ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management’s discussion and analysis
summarizing the significant factors affecting our results of
operations, financial condition and liquidity position for the
three months ended March 31, 2020 and 2019, 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. Generally, the words
“believes,” “anticipates,”
“may,” “will,” “should,”
“could,” “expect,” “plans,”
“intend,” “estimate,”
“projects,” “presidents,”
“potential,” “continue” and similar
expressions or the negative thereof or comparable terminology are
intended to identify forward-looking statements. These statements
reflect our current views with respect 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. Given these uncertainties, you
should not place undue reliance on these forward-looking
statements.
A
variety of factors, some of which are outside our control, may
cause our operating results to fluctuate significantly. They
include:
●
the severity,
magnitude, and duration of the COVID-19 pandemic, including
impacts of the pandemic and of responses to the pandemic by
governments, business and individuals on our
operations;
●
our ability to
timely complete and equip our Rockville, Maryland GMP facility amid
the COVID-19 pandemic;
●
our ability to deal
with the COVID-19 related travel challenges in connection with the
technical transfer of our institutionalized process from our
Shanghai, China facility to the new Rockville site to support
clinical trial in the U.S.;
●
our anticipated
cash needs and our estimates regarding our anticipated expenses,
capital requirements and our needs for additional
financings;
●
the success, cost
and timing of our product development activities and clinical
trials;
●
our ability and the
potential to successfully advance our technology platform to
improve the safety and effectiveness of our existing product
candidates; the potential for our identified research priorities to
advance our cancer and degenerative disease
technologies;
●
our ability to
obtain drug designation or breakthrough status for our product
candidates and any other product candidates, or to obtain and
maintain regulatory approval of our product candidates, and any
related restrictions, limitations and/or warnings in the label of
an approved product candidate;
●
the ability to
generate or license additional intellectual property relating to
our product candidates;
●
regulatory
developments in China, United States and other foreign
countries;
●
the potential of
the technologies we are developing;
●
fluctuations in the
exchange rate between the U.S. dollars and the Chinese
Yuan;
●
our plans to
continue to develop our manufacturing facilities; and
●
the additional
risks, uncertainties and other factors described under the caption
“Risk Factors” in our Annual Report on Form 10-K for
the year ended December 31, 2019.
We
discuss many of these risks in greater detail under the heading
“Risk Factors” included in our Annual Report on Form
10-K for the year ended December 31, 2019 filed with the Securities
and Exchange Commission on February 28, 2020.
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.
For
additional information, see Item 7 of Part II,
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Overview” of our
2019 Annual Report on Form 10-K.
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.
Impact of COVID-19
The
COVID-19 pandemic has created new challenges for CBMG, the broader
biotech community, and society as a whole. We are prioritizing the
safety and well-being of our employees and have implemented
work-from-home policies for our U.S.- and China-based employees. In
China, employees must obtain advance permission and are only
permitted onsite as needed, and must adhere to the Company’s
COVID-19 prophylactic process and procedures. In compliance with
local rules and ordinances, our U.S. employees continue to work
remotely from home. Because of our long tradition of collaborating
with various stakeholders from different locations across different
time zones, we have not experienced major setbacks in our
operations as a result of the work-from-home policies. Commensurate
to impacts throughout the biopharma industry, we have observed some
broad-based COVID-19 supply chain related issues and are continuing
to mitigate its impact to our operations by implementing concrete
measures to prioritize the safety and physical wellbeing of our
employees. Amid the COVID-19 pandemic we are working with our
clinical studies partners in China to mitigate risk to patients
participating in our studies while taking into account regulatory,
institutional, and government guidance and policies. Because of
factors such as redirected health-care resources from partnering
hospitals, travel restrictions, and patients’ unwillingness
to go to the hospital during the outbreak we have observed delay to
our clinical studies in China. China has recently eased some of the
aforementioned restrictions and we have seen a corresponding return
to normalcy in our IIT patient enrollment. We estimate that the
COVID-19 pandemic has delayed our clinical studies schedule by
approximately one quarter. However, the actual delay cannot be
predicted and may vary by clinical study and by program depending
on a variety of currently unknown factors.
The
Company remains committed to maintaining its development plans but
acknowledges the potential impact on clinical studies amid the
rapidly evolving pandemic environment.
Recent Developments
●
On January 28,
2020, the Board of Directors of the Company accepted the Special
Committee of the Board and its advisers’ recommendation to
arrange a bridge loan (the “Bridge Loan”) of sixteen
million dollars ($16,000,000) in accordance with a Bridge Loan
Agreement entered into with Winsor Capital Limited on January 28,
2020. TF Capital Ranok Ltd., an affiliate of Winsor Capital
Limited, is a member of the consortium that submitted a non-binding
going-private proposal to the Company on November 11, 2019. The
Bridge Loan Agreement is not conditioned upon the consortium
bid.
●
On February 19,
2020, the Company commenced its collaboration with Ruijin Hospital
on a pilot clinical study on inhalation of our mesenchymal stem
cells exosomes treating severe novel coronavirus pneumonia. Other
collaborators in this pilot clinical study include the Shanghai
Public Health Clinical Center and the Wuhan Jinyintan Hospital.
Patient recruitment has slowed down amid the tapering off of the
COVID-19 outbreak in China.
●
On February 20,
2020, the Company repaid the $14.3 million short-term borrowings
from China Merchant Bank.
●
On February 20,
2020, Shanghai Cellular Biopharmaceutical Group Ltd. and Novartis
entered into a Quality Agreement for external manufacturing,
pursuant to which both parties specified the quality assurance
roles and responsibilities of Novartis AG and CBMG Shanghai with
regard to the manufacture and supply of Kymriah® to Novartis in
China.
●
On February 21,
2020, the Special Committee of the Board of Directors of the
Company received a new preliminary non-binding proposal letter,
dated the same day, from a consortium led by Mr. Tony (Bizuo) Liu,
the Chief Executive Officer of the Company, certain other senior
management members of the Company, Hillhouse Bio Holdings, L.P., TF
Capital Ranok Ltd., Dangdai International Group Co., Limited and
Mission Right Limited, Maplebrook Limited, Viktor Pan, Zheng Zhou,
OPEA SRL, Wealth Map Holdings Limited and Earls Mill Limited to
acquire all outstanding shares of common stock of the Company
(other than those shares held by members of the consortium that may
be rolled over in connection with the transaction proposed in the
letter) for $19.50 per share in cash in a going private
transaction. A consortium consisting of certain but not all of the
above consortium members submitted a preliminary non-binding
proposal to acquire the Company in a going private transaction on
November 11, 2019. The Special Committee, with the assistance of
its advisors, has been considering the proposal letter but has not
made a decision on the proposal.
●
On March 31, 2020,
the National Medical Products Administration of China (NMPA)
accepted our drug application for clinical trials in China for the
anti-BCMA CAR-T (C-CAR088) for relapsed or refractory multiple
myeloma (C-CAR088). As of April 13, 2020 we have enrolled 20
patients for the study from four hospitals. 19 patients have been
infused with C-CAR088 and 17 patients have evaluable data for
clinical efficacy. Only one grade 3 cytokine release syndrome (CRS)
has been observed. The early favorable clinical outcome warrants
continued development of C-CAR088.
