ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis summarizes the significant
factors affecting our results of operations, financial condition
and liquidity position for the three and nine months ended
September 30, 2017 and 2016, and should be read in conjunction with
our unaudited condensed consolidated financial statements and
related notes included elsewhere in this filing.
This report contains forward-looking statements. These statements
relate to future events or to our future financial performance and
involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to
be materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements.
Factors that might affect our forward-looking statements include,
among other things:
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overall economic and business conditions;
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the demand for our products and services;
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competitive factors in the industries in which we
compete;
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the emergence of new technologies which compete with our product
and service offerings;
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our cash position and cash burn rate;
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other capital market conditions, including availability of funding
sources;
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the strength of our intellectual property portfolio;
and
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changes in government regulations in China and the
U.S. related to our industries.
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In some cases, you can identify forward-looking statements by terms
such as “may”, “will”,
“should”, “could”, “would”,
“expects”, “plans”,
“anticipates”, “believes”,
“estimates”, “projects”,
“predicts”, “potential” and similar
expressions. These statements reflect our current views with
respect to future events and are based on assumptions and are
subject to risks and uncertainties. Given these uncertainties, you
should not place undue reliance on these forward-looking
statements. We discuss many of these risks in greater detail under
the heading “Risk Factors” included in other reports we
file with the Securities and Exchange Commission. Also, these
forward-looking statements represent our estimates and assumptions
only as of the date of the document containing the applicable
statement.
Unless required by law, we undertake no obligation to update or
revise any forward-looking statements to reflect new information or
future events or developments. Thus, you should not assume that our
silence over time means that actual events are bearing out as
expressed or implied in such forward-looking
statements.
OVERVIEW
The “Company”, “CBMG”, “we”,
“us”, “our” and similar terms refer to
Cellular Biomedicine Group, Inc. (a Delaware corporation) as a
combined entity including each of its subsidiaries and controlled
companies, unless the context otherwise requires.
Recent Developments
In
January 2016, we launched a Phase I clinical trial of an
off-the-shelf allogeneic haMPC AlloJoin™ therapy for KOA (the
“Allogenic KOA Phase I Trial”)
to
evaluate the safety and efficacy of AlloJoin™, an
off-the-shelf allogeneic adipose derived progenitor cell (haMPC)
therapy for the treatment of KOA.
On
March 23, 2016, the Company filed a Form S-3 Registration Statement
(the “S-3 Registration Statement”) with the SEC, which
was declared effective on June 17, 2016. The S-3 Registration
Statement contains three prospectuses:
●
Offering
Prospectus. A base prospectus which covers the offering, issuance
and sale by us of up to $150,000,000 of our common stock, preferred
stock, debt securities, warrants, rights and/or units;
●
Resale Prospectus.
A prospectus to be used for the resale by the selling stockholders
of up to 3,824,395 shares of the Common Stock; and
●
Sales Agreement
Prospectus. A sales agreement prospectus covering the offering,
issuance and sale by the registrant of up to a maximum aggregate
offering price of $50,000,000 of the Common Stock that may be
issued and sold under a sales agreement with Cantor Fitzgerald
& Co.
On August 5, 2016 we completed patient treatment
for the Allogenic KOA Phase I Trial. And on December 9, 2016 we
announced interim 3-month safety data from the Allogenic KOA Phase
I Trial in China. Preliminary results from interim analysis have
demonstrated a safety and tolerability profile of
AlloJoin
TM
in the three doses tested, and no
serious adverse events (SAE) have been observed. The trial has been
completed and we are analyzing the result on cartilage regeneration
as well as recent development in the competitive
landscape.
On
November 29, 2016 we announced the approval and commencement of
patient enrollment in China for our CARD-1 (“CAR-T Against
DLBCL”) Phase I clinical trial of CD19 chimeric antigen
receptor T-cell (CAR-T) therapy utilizing our optimized proprietary
C-CAR011 construct for the treatment of patients with refractory
Diffuse Large B-cell Lymphoma (DLBCL). The CARD-1 trial has begun
enrollment with more data expected to be available in the first
half of 2018.
On
December 9, 2016 we announced interim 3-month safety data from our
Phase I clinical trial in China for
AlloJoin™ off-the-shelf allogeneic stem cell therapy for
KOA. The preliminary data was presented on December 2016 at the
World Stem Cell Summit in West Palm Beach, Florida. The interim
analysis of the trial has preliminarily demonstrated a safety and
tolerability profile of AlloJoin™ in the three doses tested,
and adverse events (AE) are similar to that of our prior autologous
trials. No serious adverse events (SAE) have been
observed.
On
January 3, 2017, we announced the signing of a ten-year lease of an
113,038 square feet building located in the “Pharma
Valley” in Shanghai Zhangjiang High-Tech Park. The new
facility designed and built to GMP standards will consist of 40,000
square feet dedicated to advanced cell manufacturing. We
plan to invest an aggregate of approximately $32 million into
Zhangjiang facility, of which $6.5 million will be spent on to
bring the facility into compliance with current GMP standards and
around 25 million will be spent on lease of this real estate. By
the end of 2017, the Company anticipates that the new Zhangjiang
facility, an expanded Wuxi, and Beijing GMP standards facilities
combined will have 70,000 square feet, and the Company expects that
it will be capable of supporting simultaneous clinical
trials for five different CAR-T and stem cell products, or the
ability to treat approximately 10,000 cancer patients and 10,000
stem cell patients per year. With this capacity, we plan to boost
our headcount on researchers and technicians for additional 50
personnel by the end of 2017.
On
January 9, 2017, we announced the commencement of patient
enrollment in China for its CALL-1 (“CAR-T against Acute
Lymphoblastic Leukemia”) Phase I clinical trial of CD19
chimeric antigen receptor T-cell (CAR-T) therapy utilizing its
optimized proprietary C-CAR011 construct for the treatment of
patients with relapsed or refractory (r/r) CD19+ B-cell Acute
Lymphoblastic Leukemia (ALL). The CALL-1 trial has begun enrollment
with more data expected to be available in the first half of 2018.
Depending on the Phase I CALL-1 results, CBMG expects to initiate a
larger Phase II clinical trial as soon as practicable.
On
February 27, 2017 we announced the Company received a $2.29 million
grant from California Institute of Regenerative Medicine (CIRM) to
fund our off-the-shelf AlloJoinTM Allogeneic Stem Cell Therapy for
Knee Osteoarthritis (KOA) in the U.S.. The grant will allow the
company to perform pre-clinical studies at Children’s
Hospital Los Angeles (CHLA) and to prepare AlloJoinTM for a
U.S. Phase I clinical trial with Dr. C. Thomas Vangsness, Jr., as
the principal investigator and the Keck School of Medicine of
USC as a trial site. On May 4, 2017, the Company received $1.2
million from the CIRM grant, the first of four disbursement
totaling $2.29 million to fund our off-the-shelf AlloJoin™
Allogeneic Stem Cell Therapy for Knee Osteoarthritis (KOA) in the
U.S.
On
March 30, 2017 we announced the completion of its newly expanded
30,000 square foot facility in Huishan High Tech Park in Wuxi,
China. 20,000 square feet of the Wuxi GMP facility will be
dedicated to advanced stem cell culturing, centralized plasmid and
viral vector production, cell banking and development of
reagents.
On
April 10, 2017, we announced a strategic research collaboration to
co-develop certain high-quality industrial control processes in
Chimeric Antigen Receptor T-cell (CAR-T) and stem cell
manufacturing with GE Healthcare Life Science. In connection with
the collaboration, a joint laboratory within CBMG’s new
Shanghai Zhangjiang facility designed and built to GMP standards
will be established and dedicated to the joint research and
development of a functionally integrated and automated
immunotherapy cell manufacturing system.
On
May 15, 2017, we announced the addition of a new independent
Phase I clinical trial of the Company’s ongoing CARD-1 study
in patients with chemorefractory or refractory B cell Non-Hodgkin
Lymphoma (NHL). The Company and Shanghai Tongji Hospital (Tongji)
are conducting a single arm, non-randomized study to evaluate the
safety and efficacy of C-CAR011 (Anti-CD19 single-chain variable
fragment (scFv) (41BB-CD3f)) therapy in relapsed or refractory B
cell NHL patients. The trial will enroll 15 patients comprised of
DLBCL, Primary Mediastinal Large B-Cell Lymphoma (PMBCL) and
Follicular Lymphoma (FL).
On
June 1, 2017, we announced our Board of Directors has approved a
new stock repurchase program granting the company authority to
repurchase up to $10 million in common shares (the
“2017 Stock Repurchase Program”) through open market
purchases pursuant to a plan adopted in accordance with Rule 10b5-1
of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) and in accordance with Rule 10b-18 of
the Exchange Act. The Company plans to repurchase shares of its
common stock in the open market in accordance with all applicable
securities laws and regulations. During the three months ended
September 30, 2017, the Company repurchased 114,156 shares of the
Company’s common stock with the total cost of $1,085,191.
During the nine months ended September 30, 2017, the Company
repurchased 284,325 shares of the Company’s common stock with
the total cost of $2,443,122.
On
June 20, 2017, we announced the establishment of an External
Advisory Board and the appointment of Michael A. Caligiuri, MD, as
Chair of the External Advisory Board to bring together experts from
diverse disciplines to provide knowledge and insight to help CBMG
fulfill its mission and build a network for development
opportunities.
On
June 26, 2017, we announced the appointment of Dr. Xia Meng as
Chief Operating Officer for the Company.
On
November 4, 2017, we announced the grand opening of our Zhangjiang
facility and strategic partnership to develop manufacturing
processes.
On
November 4, 2017, the Company announced signing of a strategic
partnership with Thermo Fisher Scientific (China) Ltd. to build a
joint Cell Therapy Technology Innovation and Application Center
(Center) at CBMG’s newly opened Shanghai Zhangjiang GMP
facility.
In
the next 12 months, we aim to accomplish the following, though
there can be no assurances that we will be able to accomplish any
of these goals:
●
Confirm the safety
and tolerability profile in an investigator sponsored phase I trial
of C-CAR011 in China in refractory aggressive DLBCL and to initiate
a larger Phase II clinical trial as soon as
practicable.
