UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED - OCTOBER 31, 2019
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 001-36138
ADVAXIS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
305 College Road East, Princeton, NJ
(Address of principal executive offices)
02-0563870
(IRS Employer
Identification No.)
08540
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
(609) 452-9813
(Registrant’s telephone number)
Title of each class
Common Stock, par value $0.001 per share
Trading Symbol(s)
ADXS
Name of each exchange on which registered
Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes [ ] No [X]
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-accelerated Filer
Emerging growth company
[ ]
[X]
[ ]
Accelerated Filer
Smaller Reporting Company
[ ]
[X]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of April 30, 2019, the aggregate market value of the voting common equity held by non-affiliates was approximately $28,098,000 based on the
closing bid price of the registrant’s common stock on the Nasdaq Capital Market. (For purposes of determining this amount, only directors, executive officers,
and 10% or greater shareholders and their respective affiliates have been deemed affiliates). [X]
The registrant had 50,211,424 shares of common stock, par value $0.001 per share, outstanding as of December 16, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the registrant’s 2020 Annual Meeting of Stockholders (the “Proxy Statement”) to be filed within 120 days of the
end of the fiscal year ended October 31, 2019 are incorporated by reference into Part III hereof. Except with respect to information specifically incorporated
by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as a part hereof.
Table of Contents
Form 10-K Index
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART 1
Item 1:
Item 1A:
Item 1B:
Item 2:
Item 3:
Item 4:
PART II
Item 5:
Item 6:
Item 7:
Item 7A:
Item 8:
Item 9:
Item 9A:
Item 9B:
PART III
Item 10:
Item 11:
Item 12:
Item 13:
Item 14:
Part IV
Item 15:
Item 16:
Exhibits, Financial Statements Schedules
Form 10-K Summary
Signatures
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PART 1
FORWARD LOOKING STATEMENTS
This annual report on Form 10-K (“Form 10-K”) includes statements that are, or may be deemed to be, “forward-looking statements.” In some
cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,”
“anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately” or, in each case, their negative or other
variations thereon or comparable terminology, although not all forward-looking statements contain these words. They appear in a number of places
throughout this Form 10-K and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among
other things, our ongoing and planned discovery and development of drug candidates, the strength and breadth of our intellectual property, our ongoing and
planned clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for our product candidates, the
degree of clinical utility of our product candidates, particularly in specific patient populations, expectations regarding clinical trial data, our results of
operations, financial condition, liquidity, prospects, growth and strategies, the length of time that we will be able to continue to fund our operating expenses
and capital expenditures, our expected financing needs and sources of financing, the industry in which we operate and the trends that may affect the industry
or us.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and healthcare,
regulatory and scientific developments and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter
timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Form 10-K, we caution
you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and
the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Form 10-K. In addition, even
if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking
statements contained in this Form 10-K, they may not be predictive of results or developments in future periods.
Some of the factors that we believe could cause actual results to differ from those anticipated or predicted include:
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the success and timing of our clinical trials, including patient accrual;
our ability to obtain and maintain regulatory approval and/or reimbursement of our product candidates for marketing;
our ability to obtain the appropriate labeling of our products under any regulatory approval;
our plans to develop and commercialize our products;
the successful development and implementation of future sales and marketing campaigns;
the change of key scientific or management personnel;
the size and growth of the potential markets for our product candidates and our ability to serve those markets;
our ability to successfully compete in the potential markets for our product candidates, if commercialized;
regulatory developments in the United States and foreign countries;
our ability to continue as a going concern
the rate and degree of market acceptance of any of our product candidates;
new products, product candidates or new uses for existing products or technologies introduced or announced by our competitors and the timing of
these introductions or announcements;
● market conditions in the pharmaceutical and biotechnology sectors;
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our available cash;
the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;
our ability to obtain additional funding;
our ability to obtain and maintain intellectual property protection for our product candidates;
the ability of our product candidates to successfully perform in clinical trials and to resolve any clinical holds that may occur;
our ability to obtain and maintain approval of our product candidates for trial initiation;
our ability to manufacture and the performance of third-party manufacturers;
our ability to identify license and collaboration partners and to maintain existing relationships;
the performance of our clinical research organizations, clinical trial sponsors and clinical trial investigators, and collaboration partners for any
clinical trials we conduct;
our ability to successfully implement our strategy; and
our ability to maintain the listing of our common stock on the Nasdaq Global Select Market.
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Any forward-looking statements that we make in this Form 10-K speak only as of the date of such statement, and we undertake no obligation to update
such statements to reflect events or circumstances after the date of this Form 10-K. You should also read carefully the factors described in the “Risk Factors”
section of this Form 10-K to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result
of these factors, we cannot assure you that the forward-looking statements in this Form 10-K will prove to be accurate.
This Form 10-K includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies
conducted by third-parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained
from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry
publications and third-party research, surveys and studies are reliable, we have not independently verified such data.
We qualify all of our forward-looking statements by these cautionary 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.
In this Form 10-K, unless otherwise stated or the context otherwise indicates, references to “Advaxis,” “the Company,” “we,” “us,” “our” and similar
references refer to Advaxis, Inc., a Delaware corporation.
Item 1. Business.
General
Advaxis is a clinical-stage biotechnology company focused on the development and commercialization of proprietary Listeria monocytogenes, or
Lm, Technology antigen delivery products based on a platform technology that utilizes live attenuated Lm bioengineered to secrete antigen/adjuvant fusion
proteins. These Lm-based strains are believed to be a significant advancement in immunotherapy as they integrate multiple functions into a single
immunotherapy and are designed to access and direct antigen presenting cells to stimulate anti-tumor T cell immunity, activate the immune system with the
equivalent of multiple adjuvants, and simultaneously reduce tumor protection in the Tumor Microenvironment, or TME, to enable T cells to eliminate tumors.
The Company believes that Lm Technology immunotherapies can complement and address significant unmet needs in the current oncology treatment
landscape. Specifically, the Company’s product candidates have the potential to optimize the clinical impact of checkpoint inhibitors while having a generally
well-tolerated safety profile. The Company’s passion for the clinical potential of Lm Technology is balanced by focus and fiscal discipline which is directed
towards improving treatment options for cancer patients and increasing shareholder value.
Advaxis is focused on single antigen and multiple antigen delivery products and is in various stages of clinical development. All of the Company’s
products are anchored in the Company’s Lm TechnologyTM, a unique platform designed for its ability to target various cancers in multiple ways. As an
intracellular bacterium, Lm is an effective vector for the presentation of antigens through both the Major Histocompatibility Complex, or MHC, I and II
pathways, due to its active phagocytosis by Antigen Presenting Cells, or APCs. Within the APCs, Lm produces virulence factors which allow survival in the
host cytosol and potently stimulate the immune system.
Through a license from the University of Pennsylvania and through its own development efforts, Advaxis has exclusive access to a proprietary
formulation of attenuated Lm that we call Lm Technology. Lm Technology is designed to optimize this natural system, and one of the keys to the enhanced
immunogenicity of Lm Technology is the tLLO-fusion protein, which is made up of tumor associated antigen, or TAA, fused to a highly immunogenic
bacterial protein that triggers potent cellular immunity. The tLLO-fusion protein is also designed to help reduce immune tolerance in the TME and to promote
antigen spreading, thereby improving activity in the TME. Multiple copies of the tLLO-fusion protein within each construct may increase antigen presentation
and TME impact.
As the field of immunotherapy continues to evolve, the flexibility of the Lm Technology platform has allowed Advaxis to develop highly innovative
products. To date, Lm Technology has demonstrated preclinical synergy with multiple checkpoint inhibitors, co-stimulatory agents and radiation therapy. The
safety profile of all Lm Technology constructs seen to date across over 470 patients has been generally predictable and manageable, consisting mostly of mild
to moderate flu-like symptoms that have been transient and associated with infusion.
4
The Advaxis Corporate Strategy
Our strategy is to advance the Lm Technology platform and leverage its unique capabilities to design and develop an array of cancer treatments. We
are currently conducting or planning clinical studies of Lm Technology immunotherapies in non-small cell lung cancer and other solid tumor types, prostate
cancer and HPV-associated cancers. We are working with, or are in the process of identifying, collaborators for these programs.
Advaxis is currently focusing on its disease focused hotspot/”off the shelf” neoantigen-directed therapies. ADXS-HOT is a program that leverages
the Company’s proprietary Lm technology to target hotspot mutations that commonly occur in specific cancer types. ADXS-HOT drug candidates are
designed to target acquired shared or “public” mutations in tumor driver genes along with other cancer-associated antigens that also commonly occur in
specific cancer types.
We expect that we will continue to invest in our core clinical program areas and will also remain opportunistic in evaluating Investigator Sponsored
Trials, or ISTs, as well as licensing opportunities. The Lm Technology platform is protected by a range of patents, covering both product and process, some of
which we believe can be maintained into 2039.
Lm Technology and the Immunotherapy Landscape
The challenge of cancer immunotherapy has been to find the best overall balance between efficacy and side effects when mobilizing the body’s
immune system to fight against cancer. The development of immune checkpoint inhibitors was a significant step forward, particularly with anti-PD-1
therapies, and brought with it impressive clinical activity in many different types of cancers, including melanoma, lung, head and neck and urothelial cancers.
However, a literature review published in Science in 2018 noted that anti-PD-1 monotherapy response rates are only in the 15-25% range, and rise to ≥50%
only in selected groups of patients with desmoplastic melanoma, Merkel carcinoma or tumors with mismatch-repair deficiency. Development of secondary
resistance with disease progression is yet another common limitation of these therapies. Therefore, for most cancer patients, there is room for improvement.
Checkpoint inhibitors can expand existing cancer fighting cells that may already be present in low numbers and support their activity against cancer cells, but
if the right cancer-fighting cells are not present, checkpoint inhibitors may not provide clinical benefit. Similarly, there are many mechanisms of immune
tolerance that are distinct from the checkpoints which may also be blocking the immune system from fighting cancer. Based on both pre-clinical and early
clinical data, Advaxis believes that checkpoint inhibitors, when combined with treatments such as Lm Technology, can have an amplified anti-tumor effect.
Lm Technology incorporates several complementary elements that include innate immune stimulation, potent generation of cancer-targeted T cells, ability to
boost immunity through multiple treatments, enhancing lymphocyte infiltration into tumors, reduction of non-checkpoint mediated immune tolerance within
the tumor microenvironment, and promotion of antigen spreading which may amplify the effects of treatment. These results provide rationale for further
testing of Lm Technology agents alone and in combination with checkpoint inhibitors.
Traditional cancer vaccines were another development within immunotherapy and have a history beginning over 30 years ago. Unfortunately, these
vaccines have largely been unsuccessful for a variety of potential reasons. These include poor selection of targets, imbalanced antigen presentation by
inclusion of certain immune enhancing agents (adjuvants), failure to consider the blocking actions of immune tolerance, and choice of vaccine vectors. In
some cases, patients may develop neutralizing antibodies, preventing further treatments. In contrast to traditional cancer vaccines, Lm Technology takes
advantage of a natural pathway in the immune system that evolved to protect us against Listeria infections, that also happens to generate the same type of
immunity that is required when fighting cancer. The live but weakened (attenuated) bacteria stimulate a balanced concert of innate immune triggers and
present the tumor antigen target precisely where it needs to be able to generate potent cancer fighting cells from within the immune system itself. The
multitude of accompanying signals serves to broadly mobilize most of the immune system in support of fighting what seems to be a Listeria infection, and is
then “re-directed” against cancer cell targets. Additionally, the unique intracellular lifecycle of Listeria avoids the creation of neutralizing antibodies, thereby
allowing for repeat administration as a chronic therapy with a sustained enhancing of tumor antigen-specific T cell immunity.
Looking back on the last two decades, there have been promising technology advancements to harness and activate killer T cells against cancers and
every day more is learned about the interplay between immunity and cancer that can lead to improved treatments. However, there are still significant unmet
needs in the immunotherapy landscape that Advaxis feels Lm Technology may be able to address and complement. Specifically, Lm Technology has the
potential to optimize and expand checkpoint inhibitor activity in combination. It also avoids many of the limitations of previous cancer vaccine attempts by
tapping into the pathway reserved for defense against Listeria infection while incorporating the best cancer targets science can identify, including neoantigens
that result from mutations in the cancer. To date, Lm Technology products have a manageable safety profile, do not generate neutralizing antibodies lending
themselves to retreatments, and most of the products are designed to be immediately available for treatment without the complication and expense of
modifying a patient’s own cells in a laboratory.
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Lm Technology: An optimized Listeria -based antigen delivery system
Advaxis’ Listeria -based immunotherapies are designed for antigen delivery through a process of insertion of multiple copies of the proprietary
tLLO-fusion protein into each extrachromosomal protein expression and secretion plasmid that makes and secretes the target protein right inside the patient’s
antigen presenting cells to initiate and/or boost their immune response. The tLLO-fusion protein approach was developed at the University of Pennsylvania as
an improvement over insertion of a single copy of the target gene, as an ACT-A (or other Lm peptide) fusion, within the bacterial genome for four key
reasons:
1. Multiple copies of the DNA in the plasmids per bacteria can result in larger amounts of tLLO -fusion protein being expressed simultaneously,
versus a single copy. This is designed to improve antigen presentation and immunologic priming and increases the number of T cells generated
for a particular treatment.
tLLO expressed on plasmids (with or without a tumor target protein attached) has been shown preclinically to reduce numbers and immune
suppressive function of Tregs and myeloid-derived suppressor cells, or MDSCs, in the tumor microenvironment. Presented preclinical data
demonstrates that Tregs are destroyed as soon as five days after the first Lm Technology treatment and that suppressive M2 tumor-associated
macrophages, or TAMs, are replaced by M1 macrophages which support antigen presentation and adoptive immunity.
2.
3. The extrachromosal DNA plasmids themselves also contain CpG sequence patterns that trigger TLR-9, which confers additional innate immune
stimulation beyond a listeria without the plasmids.
4. The multiple copies of bacterial DNA plasmids (up to 80-100 per bacteria) confers additional stimulation of the STING receptor within APC’s
which has been associated with enhancing anti-cancer immunity in patients.
Clinical Pipeline
Advaxis is focused on the development and commercialization of proprietary Lm Technology antigen delivery products. The Company and its
collaborators are currently conducting or are in the planning process for conducting clinical studies of Lm Technology immunotherapies in the following
areas:
● Disease focused hotspot/”off the shelf” neoantigen-directed therapies
● Human Papilloma Virus (“HPV”)-associated cancers
● Prostate cancer (ADXS-PSA)
The Company is currently in the process of winding down its ADXS-NEO Phase 1 Lm Technology personalized neoantigen-directed therapies
clinical study and its AIM2CERV Phase 3 clinical trial with axalimogene filolisbac (AXAL) in high-risk locally advanced cervical cancer.
As a clinical-stage biotechnology company with no commercial products, Advaxis is aware of the need for fiscal responsibility, and is focusing its
investments in areas that it anticipates will have the highest likelihood of clinical and commercial success. Additionally, the company will continue to be
opportunistic by exploring ISTs, licensing and other external opportunities.
Advaxis Pipeline of Product Candidates
6
Disease focused hotspot/‘off the shelf’ neoantigen therapies (ADXS-HOT)
Advaxis is creating a new group of immunotherapy constructs for major solid tumor cancers that combines our optimized Lm Technology vector
with promising targets designed to generate potent anti-cancer immunity. The ADXS-HOT program is a series of novel cancer immunotherapies that will
target somatic mutations, or hotspots, cancer testis antigens, or CTAs, and oncofetal antigens, or OFAs. These three types of targets form the basis of the
ADXS-HOT program because they are designed to be more capable of generating potent, tumor specific, and high strength killer T cells, versus more
traditional over-expressed native sequence tumor associated antigens. Most hotspot mutations and OFA/CTA proteins play critical roles in oncogenesis;
targeting both at once could significantly impair cancer proliferation. The ADXS-HOT products will combine many of the potential high avidity targets that
are expressed in all patients with the target disease into one “off-the-shelf”, ready to administer treatment. The ADXS-HOT technology has a strong
intellectual property, or IP, position, with potential protection into 2037, and an IP filing strategy providing for broad coverage opportunities across multiple
disease platforms and combination therapies.
In July 2018, the Company announced that the U.S. Food and Drug Administration, or FDA, allowed the Company’s investigational new drug, or
IND, application for its ADXS-HOT drug candidate (ADXS-503) for non-small cell lung cancer, or NSCLC. ADXS-503 is currently being evaluated in a
Phase 1/2 clinical trial, enrolling patients at five sites. The first dose level with monotherapy in Part A, (1 X108 CFU) has been completed, and the Part A-
second dose level (5 X108 CFU) and Part B in combination with a checkpoint inhibitor are currently open to enrollment. The Company expects to report
immune response data from Part A monotherapy in early 2020.
On December 3, 2019, Advaxis announced that it submitted an IND to the FDA for the initiation of a Phase 1 clinical study of ADXS-504, its
ADXS-HOT drug candidate for prostate cancer.
HPV-Related Cancers
The Company conducted several studies evaluating axalimogene filolisbac, or AXAL, for HPV-related cancers. AXAL is an Lm-based antigen
delivery product directed against HPV and designed to target cells expressing HPV.
In June 2019, the Company announced the closing of its AIM2CERV Phase 3 clinical trial with axalimogene filolisbac (AXAL) in high-risk locally
advanced cervical cancer. Company estimates showed that the remaining cost to complete the AIM2CERV trial ranged from $80 million to $90 million, and
initial efficacy data was not anticipated for at least three years. Therefore, results from the clinical trial were not the basis for the decision to close the study,
nor was safety as the trial recently underwent its third Independent Data Monitoring Committee (IDMC) review with no safety issues noted. The Company is
in the process of unblinding the AIM2CERV clinical data generated to date and currently has no plans to further fund studies using AXAL.
In 2014, Advaxis granted Global BioPharma, or GBP, an exclusive license for the development and commercialization of AXAL in Asia, Africa, and
the former USSR territory, exclusive of India and certain other countries. GBP is responsible for all development and commercial costs and activities
associated with the development in their territories. GBP anticipates initiating its Phase 2, open-label controlled trial in HPV-associated NSCLC in patients
following first-line chemotherapy in late 2019 or early 2020. The study will be assessing the effects of AXAL when combined with pemetrexed in patients
with HPV+ NSCLC, following first line induction therapy.
Other HPV Program Licensing Agreements
Biocon Limited, or Biocon, our co-development and commercialization partner for AXAL in India and key emerging markets, filed a MAA for
licensure of this immunotherapy in India. The companies will evaluate next steps regarding potential registration in India.
Especificos Stendhal SA de CV, or Stendhal, the Company’s co-development and commercialization partner for AXAL in Mexico, Brazil, Colombia
and other Latin American countries, agreed to pay $10 million in support payment towards the expense of AIM2CERV over the duration of the trial,
contingent upon Advaxis achieving annual project milestones, pursuant to a Co-Development and Commercialization Agreement, or the Stendhal Agreement.
The Company is currently in arbitration proceedings with Stendhal. For more information, see Note 9, “Legal Proceedings” of the “Notes to the Financial
Statements” included in Item 8.
Knight Therapeutics Inc., or Knight, holds an exclusive license to commercialize AXAL in Canada, as well as other product candidates.
Personalized Neoantigen-directed Therapies (ADXS-NEO)
ADXS-NEO is an individualized Lm Technology antigen delivery product developed using whole-exome sequencing of a patient’s tumor to identify
neoantigens. ADXS-NEO is designed to work by presenting a large payload of neoantigens directly into dendritic cells within the patient’s immune system
and stimulating a T cell response against cancerous cells. In October 2019, the Company announced that it has dosed its last patient in Part A, in
monotherapy, and does not intend to continue into Part B, in combination with a checkpoint inhibitor. As a result, Advaxis is in the process of winding down
this study. The Company intends to publish the final results from Part A of the ADXS-NEO study at a future medical meeting and to close its ADXS-NEO
program IND thereafter.
7
Prostate Cancer (ADXS-PSA )
According to the American Cancer Society, prostate cancer is the second most common type of cancer found in American men and is the second
leading cause of cancer death in men, behind only lung cancer. More than 160,000 men are estimated to be diagnosed with prostate cancer in 2018, with
approximately 30,000 deaths each year. Unfortunately, in about 10-20% of cases, men with prostate cancer will go on to develop castration-resistant prostate
cancer, or CRPC, which refers to prostate cancer that progresses despite androgen deprivation therapy. Metastatic CRPC, or mCRPC, occurs when the cancer
spreads to other parts of the body and there is a rising prostate-specific antigen, PSA, level. This stage of prostate cancer has an average survival of 9-13
months, is associated with deterioration in quality of life, and has few therapeutic options available.
Recent data regarding checkpoint inhibitor monotherapy has shown some antitumor activity that provides disease control in a subset of patients with
bone predominant mCRPC previously treated with next generation hormonal agents and docetaxel. Data from the KEYNOTE-199 trial in bone predominant-
mCRPC patients treated with KEYTRUDA®, or pembrolizumab, was updated at the ASCO GU meeting in 2019. In this trial, the total stable disease/disease
stabilization rate was 39% with no responses reported so far, and only one patient with ≥50% decrease in the post-baseline PSA value. It is hypothesized that
the limited activity in mCRPC may be due to 1) the inability of the checkpoint inhibitor to infiltrate the tumor microenvironment and 2) the presence of an
immunosuppressive tumor micro-environment, or TME. The combination therapy with agents—like Lm constructs—that induce T cell infiltration within the
tumor and decrease negative regulators in the TME may improve performance of checkpoints in prostate cancer.
Lm Technology constructs demonstrated the ability to induce anti-tumor T cell responses and T cell infiltration in the TME and to reduce the number
and suppressive function of Tregs and MDSCs in the TME. For example, destruction of Tregs in the TME has been documented as soon as five days after
dosing Lm constructs in models. This reduction of immune suppression in the tumors has been attributed to our proprietary tLLO-fusion peptides expressed
by multiple copies of the plasmids in each bacteria. Because of all these effects, it is hypothesized that Lm constructs can turn “cold prostate tumors” into “hot
tumors” that better respond to checkpoint inhibitors. Advaxis believes that the combination of ADXS-PSA, its immunotherapy designed to target the PSA
antigen, with a checkpoint inhibitor may provide an alternative treatment option for patients with mCRPC.
Advaxis has entered into a clinical trial collaboration and supply agreement with Merck to evaluate the safety and efficacy of ADXS-PSA as
monotherapy and in combination with KEYTRUDA®, Merck’s anti PD-1 antibody, in a Phase 1/2, open-label, multicenter, dose determination and expansion
trial in patients with previously treated metastatic, castration-resistant prostate cancer (KEYNOTE-046). ADXS-PSA was tested alone or in combination with
KEYTRUDA in an advanced and heavily pretreated patient population who had progressed on androgen deprivation therapy. A total of 13 and 37 patients
were evaluated on monotherapy and combination therapy, respectively. For the ADXS-PSA monotherapy dose escalation and determination portion of the
trial, cohorts were started at a dose of 1 x 109 cfu (n=7) and successfully escalated to higher dose levels of 5x109 cfu (n=3) and 1x1010 cfu (n=3) without
achieving a maximum tolerated dose. TEAEs noted at these higher dose levels were generally consistent with those observed at the lower dose level (1 x 109
cfu) other than a higher occurrence rate of Grade 2/3 hypotension. The Recommended Phase II Dose of ADXS-PSA monotherapy was determined to be 1x
109 cfu based on a review of the totality of the clinical data. This dose was used in combination with 200mg of pembrolizumab in a cohort of six patients to
evaluate the safety of the combination before moving into an expanded cohort of patients. The safety of the combination was confirmed and enrollment in the
expansion cohort phase was initiated. Enrollment in the study was completed in January 2017.
At the final data cutoff of September 16, 2019, median overall survival for 37 patients in the combination arm was 33.6 months (95% CI, range 15.4-
33.6 months). This updated median overall survival is an increase from the previous data presented at the American Association for Cancer Research Annual
Meeting in April 2019, where median overall survival was 21.1 months in the combination arm. The majority of TEAEs consisted of transient and reversible
Grade 1-2 chills/rigors, fever, hypotension, nausea and fatigue. The combination of ADXS-PSA and KEYTRUDA® has appeared to be well-tolerated to date,
with no additive toxicity observed. The Company plans to present these new data at a medical conference in 2020. The Company is in discussions with
potential partners regarding opportunities to expand or advance this mCRPC program.
Other Lm Technology Products
HER2 Expressing Solid Tumors
HER2 is overexpressed in a percentage of solid tumors including osteosarcoma. According to published literature, up to 60% of osteosarcomas are
HER2 positive, and this overexpression is associated with poor outcomes for patients. ADXS-HER2 is an Lm Technology antigen delivery product candidate
designed to target HER2 expressing solid tumors including human and canine osteosarcoma. ADXS-HER2 has received FDA and EMA orphan drug
designation for osteosarcoma and has received Fast Track designation from the FDA for patients with newly-diagnosed, non-metastatic, surgically-resectable
osteosarcoma.
In September 2018, the Company announced that it had granted a license to OS Therapies, LLC, or OS Therapies, for the use of ADXS31-164, also
known as ADXS-HER2, for evaluation in the treatment of osteosarcoma in humans. Under the terms of the license agreement, OS Therapies, in collaboration
with the Children’s Oncology Group, will be responsible for the conduct and funding of a clinical study evaluating ADXS-HER2 in recurrent, completely
resected osteosarcoma. Pursuant to the agreement, Advaxis expects to receive an upfront payment, reimbursement for product supply and other support,
clinical, regulatory, and sales-based milestone payments, and royalties on future product sales. Additional details of the financial terms have not been
disclosed.
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Canine Osteosarcoma
On March 19, 2014, we entered into a definitive Exclusive License Agreement, or Aratana Agreement, with Aratana Therapeutics, Inc., or Aratana,
where we granted Aratana an exclusive, worldwide, royalty-bearing license, with the right to sublicense, certain of our proprietary technology that enables
Aratana to develop and commercialize animal health products that will be targeted for treatment of osteosarcoma and other cancer indications in animals. A
product license request was filed by Aratana for ADXS-HER2 (also known as AT-014 by Aratana) for the treatment of canine osteosarcoma with the United
States Department of Agriculture, or USDA. Aratana received communication in December 2017 that the USDA granted Aratana conditional licensure for
AT-014 for the treatment of dogs diagnosed with osteosarcoma, one year of age or older. Initially, Aratana plans to make the therapeutic available for
purchase at approximately two dozen veterinary oncology practice groups across the United States who participate in the study. Aratana received
communication in December 2017 that the USDA granted Aratana conditional licensure for AT-014 for the treatment of dogs diagnosed with osteosarcoma,
one year of age or older. Aratana is currently conducting an extended field study which is a requirement for full USDA licensure. Initially, Aratana plans to
make the therapeutic available for purchase at approximately two dozen veterinary oncology practice groups across the United States who participate in the
study.