●
On March 31, 2020,
encouraged by three of the four infused patients’ evaluable
data for clinical efficacy in our IIT anti-CD20/CD19 bi-specific
CAR-T for NHL, which is enabled by our bespoken fast-cycle,
economical manufacturing process, the Company decided to explore
feasibility of clinical trials in the U.S. market. The targeted NHL
indications are comprised of diffuse large B-cell lymphoma (DLBCL),
chronic lymphocytic leukemia (CLL) and follicle
center lymphoma (FCL).
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:
●
Bifurcate our
markets and launch clinical studies in the U.S. upon establishing
good Point of Care (POC) from the clinical studies in China and
transfer the clinical assets from Shanghai to the U.S., including
our quick cycle-time, highly differentiated, proprietary
manufacturing process comprised of short cycle-time,
semi-automation and closed system;
●
Meet with the U.S.
FDA on pre-IND filing and prepare our IND package for C-CAR039
(anti-CD20/CD19 bi-specific CAR-T) for NHL;
●
Meet with the U.S.
FDA on pre-IND filing and prepare our IND package for TIL051
for NSCLC;
●
Prepare and
submit our IND for C-CAR039 (anti-CD20/CD19 bi-specific CAR-T) for
NHL with the U.S. FDA;
●
Advance our
Rockville site’s research and development and manufacturing
to support our clinical development in the U.S.;
●
Explore the need to
bring our proprietary virus manufacturing process from Shanghai to
our Rockville site to enable U.S. clinical trials;
●
Collaborate with
Duke University on TIL process development to improve cycle time
and institutionalized scalability;
●
Explore the
feasibility of establishing a new R&D and clinical
manufacturing site in China to adapt to our rapid business
expansion and explore the addition of Contract Development, and
Manufacturing Organization (CDMO) business to support certain
specific market-oriented business strategies;
●
Evaluate our
strategy to further increase our enterprise value, and expand our
capital market strategy;
●
Pursue additional
short-term funding to shore up our balance sheet to weather the
COVID-19 pandemic;
●
Execute the
technology transfer and align the manufacturing processes with the
global CAR-T leader to support the development of the world’s
first CAR-T therapy in China;
●
Explore and
introduce a gene therapy technology platform, product development
and manufacturing for our current business to create synergy with
our cell therapy pipelines;
●
Invest more into
R&D resources and enrich our intellectual property portfolio
globally;
●
Evaluate and
implement a digital data tracking and storage technology system for
research and development, material management, GMP production and
integrated clinical data management;
●
Follow up on the
pilot clinical study on inhalation of our mesenchymal stem cells
exosomes treating severe novel coronavirus pneumonia;
●
Evaluate the
feasibility of using our mesenchymal stem cells exosomes to treat
atypical pneumonia;
●
Evaluate emerging
regenerative medicine technology platform for other indications and
review recent developments in the competitive
landscape;
●
Strengthen our
Quality Management System (QMS) centralized document control system
and electronic batch recording system for quality assurance, and
laboratory information management system (LMS) for quality
control;
●
Leverage our QMS
system and our strong scientific expertise in both the U.S. and
China;
●
Continue to field
inbound inquiries and to explore opportunities to monetize our
clinical assets;
●
Collaborate with
multinational pharmaceutical companies to co-develop cell therapy
products in China and in the U.S. by leveraging our existing
leading clinical assets or researching on new targets;
and
●
Continue to
implement International Organization for Standardization (ISO)
27001 standard to fortify our information assets
security.
Our
operating expenses for the three months ended March 31, 2020 were
in line with management’s plans and expectations. We had an
increase in total operating expenses of approximately $2 million
for the three-month period ended March 31, 2020, as compared to the
same period ended March 31, 2019, which was primarily attributable
to increased R&D expenses in 2020.
Corporate History
Please
refer to Note 1 of the unaudited condensed consolidated financial
statements for the corporate history.
BIOPHARMACEUTICAL BUSINESS
Our biopharmaceutical business was founded in 2009
by a team of seasoned Chinese-American executives, scientists and
doctors. In 2010, we established a facility designed and built
to comply with China’s GMP standards in Wuxi, China,
and in 2012, we established a U.S. FDA compliant
manufacturing facility in Shanghai. In November 2017, we opened our
Zhangjiang facility in Shanghai, of which 40,000 square feet, or
35% of the total facility, was designed and built to GMP standards
and dedicated to advanced cell manufacturing. We are expanding our
U.S. presence with a new 22,477 square foot Rockville, Maryland
facility scheduled to be completed in the latter part of 2020. The
Rockville site is designed to house approximately 4,500 square feet
of GMP manufacturing facility to support early stage U.S. clinical
trials. Our focus has been to serve the rapidly growing health care
market initially in China by marketing and commercializing immune
cell and stem cell therapeutics, related tools and products from
our patent-protected homegrown and acquired cell technology, as
well as by utilizing in-licensed and other acquired intellectual
properties before shifting our attention to serve the mature and
highly competitive health care market in the U.S. We continue to
explore new products and gene therapies that may require the
investment of a material amount of assets.
Our current treatment focal points are
cancer and Knee Osteoarthritis (KOA).
Cancer. We
are focusing our clinical development efforts on assets such as
C-CAR088, C-CAR039, TIL051, AFT-TCRT in China and/or U.S.
As discussed above in Item 1 –
Business, under the subheading “Overview,” we entered
into the Novartis LCA in September of 2018. With the execution of
the Novartis LCA, we have prioritized our efforts on working with
Novartis to bring Kymriah® to patients in China as soon as practicable. In
light of our collaboration with Novartis, we will no longer pursue
our own acute lymphoblastic leukemia (ALL) and diffuse large B-cell
lymphoma (DLBCL) biologics license application submission
with the NMPA. We plan to continue to leverage our cutting-edge
Chemistry, Manufacturing and Control (CMC) platform, as well as our
Quality Management System and our strong scientific expertise in
the U.S and in China, to collaborate with multinational
pharmaceutical companies to co-develop cell therapies in
China.
KOA. In 2013, we completed a Phase-I/IIa
clinical study, in China, for our KOA therapy named
ReJoin®. The trial
tested the safety and efficacy of intra-articular injections of
autologous human adipose-derived
mesenchymal progenitor cells (haMPCs) in order to reduce
inflammation and repair damaged joint cartilage. Since 2013, we
have continued clinical studies on ReJoin® and
our trial data has demonstrated
positive results on the performance of ReJoin®. Our
ReJoin® haMPC therapy
for KOA is an interventional therapy using our proprietary process,
culture and medium.
Our process is distinguishable from sole Stromal
Vascular Fraction (SVF) therapy. The immunophenotype of our haMPCs
exhibited a homogenous population expressing multiple biomarkers
such as CD73+, CD90+, CD105+, HLA-DR-, 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.
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 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 three-month safety data from the Allogenic KOA
Phase-I Trial in China. The interim analysis of the trial has
demonstrated a preliminary safety and tolerability profile of
AlloJoin® in the three doses tested, and no serious adverse
events (SAE) have been observed. On March 16, 2018, we announced a
positive 48-week AlloJoin® Phase-I data in China, which demonstrated good
safety and early efficacy for the slowing of cartilage
deterioration. China finalized its cell therapy regulatory pathway
in December 2017. Our AlloJoin® IND application to conduct a Phase-II clinical
trial with the NMPA was been approved in January 2019 and we
launched our Phase-II AlloJoin® clinical trial on September 12, 2019. On
September 27, 2019, we received the ReJoin® therapy application acceptance for Phase-II
clinical trials by the NMPA.
