought and obtained legal advice related
to such accrued obligations under the expired license agreement. We relied upon a judicial conclusion, as opined upon by outside
legal counsel in the applicable foreign jurisdiction, that a court in such foreign jurisdiction would grant relief releasing us
from liability under the license agreement, and in accordance with Accounting Standards Codification 405 “Extinguishment
of Liabilities”, we recorded a debt extinguishment gain of $0.5 million and reduced the liability amount owed to $0 during
the nine months ended September 30, 2017.
Liquidity and Capital Resources
We have not generated any revenues since
inception other than revenue form grants we received. We have financed our operations primarily through public and private offerings
of our stock and debt including warrants and the exercises thereof.
The following table sets forth our cash
and working capital as of September 30, 2018 and December 31, 2017:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash
|
|
$
|
4,294,000
|
|
|
$
|
5,129,000
|
|
Working Capital
|
|
$
|
690,000
|
|
|
$
|
3,658,000
|
|
Cash Flows
The following table summarizes our cash
flows for the nine months ended September 30, 2018 and 2017:
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(8,317,000
|
)
|
|
$
|
(5,961,000
|
)
|
Financing activities
|
|
|
7,482,000
|
|
|
|
5,717,000
|
|
Net decrease in cash
|
|
$
|
(835,000
|
)
|
|
$
|
(244,000
|
)
|
Financings
Our financing
activities during the nine months ended September 30, 2018 were as follows:
Common Stock Purchase Agreement
On May 14, 2018, the Company’s largest
stockholder Eastern Capital Limited entered into a Common Stock Purchase Agreement with the Company pursuant to which it purchased
1,300,000 shares of common stock at a price per share of $2.40 providing gross proceeds to the Company of $3.12 million.
Exercise and Repricing of Warrants
Held by Existing Institutional Investors
On May 14, 2018, certain institutional
holders of outstanding warrants entered into Warrant Exercise Agreements with the Company that provide for an amendment to the
exercise price of the warrants being exercised at $2.50 per share. Upon closing of the Warrant Exercise Agreements, such institutional
holders immediately exercised warrants for 782,505 shares of common stock providing aggregate proceeds to the Company of approximately
$2.0 million.
The fair value relating to the modification
of exercise prices on the repriced and exercised warrants was treated as deemed dividend on the statement of stockholders’
equity of $728,000.
Exercise of Stock Warrants
During the nine months ended September
30, 2018, certain outstanding warrants were exercised by warrant holders providing aggregate proceeds to the Company of approximately
$2.4 million and resulted in the issuance of approximately 930,000 shares of common stock, which is net of 152,588 warrant shares
cancelled due to use of cashless exercise provisions. 215,344 of the stock warrants exercised were exercised on a cashless basis.
Exercise of Stock Options
In January 2018, a former officer exercised
10,416 shares of common stock pursuant to stock options providing proceeds of $18,000.
Other Financings
Securities Purchase Agreements
On October 17, 2018, concurrent with the
completion of the Merger, the Company issued to certain accredited investors in a private placement transaction (the “Financing”),
an aggregate of 17,500,000 shares of its common stock, and warrants to purchase 13,437,500 shares of common stock at an exercise
price of $5.00 per share with a five-year term, for aggregate proceeds of $70 million pursuant to the terms of the Securities Purchase
Agreements, dated June 8, 2018, by and among the Company and certain accredited investors.
Future Capital Requirements
As of September 30, 2018, we had working
capital of $0.7 million, compared to working capital of $3.7 million as of December 31, 2017.
We expect our expenses to steadily increase
as we move forward with the efforts in carrying out our clinical development plans, including those to be initiated from our new
subsidiary Marker Cell. Three of our clinical studies are expected to be funded by a total of approximately $28 million of grants
made by the DOD to the Mayo Clinic. We believe our existing cash, inclusive of the funds received from our recently closed private
placement financing will fund our operations into mid-2020. We will require additional capital in the future to continue conducting
research and development, to fund Phase II clinical trials of our licensed, patented technologies, to fund non-clinical testing
and to possibly begin cultivating collaborative relationships for the Phase II and future Phase III clinical testing. Our plans
could include seeking both equity and debt financing, alliances or other partnership agreements with entities interested in our
technologies, or other business transactions that could generate sufficient resources to ensure continuation of our operations
and research and development programs.
We expect to continue to seek additional
funding for our operations and future capital requirements. Any such required additional capital may not be available on reasonable
terms, if at all. If we were unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate
some or all of our planned clinical testing and research and development activities, which could harm our business. The sale of
additional equity or debt securities may result in additional dilution to our shareholders. If we raise additional funds through
the issuance of debt securities or preferred stock, these securities could have rights senior to those holders of our common stock
and could contain covenants that could restrict our operations. We also will require additional capital beyond our currently forecasted
amounts.
Because of the numerous risks and uncertainties
associated with research, development and commercialization of our product candidates, we are unable to estimate the exact amounts
of our future working capital requirements. Our future funding requirements will depend on many factors, including, but not limited
to:
|
·
|
the number and characteristics of the product candidates we pursue;
|
|
·
|
the scope, progress, results and costs of researching and developing our product candidates;
|
|
·
|
strategic transactions we may undertake;
|
|
·
|
the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;
|
|
·
|
our ability to maintain current research and development licensing agreements and to establish new strategic partnerships and collaborations, licensing or other arrangements and the financial terms of such agreements;
|
|
·
|
our ability to achieve our milestones under our licensing arrangements and the payment obligations we may have under such agreements;
|
|
·
|
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and
|
|
·
|
the timing, receipt and amount of sales of, or royalties on, our future products, if any.
|
We have based our estimates on assumptions
that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate.
Various conditions outside of our control
may detract from our ability to raise additional capital needed to execute our plan of operations, including overall market conditions
in the international and local economies. Any of these factors could have a material impact upon our ability to raise financing
and, as a result, upon our short-term or long-term liquidity.
Critical Accounting Policies
The condensed consolidated financial statements
are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported
amounts of expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances
are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates,
requiring adjustments to these balances in future periods. The critical accounting estimates that affect the consolidated financial
statements and the judgments and assumptions used are consistent with those described under Part II, Item 7 of our Annual Report
on Form 10-K for the year ended December 31, 2017.
Off-Balance Sheet Arrangements
We have not entered into any off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes of
financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that are material
to investors.