Under the terms of the Aratana Agreement, Aratana paid an upfront payment to Advaxis in the amount of $1,000,000 upon signing of the Aratana
Agreement. Aratana will also pay Advaxis: (a) up to $36.5 million based on the achievement of milestone relating to the advancement of products through the
approval process with the USDA in the United States and the relevant regulatory authorities in the European Union, or E.U., in all four therapeutic areas and
up to an additional $15 million in cumulative sales milestones based on achievement of gross sales revenue targets for sales of any and all products for use in
non-human animal health applications, or the Aratana Field, (regardless of therapeutic area), and (b) tiered royalties starting at 5% and going up to 10%,
which will be paid based on net sales of any and all products (regardless of therapeutic area) in the Aratana Field in the United States. Royalties for sales of
products outside of the United States will be paid at a rate equal to half of the royalty rate payable by Aratana on net sales of products in the United States
(starting at 2.5% and going up to 5%). Royalties will be payable on a product-by-product and country-by-country basis from first commercial sale of a
product in a country until the later of (a) the 10th anniversary of first commercial sale of such product by Aratana, its affiliates or sub licensees in such
country or (b) the expiration of the last-to-expire valid claim of our patents or joint patents claiming or covering the composition of matter, formulation or
method of use of such product in such country. Aratana will also pay us 50% of all sublicense royalties received by Aratana and its affiliates. In fiscal year
2019, the Company received approximately $8,000 in royalty revenue from Aratana. Additionally, in July 2019, Aratana announced that their shareholders
approved a merger agreement with Elanco Animal Health, or Elanco, whereby Elanco is now the majority shareholder of Aratana. All of the terms of the
Aratana Agreement remain in effect.
Corporate Information
We were originally incorporated in the State of Colorado on June 5, 1987 under the name Great Expectations, Inc. We were a publicly-traded “shell”
company without any business until November 12, 2004 when we acquired Advaxis, Inc., a Delaware corporation, through a Share Exchange and
Reorganization Agreement, dated as of August 25, 2004, which we refer to as the Share Exchange, by and among Advaxis, the stockholders of Advaxis and
us. As a result of the Share Exchange, Advaxis became our wholly-owned subsidiary and our sole operating company. On December 23, 2004, we amended
and restated our articles of incorporation and changed our name to Advaxis, Inc. On June 6, 2006, our stockholders approved the reincorporation of our
company from Colorado to Delaware by merging the Colorado entity into our wholly-owned Delaware subsidiary. Our date of inception, for financial
statement purposes, is March 1, 2002 and the Company was uplisted to Nasdaq in 2014.
Our principal executive offices and manufacturing facility is located at 305 College Road East, Princeton, New Jersey 08540 and our telephone
number is (609) 452-9813. We maintain a corporate website at www.advaxis.com which contains descriptions of our technology, our product candidates and
the development status of each drug. We make available free of charge through our Internet website our annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K, and any amendments to these reports, as soon as reasonably practicable after we electronically file such material
with, or furnish such material to, the SEC. We are not including the information on our website as a part of, nor incorporating it by reference into, this report.
The SEC maintains a website that contains annual, quarterly, and current reports, proxy statements, and other information that issuers (including us) file
electronically with the SEC. The SEC’s website address is http://www.sec.gov.
Intellectual Property
Protection of our intellectual property is important to our business. We have a robust patent portfolio that protects our product candidates and Lm -
based immunotherapy technology. Currently, we own or have rights to several hundred patents and applications, which are owned, licensed from, or co-
owned with University of Pennsylvania, or Penn, Merck, National Institute of Health, or NIH, and/or Augusta University. We aggressively prosecute and
defend our patents and proprietary technology. Our patents and applications are directed to the compositions of matter, use, and methods thereof, of our Lm-
LLO immunotherapies for our product candidates, including AXAL, ADXS-PSA, ADXS-HOT, ADXS-HER2. We have and may continue to abandon
prosecuting certain patents that are not strategically aligned with the direction of the Company.
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Our approach to the intellectual property portfolio is to create, maintain, protect, enforce and defend our proprietary rights for the products we
develop from our immunotherapy technology platform. We endeavor to maintain a coherent and aggressive strategic approach to building our patent portfolio
with an emphasis in the field of cancer vaccines. Issued patents which are directed to AXAL, ADXS-PSA, and ADXS-HER2 in the United States, will expire
between 2019 and 2032. Issued patents directed to our product candidates AXAL, ADXS-PSA, and ADXS-HER2 outside of the United States, will expire in
2032. Issued patents directed to our Lm -based immunotherapy platform in the United States, will expire between 2019 and 2031. Issued patents directed to
our Lm-based immunotherapy platform outside of the United States, will expire between 2019 and 2033.
We have pending patent applications directed to our product candidates AXAL, ADXS-PSA, ADXS-HER2, and ADXS-HOT that, if issued would
expire in the United States and in countries outside of the United States between 2020 and 2037. We have pending patent applications directed to methods of
using of our product candidates AXAL, ADXS-PSA, ADXS-HOT, ADXS-HER2 directed to the following indications and others: prostate cancer and
her2/neu-expressing cancer, that, if issued would expire in the United States and in countries outside of the United States between 2020 and 2037, depending
on the specific indications.
We will be able to protect our technology from unauthorized use by third parties only to the extent it is covered by valid and enforceable patents or is
effectively maintained as trade secrets. Patents and other proprietary rights are an essential element of our business.
Our success will depend in part on our ability to obtain and maintain proprietary protection for our product candidates, technology, and know-how, to
operate without infringing on the proprietary rights of others, and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our
proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions, and improvements
that are important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation, and in-licensing
opportunities to develop and maintain our proprietary position.
Any patent applications which we have filed or will file or to which we have or will have license rights may not issue, and patents that do issue may
not contain commercially valuable claims. In addition, any patents issued to us or our licensors may not afford meaningful protection for our products or
technology, or may be subsequently circumvented, invalidated, narrowed, or found unenforceable. Our processes and potential products may also conflict
with patents which have been or may be granted to competitors, academic institutions or others. As the pharmaceutical industry expands and more patents are
issued, the risk increases that our processes and potential products may give rise to interferences filed by others in the U.S. Patent and Trademark Office, or to
claims of patent infringement by other companies, institutions or individuals. These entities or persons could bring legal actions against us claiming damages
and seeking to enjoin clinical testing, manufacturing and marketing of the related product or process. In recent years, several companies have been extremely
aggressive in challenging patents covering pharmaceutical products, and the challenges have often been successful. If any of these actions are successful, in
addition to any potential liability for damages, we could be required to cease the infringing activity or obtain a license in order to continue to manufacture or
market the relevant product or process. We may not prevail in any such action and any license required under any such patent may not be made available on
acceptable terms, if at all. Our failure to successfully defend a patent challenge or to obtain a license to any technology that we may require to commercialize
our technologies or potential products could have a materially adverse effect on our business. In addition, changes in either patent laws or in interpretations of
patent laws in the United States and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent
protection.
We also rely upon unpatented proprietary technology, and in the future may determine in some cases that our interests would be better served by
reliance on trade secrets or confidentiality agreements rather than patents or licenses. We may not be able to protect our rights to such unpatented proprietary
technology and others may independently develop substantially equivalent technologies. If we are unable to obtain strong proprietary rights to our processes
or products after obtaining regulatory clearance, competitors may be able to market competing processes and products.
Others may obtain patents having claims which cover aspects of our products or processes which are necessary for, or useful to, the development,
use or manufacture of our services or products. Should any other group obtain patent protection with respect to our discoveries, our commercialization of
potential therapeutic products and methods could be limited or prohibited.
The Drug Development Process
The product candidates in our pipeline are at various stages of clinical development. The path to regulatory approval includes multiple phases of
clinical trials in which we collect data that will ultimately support an application to regulatory authorities to allow us to market a product for the treatment, of
a specific type of cancer. There are many difficulties and uncertainties inherent in research and development of new products, resulting in high costs and
variable success rates. Bringing a drug from discovery to regulatory approval, and ultimately to market, takes many years and significant costs.
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Clinical testing, known as clinical trials or clinical studies, is either conducted internally by pharmaceutical or biotechnology companies or is
managed on behalf of these companies by Clinical Research Organizations, or CROs. The process of conducting clinical studies is highly regulated by the
FDA, as well as by other governmental and professional bodies. In a clinical trial, participants receive specific interventions according to the research plan or
protocol created by the study sponsor and implemented by study investigators. Clinical trials may compare a new medical approach to a standard one that is
already available or to a placebo that contains no active ingredients or to no intervention. Some clinical trials compare interventions that are already available
to each other. When a new product or approach is being studied, it is not usually known whether it will be helpful, harmful, or no different than available
alternatives. The investigators try to determine the safety and efficacy of the intervention by measuring certain clinical outcomes in the participants.
Phase 1. Phase 1 clinical trials begin when regulatory agencies allow initiation of clinical investigation of a new drug or product candidate. They
typically involve testing an investigational new drug on a limited number of patients. Phase 1 studies determine a drug’s basic safety, maximum
tolerated dose and how the drug is absorbed by, and eliminated from, the body. Typically, cancer therapies are initially tested on late-stage cancer
patients.
Phase 2. Phase 2 clinical trials involve larger numbers of patients that have been diagnosed with the targeted disease or condition. Phase 2 clinical
trials gather preliminary data on effectiveness (where the drug works in people who have a certain disease or condition) and to determine the
common short-term side effects and risks associated with the drug. If Phase 2 clinical trials show that an investigational new drug has an acceptable
range of safety risks and probable effectiveness, a company will continue to evaluate the investigational new drug in Phase 3 studies.
Phase 3. Phase 3 clinical trials are typically controlled multi-center trials that involve a larger number of patients to ensure the study results are
statistically significant. The purpose is to confirm effectiveness and safety on a large scale and to provide an adequate basis for physician labeling.
These trials are generally global in nature and are designed to generate clinical data necessary to submit an application for marketing approval to
regulatory agencies.
Biologic License Application (BLA). The results of the clinical trials using biologics are submitted to the FDA as part of a BLA. Following the
completion of Phase 3 studies, if the sponsor of a potential product in the United States believes it has sufficient information to support the safety
and effectiveness of the investigational new drug, the sponsor submits a BLA to the FDA requesting that the investigational new drug be approved
for marketing. The application is a comprehensive filing that includes the results of all preclinical and clinical studies, information about the drug’s
composition, and the sponsor’s plans for manufacturing, packaging, labeling and testing the investigational new drug. The FDA’s review of an
application is designated either as a standard review with a target review time of 10 months or a priority review with a target of 6 months. Depending
upon the completeness of the application and the number and complexity of follow-up requests and responses between the FDA and the sponsor, the
review time can take months to many years. Once approved through this process, a drug may be marketed in the United States, subject to any
conditions imposed by the FDA.
Government Regulations
General
Government authorities in the United States and other countries extensively regulate, among other things, the preclinical and clinical testing,
manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution of drugs. In the United States, the FDA
subjects drugs to rigorous review under the Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations.
Orphan Drug Designation
Under the Orphan Drug Act, or ODA, the FDA may grant Orphan Drug Designation, ODD, to a drug or biological product intended to treat a rare
disease or condition, which means a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in
the United States, but for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United
States will be recovered from domestic sales of the product.
The benefits of ODD can be substantial, including research and development tax credits and exemption from user fees, enhanced access to advice
from the FDA while the drug is being developed, and market exclusivity once the product reaches approval and begins sales, provided that the new product is
first to market and that this new product has not been previously approved for the same orphan disease or condition, with or without orphan drug designation.
In order to qualify for these incentives, a company must apply for designation of its product as an “Orphan Drug” and obtain approval from the FDA. Orphan
product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process; however, an ODD product may
be eligible for priority review. A drug that is approved for the ODD indication is granted seven years of orphan drug exclusivity. During that period, the FDA
generally may not approve any other application for the same product for the same indication, although there are exceptions, most notably when the later
product is shown to be clinically superior to the product with exclusivity.
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We currently have ODD with the FDA for AXAL for treatment of anal cancer (granted August 2013), HPV-associated head and neck cancer (granted
November 2013); and treatment of Stage II-IV invasive cervical cancer (granted May 2014). We also have ODD with the FDA for ADXS-HER2 for the
treatment of osteosarcoma (granted May 2014).
In Europe, the Committee for Orphan Medicinal Products, COMP, has issued a positive opinion on the application for ODD of AXAL for the
treatment of anal cancer (December 2015) and on the application for ODD of ADXS-HER2 for osteosarcoma (November 2015).
Expedited Programs for Serious Conditions
Four core FDA programs are intended to facilitate and expedite development and review of new drugs to address unmet medical need in the
treatment of serious or life-threatening conditions: fast track designation, breakthrough therapy designation, accelerated approval, and priority review. We
intend to avail ourselves of any and all of these programs as applicable to our products.
FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening
disease or condition for which there is no effective treatment, and which demonstrate the potential to address unmet medical needs for the condition. Under
the fast track program, the sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication as a fast track drug
concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the drug candidate qualifies for Fast Track Designation within
60 days of receipt of the sponsor’s request.
Under the fast track program and FDA’s accelerated approval regulations, FDA may approve a drug for a serious or life-threatening illness that
provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical
benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on
irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of
alternative treatments.
In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct
measurement of how a patient feels, functions or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A
drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval
clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-
marketing studies, will allow FDA to withdraw the drug from the market on an expedited basis. All promotional materials for product candidates approved
under accelerated regulations are subject to prior review by FDA.
In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with FDA, FDA may initiate
review of sections of a fast track drug’s NDA before the application is complete. This rolling review is available if the applicant provides, and FDA approves,
a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, FDA’s time period goal for reviewing an
application does not begin until the last section of the NDA is submitted. Additionally, the Fast Track Designation may be withdrawn by FDA if FDA
believes that the designation is no longer supported by data emerging in the clinical trial process.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA regulated products, including drugs, are required to register and disclose certain clinical trial information.
Information related to the product, patient population, phase of investigation, Trial sites and investigators and other aspects of the clinical trial is then made
public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these
trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available
information to gain knowledge regarding the progress of development programs.
Coverage, Pricing and Reimbursement
Successful commercialization of new drug products depends in part on the extent to which reimbursement for those drug products will be available
from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as
private health insurers and health maintenance organizations, decide which drug products they will pay for and establish reimbursement levels. The
availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford a drug product. Sales of drug
products depend substantially, both domestically and abroad, on the extent to which the costs of drugs products are paid for by health maintenance, managed
care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health
coverage insurers and other third-party payors.
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A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have
attempted to control costs by limiting coverage and the amount of reimbursement for particular drug products. In many countries, the prices of drug products
are subject to varying price control mechanisms as part of national health systems. In general, the prices of drug products under such systems are substantially
lower than in the United States. Other countries allow companies to fix their own prices for drug products, but monitor and control company profits.
Accordingly, in markets outside the United States, the reimbursement for drug products may be reduced compared with the United States. In the United
States, the principal decisions about reimbursement for new drug products are typically made by the Centers for Medicare & Medicaid Services, or CMS, an
agency within the Department of Health and Human Services, or HHS. CMS decides whether and to what extent a new drug product will be covered and
reimbursed under certain federal governmental healthcare programs, such as Medicare, and private payors tend to follow CMS to a substantial degree.
However, no uniform policy of coverage and reimbursement for drug products exists among third-party payors and coverage and reimbursement levels for
drug products can differ significantly from payor to payor. In the United States, the process for determining whether a third-party payor will provide coverage
for a biological product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payor
will pay for the product once coverage is approved. With respect to biologics, third-party payors may limit coverage to specific products on an approved list,
also known as a formulary, which might not include all of the FDA-approved products for a particular indication, or place products at certain formulary levels
that result in lower reimbursement levels and higher cost sharing obligation imposed on patients. A decision by a third-party payor not to cover our product
candidates could reduce physician utilization of a product. Moreover, a third-party payor’s decision to provide coverage for a product does not imply that an
adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable a manufacturer to maintain price levels
sufficient to realize an appropriate return on its investment in product development. Additionally, coverage and reimbursement for products can differ
significantly from payor to payor. One third-party payor’s decision to cover a particular medical product does not ensure that other payors will also provide
coverage for the medical product, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process usually
requires manufacturers to provide scientific and clinical support for the use of their products to each payor separately and is a time-consuming process.
Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for
one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost-
effectiveness of pharmaceutical products, in addition to questioning safety and efficacy. If third-party payors do not consider a product to be cost-effective
compared to other available therapies, they may not cover that product after FDA approval or, if they do, the level of payment may not be sufficient to allow a
manufacturer to sell its product at a profit.
In addition, in many foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements
governing drug pricing and reimbursement vary widely from country to country. In the European Union, governments influence the price of products through
their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some
jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed to by the
government. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost
effectiveness of a particular product to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor
and control company profits. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will
allow favorable reimbursement and pricing arrangements for any of our products. The downward pressure on healthcare costs in general, particularly
prescription products, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some
countries, cross border imports from low-priced markets exert a commercial pressure on pricing within a country.
Other Healthcare Laws
Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in
the United States in addition to the FDA, including CMS, the HHS Office of Inspector General and HHS Office for Civil Rights, other divisions of the HHS
and the Department of Justice.
Healthcare providers, physicians, and third-party payors will play a primary role in the recommendation and prescription of any products for which
we obtain marketing approval. Our current and future arrangements with third-party payors, healthcare providers and physicians may expose us to broadly
applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through
which we market, sell and distribute any drugs for which we obtain marketing approval. In the United States, these laws include, without limitation, state and
federal anti-kickback, false claims, physician transparency, and patient data privacy and security laws and regulations, including but not limited to those
described below.
The U.S. federal Anti-Kickback Statute, or AKS, prohibits, among other things, any person or entity from knowingly and willfully offering, paying,
soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering or
arranging for or recommending the purchase, lease or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid
or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The AKS has been interpreted to
apply to arrangements between pharmaceutical and medical device manufacturers on the one hand and prescribers, purchasers, formulary managers and
beneficiaries on the other hand. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from
prosecution, the exceptions and safe harbors are drawn narrowly. Failure to meet all of the requirements of a particular applicable statutory exception or
regulatory safe harbor does not make the conduct per se illegal under the AKS. Instead, the legality of the arrangement will be evaluated on a case-by-case
basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one
purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. In addition, a
person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Moreover, a claim
including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
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Although we would not submit claims directly to payors, drug manufacturers can be held liable under the federal False Claims Act, which imposes
civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities (including manufacturers) for, among other things,
knowingly presenting, or causing to be presented to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that
are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. The government may
deem manufacturers to have “caused” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to
customers or promoting a product off-label. Several biopharmaceutical, medical device and other healthcare companies have been prosecuted under federal
false claims and civil monetary penalty laws for, among other things, allegedly providing free product to customers with the expectation that the customers
would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’
marketing of products for unapproved (e.g., or off-label), and thus non-covered, uses. In addition, the civil monetary penalties statute imposes penalties
against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is
for an item or service that was not provided as claimed or is false or fraudulent. Claims which include items or services resulting from a violation of the
federal AKS are false or fraudulent claims for purposes of the False Claims Act.
Our future marketing and activities relating to the reporting of wholesaler or estimated retail prices for our products, if approved, the reporting of
prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party reimbursement for our products, and the
sale and marketing of our product candidates, are subject to scrutiny under these laws.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among
other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses,
representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-
party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare
offense and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in
connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity
does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and certain other healthcare
providers. The Affordable Care Act, or the ACA, imposed, among other things, new annual reporting requirements through the Physician Payments Sunshine
Act for covered manufacturers for certain payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership and
investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for
all payments, transfers of value and ownership or investment interests may result in civil monetary penalties. Covered manufacturers must submit reports by
the 90th day of each subsequent calendar year and the reported information is publicly made available on a searchable website.
We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business.
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing
regulations, including the Final HIPAA Omnibus Rule published on January 25, 2013, impose specified requirements relating to the privacy, security and
transmission of individually identifiable health information held by covered entities and their business associates. Among other things, HITECH made
HIPAAs security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive,
maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity, although it is unclear that we
would be considered a “business associate” in the normal course of our business. HITECH also increased the civil and criminal penalties that may be imposed
against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or
injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition,
state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may
not have the same requirements, thus complicating compliance efforts.
Similar state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services. Such laws are generally broad and are enforced by various state agencies and private actions.
Also, many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payor, in addition to items
and services reimbursed under Medicaid and other state programs. Some state laws require pharmaceutical companies to comply with the pharmaceutical
industry’s voluntary compliance guidelines and the relevant federal government compliance guidance, and require drug manufacturers to report information
related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or drug pricing.
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In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale
distributors of drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such
manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish
the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking
and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and biotechnology companies
to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials
and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician
prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit certain other sales and marketing practices.
All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially
in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions
between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the
healthcare industry. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes,
regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of
these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages,
fines, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, imprisonment, exclusion of drugs from government
funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, as well as additional reporting obligations
and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, any of
which could adversely affect our ability to operate our business and our financial results. If any of the physicians or other healthcare providers or entities with
whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative
sanctions, including exclusions from government funded healthcare programs. Ensuring business arrangements comply with applicable healthcare laws, as
well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert a company’s attention from the
business.
Current and Future Legislation
In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the
healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability
to profitably sell any product candidates for which we obtain marketing approval. We expect that current laws, as well as other healthcare reform measures
that may be adopted in the future, may result in more rigorous coverage criteria and additional downward pressure on the price that we, or any collaborators,
may receive for any approved products.
The ACA, for example, contains provisions that subject biological products to potential competition by lower-cost biosimilars and may reduce the
profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extend Medicaid rebates to Medicaid managed care
plans, provide for mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal
healthcare programs. With the President Trump administration and current Congress, there will likely be additional administrative or legislative changes,
including modification, repeal or replacement of all, or certain provisions of the ACA, which may impact reimbursement for drugs and biologics. On January
20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant
exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare
providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13, 2017, President Trump signed an Executive Order
terminating the cost-sharing subsidies that reimburse insurers under the ACA. Several state Attorneys General filed suit to stop the administration from
terminating the subsidies, but their lawsuit was dismissed by a federal judge in California on July 18, 2018. In addition, CMS has recently finalized
regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the
effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces. Further, each chamber of Congress has put
forth multiple bills, and may do so again in the future, designed to repeal or repeal and replace portions of the ACA.
While Congress has not passed repeal legislation, the Tax Reform Act includes a provision that repealed, effective January 1, 2019, the tax-based
shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is
commonly referred to as the “individual mandate.” Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amended the ACA, effective
January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in
Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Congress may consider other
legislation to repeal and replace elements of the ACA. On December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the
individual mandate portion of the ACA is an essential and inseverable feature of the ACA, and therefore because the mandate was repealed as part of the Tax
Cuts and Jobs Act, the remaining provisions of the ACA are invalid as well. The Trump administration and CMS have both stated that the ruling will have no
immediate effect, and on December 30, 2018 the same judge issued an order staying the judgment pending appeal. A Fifth Circuit U.S. Court of Appeals
hearing to determine whether certain states and the House of Representatives have standing to appeal the lower court decision was held on July 9, 2019, but it
is unclear when a Court will render its decision on this hearing, and what effect it will have on the status of the ACA. Litigation and legislation over the ACA
are likely to continue, with unpredictable and uncertain results.
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Additionally, other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted:
● The Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit
Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach
required goals, thereby triggering the legislation’s automatic reduction to several government programs. These changes included aggregate
reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative
amendments to the statute, including the BBA, will remain in effect through 2027, unless additional Congressional action is taken.
● The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers, and increased the statute of
limitations period for the government to recover overpayments to providers from three to five years.
● The Middle Class Tax Relief and Job Creation Act of 2012 required that CMS reduce the Medicare clinical laboratory fee schedule by 2% in 2013,
which served as a base for 2014 and subsequent years. In addition, effective January 1, 2014, CMS also began bundling the Medicare payments for
certain laboratory tests ordered while a patient received services in a hospital outpatient setting.
Further, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which have
resulted in several recent Congressional inquiries and proposed and enacted bills designed to, among other things, bring more transparency to product pricing,
review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. In
addition, the U.S. government, state legislatures, and foreign governments have shown significant interest in implementing cost containment programs,
including price-controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs to limit the
growth of government paid healthcare costs. For example, the U.S. government has passed legislation requiring pharmaceutical manufacturers to provide
rebates and discounts to certain entities and governmental payors to participate in federal healthcare programs. Further, Congress and the current
administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs, and the current
administration recently released a “Blueprint”, or plan, to reduce the cost of drugs. The Blueprint contains certain measures that the U.S. Department of
Health and Human Services is already working to implement. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the
option of using step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019.
Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.
Individual states in the United States have also been increasingly passing legislation and implementing regulations designed to control pharmaceutical and
biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost
disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
Non-U.S. Regulation
Before our products can be marketed outside the United States, they are subject to regulatory approval of the respective authorities in the country in
which the product should be marketed. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely
from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory
authorities in that country. The time spent in gaining approval varies from that required for FDA approval, and in certain countries, the sales price of a product
must also be approved. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority,
satisfactory prices might not be approved for such product.
Collaborations, Partnerships and Agreements
Collaborations, partnerships and agreements are a key component of Advaxis’ corporate strategy. As a clinical stage biotechnology company without
sales revenue, partnerships are an essential part of the ongoing strategy. Additionally, the evolution of the field of immunotherapy has resulted in combination
treatments becoming ubiquitous; ongoing clinical studies and agreements with many of the leading, large oncology pharmaceutical companies helps validate
that Lm Technology may play a key role in the cancer treatment protocols of the future.
Our collaborators and partners include Merck, Aratana, OS Therapies, Biocon, Global BioPharma, Knight, and others. For more information, see
Note 8, “Collaboration and Licensing Agreements” of the “Notes to the Financial Statements” included in Item 8.
We entered into an exclusive worldwide license agreement with Penn, on July 1, 2002 with respect to the innovative work of Yvonne Paterson,
Ph.D., Associate Dean for Research at the School of Nursing at Penn, and former Professor of Microbiology at Penn, in the area of innate immunity, or the
immune response attributed to immune cells, including dendritic cells, macrophages and natural killer cells, that respond to pathogens non-specifically
(subject to certain U.S. government rights). This agreement was amended and restated as of February 13, 2007, and, thereafter, has been amended from time
to time.
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This license, unless sooner terminated in accordance with its terms, terminates upon the latter of (a) the expiration of the last to expire of the Penn
patent rights; or (b) twenty years after the effective date of the license. Penn may terminate the license agreement early upon the occurrence of certain defaults
by us, including, but not limited to, a material breach by us of the Penn license agreement that is not cured within 60 days after notice of the breach is
provided to us.
