As used herein, the terms the "Company," "Generex," "we," "us," or "our" refer
to Generex Biotechnology Corporation, a Delaware corporation. The following
discussion and analysis by management provides information with respect to our
financial condition and results of operations for the six-month periods ended
January 31, 2020 and 2019. We closed on the following acquisitions during the
six months ended January 31, 2020:
• On August 1, 2019, the Company, through its wholly owned subsidiary NDS,
closed on Asset Purchase Agreements (the "APAs") for the purchase of
substantially all the operating assets of MediSource Partners, LLC
("MediSource") and Pantheon Medical - Foot & Ankle, LLC ("Pantheon").
• On August 16, 2019, the Company entered into a Share Exchange Agreement to
purchase an additional 900,000 shares in Olaregen Therapeutix Inc. from
Olaregen Therapeutix LLC representing increasing Generex's ownership from
approximately 62% to 76%
This discussion should be read in conjunction with the information contained
in Part I, Item 1A - Risk Factors and Part II, Item 8 - Financial Statements and
Supplementary Data in our Annual Report on Form 10-K for the year ended July 31,
2019, and the information contained in Part I, Item 1 - Financial Statements in
this Quarterly Report on Form 10-Q for the six months ended January 31, 2020.
Forward-Looking Statements
We have made statements in this Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Quarterly
Report on Form 10-Q of Generex Biotechnology Corporation for the fiscal quarter
ended January 31, 2020 that may constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act").
The Act limits our liability in any lawsuit based on forward-looking statements
that we have made. All statements, other than statements of historical facts,
included in this Quarterly Report that address activities, events or
developments that we expect or anticipate will or may occur in the future,
including such matters as our projections, future capital expenditures, business
strategy, competitive strengths, goals, expansion, market and industry
developments and the growth of our businesses and operations, are
forward-looking statements. These statements are based on currently available
operating, financial and competitive information. These statements can be
identified by introductory words such as "may," "expects," "anticipates,"
"plans," "intends," "believes," "will," "estimates" or words of similar meaning,
and by the fact that they do not relate strictly to historical or current facts.
Our forward-looking statements address, among other things:
• the risks associated with international operations; (including pandemics and
public health problems, such as the outbreak of novel coronavirus (COVID-19);
• our expectations concerning product candidates for our technologies;
• our expectations concerning funding of obligations related to potential
acquisitions and generally completing acquisitions;
• our expectations concerning existing or potential development and license
agreements for third-party collaborations, acquisitions and joint ventures;
• our expectations concerning product candidates for our technologies;
• our expectations regarding the cost of raw materials and labor, consumer
preferences, the effect of government regulations on the Company's business,
the Company's ability to compete in its industry, as well as future economic
and other conditions both generally and in the Company's specific geographic
markets;
• our expectations of when regulatory submissions may be filed or when regulatory
approvals may be received; and
• our expectations of when commercial sales of our products in development may
commence and when actual revenue from the product sales may be received.
27
Any or all of our forward-looking statements may turn out to be wrong. They may
be affected by inaccurate assumptions that we might make or by known or unknown
risks and uncertainties. Actual outcomes and results may differ materially from
what is expressed or implied in our forward-looking statements. Among the
factors that could affect future results are:
• the inherent uncertainties of product development based on our new and as yet
not fully proven technologies;
• the risks and uncertainties regarding the actual effect on humans of seemingly
safe and efficacious formulations and treatments when tested clinically;
• the inherent uncertainties associated with clinical trials of product
candidates;
• the inherent uncertainties associated with the process of obtaining regulatory
approval to market product candidates;
• the inherent uncertainties associated with commercialization of products that
have received regulatory approval;
• the decline in our stock price; and
• our current lack of financing for operations and our ability to obtain the
necessary financing to fund our operations and effect our strategic development
plan.
Additional factors that could affect future results of our historical business
are set forth in Part I, Item 1A Risk Factors of our Annual Report on Form 10-K
for the year ended July 31, 2019. We caution investors that the forward-looking
statements contained in this Quarterly Report must be interpreted and understood
in light of conditions and circumstances that exist as of the date of this
Quarterly Report. We expressly disclaim any obligation or undertaking to update
or revise forward-looking statements to reflect any changes in management's
expectations resulting from future events or changes in the conditions or
circumstances upon which such expectations are based.
Executive Summary
Preliminary Note
On August 1, 2019, the Company, through its wholly owned subsidiary NDS, closed
on Asset Purchase Agreements (the "APAs") for the purchase of substantially all
the operating assets of MediSource Partners, LLC ("MediSource") and Pantheon
Medical - Foot & Ankle, LLC ("Pantheon").
We intend to focus resources on NuGenerex Diagnostics, LLC's ("NGDx", as defined
below) business, and on the businesses of Regentys, Olaregen and the MSO
business acquired from Veneto, as well as additional acquisition targets, but do
not intend to discontinue our historical activities. However, we will not pursue
our historical business if we do not receive substantial financing for that
purpose.
Overview of Business
Corporate History
Generex is based in Miramar, Florida, with offices in Dallas, Texas and
Wellesley, Massachusetts. The Company was originally incorporated in the state
of Delaware on September 4, 1997, for the purpose of acquiring Generex
Pharmaceuticals Inc., a Canadian (Province of Ontario) corporation formed in
November 1995 to engage in pharmaceutical and biotechnological research and
development and other activities. The Company's acquisition of Generex
Pharmaceuticals Inc. was completed in October 1997 in a transaction in which the
holders of all outstanding shares of Generex Pharmaceuticals Inc. exchanged
their shares for shares of Generex common stock.
In January 1998, Generex participated in a "reverse acquisition" with Green Mt.
P.S., Inc, ("Green Mt."), an inactive Idaho corporation formed in 1983. As a
result of this transaction, the shareholders of Generex (the former shareholders
of Generex Pharmaceuticals Inc.) acquired a majority (approximately 90%) of the
outstanding capital stock of Green Mt., and Generex became a wholly-owned
subsidiary of Green Mt.; Green Mt. changed its corporate name to Generex
Biotechnology Corporation ("Generex Idaho"), and Generex changed its corporate
name to GBC - Delaware, Inc. Because the reverse acquisition resulted in GBC -
Delaware, Inc. shareholders (formally Generex shareholders) becoming the
majority holders of Generex Idaho, GBC Delaware, Inc. was treated as the
acquiring corporation in the transaction for accounting purposes. Thus, our, GBC
- Delaware, Inc. (formally Generex), historical financial statements, which
essentially represented the historical financial statements of Generex
Pharmaceuticals Inc., were deemed to be the historical financial statements of
Generex Idaho.
28
In April 1999, we completed a reorganization in which GBC - Delaware, Inc.
merged with Generex Idaho. In this transaction, all outstanding shares of
Generex Idaho were converted into shares of GBC - Delaware, Inc.; Generex Idaho
ceased to exist as a separate entity, and we, GBC - Delaware, Inc., changed our
corporate name back to "Generex Biotechnology Corporation." This reorganization
did not result in any material change in our historical financial statements or
current financial reporting.
Following our reorganization in 1999, Generex Pharmaceuticals Inc., which was
incorporated in Ontario, Canada, remained as our wholly-owned subsidiary. All of
our Canadian operations are performed by Generex Pharmaceuticals Inc.; Generex
Pharmaceuticals Inc. is the 100% owner of 1097346 Ontario Inc., which was also
incorporated in Ontario, Canada. In August 2003, we acquired NuGenerex
Immuno-Oncology, Inc. (formerly Antigen Express, Inc.) ("NGIO"), a Delaware
incorporated company. Antigen is engaged in the research and development of
technologies and immunomedicines for the treatment of malignant, infectious,
autoimmune and allergic diseases. On February 28, 2019 Generex issued a dividend
of NGIO to Generex shareholders in the amount of 1 share of Antigen for every 4
shares of Generex common stock. Generex still maintains majority control of
NGIO.
We formed Generex (Bermuda), Inc., which is organized in Bermuda, in January
2001 in connection with a joint venture with Elan International Services, Ltd.,
a wholly-owned subsidiary of Elan Corporation, plc, ("Elan") to pursue the
application of certain of our and Elan's drug delivery technologies, including
our platform technology for the buccal delivery of pharmaceutical products. In
December 2004, we and Elan agreed to terminate the joint venture. Under the
termination agreement, we retained all of our intellectual property rights and
obtained full ownership of Generex (Bermuda), Inc.; Generex (Bermuda), Inc. does
not currently conduct any business activities. We have additional subsidiaries
incorporated in the U.S. and Canada which are dormant and do not carry on any
business activities.
On January 18, 2017, we acquired a majority of the equity interests in Hema
Diagnostic Systems, LLC ("HDS"). In December 2018, we acquired the remaining
interest in HDS. The company, now a wholly-owned subsidiary of Generex, has been
renamed NuGenerex Diagnostics, LLC (NGDx), and is managed by President Harold
Haines, PhD.
On October 3, 2018, our wholly owned subsidiary, NuGenerex Distribution
Solutions, LLC ("NuGenerex"), entered into an asset purchase agreement (the
"Veneto Asset Purchase Agreement") with Veneto Holdings, L.L.C. ("Veneto"),
pursuant to which NuGenerex purchased certain assets of Veneto and its
subsidiaries (the "Assets"). The Veneto Asset Purchase Agreement contains
provisions regarding payment terms, confidentiality and indemnification, as well
as other customary provisions.
Effective October 3, 2018, NuGenerex assigned the Veneto Asset Purchase
Agreement to NuGenerex Distribution Solutions 2, LLC. The sole member of
NuGenerex Distribution Solutions 2, LLC is NuGenerex Management Services, Inc.,
a wholly-owned subsidiary of Generex Biotechnology Corporation.
Also, on October 3, 2018, we acquired certain assets from Veneto (the "First
Closing Assets"), primarily consisting of the operating assets of (a) system
dispensing pharmacies, (b) a central adjudicating pharmacy, (c) a wholesale
pharmaceutical purchasing company, and (d) an in-network laboratory.
On November 1, 2018, we consummated the acquisition of Veneto assets (the
"Second Closing Assets"), consisting primarily of Veneto's management services
organization business and other assets. The aggregate price for the First
Closing Assets and the Second Closing Assets was $30,000,000. We issued a
promissory note in the principal amount of $35,000,000 (the "New Note")
consisting of the $30,000,000 purchase price and a $5,000,000 original issue
discount, as the sole consideration payable on the Second Closing Date. On
January 15, 2019, the parties entered into an amendment to the Asset Purchase
Agreement (the "Amendment") restructuring payment of the New Note.
29
On March 28, 2019, the Company entered into an amendment, a "Restructuring
Agreement" with Veneto and the equity owners of Veneto to restructure the
payment of the New Note that provided, in lieu of any cash payments, the Company
delivered on May 23, 2019 11,760,000 shares of our common stock; plus an
aggregate 5,500,000 shares of the common stock of our subsidiary, Antigen. The
Veneto assets acquired by Generex included management services operations,
systems, facilities, and other services.
On January 7, 2019, we acquired a majority interest in Regentys Corporation
("Regentys") for an aggregate of $15,000,000, among which $400,000 was paid in
cash and the remainder was paid by the issuance of a promissory note with a fair
value of $14,342,414 for a total net purchase price of $14,742,414. The total
fair value of the assets acquired totaled $907,883 and goodwill of $13,834,581.