We established adult adipose-derived progenitor
cell and immuno-oncology cellular therapy platforms in
treating specific medical conditions and diseases. Our QMS have
been assessed and certified to meet the requirements of ISO 9001:
2015, and a quality manual based on GMP guidelines has been
finalized. The facilities, utilities and equipment in both
Zhangjiang and Wuxi Sites have been calibrated and/or qualified and
in compliance with requirements of local health authorities. We
installed an Enterprise Quality Management System (EQMS) in April
2019 to facilitate the quality activities. A document management
system and Laboratory Information Management System (LIMS) will be
installed and qualified in early 2020.
Our proprietary manufacturing processes and
procedures include (i) banking of allogenic cellular product and
intermediate product; (ii) manufacturing process of GMP-grade viral
vectors; (iii) manufacturing process of GMP-grade cellular
product; and (iv) analytical testing to ensure the safety,
identity, purity and potency of cellular products.
Recent Developments in Adoptive Immune Cell Therapy
(ACT)
The immune system plays an essential role in
cancer development and growth. In the past decade, immune
checkpoint blockade has demonstrated a major breakthrough in cancer
treatment and has currently been approved for the treatment of
multiple tumor types. ACT with TIL or gene-modified T-cells
expressing novel T-cell receptors (TCR) or chimeric antigen
receptors (CAR) is another strategy to modify the immune system to
recognize tumor cells and thus carry out an anti-tumor effector
function.
The TILs consist of tumor-resident T-cells
which are isolated and expanded ex vivo after surgical resection of
the tumor. Thereafter, the TILs are further expanded in a rapid
expansion protocol (REP). Before intravenous adoptive transfer into
the patient, the patient is treated with a lymphodepleting
conditioning regimen. TCR gene therapy and CAR gene therapy are ACT
with genetically modified peripheral blood T-cells. For both
treatment modalities, peripheral blood T-cells are isolated via
leukapheresis. These T-cells are then transduced by viral vectors
to either express a specific TCR or CAR. These treatments have
shown promising results in various tumor types.
Chimeric
antigen receptor T-cells (CAR-Ts)
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. This approach is
called adoptive cell transfer. Adoptive cell transfer’s
building blocks are T-cell s, a type of immune cell collected from
the patient’s own blood. One of the well-established adoptive
cell transfer approaches is CAR-T cancer therapy. 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 until the number reaches dose level. 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
adoptive cell transfer 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 immuno-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.
CAR-T
cell therapies, such as anti-CD19 CAR-T and anti-BCMA 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
limited treatment options prior to CAR-T therapy. CAR-T has shown
encouraging clinical efficacy in many of these patients, and some
of them have had durable clinical response for years. However, some
adverse effects, such as CRS and neurological toxicity, have been
observed in patients treated with CAR-T-cells. For example, in July
2016, Juno Therapeutics, Inc. reported the death of patients
enrolled in the U.S. Phase-II clinical trial of JCAR015 (anti-CD19
CAR-T) 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 a
satisfactory explanation and solution. Juno attributed the cause of
patient deaths to the use of Fludarabine preconditioning and they
switched to use only cyclophosphamide pre-conditioning in
subsequent enrollment.
In
August 2017, the U.S. FDA approved Novartis’
Kymriah®, a
CD19-targeted CAR-T therapy, for the treatment of patients up to 25
years old for relapsed or refractory (r/r) ALL, the most common
cancer in children. Current treatments show a rate of 80% remission
using intensive chemotherapy. However, there are almost no
conventional treatments to help patients who have relapsed or are
refractory to traditional treatment. Kymriah® has shown
results of complete and long lasting remission, and was the first
U.S. FDA-approved CAR-T therapy. In October 2017, the U.S. FDA
approved Kite Pharmaceuticals’ (Gilead) CAR-T therapy for
DLBCL the most common type of NHL in adults. The initial results of
axicabtagene ciloleucel (Yescarta), the prognosis of high-grade
chemo refractory NHL, is dismal with a medium survival time of a
few weeks. Yescarta is a therapy for patients who have not
responded to or who have relapsed after at least two other kinds of
treatment.
In May
2018, the U.S. FDA approved Novartis’ Kymriah® for intravenous
infusion for its second indication—the treatment of adult
patients with relapsed or refractory (r/r) large B-cell lymphoma
after two or more lines of systemic therapy including DLBCL not
otherwise specified, high grade B-cell lymphoma and DLBCL arising
from follicular lymphoma. Kymriah® is now the only
CAR-T cell therapy to receive U.S. FDA approval for two distinct
indications in non-Hodgkin lymphoma and B-cell ALL. On September
25, 2018, we entered into the Novartis LCA with Novartis to
manufacture and supply Kymriah® to Novartis in
China.
Besides
anti-CD19 CAR-T, anti-BCMA CAR-T has shown promising clinical
efficacy in treatment of multiple myeloma. For example, bb2121, a
CAR-T therapy targeting BCMA, has been developed by Bluebird bio,
Inc. and Celgene for previously treated patients with multiple
myeloma. Based on preliminary clinical data from the ongoing
Phase-I study CRB-401, bb2121 has been granted Breakthrough Therapy
Designation by the U.S. FDA and PRIME eligibility by the European
Medicines Agency (EMA) in November 2017. We plan to initiate our
anti-BCMA CAR-T investigator-initiated trial in the near
future.
Recent
progress in Universal Chimeric Antigen Receptor (UCAR) T-cells
showed benefits such as ease of use, availability and the drug
pricing challenge. Currently, most therapeutic UCAR products are
being developed with gene editing platforms such as CRISPR or
TALEN. For example, UCART19 is an allogeneic CAR T-cell product
candidate developed by Cellectis for treatment of CD19-expressing
hematological malignancies. UCART19 Phase-I clinical trials started
in adult and pediatric patients in Europe in June 2016 and in the
U.S. in 2017. The use of UCAR may has the potential to overcome the
limitation of the current autologous approach by providing an
allogeneic, frozen, “off-the-shelf” T-cell product for
cancer treatment.
Tumor
Infiltrating Lymphocytes (TILs)
While
CAR-T cell therapy has proven successful in treatment of several
hematological malignancies, other cell therapy approaches,
including TIL are being developed to treat solid tumors. For
example, Iovance Biotherapeutics is focused on the development of
autologous tumor-directed TILs for treatments of patients with
various solid tumor indications. Iovance is conducting several
Phase-II clinical trials to assess the efficacy and safety of
autologous TIL for treatment of patients with Metastatic Melanoma,
Squamous Cell Carcinoma of the Head and Neck, NSCLC and Cervical
Cancer in the U.S. and Europe.
T-Cell
Receptor-Engineered T-Cells (TCRs)
Adaptimmune is
partnering with GlaxoSmithKline to develop TCR-T therapy targeting
the NY-ESO-1 peptide, which is present across multiple cancer
types. Their NY-ESO SPEAR T-cell has been used in multiple
Phase-I/II clinical trials in patients with solid tumors and
haematological malignancies, including synovial sarcoma, myxoid
round cell liposarcoma, multiple myeloma, melanoma, NSCLC and
ovarian cancer. The initial data suggested positive clinical
responses and evidence of tumor reduction in patients. NY-ESO
SPEART T-cell has been granted breakthrough therapy designation by
the U.S. FDA and PRIME regulatory access in Europe.
Adaptimmune’s other TCR-T product, AFP SPEAR T-cell targeting
AFP peptide, is aimed at the treatment of patients with
hepatocellular carcinoma (HCC). AFP SPEAR T-cell is in a Phase-I
study and enrolling HCC patients in the U.S.