The license provides us with the exclusive commercial rights to the patent portfolio developed by Penn as of the effective date of the license, in
connection with Dr. Paterson and requires us to pay various milestone, legal, filing and licensing payments to commercialize the technology. In exchange for
the license, Penn received shares of our Common Stock. In addition, Penn is entitled to receive a non-refundable initial license fee, royalty payments and
milestone payments based on net sales and percentages of sublicense fees and certain commercial milestones. Under the amended licensing agreement, Penn
is entitled to receive 2.5% of net sales in the territory. Should annual net sales exceed $250 million, the royalty rate will increase to 2.75%, but only with
respect to those annual net sales in excess of $250 million. Additionally, Penn will receive tiered sales milestone payments upon the achievement of
cumulative global sales ranging between $250 million and $2 billion, with the maximum aggregate amounts payable to Penn in the event that maximum sales
milestones are achieved is $40 million. Notwithstanding these royalty rates, upon first in-human commercial sale (U.S. & E.U.), we have agreed to pay Penn
a total of $775,000 over a four-year period as an advance minimum royalty, which shall serve as an advance royalty in conjunction with the above terms. In
addition, under the license, we are obligated to pay an annual maintenance fee of $100,000 commencing on December 31, 2010, and each December 31st
thereafter for the remainder of the term of the agreement until the first commercial sale of a Penn licensed product. We are responsible for filing new patents
and maintaining and defending the existing patents licensed to us and we are obligated to reimburse Penn for all attorney’s fees, expenses, official fees and
other charges incurred in the preparation, prosecution and maintenance of the patents licensed from Penn.
Upon first regulatory approval in humans (US or EU), Penn will be entitled to a milestone payment of $600,000. Furthermore, upon the achievement
of the first sale of a product in certain fields, Penn will be entitled to certain milestone payments, as follows: $2.5 million will be due upon the first in-human
commercial sale (US or EU) of the first product in the cancer field and $1.0 million will be due upon the date of first in-human commercial sale (US or EU)
of a product in each of the secondary strategic fields sold.
Manufacturing
Current Good Manufacturing Practices, or cGMPs, are the standards identified to conform to requirements by governmental agencies that control
authorization and licensure for manufacture and distribution of drug products for either clinical investigations or commercial sale. GMPs identify the
requirements for procurement, manufacturing, testing, storage, distribution and the supporting quality systems to ensure that a drug product is safe for its
intended application. cGMPs are enforced in the United States by the FDA, under the authorities of the Federal Food, Drug and Cosmetic Act and its
implementing regulations and use the phrase “current good manufacturing practices” to describe these standards.
Each of Advaxis’ wholly owned product candidates is manufactured using a platform process, with uniform methods and testing procedures. This
allows for an accelerated pathway from construct discovery to clinical product delivery, while helping to keep cost of goods low.
Advaxis has entered into agreements with multiple third-party organizations, or CMOs, to handle the manufacturing, testing, and distribution of
product candidates. These organizations have extensive experience within the biologics space and with the production of clinical and commercial GMP
supplies.
Advaxis has constructed a state-of-the-art manufacturing facility and laboratory to develop and manufacture clinical-grade products, supporting the
clinical trials and future potential commercialization of the Company’s therapeutics. Increased manufacturing capability and capacity allows Advaxis to
manufacture its own material and reduce reliance on CMOs, and improve supply flexibility, scalability, lead times, and costs of goods. The Company’s long-
term manufacturing strategy is to leverage both their partners’ capabilities and their internal capabilities in order to build a supply chain that is reliable,
flexible, and cost competitive.
Competition
The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of competition. As a
result, our actual or proposed immunotherapies could become obsolete before we recoup any portion of our related research and development expenses.
While we believe that our product candidates, technology, knowledge and experience provide us with competitive advantages, we face competition from
established and emerging pharmaceutical and biotechnology companies, among others. The biotechnology and biopharmaceutical industries are highly
competitive, and this competition comes from both biotechnology firms and from major pharmaceutical companies, including: BioNtech, Moderna, Gritstone,
BMS, AstraZeneca, Merck, Neon Therapeutics, et al., each of which is pursuing cancer vaccines and/or immunotherapies.
Many of these companies have substantially greater financial, marketing, and human resources than we do (including, in some cases, substantially
greater experience in clinical testing, manufacturing, and marketing of pharmaceutical products). We also experience competition in the development of our
immunotherapies from universities and other research institutions and compete with others in acquiring technology from such universities and institutions. In
addition, certain of our immunotherapies may be subject to competition from investigational new drugs and/or products developed using other technologies,
some of which have completed numerous clinical trials.
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Our competition will be determined in part by the potential indications for which drugs are developed and ultimately approved by regulatory
authorities. Additionally, the timing of market introduction of some of our potential immunotherapies or of competitors’ products may be an important
competitive factor. Accordingly, the speed with which we can develop immunotherapies, complete preclinical testing, clinical trials and approval processes
and supply commercial quantities to market are expected to be important competitive factors. We expect that competition among products approved for sale
will be based on various factors, including product efficacy, safety, administration, reliability, acceptance, availability, price and patent position.
Experience and Expertise
Our management team has extensive experience in oncology development, including contract research, development, manufacturing and
commercialization across a board range of science, technologies, and process operations. We have built internal capabilities supporting research, clinical,
medical, manufacturing and compliance operations and have extended our expertise with collaborations.
Employees
As of October 31, 2019, we had 35 employees, all of which were full time employees, 27 of whom were engaged in research and development
activities and 8 of whom were engaged in finance, business development, facilities, human resources and administrative support. Of our full-time employees,
1 holds a Ph.D. degree. None of our employees are represented by a labor union, and we consider our relationship with our employees to be good.
We will continue to rent necessary offices and laboratories to support our business.
Item 1A: Risk Factors.
You should carefully consider the risks described below as well as other information provided to you in this annual report, including information in
the section of this document entitled “Forward-Looking Statements.” The risks and uncertainties described below are not the only ones facing us. Additional
risks and uncertainties not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following
risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our common stock could
decline, and you may lose all or part of your investment.
Risks Related to Our Financial Position and Capital Needs
We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future.
We are a clinical-stage biotechnology company. Investment in biotechnology product development is highly speculative because it entails substantial
upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. We have not
generated any revenue from product sales to date, and we continue to incur significant development and other expenses related to our ongoing operations. As
a result, we are not profitable and have incurred losses in each period since our inception.
We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek
regulatory approvals for, our product candidates, and begin to commercialize any approved products. We may encounter unforeseen expenses, difficulties,
complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of
future growth of our expenses and our ability to generate revenues. If any of our product candidates fails in clinical studies or do not gain regulatory approval,
or if approved, fails to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to
sustain profitability in subsequent periods. Our prior losses and expected future losses have had and will continue to have an adverse effect on our
stockholders’ (deficit) equity and working capital.
We will require additional capital to fund our operations and if we fail to obtain necessary financing we will not be able to complete the development and
commercialization of our product candidates.
The research and development of our products has consumed substantial amounts of cash since inception. We expect to continue to invest in
advancing the clinical development of our product candidates and to commercialize any product candidates for which we receive regulatory approval. As of
October 31, 2019, we had cash and cash equivalents of $32.4 million. We will require additional capital for the further development of our product
candidates. We are pursuing various ways to support our development efforts including debt and/or equity financing as well as targeting potential
collaborators of our products.
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We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient
amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of
our products or product candidates or one or more of our other research and development initiatives. Our forecast of the period of time through which our
financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could
vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions
that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both near
and long-term, will depend on many factors, including, but not limited to:
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The progress, timing, costs and results of the clinical studies underway;
future clinical development plans we establish for our product candidates;
the number and characteristics of product candidates that we develop or may in-license;
the outcome, timing and cost of meeting regulatory requirements established by the FDA and comparable foreign regulatory authorities, including
the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies than those that we currently expect;
the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product
candidates;
the effect of competing technological and market developments;
the cost and timing of completion of commercial-scale outsourced manufacturing activities; and
the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in
regions where we choose to commercialize our products on our own.
Our auditor’s report includes a going concern paragraph.
Our auditor’s report on our financial statements for the year ended October 31, 2019 includes a going concern paragraph. The Company’s products
that are being developed have not generated significant revenue. As a result, the Company has suffered recurring losses and requires significant cash
resources to execute its business plans. These losses are expected to continue for an extended period of time. The aforementioned factors raise substantial
doubt about the Company’s ability to continue as a going concern within one year from the date of filing. The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The
financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that
might be necessary should the Company be unable to continue as a going concern within one year after the date the financial statements are issued.
Historically, the major source of our cash has been from proceeds from various public and private offerings of our common stock. Management’s
plans to mitigate an expected shortfall of capital, to support future operations, include raising additional funds. The actual amount of cash that it will need to
operate is subject to many factors.
The Company also recognizes it will need to raise additional capital in order to continue to execute its business plan in the future. There is no
assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company or
whether the Company will become profitable and generate positive operating cash flow. If the Company is unable to raise sufficient additional funds, it will
have to scale back its operations.
Risks Related to Our Business, Industry and Strategy
We are a clinical stage company.
We are a clinical stage biotechnology company with a history of losses and can provide no assurance as to future operating results. As a result of
losses that will continue throughout our clinical stage, we may exhaust our financial resources and be unable to complete the development of our products.
We anticipate that we will continue to incur significant operational costs as we execute on our clinical development strategy. Our deficit will continue to grow
during our drug development period.
We have sustained losses from operations in each fiscal year since our inception, and we expect losses to continue for the foreseeable future due to
our substantial investment in research and development. As of October 31, 2019, we had an accumulated deficit of approximately $384.3 million and
stockholders’ equity of approximately $39.5 million. We expect to spend substantial additional sums on the continued administration and research and
development of proprietary products and technologies with no certainty that our immunotherapies will become commercially viable or profitable as a result of
these expenditures. If we fail to raise a significant amount of capital, we may need to significantly curtail operations or cease operations in the near future. If
any of our product candidates fail in clinical trials or does not gain regulatory approval, we may never become profitable. Even if we achieve profitability in
the future, we may not be able to sustain profitability in subsequent periods.
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We are significantly dependent on the success of our Lm Technology platform and our product candidates based on this platform.
We have invested, and we expect to continue to invest, significant efforts and financial resources in the development of product candidates based on
our Lm Technology. Our ability to generate meaningful revenue, which may not occur for the foreseeable future, if ever, will depend heavily on the successful
development, regulatory approval and commercialization of one or more of these product candidates, and such regulatory approval and commercialization
may never occur.
The successful development of immunotherapies is highly uncertain.
Successful development of immunotherapies is highly uncertain and is dependent on numerous factors, many of which are beyond our control.
Immunotherapies that appear promising in the early phases of development may fail to reach the market for several reasons including:
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preclinical study results that may show the immunotherapy to be less effective than desired (e.g., the study failed to meet its primary objectives) or
to have harmful or problematic side effects;
clinical study results that may show the immunotherapy to be less effective than expected (e.g., the study failed to meet its primary endpoint) or to
have unacceptable side effects;
failure to receive the necessary regulatory approvals or a delay in receiving such approvals. Among other things, such delays may be caused by slow
enrollment in clinical studies, length of time to achieve study endpoints, additional time requirements for data analysis, or Biologics License
Application preparation, discussions with the FDA, an FDA request for additional preclinical or clinical data, or unexpected safety or manufacturing
issues;
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the proprietary rights of others and their competing products and technologies that may prevent the immunotherapy from being commercialized.
Success in preclinical and early clinical studies does not ensure that large-scale clinical studies will be successful. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. The length of time necessary to complete clinical studies and to
submit an application for marketing approval for a final decision by a regulatory authority varies significantly from one immunotherapy to the next and may
be difficult to predict.
We are limited in our manufacturing, sales, marketing or distribution capability and we must rely upon third parties for such.
We currently have agreements with third party manufacturing facilities for production of many of our immunotherapies for research and
development and testing purposes. While we have built our own manufacturing facility onsite in Princeton, New Jersey to manufacture clinical materials for
some of our products, we depend on third-party manufacturers to supply most of our clinical materials. Third-party manufacturers must be able to meet our
deadlines as well as adhere to quality standards and specifications. Our predominant reliance on third parties for the manufacture of our drug substance,
investigational new drugs and, in the future, any approved products, creates a dependency that could severely disrupt our research and development, our
clinical testing, and ultimately our sales and marketing efforts if the source of such supply proves to be unreliable or unavailable. If our own manufacturing
operation or any contracted manufacturing operation is unreliable or unavailable, we may not be able to manufacture clinical drug supplies of our
immunotherapies, and our preclinical and clinical testing programs may not be able to move forward and our entire business plan could fail. If we are able to
commercialize our products in the future, there is no assurance that our own manufacturing operation or any third-party manufacturers will be able to meet
commercialized scale production requirements in a timely manner or in accordance with applicable standards or current GMP.
If we are unable to establish, manage or maintain strategic collaborations in the future, our revenue and drug development may be limited.
Our strategy includes eventual substantial reliance upon strategic collaborations for marketing and commercialization of our clinical product
candidates, and we may rely even more on strategic collaborations for research, development, marketing and commercialization for some of our
immunotherapies. To date, we have been heavily reliant upon third party outsourcing for our clinical trials execution and production of drug supplies for use
in clinical trials. Establishing strategic collaborations is difficult and time-consuming. Our discussions with potential collaborators may not lead to the
establishment of collaborations on favorable terms, if at all. For example, potential collaborators may reject collaborations based upon their assessment of our
financial, clinical, regulatory or intellectual property position. Our current collaborations, as well as any future new collaborations, may never result in the
successful development or commercialization of our immunotherapies or the generation of sales revenue. To the extent that we have entered or will enter into
co-promotion or other collaborative arrangements, our product revenues are likely to be lower than if we directly marketed and sold any products that we may
develop.
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Management of our relationships with our collaborators will require:
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significant time and effort from our management team;
financial funding to support said collaboration;
coordination of our research and development programs with the research and development priorities of our collaborators; and
effective allocation of our resources to multiple projects.
If we continue to enter into research and development collaborations at the early phases of drug development, our success will in part depend on the
performance of our corporate collaborators. We will not directly control the amount or timing of resources devoted by our corporate collaborators to activities
related to our immunotherapies and our collaborations may terminate at any time. Our corporate collaborators may not commit sufficient resources to our
research and development programs or the commercialization, marketing or distribution of our immunotherapies. If any corporate collaborator fails to commit
sufficient resources or terminate their collaborations with us, our preclinical or clinical development programs related to this collaboration could be delayed
or terminated.
Further, our collaborators may pursue existing or other development-stage products or alternative technologies in preference to those being
developed in collaboration with us. Finally, if we fail to make required milestone or royalty payments to our collaborators or to observe other obligations in
our agreements with them, our collaborators may have the right to terminate those agreements.
We may incur significant costs complying with environmental laws and regulations.
We and our contracted third parties use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to
human health and safety or the environment. As appropriate, we store these materials and wastes resulting from their use at our or our outsourced laboratory
facility pending their ultimate use or disposal. We contract with a third party to properly dispose of these materials and wastes. We are subject to a variety of
federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials and wastes.
Compliance with such laws and regulations may be costly.
Additional laws and regulations governing international operations could negatively impact or restrict our operations.
If we further expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and
regulations in each jurisdiction in which we plan to operate. The U.S. Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from
paying, offering, authorizing payment or offering anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose
of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates
companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records
that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of
internal accounting controls for international operations.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA
presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other
hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be
improper payments to government officials and have led to FCPA enforcement actions.
Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-
U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand
our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from
developing, manufacturing or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase
our development costs.
The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or
debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s
accounting provisions.
We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions and other trade laws and regulations. We can
face serious consequences for violations.
Among other matters, U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions and other trade laws and regulations, which
are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinical research organizations, legal counsel, accountants,
consultants, contractors and other partners from authorizing, promising, offering, providing, soliciting or receiving, directly or indirectly, corrupt or improper
payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and
civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other
consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities
and other organizations. We plan to engage third parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations and other regulatory
approvals and we can be held liable for the corrupt or other illegal activities of our personnel, agents or partners, even if we do not explicitly authorize or have
prior knowledge of such activities.
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If we use biological materials in a manner that causes injury, we may be liable for damages.
Our research and development activities involve the use of biological and hazardous materials. Although we believe our safety procedures for
handling and disposing of these materials complies with federal, state and local laws and regulations, we cannot entirely eliminate the risk of accidental injury
or contamination from the use, storage, handling or disposal of these materials. We do not carry specific biological waste or pollution liability or remediation
insurance coverage, nor do our workers’ compensation, general liability, and property and casualty insurance policies provide coverage for damages and
fines/penalties arising from biological exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages
or penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended or terminated.
We need to attract and retain highly skilled personnel; we may be unable to effectively manage growth with our limited resources.
As of October 31, 2019, we had 35 employees, all of which were full time employees. Our ability to attract and retain highly skilled personnel is
critical to our operations and expansion. We face competition for these types of personnel from other technology companies and more established
organizations, many of which have significantly larger operations and greater financial, technical, human and other resources than we have. We may not be
successful in attracting and retaining qualified personnel on a timely basis, on competitive terms, or at all. If we are not successful in attracting and retaining
these personnel, or integrating them into our operations, our business, prospects, financial condition and results of operations will be materially adversely
affected. In such circumstances we may be unable to conduct certain research and development programs, unable to adequately manage our clinical trials and
other products, unable to commercialize any products, and unable to adequately address our management needs.
We depend upon our senior management and key consultants and their loss or unavailability could put us at a competitive disadvantage.
We depend upon the efforts and abilities of our senior executives, as well as the services of several key consultants. The loss or unavailability of the
services of any of these individuals for any significant period of time could have a material adverse effect on our business, prospects, financial condition and
results of operations. We have not obtained, do not own, nor are we the beneficiary of, key-person life insurance.
The biotechnology and immunotherapy industries are characterized by rapid technological developments and a high degree of competition. We may be
unable to compete with more substantial enterprises.
The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of competition. As a
result, our actual or proposed immunotherapies could become obsolete before we recoup any portion of our related research and development and
commercialization expenses. Competition in the biopharmaceutical industry is based significantly on scientific and technological factors. These factors
include the availability of patent and other protection for technology and products, the ability to commercialize technological developments and the ability to
obtain governmental approval for testing, manufacturing and marketing. We compete with specialized biopharmaceutical firms in the United States, Europe
and elsewhere, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their operations. Many biopharmaceutical
companies have focused their development efforts in the human therapeutics area, including cancer. Many major pharmaceutical companies have developed
or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies. These companies, as well as
academic institutions and governmental agencies and private research organizations, also compete with us in recruiting and retaining highly qualified
scientific personnel and consultants. Our ability to compete successfully with other companies in the pharmaceutical field will also depend to a considerable
degree on the continuing availability of capital to us.
We are aware of certain investigational new drugs under development or approved products by competitors that are used for the prevention,
diagnosis, or treatment of certain diseases we have targeted for drug development. Various companies are developing biopharmaceutical products that have
the potential to directly compete with our immunotherapies even though their approach may be different. The biotechnology and biopharmaceutical industries
are highly competitive, and this competition comes from both biotechnology firms and from major pharmaceutical companies, including companies like:
Gritstone, Moderna, BMS, Merck and Neon Therapeutics, among others, each of which is pursuing cancer vaccines and/or immunotherapies. Many of these
companies have substantially greater financial, marketing, and human resources than we do (including, in some cases, substantially greater experience in
clinical testing, manufacturing, and marketing of pharmaceutical products). We also experience competition in the development of our immunotherapies from
universities and other research institutions and compete with others in acquiring technology from such universities and institutions.
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In addition, certain of our immunotherapies may be subject to competition from investigational new drugs and/or products developed using other
technologies, some of which have completed numerous clinical trials.
Risks Related to the Development and Regulatory Approval of Our Product Candidates
Drug discovery and development is a complex, time-consuming and expensive process that is fraught with risk and a high rate of failure.
Product candidates are subject to extensive pre-clinical testing and clinical trials to demonstrate their safety and efficacy in humans. Conducting pre-
clinical testing and clinical trials is a lengthy, time-consuming and expensive process that takes many years. We cannot be sure that pre-clinical testing or
clinical trials of any of our product candidates will demonstrate the safety, efficacy and benefit-to-risk profile necessary to obtain marketing approvals. In
addition, product candidates that experience success in pre-clinical testing and early-stage clinical trials will not necessarily experience the same success in
larger or late-stage clinical trials, which are required for marketing approval.
Even if we are successful in advancing a product candidate into the clinical development stage, before obtaining regulatory and marketing approvals,
we must demonstrate through extensive human clinical trials that the product candidate is safe and effective for its intended use. Human clinical trials must be
carried out under protocols that are acceptable to regulatory authorities and to the independent committees responsible for the ethical review of clinical
studies. There may be delays in preparing protocols or receiving approval for them that may delay the start or completion of the clinical trials. In addition,
clinical practices vary globally, and there is a lack of harmonization among the guidance provided by various regulatory bodies of different regions and
countries with respect to the data that is required to receive marketing approval, which makes designing global trials increasingly complex. There are a
number of additional factors that may cause our clinical trials to be delayed, prematurely terminated or deemed inadequate to support regulatory approval,
such as:
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safety issues up to and including patient death (whether arising with respect to trials by third parties for compounds in a similar class as tour product
or product candidate), inadequate efficacy, or an unacceptable risk-benefit profile observed at any point during or after completion of the trials;
slower than expected rates of patient enrollment, which could be due to any number of factors, including failure of our third-party vendors,
including our CROs, to effectively perform their obligations to us, a lack of patients who meet the enrollment criteria or competition from clinical
trials in similar product classes or patient populations, or onerous treatment administration requirements;
the risk of failure of our clinical investigational sites and related facilities, including our suppliers, to maintain compliance with the FDA’s cGMP
regulations or similar regulations in countries outside of the U.S., including the risk that these sites fail to pass inspections by the appropriate
governmental authority, which could invalidate the data collected at that site or place the entire clinical trial at risk;
any inability to reach agreement or lengthy discussions with the FDA, equivalent regulatory authorities, or ethical review committees on trial design
that we are able to execute;
changes in laws, regulations, regulatory policy or clinical practices, especially if they occur during ongoing clinical trials or shortly after completion
of such trials; and
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clinical trial record keeping or data quality and accuracy issues.
Any deficiency in the design, implementation or oversight of our development programs could cause us to incur significant additional costs, conduct
additional trials, experience significant delays, prevent us from obtaining marketing approval for any product candidate or abandon development of certain
product candidates, any of which could harm our business and cause our stock price to decline.
We may face legal claims; legal disputes are expensive and we may not be able to afford the costs.
We may face legal claims involving stockholders, consumers, competitors, regulators and other parties. As described in “Legal Proceedings” in Part I
Item 3 of this Form 10-K, we are engaged in legal proceedings. Litigation and other legal proceedings are inherently uncertain, and adverse rulings could
occur, including monetary damages, or an injunction stopping us from engaging in business practices, or requiring other remedies, such as compulsory
licensing of patents.
The costs of litigation or any proceeding relating to our intellectual property or contractual rights could be substantial, even if resolved in our favor.
Some of our competitors or financial funding sources have far greater resources than we do and may be better able to afford the costs of complex litigation.
Also, a lawsuit, even if frivolous, will require considerable time commitments on the part of management, our attorneys and consultants. Defending these
types of proceedings or legal actions involve considerable expense and could negatively affect our financial results.
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We can provide no assurance of the successful and timely development of new products.
Our immunotherapies are at various stages of development. Further development and extensive testing will be required to determine their technical
feasibility and commercial viability. We will need to complete significant additional clinical trials demonstrating that our product candidates are safe and
effective to the satisfaction of the FDA and other non-U.S. regulatory authorities. The drug approval process is time-consuming, involves substantial
expenditures of resources, and depends upon a number of factors, including the severity of the illness in question, the availability of alternative treatments,
and the risks and benefits demonstrated in the clinical trials. Our success will depend on our ability to achieve scientific and technological advances and to
translate such advances into licensable, FDA-approvable, commercially competitive products on a timely basis. Failure can occur at any stage of the process.
If such programs are not successful, we may invest substantial amounts of time and money without developing revenue-producing products. As we enter a
more extensive clinical program for our product candidates, the data generated in these studies may not be as compelling as the earlier results.
The proposed development schedules for our immunotherapies may be affected by a variety of factors, including technological difficulties, clinical
trial failures, regulatory hurdles, clinical holds, competitive products, intellectual property challenges and/or changes in governmental regulation, many of
which will not be within our control. Any delay in the development, introduction or marketing of our products could result either in such products being
marketed at a time when their cost and performance characteristics would not be competitive in the marketplace or in the shortening of their commercial lives.
In light of the long-term nature of our projects, the unproven technology involved and the other factors described elsewhere in this section, there can be no
assurance that we will be able to successfully complete the development or marketing of any new products which could materially harm our business, results
of operations and prospects.
Our research and development expenses are subject to uncertainty.
Factors affecting our research and development expenses include, but are not limited to:
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competition from companies that have substantially greater assets and financial resources than we have;
need for acceptance of our immunotherapies;
ability to anticipate and adapt to a competitive market and rapid technological developments;
ability to raise sufficient capital to fund our research and development activities;
amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure;
need to rely on multiple levels of outside funding due to the length of drug development cycles and governmental approved protocols associated
with the pharmaceutical industry; and
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dependence upon key personnel including key independent consultants and advisors.
There can be no guarantee that our research and development expenses will be consistent from period to period. We may be required to accelerate or
delay incurring certain expenses depending on the results of our studies and the availability of adequate funding.
We may be required to suspend or discontinue clinical trials for a number of reasons, which could preclude approval of any of our product candidates.
Our clinical trials may be suspended at any time for a number of reasons. A clinical trial may be suspended or terminated by us, an IRB, the FDA or
other regulatory authorities due to a failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, presentation or
identification of unforeseen safety signals or issues, failure to demonstrate a benefit from using the investigational drug, changes in governmental regulations
or administrative actions, lack of adequate funding to continue the clinical trial, or for other business-related reasons. For example, in June 2019, we
announced that we were closing our AIM2CERV Phase 3 clinical trial with AXAL in cervical cancer due to the delays we incurred as a result of the recent
FDA partial clinical hold on the trial, as well as the estimated cost and time to completion of the trial. In addition, clinical trials for our product candidates
could be suspended due to adverse side effects. Drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial
or result in potential product liability claims. We may also voluntarily suspend or terminate our clinical trials if at any time we believe that they present an
unacceptable risk to patients or do not demonstrate clinical benefit. If we elect or are forced to suspend or terminate any clinical trial of any product
candidates that we develop, the commercial prospects of such product candidates will be harmed and our ability to generate product revenues from any of
these product candidates will be delayed or eliminated. Any of these occurrences may significantly harm our business, financial condition, results of
operations and prospects.
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Preliminary or interim results of a clinical trial are not necessarily predictive of future or final results.
Interim or preliminary data from clinical trials that we may conduct may not be indicative of the final results of the trial and are subject to the risk
that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Interim or
preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the interim or
preliminary data. As a result, interim or preliminary data should be viewed with caution until the final data are available. Even if our clinical trials are
completed as planned, we cannot be certain that their results will support our proposed indications.
We are subject to numerous risks inherent in conducting clinical trials.
We outsource the management of our clinical trials to third parties. Agreements with CROs, clinical investigators and medical institutions for clinical
testing and data management services, place substantial responsibilities on these parties that, if unmet, could result in delays in, or termination of, our clinical
trials. For example, if any of our clinical trial sites fail to comply with FDA-approved good clinical practices, we may be unable to use the data gathered at
those sites. If these clinical investigators, medical institutions or other third parties do not carry out their contractual duties or regulatory obligations or fail to
meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or
for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for, or successfully
commercialize, our agents. We are not certain that we will successfully recruit enough patients to complete our clinical trials nor that we will reach our
primary endpoints. Delays in recruitment, lack of clinical benefit or unacceptable side effects would delay or prevent the initiation of future development of
our agents.
