UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission file number 000-54318
ONCOSEC MEDICAL INCORPORATED
(Exact name of registrant as specified in its charter)
| Nevada | 98-0573252 | |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
| 24 North Main Street | ||
| Pennington, NJ | 08534 | |
| (Address of principal executive offices) | (Zip Code) |
(855) 662-6732
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Class | Trading Symbol | Name of Exchange on which Registered: | ||
| Common Stock, par value $0.0001 per share | ONCS | Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 ☒ 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 ☒ No ☐
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | Smaller reporting company ☒ | |
| Emerging growth company ☐ |
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of January 31, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $21 million, computed by reference to the price at which the registrant’s common stock was last sold on such date, as reported by the Nasdaq Capital Market. Shares of common stock held by the registrant’s officers and directors and holders of 10% or more of the outstanding shares of the registrant’s common stock have been excluded from this calculation because such persons may be deemed to be affiliates of the registrant; however, this determination of affiliate status is not, and shall not be considered, a determination of affiliate status for any other purpose.
As of October 31, 2022, there were outstanding shares of the Company’s common stock.
Documents Incorporated by Reference
None.
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER MATTERS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the “Exchange Act.” Forward-looking statements relate to future events or circumstances or our future performance and are based on our current assumptions, expectations and beliefs about future developments and their potential effect on our business. All statements in this report that are not statements of historical fact could be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. The forward-looking statements in this report include statements about, among other things: the status, progress and results of our clinical programs; our ability to obtain regulatory approvals for, and the level of market opportunity for, our product candidates; our business plans, strategies and objectives, including plans to pursue collaboration, licensing or other similar arrangements or transactions; our expectations regarding our liquidity and performance, including our expense levels, sources of capital and ability to maintain our operations as a going concern; the competitive landscape of our industry; and general market, economic and political conditions.
Some of the factors that we believe could cause actual results to differ from those anticipated or predicted include:
| ● | our limited working capital and history of losses, which raises substantial doubt as to whether we will be able to continue as a going concern; | |
| ● | the success and timing of our clinical trials, including safety and efficacy of our product candidates, patient accrual, unexpected or expected safety events, and the usability of data generated from our trials; | |
| ● | the ability to achieve the clinical and operational objectives set by Management and the Board; | |
| ● | our ability to successfully file and obtain timely marketing approval from the U.S. Food and Drug Administration (“FDA”), or comparable foreign regulatory agency for one or more Biologics License Applications (“BLAs”), or New Drug Applications (“NDAs”); | |
| ● | our ability to obtain and maintain marketing approval from regulatory agencies for our products in the U.S. and foreign countries; | |
| ● | our ability to adhere to ongoing compliance requirements of all health authorities, in the U.S. and foreign countries; | |
| ● | our ability to obtain and maintain adequate reimbursement for our products; | |
| ● | our ability to obtain the desired labeling of our products under any regulatory approval we might receive; | |
| ● | our plans to develop and commercialize our products; | |
| ● | the successful development and implementation of sales and marketing campaigns; | |
| ● | the loss 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; |
| 3 |
| ● | 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; | |
| ● | our available cash and investments; | |
| ● | 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; | |
| ● | our ability to maintain license agreements for our licensed product candidates; | |
| ● | the success and timing of our preclinical studies, including those intended to support an Investigational New Drug, or IND, application; | |
| ● | the ability of our product candidates to successfully perform and advance in clinical trials; | |
| ● | our continued compliance with the listing requirements of the Nasdaq Capital Market; | |
| ● | our ability to obtain and maintain authorization from regulatory authorities for use of our product candidates for initiation and conduct of clinical trials; | |
| ● | our ability to manufacture and supply our products, gain access to products we plan to use in combination studies and the performance of and reliance on third-party manufacturers and suppliers; | |
| ● | the performance of our clinical research organizations, clinical trial sponsors, and clinical trial investigators; and | |
| ● | our ability to successfully implement our strategy. |
Forward-looking statements are only predictions and are not guarantees of future performance, and they are subject to known and unknown risks, uncertainties and other factors, including the risks described under “Risk Factors” in Part I, Item IA of this report and similar discussions contained in the other documents we file from time to time with the Securities and Exchange Commission, or the “SEC.” Moreover, we operate in a rapidly evolving industry in which new risks and uncertainties continuously emerge, and it is not possible for us to predict all of the risks we may face or assess the impact of all uncertainties or other factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our current expectations, assumptions or beliefs. In light of these risks, uncertainties and other factors, the forward-looking events and circumstances described in this report may not occur and our results, levels of activity, performance or achievements could differ materially from those expressed in or implied by any forward-looking statements we make. As a result, you should not place undue reliance on any of our forward-looking statements. Forward-looking statements speak only as of the date they are made, and unless required to by law, we undertake no obligation to update or revise any forward-looking statement for any reason, including to reflect new information, future developments, actual results or changes in our expectations.
We qualify all of our forward-looking statements by this cautionary note.
Unless the context indicates otherwise, all references to OncoSec, our Company, we, us and our in this report refer to OncoSec Medical Incorporated and its subsidiary.
| 4 |
We own registered trademark rights in the United States to ImmunoPulse®, and we have filed applications in the United States and in certain foreign jurisdictions to register trademark rights to ImmunoPulse and OncoSec. Other service marks, trademarks or trade names used in this report are the property of their respective owners. We do not use the ® or ™ symbol in each instance in which one of our registered or common law trademarks appears in this report, but this should not be construed as any indication that we will not assert our rights thereto to the fullest extent permissible under applicable law.
We make available, free of charge, on our website, www.oncosec.com, our reports on Forms 10-K, 10-Q, 8-K and amendments thereto, as soon as reasonably practical after we file such materials with the SEC. Any information that we include on or link to our website is not, and should not be considered, part of this report.
SUMMARY RISK FACTORS
Our business is subject to risks of which you should be aware before making an investment decision. The risks described below are a summary of the principal risks associated with an investment in us and are not the only risks we face. You should carefully consider these risk factors, the risk factors described in Item 1A, and the other reports and documents that we have filed with the SEC.
Risks Related to Our Business
| ● | Our majority stockholders may exercise significant influence over the outcome of matters submitted to our stockholders for approval, which may prevent us from engaging in certain transactions. | |
| ● | We have never generated, and may never generate, revenue from our operations. | |
| ● | We have limited working capital and a history of losses, which raises substantial doubt as to whether we will be able to continue as a going concern. | |
| ● | We do not have adequate cash resources to fund our operations into calendar year 2023 and will need to raise additional capital to continue operating our business, and if we are unable to secure additional funds, we may be forced to delay, reduce or eliminate our clinical development programs and commercialization efforts or cease all operations. | |
| ● | We are a clinical-stage company with a limited operating history and no approved products, which makes assessment of our future viability difficult and which may hinder our ability to generate revenue and meet our other objectives. | |
| ● | We are significantly dependent on the success of our ImmunoPulse® technology platform and our product candidates that utilize based on this platform, including our lead product candidate TAVO™-EP. | |
| ● | Business or economic disruptions or global health concerns could seriously harm our development efforts and increase our costs and expenses. | |
| ● | If the commencement or completion of clinical testing for our product candidates is delayed or prevented, we could experience significantly increased costs and our ability to pursue regulatory approval or generate revenue could be delayed or limited. | |
| ● | If serious adverse or unacceptable side effects are identified during the development of one or more of our product candidates or any future product candidate, we may need to address any serious safety concerns as part of ongoing or post-marketing surveillance efforts; otherwise we may need to modify, limit or discontinue development efforts related to some of our product candidates. | |
| ● | We rely on third parties to conduct our clinical trials and other studies, and if these third parties do not successfully carry out their duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed. | |
| ● | Regulatory authorities may not approve our product candidates, or any approvals we achieve may be too limited or too late for us to earn meaningful, or any, revenue. | |
| ● | Our business and operations could suffer in the event of cyber-attacks or system failures. | |
| ● | We may be unable to acquire or develop new product candidates or technologies, or we may never be able to commercialize any product candidates or technologies we do successfully acquire or develop. |
| 5 |
| ● | Recent changes in the Company’s executive management team and Board of Directors may be disruptive to, or cause uncertainty in, its business, results of operations and the price of the Company’s common stock. | |
| ● | Extensive industry regulation has had, and will continue to have, a significant impact on our business, especially our product development, manufacturing and distribution capabilities. | |
| ● | If we fail to comply with applicable healthcare laws and regulations, we could face substantial penalties and our business, operations, prospects and financial condition could be adversely affected. | |
| ● | We are subject to new legislation and regulatory proposals that may affect costs for compliance and adversely affect revenue. | |
| ● | Any product for which we obtain marketing approval could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with products, when and if any of them is approved. |
Risks Related to Our Intellectual Property
| ● | Our business depends in large part on our ability to protect our proprietary rights and technologies, and we may be unsuccessful in these efforts. | |
| ● | Our in-licensed intellectual property may not provide us with sufficient rights and may not prevent competitors from pursuing similar technology. | |
| ● | We may become involved in litigation or other proceedings in our efforts to protect our patent and other intellectual property rights, which could require significant time and costs and would be subject to unpredictable outcomes. | |
| ● | Third parties may claim that we infringe their proprietary rights, which could prevent us from pursuing our clinical and other studies and other research and development activities. |
Risks Related to Our Growth Strategy
| ● | If we acquire, enter into joint ventures with or obtain a controlling interest in companies in the future, it could adversely affect our operating results and the value of our Common Stock thereby diluting stockholder value and disrupting our business. | |
| ● | If we cannot continue to fund our research and development programs, we may be required to reduce product development, which will adversely impact our growth strategy. |
Risks Related to Our Common Stock
| ● | The price and trading volume of our common stock may be subject to extreme volatility, and stockholders could lose all or part of their investment in our Company. | |
| ● | If our stock price continues to remain below $1.00, our common stock may be subject to delisting from The Nasdaq Stock Market, which would materially reduce the liquidity of our common stock and have an adverse effect on our market price. |
General Risk Factors
| ● | Our business, financial position, results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn. | |
| ● | Maintaining compliance with our reporting and other obligations as a public company could strain our resources and distract Management. |
| 6 |
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a late-stage immuno-oncology company focused on designing, developing and commercializing innovative, proprietary, intra-tumoral DNA-based therapeutics delivered by electroporation (“EP”) to stimulate and augment anti-tumor immune responses for the treatment of cancers. Our core technology, ImmunoPulse®, is a drug-device therapeutic modality platform comprised of a proprietary OncoSec Medical System EP device (the “OMS EP Device”) and a proprietary DNA plasmid delivery and application method that enables transient expression of recombinant therapeutic molecules in cells. The OMS EP Device is designed to promote cellular uptake of plasmid DNA injected directly into solid tumors to allow subsequent expression of the encoded therapeutic protein. Our OMS EP Device can be adapted to treat different tumor types, and consists of an electrical pulse generator paired with disposable applicators. Our lead product candidate is a plasmid encoding interleukin-12 (“IL-12”) called tavokinogene telseplasmid (“TAVO™”). The OMS EP Device is used to deliver TAVO™ into cells in tumor lesions, with the aim of reversing the immunosuppressive microenvironment in the treated tumor and eliciting systemic tumor-specific immune responses in cancer patients. Activation of an appropriate anti-tumor inflammatory response in the treated lesion can drive the immune system to mount a systemic anti-tumor response against untreated tumors in other parts of the body. In 2017, we received Fast Track Designation and Orphan Drug Designation from the U.S. Food and Drug Administration (“FDA”) for TAVO™ in metastatic melanoma, which could qualify TAVO™-EP for expedited FDA review, a rolling Biologics License Application (“BLA”) review and certain other benefits to achieve faster registration of a therapeutic product.
Development Programs
Our current focus is to continue development of TAVO™-EP in combination with KEYTRUDA® (pembrolizumab) in melanoma.
Our KEYNOTE-695 clinical trial, testing TAVO™-EP in combination with KEYTRUDA® (pembrolizumab), is a registration-directed, Phase 2b open-label, single-arm, multicenter trial in approximately 100 patients with relapsed or refractory metastatic melanoma after treatment with anti-PD-1 checkpoint inhibitor (nivolumab or pembrolizumab), conducted in the United States, Canada, Australia and Europe. In May 2017, we entered into a clinical trial collaboration and supply agreement with a subsidiary of Merck & Co., Inc. (“Merck”) in connection with the KEYNOTE-695 clinical trial. Pursuant to the terms of the agreement, each company will bear its own costs related to manufacturing and supply of its product, as well as be responsible for its own internal costs. OncoSec is the sponsor of the KEYNOTE-695 trial and we are responsible for external costs. The KEYNOTE-695 trial completed enrollment of the primary cohort (105 patients) in December 2020. In December 2020, the protocol was amended to include an additional cohort, consisting of patients who were exposed to treatment with ipilimumab and progressed on prior anti-PD-1 checkpoint inhibitor. The amendment also enabled enrollment of approximately 25 additional patients to be treated with an updated version of the OMS EP Device (i.e., GenPulseTM generator and Series 3 Applicator). Database lock for the 105 patients enrolled in Cohort 1 is November 2022 and the final data analyses of the primary and secondary endpoints are expected to be available during the first quarter of 2023 and fourth quarter of 2022, respectively.
In August 2020, we supported commencement of an investigator-initiated Phase 2 trial (Phase 2 IIT) conducted by the H. Lee Moffitt Cancer Center and Research Institute and the University of South Florida Morsani College of Medicine to evaluate TAVO™-EP as neoadjuvant treatment (administered before surgery) in combination with intravenous OPDIVO® (nivolumab) in up to 33 patients with operable locally/regionally advanced melanoma. This Phase 2 IIT has been designed to evaluate whether the addition of TAVO™-EP can increase the published anti-tumor response observed with monotherapy OPDIVO®, an anti-PD-1 checkpoint inhibitor, in patients with locally/regionally advanced melanoma prior to surgical resection of tumors. This Phase 2 IIT began enrolling patients in December of 2020. Enrollment for this trial is expected to be completed in 2023. Preliminary data from this Phase 2 IIT will be presented at an international medical conference, the Society for Immunotherapy of Cancer (SITC), in 2022.
In May 2018, we entered into a second clinical trial collaboration and supply agreement with Merck with respect to a KEYNOTE-890, Phase 2 trial of TAVO™-EP in combination with KEYTRUDA®. In Cohort 1 of this trial we evaluated the safety and efficacy of the combination in patients with inoperable locally advanced or metastatic triple negative breast cancer (“TNBC”), who have previously failed at least one systemic chemotherapy or immunotherapy. Pursuant to the terms of the agreement, both companies will bear their own costs related to manufacturing and supply of their product, as well as be responsible for their own internal costs. OncoSec is the sponsor of the KEYNOTE-890 trial and responsible for external costs. Enrollment of Cohort 1 was completed (26 patients) in December 2020. Interim data for Cohort 1 was initially presented at the San Antonio Breast Cancer Symposium (“SABCS”) in December 2019; an update on this cohort was presented at the SABCS in December 2021. In June 2020, we amended our second clinical trial collaboration and supply agreement to include KEYNOTE-890, Cohort 2, for the frontline treatment of patients with inoperable locally advanced or metastatic TNBC with the combination of TAVO-EP, KEYTRUDA, and chemotherapy. Enrollment of Cohort 2 (target 40 patients) began in January 2021. Due to slow enrollment and competing trials by other sponsors in front-line TNBC, recruitment on KEYNOTE-890 Cohort 2 has been halted as of October 2022.
| 7 |
In May 2019, we supported commencement of an investigator-initiated Phase 1 clinical trial (Phase 1 IIT) conducted by the University of California San Francisco (“UCSF”) Helen Diller Family Comprehensive Cancer Center. This Phase 1 IIT enrolls patients with Squamous Cell Carcinoma of the Head & Neck and is a single-arm open-label clinical trial in which 68 evaluable patients will receive TAVO™-EP, KEYTRUDA® and epacadostat. Recruitment on this Phase 1 IIT was halted for strategic reasons in June 2021.
Technology Platform
Our ImmunoPulse® platform is based on the concept of delivering macromolecules, including but not necessarily limited to plasmid DNA, into cells for local expression and activity via electroporation by an electric field that is generated by our OMS EP Device. The clinical lead molecule TAVO™ is a plasmid encoding human IL-12. Our most advanced device is the GenPulse 2.0 with our Series 3 Applicator. Clinical trials with TAVO™-EP have been conducted with predecessor OMS EP Devices. While seeking regulatory approval of GenPulse 2.0, we are also exploring other device strategies for use in future programs. We are developing our next-generation EP device and applicator, including advancements toward prototypes, and intend to pursue discovery research to identify other product candidates that, similar to IL-12, can be encoded into plasmid-DNA and delivered, using our proprietary delivery and application method, intratumorally using EP once our financial position allows such expanded discovery research. For example, we intend to develop proprietary technology to potentially treat liver, lung, bladder, pancreatic and other difficult to treat visceral lesions through the direct delivery of plasmid encoded therapeutics with the Visceral Lesion Applicator (“VLA”). We also intend to continue to pursue potential new trials and studies related to TAVO™, in various tumor types.
In November 2020, we obtained an exclusive license to the Cliniporator® electroporation gene electrotransfer platform from IGEA Clinical Biophysics. This platform has been used for electrochemotherapy in and outside of Europe in over 200 major oncological centers to treat cutaneous metastatic cancer nodules, including melanoma. The license encompasses a broad field of use for gene delivery in oncology, including use for our VLA development efforts.
The VLA is intended and may be designed to work with low voltage EP generators, including but not limited to Cliniporator® and our proprietary APOLLOTM EP generator, and is expected to enable transfection of immunologically relevant genes into cells located in visceral primary or metastatic tumor lesions. In early 2020, we presented preclinical data pertaining to visceral delivery of plasmid-based therapeutics as two poster presentations, one at the Society for Interventional Oncology and one at the Society for Interventional Radiology. Additionally, we have successfully completed several animal studies to test the VLA and improve its design. We expect to bring a VLA into the clinic in 2023. However, this timeline is under evaluation and may extend. We believe that the flexibility of our proprietary plasmid-DNA technology may allow the Company to deliver other immunologically relevant molecules into the tumor microenvironment in addition to the delivery of TAVO™.
| 8 |
Cancer Immunotherapy Treatments: Background
Many traditional modalities for treating cancer, such as chemotherapy, provide limited survival benefits and are frequently associated with significant side effects. Immunotherapy, which has received significant attention in recent years, focuses on modulating the immune system to eradicate cancer cells. Systemic delivery of cytokines that regulate the immune system, such as interleukin-2 (IL-2), interleukin-10 (IL-10), or interleukin-12 (IL-12), has shown indications of efficacy but also mechanism-based toxicity.
The development of monoclonal antibody therapeutics, which target and block critical “immune checkpoint” proteins such as cytotoxic T-lymphocyte-associated protein-4 (CTLA-4), program cell-death-1 (PD-1) or programmed death-ligand-1 (PD-L1), has been successful at augmenting anti-tumor immunity with more easily controlled toxicity than systemic cytokines. To date, several agents have been approved for the treatment of multiple cancers, e.g., anti-PD-1 (pembrolizumab, Keytruda®). Although these new immuno-oncology agents have shown clinical benefits for patients with solid tumors across multiple cancer types, a majority of patients do not respond (primary refractory) or will eventually relapse. One hypothesis for lack of efficacy of immune checkpoint inhibitors in primary refractory patients is that the tumor lacks a sufficient immune milieu, i.e., is deficient of infiltrating immune cells (immune desert) or infiltrating immune cells have impaired anti-tumor effector function (exhausted, immune excluded). Thus, novel therapeutic approaches that can alter the tumor immune environment directly are an area of intense research.
The TAVO™ EP therapeutic approach was developed to allow safe delivery of a powerful and well characterized cytokine, IL-12, encoded on a plasmid into cells in the tumor microenvironment and, thereby, achieving local expression. Local IL-12 expression curtails systemic toxicity and achieves activation of immune effector cells in the tumor microenvironment, which ultimately can result in systemic immune surveillance.
RECENT DEVLOPMENTS
Restructuring Plan
As previously disclosed, on October 2, 2022, our Board of Directors authorized a restructuring plan (the “Restructuring Plan”) that is designed to prioritize clinical activities in melanoma to reduce operating expenses while advancing our lead product candidate, TAVO™ EP, toward near-term data milestones in connection with the KEYNOTE-695 clinical trial. As part of the Restructuring Plan, we restructured our internal operations and reduced our workforce by approximately 45%, or approximately 18 employees.
We currently estimate that we will incur charges of approximately $750,000 to $800,000 in connection with the Restructuring Plan, consisting primarily of cash expenditures for employee transition, notice period and severance payments, retention bonus payments, and related costs as well as non-cash expenses related to vesting of share-based awards. We expect that the majority of the restructuring charges will be incurred in the fourth calendar quarter of 2022 and first calendar quarter of 2023, and that the execution of the Restructuring Plan will be substantially complete by the second calendar quarter of 2023.
The charges that we expect to incur in connection with the Restructuring Plan are estimates and subject to a number of assumptions, and actual results may differ materially. The foregoing estimated amounts do not include any non-cash charges associated with stock-based compensation. We expect to operationalize additional cost reduction actions that will include other incremental cost reduction actions unrelated to workforce reductions.
Nasdaq Compliance
As previously disclosed, on June 2, 2022, we received notice (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price of our common stock had been below $1.00 per share for 30 consecutive business days. The Notice had no immediate effect on the listing of our common stock, which continues to trade at this time on the Nasdaq Capital Market under the symbol “ONCS.”
| 9 |
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days, or until November 29, 2022, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share for at least ten consecutive business days during this 180 calendar day period. In the event we do not regain compliance by November 29, 2022, we may be eligible for an additional 180 calendar day grace period if we meet the continued listing requirement for market value of publicly held shares ($1 million) and all other initial listing standards for the Nasdaq Capital Market, with the exception of the minimum bid price, and provide written notice to Nasdaq of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. If we do not regain compliance within the allotted compliance period(s), Nasdaq will provide notice that the Company’s common stock will be subject to delisting from the Nasdaq Capital Market. In that event, we may appeal such delisting determination to a hearings panel.