CBMG’s
Adoptive Immune Cell Therapy (ACT) Programs
In
December 2017, the Chinese government issued trial guidelines
concerning the development and testing of cell therapy products in
China. Although these trial guidelines are not yet codified as
mandatory regulation, we believe they provide a measure of clarity
and a preliminary regulatory pathway for our cell therapy
operations in an uncertain regulatory environment. On April 18 and
April 21, 2018, the Center for Drug Evaluation (CDE) posted on its
website acceptance of the IND application for CAR-T cancer
therapies in treating patients with NHL and adult ALL submitted by
the Company’s wholly-owned subsidiaries, CBMG Shanghai and
Shanghai Cellular Biopharmaceutical Group Ltd. On September 25,
2018 we entered into Novartis LCA to manufacture and supply
Kymriah® in China. As
part of the deal, Novartis took approximately a 9% equity stake in
CBMG, and CBMG is discontinuing development of its own anti-CD19
CAR-T cell therapy. This collaboration with Novartis reflects our
shared commitment to bringing the first marketed CAR-T cell
therapy, Kymriah® , a
transformative treatment option currently approved in the U.S., EU
and Canada for two difficult-to-treat cancers, to China, where the
number of patients in need remains the highest in the world.
Together with Novartis, we plan to bring the first CAR-T cell
therapy to patients in China as soon as possible. We continue to
develop CAR-T therapies other than CD 19 on our own and Novartis
has the first right of negotiation on these CAR-T developments. The
CBMG oncology pipeline includes CAR-T targeting CD20-, CD 19 and 20
and BCMA, AFP TCR-T, which could specifically eradicate AFP
positive HCC tumors and TIL technologies for solid tumors. Our
current priority is to collaborate with Novartis to bring
Kymriah® to China. At
the same time, we remain committed to developing our existing
pipeline of immunotherapy candidates for hematologic and solid
tumor cancers to help deliver potential new treatment options for
patients in China. We are striving to build a competitive research
and development function, a translational medicine unit, along with
a well-established cellular manufacturing capability and ample
capacity, to support Kymriah® in China and
our development of multiple assets in multiple indications. We
believe that these efforts will allow us to boost the
Company’s Immuno-Oncology presence. We have initiated
multiple clinical trials to evaluate C-CAR088 in MM, C-CAR039 in
NHL, anti-CD20 CAR-T in NHL for patients that have relapsed after
anti-CD19 CAR-T treatment, and AFP TCR-T in HCC.
Market for Immune Cell Therapies
Our
immune cell therapies involve the genetic engineering of T-cells to
express either chimeric antigen receptors, or CARs, or T-cell
receptors, or TCRs and TIL. These T-cells are designed to recognize
and attack cancer cells. Kymriah is a type of immune cell therapy
that is made from a patient’s own white blood cells and is a
prescription cancer treatment used in patients up to 25 years old
who have acute lymphoblastic leukemia that is either relapsing or
is refractory. It is also used in patients with non-Hodgkin
lymphoma that has relapsed or is refractory after having at least
two other kinds of treatment. On August 30, 2017, Kymriah was
approved by the U.S. FDA for the treatment of children and young
adults with ALL. By October 18, 2017, the U.S. FDA granted approval
for Yescarta for treating patients with relapsed/refractory DLBCL
and other rare large B-cell lymphomas. On May 1, 2018, the U.S.FDA
approved Kymriah for a second indication (diffuse large B-cell
lymphoma). In August 2018, Kymriah and Yescarta secured European
Union approval for the treatment of blood cancers, including B-cell
ALL and relapsed or refractory DLBCL. Health Canada approved
Kymriah as the first CAR-T therapy in Canada and the Therapeutic
Goods Administration (TGA) approved it as the first CAR-T therapy
in Australia.
In
2019, 1,762,450 new cancer cases and 606,880 cancer deaths are
projected to occur in the U.S. According to a 2018 International
Agency for Cancer publication, China, as the most populous country
in the world with an estimated population of nearly 1.42 billion,
is projected to have around 4.51 million cancer cases and 3.04
million cancer death by year 2020. A 2018 Global Cancer Statistics
Cancer Communications report states that compared (the 2018 Global
Cancer Statistics Report) to the U.S. and UK, China has a 30% and
40% higher cancer mortality among which 36.4% of the cancer-related
deaths were from the digestive tract cancers (stomach, liver and
esophagus cancer) and have relatively poorer
prognoses.
The 2018 Global
Cancer Statistics Report also reported that in 2018, lung cancer
was the most diagnosed cancer type worldwide and in China with
2,093,8761 and
733,3002 new cases
respectively. HCC is the 4th most common cancer in China and more
than 50% of new HCC cases world-wide are in China. About 466,000
new liver cancer cases each year and the mortality is around
343,7003 annually in
China. In 2018, it was estimated about 510,000 new case of NHL and
248,724 patients died from NHL worldwide4.
Multiple
myeloma accounts for 1% of all cancers and approximately 10% of all
hematological malignancies5. In 2016
there were about 138,509 incident cases worldwide. The United
States had the most cases (about 24,407) and the most deaths (about
14,212), China was the second in both measures which incident cases
were about 16,537 and deaths about 10,363. The global incidence of
multiple myeloma rose by 126% from 1990 to 2016. East Asia (China,
North Korea, and Taiwan) saw incident cases of multiple myeloma
jump by 262%, which was the largest increase among any of the 21
global regions6.
_______________
1 Chen et al. CA Cancer J Clin.
2016; 66:155-132
2 Bray F et al. CA Cancer J Clin.
2018: 68:394-424
3 Chen et al. CA Cancer J Clin.
2016; 66:155-132
4 Bray F et al. CA Cancer J Clin.
2018: 68:394-424
5 Moreau P et al., Annals of Oncol.
24 (Supplement 6): vi133–vi137, 2013)
6 Cowan AJ et al., JAMA
Oncol. 2018;4(9):1221-1227
Market for Stem Cell-Based Therapies
The
U.S. forecast is that 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 resulting in an increase to $5.7 billion
in 2020, with key growth areas being Spinal Fusion, Sports Medicine
and Osteoarthritis of the joints. 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 a paper published by
Dillon CF, Rasch EK, Gu Q et al. entitled, “Prevalence of
knee osteoarthritis in the United States: Arthritis Data from the
Third National Health and Nutrition Examination Survey,” 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 rate is high (53%). The
costs of OA management has 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. According to an article published by the
Journal of the American Medical Association, approximately 505,000
hip replacements and 723,000 knee replacements were performed in
the United States in 2014, collectively costing more than $20
billion. 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 six months and a structure modification effect to slow
cartilage degradation by at least 12 months. Symptom relief is
generally measured by a composite questionnaire, the 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 the primary end point to demonstrate
symptom relief, and MRI to assess structure and regeneration
benefits as a secondary endpoint.
According
to the Foundation for the National Institutes of Health, there are
27 million Americans with OA, and symptomatic KOA occurs in 13% of
persons aged 60 and older. According to a nationwide
population-based longitudinal survey among the Chinese retired
population, approximately 8.1% of participants were found to suffer
from symptomatic knee OA. Currently no treatment exists that can
effectively preserve knee joint cartilage or slow the progression
of KOA.
According
to Alternative and Integrative Medicine, 53% of KOA patients will
degenerate to the point of disability. Conventional treatment
usually involves invasive surgery with painful recovery and
physical therapy and replacement surgeries are typically only
suggested and performed on patients in the late stage of
KOA.
