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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  CytoDyn Inc    CYDY

CYTODYN INC

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CYTODYN : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

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08/14/2019 | 04:59pm EDT
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the other sections of this Annual
Report, including our consolidated financial statements and related notes set
forth in Item 8. This discussion and analysis contains forward-looking
statements, including information about possible or assumed results of our
financial condition, operations, plans, objectives and performance that involve
risks, uncertainties and assumptions. The actual results may differ materially
from those anticipated and set forth in such forward-looking statements.

Business Highlights

During the past fiscal year ending May 31, 2019, we commenced several initiatives to advance our lead product candidate, leronlimab (PRO 140). The following is a brief summary of key accomplishments during the most recent fiscal year:

• Raised approximately $57 million in capital through equity, convertible

          debt offerings and a warrant exchange offer;



• Filed with the FDA the first of three sections of our first BLA, with the

          remaining two sections anticipated for completion;



• Entered into a long-term commercial manufacturing agreement with Samsung

BioLogics Co., Ltd. to ensure sufficient availability of cost efficient

          inventory of leronlimab to meet expected demand post approval;




     •    Filed a pivotal trial protocol with the FDA for leronlimab as a
          monotherapy for HIV patients;



• Defined and initiated our new strategic focus by rapidly and concurrently

exploring opportunities for several cancer and immunologic indications

          for leronlimab;




     •    Completed the asset acquisition of ProstaGene LLC via an
          all-stocktransaction;



• Initiated our first clinical trial in cancer for leronlimab, a Phase 1b/2

          clinical trial for triple-negative breast cancer, which received Fast
          Track designation from the FDA in May 2019;




     •    Initiated pre-clinical studies with leronlimab for colon cancer and
          breast cancer, both of which have reported promising results;



• Initiated a pre-clinical study with leronlimab to assess its ability to

prevent the progression of Non-Alcoholic Fatty Liver Disease (NAFLD) into

          NASH;




     •    Continued exploratory discussions with third parties regarding licensing
          opportunities;




     •    Presented results of our clinical trials and pre-clinical studies at
          numerous medical and scientific conferences; and




     •    Collaborated with a scientific laboratory to develop a CCR5 receptor

occupancy test for leronlimab, a CCR5 antagonist, which is anticipated to

          provide improved patient screening for two indications: (i) patient
          candidates for leronlimab as a HIV monotherapy in order to achieve

optimal dosing and (ii) cancer patients, due to the over expression of

CCR5 in certain forms of cancer.


Results of Operations

Clinical Trials Update

Phase 2b Extension Study for HIV, as Monotherapy


Currently, there are four patients in this ongoing extension study and each has
surpassed four and one-half years of suppressed viral load with PRO 140 as a
single agent therapy. This extension study will be discontinued upon any FDA
approval of leronlimab.

Phase 2b/3 Pivotal Trial for HIV, as Combination Therapy


This trial was successfully completed and is the basis for our current BLA, for
which the first of three sections was submitted to the FDA in March 2019. This
trial for leronlimab as a combination therapy to existing HAART drug regimens
for highly treatment experienced HIV patients achieved its primary endpoint with
a p-value of 0.0032. Nearly all patients who have completed this trial have
transitioned to a FDA-cleared rollover study, as requested by the treating
physicians to enable the patients to have continued access to leronlimab.

Rollover Study for HIV as Combination Therapy


This study is designed for patients who successfully completed the pivotal Phase
2b/3 Combination Therapy trial and for whom the treating physicians request a
continuation of leronlimab therapy in order to maintain suppressed viral load.
This extension study will be discontinued upon any FDA approval of leronlimab.



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Phase 2b/3 Investigative Trial for HIV, as Long-term Monotherapy


Enrollment for this trial is now closed after reaching 500 patients. This trial
assesses the subcutaneous use of leronlimab as a long-acting single-agent
maintenance therapy for 48 weeks in patients with suppressed viral load with
CCR5-tropic HIV-1 infection. The primary endpoint is the proportion of
participants with a suppressed viral load to those who experienced virologic
failure. The secondary endpoint is the length of time to virologic failure. We
completed the evaluation two higher-dose arms, one with 525 mg dose (a 50%
increase from the original dosage of 350 mg), as well as a 700 mg dose. We
recently reported that interim data suggested that both the 525 mg and the 700
mg dosages are achieving a responder rate of approximately 90% after the initial
10 weeks. This trial has also been used to provide safety data for the BLA
filing for leronlimab as a combination therapy. In view of the high responder
rate at the increased dosage levels, coupled with the newly developed CCR5
occupancy test, we recently filed a pivotal trial protocol with the FDA for
leronlimab as a monotherapy. Upon finalization with the FDA of the pivotal trial
protocol for monotherapy, the Phase2b/3 investigative trial will likely be
discontinued.