We continue to monitor the closing bid price of our common stock and are considering options to resolve our noncompliance with the minimum bid price requirement, including by conducting a reverse stock split.
COVID-19
Our operational and financial performance have been affected by the COVID-19 pandemic. Our clinical trials have experienced delays in patient enrollment, potentially due to prioritization of hospital resources toward the COVID-19 pandemic or concerns among patients about participating in clinical trials during a public health emergency. The COVID-19 pandemic is also affecting the operations of government entities, such as the FDA, as well as contract research organizations, third-party manufacturers, and other third-parties upon whom we rely. The extent of the impact on our operations cannot be ascertained at this time.
CLINICAL PROGRAMS
Our Lead Product Candidate: TAVO™
TAVO™-EP is a drug-device combination. The therapeutic modality consists of a DNA plasmid called tavokinogene telseplasmid (TAVO™) that encodes the potent immune-stimulatory cytokine IL-12. TAVO™ is injected directly into tumor lesions and, using our proprietary OMS EP Device, transfected into local cells. Our clinical data indicates that the in vivo gene transfer of plasmid DNA-encoded IL-12 using EP is well-tolerated. Anti-tumor activity has been observed as early as after a single cycle of treatment. Importantly, regression in distant, non-injected/non-electroporated lesions has also been observed (“abscopal effect”) in different solid cancers.
OUR CLINICAL PIPELINE
Melanoma
Melanoma is a deadly skin cancer with rapidly rising incidences both in the U.S. and globally. The National Cancer Institute (“NCI”) Surveillance, Epidemiology and End Results (“SEER”) Program estimates that 96,480 new melanoma cases were diagnosed in 2019, representing 5.5% of all new cancer cases in the U.S. Overall, the five-year survival rate for melanoma, regardless of disease stage, is high (92.2%); however, according to SEER 2019, for patients who present with metastatic disease and receive systemic treatment, the five-year survival rate is considerably lower at less than 25%. Despite recent advances in therapy, advanced metastatic melanoma continues to present a major and increasing burden with significant morbidity and mortality.
KEYNOTE-695 Study (ongoing)
The KEYNOTE-695 clinical trial is a Phase 2b, open-label, single-arm, multi-center trial of TAVO™ EP in combination with an intravenous anti-PD-1 antibody, Merck’s KEYTRUDA®, in patients with unresectable locally advanced or metastatic melanoma and confirmed progression on immediate prior anti-PD-1 therapy. The KEYNOTE-695 trial completed enrollment of the original cohort (105 patients) in December of 2020; approximately half of the cohort was enrolled during the COVID-19 pandemic.
| 10 |
KEYNOTE-695 enrollment criteria with respect to anti-PD-1 checkpoint inhibitor failure is highly restrictive. In order to be considered an anti-PD-1 checkpoint inhibitor failure, all patients must have histologically or cytologically confirmed diagnosis of unresectable melanoma (Stage III or IV) with progressive locally advanced or metastatic diseases, be refractory/relapsed to anti-PD-1 monoclonal antibodies, namely KEYTRUDA® (pembrolizumab) or OPDIVO® (nivolumab), as either monotherapy or in combination with other approved checkpoint inhibitors or targeted therapies according to their approved label. Patients must have relapsed as documented by confirmed disease progression within 12 weeks of the last dose of anti-PD-1 monoclonal antibody administration. Patients can have no intervening therapies between failure of anti-PD-1 therapy and the TAVO™ / KEYTRUDA® combination treatment with the exception of approved BRAF (proto-oncogene B-Raf)/MEK (Mitogen-activated protein kinase kinase) inhibitor combinations. Patients that are BRAF/MEK inhibitor eligible may have received BRAF/MEK inhibitor treatment. The primary endpoint of the study is to assess the objective response rate (“ORR”) based on RECIST v1.1 by blinded independent central review (BICR). Database lock for the 105 patients enrolled in Cohort 1 is November 2022 and the final data analyses of the primary and secondary endpoints are expected to be available during the first quarter of 2023 and fourth quarter of 2022, respectively.
KEYNOTE-695 is a registration-directed clinical trial. In order to be eligible for accelerated approval, the TAVO™-EP / KEYTRUDA® combination must treat a serious condition and provide a meaningful advantage over available therapies. Prior to the commencement of the trial, we reviewed the patient inclusion and progression criteria, and other trial requirements with FDA. In light of this review, we strictly defined the patient population to be enrolled in KEYNOTE-695 to include only those patients who have definitively progressed on prior anti-PD-1 checkpoint therapy.
In July 2021, we entered into a clinical trial collaboration and supply agreement with Merck with respect to a Phase 3 study of TAVOTM in combination with KEYTRUDA® to evaluate the safety and efficacy of the combination in patients with Stage III or IV unresectable, metastatic melanoma, and who are refractory to prior checkpoint therapy. This study is referred to as KEYNOTE-C87. Pursuant to the terms of the agreement, both companies will bear their own costs related to manufacturing and supply of their product, as well as be responsible for their own internal costs. We are the study sponsor and are responsible for external costs. The trial is designed to be a global Phase 3 randomized clinical trial and is intended to support accelerated approval by the U.S. FDA and/or serve as a pivotal study to support a full licensure.
OMS-102 (completed)
OMS-102 was an open-label, multi-center, Phase 2 trial of TAVO™-EP and KEYTRUDA® (pembrolizumab) in patients with advanced, metastatic melanoma. In August 2015, we enrolled the first patient in our Phase 2 investigator-sponsored clinical trial led by the clinicians at UCSF. Huntsman Cancer Institute in Utah was the second clinical site. The primary endpoint of this trial was to assess the anti-tumor efficacy of the combination of TAVO™-EP and KEYTRUDA® in patients with stage III/IV metastatic melanoma whose tumors are characterized by low frequency of CD8+/PD-1+/CTLA-4+ TILs (tumor infiltrating lymphocytes). The primary endpoint of the study was best overall response rate by RECIST of the combination regimen. Recent data suggests that patients whose tumors are lacking TILs or CD8+ T-cells at the tumor margin or generally have a low frequency of CD8+/PD-L1+/CTLA-4+ TILs are unlikely to respond to anti-PD-1 therapies such as KEYTRUDA®, while tumors with a frequency of CTLA-4+/PD-L1+/CD8+ T-cells >20% in the tumor are likely to have a clinical benefit. Therapies, such as TAVO™, that promote TIL generation and PD-L1 positivity play an important role in potentially augmenting the clinical efficacy of the anti-PD1/PD-L1 agents.
Initial data of the OMS-102 trial were presented in February 2017 at ASCO-SITC and the trial stopped enrolling patients in September 2017, allowing us to progress on to the KEYNOTE-695 trial. The study was selected for an oral presentation at SITC 2017, and the final data were published in Clinical Cancer Research in May 2020. The overall response rate in 22 evaluated patients was 41%, with 36% complete responses. These results suggest that the combination of TAVO and KEYTRUDA has efficacy in this low TIL metastatic melanoma patient population. Furthermore, the combination therapy was well tolerated. Data from this trial was published in Clinical Cancer Research in May 2020.
OMS-100 (completed)
OMS-100 was an open-label Phase 2 trial of TAVO™-EP monotherapy in patients with stage III/IV metastatic melanoma. The study was selected for an oral presentation at the Melanoma Bridge Conference in 2018, and final data from this trial were published in the Annals of Oncology in March 2020. Among 28 evaluable patients treated with up to 4 cycles of TAVO-EP on days 1, 5 and 8 of each 12-week cycle, the response rate was 35.7%, and among all evaluable patients, including those treated on alternative dosing schedules, the response rate was 29.8%. The results of this study demonstrated that multiple treatment cycles of TAVO™ were well tolerated, with no treatment-limiting toxicities. The majority of adverse events were localized to the treatment site and Grade-1 or -2 in severity.
| 11 |
Following this trial, a retrospective analysis of the patients who went on to receive an anti-PD-1/PD-L1 therapy was conducted. Results from this retrospective analysis suggested that TAVO™ primes and enhances response rates to PD-1/PD-L1 blockade. Specifically, of the 29 patients who completed TAVO™ treatment, 14 subsequently received an anti-PD-1/PD-L1 treatment. Overall, five of these 14 patients (36%) experienced a complete response and four patients experienced a partial response (29%), for an overall response rate of 65% (75% without intervening therapies). Two patients experienced stable disease (14%) and three patients experienced progressive disease (21%). We believe this retrospective sequential data could suggest combinatorial potential of an immune-priming effect with TAVO™ prior to anti-PD-1/PD-L1 therapy. Data from this retrospective analysis formed the clinical rationale for conducting OMS-102.
Phase 2 Investigator-Initiated Melanoma Neoadjuvant Trial
In August 2020, we supported commencement of an investigator-initiated Phase 2 trial conducted by the H. Lee Moffitt Cancer Center and Research Institute and the University of South Florida Morsani College of Medicine to evaluate TAVO™ as neoadjuvant treatment (administered before surgery) in combination with intravenous OPDIVO® (nivolumab) in up to 33 patients with operable locally/regionally advanced melanoma. This trial has been designed to evaluate whether the addition of TAVO™ can increase the published anti-tumor response observed with monotherapy OPDIVO®, an anti-PD-1 checkpoint inhibitor, in patients with locally/regionally advanced melanoma prior to surgical resection of tumors. This trial began enrolling patients in December 2020. Using a Simon’s 2-stage design the trial has met the pre-specified efficacy criteria to pass Stage 1 and has proceeded enrollment on to Stage 2 in up to 33 patients. Enrollment for this trial is expected to be completed in 2023. Preliminary data from this trial will be presented at an international medical conference, the Society for Immunotherapy of Cancer (SITC) Annual Meeting, in November 2022.
Triple Negative Breast Cancer (TNBC)
Breast cancer was the most common cancer diagnosed among U.S. women and was the second leading cause of cancer-related deaths in 2021. Worldwide, approximately 170,000 new cases of TNBC are diagnosed each year, with TNBC representing one of the four main molecular subtypes of invasive breast cancer, accounting for approximately 10-20% of all breast cancer, according to breastcancer.org. According to the American Cancer Society, for patients who present with Stage 4 metastatic breast cancer, the five-year survival rate is considerably lower at approximately 22%.
TNBC frequently affects younger women (under 40 years old) and is characterized by higher relapse rates than estrogen receptor positive breast cancers. TNBC is also associated with an increased risk of recurrence, both locally and in distant sites including the lungs and brain. Advanced TNBC remains a significant area of unmet medical need. Chemotherapy is the current standard-of-care treatment in the adjuvant, neoadjuvant, and metastatic settings. Due to the loss of hormone receptors on the tumor cell, patients with TNBC do not benefit from hormonal therapy or treatments targeting the oncogenic HER2 pathway. The standard of care for TNBC patients with recurrent and/or metastatic disease is cytotoxic chemotherapy, leading to a median survival of approximately 13 months from the time of recurrence or diagnosis of distant metastases.
During October of 2022, we decreased all clinical activity outside of our melanoma clinical pipeline, including trials and studies involving TNBC.
| 12 |
KEYNOTE-890 study (halted)
KEYNOTE-890 is a Phase 2, open-label, single-arm, multi-center trial of TAVO™-EP in combination with an intravenous anti-PD-1 antibody, Merck’s pembrolizumab (KEYTRUDA®), in patients with histologically confirmed diagnosis of inoperable locally advanced or metastatic TNBC who have received at least one prior line of approved systemic chemotherapy or immunotherapy. Cohort 1 of this study was enrolling patients who had experienced at least one prior treatment option including chemotherapy and immunotherapy. Cohort 2 was enrolling treatment-naïve patients in front-line TNBC with the study treatment regimen of TAVO™-EP in combination with KEYTRUDA and chemotherapy.
KEYNOTE-890, Cohort 1 completed enrollment in early 2020. Enrollment in Cohort 2 began in the first quarter of 2021. Interim data for Cohort 1 was initially presented at the San Antonio Breast Cancer Symposium (“SABCS”) in December 2019, and an update on this cohort was presented at the SABCS in December 2021. Enrollment of Cohort 2 (target 40 patients) began in January 2021. Due to slow enrollment and competing studies in front-line TNBC, recruitment on Cohort 2 has been halted as of October 2022. We have deferred further development of TAVO™ for the treatment of TNBC in order to focus our efforts and our resources on our ongoing development of TAVO™ in melanoma.
OMS-140 (enrollment completed)
OMS-140 is a Phase 2, monotherapy trial in patients with advanced or metastatic TNBC. The trial was conducted at Stanford University and was designed to assess safety and efficacy of TAVO™ by evaluating whether TAVO™ promotes tumor immunogenicity by driving a pro-inflammatory cascade that leads to increases in cytotoxic tumor infiltrating lymphocytes (“TILs”). The presence and number of TILs is thought to be a key requirement for promoting the anti-tumor activity of anti-PD-1. By driving cytotoxic immune cells into the tumor, TAVO™ could be used in combination with checkpoint blockade therapies, which have reported some, but limited, activity in TNBC.
The primary objective of the trial is to evaluate the potential of TAVO™ to promote a pro-inflammatory molecular and histological signature, and the secondary objectives include the evaluation of safety and tolerability, evaluation of local ablation effect (% of necrosis), and description of other evidence of anti-tumor activity. The trial was subsequently amended to also capture the post-TAVO™ treatments and outcomes.
Preliminary data was presented at the SABCS annual meeting in 2018 and enrollment in this trial (n=10) is now complete. The clinical observations from this study prompted us to conduct KEYNOTE-890.
Duke University
We have an ongoing research collaboration with Duke University’s Center for Applied Therapeutics (“Duke University”) to evaluate TAVO™ in combination or sequenced with a HER2-plasmid vaccine administered with our APOLLO™ EP generator in preclinical studies. The research is led by Herbert Kim Lyerly, M.D., George Barth Geller Professor, Professor of Immunology, Surgery and Pathology at Duke University School of Medicine and a director on our board of directors. This work, showing that intratumoral plasmid IL12 expands CD8+ T cells and induces a CXCR3 gene signature (CXCR3-GS) in tumors that sensitizes TNBC patients to anti-PD-1 therapy, was recently reported in a peer reviewed journal.
In this study, Duke investigators used mouse models of TNBC, to evaluate immune activation in response to administration of intratumoral IL-12 plasmid followed by electroporation (tavokinogene telseplasmid; TAVO™). Collaborators at Stanford further presented a single-arm, prospective clinical trial of TAVO™-EP monotherapy in patients with treatment refractory, advanced TNBC (OMS-140). Single-cell RNA sequencing of mouse tumors identified a CXCR3-GS following TAVO™-EP treatment associated with enhanced antigen presentation, T cell infiltration and expansion, and PD-1/PD-L1 expression. Assessment of tissue from patients before and after treatment confirmed the enrichment of this CXCR3-GS in tumors from patients with enhanced CD8+ T cell infiltration following treatment. One patient, previously unresponsive to anti-PD-L1 therapy, but who exhibited an increased CXCR3-GS after TAVO™ treatment, went on to receive additional anti-PD-1 therapy as their immediate next treatment after OMS-140, and demonstrated a significant clinical response. These data suggest that a safe, effective intratumoral IL-12 therapy can enhance antigen presentation and CD8 T cell recruitment, which contribute to the antitumor efficacy. They identify a TAVO™-EP treatment-related gene signature associated with improved outcomes and conversion of nonresponsive tumors, potentially even beyond TNBC.
| 13 |
Squamous Cell Carcinoma Head & Neck Cancer (SCCHN)
Head and neck cancer represent approximately 4% of all cancers in the U.S., and it is estimated over 65,000 patients will develop head and neck cancer this year with over 14,000 deaths.
During October of 2022, we decreased all clinical activity outside of our melanoma clinical pipeline, including trials and studies involving SCCHN.
OMS-131 (closed)
OMS-131 is an investigator-initiated Phase 2 clinical trial conducted by the UCSF Helen Diller Family Comprehensive Cancer Center. OMS-131, also referred to as the “TRIFECTA” trial, was initiated after clinical observations from a 2017 pilot study of TAVO™ in head and neck cancer patients demonstrated clinical and biological results including evidence of synergy between TAVO™ and PD-1 antibodies in the disease. Recruitment for this study was halted for strategic reasons in June 2021. We have deferred further development of TAVO™-EP for the treatment of head and neck cancer in order to focus our efforts and our resources on our ongoing development of TAVO™-EP in melanoma.
Our OMS Electroporation Device
The effectiveness of DNA-based therapeutics is dependent upon their uptake into cells by crossing the cell membrane. In the 1970s, it was discovered that the brief application of high-intensity, pulsed electric fields to cells resulted in a temporary and reversible increase in the permeability of the cell membrane, a mechanism known as EP.
The transient, reversible nature of the permeabilization of cell membranes by electroporation (EP) and the resulting increase in intracellular delivery of therapeutic agents is the underlying basis of our therapeutic approach. Our EP delivery system consists of an electrical pulse generator paired with disposable applicators facilitating electroporation. The extent of membrane permeabilization depends on various electrical, physical, chemical, and biological parameters, but EP delivery has been demonstrated to promote cellular uptake of chemical molecules such as chemotherapeutic drugs (e.g., bleomycin and cisplatin), and other therapeutic agents including nucleic acids (DNA and RNA).
Multiple viral and non-viral delivery modalities have been developed to deliver nucleic acids into cells, however, many of these methods have faced challenges related to the safe and efficient expression of the DNA-encoded biologic into the intended target cells. For example, viral mediated delivery technologies appear to be efficient at transfecting cells, but they have suffered from significant safety issues related to the immunogenicity of the viral vector, shedding of the virus, and potential integration of the viral DNA into the host genome. Other non-viral delivery methods have employed the use of nanotechnology to coat the DNA with lipids. Although these lipid nanoparticle technologies have been used extensively in the clinic to deliver DNA-encoded biologic agents, few particles have been developed with the ability to specifically target cancer cells; instead, many of these particles naturally target the liver, which can function as a sink for the therapeutic agent or lead to potential liver toxicities.
EP has also been used extensively in the clinic to deliver DNA and other therapeutic agents. EP has not shown the same safety concerns that limit the use of other drug delivery modalities. In fact, the use of EP to deliver bleomycin intratumorally has been approved for use in Europe and is being used for cancers such as basal cell carcinoma across many European countries, including the United Kingdom.
Our OMS EP Device is designed to create favorable conditions to deliver plasmid DNA encoding immunotherapeutic cytokines into cells of the tumor microenvironment. The cytokine-encoding plasmid is injected directly into tumor lesions and taken up by cells after local exposure to electric pulses produced by the pulse generator and the needle-electrode.
| 14 |
Our lead product candidate, TAVO™, consists of a plasmid construct encoding the pro-inflammatory cytokine IL-12 that is injected into the tumor and delivered into the tumor cells through in vivo electroporation using our OMS EP Device. Once our financial position allows such expanded research efforts, we may also continue researching other DNA-encoded, immunologically-active molecules, with an aim of developing additional immunotherapeutic drugs that, when delivered using our OMS EP Device, may be capable of breaking the immune system’s tolerance to cancer.
Visceral Lesion Applicator (VLA)
Ongoing efforts aim to develop our next-generation intratumoral delivery device and applicators. We have made advancements toward prototypes, pursuing discovery research to identify other product candidates that, in addition to IL-12, can be encoded into propriety plasmid-DNA, delivered intratumorally. While our current focus is on melanoma, we may continue developing a new, propriety technology to potentially treat liver, lung, bladder, pancreatic and other difficult to treat visceral lesions through the direct delivery of plasmid-based therapeutics, such as IL-12, with a new VLA once our financial position allows us to do so.
The VLA is intended and may be designed to work with low voltage EP generators. We have successfully completed several pre-clinical animal studies and presented data in posters at the 2020 Society for Interventional Oncology meeting, where it was awarded “Best Technology Scientific Abstract”, and the 2020 Society for Interventional Radiology meeting. The Company expected to bring a VLA into the clinic in 2023. However, this timeline is under evaluation and may extend beyond 2023. Moving forward, we see significant opportunity to leverage this innovative technology to secure new partnerships that may allow us to expand our capabilities, help cancer patients with unmet clinical needs, and drive shareholder value.
COMMERCIALIZATION
Strategy
Our primary focus is to pursue our study of TAVO™-EP in combination with KEYTRUDA® (pembrolizumab) in melanoma, including our planned and ongoing clinical trials discussed under “Clinical Programs” above and potentially other trials we may pursue in the future.
As a part of our commercialization strategy, we also regularly assess and evaluate potential collaboration opportunities to identify novel therapeutic modalities for EP delivery as well as rational combinations for TAVO™-EP with existing and emerging cancer therapeutics, e.g., monoclonal antibody therapies and other large and small molecule drugs. For instance, we may seek to collaborate with pharmaceutical or biotechnology companies to provide us with access to complementary proprietary technologies and/or greater resources. In addition, we may seek to expand the applications of our technologies through strategic collaborations or other opportunities, such as in-licensing or strategic acquisitions, and we may seek to out-license our intellectual property to other companies to leverage our technologies for applications that we may not choose to internally and independently develop.
Manufacturing and Supply
Currently, we assemble and store certain components of our OMS EP Device system, which is our proprietary delivery mechanism for our TAVO™ product candidate, and we utilize the services of qualified contract manufacturers to produce the remaining components of this system and for the manufacturing, testing, packaging and storage of our plasmid product candidate for clinical trials or other studies. Manufacturing of our systems and product supplies requires significant expertise and capital investment, including the use of advanced manufacturing techniques and process controls. Currently, we do not own and have no plans to build our own clinical or commercial Good Manufacturing Practice (“GMP”) manufacturing capabilities for any device, drug substance or drug product. We expect to increase our reliance on third-party manufacturers but may also consider alternative manufacturing strategies.