We or our regulators may suspend or terminate our clinical trials for a number of reasons. We may voluntarily suspend or terminate our clinical trials
if at any time we believe they present an unacceptable risk to the patients enrolled in our clinical trials or do not demonstrate clinical benefit. In addition,
regulatory agencies may order the temporary or permanent discontinuation of our clinical trials, or place our products on temporary or permanent hold, at any
time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable
safety risk to the patients enrolled in our clinical trials.
Our clinical trial operations are subject to regulatory inspections at any time. If regulatory inspectors conclude that we or our clinical trial sites are
not in compliance with applicable regulatory requirements for conducting clinical trials, we may receive reports of observations or warning letters detailing
deficiencies, and we will be required to implement corrective actions. If regulatory agencies deem our responses to be inadequate or are dissatisfied with the
corrective actions we or our clinical trial sites have implemented, our clinical trials may be temporarily or permanently discontinued, we may be fined, we or
our investigators may be precluded from conducting any ongoing or any future clinical trials, the government may refuse to approve our marketing
applications or allow us to manufacture or market our products, and we may be criminally prosecuted.
The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval for
our product candidates, which would materially harm our business, results of operations and prospects.
We must comply with significant government regulations.
The research and development, manufacturing and marketing of human therapeutic and diagnostic products are subject to regulation, primarily by
the FDA in the United States and by comparable authorities in other countries. These national agencies and other federal, state, local and foreign entities
regulate, among other things, research and development activities (including testing in animals and in humans) and the testing, manufacturing, handling,
labeling, storage, record keeping, approval, advertising and promotion of the products that we are developing. If we obtain approval for any of our product
candidates, our operations will be directly or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without
limitation, the federal Anti-Kickback Statue and the federal False Claims Act, and privacy laws. Noncompliance with applicable laws and requirements can
result in various adverse consequences, including delay in approving or refusal to approve product licenses or other applications, suspension or termination of
clinical investigations, revocation of approvals previously granted, fines, criminal prosecution, civil and criminal penalties, recall or seizure of products,
exclusion from having our products reimbursed by federal health care programs, the curtailment or restructuring of our operations, injunctions against
shipping products and total or partial suspension of production and/or refusal to allow a company to enter into governmental supply contracts.
The process of obtaining requisite FDA approval has historically been costly and time-consuming. Current FDA requirements for a new human
biological product to be marketed in the United States include: (1) the successful conclusion of preclinical laboratory and animal tests, if appropriate, to gain
preliminary information on the product’s safety; (2) filing with the FDA of an IND to conduct human clinical trials for drugs or biologics; (3) the successful
completion of adequate and well-controlled human clinical trials to establish the safety and efficacy of the investigational new drug for its recommended use;
and (4) filing by a company and acceptance and approval by the FDA of a BLA for marketing approval of a biologic, to allow commercial distribution of a
biologic product. The FDA also requires that any drug or formulation to be tested in humans be manufactured in accordance with its cGMP regulations. This
has been extended to include any drug that will be tested for safety in animals in support of human testing. The cGMPs set certain minimum requirements for
procedures, record-keeping and the physical characteristics of the laboratories used in the production of these drugs. A delay in one or more of the procedural
steps outlined above could be harmful to us in terms of getting our immunotherapies through clinical testing and to market.
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We can provide no assurance that our clinical product candidates will obtain regulatory approval or that the results of clinical studies will be favorable.
We are currently evaluating the safety and efficacy of our product candidates in clinical trials. However, even though the initiation and conduct of the
clinical trials is in accordance with the governing regulatory authorities in each country, as with any investigational new drug (under an IND in the United
States, or the equivalent in countries outside of the United States), we are at risk of a clinical hold at any time based on the evaluation of the data and
information submitted to the governing regulatory authorities.
There can be delays in obtaining FDA and/or other necessary regulatory approvals in the United States and in countries outside the United States for
any investigational new drug and failure to receive such approvals would have an adverse effect on the investigational new drug’s potential commercial
success and on our business, prospects, financial condition and results of operations. The time required to obtain approval by the FDA and non-U.S.
regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors,
including the substantial discretion of the regulatory authorities. For example, the FDA or non-U.S. regulatory authorities may disagree with the design or
implementation of our clinical trials or study endpoints; or we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its
safety risks. In addition, the FDA or non-U.S. regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials or
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a BLA or New Drug Application, or NDA
or other submission or to obtain regulatory approval in the United States or elsewhere. The FDA or non-U.S. regulatory authorities may fail to approve the
manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and the approval policies or
regulations of the FDA or non-U.S. regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
In addition to the foregoing, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the
course of a product candidate’s clinical development and may vary among jurisdictions. We have not submitted for nor obtained regulatory approval for any
product candidate in-humans (US & EU) and it is possible that none of our existing product candidates or any product candidates we may seek to develop in
the future will ever obtain regulatory approval.
We may not obtain or maintain the benefits associated with orphan drug designation, including market exclusivity.
Although we have been granted FDA orphan drug designation for AXAL for use in the treatment of anal cancer, HPV-associated head and neck
cancer, Stage II-IV invasive cervical cancer and for ADXS-HER2 for the treatment of osteosarcoma in the United States, as well as EMA orphan drug
designation for AXAL for the treatment of anal cancer and for ADXS-HER2 for the treatment of osteosarcoma in the EU, we may not receive the benefits
associated with orphan drug designation. This may result from a failure to maintain orphan drug status or result from a competing product reaching the market
that has an orphan designation for the same disease indication. Under U.S. rules for orphan drugs, if such a competing product reaches the market before ours
does, the competing product could potentially obtain a scope of market exclusivity that limits or precludes our product from being sold in the United States
for seven years. Even if we obtain exclusivity, the FDA could subsequently approve the same drug for the same condition if the FDA concludes that the later
drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. A competitor also may receive approval
of different products for the same indication for which our orphan product has exclusivity or obtain approval for the same product but for a different
indication for which the orphan product has exclusivity.
In addition, if and when we request orphan drug designation in Europe, the European exclusivity period is ten years but can be reduced to six years if
the drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified.
Orphan drug exclusivity may be lost if the FDA or EMEA determines that the request for designation was materially defective or if the manufacturer is
unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
We may incur substantial liabilities from any product liability claims if our insurance coverage for those claims is inadequate.
We face an inherent risk of product liability exposure related to the testing of our immunotherapies in human clinical trials and will face an even
greater risk if the approved products are sold commercially. An individual may bring a liability claim against us if one of the immunotherapies causes, or
merely appears to have caused, an injury. If we cannot successfully defend ourselves against the product liability claim, we will incur substantial liabilities.
Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for our immunotherapies;
damage to our reputation;
● withdrawal of clinical trial participants;
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costs of related litigation;
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substantial monetary awards to patients or other claimants;
loss of revenues;
the inability to commercialize immunotherapies; and
increased difficulty in raising required additional funds in the private and public capital markets.
We have Product Liability and Clinical Trial Liability insurance coverage for each clinical trial. We do not have product liability insurance for sold
commercial products because we do not have products on the market. We plan to expand such coverage to include the sale of commercial products if
marketing approval is obtained for any of our immunotherapies. However, insurance coverage is increasingly expensive and we may not be able to maintain
insurance coverage at a reasonable cost and we may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise.
We may not obtain or maintain the benefits associated with Breakthrough Therapy Designation.
If we apply for Breakthrough Therapy Designation, or BTD, we may not be granted BTD, or even if granted, we may not receive the benefits
associated with BTD. This may result from a failure to maintain breakthrough therapy status if it is no longer considered to be a breakthrough therapy. For
example, a drug’s development program may be granted BTD using early clinical testing that shows a much higher response rate than available therapies.
However, subsequent interim data derived from a larger study may show a response that is substantially smaller than the response seen in early clinical
testing. Another example is where BTD is granted to two drugs that are being developed for the same use. If one of the two drugs gains traditional approval,
the other would not retain its designation unless its sponsor provided evidence that the drug may demonstrate substantial improvement over the recently
approved drug. When BTD is no longer supported by emerging data or the designated drug development program is no longer being pursued, the FDA may
choose to send a letter notifying the sponsor that the program is no longer designated as a breakthrough therapy development program.
We believe that our immunotherapies under development and in clinical trials will address unmet medical needs in the treatment of cancer. Our
competition will be determined in part by the potential indications for which drugs are developed and ultimately approved by regulatory authorities.
Additionally, the timing of market introduction of some of our potential products or of competitors’ products may be an important competitive factor.
Accordingly, the relative speed with which we can develop immunotherapies, complete preclinical testing, clinical trials and approval processes and supply
commercial quantities to market is expected to be important competitive factors. We expect that competition among products approved for sale will be based
on various factors, including product efficacy, safety, reliability, availability, price and patent position.
Fast Track Designation or Breakthrough Therapy Designation from the FDA may not actually lead to a faster development or regulatory review or
approval process.
The FDA has granted Fast Track Designation for AXAL for adjuvant therapy for high-risk locally advanced cervical cancer patients, and has granted
Fast Track Designation for ADXS-HER2 for patients with newly-diagnosed, non-metastatic, surgically-resectable osteosarcoma. We may seek Breakthrough
Therapy Designation for our product candidates or Fast Track Designation for certain of our other product candidates.
If a product is intended for the treatment of a serious or life-threatening condition and the product demonstrates the potential to address unmet
medical needs for this condition, the product sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not to grant this
designation, so even if we believe one of our product candidates is eligible for this designation, we cannot assure you that the FDA would decide to grant it.
Even if we do receive Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA
procedures. The FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development
program.
A breakthrough therapy is defined as a product that is intended, alone or in combination with one or more other products, to treat a serious or life-
threatening disease or condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For products that have
been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient
path for clinical development while minimizing the number of patients placed in ineffective control regimens.
Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the
criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a
Breakthrough Therapy Designation may not result in a faster development process, review or approval compared to products considered for approval under
conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if a product candidate qualifies as a breakthrough therapy,
the FDA may later decide that the product no longer meets the conditions for qualification and rescind the Breakthrough Therapy Designation.
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The results of clinical trials conducted at clinical trial sites outside the United States might not be accepted by the FDA, and data developed outside of a
foreign jurisdiction similarly might not be accepted by such foreign regulatory authority.
Some of the clinical trials for our product candidates that are being or will be conducted through our partnerships and collaborations may be
conducted outside the United States, and we intend in the future to conduct additional clinical trials outside the United States. Although the FDA, European
Medicines Agency (“EMA”) or comparable foreign regulatory authorities may accept data from clinical trials conducted outside the relevant jurisdiction,
acceptance of these data is subject to certain conditions. For example, the FDA requires that the clinical trial must be well designed and conducted and
performed by qualified investigators in accordance with ethical principles such as IRB or ethics committee approval and informed consent, the trial
population must adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the
FDA deems clinically meaningful. In addition, while these clinical trials are subject to the applicable local laws, acceptance of the data by the FDA will be
dependent upon its determination that the trials were conducted consistent with all applicable U.S. laws and regulations. There can be no assurance that the
FDA will accept data from trials conducted outside of the United States as adequate support of a marketing application. Similarly, we must also ensure that
any data submitted to foreign regulatory authorities adheres to their standards and requirements for clinical trials and there can be no assurance a comparable
foreign regulatory authority would accept data from trials conducted outside of its jurisdiction.
Our relationships with healthcare providers and physicians and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other
healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished
profits and future earnings.
Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and
prescription of pharmaceutical products. Arrangements with third-party payors and customers can expose pharmaceutical manufacturers to broadly applicable
fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act,
or FCA, which may constrain the business or financial arrangements and relationships through which such companies sell, market and distribute
pharmaceutical products. In particular, the research of our product candidates, as well as the promotion, sales and marketing of healthcare items and services,
as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other
abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and
commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use
of information obtained in the course of patient recruitment for clinical trials. The applicable federal, state and foreign healthcare laws and regulations that
may affect our ability to operate include, but are not limited to:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any
remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either
the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made,
in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity can be found guilty of
violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, a claim including items or services resulting
from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The Anti-Kickback Statute has
been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary
managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution;
● the federal civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which prohibit, among other things, individuals
or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by Medicare, Medicaid or
other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or
fraudulent claim or an obligation to pay or transmit money to the federal government, or knowingly concealing or knowingly and improperly
avoiding or decreasing or concealing an obligation to pay money to the federal government. Manufacturers can be held liable under the FCA even
when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The
government may deem manufacturers to have “caused” the submission of false or fraudulent claims by, for example, providing inaccurate billing or
coding information to customers or promoting a product off-label. The FCA also permits a private individual acting as a “whistleblower” to bring
actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery;
● the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit
knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or
fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit
program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a
material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services
relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual
knowledge of the statute or specific intent to violate it;
28
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective
implementing regulations, which impose, among other things, requirements on certain healthcare providers, health plans and healthcare
clearinghouses, known as covered entities, as well as their respective business associates, independent contractors that perform services for covered
entities that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of
individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal
penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in
federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;
● the federal Physician Payments Sunshine Act, created under the Patient Protection and Affordable Care Act, as amended, or ACA, and its
implementing regulations, which require some manufacturers of drugs, devices, biologicals and medical supplies for which payment is available
under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare &
Medicaid Services, or CMS, of the U.S. Department of Health and Human Services, or HHS, information related to payments or other transfers of
value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as
ownership and investment interests held by physicians and their immediate family members; and
● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and
may be broader in scope than their federal equivalents; state and foreign laws that require pharmaceutical companies to comply with the
pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or
otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information
related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or drug pricing; state and local
laws that require the registration of pharmaceutical sales representatives; and state and foreign laws governing the privacy and security of health
information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus
complicating compliance efforts.
The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing,
storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products. Pharmaceutical companies may also be subject to
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially
in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies continue to closely scrutinize interactions between
healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare
industry. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government authorities,
can be time and resource-consuming and can divert a company’s attention from the business.
It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes,
regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we
are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of
civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in federal and state funded healthcare
programs, contractual damages and the curtailment or restricting of our operations, as well as additional reporting obligations and oversight if we become
subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. Further, if any of the physicians or
other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to
significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Any action for violation of these
laws, even if successfully defended, could cause a biopharmaceutical manufacturer to incur significant legal expenses and divert management’s attention from
the operation of the business. Prohibitions or restrictions on sales or withdrawal of future marketed products could materially affect business in an adverse
way.
29
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining
regulatory approval of our product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or
maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect
on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, the EMA or comparable foreign
regulatory authorities must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary
among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including
additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other
jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in
that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements
for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and
compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of
our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing
approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
Even if we receive regulatory approval of any product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review,
which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience
unanticipated problems with our product candidates.
If any of our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging,
storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-market
information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities. In addition, we
will be subject to continued compliance with cGMP and GCP requirements for any clinical trials that we conduct post-approval.
Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, EMA and comparable foreign regulatory authority
requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such, we and our contract
manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any BLA, other
marketing application and previous responses to inspection observations. Accordingly, we and others with whom we work must continue to expend time,
money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the
product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical
trials and surveillance to monitor the safety and efficacy of the product candidate. Certain endpoint data we hope to include in any approved product labeling
also may not make it into such labeling, including exploratory or secondary endpoint data such as patient-reported outcome measures. The FDA may also
require a risk evaluation and mitigation strategies, or REMS, program as a condition of approval of our product candidates, which could entail requirements
for long-term patient follow-up, a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution
methods, patient registries and other risk minimization tools. In addition, if the FDA, EMA or a comparable foreign regulatory authority approves our product
candidates, we will have to comply with requirements including submissions of safety and other post-marketing information and reports and registration.
The FDA may impose consent decrees or withdraw approval if compliance with regulatory requirements and standards is not maintained or if
problems occur after the product reaches the market. Later discovery of previously unknown problems with our product candidates, including adverse events
of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements,
may result in revisions to the approved labeling to add new safety information, imposition of post-market studies or clinical trials to assess new safety risks or
imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
●
restrictions on the marketing or manufacturing of our products, withdrawal of the product from the market or voluntary or mandatory product recalls;
● fines, warning letters or holds on clinical trials;
● refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license
approvals;
● product seizure or detention or refusal to permit the import or export of our product candidates; and
● injunctions or the imposition of civil or criminal penalties.
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The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Products may be promoted only
for the approved indications and in accordance with the provisions of the approved label. The policies of the FDA, EMA and comparable foreign regulatory
authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product
candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either
in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we
are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain
profitability.
Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, if approved, which could make it
difficult for us to sell any product candidates profitably.
The success of our product candidates, if approved, depends on the availability of coverage and adequate reimbursement from third-party payors. We
cannot be sure that coverage and reimbursement will be available for, or accurately estimate the potential revenue from, our product candidates or assure that
coverage and reimbursement will be available for any product that we may develop.
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated
with their treatment. Coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors
is critical to new product acceptance.
Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and
treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors,
including the third-party payor’s determination that use of a product is:
● a covered benefit under its health plan;
● safe, effective and medically necessary;
● appropriate for the specific patient;
● cost-effective; and
● neither experimental nor investigational.
In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. As a result, obtaining coverage
and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to
provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products on a payor-by-payor basis, with no assurance that
coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not
be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Additionally, third-party payors may
not cover, or provide adequate reimbursement for, long-term follow-up evaluations required following the use of product candidates, once approved. Patients
are unlikely to use our product candidates, once approved, unless coverage is provided and reimbursement is adequate
Ongoing healthcare legislative and regulatory reform measures may have a material adverse effect on our business and results of operations.
Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i)
changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv)
additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010,
the ACA was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the
U.S. biopharmaceutical industry. The ACA, among other things, addressed a new methodology by which rebates owed by manufacturers under the Medicaid
Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by
manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations,
established annual fees and taxes on manufacturers of certain branded prescription drugs and created a new Medicare Part D coverage gap discount program,
in which manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their
coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
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Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional
challenges, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. For example, Congress has considered legislation
that would repeal or repeal and replace all or part of the ACA. While Congress has not passed repeal legislation, the Tax Reform Act includes a provision that
repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying
health coverage for all or part of a year that is commonly referred to as the “individual mandate.” As a result of the individual mandate repeal, subsequent
litigation challenged the validity of the ACA. On December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual
mandate portion of the ACA is an essential and inseverable feature of the ACA, and therefore because the mandate was repealed as part of the Tax Cuts and
Jobs Act, or TCJA, the remaining provisions of the ACA are invalid as well. The Trump administration and CMS have both stated that the ruling will have no
immediate effect, and on December 30, 2018 the same judge issued an order staying the judgment pending appeal. A Fifth Circuit U.S. Court of Appeals
hearing to determine whether certain states and the House of Representatives have standing to appeal the lower court decision was held on July 9, 2019, but it
is unclear when the court will render its decision on this hearing, and what effect it will have on the status of the ACA. Litigation and legislation over the
ACA are likely to continue, with unpredictable and uncertain results. We will continue to evaluate the effect that the ACA and its possible repeal and
replacement has on our business.
Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or
otherwise circumvent some of the requirements for health insurance mandated by the ACA. Further, the Trump administration has concluded that cost-sharing
reduction, or CSR, payments to insurance companies required under the ACA have not received necessary appropriations from Congress and announced that
it will discontinue these payments immediately until those appropriations are made. The loss of the CSR payments is expected to increase premiums on
certain policies issued by qualified health plans under the ACA. Bipartisan bills to appropriate funds for CSR payments were proposed in 2017 and 2018, but
the proposals have not been enacted into law. Multiple state Attorneys General filed suit to stop the administration from terminating the subsidies, but their
case was dismissed by a federal judge in California on July 18, 2018. Furthermore, on June 14, 2018, the U.S. Court of Appeals for the Federal Circuit ruled
that the federal government was not required to pay more than $12 billion in ACA risk corridor payments to third-party payors who argued were owed to
them. The effects of this gap in reimbursement on third-party payors, the viability of the ACA marketplace and providers, and the potential effect on our
business, are not yet known.
Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other
personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from
performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels,
ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency
have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely,
including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government
agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain
regulatory agencies, such as the FDA and the SEC, have had to furlough critical employees and stop critical activities. If a prolonged government shutdown
occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse
effect on our business. Further, upon completion of this offering and in our operations as a public company, future government shutdowns could impact our
ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Approval of our product candidates does not ensure successful commercialization and reimbursement.
We are not currently marketing our product candidates; however, we are seeking partnering and commercial opportunities for our products. We
cannot assure you that we will be able to commercialize any of our product candidates ourselves or find a commercialization partner or that we will be able to
agree to acceptable terms with any partner to launch and commercialize our products.
The commercial success of our product candidates is subject to risks in both the United States and European countries. In addition, in European
countries, pricing and payment of prescription pharmaceuticals is subject to more extensive governmental control than in the United States. Pricing
negotiations with European governmental authorities can take six to 12 months or longer after the receipt of regulatory approval and product launch. If
reimbursement is unavailable in any country in which reimbursement is sought, limited in scope or amount, or if pricing is set at or reduced to unsatisfactory
levels, our ability or any potential partner’s ability to successfully commercialize in such a country would be impacted negatively. Furthermore, if these
measures prevent us or any potential partner from selling on a profitable basis in a particular country, they could prevent the commercial launch or continued
sale in that country and could adversely impact the commercialization market opportunity in other countries.
32
Moreover, as a condition of approval, the regulatory authorities may require that we conduct post-approval studies. Those studies may reveal new
safety or efficacy findings regarding our drug that could adversely impact the continued commercialization or future market opportunity in other countries.
In addition, we predominantly rely on a network of suppliers and vendors to manufacture our products. Should a regulatory authority make any
significant findings on an inspection of our own operations or the operations of those companies, the ability for us to continue producing our products could
be adversely impacted and further production could cease. Regulatory GMP requirements are extensive and can present a risk of injury or recall, among other
risks, if not manufactured or labeled properly under GMPs.
Our potential revenues from the commercialization of our product candidates are subject to these and other factors, and therefore we may never
reach or maintain profitability.
Even if we are successful in obtaining market approval, commercial success of any of our product candidates will also depend in large part on the
availability of coverage and adequate reimbursement from third-party payers, including government payers such as the Medicare and Medicaid programs and
managed care organizations, which may be affected by existing and future health care reform measures designed to reduce the cost of health care. Third-party
payers could require us to conduct additional studies, including post-marketing studies related to the cost effectiveness of a product, to qualify for
reimbursement, which could be costly and divert our resources. If government and other health care payers were not to provide adequate coverage and
reimbursement levels for one any of our products once approved, market acceptance and commercial success would be reduced.
In addition, if one of our products is approved for marketing, we will be subject to significant regulatory obligations regarding product promotion,
the submission of safety and other post-marketing information and reports and registration, and will need to continue to comply (or ensure that our third party
providers comply) with cGMPs, and Good Clinical Practices, or GCPs, for any clinical trials that we conduct post-approval. In addition, there is always the
risk that we or a regulatory authority might identify previously unknown problems with a product post-approval, such as adverse events of unanticipated
severity or frequency. Compliance with these requirements is costly, and any failure to comply or other issues with our product candidates’ post-market
approval could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to our Intellectual Property
We rely upon patents to protect our technology. We may be unable to protect our intellectual property rights and we may be liable for infringing the
intellectual property rights of others.
Our ability to compete effectively will depend on our ability to maintain the proprietary nature of our technologies, including the Lm-LLO based
immunotherapy platform technology, and the proprietary technology of others with whom we have entered into collaboration and licensing agreements.
Currently, we own or have rights to several hundred patents and applications, which are owned, licensed from, or co-owned with Penn and Merck.
We have obtained the rights to all future patent applications in this field originating in the laboratories of Dr. Yvonne Paterson and Dr. Fred Frankel, at the
University of Pennsylvania.
We own or hold licenses to a number of issued patents and U.S. pending patent applications, as well as foreign patents and foreign counterparts. Our
success depends in part on our ability to obtain patent protection both in the United States and in other countries for our product candidates, as well as the
methods for treating patients in the product indications using these product candidates. Such patent protection is costly to obtain and maintain, and we cannot
guarantee that sufficient funds will be available. Our ability to protect our product candidates from unauthorized or infringing use by third parties depends in
substantial part on our ability to obtain and maintain valid and enforceable patents. Due to evolving legal standards relating to the patentability, validity and
enforceability of patents covering pharmaceutical inventions and the scope of claims made under these patents, our ability to obtain, maintain and enforce
patents is uncertain and involves complex legal and factual questions. Even if our product candidates, as well as methods for treating patients for prescribed
indications using these product candidates are covered by valid and enforceable patents and have claims with sufficient scope, disclosure and support in the
specification, the patents will provide protection only for a limited amount of time. Accordingly, rights under any issued patents may not provide us with
sufficient protection for our product candidates or provide sufficient protection to afford us a commercial advantage against competitive products or
processes.
In addition, we cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Even if
patents have issued or will issue, we cannot guarantee that the claims of these patents are or will be valid or enforceable or will provide us with any
significant protection against competitive products or otherwise be commercially valuable to us. The laws of some foreign jurisdictions do not protect
intellectual property rights to the same extent as in the United States and many companies have encountered significant difficulties in protecting and
defending such rights in foreign jurisdictions. Furthermore, different countries have different procedures for obtaining patents, and patents issued in different
countries offer different degrees of protection against use of the patented invention by others. If we encounter such difficulties in protecting or are otherwise
precluded from effectively protecting our intellectual property rights in foreign jurisdictions, our business prospects could be substantially harmed.
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The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions,
and, therefore, validity and enforceability cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated, or circumvented
as a result of laws, rules and guidelines that are changed due to legislative, judicial or administrative actions, or review, which render our patents
unenforceable or invalid. Our patents can be challenged by our competitors who can argue that our patents are invalid, unenforceable, lack utility, sufficient
written description or enablement, or that the claims of the issued patents should be limited or narrowly construed. Patents also will not protect our product
candidates if competitors devise ways of making or using these product candidates without infringing our patents.
We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our technologies, methods of treatment,
product candidates, and any future products are covered by valid and enforceable patents or are effectively maintained as trade secrets and we have the funds
to enforce our rights, if necessary.
The expiration of our owned or licensed patents before completing the research and development of our product candidates and receiving all required
approvals in order to sell and distribute the products on a commercial scale can adversely affect our business and results of operations.
Litigation regarding patents, patent applications and other proprietary rights may be expensive and time consuming. If we are involved in such litigation,
it could cause delays in bringing product candidates to market and harm our ability to operate.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. The pharmaceutical industry is
characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may obtain patents in the future and allege that the
products or use of our technologies infringe these patent claims or that we are employing their proprietary technology without authorization.
In addition, third parties may challenge or infringe upon our existing or future patents. Proceedings involving our patents or patent applications or
those of others could result in adverse decisions regarding:
●
●
the patentability of our inventions relating to our product candidates; and/or
the enforceability, validity or scope of protection offered by our patents relating to our product candidates.