Cancer and Immunological Applications for Leronlimab

We are continuing to advance our exploration of opportunities for clinical applications for leronlimab involving the CCR5 receptor, other than HIV-related treatments, such as cancer, inflammatory conditions and autoimmune diseases.


The target of leronlimab is the important G protein coupled receptor CCR5. CCR5
is more than the pathway to HIV replication; it is also a crucial component of
inflammatory responses and is a key mediator in many cancer metastasis. We
believe this opens the potential for multiple pipeline opportunities for
leronlimab. CCR5 is a protein located on the surface of white blood cells and
cancer epithelial cells that serves as a receptor for attractants called
chemokines. Chemokines are the key orchestrators of leukocyte trafficking by
attracting immune cells to the sites of inflammation.

At the site of an inflammatory reaction, chemokines are released. These
chemokines are specific for CCR5 and cause the migration of T-cells to these
sites promoting further inflammation. We believe the mechanism of action of
leronlimab has the potential to block the movement of T-cells to inflammatory
sites, which could be instrumental in diminishing or eliminating inflammatory
responses. CCR5 is also expressed on the surface of epithelial cells in certain
cancers. Some disease processes that we believe could benefit from CCR5 blockade
include many types of common cancers, GvHD (a reaction occurring in some
patients after bone marrow transplantation), autoimmunity and chronic
inflammation, such as rheumatoid arthritis and psoriasis. Recent published data
has shown that the cancer cells within the tumor consist of two types of
cells-one with CCR5 and others without them. The published data clearly
indicated that cancer cells that can metastasize express CCR5. Metastases are
the cause of death in the vast majority of cancer patients. A prior publication
indicates that CCR5 antagonists can turn off certain calcium signaling and
reduce the migration of CCR5 positive cancer cells. Inhibition of CCR5 signaling
blocks the guided migration and reduces the metastasis. Leronlimab has
demonstrated (in an in-vitro study) that it also turns off calcium signaling and
blocks breast cancer cellular invasion. Furthermore, published studies showed
current chemotherapy induces CCR5, and CCR5 antagonists enhance the
effectiveness of current chemotherapies, potentially allowing a reduction in
chemotherapy, which may provide an improved quality of life for patients.

Research has demonstrated three key properties of the CCR5's MOA in cancer. The
first is that the CCR5 receptor on cancer cells was responsible for the
migration and invasion of cells into the blood stream, which leads to metastasis
of breast, prostate, and colon cancer. The second is that blocking the CCR5 also
turns on anti-tumor fighting properties restoring immune function. The third key
finding was that blockage of the CCR5/CCL5 interaction had a synergistic effect
with chemotherapeutic therapy and controlled cancer progression. Chemotherapy
traditionally increased expression of CCR5 so blocking it is expected to reduce
the levels of invasion of metastasis.

Due to its MOA, we believe leronlimab may have significant advantages over other
CCR5 antagonists. Prior studies have demonstrated that leronlimab does not cause
direct activation of T-cells. We have already reported encouraging human safety
data for our clinical trials with leronlimab in HIV-infected patients.

We also previously initiated our first clinical trial with leronlimab in an
immunological indication - a Phase 2 clinical trial with leronlimab for GvHD in
patients with AML or MDS who are undergoing bone marrow stem cell
transplantation. As noted below, enrollment under the amended protocol for the
GvHD trial has been delayed subject to increased capital resources. In addition,
we also intend to explore potential strategic partnerships with certain
pharmaceutical companies, including for the development of follow-on
technologies involving the use of leronlimab alongside their existing products.

We will require a significant amount of additional capital to complete the
foregoing clinical trials for HIV and complete our BLA submission, as well as to
advance our trials for triple-negative breast cancer, certain cancer indications
and GvHD. See "Liquidity and Capital Resources" below.



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Phase 1b/2 Trial for Triple-Negative Breast Cancer


We recently received clearance from the FDA for our IND submission to initiate a
Phase 1b/2 clinical trial for metastatic triple-negative breast cancer patients.
In May 2019, the FDA granted leronlimab Fast Track designation for use in
combination with carboplatin. We have identified five clinical trial sites and
expect to dose the first patients during the third quarter of calendar 2019. The
change in circulating tumor cells ("CTCs") number will be evaluated every 21
days during treatment and will be used as an initial prognostic marker for
efficacy. Up to 48 patients are expected to be enrolled in this study.

Pre-clinical Studies for Multiple Cancer Indications


We are initiating multiple pre-clinical studies with leronlimab for melanoma,
pancreatic, breast, prostate colon, lung, liver and stomach cancers. An ongoing
pre-clinical study conducted by us recently reported that leronlimab reduces by
more than 98% human breast cancer metastasis in a murine xenograft model. Based
upon these strong results, we filed for Orphan Drug Designation for its Phase
1b/2 triple negative breast cancer trial. In addition, pre-clinical results in a
colorectal cancer study are likewise encouraging.

