ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
The following information
should
be read in conjunction with the financial statements and notes thereto
appearing elsewhere in this Quarterly Report.
We have included in this Quarterly Report certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our business,
operations and financial condition. Forward-looking statements consist of all non-historical information, and the analysis of historical
information
,
including the references in this Quarterly Report to future revenues, collaborative agreements, future expense growth, future credit exposure, earnings before interest, taxes, depreciation and amortization, future profitability, anticipated cash
resources, anticipated capital expenditures, capital requirements, and the Companys plans for future periods. In addition, the words could, expects, anticipates, objective, plan,
may affect, may depend, believes, estimates, projects and similar words and phrases are also intended to identify such forward-looking statements.
Actual results could differ materially from those projected in our forward-looking statements due to numerous known and unknown risks and uncertainties, including, among other things,
unanticipated technological difficulties, the length, scope and outcome of our clinical trial, costs related to intellectual property, cost of manufacturing and higher consulting costs, product demand, changes in domestic and foreign economic,
market and regulatory conditions, the inherent uncertainty of financial estimates and projections, the uncertainties involved in certain legal proceedings, instabilities arising from
terrorist
actions and responses thereto, and other considerations described as Risk Factors in other filings by the Company with the SEC. Such factors may also cause substantial
volatility in the market price of our common stock. All such forward-looking statements are current only as of the date on which such statements were made. We do not undertake any obligation to publicly update any forward-looking statement to
reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.
As used in this Quarterly Report, the
terms
"we", "us", "our", "Company" and "GammaCan" mean GammaCan International, Inc. and
our subsidiary, GammaCan, Ltd., unless otherwise indicated.
All dollar amounts refer to US dollars
unless
otherwise indicated.
Overview
We are a development stage company and currently have no revenue from operations. Other than existing cash reserves and our intellectual property we have no significant assets, tangible or
intangible. Presently, we do not have sufficient cash resources to meet our liquidity requirements through September 30, 2008 and we expect to seek to raise additional funds during that time period. There can be no assurance that we will raise
additional funds on a timely basis, on terms acceptable to us or at all and there can be no assurance that we will generate revenues in the future, or that we will be able to operate profitably in the future, if at all. We have incurred net losses
in each fiscal year since inception of our operations.
12
Plan of Operation
Short Term Business Strategy
We are a life science company focused on the development of immunotherapy and related approaches to treat cancer. Until recently, we have focused on the use of intravenous immunoglobulins, or
IgGs
, derived from human plasma to treat melanoma, prostate, and colon cancers. We believe that IgG therapy may be the basis of a more effective and efficient cancer treatment
both as a mono or a combination therapy as well as for adjuvant cancer treatments (IgGs used in concert with other proprietary pharmaceuticals). Our business objective is to become a recognized leader in the development of immunotherapy including
IgG-based therapies and related approaches to treat cancer.
IgG-based immunotherapy will require regulatory approval before being commercially marketed for human therapeutic use. Clinical trials generally include three phases that, together, may take several years to complete.
Phase I clinical studies are conducted primarily to establish safety and determine the maximum tolerated dose, or
MTD
. Phase II studies are designed to determine preliminary
efficacy and establish dosing. Phase III studies are conducted to demonstrate therapeutic efficacy in a statistically significant number of patients, at an optimal dose level, method or route of delivery into the body, and a schedule of
administration. Once clinical trials are successfully completed, products may receive regulatory approval.
We are pursuing the development of IgG-based technology to develop therapies for the treatment of melanoma, as well as therapies directed toward disrupting the blood supply to cancers, referred to as
anti-angiogenesis.
Melanoma
:
Our lead product candidate, VitiGam, is a first-in-class anti-cancer immunotherapy derived
entirely from the plasma of donors with vitiligo, a benign autoimmune skin condition affecting up to two percent of the general population. We have demonstrated that plasma from individuals with vitiligo contains anti-melanoma activities. Based on
this, we are developing VitiGam to initially address Stage III and Stage IV melanoma and possibly earlier stages of melanoma at a future time.
In June 2007, we completed a non-FDA Phase II clinical trial designed to test the safety and efficacy of standard IgG (collected and manufactured from general population donors,
which may have included donors with vitiligo) in patients with prostate cancer, colon cancer and melanoma. In this trial, no serious untoward effects of IgGs were noted. In one patient with melanoma, the cancer remained stable or improved over eight
cycles of therapy (approximately ten months).
In addition to the pre-clinical evidence we have accumulated using vitiligo-derived plasma; the above observations provide further validation for our plan to develop VitiGam.