Installments payable under the note were tied to specific business development
objectives and dates. As of January 31, 2020, an additional $150,000 was paid
for a total of $1,162,000 against the note. Regentys is developing a
non-surgical treatment for inflammatory bowel diseases such as ulcerative
colitis and Crohn's disease.
On January 7, 2019, we acquired a majority interest in Olaregen Therapeutix Inc.
("Olaregen") for an aggregate of $12,000,000, among which $400,000 was paid in
cash and the remainder was paid by the issuance of a promissory note with a fair
value of $11,472,334 for a total net purchase price of $11,872,663. The total
fair value of the assets acquired totaled $2,461,439 and goodwill of $9,411,224.
$1,754,800 principal was paid against the note as of January 31, 2020 and an
additional $13,770 was paid subsequently for a total aggregate of $1,768,570 of
principal payments in addition to the $400,000 initial payment. Olaregen is
launching an FDA-510(k) cleared wound care product.
On May 10, 2019, we acquired from a third party the outstanding Series A
Preferred Stock in Olaregen in exchange for 4 million shares of the Company's
common stock, plus the issuance of a $2 million promissory note increasing our
interest in Olaregen to approximately 62% of the Olaregen's outstanding voting
shares.
On August 16, 2019, the Company entered into a Share Exchange Agreement to
purchase an additional 900,000 shares of common stock in Olaregen from other
shareholders of Olaregen in exchange for 1,905,912 shares of Generex common
stock and 476,478 shares of NGIO common stock which increased our interest in
Olaregen to approximately 77% of the Olaregen's outstanding voting shares. In
September 2019, the Company converted all of the Series A Preferred Stock of
Olaregen into common stock of Olaregen.
On February 14, 2020, Olaregen exchanged all of its outstanding shares for
5,950,000 shares of Generex common stock and 2,765,000 shares of NGIO in. After
this transaction, Generex owns 100% of the outstanding shares of Olaregen.
Historical Business
Historically, we have been a research and development company focused on the
commercialization of Oral-lyn buccal insulin spray for diabetes. Additionally,
through our subsidiary NGIO, we have a deep intellectual property portfolio of
immunotherapy assets relating to the "Ii-Key" technology that activates the
immune response for the treatment of cancer and infectious diseases. We have
completed a Phase IIb clinical trial of AE37 immunotherapeutic peptide vaccine
with the Ii-Key technology in over 300 women with breast cancer.
In 2017, we acquired HDS (now NuGenerex Diagnostics) and their diagnostic
product portfolio of rapid point-of-care EXPRESS test kits and cassettes for
infectious disease testing.
We believe that these legacy diagnostics, diabetes and cancer assets are may
have significant value which is not being recognized due to missteps in the
clinical development process by previous management, resulting inability to
raise capital necessary to fund further development. We think the products and
IP portfolio retain significant value. A recently signed co-development deal
with a major pharmaceutical company for AE37 in triple negative breast cancer,
and a licensing deal in China for AE37 in prostate cancer illustrate the
potential for AE37 immunotherapeutic vaccine. Additionally, Oral-lyn has been
reformulated to enter clinical trials for Type II diabetes. The HDS EXPRESS
diagnostic technology has been expanded with the new, patent-pending EXPRESS II
technology and a new product pipeline. We filled our first international
commercial order for 40,000 units of its NGDx -Malaria PF/PV Cassette Test
Kit to Imres, BV, a Netherlands-based medical distribution company, and was
recently granted a CE Mark Certification under the European Medical Devices
Directive (MDD) for its The Express II Syphilis Treponemal Assay, a rapid
point-of-care diagnostic assay for the detection of syphilis antibodies in
primary and secondary syphilis. As part of the reorganization plan, we placed
our legacy assets into separate subsidiaries under the NuGenerex family of
companies, including NuGenerex Diagnostics, NGIO, and NuGenerex Therapeutics
(Oral-Lyn and RapidMist buccal delivery technology). Our strategy is to spin out
NGIO as a separately traded public company, to reignite the Oral-Lyn development
program with a reformulated buccal insulin spray, and to build out the
diagnostics business, as detailed in the following paragraphs, however there are
no assurances that we will be able to accomplish our strategic objectives.
30
Treatment of Legacy Assets
Generex and its subsidiary companies have extensive patent portfolios, with
intellectual property for composition of matter, formulation, design, and use in
a number of therapeutic areas, across multiple indications. As described, we
plan to build our legacy assets with the ultimate goal to spin-out such assets
at the appropriate time, which have been incorporated into NuGenerex subsidiary
companies in an effort to unlock the potential unrealized value of the
intellectual property and commercial opportunities for these development
companies in major markets for immuno-oncology, diabetes, and infectious disease
testing:
• NuGenerex Therapeutics: Oral-lyn (Buccal Insulin) and RapidMist Buccal delivery
technology
• NuGenerex Immuno-Oncology: Phase II AE37 + Keytruda in TNBC; Antigen Express
(Ii-Key), Licensing, Partnerships, investor dividend paid (1:4) for spin-out
• NuGenerex Diagnostics: NGDx Express II rapid diagnostic tests for infectious
disease.
NuGenerex Therapeutics
NuGenerex Therapeutics houses the legacy diabetes assets, Oral-Lyn and RapidMist
buccal delivery technology. We believe that our buccal delivery technology is a
platform technology that has application to many large molecule drugs and
designed to provide a convenient, non-invasive, accurate and cost-effective way
to administer such drugs. We have identified several large molecule drugs as
possible candidates for development, including cannabinoid medicines. To that
end we have entered into a licensing agreement with Scientus Pharmaceuticals for
the use of the RapidMist technology for the administration of cannabinoids.
Buccal Delivery Technology and Products
Our buccal delivery technology involves the preparation of proprietary
formulations in which an active pharmaceutical agent is placed in a solution
with a combination of absorption enhancers and other excipients classified
"generally recognized as safe" ("GRAS") by the U.S. Food and Drug Administration
("FDA") when used in accordance with specified quantities and other limitations.
The resulting formulations are aerosolized with a pharmaceutical grade chemical
propellant and are administered to patients using our proprietary RapidMist™
brand metered dose inhaler. The device is a small, lightweight, hand-held,
easy-to-use aerosol applicator comprised of a container for the formulation, a
metered dose valve, an actuator and dust cap. Using the device, patients
self-administer the formulations by spraying them into the mouth. The device
contains multiple applications, the number being dependent, among other things,
on the concentration of the formulation. Absorption of the pharmaceutical agent
occurs in the buccal cavity, principally through the inner cheek walls. In
clinical studies of our flagship oral insulin product Generex Oral-lyn™, insulin
absorption in the buccal cavity has been shown to be efficacious and safe.
Buccal Insulin Product - Generex Oral-Lyn™
Insulin is a hormone that is naturally secreted by the pancreas to regulate the
level of glucose, a type of sugar, in the bloodstream. The term "diabetes"
refers to a group of disorders that are characterized by the inability of the
body to properly regulate blood glucose levels. When glucose is abundant, it is
converted into fat and stored for use when food is not available. When glucose
is not available from food, these facts are broken down into free fatty acids
that stimulate glucose production. Insulin acts by stimulating the use of
glucose as fuel and by inhibiting the production of glucose. In a healthy
individual, a balance is maintained between insulin secretion and glucose
metabolism.
31
According to the Centers for Disease Control (CDC), there are two major types of
diabetes. Type 1 diabetes (juvenile onset diabetes or insulin dependent
diabetes) refers to the condition where the pancreas produces little or no
insulin. Type 1 diabetes accounts for 5-10 percent of diabetes cases (CDC). It
often occurs in children and young adults. Type 1 diabetics must take daily
insulin injections, typically three to five times per day, to regulate blood
glucose levels. Generex Oral-lyn™ provides a needle-free means of delivering
insulin for these patients.
According to the American Diabetes Association, in Type 2 diabetes (adult onset
or non-insulin dependent diabetes mellitus), the body does not produce enough
insulin, or cannot properly use the insulin produced. Type 2 diabetes is the
most common form of the disease and accounts for 90-95 percent of diabetes
cases, according to the American Diabetes Association. In addition to insulin
therapy, Type 2 diabetics may take oral drugs that stimulate the production of
insulin by the pancreas or that help the body to more effectively use insulin.
Generex Oral-lyn™ provides a simple means of delivering needed insulin to this
major cohort of individuals.
Studies in diabetes have identified a condition closely related to and preceding
diabetes, called impaired glucose tolerance (IGT). People with IGT do not
usually meet the criteria for the diagnosis of diabetes mellitus. They have
normal fasting glucose levels but two hours after a meal their blood glucose
level is far above normal. With the increase use of glucose tolerance tests the
number of people diagnosed with this pre-diabetic condition is expanding
exponentially. Per the 2017 Diabetes Atlas Update, published by the
International Diabetes Federation (IDF), approximately 40 million people in the
United States and more than 425 million people world-wide suffer from IGT.
Generex Oral-lyn™ is an ideal solution to providing meal-time insulin to the
millions of IGT sufferers. This therapeutic area is currently being
investigated.
There is no known cure for diabetes. The IDF estimates that there are currently
approximately 382 million diabetics worldwide per their 2017 Diabetes Atlas
Update and is expected to affect over 592 million people by the year 2035. There
are estimated to be over 37 million people suffering from diabetes in North
America alone and diabetes is the second largest cause of death by disease in
North America.
A substantial number of large molecule drugs (i.e., drugs composed of molecules
with a high molecular weight and fairly complex and large spatial orientation)
have been approved for sale in the United States or are presently undergoing
clinical trials as part of the process to obtain such approval, including
various proteins, peptides, monoclonal antibodies, hormones and vaccines. Unlike
small molecule drugs, which generally can be administered by various methods,
large molecule drugs historically have been administered predominately by
injection. The principal reasons for this have been the vulnerability of large
molecule drugs to digestion and the relatively large size of the molecule
itself, which makes absorption into the blood stream through the skin
inefficient or ineffective. The RapidMist technology provides a recognized and
proven drug delivery system for the delivery of large molecules directly into
the blood stream with the attendant advantages.
Oral-lyn History
In May 2005, we received approval from the Ecuadorian Ministry of Public Health
for the commercial marketing and sale of Generex Oral-lyn™ for treatment of Type
1 and Type 2 diabetes. We have successfully completed the delivery and
installation of a turnkey Generex Oral-lyn™ production operation at the
facilities of PharmaBrand in Quito, Ecuador. The first commercial production run
of Generex Oral-lyn™ in Ecuador was completed in May 2006. While Ecuador
production capability may be sufficient to meet the needs of South America, it
is believed to be insufficient for worldwide production for future commercial
sales and clinical trials.
On the basis of the test results in Ecuador and other pre-clinical data, we made
an Investigational New Drug ("IND") submission to Health Canada (Canada's
equivalent to the FDA) in July 1998, and received permission from the Canadian
regulators to proceed with clinical trials in September 1998. We filed an IND
application with the FDA in October 1998, and received FDA approval to proceed
with human trials in November 1998.
