ITEM
1. FINANCIAL STATEMENTS
ADVAXIS,
INC.
CONDENSED
BALANCE SHEETS
|
|
April
30, 2017
|
|
|
October
31, 2016
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
30,024,063
|
|
|
$
|
112,750,980
|
|
Investments –
Held-to-Maturity
|
|
|
85,300,215
|
|
|
|
39,336,548
|
|
Interest Receivable
|
|
|
192,298
|
|
|
|
80,142
|
|
Prepaid Expenses
|
|
|
1,035,408
|
|
|
|
812,830
|
|
Income Tax Receivable
|
|
|
-
|
|
|
|
2,549,862
|
|
Deferred Expenses
|
|
|
5,135,335
|
|
|
|
4,291,385
|
|
Other Receivable
|
|
|
3,000,000
|
|
|
|
-
|
|
Due from Broker
|
|
|
1,534,365
|
|
|
|
2,046
|
|
Other
Current Assets
|
|
|
-
|
|
|
|
51,405
|
|
Total Current Assets
|
|
|
126,221,684
|
|
|
|
159,875,198
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment (net of accumulated
depreciation)
|
|
|
6,566,061
|
|
|
|
4,389,074
|
|
Intangible Assets (net of accumulated
amortization)
|
|
|
4,694,269
|
|
|
|
4,329,121
|
|
Deferred Expenses- net of current portion
|
|
|
59,487
|
|
|
|
-
|
|
Other Assets
|
|
|
353,147
|
|
|
|
450,667
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
137,894,648
|
|
|
$
|
169,044,060
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
9,698,723
|
|
|
$
|
1,720,428
|
|
Accrued Expenses
|
|
|
6,092,227
|
|
|
|
10,905,003
|
|
Deferred Revenue
|
|
|
14,047,906
|
|
|
|
15,020,576
|
|
Lease Incentive
Obligation
|
|
|
40,226
|
|
|
|
40,226
|
|
Common Stock Warrant
Liability
|
|
|
-
|
|
|
|
20,156
|
|
Total Current Liabilities
|
|
|
29,879,082
|
|
|
|
27,706,389
|
|
|
|
|
|
|
|
|
|
|
Deferred Rent
|
|
|
590,093
|
|
|
|
475,749
|
|
Deferred Revenue-
net of current portion
|
|
|
15,241,016
|
|
|
|
21,234,568
|
|
Lease
Incentive Obligation- net of current portion
|
|
|
305,047
|
|
|
|
325,160
|
|
Total Liabilities
|
|
|
46,015,238
|
|
|
|
49,741,866
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par value; 5,000,000
shares authorized; Series B Preferred Stock; 0 shares issued and outstanding at April 30, 2017 and October 31, 2016. Liquidation
preference of $0 at April 30, 2017 and October 31, 2016.
|
|
|
|
|
|
|
-
|
|
Common Stock - $0.001 par value; 65,000,000
shares authorized, 40,396,519 shares issued and outstanding at April 30, 2017 and 40,057,067 shares issued and 40,041,047
shares outstanding at October 31, 2016.
|
|
|
40,397
|
|
|
|
40,057
|
|
Additional Paid-In Capital
|
|
|
337,094,496
|
|
|
|
327,098,749
|
|
Treasury Stock, at cost, 0 shares at
April 30, 2017 and 16,020 shares at October 31, 2016.
|
|
|
-
|
|
|
|
(129,787
|
)
|
Accumulated Deficit
|
|
|
(245,255,483
|
)
|
|
|
(207,706,825
|
)
|
Total Shareholders’
Equity
|
|
|
91,879,410
|
|
|
|
119,302,194
|
|
TOTAL LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
$
|
137,894,648
|
|
|
$
|
169,044,060
|
|
The
accompanying notes are an integral part of these condensed financial statements.
ADVAXIS,
INC.
STATEMENTS
OF OPERATIONS
(unaudited)
|
|
Three
Months Ended
April 30,
|
|
|
Six
Months Ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,425,380
|
|
|
$
|
-
|
|
|
$
|
7,216,222
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses
|
|
|
16,308,736
|
|
|
|
8,758,410
|
|
|
|
29,957,290
|
|
|
|
21,823,364
|
|
General and Administrative
Expenses
|
|
|
7,779,698
|
|
|
|
6,834,824
|
|
|
|
15,107,507
|
|
|
|
13,971,647
|
|
Total Operating
Expenses
|
|
|
24,088,434
|
|
|
|
15,593,234
|
|
|
|
45,064,797
|
|
|
|
35,795,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(20,663,054
|
)
|
|
|
(15,593,234
|
)
|
|
|
(37,848,575
|
)
|
|
|
(35,545,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
184,747
|
|
|
|
70,389
|
|
|
|
329,884
|
|
|
|
142,189
|
|
Net Changes in Fair Value of Derivative
Liabilities
|
|
|
10,652
|
|
|
|
592
|
|
|
|
20,156
|
|
|
|
49,874
|
|
Other Income
(Expense), Net
|
|
|
-
|
|
|
|
(197
|
)
|
|
|
(123
|
)
|
|
|
(201
|
)
|
Net Loss Before Benefit for Income Taxes
|
|
|
(20,467,655
|
)
|
|
|
(15,522,450
|
)
|
|
|
(37,498,658
|
)
|
|
|
(35,353,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
14,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(20,467,655
|
)
|
|
|
(15,522,450
|
)
|
|
|
(37,548,658
|
)
|
|
|
(35,367,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per
Share, Basic and Diluted
|
|
$
|
(0.51
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.93
|
)
|
|
$
|
(1.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares
Outstanding, Basic and Diluted
|
|
|
40,295,941
|
|
|
|
34,131,259
|
|
|
|
40,204,062
|
|
|
|
33,906,400
|
|
The
accompanying notes are an integral part of these financial statements.
ADVAXIS,
INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Six
Months Ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(37,548,658
|
)
|
|
$
|
(35,367,385
|
)
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock compensation
|
|
|
10,324,150
|
|
|
|
14,361,583
|
|
Gain on change in value of warrants
and embedded derivative
|
|
|
(20,156
|
)
|
|
|
(49,874
|
)
|
Loss on disposal of property and equipment
|
|
|
3,187
|
|
|
|
-
|
|
Impairment of intangible assets
|
|
|
89,881
|
|
|
|
-
|
|
Employee stock purchase plan
|
|
|
135,202
|
|
|
|
17,257
|
|
Depreciation expense
|
|
|
337,403
|
|
|
|
95,124
|
|
Amortization expense of intangible assets
|
|
|
152,155
|
|
|
|
118,744
|
|
Lease incentive obligation
|
|
|
(20,113
|
)
|
|
|
-
|
|
Amortization of premium on held-to-maturity
investments
|
|
|
99,523
|
|
|
|
164,284
|
|
Deferred rent
|
|
|
114,344
|
|
|
|
175,763
|
|
Change in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Interest receivable
|
|
|
(112,156
|
)
|
|
|
(19,277
|
)
|
Prepaid expenses
|
|
|
(222,578
|
)
|
|
|
(313,950
|
)
|
Income tax receivable
|
|
|
2,549,862
|
|
|
|
1,609,349
|
|
Other receivable
|
|
|
(3,000,000
|
)
|
|
|
-
|
|
Other current assets
|
|
|
51,405
|
|
|
|
-
|
|
Deferred expenses
|
|
|
(903,437
|
)
|
|
|
(2,390,748
|
)
|
Due from broker
|
|
|
(1,532,319
|
)
|
|
|
7,616
|
|
Other assets
|
|
|
97,520
|
|
|
|
(186,019
|
)
|
Accounts payable and accrued expenses
|
|
|
2,818,357
|
|
|
|
5,018,726
|
|
Deferred revenue
|
|
|
(6,966,222
|
)
|
|
|
-
|
|
Net cash used
in operating activities
|
|
|
(33,552,650
|
)
|
|
|
(16,758,807
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of held-to-maturity investments
|
|
|
(67,215,523
|
)
|
|
|
(7,651,121
|
)
|
Proceeds from maturities and redemptions
on held-to-maturity investments
|
|
|
21,152,333
|
|
|
|
3,430,000
|
|
Purchase of property and equipment
|
|
|
(2,342,515
|
)
|
|
|
(739,275
|
)
|
Cost of intangible
assets
|
|
|
(607,184
|
)
|
|
|
(456,437
|
)
|
Net cash used
in investing activities
|
|
|
(49,012,889
|
)
|
|
|
(5,416,833
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
-
|
|
|
|
614,368
|
|
Taxes paid related
to net share settlement of equity awards
|
|
|
(264,986
|
)
|
|
|
(34,025
|
)
|
Employee tax withholdings
paid on equity awards
|
|
|
(523,513
|
)
|
|
|
(1,393,595
|
)
|
Tax
shares sold to pay for employee tax withholdings on equity awards
|
|
|
627,121
|
|
|
|
1,351,670
|
|
Net cash provided
by Financing Activities
|
|
|
(161,378
|
)
|
|
|
538,418
|
|
Net decrease in cash and cash equivalents
|
|
|
(82,726,917
|
)
|
|
|
(21,637,222
|
)
|
Cash and cash
equivalents at beginning of period
|
|
|
112,750,980
|
|
|
|
66,561,683
|
|
Cash and cash
equivalents at end of period
|
|
|
30,024,063
|
|
|
|
44,924,461
|
|
The
accompanying notes are an integral part of these condensed financial statements.
Supplemental
Disclosures of Cash Flow Information
|
|
Six
months ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash paid for taxes
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Supplemental
Schedule of Non-Cash Investing and Financing Activities
|
|
Six
months ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Accrued expenses from consultants
settled with common stock
|
|
$
|
75,000
|
|
|
$
|
55,000
|
|
Conversion of notes payable into common
stock
|
|
$
|
-
|
|
|
$
|
29,549
|
|
Property and equipment included in accounts
payable and accrued expenses
|
|
$
|
175,062
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these condensed financial statements.
ADVAXIS,
INC.
NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
(unaudited)
1.
NATURE OF OPERATIONS
Advaxis,
Inc. (“Advaxis” or the “Company”) is a late-stage biotechnology company focused on the discovery,
development and commercialization of proprietary
Lm
-based antigen delivery system. These immunotherapies are based on a
platform technology that utilizes live attenuated
Listeria monocytogenes
(“
Lm
” or “
Lm
Technology
TM
”)
bioengineered to secrete antigen/adjuvant fusion proteins. These
Lm
-based strains are believed to be a significant advancement
in immunotherapy as they integrate multiple functions into a single immunotherapy as they access and direct antigen presenting
cells to stimulate anti-tumor T-cell immunity, stimulate and activate the immune system with the equivalent of multiple adjuvants,
and simultaneously reduce tumor protection in the tumor microenvironment to enable the T-cells to eliminate tumors.
Axalimogene
filolisbac is our lead
Lm
–based product candidate for the treatment of Human Papilloma Virus (“HPV”)
- associated cancers. The Company completed a randomized Phase 2 study in 110 patients with recurrent metastatic cervical cancer
that was shown to have a manageable safety profile, apparent improved survival and objective tumor responses. In addition, the
Gynecologic Oncology Group (“GOG”) Foundation, Inc., now part of NRG Oncology, conducted a cooperative group / Company
sponsored Phase 2 open-label clinical study of axalimogene filolisbac in patients with persistent or recurrent metastatic cervical
cancer with documented disease progression. The study, known as GOG-0265, has successfully completed the first and second stages
in its Simon 2-stage design. Upon early closure of this study, the results from both stages totaling 50 patients dosed
resulted in a 12-month survival rate of 38.0% with a manageable safety profile. The Company has initiated a registrational Phase
3 clinical trial for the adjuvant treatment of women with high-risk locally advanced cervical cancer and, pending FDA feedback,
is planning to initiate a global, randomized, registrational quality clinical trial in 2017 in the metastatic cervical cancer
setting with ADXS-DUAL, the Company’s second immunotherapy targeting HPV-associated cancers, in combination with
Bristol-Myers Squibb’s (“BMS”) PD-1 immune checkpoint inhibitor, OPDIVO
®
(nivolumab). The Company
also plans to pursue registrational opportunities in Europe in 2017 for the metastatic cervical cancer setting as a monotherapy
with axalimogene filolisbac.
