You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with the financial statements and the
related notes appearing elsewhere in this Form 10-Q. This discussion contains
forward-looking statements reflecting our current expectations that involve
risks and uncertainties. See our Form S-1 filed with the SEC on October 7, 2019,
under "Risk Factors", available on the Security and Exchange Commission's
("SEC") EDGAR website at www.sec.gov, for a discussion of the uncertainties,
risks and assumptions associated with these statements. Actual results and the
timing of events could differ materially from those discussed in our
forward-looking statements as a result of many factors, including those set
forth under "Risk Factors" and elsewhere in this Form 10-Q.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements under the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in other sections
of this Form 10-Q. In some cases, you can identify these statements by
forward-looking words such as "may," "might," "should," "would," "could,"
"expect," "plan," "anticipate," "intend," "believe," "estimate," "predict,"
"potential" or "continue," and the negative of these terms and other comparable
terminology. These forward-looking statements, which are subject to known and
unknown risks, uncertainties and assumptions about us, may include projections
of our future financial performance based on our growth strategies and
anticipated trends in our business. These statements are only predictions based
on our current expectations and projections about future events. There are
important factors that could cause our actual results, level of activity,
performance or achievements to differ materially from the results, level of
activity, performance or achievements expressed or implied by the
forward-looking statements. In particular, you should consider the numerous
risks and uncertainties described under "Risk Factors" as discussed in our Form
S-1 filed with the SEC on October 7, 2019 and in other filings made by us from
time to time with the SEC.
While we believe we have identified material risks, these risks and
uncertainties are not exhaustive. Other sections of this Form 10-Q may describe
additional factors that could adversely impact our business and financial
performance. Moreover, we operate in a very competitive and rapidly changing
environment. New risks and uncertainties emerge from time to time, and it is not
possible to predict all risks and uncertainties, nor can we assess the impact of
all factors on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, level of activity,
performance or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy or completeness of any of these forward-looking
statements. You should not rely upon forward-looking statements as predictions
of future events. We are under no duty to update any of these forward-looking
statements after the date of this Form 10-Q to conform our prior statements to
actual results or revised expectations, and we do not intend to do so.
Forward-looking statements include, but are not limited to, statements about:
· our ability to obtain additional funding to develop our product candidates;
· the need to obtain regulatory approval of our product candidates;
· the success of our clinical trials through all phases of clinical development;
· compliance with obligations under intellectual property licenses with third
parties;
· any delays in regulatory review and approval of product candidates in clinical
development;
· our ability to commercialize our product candidates;
· market acceptance of our product candidates;
· competition from existing products or new products that may emerge;
· potential product liability claims;
· our dependency on third-party manufacturers to supply or manufacture our
products;
· our ability to establish or maintain collaborations, licensing or other
arrangements;
· our ability and third parties' abilities to protect intellectual property
rights;
· our ability to adequately support future growth; and
· our ability to attract and retain key personnel to manage our business
effectively.
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We caution you not to place undue reliance on the forward-looking statements,
which speak only as of the date of this Form 10-Q in the case of forward-looking
statements contained in this Form 10-Q.
You should not rely upon forward-looking statements as predictions of future
events. Our actual results and financial condition may differ materially from
those indicated in the forward-looking statements. We qualify all of our
forward-looking statements by these cautionary statements. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Therefore, you should not rely on any of the forward-looking
statements. In addition, with respect to all of our forward-looking statements,
we claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
Overview
We are a pharmaceutical company organized as a Nevada corporation on July 27,
2017 to focus on the clinical development of anticancer drug candidates for the
treatment of brain and central nervous system tumors, which drug candidates are
based on a license agreement with HPI, and a collaboration and asset purchase
agreement with Reata.