We began our clinical trial programs in Canada and the United States in January
1999. Between January 1999 and September 2000, we conducted clinical trials of
our insulin formulation involving approximately 200 subjects with Type 1 and
Type 2 diabetes and healthy volunteers. The study protocols in most trials
involved administration of two different doses of our insulin formulation
following either a liquid Sustacal meal or a standard meal challenge. The
objective of these studies was to evaluate our insulin formulation's efficacy in
controlling post-prandial (meal related) glucose levels. These trials
demonstrated that our insulin formulation controlled post-prandial hyperglycemia
in a manner comparable to injected insulin. In April 2003, a Phase II-B clinical
trial protocol was approved in Canada. In September 2006, a Clinical Trial
Application relating to our Generex Oral-lyn™ protocol for late-stage trials was
approved by Health Canada. The FDA's review period for the protocol lapsed
without objection in July 2007.
32
In late April 2008, we initiated Phase III clinical trials in North America for
Generex Oral-lyn™ with the first subject screening in Texas. Other clinical
sites participating in the study were located in the United States (Texas,
Maryland, Minnesota and California), Canada (Alberta), European Union (Romania,
Poland and Bulgaria), Eastern Europe (Russia and Ukraine),) and Ecuador.
Approximately 450 subjects were enrolled in the program at approximately 70
clinical sites around the world. The Phase III protocol called for a six-month
trial with a six-month follow-up with the primary objective to compare the
efficacy of Generex Oral-lyn™ and the RapidMist™ Diabetes Management System with
that of standard regular injectable human insulin therapy as measured by HbA1c,
in patients with Type-1 diabetes mellitus. The final subjects completed the
trial in August 2011. After appropriate validation, the data from approximately
450 patients was tabulated, reviewed and analyzed. Those results from the Phase
III trial along with a comprehensive review and supplemental analyses of
approximately 40 prior Oral-lyn clinical studies were compiled and submitted to
the FDA in late December 2011 in a comprehensive package including a composite
metanalysis of all safety data. We do not currently plan to expend significant
resources on additional clinical trials of Oral-lyn™ until after such time that
we secure additional financing. However, we have undertaken a formulation
enhancement project with the University Health Network at the University of
Toronto and the University of Guelph, Ontario to increase the amount of insulin
reaching the blood stream. We believe that the preliminary results from an
animal study are encouraging,
In the past, we engaged a global clinical research organization to provide many
study related site services, including initiation, communication with sites,
project management and documentation; a global central lab service company to
arrange for the logistics of kits and blood samples shipment and testing; an
Internet-based clinical electronic data management company to assist us with
global data entry, project management and data storage/processing of the Phase
III clinical trial and regulatory processes. In the past, we have contracted
with third-party manufacturers to produce sufficient quantities of the
RapidMist™ components, the insulin, and the raw material excipients required for
the production of clinical trial batches of Generex Oral-lyn™.
Future Plans
We have reformulated the original Oral-Lyn buccal insulin as a new patentable
Oral-Lyn 2 that requires only 2 - 3 pre-prandial (before meal) sprays for the
treatment of Type II diabetes. The reformulated Oral-lyn 2 was made possible by
new techniques in protein chemistry and pharmaceutical formulation science, that
with minimal changes in the production process and content of the components,
allow the development of a new and improved, concentrated insulin formulation
for improved diabetes management.
NuGenerex has engaged the University of Toronto's Center for Molecular Design
and Pre-formulations (CMDP) through the University Health Network with the goal
of enhancing the Oral-lyn™ 2 formulation to make it more attractive to patients
and prospective commercialization partners by increasing the bioavailability of
insulin in the product and reducing the number of sprays required to achieve
effective prandial metabolic control for patients with diabetes. Under the
supervision of NuGenerex consultant Dr. Lakshmi P. Kotra, B.Pharm. (Hons),
Ph.D., of CMDP, preliminary efforts succeeded in increasing the insulin
concentration in the product by approximately 400 - 500% as confirmed by a
variety of in vitro testing procedures, while preserving the solubility,
stability, biologic activity, and potency of the insulin in the formulation.
NuGenerex subsequently entered into a Research Services Agreement with the
University of Guelph pursuant to which Dr. Dana Allen, DVM, MSc. and Dr. Ron
Johnson, DVM, Ph.D. of the Ontario Veterinary College of the University of
Guelph conducted a study of the relative bioavailability of the enhanced
formulation in dogs in the University's Comparative Clinical Research Facility.
The University had previously conducted the studies of the original formulation
of Generex Oral-lyn™ for proof of concept, safety, and toxicity.
33
In the new studies, the enhanced NuGenerex Oral-lyn™ 2 formulation was compared
with the original formulation in a blinded, parallel controlled study involving
fasted, awake, healthy mature beagle dogs. Each dog received three sprays of
either the enhanced formulation or the original formulation. Each dog was
observed with assessments of serum insulin and glucose measured over a two-hour
period. There were no adverse events observed in any of the animals.
In the dogs given the enhanced Generex Oral-lyn™ formulation (5X), there was a
greater than 20-fold increase in serum insulin at 15 minutes (excluding one dog
who had little response at any time point; (with dog included it was greater
than 5-fold)) and almost 500% greater absorption of insulin over the two-hour
test period compared to dogs given the original formulation (1X). There was a
33% decrease in serum glucose at 30 minutes in dogs treated with the enhanced
Generex Oral-lyn™ formulation, compared to a 12% increase in serum glucose in
dogs treated with the original formulation.
The results of the dog studies coupled with the positive findings from the in
vitro work provide support and confidence to move forward with the remaining
clinical and regulatory work necessary to achieve FDA approval of the enhanced
NuGenerex Oral-lyn™ formulation through a 505(b)2 NDA.
The combined results provide evidence that the enhanced NuGenerex Oral-lyn™ 2
will be able to be used by people with either type 1 or type 2 diabetes mellitus
as a safe, simple, fast, flexible, and effective alternative to pre-prandial
insulin injections with dosing of only two to four sprays required before meals.
The Oral-lyn Safety Database contains information on 1,496 subjects. Eight
hundred sixty-nine (869) subjects were exposed to Oral-lyn, while 627 served as
Control subjects and were exposed to commercially available oral
antihyperglycemics, injected insulin, or Oral-lyn placebo. There were 695
subjects in pK/pD studies (368, Oral-lyn; 327, Control) and 801 subjects in
efficacy trials (501, Oral-lyn; 300, Control).
Two hundred seventy-two (272) Oral-lyn subjects reported at least one adverse
event (132 in pK/pD studies; 140 in efficacy studies) while 278 Control subjects
reported at least one adverse event (111 in pK/pD studies; 167 in efficacy
studies). With respect to adverse events by Maximum Severity there appeared to
be no significant differences between Oral-lyn and the Control groups in either
the Efficacy or the pK studies.
In summary, there appear to be no indications of any significant unexpected
adverse events. The expected events of hypoesthesia oral, throat irritation, dry
throat, and cough were for the most part mild and could be consistent with the
Oral-lyn therapy especially during the learning phase of administration. There
was an indication of overlap of some of these events with multiple event terms
in the constellation of upper respiratory tract infection that appeared to be
balanced across therapy groups.
Our strategy is to revitalize our diabetes program by advancing the reformulated
buccal spray Oral-lyn 2 for the treatment of Type II diabetes, and to integrate
Oral-Lyn 2 therapy into our end-to-end solution for disease management through
our MSO model.
Beyond Oral-lyn 2 for Type II diabetes, NuGenerex Drug Delivery Solutions will
advance the RapidMist buccal delivery technology with additional small and large
molecule drugs which will benefit from an alternative route of administration.
NuGenerex Immuno-Oncology (NGIO, formerly Antigen Express)
NGIO is developing immunotherapeutic products and vaccines based on our
proprietary, patented platform technology, Ii-Key. The Ii-Key is a peptide
derived from the major histocompatibility complex (MHC) Class II associated
invariant chain (Ii) that regulates the formation, trafficking, and
antigen-presenting functions of MHC class II complexes, essential for the
activation of T cells in the immune response. T cells recognize antigenic
epitopes when they are 'presented' to them by specific molecules, termed (MHC)
on the surface of infected or malignant cells. This interaction activates the T
cells, stimulating a multicellular cascade of actions that eliminates the
diseased cell and protects against future disease recurrence.
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When the Ii-Key peptide is linked to an antigenic epitope, it can bind to MHC
Class II molecules, displacing resident antigens from the antigen binding
groove, essentially 'hijacking' the MHC class II complex to present the Ii-Key
epitope to selectively activate T-Cell Th1 responses, thereby increasing the
intensity and duration of the immune response.
NGION has developed a number of Ii-Key Hybrid peptides for the immunotherapeutic
targeting of tumor associated antigens (TAAs) in cancer and for vaccines against
infectious diseases.
Ii-Key hybrid peptides can also be used to selectively activate Th2 responses
and thereby induce tolerance to antigens involved in harmful immune reactions,
e.g. autoimmunity, allergy, and transplant rejection.
AE37 - Ii-Key/HER2/neu Hybrid Immunotherapeutic Vaccine
Our most advanced immunotherapy vaccine is AE37, an Ii-Key-Hybrid molecule that
contains the HER2/neu antigenic peptide linked to the Ii-Key to enhance immune
stimulation against HER2, which is expressed in numerous cancers, including
breast, prostate, and bladder cancers. We have completed a Phase I clinical
trial of AE37 in breast cancer: A phase Ib safety and immunology study of AE37
and GM-CSF in 16 breast cancer patients who had completed all first-line
therapies and who were disease-free at the time of enrollment to the
study (Holmes et al. Results of the first phase I clinical trial of the novel
Ii-Key hybrid preventive HER-2/neu peptide (AE37) vaccine. J Clin Oncol
2008;26:3426-33). Furthermore, we completed a Phase IIb trial of AE37 in the
prevention of cancer recurrence in women who were at high risk of recurrence
after undergoing successful primary standard of care breast cancer therapies and
were disease free at time of enrollment. Though the study enrolled 300 subjects,
the results were not statistically significant due to a complete lack of
recurrence in the 160 women with HER2-3+ positive tumors who were treated with
Herceptin during primary therapy. Though the trial was not powered to evaluate
the prevention of recurrence in subgroups, the trial indicated efficacy in the
subset of patients diagnosed with HER2 1+, 2+, and triple negative breast
cancer.
Based on the results from this trial, NuGenerex has entered into a collaborative
agreement with Merck Sharpe & Dohme B.V. (Merck) and the National Surgical
Adjuvant Breast and Prostate Program (NSABP) to conduct a Phase II trial to
evaluate the safety and efficacy of AE37 in combination with the
anti-PD-1 therapy, KEYTRUDA (pembrolizumab) in patients with metastatic
triple-negative breast cancer. The trial began enrolling patients in the first
quarter of 2020.
In addition to the breast cancer program, NuGenerex has conducted a Phase I
clinical trial in prostate cancer, enrolling thirty-two HER-2/neu+,
castrate-sensitive, and castrate-resistant prostate cancer patients to
demonstrate safety and strong immunological response to AE37. We are advancing
AE37 for the treatment of prostate cancer through a licensing and research
agreement with Shenzhen BioScien Pharmaceuticals Co., Ltd. ("Shenzhen"), for
which NuGenerex has received a $700,000 upfront payment, with additional future
milestone and royalty payments.