We rely upon a small number of suppliers and manufacturers for our clinical activities. For manufacturing and distributing we use external parties, which collectively account for approximately 90% of clinical materials and EP systems support and materials. We believe there are alternate sources of raw material supply and finished goods manufacturing to satisfy our requirements, although transitioning to other vendors, if necessary, could result in delay or additional costs. In addition, for combination trials, we typically rely exclusively on one supplier of the non-company-owned product used in the trial, such as our reliance upon Merck for the supply of KEYTRUDA® in the KEYNOTE-695 and KEYNOTE-890 studies.
We are ISO 13485:2016 certified and comply with all appropriate standards and authorities for the assembly, manufacturing and activities we conduct, and we have established an audited quality management system for these activities. In addition, all contract manufacturers that we use must comply with various requirements enforced by the FDA through its facilities inspection programs. See “Regulation” below for more information.
| 15 |
COMPETITION
The biotechnology industry is intensely competitive. This competitive environment stimulates an ongoing and extensive search for technological innovation and necessitates effective and targeted marketing strategies to communicate the effectiveness, safety and value of products to healthcare professionals in private practice and group practices and payors in managed care organizations, group purchasing organizations, and Medicare and Medicaid services.
We face competition from a number of sources, including large pharmaceutical companies, biotechnology companies, academic institutions, government agencies and private and public research institutions. We compete against other developers of cancer treatments, including immunotherapy treatments as well as other types of treatments for cancer indications on which we are focused. In particular, a number of companies, including large pharmaceutical companies, have development strategies similar to our current focus. These companies could include, among others, Bristol Myers-Squibb, Iovance Therapeutics, Syndax, Dynavax Technologies, Checkmate, Immunomedics and Idera Pharmaceuticals. In addition, we also compete with other clinical-stage biotechnology companies for funding and support from healthcare and other investors and potential collaboration relationships with larger pharmaceutical or other companies, as well as for personnel with expertise in our industry. We are smaller and less well-funded than many of our competitors, and we have a shorter and less proven operating history and a less recognizable and established brand name than many of our competitors. In addition, some of our competitors have commercially available products, which provide them with operating revenue and other competitive advantages.
Our competitors may obtain regulatory approval of their product candidates more rapidly than we can or may obtain more robust patent protection or other intellectual property rights to protect their product candidates and technologies, which could limit or prevent us from developing or commercializing our product candidates. If we are able to obtain regulatory approval of one or more of our product candidates, we will face competition from approved products or products under development by other companies that may address our targeted indications. If we directly compete with large entities for the same markets and/or customers, their greater resources, brand recognition, sales and marketing experience and financial strength could prevent us from capturing a share of these markets or customers. Our competitors may also develop products that are more effective, more useful, better tolerated, subject to fewer or less severe side effects, more widely prescribed, less costly or more widely accepted for other reasons than any of our products that obtain regulatory approvals, and our competitors may also be more successful than us in manufacturing, distributing and otherwise marketing their products.
We expect our product candidates, if approved and commercialized, to compete on the basis of, among other things, product efficacy and safety, time to market, price, coverage and reimbursement by third-party payors, extent of adverse side effects and convenience of treatment procedures. We may not be able to effectively compete in any of these areas. Presently, we compete with other biotechnology companies for funding and support on the basis of our technology platforms and the potential value of our product candidates based on the factors described above.
| 16 |
INTELLECTUAL PROPERTY
We believe our success and ability to compete depends in large part on our ability to protect our proprietary rights and technologies, including obtaining and maintaining patent, trademark and trade secret protection of our product candidates and their respective components and underlying technologies, including devices, formulations, manufacturing methods and methods of treatment, and appropriately safeguarding unpatented proprietary rights, including trade secrets and know-how. Our core technology, ImmunoPulse®, is designed to enable transient expression of recombinant therapeutic molecules in cells, and is a drug-device therapeutic modality platform comprised of our proprietary OMS EP Device and proprietary DNA plasmid delivery and application methods, protected through a combination of Company-owned and in-licensed patents as well as through various trade secrets, know-how, and other proprietary rights.
As of October 2022, we owned 74 issued patents (6 U.S. and 68 foreign) and 93 pending patent applications (14 U.S. and 79 foreign). We are currently prosecuting pending patent applications in various jurisdictions. We have issued patents in the U.S., Europe, Hong Kong and Japan with claims directed to cytokine-based intratumoral immunotherapies in combination with a checkpoint inhibitor. These patents expire in 2036. U.S. Patent 11,318,305, with claims directed to electroporation systems and devices having adaptive control features, was issued on May 3, 2022, and is expected to expire in 2037. Japanese Patent 7079729, directed to our next generation IL-12 expression vector was issued on May 25, 2022, and expires in 2036. In addition, we have licensed intellectual property rights that allow us to use certain EP technology to deliver DNA-based cytokines as an immunotherapy, as well as catheter-based delivery devices. From these in-licensed portfolios, we have access to 91 issued U.S. and foreign issued patents (7 from USF, 26 from Gaeta Therapeutics, and 58 from Inovio Pharmaceuticals, Inc. (Inovio)) and 13 U.S. and foreign pending patent applications (1 from USF, 3 from Gaeta Therapeutics, and 9 from Inovio). We expect to continue to file additional patent applications, if and when appropriate, as our research and development efforts continue. The majority of the patents in our portfolio, including owned and in-licensed patents and fundamental patents directed toward our proprietary technology, expire between 2023 and 2041. We have previously obtained patent protection through an asset purchase agreement with Inovio covering our original clinical electroporation device. The primary patents providing protection of this original device have expired. However, the Company has recently filed applications, in 2019-2021, on our next generation electroporation devices and applicator handles and our next generation DNA-based cancer immunotherapeutics and will continue to file patent applications this year.
In addition, we have entered into a cross-license agreement for certain electroporation technology with Inovio, including patent protection for some of our clinical electroporation devices (some of which, as noted above, have recently expired or will soon expire). Under the terms of the agreement, Inovio has granted us a non-exclusive, worldwide license under certain of its electroporation patents, and in exchange, we have granted to Inovio an exclusive license to certain of our purchased technology in a limited field of use.
REGULATION
Commercialization Approval for our Product Candidates
Biotechnology companies are subject to extensive, complex, costly and evolving government regulation relating to the ability to market and sell any therapeutic or medical device. In the United States, these regulations are principally enforced by the FDA and state government agencies. Outside the United States, these regulations are typically administered by various health authorities comparable to the FDA in countries where products or product candidates are researched, tested, manufactured and/or marketed.
United States
General
In the United States, the federal Food, Drug and Cosmetic Act, or FDCA, other state statutes and regulations, many of which are administered and enforced by the FDA, govern or influence, among other things, the research, development, verification, validation, clinical testing, manufacturing, storage, record-keeping, approval, labeling, promotion, marketing, distribution, post-approval monitoring and reporting, sampling, import and export of product candidates such as ours. Under these regulations, we and our contract manufacturers may be subject to periodic inspection of our facilities, quality controls and other procedures, and operations and/or the testing of our product candidates during and after the approval process for a product candidate, to confirm compliance with all applicable regulations, including current good manufacturing practices (“cGMPs”) and other applicable requirements.
Possible penalties or other consequences for failure to comply with these regulatory requirements include, among others, observations, notices, citations and/or warning letters that could force us to modify our clinical programs or other activities; clinical holds on our ongoing clinical programs; adverse publicity from the FDA or others; the FDA’s suspension of its review of pending applications; fines; product recalls or seizures; total or partial suspension of production and/or distribution; labeling changes; withdrawal of previously granted product approvals; enforcement actions; injunctions and civil or criminal prosecution. Any such sanctions, if imposed, could have a material adverse effect on our business, operating results and financial condition.
| 17 |
Approval Process
Before any new drug, device or dosage form, including a new use of a previously approved drug or biologic, can be marketed in the United States, FDA approval is required. The process required by the FDA before a product may be marketed in the United States generally involves, among other things:
| ● | completion of non-clinical testing; | |
| ● | completion of chemistry, manufacturing, and control testing, commonly known as CMC; | |
| ● | submission to the FDA of an investigational new drug application (“IND”) for human clinical testing, which must be accepted and effective before human clinical trials may begin in the United States; | |
| ● | performance of adequate human clinical trials in accordance with good clinical practices to establish the safety and efficacy of the proposed product for each intended use; | |
| ● | for a stand-alone medical device, submission to the FDA of a premarket approval application (“PMA”) or 510(k) premarket notification, which the FDA must review and approve; and | |
| ● | for a therapeutic, submission to the FDA of a NDA or BLA which the FDA must review and approve. |
The pre-clinical and clinical testing and approval process can take many years and requires substantial time, effort and financial resources. The receipt and timing of approval, if any, is uncertain. The results of pre-clinical tests, together with certain manufacturing information, analytical data and a proposed clinical trial protocol and other information, are submitted as part of an IND to the FDA. Once an IND is in effect, the protocol for each clinical trial to be conducted under the IND must be submitted to the FDA, which may or may not allow the trial to proceed. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development.
Clinical trials involve the administration of the investigational new drugs or biologics to human subjects under the supervision of qualified investigators in accordance with good clinical practice requirements. For purposes of a NDA or BLA submission and approval, human clinical trials are typically conducted in the following sequential phases, which may overlap or be combined:
| ● | Phase 1: The product candidate is initially introduced to healthy human subjects or patients and tested for safety, dose tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain an early indication of its safety, tolerability and effectiveness. | |
| ● | Phase 2: The product candidate is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications, and to determine dose tolerance and optimal dosage. Multiple Phase 2 clinical trials may be conducted. | |
| ● | Phase 3: The product candidate is administered in an expanded patient population at multiple, geographically-dispersed clinical trial sites, to obtain additional evidence of clinical efficacy and safety and to establish the overall risk-benefit relationship of the product candidate. | |
| ● | Phase 4: In some cases, the FDA may condition approval of a NDA or BLA for a product candidate on the sponsor’s agreement to conduct additional post-approval clinical trials to further assess the safety and efficacy of the drug or biologic. |
The results of product development, pre-clinical studies and clinical trials are submitted to the FDA as part of a NDA or BLA requesting approval to market the product. NDAs or BLAs must also contain extensive information relating to the product’s pharmacology, chemistry, manufacture, controls, and proposed labeling, among other things.
| 18 |
Once the NDA or BLA submission has been accepted, the FDA begins an in-depth substantive review. Pursuant to the FDA’s performance goals, NDA and BLA standard reviews are to be completed within 10 months, subject to extensions by the FDA. Before approving a NDA or BLA, the FDA often inspects the facility or facilities where the product is manufactured and will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with good manufacturing practices. Additionally, the FDA will typically inspect one or more clinical sites to assure compliance with good clinical practices before approving a NDA or BLA. If the FDA determines that a NDA or BLA is not approvable, then the FDA may outline the deficiencies and often will request that additional information be provided or additional clinical trials be completed. Notwithstanding the submission of any requested additional testing or information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
Further, even if regulatory approval of a product candidate is obtained, such approval would specify the indicated uses for which the product may be marketed. Additionally, we would be subject to pervasive and continuing regulation by the FDA with respect to any approved product, including requirements related to, among other things, drug or device listing, record-keeping, periodic reporting, product sampling and distribution, manufacturing practices, labeling, advertising, promotion, and reporting of adverse events associated with any approved products. Moreover, we could be required to conduct post-approval studies, such as Phase 4 clinical trials, or surveillance programs to monitor the safety of any approved products. FDA has the authority to stop or limit further marketing of a product or impose more stringent labeling restrictions based on the results of these post-approval programs or in the event of any unexpected or serious health or safety concern regarding any approved product.
Non-U.S. Regulation
If we pursue research and/or commercialization activities for our product candidates outside the United States, we would need to obtain necessary approvals from the regulatory authorities comparable to the FDA in applicable jurisdictions before we could commence clinical trials or marketing of our product candidates in these jurisdictions. In addition, we would become subject to a variety of foreign regulations regarding safety and efficacy of our product candidates and governing, among other things, clinical trials, commercial activities, manufacture and distribution of our product candidates. The requirements to obtain product approvals vary widely from country to country, and the FDA’s approval requirements, review procedures and timelines may not be the same as or even similar to the requirements or a comparable foreign regulator. As a result, even if we obtain regulatory approval for a product candidate in one country, we may be required to undertake additional clinical trials or studies, submit additional information, wait for longer review periods or make other efforts in order to obtain regulatory approvals in other desirable geographic markets.
Healthcare Laws and Regulations
The healthcare industry is heavily regulated, constantly evolving and subject to significant change and fluctuation. The U.S. federal and state healthcare laws and regulations that currently impact our business include, among others:
| ● | the laws and regulations administered and enforced by the FDA, including the FDCA, and other federal statutes and regulations, discussed above; | |
| ● | the federal Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act, referred to collectively as the Affordable Care Act, which, in general and among other things, expands the government’s investigative and enforcement authority, including requiring pharmaceutical companies to record and disclose to government agencies any transfers of value to doctors and teaching hospitals, and increases the penalties for fraud and abuse, including amendments to the federal False Claims Act and the Anti-Kickback Statute to make it easier to bring suits under these statutes; | |
| ● | the federal Anti-Kickback Statute, which generally prohibits, among other things, soliciting, receiving or providing remuneration to induce the referral of an individual for an item or service or the purchasing or ordering of an item or service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs; |
| 19 |
| ● | the federal false claims laws, which generally prohibit, among other things, knowingly presenting or causing to be presented claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; | |
| ● | the federal Health Insurance Portability and Accountability Act of 1986, or HIPAA, as amended by the federal Health Information Technology for Economic and Clinical Health Act, or HITECH, which, in general and among other things, establish comprehensive federal standards with respect to the privacy, security and transmission of individually identifiable health information and impose requirements for the use of standardized electronic transactions with respect to transmission of such information; and | |
| ● | analogous state and foreign laws and regulations, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not be preempted by applicable federal laws, thus complicating compliance efforts. |
Additionally, the healthcare compliance environment is continuously changing at the federal level and with some states mandating implementation of compliance programs, compliance with industry ethics codes, spending limits and reporting to state governments of gifts, compensation and other remuneration to physicians. Further, to the extent we continue to pursue operations in foreign countries, such as our clinical activities in Australia, or in Canada, or if we seek to sell any product that obtains regulatory approval in a foreign country, we would be subject to different reporting and other compliance requirements in multiple jurisdictions, including foreign laws and regulations comparable to the U.S. laws and regulations described above.
All of these laws impose penalties for non-compliance, some of which may be severe. If we or our operations are found to be in violation of any of these laws or any other governmental regulations that apply to us, we may be subject to civil or criminal penalties, fines or other monetary damages or orders forcing us to curtail or restructure our operations.
Other Regulatory Requirements and Environmental Matters
We are or may become subject to various laws and regulations regarding laboratory practices and the experimental use of animals, as well as environmental laws and regulations governing, among other things, any use and disposal by us of hazardous or potentially hazardous substances in connection with our research. In each of these areas, the FDA and other government agencies have broad regulatory and enforcement powers, including, among other things, the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products and withdraw approvals.
In addition, to the extent we continue to pursue operations in foreign jurisdictions, we will be subject to anti-bribery laws in the United States and applicable foreign jurisdictions, including the U.S. Foreign Corrupt Practices Act, or FCPA, and comparable foreign laws. Further, we are subject to a variety of laws and regulations relating to other matters, including workplace health and safety, labor and employment, public reporting and taxation, among others, and our failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including monetary penalties or imposition of sanctions or other corrective requirements.
HUMAN CAPITAL RESOURCES
Our senior management team and Board of Directors have decades of experience, each demonstrating a strong track record of success in the biotechnology and pharmaceutical industries, including in research and development, commercialization and financing activities. In addition, we have assembled a clinical and regulatory team experienced in developing and advancing novel therapeutic approaches through clinical testing and regulatory approvals, including extensive technical, manufacturing, analytical and quality experience to oversee our clinical, manufacturing and testing activities. Our team consists of a relatively small number of employees, as well as consultants and advisors regarding research and development, regulatory, compliance, healthcare and investor and public relations matters. We also expect to engage experts in healthcare and in general business to advise us in various capacities. For instance, we have in the past consulted with various oncology researchers and clinicians to provide counsel as part of our advisory panels for our clinical programs, and we expect to continue to establish consulting and advisory relationships with scientific, clinical and medical experts in academia and industry to assist us with FDA submissions, clinical testing and identification and development of new product candidates.
| 20 |
As of July 31, 2022, we had a total of 41 employees, including 40 full-time employees and 1 part-time employee. None of our employees are represented by a labor union or covered by a collective bargaining agreement, and we believe that our relations with our employees are good.
On October 2, 2022, our Board of Directors authorized the Restructuring Plan that is designed to prioritize clinical activities in melanoma to reduce operating expenses while advancing our lead product candidate, TAVO™ EP, toward near-term data milestones in connection with the KEYNOTE-695 clinical trial. As part of the Restructuring Plan, we restructured our internal operations and reduced our workforce by approximately 45%, or approximately 18 employees. Please see “Recent Developments” above for further information.
Corporate Information
We were incorporated under the laws of the State of Nevada in February 2008 under the name Netventory Solutions Inc. to pursue the business of inventory management solutions. In March 2011, we completed a merger with our subsidiary to change our name to “OncoSec Medical Incorporated,” and we commenced operations as a biotechnology company upon our acquisition of assets from Inovio related to the use of drug-medical device combination products for the treatment of various cancers. Our principal executive office is located at 24 North Main Street, Pennington, NJ 08534 and the telephone number is (855) 662-6732. Our website address is www.oncosec.com. Information contained on our website is not, and should not be considered, part of this report. We will make available free of charge through our 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 materials with, or furnish such materials to, the Securities and Exchange Commission, or SEC. We are not including the information on our website as a part of, nor incorporating it by reference into, this report. Additionally, 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/.
In addition, we intend to use our media and investor relations website, SEC filings press releases, public conference calls and webcasts as wells as social media to communicate with our subscribers and the public about the Company, its services and other issues. It is possible that the information we post on social media could be deemed to be material information. Therefore, in light of the SEC’s guidance, we encourage investors, the media and others interested in the Company to review the information we post on the U.S. social media channels listed on our website.
ITEM 1A. RISK FACTORS
Investing in our securities involves a high degree of risk. You should carefully consider each of the following risks, together with the other information contained in this report and the other documents we file with the SEC before making any investment decision with respect to our securities. If any of the risks described below materialize, our business, financial condition, prospects and/or operating results could be materially and adversely affected. These factors could cause the trading price of our common stock to decline, and you could lose all or a substantial part of your investment. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us may also materially and adversely affect our business operations and financial condition or the price of our common stock.
Risks Related to Our Business
Our majority stockholders may have significant influence over the outcome of matters submitted to our stockholders for approval, which may prevent us from engaging in certain transactions.
As the date hereof, our two largest shareholders own approximately 51% of the Company’s common stock. As a result, these stockholders may exercise significant influence over all matters requiring stockholder approval, including the appointment of our directors and the approval of significant corporate transactions. This ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination that may be in the best interest of the Company and any other stockholders. This ownership and control may be used to prevent the Company from raising additional funds through the sale of equity which may make it more difficult for the Company to finance its operations.
| 21 |
We have never generated, and may never generate, revenue from our operations.
We have not generated any revenue from our operations since our inception, and we do not anticipate generating meaningful revenue in the near term. During our fiscal year ended July 31, 2022, we incurred a net loss of approximately $34 million, and from inception through July 31, 2022, we have incurred an accumulated deficit of approximately $286 million. We will need significant additional funding to continue our operations and pursue our strategic plans, including continued development of TAVO™-EP. Although we have been and expect to continue to tightly manage our operating expenses, we expect our operating expenses will continue to increase as we further our development activities and pursue FDA approval for one or more of our product candidates.
Because of the numerous risks and uncertainties associated with our product development and planned commercialization efforts, many of which are discussed in these risk factors, we are unable to predict the extent of our future losses or when, or if, we will generate meaningful revenue or become profitable, and it is possible we will never achieve these goals. Our failure to develop our investments in our proprietary technologies and product candidates into revenue-generating operations would have a material adverse effect on our business, results of operations, financial condition, and prospects and could result in our inability to continue operations.
We have limited working capital and a history of losses, which raises substantial doubt as to whether we will be able to continue as a going concern.
Our auditor’s report on our financial statements for the year ended July 31, 2022, includes an explanatory paragraph related to the existence of substantial doubt about our ability to continue as a going concern. The Company has never generated any cash from its operations and does not expect to generate such cash in the near term. 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.
Our ability to obtain additional financing will depend on a number of factors, including, among others, our ability to generate positive data from our clinical trials and pre-clinical studies, the condition of the capital markets and the other risks described in these risk factors. If any one of these factors is unfavorable, we may not be able to obtain additional funding, in which case, our business could be jeopardized and we may not be able to continue our operations or pursue our strategic plans. If we are forced to scale down, limit or cease operations, our stockholders could lose all or part of their investment in our Company.
We do not have adequate cash resources to fund our operations into calendar year 2023 and will need to raise additional capital to continue operating our business. If we are unable to secure additional funds, we may be forced to delay, reduce or eliminate our clinical development programs and commercialization efforts or cease all operations.
As of July 31, 2022, we had cash and cash equivalents of approximately $12.3 million. We do not generate any cash from our operations. Based on our cash and cash equivalent balance as of July 31, 2022, our Management is of the opinion that without further fundraising or other increase in our cash and cash equivalents balance, we will not have sufficient resources to enable us to continue our operations. Based upon our current operating plan, we believe that our existing cash and cash equivalents, should enable us to fund our operating expenses and capital expenditure requirements through the fourth calendar quarter of 2022. This estimate does not take into account any additional expenditures that may result from any further strategic transactions to expand and diversify our product candidates, including acquisitions of assets, businesses, new product candidates or strategic alliances or collaborations that we may pursue.
| 22 |
Historically, we have raised the majority of the funding for our business through offerings of our common stock and warrants to purchase our common stock. Due to our need for additional funds in the short-term, we are exploring other ways of funding our operations, including debt financings. In addition, we may seek to engage in one or more strategic alternatives, such as a strategic partnership with one or more parties, the licensing, sale or divestiture of some of our assets or the sale of our Company, but there can be no assurance that we would be able to enter into such a transaction or transactions on a timely basis or on terms favorable to us, or at all.