●
Confirm the safety
and tolerability profile in an investigator sponsored phase I trial
of C-CAR011 in relapsed and refractory (r/r) CD19+ B-cell Acute
Lymphoblastic Leukemia (ALL) in China, and to prepare for a follow
up multicenter phase IIb trial.
●
Submit to the CFDA
an IND package for C-CAR011 in treating patients with CD19+ B-cell
malignancies.
●
Seek opportunities
to file new CAR-T and other patents in China and potentially the
rest of the world;
●
Continue to seek
advanced technologies and partnerships to bolster our position in
the CAR-T market in China;
●
Bolster R&D
resources to fortify our intellectual properties portfolio and
scientific development. Continue to develop a competitive
Immuno-oncology pipeline for CBMG;
●
Assess the changes
in the cell therapy competitive landscape and revise our corporate
development strategy;
●
Complete Chemistry,
Manufacturing and Controls (CMC), non-clinical and preclinical
study data package to prepare for Allogeneic KOA IND filing in the
United States;
●
Initiate clinical
study to support the Biological license application (BLA) for
Allogeneic KOA study in the United States;
●
Bolster R&D
resources to fortify our intellectual properties portfolio and
scientific development;
●
Improve liquidity
and fortify our balance sheet by courting institutional
investors;
●
Evaluate new
regenerative medicine technology platform for other indications and
review recent development in the competitive
landscape;
●
Explore new CAR-T
opportunities for international collaboration and /or
partnership;
●
Expand our cell
manufacturing capacity and capabilities;
●
Evaluate the
feasibility of sponsoring a multi-site Phase I/II NSCLC clinical
study to support the Biological license application (BLA) for
the U.S. and China CD40L GVAX trial in combination with
anti-PD1;
●
Implement our GE
Joint Technology Laboratory to develop control processes for the
manufacture of CAR-T and Stem Cell Therapies;
●
Implement steps to
advance our Thermo Fisher joint Cell Therapy Technology Innovation
and Application Center; and
●
Elevate our
corporate development strategy on maintaining the CAR-T and
regenerative medicine dual technology platform.
Corporate History
Please refer to Note 1 of unaudited condensed consolidated
financial statements for the corporate history.
BIOPHARMACEUTICAL BUSINESS
Our
biomedicine business was founded in 2009 as a newly formed
specialty biomedicine company by a team of seasoned
Chinese-American executives, scientists and doctors. In 2010, we
established a facility designed and built to GMP standards in Wuxi,
and in 2012 we established a U.S. Food and Drug Administration
(“FDA”) GMP standard protocol-compliant manufacturing
facility in Shanghai. In October 2015, we opened a facility
designed and built to GMP standards in Beijing. Our focus has been
to serve the rapidly growing health care market in China by
marketing and commercializing stem cell and immune cell
therapeutics, related tools and products from our patent-protected
homegrown and acquired cell technology, as well as by utilizing
exclusively in-licensed and other acquired intellectual
properties.
Our
current treatment focal points are cancer and KOA.
Cancer.
In the cancer
field, with the recent build-up of multiple cancer therapeutic
technologies, we have prioritized our clinical efforts on CAR-T,
technologies, Vaccine, Tcm and TCR clonality technologies, and are
not actively pursuing the fragmented Tcm technical services
opportunities. We are integrating CBMG's state-of-the art
infrastructure and clinical platform with the technologies platform
to boost the Company's immuno-oncology presence and pave the way
for future partnerships. We plan to initiate certain cancer
clinical trials in China upon receiving acceptance of the clinical
trial designs with the principal investigator and obtaining the
requisite regulatory approval. On November 29, 2016, we announced
the approval and commencement of patient enrollment in China for
its CARD-1 (“CAR-T Against DLBCL”) Phase I clinical
trial utilizing its optimized proprietary C-CAR011 construct of
CD19 chimeric antigen receptor T-cell (CAR-T) therapy for the
treatment of patients with refractory Diffuse Large B-cell Lymphoma
(DLBCL). The CARD-1 trial has begun enrollment with final data
expected to be available in the first half of 2018. On January 9,
2017 we announced the approval and commencement of patient
enrollment in China for its CALL-1 (“CAR-T against Acute
Lymphoblastic Leukemia”) Phase I clinical trial utilizing its
optimized proprietary C-CAR011 construct of CD19 chimeric antigen
receptor T-cell (“CAR-T”) therapy for the treatment of
patients with relapsed or refractory (r/r) CD19+ B-cell Acute
Lymphoblastic Leukemia (“ALL”). The CALL-1 trial has
begun enrollment with final data expected to be available in the
first half of 2018. Depending on the Phase I CARD-1 and CALL-1
results, we expect to initiate larger Phase II clinical trials as
soon as practicable.
KOA.
In 2013, we
completed a Phase I/IIa clinical study, in China, for our Knee
Osteoarthritis (“KOA”) therapy named ReJoin®. The
trial tested the safety and efficacy of intra-articular injections
of autologous haMPCs in order to reduce inflammation and repair
damaged joint cartilage. The 6-month follow-up clinical data showed
ReJoin® therapy to be both safe and
effective.
In
Q2 of 2014, we completed patient enrollment for the Phase IIb
clinical trial of ReJoin® for KOA. The multi-center study
enrolled 53 patients to participate in a randomized, single blind
trial. We published 48 weeks follow-up data of Phase I/IIa on
December 5, 2014. The 48 weeks data indicated that
patients have reported a decrease in pain and a significant
improvement in mobility and flexibility, while the clinical data
shows our ReJoin® regenerative medicine treatment to be
safe. We announced interim 24 week results for
ReJoin® on March 25, 2015 and released positive Phase IIb
48 week follow-up data in January 2016, which shows the primary and
secondary endpoints of ReJoin® therapy group having all
improved significantly compared to their baseline, which has
confirmed some of the Company’s Phase I/IIa results. Our
ReJoin® human adipose-derived mesenchymal progenitor cell
(haMPC) therapy for KOA is an interventional therapy using
proprietary device, process, culture and medium:
●
Obtain adipose
(fat) tissue from the patient using our CFDA approved medical
device, the A-Stromal™ Kit;
●
Expand haMPCs using
our proprietary culture medium (serum-free and antibiotics-free);
and
●
Formulated for
ReJoin therapy using our proprietary formulation.
Our
process is distinguishable from sole Stromal Vascular Fraction
(SVF) therapy. The immunophenotype of our haMPCs exhibited multiple
biomarkers such as CD29+, CD73+, CD90+, CD49d+, HLA-I+, HLA-DR-,
Actin-, CD14-, CD34-, and CD45-. In contrast, SVF is
merely a heterogeneous fraction including preadipocytes,
endothelial cells, smooth muscle cells, pericytes, macrophages,
fibroblasts, and adipose-derived stem cells (ASCs).
In January 2016, we launched the Allogeneic KOA
Phase I Trial in China to evaluate the safety and efficacy of
AlloJoin™, an off-the shelf allogeneic adipose derived
progenitor cell (haMPC) therapy for the treatment of KOA. On August
5, 2016 we completed patient treatment for the Allogeneic KOA Phase
I trial, and on December 9, 2016 we announced interim 3-month
safety data from the Allogenic KOA Phase I Trial in China. The
interim analysis of the trial has preliminarily demonstrated a
safety and tolerability profile of AlloJoin™ in the three
doses tested, and no serious adverse events (SAE) have been
observed. The trial has been completed in the third quarter of
2017.
1
In
January 2015, we initiated patient recruitment in a phase II
clinical study, in China, of ReJoin (human adipose derived
mesenchymal progenitor cell or “haMPC”) in Cartilage
Damaged (“CD”) patients resulting from osteoarthritis
(“OA”) or sports injury, in further support of KOA
indication. The study is based on the same technology that has
shown significant efficacy in the treatment of Knee Osteoarthritis
(“KOA”), but requires two arthroscopic examinations and
the use of magnetic resonance imaging (“MRI”) to
further demonstrate the regenerative efficacy of ReJoin. Upon
further review of the protocol and the difficulty of getting
patients back for a second arthroscopic examination, we determined
to terminate the study.
The unique
lines of adult adipose-derived stem cells and the immune cell
therapies enable us to create multiple cell formulations in
treating specific medical conditions and diseases, as well as
applying single cell types in a specific treatment protocol.
Management believes that our adult adipose-derived line will become
commercially viable and market-ready in China within three to four
years. In addition, we plan to assess and initiate cancer clinical
trials leading to commercialization using safe and most effective
therapy or combination therapies. The quality management systems of
CBMG Shanghai and CBMG Wuxi were issued a Certificate of
ISO-9001:2008 by SGS /ANAB (ANSI-ASQ National Accreditation Board).
Our facility in Shanghai was issued a Certificate of Compliance by
ENV Services, Inc., and ISO Inspection Service Provider that (i)
its rooms 1-7, 10 are certified to ISO Class 7 per ISO-14644 in
accordance with cGMP; (ii) its biological safety cabinets are
certified per NSF/ANSI 49 and to ISO Class 5;and (iii) its
instrumentation calibration has been certified to perform in
accordance with ANS/NCSL Z-540-1 and document in accordance with
10CFR21.Our facility in Shanghai was issued a Testing Report by
Shanghai Food and Drug Packaging Material Control Center concluding
that some testing items of the cleanrooms are in compliance with
the Good Manufacturing Practice for Drugs (2010 Revision) of China.
The cleanrooms in Beijing are certified to meet the standard of
CNAS L1669; and Wuxi has been certified to meet the CNAS L0221
standard.
In
addition to standard protocols, we use proprietary processes and
procedures for manufacturing our cell lines, comprised
of:
●
Banking processes
that ensure cell preservation and viability;
●
DNA identification
for stem cell ownership; and
●
Bio-safety testing
at independently certified laboratories.