In exchange for exclusive rights to AE37 for prostate cancer in China, Shenzhen
is financing and conducting the Phase II trials in the European Union and Phase
III trials globally under International Commission on Harmonisation ("ICH")
guidelines, with NuGenerex retaining the rights to all clinical data for
regulatory submissions and commercialization in the rest of the world outside
China.
Future Plans
NGIO has been established to not only to advance the NGIO core technology, but
also to expand our portfolio in the field of immunotherapy and personalized
medicine through partnerships and acquisitions. As part of our strategy, we are
planning to spin-out NGIO as a separate, publicly traded entity to unlock the
true value of the Ii-Key technology for our stockholders as it creates a pure
play in immunotherapy, which will foster investment and collaboration.
As an initial step in accomplishing the spin-out of NGIO, on February 25, 2019,
we issued a stock dividend to our shareholders, whereby our shareholders
received 1 share of NGIO for every 4 shares of our stock held on the dividend
date. The stock dividends will enable our stockholders to directly participate
in the potentially promising future of NGIO, while creating a large shareholder
base with the potential for substantial liquidity immediately upon spin-out to a
national exchange, which will provide NGIO with ready access to the capital
markets to finance its on-going clinical and regulatory initiatives.
35
Additionally, we are in discussions with multiple academic institutions and
biotechnology development companies to acquire products and technologies to
augment the NGIO development pipeline and product portfolio.
On February 28, 2020, the Company signed a contract from the China Technology
Exchange, Beijing Zhonghua Investment Fund Management Co., LTD., and
Sinotek-Advocates International Industry Development (Shenzhen) Co., LTD. to
develop a COVID-19 vaccine using the Ii-Key peptide vaccine platform of
Nugenerex immune-Oncology (NGIO). The terms of the contract include an upfront
payment of $1 million to initiate the project work in the United States, a $5
million licensing fee for the Ii-Key technology, payment by the Chinese
consortium for all costs and expenses related to the development of a COVID-19
vaccine, and a substantial royalty on each dose of vaccine produced.
Under the terms of the agreement, Generex will generate a series of Ii-Key
peptides linked with nCOV-2019 coronavirus epitopes, as predicted by proprietary
computer algorithms and deliver them to our partners in China for testing
against blood samples from patients who have recovered from COVID-19. This
screening program should yield data indicating which Ii-Key-nCOV epitopes are
recognized by the human immune system, and therefore are potential peptide
vaccine candidates. Once the most reactive peptides are identified, the group
plans to manufacture multi-valent Ii-Key peptide vaccines for evaluation in
human clinical trials in China. When the optimal vaccine formulation is
determined, Generex intends to initiate the requisite clinical trials of the
Ii-Key-nCOV peptide vaccine for approval in the United States.
We finalized our corporate acquisition strategy in the second quarter of 2020
and have initiated the spin-out process for NGIO in the third quarter of 2020.
NuGenerex Diagnostics (formerly Hema Diagnostic Systems LLC)
Our wholly-owned subsidiary, NuGenerex Diagnostics (formerly Hema Diagnostic
Systems LLC or HDS) is in the business of developing, manufacturing, and
distributing rapid point-of-care in-vitro medical diagnostics for infectious
diseases. These are commonly referred as rapid diagnostic tests ("RDTs"). We
manufacture and sell RDTs based upon our own proprietary EXPRESS platforms as
well as standard "cassette" devices.
Since its founding, NuGenerex Diagnostics has been developing and continues to
develop an expanding line of RDTs for infectious disease diagnosis. These
include products for human immunodeficiency virus (HIV), tuberculosis, malaria,
hepatitis B, hepatitis C, syphilis, and others. These assays are all qualitative
in nature and provide a simple positive or negative result directly at the
clinical site. They can be used for definitive diagnosis, triage or in
combination with other assays depending on which disease is being considered.
Each device incorporates a test strip containing reagent lines (stripes) that
have been impregnated with specific antigens or antibodies that detect the
target molecules specific to an infectious disease. The test strips are
incorporated into our proprietary EXPRESS platforms which are easy-to-use and
user-friendly diagnostic devices. There are two EXPRESS platforms; the EXPRESS
and the EXPRESS II. The EXPRESS II is an upgraded version of the original
EXPRESS and its use involves fewer operator steps, making it of higher clinical
utility value. The Express II platform is designed to be used in a broad range
of clinical and laboratory medical settings and for direct use by consumers in
the home. It is simple to use, with fewer steps of operation than other rapid
point-of-care tests. A single drop of blood taken by a simple finger stick is
added directly to the device and the assay is activated by placing a pod of
buffer solution onto the device. Results can be read in as early as 5 minutes,
and no longer than 30 minutes. The accuracy of the Express II Syphilis
Treponemal Assay is equal to or better than standard laboratory assays for
syphilis antibodies with sensitivities and specificities of over 99%.
We believe that each system delivers its own advantages which enhance the use,
application and performance of each diagnostic. This ease of use in the EXPRESS
delivery systems is designed to ensure that our RDTs perform efficiently and
effectively providing the most accurate and repeatable test results available
while, at the same time, minimizing the transference of a potentially infected
blood sample. The EXPRESS and cassette diagnostic kits for infectious disease
testing are designed for use in resource-poor countries throughout the world,
especially in sub-Saharan Africa, where the World Health Organization
coordinates population screening for infectious diseases. We recently filled our
first international commercial order for 40,000 units of its NGDx -Malaria PF/PV
Cassette Test Kit to Imres, BV, a Netherlands-based medical distribution
company.
NuGenerex Diagnostics was recently granted a CE Mark Certification under the
European Medical Devices Directive (MDD) for its The Express II Syphilis
Treponemal Assay, a rapid point-of-care diagnostic assay for the detection of
syphilis antibodies in primary and secondary syphilis. The assay is based upon
NuGenerex Diagnostic's innovative patent pending point-of-care diagnostic
platform, the Express II. The accuracy of the Express II Syphilis Treponemal
Assay is equal to or better than standard laboratory assays for syphilis
antibodies with sensitivities and specificities of over 99%.
36
With the receipt of the CE Mark Certification for its rapid point-of-care
Express II Syphilis Treponemal Assay, we believe NuGenerex Diagnostics is well
situated to enter into this growing syphilis testing market and will now pursue
marketing efforts in Europe and, in parallel, begin plans for the filing of a
510k application with the United States FDA for marketing clearance in the
United States. To this end, NuGenerex Diagnostics is fully qualified as a
diagnostic test developer and manufacturer under FDA Good Manufacturing
Procedures (GMP) and is certified by the International Standards Organization
for the manufacture of medical devices under ISO 13485-2016 regulations.
NuGenerex Diagnostics has just begun a new initiative which revolves around the
development of quantitative rapid diagnostic assays. These assays allow
laboratory personnel and clinicians to assess the absolute amount of specific
target molecules in blood or serum samples as opposed to "yes" or "no" results
of qualitative RDTs. The first assay to be developed is a multiplex biomarker
test for the diagnosis of sepsis and the potential differentiation of infectious
sepsis from systemic immune response syndrome (SIRS).
We maintain an FDA registered facility in Miramar, Florida and are certified
under both ISO9001 and ISO13485 for the Design, Development, Production and
Distribution of the in-vitro devices. Approval of our HIV rapid test has been
issued by the United States Agency for International Development (USAID).
Additionally, some of our products qualified for and carry the European Union
"CE" Mark, which allows us to enter into CE Member countries subject to
individual country requirements. Currently, we have two malaria rapid tests
approved under World Health Organization (WHO) guidelines. This process allows
expedited approval of rapid tests, reducing the current 24 -30-month process
down to approximately 6-9 months. WHO approval is necessary for our products to
be used in those countries which rely upon the expertise of the WHO, as well as
for non-governmental organizations ("NGO") funding for the purchase of
diagnostic products.
We maintain current U.S. Certificates of Exportability that are issued by two
FDA divisions-CBER and CDRH. CBER (Center for Biologicals Evaluation and
Research) is the FDA regulatory division that oversees infectious disease
diagnostic devices, including our HIV, Hepatitis B and Hepatitis C EXPRESS and
EXPRESS II kits. The other division, Center for Devices and Radiological Health
(CDRH), is responsible for the oversight of other HDS devices which include
Tuberculosis, Syphilis, and the remaining product line. Our HDS facility
maintains FDA Establishment Registration status and is in accord with GMP (Good
Manufacturing Practice) as confirmed by the FDA.
We do not currently have FDA clearance to sell our products in the United
States. We intend to submit selected devices to the FDA under a Pre-Market
Approval Application (PMA) or through the 510K process. The 510K would require
the appropriate regulatory administrative submissions as well as a limited
scientific review by the FDA to determine completeness (acceptance and filing
reviews); in-depth scientific, regulatory, and Quality System review by
appropriate FDA personnel (substantive review); review and recommendation by the
appropriate advisory committee (panel review); and final deliberations,
documentation, and notification of the FDA decision. The PMA process is more
extensive, requiring clinical trials to support the application. We expect to
apply to the FDA for clearance of our first RDT (Express II Syphilis Treponemal
Assay) for FDA 510K approval in early 2020. We anticipate the FDA process will
be completed within 9 months after submission. During this timeline, we will be
preparing documentation for additional rapid tests to undergo either the FDA PMA
or 510k process.
37
Generex plans to use the NuGenerex Diagnostics subsidiary to build a
multi-faceted diagnostics business focused on personalized medicine. To that
end, we are exploring opportunities in multiplex assays for point-of-care
infectious disease testing, pharmacogenomic testing for medication management,
and biomarker analysis for personalized cancer treatment, including
immunotherapy.
The "New" Generex & The NuGenerex Family of Subsidiary Companies
Through reorganization and acquisition, we are building the family of NuGenerex
subsidiary companies to provide end-to-end solutions for physicians and
patients. To that end, our subsidiary NuGenerex Distribution Solutions (NDS) has
established a network of physicians, ancillary service providers, and patients
through a Management Services Organization (MSO). As the MSO network currently
consists of orthopedic surgeons and podiatrists, we have acquired and/or have
agreements to acquire a number of revenue-generating companies that manufacture,
market and distribute surgical and wound healing products. The acquisitions
include Olaregen Therapeutix, a regenerative medicine company that has recently
launched Excellagen wound conforming gel, which is FDA-cleared for the
management of 17 wound healing indications, and Regentys, a clinical-stage
development company with regenerative medicine technology for the treatment of
inflammatory bowel diseases; Pantheon Medical, a manufacturer of patented,
FDA-cleared foot & ankle kits with surgical plates, screws, and tools; and
MediSource Partners, a licensed distributor of surgical supplies, orthopedic
implants, and biologics, including human placental derived tissue products for
regenerative medicine applications. Additionally, NDS will be launching a new
software as a service (SaaS) business called DME-IQ that enables orthopedic
surgeons to manage in-house programs for orthopedic durable medical equipment,
including inventory controls, insurance adjudication, and patient billing.
Together, under the banner of these subsidiary companies offer a range of
products and services to meet the needs of our proprietary distribution
channels. Cross selling of products and services will enhance the revenue
opportunities for the entire family of NuGenerex subsidiaries.