Axalimogene
filolisbac has received United States Food and Drug Administration (“FDA”) orphan drug designation for three HPV-associated
cancers: cervical, head and neck, and anal cancer, and has received European Medicines Agency (“EMA”) orphan drug
designation for anal cancer. Axalimogene filolisbac has been designated by the FDA as a Fast Track product for adjuvant therapy
for high-risk locally advanced cervical cancer patients. It has also been classified as an advanced-therapy medicinal product
(“ATMP”) for the treatment of cervical cancer by the European Medicines Agency’s Committee for Advanced Therapies
(“CAT”). Axalimogene filolisbac is subject to an agreement with the FDA, under the Special Protocol Assessment (“SPA”)
process, for the Phase 3 AIM2CERV trial in patients with high-risk, locally advanced cervical cancer. It is also being evaluated
in Company-sponsored trials executed under an Investigational New Drug (“IND”) which include the following: (i) a
Phase 1/2 clinical trial alone and in combination with MedImmune, LLC’s (“MedImmune”) investigational anti-PD-L1
immune checkpoint inhibitor, durvalumab (MEDI4736), in patients with previously treated metastatic cervical cancer or patients
with HPV-associated head and neck cancer; and (ii) a single arm Phase 2 monotherapy study in patients with metastatic anal cancer.
In addition to the Company-sponsored trials, axalimogene filolisbac is also being evaluated in two investigator-initiated clinical
trials as follows: neoadjuvant treatment of HPV-positive head and neck cancer (Mount Sinai & Baylor College of Medicine),
and locally advanced high risk anal cancer (Brown University).
ADXS-PSA
is the Company’s
Lm
–based product candidate designed to target the Prostate Specific Antigen (“PSA”)
associated with prostate cancer which is being evaluated in a Phase 1/2 clinical trial alone and in combination with KEYTRUDA
®
(pembrolizumab), Merck & Co.’s (“Merck”) humanized monoclonal antibody against PD-1, in patients with
previously treated metastatic castration-resistant prostate cancer.
ADXS-HER2
is the Company’s
Lm
-based product candidate designed for the treatment of Human Epidermal Growth Factor Receptor
2 (“HER2”) expressing cancers, including human and canine osteosarcoma. ADXS-HER2 is being evaluated in a Phase 1b
clinical trial in patients with metastatic HER2 expressing solid tumors. The Company received orphan drug designation from both
the FDA and EMA for ADXS-HER2 in osteosarcoma and have received Fast Track designation from the FDA for patients with newly-diagnosed,
non-metastatic, surgically-resectable osteosarcoma. Clinical research with ADXS-HER2 in canine osteosarcoma is being developed
by the Company’s pet therapeutic partner, Aratana Therapeutics Inc. (“Aratana”), who holds exclusive rights
to develop and commercialize ADXS-HER2 and three other
Lm
-LLO immunotherapies for pet health applications. Aratana has
announced that a product license application for use of ADXS-HER2 in the treatment of canine osteosarcoma has been filed with
the United States Department of Agriculture (“USDA”). Aratana received communication from the USDA in March 2015 stating
that the previously submitted efficacy data for product licensure for AT-014 (ADXS-HER2), the cancer immunotherapy for canine
osteosarcoma, was accepted and that it provides a reasonable expectation of efficacy that supports conditional licensure. While
additional steps need to be completed, including in the areas of manufacturing and safety, Aratana anticipates that AT-014 could
receive conditional licensure from the USDA in 2017.
ADXS-NEO
is the Company’s individual
Lm
-based antigen delivery technology combined with a fusion protein based on information
captured by comparing a patient’s own DNA with the DNA from that patient’s tumor. The FDA has cleared the Company’s
IND application of a new precision immunotherapy for the treatment of cancers. The Company plans to initiate a Phase 1 study in
2017.
The
Company has focused its development efforts on establishing a drug development pipeline that incorporates this technology into
therapeutic cancer immunotherapies, with clinical trials currently targeting HPV-associated cancers (cervical cancer, head and
neck cancer, and anal cancer), prostate cancer, and osteosarcoma. Although no immunotherapies have been commercialized to date,
the Company continues to invest in research and development to advance the technology and make it available to patients with many
different types of cancer. Pipeline development and the further exploration of the technology for advancement entails risk and
expense. The Company anticipates that its ongoing operational costs will increase significantly as it continues conducting and
expanding its clinical development programs. In addition to its existing single antigen vectors that target one tumor associated
antigen, the Company is actively engaged in the development of new constructs that will address multiple targets that are common
to tumor types, as well as mutation-associated epitopes that are specific to an individual patient’s tumor. The Company
is also leveraging its
Lm
Technology™ to target common (public or shared) mutations (hotspots) in tumor driver genes.
The Company is exploring a preclinical infectious disease program as well to examine potential applications of its
Lm
Technology™.
Lastly, the Company is continuing to build-out its manufacturing capabilities at the state-of-the-art manufacturing facility in
Princeton, NJ, to produce supplies for its neoepitope and other development programs.
Liquidity
and Financial Condition
The
Company’s products are being developed and have not generated significant revenues. As of April 30, 2017, the Company had
approximately $115.3 million in cash, cash equivalents and investments on its balance sheet. The Company believes its current
cash position is sufficient to fund its business plan approximately through the second quarter of fiscal 2019. The estimate is
based on assumptions that may prove to be wrong, and the Company could use available capital resources sooner than currently expected.
Because of the numerous risks and uncertainties associated with the development and commercialization of its product candidates,
the Company is unable to estimate the amount of increased capital outlays and operating expenses associated with completing the
development of its current product candidates.
The
Company recognizes it may need to raise additional capital in order to continue to execute its business plan. There is no assurance
that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable
to the Company or whether the Company will become profitable and generate positive operating cash flow. If the Company is unable
to raise sufficient additional funds, it will have to scale back its business plan.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis
of Presentation - Unaudited Interim Financial Information
The
accompanying unaudited interim condensed financial statements and related notes have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) for interim financial information, and in accordance
with the rules and regulations of the SEC with respect to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed
financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of
management, necessary to represent a fair statement of the results for the interim periods presented. Interim results are not
necessarily indicative of the results for the full year. These unaudited interim condensed financial statements should be read
in conjunction with the financial statements of the Company for the year ended October 31, 2016 and notes thereto contained in
the Company’s annual report on Form 10-K for the year ended October 31, 2016, as filed with the SEC on January 9, 2017.
The
information presented in the accompanying unaudited condensed balance sheet as of October 31, 2016 has been derived from the Company’s
October 31, 2016 audited financial statements.
Estimates
The
preparation of financial statements in accordance with U.S. GAAP involves the use of estimates and assumptions that affect the
recorded amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results may differ substantially from these estimates. Significant estimates include
the fair value and recoverability of the carrying value of intangible assets (patents and licenses), the fair value of stock options,
the fair value of embedded conversion features, warrants and related disclosure of contingent assets and liabilities. On an on-going
basis, the Company evaluates its estimates, based on historical experience and on various other assumptions that it believes to
be reasonable under the circumstances. Actual results may differ from estimates.
Reclassifications
Certain
amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial
statements. These reclassifications had no effect on the previously reported net loss.
Collaboration Agreements
The Company
evaluates whether an arrangement is a collaborative arrangement under the Financial Accounting Standards Board
(the “FASB”) Accounting Standards Certification (“ASC”) Topic 808,
Collaborative Arrangements
,
at its inception based on the facts and circumstances specific to the arrangement. The Company also reevaluates whether an
arrangement qualifies or continues to qualify as a collaborative arrangement whenever there is a change in either the roles
of the participants or the participants’ exposure to significant risks and rewards dependent on the ultimate commercial
success of the endeavor. For those collaborative arrangements where it is determined that the Company is the principal
participant, costs incurred and revenue generated from third parties are recorded on a gross basis in the financial
statements.
From time to time,
the Company enters into collaborative arrangements for the research and development, manufacture and/or commercialization of products
and product candidates. These collaborations generally provide for non-refundable, upfront license fees, research and development
and commercial performance milestone payments, cost sharing, royalty payments and/or profit sharing. The Company’s collaboration
agreements with third parties are performed on a ‘‘best efforts’’ basis with no guarantee of either technological
or commercial success.
Revenue
Recognition
The
Company is expected to derive the majority of its revenue from patent licensing and research and development services associated
with patent licensing. In general, these revenue arrangements provide for the payment of contractually determined fees in consideration
for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company. The intellectual
property rights granted may be perpetual in nature, or upon the final milestones being met, or can be granted for a defined, relatively
short period of time, with the licensee possessing the right to renew the agreement at the end of each contractual term for an
additional minimum upfront payment. The Company recognizes licensing fees when there is persuasive evidence of a licensing arrangement,
fees are fixed or determinable, delivery has occurred and collectability is reasonably assured.
Revenue
associated with nonrefundable upfront license fees under arrangements where the license fees and research and development activities
cannot be accounted for as separate units of accounting is deferred and recognized as revenue on a straight-line basis over the
expected period of performance.
Revenues
from the achievement of research and development milestones, if deemed substantive, are recognized as revenue when the milestones
are achieved and the milestone payments are due and collectible. If not deemed substantive, the Company recognizes such milestones
as revenue on a straight-line basis over the remaining expected performance period under the arrangement. All such recognized
revenues are included in collaborative licensing and development revenue in the Company’s statements of operations.
Milestones
are considered substantive if all of the following conditions are met: (1) the milestone is nonrefundable; (2) achievement of
the milestone was not reasonably assured at the inception of the arrangement; (3) substantive effort is involved to achieve the
milestone; and (4) the amount of the milestone appears reasonable in relation to the effort expended, and the other milestones
in the arrangement and the related risk associated with the achievement of the milestone and any ongoing research and development
or other services are priced at fair value.
If
product development is successful, the Company will recognize revenue from royalties based on licensees’ sales of its products
or products using its technologies. Royalties are recognized as earned in accordance with the contract terms when royalties from
licensees can be reasonably estimated and collectability is reasonably assured. If royalties cannot be reasonably estimated or
collectability of a royalty amount is not reasonably assured, royalties are recognized as revenue when the cash is received.
Deferred
revenue represents the portion of payments received for which the earnings process has not been completed. Deferred revenue expected
to be recognized within the next 12 months is classified as a current liability.
An
allowance for doubtful accounts is established based on the Company’s best estimate of the amount of probable credit losses
in the Company’s existing license fee receivables, using historical experience. The Company reviews its allowance for doubtful
accounts periodically. Past due accounts are reviewed individually for collectability. Account balances are charged off against
the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To date,
this is yet to occur.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
As of April 30, 2017 and October 31, 2016, the Company had approximately $22.3 million and $106.7 million, respectively, in cash
equivalents.
Concentration
of Credit Risk
The
Company maintains its cash in bank deposit accounts (checking) that at times exceed federally insured limits. Approximately $28.7
million is subject to credit risk at April 30, 2017. However, these cash balances are maintained at creditworthy financial institutions.
The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.
Fair
Value of Financial Instruments
The
carrying amounts of financial instruments, including cash, accounts payable and accrued expenses approximated fair value as of
the balance sheet date presented, because of the relatively short maturity dates on these instruments. The carrying amounts of
the financing arrangements issued approximate fair value as of the balance sheet date presented, because interest rates on these
instruments approximate market interest rates after consideration of stated interest rates, anti-dilution protection and associated
warrants.
Net
Loss per Share
Basic
net income or loss per common share is computed by dividing net income or loss available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per share give effect to dilutive options, warrants,
convertible debt and other potential Common Stock outstanding during the period. In the case of a net loss the impact of the potential
Common Stock resulting from warrants, outstanding stock options and convertible debt are not included in the computation of diluted
loss per share, as the effect would be anti-dilutive. In the case of net income, the impact of the potential Common Stock resulting
from these instruments that have intrinsic value are included in the diluted earnings per share. The table sets forth the number
of potential shares of Common Stock that have been excluded from diluted net loss per share.
|
|
As
of April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Warrants
|
|
|
3,110,575
|
|
|
|
3,110,575
|
|
Stock Options
|
|
|
3,893,558
|
|
|
|
3,351,794
|
|
Restricted Stock
Units
|
|
|
1,146,435
|
|
|
|
808,185
|
|
Total
|
|
|
8,150,568
|
|
|
|
7,270,554
|
|
Stock
Based Compensation
The
Company has an equity plan which allows for the granting of stock options to its employees, directors and consultants for a fixed
number of shares with an exercise price equal to the fair value of the shares at date of grant. The Company measures the cost
of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors,
the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally measured
based on contractual terms. The fair value amount is then recognized over the requisite service period, usually the vesting period,
in both research and development expenses and general and administrative expenses on the statement of operations, depending on
the nature of the services provided by the employees or consultants.
