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-K. This discussion contains
forward-looking statements reflecting our current expectations that involve
risks and uncertainties, including those set forth under "Cautionary Statement
About Forward-Looking Statements." Actual results and experience could differ
materially from the anticipated results and other expectations expressed in our
forward-looking statements as a result of a number of factors, including but not
limited to those discussed in this Item and in Item 1A - "Risk Factors." 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-K.
Overview
We are a preclinical stage pharmaceutical company organized as a Nevada
corporation in July 2017 to focus on the development of anti-cancer drug
candidates for the treatment of brain and central nervous system tumors, based
on intellectual property that we license under a license agreements with HPI and
The University of Texas M.D. Anderson Cancer Center and own pursuant to a
collaboration and asset purchase agreement with Reata.
We believe our lead drug candidate, Berubicin, if approved by the FDA, may be a
significant discovery in the treatment of glioblastoma. Glioblastoma are tumors
that arise from astrocytes, which are star-shaped cells making up the supportive
tissue of the brain. These tumors are usually highly malignant (cancerous)
because the cells reproduce quickly, and they are supported by a large network
of blood vessels. Berubicin is an anthracycline, which is a class of drugs that
are among the most powerful chemotherapy drugs known. Based on limited clinical
data, we believe Berubicin is the first anthracycline that appears to have
crossed the Blood Brain Barrier and target brain cancer cells. While our current
focus is solely on the development of Berubicin, we are also in the process of
attempting to secure intellectual property rights in additional compounds that
may be developed into drugs to treat cancers.
Berubicin was discovered at MD Anderson by Dr. Waldemar Priebe, the founder of
the Company. Through a series of transactions, Berubicin was initially licensed
to Reata. Reata conducted a Phase I clinical trial on Berubicin but subsequently
allowed their IND with the FDA to lapse for strategic reasons. This will require
us to obtain a new IND for Berubicin before beginning further clinical trials.
We do not have manufacturing facilities and all manufacturing activities are
contracted out to third parties. Additionally, we do not have a sales
organization.
On November 21, 2017, we entered into a Collaboration and Asset Purchase
Agreement with Reata (the "Reata Agreement"). Pursuant to the Reata Agreement we
purchased all of Reata's intellectual property and development data regarding
Berubicin, including all trade secrets, knowhow, confidential information and
other intellectual property rights, which we refer to as the Reata Data.
On December 28, 2017, we obtained the rights to a worldwide, exclusive
royalty-bearing, license to the chemical compound commonly known as Berubicin
from HPI in an agreement we refer to as the HPI License. Under the HPI License
we obtained the exclusive right to develop certain patented chemical compounds
for use in the treatment of cancer anywhere in the world. In the HPI License we
agreed to pay HPI: (i) development fees of $750,000 over a three-year period
beginning November 2019; (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 an NDA for Berubicin; and
(v) 200,000 shares of our common stock.
With the Reata Agreement and the HPI License, we believe we have obtained all
rights and intellectual property necessary to develop Berubicin. As stated
earlier, it is our plan to obtain additional intellectual property covering
other compounds which, subject to the receipt of additional financing, may be
developed into drugs for brain and other cancers.
On January 10, 2020, we entered into a Patent and Technology License Agreement
(the "1244 Agreement") with The Board of Regents of The University of Texas
System, an agency of the State of Texas, on behalf of The University of Texas M.
D. Anderson Cancer Center ("UTMDACC"). Pursuant to the 1244 Agreement, we
obtained a royalty-bearing, worldwide, exclusive license to certain intellectual
property rights, including patent rights, related to our WP1244 drug technology.
In consideration, we must make payments to UTMDACC including an up-front license
fee, annual maintenance fee, milestone payments and royalty payments (including
minimum annual royalties) for sales of licensed products developed under the
1244 Agreement. The term of the 1244 Agreement expires on the last to occur of:
(a) the expiration of all patents subject to the 1244 Agreement, or (b) fifteen
years after execution; provided that UTMDACC has the right to terminate the 1244
Agreement in the event that we fail to meet certain commercial diligence
milestones.