Our corporate mission is to provide end-to-end solutions for physicians and
patients through geographic expansion of our MSO model, diversification of
management services offerings, the establishment of an HMO in partnership with
Dr. Kiran Patel, and the proposed acquisition of an Accountable Care
Organization for complex care.
The NuGenerex family of subsidiary companies offer a broad range of products and
services to meet the needs of physicians and patients, including:
• NuGenerex Distribution Solutions: MSO, Ancillary Services, DME-IQ, and Surgical
Products.
• NuGenerex Regenerative Medicine: Olaregen Therapeutix, Regentys.
• NuGenerex Surgical Products: Pantheon Medical - Foot & Ankle, LLC and
MediSource Partners, LLC.
• NuGenerex Health: MSO/HMO with Dr. Kiran Patel: Ancillary health management
services for chronic conditions - 65,000 + Patient population with Diabetes;
Ophthalmology, Podiatry, Chronic Care Management (CCM).
Services and Products
NuGenerex Distribution Solutions
Generex Biotechnology established NuGenerex Distribution Solutions (NDS) in 2018
as the foundational piece in the transformation of the Company into an
integrated healthcare holding company that provides end-to-end solutions for
physicians and patients. Part of the NDS model includes a physician-owned MSO
which is positioned to procure our new products and services as made available.
NDS will also continue to provide inventory selection and management, as well as
management services for legal and regulatory compliance, accounting, HR, IT and
customer support services through the MSO networks.
We serve as the General Partner of the MSO which is 99% owned by over 50
entities. The entities included orthopedic and podiatric surgery centers with
over 100 Physicians in 5 states and this MSO structure creates the foundation of
our future alternative distribution channel with an open sales channel for
products and services. The company plans to expand its geographic footprint
nationally where appropriate.
38
NuGenerex Distribution Solutions Corporate Mission NDS benefits the medical
community by providing cost effective ancillary services that ultimately deliver
better outcomes and enhance the doctor-patient relationship. NDS will make
available numerous best of class products and services using a patient centric
approach that enables ancillary service providers, physicians, and patients to
better coordinate healthcare services from diagnosis through treatment and
follow-up.
NDS Expansion
The NuGenerex MSO network has operated in five states and is configuring a roll
out which will be compliant and take costs out of healthcare through better
outcomes. Those organizations which invest in our new MSO model will be aligned
solely with our GNBT shareholders and will receive discount codes to procure our
products such as Excellagen.
DME-IQ
NuGenerex Distribution Solutions is planning a launch DME-IQ, a novel software
as a service (SaaS) solution for physicians to manage in-office distribution of
durable medical equipment (DME). DME-IQ supports the development and management
of compliant and profitable in-office DME programs. DME-IQ focuses on several
key areas which include negotiating on behalf of the physicians with key vendors
to decrease the COGS (Cost of Goods Sold), increasing insurance collections by
providing oversight of the coding during the billing process, providing the
necessary personnel to manage the appeals processes, and ensuring compliance
with state and federal regulations.
DME-IQ will automate and provide the orthopedic practices with a proprietary,
tablet-based software package that immediately verifies patient benefits and
eligibility. This unique system manages DME inventory, collects patient copays
and deductibles, and links patient information with the DME products and
necessary patient forms all in one easy to use platform.
The DME Market
The US market for DME is large and growing, a result of several factors
including the rising prevalence of chronic diseases requiring long-term care,
the rapidly growing geriatric population, and the trend toward home healthcare
services. Chronic disorders such as diabetes, diabetic foot & pressure ulcers,
chronic pain, and cancer that require long-term patient care and postoperative
recovery are driving demand for DME. According to a 2018 market report by Grand
View Research, Inc., the US DME market is expected to reach $70.8 billion by
2025, growing at a 6.0% CAGR during the forecast period.
DME-IQ tracks and maintains DME inventory to ensure an adequate supply and
product mix for orthopedic patient populations, and the system facilitates
insurance claim submissions and adjudication to help achieve optimal
reimbursements. With the DME-IQ system, the practice gains control of their DME
program from an operations and financial perspective, while patients gain access
to a wider variety of DME products that are custom fitted for their needs.
The explosion of high deductible insurance plans has resulted in a dramatic
increase of patient out-of-pocket payments for care, and the subsequent
requirement that physicians spend more time as collection agents rather than
doctors. DME-IQ provides practice workflow solutions for DME with custom,
tablet-based software that removes the administrative burden from the practice,
facilitating patient eligibility review, collection of patient co-pay and
deductibles, centralized insurance adjudication, DME product procurement, and
other support services that allow physician practices to increase revenue and
service quality. The launch of DME-IQ advances the mission of NDS to provide
physicians with end-to-end solutions for patient centric care."
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NuGenerex Regenerative Medicine
Olaregen Therapeutix, Inc.
Our majority-owned subsidiary, Olaregen Therapeutix, Inc. is a regenerative
medicine company focused on the development, manufacturing and commercialization
of products that fill unmet needs in the current wound care market. We aim to
provide advanced healing solutions that substantially improve medical outcomes
while lowering the overall cost of care. Olaregen's first product, Excellagen®
(wound conforming matrix) is a topically applied product for dermal wounds and
other indications. Excellagen is a FDA 510(k) cleared device for of a broad
array of dermal wounds, including partial and full thickness wounds, pressure
ulcers, venous ulcers, diabetic ulcers, chronic vascular ulcers,
tunneled/undermined wounds, surgical wounds (donor sites/ grafts, post-Mohs
surgery, post-laser surgery, podiatric, wound dehiscence), trauma wounds
(abrasions, lacerations, second-degree burns and skin tears) and draining
wounds, enabling Olaregen to market Excellagen in multiple vertical markets.
The Wound Care Market
Total Global Wound Care Industry is expected to reach $22.01 billion by 2022,
according to Markets and Markets; Bioactive Wound Care Market (i.e. skin
substitute) is valued at $7.8 billion; In the U.S. There are 6.5 million
patients in the U.S. with chronic wounds (NIH estimate).
Olaregen Highlights:
• Received FDA 510(k) clearance on October 3, 2013, for 17 indications
• Obtained Intellectual properties and global rights of Excellagen®
except China, Russia and CIS
• Received Patent on October 10, 2017
• Has a unique Healthcare Common Procedure Coding System (HCPCS) Code - Q4149
• Clinical data show significant tissue growth and positive wound
closure (PDGF)
• Ease of use - No grafting
• Low cost provider with High profit margins
• Low execution risk (seasoned management team with product launch experience)
• No development risk (over $20 million invested and completed)
• No regulatory risk (FDA cleared)
Excellagen is an advanced, wound care management platform:
• Formulated fibrillar Type I bovine collagen (2.6%)
• High molecular weight
• Viscosity optimized for dripless wound coverage
• Flowable with no staples or sutures required
• Pre-filled, ready to use syringes
• One syringe covers up to 5.0 cm2 wound
• Refrigerated storage only with no thawing or mixing
• Treatment at only one-week intervals
• Activates human platelets
• Triggers the release of Platelet-Derived Growth Factor (PDGF)
• Accelerates granulation tissue growth in "non-healing wounds"
Additionally, Excellagen can serve as an Enabling Delivery Platform for
pluripotent stem cells, antimicrobial agents, small molecule drugs, DNA-Based
Biologics, conditioned cell media and peptides. Olaregen's initial focus will be
in advanced wound care including diabetic foot ulcers (DFU), venous leg ulcers
and pressure ulcers. Future products focusing on innovative therapies in bone
and joint regeneration comprise the current pipeline.
Excellagen® History
Olaregen Therapeutix Inc. acquired the intellectual properties and global rights
of Excellagen® except in China, Russia and CIS, from Taxus Cardium, Inc. (OTC:
CRXM), and its wholly owned subsidiaries Activation Therapeutics, Inc. and Gene
Biotherapeutics, Inc.
On August 2018, Olaregen acquired the IP for a total consideration is $4,200,000
and is broken down as follows: 1) $650,000 upfront payment, 2) $200,000 sales
credit for collagen solution, and 3) $3,350,000 payable at 10% of net sales,
which is defined as total sales less allowances, including hub fees, sales
concessions, co-promote fees, cost of goods sold and other charges.
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Regentys Corporation
Our majority-owned subsidiary, Regentys Corporation (formerly Asana Medical,
Inc.) is a regenerative medicine company developing a tissue engineered therapy
for the treatment of Ulcerative Colitis.
Overview
In January 2019, we acquired a majority interest in Regentys Corporation, a
Florida corporation, a development-stage regenerative medicine company. Since
its formation in May 2013 as Asana Medical Inc., Regentys has been developing a
first-in-class tissue engineered therapies for the treatment of Ulcerative
Colitis (UC) and other inflammatory bowel diseases.
Ulcerative Colitis
According to an article that was published in The Lancet on December 23, 2018
named worldwide incidence and prevalence of inflammatory bowel disease in the
21st century: a systematic review of population-based studies. (2018 Dec
23;390(10114):2769-2778), Ulcerative Colitis affects an estimated 3.2 million
patients in Europe, the United States and Japan. It is a chronic, inflammatory
disease that causes sores or ulcers in the lining of the large intestine (the
colon). Immunological in nature, UC is thought to be facilitated by a variety of
hereditary, genetic and environmental factors and it is increasingly being
diagnosed in more urbanized areas. Symptoms, including urgency, bleeding, and
diarrhea, that substantially affect quality of life.
Regentys™ Extracellular Matrix Hydrogel ("ECMH")
Regentys' initial product, ECMH™ Rectal Solution, is a first-in-class,
non-pharmacologic, non-surgical treatment option for millions of patients
suffering from mild to moderate Ulcerative Colitis. Its product candidate is a
powder that is reconstituted with saline and delivered as a liquid via enema. As
ECMH reaches body temperature, it gels and coats the mucosal lining of the GI
tract.
The core technology is derived from ECM, a safe and effective FDA-approved base
now extensively used for surgical applications and wound treatment. ECMH acts as
a bio-scaffold, separating the damaged tissue from waste flow, covering
ulcerations to limit the inflammatory response, and facilitating a healing
environment using endogenous (the body's own) stem cells.
Pre-Clinical Results
Published pre-clinical results in the Journal of Crohn's and Colitis highlight
the promise of Regentys technology. Animal data show the ECMH therapy can both
alleviate clinical symptoms and facilitate healing in UC patients. Previous
pre-clinical ECM animal data for approved products has been shown to have a high
correlation with human data.
Competition
Currently four biologics are FDA-approved, including top-selling antibody
medicines Humira® (adalimumab), Simponi® (golimumab), Remicade® (infliximab) and
Entyvio® (vedolizumab), all of which act to suppress the pro-inflammatory
protein, TNF-a (Tumor Necrosis Factor Alpha), a leading cause of the
proliferation of ulcerative colis and other forms of IDB. However, even with
these options, more than half of all UC patients do not achieve long-term
remission. Moreover, 20-30% of non-responsive patients will undergo colon
removal surgery in an attempt to remediate the disease.
Regentys Advantages
We expect our product to offer a true alternative to patients non-responsive to
first line therapies such as 5-ASA. Unresponsive patients will then need to
choose among therapies that alter the body's immune system or pose long term
health risks or perhaps both. Regentys' technology is expected to enable
targeted tissue healing but pose none of the health risks of more expensive
market-leading biologics that generally suppress the immune system. We expect to
provide our therapy at a cost less than other therapies.