Phase 2 Trial for Graft-versus-Host Disease


This Phase 2 multi-center100-day study with 60 patients is designed to evaluate
the feasibility of the use of leronlimab as an add-on therapy to standard GvHD
prophylaxis treatment for prevention of acute GvHD in adult patients with acute
myeloid leukemia ("AML") or myelodysplastic syndrome ("MDS") undergoing
allogeneic hematopoietic stem cell transplantation ("HST"). Enrollment of the
first patient was announced in May of 2017. On October 5, 2017, we announced
that the FDA had granted orphan drug designation to leronlimab (PRO 140) for the
prevention of GvHD. In March 2018, we announced that the Independent Data
Monitoring Committee ("IDMC") for leronlimab (PRO 140) Phase 2 trial in GvHD had
completed a planned interim analysis of trial data on the first 10 patients
enrolled. Following this review of data from the first 10 patients in the Phase
2 trial, we filed amendments to the protocol with the FDA. The amendments
included switching the pretreatment conditioning regimen from aggressive
myeloablative ("MA") conditioning to a reduced intensity conditioning ("RIC"),
and switching from a blinded one-for-one randomized placebo-controlled design to
an open-label design under which all enrollees receive leronlimab. The
amendments also provide for a 100% increase in the dose of leronlimab, to 700
mg, to more closely mimic pre-clinical dosing. The next review of data by the
IDMC will occur following enrollment of 10 patients under the amended protocol
after each patient has been dosed for 30 days. Due to the necessary
prioritization of limited capital, enrollment under the amended protocol has
been temporarily delayed.

Licensing Opportunities

We are currently evaluating strategic opportunities with respect to the assets
acquired in our November 2018 acquisition of ProstaGene, including potential
licensing or other opportunities to monetize intellectual property assets
relating to prostate cancer diagnostics. As an integral part of the acquisition
of ProstaGene, we acquired the PCa Test, which provides substantial additive
discriminative value for predicting outcomes of patients diagnosed with prostate
cancer compared to the intermediate Gleason score, the current standard for
prostate cancer diagnosis. The clinical objective is to more precisely guide
therapeutic options for men, thereby avoiding unnecessary surgery
(prostatectomy) and radiation and/or chemotherapy with its attendant side
effects.

In addition, we continue to conduct exploratory discussions with third parties
who have expressed an interest in a licensing arrangement for leronlimab for HIV
indications; such proposed arrangements are country or region specific.



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Results of operations for the year ended May 31, 2019, 2018 and 2017, are as follows:


For the years ended May 31, 2019, May 31, 2018 and 2017, we had no activities
that produced revenues from operations. The following schedule sets forth the
percentage of total expenses as a percent of net loss for the years ended
May 31, 2019, 2018 and 2017.



                                                                        

Percentage of Total Net Loss

                                                                            Years Ended May 31,
                                                   2019                             2018                             2017
Operating expenses:
General and administrative              $  12,116,743        (0.22 )%    $   7,340,605        (0.15 )%    $   6,758,606        (0.26 )%
Research and development                   42,490,144        (0.76 )       

38,222,580 (0.76 ) 20,205,743 (0.78 ) Amortization and depreciation

               1,245,167        (0.02 )           356,128        (0.01 )           366,385        (0.01 )

Total operating expenses                   55,852,054        (0.99 )        45,919,313        (0.92 )        27,330,734        (1.06 )

Operating loss                            (55,852,054 )      (0.99 )       (45,919,313 )      (0.92 )       (27,330,734 )      (1.06 )
Other income (expense):
Interest income                                 4,306         0.00               3,620         0.00              15,167         0.00
Loss on extinguishment of convertible
notes                                      (1,519,603 )      (0.03 )                -            -                   -            -
Change in fair value of derivative
liability                                   1,666,469         0.03           1,690,935         0.03           2,164,533         0.08
Interest expense:
Amortization of discount on
convertible notes                          (1,707,068 )      (0.03 )        (1,666,017 )      (0.03 )                -            -

Amortization of debt issuance costs (459,085 ) (0.01 )

   (435,609 )      (0.01 )                -            -
Interest related to derivative
liability                                          -            -                   -            -             (540,330 )      (0.02 )
Inducement interest related to
warrant extension                                  -            -             (826,252 )      (0.02 )           (72,437 )      (0.00 )
Inducement interest related to
warrant tender offer                         (195,927 )      (0.00 )          (393,685 )      (0.01 )                -            -
Inducement interest related to
convertible notes                                  -            -           (2,352,045 )      (0.05 )                -            -

Interest on convertible notes payable (950,617 ) (0.02 )

  (251,315 )      (0.01 )                -            -

Total interest expense                     (3,312,697 )      (0.06 )        (5,924,923 )      (0.12 )          (612,767 )      (0.02 )