If we issue equity or convertible debt securities to raise additional funds, our existing stockholders would experience further dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we incur debt, our fixed payment obligations, liabilities and leverage relative to our equity capitalization would increase, which could increase the cost of future capital. Further, the terms of any debt securities we issue or borrowings we incur, if available, could impose significant restrictions on our operations, such as limitations on our ability to incur additional debt or issue additional equity or other operating restrictions that could adversely affect our ability to conduct our business, and any such debt could be secured by any or all of our assets pledged as collateral. Additionally, we may incur substantial costs in pursuing future capital, including investment banking, legal and accounting fees, printing and distribution expenses and other costs.
Our ability to raise additional funds in the short-term will depend on financial, economic and market conditions and the willingness of potential investors or lenders to provide funding, all of which are outside of our control, and we may be unable to raise financing in the short-term, or on terms favorable to us, or at all. Furthermore, high volatility in the capital markets has had, and could continue to have, a negative impact on the price of our common stock, and could adversely impact our ability to raise additional funds. If we are unable to obtain sufficient funding, we may be forced to delay, reduce or eliminate our clinical development programs and commercialization efforts or cease all operations, and our stockholders could lose all or part of their investment in our Company.
If we are unable to raise sufficient capital in the short-term, we will be unable to fund our operations and may be required to evaluate further alternatives, which could include dissolving and liquidating our assets or seeking protection under the bankruptcy laws. A determination to file for bankruptcy could occur at a time that is earlier than when we would otherwise exhaust our cash resources.
We are a clinical-stage company with a limited operating history and no approved products, which makes assessment of our future viability difficult, and may hinder our ability to generate revenue and meet our other objectives.
We are a clinical-stage, pre-commercial, company with only a limited operating history upon which to base an evaluation of our current business and future prospects and how we will respond to competitive, financial or technological challenges. Additionally, although we are investigating licensing and partnering opportunities, no such opportunities have been finalized and, even if completed, we do not expect that these potential opportunities would generate any significant near-term revenue. Our operations to date have been limited to organizing, staffing and financing, applying for patent rights, undertaking clinical trials of TAVO™-EP, and engaging in other research and development activities, including pre-clinical and other clinical studies of our other product candidates. We have not demonstrated an ability to obtain regulatory approval of a product candidate, or conduct the sales and marketing activities necessary for successful product commercialization. Consequently, the revenue-generating potential of our business is unproven and uncertain.
In addition, we have limited insight into trends that may emerge and affect our business or our industry. We will be subject to the risks, uncertainties and difficulties frequently encountered by clinical-stage companies in evolving markets, and we may not be able to successfully address any or all of these risks and uncertainties. Further, errors may be made in predicting and reacting to relevant business or industry trends. The occurrence of any of these risks could cause our business, results of operations, and financial condition to suffer or fail.
| 23 |
We are significantly dependent on the success of our ImmunoPulse® technology platform and our product candidates that utilize this platform, including our lead product candidate TAVO™-EP.
We have invested, and we expect to continue to invest, significant efforts and financial resources in the development of product candidates based on our electroporation technology, including primarily our lead product candidate TAVO™-EP. 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. However, such regulatory approval and commercialization may never occur. We are working on updated versions of the OMS EP Device to ensure compliance with current regulatory standards as a prerequisite for FDA clearance. We anticipate that we will need to have clinical experience with this device before we seek regulatory approval for our product candidate. If we experience delays in completion of this work or FDA approval in using the updated OMS EP Device in our ongoing clinical trials, it could delay our clinical programs, necessitate enrolling more patients in our ongoing clinical trials, delay the commercialization our product candidate and have a material adverse effect on our business, results of operations, financial condition and prospects.
The success of TAVO™, our OMS EP Device, or any other product candidates based on our electroporation technology will depend on a number of factors, including, among others:
| ● | our ability to conduct and complete pre-clinical studies and clinical trials, including the time, costs and uncertainties associated with all aspects of these studies and trials; | |
| ● | our ability to retain key management and scientific personnel to oversee the approval and adoption of our product candidates; | |
| ● | our ability to continue as a going concern; | |
| ● | the data we obtain from pre-clinical and clinical testing of the product candidates, including data demonstrating the required level of safety and efficacy of the product candidates (for example, a key factor in determining whether we are able to successfully develop and commercialize TAVO™ in melanoma will be the data we obtain from our KEYNOTE-695 trial, which is our ongoing study of TAVO™-EP in combination with Merck’s approved therapy for melanoma in patients who have shown resistance to, or relapse from, certain other cancer therapies); | |
| ● | the regulatory approval pathway we choose to pursue for our product candidates in the U.S. or any other jurisdiction; | |
| ● | our ability to obtain required regulatory approvals for one or more of our product candidates in the U.S. and in other jurisdictions, and the time required to obtain these approvals, if they are ever obtained; | |
| ● | the manufacturing arrangements we are able to establish with third-party manufacturers, both for the manufacture of the product candidates for clinical trial use and for the potential commercial manufacture of products, if and when approved; | |
| ● | our ability to build an infrastructure capable of supporting product sales, marketing and distribution of any approved products in territories where we pursue commercialization directly; | |
| ● | our ability to establish commercial distribution agreements with third-party distributors for any approved products in territories where we do not pursue commercialization directly; | |
| ● | the labeling requirements for any product candidates that are approved, including obtaining sufficiently broad labels that would not unduly restrict our ability to market the product; | |
| ● | acceptance of our products, if and when approved, by patients and the medical community; |
| 24 |
| ● | the ability of our products, if and when approved, to effectively compete with other cancer treatments; | |
| ● | a continued acceptable safety profile for any product candidates that are approved following such approval; | |
| ● | our level of success in obtaining and maintaining patent and trade secret protection and otherwise protecting our rights in our intellectual property portfolio; | |
| ● | the levels of coverage and reimbursement we are able to secure for any product candidates that receive regulatory approval; | |
| ● | our ability to establish a commercially viable price for our products, if and when approved; and | |
| ● | delays or unanticipated costs, including those related to any of the foregoing. |
If one or more of these factors is unfavorable, we could experience significant delays or we may not be able to successfully commercialize TAVO™ or any of our other product candidates, which would materially harm our business.
We may not be successful in our efforts to identify or discover additional product candidates and may fail to capitalize on programs or product candidates that may present a greater commercial opportunity or for which there is a greater likelihood of success.
The success of our business depends upon our ability to identify, develop and commercialize product candidates based on our programs. If we do not successfully develop and eventually commercialize products, we will face difficulty in obtaining product revenue in future periods, or may never obtain such revenue, resulting in significant harm to our financial position and adverse effects our share price. Research programs to identify new product candidates require substantial technical, financial and human resources.
Additionally, because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater commercial potential. Our estimates regarding the potential market for a product candidate could be inaccurate, and our spending on current and future research and development programs may not yield any commercially viable products. If we do not accurately evaluate the commercial potential for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaboration, licensing, or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. Alternatively, we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.
If any of these events occur, we may be forced to abandon or delay our development efforts with respect to a particular product candidate or fail to develop a potentially successful product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
It may be difficult to identify and enroll patients due to clinical trial inclusion-exclusion criteria or other factors, which has in the past, and may in the future, lead to delays in enrollment and in generating clinical data for our trials.
Our clinical trials have had, and may have in the future, strict inclusion criteria for patient enrollment. These criteria could present significant obstacles to the timely recruitment and enrollment of a sufficient number of eligible patients into our trials. We may experience slower than expected patient enrollment in our existing or future clinical trials. Any inability to successfully enroll the number of patients meeting the criteria for any of our clinical trials could cause significant delays in the trial and increase the costs associated with the trial, which could materially harm our business and prospects.
| 25 |
Patient enrollment in a clinical trial may be affected by many factors, including:
| ● | the severity of the disease under investigation; | |
| ● | the design of the study protocol; | |
| ● | the eligibility criteria for the study; | |
| ● | the perceived risks, benefits and convenience of administration of the product candidate being studied; | |
| ● | the novel 2019 coronavirus (“COVID-19”); | |
| ● | the competitive disease space with many trials for patients to select from; | |
● |
the availability of approved alternate treatments; and | |
| ● | the proximity and availability of clinical trial sites to prospective patients. |
Business or economic disruptions or global health concerns could seriously harm our development efforts and increase our costs and expenses.
Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development or clinical activities. For example, in December 2019 an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread globally. To date, this outbreak has resulted in extended shutdowns of businesses and has had ripple effects on businesses around the world. The effects of the COVID-19 pandemic are unpredictable. The outbreak may result in additional or more extensive travel restrictions, closures, disruptions of businesses or facilities around the world or lead to social, economic, political or labor instability in the affected areas may impact our suppliers’ or our customers’ operations. Additionally, variants of the disease present additional uncertainty that could lead to further restrictions that may have a negative impact on our operations and the larger economy.
Global epidemics and pandemics, such as the COVID-19 pandemic, could also negatively affect the hospitals and clinical sites in which we conduct any of our clinical trials, which could have a material adverse effect on our business and our results of operations and financial condition. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including the suppliers, clinical trial sites, regulators and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted.
Certain characteristics of our ImmunoPulse® platform may negatively impact market acceptance of the platform.
Physicians, patients, and third-party payors may be less accepting of product candidates based on our ImmunoPulse® technology platform due to certain characteristics of this platform. For example, these parties may have concerns about the complexity inherent in a combination therapy approach or the clinical application of electroporation technology, which is less prevalent in the U.S. than in certain foreign markets. Moreover, our efforts to educate the medical community and third-party payors about the benefits of any of our technologies and product candidates may require significant resources and may never be successful. As a result, even if any of our product candidates achieve regulatory approval, a lack of acceptance by physicians, third-party payors and patients of the products or underlying technologies could prevent their successful commercialization and could materially limit our revenue potential.
| 26 |
Our business and operations could be adversely affected by the effects of global health epidemics and pandemics, including the ongoing COVID-19 pandemic.
Our operational and financial performance have already been affected by the impact of the COVID-19 pandemic. Our clinical trials have experienced delays in patient enrollment, potentially due to prioritization of hospital resources toward the COVID-19 pandemic, or concerns among patients about participating in clinical trials during a public health emergency. The COVID-19 pandemic continues to impact the operations of government entities, such as the FDA, as well as contract research organizations, third-party manufacturers, and other third-parties upon whom we rely. As a result of previous “shelter-in-place” orders, quarantines or similar orders or restrictions to control the spread of COVID-19, many companies, including our own, implemented work-from-home policies for their employees. The effects of these stay-at-home orders and work-from-home policies may have negatively impacted productivity, resulting in delays in our clinical programs and timelines. These and similar disruptions in our operations, ongoing or in the future, could negatively impact our business, operating results, and financial condition.
The spread of COVID-19 has also led to disruption and volatility in the global capital markets, which increases the cost of, and adversely impacts access to, capital, i.e., increases economic uncertainty. To the extent the COVID-19 pandemic adversely affects our business, financial results, and value of our common stock, it may also affect our ability to access capital and obtain financing, which could in the future negatively affect our liquidity and ability to continue as a going concern.
The global pandemic of COVID-19 continues to evolve rapidly, and the ultimate impact of the COVID-19 pandemic, new variants of the virus, or a similar health epidemic is highly uncertain and subject to change. Despite the development of effect COVID-19 vaccines and other treatments, we still do not yet know the full impact of potential delays or effects on our business, our clinical trials, our ability to access the capital markets, or supply chains or on the global economy as a whole. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.
If the commencement or completion of clinical testing for our product candidates is delayed or prevented, we could experience significantly increased costs and our ability to pursue regulatory approval or generate revenue could be delayed or limited.
Clinical trials are very expensive, time-consuming, unpredictable and difficult to design and implement. Even if we are able to complete our ongoing and currently proposed clinical trials and assuming the results are favorable, clinical trials for product candidates based on our technology are planned to continue for several years and may take significantly longer than expected to complete. Even with the Fast Track designation we received from the FDA for TAVO™-EP in metastatic melanoma in February 2017, additional clinical trials, which can take years to complete, are still required.
Delays in the commencement or completion of clinical testing could significantly affect our product development costs and business plan. We do not know and cannot predict whether any of our ongoing or planned trials or studies will be completed on schedule or at all. We also do not know and cannot predict whether any other pre-clinical studies or clinical trials, including Phase 3 clinical trials to follow completion of our ongoing or any other Phase 2 clinical trials, will be planned or will begin, and in many cases such future trials would be dependent on obtaining favorable results from preceding studies.
The commencement and completion of clinical trials can be delayed or prevented for many reasons, including due to delays or issues related to:
| ● | obtaining clearance or approval from the FDA or a comparable international regulatory body and other applicable agencies, including the U.S. National Institutes of Health, to commence a clinical trial; | |
| ● | reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, clinical investigators and trial sites; | |
| ● | the receipt of flawed or erroneous data from third-party vendors that may include CROs, contractors, clinical trial management experts, or clinical investigators; |
| 27 |
| ● | obtaining institutional review board (IRB) and institutional biological committee (IBC), approval to initiate and conduct a clinical trial at a prospective site; | |
| ● | identifying, recruiting and training suitable clinical investigators; | |
| ● | identifying, recruiting and enrolling subjects to participate in clinical trials, which can pose challenges for a variety of reasons, including competition from other clinical trial programs or approved products for similar indications, requirements for larger than anticipated patient populations, slower than expected enrollment, or higher than predicted rates of patient drop-out or withdrawal; | |
| ● | natural disaster, epidemics, pandemics, political crisis (such as terrorism, war, political instability or other conflicts), or other events outside of our control; | |
| ● | retaining patients who have initiated a clinical trial but who may be prone to withdraw due to side effects from the therapy, lack of efficacy, personal issues, death or for any other reason, or who are lost to further follow-up; and | |
| ● | identifying and maintaining a sufficient supply of necessary products or product candidates, including those produced by third parties, on commercially reasonable terms. |
With respect to any clinical trial we plan, the FDA could determine it is not satisfied with our plan or the details of our clinical trial protocols and designs and could put a clinical hold on the proposed trials, or issue a clinical hold after a trial has commenced. Any such determination could delay the commencement or completion of the trials and would be a setback for the commercialization strategy for the product candidate that is the subject of the trial. Additionally, changes in applicable regulatory requirements and guidance may occur, in which case clinical trial protocols may need to be amended to reflect these changes. Any such amendments could require us to resubmit our clinical trial protocols to IRBs or IBCs for re-examination, which could impact the costs, timing and successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our ongoing, planned or future clinical trials, the commercial prospects for our product candidates could be harmed, which could have a material adverse effect on our business, results of operations, financial condition and prospects.
To the extent we conduct clinical trials of our product candidates in combination with third parties’ products, we will face additional risks relating to these products.
To the extent our commercialization strategy includes the combination of our product candidates with third parties’ products or product candidates, we will likely be required to conduct clinical studies to evaluate the combinations. We have several ongoing and planned combination trials, and these combination studies involve additional risks due to their reliance on circumstances outside our control, such as those relating to the availability and marketability of the third-party product involved in the study. If the marketability of third-party products such as KEYTRUDA® is impacted, or if we are unable to secure and maintain a sufficient supply of such third-party products when needed on commercially reasonable terms, our clinical studies could be delayed or we could be forced to terminate these studies. Such a delay or termination could have a material negative impact on our development strategy, business, results of operations, financial condition, and prospects.
If serious adverse or unacceptable side effects are identified during the development of one or more of our product candidates or any future product candidate, we may need to address any serious safety concerns as part of ongoing or post-marketing surveillance efforts; otherwise we may need to modify, limit or discontinue development efforts related to some of our product candidates.
Establishing the safety of a new product is one of the principal objectives of any clinical trial. Adverse events, including serious adverse events, suspected adverse reactions, and unexpected adverse events, and their proper reporting, form the basis of the critical risk-benefit analysis of investigational drug therapies. If adverse events are identified during the development of one or more of our product candidates or any future product candidates, we may need to address any serious safety concerns as part of ongoing or post-market surveillance efforts. Alternatively, we may need to modify, limit or discontinue the development of these product candidates to more narrow uses or subpopulations in which the adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In the development of new and investigational drug therapies in this industry, many compounds that initially showed promise in early-stage testing have later been associated with adverse events, including serious adverse events that have subsequently prevented further development of the compound. It is not uncommon for adverse events to be encountered during clinical trials. Upon discovery of an adverse event, sponsors are required to investigate this event in order to determine whether there is enough evidence to suggest that there was a reasonable possibility that the drug caused the adverse event.
| 28 |
In the event that adverse events, including serious adverse events, suspected adverse reactions, and unexpected adverse events are identified during any of our clinical trials, these trials could be modified, limited, suspended or terminated. Such adverse events may trigger a notification requirement to the FDA or comparable foreign regulatory authorities, who in turn could order us to cease further clinical investigation or deny approval of one or more of our product candidates or any future product candidates for any or all targeted indications. The FDA could also issue a letter requesting additional data or information prior to making a final decision regarding whether or not to approve a product candidate. The number of requests for additional data or information issued by the FDA in recent years has increased and has resulted in substantial delays in the approval of several new drugs. Adverse events or undesirable side effects caused by one or more of our product candidates or any future product candidates could also result in the inclusion of unfavorable information in our product labeling, such as a black box warning, or denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications, and in turn prevent us from commercializing and generating market acceptance and revenues from the sale of that product candidate. Adverse events or side effects could affect patient recruitment or the ability of enrolled patients to complete the trial and could result in potential product liability claims.
No matter how extensive clinical trials and premarket studies may be, the safety profile of a new therapeutic product can only be fully characterized by continuing safety surveillance through a spontaneous adverse event monitoring system and a post-marketing surveillance study. FDA may require post-marketing testing, known as Phase 4 testing, risk evaluation and mitigation strategies, and surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered. It is well understood in the drug development process that drug safety can never be considered an absolute, since the safety profile of a new therapeutic product will continue to evolve as more information is generated, gathered, and assessed over the course of general use.
Additionally, if one or more of our product candidates or any future product candidates receive marketing approval and we or others later identify undesirable side effects caused by this product, a number of potentially significant negative consequences could result, including:
| ● | regulatory authorities may require the addition of unfavorable labeling statements, including specific warnings, black box warnings, adverse reactions, precautions, and/or contraindications; | |
| ● | regulatory authorities may suspend or withdraw their approval of the product, and/or require it to be removed from the market; | |
| ● | we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product; or | |
| ● | our reputation may suffer. |
Any of these events could prevent us from achieving or maintaining market acceptance of any of our product candidates or any future product candidates, or could substantially increase our commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues, or any revenues, from its sale.
| 29 |
We rely on third parties to conduct our clinical trials and other studies, and if these third parties do not successfully carry out their duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
We have entered into, and expect to continue to enter into, agreements with third-party CROs to help us manage critical aspects of the clinical trials we sponsor. We rely on these third parties for the execution of certain of our clinical trials and pre-clinical studies, and we only control certain aspects of their activities. We and our CROs are required to comply with the FDA’s regulations for conducting clinical trials and good clinical practice, as well as the guidelines of the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use. We are also required to harmonize standard operating procedures between companies and conduct periodic internal and vendor audits to ensure compliance. Additionally, the FDA and comparable foreign regulators enforce these good clinical practice regulations through periodic inspections of trial sponsors, principal investigators, trial sites, laboratories and other entities involved in the completion of the study protocol and processing of data.
If we or our CROs fail to comply with applicable good clinical practice or other regulations, the data generated in our clinical trials may be deemed unreliable and/or the FDA or comparable foreign regulators may refuse to accept the data, and these regulators may require us to perform additional or repeat clinical trials, which could significantly increase costs and delay the regulatory approval process. Additionally, repeated compliance failures could prompt the FDA or other regulatory authority to suspend or terminate a clinical trial, which could cause significant approval delays and increased costs. Further, if CROs do not otherwise successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the clinical data they obtain is compromised for any reason, our clinical trials may need to be extended, delayed or terminated or we may not be able to rely on the data produced by the trials.
Moreover, if any of our relationships with third-party CROs terminate before completion of a clinical trial, we may not be able to establish arrangements with alternative CROs on commercially reasonable terms, on a timely basis or at all, which could materially delay or jeopardize the trial. Any such occurrence could delay or prevent us from obtaining regulatory approval for our product candidates or successfully commercializing our product candidates, which could increase our costs, delay or eliminate our prospects for generating revenue, and otherwise materially harm the results of our operations, financial condition and prospects.
We may be subject to claims that our consultants or independent contractors have wrongfully used or disclosed to us alleged trade secrets of their other clients or former employers.
As is common in the biopharmaceutical industry, we engage the services of consultants to assist in the development of product candidates. Many of these consultants were previously employed at or may have previously been, or are currently providing, consulting services to, other pharmaceutical companies, including our competitors or potential competitors. We may become subject to claims related to whether these consultants have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or their former or current customers. Litigation may be necessary to defend against these claims. Even if we are successful in defending these claims, litigation could result in substantial costs and be a distraction to Management.
| 30 |
We have participated in, and continue to participate in, clinical trials conducted under an approved investigator-sponsored investigational new drug (IND) application, and we have little or no control over the conduct or timing of, or FDA communications regarding, these trials.