Regenerative Medicine and Cell Therapy
Regenerative
medicine is the “process of replacing or regenerating human
cells, tissues or organs to restore or establish normal
function”. Cell therapy as applied to regenerative medicine
holds the promise of regenerating damaged tissues and organs in the
body by rejuvenating damaged tissue and by stimulating the
body’s own repair mechanisms to heal previously irreparable
tissues and organs. Medical cell therapies are classified into two
types: allogeneic (cells from a third-party donor) or autologous
(cells from one’s own body), with each offering its own
distinct advantages. Allogeneic cells are beneficial when the
patient’s own cells, whether due to disease or degeneration,
are not as viable as those from a healthy donor. Similarly, in
cases such as cancer, where the disease is so unique to the
individual, autologous cells can offer true personalized
medicine.
Regenerative
medicine can be categorized into major subfields as
follows:
●
Cell Therapy. Cell
therapy involves the use of cells, whether derived from adults,
third party donors or patients, from various parts of the body, for
the treatment of diseases or injuries. Therapeutic applications may
include cancer vaccines, cell based immuno-therapy, arthritis,
heart disease, diabetes, Parkinson’s and Alzheimer’s
diseases, vision impairments, orthopedic diseases and brain or
spinal cord injuries. This subfield also includes the development
of growth factors, serums and natural reagents that promote and
guide cell development.
●
Tissue Engineering.
This subfield involves using a combination of cells with
biomaterials (also called “scaffolds”) to generate
partially or fully functional tissues and organs, or using a
mixture of technology in a bioprinting process. Some natural
materials, like collagen, can be used as biomaterial, but advances
in materials science have resulted in a variety of synthetic
polymers with attributes that would make them uniquely attractive
for certain applications. Therapeutic applications may include
heart patch, bone re-growth, wound repair, replacement neo-urinary
conduits, saphenous arterial grafts, inter-vertebral disc and
spinal cord repair.
●
Diagnostics and Lab
Services. This subfield involves the production and derivation of
cell lines that may be used for the development of drugs and
treatments for diseases or genetic defects. This sector also
includes companies developing devices that are designed and
optimized for regenerative medicine techniques, such as specialized
catheters for the delivery of cells, tools for the extraction of
stem cells and cell-based diagnostic tools.
All
living complex organisms start as a single cell that replicates,
differentiates (matures) and perpetuates in an adult through its
lifetime. Cell therapy is aimed at tapping into the power of cells
to prevent and treat disease, regenerate damaged or aged tissue and
provide cosmetic applications. The most common type of cell therapy
has been the replacement of mature, functioning cells such as
through blood and platelet transfusions. Since the 1970s, bone
marrow and then blood and umbilical cord-derived stem cells have
been used to restore bone marrow and blood and immune system cells
damaged by chemotherapy and radiation used to treat many cancers.
These types of cell therapies have been approved for use world-wide
and are typically reimbursed by insurance.
Over
the past number of years, cell therapies have been in clinical
development to attempt to treat an array of human diseases. The use
of autologous (self-derived) cells to create vaccines directed
against tumor cells in the body has been demonstrated to be
effective and safe in clinical trials. Researchers around the globe
are evaluating the effectiveness of cell therapy as a form of
replacement or regeneration of cells for the treatment of numerous
organ diseases or injuries, including those of the brain and spinal
cord. Cell therapies are also being evaluated for safety and
effectiveness to treat heart disease, autoimmune diseases such as
diabetes, inflammatory bowel disease, joint diseases and cancerous
diseases. While no assurances can be given regarding future medical
developments, we believe that the field of cell therapy is a subset
of biotechnology that holds promise to improve human health, help
eliminate disease and minimize or ameliorate the pain and suffering
from many common degenerative diseases relating to
aging.
Recent Developments in Cancer Cell Therapy
According
to the U.S. National Cancer Institute’s 2013 cancer topics
research update on CAR-T-Cells, excitement is growing for
immunotherapy—therapies that harness the power of a
patient’s immune system to combat their disease, or what some
in the research community are calling the “fifth
pillar” of cancer treatment.
One
approach to immunotherapy involves engineering patients’ own
immune cells to recognize and attack their tumors. And although
this approach, called adoptive cell transfer ("ACT"), has been
restricted to small clinical trials so far, treatments using these
engineered immune cells have generated some remarkable responses in
patients with advanced cancer. For example, in several early-stage
trials testing ACT in patients with advanced acute lymphoblastic
leukemia ("ALL") who had few if any remaining treatment options,
many patients’ cancers have disappeared entirely. Several of
these patients have remained cancer free for extended
periods.
Equally promising results have been reported in
several small clinical trials involving patients with lymphoma.
Although the lead investigators cautioned that much more research
is needed, the results from the trials performed thus far indicate
that researchers can successfully alter patients’ T cells so
that they attack their cancer cells. As an example, Kite’s
Pharma’s CART product has achieved
41% overall response
rate and a complete response rate of 36% of patients in response
and 36 percent in complete response at month 6 in its pivotal CAR-T
trial in patients with aggressive non-hodgkin
lymphoma.
ACT’s
building blocks are T cells, a type of immune cell collected from
the patient’s own blood. After collection, the T cells are
genetically engineered to produce special receptors on their
surface called chimeric antigen receptors ("CARs"). CARs are
proteins that allow the T cells to recognize a specific protein
(antigen) on tumor cells. These engineered CAR T cells are then
grown in the laboratory utill these T cells reach the dose
requirement (in billions). The expanded population of CAR T cells
is then infused into the patient. After the infusion, if all goes
as planned, the T cells multiply in the patient’s body and,
with guidance from their engineered receptor, recognize and kill
cancer cells that harbor the antigen on their surfaces. This
process builds on a similar form of ACT pioneered from NCI’s
Surgery Branch for patients with advanced melanoma. In 2013
NCI’s Pediatric Oncology Branch commented that the CAR T
cells are much more potent than anything they can achieve with
other immune-based treatments being studied. Although investigators
working in this field caution that there is still much to learn
about CAR T-cell therapy, the early results from trials like these
have generated considerable optimism. Researchers opined that CAR
T-cell therapy eventually may become a standard therapy for some
B-cell malignancies like ALL and chronic lymphocytic
leukemia.
The
traditional cancer treatment includes surgery, chemotherapy, and
radiation therapy. In the last decade, we witnessed a boom in
targeted therapies including monoclonal antibody and small molecule
therapies, such as Iressa and Tarciva that targets EGFR activating
mutations in the NSCLC, Herceptin that treats breast cancer
patients with HER2 overexpression, Crizotinib that targets NSCLC
patients with positive ALK fusion gene.
So
far, chimeric antigen receptor T cell therapy (“CAR-T”)
such as CD19 CAR-T, have been tested in several hematological
indications on patients that are refractory/relapsing to
chemotherapy, and many of them have relapsed after stem cell
transplantation. All of these patients had very limited
treatment option prior to CAR-T therapy. CAR-T has shown
positive clinical efficacy in many of these patients. Some of them
have lived for years post CAR-T treatment.
On
July 2016, Juno Therapeutics, Inc. reported the death of patients
enrolled in the U.S. Phase II clinical trial of JCAR015 for the
treatment of relapsed or refractory B cell acute lymphoblastic
leukemia (B-ALL). The U.S. FDA put the trial on hold and lifted the
hold within a week after Juno provided satisfactory explanation and
solution. Juno believes that the patient deaths were caused by the
use of Fludarabine preconditioning and they will use only
cyclophosphamide pre-conditioning in the future enrollment. The
trial was halted in November of 2016 after two more deaths occurred
after the trial resumed. The Company believes that its product and
study are distinguishable from Juno Therapeutics and plans to
continue to monitor any toxicities associated with the
study.
On
October 3, 2017 Gilead Sciences completed tender offer for all
outstanding shares of Kite Pharma, Inc. for $11.9 billion. On
October 18, 2017 the U.S. FDA approved Gilead (formerly KITE
Pharma, Inc.) CAR-T cell therapy to treat adults with certain types
of large B-cell lymphoma, who have not responded to or who have
relapsed after at least two other kinds of treatment.
Gilead’s CAR-T product is the second gene therapy approved by
the FDA and the first for certain types of non-Hodgkin lymphoma
(NHL). Diffuse large B-cell lymphoma (DLBCL) is the most common
type of non-Hodgkin lymphoma in adults.
Market for Cell-Based Therapies
In
2013, U.S. sales of products which contain stem cells or progenitor
cells or which are used to concentrate autologous blood, bone
marrow or adipose tissues to yield concentrations of stem cells for
therapeutic use were, conservatively, valued at $236 million at the
hospital level. It is estimated that the orthopedics industry used
approximately 92% of the stem cell products.
The
forecast is that in the United States, shipments of treatments with
stem cells or instruments which concentrate stem cell preparations
for injection into painful joints will fuel an overall increase in
the use of stem cell based treatments and an increase to $5.7
billion in 2020, with key growth areas being Spinal Fusion, Sports
Medicine and Osteoarthritis of the joints. According to Centers for
Disease Control and Prevention. Prevalence of doctor-diagnosed
arthritis and arthritis-attributable activity limitation United
States. 2010-2012, Osteoarthritis (OA) is a chronic disease that is
characterized by degeneration of the articular cartilage,
hyperosteogeny, and ultimately, joint destruction that can affect
all of the joints. According to Dillon CF, Rasch EK, Gu Q et al.
Prevalence of knee osteoarthritis in the United States: Arthritis
Data from the Third National Health and Nutrition Examination
Survey 1991-94. J Rheumatol. 2006, the incidence of OA is 50% among
people over age 60 and 90% among people over age 65. KOA accounts
for the majority of total OA conditions and in adults, OA is the
second leading cause of work disability and the disability
incidence is high (53%). The costs of OA management have grown
exponentially over recent decades, accounting for up to 1% to 2.5%
of the gross national product of countries with aging populations,
including the U.S., Canada, the UK, France, and Australia.