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Results of Operations for the Year Ended December 31, 2019 Compared to the Year
Ended December 31, 2018
General and Administrative Expense
General and administrative expense was $1,978,643 for the year ended December
31, 2019 compared to $860,520 for 2018. The increase in general and
administrative expense, was mainly attributable to an increase of approximately
$444,000 for stock-based compensation, $104,000 in employee compensation and
taxes, $102,000 for investor relations services, $154,000 in recruiting fees,
$75,000 in public listing fees and $102,000 related to the write off of
previously capitalized deferred issuance cost.
Research and Development Expense
Research and development expense was $1,854,334 for the year ended December 31,
2019 compared to $21,267 for 2018. The expenses incurred during the year 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 $26,152 and $28,615 for the year ended December 31, 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 year ended December 31, 2019 was $3,877,211 compared to
$7,391,899 for 2018. The change in net loss is attributable to a loss on
settlement of our convertible debt in the amount of $6,286,841 during the year
ended December 31, 2018, representing the fair value of the common stock and
warrants issued extinguish convertible notes payable and accrued interest. These
changes were offset by increased personnel and activity associated with
preparing for our IPO and clinical trials in 2019.
Liquidity and Capital Resources
On December 31, 2019, we had cash of $7,241,288 and we had working capital of
$7,582,911. We have historically funded our operations from proceeds from debt
and equity sales.
On November 13, 2019, we closed our IPO of 2,125,000 shares of 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.
We believe that the proceeds from the IPO and our cash on hand are sufficient to
fund our 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, approximately $2.0 million to support
near-term WP1244 preclinical work, 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 will need to raise additional capital in order to meet our obligations and
execute our business plan. 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.
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Summary of Cash Flows
Cash used in operating activities
Net cash used in operating activities was $3,553,472 and $716,385 for the years
ended December 31, 2019 and 2018 and mainly included payments made for clinical
trial preparation, officer compensation, 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 $10,259,747 and $1,160,975 for the
years ended December 31, 2019 and 2018. We received net proceeds of $10,294,747
from the issuance of common stock during the year ended December 31, 2019.
Since our inception and through December 31, 2019, we have funded our operations
through the sale and issuance of common stock and convertible and
non-convertible notes payable. During the year ended December 31, 2018, we
issued a convertible note to our lender. The note proceeds were $300,000. The
note bore interest at 10% per annum and was 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.
On November 13, 2019, we closed our IPO of 2,125,000 shares of 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.
Off-balance Sheet Arrangements
As of December 31, 2019, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.
Purchase Commitments
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
"Overview" above.
JOBS Act Accounting Election
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, exempts an
"emerging growth company" such as us from being required to comply with new or
revised financial accounting standards until private companies are required to
comply with the new or revised financial accounting standards. The JOBS Act
provides that a company can elect to opt out of the extended transition period
and comply with the requirements that apply to non-emerging growth companies but
any such election to opt out is irrevocable. We elected not to opt out of such
extended transition period which means that when a standard is issued or revised
and it has different application dates for public or private companies, we, as
an emerging growth company, can adopt the new or revised standard at the time
private companies adopt the new or revised standard. This may make comparison of
our financial statements with another public company which is neither an
emerging growth company nor an emerging growth company which has opted out of
using the extended transition period difficult or impossible because of the
potential differences in accounting standards used.
36
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates, assumptions and judgments that affect the amounts reported in the
financial statements, including the notes thereto. We consider critical
accounting policies to be those that require more significant judgments and
estimates in the preparation of our financial statements, including the
following: long lived assets; intangible assets valuations; and income tax
valuations. Management relies on historical experience and other assumptions
believed to be reasonable in making its judgment and estimates. Actual results
could differ materially from those estimates.
Management believes its application of accounting policies, and the estimates
inherently required therein, are reasonable. These accounting policies and
estimates are periodically reevaluated, and adjustments are made when facts and
circumstances dictate a change.
Stock-based Compensation - Employee and non-employee share-based compensation is
measured at the grant date, based on the fair value of the award, and is
recognized as an expense over the requisite service period.
Research and Development Costs - Research and development costs are expensed as
incurred.
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