We plan to file an Investigational New Drug Application, or
IND
, for VitiGam in the near future. We believe that
the FDA is well acquainted with IgG-based therapies and their safety profiles
resulting from a long history of regulatory approvals of IgG-based products.
13
In addition to VitiGam, we are also developing the following:
-
Next
generation (recombinant) VitiGam
-
VitiGam is currently manufactured as a mixture that largely consists of IgG molecules (antibodies of the IgG type). We anticipate that within this mixture, only a subset of IgG molecules will be responsible for the biological activity of
VitiGam. Next generation VitiGam will be composed of
only the IgGs required to exert the anti-melanoma effect
, thereby creating a more effective
compound. Identifying the relevant IgGs may also permit cost reductions; and
-
Cancer vaccines based on VitiGam
- An off-the-shelf cancer vaccine is considered a
silver bullet in cancer therapy. We anticipate that based on our evolving understanding of the specific IgG molecules responsible for the biological activity of VitiGam, we may be in a position to identify the corresponding
antigens that may be used to develop melanoma cancer vaccines.
Anti-angiogenesis
:
We are developing additional novel IgG-based therapies for cancer and other diseases.
These therapies are based on the disruption of the blood supply to cells. Our scientists have shown that several mechanisms may be involved in mediating the anti-cancer effects of IgG-based immunotherapies. Angiogenesis is one of a number of well
known pathways to deprive cells from their blood supply.
In June 2007, we announced the discovery of proprietary IgG sub-fractions in human plasma, which contain potent anti-angiogenic properties. These sub-fractions may be used for treatment of
disorders resulting from neovascularization (the formation of new blood vessels or angiogenesis).
We have established a pre-clinical development program to define and characterize these anti-angiogenic anti-cancer fractions and to test their biological activity in animal models. We believe
that successfully developed therapies derived from our novel IgG sub-fractions have the potential to address multi-billion dollar markets. For example, Avastin®, also known as
bevacizumab
, counteracts VEGF, a growth factor which stimulates neovascularization, and is used to treat colon and other cancers. Sales for Avastin® in 2006 were in excess of $2 billion.
We are also contemplating conducting additional clinical trials to test new formulations and/or combinations of IgG-based immunotherapy candidates and to test these formulations and/or methods
for different cancers at different stages of disease progression with varying dosages and routes of administration. To achieve this, we may elect to partner with a pharmaceutical company to conduct these further clinical trials, although there can
be no assurance that we will locate a pharmaceutical company able, or willing, to partner with us on terms commercially acceptable to us, in order to attain broad-based regulatory approval.
Although there can be no assurance that the FDA will approve VitiGam, or any other IgG immunotherapy candidate, we expect that, at a minimum, it will take a number of years to receive
final approval and registration for commercial use as an anti-cancer agent. Our strategy is to collaborate with a suitable partner, although there can be no assurance that we will locate a suitable partner, to support late stage (Phase III) clinical
development, registration and/or sales for our IgG-based cancer products.
14
Long Term Business Strategy
If our
IgG-based cancer immunotherapy candidates show significant promise in clinical
trials, and at this preliminary stage there can be no assurance that any
such immunotherapy candidates will show significant promise, we plan to ultimately
seek a strategic commercial partner, or
partners, with extensive experience in the development, commercialization,
and marketing of cancer drugs and/or other infused therapeutic proteins,
although there can be no assurance that we will locate a strategic commercial
partner or partners on terms commercially acceptable to us. We anticipate
such partner or partners would be responsible for, or substantially support,
late stage clinical trials (Phase III) to ensure regulatory approvals and
registrations in the appropriate territories in a timely manner. We further
anticipate that the partner, or partners, would be responsible for sales
and marketing of our IgG-based immunotherapies in certain agreed upon territories.
Such planned strategic partnership, or partnerships, may provide a marketing
and sales infrastructure for our products as well as financial and operational
support for global clinical trials, post marketing studies, label expansions
and other regulatory requirements concerning future clinical development
in the United States and elsewhere. Any future strategic partner, or partners,
may also provide capital and expertise that would enable the partnership
to develop new formulations of IgG cancer immunotherapy suitable for patients
at different stages of disease progression as well as IgG derivatives. Under
certain circumstances, we may determine to develop one or more of our IgG
based cancer immunotherapies on our own, either world-wide or in select
territories.
Other Planned Research and Development Activities
In addition to conducting early-stage clinical trials, we plan to conduct pre-clinical research to accomplish the following:
-
Further
deepen and broaden our understanding of the biology of our IgG products in cancer;
-
Develop
alternative delivery systems and determine the optimal dosage for different patient groups;
-
Investigate alternative sources of immunoglobulin other than human plasma;
-
Develop novel IgG-based therapies; and
-
Develop successor products.
