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ADVAXIS, INC. (ADXS)
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2018ADVAXIS, INC. : half-yearly earnings release
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ADVAXIS : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

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01/11/2019 | 04:36pm EST

This Management's Discussion and Analysis of Financial Conditions and Results of Operations and other portions of this report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking information. Factors that may cause such differences include, but are not limited to, availability and cost of financial resources, product demand, market acceptance and other factors discussed in this report under the heading "Risk Factors". This Management's Discussion and Analysis of Financial Conditions and Results of Operations should be read in conjunction with our financial statements and the related notes included elsewhere in this report.



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Overview


Advaxis, Inc. ("Advaxis" or the "Company") is a late-stage biotechnology Company focused on the discovery, development and commercialization of proprietary Lm Technology antigen delivery products based on a platform technology that utilizes live attenuated Listeria monocytogenes ("Lm") 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 by accessing and directing 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 ("TME") to enable the T cells to attack tumor cells. The Company believes that Lm Technology immunotherapies can complement and address significant unmet needs in the current oncology treatment landscape. Specifically, their product candidates have the potential to optimize checkpoint performance, while having a generally well-tolerated safety profile, and most of their product candidates are immediately available for treatment with a low cost of goods. The Company's passion for the clinical potential of Lm Technology is balanced by focus and fiscal discipline and driven towards increasing shareholder value.

Advaxis is focused on four program areas in various stages of clinical and pre-clinical development, which they believe will provide the greatest opportunity to have a significant impact on patients and their families:



  ?  Human Papilloma Virus ("HPV")-associated cancers

  ?  Personalized neoantigen-directed therapies

  ?  Disease focused hotspot/'off the shelf' neoantigen-directed therapies

  ?  Prostate cancer



All four clinical program areas are anchored in the Company's Lm TechnologyTM, a unique platform designed for its ability to safely and effectively target various cancers in multiple ways. As an intracellular bacterium, Lm is an effective vector for the presentation of antigens through both the Major Histocompatibility Complex ("MHC") I and II pathways, due to its active phagocytosis by Antigen Presenting Cells ("APCs"). Within the APCs, Lm produces virulence factors which allow survival in the host cytosol and potently stimulate the immune system.

Results of Operations for the Year Ended October 31, 2018 Compared to the Year Ended October 31, 2017



Revenue


Revenue decreased $5.9 million to $6.1 million for the year ended October 31, 2018 compared to $12.0 million for the year ended October 31, 2017. The decrease was due to changes in the estimated performance period associated with upfront fees received from Amgen in conjunction with the collaboration agreement signed in August 2016.

Research and Development Expenses




We invest in research and development to advance our Lm technology through our
pre-clinical and clinical development programs. Research and development
expenses for the years ended October 31, 2018 and 2017 were categorized as
follows (in thousands):



                                                   Years Ended                 Increase
                                                   October 31,                (Decrease)
                                               2018          2017            $            %

HPV-associated cancers                       $  24,272$  26,650$   (2,378 )       (9 )%
Personalized neoantigen-directed therapies       2,331         2,287             44          2
Hotspot mutation-based 'off the shelf'
therapies                                        1,204           120          1,084        903
Prostate cancer                                  2,844         3,880         (1,036 )      (27 )
Other expenses                                  32,082        48,071        (15,989 )      (33 )
Partner reimbursements                          (5,763 )     (10,500 )        4,737        (45 )

Total research & development expense $ 56,970$ 70,508$ (13,538 ) (19 )%


Stock-based compensation expense included
in research and development expense          $   2,836$   5,648$   (2,812 )      (50 )%




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HPV-associated cancers


The majority of the HPV-associated research and development costs include clinical trial and other related costs associated with our axalimogene filolisbac (AXAL) programs in cervical and head and neck cancers. HPV-associated costs for the year ended October 31, 2018 decreased approximately $2.4 million, or 9%, compared to the same period in 2017. The decrease resulted from the winding down of the GOG-0265 study, as well as the winding down of several studies that are transitioning into an Lm surveillance study (including our Fawcett study in anal cancer and our MEDI4736 study in combination with MedImmune's investigational anti-PD-L1 immune checkpoint inhibitor, durvalumab). These decreases were partially offset by the expansion of the Phase 3 AIM2CERV trial into additional countries in early 2018.