Recent Business Developments
On November 21, 2017, we entered into a Collaboration and Asset Purchase
Agreement with Reata. Through this agreement, we purchased all of Reata's
rights, title, interest and previously conducted research and development
results in the chemical compound commonly known as Berubicin. In exchange for
these rights, we agreed to pay Reata an amount equal to 2.25% of the net sales
of Berubicin for a period of 10 years from our first commercial sale of
Berubicin plus $10,000. Reata also agreed to use commercially reasonable
efforts, at the Company's expense, to provide development assistance related to
the product and/or product intellectual property.
On December 28, 2017, we entered into an Amended and Restated Patent License
Agreement with HPI. Dr. Waldemar Priebe, our founder and largest shareholder, is
also the founder and a shareholder of HPI. Pursuant to this Agreement, we
obtained a worldwide, exclusive license to the chemical compound commonly known
as WP744. In exchange for these rights, we agreed to pay consideration to HPI as
follows: (i) development fees of $750,000 over a three-year period beginning
after the $7.0 million raise is complete; (ii) a 2% royalty on net sales; (iii)
a $50,000 per year license fee; (iv) milestone payments of $100,000 upon the
commencement of a Phase II trial and $1.0 million upon the approval of a New
Drug Application ("NDA") for Berubicin; and (v) 200,000 shares of our common
stock. Our rights pursuant to the HPI License were contingent on us raising at
least $7.0 million and expire on December 28, 2019. On November 13, 2019, the
Company closed its IPO and as a result completed the acquisition of the
intellectual property discussed in the HPI agreement.
On August 30, 2018 we entered into a sublicense agreement (the "WPD Sublicense")
with WPD Pharmaceuticals, a Polish corporation ("WPD"). Dr. Waldemar Priebe, our
founder and largest shareholder, is also the founder and a shareholder of WPD.
Pursuant to the WPD Sublicense, we granted to WPD a sublicense to research and
develop, including submission of grant proposals and independent funding, apply
for centralized, national or other marketing authorization, manufacture, have
manufacture, use, export/import, offer to sell and/or sell Berubicin in a
limited territory comprised mainly of Eastern European and Central Asian
countries. In exchange for this sublicense, we obtained a commitment from WPD to
expend at least $2.0 million on the development, testing, regulatory approval or
commercialization of Berubicin during the three year period immediately
following the effective date of the Agreement. In addition, we will be entitled
to a 1% royalty on all commercial sales by WPD of the licensed products in the
licensed territory.
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On January 31, 2019, WPD announced that it will receive funding in the amount
22,033,066 PLN (approximately US $5,798,875) for the new drug development as a
part of the project "New approach to glioblastoma treatment addressing the
critical unmet medical need". This announcement follows the recommendation by
the Polish National Center for Research and Development of a list of projects
for co-financing by the European Union, under the Smart Growth Operational
Program 2014-2020, Sectoral Programme InnoNeuroPharm, Priority Axis I: Support
R&D carried out by enterprises, Measure 1.2 Sectorial programs R&D, which list
included WPD's project "New Approach to Glioblastoma Treatment Addressing the
Critical Unmet Medical Need," (the "WPD Project") undertaken pursuant to the WPD
Sublicense. The main goal of the WPD Project is to implement the first in the
world multicenter pediatric phase I clinical trial to determine maximum
tolerated dose (MTD) and phase IB and II clinical trials in adults, in order to
attempt to confirm the efficacy of Berubicin. The WPD Project will also include
preclinical tests to determine the prospective use of Berubicin with
temozolomide and with other compounds being developed by WPD as candidates for
anticancer drugs.
The WPD Project includes the implementation of the following stages of R&D:
1. Scientific Advice Procedure implementation; Regulatory documentation
for "First in Children" and phase Ib and II clinical trial in adults
preparation;
2. IP Manufacturing according to GMP;
3. In vitro studies on anticancer activity of Berubicin in combination
with TMZ and other WPD molecules;
4. "First in children" and Phase Ib in adults clinical trials conducting;
5. Phase II in adults clinical trial conducting.
On August 31, 2018, we entered into a sublicense agreement (the "ALI
Sublicense") with Animal Life Sciences, LLC. ("ALI"). Dr. Waldemar Priebe, our
founder and largest shareholder, is also the founder and a shareholder of ALI.