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Market
In 2023, when we expect to receive approval, the projected drug costs for UC
alone are expected to exceed $7.5B globally according to a 2017 report by Allied
Market Research; including other inflammatory bowel disease indications, the
global market is expected to be double the UC market. Based upon the nature of
IBD, and the characteristics of Regentys' technology, management believes
variations of Regentys' core technology will also be effective in treating IBD
diseases such as Crohn's, rectal mucositis, proctitis and anal fissures.
Intellectual Property
Regentys in-licensed patents and co-developed its technology platform with the
University of Pittsburgh. It now holds patent rights in US and foreign
jurisdictions, and has other global filings pending; as well, it has patent
applications pending for similar indications predicated on its existing
technology in other major global markets.
Regulatory Path
The FDA has affirmed our approach to file a 510(k) de novo application on its
ECM hydrogel. We have developed a protocol and has engaged a clinical research
organization to manage the conduct of its first-in-human clinical trials
expected to start in Q2/Q3 2020 in Australia. Additionally, we have engaged
consultants to assist in managing the trials and regulatory approval process in
Australia, the US and Europe, jurisdictions in which we initially expect to
undertake clinical trials and, among other markets, where it will first seek
governmental approval to promote and sell medical devices.
Product Development
Since 2013, we have maintained a research and development agreement with the
University of Pittsburgh supplemented with personnel from the affiliated McGowan
Institute of Regenerative Medicine. In February 2018, Regentys entered into a
development agreement with (and has received a co-investment by) Cook Biotech,
Inc., a global leader in ECM manufacturing technology (CookBio). Product batches
now on hand are expected to be sufficient for additional development and
testing. A larger clinical batch with finalized specifications will be generated
in the coming months for use in clinical trials. There are alternate providers
of development services who can assist with product development activities.
Notwithstanding these options, management believes that because of the nature of
ongoing development activities, and the reliance upon certain bench and
manufacturing processes and ECM product expertise and technology, any
interruption in the development relationship with CookBio would subject the
Company to substantial expenditures of time and cost to duplicate the product.
Manufacturing
Regentys has an exclusive manufacturing agreement with CookBio for the
production of biomaterial and use of its proprietary technology conditioned upon
the completion of final product development work. Management has negotiated an
agreement with a third-party manufacturer for product components and kitting. We
believe that there are alternate sources of these manufacturing and supply
services. However, because of the nature of regulation in the medical device
industry, and the reliance upon the collection, reporting and management of
medical device manufacturing data, a change of manufacturer would substantially
impact the time and cost required for clinical product production and regulatory
compliance.
Operations
Currently, Regentys employs four full-time contract employee and several
part-time consultants. We supplement our business operations by engaging
external legal (intellectual property, corporate and health care), accounting
and tax professionals. We also have contracted with information services,
regulatory and clinical trial companies who make available professionals to
manage the information services, regulatory, clinical, and compliance aspects of
the business. Upon payment of the interim note, Regentys will formally add two
contract employees, additional administrative staff and a third-party provider
to assist with employee payroll and benefits as well as undertake clinical trial
activities suing external support.
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NuGenerex Surgical Products
MediSource Partners & Pantheon Medical - Foot & Ankle
Pantheon Medical is a manufacturer of orthopedic foot & ankle surgery kits that
offer physician friendly "all-in-one," integrated surgical kits that include
plates, screws, and tools required for orthopedic surgeons and podiatrists
conducting foot and ankle surgeries.
MediSource Partners is a 10-year old private company that is an FDA registered
distributor of surgical, medical, and biologic supplies, with over 25 vendor
contracts for nationwide distribution of implants and devices for spine, hips,
knees, foot, ankle, hand, and wrist surgeries. Additional product lines include
biologics (blood, bone, tissue, stem cells), durable medical equipment, and soft
goods. We maintain partnerships and contracts with hospital systems for
ordering, billing and inventory management.
The acquisitions of Pantheon and MediSource were finalized on August 1, 2019,
immediately subsequent to the end of our 2019 fiscal year. MediSource Partners
has contracts with over 25 vendors (including Pantheon Medical) for distribution
of:
• Implants and devices
• Biologics (blood, bone, tissue, and stem cells)
• Durable medical equipment
• Soft Goods
• Kits to process bone marrow aspirates and platelet rich plasma biologics
Historical Background
MediSource Partners was founded in 2009 and designed to be unique amongst its
competitors by operating as a service-focused, "one stop shop" for the
healthcare professionals it serves. With over 25,000 products in its catalogue,
including thirteen (13) lines dedicated to spine, MediSource prides itself on
its ability to service everything from small private practices across several
disciplines, to entire hospital systems. The large and broad-based inventory
allows our client physicians to "customize" their operating environment by
selecting and implementing the hardware, biologics, soft goods and ancillary
tools they feel most confident in and comfortable with. In addition, the "one
stop shop" model reduces the burden placed on support staff tasked with managing
multiple reps from multiple vendors and shortens the distribution chain to
reduce costs and potential redundancies. The success of this model is
demonstrated in MediSource's ability to offer this client-focused, low-impact
service at a pricing matrix often below even standard GPO pricing, thus
increasing client profitability and productivity.
Pantheon Medical was founded in 2014 to build a manufacturing company with
proprietary product lines that offer convenience and cost effectiveness to
physicians. Pantheon is contracted with MediSource Partners for nationwide
distribution of its proprietary "All-in-One" Foot & Ankle Surgery Kit.
NuGenerex Health, LLC
In addition to our efforts in orthopedic medicine, we are currently in the
process of setting up NuGenerex Health MSO to provide ancillary health services
in partnership with Arizona Endocrinology Center and Paradise Valley Family
Medicine, two major physician practices that care for a population of ~65,000
patients, approximately 25,000 of whom are insulin dependent diabetics with
chronic care needs. With an initial focus on the management of complex diabetes
patients, NuGenerex Health will offer ophthalmology, podiatry, chronic care
management (CCM) services to provide patients with integrated, concierge care to
improve outcomes and reduce costs. NuGenerex Health will employ
ophthalmologists, podiatrists, and medical staff to provide ancillary health
services for chronic care diabetes patients in support of the endocrinology and
family medicine practices. By bringing the specialty ancillary care directly to
the patients who regularly visit the clinic, NuGenerex Health provides an
integrated, collaborative care model to not only enhance patient wellbeing, but
also to comply with CMS guidelines for diabetes and chronic care management that
can lead to 5-star ratings and increased reimbursements.
Ophthalmology
Regular eye exams for persons diagnosed with diabetes mellitus are important for
detecting potentially treatable vision loss. Monitoring, surveillance, and
evaluation of visual health are widely recognized as prerequisites for
effective, accessible, and high-quality individual and population-based health
services.
Medicare Part B (Medical Insurance) covers preventive and diagnostic eye exams
as part of a comprehensive diabetes care plan, with reimbursements averaging
$215 per patient for standard eye exam with accompanying tests for glaucoma and
macular degeneration.
Podiatry
According to an article that was published in Therapeutics Advances
Endocrinology & Metabolism, Financial burden of diabetic foot ulcers to world: a
progressive topic to discuss always(2018 Jan; 9(1): 29-31.), as diabetic foot
ulcers (DFUs) are the leading cause of non-traumatic lower extremity amputation
costing an estimated $13 billion annually, CMS promotes preventive and
diagnostic foot exams by a podiatrist, with reimbursement rates averaging $175
for a new patient evaluation, and $150 for follow up. Under the CMS guidelines,
patients are eligible for diabetic foot exams every six months.
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Chronic Care Management (CCM)
According to the CDC an estimated 117 million adults have one or more chronic
health conditions, and 2/3 of Medicare patients have 2 or more chronic
conditions. The Centers for Medicare & Medicaid Services (CMS) made benefit
payments of $583 billion in 2018, with chronic care patients accounting for 99%
of expenditures. Recognizing chronic care management (CCM) as a critical
component of health care, CMS has established reimbursement codes to promote
adoption in the marketplace, including significant improvements in 2017 that
increased payment amounts and introduced new billing codes. NuGenerex Health is
designed to provide comprehensive ancillary services to fill the current gaps in
care that lead to significant morbidity and astronomical costs of diabetes.
Once the model is established for the diabetes population in Arizona, NuGenerex
Health plans to expand to other states.
NuGenerex Health HMO
Generex is in the process of building the final link in our corporate mission to
provide physicians, hospitals, and all healthcare providers with an end-to-end
solution for patient centric care from rapid diagnosis through delivery of
personalized therapies, streamlining care processes, minimizing expenses, and
delivering transparency for payers.
Generex intends to establish NuGenerex Health a multi-specialty Management
Services Organization (MSO) that will serve as in-network providers for a health
maintenance organization (HMO) that provides healthcare services and disease
management solutions for patients living with chronic medical conditions.
NuGenerex Health will serve patients with Chronic Special Needs Plans (C-SNP)
and Dual-Eligible Special Needs Plans under Medicare Advantage and Medicare Part
B and Part D. In doing this, Generex intends to partner with an experienced HMO
developer. Following the roadmap established by this partner in building some of
the most successful HMO companies in recent history, NuGenerex plans to generate
significant membership growth by developing patient centric engagement programs
and building on our strong provider relationships. The HMO infrastructure will
be managed by Beacon Health Solutions, which has provided back-end services for
HMOs since 2009.
Accounting for Research and Development Projects
Our major research and development projects are the refinement of our platform
buccal delivery technology, our buccal insulin project (Generex Oral-lyn™) and
Antigen's peptide immunotherapeutic vaccines.
We did not expend any material resources on our buccal insulin (Generex
Oral-lyn™) or other oral delivery products in the fiscal quarters ended January
31, 2020 and 2019 due to lack of funds. The completion of further late-stage
trials in Canada and the United States may require significantly greater funds
than we currently have on hand.
During the six months ended January 31, 2020 and 2019, NGIO expensed $142,200
and $0, respectively, to NSABP for clinical trials for additional research and
development relating to NGIO's peptide immune therapeutic vaccines and related
technologies. One NGIO vaccine is currently in Phase II clinical trials in the
United States involving patients with HER-2/neu positive breast cancer, and we
have completed a Phase I clinical trial for an NGIO vaccine for H5N1 avian
influenza which was conducted at the Lebanese-Canadian Hospital in Beirut.
Antigen's prostate cancer vaccine based on AE37 has been tested in a completed
(August 2009) Phase I clinical trial in Greece.
During the six months January 31, 2020 and 2019, NGDx incurred $250,221 and
$141,067 on research and development relating to its rapid diagnostic tests,
respectively.
Because of various uncertainties, we cannot predict the timing of completion and
commercialization of our buccal insulin or Antigen's peptide immunotherapeutic
vaccines or related technologies. These uncertainties include the success of
current studies net operating losses attributed to NGDx, our ability to obtain
the required financing and the time required to obtain regulatory approval even
if our research and development efforts are completed and successful, our
ability to enter into collaborative marketing and distribution agreements with
third-parties, and the success of such marketing and distribution arrangements.
For the same reasons, we cannot predict when any products may begin to produce
net cash inflows.