The
process of estimating the fair value of stock-based compensation awards and recognizing stock-based compensation cost over their
requisite service period involves significant assumptions and judgments. The Company estimates the fair value of stock option
awards on the date of grant using the Black Scholes Model (“BSM”) for the remaining awards, which requires that the
Company makes certain assumptions regarding: (i) the expected volatility in the market price of its Common Stock; (ii) dividend
yield; (iii) risk-free interest rates; and (iv) the period of time employees are expected to hold the award prior to exercise
(referred to as the expected holding period). As a result, if the Company revises its assumptions and estimates, stock-based compensation
expense could change materially for future grants.
The
Company accounts for stock-based compensation using fair value recognition and records stock-based compensation as a charge to
earnings net of forfeited awards. As such, the Company recognizes stock-based compensation cost only for those stock-based awards
that vest over their requisite service period, based on the vesting provisions of the individual grants.
Recent
Accounting Pronouncements
In May 2014, as part
of its ongoing efforts to assist in the convergence of GAAP and International Financial Reporting Standards, the FASB issued ASU
2014-09, Revenue from Contracts with Customers, which is a new standard related to revenue recognition. Under the new standard,
recognition of revenue occurs when a customer obtains control of promised services or goods in an amount that reflects the consideration
to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure
of the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. The standard must be
adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective
approach. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date, which
defers the implementation of this new standard to be effective for fiscal years beginning after December 15, 2017. Early adoption
is permitted effective January 1, 2017. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations, which
clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard pursuant
to ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, in May 2016, the
FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, and in December 2016 the FASB issued ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amend certain aspects of the
new revenue recognition standard pursuant to ASU 2014-09. We are currently evaluating which transition approach we will utilize
and the impact of adopting this accounting standard on the Company’s financial statements.
In
February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The standard amends the existing accounting standards
for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes
to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of 2019. Early adoption of ASU 2016-02 is permitted.
The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after,
the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact
of adopting ASU 2016-02 on the Company’s financial statements.
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments.” The standard significantly changes how entities will measure credit
losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The
standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments
measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than
reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting
model for purchased credit-impaired debt securities and loans. This ASU is effective for annual periods beginning after December
15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim
periods therein. This ASU is not expected to have a material impact on the Company’s financial statements.
In
January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a
Business.” The amendments in this Update clarify the definition of a business with the objective of adding guidance to assist
entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The amendments
in this Update provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that to be
considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute
to the ability to create output and (2) removes the evaluation of whether a market participant could replace the missing elements.
This Update is the final version of Proposed ASU 2015-330 Business Combinations (Topic 805) – Clarifying The Definition
of a Business, which has been deleted. The amendments in this Update are effective for all entities for annual periods, and interim
periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected
to have a material impact on the Company’s financial statements.
In
May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope
of Modification Accounting” to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when
applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based
payment award. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting in Topic 718. This Update is the final version of Proposed ASU
2016-360—Compensation—Stock Compensation (Topic 718)—Scope of Modification Accounting, which has been deleted.
The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods,
beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected to have a material impact on the Company’s
financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
impact on the accompanying condensed financial statements.
3.
INVESTMENTS
The
following table summarizes the Company’s investment securities at amortized cost as of April 30, 2017 and October 31, 2016:
|
|
April
30, 2017
|
|
|
|
Amortized
cost,
as adjusted
|
|
|
Gross
unrealized
holding gains
|
|
|
Gross
unrealized
holding losses
|
|
|
Estimated
fair
value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit
|
|
$
|
22,531,815
|
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
22,531,814
|
|
Domestic Governmental Agency Loans
|
|
|
2,666,074
|
|
|
|
-
|
|
|
|
1,963
|
|
|
|
2,664,111
|
|
U.S Treasury
Notes
|
|
|
60,102,326
|
|
|
|
-
|
|
|
|
62,836
|
|
|
|
60,039,490
|
|
Total
short-term investment securities
|
|
$
|
85,300,215
|
|
|
$
|
-
|
|
|
$
|
64,800
|
|
|
$
|
85,235,415
|
|
|
|
October
31, 2016
|
|
|
|
Amortized
cost,
as adjusted
|
|
|
Gross
unrealized
holding gains
|
|
|
Gross
unrealized
holding losses
|
|
|
Estimated
fair
value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit
|
|
$
|
10,737,563
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,737,563
|
|
Domestic Governmental Agency Loans
|
|
|
2,500,000
|
|
|
|
-
|
|
|
|
250
|
|
|
|
2,499,750
|
|
U.S Treasury
Notes
|
|
|
26,098,985
|
|
|
|
2,404
|
|
|
|
7,556
|
|
|
|
26,093,833
|
|
Total
short-term investment securities
|
|
$
|
39,336,548
|
|
|
$
|
2,404
|
|
|
$
|
7,806
|
|
|
$
|
39,331,146
|
|
All
of the Company’s investments mature within the next 12 months.
4.
PROPERTY AND EQUIPMENT
Property
and equipment consists of the following:
|
|
April
30, 2017
|
|
|
October
31, 2016
|
|
Leasehold Improvements
|
|
$
|
2,010,952
|
|
|
$
|
1,835,602
|
|
Laboratory Equipment
|
|
|
3,423,753
|
|
|
|
2,038,704
|
|
Furniture and Fixtures
|
|
|
693,173
|
|
|
|
549,025
|
|
Computer Equipment
|
|
|
321,777
|
|
|
|
240,910
|
|
Construction
in Progress
|
|
|
869,840
|
|
|
|
151,368
|
|
Total Property and Equipment
|
|
|
7,319,495
|
|
|
|
4,815,609
|
|
Accumulated Depreciation
and Amortization
|
|
|
(753,434
|
)
|
|
|
(426,535
|
)
|
Net Property
and Equipment
|
|
$
|
6,566,061
|
|
|
$
|
4,389,074
|
|
Depreciation
expense for the three and six months ended April 30, 2017 and 2016 was $179,823, $337,403, $49,090 and $95,124, respectively.
5.
INTANGIBLE ASSETS
Pursuant
to our license agreement with the University of Pennsylvania (“Penn”), the Company is billed actual patent expenses
as they are passed through from Penn and are billed directly from our patent attorney. The following is a summary of intangible
assets as of the end of the following fiscal periods:
|
|
April
30, 2017
|
|
|
October
31, 2016
|
|
License
|
|
$
|
776,992
|
|
|
$
|
776,992
|
|
Patents
|
|
|
5,487,414
|
|
|
|
4,980,610
|
|
Software
|
|
|
25,625
|
|
|
|
19,625
|
|
Total Intangibles
|
|
|
6,290,031
|
|
|
|
5,777,227
|
|
Accumulated Amortization
|
|
|
(1,595,762
|
)
|
|
|
(1,448,106
|
)
|
Intangible Assets
|
|
$
|
4,694,269
|
|
|
$
|
4,329,121
|
|
The
expirations of the existing patents range from 2017 to 2037 but the expirations can be extended based on market approval if granted
and/or based on existing laws and regulations. Capitalized costs associated with patent applications that are abandoned without
future value are charged to expense when the determination is made not to pursue the application. Patent applications having a
net book value of $89,881, $89,881, $- and $- were abandoned and were charged to
Research and Development Expenses
in the
statement of operations for the three and six months ended April 30, 2017 and 2016, respectively. Amortization expense for intangible
assets is included in research and development expenses and aggregated $77,745, $152,155, $60,798 and $118,744 for the three and
six months ended April 30, 2017 and 2016, respectively.
Estimated
amortization expense for the next five years is as follows:
Year
ended October 31,
2017 (Remaining)
|
|
$
|
155,000
|
|
2018
|
|
|
311,000
|
|
2019
|
|
|
308,000
|
|
2020
|
|
|
302,000
|
|
2021
|
|
|
302,000
|
|
6.
ACCRUED EXPENSES
The
following table represents the major components of accrued expenses:
|
|
April
30, 2017
|
|
|
October
31, 2016
|
|
Salaries and Other Compensation
|
|
$
|
1,679,995
|
|
|
$
|
2,467,650
|
|
Vendors
|
|
|
632,259
|
|
|
|
2,098,792
|
|
Professional Fees
|
|
|
3,779,973
|
|
|
|
6,338,561
|
|
Accrued Expenses
|
|
$
|
6,092,227
|
|
|
$
|
10,905,003
|
|
7.
DERIVATIVE INSTRUMENTS
Warrants
A
summary of changes in warrants for the six months ended April 30, 2017 is as follows:
|
|
Number of
|
|
|
Weighted-Average
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
Outstanding Warrants at October 31, 2016:
|
|
|
3,110,575
|
|
|
$
|
5.04
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding Warrants at April 30,
2017
|
|
|
3,110,575
|
|
|
$
|
5.04
|
|
At
April 30, 2017 and October 31, 2016, the Company had approximately 3.09 million of its total 3.11 million outstanding warrants
classified as equity (equity warrants). At issuance, equity warrants are recorded at their relative fair values, using the Relative
Fair Value Method, in the shareholders’ equity section of the balance sheet. The equity warrants can only be settled through
the issuance of shares and are not subject to anti-dilution provisions.
Warrant
Liability
At
April 30, 2017 and October 31, 2016, the Company had approximately 18,000 of its total approximately 3.11 million outstanding
warrants classified as liability warrants (liability warrants). The Company utilizes the BSM to calculate the fair value of these
warrants at issuance and at each subsequent reporting date. The liability warrants contain a cash settlement provision in the
event of a fundamental transaction (as defined in the Common Stock purchase warrant). Any changes in the fair value of the warrant
liability (i.e. the total fair value of all outstanding liability warrants at the balance sheet date) between reporting periods
will be reported on the statement of operations.
At
April 30, 2017 and October 31, 2016, the fair value of the warrant liability was $- and $20,156, respectively. For the three months
ended April 30, 2017 and 2016, the Company reported a gain of $10,652 and $592, respectively, due to changes in the fair value
of the warrant liability. For the six months ended April 30, 2017 and 2016, the Company reported a gain of $20,156 and $49,874,
respectively, due to changes in the fair value of the warrant liability. In determining the fair value of the warrant liability
at April 30, 2017 and October 31, 2016, the Company used the following inputs in its BSM:
|
|
April
30, 2017
|
|
|
October
31, 2016
|
|
Exercise Price
|
|
$
|
10.63-18.75
|
|
|
$
|
10.63-18.75
|
|
Stock Price
|
|
$
|
8.56
|
|
|
$
|
8.09
|
|
Expected term
|
|
|
0.05-0.26
years
|
|
|
|
0.55-0.75
years
|
|
Expected Volatility
|
|
|
34.44%-43.74
|
%
|
|
|
81.84%-87.09
|
%
|
Risk Free Interest Rate
|
|
|
0.68%-0.80
|
%
|
|
|
0.51%-0.66
|
%
|
8.
SHARE BASED COMPENSATION
Employment
Agreements
Management
voluntarily purchases restricted stock directly from the Company at market price. The respective stock purchases occur on the
last trading day of each month. This voluntary election is outlined in each of Daniel J. O’Connor, Chief Executive Officer
and President, Robert G. Petit, Executive Vice President, Chief Scientific Officer, and Sara M. Bonstein, Executive Vice President
and Secretary, Chief Financial Officer, (each an “Executive”), employment agreements. The table below reflects the
purchases of each Executive:
|
|
ANNUALIZED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Amount
|
|
|
For
the Six Months Ended April 30, 2017
|
|
|
|
to
be Purchased
|
|
|
|
Gross
Purchase
|
|
|
|
Net
Purchase
|
|
Executive
|
|
|
$
|
|
|
|
$
|
|
|
|
#
of shares
|
|
|
|
$
|
|
|
|
#
of shares
|
|
Daniel J. O’Connor
|
|
$
|
54,547
|
|
|
$
|
26,546
|
|
|
|
2,080
|
|
|
$
|
20,008
|
|
|
|
1,558
|
|
Robert G. Petit
|
|
$
|
33,061
|
|
|
$
|
16,065
|
|
|
|
1,811
|
|
|
$
|
12,786
|
|
|
|
1,295
|
|
Sara M. Bonstein
|
|
$
|
29,261
|
|
|
$
|
14,260
|
|
|
|
1,158
|
|
|
$
|
9,978
|
|
|
|
845
|
|
For
the three months ended April 30, 2017, the Company recorded stock compensation expense of $37,308 in the statement of operations
for the portion of management salaries voluntarily paid in stock representing 4,395 shares of its Common Stock (3,224 shares on
a net basis after employee payroll taxes). For the three months ended April 30, 2016, the Company recorded a similar stock compensation
expense of $56,926 in the statement of operations representing 8,028 shares of its Common Stock (5,785 shares on a net basis after
employee payroll taxes).