We have engaged sponsor-investigators and continue to engage sponsor-investigators to participate in clinical trials conducted under an approved investigator-sponsored IND application. We also have plans to engage sponsor-investigators in future investigator-sponsored trials under both INDs and Investigational Device Exemptions (“IDEs”), since our product candidates are drug-device combination products. In investigator-initiated trials, the clinical investigator typically designs and implements the study and the investigator or its institution acts as the sponsor of the trial. This sponsor has control over the design, conduct and timing of the trial, and as a result, we have limited or no control over the commencement, conduct and completion of these investigator-initiated trials. In addition, regulations and guidelines imposed by the FDA with respect to INDs and IDEs include a requirement that the sponsor of a clinical trial perform the study in accordance with an approved investigational plan, and provide ongoing communication with the FDA as it pertains to the safety of the drug, device, or treatment being tested. It is the responsibility of the investigator, as the sponsor of the trial, to be the sole point of contact with the FDA for these communications and to exercise all decision-making authority regarding these or other submissions to the FDA about the trial. Consequently, we may have little or no control over the content or timing of these communications, including whether they are timely, accurate or complete. Any failures by the investigator sponsoring these trials could result in reviews, audits, delays or clinical holds by the FDA that could negatively affect the timelines for these trials or jeopardize their completion. As a result, our lack of control over the conduct and timing of, and communications with the FDA regarding, these investigator-sponsored trials expose us to additional risks, many of which are outside of our control and the occurrence of which could severely harm our performance and the commercial prospects for our product candidates.
Regulatory authorities may not approve our product candidates, or any approvals we achieve may be too limited or too late for us to earn meaningful, or any, revenue.
The research, testing, and possible eventual manufacturing, labeling, approval, selling, marketing and distribution of our product candidates are subject to extensive regulation by the FDA and other regulatory authorities in the U.S., as well as comparable regulatory bodies in other countries. These regulatory agencies have the authority to delay approval of or refuse to approve our product candidates for a variety of reasons, including, among others, the occurrence of adverse reactions or a failure to meet safety and efficacy endpoints in our clinical trials or otherwise to the satisfaction of the regulator, disapproval of our or our partners’ trial design, or disagreement with our interpretation of data from pre-clinical studies or clinical trials. As a result, even if our product candidates achieve their endpoints in clinical trials, they still may not be approved by any of these regulatory agencies. Moreover, the requirements to obtain product approvals vary widely from country to country, and the FDA’s approval requirements, review procedures and timelines may not be the same as or even similar to the requirements of a comparable foreign regulator. As a result, even if we obtain regulatory approval for a product candidate in one country, we may be required to undertake additional clinical trials or studies, submit additional information, wait for longer review periods or make other efforts in order to obtain regulatory approvals in other desirable geographic markets, or may not be able to achieve approval in those other desirable geographic markets.
Although we have seen no systemic drug-related adverse events in our trials and studies to date, if we cannot adequately demonstrate through the clinical trial process that a product candidate we are developing is safe and effective, regulatory approval of that product candidate may never be achieved, which could impair our reputation, increase our costs and delay or prevent us from generating revenue. Importantly, success in pre-clinical testing and early clinical studies does not ensure that later clinical trials will generate adequate data to demonstrate the required level of efficacy and safety of an investigational drug. A number of companies in the pharmaceutical and biotechnology industries, including many with greater resources and experience than we have, have suffered significant setbacks in clinical trials, even after obtaining promising results in Phase 2, and earlier studies. Further, even if a product candidate is approved, it may be approved for fewer or more limited indications than requested, may include substantial safety warnings or the approval may be subject to the performance of significant post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. Any limitation, condition or denial of approval could have an adverse effect on our business, reputation and results of operations.
Furthermore, because of the substantial competition we face, even if we are ultimately able to achieve regulatory approval for one or more of our product candidates, delays in such regulatory approval could delay, limit or prevent our ability to successfully commercialize our product candidates if competing products obtain approvals before ours, or with more permissible, or less-restricted, claims and gain market traction against which we are not able to compete. Moreover, we may be forced to reevaluate our development strategies and plans in the face of setbacks or other delays that could jeopardize the value of any regulatory approval that is obtained, which could include abandoning planned clinical trial efforts for a product candidate that we no longer believe has promising value as a commercial product. If we are not able to obtain or maintain required regulatory approvals for our product candidates or if we decide or are forced to abandon our efforts to obtain or maintain these approvals, we would have expended significant costs on assets that may never generate any return. Such an outcome would have a material adverse effect on our business, results of operations and financial condition, as well as on our continued viability as a company.
| 31 |
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business; even if we comply with such laws and regulations, they may result in higher costs for us in the form of higher raw material, energy, freight and compliance costs.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. Although we believe that the safety procedures for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions. Increased environmental legislation or regulation could also result in higher costs for us in the form of higher raw materials, as well as energy and freight costs. It is possible that certain materials might cease to be permitted to be used in our processes. We could also incur additional compliance costs for monitoring and reporting emissions and for maintaining permits.
The biotechnology industry is highly competitive, and many of our competitors are significantly larger and more experienced than we are.
The biotechnology industry is intensely competitive. This competitive environment stimulates an ongoing and extensive search for technological innovation and necessitates effective and targeted marketing strategies to communicate the effectiveness, safety and value of products to healthcare professionals in private practice and group practices and payors in managed care organizations, group purchasing organizations, and Medicare and Medicaid services.
We face competition from a number of sources, including large pharmaceutical companies, biotechnology companies, academic institutions, government agencies and private and public research institutions. We compete against all other developers of cancer treatments, including other immunotherapy treatments as well as other types of treatments for the cancer indications on which we are focused. In particular, a number of companies, some of which are large, well-established pharmaceutical companies, have development strategies similar to our current focus. These companies could include, among others, Bristol Myers-Squibb, Iovance Therapeutics, Syndax, Dynavax Technologies, Checkmate Pharmaceuticals and Idera Pharmaceuticals. In addition, we also compete with other clinical-stage biotechnology companies for funding and support from healthcare and other investors and potential collaboration relationships with larger pharmaceutical or other companies, as well as for personnel with expertise in our industry. We are smaller, less experienced and less well-funded than many of our competitors, and we have a shorter and less proven operating history and a less recognizable and established brand name than many of our competitors. In addition, some of our competitors have commercially available products, which provide them with operating revenue and other competitive advantages. Furthermore, recent trends in the biotechnology industry are for large drug companies to acquire smaller outfits and consolidate into a smaller number of very large entities, which further concentrates financial, technical, and market strength and increases competitive pressure in the industry.
| 32 |
Our competitors may obtain regulatory approval of their product candidates more rapidly, or with more or more-extensive claims, than we can or may obtain more robust patent protection or other intellectual property rights to protect their product candidates and technologies, which could limit or prevent us from developing or commercializing our product candidates. If we are able to obtain regulatory approval of one or more of our product candidates, we would face competition from approved products or products under development by larger companies that may address our targeted indications. If we directly compete with these very large entities for the same markets and/or customers, their greater resources, brand recognition, sales and marketing experience and financial strength could prevent us from capturing a share of these markets or customers. Our competitors may also develop products that are more effective, more useful, better tolerated, subject to fewer or less severe side effects, more widely prescribed, less costly or more widely accepted for other reasons than any of our products that might obtain regulatory approvals, and our competitors may also be more successful than us in manufacturing, distributing and otherwise marketing their products.
We expect our product candidates, if approved and commercialized, to compete on the basis of, among other things, product efficacy and safety, time to market, price, coverage and reimbursement by third-party payors, extent of adverse side effects and convenience of treatment procedures. We may not be able to effectively compete in any of these areas, or we may be prevented from being able to compete at all in these areas due to the performance of our products during clinical trials and/or the circumstances of an approval. Presently, we compete with other biotechnology companies for funding and support on the basis of our technology platforms and the potential value of our product candidates based on the factors described above.
If we are unable to compete effectively, our business, results of operations, financial condition, and prospects may be materially adversely affected.
We may incur liability if our presentations of information regarding our product candidates are determined, or are perceived, to be inconsistent with regulatory requirements or guidelines.
The FDA provides guidelines regarding appropriate presentation of product information and continuing medical and health education activities. Even though we do not have any FDA approved products, these guidelines apply to our current activities with respect to disclosures, presentations or other communications about our product candidates and technologies at healthcare conferences or in other forums. Although we endeavor to follow these guidelines, the FDA, the Office of the Inspector General of the U.S. Department of Health and Human Services, or the Department of Justice could disagree, in which case we could be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. In addition, Management’s attention could be diverted and our reputation could be damaged, any of which could materially harm our business and prospects.
If we and our contract manufacturers fail to produce our systems and product candidates in the volumes and within the timelines we require, or if they fail to comply with applicable regulations, we could face delays in the development and commercialization of our equipment and product candidates.
Currently, we assemble certain components of our OMS EP Device, which is our proprietary delivery mechanism for our TAVO™ product candidate, and we utilize the services of contract manufacturers to manufacture the remaining components of these systems and for the manufacture, testing and storage of all of our supply of our plasmid product candidate for clinical trials or other studies. Except for the facility used to assemble certain components of our electroporation system, we do not own and have no plans to build our own clinical or commercial manufacturing capabilities, and we expect to increase our reliance on third-party manufacturers if and when we commercialize any of our product candidates and systems.
The manufacture of our systems and product supplies requires significant expertise and capital investment, including the use of advanced manufacturing techniques and process controls. Manufacturers often encounter difficulties in production, particularly in scaling up for commercial production if regulatory approvals are obtained. These difficulties include, among others: problems with production costs and yields; quality control issues, including qualification of the equipment, stability of product candidates and compliance with testing requirements; shortages of qualified personnel; and compliance with strictly enforced federal, state and foreign regulations. If we or our manufacturers were to encounter any of these difficulties or our manufacturers otherwise fail to comply with their contractual obligations to us, our ability to provide our electroporation equipment to our partners and product candidates to patients enrolled in our clinical trials, or to commercially launch a product if regulatory approvals are obtained, would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of our clinical trials, increase the costs associated with maintaining our clinical trial programs, and, depending upon the period of delay, require us to commence new trials at significant additional expense or terminate the development program completely.
| 33 |
In addition, all manufacturers of our products must comply with current good manufacturing practices, which are regulated by the FDA through its facilities inspection programs. These practices include requirements regarding, among other things, quality control, quality assurance and the generation and maintenance of records and documentation. We are required by law to establish adequate oversight and control over raw materials, components and finished products furnished by our third-party manufacturers, but we have limited direct control over our manufacturers’ compliance with these regulations and standards. Any failure by our manufacturers, including our non-U.S. contract manufacturers, to comply with these requirements could potentially result in fines and civil penalties, suspension of production, restrictions on imports and exports, suspension or delay in product approval, product seizure or recall or withdrawal of product approval. Additionally, if the safety of any product candidate or approved product is compromised due to our or our manufacturers’ failure to adhere to applicable regulatory requirements or for other reasons, we may not be able to obtain or maintain regulatory approval for or successfully commercialize our products, and we may be held liable for any injuries sustained as a result of the failure. Any of these factors could cause delays in clinical trials, regulatory submissions or approvals, entail significant costs or hinder our ability to effectively commercialize our product candidates. Furthermore, assuming we are successful in receiving approval for and commercializing one or more of our product candidates, if our manufacturers fail to deliver the required commercial quantities on a timely basis, pursuant to provided specifications and at commercially reasonable prices, we may be unable to meet demand for our products and we could lose potential revenue.
Our business and operations could suffer in the event of cyber-attacks or system failures.
Despite the implementation of security measures, our internal computer systems and those of our current and any future partners, contractors and consultants are vulnerable to damage from cyber-attacks, computer viruses, ransomware, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause material disruptions to our commercialization activities, clinical and other development programs, financial and disclosure controls and other reporting functions and the administrative aspects of our business, in addition to possibly requiring substantial expenditures of capital and other resources to remedy. Further, any loss of clinical trial data from completed or future clinical trials as a result of such a disruption could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the lost data. Moreover, to the extent any such disruption results in the loss of or damage to our data or applications or inappropriate disclosure of confidential or proprietary information, we could incur significant liabilities. The occurrence of any of these circumstances could cause our operations and our performance to suffer.
We may be unable to acquire or develop new product candidates or technologies, or we may never be able to commercialize any product candidates or technologies we do successfully acquire or develop.
As part of our business strategy, we plan to expand our clinical pipeline and build our portfolio of product candidates through the development, acquisition or licensing of assets or businesses, product candidates or approved products. The process of identifying, planning, negotiating, implementing and integrating an acquisition or license of a new business, product candidate or approved product can be lengthy and complex and can involve numerous difficulties, including difficulties related to:
| ● | identifying new potential product candidates or promising technologies; | |
| ● | competing with other companies for the acquisition or license, including many of our competitors with substantially greater financial, marketing and sales resources; | |
| ● | negotiating the terms of the acquisition or license, at which we have relatively little experience; |
| 34 |
| ● | accurately judging the value or worth of a potential acquisition or in-license candidate; | |
| ● | paying for an acquisition or license, including the consideration to acquire or license a business, technology or asset (which could include cash and/or issuance of equity or debt securities); | |
| ● | acquisition and integration efforts could disrupt our business and divert the time and attention of Management and other internal personnel from existing operations; | |
| ● | any integration failures could result in the loss or impairment of relationships with employees, consultants, suppliers and other vendors and partners; | |
| ● | exposure to unknown or contingent liabilities based on an acquired company’s operations or assets; | |
| ● | acquisition and integration efforts and costs could reduce available liquidity and other resources to pursue other acquisitions or strategic transactions; | |
| ● | challenges establishing appropriate controls and procedures for any acquisition by us of a private company; | |
| ● | failing to recoup our investment of time, capital and other resources into a proposed acquisition or license, as a result of failing to complete the transaction or, for transactions that are completed, failing to realize the anticipated benefits of acquired or licensed business or asset; and | |
| ● | challenges developing and commercializing any product candidates or technologies that we are successful in acquiring or licensing, which is subject to all of the risks described throughout these risk factors regarding the development of our current product candidates. |
As a result of these and other difficulties, any efforts to acquire or develop new product candidates, technologies or businesses may not produce commercially successful products or otherwise result in meaningful revenue or profitability for our business. As a result, the pursuit of these activities could have a material adverse effect on our business, results of operations, financial condition and prospects.
Any collaboration arrangements we may establish may not be successful, which could adversely affect our ability to develop and commercialize our product candidates.
We may seek collaboration arrangements for the development or commercialization of our current and any future product candidates. To the extent we pursue collaboration arrangements, we would face significant risks in connection with establishing and maintaining the arrangements, including, among others:
| ● | we could be subject to intense competition in seeking appropriate collaborators; | |
| ● | collaboration arrangements are complex, costly and time-consuming to negotiate, document and implement, and they could require our payment to the collaborator of cash or other consideration, including issuances of equity or debt securities, in order to establish the relationship; | |
| ● | we may be unsuccessful in establishing and implementing any collaboration we desire to pursue, or the terms of the arrangement may not be favorable to us; | |
| ● | collaborations often would require that we relinquish some or all of the control over the future success of the product candidate to the third-party collaborator; | |
| ● | the success of any collaboration arrangements we may establish would depend heavily on the efforts and activities of our collaborators, who would likely have significant discretion in determining the efforts and resources they would apply to these collaborations; |
| 35 |
| ● | disagreements between collaborators regarding clinical development and commercialization matters can be difficult to resolve and can lead to delays in the development process or commercialization of the applicable product candidate and, in some cases, termination of the arrangement; and | |
| ● | any termination of a collaboration arrangement that we are able to establish could adversely affect our performance, particularly to the extent we become reliant upon the collaboration for revenue or important commercialization processes or efforts. |
In addition, collaboration arrangements may also include our pursuit of combination trials to develop and commercialize our product candidates as combination products, such as our KEYNOTE-695 and KEYNOTE-890 studies with Merck’s KEYTRUDA®. To the extent we continue to pursue these or any other similar collaborative arrangement, we will face certain additional risks and uncertainties in development, as drug/device combination products are particularly complex, expensive and time-consuming to develop due to the number of variables involved in the final product design, including ease of patient and doctor use, establishing clinical efficacy, reliability and cost of manufacturing, regulatory approval requirements and standards and other important factors. Additionally, combination products face continued risk and uncertainty post-development in connection with manufacturing and supply regarding the establishment of a reliable commercial supply chain.
The occurrence of any of these risks with respect to any collaboration arrangements we pursue or establish could materially adversely affect our performance, financial condition and reputation.
We may not be successful in executing our sales and marketing strategy for the commercialization of any of our product candidates, should they be approved, in which case we may not be able to generate significant, or any, revenue.
If one or more of our product candidates are approved, our commercialization strategy may include the establishment of our own sales, marketing and distribution capabilities to market products to our target markets. Developing these capabilities would require significant expenditures on personnel and infrastructure. Moreover, we have no experience with these activities. While we currently expect that any approved products would be marketed for a limited patient population, we might not be able to create an effective sales force to address even a niche market. In addition, some of our product candidates could require, if approved, a large sales force to call on and educate physicians and patients. We could decide in the future to pursue collaborations with one or more pharmaceutical companies to sell, market and distribute any approved products, but we may not be able to establish any such arrangement when desired, on acceptable terms or at all. Further, any such collaboration we do establish may not be effective in generating meaningful revenue to us.
We may be unsuccessful in implementing the commercialization strategies we have planned. Further, we have not proven our ability to succeed in the biotechnology industry and are not certain that our commercialization strategies, even if implemented as we envision, would lead to significant revenue. If we are unable to successfully implement our commercialization plans and drive adoption by patients and physicians of any product candidates that obtain regulatory approval, then we will not generate meaningful, or any, revenue, which would have a material adverse effect on our business, results of operations, financial condition and prospects.
If any product candidate that receives regulatory approval does not achieve broad market acceptance, our revenue potential may be limited.
The commercial success of any product candidate that obtains marketing approval from the FDA or comparable foreign regulatory authorities will depend on the acceptance of these products by physicians, patients, third-party payors and the medical community. The degree of market acceptance of any product candidate that receives regulatory approval will depend on a number of factors, including:
| ● | our ability to provide acceptable evidence of safety and efficacy; | |
| ● | acceptance by physicians and patients of the product as a safe and effective treatment; | |
| ● | the prevalence and severity of adverse effects; |
| 36 |
| ● | limitations or warnings contained in a product’s FDA-approved or other regulator-approved labeling; | |
| ● | the clinical indications for which the product is approved; | |
| ● | the availability and perceived advantages of alternative treatments; | |
| ● | any negative publicity related to the product or any competing product; | |
| ● | the effectiveness of our or any current or future collaborators’ sales, marketing and distribution strategies; | |
| ● | pricing and cost effectiveness; | |
| ● | our ability to obtain adequate third-party payor coverage or reimbursement; and | |
| ● | the willingness of patients to pay out-of-pocket in the absence of adequate third-party payor coverage and reimbursement. |
Failures with respect to any one of these factors could severely limit the commercial potential of any product candidate that obtains regulatory approval, which could materially adversely affect our performance and prospects.
We may not be able to establish adequate coverage and reimbursement by third-party payors for any product candidate that achieves regulatory approvals, which could severely limit our market potential, performance and prospects.
Cost containment has become a significant trend in the U.S. healthcare industry. Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for certain products and procedures. Increasingly, third-party payors are challenging the prices charged for medical products and treatments and require that companies provide them with predetermined discounts from list prices. In addition, recent trends in U.S. politics suggest that the U.S. healthcare insurance framework may experience significant changes in the near term. For all of these and other reasons, coverage and reimbursement at adequate or commercially viable levels may not be available for any product candidate that achieves regulatory approval. If coverage and reimbursement is not available or is not available at an adequate level for any approved product, the demand for or price of the product could be materially negatively affected, which could severely limit our revenue potential and prospects.
In addition, the regulations that govern marketing approvals, pricing, coverage and reimbursement for new therapeutic products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, pricing of prescription pharmaceuticals remains subject to continuing government control even after initial approval is granted. As a result, even if we obtain regulatory approval for a product candidate in a particular country, we could be subject to continuing pricing regulations that could delay our commercial launch of the product or negatively impact the revenue potential for the product in that country.
Future growth, including growth in international operations, could strain our resources, and if we are unable to manage any growth we may experience, we may not be able to successfully implement our business plans.
In late 2016, we established a subsidiary corporation in Australia in preparation for planned clinical trials in that country. In addition, our business plan includes continued growth of our operations, including, among other things, growth in our workforce, expansion of our clinical trial efforts within and outside of the U.S., and expansion of our portfolio of product candidates. This growth could place an additional strain on our Management, administrative, operational and financial infrastructure, and will require that we incur significant additional costs and hire and train additional personnel to support our expanding operations. Further, we must maintain and continue to improve our operational, financial and management controls and reporting systems and procedures, which can be more challenging during periods of expansion. As a result, our future success will depend in part on the ability of Management to effectively manage any of this growth we may experience. If we fail to successfully manage any growth we may experience, we may be unable to execute on our business plan.
| 37 |
In connection with any geographic expansion we may pursue, international operations would involve substantial additional risks, including, among others:
| ● | difficulties complying with the U.S. Foreign Corrupt Practices Act and other applicable anti-bribery laws, such as the United Kingdom Bribery Act 2010, and similar antibribery and anticorruption laws in other jurisdictions; | |
| ● | difficulties complying with foreign laws, regulations, standards and regulatory guidance governing the collection, use, disclosure, retention, security and transfer of personal data, including the European Union General Data Privacy Regulation, which introduces strict requirements for processing personal data of individuals within the European Union; | |
| ● | difficulties maintaining compliance with the varied and potentially conflicting laws and regulations of multiple jurisdictions that may be applicable to our business, many of which may be unfamiliar to us; | |
| ● | difficulties in managing foreign operations; | |
| ● | financial risks, such as longer payment cycles, difficulty in enforcing contracts and collecting accounts receivable, and exposure to foreign currency exchange rate fluctuations; | |
| ● | complexities associated with managing multiple payor-reimbursement regimes or self-pay systems; | |
| ● | more complexity in our regulatory and accounting compliance; | |
| ● | differing or changing obligations regarding taxes, duties or other fees; | |
| ● | limited intellectual property protection in some jurisdictions; | |
| ● | risks associated with currency exchange and convertibility, including vulnerability to appreciation and depreciation of foreign currencies against the U.S. dollar; | |
| ● | uncertainty related to developing legal and regulatory systems and standards for economic and business activities in some jurisdictions; | |
| ● | trade restrictions or barriers, including tariffs or other charges and import-export regulations, which are subject to uncertainty, and the trade policies of the current administration regarding existing and proposed trade agreements and the ability to import goods into the U.S.; | |
| ● | changes in applicable laws or policies; | |
| ● | possible failure by us or our distributors to obtain appropriate licenses or regulatory approvals for the sale or use of our product candidates, if approved, in various countries; and | |
| ● | business interruptions resulting from geopolitical actions, economic instability, or the impact of and response to natural disasters, including, but not limited to, the effects of climate change, wars and terrorism, political unrest, outbreak of disease, earthquakes, boycotts, curtailment of trade, and other business restrictions. |
The occurrence of any of these risks could limit our ability to pursue international expansion, increase our costs or expose us to fines or other legal sanctions, any of which could negatively impact our business, reputation and financial condition.
| 38 |
If we are unable to successfully recruit and retain qualified personnel, we may not be able to maintain or grow our business.