Even if we are successful in these proceedings, we may incur substantial costs and divert management time and attention in pursuing these
proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a
license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have
sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology,
fail to defend an infringement action successfully or have infringed patents declared valid, we may:
●
●
●
incur substantial monetary damages;
encounter significant delays in bringing our product candidates to market; and/or
be precluded from participating in the manufacture, use or sale of our product candidates or methods of treatment requiring licenses.
We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
We also rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or
obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific
collaborators, sponsored researchers, and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively
prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In
addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce
and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business
position.
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Some of our products are dependent upon our license agreement with Penn; if we breach the license agreement and/or fail to make payments due and
owing to Penn under our license agreement, our business may be materially and adversely affected.
Pursuant to the terms of our license agreement with Penn, which has been amended from time to time, we have acquired exclusive worldwide
licenses for patents and patent applications related to our proprietary Listeria vaccine technology. The license provides us with the exclusive commercial
rights to the patent portfolio developed at Penn as of the effective date of the license, in connection with Dr. Paterson and requires us to pay various
milestone, legal, filing and licensing payments to commercialize the technology. As of October 31, 2019, we did not have outstanding payables to Penn. We
can provide no assurance that we will be able to make all future payments due and owing thereunder, that such licenses will not be terminated or expire
during critical periods, that we will be able to obtain licenses from Penn for other rights that may be important to us, or, if obtained, that such licenses will be
obtained on commercially reasonable terms. The loss of any current or future licenses from Penn or the exclusivity rights provided therein could materially
harm our business, financial condition and operating results.
If we are unable to obtain licenses needed for the development of our product candidates, or if we breach any of the agreements under which we license
rights to patents or other intellectual property from third parties, we could lose license rights that are important to our business.
If we are unable to maintain and/or obtain licenses needed for the development of our product candidates in the future, we may have to develop
alternatives to avoid infringing on the patents of others, potentially causing increased costs and delays in drug development and introduction or precluding the
development, manufacture, or sale of planned products. Some of our licenses provide for limited periods of exclusivity that require minimum license fees and
payments and/or may be extended only with the consent of the licensor. We can provide no assurance that we will be able to meet these minimum license fees
in the future or that these third parties will grant extensions on any or all such licenses. This same restriction may be contained in licenses obtained in the
future.
Additionally, we can provide no assurance that the patents underlying any licenses will be valid and enforceable. To the extent any products
developed by us are based on licensed technology, royalty payments on the licenses will reduce our gross profit from such product sales and may render the
sales of such products uneconomical. In addition, the loss of any current or future licenses or the exclusivity rights provided therein could materially harm our
business, financial condition and our operations.
Risks Related to Ownership of our Securities
Sales of additional equity securities may adversely affect the market price of our common stock and your rights may be reduced.
We expect to continue to incur drug development and selling, general and administrative costs, and to satisfy our funding requirements, we will need
to sell additional equity securities, which may be subject to registration rights and warrants with anti-dilutive protective provisions. The sale or the proposed
sale of substantial amounts of our common stock or other equity securities in the public markets may adversely affect the market price of our common stock
and our stock price may decline substantially. Our shareholders may experience substantial dilution and a reduction in the price that they are able to obtain
upon sale of their shares. Also, new equity securities issued may have greater rights, preferences or privileges than our existing common stock.
The price of our common stock and warrants may be volatile.
The trading price of our common stock and warrants may fluctuate substantially. The price of our common stock and warrants that will prevail in the
market may be higher or lower than the price you have paid, depending on many factors, some of which are beyond our control and may not be related to our
operating performance. These fluctuations could cause you to lose part or all of your investment in our common stock and warrants. Those factors that could
cause fluctuations include, but are not limited to, the following:
●
●
●
●
●
●
price and volume fluctuations in the overall stock market from time to time;
fluctuations in stock market prices and trading volumes of similar companies;
actual or anticipated changes in our net loss or fluctuations in our operating results or in the expectations of securities analysts;
the issuance of new equity securities pursuant to a future offering, including issuances of preferred stock;
general economic conditions and trends;
positive and negative events relating to healthcare and the overall pharmaceutical and biotech sector;
● major catastrophic events;
●
sales of large blocks of our stock;
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●
●
●
●
●
●
●
●
●
significant dilution caused by the anti-dilutive clauses in our financial agreements;
departures of key personnel;
changes in the regulatory status of our immunotherapies, including results of our clinical trials;
events affecting Penn or any current or future collaborators;
announcements of new products or technologies, commercial relationships or other events by us or our competitors;
regulatory developments in the United States and other countries;
failure of our common stock or warrants to be listed or quoted on The Nasdaq Stock Market, NYSE Amex Equities or other national market system;
changes in accounting principles; and
discussion of us or our stock price by the financial and scientific press and in online investor communities.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought
against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities litigation
could result in substantial costs and divert management’s attention and resources from our business.
A limited public trading market may cause volatility in the price of our common stock.
The quotation of our common stock on the Nasdaq does not assure that a meaningful, consistent and liquid trading market currently exists, and in
recent years such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies
like us. Our common stock is thus subject to this volatility. Sales of substantial amounts of common stock, or the perception that such sales might occur, could
adversely affect prevailing market prices of our common stock and our stock price may decline substantially in a short time and our shareholders could suffer
losses or be unable to liquidate their holdings.
The market prices for our common stock may be adversely impacted by future events.
Our common stock began trading on the over-the-counter-markets on July 28, 2005 and is currently quoted on the Nasdaq Stock Market under the
symbol ADXS. Market prices for our common stock and warrants will be influenced by a number of factors, including:
●
●
●
●
●
●
●
●
●
the issuance of new equity securities pursuant to a future offering, including issuances of preferred stock;
changes in interest rates;
significant dilution caused by the anti-dilutive clauses in our financial agreements;
competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
variations in quarterly operating results;
change in financial estimates by securities analysts;
the depth and liquidity of the market for our common stock and warrants;
investor perceptions of our company and the pharmaceutical and biotech industries generally; and
general economic and other national conditions.
36
We are not currently in compliance with the continued listing requirements for Nasdaq. If the price of our common stock continues to trade below $1.00
per share for a sustained period or we do not meet other continued listing requirements, our common stock may be delisted from the Nasdaq Global
Market, which could affect the market price and liquidity for our common stock and reduce our ability to raise additional capital.
Our common stock is listed on the Nasdaq Global Select Market. In order to maintain that listing, we must satisfy minimum financial and other
requirements including, without limitation, a requirement that our closing bid price be at least $1.00 per share. In March 2019, the Company executed a 1 for
15 reverse stock split in order to regain compliance after a prior Nasdaq notice of delisting. On September 3, 2019, we received a written notice from Nasdaq
indicating that we are not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Global Select Market. We have until
March 2, 2020 to regain compliance. We can regain compliance if at any time prior to March 2, 2020 the bid price of our common stock closes at or above
$1.00 per share for a minimum of ten consecutive business days.
If we fail to regain compliance with the minimum bid price requirement by March 2, 2020, we may apply to transfer to The Nasdaq Global Select
Market where we should be afforded an additional 180-day period to regain compliance provided that (i) we meet the applicable market value of publicly held
shares requirement for continued listing and all other applicable requirements for initial listing on the Nasdaq Global Select Market (except for the bid price
requirement) based on our most recent public filings and market information and (ii) we notify Nasdaq of our intent to cure the bid price requirement
deficiency prior to the completion of the second 180-day compliance period by effecting a reverse stock split, if necessary. We intend to monitor the closing
bid price of our common stock and consider our available options to resolve our noncompliance with the minimum bid price requirement. There can be no
assurance that we will be able to regain compliance with the minimum bid price requirement or we will otherwise be in compliance with other Nasdaq listing
criteria. If we fail to regain compliance with the minimum bid requirement or to meet the other applicable continued listing requirements for the Nasdaq
Global Select Market in the future and Nasdaq determines to delist our common stock, the delisting could adversely affect the market price and liquidity of
our common stock and reduce our ability to raise additional capital.
Unless our common stock continues to be listed on a national securities exchange it will become subject to the so-called “penny stock” rules that impose
restrictive sales practice requirements.
If we are unable to maintain the listing of our common stock on The Nasdaq Global Select Market or another national securities exchange, our
common stock could become subject to the so-called “penny stock” rules if the shares have a market value of less than $5.00 per share. The SEC has adopted
regulations that define a penny stock to include any stock that has a market price of less than $5.00 per share, subject to certain exceptions, including an
exception for stock traded on a national securities exchange. The SEC regulations impose restrictive sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited investors. An accredited investor generally is a person whose individual annual
income exceeded $200,000, or whose joint annual income with a spouse exceeded $300,000 during the past two years and who expects their annual income to
exceed the applicable level during the current year, or a person with net worth in excess of $1.0 million, not including the value of the investor’s principal
residence and excluding mortgage debt secured by the investor’s principal residence up to the estimated fair market value of the home, except that any
mortgage debt incurred by the investor within 60 days prior to the date of the transaction shall not be excluded from the determination of the investor’s net
worth unless the mortgage debt was incurred to acquire the residence. For transactions covered by this rule, the broker-dealer must make a special suitability
determination for the purchaser and must have received the purchaser’s written consent to the transaction prior to sale. This means that if we are unable
maintain the listing of our common stock on a national securities exchange, the ability of stockholders to sell their common stock in the secondary market
could be adversely affected.
If a transaction involving a penny stock is not exempt from the SEC’s rule, a broker-dealer must deliver a disclosure schedule relating to the penny
stock market to each investor prior to a transaction. The broker-dealer also must disclose the commissions payable to both the broker-dealer and its registered
representative, current quotations for the penny stock, and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the
customer’s account and information on the limited market in penny stocks.
If we fail to remain current with our listing requirements, we could be removed from the Nasdaq Capital Market, which would limit the ability of broker-
dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.
Companies trading on the Nasdaq Marketplace, such as our Company, must be reporting issuers under Section 12 of the Exchange Act, as amended,
and must meet the listing requirements in order to maintain the listing of our common stock on the Nasdaq Capital Market. If we do not meet these
requirements, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the
ability of shareholders to sell their securities in the secondary market.
We may be at an increased risk of securities litigation, which is expensive and could divert management attention.
The market price of our common stock may be volatile, and in the past companies that have experienced volatility in the market price of their stock
have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in
substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
37
We do not intend to pay cash dividends.
We have not declared or paid any cash dividends on our common stock, and we do not anticipate declaring or paying cash dividends for the
foreseeable future. Any future determination as to the payment of cash dividends on our common stock will be at our Board of Directors’ discretion and will
depend on our financial condition, operating results, capital requirements and other factors that our Board of Directors considers to be relevant.
Our certificate of incorporation, bylaws and Delaware law have anti-takeover provisions that could discourage, delay or prevent a change in control,
which may cause our stock price to decline.
Our certificate of incorporation, Bylaws and Delaware law contain provisions which could make it more difficult for a third party to acquire us, even
if closing such a transaction would be beneficial to our shareholders. To date, we have not issued shares of preferred stock, however, we are authorized to
issue up to 5,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of
issuance by our Board of Directors without further action by shareholders. The terms of any series of preferred stock may include voting rights (including the
right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. The
issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our
common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to,
a third party and thereby preserve control by the present management.
Provisions of our certificate of incorporation, Bylaws and Delaware law also could have the effect of discouraging potential acquisition proposals or
making a tender offer or delaying or preventing a change in control, including changes a shareholder might consider favorable. Such provisions may also
prevent or frustrate attempts by our shareholders to replace or remove our management. In particular, the certificate of incorporation, Bylaws and Delaware
law, as applicable, among other things; provide the Board of Directors with the ability to alter the Bylaws without shareholder approval and provide that
vacancies on the Board of Directors may be filled by a majority of directors in office, and less than a quorum.
We are also subject to Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits “business
combinations” between a publicly-held Delaware corporation and an “interested shareholder,” which is generally defined as a shareholder who becomes a
beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that such shareholder became an
interested shareholder.
These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons
seeking to acquire control of our company to first negotiate with its board. These provisions may delay or prevent someone from acquiring or merging with
us, which may cause the market price of our common stock to decline.
Item 1B: Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate offices and manufacturing facility are located in approximately 48,500 square feet of office space at 305 College Road East, Princeton,
New Jersey 08540 which is occupied pursuant to a lease which expires on November 30, 2025.
Item 3. Legal Proceedings.
The information required under this item is set forth in Note 10. Commitments and Contingencies – Legal Proceedings with this Form 10-K and is
incorporated herein by reference.
Item 4. Mine Safety Disclosures.
None.
38
Item 5. Market for Our Common stock and Related Shareholder Matters.
Our common stock is listed on the Nasdaq Global Select Market under the symbol “ADXS”.
PART II
We have not declared or paid any cash dividends on our common stock, and we do not anticipate declaring or paying cash dividends for the
foreseeable future.
Recent Sales of Unregistered Securities
None.
Equity Compensation Plan Information
The following table provides information regarding the status of our existing equity compensation plans at October 31, 2019:
Equity compensation plans approved by security holders
Plan category
Options
Restricted stock
Equity compensation plans not approved by security holders
Total
Number of shares of
common stock to be
issued on exercise of
outstanding options,
warrants and rights
Weighted- average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in the
previous columns)
560,490 $
14,706
-
575,196
71.56
N/A
-
71.56
N/A
N/A
-
26,161*
* Number of securities remaining can be utilized for either options or restricted stock.
ITEM 6. Selected Financial Data.
Not applicable.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management’s Discussion and Analysis of Financial Conditions and Results of Operations and other portions of this report contain forward-
looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking
information. Factors that may cause such differences include, but are not limited to, availability and cost of financial resources, product demand, market
acceptance and other factors discussed in this report under the heading “Risk Factors”. This Management’s Discussion and Analysis of Financial Conditions
and Results of Operations should be read in conjunction with our financial statements and the related notes included elsewhere in this report.
Overview
Advaxis, Inc. (“Advaxis” or the “Company”) is a clinical-stage biotechnology company focused on the development and commercialization of
proprietary Lm Technology antigen delivery products based on a platform technology that utilizes live attenuated Listeria monocytogenes, or Lm
bioengineered to secrete antigen/adjuvant fusion proteins. These Lm-based strains are believed to be a significant advancement in immunotherapy as they
integrate multiple functions into a single immunotherapy by accessing and directing antigen presenting cells to stimulate anti-tumor T cell immunity,
stimulate and activate the immune system with the equivalent of multiple adjuvants, and simultaneously reduce tumor protection in the Tumor
Microenvironment, or TME, to enable the T cells to attack tumor cells. The Company believes that Lm Technology immunotherapies can complement and
address significant unmet needs in the current oncology treatment landscape. Specifically, their product candidates have the potential to optimize checkpoint
performance, while having a generally well-tolerated safety profile, and most of their product candidates are immediately available for treatment with a low
cost of goods. The Company’s passion for the clinical potential of Lm Technology is balanced by focus and fiscal discipline and driven towards increasing
shareholder value.
39
Advaxis and its collaborators are currently conducting or in the process of winding down clinical studies of Lm Technology immunotherapies in four
program areas:
Personalized neoantigen-directed therapies
● Human Papilloma Virus (“HPV”)-associated cancers
●
● Disease focused hotspot/‘off the shelf’ neoantigen-directed therapies
●
Prostate cancer
All four clinical program areas are anchored in the Company’s Lm TechnologyTM, a unique platform designed for its ability to safely and effectively
target various cancers in multiple ways. As an intracellular bacterium, Lm is an effective vector for the presentation of antigens through both the Major
Histocompatibility Complex, or MHC, I and II pathways, due to its active phagocytosis by Antigen Presenting Cells, or APCs. Within the APCs, Lm produces
virulence factors which allow survival in the host cytosol and potently stimulate the immune system.
Results of Operations for the Year Ended October 31, 2019 Compared to the Year Ended October 31, 2018
Revenue
Revenue increased $14.8 million to $20.9 million for the year ended October 31, 2019 compared to $6.1 million for the year ended October 31,
2018. The increase was due to changes in the estimated performance period associated with upfront fees received from Amgen in conjunction with the
collaboration agreement signed in August 2016. On December 10, 2018, we received a written notice of termination from Amgen with respect to the Amgen
Agreement, effective as of February 8, 2019. As of the notification date, we adjusted revenue on a cumulative catch-up basis considering the revised measure
of progress for the combined performance obligation based on the modified service period up to and through the contract termination date resulting in
additional revenue of $15.6 million. In addition, during the year ended October 31, 2019, the reimbursement of research and development costs of
approximately $2.0 million was included in revenue as a result of adoption of ASC 606, whereas during the year ended October 31, 2018, we recorded
reductions in research and development expenses of approximately $5.8 million pertaining to the reimbursement of research and development costs.
Research and Development Expenses
We invest in research and development to advance our Lm technology through our preclinical and clinical development programs. Research and
development expenses for the years ended October 31, 2019 and 2018 were categorized as follows (in thousands):
HPV-associated cancers
Personalized neoantigen-directed therapy
Hotspot/Off-the-Shelf therapies
Prostate cancer
Other expenses
Partner reimbursements
Total research & development expense
Stock-based compensation expense included in research and
development expense
HPV-Associated Cancers (AXAL)
Years Ended
October 31,
Increase
(Decrease)
2019
2018
$
%
8,139 $
2,932
3,221
863
11,522
-
26,677 $
24,272 $
2,331
1,204
2,844
32,082
(5,763)
56,970 $
(16,133)
601
2,017
(1,981)
(20,560)
(5,763)
(30,293)
(198)%
20
63
(230)
(178)
100
-114%
1,036 $
2,836 $
(1,800)
-174%
$
$
$
The majority of the HPV-associated research and development costs include clinical trial and other related costs associated with our axalimogene
filolisbac, or AXAL, programs in cervical and head and neck cancers. HPV-associated costs for the year ended October 31, 2019 decreased approximately
$16.1 million, or 198%, compared to the same period in 2018. The decrease resulted from the partial clinical hold by the FDA during the first several months
of 2019, specifically driven by a decrease in investigator payments and the closing of several sites that did not have patients enrolled. In May 2019, we
received notification from the FDA that the partial clinical was lifted, and in June 2019 we announced the closing of our Phase 3 AIM2CERV study in high-
risk locally advanced cervical cancer. We anticipate that we will continue to incur costs associated with the wind down of the study until late 2020.
Additionally, a winding down of several studies, including our Fawcett study in anal cancer and our MEDI4736 study in combination with MedImmune’s
investigational anti-PD-L1 immune checkpoint inhibitor, durvalumab, drove further reduction in costs in the year ended October 31, 2019 compared to the
year ended October 31, 2018. We do not anticipate funding any new AXAL studies.
40
Personalized Neoantigen-Directed Therapies (ADXS-NEO)
Research and development costs associated with personalized neoantigen-directed therapies for the year ended October 31, 2019 increased
approximately $0.6 million, or 20%, compared to the same period in 2018. The increase is attributable to the opening of new clinical sites, the enrollment of
patients and manufacturing costs for the clinical supply of such studies. On October 24, 2019, we announced that we have enrolled our last patient in the
ADXS-NEO program in monotherapy and will not continue into Part B of this study. We anticipate that we will incur wind down costs for this study until late
2020.
Hotspot/Off-the-Shelf Therapies (ADXS-HOT)
Research and development costs associated with our hotspot mutation-based therapy for the year ended October 31, 2019 increased approximately
63% to $3.2 million compared to the same period in 2018. The increase is attributable to the startup costs associated with the initiation of the Phase 1/2
clinical trial in fiscal 2019. This is the first study initiated using our ADXS-HOT construct, which we believe to be applicable across several tumor types. In
October 2019, we announced that we completed dosing in Part A of this study and we anticipate that we will report safety and immune response on the first
cohort of our first clinical trial using ADXS-HOT in early 2020.
Prostate Cancer Therapy (ADXS-PSA)
Research and development costs associated with our prostate cancer therapy for the year ended October 31, 2019 decreased approximately $2.0
million, or 230%, compared to the same period in 2018. The decrease is attributable to the enrollment in the study ending in 2017, which resulted in a
decrease of the monthly operational costs in the study. The Phase 2 study of our ADXS-PSA compound is in combination with KEYTRUDA®
(pembrolizumab), Merck’s humanized monoclonal antibody against PD-1. During 2019, we presented updated data from this study which demonstrated an
increase in the median overall survival, or mOS, to 33.6 months for patients in the combination arm of this study. We are in discussions with potential partners
on the next step for this therapy.
Other Expenses
Other expenses include salary and benefit costs, stock-based compensation expense, professional fees, laboratory costs and other internal and
external costs associated with our research & development activities. Other expenses for the year ended October 31, 2019 decreased approximately $20.6
million, or 178%, compared to the same period in 2018. The decrease was primarily attributable to a decrease in salary related expenses, including stock
compensation, and travel expenses resulting from cost control measures put in place beginning in June 2018, as well impairment losses recorded on idle fixed
assets. In addition, there was a decrease in laboratory costs, drug manufacturing process validation and drug stability studies due to the work performed
supporting our Marketing Authorization Application, or MAA, in Europe in fiscal year 2018 in support of the filing, which occurred in February 2018 and no
similar filing occurred in fiscal year 2019.
Partner Reimbursements
Partner reimbursements for the year ended October 31, 2019 decreased approximately $5.8 million, or 100%, compared to the same period in 2018.
During the year ended October 31, 2019, the reimbursement of research and development costs of approximately $2.0 million was included in revenue as a
result of adoption of ASC 606, while during the year ended October 31, 2018, we recorded reductions in research and development expenses of
approximately $5.8 million pertaining to the reimbursement of research and development costs.
General and Administrative Expenses
General and administrative expenses primarily include salary and benefit costs and stock-based compensation expense for employees included in our
finance, legal and administrative organizations. Also included in general and administrative expenses are outside legal, professional services and facilities
costs. General and administrative expenses for the years ended October 31, 2019 and 2018 were as follows (in thousands):
General and administrative expense
Stock-based compensation expense included in general and
administrative expense
Years Ended
October 31,
Increase
(Decrease)
2019
2018
$
%
12,179 $
19,472 $
(7,293)
(60)%
966 $
4,147 $
(3,181)
(329)%
$
$
41
General and administrative expenses for the year ended October 31, 2019 decreased approximately $7.3 million, or 60%, compared to the same
period in 2018. In June 2018, we began instituting measures to control costs for non-essential items in areas that didn’t support the strategic direction of the
company. Consequently, we reduced general and administrative expenses, including headcount, which resulted in decreases in salaries and stock-based
compensation. In addition, there was a decrease in consulting and professional fees during the year ended October 31, 2019 compared to the prior year due to
external strategy and program assessments performed during fiscal year 2018 and not recurring in fiscal year 2019.
Changes in Fair Values
For the year ended October 31, 2019, we recorded non-cash income from changes in the fair value of the warrant liability of approximately $2.6 million.
The decrease in the fair value of liability warrants resulted from a decrease in our share price from $0.56 at October 31, 2018 to $0.32 at October 31, 2019, as
well as a decrease in the number of liability warrants as a result of the warrant exchange (see Loss on shares issued in settlement of warrants below).
For the year ended October 31, 2018, the Company recorded non-cash income from changes in the fair value of the warrant liability of
approximately $3.4 million. The decrease in the fair value of liability warrants resulting from a decrease in our share price from $0.85 at September 11, 2018
(the date the liability warrants were issued) to $0.56 at October 31, 2018.
Loss on shares issued in settlement of warrants
On March 14, 2019, we entered into private exchange agreements with certain holders of warrants issued in connection with our September 2018
public offering of common stock and warrants. Pursuant to the exchange agreements, we issued 856,865 shares of common stock to the investors in exchange
for warrants on a 1:1 basis. In connection with the warrant exchange, we recorded a loss of approximately $1.6 million for the year ended October 31, 2019.
Liquidity and Capital Resources
Going Concern and Managements Plans
Similar to other development stage biotechnology companies, our products that are being developed have not generated significant revenue. As a
result, we have suffered recurring losses and we require significant cash resources to execute our business plans. These losses are expected to continue for an
extended period of time. The aforementioned factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of
business. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of
liabilities that might be necessary should we be unable to continue as a going concern within twelve months after the date the financial statements are issued.
Historically, our major sources of cash have comprised proceeds from various public and private offerings of our common stock, debt financings,
clinical collaborations, option and warrant exercises, NOL tax sales, income earned on investments and grants, and interest income. From October 2013
through October 2019, we raised approximately $292.2 million in gross proceeds ($27.0 million in fiscal year 2019) from various public and private offerings
of our common stock. We have sustained losses from operations in each fiscal year since our inception, and we expect losses to continue for the indefinite
future. As of October 31, 2019 and 2018, we had an accumulated deficit of approximately $384.3 million and $367.7 million, respectively, and stockholders’
equity of approximately $39.5 million and $24.1 million, respectively.
As of October 31, 2019, we had approximately $32.4 million in cash and cash equivalents. Management’s plans to mitigate an expected shortfall of
capital and to support future operations include obtaining additional funds through partnerships or strategic or financing investors and a continued focus on
cost control. We expect to have sufficient capital to fund our obligations as they become due in the ordinary course of business until at least January 2021.
The actual amount of cash that we will need to operate is subject to many factors. We have based this estimate on assumptions that may prove to be wrong,
and we could use available capital resources sooner than currently expected. Because of the numerous risks and uncertainties associated with the development
and commercialization of our product candidates, we are unable to estimate the amount of increased capital outlays and operating expenses associated with
completing the development of our current product candidates. The Company has reduced its operating expenses to $38.9 million for the year ended October
31, 2019 as compared to $76.4 million during the year ended October 31, 2018. Furthermore, the Company expects operating expenses to be approximately
$29 million for fiscal year 2020, which includes approximately $6 million in non-recurring costs related to programs that are winding down.
We recognize that we will need to raise additional capital in order to continue to execute our business plan in the future. There is no assurance that
additional financing will be available when needed or that we will be able to obtain financing on terms acceptable to us or whether we will become profitable
and generate positive operating cash flow. If we are unable to raise sufficient additional funds, we will have to scale back our operations or liquidate assets. In
such a scenario, the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial
statements.
42
Cash Flows
Operating Activities
Net cash used in operating activities was approximately $36.1 million for the year ended October 31, 2019 compared to net cash used in operating
activities of approximately $62.1 million for the year ended October 31, 2017. Net cash used in operating activities includes spending associated with our
clinical trial programs and general and administrative activities. We began instituting measures to control costs for non-essential items in areas that didn’t
support the strategic direction of the company, and as a result, we reduced operating expenditures significantly.
Investing Activities
Net cash used in investing activities was approximately $1.2 million for the year ended October 31, 2019 compared to net cash provided by investing
activities of $43.6 million for the year ended October 31, 2018. During fiscal year 2018, many of our remaining short-term investment securities matured and
a portion of the proceeds were used to fund operating activities. In addition, there was a reduction in property and equipment purchases during the year ended
October 31, 2019 of approximately $1.4 million as compared to the prior year.