For
the six months ended April 30, 2017, the Company recorded a similar stock compensation expense of $79,324 in the statement of
operations representing 9,711 shares of its Common Stock (7,295 shares on a net basis after employee payroll taxes). For the six
months ended April 30, 2016, the Company recorded stock compensation expense of $121,257 in the statement of operations for the
portion of management salaries voluntarily paid in stock representing 15,088 shares of its Common Stock (10,732 shares on a net
basis after employee payroll taxes).
From
2013 to present, in addition to the purchases of Common Stock set forth in the above table, Mr. O’Connor has also purchased
an additional 164,909 shares of Common Stock out of his personal funds at the then market price for an aggregate consideration
of $689,004. These purchases consisted of the conversion of amounts due to Mr. O’Connor under a promissory note given by
Mr. O’Connor to the Company in 2012 of approximately $66,500 for 21,091 shares, 2013 base salary which he elected to receive
in Common Stock of approximately $186,555 for 34,752 shares (21,489 on a net basis after employee payroll taxes), 2013 and 2014
cash bonuses voluntarily requested to receive in equity of $214,359 for 62,064 shares (57,990 on a net basis after employee payroll
taxes), fiscal 2014 voluntary request to purchase stock directly from the Company at market price purchases of $68,750 for 21,687
shares (15,950 on a net basis after employee payroll taxes), fiscal 2015 voluntary request to purchase stock directly from the
Company at market price purchases of $88,840 for 8,482 shares (7,556 on a net basis after employee payroll taxes), and purchases
of the Company’s Common Stock in the October 2013 and March 2014 public offerings of 13,500 shares for $54,000 and 3,333
shares for $10,000.
Restricted
Stock Units (RSUs)
A
summary of the Company’s RSU activity and related information for the six months ended April 30, 2017 is as follows:
|
|
Number
of
RSUs
|
|
|
Weighted-Average
Grant Date Fair Value
|
|
Balance at October 31, 2016:
|
|
|
719,448
|
|
|
$
|
10.77
|
|
Granted
|
|
|
722,432
|
|
|
$
|
8.38
|
|
Vested
|
|
|
(270,134
|
)
|
|
$
|
9.28
|
|
Cancelled
|
|
|
(25,311
|
)
|
|
$
|
9.09
|
|
Balance at April
30, 2017
|
|
|
1,146,435
|
|
|
$
|
9.65
|
|
As
of April 30, 2017, there was approximately $9,247,000 of unrecognized compensation cost related to non-vested RSUs, which is expected
to be recognized over a remaining weighted average vesting period of approximately 2.19 years.
As
of April 30, 2017, the aggregate intrinsic value of non-vested RSUs was approximately $9,814,000.
Employee
Stock Awards
Common
Stock issued to executives and employees related to vested incentive retention awards, employment inducements and employee excellence
awards totaled 155,149 (126,504 shares on a net basis after employee payroll taxes) and 134,239 shares for the three months ended
April 30, 2017 and 2016, respectively. Total stock compensation expense associated with these awards for the three months ended
April 30, 2017 and 2016 was $1,674,989 and $876,228, respectively.
Common
Stock issued to executives and employees related to vested incentive retention awards, employment inducements and employee excellence
awards totaled 243,809 shares (215,164 shares on a net basis after employee payroll taxes) and 372,368 shares during the six months
ended April 30, 2017 and 2016, respectively. Total stock compensation expense associated with these awards for the six months
ended April 30, 2017 and 2016 was $2,989,612 and $2,733,304, respectively.
Furthermore,
non-executive employees were entitled to receive a performance-based year-end cash bonus. Several non-executive employees voluntarily
requested to be paid all or a portion of their cash bonus in the Company’s Common Stock instead of cash. During the six
months ended April 30, 2016, the total fair value of these equity purchases was $102,022, or 9,150 shares of the Company’s
Common Stock.
Director
Stock Awards
Common
stock issued to Directors for compensation related to board and committee membership totaled 30,000 and 61,767 shares for the
three months ended April 30, 2017 and 2016, respectively. Total stock compensation expense associated with these awards for the
three months ended April 30, 2017 and 2016 was $98,315 and $311,205, respectively.
Common
stock issued to Directors for compensation related to board and committee membership totaled 30,000 and 93,534 shares for the
six months ended April 30, 2017 and 2016, respectively. Total stock compensation expense associated with these awards for the
six months ended April 30, 2017 and 2016 was $199,943 and $622,410, respectively.
Stock
Options
A
summary of changes in the stock option plan for the six months ended April 30, 2017 is as follows:
|
|
Number of
|
|
|
Weighted-Average
|
|
|
|
Options
|
|
|
Exercise
Price
|
|
Outstanding at October 31, 2016:
|
|
|
3,351,795
|
|
|
$
|
13.31
|
|
Granted
|
|
|
556,952
|
|
|
$
|
7.71
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Canceled
|
|
|
(4,000
|
)
|
|
$
|
3.42
|
|
Expired
|
|
|
(11,189
|
)
|
|
$
|
17.88
|
|
Outstanding at April 30, 2017
|
|
|
3,893,558
|
|
|
$
|
12.51
|
|
Vested and Exercisable
at April 30, 2017
|
|
|
2,158,092
|
|
|
$
|
13.47
|
|
Total
compensation cost related to the Company’s outstanding stock options, recognized in the statement of operations for the
three months ended April 30, 2017 and 2016, was $3,006,763 and $3,280,517, respectively. For the six months ended April 30, 2017
and 2016, compensation cost related to the Company’s outstanding stock options was $6,190,221 and $9,952,502, respectively.
During
the six months ended April 30, 2017, 556,952 options were granted with a total grant date fair value of $3,542,215. During the
six months ended April 30, 2016, 1,385,000 options were granted with a total grant date fair value of $14,837,970.
As
of April 30, 2017, there was approximately $14,678,000 of unrecognized compensation cost related to non-vested stock option awards,
which is expected to be recognized over a remaining weighted average vesting period of approximately 1.44 years.
As
of April 30, 2017, the aggregate intrinsic value of vested and exercisable options was approximately $48,000.
In
determining the fair value of the stock options granted during the six months ended April 30, 2017 and 2016, the Company used
the following inputs in its BSM:
|
|
Six
Months Ended
|
|
|
|
April
30, 2017
|
|
|
April
30, 2016
|
|
Expected Term
|
|
5.50-6.50 years
|
|
|
5.51-6.51 years
|
|
Expected Volatility
|
|
|
107.07%-110.93
|
%
|
|
|
109.23%-115.25
|
%
|
Expected Dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk Free Interest Rate
|
|
|
1.26-1.58
|
%
|
|
|
1.65%-2.00
|
%
|
Shares
Issued to Consultants
During
the three months ended April 30, 2017, 44,312 shares of Common Stock valued at $379,350 were issued to consultants for services,
of which $230,100 represented shares issued for amounts previously accrued. The Company recorded a liability on its balance sheet
for $247,100 for shares earned pursuant to consulting agreements but not delivered. During the three months ended April 30, 2016,
65,893 shares of Common Stock valued at $570,001 were issued to consultants for services. The common stock share values were based
on the dates the shares vested.
During
the six months ended April 30, 2017, 76,812 shares of Common Stock valued at $692,950 were issued to consultants for services,
of which $75,000 represented shares issued for amounts previously accrued. The Company recorded a liability on its balance sheet
for $247,100 for shares earned pursuant to consulting agreements but not delivered. During the six months ended April 30, 2016,
89,017 shares of Common Stock valued at $845,088 were issued to consultants for services. The common stock share values were based
on the dates the shares vested.
The
following table summarizes share-based compensation expense included in the Statement of Operations by expense category for the
six months ended April 30, 2017 and 2016, respectively:
|
|
Three
Months Ended April 30,
|
|
|
Six
Months Ended April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
1,531,005
|
|
|
$
|
967,705
|
|
|
$
|
2,753,488
|
|
|
$
|
6,074,343
|
|
General and administrative
|
|
|
3,682,720
|
|
|
|
3,864,872
|
|
|
|
7,570,662
|
|
|
|
8,287,240
|
|
Total
|
|
$
|
5,213,725
|
|
|
$
|
4,832,577
|
|
|
$
|
10,324,150
|
|
|
$
|
14,361,583
|
|
9.
COLLABORATION AND LICENSING AGREEMENTS
Especificos
Stendhal SA de CV
On
February 3, 2016, the Company entered into a Co-Development and Commercialization Agreement (the “Stendhal Agreement”)
with Especificos Stendhal SA de CV (“Stendhal”), for Advaxis’ lead Lm Technology™ immunotherapy, Axalimogene
filolisbac , in HPV-associated cancers. Under the terms of the Stendhal Agreement, Stendhal will pay $10 million (“Support
Payments”) towards the expense of AIM2CERV over the duration of the trial. Certain internal expenses of Stendhal up to $1
million shall be counted towards the $10 million in Support Payments. The Support Payments are contingent upon Advaxis achieving
annual project milestones. The Company considered the provisions of the research and development and collaboration guidance in
determining how to recognize the Support Payments to be received from Stendhal. The Company determined the Stendhal Agreement
should be accounted for within the scope of collaboration arrangement accounting guidance. Furthermore, the Company determined
that Advaxis is the principal in the Stendhal Agreement. As a result, the Company will account for the Support Payments as a reduction
of
Research and Development Expenses
in the statement of operations. During the six months ended April 30, 2017,
the Company reached the annual project milestones and recorded the first expected Support Payment of $3,000,000 as
Other Receivables
on the balance sheet. In May 2017, the Company received the $3,000,000 Support Payment from Stendhal.
Sellas
Life Science Group
On
February 27, 2017, the Company entered into a license agreement with Sellas Life Science Group (“Sellas”) to develop
a novel cancer immunotherapy agent using Advaxis’ proprietary Lm-based antigen delivery technology with SELLAS’ patented
WT1 targeted heteroclitic peptide antigen mixture (galinpepimut-S)). Pursuant to the agreement, Advaxis will conduct all pre-clinical
activities required for an IND filing and Sellas will be responsible for all clinical development and commercial activities. Advaxis
will receive future payments of up to $358 million from SELLAS if certain development, regulatory, and commercial milestones are
met. SELLAS has agreed to pay Advaxis single-digit to low double-digit royalties based on worldwide net sales upon commercialization.
If SELLAS sublicenses its rights, Advaxis will receive a percentage of applicable sublicense revenue paid.
10.
COMMITMENTS AND CONTINGENCIES
:
Legal
Proceedings
Knoll
On August 21, 2015, Knoll
Capital Management L.P. filed a complaint against the Company in the Delaware Court of Chancery. In lieu of continuing to unnecessarily
incur litigation expenses, on April 27, 2017, the Company settled the matter for a non-material amount, predominately reimbursed
by the Company’s insurance, and the parties entered into a definitive confidential settlement agreement. The Company expressly
denies any admission or wrongdoing and the settlement was entered into solely for the purpose of avoiding the burden, inconvenience,
and expense of further litigation. On May 11, 2017, following resolution of the matter by the parties, the Court granted a
Stipulation Of Dismissal With Prejudice.
Bono
On
August 20, 2015, a derivative complaint was filed by a purported Company shareholder in the United States District Court for the
District of New Jersey styled David Bono v. O’Connor, et al., Case No. 3:15-CV-006326-FLW-DEA (D.N.J. Aug. 20, 2015) (the
“Bono Action”). The complaint is based on general allegations related to certain stock options granted to the individual
defendants and generally alleges counts for breaches of fiduciary duty and unjust enrichment. The complaint also alleges additional
claims for violation of Section 14(a) of the Securities Exchange Act of 1934 and for waste of corporate assets. The complaint
seeks damages and costs of an unspecified amount, disgorgement of compensation obtained by the individual defendants, and injunctive
relief.
Defendants filed a motion
to dismiss the Bono Action. On May 23, 2016, the United States District Court for the District of New Jersey issued an opinion
and order granting in part and denying in part defendants’ motion to dismiss. Specifically, the court denied the
motion to dismiss as to the breach of fiduciary duty claim and unjust enrichment claim against the three members of the Compensation
Committee, but dismissed without prejudice the breach of fiduciary duty and unjust enrichment claims against the other eight individual
defendants [O’Connor, Khleif, McKearn, Patton, Bonstein, Mauro, Mayes, and Petit]. The court dismissed without
prejudice the Section 14(a) disclosure claim and waste claims against all defendants. On October 5, 2016, the court denied plaintiff’s
motion for reconsideration of its May 23 order. On April 13, 2017 ,the parties advised the Court that they had reached a tentative
agreement in principle to settled the action, which is still subject to negotiating an award of attorneys’ fees and expenses
to Plaintiffs’ counsel and a stipulation of settlement, and, ultimately, Court approval.