Pursuant to the ALI Sublicense, we granted to ALI a sublicense to research and
develop, including submission of grant proposals and independent funding, apply
for centralized, national or other marketing authorization, manufacture, have
manufacture, use, export/import, offer to sell and/or sell Berubicin for the
treatment of cancers in non-human animals throughout the world. In exchange for
this sublicense, we received 1.52% of the membership interests in ALI, as well
as a royalty of 1% on all sales of the licensed products by ALI.
On March 6, 2019, we submitted a Pre-IND Meeting Request for Berubicin for
Injection for the Treatment of Glioblastoma Multiforme to the US Food and Drug
Administration Division of Oncology Products 2 (DOP2), Center for Drug
Evaluation and Research. In this letter we outline the past development history
of Berubicin and our rationale for the continued investigation of the compound
and certain questions, the answers to which will provide us with FDA guidance
for our development plans. Among the questions we posed to the FDA are those
related to obtaining permission to utilize the supply of Berubicin we acquired
from Reata in our planned Phase II clinical trial. We have performed preliminary
purity testing and analysis on this material and have verified that it is 99.9%
pure. On May 1, 2019, the FDA responded to our request with a letter indicating
that our proposal to use a lyophilized drug product in the proposed Phase II
clinical trial appears to be reasonable. The FDA also recommended that the
existing supply of Berubicin be reprocessed by batch recrystallization, a step
we intend to take prior to submission of our IND filing. We estimate that this
material would cost a significant amount to reproduce today and thus its
usability in future clinical trials represents a potential significant cost
savings for us, as well as the potential elimination of the risk and time
normally associated with manufacturing complex drugs such as Berubicin.
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Results of Operations
Three months ending September 30, 2019 compared to three months ending September
30, 2018
General and Administrative Expense
General and administrative expense was $420,191 for the three months ended
September 30, 2019 compared to $165,305 for 2018. The increase in general and
administrative expense, was mainly attributable to an increase of approximately
$185,000 for stock-based compensation and approximately $58,000 in professional
fees.
Research and Development Expense
Research and development expense was $278,903 for the three months ending
September 30, 2019, compared to $4,600 for 2018. The expenses incurred during
the period were related to patent maintenance cost and contract labor related to
the preparation of our Phase II study. We expect to incur increased research and
development costs in the future as our product development activities expand.
Interest Expense
Interest expense of $7,561 and $10,632 for the three months ending September 30,
2019 and 2018, respectively, included expense accrued on our notes payable and
convertible notes payable issued in 2017 bearing interest at the rate of 10% per
annum.
Net Loss
The net loss for the three months ended September 30, 2019 was $706,655 compared
to $193,204 for 2018. The change in net loss is attributable to the increased
personnel and activity associated with preparing for our IPO and clinical
trials.
Nine months ending September 30, 2019 compared to nine months ending September
30, 2018
General and Administrative Expense
General and administrative expense was $939,306 for the nine months ended
September 30, 2019 compared to $651,937 for 2018. The increase in general and
administrative expense, was mainly attributable to an increase of approximately
$333,000 for stock-based compensation, approximately $60,000 for investor
relations services and approximately $102,000 related to the write off of
previously capitalized deferred issuance cost. These increases were offset by
decreased in professional and regulatory fees of approximately $50,000 and
approximately $204,000 in costs associated with our Regulation CF fundraising
campaign.
Research and Development Expense
Research and development expense was $369,940 for the nine months ending
September 30, 2019 compared to $21,267 for 2018. The expenses incurred during
the period were related to patent maintenance cost and contract labor related to
the preparation of our Phase II study. We expect to incur increased research and
development costs in the future as our product development activities expand.