According to the American Academy of Orthopedic Surgeons (AAOS),
the only pharmacologic therapies recommended for OA symptom
management are non-steroidal anti-inflammatory drugs (NSAIDs) and
tramadol (for patients with symptomatic osteoarthritis). Moreover,
there is no approved disease modification therapy for OA in the
world. Disease progression is a leading cause of hospitalization
and ultimately requires joint replacement surgery. In 2009, the
U.S. spent over $42 billion on replacement surgery for hip and knee
joints alone. International regulatory guidelines on clinical
investigation of medicinal products used in the treatment of OA
were updated in 2015, and clinical benefits (or trial outcomes) of
a disease modification therapy for KOA has been well defined and
recommended. Medicinal products used in the treatment of
osteoarthritis need to provide both a symptom relief effect for at
least 6 months and a structure modification effect to slow
cartilage degradation by at least 12 months. Symptom relief is
generally measured by a composite questionnaire Western Ontario and
McMaster Universities Osteoarthritis Index (WOMAC) score, and
structure modification is measured by MRI, or radiographic image as
accepted by international communities. The Company uses the WOMAC
as primary end point to demonstrate symptom relief, and MRI to
assess structure and regeneration benefits as a secondary
endpoint.
According
to an October 2010 article from the Foundation for the National
Institutes of Health, there are approximately 27 million Americans
with Osteoarthritis (OA), and symptomatic Knee Osteoarthritis (KOA)
occurs in 13% of persons aged 60 and older. The International
Journal of Rheumatic Diseases, 2011 reports that approximately 57
million people in China suffer from KOA. Currently no treatment
exists that can effectively preserve knee joint cartilage or slow
the progression of KOA. Current common drug-based methods of
management, including anti-inflammatory medications (NSAIDs), only
relieve symptoms and carry the risk of side effects. Patients with
KOA suffer from compromised mobility, leading to sedentary
lifestyles; doubling the risk of cardiovascular diseases, diabetes,
and obesity; and increasing the risk of all causes of mortality,
colon cancer, high blood pressure, osteoporosis, lipid disorders,
depression and anxiety. According to the Epidemiology of Rheumatic
Disease (Silman AJ, Hochberg MC. Oxford Univ. Press, 1993:257), 53%
of patients with KOA will eventually become disabled.
The
current data on CAR T-cell therapies, presented from various
institutions including MSKCC, University of Pennsylvania, National
Cancer Institute, and Fred Hutchinson Cancer Center, Novartis and
Kite Pharma, Inc have been very positive. Novartis
CAR-T technology has made breakthroughs in treating B cell
leukemia. Both Kite and Novartis are on track to submit their
respective CAR-T registration trial data to the U.S. FDA for BLA in
the near future.
Approved
cell therapies have been appearing on the market in recent years.
In 2011, however, the industry was dealt two setbacks when Geron
Corporation discontinued its embryonic stem cell program, and when
Sanofi-Aventis acquired Genzyme Corporation and did not acquire the
product rights relating to the allogeneic cell technology of Osiris
Therapeutics, Inc., a partner of Genzyme and a leader in the field.
In both cases there were difficulties navigating the U.S.
regulatory requirements for product approval. Inadequate trial
designs were cited in the executive summary of the 2012 New York
Stem Cell Summit Report as contributing to these
failures.
The
number of cell therapy companies that are currently in Phase 2 and
Phase 3 trials has been gathering momentum, and we anticipate that
new cellular therapy products will appear on the market within the
next several years.
Management
believes the remaining risk in monetizing cancer immune cell
therapies is concentrated in late stage clinical studies,
speed-to-approval, manufacturing and process
optimization.
Our Strategy
The
majority of our biopharmaceutical business is in the development
stage. We intend to concentrate our business on cell therapies and
in the near-term, carrying our KOA stem cell therapy and cancer
immune cell therapies to commercialization.
We
are developing our business in cell therapeutics and capitalizing
on the increasing importance and promise that adult stem cells have
in regenerative medicine. Our most advanced candidate involves
adipose-derived mesenchymal stem cells to treat KOA. Based on
current estimates, we expect our biopharmaceutical business to
generate revenues primarily through the development of therapies
for the treatment of KOA within the next three to four
years.
Presently
we have two KOA cell therapy clinical studies in China, a completed
Phase IIb autologous study and an on-going Phase I allogeneic
study. If and when either therapy obtains regulatory approval in
the PRC, we will be able to market and offer the therapy for
clinical use. Our focus is on the latest translational stages of
product development, principally from the pre-clinical stage to
regulatory approval and commercialization of new
therapies.
Our strategy is to develop safe and effective
cellular medicine therapies for indications that represent a large
unmet need in China, based on technologies developed both in-house
and obtained through acquisition, licensing and
collaboration arrangements with other companies. Our near term
objective is to pursue successful clinical trials in China for our
KOA application, followed by our CD and Asthma
therapies. We also initiated multiple dose preclinical
studies in Chronic Obstructive Pulmonary Disease
(“COPD”) animal model. At this time we have maintained
our focus on the knee osteoarthritis trials and have not
prioritized the COPD preclinical study. We intend to utilize our
comprehensive cell platform to support multiple cell lines to
pursue multiple therapies, both allogeneic and autologous. We
intend to apply U.S. Standard Operating Procedures ("SOPs") and
protocols while complying with Chinese regulations, while owning,
developing and executing our own clinical trial protocols. We plan
to establish domestic and international joint ventures or
partnerships to set up cell laboratories and/or research
facilities, acquire technology or in-license technology from
outside of China, and build affiliations with hospitals, to develop
a commercialization path for our therapies, once approved. We
intend to use our first-mover advantage in China, against a
backdrop of enhanced regulation by the central government, to
differentiate ourselves from the competition and establish a
leading position in the China cell therapeutic
market. We also intend to out-license our technologies
to interested parties and are exploring the feasibility of a U.S.
allogeneic KOA clinical study with the FDA.
CBMG
initially plans to use its centralized manufacturing facility
located in Shanghai to service multiple hospitals within 200 km of
the facility. We aim to complete clinical trials for our
KOA therapy candidate as soon as practicable. Our goal is to first
obtain regulatory permission for commercial use of the therapies
for the respective hospitals in which the trials are being
conducted. CBMG plans to scale up its customer base by qualifying
multiple additional hospitals for the post-trial use of therapies,
once approved, by following regulatory guidelines. Based
on current regulation and estimates we expect our biopharmaceutical
business to generate revenues primarily from the development of
therapies for the treatment of KOA within the next four to six
years.
With
the AG acquisition we intend to monetize AG’s U.S. and
Chinese intellectual property for immune cell therapy preparation
methodologies and patient immunity assessment by engaging with
prominent hospitals to conduct pre-clinical and clinical studies in
specific cancer indications. The T Cell clonality analysis
technology patent, together with AG’s other know-how for
immunity analysis, will enable the Company to establish an
immunoassay platform that is crucial for immunity evaluation of
patients with immune disorders as well as cancerous diseases that
are undergoing therapy.
We
believe that few competitors in China are as well-equipped as we
are in the clinical trial development, diversified U.S. FDA
protocol compliant manufacturing facilities, regulatory compliance
and policy making participation, as well as a long-term presence in
the U.S. with U.S.-based management and investor base.
We
intend to continue our business development efforts by adding other
proven domestic and international biotechnology partners to
monetize the China health care market.
In
order to expedite fulfillment of patient treatment CBMG has been
actively developing technologies and products with a strong
intellectual properties protection, including haMPC, derived from
fat tissue, for the treatment of KOA and other indications.
CBMG’s acquisition of AG provides an enlarged opportunity to
expand the application of its cancer therapy-enabling technologies
and to initiate clinical trials with leading cancer
hospitals. With the AG acquisition, we will continue to
seek to empower hospitals' immune cell cancer therapy development
programs that help patients improve their quality of life and
improve their survival rate.
CBMG's
proprietary and patent-protected production processes and clinical
protocols enable us to produce raw material, manufacture cells, and
conduct cell banking and distribution. Applying our proprietary
intellectual property, we will be able to customize specialize
formulations to address complex diseases and debilitating
conditions.
CBMG
has been developing disease-specific clinical treatment protocols.
These protocols are designed for each of these proprietary cell
lines to address patient-specific medical conditions. These
protocols include medical assessment to qualify each patient for
treatment, evaluation of each patient before and after a specific
therapy, cell transplantation methodologies including dosage,
frequency and the use of adjunct therapies, potential adverse
effects and their proper management.
The protocol of allogeneic haMPC therapy for KOA
has been approved by Shanghai Renji Hospital’s Institutional
Review Board for clinical studies. Once the studies are completed,
the clinical data will be analyzed by qualified third party
statisticians and reports will be published.
We
operate our manufacturing facilities under good manufacturing
practice ("GMP") conditions in the ISO accredited laboratories
standard. We employ an institutionalized and proprietary process
and quality management system to optimize reproducibility and to
hone our efficiency. Three facilities designed and built to GMP in
Beijing, Shanghai and Wuxi, China meet international standards. In
any precision setting, it is vital that all controlled-environment
equipment meet certain design standards. To achieve this goal, our
Shanghai cleanroom facility underwent rigorous cleanroom
certification. Our facility in Shanghai was issued a Certificate of
Compliance by ENV Services, Inc., and ISO Inspection Service
Provider that (i) its rooms 1-7, 10 are certified to ISO Class 7
per ISO-14644 in accordance with cGMP; (ii) its biological safety
cabinets are certified per NSF/ANSI 49 and to ISO Class 5; and
(iii) its instrumentation calibration has been certified to perform
in accordance with ANS/NCSL Z-540-1 and document in accordance with
10CFR21. The cleanrooms in Beijing are certified to meet the
standard of CNAS L1669; and Wuxi has been certified to meet the
CNAS L0221 standard. With our integrated Plasmid, Viral Vectors,
and CAR-T cells Chemistry, Manufacturing, and Controls process
as well as planned capacity expansion, we are highly
distinguishable with other companies in the cellular medicine
space.
In
total, our facilities operating under cGMP have over 47,300 sq. ft.
of space with the capacity for 19 independent cell production
lines. We are expanding our facilities designed and built to GMP
standards to approximately 70,000 sq. ft. of space and aim to be
able to treat approximately 10,000 cancer patients and 10,000
patients per year by the end of 2017.