At
this stage of the proceeding, the Company does not express any opinion as to likely outcome, but the Company intends to defend
the action vigorously.
General
The
Company is from time to time involved in legal proceedings in the ordinary course of its business. The Company does not believe
that any of these claims and proceedings against it is likely to have, individually or in the aggregate, a material adverse effect
on its financial condition or results of operations.
Operating
Leases
The
Company’s corporate offices are currently located at 305 College Road East, Princeton, New Jersey 08540.
Future
minimum payments of the Company’s operating leases are as follows:
Year
ended October 31,
2017(Remaining)
|
|
$
|
490,931
|
|
2018
|
|
|
1,041,895
|
|
2019
|
|
|
1,107,385
|
|
2020
|
|
|
1,232,907
|
|
2021
|
|
|
1,317,640
|
|
Thereafter
|
|
|
5,747,340
|
|
|
|
|
10,938,098
|
|
11
.
SUBSEQUENT EVENTS
On
May 1, 2017, the Company granted to executives 258,758 RSUs and 145,749 PRSUs. The RSUs and PRSUs vest annually in three equal
annual installments on November 1, 2017, November 1, 2018 and November 1, 2019.
On
May 30, 2017, the Company announced a clinical development collaboration with BMS to evaluate ADXS-DUAL, its second
investigational immunotherapy targeting HPV-associated cancers, and BMS’ PD-1 immune checkpoint inhibitor,
Opdivo
®
(nivolumab), as a potential combination treatment option for women with metastatic cervical
cancer.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the
future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant
risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements
as a result of many known or unknown factors, including, but not limited to, those factors discussed in “Risk Factors”
and incorporated by reference herein. See also the “Special Cautionary Notice Regarding Forward-Looking Statements”
set forth at the beginning of this report.
You
should read the following discussion and analysis in conjunction with the unaudited financial statements, and the related footnotes
thereto, appearing elsewhere in this report, and in conjunction with management’s discussion and analysis and the audited
financial statements included in our annual report on Form 10-K for the year ended October 31, 2016.
Overview
We are a late-stage
biotechnology company focused on the discovery, development and commercialization of our proprietary
Lm
-based antigen
delivery system with our lead program in Phase 3 development. These immunotherapies are based on a platform technology that utilizes
live attenuated
Listeria monocytogenes
bioengineered to secrete antigen/adjuvant fusion proteins. These
Lm
-based
strains are believed to be a significant advancement in immunotherapy as they integrate multiple functions into a single immunotherapy
as they access and direct antigen presenting cells to stimulate anti-tumor T-cell immunity, stimulate and activate the immune
system with the equivalent of multiple adjuvants, and simultaneously reduce tumor protection in the tumor microenvironment to
enable the T-cells to eliminate tumors.
Axalimogene
filolisbac Franchise
Axalimogene
filolisbac is an
Lm
–based antigen delivery system directed against HPV and designed to target cells expressing
the HPV. It is currently under investigation in three HPV-associated cancers: cervical cancer, head and neck cancer, and anal
cancer, either as a monotherapy or in combination
.
Cervical
Cancer
There
are 527,624 new cases of cervical cancer caused by HPV worldwide every year, and 12,000 new cases in the U.S. alone, according
to the WHO Human Papillomavirus and Related Cancers in the World Summary Report 2016 (“WHO”). Current preventative
vaccines cannot protect all women who are infected with this very common virus. Challenges with acceptance, accessibility, and
compliance have resulted in approximately a third of young women being vaccinated in the United States and even less in other
countries around the world.
We
completed a randomized Phase 2 clinical study (
Lm
-LLO-E7-15), conducted exclusively in India, in 110 women with recurrent/refractory
cervical cancer. The final results showed that 34.9% (38/109) of patients were alive at 12 months, 24.8% (27/109) of patients
were Long-term Survivors (“LTS”) alive greater than 18 months. Of the 15 patients consenting to further follow-up
beyond 18 months, 12 (11%) achieved 24-month OS status (range 24 – 34+ months) at the time of study closure. LTS included
not only patients with tumor shrinkage but also patients who had experienced stable disease or increased tumor burden. Investigator
assessment of best Overall Response (“OR”) was assessed in the efficacy population. These data demonstrated
a best objective response rate (ORR; CR + PR) of 17.1% (
N
= 6). The mean duration of OR was 7.2 months. The disease control
rate (CR + PR + SD) was 62.9% (
N
= 22) and the mean duration of stable disease was 5.2 months. The addition of cisplatin
chemotherapy to axalimogene filolisbac in this study did not significantly improve overall survival or objective tumor response
(
p
=0.9981).
In
this study, 109 patients received 254 doses of axalimogene filolisbac. Axalimogene filolisbac was found to be well tolerated with
the majority of the AEs were mild to moderate in severity (566 of 704 reported AEs, 80.4%) and were not related to study drug
(539 of 704 reported AEs, 76.6%). Four patients experienced a Grade 3 treatment-associated Serious Adverse Events (“SAE”).
All observed treatment-related adverse events were infusion related and either self-resolved or responded readily to symptomatic
treatment.
We
have reached an agreement with the FDA, under the Special Protocol Assessment (“SPA”) process, for a Phase 3 trial
evaluating axalimogene filolisbac in patients with high-risk, locally advanced cervical cancer (“AIM2CERV” or “
A
dvaxis
Im
munotherapy
2
Prevent
Cerv
ical Recurrence”). Pursuant to the SPA, the study has been determined by
FDA to be adequate, well-designed, and suitable for registration. This study will be conducted in collaboration with the GOG/NRG
Oncology, an independent international non-profit organization with the purpose of promoting excellence in the quality and integrity
of clinical and basic scientific research in the field of gynecologic malignancies, we have initiated the AIM2CERV study to support
a Biologics License Application (“BLA”) submission in the U.S. and regulatory registration in other territories around
the world.
AIM2CERV
is a double-blind, randomized, placebo-controlled, Phase 3 study of adjuvant axalimogene filolisbac, following primary chemoradiation
treatment of women with high-risk locally advanced cervical cancer (“HRLACC”). The primary objective of AIM2CERV is
to compare the disease free survival of axalimogene filolisbac to placebo administered in the adjuvant setting following standard
concurrent chemotherapy and radiotherapy (“CCRT”) administered with curative intent to patients with HRLACC. Secondary
endpoints include examining overall survival and safety. Our goal is to develop a treatment to prevent or reduce the risk of cervical
cancer recurrence after primary, standard of care treatment in women who are at high risk of recurrence.
Biocon
Limited (“Biocon”), our co-development and commercialization partner for axalimogene filolisbac in India and key emerging
markets, filed a Marketing Authorization Application (“MAA”) for licensure of this immunotherapy in India. The Drug
Controller General of India (“DCGI”) accepted this MAA for review. The filing of the MAA was driven by several factors:
(i) results from the
Lm
-LLO-E7-15 Phase 2 trial indicated that axalimogene filolisbac was well tolerated and showed significant
clinical activity in recurrent/refractory cervical cancer; (ii) cervical cancer is the second most common cancer among Indian
women (according to WHO, there are 122,844 new cases per year with 67,544 deaths reported); and (iii) current treatment options
for non-operable refractory/recurrent disease are limited in India. As part of the MAA review process, Biocon met with the Scientific
Expert Committee (the “Committee”). The Committee indicated that proof of concept for this novel immunotherapy has
been established. The Committee advised Biocon to obtain data from a Phase 3 clinical trial in patients with recurrent cervical
cancer who have failed prior chemo and radiation therapies. The face-to-face interaction with the Committee provided Biocon and
Advaxis with valuable insight for future development and the companies are evaluating next steps.
We
have a clinical trial collaboration agreement with MedImmune, the global biologics research and development arm of AstraZeneca,
and are conducting a Phase 1/2, open-label, multicenter, two-part study to evaluate the safety and efficacy of axalimogene filolisbac,
in combination with MedImmune’s investigational anti-PD-L1 immune checkpoint inhibitor, durvalumab, as a combination treatment
for patients with metastatic squamous or non-squamous carcinoma of the cervix and metastatic HPV-associated Squamous Cell Carcinoma
of the Head and Neck (“SCCHN”). For the axalimogene filolisbac and durvalumab dose escalation portion of the study,
the dose-escalation phase has been completed. As reported at the Society for Immunotherapy of Cancer (“SITC”) 2016
annual meeting, preliminary results from the dose escalation portion of the study showed that there were no dose limiting toxicities
observed, and the safety profile was consistent with previous findings for both axalimogene filolisbac and durvalumab. The recommended
phase 2 dose was established as 1x10
9
Colony Forming Units (“CFU”) for axalimogene filolisbac and 10 mg/kg
for durvalumab. In early data reported from this ongoing trial, one patient with cervical cancer achieved a complete response,
which remains ongoing after 16 months of follow-up and one patient, also with cervical cancer, achieved a partial response with
subsequent disease progression. In addition, two patients with HNSCC achieved stable disease. Treatment related adverse events
(“TRAE”) were reported in 91 percent of patients; the majority were either grade 1 or grade 2 events such as chills,
fever, nausea and hypotension. Grade 3 TRAEs occurred in three patients, and one patient experienced a grade 4 event. We have
commenced enrollment in the Part A (20 patients with SCCHN) and B (90 patients with cervical cancer) expansion phases. Accrual
is ongoing.
The
GOG Foundation, Inc. (now a member of NRG Oncology), under the sponsorship of the Cancer Therapy Evaluation Program (“CTEP”)
of the National Cancer Institute (“NCI”), conducted GOG-0265, an open-label, single arm Phase 2 study of axalimogene
filolisbac in persistent or recurrent cervical cancer (patients must have received at least 1 prior chemotherapy regimen for the
treatment of their recurrent/metastatic disease, not including that administered as a component of primary treatment) at numerous
clinical sites in the U.S. The study was a Simon 2-stage design. The primary efficacy endpoint was the 12-month survival rate,
with the objective of the secondary efficacy endpoints to evaluate progression-free survival, overall survival and objective tumor
response. The primary safety endpoints were to evaluate the number of patients with dose-limiting toxicities and the frequency
and severity of adverse effects.
In
order to evaluate the study’s primary endpoint of the 12-month overall survival rate, the GOG’s protocol featured
a prospectively-defined logistic model-based calculation of the expected 12-month survival rate using key predictive factors significantly
related to survival and derived from 17 serially conducted GOG/NRG 2-stage studies of inactive agents in PRmCC involving approximately
500 patients. This accumulated data by GOG used a consistent protocol design and a similar data collection methodology resulting
in a robust and homogeneous patient dataset for the per protocol analysis of the primary endpoint. Per the study protocol, this
logistic model-based calculation was then used as a comparator for evaluating the 12-month survival rate of axalimogene filolisbac
actually observed.
The
first stage of enrollment in GOG-0265 was successfully completed with 26 patients treated and met the predetermined safety and
efficacy criteria required to proceed into the second stage of patient enrollment. Clinical data from the first stage of GOG-0265
was presented at the American Gynecological & Obstetrical Society (“AGOS”) annual meeting on September 17, 2015.
Overall survival at 12 months was 38.5% (10/26) (the conditional power needed in order to progress to Stage 2 was ≥20%), and,
among patients who had received the full treatment regimen of 3 doses of axalimogene filolisbac, the 12-month survival rate was
55.6% (10/18). The adverse events observed in the first stage of the study were consistent with those reported in other clinical
studies with axalimogene filolisbac.
Stage
2 of the study began enrollment in February 2015 which included a protocol amendment to allow patients to continue to receive
repeat cycles of therapy until disease progression. Stage 2 enrollment was temporarily suspended with the clinical hold in October
2015. Prior to re-initiating enrollment of a new cohort of Stage 2 patients, Advaxis and the GOG Foundation/NRG Oncology examined
the 12-month survival rate and safety data obtained from the 24 patients who had previously enrolled in Stage 2. The Stage 2 population
demonstrated that treatment with axalimogene filolisbac resulted in a 37.5% (9/24) 12-month survival rate. This data was consistent
with the findings in Stage 1 that showed a 38.5% 12-month survival rate, despite a greater proportion of Stage 2 patients having
failed bevacizumab treatment. Taken together, the available data from both stages of GOG-0265 comprise a Phase 2 clinical trial
with 50 subjects with a 12 month survival rate of 38% (19/50). The protocol defined logistic model-based calculation of the expected
12-month milestone survival rate was calculated to be 24.5 percent using the key predictors from the patients enrolled in the
study. The 12 month survival rate of 38 percent of axalimogene filolisbac represents a 52 percent improvement over the expected
12-month milestone survival rate of 24.5 percent.