Loss before income taxes                  (59,013,579 )      (1.05 )       (50,149,681 )      (1.00 )       (25,763,801 )      (1.00 )
Income tax benefit                          2,826,919         0.05                  -            -                   -            -

Net loss                                $ (56,186,660 )      (1.00 )%    $ (50,149,681 )      (1.00 )%    $ (25,763,801 )      (1.00 )%

Basic and diluted loss per share        $       (0.21 )$       (0.29 )$       (0.19 )

Basic and diluted weighted average
common shares outstanding                 272,040,933                      174,885,422                      138,004,461


Results of operations for the years ended May 31, 2019 and 2018


For the years ended May 31, 2019 and 2018, we had a net loss of approximately
$56.2 million and $50.1 million, respectively. The increase in net loss of
approximately $6.1 million for fiscal 2019 over 2018 was primarily attributable
to increased R&D expenses of approximately $4.3 million and an increase in G&A
expenses of approximately $4.8 million, offset by a lower interest expense of
$2.6 million. The loss per share for the fiscal year ended May 31, 2019 was
$(0.21) compared to $(0.29) for the prior fiscal year.



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Total operating expenses for the years ended May 31, 2019 and 2018 were
approximately as follows:



                                                  2019             2018
           General and administrative:
           Salaries and other compensation    $  3,781,000$  2,454,000
           Stock-based compensation              3,388,000        1,291,000
           Other                                 4,948,000        3,596,000

           Total general and administrative     12,117,000        7,341,000
           Research and development             42,490,000       38,223,000
           Amortization and depreciation         1,245,000          356,000

           Total operating expenses           $ 55,852,000$ 45,920,000



For the fiscal year ended May 31, 2019 and May 31, 2018, operating expenses
totaled approximately $55.9 million and $45.9 million, respectively, consisting
primarily of research and development ("R&D") expenses of $42.5 million, general
and administrative expenses of approximately $12.1 million and amortization and
depreciation of approximately $1.2 million. The increase in operating expenses
over the comparable 2018 period was attributable to an increase in R&D expenses
of approximately $4.3 million owing to higher clinical trial and
manufacturing-related expenses and to an increase in general and administrative
expenses of approximately $4.8 million, or 65.1% over the prior fiscal year.

General and administrative expenses, totaled approximately $12.1 million and
$7.3 million, respectively, for fiscal 2019 and 2018. General and administrative
expenses were comprised of salaries and benefits, non-cash stock-based
compensation expense, professional fees, insurance and various other expenses.
The increase in general and administrative expenses of approximately
$4.8 million, or 65.1%, for the fiscal year ended May 31, 2019 over the
comparable 2018 period was primarily due to increased non-cash stock-based
compensation, employee compensation and related expenses, along with higher
professional services

We record research and development expenses where directly identifiable, which approximated the following for the years ended May 31, 2019 and 2018:



                                                 2019             2018
            Research and development:
            Clinical                         $ 25,264,000$ 22,543,000
            Non-Clinical                          155,000     $    887,000
            CMC                                16,353,000     $ 14,240,000
            Licenses and patent fees              718,000     $    553,000

            Total research and development   $ 42,490,000$ 38,223,000



R&D expenses totaled approximately $42.5 million for the fiscal year ended
May 31, 2019 and increased approximately $4.3 million, or 11.2%, over the same
2018 period. This increase was attributable to higher clinical trial expenses
associated with the Phase 2b/3 investigative monotherapy trial and various
oncology studies, offset in part by lower expenses for the completed Phase 3
combination therapy trial. Higher CMC-related expenses in connection with the
preparation of our BLA filing also contributed to the increase in R&D expenses
over the prior fiscal year. The future trend of R&D expenses will be dependent
on the timing of FDA approval of our BLA filing, the timing of FDA clearance of
our pivotal trial protocol for leronlimab as a monotherapy for HIV patients, the
clinical progression of the triple-negative breast cancer and GvHD trials, along
with the outcome of the pre-clinical studies for several cancer indications. R&D
expenses will also increase due to CMC activities in preparation for approval
and commercialization of leronlimab. Until satisfaction of the generally
accepted accounting principles ("GAAP") standard for capitalization of such
costs pursuant to ASC 350, all CMC manufacturing costs will continue to be
expensed as R&D.

Amortization and depreciation expense of approximately $1.2 million rose by approximately $0.9 million due in part to the increased amortization attributable to the intangible assets acquired in the November 2018 transaction with ProstaGene LLC.