Our Global Strategy
CBMG is
a drug development company focusing on developing cell therapies
first in China, to take advantage of cost efficiencies, leveraging
the expeditious IIT process in China, publish and share our data in
major conferences and scientific journals and then address the
rest-of-the-world market after safety and efficacy of those
programs are established. Our goal is to develop safe and effective
cellular therapies for indications that represent a large unmet
need in China. 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 intend to invest and expand our clinical research capabilities
by building drug development and manufacturing infrastructure in
China and in the U.S., expanding our clinical research platform,
hiring new talent and enhancing our existing coverage. We believe
that few competitors in China are as well-equipped as we are in the
areas of clinical trial development, internationally compliant
manufacturing, quality assurance and control, as well as our
dedication to regulatory compliance and process
improvement.
The key
issues with cell therapy as modality are drug therapeutic index,
institutionalized, scalable manufacturing and an affordable price
for the patients. We believe our manufacturing platform is unique
as we utilize a semiautomatic, fully closed system, which is
expected to lead to economies of scale. Additionally, our focus on
being a fully integrated cell therapy company has enabled us to be
one of only a few companies that are able to manufacture clinical
grade viral vectors in China to cater to the increasing global
demand for cell and gene therapies.
In
China, Good Clinical Practice (GCP) only requires institutional
review board (“IRB”) approval from the hospital and
local NMPA approval for IIT, which is more expeditious than the
traditional IND route. IITs can provide early evidence of POC for
novel drugs which are more time and cost efficient than the
traditional IND approach. IITs are also good ways to identify and
develop novel platforms. Currently, we have our own drug
development pipeline in CAR-T, AFP TCR-T, TIL and KOA. Our R&D
team continues to identify additional platform cell therapy
technologies to develop internally or acquire established
technologies.
In
addition to the manufacturing of Novartis’
Kymriah®
for patients in China as contemplated by the Novartis LCA and the
Manufacture and Supply Agreement with Novartis, we are actively
developing and evaluating other therapies comprised of other CAR-T,
TCR-T and TIL therapies. We have also advanced our KOA
AlloJoin® Phase-II
clinical trial and ReJoin® Phase-II
clinical trial with the NMPA.
In
addition to our drug development efforts, we are planning on
evaluating co-development, strategic partnerships and both
in-licensing and out-licensing opportunities with high quality,
multinational partners. Such partnerships will enable us to take
advantage of the technologies of our partners while leveraging our
quality control and manufacturing infrastructure to further expand
our pipelines.
Our
proprietary and patent-protected manufacturing processes enable us
to produce, store and distribute ancillary media, viral vectors and
cellular product. Our clinical protocols include medical assessment
to qualify each patient for treatment, evaluation of each patient
before and after a specific therapy, cell infusion methodologies
including dosage, frequency and the use of adjunct therapies,
handling potential adverse effects and their proper management.
Applying our proprietary intellectual property, we plan to
customize specialize formulations to address complex diseases and
debilitating conditions.
Currently,
we have a total of approximately 70,000 square feet of
manufacturing space in three locations, the majority of which is in
the new Shanghai facility. We operate our manufacturing facilities
under the design of the standard GMP conditions as well ISO
standards. We employ institutionalized and proprietary process and
quality management system to optimize reproducibility and to hone
our efficiency. Our Shanghai and Wuxi facilities are designed and
built to meet GMP standards. With our integrated Plasmid, Viral
Vectors platforms, our T-cells manufacturing capacities are highly
distinguishable from other companies in the cellular therapy
industry. We are currently assessing the feasibility of expanding
manufacturing spaces in new sites in both China and the
U.S.
Most
importantly, our seasoned cell therapy team members have decades of
highly relevant experience in the U.S., China and the European
Union. We believe that these are the primary factors that make CBMG
a high-quality cell products manufacturer in China. We have been
implementing significant human resources initiatives such as stock
incentive programs, graduate school and continuing education
sponsorship and a robust health insurance plan to attract and
retain quality talent to support our rapid growth.
Our Targeted Indications and Potential Therapies
The
chart below illustrates CBMG’s pipelines:
Immuno-oncology (I/o)
Our
CAR-T platform is built on lenti-virial vector and
second-generation CAR design, which is used by most of the current
trials and studies. We select the patient population for each asset
and indication to allow the optimal path forward for potential
regulatory approval. We integrate the state-of-the-art
translational medicine effort into each clinical study to aid in
dose selection, to investigate the mechanism of action and POC, and
to attempt to identify the optimal targeting patient population. We
plan to continue to grow our translational medicine team and engage
key opinion leaders to support our development
efforts.
We have
developed a serial of CAR-Ts to treat hematological malignancies
including CD20, CD22 and BCMA CAR-Ts, which have been proved to be
potent and effective in treating hematology tumors in the early
phase of clinical studies.
CD20 CAR
CD20 is
broadly overexpressed in a serial of B-cell malignant tumors. In
the patients relapsed after CD19 CAR-T treatment, the expression of
CD20 on target tumor cells is relatively stable. It is proven to be
an optimal target for treating CD19 CAR-T relapsing patients. We
have developed a novel CD20 CAR-Ts clinical lead product, which
demonstrated strong anti-tumor activity in both in vitro assays and
in vivo animal studies. We have filed a patent application in China
and have initiated a first in human investigator initiated trial
with CD19 CAR-T relapsed NHL patients.
CD22 CAR
CD22 is
another surface marker highly expressed in B-cell malignancies
especially in hairy cell leukemia. It also expresses in the
patients relapsed after CD19 CAR-T treatment. We have developed a
novel CD22 CARs clinical lead, which displayed effective anti-tumor
activity in in vitro cytotoxicity assays. We plan to initiate an
investigator initiated trial with CD19 CAR-T relapsing ALL patients
and hairy cell leukemia.
BCMA CAR
BCMA is
a member of the TNF receptor superfamily, universally expressed in
MM cells. It is not detectable in normal tissues except plasma and
mature B cells. It is a proven, effective and safer target for
treating refractory MM patients in several clinical trials. We have
developed unique BCMA CARs. Our BCMA CAR clinical lead exhibits
potent anti-tumor activity both in vitro and in vivo. We have filed
a patent for BCMA CAR in China and begun an investigator-initiated
trial in refractory MM patients in January 2019.
AFP TCR
We
license the AFP-TCR technology from Augusta University. We are
continuing our evaluation on the efficacy and specificity of the
AFP TCRs to identity the most appropriate candidate for a first
time in human (FTIH) study. We plan to redirect Human T-cells with
the AFP TCRs and evaluate their anti-tumor activity on in vitro
cytokine release and cytotoxicity assays; and potential
on/off-target toxicity including allo-reactivity as well as in vivo
efficacy tests in animal models.
NKG2D CAR
To
optimize our clinical development with limited resources amid the
COVID-19 pandemic environment, we have prioritized other clinical
assets over the NKG2D development.
TIL
Augmented
by the NCI technology license, CBMG is developing neoantigen
reactive TIL therapies to treat immunogenic cancers. In the early
stages of cancer, lymphocytes infiltrate into the tumor,
specifically recognizing the tumor targets and mediating anti-tumor
response. These cells are known as TIL. TIL-based therapies have
shown encouraging clinical results in early development. For
example, in Phase-II clinical studies in patients with metastatic
melanoma performed by Dr. Rosenberg, TIL therapy demonstrated
robust efficacy in patients with metastatic melanoma with objective
response rates of 56% and complete response rates of 24%. We have
started our development with NSCLC, and plan to expand into other
cancer indications.