Overall,
28 out of 50 (56%) patients experienced a Grade 1 or Grade 2 TRAE associated with axalimogene filolisbac infusion. The most common
(>30%) Grade 1 or Grade 2 TRAEs were fatigue, chills, anemia, nausea and fever. Eighteen (36%) patients experienced a Grade
3 TRAE and two patients experienced a Grade 4 AE, considered possibly related to treatment was a klebsiella lung infection in
one patient, and hypotension/cytokine related symptoms in another patient.
In
October 2016, upon review of these findings, we announced early closure of GOG-0265. Results from the GOG-0265 study were presented
as an oral late-breaker presentation at the Society of Gynecologic Oncology (“SGO”) annual meeting on March 14, 2017.
Based on these data, we plan on pursuing regulatory opportunities for this unmet medical need in Europe in 2017.
In
addition, pending FDA feedback, we plan to initiate a global, randomized, registrational quality clinical trial in 2017
in the metastatic cervical cancer setting with ADXS-DUAL, our second immunotherapy targeting HPV-associated cancers, in
combination with BMS’ PD-1 immune checkpoint inhibitor, OPDIVO
®
(nivolumab). Subject to the positive outcome
of this study, we plan to file for drug approval for metastatic cervical cancer in combination treatment.
Axalimogene
filolisbac has received FDA orphan drug designation for invasive FIGO Stage II-IV cervical cancer, and has received Fast Track
designation from the FDA for high-risk locally advanced cervical cancer patients. Axalimogene filolisbac has also been classified
as an advanced-therapy medicinal product (“ATMP”) for the treatment of cervical cancer by the European Medicines Agency’s
Committee for Advanced Therapies (“CAT”). The CAT is the EMA’s committee responsible for assessing the quality,
safety and efficacy of ATMPs. The Company has commenced the CAT certification procedure and review of preclinical and CMC information
is underway for potential inclusion in the Marketing Authorization Application.
Head
and Neck Cancer
SCCHN
is the most frequently occurring malignant tumor of the head and neck and is a major cause of morbidity and mortality worldwide.
More than 90% of SCCHNs originate from the mucosal linings of the oral cavity, pharynx, or larynx and 70% of these cancers are
caused by HPV, with the incidence increasing every year. According to the American Cancer Society, head and neck cancer accounts
for about 3% of all cancers in the United States. Approximately 12,000 new cases will be diagnosed in the United Stated in 2016
according to the Surveillance, Epidemiology, and End Results (“SEER”) database.
The
safety and immunogenicity of axalimogene filolisbac is being evaluated in a Phase 2 study under an investigator-sponsored IND
at Mount Sinai and Baylor College of Medicine in a pre-surgery “window of opportunity” trial in patients with HPV-positive
head and neck cancer. This clinical trial is the first study to evaluate the immunologic and pathologic effects of axalimogene
filolisbac in patients when they are initially diagnosed with HPV-associated head and neck cancer. The study is designed to show
that axalimogene filolisbac is highly immunogenic and worth further investigation if the overall rate of vaccine-induced T-cell
responses is 75 percent or more. Preliminary clinical data from this trial was presented at the American Association of Cancer
Research (“AACR”) annual meeting on April 18, 2016. The data from eight of the nine patients enrolled in Stage 1 who
were treated with axalimogene filolisbac confirmed that the study met the target for the overall rate of vaccine-induced T-cell
response. The results demonstrated that, HPV E7- and/or E6-specific T cell responses increased in the peripheral blood in five
of the study patients. Increased infiltration of both CD4+ and CD8+ T cells were observed in the Tumor Immune Microenvironment
(“TME”) of four patients, with a reduction of FOXP3+ regulatory T cells within the tumors of 3/6 patients. Increased
T cell responses to HPV E6 supports enhanced immune activity against additional tumor targets. Changes to the TME included cytotoxic
T cell infiltration into the post-resection tumor, increased immune activation, a reduction of regulatory T cells, infiltration
of cytotoxic T cells, and increased expression of inflammatory activation markers. In addition, fluctuations of circulating serum
cytokine were observed suggesting consumption by activated T cells and migration of T cells to the TME. This study met its Stage
1 primary objective and is now advancing into the second stage of the clinical study. Stage 2 of the clinical study is currently
accruing patients.
As
stated above, we have entered into a clinical trial collaboration agreement with MedImmune to collaborate on a Phase 1/2, open-label,
multicenter, two part study to evaluate safety and efficacy of axalimogene filolisbac, in combination with durvalumab (MEDI4736),
for patients with metastatic squamous or non-squamous carcinoma of the cervix and metastatic HPV-associated SCCHN.
Axalimogene
filolisbac has received FDA orphan drug designation for HPV-associated head and neck cancer.
Anal
Cancer
According
to the American Cancer Society, nearly all squamous cell anal cancers are linked to infection by HPV, the same virus that causes
cervical cancer. According to the SEER database, approximately 7,500 new cases will be diagnosed in the United States in 2016.
The
safety and efficacy of axalimogene filolisbac was evaluated in a Phase 2 study under an investigator-sponsored IND by Brown University
in patients with high-risk locally advanced anal cancer. As of December 2016, 11 patients were enrolled and all patients who have
completed radiation treatment and received treatment experienced a six-month complete response (n=9), with no evidence of recurrence.
Eight of 9 patients (89%) are disease-free at a median follow-up of 34 months. These data were accepted for publication in the
on-line journal at American Society of Clinical Oncology (“ASCO”) 2017.
In
consideration of these data, no further enrollment in this study is planned and the investigator at Brown University is
evaluating the opportunity to transition this study into a NCI-funded cooperative group trial to evaluate the safety and
efficacy of axalimogene filolisbac in a pivotal Phase 2/3 anal cancer trial, to be conducted by NRG Oncology. In advance of
the foregoing, we have entered into a clinical trial collaboration agreement with the Radiation Therapy Oncology Group
(“RTOG”) Foundation for the conduct of such study. Depending on the Company’s ability to agree upon the
study design and budget, the Company plans to initiate a randomized, registrational quality study in high-risk locally
advanced anal cancer. Similar to AIM2CERV, our goal for this monotherapy trial is to develop a treatment to prevent or
reduce the risk of anal cancer recurrence after primary care treatment in patients who are at a high risk for
recurrence. Subject to the positive outcome of this study, we plan to file for drug approval for high-risk locally
advanced anal cancer.
We
are conducting a Phase 2 multi-center, open-label, Simon two-stage study (“FAWCETT” or “
F
ighting
A
nal-Cancer
w
ith
C
TL
E
nhancing
T
umor
T
herapy”), testing axalimogene filolisbac in patients with persistent
or recurrent metastatic anal cancer. FAWCETT is designed to evaluate the efficacy and safety of axalimogene filolisbac as a monotherapy
in patients with HPV-associated metastatic anal cancer who have received at least one prior treatment regimen for the advanced
disease. Patients will receive IV axalimogene filolisbac monotherapy (1x10
9
CFU) every 3 weeks for ≤ 2 years or
until a discontinuation criterion is met. Stage 1 of the trial targeted enrollment of 36 patients with anal cancer whose disease
recurred after receiving treatment, with an interim analysis planned on enrollment of 31 evaluable pts (≥ 1 post-baseline scan)
and met the predetermined safety and efficacy criteria required to proceed into the second stage of patient enrollment. Prior
to opening the second stage of this study, the company will evaluate its study design, including a monotherapy verses combination
therapy approach.
Preliminary
Stage 1 results from 29 of the planned evaluable patients showed 1 (3.5%) patient had a durable partial response lasting >
6 months (after progression on prior anti-PD-1 therapy) and 7 had stable disease (24%). Disease control rate was 28%. The current
Kaplan Meier 6-month PFS estimate is 22%, indicating the study can proceed to Stage 2 of enrollment. Common (≥ 30%) TRAEs were
grade 1-2 chills/rigors, fever, hypotension and vomiting. Grade 3 TRAEs of cytokine related symptoms (n=1; SAE), infusion related
reactions (n=2; 1 SAE) and hypotension (n=2; 1 SAE) were reported. These results will be reported at the annual meeting of the
European Society for Medical Oncology (ESMO) in September 2017.
Axalimogene
filolisbac has received FDA and EMA orphan drug designation for anal cancer.
ADXS-DUAL
Franchise
ADXS-DUAL,
our second immunotherapy targeting HPV-associated cancers, is an
Lm
–based immunotherapy that secretes a fusion
protein containing E7 protein antigens from both major families of HPV. We developed ADXS-DUAL by building on our learnings from
the clinical development of axalimogene filolisbac and have incorporated additional HPV target antigens into our
Lm
bacterial
vector.
We
have entered into a clinical development collaboration agreement with BMS to evaluate their PD-1 immune checkpoint inhibitor,
OPDIVO
®
(nivolumab), in combination with ADXS-DUAL as a potential treatment option for women with metastatic cervical
cancer. Pending FDA feedback, we plan to initiate a global, randomized, registrational quality trial in 2017 and will evaluate
this combination regimen in women with persistent, recurrent or metastatic (squamous or non-squamous cell) carcinoma of the cervix
who have failed at least one prior line of systemic chemotherapy. Under the terms of the agreement, each party will bear their
own internal costs and provide its immunotherapy agents. We will sponsor the study and pay third-party costs.
ADXS-PSA
Franchise
Prostate
Cancer
According
to the American Cancer Society, prostate cancer is the second most common type of cancer found in American men. Prostate cancer
is the second leading cause of cancer death in men, behind only lung cancer. One man in seven will get prostate cancer during
his lifetime, and one man in 36 will die of this disease. About 180,890 new cases will be diagnosed in the United States in 2016
according to the SEER database and accounts for approximately 11% of all new cancer cases.
ADXS-PSA
is an
Lm
–based antigen delivery system designed to target the PSA antigen commonly overexpressed in prostate cancer.
We
have entered into a clinical trial collaboration and supply agreement with Merck & Co. (“Merck”) to evaluate the
safety and efficacy of ADXS-PSA as monotherapy and in combination with KEYTRUDA
®
(pembrolizumab), Merck’s
anti PD-1 antibody, in a Phase 1/2, open-label, multicenter, dose escalation and expansion study in patients with previously treated
metastatic, castration-resistant prostate cancer. For the ADXS-PSA monotherapy dose escalation portion of the study, cohorts were
successfully escalated to higher dose levels of 5x10
9
CFU and 1x10
10
CFU without achieving a maximum tolerated
dose. Side effects noted at these higher dose levels were generally consistent with those observed at the lower dose level, other
than a higher occurrence rate of predominantly Grade 2/3 hypotension. The ADXS-PSA monotherapy portion of this clinical trial
has been completed and accrual and patient treatment has begun in the cohort combining ADXS-PSA and KEYTRUDA
®
(pembrolizumab).
ADXS-HER2
Franchise
HER2
Expressing Solid Tumors
HER2
is overexpressed in a percentage of solid tumors including osteosarcoma. According to the SEER database and recent published literature,
approximately 60-70% of osteosarcoma are HER2 positive, which is associated with poor outcomes for patients.
ADXS-HER2
is an
Lm
–based antigen delivery system designed to target HER2 expressing solid tumors including human and canine
osteosarcoma. The FDA has cleared our IND application and we have initiated a Phase 1b study in patients with metastatic HER2-expressing
cancers. Thereafter, we intend to initiate a clinical development program with ADXS-HER2 for the treatment of pediatric osteosarcoma.
Osteosarcoma
Osteosarcoma
affects about 400 children and teens in the U.S. every year, representing a small but significant unmet medical need that has
seen little therapeutic improvement in decades. Osteosarcoma is considered a rare disease and may qualify for regulatory incentives
including, but not limited to, orphan drug designation, patent term extension, market exclusivity, and development grants. Given
the limited availability of new treatment options for osteosarcoma, and that it is an unmet medical need affecting a very small
number of patients in the U.S. annually, we believe that, subject to regulatory approval, the potential to be on the market may
be accelerated.
Based
on encouraging data discussed below from a veterinarian clinical study in which pet dogs with naturally occurring osteosarcoma
were treated with ADXS-HER2, we intend to initiate a clinical development program with ADXS-HER2 for the treatment of human osteosarcoma.
Both veterinary and human osteosarcoma specialists consider canine osteosarcoma to be the best model for human osteosarcoma.
ADXS-HER2
has received FDA and EMA orphan drug designation for osteosarcoma and has received Fast Track designation from the FDA for patients
with newly-diagnosed, non-metastatic, surgically-resectable osteosarcoma.