Most
importantly, our most experienced team members have more than 20
years of relevant experience in China, European Union, and the
United States. All of these factors make CBMG a high quality cell
products manufacturer in China.
Our Targeted Indications and Potential Therapies
Knee Osteoarthritis (KOA)
We are currently pursuing two primary therapies
for the treatment of KOA: our ReJoin ® therapy and
our AlloJoin
TM
therapy.
We completed the Phase I/IIa clinical
trial for the treatment of KOA. The trial tested the safety and
efficacy of intra-articular injections of autologous haMPCs in
order to reduce inflammation and repair damaged joint cartilage.
The 6-month follow-up clinical data showed
ReJoin
TM
therapy to be both safe and
effective.
In
the second quarter of 2014, we completed patient enrollment for the
Phase IIb clinical trial of ReJoin® for KOA. The multi-center
study has enrolled 53 patients to participate in a randomized,
single blind trial. We published 48 weeks follow-up data of Phase
I/IIa on December 5, 2014. The 48 weeks data indicated
that patients have reported a decrease in pain and a significant
improvement in mobility and flexibility, while the clinical data
shows our ReJoin® regenerative medicine treatment to be safe.
We announced positive Phase IIb 48-week follow-up data in January
2016, with statistical significant evidence that ReJoin®
enhanced cartilage regeneration, which concluded the planned phase
IIb trial.
In January 2016, we launched the Allogeneic KOA
Phase I Trial in China
to evaluate the safety and efficacy of
AlloJoin™, an off-the shelf allogeneic adipose derived
progenitor cell (haMPC) therapy for the treatment of KOA. On August
5, 2016 we completed patient treatment for the
Allogeneic KOA Phase I trial. On August 5, 2016 we
completed patient treatment for the Allogenic KOA Phase I Trial,
and on December 9, 2016, we announced interim 3-month safety data
from the Allogenic KOA Phase I Trial in China. The interim analysis
of the trial has preliminarily demonstrated a safety and
tolerability profile of AlloJoin™ in the three doses tested,
and no serious adverse events (SAE) have been observed. The trial
is on schedule to be completed by the third quarter of
2017.
Osteoarthritis
is a degenerative disease of the joints. KOA is one of the most
common types of osteoarthritis. Pathological manifestation of
osteoarthritis is primarily local inflammation caused by immune
response and subsequent damage of joints. Restoration of immune
response and joint tissues are the objective of
therapies.
According to
International Journal of
Rheumatic Diseases, 2011
, 53%
of KOA patients will degenerate to the point of disability.
Conventional treatment usually involves invasive surgery with
painful recovery and physical therapy. As drug-based methods of
management are ineffective, the same journal estimates that some
1.5 million patients with this disability will degenerate to the
point of requiring artificial joint replacement surgery every year.
However, only 40,000 patients will actually be able to undergo
replacement surgery, leaving the majority of patients to suffer
from a life-long disability due to lack of effective
treatment.
haMPCs are currently being considered as a new and
effective treatment for osteoarthritis, with a huge potential
market. Osteoarthritis is one of the ten most disabling
diseases in developed countries. Worldwide estimates are that 9.6%
of men and 18.0% of women aged over 60 years have symptomatic
osteoarthritis. It is estimated that the global OA therapeutics
market was worth $4.4 billion in 2010 and is forecast to grow at a
compound annual growth rate (“CAGR”) of 3.8% to reach
$5.9 billion by 2018.
In
order to bring haMPC-based KOA therapy to market, our market
strategy is to: (a) establish regional laboratories that comply
with cGMP standards in Shanghai and Beijing that meet Chinese
regulatory approval; and (b) file joint applications with Class AAA
hospitals to use haMPCs to treat KOA in a clinical trial
setting.
Our
competitors are pursuing treatments for osteoarthritis with knee
cartilage implants, microsphere technology combining triamcinolone
acetonid with a poly lactic-co-glycolic acid (PLGA) matrix, or
modulation of the Wnt signaling pathway to protect cartilage. Our
KOA therapy uses a small amount (30ml) of adipose tissue obtained
via liposuction from the patient, which is cultured and re-injected
into the patient. The injections are designed to induce the
body’s secretion of growth factors promoting immune response
and regulation, and regrowth of cartilage. The down-regulation of
the patient’s immune response is aimed at reducing and
controlling inflammation which is a central cause of
KOA.
We
believe our proprietary method, subsequent haMPC proliferation and
processing know-how will enable haMPC therapy to be a low cost and
relatively safe and effective treatment for KOA. Additionally,
banked haMPCs can continue to be stored for additional use in the
future.
Immuno-oncology (I/o)
We
continue to fortify our cancer breakthrough technology platform
with I/o and vaccine technology.
Our
CAR-T platform is built on well-studied lenti-viral vector and
second-generation CAR design, which is used by most of the current
trials and studies. We rigorously select the patient population for
each indication to allow the optimal path forward for regulatory
approval. We also fully integrate the state of art translational
medicine effort into each clinical study to aid in dose selection,
to confirm the mechanism of action and proof of concept, and to
identify the optimal targeting patient population whenever
appropriate. We plan to continue to grow our translational medicine
team and engage key opinion leaders to meet the
demand.
Because
there are many differences between hematological and solid tumors,
drug penetration or infiltration into solid tumors sites is more
challenging than hematological cancer. Antibody dependent
cell-mediated (“ADCC”) toxicity works much better in
hematological cancers. Hematological cancers usually carry fewest
mutations among all cancers and are usually less molecularly
heterogeneous than that of solid tumors. As such,
routinely hematological cancers respond better to therapeutic
interventions, and there are more complete, as well as partial
responses. And the duration of response is usually
longer.
Solid
tumors pose more challenges than hematological
cancers. The patients are more heterogeneous, making it
difficult to have one drug to work effectively in the majority of
the patients in any cancer indication. The duration of
response is most likely shorter and patients are likely to relapse
even after initial positive clinical response. We
believe that CAR-T therapy can successfully treat hematopoietic
cancers because the therapy can deplete all B cells including
normal and cancer cells in leukemia and lymphoma. When the stem
cells are not targeted these stem cells can regenerate normal B and
T cells. In contrast, effective tumor specific antigens found to be
less to target in solid tumors. When the drugs kill
tumor cells, they also kill the normal cells to a certain degree,
leading to different degrees of toxicity. We will
continue to make an effort to develop CAR-T or other cell based
therapies to target solid tumors.
Human Adipose-Derived Mesenchymal Progenitor Cells
(haMPC)
Adult mesenchymal stem cells can currently be
isolated from a variety of adult human sources, such as liver, bone
marrow, and adipose (fat) tissue. We believe the advantages in
using adipose tissue (as opposed to bone marrow or blood) are that
it is one of the richest sources of pluripotent cells in the body,
the easy and repeatable access to fat via liposuction, and the
simple cell isolation procedures that can begin to take place even
on-site with minor equipment needs. The procedure we are testing
for KOA involves extracting a very small amount of fat using a
minimally invasive extraction process which takes up to 20 minutes,
and leaves no scarring. The haMPC cells are then processed and
isolated on site, and injected intra articularly into the knee
joint with ultrasound guidance.
These
haMPC cells are capable of differentiating into bone, cartilage,
tendon, skeletal muscle, and fat under the right conditions. As
such, haMPCs are an attractive focus for medical research and
clinical development. Importantly, we believe both allogeneic and
autologously sourced haMPCs may be used in the treatment of
disease. Numerous studies have provided preclinical data that
support the safety and efficacy of allogeneic and autologously
derived haMPC, offering a choice for those where factors such as
donor age and health are an issue.
Additionally,
certain disease treatment plans call for an initial infusion of
these cells in the form of SVF, an initial form of cell isolation
that can be completed and injected within ninety minutes of
receiving lipoaspirate. The therapeutic potential conferred by the
cocktail of ingredients present in the SVF is also evident, as it
is a rich source for preadipocytes, mesenchymal stem cells,
endothelial progenitor cells, T regulatory cells and
anti-inflammatory macrophages.
Immune Cell Therapy, Adoptive T cell
Adoptive
T cell therapy for cancer is a form of transfusion therapy
consisting of the infusion of various mature T cell subsets with
the goal of eliminating a tumor and preventing its
recurrence. In cases such as cancer, where the disease
is unique to the individual, the adoptive T cell therapy is a
personalized treatment.
We
believe that an increasing portion of healthcare spending both in
China and worldwide will be directed to immune cell therapies,
driven by an aging population, and the potential for immune cell
therapy treatments to become a safe, effective, and cost-effective
method for treating millions of cancer patients.
Cancer
is a major threat to public health and the solvency of health
systems worldwide. Current treatments for these diseases
cannot meet medical needs. We believe that immune cell therapy is a
new technology that has the potential to alleviate much of the
burden of these chronic and degenerative diseases in a
cost-effective manner.
Tumor Cell Specific Dendritic Cells (TC-DC)
Recent
scientific findings indicate the presence of special cells in
tumors that are responsible for cancer metastases and relapse.
Referred to as “cancer stem cells”, these cells make up
only a small portion of the tumor mass. The central concept behind
TC-DC therapy is to immunize against these cells. TC-DC therapy
takes a sample of the patient’s own purified and irradiated
cancer cells and combines them with specialized immune cells,
thereby ‘educating’ the immune cells to destroy the
cancer stem cells from which tumors arise. We believe
the selective targeting of cells that drive tumor growth would
allow for effective cancer treatment without the risks and side
effects of current therapies that also destroy healthy cells in the
body.