Knee Osteoarthritis (KOA)
We are
currently pursuing two primary therapies for the treatment of KOA:
ReJoin® therapy and
AlloJoin®
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 six-month follow-up clinical
data showed ReJoin® 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 statistically
significant evidence that ReJoin® enhanced
cartilage regeneration, which concluded the planned Phase-IIb
trial.
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.
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 multipotent 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 autologous 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 intraarticularly into the knee joint with
ultrasound guidance. For allogeneic KOA, we use donor haMPC
cells.
These
haMPC cells are capable of differentiating into bone, cartilage 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 autologous haMPC, offering a choice for those where factors
such as donor age and health are an issue.
The
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 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; (b) submit to the NMPA an IND package for
Allojoin™ to treat patients with donor haMPC cells; and (c)
file joint applications with Class AAA hospitals to use
ReJoin® to treat
patients with their own haMPC cells.
Our
competitors are pursuing treatments for osteoarthritis with knee
cartilage implants. However, unlike their approach, our KOA therapy
is not surgically invasive—it 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.
Based
on current estimates, we expect to generate collaboration payment
and revenues through our sale of Kymriah® products to
Novartis within the next two years. We plan to systematically
advance our own cell therapy pipeline and timely seek BLA
opportunities to commercialize our products within the next three
years although we cannot assure you that we will be successful at
all or within the foregoing timeframe.
Competition
Many
companies operate in the cellular biopharmaceutical field. We face
competition based on several factors, including quality and breadth
of services, ability to protect our intellectual property or other
confidential information, timeliness of implementation, maintenance
of quality standards, depth of collaboration partner relationships,
price and geography. Currently there are several approved stem cell
therapies on the market including Canada’s pediatric
graft-versus-host disease and the European Commission’s
approval in March 2018 for the treatment of complex perianal
fistulas in adult Crohn’s disease. There are several public
and private cellular biopharmaceutical-focused companies outside of
China with varying phases of clinical trials addressing a variety
of diseases. We compete with these companies in bringing cellular
therapies to the market. However, our focus is to develop a core
business in the China market, with plans to expand in the U.S.
market. This difference in focus places us in a different
competitive environment from other western companies with respect
to fund raising, clinical trials, collaborative partnerships and
the markets in which we compete.
In
terms of entry barriers, the cellular biopharmaceutical business
generally requires high, upfront capital and other resources,
significant financial and time commitment in recruiting experienced
talents, a successful track record and solid reputation to build up
synergies with business partners and emphasis on cost efficiency.
Our core competitive edge is our strong capacity to cover the full
research and development process of the full life cycle of a
product, and to satisfy the increasing demand for timely
realization and localization in China of key products already
approved in foreign markets. We believe that we are able to
maintain our competitiveness by leveraging our established position
in global research and development in the cellular
biopharmaceutical market and capitalizing on the opportunities
offered by the booming pharmaceutical market in China.
To meet
the overall social, economic and healthcare challenges in China,
the PRC central government has a focused strategy to enable China
to compete effectively in certain designated areas of biotechnology
and the health sciences. Because of the aging population in China,
China’s Ministry of Science and Technology (MOST) has
targeted stem cell development as high priority field, and
development in this field has been intense in the agencies under
MOST. For example, the 973 Program has funded a number of stem cell
research projects such as differentiation of human embryonic stem
cells and the plasticity of adult stem cells. To the best of our
knowledge, none of the companies in China are utilizing our
proposed international manufacturing protocol and our unique
technologies in conducting what we believe will be fully compliant
NMPA-sanctioned clinical trials to commercialize cell therapies in
China. Our management believes that it is difficult for most of
these Chinese companies to turn their results into translational
stem cell science or commercially successful therapeutic products
using internationally acceptable standards.
We
compete globally with respect to the discovery and development of
new cell-based therapies, and we also compete within China to bring
new therapies to market. In the biopharmaceutical specialty
segment, namely in the areas of cell processing and manufacturing,
clinical development of cellular therapies and cell collection,
processing and storage, are characterized by rapidly evolving
technology and intense competition. Our competitors worldwide
include pharmaceutical, biopharmaceutical and biotechnology
companies, as well as numerous academic and research institutions
and government agencies engaged in drug discovery activities or
funding, in the U.S., Europe and Asia. Many of these companies are
well-established and possess technical, research and development,
financial and sales and marketing resources significantly greater
than ours. In addition, many of our smaller potential competitors
have formed strategic collaborations, partnerships and other types
of joint ventures with larger, well established industry
competitors that afford these companies potential research and
development and commercialization advantages in the technology and
therapeutic areas currently being pursued by us. Academic
institutions, governmental agencies and other public and private
research organizations are also conducting and financing research
activities which may produce products directly competitive to those
being commercialized by us. Moreover, many of these competitors may
be able to obtain patent protection, obtain government (e.g., the
U.S. FDA) and other regulatory approvals and begin commercial sales
of their products before us.
Our
primary competitors in the field of cancer immune cell therapies
include pharmaceutical, biotechnology companies such as Eureka
Therapeutics, Inc., Iovance Biotherapeutics Inc., Juno
Therapeutics, Inc. (acquired by Celgene), Kite Pharma, Inc.
(acquired by Gilead), CARSgen, Sorrento Therapeutics, Inc. and
others. Among our competitors, the ones based in and operating in
Greater China are CARsgen, Hrain Biotechnology, Nanjing Legend
Biotechnology Galaxy Biomed, Persongen, Anke Biotechnology,
Shanghai Minju Biotechnology, Unicar Therapy (Cooperated with
Terumo BCT), Wuxi Biologics, Junshi Pharma, BeiGene, Immuno China
Biotech, Chongqing Precision Biotech, Innovative Cellular
Therapeutics and China Oncology Focus Limited. Other companies in
the cancer immune cell therapies space have made inroads in China
by partnering with local companies. For example, in April, 2016,
Seattle-based Juno Therapeutics, Inc. started a new company with
WuXi AppTec in China named JW Biotechnology (Shanghai) Co., Ltd. In
January 2017, Shanghai Fosun Pharmaceutical created a joint venture
with Santa Monica-based Kite Pharma Inc. to develop, manufacture
and commercialize CAR-T and TCR products in China. The NMPA has
received IND applications for CD19 chimeric antigen receptor
T-cells cancer therapies from many companies and have granted the
initial phase of acceptance to several companies thus
far.
The
osteoarthritis industry is highly competitive and subject to rapid
and significant technological change. The large size and expanding
scope of the pain market makes it an attractive therapeutic area
for biopharmaceutical businesses. Our potential competitors include
pharmaceutical, biotechnology, medical device and specialty
pharmaceutical companies. Several of these companies have robust
drug pipelines, readily available capital and established research
and development organizations. We believe our success will be
driven by our ability to develop and commercialize treatment
options that make a meaningful difference for patients with KOA.
Our primary competitors in the field of stem cell therapy for
osteoarthritis and other indications include Mesoblast Ltd.,
Caladrius Biosciences, Inc. and others. On September 12, 2019, we
launched allogenic haMPC KOA Phase-II of the clinical trial across
six leading hospitals in China with a plan to recruit 108 patients.
We submitted our autologous adipose stem cell therapy
(ReJoin® ) KOA with IND
filing with the CDE and the application was approved by NMPA.