44
Critical Accounting Policies
There are no material changes from the critical accounting policies set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our Form 10-K for the year ended July 31, 2019 filed with the SEC
on November 12, 2019, except as follows:
We have adopted a sequencing policy whereby, in the event that reclassification
of contracts from equity to assets or liabilities is necessary pursuant to ASC
815 due to our inability to demonstrate we have sufficient authorized shares,
shares will be allocated on the basis of the earliest issuance date of
potentially dilutive instruments, with the earliest grants receiving the first
allocation of authorized but unissued shares, and all future instruments being
classified as a derivative liability, with the exception of instruments related
to share-based compensation issued to employees or directors.
Our discussion and analysis of our financial condition and results of operations
is based on our condensed interim consolidated financial statements which have
been prepared in conformity with accounting principles generally accepted in the
United States of America. It 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Going Concern. As shown in the accompanying condensed interim consolidated
financial statements, we have not been profitable and have reported recurring
losses from operations. These factors raise substantial doubt about our ability
to continue to operate in the normal course of business. The accompanying
consolidated financial statements do not include any adjustments that might be
necessary should we be unable to continue as a going concern.
Impairment of Long-Lived Assets. Management reviews for impairment whenever
events or changes in circumstances indicate that the carrying amount of property
and equipment may not be recoverable under the provisions of accounting for the
impairment of long-lived assets. If it is determined that an impairment loss has
occurred based upon expected future cash flows, the loss is recognized in the
Condensed Interim Consolidated Statement of Operations.
Share-based compensation. Management determines value of stock-based
compensation to employees in accordance with Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) 718, Compensation - Stock
Compensation. Management determines value of stock-based compensation to
non-employees and consultants in accordance with and ASC 505, Equity-Based
Payments to Non-Employees.
Derivative warrant liability. FASB ASC 815, Derivatives and Hedging, requires
all derivatives to be recorded on the condensed interim consolidated balance
sheet at fair value. As a result, certain derivative warrant liabilities (namely
those with a price protection feature) are separately valued and accounted for
on our balance sheet, with any changes in fair value recorded in earnings. On
our condensed interim consolidated balance sheets as of January 31, 2020 and
July 31, 2019, we used the binomial lattice model to estimate the fair value of
these warrants. Key assumptions of the binomial lattice option-pricing model
include the market price of our stock, the exercise price of the warrants,
applicable volatility rates, risk-free interest rates, expected dividends and
the instrument's remaining term. These assumptions require significant
management judgment. In addition, changes in any of these variables during a
period can result in material changes in the fair value (and resultant gains or
losses) of this derivative instrument.
As reported above, the Company has a sequencing policy regarding share
settlement wherein instruments with the earliest issuance date would be settled
first. The sequencing policy also considers contingently issuable additional
shares, such as those issuable upon a stock split, to have an issuance date to
coincide with the event giving rise to the additional shares.
On January 24, 2019, the company entered into a note payable with an unrelated
party at a percentage discount (variable) exercise price which causes the number
to be converted into a number of common shares that "approach infinity", as the
underlying stock price could approach zero. Accordingly, all convertible
instruments issued after January 24, 2019 are considered derivatives according
to the Company's sequencing policy.
45
Results of Operations
Three months ended January 31, 2020 compared to three months ended January 31,
2019
During the three months ended January 31, 2020 and 2019, we had net revenues of
$857,427 and $3,442,265, respectively. The decrease in revenue is due to the
reduction of operations of Veneto which resulted in approximately $9,000 of
revenue during the three months ended January 31, 2020. The decrease was
partially offset by revenues from Pantheon and Olaregen of approximately
$805,000 and $44,000, respectively.
We had a net loss for the three months ended January 31, 2020 and 2019 of
$7,280,030 and $12,524,584, respectively. The decrease in net loss for the three
months ended January 31, 2020 was caused primarily by the change in fair value
of contingent purchase consideration of approximately $4,397,000 in the prior
fiscal period and $0 in the current period. Also, there were operating losses of
approximately $4,558,000 and $5,879,000 in the three months ended January 31,
2020 and 2019, respectively.
The $1,852,000 decrease in general and administrative expenses in the quarter
ended January 31, 2020 versus the comparative previous fiscal quarter is due to
the decrease in operations of Veneto which decreased approximately $3,274,000
which was partially offset by $632,000 of expenses incurred from newly acquired
entities. Additionally, there was additional compensation expense of $585,000 in
the second quarter of 2020.
Our interest expense in the three months ended January 31, 2020 was $1,431,052
compared to the previous year's fiscal three months of $2,097,220 which was
primarily due to the amortization of debt discount relating to the convertible
promissory notes.
Six months ended January 31, 2020 compared to six months ended January 31, 2019
During the six months ended January 31, 2020 and 2019, we had net revenues of
$1,579,088 and $5,161,413, respectively. The decrease in revenue is due to the
reduction of operations of Veneto which resulted in approximately $17,000 of
revenue during the three months ended January 31, 2020. The decrease was
partially offset by revenues from Pantheon and Olaregen of approximately
$1,254,000 and $309,000, respectively.
We had a net loss for the six months ended January 31, 2020 of $16,592,577 and a
net gain of $5,397,996 in the corresponding six months of the prior fiscal year.
The net loss for the six months ended January 31, 2020 was primarily caused by
general and administrative expenses of approximately $9,434,000 and other
expenses consisting of changes in fair value of derivative liabilities of
approximately $3,670,000, and interest expense of approximately $3,947,000. The
net gain for the six months of the prior fiscal year was caused primarily by the
change in fair value of contingent purchase consideration of approximately
$15,148,000 which did not exist during the fiscal year 2020.
The $662,212 increase in general and administrative expenses in the six months
ended January 31, 2020 versus the comparative previous six month period is due
to additional compensation expense of $585,000 in the second quarter of 2020.
Our interest expense in the six months ended January 31, 2020 was approximately
$3,947,000 compared to the previous year's fiscal three months of approximately
$2,262,000 which is primarily due to the amortization of debt discount relating
to the convertible promissory notes.
Financial Condition, Liquidity and Resources
Sources of Liquidity
To date we have financed our development stage activities primarily through
private placements of our common stock, securities convertible into our common
stock, and investor loans. We will require additional funds to support our
working capital requirements and any development or other activities. NGDx will
require additional funds to support its working capital requirements and any
development or other activities or will need to curtail its research and
development and other planned activities or suspend operations. NGDx will no
longer be able to rely on its former primary owner for necessary financing.
Going forward, NGDx will rely on Generex financing activities to fund NGDx
operations, development and other activities.
As of March 13, 2020, the Company's cash position is not sufficient for twelve
months of operations. Anticipated revenues associated with MediSource and
Pantheon acquisitions are expected to alter the cash flow landscape.
While we have financed our development stage activities to date primarily
through private placements of our common stock and securities convertible into
our common stock, as well as investor notes, and raised approximately $4.5
million during the six months ended January 31, 2020 (including proceeds from
issuance of convertible notes), our cash balances have been low throughout
fiscal 2019.
46
Management may seek to meet all or some of our operating cash flow requirements
through financing activities, such as private placement of our common stock,
preferred stock offerings and offerings of debt and convertible debt instruments
as well as through merger or acquisition opportunities.
In addition, management is actively pursuing financial and strategic
alternatives, including strategic investments and divestitures, industry
collaboration activities, and potential strategic partners. Management has sold
non-essential real estate assets which are classified as Assets Held for
Investment to augment the company's cash position and reduce its long-term debt.
We will continue to require substantial funds to continue research and
development, including preclinical studies and clinical trials of our product
candidates, further clinical trials for Oral-lyn™ and to commence sales and
marketing efforts if the FDA or other regulatory approvals are obtained.
Financings
The following is a summary of the financing activities that we have completed
during the six months ended January 31, 2020.
Convertible Note Transactions
Financing - August 8, 2019
On August 8, 2019, borrowed $1,000,000 from an investor with a $150,000 original
issue discount. The note accrues at 9% per annum and has a maturity date of
August 7, 2020.
Financing - August 14, 2019
On August 14, 2019, we entered into a convertible note and securities purchase
agreement with an investor in the principal amount of $1,100,000. The note
accrues at 10% per annum and has a maturity date of August 14, 2020 and is
convertible into common voting shares at a variable rate determined in the
instrument.
Financing - August 29, 2019
On August 29, 2019, we entered into a convertible note and securities purchase
agreement with an investor in the principal amount of $250,000. The note accrues
at 9% per annum and has a maturity date of August 28, 2020 and is convertible
into common voting shares at a variable rate determined in the instrument.
Financing - September 13, 2019
On September 13, 2019, we entered into a convertible note and securities
purchase agreement with an investor in the principal amount of $872,000. The
note accrues at 9.5% per annum and has a maturity date of September 12, 2020 and
is convertible into common voting shares at a variable rate determined in the
instrument.
Financing - November 18, 2019
On November 18, 2019, we entered into a convertible note and securities purchase
agreement with three investors in the principal amount of $275,000. The note
accrues at 10% per annum and has a maturity date of November 18, 2020 and is
convertible into common voting shares at a variable rate determined in the
instrument.
Financing - December 5, 2019
On December 5, 2019, we entered into a convertible note and securities purchase
agreement with an investor in the principal amount of $2,200,000. The note is in
default and accrues at 22 % per annum and has a maturity date of June 5, 2021
and is convertible into common voting shares at a variable rate determined in
the instrument.
47
Financing - January 14, 2020
On January 14, 2020, we entered into a convertible note and securities purchase
agreement with an investor in the principal amount of $275,000. The note accrues
at 4% per annum and has a maturity date of January 14, 2021 and is convertible
into common voting shares at a variable rate determined in the instrument.
Cash flows for the six months ended January 31, 2020
For the six months ended January 31, 2020, we used $4.6 million in cash to fund
our operating activities. The use for operating activities included a net loss
of $16.7 million. Changes to working capital included an increase of $4.0
million related to accounts payable and accrued expenses.
The use of cash was offset by non-cash expenses of $0.4 million related to
depreciation and amortization, $1.2 million related to stock compensation, $2.9
million of amortization of debt discount and $5.0 million change in fair value
of downside protection partially offset by a gain in fair value of derivative
liabilities - convertible notes of $1.4 million.
In the six months ended January 31, 2020, we had net cash provided by investing
activities of $0.05 million primarily relating to cash received in the
acquisition of MediSource Pantheon.
We had cash provided by financing activities in the six months ended January 31,
2020 of $4.5 million, most of which was from proceeds from investors of $5.5
million partially offset by payments on notes payable of $0.9 million.
Our net working capital deficiency on January 31, 2020 increased to $35.7
million from $28.0 million at January 31, 2019, which was attributed primarily
to an increase in accounts payable and accrued expenses as well as increase in
notes payable.
Funding Requirements and Commitments
In addition to our commitments under the financings described above, we have the
following obligations:
Veneto Acquisition Related Debt
On November 1, 2018, in connection with the completion of the acquisition of the
pharmacy, management service organization and other assets of Veneto, the
Company's subsidiary, NuGenerex Distribution Solutions 2, LLC ("NuGenerex"),
issued Veneto a promissory note in the principal amount of $35,000,000. The note
calls for payment in full on or before January 15, 2019 with interest at an
annual rate of 12% on the $30,000,000 portion of the new note representing the
purchase price of the assets. The note is guaranteed by Generex and Joseph
Moscato and secured by a first priority security interest in all of Generex's
assets. Mr. Moscato's guaranty is limited to the principal amount of
$15,000,000.