In order to successfully implement and manage our business plans, we depend on, among other things, successfully recruiting and retaining qualified executives, managers, scientists and other employees with relevant experience in life sciences and the biotechnology industry. Competition for qualified individuals is intense, particularly in our industry, due to the many larger and more established life science and biotechnology companies that compete with us for talent. We may also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we heavily rely on consultants and advisors, including scientific, clinical and regulatory advisors, to assist us in formulating our research and development and commercialization strategies. Our consultants and advisors may be employed by others or may have commitments under consulting or advisory contracts with other entities that may limit their availability to support us. If we are not able to retain existing personnel, consultants and/or advisors, and find, attract and retain new qualified personnel, consultants and/or advisors on acceptable terms and in a timely manner to coincide with our needs, we may not be able to successfully maintain or grow our operations and our business and prospects could suffer.
Additionally, although we have employment agreements with each of our executive officers, these agreements are terminable by them at will. The loss of the services of any one or more members of our current senior management team could, among other things, disrupt or divert our focus from pursuing our business plans while we seek to recruit other executives, impact the perceptions of our existing and prospective employees, partners and investors regarding our business and prospects, cause us to incur substantial costs in connection with managing transitions and recruiting suitable replacements and, if the departing personnel are crucial to any of our clinical or other development programs, delay or prevent the development and commercialization of the affected product candidates. These risks would be amplified if we are not able to recruit suitable replacements for any departing personnel on acceptable terms and in a timely manner. The occurrence of any of these or other potential consequences could cause significant harm to our business.
Recent changes in the Company’s executive management team and Board of Directors may be disruptive to, or cause uncertainty in, its business, results of operations and the price of the Company’s common stock.
On June 24, 2021, Daniel J. O’Connor stepped down from his positions as Chief Executive Officer, President and Director of the Company, and the Company’s Board of Directors appointed Brian A. Leuthner, formerly Chief Operating Officer, as the Company’s interim Chief Executive Officer. The Company’s Board of Directors commenced a search to recruit a permanent successor with the assistance of an executive search firm. Subsequently, on August 13, 2021, Mr. Brian A. Leuthner stepped down from his role as interim Chief Executive Officer of the Company. Also on August 13, 2021, the Company’s Board of Directors formed a temporary Leadership Committee consisting of three board members, Dr. Margaret Dalesandro, Dr. Yuhang Zhao and Dr. Herbert Kim Lyerly, to lead all development efforts, with a focus on the Company’s lead asset, TAVO™, until a permanent Chief Executive Officer is hired. Subsequently, upon Dr. Dalesandro’s and Dr. Zhao’s resignation from the Board of Directors on December 13, 2021 and December 15, 2021, respectively, the Board of Directors appointed Dr. Linda Shi and Mr. Kevin Smith to serve on the Leadership Committee. On February 17, 2022, the Board of Directors approved the appointment of George Chi, CFA, CPA as the Company’s Chief Financial Officer and on April 28, 2022, approved the appointment of Robert H. Arch, Ph.D., as the Company’s President and Chief Executive Officer, after which the Leadership Committee was dissolved. Changes in the Company’s executive management team and to the Board of Directors, may be disruptive to, or cause uncertainty in, the Company’s business, and any additional changes to the executive management team or the Board of Directors could have a negative impact on the Company’s ability to manage and grow its business effectively. Any such disruption or uncertainty or difficulty in efficiently and effectively filling key roles could have a material adverse impact on the Company’s results of operations and the price of the Company’s common stock.
Extensive industry regulation has had, and will continue to have, a significant impact on our business, especially our product development, manufacturing and distribution capabilities.
Biotechnology companies are subject to extensive, complex, costly and evolving government regulation relating to the ability to market and sell any drug or medical device. In the U.S., these regulations are principally administered and enforced by the FDA and, to a lesser extent, by the U.S. Drug Enforcement Agency (“DEA”), and comparable state government agencies, and outside the U.S., these types of regulations are typically administered by various regulatory agencies comparable to the FDA in foreign countries where products or product candidates are researched, tested, manufactured and/or marketed.
| 39 |
The Food, Drug, and Cosmetic Act (“FDCA”), the Controlled Substances Act, and other federal statutes and regulations, as well as similar state and foreign statutes and regulations, govern or influence, among other things, the research, development, design, verification, validation, clinical testing, manufacture, storage, record-keeping, approval, labeling, promotion, marketing, distribution, post-approval monitoring and reporting, sampling, import and export of product candidates such as ours. Under these regulations, we and our contract manufacturers may become subject to periodic inspection of our facilities, quality control and other procedures, and operations and/or product candidate testing by the FDA, DEA and other authorities during and after the approval process for a product candidate, to confirm compliance with all applicable regulations, including current good manufacturing practices and other applicable requirements. Further, even if regulatory approval of a product candidate is obtained, such approval would, in the U.S. at least, impose limitations on the indicated uses for which the product may be marketed, and these limitations could materially limit a product’s market and revenue potential. Additionally, we would be subject to pervasive and continuing regulation by the FDA and/or comparable foreign regulators with respect to any approved product. Moreover, we could be required to conduct potentially costly post-approval studies or surveillance programs to monitor the effect of any approved products, and the FDA and comparable foreign regulators have the authority to stop or limit further marketing of a product or impose more stringent labeling restrictions based on the results of these post-approval tests and programs or in the event of any unexpected or serious health or safety concern regarding any approved product.
Possible penalties or other consequences for failure to comply with these regulatory requirements include, among others, observations, notices, citations and/or warning letters that could force us to modify our clinical programs or other activities; clinical holds on our ongoing clinical programs; adverse publicity from the FDA or others; the FDA’s suspension of its review of pending applications; fines; product recalls or seizures; injunctions; total or partial suspension of production and/or distribution; labeling changes; withdrawal of previously granted product approvals; enforcement actions; restrictions on imports and exports; injunctions and civil or criminal prosecution. Any such sanctions, if imposed, could have a material adverse effect on our business, operating results and financial condition.
Moreover, the regulations, policies and guidance of the FDA or other regulatory agencies could change and new or additional statutes or regulations could be enacted or promulgated. If changes or new laws are more stringent or impose additional, different, or more challenging requirements, our costs of compliance could increase, regulatory approval of our product candidates could be delayed or jeopardized, or post-approval activities for any product candidates that obtain regulatory approval could be further restricted or regulated. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market any of our product candidates, which would materially adversely affect our prospects to generate revenue.
If we fail to comply with applicable healthcare laws and regulations, we could face substantial penalties and our business, operations, prospects and financial condition could be adversely affected.
The healthcare industry is heavily regulated, constantly evolving and subject to significant change and fluctuation. The U.S. federal and state healthcare laws and regulations that impact our business include, among others:
| ● | the laws and regulations administered and enforced by the FDA and other state and federal regulatory agencies, including the FDCA, Controlled Substances Act and other federal statutes and regulations, discussed above; | |
| ● | the federal Anti-Kickback Statute, which generally prohibits, among other things, soliciting, receiving or providing remuneration to induce the referral of an individual for an item or service or the purchasing or ordering of an item or service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs; | |
| ● | the federal false claims laws, which generally prohibit, among other things, knowingly presenting or causing to be presented claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; | |
| ● | the Affordable Care Act, which, in general and among other things, expands the government’s investigative and enforcement authority, including requiring pharmaceutical companies to record and disclose to government agencies any transfers of value to doctors and teaching hospitals, and increases the penalties for fraud and abuse, including amendments to the federal False Claims Act and the Anti-Kickback Statute to make it easier to file lawsuits under these statutes; |
| 40 |
| ● | HIPAA and HITECH, which, in general and among other things, establish comprehensive federal standards with respect to the privacy, security and transmission of individually identifiable health information and impose requirements for the use of standardized electronic transactions with respect to transmission of such information; | |
| ● | the FCPA and other applicable anti-bribery laws; and | |
| ● | state law equivalents of each of these federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not be preempted by applicable federal laws, thus complicating compliance efforts. |
Additionally, the healthcare compliance environment is continuously changing at the federal level and with some states mandating implementation of compliance programs, compliance with industry ethics codes, registration requirements for sales personnel, spending limits and reporting to state governments of gifts, compensation and other remuneration to physicians. This shifting regulatory environment, as well as our obligation to comply with different reporting and other compliance requirements, in multiple jurisdictions, including foreign laws and regulations comparable to the U.S. laws and regulations described above, to the extent we continue to pursue operations in foreign countries, such as our clinical activities in Australia, or if we seek to sell any product that obtains regulatory approval in a foreign country, increases the possibility that we may violate one or more of these laws. In addition, these conditions may also adversely affect our ability to obtain regulatory approval for any of our product candidates, the availability of capital, our ability to generate meaningful or any revenue and, if any of our product candidates achieve regulatory approval, our ability to establish a price we believe is fair for the approved product. Further, even though we do not and will not control referrals of healthcare services or bill directly to third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights would be applicable to our business, if any of our product candidates obtain regulatory approval and become commercially available.
All of these laws impose penalties or other consequences for non-compliance, some of which may be severe. If we or our operations are found to be in violation of any of these laws or any other governmental regulations that apply to us, the consequences could include, but are not limited to, fines or other monetary damages, orders forcing us to curtail or restructure our operations, injunctions and civil or criminal prosecution. Any such penalties could adversely affect our ability to operate our business and pursue our strategic plans. Additionally, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert Management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with the various U.S. federal and state and foreign laws and regulations that apply to our business could prove costly. The occurrence of any of these risks could cause our performance and financial condition to materially suffer.
We are subject to new legislation and regulatory proposals that may affect costs for compliance and adversely affect revenue.
Congress has closely monitored drug pricing and health care spending in the U.S. Many members of Congress have prioritized policies targeting drug prices and health care spending and are committed to lowering spending in federal government programs. Legislative efforts to reduce health care spending within federal programs may affect overall health care spending in the U.S. The Prescription Drug Pricing Reduction Act, or PDPRA, which was introduced in Congress in 2019, and again in 2020, proposed to, among other things, penalize pharmaceutical manufacturers for raising prices on drugs covered by Medicare Parts B and D faster than the rate of inflation, cap out-of-pocket expenses for Medicare Part D beneficiaries, and several changes to how drugs are reimbursed in Medicare Part B. A similar drug pricing bill, the Elijah E. Cummings Lower Drug Costs Now Act, proposes to enable direct price negotiations by the federal government for certain drugs (with the maximum price paid by Medicare capped based on an international index), requires manufacturers to offer these negotiated prices to other payers, and restricts manufacturers from raising prices on drugs covered by Medicare Parts B and D. This Act passed in the House of Representatives when it was introduced in 2019, and it has been introduced again in the 2021 term. In September 2021, provisions from this Act were included in budget reconciliation recommendations from several House committees. These recommendations include a provision advanced by the Ways and Means Committee that would limit federal tax credits associated with the clinical study of certain drugs intended for use in certain rare diseases. If passed, this law could increase the costs associated with clinical development and regulatory approval of our product candidates. More recently, on August 16, 2022, President Joseph Biden signed the Inflation Reduction Act of 2022 into law. The Inflation Reduction Act, among other things, amends the longstanding “non-interference” clause under Medicare Part D and now permits the U.S. Department of Health and Human Services to negotiate prescription drug prices with companies for a small number of brand name drugs or biologics without generic or biosimilar competitors starting in 2026 for such products covered under Medicare Pard D and in 2028 for products covered under Medicare Part B. Further, the House and Senate Judiciary Committees have also focused heavily on patent and exclusivity reform for prescription drugs. While we cannot predict what proposals may ultimately become law, elements under consideration could significantly change health care spending in which the U.S. biotechnology and pharmaceutical markets operate.
| 41 |
President Joseph Biden, like his predecessor, has prioritized drug pricing and price transparency in the health care industry. On July 9, 2021, President Biden signed an Executive Order (“EO”) directing federal agencies to develop and implement policies to lower drug prices. The EO expresses the Biden Administration’s support for a range of drug policy proposals, including Medicare drug pricing negotiation, inflationary rebates, and drug importation from foreign countries, including Canada. Under the previous Administration, the Department of Health and Human Services (“HHS”) proposed or enacted several drug pricing measures, including finalization of a regulation that would prohibit rebates from drug manufacturers to payors (referred to as the Rebate Rule). The Rebate Rule’s implementation was delayed by courts, and Congress may prevent its implementation through legislation. Legislative or regulatory changes to the framework of permissible rebates could impact our ability to negotiate with payers to obtain coverage and reimbursement, which may ultimately impact our ability to market our products.
On June 24, 2019, President Donald Trump signed an EO directing federal agencies to improve price transparency. Since then, under both the Trump and Biden Administrations, HHS has proposed and implemented regulations to improve price transparency in both provider and payor industries. These transparency measures may shift bargaining power among various stakeholders within the U.S. drug supply chain and could ultimately impact drug pricing and health care costs generally.
Further, the Centers for Medicare & Medicaid Services (“CMS”), within HHS, has significant regulatory authority to promulgate regulations and impose other compliance requirements that may increase our compliance costs and impact our ability to attain profitability and market our products. CMS sets coverage and reimbursement rates for Medicare and oversees the implementation of Medicaid at the state level. CMS could modify or impose coverage restrictions or modify reimbursement rates on any of our products in a manner that could adversely impact our business. For example, on January 8, 2021, CMS approved Tennessee’s Medicaid section 1115 demonstration application, granting the state the unprecedented ability to implement a closed drug formulary without foregoing the state’s entitlement to rebates under the Medicaid Drug Rebate Program. Implementation of a closed formulary could mean that our products could be excluded from coverage under Medicaid. Further, CMS has implemented regulations that encourage the implementation of value-based payment models for drugs within the Medicaid program. Such payment mechanisms, if implemented, could lead to reduced payment for any of our products.
Within CMS, the Center for Medicare and Medicaid Innovation (“CMMI”), as established by the Affordable Care Act, has broad authority to design, implement, and test new health care payment models that could potentially lower health care spending while maintaining quality or increase quality without increasing spending. CMMI has considered implementing models that could have a significant adverse effect on our business. For example, on November 27, 2020, CMMI finalized a mandatory Medicare Part B drug payment model that would have aligned payment for drugs with international reference prices, entitled the Most Favored Nation (“MFN”) Model. The MFN Model was enjoined by a Federal court on December 28, 2020 for failure to comply with rulemaking procedural requirements. The Biden Administration has withdrawn the MFN Model, but it is unclear whether the Administration will propose and implement the same or a similar model in future rulemaking, and we cannot predict how future regulatory actions by CMMI or any other component of CMS may impact our business.
In addition to significant uncertainty with respect to legislation and regulation at the federal level, similar developments by state governments may impact our business. State legislative and regulatory developments could impact drug development, manufacturing, pricing, marketing, distribution, coverage, or payment. Jurisdictional and preemption issues between federal and state laws and regulations are complex and increase the costs of compliance. Further, similar legislative and regulatory uncertainties may arise in foreign drug markets, some of which are heavily regulated. We cannot predict how developments at the state level may impact our business.
| 42 |
Any product for which we obtain marketing approval could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with products, when and if any of them is approved.
Any product for which we might obtain marketing approval, along with the manufacturing processes and facilities, post-approval data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and comparable regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration requirements, compliance with industry standards and regulatory requirements (e.g., current Good Manufacturing Practices (“cGMPs”) and good documentation practices) relating to quality control, quality assurance and corresponding maintenance of records and documents, adherence to requirements regarding the distribution of samples to physicians and recordkeeping, and compliance with requirements regarding company presentations and interactions with healthcare professionals. Even if we obtain regulatory approval of a product, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing, studies, and surveillance to monitor the safety or efficacy of the product. We also may be subject to certain state laws, including registration requirements covering the marketing, promotion, and distribution of products. Later discovery of previously unknown problems with products, manufacturers or manufacturing processes, or failure to comply with legal and regulatory requirements, may result in actions such as:
| ● | restrictions on product manufacturing, distribution or use; | |
| ● | restrictions on the labeling, marketing, or promotion of a product; | |
| ● | requirements to conduct post-marketing studies or clinical trials; | |
| ● | inspectional observations or warning letters from regulatory authorities; | |
| ● | withdrawal of the products from the market; | |
| ● | refusal to approve pending applications or supplements to approved applications that we submit; | |
| ● | voluntary or mandatory recall; | |
| ● | fines; | |
| ● | suspension or withdrawal of marketing or regulatory approvals; | |
| ● | refusal to permit the import or export of products; | |
| ● | product seizure or detentions; | |
| ● | injunctions or the imposition of civil or criminal penalties; and | |
| ● | adverse publicity. |
If we or our respective suppliers, third-party contractors, clinical investigators or collaborators are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or adoption of new regulatory requirements or policies, we or our respective collaborators may experience one or more of the actions above, resulting in decreased revenue from milestones, product sales or royalties.
| 43 |
Europe has enacted a new data privacy regulation, the General Data Protection Regulation, a violation of which could subject us to significant fines.
In May 2018, a new privacy regime, the General Data Protection Regulation, or GDPR, took effect across all member states of the European Economic Area. The new regime increases our obligations with respect to clinical trials conducted in the member states by expanding the definition of personal data to include coded data, and requiring changes to informed consent practices and more detailed notices for clinical trial subjects and investigators. In addition, it increases the scrutiny that clinical trial sites located in the member states should apply to transfers of personal data from such sites to countries that are considered to lack an adequate level of data protection, such as the U.S. The regime imposes substantial fines for breaches of data protection requirements, which can be up to four percent of global revenues or 20 million Euros, whichever is greater, and it also confers a private right of action on data subjects for breaches of data protection requirements. Compliance with these directives is a rigorous and time-intensive process that may increase our cost of doing business, and the failure to comply with these laws could subject us to significant fines.
Our employees, consultants, or third-party partners may engage in misconduct or other improper activities, including but not necessarily limited to noncompliance with regulatory standards and requirements or internal procedures, policies or agreements to which such employees, consultants and partners are subject, any of which could have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees, consultants, or third party partners could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards, including those we have established, to comply with federal and state healthcare fraud and abuse laws and regulations, to report financial information or data accurately, to comply with internal procedures, policies or agreements to which such employees, consultants or partners are subject, or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended 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, promotion, sales commission, customer incentive programs and other business arrangements. Employee, consultant, or third-party misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. The precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or 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 and results of operations, including the imposition of significant fines or other sanctions.
We receive a large amount of proprietary information from potential or existing licensors of intellectual property and potential acquisition target companies, all pursuant to confidentiality agreements. The confidentiality and proprietary invention assignment agreements that we have in place with each of our employees and consultants prohibit the unauthorized disclosure of such information, but such employees or consultants may nonetheless disclose such information through negligence or willful misconduct. Any such unauthorized disclosures could subject us to monetary damages and/or injunctive or equitable relief. The notes, analyses and memoranda that we have generated based off such information are also valuable to our businesses, and the unauthorized disclosure or misappropriation of such materials by our employees and consultants could significantly harm our strategic initiatives, especially if such disclosures are made to our competitor companies.
We face potential product liability exposure, and if successful claims are brought against us, we could incur substantial liability.
The clinical use of our product candidates and, if any of our product candidates achieves regulatory approval, any future commercial use of the approved products, exposes us to the risk of product liability claims. Any side effects, manufacturing defects, misuse, or abuse associated with our product candidates or any approved products could result in injury to a patient or even death. In addition, a liability claim could be brought against us even if our product candidates or any approved products merely appear to have caused an injury. These product liability claims could be brought against us by consumers, healthcare providers, pharmaceutical companies or others that come into contact with our product candidates or any approved products.
| 44 |
Regardless of merit or potential outcome, product liability claims against us could result in, among other effects, the inability to continue clinical testing of our product candidates or, for any approved products, commercialization of the products, impairment of our business reputation, withdrawal of clinical trial participants and distraction of Management’s attention from our primary business activities. In addition, if we cannot successfully defend against product liability claims, we could incur substantial liabilities, including liabilities that may be beyond the scope or limits of any applicable insurance policies we may have in place. Any of these outcomes could severely harm our business, financial condition and prospects.
We may not be able to realize value from, or otherwise preserve and utilize, our net operating loss carryforwards and certain other tax attributes.
If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended, the corporation’s net operating loss carryforwards and certain other tax attributes arising prior to the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds 50% over a rolling three-year period. Similar rules may apply under state tax laws. If we experience such an ownership change, our net operating loss carryforwards generated prior to the ownership change would be subject to annual limitations that could reduce, eliminate or defer the utilization of these losses.
Moreover, the recognition and measurement of net operating loss carryforwards may include estimates and judgments by Management, and the Internal Revenue Service could, upon audit or other investigation, disagree with the amount of net operating loss carryforwards or the determination of whether an ownership change has occurred. Additionally, legislative or regulatory changes or judicial decisions could further negatively impact the ability to use any tax benefits associated with net operating loss carryforwards. Any inability to use net operating loss carryforwards to reduce our U.S. federal or state income tax liability could materially harm our financial condition and results of operations.