Additionally, in the general area of cell-based therapies for knee
osteoarthritis ailments, we potentially compete with a variety of
companies, from big pharma to specialty medical products or
biotechnology companies. Some of these companies, such as Abbvie,
Merck KGaA, Sanofi, Teva, GlaxosmithKline, Baxter, Johnson &
Johnson, Sanumed, Medtronic and Miltenyi Biotech are
well-established and have substantial technical and financial
resources compared to ours. However, as cell-based products are
only just recently emerging as viable medical therapies, many of
our more direct competitors are smaller biotechnology and specialty
medical products companies comprised of Vericel Corporation,
Regeneus Ltd., Advanced Cell Technology, Inc., Nuo Therapeutics,
Inc., ISTO technologies, Inc., Ember Therapeutics, Athersys, Inc.,
Bioheart, Inc., Mesoblast, Pluristem, Inc., Medipost Co. Ltd. and
others. There are also several non-cell-based, small molecule and
peptide clinical trials targeting knee osteoarthritis, and several
other U.S. FDA-approved treatments for knee pain.
Other
companies have OA product candidates in advanced stages of clinical
development. These product candidates include:
●
Anika Therapeutics,
Inc.’s Cingal®, which is a
mixture of Anika’s Monovisc combined with a low dose of a
commonly used immediate-release steroid. In February 2019, Anika
announced that, based on their discussions with the U.S. FDA, they
will need to conduct another Phase-III clinical trial before they
can potentially obtain approval for Cingal in the U.S.
●
Kolon TissueGene,
Inc.’s Invossa™, which is a combination of human
allogeneic chondrocytes and TGF-b1 transfected allogeneic
chondrocytes. In November 2018, Kolon TissueGene announced they
enrolled the first patient in a pivotal U.S. Phase-III trial.
According to clinicaltrials.gov, the estimated primary completion
date for the trial is April 2021.
●
Ampio
Pharmaceuticals, Inc.’s Ampion™, which is a derivative
of human serum albumin, is described as having anti-inflammatory
properties, and is formulated for immediate-release. Ampio stated
that Ampion is in Phase-III development but has not announced a
timeline for potentially submitting a Biologics License
Application, or BLA.
●
Centrexion
Therapeutics Corporation’s CNTX-4975, which is a synthetic,
ultra-pure injection of trans-capsaicin. In December 2018,
Centrexion announced completion of patient enrollment in its
Phase-III VICTORY-1 trial. Topline results are expected to be
reported in the first quarter of 2020.
●
A number of
investigational nerve growth factor antibodies are in development.
Regeneron’s fasinumab and Pfizer and Eli Lilly’s
tanezumab are both in Phase-III development. Initial results from
Phase-III clinical trials for each were announced in 2018. In
January 2019, Pfizer and Lilly announced results from a second
Phase-III study showing that the tanezumab 5 mg treatment arm met
all three co-primary endpoints at 24 weeks, however in the 2.5 mg
treatment arm, patients’ overall assessment of their OA was
not statistically different than placebo. Rapidly progressive OA
was seen in 2.1% of tanezumab-treated patients and was not observed
in the placebo arm.
●
Servier and
Galapagos NV’s S201086/GLPG1972, an ADAMTS-5 inhibitor, is
currently in Phase-II clinical development.
●
Taiwan Liposome
Company’s TLC599, which is a liposomal formulation of
dexamethasone sodium phosphate. TLC599 is currently in Phase-II
clinical development.
Certain
CBMG competitors also work with adipose-derived stem cells. To the
best of our knowledge, none of these companies are currently
utilizing the same technologies as ours to treat KOA, nor are we
aware of any of these companies conducting government-approved
clinical trials in China.
Some of
our targeted disease applications may compete with drugs from
traditional pharmaceutical or Traditional Chinese Medicine
companies. We do not believe that our chosen targeted disease
applications are in competition with the products and therapies
offered by traditional pharmaceutical or Traditional Chinese
Medicine companies.
We
believe we have a strategic advantage over our competitors based on
our outstanding quality management system and robust and efficient
manufacturing capability, which we believe is possessed by few, if
any, of our competitors in China, in an industry in which meeting
exacting standards and achieving extremely high purity levels is
crucial to success. In addition, in comparison to the broader range
of cellular biopharmaceutical firms, we believe we have the
advantages of cost and expediency, and a first mover advantage with
respect to commercialization of cell therapy products and
treatments in the China market.
Critical Accounting Policies and Estimates
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, 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, 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 March 31, 2020, 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, 2019.
Results of
Operations
Below is a discussion
of
the results of our operations for the
three months ended March 31, 2020 and 2019. 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 March 31, 2020 to Three Months
Ended March 31, 2019
The
descriptions in the results of operations below reflect our
operating results as set forth in our Condensed Consolidated
Statement of Operations filed herewith.
|
|
Three Months
Ended
March 31,
2020
|
Three Months
Ended
March 31,
2019
|
|
Net sales and
revenue
|
$-
|
$49,265
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Cost of
sales
|
-
|
8,087
|
|
General and
administrative
|
3,431,344
|
3,447,734
|
|
Selling and
marketing
|
-
|
42,260
|
|
Research and
development
|
7,759,358
|
5,968,096
|
|
Impairment of
investments
|
240,000
|
-
|
|
Total
operating expenses
|
11,430,702
|
9,466,177
|
|
Operating
loss
|
(11,430,702)
|
(9,416,912)
|
|
|
|
|
|
Other (expense)
income
|
|
|
|
Interest income,
net
|
12,772
|
97,034
|
|
Other expense,
net
|
(127,792)
|
(14,510)
|
|
Total
other (expense) income
|
(115,020)
|
82,524
|
|
Loss before
taxes
|
(11,545,722)
|
(9,334,388)
|
|
|
|
|
|
Income taxes
provision
|
(1,775)
|
(2,400)
|
|
|
|
|
|
Net
loss
|
$(11,547,497)
|
$(9,336,788)
|
|
Other comprehensive
income:
|
|
|
|
Cumulative
translation adjustment
|
(436,813)
|
396,126
|
|
Total other
comprehensive income:
|
(436,813)
|
396,126
|
|
Comprehensive
loss
|
$(11,984,310)
|
$(8,940,662)
|
|
|
|
|
|
|
|
|
|
Net loss per
share:
|
|
|
|
Basic
and diluted
|
$(0.60)
|
$(0.51)
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
Basic
and diluted
|
19,340,982
|
18,152,429
|
* These line items include the following amounts of non-cash,
stock-based compensation expense for the periods
indicated:
|
|
Three Months
Ended
March 31,
2020
|
Three Months
Ended
March 31,
2019
|
|
General and
administrative
|
452,100
|
566,592
|
|
Selling and
marketing
|
-
|
9,816
|
|
Research and
development
|
483,962
|
548,154
|
|
|
936,062
|
1,124,562
|
Results of Operations
Net sales and revenue
|
|
|
|
|
|
|
For the three
months ended March 31,
|
$-
|
$49,265
|
$(49,265)
|
(100)%
|
We are
a clinical stage company, and currently have no material revenues
or other income with similar effect.
Cost of Sales
|
|
|
|
|
|
|
For the three
months ended March 31,
|
$-
|
$8,087
|
$(8,087)
|
(100)%
|
The
gross margin change was immaterial as currently we have no material
revenues.