Our plan is to patent any successful inventions resulting from our future research activities and to exploit any other means that may exist to protect our future IgG anti-cancer therapies in the commercial markets;
although at this early stage there can be no assurance that there will be any successful inventions resulting from such research activities.
Other Planned Strategic Activities
In addition to developing our own IgG-based anti-cancer therapies drug portfolio, we are, on an on-going basis, considering in-licensing and other means of obtaining additional lead molecules of technologies to complement
and/or expand our current product portfolio. Our goal is to create a well-balanced product portfolio that includes lead molecules in different stages of development and addresses different medical needs.
15
Critical accounting policies and estimates
Management's discussion and analysis of the financial condition and results of operations is based upon the consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, expenses and related
disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments. We base our estimates on various factors, including historical experience that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Going concern assumption
The accompanying financial statements have been prepared assuming that we will continue as a going concern. We have net losses for the period from inception (October 6, 1998) through December
31, 2007 of $10,206,237, as well as negative cash flow from operating activities. Based upon our existing spending commitments, we may not have sufficient cash resources to meet our liquidity requirements through September 30, 2008. Accordingly,
these factors raise substantial doubt about our ability to continue as a going concern. Management is in the process of evaluating various financing alternatives as we will need to finance future research and development activities and general and
administrative expenses through fund raising in the public or private equity markets. Although there is no assurance that we will be successful with those initiatives, management expects to secure the necessary financing as a result of ongoing
financing discussions with third party investors and existing shareholders.
The financial statements do not include any adjustments that may be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent on our ability
to obtain additional financing as may be required and ultimately to attain profitability.
Valuation of options and warrants
We granted options to purchase shares of our common stock to employees and consultants and issued warrants in connection with fund raising.
On October 1, 2006 we adopted the revised Statement of Financial Accounting Standards (“
FAS
”)
No. 123,
Share-Based Payment (“
FAS
123R
”
)
, which addresses the accounting for share-based payment transactions in which we obtain employee services in exchange for (a) equity instruments of the
Company or (b) liabilities that are based on the fair value of our equity instruments or that may be settled by the issuance of such equity instruments. FAS 123R eliminates the ability to account for employee share-based payment transactions using
APB 25
,
and requires instead that such transactions be accounted for using the grant-date fair value based method.
16
The fair value of each stock option grant was estimated at the date of grant using a Black-Scholes option pricing model. The volatility is based on a historical volatility, by statistical
analysis of the weekly share price for past periods. The expected term is the length of time until the expected dates of exercising the options, based on estimated data regarding employees exercise behavior.
FAS 123R applies to all awards granted or modified after the Statements effective date. In addition, compensation cost for the unvested portion of previously granted awards that remain
outstanding on the Statements effective date shall be recognized on or after the effective date, as the related services
are
rendered, based on the awards grant-date fair
value as previously calculated for the pro-forma disclosure under FAS 123.
We applied the modified prospective application transition method, as permitted by the Statement. Under such transition method, upon the adoption of FAS 123R, our financial statements for
periods prior to the effective date of the Statement are not restated.
We account for equity instruments issued to third party service providers (non-employees) in accordance with the fair value based on an option-pricing model, pursuant to the guidance in EITF
96-
18
Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or
Services
. The fair value of the options granted is revalued over the related service periods and recognized using the accelerated method.
Deferred income taxes
Deferred taxes are determined utilizing the assets and liabilities method based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and
liabilities under the applicable tax laws. Deferred tax balances are computed using the tax rates expected to be in effect when those differences reverse. A valuation allowance in respect of deferred tax assets is provided if, based upon the weight
of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We have provided a full valuation allowance with respect to our deferred tax assets.
Regarding our Israeli subsidiary, Gammacan Ltd, paragraph 9(f) of FAS 109,
Accounting for Income Taxes
,
prohibits the recognition of deferred tax liabilities or assets that arise from differences between the financial reporting and tax bases of assets and liabilities that are measured from the local currency into dollars using historical exchange
rates, and that result from changes in exchange rates or indexing for tax purposes. Consequently, the above mentioned differences were not reflected in the computation of deferred tax assets and liabilities.
Income Taxes
We adopted FIN 48 effective
October 1, 2007. FIN 48 requires significant judgment in determining what constitutes
an individual tax position as well as assessing the outcome of each tax position.