Interest Expense
Interest expense of $22,535 and $17,983 for the nine months ended September 30,
2019 and 2018, respectively, included expense accrued on our notes payable and
convertible notes payable issued in 2017 bearing interest at the rate of 10% per
annum.
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Net Loss
The net loss for the nine months ended September 30, 2019 was $1,349,863
compared to $760,386 for 2018. The change in net loss is attributable to the
increased personnel and activity associated with preparing for our IPO and
clinical trials.
Liquidity and Capital Resources
On September 30, 2019, we had cash of $630,109 and we had a working capital
deficit of $7,296. On December 31, 2018 we had cash of $282,736 and a working
capital deficit of $644,498. We have historically funded our operations from
proceeds from debt and equity sales.
On November 13, 2019, the Company closed its IPO of 2,125,000 shares of its
common stock at a price to the public of $4.00 per share, followed shortly by
the exercise of the over-allotment option issued to the underwriter which
resulted in an additional 318,750 shares of common stock being issued at the IPO
price of $4.00 per share. Management believes that the proceeds from the IPO and
its cash on hand are sufficient to fund its planned operations beyond the near
term.
Our plan of operations is primarily focused on using the proceeds from the IPO
to complete a Phase II clinical trial for Berubicin. We estimate that we will
require additional financing, beyond the proceeds of the IPO, of approximately
$7.0 million to complete the trial plus such additional working capital to fund
our operations during the pendency of the trial. The timing and costs of
clinical trials are difficult to predict and as such the foregoing estimates may
prove to be inaccurate.
We recognize that following the completion of the IPO, we will need to raise
additional capital in order to meet our obligations and execute our business
plan within the next two years. If we are unable to raise sufficient funds, we
will be required to develop and implement an alternative plan to further extend
payables, reduce overhead or scale back our business plan until sufficient
additional capital is raised to support further operations. There can be no
assurance that such a plan will be successful.
Cash used in operating activities
Net cash used in operating activities was $1,077,892 and $556,892 for the nine
months ended September 30, 2019 and 2018 and mainly included payments made for
officer compensation, trial preparation, marketing and professional fees to our
consultants, attorneys and accountants for services related to completion of our
audit and preparation of our public offering filings.
Cash provided by financing activities
Net cash provided by financing activities was $1,430,644 and $1,154,975 for the
nine months September 30, 2019 and 2018. We received net proceeds of $1,507,169
from the issuance of common stock during the nine months ended September 30,
2019.
Since our inception and through September 30, 2019, we have funded our
operations through the sale and issuance of common stock and convertible and
non-convertible notes payable. From August 2017 to September 2018, we issued
various convertible notes to our lenders. The note proceeds were $386,825. Each
note bore interest at 10% per annum and were scheduled to mature on the earlier
of 12 to 18 months after issuance or the completion of an initial public
offering of our securities. During the year ended December 31, 2018, $86,825 of
these convertible notes converted into shares of common stock and common stock
warrants.
In March 2018, we commenced an offering pursuant to Regulation CF of the
Securities Act pursuant to which we offered units of SAFE securities. The
offering ended on June 11, 2018 and we issued $628,558 of SAFE securities.
Pursuant to the terms of the SAFE securities, upon completion of our IPO, the
purchaser of the SAFE security automatically received a number of shares of our
common stock equal to the purchase amount divided by the product of (a) 84%
multiplied by (b) the public offering price per share in our IPO.
We do not have any material commitments for capital expenditures, although we
are required to pay certain development fees to HPI as described in the section
"- Recent Business Developments" above.
On November 13, 2019, the Company closed its IPO of 2,125,000 shares of its
common stock at a price to the public of $4.00 per share, followed shortly by
the exercise of the over-allotment option issued to the underwriter which
resulted in an additional 318,750 shares of common stock being issued at the IPO
price of $4.00 per share. Management believes that the proceeds from the IPO and
its cash on hand are sufficient to fund its planned operations beyond the near
term. These factors alleviate the substantial doubt regarding the Company's
ability to continue as a going concern as previously reported.
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