Risks Related to Our Intellectual Property
Our business depends in large part on our ability to protect our proprietary rights and technologies, and we may be unsuccessful in these efforts.
We believe our success and ability to compete depends in large part on obtaining and maintaining patent, trademark and trade secret protection of our product candidates and their respective components and underlying technologies, including devices, formulations, manufacturing methods and methods of treatment, as well as successfully defending our intellectual property rights against third-party challenges. Our ability to stop third parties from making, using or selling products that infringe on our intellectual property rights depends on the extent to which we have secured and properly safeguarded these rights under valid and enforceable patents or trade secrets.
Although we previously owned patents protecting our OMS EP Devices, our primary U.S. and foreign patents providing such protection expired in 2017 and 2018, and the final foreign patents expired in late 2019. As a result, we may have limited ability to enforce these rights against third parties to prevent them from making or selling competing products that rely upon the protected technology, which could harm our competitive position and prospects. In addition to these proprietary rights that expired between 2017 and 2019, we also own or have exclusively licensed certain patents and applications that cover our current clinical methods. These patents/patent applications will expire between 2024 and 2041. These method patents protect the use of a product for a specified method under certain defined parameters. These types of method patents do not prevent a competitor from making and marketing a product that is identical or similar to the protected product under parameters that are outside the scope of the patented method claims. Moreover, even if competitors do not actively promote such a product for the indications protected by the method patent, physicians could prescribe the products for these methods on an off-label basis. Although such off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to detect, prevent or prosecute. Furthermore, our licensed patents expiring between 2024 and 2032 may not have as broad a scope as our patents that expired between 2017 and 2019, which in turn may limit our remedies against competitors making and marketing a product that is identical or similar to ours.
| 45 |
To the extent our existing patents or pending or planned patent applications expire before we are able to commercialize product depending on the technology or do not otherwise provide sufficient protection, we could be subject to substantially increased competition and our business and ability to commercialize or license our technology or product candidates could be materially adversely affected.
Even if we secure patents that cover our proprietary technology, our efforts to protect our intellectual property rights with patents may prove inadequate. For instance, the breadth of claims in a patent application is often restricted during patent prosecution, resulting in granted claims with a more limited scope than the claims in the original application. Additionally, pending or future patent applications may not result in issued patents. Laws and regulations for the prosecution of patents are continuously evolving, and the U.S. Supreme Court has, in the past several years, revised certain tests regarding both the grant and review of patents that could make it more difficult to obtain issued patents. Also, any patents that are granted could be subject to post-grant proceedings that could limit their scope or enforceability, and claims that are amended during post-grant proceedings may not be broad enough to provide meaningful protection. Moreover, any patents that are issued to us or any future collaborators may be circumvented or invalidated by third-party efforts, may expire before or shortly after obtaining necessary regulatory approvals, or may not provide sufficient proprietary protection or competitive advantage for other reasons. Such challenges could include third-party pre-issuance submissions of prior art to the PTO, or opposition, derivation, reexamination, inter parties review, or post-grant review or interference proceedings challenging our patent rights or the patent rights of others. The cost of these proceedings could be substantial, and it is possible that our efforts to establish priority or validity of the invention would be unsuccessful, resulting in a material adverse effect on our U.S. patent position. An adverse determination in any such submission, patent office trial, proceeding or litigation could reduce the scope of, render unenforceable, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. Further, obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. These risks may be amplified in some foreign jurisdictions, where patent protection may not be as strong or as effective as it is in the U.S.
Our reliance on unpatented proprietary rights, including trade secrets and know-how, may also pose significant risks. For instance, it can be difficult to protect these rights and they may lose their value if they are independently developed by a third party or if their secrecy is lost. Although we have taken measures to protect these rights, including establishing confidentiality agreements with employees, consultants and other third parties, these measures may not sufficiently safeguard our unpatented proprietary rights and may not provide adequate remedies in the event of unauthorized use or disclosure of the confidential information. Despite these efforts, any of these parties may breach the agreements and may unintentionally or willfully disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the U.S. are less willing or unwilling to protect trade secrets. Moreover, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such parties, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
If we are unable to secure patent protection for our patentable technologies, if any of our issued patents are limited or found to be invalid or unenforceable, or if we are otherwise unable to adequately protect our patented or unpatented proprietary rights, our business and prospects could be materially negatively affected.
Our in-licensed intellectual property may not provide us with sufficient rights and may not prevent competitors from pursuing similar technology.
In addition to our owned proprietary rights, we have also exclusively licensed certain patents and patent applications that cover our current and future clinical platforms. These patents will expire between 2024 and 2032. These method patents protect the use of a product for a specified method under certain defined parameters. This type of patent does not prevent a competitor from making and marketing a product that is identical or similar to the protected product under parameters that are outside the scope of the patented method claims. Moreover, even if competitors do not actively promote such a product for the indications protected by the method patent, physicians could prescribe the products for these methods on an off-label basis. Although such off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to detect, prevent or prosecute.
| 46 |
We entered into a license agreement with Gaeta Therapeutics in May 2019. Under the license, we obtained exclusive worldwide rights to Gaeta Therapeutics’ portfolio of patents and applications covering the combination use of IL-12 protein or DNA and various checkpoint inhibitor therapies, including anti-CTLA-4 and anti-PD-1 compounds, in key global markets. Although we do not currently rely on the intellectual property we have licensed from Gaeta, our product candidates could in the future utilize this intellectual property. The in-licensing of this portfolio provides patent protection on our current clinical methods in certain countries until at least 2032 and also gives us the potential to block others utilizing IL-12 in combination with various checkpoint inhibitors, which may not be part of our current clinical platform.
If we are not able to maintain our existing in-licenses or if we are not able to establish new in-licenses for any other third-party rights we need, we could become subject to significant costs or royalty or other fees to establish alternative license arrangements, if such licenses are available when needed, on acceptable terms or at all, or we could be forced to develop modifications to the affected product candidates or technologies to avoid reliance on the third-party rights, if such modifications are possible. If there is any conflict, dispute, disagreement or issue of non-performance between us and the respective licensing partner regarding the rights or obligations under the license agreements, including any conflict, dispute or disagreement arising from a failure to satisfy payment obligations under such agreements, the ability to develop and commercialize the affected product candidate may be adversely affected. Any inability to secure and maintain adequate rights to any third-party technologies necessary for the development of our product candidates could severely limit our continued research and development activities, our efforts to obtain product approvals and, if such approvals are obtained, our ability to commercialize the approved products, any of which would materially adversely impact our business and prospects.
We may become involved in litigation or other proceedings in our efforts to protect our patent and other intellectual property rights, which could require significant time and costs and would be subject to unpredictable outcomes.
We may become aware of activities by third parties, including our competitors, that infringe our issued patents or other intellectual property rights. If we choose to file a lawsuit against a potentially infringing third party to try to enforce our patents or other intellectual property rights, the third party may seek a ruling that the patents are invalid and/or should not be enforced. Such a ruling could severely limit our ability to protect our rights from use by third parties. Further, patent law is a constantly evolving body of law, and changes can affect our rights and our ability to execute on our strategy and our financial results. In the past several years, the U.S. Supreme Court has revised certain tests regarding assessing the validity of patents, which could result in the invalidation of issued patents and/or their claims based on the application of the current patent validity standards. As a result, in the event of any patent infringement litigation or other proceedings involving our patents, our patents could be subject to challenge and subsequent invalidation or significant narrowing of claim scope under the current standards. Moreover, even if the validity of our patents is upheld in a patent infringement lawsuit, a court could refuse to stop a third party’s activities on the grounds that the activities do not infringe the specific claims of our patents. Further, even if we were successful in stopping the infringing activity, patent infringement lawsuits are expensive and could consume significant time, Management attention, capital and other resources. Any claims we assert against accused infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents; or provoke those parties to petition the U.S. Patent and Trademark Office, to institute inter partes review against the asserted patents, which may lead to a finding that all or some of the claims of the patent are invalid.
These risks of third parties’ infringement of our intellectual property rights may increase if we engage in discussions, collaborations or other strategic arrangements with third parties. Also, new challenges could arise if and to the extent we pursue engagements with third parties located outside the U.S. These factors could increase the risks and costs associated with building and protecting our intellectual property portfolio and could adversely affect our performance and our business prospects. Despite efforts to protect our proprietary information during such discussions, third parties may unintentionally or willfully disclose or convert our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
| 47 |
Third parties may claim that we infringe their proprietary rights, which could prevent us from pursuing our clinical and other studies and other research and development activities.
The validity and infringement of patents or proprietary rights of third parties has been the subject of substantial litigation in the biotechnology industry. In the course of our research and development activities, we could become subject to legal claims that we, our activities or our product candidates or technologies infringe the rights of others. This type of patent infringement litigation is costly and time-consuming and diverts the attention of Management and technical personnel. In addition, if we or our product candidates or technologies are found to infringe the rights of others, we could lose our ability to continue our development programs or could be forced to pay monetary damages. Although the parties to patent and intellectual property disputes in the biotechnology industry have often settled their disputes by establishing licenses or similar arrangements, the costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, any such licenses may not be available when needed, on commercially reasonable terms or at all. These risks may be amplified due to our small size and limited experience and resources relative to many of our competitors. As a result, any claims of infringement against us, adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could materially delay, hinder or restrict our development efforts or prevent us from continuing to pursue our operational and strategic plans, which could have a material adverse effect on our business, prospects and results of operations.
Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after a first filing, or in some cases not at all. Therefore, we cannot know with certainty whether we or our licensors were the first to make the inventions claimed in patents or pending patent applications that we own or licensed, or that we or our licensors were the first to file for patent protection of such inventions. In the event that a third party has also filed a U.S. patent application relating to our product candidates or a similar invention, depending upon the priority dates claimed by the competing parties, we may have to participate in interference proceedings declared by the PTO to determine priority of invention in the U.S. The costs of these proceedings could be substantial, and it is possible that our efforts to establish priority of invention would be unsuccessful, resulting in a material adverse effect on our U.S. patent position. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.
Risks Related to Our Growth Strategy
If we acquire, enter into joint ventures with or obtain a controlling interest in companies in the future, it could adversely affect our operating results and the value of our Common Stock thereby diluting stockholder value and disrupting our business.
As part of our growth strategy, we might acquire, enter into joint ventures with, or obtain a significant ownership stake in other companies. Acquisitions of, joint ventures with and investments in other companies involve numerous risks, including, but not necessarily limited to:
| ● | risk of entering new markets in which we have little to no experience; |
| ● | diversion of financial and managerial resources from existing operations; |
| ● | successfully negotiating a proposed acquisition or investment timely and at a price or on terms and conditions favorable to us; |
| ● | the impact of regulatory reviews on a proposed acquisition or investment; |
| ● | the outcome of any legal proceedings that may be instituted with respect to the proposed acquisitions or investment; |
| ● | with respect to an acquisition, difficulties in integrating operations, technologies, services and personnel; and |
| ● | potential inability to maintain relationships with customers of the companies we may acquire or invest in. |
| 48 |
If we fail to properly evaluate potential acquisitions, joint ventures or investments, we might not achieve the anticipated benefits of any such transaction, we might incur costs in excess of what we anticipate, and Management resources and attention might be diverted from other necessary or valuable activities.
If we cannot continue to fund our research and development programs, we may be required to reduce product development, which will adversely impact our growth strategy.
Our research and development programs will require substantial additional capital to conduct research, preclinical testing and human studies, establish pilot scale and commercial scale manufacturing processes and facilities, and establish and develop quality control, regulatory, marketing, sales and administrative capabilities to support these programs. We expect to fund our research and development activities from a combination of cash generated from royalties and milestones from our partners in various past, ongoing and future collaborations and additional equity or debt financings from third parties. These financings could depress our stock price. If additional funds are required to support our operations and such funds cannot be obtained on favorable terms, we may not be able to develop products, which will adversely impact our growth strategy. For example, in October 2022, due to our financial position we made the strategic decision to decrease all clinical activity outside of our melanoma clinical pipeline, including trials and studies involving TNBC and SCCHN.
Risks Related to Our Common Stock
The price and trading volume of our common stock may be subject to extreme volatility, and stockholders could lose all or part of their investment in our Company.
The trading volume and market price of our common stock has experienced, and is likely to continue to experience, significant volatility. This volatility could negatively impact our ability to raise additional capital or utilize equity as consideration in any acquisition transactions we may seek to pursue, and could make it more difficult for existing stockholders to sell their shares of our common stock at a price they consider acceptable or at all. This volatility is caused by a variety of factors, including, among the other risks described in these risk factors:
| ● | adverse research and development or clinical trial results; | |
| ● | our liquidity and ability to obtain additional capital, including the market’s reaction to any capital-raising transaction we may pursue; | |
| ● | declining working capital to fund operations, or other signs of financial uncertainty; | |
| ● | any negative announcement by the FDA or comparable regulatory bodies outside the U.S., including that it has denied any request to approve any of our product candidates for commercialization; | |
| ● | conducting open-ended clinical trials, which could lead to results (either positive or negative) being available to the public prior to a formal announcement; | |
| ● | market assessments of any strategic transaction or collaboration arrangement we may pursue; | |
| ● | potential negative market reaction to the terms or volume of any issuance of shares of our common stock or other securities to new investors pursuant to strategic or capital-raising transactions or to employees, directors or other service providers; | |
| ● | sales of substantial amounts of our common stock, or the perception that substantial amounts of our common stock may be sold, by stockholders in the public market; | |
| ● | issuance of new or updated research or reports by securities analysts or changed recommendations for our common stock; | |
| ● | significant advances made by competitors that adversely affect our competitive position; | |
| ● | the loss of key management and scientific personnel and the inability to attract and retain additional highly-skilled personnel; and | |
| ● | general market and economic conditions, including factors not directly related to our operating performance or the operating performance of our competitors, such as increased uncertainty in the U.S. healthcare regulatory environment following the results of the 2020 U.S. presidential election. |
| 49 |
In addition, the stock market in general, and the market for stock of companies in the life sciences and biotechnology industries in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of specific companies. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against a company. This type of litigation, if instituted against us, could result in substantial costs and a diversion of our Management’s attention and resources.
If we issue additional equity securities in the future, our existing stockholders would be diluted.
Our articles of incorporation authorize the issuance of up to 100,000,000 shares of our common stock. In addition to capital-raising activities, on which we have historically relied for cash to fund our operations, other possible business and financial uses for our authorized common stock include, among others, stock splits, acquiring other businesses or assets in exchange for shares of our common stock, issuing shares of our common stock to collaborators in connection with strategic alliances, issuing common stock to vendors for services performed, attracting and retaining employees with equity compensation or other transactions and corporate purposes that our Board of Directors deems to be in the best interest of our Company. Additionally, issuances of common stock could be used for anti-takeover purposes or to delay or prevent changes in control or management of our Company. Any future issuances of our common stock may be consummated on terms that are not favorable, may not enhance stockholder value and may adversely affect the trading price of our common stock. Further, any such issuance will reduce the book value per share of our common stock and reduce the proportionate ownership and voting power of our existing stockholders.
We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of your stock.
We have never paid dividends on our common stock and do not anticipate paying any dividends for the foreseeable future. You should not rely on an investment in our stock if you require dividend income. Further, you will only realize income on an investment in our stock in the event you sell or otherwise dispose of your shares at a price higher than the price you paid for your shares. Such a gain would result only from an increase in the market price of our common stock, which is uncertain and unpredictable.
If outstanding options or warrants to purchase shares of our common stock are exercised or outstanding restricted stock units vest and settle, our existing stockholders would be diluted.
As of July 31, 2022, we had outstanding (i) options to purchase approximately 2.9 million shares of our common stock, (ii) warrants to purchase approximately 1.7 million shares of our common stock, and (iii) approximately 0.06 million restricted stock units. In addition, as of July 31, 2022, there were approximately 1.8 million shares reserved for future issuance under our stock incentive and stock purchase plans. The exercise of options and warrants, the vesting and settlement of restricted stock units or the issuance of additional equity awards under our stock incentive and stock purchase plans could have an adverse effect on the market for our common stock, including the price that any stockholder could obtain for its shares. Further, our existing stockholders could experience significant dilution in the net tangible book value of their investment upon the issuance of additional shares of our common stock through the exercise of derivative securities that are currently outstanding or that we may issue in the future.
Sales of common stock by our stockholders, or the perception that such sales may occur, could depress the market price of our common stock.
The market price of our common stock could decline as a result of sales by, or the perceived possibility of sales by, our existing stockholders. Since March 2011, we have completed a number of offerings of our common stock and warrants. Future sales of common stock by significant stockholders, including by those who acquired their shares in our prior equity offerings, or the perception that such sales may occur, could depress the price of our common stock.
| 50 |
If our stock price continues to remain below $1.00 or our stockholders’ equity falls below $2.5 million, our common stock may be subject to delisting from The Nasdaq Stock Market, which would materially reduce the liquidity of our common stock and have an adverse effect on our market price.
On June 2, 2022, we received Notice (the “Notice”) from Nasdaq that the Company is not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price of our common stock has been below $1.00 per share for 30 consecutive business days. The Notice has no immediate effect on the listing of our common stock, which will continue to trade at this time on the Nasdaq Capital Market under the symbol “ONCS.”
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until November 29, 2022, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share for at least ten consecutive business days during this 180 calendar day period. In the event we do not regain compliance by November 29, 2022, we may be eligible for an additional 180 calendar day grace period if the Company meets the continued listing requirement for market value of publicly held shares ($1 million) and all other initial listing standards for the Nasdaq Capital Market, with the exception of the minimum bid price, and we provide written notice to Nasdaq of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. If we do not regain compliance within the allotted compliance period(s), Nasdaq will provide notice that our common stock will be subject to delisting from the Nasdaq Capital Market. In that event, we may appeal such delisting determination to a hearings panel.
We are currently evaluating our alternatives to resolve the listing deficiency.
Additionally, Nasdaq has the authority, pursuant to Nasdaq Rule 5550(b)(1), to delist our common stock if our stockholders’ equity falls below $2.5 million. As of July 31, 2022, our stockholders’ equity was $6.1 million. If our stockholders equity falls below $2.5 million, as a result of operating losses or for other reasons, we will fail to meet Nasdaq’s stockholders’ equity requirement. We expect that our stockholders’ equity as of October 31, 2022 will fall below Nasdaq’s $2.5 million threshold. If that occurs, or if we are unable to demonstrate to Nasdaq’s satisfaction that we subsequently regained compliance with this requirement, Nasdaq will notify us of such non-compliance. If we receive such notice from Nasdaq, in accordance with Nasdaq rules, we will have 45 calendar days from the date of the notification to submit a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1). If our compliance plan is accepted, we may be granted up to 180 calendar days from the date of the initial notification to evidence compliance.
We are actively monitoring our stockholders’ equity and will consider any and all options available to us to maintain compliance. There can be no assurance, however, that we will be able to maintain compliance and meet Nasdaq’s minimum stockholders’ equity requirements. To the extent that we are unable to maintain compliance, there is a risk that our common stock may be delisted from Nasdaq, which would adversely impact liquidity of our common stock, potentially result in even lower bid prices for our common stock, and make it more difficult for us to obtain financing through the sale of our common stock.
General Risk Factors
Our business, financial position, results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.
Our results of operations could be materially negatively affected by economic conditions generally, both in the U.S. and elsewhere around the world. Continuing concerns over COVID-19, inflation, energy costs, geopolitical issues, including acts of war, the availability and cost of credit, the U.S. mortgage market and residential real estate market in the U.S. have contributed to increased volatility and diminished expectations for the economy and the markets going forward. These factors, combined with volatile oil prices, declining business and consumer confidence, have precipitated fears of a possible economic recession. Domestic and international equity markets continue to experience heightened volatility and turmoil. These events and the continuing market upheavals may have an adverse effect on us. In the event of a continuing market downturn, our results of operations could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may further decline.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results and stockholders and the investment community could lose confidence in our financial reporting, which could harm our business.
Our Management is responsible for establishing and maintaining adequate internal control over financial reporting. Although Management has determined that our internal control over financial reporting was effective as of July 31, 2022, our controls over financial processes and reporting may not continue to be effective, or we may identify significant deficiencies or material weaknesses in our internal controls in the future. Any failure to maintain effective internal control over financial reporting, including failures to implement new or improved controls as needed in a timely and effective manner or remediate any significant deficiency or material weakness that is identified in the future, could cause noncompliance with our public reporting obligations, an inability to produce reliable financial reports or material misstatements in our financial statements or other public disclosures. If any of these circumstances were to occur, investors could lose confidence in our financial and other reported information, our reputation could otherwise be harmed, the investment of our stockholders in our company could be negatively affected and the costs to us of raising additional capital could materially increase, any of which could harm our business and prospects.
| 51 |
Maintaining compliance with our reporting and other obligations as a public company could strain our resources and distract Management.
As a public company, we experience significant demands that are not applicable to private companies. For example, the Sarbanes-Oxley Act of 2002 and related and other rules implemented by the SEC and the Nasdaq Capital Market, which maintains the securities exchange on which our common stock is listed for trading, impose a number of requirements on public companies, including with respect to corporate governance practices, periodic reporting and other disclosure requirements and financial and disclosure controls and procedures. Further, the SEC and other regulators have continued to adopt new rules and make changes to existing regulations that require our compliance, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the corporate governance and executive compensation-related disclosure requirements of this legislation.