For the fiscal year ended May 31, 2019, we recognized an unrealized non-cash
benefit from the decrease in derivative liability of approximately $1.7 million,
as compared to a similar non-cash benefit in the comparable 2018 period. The
total net change in derivative liability is attributable to three underlying
financial instruments: (i) certain warrants that contain a contingent cash
settlement provision, which originated in September 2016, accounted for
approximately $0.9 million, (ii) a certain long-term convertible note payable,
originating in June 2018, which was subsequently amended to provide for variable
rate redemptions by the holder and (iii) a certain long-term convertible note
payable, which originated in January 2019. The combined change in derivative
liability ascribed to the two long-term convertible notes contributed
approximately $0.8 million to the unrealized non-cash benefit for the fiscal
year ended May 31, 2019. For each reporting period, we determine the fair value
of the derivative liabilities and record a corresponding non-cash benefit or
non-cash charge, as a consequence of a decrease or increase, respectively, in
the calculated derivative liabilities.



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Interest expense for the fiscal year ended May 31, 2019 of approximately
$3.3 million decreased approximately $2.6 million from the 2018 fiscal year due
primarily to lower non-cash inducement interest on a private warrant tender
offer that was completed in May 2019, and no comparable inducement interest
expense related to warrant extensions and convertible notes, which were in
incurred in the 2018 fiscal year, offset by an increase in interest accrued on
convertible notes payable of approximately $0.7 million.

The future trends of all expenses will be driven, in large part, by the future
outcomes of clinical trials and the corresponding effect on research and
development expenses, as well as general and administrative expenses, in
addition to the manufacturing of new commercial leronlimab upon any FDA
approval. We require a significant amount of additional capital, and our ability
to continue to fund operations will continue to depend on our ability to raise
such capital. See in particular, "Liquidity and Capital Resources" below and
Item 1A "Risk Factors" above.

Results of operations for the years ended May 31, 2018 and 2017


For the years ended May 31, 2018 and 2017, we had a net loss of approximately
$50.1 million and $25.8 million, respectively. The increase in net loss of
approximately $24.3 million for fiscal 2018 over 2017 was primarily attributable
to increased R&D expenses of approximately $18.0 million, an increase in
interest expense of approximately $5.3 million and a modest increase in general
and administrative expense of approximately $0.6 million, combined with a
reduction in the non-cash benefit in fair value of derivative liability of
approximately $0.5 million. The loss per share for the fiscal year ended May 31,
2018 was $(0.29) compared to $(0.19) for the prior 2017 fiscal year.

The operating expenses for the years ended May 31, 2018 and 2017 and
approximated as follows:



                                                  2018             2017
           General and administrative:
           Salaries and other compensation    $  2,454,000$  2,332,000
           Stock-based compensation              1,291,000        1,205,000
           Other                                 3,596,000        3,222,000

           Total general and administrative      7,341,000        6,759,000
           Research and development             38,223,000       20,206,000
           Amortization and depreciation           356,000          366,000

           Total operating expenses           $ 45,920,000$ 27,331,000



For the fiscal year ended May 31, 2018 and May 31, 2017, operating expenses
totaled approximately $45.9 million and $27.3 million, respectively, consisting
primarily of R&D expenses of $38.2 million, general and administrative expenses
of approximately $7.3 million and amortization and depreciation of approximately
$0.4 million. The increase in operating expenses over the comparable 2017 period
was attributable to an increase in R&D expenses of approximately $18.0 million
owing to higher clinical trial and manufacturing-related expenses and a modest
increase in general and administrative expenses of approximately $0.6 million
primarily related to an increase in consulting services and employee-related
expenses.

General and administrative expenses, totaled approximately $7.3 million and
$6.8 million, respectively, for fiscal 2018 and 2017. General and administrative
expenses were comprised of salaries and benefits, non-cash stock-based
compensation expense, professional fees, insurance and various other expenses.
The increase in general and administrative expenses of approximately
$0.6 million, or 8.6%, for the fiscal year ended May 31, 2018 over the
comparable 2017 period was primarily due to increased consulting services and
employee-related expenses.

R&D expenses, which totaled approximately $38.2 million for the fiscal year
ended May 31, 2018, increased approximately $18.0 million, or 89.2%, over the
same 2017 period. This increase was attributable to higher clinical trial
expenses, combined with an expansion of our CMC activities in connection with
the preparation of a BLA. We expect R&D expenses to maintain at this level, as
the two ongoing Phase 2b/3 trials with leronlimab for HIV therapy continue,
along with their related rollover studies, combined with the Phase 2 GvHD trial,
and the expenses to continue activities related to manufacturing cGMP leronlimab
material for the BLA and for future use.