Personalized neoantigen-directed therapies

Research and development costs associated with our personalized neoantigen-directed therapy (ADXS-NEO) of $2.3 million for the year ended October 31, 2018 were consistent with our costs associated with this program in fiscal year 2017. In June 2018, we announced the commencement of a Phase 1 trial with the dosing of the first patient with ADXS-NEO. ADXS-NEO is being evaluated in an open-label, dose-escalation, multicenter clinical trial in the United States. The study is open to patients with metastatic non-small cell lung cancer (NSCLC), metastatic microsatellite stable colon cancer and metastatic squamous head and neck cancer and is being developed in collaboration with Amgen, who provided reimbursement for certain research and development costs associated with conducting the clinical trial. In August 2016, we entered into a License and Collaboration Agreement, with Amgen ("Amgen Agreement") pertaining to the development and commercialization of our ADXS-NEO program, whereby Amgen received an exclusive worldwide license to develop and commercialize the ADXS-NEO program and we and Amgen collaborated through a joint steering committee for the development and commercialization of ADXS-NEO and Amgen reimbursed us for certain research and development costs in support of the ADXS-NEO program. On December 10, 2018, we received a written termination notice from Amgen with respect to the Amgen Agreement. We are continuing to advance the program and anticipate having early biomarker, immunological and correlative data from the first cohort of the study during the first half of 2019.

Hotspot mutation-based 'off the shelf' therapies

Research and development costs associated with our hotspot mutation-based therapies for the year ended October 31, 2018 increased approximately $1.1 million to $1.2 million compared to the same period in 2017. The increase is attributable to the filing of an IND application for our ADXS-HOT drug candidate for non-small cell lung cancer and the startup costs associated with the initiation of the Phase 1/2 clinical trial. This is the first study initiated using our ADXS-HOT construct which we believe is applicable across several tumor types. We anticipate having safety and immune response on the first cohort of our first clinical trial using ADXS-HOT, during the first half of 2019.



Prostate cancer


Research and development costs associated with our prostate cancer therapy for the year ended October 31, 2018 decreased approximately $1.0 million, or 27%, compared to the same period in 2017. The decrease is attributable to the winding down of the Phase 2 study of our ADXS-PSA compound in combination with KEYTRUDA® (pembrolizumab), Merck's humanized monoclonal antibody against PD-1. This study is transitioning into an Lm surveillance study and we anticipate providing an update on the clinical results of the Phase 2 portion of the study in the first half of 2019.




Other expenses



Other expenses include professional fees, laboratory costs and other internal and external costs associated with our research & development activities. Other expenses for the year ended October 31, 2018 decreased approximately $16.0 million, or 32%, compared to the same period in 2017. The decrease was primarily attributable to a decrease in laboratory costs, drug manufacturing process validation and drug stability studies supporting our Marketing Authorization Application ("MAA") in Europe in fiscal year 2018 as the majority of the costs were incurred in fiscal year 2017 in support of the filing which occurred in February 2018. In addition, there was a decrease in salary related expenses, including stock compensation, and travel expenses resulting from a reduction in headcount.




Partner reimbursements



Partner reimbursements decreased approximately $4.7 million, or 45%, for the year ended October 31, 2018 compared to the same period in 2017. The decrease partially relates to a reduction of $1.7 million in reimbursements from Amgen in support of the ADXS-NEO program. Amgen reimbursements were $5.8 million for the year ended October 31, 2018 compared to approximately $7.5 million for the year ended October 31, 2017 which covered one year of reimbursements during the year ended October 31, 2018 as compared to reimbursements covering 15 months during the same period in 2017. On December 10, 2018, the Company received a written notice of termination of the license and collaboration agreement with (see Note 9 to our financial statements). In addition, in fiscal year 2017 the Company received $3.0 million from Stendhal for partner reimbursements supporting the AIM2CERV study, but in fiscal year 2018, the Company did not receive its reimbursement of $3.0 million. We are currently in arbitration proceedings with Stendhal (see Note 9 to our financial statements).