General and Administrative Expenses
|
|
|
|
|
|
|
For the three
months ended March 31,
|
$3,431,344
|
$3,447,734
|
$(16,390)
|
0%
|
No material change as compared with the period ended March
31, 2019. General and Administrative expenses primarily relate to
administrative expenses, professional fees and
depreciation.
Selling and Marketing Expenses
|
|
|
|
|
|
|
For the three
months ended March 31,
|
$-
|
$42,260
|
$(42,260)
|
(100)%
|
There
was no sales force in 2020 and no expense incurred in first quarter
2020.
Research and Development Expenses
|
|
|
|
|
|
|
For the three
months ended March 31,
|
$7,759,358
|
$5,968,096
|
$1,791,262
|
30%
|
Research
and development costs increased by approximately $1,791,000 in the
three months ended March 31, 2020 as compared to the three months
ended March 31, 2019, primarily as a result of the increase in the
staff costs of $593,000, clinical trial expenses of $620,000, and
raw material consumption of $203,000. The increase was primarily
attributed to the increased spending in the growth of our pipeline
in both liquid tumor and solid tumor development and expanding the
U.S. R&D operations at Maryland.
R&D
expenses for the three months ended March 31, 2020 and 2019 are as
follows:
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
Research and
pre-clinical studies
|
$2,190,626
|
$1,532,986
|
|
Development,
clinical development and studies
|
5,568,732
|
4,435,110
|
|
|
|
|
|
Total
|
$7,759,358
|
$5,968,096
|
Impairment of investments
|
|
|
|
|
|
|
For the three
months ended March 31,
|
$240,000
|
$-
|
$240,000
|
N/A
|
The
impairment of investments for the three months ended March 31, 2020
is comprised of the recognition of other-than-temporary impairment
on the value of shares in investments of $240,000. No such expense
existed for the period ended March 31, 2019. In 2020, the Company
contacted certain brokers to handle our ARPC restricted legend
removal from the stock certificates to convert to free-trade
shares. Because of ARPC’s non-filing status and illiquid
nature of the stock, the brokers’ compliance department
summarily rejected our request. Considering the serious doubt over
the liquidity of the ARPC stock, full impairment was made over ARPC
stock in first quarter 2020.
Operating Loss
|
|
|
|
|
|
|
For the three
months ended March 31,
|
$(11,430,702)
|
$(9,416,912)
|
$(2,013,790)
|
21%
|
The
increase in the operating loss for the three months ended March 31,
2020 as compared to the same period in 2019 is primarily due to
changes in research and development expenses and impairment of
non-current assets, each of which is described above.
Total Other (Expense) Income
|
|
|
|
|
|
|
For the three
months ended March 31,
|
$(115,020)
|
$82,524
|
$(197,544)
|
(239)%
|
Other
expense for the three months ended March 31, 2020 was primarily
interest expense of $193,000 and foreign currency exchange loss of
$52,000, netting of subsidy income of $116,000 and interest income
of $13,000. Other income for the three months ended March 31, 2019
was primarily net interest income of $97,000, netting of foreign
currency exchange loss of $14,000.
Income Taxes Provision
|
|
|
|
|
|
|
For the three
months ended March 31,
|
$(1,775)
|
$(2,400)
|
$625
|
(26)%
|
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
March 31, 2020 and 2019 all represent US state tax.
Net Loss
|
|
|
|
|
|
|
For the three
months ended March 31,
|
$(11,547,497)
|
$(9,336,788)
|
$(2,210,709)
|
24%
|
Changes
in net loss are primarily attributable to changes in operations
which are described above.
Comprehensive Loss
|
|
|
|
|
|
|
For the three
months ended March 31,
|
$(11,984,310)
|
$(8,940,662)
|
$(3,043,648)
|
34%
|
Comprehensive
loss for the three months ended March 31, 2020 and 2019 includes a
currency translation net (loss) gain of approximately ($437,000)
and $396,000 combined with the changes in net loss,
respectively.
Liquidity and Capital Resources
We had
working capital of $25,837 as of March 31, 2020 compared to
$10,356,774 as of December 31, 2019. Our cash, cash equivalents and
restricted cash decreased to $21,597,360 at March 31, 2020 compared
to $32,443,649 at December 31, 2019, as we had an increase in cash
used in operating and investing activities partially offset by cash
inflow generated from proceeds from option exercise.
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 $9,295,000 and
$7,936,000 for the three months ended March 31, 2020 and 2019,
respectively. The following table reconciles net loss to net cash
used in operating activities:
|
For the three
months ended March 31,
|
|
|
|
|
Net
loss
|
$(11,547,497)
|
$(9,336,788)
|
$(2,210,709)
|
|
Non cash
transactions
|
2,769,140
|
2,454,238
|
314,902
|
|
Changes in
operating assets, net
|
(516,205)
|
(1,053,144)
|
536,939
|
|
Net cash used in
operating activities
|
$(9,294,562)
|
$(7,935,694)
|
$(1,358,868)
|
The
change in non-cash transaction was primarily due to the increase in
impairment on investment of $240,000 as well as the increase in
depreciation and amortization of $263,000 compared with same period
in 2019.
Net
cash used in investing activities was approximately $1,634,000 and
$4,164,000 in the three months ended March 31, 2020 and 2019,
respectively. The increase was primarily the result of
additional new equipment and facility improvement.
Cash
provided by financing activities was approximately $166,000 and
$21,240,000 in the three months ended March 31, 2020 and 2019,
respectively. Net cash inflow in financing activities in 2020 was
mainly attributed to the proceeds received from the exercise of
options, netting off net cash out for short-term debt. Net cash
inflow in the financing activities in 2019 was mainly attributed to
the proceeds of $16 million received from the issuance of common
stock and debt borrowings of $6 million.
Liquidity and Capital Requirements Outlook
We
anticipate that the Company will require approximately $65 million
in cash to operate as planned in the coming 12 months excluding
repayment of convertible bonds. Of this amount, approximately $52
million will be used for operations and approximately $13 million
will be used for capital expenditures, although we may revise these
plans depending on the changing circumstances of our
biopharmaceutical business. The Company’s plans can also be
adjusted by management depending on the availability of
funding.
The
Company has suffered recurring losses from operations and has a net
capital deficiency that raises substantial doubt about its ability
to continue as a going concern. In order to finance our operations,
management intends to rely upon external financing. This financing
may be in the form of equity and or debt, private placements and/or
public offerings or arrangements with private lenders.
We may
also pursue co-development of our clinical assets to defray
operating expenses. We may further explore non-dilutive financing
opportunities forging strategic partnerships with big pharma
companies. As we continue to incur losses, achieving profitability
is dependent upon the successful development of our cell therapy
business and commercialization of our technology in the 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, acquisitions
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 the state of regulation of our industry in China (e.g.
the policies of MOH and the NMPA), 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 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. While we do not currently
expect the COVID-19 pandemic to materially impact our ability to
secure financial resources or satisfy our liquidity needs, given
the rapidly evolving global situation the actual impact cannot be
predicted and may depend on a variety of currently unknown
factors.
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 March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
and interest payables
|
$14,104,712
|
$14,104,712
|
$-
|
$-
|
$-
|
|
Capital
Commitment
|
4,472,387
|
4,472,387
|
-
|
-
|
-
|
|
Operating
Lease Obligations
|
24,000,027
|
3,464,776
|
6,340,063
|
6,168,124
|
8,027,064
|
|
Total
|
$42,577,126
|
$22,041,875
|
$6,340,063
|
$6,168,124
|
$8,027,064
|