Financing Activities
Net cash provided by financing activities was approximately $24.6 million for the year ended October 31, 2019 as compared to $39.2 million for the
year ended October 31, 2018. In fiscal year 2019, we received net proceeds of approximately $24.5 million from the sales of 13,150,000 shares of our
common stock and 13,656,000 pre-funded warrants in public offerings while in fiscal year 2018, we received net proceeds of approximately $36.5 million
from sales of 1,777,778 shares of our common stock in public offerings and approximately $2.7 million from the sale of 58,776 shares of our common stock
in at-the-market transactions.
Off-Balance Sheet Arrangements
As of October 31, 2019, our total future minimum lease payments under noncancelable operating leases was approximately $8.3 million.
Critical Accounting Policies
Revenue Recognition
Effective November 1, 2018, the Company adopted ASC Topic 606, Revenue form Contracts with Customers (ASC 606), using the modified
retrospective transition method. Under this method, results for reporting periods beginning on November 1, 2018 are presented under ASC 606, while prior
period amounts are not adjusted and continue to be reported in accordance with ASC Topic 605, Revenue Recognition (ASC 605). The Company only applied
the modified retrospective transition method to contracts that were not completed as of November 1, 2018, the effective date of adoption for ASC 606. This
standard applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes
revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in
exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the
entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine
the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity
satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration
it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope
of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations and assesses
whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the
respective performance obligation when (or as) the performance obligation is satisfied.
The Company enters into licensing agreements that are within the scope of ASC 606, under which it may exclusively license rights to research,
develop, manufacture and commercialize its product candidates to third parties. The terms of these arrangements typically include payment to the Company
of one or more of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory
and commercial milestone payments; and royalties on net sales of licensed products.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the
following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are
performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint
on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company
satisfies each performance obligation. As part of the accounting for these arrangements, the Company must use significant judgment to determine: (a) the
number of performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; and (c) the stand-alone
selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. The Company uses judgment
to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described further below.
The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as
or when the performance obligations under the contract are satisfied.
43
Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12
months following the balance sheet date are classified as current portion of deferred revenue in the accompanying balance sheets. Amounts not expected to be
recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
Exclusive Licenses. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations
identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to
the customer and the customer is able to use and benefit from the license. In assessing whether a performance obligation is distinct from the other
performance obligations, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the
collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the collaboration
partner can benefit from a performance obligation for its intended purpose without the receipt of the remaining performance obligation, whether the value of
the performance obligation is dependent on the unsatisfied performance obligation, whether there are other vendors that could provide the remaining
performance obligation, and whether it is separately identifiable from the remaining performance obligation. For licenses that are combined with other
performance obligation, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined
performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing
revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue
recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change
over the course of the research and development and licensing agreement. Such a change could have a material impact on the amount of revenue the
Company records in future periods.
Research and Development Services. The performance obligations under the Company’s collaboration agreements may include research and
development services to be performed by the Company on behalf of the partner. Payments or reimbursements resulting from the Company’s research and
development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts.
Milestone Payments. At the inception of each arrangement that includes research or development milestone payments, the Company evaluates
whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely
amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. An
output method is generally used to measure progress toward complete satisfaction of a milestone. Milestone payments that are not within the control of the
Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company
evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making
this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end
of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts
its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and earnings in
the period of adjustment.
Royalties. For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a
customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue
at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied
or partially satisfied.
Stock Based Compensation
The Company has an equity plan which allows for the granting of stock options to its employees, directors and consultants for a fixed number of
shares with an exercise price equal to the fair value of the shares at date of grant. The Company measures the cost of services received in exchange for an
award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date and is then recognized over the
requisite service period, usually the vesting period, in both research and development expenses and general and administrative expenses on the statement of
operations, depending on the nature of the services provided by the employees or consultants.
The process of estimating the fair value of stock-based compensation awards and recognizing stock-based compensation cost over their requisite
service period involves significant assumptions and judgments. The Company estimates the fair value of stock option awards on the date of grant using the
Black Scholes Model (“BSM”) for the remaining awards, which requires that the Company makes certain assumptions regarding: (i) the expected volatility in
the market price of its common stock; (ii) dividend yield; (iii) risk-free interest rates; and (iv) the period of time employees are expected to hold the award
prior to exercise (referred to as the expected holding period). As a result, if the Company revises its assumptions and estimates, stock-based compensation
expense could change materially for future grants.
44
The Company accounts for stock-based compensation using fair value recognition and records forfeitures as they occur. As such, the Company
recognizes stock-based compensation cost only for those stock-based awards that vest over their requisite service period, based on the vesting provisions of
the individual grants.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of
its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with
changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company used the Monte Carlo
simulation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in
the balance sheet as current or non-current based on whether or not net-cash settlement of the instrument could be required within 12 months of the balance
sheet date.
Intangible Assets
Intangible assets primarily consist of legal and filing costs associated with obtaining patents and licenses and are amortized on a straight-line basis
over their remaining useful lives which are estimated to be twenty years from the effective dates of the University of Pennsylvania (Penn) License
Agreements, beginning in July 1, 2002. These legal and filing costs are invoiced to the Company through Penn and its patent attorneys.
Management has reviewed its long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset might
not be recoverable and its carrying amount exceeds its fair value, which is based upon estimated undiscounted future cash flows. Net assets are recorded on
the balance sheet for patents and licenses related to AXAL, ADXS-NEO, ADXS-HOT, ADXS-PSA and ADXS-HER2 and other products that are in
development. However, if a competitor were to gain FDA approval for a treatment before us or if future clinical trials fail to meet the targeted endpoints, the
Company would likely record an impairment related to these assets. In addition, if an application is rejected or fails to be issued, the Company would record
an impairment of its estimated book value.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this
method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of
temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative
evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a
tax return. ASC Topic 740-10-40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and
transition. The Company will classify as income tax expense any interest and penalties. The Company has no material uncertain tax positions for any of the
reporting periods presented. The Company files tax returns in U.S. federal and state jurisdictions, including New Jersey, and is subject to audit by tax
authorities beginning with the year ended October 31, 2016.
45
New Accounting Standards
See Note 2 to our financial statements that discusses new accounting standards.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8: Financial Statements and Supplementary Data.
The information required by this Item 8 is incorporated by reference to our financial statements and the related notes and the report of our
independent registered public accounting firm beginning at page F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A: Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure
controls and procedures reflects the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of
possible controls and procedures relative to their costs.
As required by Rule 13a-15(b) under the Exchange Act, our management, under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of October 31, 2019. Based on
such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 31, 2019, our disclosure controls and procedures were
effective.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f)
under the Exchange Act. With the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the
effectiveness of our internal control over financial reporting as of October 31, 2019. In conducting such evaluation, management used the criteria set forth in
the report entitled “Internal Control — Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) to evaluate the effectiveness of our internal control over financial reporting. Based on this evaluation, management has concluded that our
internal control over financial reporting was effective as of October 31, 2019, based on those criteria.
This report does not include an attestation report of our independent registered public accounting firm regarding our internal control over financial
reporting, in accordance with applicable SEC rules that permit us to provide only management’s report in this report.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during the year ended October 31, 2019, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Item 9B: Other Information.
None.
46
Item 10: Directors, Executive Officers and Corporate Governance.
PART III
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2020 Annual Meeting of Stockholders.
Item 11: Executive Compensation.
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2020 Annual Meeting of Stockholders.
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2020 Annual Meeting of Stockholders.
Item 13: Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2020 Annual Meeting of Stockholders.
Item 14: Principal Accountant Fees and Services.
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2020 Annual Meeting of Stockholders.
Item 15: Exhibits and Financial Statements Schedules.
(a) 1. Financial Statements.
PART IV
For a list of the financial statements included herein, see Index to the Financial Statements on page F-1 of this Form 10-K.
2. Financial Statement Schedules.
No financial statement schedules have been submitted because they are not required or are not applicable or because the information required is
included in the financial statements or the notes thereto.
3. List of Exhibits.
See the Exhibit Index in Item 15(b) below.
Exhibit
Number
Description of Exhibits
3.1
Amended and Restated Certificate of Incorporation. Incorporated by reference to Annex C to DEF 14A Proxy Statement filed with the
SEC on May 15, 2006.
3.2
Certificate of Designations of Preferences, Rights and Limitations of Series A Preferred Stock of the registrant, dated September 24,
2009. Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed with the SEC on September 25, 2009.
3.3
Certificate of Designations of Preferences, Rights and Limitations of Series B Preferred Stock of the registrant, dated July 19, 2010.
Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed with the SEC on July 20, 2010.
47
3.4
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on August
16, 2012. Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the SEC on August 17, 2012.
3.5
3.6
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on July 11,
2013 (reverse stock split). Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the SEC on July 15, 2013.
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on July 12,
2013 (reverse stock split). Incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed with the SEC on July 15, 2013.
3.7
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on July 9,
2014. Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the SEC on July 10, 2014.
3.8
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on March
10, 2016. Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the SEC on March 11, 2016.
3.9
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on March
21, 2018. Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the SEC on March 21, 2018.
3.10
Amended and Restated Bylaws. Incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-QSB filed with the SEC on
September 13, 2006.
4.1
Form of Common Stock certificate. Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed with the SEC on
October 23, 2007.
4.2
Form of Common stock Purchase Warrant. Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed with the SEC
on August 31, 2011.
4.3
Form of Representative’s Warrant. Incorporated by reference to Exhibit 4.19 to Registration Statement on Form S-1/A (File No. 333-
188637) filed with the SEC on September 27, 2013.
4.4
4.5
4.6
10.3
Form of Representative’s Warrant related to the Underwriting Agreement, dated as of March 31, 2014, by and between Advaxis, Inc.
and Aegis Capital Group. Incorporated by reference to Exhibit 4.2 to Quarterly Report on Form 10-Q filed with the SEC on June 10,
2014.
Form of Warrant Agency Agreement, dated as of September 11, 2018 between Advaxis, Inc. and Continental Stock Transfer and Trust
Company (and Form of Warrant contained therein), Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed with
the SEC on September 11, 2018.
Form of Common Stock Warrant dated September 11, 2018 (included in Exhibit 4.5)
License Agreement, between the Trustees of the University of Pennsylvania and the registrant dated as of June 17, 2002, as Amended
and Restated on February 13, 2007. Incorporated by reference to Exhibit 10.11 to Annual Report on Form 10-KSB filed with the SEC on
February 13, 2007.
10.4
Amended and Restated 2009 Stock Option Plan of the registrant. Incorporated by reference to Annex A to DEF 14A Proxy Statement
filed with the SEC on April 30, 2010.
10.5
Second Amendment to the Amended and Restated Patent License Agreement between the registrant and the Trustees of the University
of Pennsylvania dated as of May 10, 2010. Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed with the
SEC on June 3, 2010.
10.6
2011 Omnibus Incentive Plan of registrant. Incorporated by reference to Annex A to DEF 14A Proxy Statement filed with the SEC on
August 29, 2011.
48
10.8
10.9
Amendment No. 1, dated as of March 26, 2007, to the License Agreement, between the Trustees of the University of Pennsylvania and
Advaxis, Inc. dated as of June 17, 2002, as amended and restated on February 13, 2007. Incorporated by reference to Exhibit 10.1 to
Quarterly Report on Form 10-Q filed with the SEC on June 14, 2012.
Amendment No. 3, dated as of December 12, 2011, to the License Agreement, between the Trustees of the University of Pennsylvania
and Advaxis, Inc. dated as of June 17, 2002, as amended and restated on February 13, 2007. Incorporated by reference to Exhibit 10.5 to
Quarterly Report on Form 10-Q filed with the SEC on June 14, 2012.
10.10
Amendment No. 1 to 2011 Omnibus Incentive Plan of registrant. Incorporated by reference to Annex B to DEF 14A Proxy Statement
filed with the SEC on July 19, 2012.
10.11
Indemnification Agreement. Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed with the SEC on August 20,
2013.
10.12 ‡
Employment Agreement between Advaxis, Inc. and Robert Petit, dated September 26, 2013. Incorporated by reference to Exhibit 10.70
to Registration Statement on Form S-1/A (File No. 333-188637) filed with the SEC on September 27, 2013.
10.13
Exclusive License and Technology Transfer Agreement by and between Advaxis, Inc. and Global BioPharma, Inc., dated December 9,
2013. Incorporated by reference to Exhibit 10.79 to Annual Report on Form 10-K/A filed with the SEC on February 6, 2014.
10.14‡
Amendment No. 1, dated as of December 19, 2013, to the Employment Agreement by and between Advaxis, Inc. and Robert G. Petit.
Incorporated by reference to Exhibit 10.82 to Annual Report on Form 10-K/A filed with the SEC on February 6, 2014.
10.15
Distribution and Supply Agreement, dated as of January 20, 2014, by and between Advaxis, Inc. and Biocon, Limited. Incorporated by
reference to Exhibit 10.7 to Quarterly Report on Form 10-Q filed with the SEC on March 17, 2014.
10.16
Exclusive License Agreement, dated March 19, 2014, by and between Advaxis, Inc. and Aratana Therapeutics, Inc. Incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed with the SEC on June 10, 2014.
10.17‡
Amendment No. 2, dated as of June 5, 2014, to the Employment Agreement by and between Advaxis, Inc. and Robert G. Petit.
Incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q filed with the SEC on June 10, 2014.
10.18
Clinical Trial Collaboration Agreement, dated July 21, 2014, by and between Advaxis, Inc. and MedImmune, LLC. Incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed with the SEC on September 9, 2014.
10.19
5th Amendment to the Amended & Restated License Agreement, dated July 25, 2014, by and between Advaxis, Inc. and University of
Pennsylvania. Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q filed with the SEC on September 9, 2014.
10.20
Amendment No. 2 to the Advaxis, Inc. 2011 Omnibus Incentive Plan, effective July 9, 2014. Incorporated by reference to Annex A to
Current Report on Schedule 14A filed with the SEC on May 20, 2014.
10.21
Amended and Restated 2011 Omnibus Incentive Plan, dated September 8, 2014. Incorporated by reference to Exhibit 10.4 to Quarterly
Report on Form 10-Q filed with the SEC on September 9, 2014.
10.22
Master Services Agreement for Technical Transfer and Clinical Supply, dated February 5, 2014, by and between Advaxis, Inc. and
SynCo Bio Partners B.V. Incorporated by reference to Exhibit 10.1 to Current Report to Form 8-K filed with the SEC on February 11,
2014.
10.23
Clinical Trial Collaboration and Supply Agreement by and between Advaxis, Inc. and Merck & Co. dated August 22, 2014.
Incorporated by reference to Exhibit 10.101 to Annual Report on Form 10-K filed with the SEC on January 6, 2015
10.24‡
Amendment No. 3, dated as of April 17, 2015, to the Employment Agreement by and between Advaxis, Inc. and Robert G. Petit.
Incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q filed with the SEC on June 15, 2015.
49
10.26
Co-Development and Commercialization Agreement between Advaxis, Inc. and Especificos Stendhal SA de CV dated February 3,
2016. Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed with the SEC on February 26, 2016.
10.27‡
Separation Agreement and General Release, dated July 6, 2017, between Advaxis, Inc. and Daniel J. O’Connor. Incorporated by
reference to Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on July 7, 2017.
10.28
2015 Incentive Plan of registrant. Incorporated by reference to Annex A to DEF 14A Proxy Statement filed with the SEC on April 7,
2015.
10.30‡
Employment Agreement between Advaxis, Inc. and Molly Henderson, dated June 6,2018. Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed with the SEC on June 6, 2018.
14.1
Code of Business Conduct and Ethics dated July 9, 2014. Incorporated by reference to Exhibit 14.1 to Current Report on Form 8-K
filed with the SEC on July 10, 2014.
31.1*
Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1*
Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
32.2*
Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
*
**
‡
Filed herewith.
Furnished herewith.
Denotes management contract or compensatory plan or arrangement.
ITEM 16. Form 10-K Summary
None.
50
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Princeton, Mercer County, State of New Jersey, on this 20th day of December 2019.
SIGNATURE
ADVAXIS, INC.
By: /s/ Kenneth Berlin
President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kenneth Berlin and Molly
Henderson (with full power to act alone), as his true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes,
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE
Title
/s/ Kenneth Berlin
Kenneth Berlin
/s/ Molly Henderson
Molly Henderson
/s/ David Sidransky
David Sidransky
/s/ James Patton
James Patton
/s/ Richard Berman
Richard Berman
/s/ Samir Khleif
Samir Khleif
/s/ Roni Appel
Roni Appel
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer, Executive Vice President
(Principal Financial and Accounting Officer)
DATE
December 20, 2019
December 20, 2019
Chairman of the Board
December 20, 2019
Vice Chairman of the Board
December 20, 2019
Director
Director
Director
51
December 20, 2019
December 20, 2019
December 20, 2019
ADVAXIS, INC.
FINANCIAL STATEMENTS
INDEX
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Shareholders’ Equity
Statements of Cash Flows
Notes to the Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Advaxis, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Advaxis, Inc. (the “Company”) as of October 31, 2019 and 2018, the related statements of operations,
shareholders’ equity and cash flows for each of the two years in the period ended October 31, 2019, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31,
2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended October 31, 2019, in conformity with
accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1,
the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2012.
New York, NY
December 20, 2019
F-2
ADVAXIS, INC.
BALANCE SHEETS
(In thousands, except share and per share data)
October 31,
2019
2018
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable
Deferred expenses
Prepaid expenses and other current assets
Total current assets
Property and equipment (net of accumulated depreciation)
Intangible assets (net of accumulated amortization)
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Common stock warrant liability
Other current liabilities
Total current liabilities
Deferred revenue- net of current portion
Other liabilities
Total liabilities
Commitments and contingencies – Note 9
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; Series B Preferred Stock; 0
shares issued and outstanding at October 31, 2019 and 2018. Liquidation preference of $0 at
October 31, 2019 and 2018.
Common stock - $0.001 par value; 170,000,000 shares authorized, 50,201,671 and
4,634,189 shares issued and outstanding at October 31, 2019 and 2018.
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
32,363 $
-
-
2,353
1,433
36,149
4,350
4,575
183
45,257 $
976 $
3,478
-
19
48
4,521
-
1,205
5,726
44,141
977
1,664
2,072
1,611
50,465
6,684
4,838
280
62,267
5,646
6,185
4,476
6,517
48
22,872
14,189
1,155
38,216
-
50
423,750
(384,269)
39,531
45,257 $
-
5
391,703
(367,657)
24,051
62,267
The accompanying notes should be read in conjunction with the financial statements.
F-3
ADVAXIS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Year Ended October 31,
2019
2018
$
20,884 $
6,063
26,677
12,179
38,856
(17,972)
435
2,589
(1,607)
(7)
(16,562)
50
$
$
(16,612) $
(1.09) $
56,970
19,472
76,442
(70,379)
577
3,400
-
(63)
(66,465)
50
(66,515)
(19.36)
Revenue
Operating expenses:
Research and development expenses
General and administrative expenses
Total operating expenses
Loss from operations
Other income (expense):
Interest income
Net changes in fair value of derivative liabilities
Loss on shares issued in settlement of warrants
Other expense
Net loss before income tax benefit
Income tax expense
Net loss
Net loss per common share, basic and diluted
Weighted average number of common shares outstanding, basic and diluted
15,207,637
3,434,824
The accompanying notes should be read in conjunction with the financial statements.
F-4
ADVAXIS, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share data)
Preferred Stock
Shares Amount
- $ - 2,744,196 $
50,828
Shares
Common Stock
Amount
Additional
Paid-In
Capital
Accumulated
Total
Shareholders’
3 $
355,399 $
7,028
Equity
Deficit
(301,142) $ 54,260
7,028
2,611
58,776
1,777,778
- $
- 4,634,189 $
12,220
2
5 $
7,435
13,656,000
17,884,962
856,865
13,150,000
13
18
1
13
(87)
(474)
460
43
7
2,659
26,668
391,703 $
2,002
(15)
14
20
2
104
5,462
24,458
(66,515)
(367,657) $
- $
- 50,201,671 $
50 $
423,750 $
(16,612)
(384,269) $
(87)
(474)
460
43
7
2,659
26,670
(66,515)
24,051
2,002
(15)
14
20
2
13
122
5,463
24,471
(16,612)
39,168
Balance at October 31, 2017
Stock-based compensation
Tax withholdings paid related to net share
settlement of equity awards
Tax withholdings paid on equity awards
Tax shares sold to pay for tax withholdings on
equity awards
Issuance of shares to employees under ESPP Plan
ESPP Expense
Advaxis at-the-market sales
Advaxis public offerings
Net Loss
Balance at October 31, 2018
Stock-based compensation
Tax withholdings paid on equity awards
Tax shares sold to pay for tax withholdings on
equity awards
Issuance of shares to employees under ESPP Plan
ESPP Expense
Pre-funded warrant exercises
Warrant exercises
Warrant exchange
Advaxis public offerings
Net Loss
Balance at October 31, 2019
The accompanying notes should be read in conjunction with the financial statements.
F-5
ADVAXIS, INC.
STATEMENT OF CASH FLOWS
(In thousands, except share and per share data)
OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Year Ended October 31,
2019
2018
$
(16,612) $
(66,515)
Stock compensation
Employee stock purchase plan expense
Gain on change in value of warrants
Loss on shares issued in settlement of warrants
Loss on disposal of property and equipment
Loss on write-down of property and equipment
Abandonment of intangible assets
Depreciation expense
Amortization expense of intangible assets
Net accretion of premiums
Change in operating assets and liabilities:
Accounts Receivable
Prepaid expenses and other current assets
Income taxes receivable
Other assets
Accounts payable and accrued expenses
Deferred revenue
Other liabilities
Net cash used in operating activities
INVESTING ACTIVITIES
Purchases of short-term investment securities
Proceeds from maturities of short-term investment securities
Purchase of property and equipment
Proceeds from disposal of property and equipment
Cost of intangible assets
Net cash (used in) provided by investing activities
FINANCING ACTIVITIES
Net proceeds of issuance of common stock and pre-funded warrants
Warrant exercises
Pre-funded warrant exercises
Proceeds from employee stock purchase plan
Tax withholdings paid related to net share settlement of equity awards
Employee tax withholdings paid on equity awards
Tax shares sold to pay for employee tax withholdings on equity awards
Net cash provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
2,002
3
(2,589)
1,607
344
943
1,104
1,097
386
-
1,664
(103)
-
18
(7,377)
(18,665)
50
(36,128)
-
-
(54)
83
(1,227)
(1,198)
24,471
68
13
20
-
(15)
14
24,571
(12,755)
45,118
32,363 $
6,983
7
(3,400)
-
614
-
1,047
1,113
388
(6)
(153)
836
4,453
151
(1,954)
(5,809)
116
(62,129)
(12,487)
58,891
(1,425)
-
(1,416)
43,563
39,246
-
52
(87)
(474)
460
39,197
20,631
24,487
45,118
$
The accompanying notes should be read in conjunction with the financial statements.
F-6
The following table provides a reconciliation of cash, cash equivalents and restricted cash
reported within the balance sheets that sum to the total of the same such amounts shown in the
statements of cash flows:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash shown in statements of cash flows
$
$
32,363 $
-
32,363 $
44,141
977
45,118
Supplemental Disclosures of Cash Flow Information
Cash paid for taxes
Year Ended October 31,
2019
2018
$
50 $
50
Supplemental Schedule of Noncash Investing and Financing Activities
Shares issued in settlement of warrants
Warrant liability reclassified into equity
Reclass of security deposit to property and equipment for delivered equipment
Year Ended October 31,
2019
2018
$
$
$
5,463 $
54 $
79 $
-
-
-
The accompanying notes should be read in conjunction with the financial statements.
F-7
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
ADVAXIS, INC.
NOTES TO FINANCIAL STATEMENTS
Advaxis, Inc. (“Advaxis” or the “Company”) is a clinical-stage biotechnology company focused on the development and commercialization of
proprietary Listeria monocytogenes (“Lm”) based antigen delivery products. The Company is using its Lm platform directed against tumor-specific targets in
order to engage the patient’s immune system to destroy tumor cells. Through a license from the University of Pennsylvania, Advaxis has exclusive access to
this proprietary formulation of attenuated Lm called Lm TechnologyTM. Advaxis’ proprietary approach is designed to deploy a unique mechanism of action
that redirects the immune system to attack cancer in three distinct ways:
● Alerting and training the immune system by activating multiple pathways in Antigen-Presenting Cells (“APCs”) with the equivalent of multiple
adjuvants;
● Attacking the tumor by generating a strong, cancer-specific T cell response; and
● Breaking down tumor protection through suppression of the protective cells in the tumor microenvironment (“TME”) that shields the tumor
from the immune system. This enables the activated T cells to begin working to attack the tumor cells.
Advaxis’ proprietary Lm platform technology has demonstrated clinical activity in several of its programs and has been dosed in over 470 patients
across multiple clinical trials and in various tumor types. The Company believes that Lm Technology immunotherapies can complement and address
significant unmet needs in the current oncology treatment landscape. Specifically, its product candidates have the potential to work synergistically with other
immunotherapies, including checkpoint inhibitors, while having a generally well-tolerated safety profile.
In June 2019, Advaxis announced that it is closing the AIM2CERV Phase 3 clinical trial with axalimogene filolisbac (AXAL) in high-risk locally
advanced cervical cancer and in October 2019, Advaxis announced that it has enrolled its last patient in its ADXS-NEO program in monotherapy and will not
continue into Part B of this study.
Going Concern and Managements Plans
The Company has not yet commercialized any human products and the products that are being developed have not generated significant revenue. As
a result, the Company has suffered recurring losses and requires significant cash resources to execute its business plans. These losses are expected to continue
for an extended period of time. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern within one year
from the date of filing. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and
classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern within
one year after the date the financial statements are issued.
Historically, the Company’s major sources of cash have been comprised of proceeds from various public and private offerings of its common stock,
clinical collaborations, option and warrant exercises, and interest income. From October 2013 through October 2019, the Company raised approximately
$292.2 million in gross proceeds ($27.0 million in fiscal year 2019) from various public and private offerings of its common stock.
As of October 31, 2019, the Company had approximately $32.4 million in cash and cash equivalents. Although the Company believes that it expects
to have sufficient capital to fund its obligations, as they become due, in the ordinary course of business until at least January 2021, the actual amount of cash
that it will need to operate is subject to many factors. Management’s plans to mitigate an expected shortfall of capital and to support future operations include
obtaining additional funds through partnerships or strategic or financing investors. The Company has reduced its operating expenses to $38.9 million for the
year ended October 31, 2019 as compared to $76.4 million during the comparable prior period. Furthermore, the Company expects operating expenses to be
approximately $29 million for fiscal year 2020, which includes approximately $6 million in non-recurring costs related to programs that are winding down.
The Company recognizes it will need to raise additional capital in order to continue to execute its business plan in the future. There is no assurance
that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company or whether
the Company will become profitable and generate positive operating cash flow. If the Company is unable to raise sufficient additional funds, it will have to
scale back its operations.