Changes in judgment as to recognition or measurement of tax positions can materially
affect the estimate of the effective tax rate and consequently, affect our operating
results. We had no unrecognized tax benefits as of October
1, 2007. The result of the implementation of FIN 48 did not have any impact on
our financial statements.
17
Results of Operations
The following table summarizes certain statements of operations data for the Company for the three months period ended December 31, 2007 and 2006 (in US$):
|
|
Three months ended
|
|
|
December 31,
|
|
December 31,
|
Operating Data:
|
|
2007
|
|
2006
|
|
Research and development costs
|
|
$
|
514,490
|
|
|
$
|
167,972
|
|
General and administrative expenses
|
|
|
752,827
|
|
|
|
632,866
|
|
Financial expense (income), net
|
|
|
(17,267
|
)
|
|
|
2,221
|
|
Loss before tax on income
|
|
|
1,250,050
|
|
|
|
803,059
|
|
Taxes on Income
|
|
|
-
|
|
|
|
4,356
|
|
Net loss for the period
|
|
$
|
(1,250,050
|
)
|
|
$
|
(807,415
|
)
|
|
Loss per common share basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
Weighted average common shares outstanding
|
|
|
44,958,917
|
|
|
|
28,475,161
|
|
Research and development costs
Research and development expenses are the costs incurred in the process of our pre-clinical and our clinical trials. Clinical trial and pre-clinical expenses include regulatory consultant
compensation and fees, research expenses, purchase of plasma, the cost of manufacturing IgG and payments to medical centers for patient recruitment and treatment.
During the three months
ended December 31, 2007 and 2006, research and development expenses included,
among others, the cost of IgG used in the clinical trials and research work,
payments to medical centers and research labs for clinical trial and pre-clinical
trial work, regulatory and scientific consultants compensation, costs related
to the maintenance of our registered patents, costs related to the filings of
patent applications as well as salaries and related expenses of research and
development staff.
During the three months
ended December 31, 2007, research and development expenses totaled $514,490,
compared to $167,972 for the three months ended December 31, 2006. The increase
is attributable to assay development as well as pre-clinical work related to
the filing of the IND for VitiGam.
General and administrative expenses
General and administrative expense includes the salaries and related expenses of our management, consulting costs, legal and professional fees, traveling, business development costs, insurance
expenses and other general costs.
For the three months
ended December 31, 2007, general and administrative expenses totaled $752,827
compared to $632,866 for the three months ended December 31, 2006. Costs incurred
related to General and administrative activities in the three months ended December
31, 2007 reflect an increase of professional, legal and consulting expenses and
an increase in general expenses such as office and maintenance expenses.
18
Financial income/expense, net
During the three months ended December 31, 2007 and 2006, we generated interest income on available cash and cash equivalents balance as well as bank charges.
Liquidity and Capital Resources
Through December 31,
2007, we incurred losses in an aggregate amount of $10,206,237. We have financed
our operations from the private placements of equity and debt financing. Through
December 31, 2007, we raised a total of $9,538,553, net of transaction costs,
through private placements of equity. We anticipate that additional financing
will be through similar sources. As of December 31, 2007, we had $3,117,969
of available cash, most of which is deposited in short term, interest bearing,
bank deposits.
We anticipate we will need $6,125,000
for the remainder of our fiscal year, and $9,614,000 for the twelve months
following January 1, 2008.
Although
we do not have material financing commitments, management is in the process
of evaluating various financing alternatives as we will need to finance future
research and development activities and general and administrative expenses
through fund raising in the public or private equity markets. Although there
is no assurance that we will be successful with those initiatives, management
expects to secure the necessary financing as a result of ongoing financing
discussions with third party investors and existing shareholders.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Planned Expenditures
The estimated expenses referenced herein are in accordance with our business plan. As our technology is still in the development stage, it can be expected that there will be changes in some
budgetary items. Our planned expenditures for the twelve months following January 1, 2008 are as follows:
Category
|
|
|
Amount
|
|
|
Research & Development
|
|
$
|
6,667,000
|
|
General & Administrative Expenses
|
|
|
3,057,000
|
|
Finance Income, net
|
|
|
(110,000
|
)
|
Total
|
|
$
|
9,614,000
|
|
As previously indicated we are planning to file an IND with the FDA for VitiGam
TM
. Our ability to proceed with this IND application as well as
the commencement of the related clinical trial is dependent on several major factors including the ability to attract sufficient financing on terms acceptable to us.
Employment and Consulting Agreements
On November 30, 2007, the employment agreement with Vered Caplan, who served as the Vice President of Corporate Development, was terminated
.
19