Our
strategy is, through the acquisition of AG and the technologies and
pre-clinical and clinical data of University of the South Florida
and PLAGH, to become an immune cell business leader in the China
cancer therapy market and specialty pharmaceutical market by
utilizing CBMG’s attractiveness as a NASDAQ listed company to
consolidate key China immune cell technology leaders with fortified
intellectual property and ramp up revenue with first mover’s
advantage in a safe and efficient manner. The Company
plans to accelerate cancer trials by using the knowledge and
experience gained from the Company’s ongoing KOA trials and
the recent, CAR-T and Tcm technologies. Immune
cell therapies have not been codified by any of the Chinese
regulatory agencies. On December 16, 2016, the CFDA issued
solicited feedback on its draft "Technical Guidelines for Research
and Evaluation of Cellular Products”, signaling near term
clarification and codification/of the cell therapy regulation. On
October 9, 2017, China’s State Council issued guidelines to
reform the drug approval process and propose steps to change
clinical trial procedures, expedite regulatory review and promote
drug innovation and generics. On clinical trial reform, the State
Council favors accelerating the review and approval process,
including granting conditional approvals to candidates for diseases
with no effective treatment, optimizing clinical trial approvals by
strengthening communication between applicants and review
institutions, supporting expanding clinical trials by allowing
patients with diseases without current treatments to receive
experimental treatment, and allowing the resulting safety data to
be used during registration. The proposals also include allowing
clinical trial data from outside China to be accepted during
registration and providing regulatory exemptions for rare disease
programs. We believe, these reforms may narrow our first-mover
advantage and may reduce barrier-to-entry for newcomers in China.
On the other hand, it appears that our clinical trials may qualify
for U.S.FDA-like Fast Track designation as maintenance therapy in
subjects with advanced cancer who have limited options following
surgery and front-line platinum/taxane chemotherapy to improve
their progression-free survival. By applying U.S. SOP and protocols
and following authorized treatment plans in China, we believe we
are differentiated from our competition as we believe we have first
mover’s advantage and a fortified barrier to
entry. In addition, encouraged by the recent CIRM grant
of $2.29 million for our preclinical trial to replicate and
validate the manufacturing process and control system at the cGMP
facility located at Children’s Hospital Los Angeles to
support the filing of an IND with the FDA, we have begun to review
the feasibility of performing a synergistic U.S. KOA clinical
trial.
Competition
The biotechnology and pharmaceutical industries,
including the gene therapy field, are characterized by rapidly
advancing technologies, intense competition and a strong emphasis
on intellectual property. We face substantial competition from many
different sources, including large biopharmaceutical companies,
midsize/smaller public and privately-held biotechnology firms,
academic research institutions, governmental agencies, and public
and private research institutions
We
compete with companies in the space of immunotherapy, as well as
companies developing novel targeted therapies for cancer. We
anticipate substantial direct competition from other organizations
developing advanced T cell therapies. In particular, we expect to
compete with genetically engineering T cell therapies that are
being pursued by multiple companies, including Kite, Novartis, Juno
Therapeutics, Amgen,as well as a number of China-based companies.
In particular, the Chinese JV Fosun Kite is in the process of
research and development of its own versions of Kite C-19 T cell
therapies and the JV BeiGene Biologic has just announced their
high-quality large scale manufacturing project in Guangzhou. On
August 30, 2017, the US Food and Drug Administration (FDA) approved
Novartis’ first CAR-T therapy (tisagenlecleucel) for the
treatment of patients up to 25 years of age with B-cell precursor
acute lymphoblastic leukemia (ALL) that is refractory or in second
or later relapse.
We
also face competition in the degenerative osteoarthritis from
non-immunotherapy based treatments offered by companies such as
TissueGene and Mitsubishi pharma, which has completed U.S phase 2
trials and received a Special Protocol Assessment designation for
Phase 3 trials scheduled to begin in the second quarter of 2017. In
addition, on October 6, 2017, Flexion Therapeutics Inc. announced
FDA approval of their triamcinolone acetonide extended-release
injectable suspension for KOA pain. On July 27, 2017, Samumed, LLC
announced completion of its 52 - week Phase 2 study for treatment
of KOA using a small molecule inhibitor of the Wnt pathway,
administered as an intra - articular injection.
Many
of our competitors, either alone or with their strategic partners,
have substantially greater financial, technical and human
resources. Accordingly, our competitors may be more successful than
us in obtaining approval for treatments and achieving widespread
market acceptance and may render our treatments obsolete or
non-competitive. Mergers and acquisitions in the biotechnology and
pharmaceutical industries may result in even more resources being
concentrated among a smaller number of our competitors. These
competitors also compete with us in recruiting and retaining
qualified scientific and management personnel and establishing
clinical study sites and patient registration for clinical studies,
as well as in acquiring technologies complementary to, or necessary
for, our programs. Smaller or early-stage companies may also prove
to be significant competitors, particularly through collaborative
arrangements with large and established companies.
Critical Accounting Policies
The
discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S.
GAAP”). The preparation of these financial statements
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and
expenses during the reporting period. On an ongoing basis, our
management evaluates the estimates, including those related to
revenue recognition, accounts receivable, inventory, long-lived
assets, goodwill and other intangibles, investments, stock-based
compensation, and income taxes. Of the accounting estimates we
routinely make relating to our critical accounting policies, those
estimates made in the process of: determining the valuation of
accounts receivable, inventory, long-lived assets, and goodwill and
other intangibles; measuring share-based compensation expense;
preparing investment valuations; and establishing income tax
valuation allowances and liabilities are the estimates most likely
to have a material impact on our financial position and results of
operations. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be
reasonable under the circumstances. However, because these
estimates inherently involve judgments and uncertainties, there can
be no assurance that actual results will not differ materially from
those estimates.
During
the three months ended September 30, 2017, we believe that there
have been no significant changes to the items that we disclosed as
our critical accounting policies and estimates in the
“Critical Accounting Policies and Estimates” section of
Item 7 - Management’s Discussion and Analysis of Financial
Condition and Results of Operations in our Annual Report on Form
10-K for the fiscal year ended December 31, 2016. In addition, we
have added the accounting policies of Treasury Stock and Government
Grants in our unaudited condensed consolidated financial statements
since last fiscal quarter to address the relevant transactions, as
follows:
Treasury Stock
The
treasury stock is recorded and carried at their repurchase cost.
The Company recorded the entire purchase price of the treasury
stock as a reduction of equity. A gain and or loss will be
determined when treasury stock is reissued or retired, and the
original issue price and book value of the stock do not enter into
the accounting. Additional paid-in capital from treasury stock is
credited for gains and debited for losses when treasury stock is
reissued at prices that differ from the repurchase
cost.
Government Grants
Government
grants are recognized in the balance sheet initially when there is
reasonable assurance that they will be received and that the
enterprise will comply with the conditions attached to them. When
the Company received the government grants but the conditions
attached to the grants have not been fulfilled, such government
grants are deferred and recorded as deferred income. The
reclassification of short-term or long-term liabilities is depended
on the management’s expectation of when the conditions
attached to the grant can be fulfilled. Grants that compensate the
Company for expenses incurred are recognized as other income in
statement of income on a systematic basis in the same periods in
which the expenses are incurred.
Results of Operations
Below is a discussion of
the results of our operations for the
three and nine months ended September 30, 2017 and 2016. These
results are not necessarily indicative
of result that may be
expected in any future period. Our prospects
should be considered in light of the risks, expenses
and difficulties that we may encounter. We may not be successful in addressing
these risks and difficulties.
Comparison of Three Months Ended September 30, 2017 to Three Months
Ended September 30, 2016
The descriptions in the results of operations below reflect our
operating results as set forth in our Consolidated Statement of
Operations filed herewith.
|
Three Months
Ended September 30, 2017
|
Three Months
Ended September 30, 2016
|
|
|
|
Net sales and
revenue
|
$
106,787
|
$
10,012
|
|
|
|
Operating
expenses:
|
|
|
Cost of
sales
|
55,294
|
9,128
|
General and
administrative
|
3,023,390
|
2,790,305
|
Selling and
marketing
|
85,742
|
124,143
|
Research and
development
|
4,076,186
|
2,897,736
|
Total
operating expenses
|
7,240,612
|
10,433,026
|
Operating
loss
|
(7,133,825
)
|
(10,423,014
)
|
|
|
|
Other
income
|
|
|
Interest
income
|
23,933
|
22,338
|
Other
income
|
907,678
|
(17,314
)
|
Total
other income
|
931,611
|
5,024
|
Loss before
taxes
|
(6,202,214
)
|
(10,417,990
)
|
|
|
|
Income
taxes provision
|
-
|
(243,230
)
|
|
|
|
Net
loss
|
$
(6,202,214
)
|
$
(10,661,220
)
|
Other comprehensive
income (loss):
|
|
|
Cumulative
translation adjustment
|
291,665
|
(58,824
)
|
Reclassification
adjustments, net of tax, in connection with other-than-temporary
impairment of investments
|
-
|
(5,557,939
)
|
Total other
comprehensive income (loss):
|
291,665
|
(5,616,763
)
|
Comprehensive
loss
|
$
(5,910,549
)
|
$
(16,277,983
)
|
|
|
|
|
|
|
Net loss per
share:
|
|
|
Basic
|
$
(0.43
)
|
$
(0.75
)
|
Diluted
|
$
(0.43
)
|
$
(0.75
)
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
Basic
|
14,349,569
|
14,128,465
|
Diluted
|
14,349,569
|
14,128,465
|
|
|
|
|
|
|
* These line items
include the following amounts of non-cash, stock-based compensation
expense for the periods indicated:
|
|
|
|
|
|
|
Three Months
Ended September 30, 2017
|
Three Months
Ended September 30, 2016
|
|
|
|
Cost of
sales
|
26,150
|
11,765
|
General and
administrative
|
618,877
|
900,936
|
Selling and
marketing
|
20,907
|
28,368
|
Research and
development
|
672,775
|
590,795
|
|
1,338,709
|
1,531,864
|
Results of Operations
Net sales and revenue
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
$
106,787
|
$
10,012
|
$
96,775
|
967
%
|
A majority of the revenue was derived from cell therapy technology
service for three months period ended September 30, 2017 and 2016.
The Company ceased its cooperation with the Jihua Hospital and
several other agents, which resulted in decreased revenue in the
three months ended September 30, 2016. In 2017, the Company landed
several new customers and provided related cell therapy technology
service, which contributed to an increase in revenue in the same
period of 2017.
Cost of Sales
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
$
55,294
|
$
9,128
|
$
46,166
|
506
%
|
The cost of sales increased in line with the sales.