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We record research and development expenses where directly identifiable, approximately as follows for the years ended May 31, 2018 and 2017:



                                                  Year Ended May 31,
                                                 2018             2017
            Research and development:
            Clinical                         $ 22,543,000$  9,846,000
            Non-Clinical                     $    887,000$    691,000
            CMC                              $ 14,240,000$  8,998,000
            Licenses and patent fees         $    553,000$    671,000

            Total research and development   $ 38,223,000$ 20,206,000



For the fiscal year ended May 31, 2018, we recognized an unrealized non-cash
benefit from the decrease in derivative liability of approximately $1.7 million,
as compared to an approximate non-cash benefit of $2.2 million in the comparable
2017 period. The warrants that contain a contingent cash settlement provision,
which gives rise to a derivative liability, originated in September 2016. For
each reporting period, we determine the fair value of the derivative liability
and record a corresponding non-cash benefit or non-cash charge, as a consequence
of a decrease or increase, respectively, in the calculated derivative liability.

Interest expense for the fiscal year ended May 31, 2018 of approximately
$5.9 million increased approximately $5.3 million over the 2017 fiscal year due
primarily to an increase in non-cash interest of approximately $3.5 million
related to inducement interest on (i) convertible notes; (ii) the expiration
date extension of certain warrants and (iii) the warrant tender offer that was
completed in March 2018, coupled with cash interest expense of approximately
$0.3 million on a convertible note and an increase in amortization of debt
discount and issuance costs of approximately $2.1 million, offset by a reduction
in interest related to derivative liability of approximately $0.5 million.

The future trends of all expenses will be driven, in large part, by the future
outcomes of clinical trials and the correlative effect on research and
development expenses, as well as general and administrative expenses, in
addition to the manufacturing of new commercial leronlimab, along with the
increasing activities to prepare and file a BLA. We require a significant amount
of additional capital, and our ability to continue to fund operations will
continue to depend on our ability to raise such capital. See in particular,
"Liquidity and Capital Resources" below and Item 1A "Risk Factors" above.

Fluctuations in Quarterly Operating Results


We have historically experienced significant fluctuations in our quarterly
operating results and we expect such fluctuations to continue in the future. Our
operating results may fluctuate due to a number of factors, such as the timing
of product manufacturing activities, patient enrollment or completion rates in
various trials, coupled with potential amendments to clinical trial protocol. As
a non-revenue generating company, we are regularly conducting offerings to raise
capital, which can create various forms of amortization of issuance costs or
non-cashinterest expense. In addition, a portion of the aforementioned
derivative liabilities is tied to a probability estimate of a fundamental
transaction and to our stock price, which can vary substantially from quarter to
quarter, thereby creating a non-cash charge or benefit.

Liquidity and Capital Resources


Our cash position of approximately $3.5 million at May 31, 2019 increased
approximately $2.2 million as compared to a balance of approximately
$1.2 million at May 31, 2018. The increase was attributable to net cash provided
by financing activities of approximately $52.7 million exceeding net cash used
in operating activities of approximately $50.5 million by approximately
$2.2 million. Despite our negative working capital position, vendor relations
remain accommodative and we do not currently anticipate delays in our BLA filing
schedule due to liquidity constraints.

Cash Flows


Net cash used in operating activities totaled approximately $50.5 million during
the fiscal year ended May 31, 2019, which reflects an increase of approximately
$20.6 million of net cash used in operating activities over the approximate
$29.9 million in fiscal 2018. The increase in net cash used in operating
activities was due to an increase in net loss of approximately $6 million, and a
net change in the components of net working capital of approximately
$13.4 million.

We made nominal investments in equipment and website development costs totaling approximately $45,000 during the fiscal year ended May 31, 2019.

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Net cash provided by financing activities of approximately $52.7 million for the
year ended May 31, 2019 increased approximately $23.3 million over $29.4 million
of net cash provided by financing activities during fiscal year ended May 31,
2018. The increase in net cash provided from financing activities was primarily
attributable to an increase in net proceeds from the sale of common stock and
warrants of approximately $13.1 million, coupled with an increase of
approximately $10.6 million in proceeds from convertible notes and net proceeds
of approximately $3.1 million from a preferred convertible stock offering in the
2019 fiscal year.

Capital Requirements

We have not generated revenue to date, and do not expect to generate product
revenue until FDA approval of leronlimab. We expect that we will continue to
incur operating losses as expenses continue to increase as we proceed with
completion of our BLA, prepare for commercialization of leronlimab and continue
our pre-clinical and clinical trial programs. The future trends of all expenses
will be driven, in large part, by the timing of the anticipated approval of our
BLA, the magnitude of our commercialization readiness, future clinical trial
strategy and timing of the commencement of our future revenue stream. We will
require a significant amount of additional capital in the future in anticipation
of a fully commercialized leronlimab product.

Contract Manufacturing


During the fourth quarter of fiscal 2019, we entered into a Master Services
Agreement and Product Specific Agreement (collectively, the "Samsung Agreement")
with Samsung BioLogics Co., Ltd. ("Samsung"), pursuant to which Samsung will
perform technology transfer, process validation, manufacturing and supply
services for the commercial supply of leronlimab. In April 2019 we delivered to
Samsung a purchase order for $33 million worth of process validation and
technology transfer services related to the manufacture of leronlimab, with
payments by us scheduled to be made throughout calendar 2020. Under the Samsung
Agreement, the purchase order is binding and we are obligated to pay the full
amount.