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General and Administrative Expenses

General and administrative expenses primarily include salary and benefit costs and stock-based compensation expense for employees included in our finance, legal and administrative organizations. Also included in general and administrative expenses are outside legal, professional services and facilities costs. General and administrative expenses for the years ended October 31, 2018 and 2017 were as follows (in thousands):



                                                    Years Ended                Increase
                                                    October 31,               (Decrease)
                                                 2018         2017           $            %

General and administrative expense             $ 19,472$ 39,969$ (20,497 )       (51 )%

Stock-based compensation expense included in
general and administrative expense             $  4,147$ 22,188$ (18,041 )       (81 )%




General and administrative expenses for the year ended October 31, 2018 decreased approximately $20.5 million, or (51)%, compared to the same period in 2017. The decrease is primarily attributable to a decrease in stock-based compensation of approximately $18.0 million related to the resignation of our Chief Executive Officer in July 2017, two Board members who did not seek re-election in March 2018, the elimination of stock-based compensation paid to public relations consultants and a reduction in headcount. In addition, there was a decrease to legal costs on general corporate matters and litigation settlements. These decreases were partially offset by an increase in write-offs of abandoned patent applications.



Changes in Fair Values


For the year ended October 31, 2018, the Company recorded non-cash income from changes in the fair value of the warrant liability of approximately $3.4 million. The decrease in the fair value of liability warrants resulting from a decrease in our share price from $0.85 at September 11, 2018 (the date the liability warrants were issued) to $0.56 at October 31, 2018.

For the year ended October 31, 2017, the Company recorded non-cash income from changes in the fair value of the warrant liability of approximately $20,000 due to the expiration of all the remaining the liability warrants.



Income Tax Benefit


During the year ended October 31, 2017, we recorded an income tax receivable of approximately $4.5 million from the sale of its state NOLs and research and development tax credits for the year ended October 31, 2016. Following the receipt of the NOL and research and development tax credit for the year ending October 31, 2016, we reached the limit under the NJ NOL program.

Liquidity and Capital Resources

Going Concern and Managements Plans

Similar to other development stage biotechnology companies, our products that are being developed have not generated significant revenue. As a result, the Company has suffered recurring losses and requires significant cash resources to execute its business plans. These losses are expected to continue for an extended period of time. The aforementioned factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern within one year after the date the financial statements are issued.

Historically, our major sources of cash have comprised proceeds from various public and private offerings of our common stock, debt financings, option and warrant exercises, NOL tax sales, income earned on investments and grants, and interest income. From October 2013 through October 2018, we raised approximately $265 million in gross proceeds from various public and private offerings of our common stock. We have sustained losses from operations in each fiscal year since our inception, and we expect losses to continue for the indefinite future. As of October 31, 2018 and 2017, we had an accumulated deficit of approximately $367.7 million and $301.1 million, respectively, and stockholders' equity of approximately $24.1 million and $54.3 million, respectively.

As of December 31, 2018 and October 31, 2018, the Company had approximately $36.1 million and $45.1 million, respectively, in cash, restricted cash and cash equivalents. Management's plans to mitigate an expected shortfall of capital, to support future operations, include raising additional funds. It is the belief of the Company that it expects to have sufficient capital to fund its obligations, as they become due, in the ordinary course of business until September 2019. The actual amount of cash that it will need to operate is subject to many factors. 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.

We recognize that we will need to raise additional capital in order to continue to execute its business plan in the future. There is no assurance that additional financing will be available when needed or that we will be able to obtain financing on terms acceptable to us or whether we will become profitable and generate positive operating cash flow. If we are unable to raise sufficient additional funds, we will have to scale back our operations.



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Cash Flows



Operating Activities


Net cash used in operating activities was approximately $62.1 million for the year ended October 31, 2018 compared to net cash used in operating activities of approximately $76.8 million for the year ended October 31, 2017. The decrease in the amount of cash used in operating activities was attributed to decreased spending associated with research and development and general and administrative activities, a reduction in headcount and an increase in proceeds received from the sale of our state NOLs and R&D tax credits of approximately $1.9 million.