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
$
3,023,390
|
$
2,790,305
|
$
233,085
|
8
%
|
Increased expenses in 2017 was primarily attributed to the
following:
o
An increase in
rental expenses of $622,000, which mainly resulted from the new
leased plant located in the “Pharma Valley” of Shanghai
from January 1, 2017;
o
A decrease in
legal, audit and other professional fees of $154,000;
and
o
A decrease in
stock-based compensation expense of $282,000.
Selling and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
$
85,742
|
$
124,143
|
$
(38,401
)
|
(31
)%
|
Sales and marketing expenses decreased by approximately $38,000 in
the three months ended September 30, 2017 as compared to the three
months ended September 30, 2016, primarily as a result of a
decrease in marketing expenses of $20,000.
Research and Development Expenses
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
$
4,076,186
|
$
2,897,736
|
$
1,178,450
|
41
%
|
Research and development costs increased by approximately
$1,178,000 in the three months ended September 30, 2017 as compared
to the three months ended September 30, 2016. The increase was
primarily attributed to below facts:
o
An increase in
salary of $166,000;
o
An increase in
stock-based compensation expense of $82,000;
o
An increase in raw
material consumption of $136,000;
o
An increase in
clinical expense of $154,000 primarily relating to our CAR-T
projects; and
o
An increase in
rental expenses of $535,000, which was mainly attributed to the
lease of a GMP facility in the United States to commence the KOA
preclinical and clinical studies in 2017.
Impairment of Investments
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
$
-
|
$
4,611,714
|
$
(4,611,714
)
|
(100
)%
|
The impairment of investments for the three months ended September
30, 2016 is attributed to the recognition of other than temporary
impairment on the value of shares in two investments. No such
expense existed in the same period in 2017. The impairment on
investments was primarily attributed to the valuation loss for the
stock of Arem Pacific Corporation ("ARPC"), which share price
recently significantly dropped. The stock of ARPC held by us is
illiquid, restricted and very thinly traded on the OTC Markets, we
consider that it indicates the likelihood that the impairment is
other-than-temporary.
Operating Loss
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
$
(7,133,825
)
|
$
(10,423,014
)
|
$
3,289,189
|
(32
)%
|
The increase in the operating loss for the three months ended
September 30, 2017 as compared to the same period in 2016 is
primarily due to changes in general and administration expenses,
research and development expenses and impairment of investments,
each of which is described above.
Total Other Income
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
$
931,611
|
$
5,024
|
$
926,587
|
18443
%
|
Other income for the three months ended September 30, 2017 was
primarily government subsidy income of $990,000 netting of the
foreign currency exchange net loss of $79,000. Other income for the
three months ended September 30, 2016 was primarily interest income
of $22,000, third party R&D subsidy of $40,000 and government
subsidy of $25,000 and netting of the charity donation of
$78,000.
Income Taxes Provision
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
$
-
|
$
(243,230
)
|
$
243,230
|
(100
)%
|
While we have optimistic plans for our business strategy, we
determined that a valuation allowance was necessary given the
current and expected near term losses and the uncertainty with
respect to our ability to generate sufficient profits from our
business model. Therefore, we established a valuation allowance for
deferred tax assets other than the extent of the benefit from other
comprehensive income. Income tax expense for three months ended
September 30, 2016 mainly represents mainly represents the reversal
of deferred income tax as a result of tax benefit of other
comprehensive income previously recognized.
Net Loss
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
$
(6,202,214
)
|
$
(10,661,220
)
|
$
4,459,006
|
(42
)%
|
Changes in net loss are primarily attributable to changes in
operations which are described above.
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
$
(5,910,549
)
|
$
(16,277,983
)
|
$
10,367,434
|
(64
)%
|
Comprehensive loss for three months ended September 30, 2017
includes a currency translation net gain of approximately $292,000
combined with the changes in net income. Comprehensive net loss for
three months ended September 30, 2016 includes reclassification
adjustments, net of tax, of approximately $5,558,000, in connection
with other-than-temporary impairment of investments, and a currency
translation net loss of approximately $59,000 combined with the
changes in net income. The reclassification adjustment was
attributed to the valuation loss of approximately $6,090,000 for
the stock investment in ARPC, which indicates the likelihood of the
impairment is other-than-temporary.
Comparison of Nine Months Ended September 30, 2017 to Nine Months
Ended September 30, 2016
The descriptions in the results of operations below reflect our
operating results as set forth in our Consolidated Statement of
Operations filed herewith.
|
Nine Months
Ended September 30, 2017
|
Nine Months
Ended September 30, 2016
|
|
|
|
Net sales and
revenue
|
$
268,126
|
$
570,102
|
|
|
|
Operating
expenses:
|
|
|
Cost of
sales
|
130,793
|
835,908
|
General and
administrative
|
9,527,730
|
8,638,877
|
Selling and
marketing
|
280,011
|
342,377
|
Research and
development
|
10,469,820
|
8,268,953
|
Impairment of
investments
|
-
|
4,611,714
|
Total
operating expenses
|
20,408,354
|
22,697,829
|
Operating
loss
|
(20,140,228
)
|
(22,127,727
)
|
|
|
|
Other
income
|
|
|
Interest
income
|
113,688
|
57,678
|
Other
income
|
1,461,265
|
6,652
|
Total
other income
|
1,574,953
|
64,330
|
Loss before
taxes
|
(18,565,275
)
|
(22,063,397
)
|
|
|
|
Income taxes
provision
|
(2,450
)
|
(5,218
)
|
|
|
|
Net
loss
|
$
(18,567,725
)
|
$
(22,068,615
)
|
Other comprehensive
income (loss):
|
|
|
Cumulative
translation adjustment
|
637,786
|
(314,189
)
|
Unrealized
gain (loss) on investments, net of tax
|
(240,000
)
|
5,300,633
|
Reclassification
adjustments, net of tax, in connection with other-than-temporary
impairment of investments
|
-
|
(5,557,939
)
|
Total other
comprehensive income:
|
397,786
|
(571,495
)
|
Comprehensive
loss
|
$
(18,169,939
)
|
$
(22,640,110
)
|
|
|
|
|
|
|
Net loss per
share:
|
|
|
Basic
|
$
(1.30
)
|
$
(1.67
)
|
Diluted
|
$
(1.30
)
|
$
(1.67
)
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
Basic
|
14,310,344
|
13,253,290
|
Diluted
|
14,310,344
|
13,253,290
|
|
|
|
|
|
|
* These line items
include the following amounts of non-cash, stock-based compensation
expense for the periods indicated:
|
|
|
|
Nine Months
Ended September 30, 2017
|
Nine Months
Ended September 30, 2016
|
|
|
|
Cost of
sales
|
49,066
|
8,014
|
General and
administrative
|
2,314,990
|
2,254,498
|
Selling and
marketing
|
34,604
|
32,353
|
Research and
development
|
1,842,162
|
1,649,260
|
|
4,240,822
|
3,944,125
|
Results of Operations
Net sales and revenue
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
|
$
268,126
|
$
570,102
|
$
(301,976
)
|
(53
)%
|
Majority of the revenue was derived from cell therapy technology
service for the nine months ended September 30, 2017 and 2016. The
decrease in revenue is the result of prioritizing cancer
therapeutic technologies, and focusing our clinical efforts on
developing CAR-T technologies, Vaccine, Tcm and TCR clonality
technologies. Such decrease in revenue was also attributable to the
fact that the Company ceased its cooperation with the Jihua
Hospital and several agents and were not actively pursuing the
fragmented technical services opportunities in the second quarter
of 2016.
Cost of Sales
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
|
$
130,793
|
$
835,908
|
$
(705,115
)
|
(84
)%
|
The cost of sales decreased in line with the sales. The cost of
sales in 2016 was mainly due to the high fixed cost of Beijing
site. Since there was no revenue from the Beijing site in 2017, the
cost of sales decreased significantly.
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
|
$
9,527,730
|
$
8,638,877
|
$
888,853
|
10
%
|
Increased expenses in 2017 was primarily attributed to below
facts:
o
An increase in
rental expenses of $1,867,000, which mainly resulted from the new
leased plant located in the “Pharma Valley” of Shanghai
from January 1, 2017;
o
A decrease in
legal, audit and other professional fees of $603,000 as the Company
S-3 and S-8 filing in first half of 2016 that led to large
professional fees in 2016;
o
A decrease in
salary of $265,000; and
o
A decrease in
insurance fee of $138,000, which mainly resulted from the decrease
in premium for director and officer liability and Company
reimbursement insurance.
Selling and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
|
$
280,011
|
$
342,377
|
$
(62,366
)
|
(18
)%
|
The selling and marketing expenses decrease was mainly attributed
to the decline in travelling expenses of $17,000, entertainment
expenses of $16,000 and marketing expenses of $13,000 in
2017.
Research and Development Expenses
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
|
$
10,469,820
|
$
8,268,953
|
$
2,200,867
|
27
%
|
Research and development costs increased by approximately
$2,201,000 in the nine months ended September 30, 2017 as compared
to the nine months ended September 30, 2016. The increase was
primarily attributed to the facts below:
o
An increase in
payroll expenses of $315,000 as a result of headcount increase and
payroll raise. Total headcount for our R&D team increased from
76 as of September 30, 2016 to 93 as of September 30,
2017;
o
An increase in raw
material consumption of $623,000;
o
An increase in
stock-based compensation expense of $193,000;
o
An increase in
rental expenses of $728,000, which was mainly attributed to the
launching of R&D activities at our Beijing GMP facility in the
2
nd
quarter of 2016 and the lease of a GMP facility in the United
States to commence the KOA preclinical and clinical studies in
2017; and
o
An increase in
depreciation and amortization of $267,000, which was mainly
attributed to the purchase of our new equipment for immunotherapy
research and development.
Impairment of Investments
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
|
$
-
|
$
4,611,714
|
$
(4,611,714
)
|
(100
)%
|
The impairment of investments for the nine months ended September
30, 2016 is attributed to the recognition of other than temporary
impairment on the value of shares in investments. The impairment on
investments was primarily attributed to the valuation loss for the
stock investment in ARPC, which share price recently significantly
dropped. The stock of ARPC held by us is illiquid, restricted and
very thinly traded on the OTC Markets, which we believe indicates
the likelihood that the impairment is
other-than-temporary.