Under the terms of the Samsung Agreement, we are obligated to make specified
minimum purchases of leronlimab from Samsung pursuant to forecasted requirements
which we will provide to Samsung. The first forecast will be delivered to
Samsung by March 31, 2020. Thereafter, we must provide Samsung with a rolling
quarterly forecast setting forth the total quantity of commercial grade
leronlimab that we expect to require in the following years. We estimate that
initial ramp-up costs to manufacture commercial grade leronlimab at scale could
total approximately $60 million, with approximately $30 million payable over the
course of calendar 2020, and approximately $30 million payable in the first
quarter of 2021. Thereafter, we will pay Samsung per 15,000L batch according to
the pricing terms specified in the Samsung Agreement.

The Samsung Agreement has an initial term ending in December 2027 and will be
automatically extended for additional two year periods unless either party gives
notice of termination at least six months prior to the then current term. Either
party may terminate the Samsung Agreement in the event of the other party's
insolvency or uncured material breach, and we may terminate the agreement in the
event of a voluntary or involuntary complete market withdrawal of leronlimab
from commercial markets, with one and half year's prior notice. Neither party
may assign the agreement without the consent of the other, except in the event
of a sale of all or substantially all of the assets of a party to which the
agreement relates.

In addition to the Samsung Agreement, we have also previously entered into an
arrangement with another third party contract manufacturer to provide process
transfer, validation and manufacturing services for leronlimab. In the event
that we terminate the agreement with this manufacturer, we may incur certain
financial penalties which would become payable to the manufacturer. Conditioned
upon the timing of termination, the financial penalties may total approximately
$8.3 million. These amount and timing of the financial commitments under an
agreement with our secondary contract manufacturer will depend on the timing of
the anticipated approval of our BLA and the initial product demand forecast,
which is critical to align the timing of capital resources in order to ensure
availability of sufficient quantities of commercial product.

Management believes that two contract manufacturers may best serve our strategic
objectives for the anticipated BLA filing and, if approved, the long-term
commercial manufacturing capabilities for leronlimab. Management will continue
to assess manufacturing capacity requirements as new market information becomes
available regarding anticipated demand, subject to FDA approval.

Contract Research


We have entered into project work orders for each of our clinical trials with
our CRO and related laboratory vendors. Under the terms of these agreements, we
have prepaid certain execution fees for direct services costs. In connection
with our clinical trials, we have entered into separate project work orders for
each trial with our CRO. In the event that we terminate any trial, we may incur
certain financial penalties which would become payable to the CRO. Conditioned
upon the form of termination of any one trial, the financial penalties may range
up to $0.3 million. In the remote circumstance that we terminate all clinical
trials, the collective financial penalties may range from an approximate low of
$0.5 million to an approximate high of $1.2 million.



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Licensing


Under the Progenics Purchase Agreement, we are required to pay Progenics the
following ongoing milestone payments and royalties: (i) $5.0 million at the time
of the first U.S. new drug application approval by the FDA or other non-U.S.
approval for the sale of leronlimab (PRO 140); and (ii) royalty payments of up
to five percent (5%) on net sales during the period beginning on the date of the
first commercial sale of leronlimab (PRO 140) until the later of (a) the
expiration of the last to expire patent included in the acquired assets, and (b)
10 years, in each case determined on a country-by country basis. In addition,
under a Development and License Agreement, dated April 30, 1999 (the "PDL
License"), between Protein Design Labs (now AbbVie Inc.) and Progenics, which
was previously assigned to us, we are required to pay AbbVie Inc. additional
milestone payments and royalties as follows: (i) $0.5 million upon filing a BLA
with the FDA or non-U.S.equivalent regulatory body; (ii) $0.5 million upon FDA
approval or approval by another non-U.S. equivalent regulatory body; and
(iii) royalties of up to 3.5% of net sales for the longer of 10 years and the
date of expiration of the last to expire licensed patent. Additionally, the PDL
License provides for an annual maintenance fee of $150,000 until royalties paid
exceed that amount.

As of the date of this filing, while we have completed and filed the first of
three portions of our BLA, it remains uncertain as to when the remaining two
portions will be filed. Further, if the BLA is accepted by the FDA, it is
management's conclusion that the probability of achieving the subsequent future
clinical development and regulatory milestones is not reasonably determinable,
thus the future milestone payments payable to Progenics and its sub-licensors
are deemed contingent consideration and, therefore, are not currently accruable.

Going Concern


As reported in the accompanying financial statements, during the year ended
May 31, 2019, May 31, 2018 and May 31, 2017, we incurred net losses of
approximately $56.2, $50.1 million and $25.8 million respectively. We have no
activities that produced revenue in the periods presented and have sustained
operating losses since inception.