F-8
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are
used when accounting for such items as the fair value and recoverability of the carrying value of property and equipment and intangible assets (patents and
licenses), deferred expenses and deferred revenue, the fair value of options, warrants and related disclosure of contingent assets and liabilities. On an on-
going basis, the Company evaluates its estimates, based on historical experience and on various other assumptions that it believes to be reasonable under the
circumstances. Actual results may or may not differ from estimates.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to confirm to the presentation of the current period financial
statements. The reclassifications had no effect on the previously reported net loss.
Revenue Recognition
Effective November 1, 2018, the Company adopted ASC Topic 606, Revenue form Contracts with Customers (ASC 606), using the modified
retrospective transition method. Under this method, results for reporting periods beginning on November 1, 2018 are presented under ASC 606, while prior
period amounts are not adjusted and continue to be reported in accordance with ASC Topic 605, Revenue Recognition (ASC 605). The Company only applied
the modified retrospective transition method to contracts that were not completed as of November 1, 2018, the effective date of adoption for ASC 606. This
standard applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes
revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in
exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the
entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine
the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity
satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration
it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope
of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations and assesses
whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the
respective performance obligation when (or as) the performance obligation is satisfied.
The Company enters into licensing agreements that are within the scope of ASC 606, under which it may exclusively license rights to research,
develop, manufacture and commercialize its product candidates to third parties. The terms of these arrangements typically include payment to the Company
of one or more of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory
and commercial milestone payments; and royalties on net sales of licensed products.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the
following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are
performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint
on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company
satisfies each performance obligation. As part of the accounting for these arrangements, the Company must use significant judgment to determine: (a) the
number of performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; and (c) the stand-alone
selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. The Company uses judgment
to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described further below.
The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as
or when the performance obligations under the contract are satisfied.
Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12
months following the balance sheet date are classified as current portion of deferred revenue in the accompanying balance sheets. Amounts not expected to be
recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
Exclusive Licenses. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations
identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to
the customer and the customer is able to use and benefit from the license. In assessing whether a performance obligation is distinct from the other
performance obligations, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the
collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the collaboration
partner can benefit from a performance obligation for its intended purpose without the receipt of the remaining performance obligation, whether the value of
the performance obligation is dependent on the unsatisfied performance obligation, whether there are other vendors that could provide the remaining
performance obligation, and whether it is separately identifiable from the remaining performance obligation. For licenses that are combined with other
performance obligation, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined
performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing
revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue
recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change
over the course of the research and development and licensing agreement. Such a change could have a material impact on the amount of revenue the
Company records in future periods.
F-9
Research and Development Services. The performance obligations under the Company’s collaboration agreements may include research and
development services to be performed by the Company on behalf of the partner. Payments or reimbursements resulting from the Company’s research and
development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts.
Milestone Payments. At the inception of each arrangement that includes research or development milestone payments, the Company evaluates
whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely
amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. An
output method is generally used to measure progress toward complete satisfaction of a milestone. Milestone payments that are not within the control of the
Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company
evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making
this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end
of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts
its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and earnings in
the period of adjustment.
Royalties. For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a
customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue
at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied
or partially satisfied.
Collaborative Arrangements
The Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties
that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and
therefore within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808). This assessment is performed throughout the life of the arrangement
based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple
elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and which elements of the
collaboration are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For elements of collaboration arrangements
that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606.
Amounts that are owed to collaboration partners are recognized as an offset to collaboration revenue as such amounts are incurred by the collaboration
partner. For those elements of the arrangement that are accounted for pursuant to ASC 606, the Company applies the five-step model described above under
ASC 606.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash
equivalents.
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts (checking) that at times exceed federally insured limits. Approximately $30.9 million is
subject to credit risk at October 31, 2019. However, these cash balances are maintained at creditworthy financial institutions. The Company has not
experienced any losses in such accounts and believes it is not exposed to any significant credit risk.
Restricted Cash and Letter of Credit
During July 2017 and January 2018, the Company established two letters of credit with a financial institution as security for the purchase of custom
equipment and as security for application fees associated with the Company’s Marketing Authorization Application (“MAA”) in Europe. The letters of credit
were collateralized by cash which was unavailable for withdrawal or for usage for general obligations. During the year ended October 31, 2019, the two
letters of credit were terminated and as of October 31, 2019 the Company has no restricted cash balance.
F-10
Deferred Expenses
Deferred expenses consist of advanced payments made on research and development projects. Expense is recognized in the Statement of Operations
as the research and development activity is performed.
Property and Equipment
Property and equipment is stated at cost. Additions and improvements that extend the lives of the assets are capitalized, while expenditures for
repairs and maintenance are expensed as incurred. Leasehold improvements are amortized on a straight-line basis over the shorter of the asset’s estimated
useful life or the remaining lease term. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets ranging from three to ten
years.
When depreciable assets are retired or sold the cost and related accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in operations.
Intangible Assets
Intangible assets are recorded at cost and include patents and patent application costs, licenses and software. Intangible assets are amortized on a
straight-line basis over their estimated useful lives ranging from 3 to 20 years. Patent application costs are written-off if the application is rejected, withdrawn
or abandoned.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, including property and equipment and intangible assets, for impairment whenever events and
circumstances indicate that the carrying value of an asset might not be recoverable. Recoverability of assets held and used is measured by comparison of the
carrying amount of an asset to the future undiscounted cash flows expected to be generated from the use of the asset and its eventual disposition. If the total of
the undiscounted future cash flows is less than the carrying amount of those assets, an impairment loss is recognized in the Statement of Operations based on
the excess of the carrying amount over the fair value of the asset.
Net Income (Loss) per Share
Basic net income or loss per common share is computed by dividing net income or loss available to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted earnings per share give effect to dilutive options, warrants, convertible debt and other
potential common stock outstanding during the period. In the case of a net loss the impact of the potential common stock resulting from warrants, outstanding
stock options and convertible debt are not included in the computation of diluted loss per share, as the effect would be anti-dilutive. In the case of net income,
the impact of the potential common stock resulting from these instruments that have intrinsic value are included in the diluted earnings per share. The table
sets forth the number of potential shares of common stock that have been excluded from diluted net loss per share.
Warrants
Stock options
Restricted stock units
Total
Research and Development Expenses
As of October 31,
2019
2018
432,142
560,490
14,706
1,007,338
944,635
330,071
32,614
1,307,320
Research and development costs are expensed as incurred and include but are not limited to clinical trial and related manufacturing costs, payroll and
personnel expenses, lab expenses, and related overhead costs.
Stock Based Compensation
The Company has an equity plan which allows for the granting of stock options to its employees, directors and consultants for a fixed number of
shares with an exercise price equal to the fair value of the shares at date of grant. The Company measures the cost of services received in exchange for an
award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date and is then recognized over the
requisite service period, usually the vesting period, in both research and development expenses and general and administrative expenses on the statement of
operations, depending on the nature of the services provided by the employees or consultants.
F-11
The process of estimating the fair value of stock-based compensation awards and recognizing stock-based compensation cost over their requisite
service period involves significant assumptions and judgments. The Company estimates the fair value of stock option awards on the date of grant using the
Black Scholes Model (“BSM”) for the remaining awards, which requires that the Company makes certain assumptions regarding: (i) the expected volatility in
the market price of its common stock; (ii) dividend yield; (iii) risk-free interest rates; and (iv) the period of time employees are expected to hold the award
prior to exercise (referred to as the expected holding period). As a result, if the Company revises its assumptions and estimates, stock-based compensation
expense could change materially for future grants.
The Company accounts for stock-based compensation using fair value recognition and records forfeitures as they occur. As such, the Company
recognizes stock-based compensation cost only for those stock-based awards that vest over their requisite service period, based on the vesting provisions of
the individual grants.
Fair Value of Financial Instruments
The carrying value of financial instruments, including cash and cash equivalents, restricted cash and accounts payable approximated fair value as of
the balance sheet date presented, due to their short maturities.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of
its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with
changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company used the Monte Carlo
simulation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in
the balance sheet as current or non-current based on whether or not net-cash settlement of the instrument could be required within 12 months of the balance
sheet date.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this
method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of
temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative
evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
Recent Accounting Standards
In February 2016, the Financial Accounting Standards Board, (“FASB”), issued Accounting Standards Update, (“ASU”), No. 2016-02, Leases
(Topic 842), which establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual
approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a
corresponding right-of-use asset for leases with a lease-term of more than 12 months. The new standard is effective for fiscal years and interim periods
beginning after December 15, 2018, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements, including a number of optional practical expedients that
entities may elect to apply. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, an update which provides another
transition method, in addition to the existing modified retrospective transition method, by allowing entities to initially apply the new lease standard at the
adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted
Topic 842 effective November 1, 2019 using a modified retrospective method and will not restate comparative periods. Upon adoption, the Company
recorded a right-to-use asset of approximately $5.3 million and a corresponding lease liability of approximately $6.6 million on the Company’s balance sheet
with the difference relating to reclassifications of the deferred rent liability and lease incentive obligation as reductions to the right-of-use asset for its
operating lease. Adoption of the new lease standard will not have a significant impact on the Company’s statement of operations.
Recently Adopted Accounting Standards
In May 2014, FASB issued ASU No. 2014-09, which amends the guidance for accounting for revenue from contracts with customers. ASU No.
2014-09 superseded the revenue recognition requirements in ASC 605 and created ASC 606 described above. In 2015 and 2016, the FASB issued additional
ASUs related to ASC 606 that delayed the effective date of the guidance and clarified various aspects of the new revenue guidance, including principal versus
agent considerations, identifying performance obligations, and licensing, and they include other improvements and practical expedients. Effective November
1, 2018, the Company adopted ASC 606 using the modified retrospective transition method.
F-12
As a result of adopting ASC 606, the Company made reclassifications to the balance sheet and income statement. Net income (loss) was not
impacted by the adoption of ASC 606. A summary of the amount by which each financial statement line item was affected by the impact of the cumulative
adjustment is set forth in the table below (in thousands):
(in thousands)
Accounts receivable
Prepaid expenses and other current assets
As reported
under ASC 606
Adjustments
Balances without adoption
of ASC 606
$
$
1,664
1,611
$
$
1,664 $
(1,664) $
-
3,275
A summary of the amount by which each financial statement line item was affected in the current reporting period by ASC 606 as compared with the
guidance that was in effect prior to the adoption of ASC 606 is set forth in the tables below.
Impact of ASC 606 Adoption on
Balance Sheet
as of November 1, 2018
(in thousands)
Accounts receivable
Prepaid expenses and other current assets
(in thousands)
Revenue
Research and Development Expenses
(in thousands)
Accounts receivable
Prepaid expenses and other current assets
Impact of ASC 606 Adoption on
Balance Sheet
as of October 31, 2019
As reported
under ASC 606
Adjustments
Balances without adoption
of ASC 606
$
$
-
1,433
$
$
- $
- $
-
1,433
Impact of ASC 606 Adoption on
Statement of Operations
for the Year Ended October 31, 2019
As reported under ASC
606
$
$
20,884
30,320
$
$
Adjustments
Balances without adoption
of ASC 606
1,960 $
1,960 $
18,924
28,360
Impact of ASC 606 Adoption on
Statement of Cash Flows
for the Year Ended October 31, 2019
As reported under ASC
606
Adjustments
Balances without adoption
of ASC 606
$
$
-
1,433
$
- $
-
-
1,433
The most significant change to the Company’s accounting for revenue as a result of the adoption of ASC 606 relates to its treatment of clinical
development payments it receives in its collaboration and licensing agreement with Amgen, Inc. (“Amgen”). Under ASC 605, the Company accounted for the
clinical development payments as a reduction of research and development expenses in the statement of operations. Under ASC 606, the Company accounted
for the reimbursements for research and development costs as revenue. For further discussion of the adoption of this standard, see Note 8.
In November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808
and Topic 606” (“ASU 2018-18”). The amendments in ASU 2018-18 make targeted improvements to generally accepted accounting principles (GAAP) for
collaborative arrangements by clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under
Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606
should be applied, including recognition, measurement, presentation, and disclosure requirements. In addition, unit-of-account guidance in Topic 808 was
aligned with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the
arrangement is within the scope of Topic 606. ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years. Early adoption is permitted, including adoption in any interim period. The amendments should be applied retrospectively to the date of initial
application of Topic 606. The Company adopted this guidance effective November 1, 2018 using the modified retrospective approach. There was no impact
on the Company’s financial statements.
F-13
In June 2018, the FASB issued ASU No. 2018-07, “Compensation—Stock Compensation (Topic 718) —Improvements to Nonemployee Share-
Based Payment Accounting” (“ASU 2018-07”). The amendments in ASU 2018-07 expand the scope of Topic 718 to include share-based payment
transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for
specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and
the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor
acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that
Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling
goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. ASU 2018-07 is effective for
public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but
no earlier than an entity’s adoption date of Topic 606. The Company adopted this guidance effective as of February 1, 2019. There was no impact on the
Company’s financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash (ASU No. 2016-18). The amendments in ASU No. 2016-18 require an
entity to reconcile and explain the period-over-period change in total cash, cash equivalents and restricted cash within its statements of cash flows. ASU No.
2016-18 was effective for the Company on November 1, 2018. The Company adopted ASU No. 2016-18 effective November 1, 2018 using a full
retrospective approach and it did not have a significant impact on its financial statements and related disclosures.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
impact on the accompanying financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
Leasehold improvements
Laboratory equipment
Furniture and fixtures
Computer equipment
Construction in progress
Total property and equipment
Accumulated depreciation and amortization
Net property and equipment
October 31,
2019
2018
2,335 $
3,405
744
409
83
6,976
(2,626)
4,350 $
2,321
5,510
746
409
17
9,003
(2,319)
6,684
$
$
Depreciation expense for each of the years ended October 31, 2019 and 2018 was approximately $1.1 million. Disposals of laboratory equipment
resulted in losses of approximately $0.3 million and $0.6 million for the years ended October 31, 2019 and 2018, respectively, that was charged to research
and development expenses in the statement of operations
Management has reviewed its property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset
might not be recoverable. During the years ended October 31, 2019 and 2018, the Company recorded impairment losses on idle laboratory equipment of $0.9
million and $0, respectively, that was charged to research and development expenses in the statement of operations. Fair value for the idle assets was
determined by a quoted purchase price for the assets.
4. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
Patents
License
Software
Total intangibles
Accumulated amortization
Net intangible assets
October 31,
2019
2018
5,833 $
777
117
6,727
(2,152)
4,575 $
5,970
777
117
6,864
(2,026)
4,838
$
$
The expirations of the existing patents range from 2019 to 2039 but the expirations can be extended based on market approval if granted and/or
based on existing laws and regulations. Capitalized costs associated with patent applications that are abandoned without future value are charged to expense
when the determination is made not to pursue the application. Patent applications having a net book value of approximately $1.1 million and $1.0 million
were abandoned and were charged to general and administrative expenses in the statement of operations for the years ended October 31, 2019 and 2018,
respectively. Intangible asset amortization expense that was charged to general and administrative expense in the statement of operations was approximately
$0.4 million for each of the years ended October 31, 2019 and 2018, respectively.
F-14
Management has reviewed its intangible assets for impairment whenever events and circumstances indicate that the carrying value of an asset might
not be recoverable. Net assets are recorded on the balance sheet for patents and licenses related to axalimogene filolisbac (AXAL), ADXS-HOT, ADXS-PSA
ADXS-HER2 and other products that are in development or out-licensed. However, if a competitor were to gain FDA approval for a treatment before us or if
future clinical trials fail to meet the targeted endpoints, the Company would likely record an impairment related to these assets. In addition, if an application is
rejected or fails to be issued, the Company would record an impairment of its estimated book value. Lastly, if the Company is unable to raise enough capital
to continue funding our studies and developing its intellectual property, the Company would likely record an impairment to certain of these assets.
At October 31, 2019, the estimated amortization expense by fiscal year based on the current carrying value of intangible assets is as follows (in
thousands):
2020
2021
2022
2023
2024
Thereafter
Total
5. ACCRUED EXPENSES:
The following table represents the major components of accrued expenses (in thousands):
Salaries and other compensation
Vendors
Professional fees
Total accrued expenses
6. COMMON STOCK PURCHASE WARRANTS AND WARRANT LIABILITY
Warrants
$
$
366
346
346
346
346
3,171
4,575
October 31,
2019
2018
$
$
158 $
3,194
126
3,478 $
2,035
3,660
490
6,185
As of October 31, 2019, there were outstanding warrants to purchase 432,142 shares of our common stock with exercise prices ranging from $0 to
$281.25 per share. Information on the outstanding warrants is as follows:
Exercise
Price
Number of Shares Underlying
Warrants
Expiration Date
Summary of Warrants
$
$
$
-
281.25
0.372
Grand Total
359,838
July 2024
25 N/A
72,279 September 2024
432,142
July 2019 Public Offering
Other Warrants
September 2018 Public Offering
As of October 31, 2018, there were outstanding warrants to purchase 944,635 shares of our common stock with exercise prices ranging from $22.50
to $281.25 per share. Information on the outstanding warrants is as follows:
Exercise
Price
Number of Shares Underlying
Warrants
Expiration Date
Summary of Warrants
$
$
$
281.25
56.25
22.50
Grand Total
25 N/A
166 March 2019
944,444 September 2024
944,635
F-15
Other Warrants
March 2014 Public Offering- Placement Agent
September 2018 Public Offering
A summary of warrant activity was as follows (In thousands, except share and per share data):
Outstanding and exercisable warrants at October 31,
2017
Issued
Expired
Outstanding and exercisable warrants at October 31,
2018
Issued
Exercised *
Exchanged
Expired
Outstanding and exercisable warrants at October 31,
2019
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
In Years
75.00
22.50
75.00
22.50
Aggregate
Intrinsic Value
.92 $
5.87 $
-
-
$
$
Shares
206,160
944,444
(205,969)
944,635
31,885,500
(31,540,962)
(856,865)
(166)
432,142
$
0.08
4.76 $
114,069
* Includes the cashless exercise of 17,869,662 warrants that resulted in the issuance of 17,869,662 shares of common stock.
At October 31, 2019, the Company had 359,863 of its total 432,142 outstanding warrants classified as equity (equity warrants). At October 31, 2018,
the Company had 191 of its total 944,635 outstanding warrants classified as equity warrants. At issuance, equity warrants are recorded at their relative fair
values, using the Relative Fair Value Method, in the shareholders equity section of the balance sheet.
Shares Issued in Settlement of Liability Warrants
On March 14, 2019, the Company entered into private exchange agreements with certain holders of warrants issued in connection with the
Company’s September 2018 public offering of common stock and warrants. The warrants being exchanged provided for the purchase of up to an aggregate of
856,865 shares of the Company’s common stock at an exercise price of $22.50, with an expiration date of September 11, 2024. Pursuant to such exchange
agreements, the Company issued 856,865 shares of common stock to the investors in exchange for such warrants on a 1:1 basis. The exchange of warrants for
common stock caused the down round provision to be triggered for the first time and the exercise price of the warrants that were not exchanged were reduced
from $22.50 to $4.50. The warrants were valued at approximately $3.9 million on the March 14, 2019 using the Monte Carlo simulation model. In
determining the fair warrant of the warrants issued on March 14, 2019, the Company used the following inputs in its Monte Carlo simulation model: exercise
price $22.50, stock price $6.45, expected term 5.50 years, volatility 96.37% and risk free interest rate 2.44%. In connection with the exchange of warrants for
common stock, the Company recorded a loss of approximately $1.6 million as the fair value of the shares issued exceeded the fair value of warrants
exchanged.
Warrant Liability
At October 31, 2019, the Company had 72,279 of its total 432,142 outstanding warrants classified as liabilities (liability warrants). As of October 31,
2018, the Company had 944,444 of its total 944,635 outstanding warrants classified as liabilities (liability warrants). These warrants contain a down round
feature, except for exempt issuances as defined in the warrant agreement, in which the exercise price would immediately be reduced to match a dilutive
issuance of common stock, options, convertible securities and changes in option price or rate of conversion. As of October 31, 2018, the down round feature
was not triggered. In April 2019, the down round feature was triggered a second time due to the sale of 2,500,000 common shares (see Note 11) and the
exercise price of the warrants were reduced from $4.50 to $3.72. In July 2019, the down round feature was triggered a third time due to the sale of 10,650,000
common shares and 13,656,000 pre-funded warrants (see Note 11) and the exercise price of the warrants were reduced from $3.72 to $0.372. The warrants
require liability classification as the warrant agreement requires the Company to maintain an effective registration statement and does not specify any
circumstances under which net cash settlement would be permitted or required. As a result, net cash settlement is assumed and liability classification is
warranted. For these liability warrants, the Company utilized the Monte Carlo simulation model to calculate the fair value of these warrants at issuance and at
each subsequent reporting date. During the year ended October 31, 2018, 944,444 warrants were issued at an exercise price of $22.50 with a term of six years.
The warrants were valued at approximately $9.9 million on the September 11, 2018 issuance using the Monte Carlo simulation model. In determining the fair
warrant of the warrants issued on September 11, 2018, the Company used the following inputs in its Monte Carlo simulation model: exercise price $12.75,
stock price $22.50, expected term 6 years, volatility 99.21% and risk free interest rate 2.91%.
At October 31, 2019 and October 31, 2018, the fair value of the warrant liability was approximately $19,000 and $6.5 million, respectively. For the
years ended October 31, 2019 and 2018, the Company reported income of approximately $2.6 million and $3.4 million, respectively, due to changes in the
fair value of the warrant liability.
F-16
In measuring the warrant liability, the Company used the following inputs in its Monte Carlo simulation model:
Exercise Price
Stock Price
Expected Term
Volatility %
Risk Free Rate
7. SHARE BASED COMPENSATION
$
$
October 31, 2019
October 31, 2018
0.37
0.32
4.87 years
$
$
100.99%
1.51%
22.50
8.40
5.87 years
97.47%
3.03%
The following table summarizes share-based compensation expense included in the statement of operations by expense category for the years ended
October 31, 2019 and 2018 (in thousands):
Research and development
General and administrative
Total
Amendments
Year Ended October 31,
2019
2018
$
$
1,036
966
2,002
$
$
2,836
4,147
6,983
The Advaxis, Inc. 2015 Incentive Plan (the “2015 Plan”) was originally ratified and approved by the Company’s stockholders on May 27, 2015.
Subject to proportionate adjustment in the event of stock splits and similar events, the aggregate number of shares of common stock that may be issued under
the 2015 Plan is 240,000 shares, plus a number of additional shares (not to exceed 43,333) underlying awards outstanding as of the effective date of the 2015
Plan under the prior plan that thereafter terminate or expire unexercised, or are cancelled, forfeited or lapse for any reason.
At the Annual Meeting of Stockholders of the Company held on March 10, 2016, the stockholders ratified and approved an amendment to the 2015
Plan to increase the aggregate number of shares of common stock authorized for issuance under such plan from 240,000 shares to 306,667 shares.
Furthermore, the stockholders approved an amendment to the Company’s Certificate of Incorporation to increase the total number of authorized shares of
common stock from 45,000,000 shares of common stock to 65,000,000 shares of common stock.
At the Annual Meeting of Stockholders of the Company held on April 5, 2017, the stockholders ratified and approved an amendment to the 2015
Plan to increase the aggregate number of shares of common stock authorized for issuance under such plan from 306,667 shares to 406,667 shares. The
amendment also included a provision that provides for pre-defined annual increases in the number of shares available for issuance under the Plan equal to the
lesser of: (i) 5% of the total number of shares of common stock outstanding, (ii) 166,667, or (iii) a lesser number determined by the Board of Directors. On
January 1, 2018, 137,743 shares, or 5% of the total number of shares of common stock outstanding, were added to the 2015 Plan.
At the Annual Meeting of Stockholders of the Company held on March 21, 2018, the stockholders ratified and approved an amendment to the
Company’s Certificate of Incorporation to increase the total number of authorized shares of common stock from 65,000,000 shares of common stock to
95,000,000 shares of common stock. On January 1, 2019, 166,667 shares were added to the 2015 Plan.
At the Annual Meeting of Stockholders of the Company held on February 21, 2019, the Company’s stockholders voted to approve an amendment to
increase the number of authorized shares of common stock from 95,000,000 to 170,000,000 and also voted to approve an amendment to allow the Company
to execute a reverse stock split of common stock at the discretion of the Board of Directors. The amendment to increase the number of authorized shares of
common stock became effective upon filing of the amendment with the Secretary of State of the State of Delaware on February 28, 2019. Additionally, on
March 29, 2019, the Company executed a 1 for 15 reverse stock split. As of October 31, 2019, there were 26,161 shares available for issuance under the 2015
Plan.
Restricted Stock Units (RSUs)
A summary of the Company’s RSU activity and related information for the year ended October 31, 2019 and 2018 is as follows:
Unvested as of October 31, 2017
Granted
Vested
Cancelled
Unvested as of October 31, 2018
Vested
Cancelled
Unvested as of October 31, 2019
Number of
RSU’s
Weighted-Average
Grant Date Fair Value
90,870 $
27,330
(53,873)
(31,713)
32,614 $
(12,257)
(5,651)
14,706 $
128.10
29.55
115.65
123.45
70.41
78.41
112.39
47.62
F-17
The fair value of the RSUs as of the respective vesting dates was approximately $51,000 and $1.6 million for the years ended October 31, 2019 and
2018, respectively.
As of October 31, 2019, there was approximately $0.3 million of unrecognized compensation cost related to non-vested RSUs, which is expected to
be recognized over a remaining weighted average vesting period of approximately 1.20 years.
As of October 31, 2019, the aggregate intrinsic value of non-vested RSUs was approximately $5,000.
Employee Stock Awards
Common stock issued to executives and employees related to vested incentive retention awards, employment inducements, management purchases
and employee excellence awards totaled 12,245 shares and 48,874 shares (45,830 shares on a net basis after employee taxes) during the years ended October
31, 2019 and 2018, respectively. Total stock compensation expense associated with these awards for the years ended October 31, 2019 and 2018 was
approximately $0.8 million and $3.1 million, respectively.
Included in compensation expense for the year ended October 31, 2018 was approximately $0.1 million and $0.3 million, respectively, recognized as
a result of the modification of certain RSU’s associated with the resignation of the Company’s Chief Financial Officer in April 2018 and Chief Operating
Officer in June 2018. Pursuant to the separation agreements, the vesting was accelerated on all of the outstanding RSU’s.
Director Stock Awards
During the years ended October 31, 2019 and 2018, common stock issued to the Directors for compensation related to board and committee
membership was 0 shares and 5,000 shares, respectively. During the years ended October 31, 2019 and 2018, total stock compensation expense to the
Directors was $0 and $0.2 million, respectively.