Canine
Osteosarcoma
Osteosarcoma
is the most common primary bone tumor in dogs, accounting for roughly 85% of tumors on the canine skeleton. Approximately 10,000
dogs a year (predominately middle to older-aged dogs and larger breeds) are diagnosed with osteosarcoma in the United States.
This cancer initially presents as lameness and oftentimes visible swelling on the leg. Current standard of care treatment is amputation
immediately after diagnosis, followed by chemotherapy. Median survival time with standard of care is ten to twelve months. For
dogs that cannot undergo amputation, palliative radiation and analgesics are frequently employed and median survival times range
from three to five months.
Under
the direction of Dr. Nicola Mason, the University of Pennsylvania School of Veterinary Medicine is conducting studies in companion
dogs evaluating the safety and efficacy of ADXS-HER2 in the treatment of naturally occurring canine osteosarcoma. In the initial
study, the primary endpoint was to determine the maximum tolerated dose of ADXS-HER2. Secondary endpoints for the study were progression-free
survival and overall survival. The findings of the Phase 1 clinical trial in dogs with osteosarcoma suggest that ADXS-HER2 is
safe and well tolerated at doses up to 3.3 x 10
9
CFU with no evidence of significant cardiac, hematological, or other
systemic toxicities. The study determined that ADXS-HER2 is able to delay or prevent metastatic disease and significantly prolong
overall survival in dogs with osteosarcoma that had minimal residual disease following standard of care (amputation and follow-up
chemotherapy). This work was recently published in the September 2016 issue of Clinical Cancer Research. Dogs receiving ADXS-HER2
following standard of care (n=18) had a progression free survival of 615 days and a median survival time of 956 days. These results
compared favorably to a historical control group where the median survival time was 423 days. A second study conducted by Dr.
Mason has evaluated the effects of combination palliative radiation with ADXS-HER2 on dogs with primary osteosarcoma who were
unsuitable for amputation (n=15). Preliminary data was presented at the 2015 ACVIM Forum and showed that repeat doses of ADXS-HER2
administered after palliative radiation were well tolerated with no systemic or cardiac toxicity. In long-term follow-up, several
dogs have experienced prolonged survival times ranging from 21 to 30 months.
On
March 19, 2014, we entered into a definitive Exclusive License Agreement with Aratana Therapeutics Inc. (“Aratana”),
where we granted Aratana an exclusive, worldwide, royalty-bearing license, with the right to sublicense, certain of our proprietary
technology that enables Aratana to develop and commercialize animal health products that will be targeted for treatment of osteosarcoma
and other cancer indications in animals. A product license request has been filed by Aratana for ADXS-HER2 (also known as AT-014
by Aratana) for the treatment of canine osteosarcoma with the USDA. Aratana received communication from the USDA in March 2015
stating that the previously submitted efficacy data for product licensure for AT-014 (ADXS-HER2), the cancer immunotherapy for
canine osteosarcoma, was accepted and that it provides a reasonable expectation of efficacy that supports conditional licensure.
While additional steps need to be completed and data, when available, needs to be analyzed, including in the areas of manufacturing
and safety, we understand that Aratana anticipates that AT-014 could receive conditional licensure from the USDA in 2017. The
Company does not anticipate significant revenue from this collaboration in 2017. Aratana has been granted exclusive worldwide
rights by us to develop and commercialize ADXS-HER2 in animals. Aratana is further responsible for the conduct of clinical research
with ADXS-Survivin in canine/feline lymphoma, as well as pending investigations of two additional Advaxis constructs in animals.
ADXS-NEO
Franchise
In
August 2016, we entered into a global agreement (the “Agreement”) with Amgen Inc. (“Amgen”) for the development
and commercialization of ADXS-NEO, a novel, investigational cancer immunotherapy treatment, using our proprietary
Lm
Technology
™
attenuated bacterial vector which activates a patient’s immune system to respond against multiple potential unique
mutations, or neoepitopes, contained in and identified from an individual patient’s tumor through DNA sequencing.
ADXS-NEO
is an individual
Lm
-based antigen delivery technology combined with a fusion protein based on information captured by comparing
a patient’s own DNA with the DNA from that patient’s tumor. It will target multiple patient specific neoantigens resulting
from mutations found within each individual patient’s tumor that are not present in normal cells. Each ADXS-NEO construct
is designed to target the non-synonymous mutations found in the tumor, which is unique to the each patient’s cancer. ADXS-NEO
works by presenting a large payload of neoantigens directly into dendritic cells within the patient’s immune system and
stimulating a T-cell response against cancerous cells. The FDA has cleared the IND application of our new precision immunotherapy
(ADXS-NEO) for the treatment of cancers and we plan to initiate a Phase 1 study in 2017 under our Agreement with Amgen.
The
goal of MINE™ is to use our
Lm
Technology™ to develop patient specific neo-epitope targeted immunotherapies
based on mutations found in an individual patient’s tumor (“ADXS-NEO”). MINE™ will first focus on a preclinical
study of our new construct approach to evaluate the immunologic effects and anti-tumor activity of a personalized immunotherapy
in mouse tumor models to inform subsequent clinical trials. Clinical studies using ADXS-NEO are in active development in collaboration
with our partner, Amgen. Further, we have entered into various research collaboration, including the Parker Institute for Cancer
Immunotherapy, to advance the study of neoepitope-based, personalized cancer therapy as part of the
T
umor neoantig
E
n
S
e
L
ection
A
lliance (“TESLA”) initiative.
ADXS-HOT
Franchise (preclinical)
We
are developing
Lm
-based constructs that could target common (public or shared) or “hot-spot” mutations in tumor
driver genes. ADXS-HOT products may target acquired public mutations in tumor driver genes that are shared by multiple patients,
and could have greater immunogenicity than the natural sequence peptides in normal cells. ADXS-HOT products are expected to be
“off the shelf” and ready to administer for multiple patients. DNA sequencing is not required and presence of the
hot-spot target can usually be determined by a rapid biomarker test. The ability to combine multiple constructs may increase coverage
and the potential for clinical benefit.
Lm-based
Combination Franchise
Axalimogene
filolisbac and Durvalumab
As
further described above, we have entered into a clinical trial collaboration agreement with MedImmune to conduct a Phase 1/2,
open-label, multicenter, two part study to evaluate safety and efficacy of axalimogene filolisbac, in combination with MedImmune’s
investigational anti-PD-L1 immune checkpoint inhibitor, durvalumab (MEDI4736), as a combination treatment for patients with metastatic
squamous or non-squamous carcinoma of the cervix and metastatic HPV-associated SCCHN. For the axalimogene filolisbac and durvalumab
dose escalation portion of the study, the dose-escalation cohort has been completed. We have commenced enrollment in the Part
A (20 patients with SCCHN) and B (90 patients with cervical cancer) expansion phases. Accrual is ongoing.
ADXS-DUAL
and OPDIVO
®
(nivolumab)
As
further described above, we have entered into a clinical development collaboration agreement with BMS to evaluate their PD-1 immune
checkpoint inhibitor, OPDIVO
®
(nivolumab), in combination with ADXS-DUAL as a potential treatment option for women
with metastatic cervical cancer. Pending FDA feedback, we plan to initiate a global, randomized, registrational quality trial
in 2017 and will evaluate this combination regimen in women with persistent, recurrent or metastatic (squamous or non-squamous
cell) carcinoma of the cervix who have failed at least one prior line of systemic chemotherapy.
ADXS-PSA
and KEYTRUDA
®
(pembrolizumab
)
As
further described above, we have entered into a clinical trial collaboration agreement with Merck to evaluate the safety and efficacy
of ADXS-PSA as monotherapy and in combination with KEYTRUDA
®
(pembrolizumab), Merck’s anti PD-1 antibody,
in a Phase 1/2, open-label, multicenter, dose escalation and expansion study in patients with previously treated metastatic, castration-resistant
prostate cancer. For the ADXS-PSA monotherapy dose escalation portion of the study, cohorts were successfully escalated to higher
dose levels of 5x10
9
CFU and 1x10
10
CFU without achieving a maximum tolerated dose. Side effects noted at
these higher dose levels were generally consistent with those observed at the lower dose level, other than a higher occurrence
rate of predominantly Grade 2/3 hypotension. The ADXS-PSA monotherapy portion of this clinical trial has been completed and accrual
and patient treatment has begun in the cohort combining ADXS-PSA and KEYTRUDA
®
(pembrolizumab).
Lm-based
Antigen Delivery System- (preclinical)
We
are developing other ways to exploit the potential of our
Lm
Technology™ including, but not limited to, the use of
Lm
Technology™ in Infectious Disease. We have various preclinical collaborations with academic and other centers
of excellence to explore the potential opportunities in this disease area. Preclinical data of detoxified Listeriolysin O (“dtLLO”)
shows potential use as an immunologic adjuvant or carrier for vaccinations. We intend to continue to explore the potential of
dtLLO as an adjuvant molecule in cancer as well as development of potential vaccines for infectious diseases.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 2017 AND 2016
Revenue
During
the quarter ended April 30, 2017, the Company recorded revenue of $3,425,380. The Company recognized revenue from the collaboration
agreement with Amgen related to amortization of the upfront fees received.
We
did not record any revenue for the three months ended April 30, 2016.
Research
and Development Expenses
We
make significant investments in research and development in support of our development programs both clinically and pre-clinically.
Research and development costs are expensed as incurred and primarily include salary and benefit costs, third-party grants, fees
paid to clinical research organizations, and supply costs. Research and development expenses for the three months ended April
30, 2017 and 2016 were categorized as follows:
|
|
Three
Months Ended April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Axalimogene filolisbac Franchise
|
|
$
|
2,001,228
|
|
|
$
|
2,624,615
|
|
ADXS-PSA Franchise
|
|
|
762,650
|
|
|
|
419,748
|
|
ADXS-HER2 Franchise
|
|
|
519,582
|
|
|
|
897,585
|
|
ADXS-NEO Franchise
|
|
|
646,078
|
|
|
|
96,576
|
|
Personnel Expenses
|
|
|
5,800,286
|
|
|
|
2,886,504
|
|
Professional Fees
|
|
|
3,128,173
|
|
|
|
1,193,585
|
|
Laboratory Costs
|
|
|
2,830,837
|
|
|
|
386,288
|
|
Other Expenses
|
|
|
619,902
|
|
|
|
253,509
|
|
Total Research
& Development Expense
|
|
$
|
16,308,736
|
|
|
$
|
8,758,410
|
|
Axalimogene
Filolisbac Franchise
Axalimogene
filolisbac expenses were $2,001,228 for the three months ended April 30, 2017 compared to $2,624,615 for the three months ended
April 30, 2016, a decrease of $623,387. The decrease resulted from the first expected Support Payment of $3,000,000 under the
Stendhal Agreement resulting in a reduction of expense. This was mostly offset by an increase in startup activities for additional
countries in the Phase 3 AIM2CERV study.
ADXS-PSA
Franchise
PSA
expenses were $762,650 for the three months ended April 30, 2017 as compared to $419,748 for the three months ended April 30,
2016, an increase of $342,902. The increase resulted from higher costs incurred due to the active enrollment of an expansion cohort
on the Phase 1/2 study in combination with Merck’s KEYTRUDA
®
(pembrolizumab).
ADXS-HER2
Franchise
HER2
expenses were $519,582 for the three months ended April 30, 2017 compared to $897,585 for the three months ended April 30, 2016,
a decrease of $378,003. The decrease was attributable to trial start-up and enrollment phasing in the prior year.
ADXS-NEO
Franchise
NEO
expenses were $646,078 for the three months ended April 30, 2017 compared to $96,576 for the three months ended April 30, 2016,
an increase of $549,502. The increase was attributable to IND activities and Phase 1 start-up costs incurred during the three
months ended April 30, 2017.
Personnel
Expenses
Personnel
expenses were $5,800,286 for the three months ended April 30, 2017 compared to $2,886,504 for the three months ended April 30,
2016, a increase of $2,913,782. The increase was attributable to an increase in headcount.
Professional
Fees
Professional
fees were $3,128,173 for the three months ended April 30, 2017 compared to $1,193,585 for the three months ended April 30, 2016,
and increase of $1,934,588. The increase was attributable to an increase in drug manufacturing process validation costs.
Laboratory
Costs
Laboratory
costs were $2,830,837 for the three months ended April 30, 2017 compared to $386,288 for the three months ended April 30, 2016,
an increase of $2,444,549. An increase in headcount and the expansion of laboratory space accounted for the increase.