We currently require and will continue to require a significant amount of
additional capital to fund operations, pay our accounts payables, and our
ability to continue as a going concern is dependent upon our ability to raise
such additional capital, commercialize our product and achieve profitability. If
we are not able to raise such additional capital on a timely basis or on
favorable terms, we may need to scale back our operations or slow down or cease
completion of the remaining two sections of our BLA filing, including related
CMC activities, which could materially delay the filing of the last two sections
of the BLA submission. Our failure to raise additional capital could also affect
our relationships with key vendors, disrupting our ability to timely execute our
business plan. In extreme cases, we could be forced to file for bankruptcy
protection, discontinue our operations or liquidate our assets.

Since inception, we have financed our activities principally from the sale of
public and private equity securities and proceeds from convertible notes payable
and related party notes payable. We intend to finance our future operating
activities and our working capital needs largely from the sale of equity and
debt securities, combined with additional funding from other traditional
financing sources. As of the date of this filing, we have approximately
104 million shares of common stock authorized and available for issuance under
our certificate of incorporation, as amended, and approximately $156 million
available for future registered offerings of securities under our universal
shelf registration statement on Form S-3, which was declared effective on
March 7, 2018 (assuming the full exercise of outstanding warrants, at the
currently applicable exercise prices, that were previously issued in registered
transactions thereunder).

The sale of equity and convertible debt securities to raise additional capital
may result in dilution to stockholders and those securities may have rights
senior to those of common shares. If we raise additional funds through the
issuance of preferred stock, convertible debt securities or other debt
financing, these activities or other debt could contain covenants that would
restrict our operations. On January 30, 2019, we entered into a long-term
convertible note, which is secured by all of our assets, except for our
intellectual property and also includes certain restrictive provisions, such as
a limitation on additional indebtedness and future dilutive issuances of
securities, any of which could impair our ability to raise additional capital on
acceptable terms and conditions. Any other third-party funding arrangements
could require us to relinquish valuable rights. We may require additional
capital beyond currently anticipated needs. Additional capital, if available,
may not be available on reasonable or non-dilutive terms. Please refer to the
matters discussed under the heading "Risk Factors" above.



                                       47

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The accompanying consolidated 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. We have incurred losses for all
periods presented and have a substantial accumulated deficit. As of May 31,
2019, these factors, among several others, raise substantial doubt about our
ability to continue as a going concern.

The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of liabilities that might be necessary
should we be unable to continue as a going concern. Our continuation as a going
concern is dependent upon our ability to obtain a significant amount of
additional operating capital, complete development of our product candidate,
obtain FDA approval, outsource manufacturing of our product, and ultimately to
attain profitability. We intend to seek additional funding through equity or
debt offerings, licensing agreements or strategic alliances to implement our
business plan. There are no assurances, however, that we will be successful in
these endeavors.

Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.

Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.

We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements.


We follow the provisions of FASB ASC 815-Derivatives and Hedging ("ASC 815"),
FASB ASC 480-Distinguishing liabilities from equity ("ASC 480"), ASC 470-Debt
and debt with conversion and other options ("ASC 470"). We have issued
instruments that meet the criteria of derivative liabilities. Derivative
financial instruments consist of financial instruments that contain a notional
amount and one or more underlying variable (e.g., contingent cash settlement
provision), require no initial net investment and permit net settlement.
Derivative financial instruments may be free-standing or embedded in other
financial instruments. We have induced conversion of certain instruments with
bifurcated conversion options. We have followed the general extinguishment model
to record certain conversion and the extinguishment of derivative liabilities.
We utilized a Binomial Lattice Model to value the conversion options, which
utilizes assumptions that market participants would likely consider in
negotiating the transfer of the convertible options, including early
conversions. The assumptions in the model are subject to estimates and
judgement.

We use the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant utilizing certain assumptions that require judgments and estimates. These assumptions include estimates for volatility, expected term and risk-free interest rates in determining the fair value of the stock-based awards.


We periodically issue stock options and warrants to consultants for various
services. Costs for these transactions are measured at the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more readily measurable. This determination requires judgment in
terms of the consideration being measured.

We have historically issued convertible promissory notes with detachable
warrants to purchase common stock. The conversion options are fixed, but may be
beneficial to the note holders at the respective commitment dates. The valuation
of the beneficial conversion feature of the notes and of the warrants gives rise
to the recognition of a debt discount, which requires the use of certain
assumptions inherent in the Black-Scholes option pricing model, including
various judgments and estimates.

As discussed in Notes 8 and 9 to the consolidated financial statements, we have
significant license and contingent milestone and royalty liabilities. We must
estimate the likelihood of paying these contingent liabilities periodically
based on the progress of our clinical trials.



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