Operating Loss
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
|
$
(20,140,228
)
|
$
(22,127,727
)
|
$
1,987,499
|
(9
)%
|
The increase in the operating loss for the nine months ended
September 30, 2017 as compared to the same period in 2016 is
primarily due to changes in revenues, cost of sales, general and
administrative expenses, research and development expenses and
impairment of investments, each of which is described
above.
Total Other Income
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
|
$
1,574,953
|
$
64,330
|
$
1,510,623
|
2348
%
|
Other income, net for the nine months ended September 30, 2017 was
primarily interest income of $114,000 and government subsidy income
of $1,582,000 offsetting by foreign exchange loss of $111,000.
Other income, net for the nine months ended September 30, 2016 was
primarily interest income of $58,000, third party R&D subsidy
of $40,000, foreign exchange gain of $21,000 and government subsidy
of $28,000, offsetting by the charity donation of
$78,000.
Income Taxes Provision
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
|
$
(2,450
)
|
$
(5,218
)
|
$
2,768
|
(53
)%
|
While we have optimistic plans for our business strategy, we
determined that a valuation allowance was necessary given the
current and expected near term losses and the uncertainty with
respect to our ability to generate sufficient profits from our
business model. Therefore, we established a valuation allowance for
deferred tax assets other than the extent of the benefit from other
comprehensive income. Income tax expense for nine months ended
September 30, 2017 and 2016 all represent US state
tax.
Net Loss
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
|
$
(18,567,725
)
|
$
(22,068,615
)
|
$
3,500,890
|
(16
)%
|
Changes in net loss are primarily attributable to changes in
operations of our biomedicine segment which are described
above.
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
|
$
(18,169,939
)
|
$
(22,640,110
)
|
$
4,470,171
|
(20
)%
|
Comprehensive net loss for nine months ended September 30, 2017
includes unrealized net loss on investments of approximately
$240,000 and a currency translation net gain of approximately
$638,000 combined with the changes in net income. Comprehensive net
loss for nine months ended September 30, 2016 includes unrealized
net gain on investments of approximately $5,301,000,
reclassification adjustments, net of tax, of approximately
$5,558,000, in connection with other-than-temporary impairment of
investments and a currency translation net loss of approximately
$314,000 combined with the changes in net income. The unrealized
gain and reclassification adjustments on investments were primarily
attributed to the valuation change for the stock investment in
ARPC.
Liquidity and Capital Resources
We had working capital of $15,206,192 as of September 30, 2017
compared to $38,328,048 as of December 31, 2016. Our cash position
decreased to $16,292,031 at September 30, 2017 compared to
$39,252,432 at December 31, 2016 for the cash used in operating and
investment activities.
Net cash provided by or used in operating, investing and financing
activities from continuing operations was as follows:
Net cash used in operating activities was approximately $13,952,000
and $12,072,000 for the nine months ended September 30, 2017 and
2016, respectively. The following table reconciles net loss to net
cash used in operating activities:
For the nine months
ended September 30,
|
|
|
|
Net
loss
|
$
(18,567,725
)
|
$
(22,068,615
)
|
$
3,500,890
|
Non cash
transactions
|
6,366,530
|
10,712,136
|
(4,345,606
)
|
Changes in
operating assets, net
|
(1,750,552
)
|
(715,890
)
|
(1,034,662
)
|
Net cash used in
operating activities
|
$
(13,951,747
)
|
$
(12,072,369
)
|
$
(1,879,378
)
|
The 2017 change in non-cash transaction was primarily due to the
decrease in other-than-temporary impairment on investments of
$4,612,000 compared with same period in 2016.
Net cash used in investing activities was approximately $7,002,000
and $1,653,000 in the nine months ended September 30, 2017 and
2016, respectively. These amounts were primarily the
result of construction of Wuxi and Zhangjiang GMP and purchases of
fixed assets.
Net cash (used in) provided by financing activities was
approximately $(2,210,000) and $43,123,000 in the nine months ended
September 30, 2017 and 2016, respectively. Net cash used in the
financing activities in 2017 was mainly attributed to repurchase of
the Company’s common stock and net cash provided by financing
activities were mainly attributable to the proceeds received from
exercise of options and the issuance of common stock.
Liquidity and Capital Requirements Outlook
Excluding any potential sponsorship of a CD40LGVAX Trial in the
U.S. and other regions outside of China CD40LGVAX Trial, we
anticipate that the Company will require approximately $27 million
in cash to operate as planned in the coming 12 months. Of this
amount, approximately $21 million will be used to operate our
facilities and offices, including but not limited to payroll
expenses, rent and other operating costs, and to fund our research
and development as we continue to develop our products through the
clinical study process. Approximately $5 million will be used as
capital expenditure in machinery, equipment and facilities to
expand our immune cell therapy business and CAR-T research and
development, although we may revise these plans depending on the
changing circumstances of our biopharmaceutical business.
Approximately $1 million may be used to repurchase the
Company’s common stock.
We expect to rely on current cash balances that we hold to provide
for these capital requirements. We do not intend to use, and will
not rely on our holdings in securities to fund our operations.
One of our stocks held, ARPC, has an S-1 prospectus which
relates to the resale of up to 13,694,711 shares of common stock,
inclusive of the 8,000,000 shares held by the Company. However, the
shares offered by this filing may only be sold by the selling
stockholders at $0.05 per share until the shares are quoted on the
OTCQB® tier of OTC Markets or an exchange. Another one of our
stocks held, Wonder International Education and Investment Group
Corporation ("Wonder") has delisted. We do not know whether
we can liquidate our 8,000,000 shares of ARPC stock or the
2,057,131 shares of Wonder stock or any of our other portfolio
securities, or if liquidated, whether the realized amount will
be meaningful at all. As a result, we have written down above
stocks to their fair value.
On April 15, 2016, the Company completed the second and final
closing of a financing transaction with Wuhan Dangdai Science &
Technology Industries Group Inc., pursuant to which the Company
sold to the Investor 2,006,842 shares of the Company’s common
stock, par value $0.001 per share, for approximately $38,130,000 in
gross proceeds. As previously disclosed in a Current Report on Form
8-K filed on February 10, 2016, the Company conducted the initial
closing of the financing on February 4, 2016. The aggregate gross
proceeds from both closings in the financing totaled approximately
$43,130,000. In the aggregate, 2,270,000 shares of Common Stock
were issued in the financing. On March 22, 2016, the Company filed
a registration statement on Form S-3 to offer and sell from time to
time, in one or more series, any of the securities of the Company,
for total gross proceeds up to $150,000,000. On June 17, 2016, the
SEC declared the S-3 effective; we have yet to utilize any of the
$150,000,000 registered under the S-3. As we continue to incur
losses, achieving profitability is dependent upon the successful
development of our immune therapy business and commercialization of
our technology in research and development phase, which is a number
of years in the future. Once that occurs, we will have to achieve a
level of revenues adequate to support our cost structure. We may
never achieve profitability, and unless and until we do, we will
continue to need to raise additional capital. Management intends to
fund future operations through additional private or public debt or
equity offerings, and may seek additional capital through
arrangements with strategic partners or from other
sources.
Our medium to long term capital needs involve the further
development of our biopharmaceutical business, and may include, at
management’s discretion, new clinical trials for other
indications, strategic partnerships, joint ventures, acquisition of
licensing rights from new or current partners and/or expansion of
our research and development programs. Furthermore, as our
therapies pass through the clinical trial process and if they gain
regulatory approval, we expect to expend significant resources on
sales and marketing of our future products, services and
therapies.
In order to finance our medium to long-term plans, we intend to
rely upon external financing. This financing may be in the form of
equity and or debt, in private placements and/or public offerings,
or arrangements with private lenders. Due to our short operating
history and our early stage of development, particularly in our
biopharmaceutical business, we may find it challenging to raise
capital on terms that are acceptable to us, or at all. Furthermore,
our negotiating position in the capital raising process may worsen
as we consume our existing resources. Investor interest in a
company such as ours is dependent on a wide array of factors,
including lack of codified cell therapy regulation for clinical
trial IND filing in China, the state of regulation of our industry
in China (e.g. the policies of MOH and the CFDA), the U.S. and
other countries, political headwinds affecting our industry, the
investment climate for issuers involved in businesses located or
conducted within China, the increased competition on both
domestic and foreign companies launching immune cell therapy
ventures in China, the increased hurdle for Chinese investors to
transfer CNY to U.S. dollars for investment, the risks associated
with our corporate structure, risks relating to our partners,
licensed intellectual property, as well as the condition of the
global economy and financial markets in general. Additional equity
financing may be dilutive to our stockholders; debt financing, if
available, may involve significant cash payment obligations and
covenants that restrict our ability to operate as a business; our
stock price may not reach levels necessary to induce option or
warrant exercises; and asset sales may not be possible on terms we
consider acceptable. If we are unable to raise the capital
necessary to meet our medium- and long-term liquidity needs, we may
have to delay or discontinue certain clinical trials, the
licensing, acquisition and/or development of cell therapy
technologies, and/or the expansion of our biopharmaceutical
business; or we may have to raise funds on terms that we consider
unfavorable.
Off Balance Sheet Transactions
CBMG does not have any off-balance sheet arrangements except the
lease and capital commitment disclosed in the unaudited condensed
consolidated financial statements.
Contractual Obligations
We have various contractual obligations that will affect our
liquidity. The following table sets forth our contractual
obligations as of September 30, 2017.
|
|
Contractual Obligations
|
|
|
2-3
|
4-5
|
|
|
|
|
|
|
|
Capital
Commitment
|
$
1,861,091
|
$
1,615,800
|
245,291
|
-
|
-
|
Operating
Lease Obligations
|
24,393,965
|
3,434,773
|
5,394,945
|
5,017,126
|
10,547,121
|
Total
|
$
26,255,056
|
$
5,050,573
|
$
5,640,236
|
$
5,017,126
|
$
10,547,121
|