Other
Expenses
Other
expenses were $619,903 for the three months ended April 30, 2017 compared to $253,509 for the three months ended April 30, 2016,
an increase of $366,394. The increase was due to additional infrastructure costs incurred to support the increased headcount,
laboratory expansion and abandoned patent applications.
General
and Administrative Expenses
General
and administrative expenses primarily include salary and benefit costs for employees included in our finance, legal and administrative
organizations, outside legal and professional services, and facilities costs. General and administrative expenses were approximately
$7.8 million for the three months ended April 30, 2017, compared with approximately $6.8 million for the three months ended April
30, 2016, an increase of approximately $1.0 million. The increase is attributable to an increase in professional fees and office
expenses that resulted from an increase in headcount, as well as a litigation settlement.
Interest
Income
Interest
income was $184,747 for the three months ended April 30, 2017, compared with $70,389 for the three months ended April 30, 2016.
The increase in interest income earned was attributable to an increase in interest rates as well as cash resulting from sales
of the Company’s common share and an up-front payment received in conjunction with the collaboration agreement with Amgen.
The cash was invested in held-to-maturity investments and a savings account.
Changes
in Fair Values
For
the three months ended April 30, 2017, the Company recorded non-cash income from changes in the fair value of the warrant liability
of $10,652 due to a smaller range of share prices used in the calculation of the Black-Scholes Model (“BSM”) volatility
input.
For
the three months ended April 30, 2016, the Company recorded non-cash expense from changes in the fair value of the warrant liability
of $592 due to an increase in the fair value of liability warrants primarily resulting from a significant increase in our share
price from $6.82 at April 30, 2016 to $7.74 at April 30, 2016.
RESULTS
OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2017 AND 2016
Revenue
During
the six months ended April 30, 2017, the Company recorded revenue of $7,216,222. The Company recognized $6,966,222 of revenue
from the collaboration agreement with Amgen related to amortization of the upfront fees received. In addition, $250,000 of revenue
was due to the receipt of an annual exclusive license fee from GBP for the development and commercialization of axalimogene
filolisbac.
During
the six months ended April 30, 2016, the Company recorded revenue of $250,000 due to the receipt of an annual exclusive
license fee from GBP for the development and commercialization of axalimogene filolisbac.
Research
and Development Expenses
We
make significant investments in research and development in support of our development programs both clinically and pre-clinically.
Research and development costs are expensed as incurred and primarily include salary and benefit costs, third-party grants, fees
paid to clinical research organizations, and supply costs. Research and development expenses for the six months ended April 30,
2017 and 2016 were categorized as follows:
|
|
Six
Months Ended April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Axalimogene filolisbac Franchise
|
|
$
|
5,965,813
|
|
|
$
|
5,534,736
|
|
ADXS-PSA Franchise
|
|
|
1,649,280
|
|
|
|
1,017,206
|
|
ADXS-HER2 Franchise
|
|
|
990,546
|
|
|
|
932,735
|
|
ADXS-NEO Franchise
|
|
|
1,043,852
|
|
|
|
407,086
|
|
Personnel Expenses
|
|
|
10,555,124
|
|
|
|
10,299,175
|
|
Professional Fees
|
|
|
4,698,902
|
|
|
|
2,596,723
|
|
Laboratory Costs
|
|
|
4,100,568
|
|
|
|
637,976
|
|
Other Expenses
|
|
|
953,205
|
|
|
|
397,727
|
|
Total Research
& Development Expense
|
|
$
|
2
9,957,290
|
|
|
$
|
21,823,364
|
|
Axalimogene
Filolisbac Franchise
Axalimogene
filolisbac expenses were $5,965,813 for the six months ended April 30, 2017 compared to $5,534,736 for the six months ended April
30, 2016, an increase of $431,077. The increase resulted from an increase in startup activities for additional countries in AIM2CERV.
This was mostly offset by the first expected Support Payment of $3,000,000 under the Stendhal Agreement resulting in a reduction
of expense.
ADXS-PSA
Franchise
PSA
expenses were $1,649,280 for the six months ended April 30, 2017 as compared to $1,017,206 for the six months ended April 30,
2016, an increase of $632,074. The increase resulted from higher costs incurred due to the active enrollment of an expansion cohort
on the Phase 1/2 study in combination with Merck’s KEYTRUDA
®
(pembrolizumab).
ADXS-HER2
Franchise
HER2
expenses were $990,546 for the six months ended April 30, 2017 compared to $932,735 for the six months ended April 30, 2016, an
increase of $57,811. HER2 expenses during the six months ended April 30, 2017 were consistent with the comparable prior period.
ADXS-NEO
Franchise
NEO
expenses were $1,043,852 for the six months ended April 30, 2017 compared to $407,086 for the six months ended April 30, 2016,
an increase of $636,766. The increase was attributable to IND activities and Phase 1 start-up costs incurred during the six months
ended April 30, 2017.
Personnel
Expenses
Personnel
expenses were $10,555,124 for the six months ended April 30, 2017 compared to $10,299,175 for the six months ended April 30, 2016,
an increase of $255,949. The increase was attributable to an increase in headcount that was mostly offset by stock based compensation
for past employees in the prior period.
Professional
Fees
Professional
fees were $4,698,902 for the six months ended April 30, 2017 compared to $2,596,723 for the six months ended April 30, 2016, an
increase of $2,102,179. The increase was attributable to an increase in drug manufacturing process validation costs.
Laboratory
Costs
Laboratory
costs were $4,100,568 for the six months ended April 30, 2017 compared to $637,976 for the six months ended April 30, 2016, an
increase of $3,462,592. An increase in headcount and the expansion of laboratory space accounted for the increase.
Other
Expenses
Other
expenses were $953,205 for the six months ended April 30, 2017 compared to $397,727 for the six months ended April 30, 2016, an
increase of $555,478. The increase was due to additional infrastructure costs incurred to support the increased headcount, laboratory
expansion and abandoned patent applications.
General
and Administrative Expenses
General
and administrative expenses primarily include salary and benefit costs for employees included in our finance, legal and administrative
organizations, outside legal and professional services, and facilities costs. General and administrative expense were approximately
$15.1 million for the six months ended April 30, 2017, compared with approximately $14.0 million for the six months ended April
30, 2016, an increase of approximately $1.1 million. The increase is attributable to an increase in professional fees and office
expenses that resulted from an increase in headcount, as well as a litigation settlement.
Interest
Income
Interest
income was $329,884 for the six months ended April 30, 2017, compared with $142,189 for the six months ended April 30, 2016. The
increase in interest income earned was attributable to an increase in interest rates as well as cash resulting from sales of the
Company’s common share and an up-front payment received in conjunction with the collaboration agreement with Amgen. The
cash was invested in held-to-maturity investments and a savings account.
Changes
in Fair Values
For
the six months ended April 30, 2017, the Company recorded non-cash income from changes in the fair value of the warrant liability
of $20,156 due to a smaller range of share prices used in the calculation of the Black-Scholes Model (“BSM”) volatility
input.
For
the six months ended April 30, 2016, the Company recorded non-cash income from changes in the fair value of the warrant liability
of $49,874 due to a decrease in the fair value of liability warrants primarily resulting from a decrease in our share price from
$11.09 at October 31, 2015 to $7.74 at April 30, 2016.
Income
Tax Expense
During
the six months ended April 30, 2017, we paid $50,000 in Taiwanese withholding taxes in connection with the revenue generated from
an annual exclusive license fee from GBP.
During
the six months ended April 30, 2016, we paid $50,000 in Taiwanese withholding taxes in connection with the revenue generated from
an annual exclusive license fee from GBP. The taxes paid were offset by receipt of a net cash amount of $35,774 in excess of what
was recorded as Income Tax Receivable at October 31, 2015 from the sale of our state NOLs and research and development tax credits
for the period ended October 31, 2014.
Liquidity
and Capital Resources
Our
major sources of cash have been proceeds from various public and private offerings of our common stock, option and warrant exercises,
and interest income. From October 2013 through May 2017, we raised approximately $221.8 million in gross proceeds from various
public and private offerings of our common stock. We have not yet commercialized any drug, and we may not become profitable. Our
ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain
regulatory approvals for our drug, successfully complete any post-approval regulatory obligations, successfully compete with other
available treatment options in the marketplace, overcome any clinical holds that the FDA may impose and successfully manufacture
and commercialize our drug alone or in partnership. We may continue to incur substantial operating losses even after we begin
to generate revenues from our drug candidates. As of April 30, 2017, the Company had approximately $115.3 million in cash, cash
equivalents and investments on its balance sheet. We believe our current cash position is sufficient to fund our business plan
approximately through the second quarter of fiscal 2019. The actual amount of cash that we will need to operate is subject to
many factors.
Since
our inception through April 30, 2017, the Company has reported accumulated net losses of approximately $245.3 million and recurring
negative cash flows from operations. We anticipate that we will continue to generate significant losses from operations for the
foreseeable future.
Cash
used in operating activities for the six months ended April 30, 2017 was approximately $33.6 million (including proceeds from
the sale of our state NOLs and Research and Development (R&D) tax credits of approximately $2.5 million) primarily from spending
associated with our clinical trial programs and general and administrative spending.
Cash
used in operating activities for the six months ended April 30, 2016 was approximately $16.8 million (including proceeds from
the sale of our state NOLs and Research and Development (R&D) tax credits of approximately $1.6 million) primarily from spending
associated with our clinical trial programs and general and administrative spending.
Cash
used in investing activities for the six months ended April 30, 2017 was approximately $49.0 million resulting from investments
in held-to-maturity investments, purchases of property and equipment, legal cost spending in support of our intangible assets
(patents) and costs paid to Penn for patents.
Cash
used in investing activities for the six months ended April 30, 2016 was approximately $5.4 million resulting from investments
in held-to-maturity investments, purchases of property and equipment, construction of cleanroom and laboratory facilities, legal
cost spending in support of our intangible assets (patents) and costs paid to Penn for patents.
Cash
used by financing activities for the six months ended April 30, 2017 was approximately $161,000, resulting from taxes paid related
to the net share settlement of equity awards.
Cash
provided by financing activities for the six months ended April 30, 2016 was approximately $538,000, resulting from approximately
$614,000 in proceeds received on option and warrant exercises. This was partially offset by approximately $76,000 in taxes paid
related to the net share settlement of equity awards.
Our
capital resources and operations to date have been funded primarily with the proceeds from public, private equity and debt financings,
NOL tax sales and income earned on investments and grants. We have sustained losses from operations in each fiscal year since
our inception, and we expect losses to continue for the indefinite future, due to the substantial investment in research and development.
As of April 30, 2017 and October 31, 2016, we had an accumulated deficit of $245,255,483 and $207,706,825, respectively and shareholders’
equity of $91,879,410 and $119,302,194, respectively.
The
Company believes its current cash position is sufficient to fund its business plan approximately through second quarter of fiscal
2019. We have based this estimate on assumptions that may prove to be wrong, and we could use available capital resources sooner
than currently expected. Because of the numerous risks and uncertainties associated with the development and commercialization
of our product candidates, we are unable to estimate the amount of increased capital outlays and operating expenses associated
with completing the development of our current product candidates.
The
Company recognizes it may need to raise additional capital in order to continue to execute its business plan. There is no assurance
that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable
to the Company or whether the Company will become profitable and generate positive operating cash flow. If the Company is unable
to raise sufficient additional funds, it will have to scale back its business plan, extend payables and reduce overhead until
sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
Contractual
Commitments and Obligations
The
disclosure of our contractual obligations and commitments was reported in our Annual Report on Form 10-K for the year ended October
31, 2016. There have been no material changes from the contractual commitments and obligations previously disclosed in our Annual
Report on Form 10-K other than the changes described in Note 9, “Commitments and Contingencies” in this Quarterly
Report on Form 10-Q.
Off-Balance
Sheet Arrangements
As
of April 30, 2017, we had no off-balance sheet arrangements.
Critical
Accounting Estimates
The
preparation of financial statements in accordance with GAAP accepted in the U.S. requires management to make estimates and assumptions
that affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate
to be critical if:
|
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|
it
requires assumptions to be made that were uncertain at the time the estimate was made, and
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|
|
|
|
●
|
changes
in the estimate of difference estimates that could have been selected could have material impact in our results of operations
or financial condition.
|
While
we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the
circumstances, actual results could differ from those estimates and the differences could be material. The most significant estimates
impact the following transactions or account balances: stock compensation, warrant liability valuation and impairment of intangibles.
See
Note 2 to our financial statements that discusses significant accounting policies.
New
Accounting Pronouncements
See
Note 2 to our financial statements that discusses new accounting pronouncements.