On January 15, 2019, we entered into an Amendment Agreement (the "Amendment")
with Veneto and the equity owners of Veneto entered into restructuring payment
of the note as follows:
• Payment of $15,750,000 by delivery of Generex common stock, initially valued
at $2.50 per share.
• If, on the first to occur of (i) the ninetieth (90th) day after closing under
the Amendment and (ii) the effective date of a registration statement filed
with the SEC including the Generex shares pursuant to the Amendment, the
average volume weighted average price ("VWAP") of Generex common stock for the
preceding five (5) trading days is less than $2.50 share, Generex will deliver
additional Generex Shares such that the aggregate number of shares delivered
under this Agreement equals $15,750,000 ÷ such average VWAP.
• The remainder of the principal and interest under the note shall be payable on
April 15, 2019; provided that on that maturity date, Veneto shall have the
option of (i) payment of principal and interest in cash and (ii) payment of
principal and interest by Generex's delivery of Generex Shares valued at $2.50
per share.
• All Generex shares issued pursuant to the Amendment will be delivered pro rata
to the six equity owners of Veneto as distributions from Veneto.
48
As of the date hereof, we had delivered the shares of Generex Common Stock to
the transfer agent for distribution to the Veneto equity owners.
On March 28, 2019, we entered into an amendment Restructuring Agreement with
Veneto with respect to the payment terms of the January 15, 2019 promissory
note. The parties agreed to restructure the terms as follows:
• In lieu of any payments under the agreement or the note, we will deliver
shares of its common stock and the common stock of its subsidiary, Antigen;
• All shares of our common stock delivered pursuant to the foregoing sentence
will be outstanding shares held by existing shareholders;
• 8.4 million were transferred on May 9, 2019;
• 5.5 million of Antigen's common stock as the original agreement was pre
dividend and the restructuring was ex-dividend, and the company honored the
intent of the prior agreements; and
• Limited "downside protection" to ensure the value of our common stock to be
delivered.
Olaregen and Regentys Acquisitions
Olaregen
As of January 7, 2019, the Company completed a definitive Stock Purchase
Agreement and related documents relating to the Company's purchase of 3,282,632
newly issued shares of the Olaregen common stock representing 51% percent of the
issued and outstanding capital stock of Olaregen for an aggregate $12,000,000.
In addition to $400,000 paid to Olaregen upon signing of the LOI, the purchase
price for the Olaregen shares will consist of the following cash payments:
• $800,000 on or before January 15, 2019. The Company has paid this installment.
• $800,000 on or before January 31, 2019. As of the date this quarterly report
was filed, the Company has paid $796,500 of this installment and remaining
balance of $3,500 is payable on or before January 31, 2020 per extension in
amended agreement.
• $3,000,000 on or before February 28, 2019. As of the date is quarterly report
was filed, the Company has not yet paid this installment and the full balance
of $3,000,000 is payable on or before January 31, 2020 per extension in
amended agreement.
• $1,000,000 on or before May 31, 2019. As of the date this quarterly report was
filed, the Company has not paid this installment. As of the date is quarterly
report was filed, the Company has not yet paid this installment and the full
balance of $1,000,000 is payable on or before January 31, 2020 per extension
in amended agreement.
• $6,000,000 on or before January 31, 2020.
Generex issued its promissory note in the amount of $11,600,000 (the "Note')
representing its obligation to pay the above amounts. The Note is secured by a
pledge of the Olaregen Shares pursuant to a Pledge and Security Agreement.
On November 24, 2019, the Company and Olaregen amended the Stock Purchase
Agreement and Promissory Note to extend the due date of the remaining balance of
the note on or before January 31, 2020. The extension of this due date has no
impact on the existing schedule of future payments or any additional terms
within the Note. Olaregen has not filed any notice of default as of the date of
publication, and Generex continues to provide Olaregen with business
opportunities continuing the relationship.
In the event Generex does not make any other payments, its share ownership of
Olaregen will be proportionately reduced.
49
Based on the Note, in the event any incremental payment is not paid when due,
Olaregen has the option to increase the per share purchase price for all
remaining purchased shares to $4.00 per share. Based on $1,400,000 of remitted
payments and a Promissory Note balance of $10,400,000 prior to the first
extension agreement on March 14, 2019, Olaregen elected the option to
proportionally increase the per share purchase price to $4.00 for the remaining
2,899,658 of the total 3,282,632 shares to be acquired. This will result in an
additional $998,633 which has been accrued for the Company to remit to Olaregen
pursuant to the acquisition. This additional amount will be penalty amounts will
be paid out proportionately with future payments. For example, the $361,500
balance of the second tranche, at the original purchase price of $3.65 per
share, would have paid for 99,041 Olaregen shares. The Company will now be
required to pay 99,041 x $4.00 = 396,164 to complete the second tranche.
Generex has a limited anti-dilution right under the Purchase Agreement, to
ensure that Generex will retain 51% ownership in Olaregen for a period of time.
Regentys
On January 7, 2019 the Company completed a definitive Stock Purchase Agreement
and related documents relating to the Company's purchase of 12,048,161 newly
issued shares of the Regentys common stock representing 51% percent of the
issued and outstanding capital stock of Regentys ("Regentys Shares") for an
aggregate of $15,000,000.
In addition to $400,000 paid to Regentys upon signing of the LOI, the purchase
price for the Regentys shares consist of the following cash payments, with the
proceeds intended to be used for specific purposes, as noted:
• $3,450,000 to initiate pre-clinical activities on or before January 15, 2018.
As of the date this quarterly report was filed, the Company has paid
$1,012,450 and the remaining balance is payable on or before December 30,
2019.
• $2,000,000 to initiate patient recruitment activities on or before May 1,
2019. As of the date this quarterly report was filed, the Company has not yet
paid this installment and the full balance of $2,000,000 is payable on or
before December 30, 2019 per extension in amended agreement.
• $3,000,000 to initiate a first-in-human pilot study on or before December 30, 2019.
• $5,000,000 to initiate a human pivotal study on or before February 1, 2020.
• $1,150,000 to submit a 510(k) de novo submission to the FDA on or about
February 1, 2021.
The Company issued its promissory note in the amount of $14,600,000 (the "Note')
representing its obligation to pay the above amounts. The Note is secured by a
pledge of the Regentys pursuant to a Pledge and Security Agreement.
On November 25, 2019, the Company and Regentys amended the Stock Purchase
Agreement and Promissory Note to extend the due date of the remaining balance of
the note on or before December 30, 2019. The extension of this due date has no
impact on the existing schedule of future payments or any additional terms
within the Note. Regentys has not filed any notice of default as of the date of
publication, and Generex continues to provide Regentys with business
opportunities continuing the relationship.
If we obtain necessary financing, we expect to expend resources towards
additional acquisitions and regulatory approval and commercialization of Generex
Oral-lyn™ and further clinical development of our immunotherapeutic vaccines.
In addition to our future funding requirements, commitments and our ability to
raise additional capital will depend on factors that include:
• the timing and amount of expenses incurred to complete our clinical trials;
• the costs and timing of the regulatory process as we seek approval of our
products in development;
• the advancement of our products in development;
• our ability to generate new relationships with industry partners throughout
the world that will provide us with regulatory assistance and long-term
commercialization opportunities;
• the timing, receipt and amount of sales, if any, from Generex Oral-lyn™ in
India, Lebanon, Algeria and Ecuador;
• the cost of manufacturing (paid to third parties) of our licensed products and
the cost of marketing and sales activities of those products;
• the costs of prosecuting, maintaining, and enforcing patent claims, if any
claims are made;
• our ability to maintain existing collaborative relationships and establish new
relationships as we advance our products in development;
• our ability to obtain the necessary financing to fund our operations and
effect our strategic development plan; and
• the receptivity of the financial market to biopharmaceutical companies.
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Off-Balance Sheet Arrangements
We have no 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, revenue or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors, and we do not
have any non-consolidated special purpose entities.
Tabular Disclosure of Contractual Obligations
Generex is a smaller reporting company as defined by Rule 12b-2 of the Exchange
Act and is not required to provide the information required under this item.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill
Impairment (Topic 350), which eliminates Step 2 from the goodwill impairment
test. Instead, an entity should perform its annual or interim goodwill
impairment test by comparing the fair value of a reporting unit with its
carrying amount and recognize an impairment charge for the amount by which the
carrying amount exceeds the reporting unit's fair value, not to exceed the total
amount of goodwill allocated to the reporting unit. The Company will adopt the
standard effective August 1, 2020. The Company is evaluating the effect that ASU
2017-04 will have on its consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260),
Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging
(Topic 815): I. Accounting for Certain Financial Instruments with Down Round
Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Non-controlling Interests with a Scope Exception. Part I of this
update addresses the complexity of accounting for certain financial instruments
with down round features. Down round features are features of certain
equity-linked instruments (or embedded features) that result in the strike price
being reduced on the basis of the pricing of future equity offerings. Current
accounting guidance creates cost and complexity for entities that issue
financial instruments (such as warrants and convertible instruments) with down
round features that require fair value measurement of the entire instrument or
conversion option. Part II of this update addresses the difficulty of
navigating Topic 480, Distinguishing Liabilities from Equity, because of the
existence of extensive pending content in the FASB Accounting Standards
Codification. This pending content is the result of the indefinite deferral of
accounting requirements about mandatorily redeemable financial instruments of
certain nonpublic entities and certain mandatorily
redeemable non-controlling interests. The amendments in Part II of this update
do not have an accounting effect. This ASU is effective for interim and annual
reporting periods beginning after December 15, 2018. Early adoption is
permitted, including adoption in an interim period. The Company early adopted
the ASU 2017-11 in the second quarter as of January 31, 2019.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting
Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income, which was issued to address the income
tax accounting treatment of the stranded tax effects within other comprehensive
income due to the prohibition of backward tracing due to an income tax rate
change that was initially recorded in other comprehensive income. This issue
came about from the enactment of the TCJA on December 22, 2017 that changed the
Company's federal income tax rate from 35% to 21% effective January 1, 2018 and
the establishment of a territorial-style system for taxing foreign-source income
of domestic multinational corporations. In December 2017, the SEC issued Staff
Accounting Bulletin No. 118, Income Tax Accounting Implications of the Act
("SAB118"), which allows us to record provisional amounts during a measurement
period not to extend beyond one year of the enactment. The Company remeasured
its deferred tax assets and liabilities as of July 31, 2018, applying the
reduced corporate income tax rate and recorded a provisional decrease to the
deferred tax assets of $31,876,520, with a corresponding adjustment to the
valuation allowance. In the fourth quarter of fiscal year ended July 31, 2019,
we completed our analysis to determine the effect of the Tax Act and there were
no material adjustments as of July 31, 2019.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic
820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement", which adds disclosure requirements to Topic 820 for the range and
weighted average of significant unobservable inputs used to develop Level 3 fair
value measurements. This ASU is effective for interim and annual reporting
periods beginning after December 15, 2019. The Company is evaluating the effect
that ASU 2018-13 will have on consolidated financial statements.
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