Investing Activities


Net cash provided by investing activities was approximately $43.2 million for the year ended October 31, 2018 compared to net cash used in investing activities of approximately $12.5 million for the year ended October 31, 2017. During the year ended October 31, 2018, all of the Company's remaining short-term investment securities matured and a portion of the proceeds were used to fund operating activities, while in the prior year, a portion of the matured short-term investment securities were re-invested. In addition, there was a reduction in property and equipment purchases in fiscal year 2018 of approximately $2.0 million as compared to the prior year. During fiscal year 2018, there were $1.4 million in legal costs associated with supporting of our intellectual property as compared to $1.2 million in fiscal year 2017.



Financing Activities


Net cash provided by financing activities was approximately $39.2 million for the year ended October 31, 2018 as compared to approximately $0.4 million for the year ended October 31, 2017. The increase resulted primarily from net proceeds of approximately $36.6 million from sales of 26,666,666 shares of our common stock in public offerings and approximately $2.7 million from the sale of 881,629 shares of our common stock in at-the-market transactions.

Off-Balance Sheet Arrangements

As of October 31, 2018, we had no off-balance sheet arrangements.

Critical Accounting Estimates

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, account balances or disclosures: revenue recognition, stock compensation, impairment of intangibles and income tax disclosures.



Revenue Recognition


The Company derives the majority of its revenue from 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.



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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.



Stock Based Compensation


We account for stock-based compensation using fair value recognition and record stock-based compensation as a charge to earnings net of the estimated impact of forfeited awards. As such, we recognize stock-based compensation cost only for those stock-based awards that are estimated to ultimately vest over their requisite service period, based on the vesting provisions of the individual grants.

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. We estimate the fair value of stock option awards on the date of grant using the Black-Scholes option-valuation model for the remaining awards, which requires that we make certain assumptions regarding: (i) the expected volatility in the market price of our 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 we revise our assumptions and estimates, our stock-based compensation expense could change materially for future grants.

Stock-based compensation for employees, executives and directors is measured based on the fair value of the shares issued on the date of grant and is to be recognized over the requisite service period in both research and development expenses and general and administrative expenses on the statement of operations. For non-employees, the fair value of the award is generally measured based on contractual terms.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company used the Monte Carlo valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the instrument could be required within 12 months of the balance sheet date.



Intangible Assets


Intangible assets primarily consist of legal and filing costs associated with obtaining patents and licenses and are amortized on a straight-line basis over their remaining useful lives which are estimated to be twenty years from the effective dates of the University of Pennsylvania (Penn) License Agreements, beginning in July 1, 2002. These legal and filing costs are invoiced to the Company through Penn and its patent attorneys.

Management has reviewed its long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset might not be recoverable and its carrying amount exceeds its fair value, which is based upon estimated undiscounted future cash flows. Net assets are recorded on the balance sheet for patents and licenses related to axalimogene filolisbac (AXAL), ADXS-NEO, ADXS-HOT, ADXS-PSA and ADXS-HER2 and other products that are in development. However, if a competitor were to gain FDA approval for a treatment before us or if future clinical trials fail to meet the targeted endpoints, the Company would likely record an impairment related to these assets. In addition, if an application is rejected or fails to be issued, the Company would record an impairment of its estimated book value.



Income Taxes


The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, "Income Taxes." Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company will classify as income tax expense any interest and penalties. The Company has no material uncertain tax positions for any of the reporting periods presented. The Company files tax returns in U.S. federal and state jurisdictions, including New Jersey, and is subject to audit by tax authorities beginning with the year ended October 31, 2014.



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New Accounting Pronouncements

See Note 2 to our financial statements that discusses new accounting pronouncements.

© Edgar Online, source Glimpses

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Financials ($)
Sales 2019 10,0 M
EBIT 2019 -48,2 M
Net income 2019 -45,6 M
Debt 2019 -
Yield 2019 -
P/E ratio 2019 -
P/E ratio 2020
Capi. / Sales 2019 2,42x
Capi. / Sales 2020 4,73x
Capitalization 24,2 M
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Mean consensus HOLD
Number of Analysts 3
Average target price 2,50 $
Spread / Average Target 619%
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Managers
NameTitle
Kenneth A. Berlin President, Chief Executive Officer & Director
David Sidransky Chairman
Molly Henderson Chief Financial Officer & Executive Vice President
Robert G. Petit Chief Scientific Officer & Executive VP
Al Blunt Vice President-Medical
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