Stock Options
A summary of changes in the stock option plan for the years ended October 31, 2019 and 2018 is as follows (in thousands, except share and per
share data):
Outstanding as of October 31, 2017
Granted
Cancelled or expired
Outstanding as of October 31, 2018
Granted
Cancelled or expired
Outstanding as of October 31, 2019
Vested and exercisable at October 31, 2019
Shares
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
In Years
Aggregate
Intrinsic Value
259,571 $
167,871
(97,371)
330,071 $
265,882
(35,463)
560,490 $
240,015 $
F-18
187.65
30.90
137.10
122.79
2.36
29.52
71.56
155.25
5.72 $
6.56 $
7.34 $
4.50 $
-
-
1
-
The following table summarizes information about the outstanding and exercisable options at October 31, 2019:
Options Outstanding
Weighted Weighted
Average
Average
Remaining Exercise
Number
Intrinsic
Number
Options Exercisable
Weighted Weighted
Average
Average
Remaining Exercise
Outstanding Contractual
Price
Value
Exercise
Price Range
2.35 $ 1
-
-
-
29.70 $
167.11 $
211.39 $
Exercisable Contractual
178
52,846
97,073
89,918
8.98 $
8.17 $
3.85 $
3.04 $
Price
Intrinsic
Value
9.00 $ -
-
-
-
34.15 $
169.45 $
211.39 $
$
$
$
$
.30-$10.00
10.01-$100.00
100.01-$200.00
200.01-$318.75
249,329
119,753
101,490
89,918
9.69 $
8.53 $
3.97 $
3.04 $
The fair value of each option granted from the Company’s stock option plans during the years ended October 31, 2019 and 2018 was estimated on
the date of grant using the Black-Scholes option-pricing model. Using this model, fair value is calculated based on assumptions with respect to (i) expected
volatility of the Company’s common stock price, (ii) the periods of time over which employees and Board Directors are expected to hold their options prior to
exercise (expected lives), (iii) expected dividend yield on the Company’s common stock, and (iv) risk-free interest rates, which are based on quoted U.S.
Treasury rates for securities with maturities approximating expected lives of the options. The Company used their own historical volatility in determining the
volatility to be used. The expected term of the stock option grants was calculated using the “simplified” method in accordance with the SEC Staff Accounting
Bulletin 107. The “simplified” method was used since the Company believes its historical data does not provide a reasonable basis upon which to estimate
expected term and the Company does not have enough option exercise data from its grants issued to support its own estimate as a result of vesting terms and
changes in the stock price. The expected dividend yield is zero as the Company has never paid dividends to common shareholders and does not currently
anticipate paying any in the foreseeable future.
The following table provides the weighted average fair value of options granted to directors and employees and the related assumptions used in the
Black-Scholes model:
Weighted average fair value of options granted
Expected term
Expected volatility
Expected dividends
Risk free interest rate
$
Year Ended
October 31, 2019
October 31, 2018
$
1.84
5.50-6.51 years
90.24%-104.99%
0%
1.35%-3.15%
1.61
5.35-6.51 years
91.14%-100.34%
0%
1.81%-3.16%
Total compensation cost related to the Company’s outstanding stock options, recognized in the statement of operations for the years ended October
31, 2019 and 2018 was approximately $1.2 million and $3.7 million, respectively. Included in compensation expense for the year ended October 31, 2018 is
approximately $77,000 recognized as a result of the modification of certain option agreements associated with two Board members that decided not to run for
re-election in March 2018. For the modified options, the vesting was accelerated and the expiration dates were changed to the earlier of the original expiration
date or March 21, 2023.
During the year ended October 31, 2019, 265,882 options were granted with a total grant date fair value of approximately $0.5 million. During the
year ended October 31, 2018, 167,871 options were granted with a total grant date fair value of approximately $4.1 million.
As of October 31, 2019, there was approximately $1.3 million of unrecognized compensation cost related to non-vested stock option awards, which
is expected to be recognized over a remaining weighted average vesting period of approximately 1.65 years.
Employee Stock Purchase Plan
The Advaxis, Inc. 2018 Employee Stock Purchase Plan (ESPP) was approved by the Company’s shareholders on March 21, 2018. The 2018 ESPP
allows employees to purchase common stock of the Company at a 15% discount to the market price on designated exercise dates. Employees were eligible to
participate in the 2018 ESPP beginning May 1, 2018. 1,000,000 shares of the Company’s Common stock are reserved for issuance under the 2018 ESPP.
During the year ended October 31, 2019, 7,435 shares were issued under the 2018 ESPP and the Company recorded an expense of approximately
$2,000. During the year ended October 31, 2018, 2,611 shares were issued under the 2011 and 2018 ESPPs and the Company recorded an expense of
approximately $7,000.
As of October 31, 2019, 990,665 shares of Company’s common stock remain available for issuance under the 2018 ESPP.
F-19
8. COLLABORATION AND LICENSING AGREEMENTS
OS Therapies LLC
On September 4, 2018, the Company granted a license to OS Therapies for the use of ADXS31-164, also known as ADXS-HER2, for evaluation in
the treatment of osteosarcoma in humans. Under the terms of the license agreement, OST will be responsible for the conduct and funding of a clinical study
evaluating ADXS-HER2 in recurrent, completely resected osteosarcoma. Pursuant to the agreement, the Company is to receive an upfront payment,
reimbursement for product supply and other support, clinical, regulatory, and sales-based milestone payments, and royalties on future product sales.
Amgen
On August 1, 2016, the Company entered into a global agreement (the “Amgen Agreement”) with Amgen for the development and
commercialization of the Company’s ADXS-NEO, a then- preclinical investigational immunotherapy, using the Company’s proprietary Listeria
monocytogenes attenuated bacterial vector which activates a patient’s immune system to respond against unique mutations, or neoepitopes, contained in and
identified from an individual patient’s tumor. Under the terms of the Amgen Agreement, Amgen received an exclusive worldwide license to develop and
commercialize ADXS-NEO. Amgen made an upfront payment to Advaxis of $40 million and purchased directly from Advaxis 203,163 shares of the
Company’s common stock, at approximately $123.00 per share (representing a purchase at market using a 20 day VWAP methodology) for a total of $25
million. Amgen assisted in funding the clinical development and commercialization of ADXS-NEO and Advaxis retained manufacturing responsibilities.
Advaxis and Amgen collaborated through a joint steering committee for the development and commercialization of ADXS-NEO. Advaxis received
reimbursements for research and development costs and Advaxis was eligible to receive future contingent payments based on development, regulatory and
sales milestone payments of up to $475 million and high single digit to double digit royalty payments based on worldwide sales by Amgen.
The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Amgen, is a customer. The
Company identified the following material promises under the arrangement: (1) licenses, (2) research and development activities, (3) clinical supplies, (4)
regulatory responsibilities and (5) participation on a Joint Steering Committee (JSC). The Company determined that the licenses and research and
development activities were not distinct from another, as the licenses had limited value without the performance of the research and development activities.
Participation on the JSC to oversee the research and development activities was determined to be quantitatively and qualitatively immaterial and therefore
was excluded from performance obligations. The clinical supply and regulatory responsibilities did not represent separate performance obligations based on
their dependence on the research and development efforts. Based on this assessment, the Company identified one performance obligation at the outset of the
Amgen Agreement, which consists of: (1) licenses, (2) research and development activities, (3) clinical supplies and (4) regulatory responsibilities.
Under the Amgen Agreement, in order to evaluate the appropriate transaction price, the Company determined that the upfront amount of $40 million
constituted the entirety of the consideration to be included in the transaction price as of the outset of the arrangement, which is allocated to the single
performance obligation. The Company concluded that a time-based method was most appropriate to measuring progress toward completion given that the
research and development services are satisfied reasonably evenly over the agreement and the Company has a stand-ready obligation to perform over such
time. Accordingly, progress toward completion and related revenue recognition is measured using the input method of time elapsed relative to the estimated
timeline for Advaxis to submit the Phase 2 package to Amgen, or perform the contractual research and development services, which was the predominant
promise in the Company’s combined performance obligation to Amgen.
The reimbursement for the research and development costs was variable consideration that was included in the transaction price at the outset, subject
to the constraint. The Company estimated the consideration from the reimbursement of the research and development costs using the most-likely amount.
When the research and development costs are no longer constrained, they are added to the transaction price for the single, combined performance obligation
and recognized over the same recognition period as the rest of the performance obligation’s allocated revenue. The potential milestone and sales-based royalty
payments that the Company was eligible to receive were excluded from the transaction price, as all milestone and sales royalty amounts were fully
constrained based on the probability of achievement. The Company reevaluated the transaction price at the end of each reporting period and as uncertain
events were resolved or other changes in circumstances occurred, and, as necessary, adjusted its estimate of the transaction price.
On December 10, 2018, the Company received a written notice of termination from Amgen with respect to the Amgen Agreement. The termination
became effective as of February 8, 2019, and the Company regained worldwide rights for the development and commercialization of its ADXS-NEO
program. On October 24, 2019, Advaxis announced that it has enrolled its last patient in its ADXS-NEO program in monotherapy and will not enter Part B.
The remaining deferred revenue of approximately $18.2 million on December 10, 2018 related to the $40 million non-refundable, up-front payment
received from Amgen was accounted for as of the modification date. As of that notification date, the Company adjusted revenue on a cumulative catch-up
basis considering the revised measure of progress for the combined performance obligation based on the modified service period up to and through the
contract termination date of February 8, 2019. The Company recognized cumulative catch-up revenue of approximately $15.6 million on December 10, 2018.
The remaining $2.6 million was recognized over the subsequent 60 days until the performance obligation was satisfied on February 8, 2019.
F-20
During the years ended October 31, 2019 and 2018, the Company recognized revenue from the Amgen Agreement of approximately $20.6 million
and $5.8 million, respectively. During the year ended October 31, 2018, Company recorded reductions in research and development expenses of
approximately $5.8 million pertaining to the reimbursement of research and development costs. During the year ended October 31, 2019, the reimbursement
of research and development costs of approximately $2.0 million was included in revenue.
Merck & Co., Inc.
On August 22, 2014, the Company entered into a Clinical Trial Collaboration and Supply Agreement (the “Merck Agreement”) with Merck,
pursuant to which the parties collaborated on a Phase 1/2 dose-determination and safety trial. The Phase 1 portion of the trial evaluated the safety of our Lm -
LLO based immunotherapy for prostate cancer, ADXS-PSA (the “Advaxis Compound”) as monotherapy and in combination with KEYTRUDA®
(pembrolizumab), Merck’s humanized monoclonal antibody against PD-1, (the “Merck Compound”) and has determined a recommended Phase 2
combination dose. The Phase 2 portion evaluated the safety and efficacy of the Advaxis Compound in combination with the Merck Compound. Both phases
of the trial were in patients with previously treated metastatic castration-resistant prostate cancer. The last patient was dosed in August 2019 and the Company
is in the surveillance stage of the study. A joint development committee, comprised of equal representatives from both parties, is responsible for coordinating
all regulatory and other activities under, and pursuant to, the Merck Agreement.
Each party is responsible for their own internal costs and expenses to support the trial, while the Company was responsible for all third party costs of
conducting the trial. Merck was responsible for manufacturing and supplying the Merck Compound. The Company was responsible for manufacturing and
supplying the Advaxis Compound. The Company is the sponsor of the trial and holds the IND related to the trial.
All data and results generated under the trial (“Collaboration Data”) will be jointly owned by the parties, except that ownership of data and
information generated from sample analysis to be performed by each party on its respective compound will be owned by the party conducting such testing.
All rights to all inventions and discoveries, which claim or cover the combined use of the Advaxis Compound and the Merck Compound shall belong jointly
to the parties. Inventions and discoveries relating solely to the Advaxis Compound, or a live attenuated bacterial vaccine, shall be the exclusive property of
Advaxis. Inventions and discoveries relating solely to the Merck Compound, or a PD-1 antagonist, shall be the exclusive property of Merck.
During the years ended October 31, 2019 and 2018, the Company incurred approximately $0.9 million and $2.4 million, respectively, in expenses
pertaining to the Merck agreement, and such expenses were a component of research and development expenses in the statement of operations.
Elanco Animal Health (formerly Aratana Therapeutics)
On March 19, 2014, the Company and Aratana entered into a definitive Exclusive License Agreement (the “Aratana Agreement”). Pursuant to the
Agreement, Advaxis granted Aratana an exclusive, worldwide, royalty-bearing, license, with the right to sublicense, certain Advaxis proprietary technology
that enables Aratana to develop and commercialize animal health products that will be targeted for treatment of osteosarcoma and other cancer indications in
animals. Under the terms of the Aratana Agreement, Aratana paid an upfront payment to the Company, of $1 million. As this license has stand-alone value to
Aratana (who has the ability to sublicense) and was delivered to Aratana, upon execution of the Aratana Agreement, the Company recorded the $1 million
payment as licensing revenue during the year ended October 31, 2014. Aratana will also pay the Company up to an additional $36.5 million based on the
achievement of certain milestones with respect to the advancement of products pursuant to the terms of the Aratana Agreement. In addition, Aratana may pay
the Company an additional $15 million in cumulative sales milestones pursuant to the terms of the Aratana Agreement.
During the year ended October 31, 2018, the USDA’s Center for Veterinary Biologics granted Aratana conditional approval for its canine
osteosarcoma vaccine using Advaxis’ technology. During the years ended October 31, 2019 and 2018, Advaxis recognized royalty revenue totaling
approximately $8,000 and $3,000, respectively, from Aratana’s sales of the canine osteosarcoma vaccine. On July 16, 2019, Aratana announced their
shareholders approved a merger agreement with Elanco Animal Health (“Elanco”) whereby Elanco will be the majority shareholder in Aratana. All of the
terms of the Aratana Agreement remain in effect.
Global BioPharma Inc.
On December 9, 2013, the Company entered into an exclusive licensing agreement for the development and commercialization of axalimogene
filolisbac with Global BioPharma, Inc. (GBP), a Taiwanese based biotech company funded by a group of investors led by Taiwan Biotech Co., Ltd (TBC).
GBP is planning to conduct a randomized Phase 2, open-label, controlled trial in HPV-associated NSCLC in patients following first-line induction
chemotherapy. GBP has obtained Taiwanese regulatory approval for this trial and plans to initiate this trial in late 2019 or early 2020. This trial will be fully
funded exclusively by GBP and GBP will be responsible for all clinical development and commercialization costs in the GBP territory and GBP is committed
to establishing manufacturing capabilities for its own. Under the terms of the agreement, the Company will exclusively license the rights of axalimogene
filolisbac to GBP for the Asia, Africa, and former USSR territory, exclusive of India and certain other countries, for all HPV-associated indications. Advaxis
will retain exclusive rights to axalimogene filolisbac for the rest of the world.
F-21
During each of the years ended October 31, 2019 and 2018, the Company recorded $0.25 million in revenue for the annual license fee renewal. Since
Advaxis has no significant obligation to perform after the license transfer and has provided GBP with the right to use its intellectual property, performance is
satisfied when the license renews. In addition, GBP paid $2.25 million to the contract research organization that manages the Company’s AIM2CERV clinical
trial. On June 27, 2019, Advaxis announced that it is closing the AIM2CERV Phase 3 clinical trial with AXAL in high-risk locally advanced cervical cancer.
9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Stendhal
On September 19, 2018, Stendhal filed a Demand for Arbitration before the International Centre for Dispute Resolution (Case No. 01-18-0003-5013)
relating to the Co-development and Commercialization Agreement with Especificos Stendhal SA de CV (the “Stendhal Agreement”). In the demand,
Stendhal alleged that (i) the Company breached the Stendhal Agreement when it made certain statements regarding its AIM2CERV program, (ii) that
Stendhal was subsequently entitled to terminate the Agreement for cause, which it did so at the time and (iii) that the Company owes Stendhal damages
pursuant to the terms of the Stendhal Agreement. Stendhal is seeking to recover $3 million paid to the Company in 2017 as support payments for the
AIM2CERV clinical trial along with approximately $0.3 million in expenses incurred. Stendhal is also seeking fees associated with the arbitration and
interest. The Company has answered Stendhal’s Demand for Arbitration and denied that it breached the Stendhal Agreement. The Company also alleges that
Stendhal breached its obligations to the Company by, among other things, failing to make support payments that became due in 2018 and that Stendhal
therefore owes the Company $3 million. Advaxis is also seeking fees associated with the arbitration and interest.
On April 2, 2019, the Arbitrator denied the Company’s early application for summary disposition of Stendhal’s claims. No reasoning was provided.
From October 21-23, 2019, an evidentiary hearing for the arbitration was conducted, and on November 23, 2019, the arbitrator requested that the parties
submit post-hearing briefs. The deadline for submission is January 15, 2020. Closing arguments may also get scheduled at a later date. At this time, the
Company is unable to predict the likelihood of an unfavorable outcome.
Corporate Office & Manufacturing Facility Lease
The Company leases its corporate office and manufacturing facility under an operating lease expiring in November 2025.
Future minimum payments under the Company’s operating leases are as follows (in thousands):
Year ended October 31,
2020
2021
2022
2023
2024
Thereafter
Total
$
$
1,233
1,318
1,369
1,395
1,419
1,564
8,298
Rent expense for each of the years ended October 31, 2019 and 2018 was approximately $1.2 million.
10. INCOME TAXES
The income tax provision (benefit) consists of the following (in thousands):
Federal
Current
Deferred
State and Local
Current
Deferred
Change in valuation allowance
Income tax provision (benefit)
October 31, 2019
October 31, 2018
$
$
- $
32,673
-
(1,634)
(31,039)
- $
-
22,325
-
(5,449)
(16,876)
-
F-22
The Company has U.S. federal net operating loss carryovers (“NOLs”) of approximately $68.3 million and $265.8 million at October 31, 2019 and
2018 respectively, available to offset taxable income which expire beginning in 2023. If not used, these NOLs may be subject to limitation under Internal
Revenue Code Section 382 should there be a greater than 50% ownership change as determined under the regulations. During the years ended October 31,
2019 and 2018, the Company performed a detailed analysis of any historical and/or current Section 382 ownership changes that may limit the utilization of
the net operating loss carryovers. From the entire federal NOL of $278.1 million as of October 31, 2019, approximately $68.3 million is available for use
based on Internal Revenue Code Section 382 analysis. The NOL and the deferred tax asset table below does not include approximately $209.8 million of
NOL’s that may expire unused. The Company also has New Jersey State Net Operating Loss carryovers of approximately $116.6 million as of October 31,
2019 available to offset future taxable income through 2039.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future generation for taxable income during the periods in
which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all the information available,
management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full
valuation allowance.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax
Act”). The Tax Act made broad and significant changes to the U.S. tax code including, but not limited to, a change in the federal rate from 34% to 21%. As a
result of the enactment of the legislation, the Company recorded a one-time reduction to its deferred tax assets of approximately $34.4 million, which was
offset by a reduction in the valuation allowance.
When a U.S. federal tax rate change occurs during a fiscal year, taxpayers are required to compute a weighted daily average rate for the fiscal year of
enactment. As a result of the Tax Act, Advaxis has calculated a blended U.S. federal statutory corporate income tax rate of approximately 23% for the year
ended October 31, 2018 and applied this rate in computing the income tax provision for year ending October 31, 2018. The blended U.S. federal statutory
corporate income tax rate of 23% is the weighted daily average rate between the pre-enactment U.S. federal statutory tax rate of 34% applicable to the
Company’s 2018 fiscal year prior to the Effective Date and the post-enactment U.S. federal statutory tax rate of 21% applicable to the 2018 fiscal year
thereafter. Advaxis expects the U.S. federal statutory rate to be 21% for fiscal years beginning after October 31, 2018.
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial
statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company has
taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by
taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the
interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable
is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not
recognized as a result of applying the provisions of ASC 740.
If applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as other expense in the
statement of operations. Penalties would be recognized as a component of general and administrative expenses in the statement of operations.
No interest or penalties on unpaid tax were recorded during the years ended October 31, 2019 and 2018, respectively. As of October 31, 2019 and
2018, no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax
benefits in the next year.
The Company files tax returns in the U.S. federal and state jurisdictions and is subject to examination by tax authorities beginning with the year
ended October 31, 2016.
F-23
The Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following (in thousands):
Deferred Tax Assets
Net operating loss carryovers
Stock-based compensation
Research and development credits
Capitalized R&D costs
Deferred revenue
Other deferred tax assets
Total deferred tax assets
Valuation allowance
Deferred tax asset, net of valuation allowance
Deferred Tax Liabilities
Other deferred tax liabilities
Total deferred tax liabilities
Net deferred tax asset (liability)
Years Ended
October 31, 2019
October 31, 2018
$
$
$
$
$
$
22,627 $
11,767
10,234
13,399
-
405
58,432 $
(56,822)
1,610 $
(1,610) $
(1,610) $
- $
65,002
12,081
6,843
-
5,247
587
89,760
(87,862)
1,898
(1,898)
(1,898)
-
The expected tax (expense) benefit based on the statutory rate is reconciled with actual tax expense benefit as follows:
US Federal statutory rate
State income tax, net of federal benefit
Permanent differences
Research and development credits
Change in valuation allowance
Tax Cuts and Jobs Act
Other
Income tax (provision) benefit
Sale of Net Operating Losses (NOLs)
Years Ended
October 31, 2019
October 31, 2018
21.00%
9.84
1.23
17.30
(47.02)
-
(2.34)
0.00%
23.17%
8.19
1.22
(0.38)
25.37
(53.93)
(3.64)
0.00%
The Company was eligible to receive cash from the sale of its Net Operating Losses under the State of New Jersey NOL Transfer Program. In
January 2018, the Company received a net cash amount of approximately $4.5 million from the sale of its state NOLs and research and development tax
credits for the year ended October 31, 2016. Following the receipt of the NOL and research and development tax credit for the year ending October 31, 2016,
the Company reached the limit under the NJ NOL program.
11. STOCKHOLDERS’ EQUITY
At-the-Market Transactions
During January 2018, the Company sold 58,776 shares of its common stock at-the-market transactions resulting in net proceeds of approximately
$2.7 million.
Public Offerings
During February 2018, the Company closed on an underwritten public offering of 666,667 shares of the Company’s common stock in a public
offering at $30.00 per share, for total gross proceeds of $20 million. After deducting the underwriting discounts and commissions and other offering expenses,
the net proceeds from the offering were approximately $18.4 million. The sale of the Offered Shares was registered pursuant to a Registration Statement (No.
333-216008) on Form S-3, as amended, which was filed by the Company with the Securities and Exchange Commission on March 17, 2017 and declared
effective on March 20, 2017.
In September 2018, the Company closed on an underwritten public offering of 1,111,111 shares of its common stock and warrants to purchase up to
944,444 shares of common stock at a public offering price of $18.00, for gross proceeds of $20 million. Each share of common stock was sold together in a
fixed combination with a warrant to purchase 0.85 shares of common stock. The warrants are exercisable immediately, expire six years from the date of
issuance and have an exercise price of $22.50 per share, subject to anti-dilution adjustments (see Note 6). After deducting the underwriting discounts and
commissions and other offering expenses, the net proceeds from the offering were approximately $18.2 million. The shares of common stock were sold
pursuant to an effective shelf registration statement on Form S-3 (No. 333- 226988) filed with the Securities and Exchange Commission on August 23, 2018
and declared effective on August 30, 2018.
F-24
In April 2019, the Company issued 2,500,000 shares of the Company’s common stock in a public offering at $4.00 per share, less underwriting
discounts and commissions. The net proceeds to the Company from the transaction was approximately $9 million.
In July 2019, the Company closed on an underwritten public offering of 10,650,000 shares of its common stock, pre-funded warrants to purchase
13,656,000 shares of common stock and warrants to purchase up to 17,142,000 shares of common stock for gross proceeds of $17.0 million. Each share of
common stock was sold together in a fixed combination with a warrant to purchase 0.75 shares of common stock for $0.70, and each pre-funded warrant was
sold together in a fixed combination with a warrant to purchase 0.75 shares of common stock for $0.699. The pre-funded warrants are exercisable
immediately, do not expire and have an exercise price of $0.001 per share. The warrants are exercisable immediately, expire five years from the date of
issuance, have an exercise price of $2.80 per share and are subject to anti-dilution and other adjustments for certain stock splits, stock dividends, or
recapitalizations. The warrants also provide that if during the period of time between the date that is the earlier of (i) 30 days after issuance and (ii) if the
common stock trades an aggregate of more than 35,000,000 shares after the pricing of the offering, and ending 15 months after issuance, the weighted-
average price of common stock immediately prior to the exercise date is lower than the then-applicable exercise price per share, each Common Warrant may
be exercised, at the option of the holder, on a cashless basis for one share of Common Stock. After deducting the underwriting discounts and commissions and
other offering expenses, the net proceeds from the offering were approximately $15.5 million.
12. FAIR VALUE
The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv)
willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value which are the following:
● Level 1 — Quoted prices in active markets for identical assets or liabilities.
● Level 2— Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the
assets or liabilities.
● Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of October 31, 2019 and October 31,
2018:
October 31, 2019
Level 1
Level 2
Level 3
Total
Common stock warrant liability, warrants exercisable at $0.372
through September 2024
October 31, 2018
Level 1
Common stock warrant liability, warrants exercisable at $22.50
through September 2024
-
-
-
$
19 $
19
Level 2
Level 3
Total
-
$
6,517 $
6,517
The following table sets forth a summary of the changes in the fair value of the Company’s warrant liabilities:
Beginning balance
Issuance of warrants
Shares issued in settlement of warrants
Warrant exercises
Change in fair value
Ending Balance
13. EMPLOYEE BENEFIT PLAN
Year Ended October 31,
2019
2018
6,517 $
-
(3,856)
(53)
(2,589)
19 $
-
9,917
-
-
(3,400)
6,517
$
$
The Company sponsors a 401(k) Plan. Employees become eligible for participation upon the start of employment. Participants may elect to have a
portion of their salary deferred and contributed to the 401(k) Plan up to the limit allowed under the Internal Revenue Code. The Company makes a matching
contribution to the plan for each participant who has elected to make tax-deferred contributions for the plan year. The Company made matching contributions
which amounted to approximately $0.2 million and $0.4 million for the years ended October 31, 2019 and 2018, respectively. These amounts were charged to
the statement of operations. The employer contributions vest immediately.
F-25
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18.U.S.C. 7350
(SECTION 302 OF THE SARBANES OXLEY ACT OF 2002)
I, Kenneth Berlin, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended October 31, 2019 of Advaxis, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
December 20, 2019
/s/ Kenneth Berlin
By:
Name: Kenneth Berlin
Title: President & Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18. U.S.C. 7350
(SECTION 302 OF THE SARBANES OXLEY ACT OF 2002)
I, Molly Henderson, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended October 31, 2019 of Advaxis, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
December 20, 2019
/s/ Molly Henderson
By:
Name: Molly Henderson
Title: Chief Financial Officer, Executive Vice President
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Advaxis, Inc., a Delaware corporation (the “Company”), on Form 10-K for the year ended October 31, 2019 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Executive Officer, hereby certifies pursuant to 18
U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 that, to the undersigned’s knowledge:
(1) the Report of the Company filed today fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
Date: December 20, 2019
/s/ Kenneth Berlin
By:
Name: Kenneth Berlin
Title: President & Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of Advaxis, Inc., a Delaware corporation (the “Company”), on Form 10-K for the year ended October 31, 2019 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Financial Officer, hereby certifies pursuant to 18
U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 that, to the undersigned’s knowledge:
(1) the Report of the Company filed today fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
Date: December 20, 2019
/s/ Molly Henderson
By:
Name: Molly Henderson
Title: Chief Financial Officer, Executive Vice President