Maintaining compliance with the rules and regulations applicable to public companies involves significant legal, accounting and financial costs. Additionally, if we grow as anticipated, we may need to hire additional personnel and implement new and more sophisticated financial and accounting systems and procedures to continue to meet our public company obligations. Our Management and other personnel devote substantial attention to maintaining our compliance with these obligations, which diverts attention from other aspects of our business. Any failure to comply with these public company requirements could have a material adverse effect on our business and prospects and could materially harm our stockholders’ investment in our Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate and executive office is located in Pennington, New Jersey, where we lease space at 24 N. Main Street, Pennington, New Jersey, pursuant to a lease agreement which expires in February 2023. Additionally, we entered into a lease agreement commencing in January 2023 for space located at 850 Bear Tavern Road, Ewing, New Jersey, 08628 which expires in 2025. Our Company also has an office located in San Diego, California, where we lease space at 3565 General Atomics Court, Suite 100, San Diego, CA, 92121, pursuant to a lease which expires in 2023. Additionally, we entered into a lease assignment agreement for space located at 5820 Nancy Ridge Drive, San Diego, California, 92121 which expires in 2025. We have also entered into lease arrangements for lab space in San Diego, California to support our research and development department, but are in the process of terminating such lease after giving effect to our Restructuring Plan more fully discussed in Item 1. Business—Recent Developments.
We believe our current facilities are adequate to meet our current operating needs and will remain adequate for the foreseeable future. Should we need additional space, we currently do not foresee significant difficulties in obtaining additional facilities.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we may become a party to lawsuits involving various matters. The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. To our knowledge, we are not currently a party, and our properties are not currently subject, to any actual or threatened legal proceedings that, in the opinion of Management, are expected to have a material adverse effect on our business, financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
| 52 |
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Trading Information
Our common stock began trading on the Nasdaq Capital Market tier under the symbol “ONCS” since May 29, 2015.
The following table sets forth the range of reported high and low sales prices for our common stock for the fiscal quarters indicated, as reported on the Nasdaq:
| High | Low | |||||||
| Fiscal Year Ended July 31, 2022 | ||||||||
| First Quarter ended October 31, 2021 | $ | 2.42 | $ | 1.57 | ||||
| Second Quarter ended January 31, 2022 | $ | 1.95 | $ | 0.75 | ||||
| Third Quarter ended April 30, 2022 | $ | 1.45 | $ | 0.76 | ||||
| Fourth Quarter ended July 31, 2022 | $ | 0.94 | $ | 0.67 | ||||
| Fiscal Year Ended July 31, 2021 | ||||||||
| First Quarter ended October 31, 2020 | $ | 5.40 | $ | 3.06 | ||||
| Second Quarter ended January 31, 2021 | $ | 7.82 | $ | 3.69 | ||||
| Third Quarter ended April 30, 2021 | $ | 8.16 | $ | 4.17 | ||||
| Fourth Quarter ended July 31, 2021 | $ | 5.08 | $ | 2.08 | ||||
Holders
As of October 31, 2022, there were 42 holders of record of our common stock, plus an indeterminate number of additional stockholders whose shares of our common stock are held on their behalf by brokerage firms or other agents.
Dividends
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
The information included under Item 12 of Part III of this report, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” is hereby incorporated by reference into this Item 5 of Part II of this report.
Unregistered Sales of Equity Securities and Use of Proceeds
On August 2, 2021, we issued a total of 12,500 shares of our common stock to a third-party firm pursuant to a consulting agreement at a market price of $2.22 per share for services rendered.
The securities above were offered and sold without registration under the Securities Act of 1933, as amended, or the Securities Act, pursuant to the exemption provided in Section 4(a)(2) under the Securities Act as a transaction not involving a public offering as well as similar exemptions under applicable state laws, in reliance on the following facts: no general solicitation was used in the offer or sale of such shares; the recipient of such shares represented that it was acquiring the shares for investment for its own account and not with a view to or for resale in connection with any distribution thereof within the meaning of the Securities Act; the recipient of such shares had adequate access to information about us; the recipient of such shares represented that it had a preexisting business or personal relationship with us or had the capacity to protect its own interests in connection with acquiring such shares; and such shares were issued as restricted securities with restricted legends referring to the Securities Act.
| 53 |
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context indicates otherwise, all references to “OncoSec,” “the Company,” “we,” “us” and “our” in this Annual Report on Form 10-K refer to OncoSec Medical Incorporated and its consolidated subsidiary.
This discussion and analysis of our financial condition and results of operations is not a complete description of our business or the risks associated with an investment in our common stock. As a result, this discussion and analysis should be read together with our consolidated financial statements and related notes included in this Annual Report, as well as the other disclosures in this report and in the other documents we file from time to time with the Securities and Exchange Commission, or SEC.
This discussion and analysis and the other disclosures in this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements relate to future events or circumstances or our future performance and are based on our current assumptions, expectations and beliefs about future developments and their potential effect on our business. All statements in this Annual Report that are not statements of historical fact could be forward-looking statements. The forward-looking statements in this discussion and analysis and elsewhere in this Annual Report include statements about, among other things, the status, progress and results of our clinical programs and our expectations regarding our liquidity and performance, including our expense levels, and the potential impact of the COVID-19 pandemic. Forward-looking statements are only predictions and are not guarantees of future performance, and they are subject to known and unknown risks, uncertainties and other factors, including the risks described under the heading “Risk Factors” in Part I, Item IA of this Annual Report and similar discussions contained in the other documents we file from time to time with the SEC. In light of these risks, uncertainties and other factors, the forward-looking events and circumstances described in this Annual Report may not occur and our results, levels of activity, performance or achievements could differ materially from those expressed in or implied by any forward-looking statements we make. As a result, you should not place undue reliance on any of our forward-looking statements. Forward-looking statements speak only as of the date they are made, and unless required to by law, we undertake no obligation to update or revise any forward-looking statement for any reason, including to reflect new information, future developments, actual results or changes in our expectations.
Overview
We are a late-stage immuno-oncology company focused on designing, developing and commercializing innovative, proprietary, intra-tumoral DNA-based therapeutics to stimulate and to augment anti-tumor immune responses for the treatment of cancers. Our core technology platform ImmunoPulse® is a drug-device therapeutic modality platform comprised of proprietary intratumoral electroporation (“EP”) delivery devices (the “OMS EP Device”) and a proprietary DNA plasmid delivery and application method that triggers transient expression of target protein in cells. The OMS EP Device is designed to deliver plasmid DNA-encoded drugs directly into a solid tumor and promote an immunological response against the cancer. The OMS EP Device can be adapted to treat different tumor types, and consists of an electrical pulse generator paired with disposable applicators. Our lead product candidate is a DNA-encoded interleukin-12 (“IL-12”) called tavokinogene telseplasmid (“TAVO™”). The OMS EP Device is used to deliver TAVO™ intratumorally, with the aim of reversing the immunosuppressive microenvironment in the treated tumor. The activation of the appropriate inflammatory response can drive a systemic anti-tumor response against untreated tumors in other parts of the body. In 2017, we received Fast Track Designation and Orphan Drug Designation from the U.S. Food and Drug Administration (“FDA”) for TAVO™ in metastatic melanoma, which could qualify TAVO™ for expedited FDA review, a rolling Biologics License Application review and certain other benefits.
Our current focus is to pursue our study of TAVO™-EP in combination with KEYTRUDA® (pembrolizumab) in melanoma.
| 54 |
Performance Outlook
As a result of recent cash runway and working capital limitations, we expect to use our available working capital in the near term primarily for the advancement of our existing and planned clinical melanoma programs, including delivery of the KEYNOTE-695 trial results. In order to preserve our existing working capital, we have decreased clinical work on our other clinical trials and studies, including those involving triple negative breast cancer. We anticipate our spending on clinical programs and the development of our next-generation OMS EP Device will continue throughout our current fiscal year. Our spending on research and development programs will be prioritized to support development of TAVO™-EP in melanoma, based on our current focus on the KEYNOTE-695 trial. Due to ongoing restructuring efforts, we expect our cash-based general and administrative expenses to remain relatively flat in the near term, as we seek to continue to leverage internal resources and automate processes to decrease our outside services expenses. See “Results of Operations” below for more information.
Restructuring Plan
As previously disclosed, on October 2, 2022, our Board of Directors authorized a restructuring plan (the “Restructuring Plan”) that is designed to prioritize clinical activities in melanoma to reduce operating expenses while advancing our lead product candidate, TAVO™ EP, toward near-term data milestones in connection with the KEYNOTE-695 clinical trial. As part of the Restructuring Plan, we restructured our internal operations and reduced our workforce by approximately 45%, or approximately 18 employees.
We currently estimate that we will incur charges of approximately $750,000 to $800,000 in connection with the Restructuring Plan, consisting primarily of cash expenditures for employee transition, notice period and severance payments, retention bonus payments, and related costs as well as non-cash expenses related to vesting of share-based awards. We expect that the majority of the restructuring charges will be incurred in the fourth calendar quarter of 2022 and first calendar quarter of 2023, and that the execution of the Restructuring Plan will be substantially complete by the second calendar quarter of 2023.
The charges that we expect to incur in connection with the Restructuring Plan are estimates and subject to a number of assumptions, and actual results may differ materially. The foregoing estimated amounts do not include any non-cash charges associated with stock-based compensation. We expect to operationalize additional cost reduction actions that will include other incremental cost reduction actions unrelated to workforce reductions.
COVID-19
Our operational and financial performance have been affected by the COVID-19 pandemic. Our clinical trials have experienced delays in patient enrollment, potentially due to prioritization of hospital resources toward the COVID-19 pandemic or concerns among patients about participating in clinical trials during a public health emergency. The COVID-19 pandemic is also affecting the operations of government entities, such as the FDA, as well as contract research organizations, third-party manufacturers, and other third-parties upon whom we rely. The extent of the impact on our operations cannot be ascertained at this time.
| 55 |
Results of Operations for the Year Ended July 31, 2022 Compared to the Year Ended July 31, 2021
The financial data for the years ended July 31, 2022 and July 31, 2021 is presented in the following table and the results of these two periods are included in the discussion thereafter.
| July 31, 2022 | July 31, 2021 | $ Change | % Change | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | - | |||||||||
| Expenses | ||||||||||||||||
| Research and development | 25,821,543 | 34,097,641 | (8,276,098 | ) | (24 | ) | ||||||||||
| General and administrative | 11,190,519 | 14,282,417 | (3,091,898 | ) | (22 | ) | ||||||||||
| Loss from operations | (37,012,062 | ) | (48,380,058 | ) | 11,367,996 | (23 | ) | |||||||||
| Other income (loss), net | 28,857 | (704 | ) | 29,561 | (4,199 | ) | ||||||||||
| Interest expense | (20,925 | ) | (15,857 | ) | (5,068 | ) | 32 | |||||||||
| Gain on extinguishment of debt | - | 960,790 | (960,790 | ) | (100 | ) | ||||||||||
| Foreign currency exchange loss | (509,652 | ) | (144,085 | ) | (365,567 | ) | 254 | |||||||||
| Loss before income taxes | (37,513,782 | ) | (47,579,914 | ) | 10,066,132 | (21 | ) | |||||||||
| Income tax benefit | (3,334,148 | ) | (2,412,183 | ) | (921,965 | ) | 38 | |||||||||
| Net loss | $ | (34,179,634 | ) | $ | (45,167,731 | ) | $ | 10,988,097 | (24 | ) | ||||||
Revenue
We have not generated any revenue since our inception, and we do not anticipate generating any revenue in the near term.
Research and Development Expenses
Our research and development expenses decreased by approximately $8.3 million, from $34.1 million during the year ended July 31, 2021, to $25.8 million during the year ended July 31, 2022. This decrease was primarily due to the following approximate decreases: (i) a $6.3 million decreases in clinical trial-related costs to support our various clinical studies and costs for discovery research and product development, (ii) a $1.6 million decreases in stock-based compensation expense for employees and consultants, and (iii) a $0.4 million decrease in payroll and related benefits expenses, primarily due to decreased headcount.
General and Administrative
Our general and administrative expenses decreased by approximately $3.1 million, from $14.3 million during the year ended July 31, 2021, to $11.2 million during the year ended July 31, 2022. This decrease was largely due to the following: (i) a $2.4 million decrease in stock-based compensation expense for employees and consultants, (ii) a $1.6 million decrease in payroll and related benefits expenses primarily due to a severance payment of $1.8 million to the former CEO of the Company in the prior period, and (iii) a $0.6 million decrease in consulting costs, primarily related to business development and public relations. The decrease was offset by: (i) a $0.7 million increase in legal expenses, primarily related to $1 million in insurance recoveries received in connection with prior litigation with Alpha Holdings, Inc. in the prior period, and (ii) a $0.6 million increase in insurance costs related to increased D&O insurance premiums.
Gain on Extinguishment of Debt
Gain on Extinguishment of Debt decreased by approximately $1.0 million from $1.0 million for the year ended July 31, 2021, to $0 for the year ended July 31, 2022. During the year ended July 31, 2021, the loan issued to the Company under the Small Business Administration’s Paycheck Protection Program (“PPP”) under Division A. Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was forgiven, which resulted in a gain on extinguishment of debt of approximately $1.0 million.
| 56 |
Foreign Currency Exchange Loss
Foreign currency exchange loss, increased by approximately $0.4 million from a loss of $0.1 million for the year ended July 31, 2021 to a loss of $0.5 million for the year ended July 31, 2022. The increase was primarily due to unrealized foreign currency transaction losses recognized in connection with our Australian subsidiary’s intercompany loan.
Income Tax benefit
In April 2022, we received $3.3 million in net proceeds from the sale of our net operating losses (“NOL”) under the State of New Jersey NOL Transfer Program. In June 2021, the Company received $2.4 million in net proceeds from the sale of its New Jersey NOL under the State of New Jersey NOL Transfer Program.
Liquidity and Capital Resources
Working Capital
The following table and subsequent discussion summarize our working capital as of each of the periods presented:
At July 31, 2022 | At July 31, 2021 | |||||||
| Current assets | $ | 15,232,471 | $ | 49,179,424 | ||||
| Current liabilities | 6,633,328 | 7,961,916 | ||||||
| Working capital | $ | 8,599,143 | $ | 41,217,508 | ||||
Current Assets
Current assets as of July 31, 2022 decreased by $34.0 million to $15.2 million, from $49.2 million as of July 31, 2021. This decrease was primarily related to the decrease of cash in the amount of $33.7 million and the decrease of prepaid insurance in the amount of $0.3 million. The decrease in cash was due to cash used to support our operations during the year ended July 31, 2022. The decrease in prepaid insurance was due to decreased D&O insurance premiums upon renewal of D&O insurance in July 2022.
Current Liabilities
Current liabilities as of July 31, 2022 decreased by $1.4 million to $6.6 million, from $8.0 million as of July 31, 2021. This decrease was primarily due to a decrease in accounts payable and accrued expenses pertaining to our legal costs and our manufacturing and clinical research activities.
Cash Flow
Cash Used in Operating Activities
Net cash used in operating activities for the year ended July 31, 2022 was $32.1 million, as compared to $41.8 million for the year ended July 31, 2021. The $9.7 million decrease in cash used in operating activities was primarily attributable to a decrease in cash used to support our operating activities, including but not limited to, our clinical trials, a decrease in research and development activities and general working capital requirements.
Cash Used in Investing Activities
Net cash used in investing activities for year ended July 31, 2022 was $0.2 million, as compared to $0.8 million for the year ended July 31, 2021. During the year ended July 31, 2022, the Company purchased property and equipment for future use in its clinical trials and other research and development efforts. During the year ended July 31, 2021, the Company licensed generator technology and purchased property and equipment for use in its clinical trials and other research and development efforts.
| 57 |
Cash Provided by (Used in) Financing Activities
Net cash used in financing activities was $1.2 million for the year ended July 31, 2022, as compared to $68.2 million provided by financing activities for the year ended July 31, 2021. Net cash used in financing activities during the year ended July 31, 2022 was primarily attributable to principal payments on notes payable. Net cash provided by financing activities during the year ended July 31, 2021 was primarily attributable to $52.6 million net proceeds received from public offerings of securities in August 2020 and January 2021, $5.0 million received from the co-promotion agreement with Sirtex Medical US Holdings, Inc. (“Sirtex”), $5.4 million received from warrant and option exercises and $5.8 million from the purchase of shares pursuant to participation rights set forth under the Grand Decade Developments Limited, a direct, wholly-owned subsidiary of Grand Pharmaceutical Group Limited (formerly China Grand Pharmaceutical & Healthcare Holdings Ltd.) (“CGP”) and Sirtex stockholders agreements originally entered into on October 10, 2019.
Uses of Cash and Cash Requirements
Our primary uses of cash have been to finance clinical and research and development activities focused on the identification and discovery of new potential product candidates, the development of innovative and proprietary medical approaches for the treatment of cancer, and the design and advancement of pre-clinical and clinical trials and studies related to our pipeline of product candidates. We also use our capital resources on general and administrative activities and building and strengthening our corporate infrastructure, programs and procedures to enable compliance with applicable federal, state and local laws and regulations.
Our primary objectives for the next 12 months are to continue the advancement of our KEYNOTE-695 trial and to continue our research and development activities for our next-generation EP device. In addition, we expect to pursue capital-raising transactions, which could include equity or debt financings, in the near term to fund our existing and planned operations and acquire and develop additional assets and technology consistent with our business objectives as opportunities arise.
Going Concern and Management’s Plans
We have sustained losses in all reporting periods since inception, with an accumulated deficit of approximately $286 million as of July 31, 2022. These losses are expected to continue for an extended period of time. Further, we have never generated any cash from our operations and do not expect to generate such cash in the near term. The aforementioned factors raise substantial doubt about our ability to continue as a going concern within one year from the issuance date of the consolidated financial statements. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated 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 one year after the date the consolidated financial statements are issued.
As of October 17, 2022, we had cash and cash equivalents of $6.7 million. Since inception, cash flows from financing activities have been the primary source of the Company’s liquidity. Based on our current cash levels, we believe our cash resources are insufficient to meet our anticipated needs for the 12 months following the date the consolidated financial statements are issued.
We will need to raise additional capital to continue operating our business and fund our planned operations, including research and development, clinical trials and, if regulatory approval is obtained, commercialization of its product candidates. In addition, we will require additional financing if we desire to in-license or acquire new assets, research and develop new compounds or new technologies and pursue related patent protection, or obtain any other intellectual property rights or other assets. There is no assurance that additional financing will be available to us when needed, that Management will be able to obtain financing on terms acceptable to us, or whether we will become profitable and generate positive operating cash flow. The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our clinical development programs. Similarly, if our common stock is delisted from the Nasdaq Capital Market, it may limit our ability to raise additional funds. See “Nasdaq Deficiency Notice” below. The ongoing COVID-19 pandemic has also caused volatility in the global financial markets and threatened a slowdown in the global economy, which may negatively affect our ability to raise additional capital on attractive terms or at all. If we are unable to raise sufficient additional funds when needed, on favorable terms or at all, we will not be able to continue the development of our product candidates as currently planned or at all, will need to reevaluate our planned operations and may need to delay, scale back or eliminate some or all of our development programs, reduce expenses or cease operations, any of which would have a significant negative impact on our prospects and financial condition.
| 58 |
Sources of Capital
We have not generated any revenue since our inception, and we do not anticipate generating revenue in the near term. Historically, we have raised the majority of the funding for our business through offerings of our common stock and warrants to purchase our common stock. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders would experience further dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we incur debt, our fixed payment obligations, liabilities and leverage relative to our equity capitalization would increase, which could increase the cost of future capital. Further, the terms of any debt securities we issue or borrowings we incur, if available, could impose significant restrictions on our operations, such as limitations on our ability to incur additional debt or issue additional equity or other operating restrictions that could adversely affect our ability to conduct our business, and any such debt could be secured by any or all of our assets pledged as collateral. Additionally, we may incur substantial costs in pursuing future capital, including investment banking, legal and accounting fees, printing and distribution expenses and other costs.
Nasdaq Deficiency Notice
On June 2, 2022, we received notice (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) that the Company is not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price of our common stock had been below $1.00 per share for 30 consecutive business days as of the date of the Notice. The Notice had no immediate effect on the listing of our common stock, which continues to trade at this time on the Nasdaq Capital Market under the symbol “ONCS.”
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until November 29, 2022, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share for at least ten consecutive business days during this 180 calendar day period. In the event we do not regain compliance by November 29, 2022, we may be eligible for an additional 180 calendar day grace period if the Company meets the continued listing requirement for market value of publicly held shares ($1 million) and all other initial listing standards for the Nasdaq Capital Market, with the exception of the minimum bid price, and we provide written notice to Nasdaq of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. If we do not regain compliance within the allotted compliance period(s), Nasdaq will provide notice that our common stock will be subject to delisting from the Nasdaq Capital Market. In that event, we may appeal such delisting determination to a hearings panel.
We are currently evaluating our alternatives to resolve the listing deficiency including, but not limited to, conducting a reverse stock split. To the extent that we are unable to resolve the listing deficiency, there is a risk that our common stock may be delisted from Nasdaq, which would adversely impact liquidity of our common stock and potentially result in even lower bid prices for our common stock.
On November 29, 2021, we notified Nasdaq that Robert E. Ward had resigned as a member of the Board of Directors and the Company’s Audit Committee, as disclosed on our Current Report filed on Form 8-K on November 30, 2021. After giving effect to Mr. Ward’s resignation, the Company’s Audit Committee no longer consisted of three independent members as required by Nasdaq Listing Rule 5605(c)(2)(A).
On December 8, 2021, we received a letter from Nasdaq noting that we no longer complied with the requirement of Listing Rule 5605. The letter also acknowledged that the Listing Rules provide a cure period in order for us to regain compliance until the earlier of our next annual meeting of stockholders or November 23, 2022.
On June 9, 2022, the Board of Directors appointed Mr. Joon Kim, an incumbent independent director, to the Audit Committee. On June 13, 2022, Nasdaq confirmed that we had regained compliance under Listing Rule 5605.
| 59 |
Critical Accounting Policies
Use of Estimates
The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant accounting estimates related to our ability to continue as a going concern and certain calculations related to that determination. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, we review our estimates to ensure that they appropriately reflect changes in the business or as new information becomes available. Actual results may differ from these estimates.
Research and Development Expenses
Research and development expenses consist of costs incurred for internal projects, as well as partner-funded collaborative research and development activities. These costs include direct and research-related overhead expenses, which include salaries, stock-based compensation and other personnel-related expenses, facility costs, supplies, depreciation of facilities and laboratory equipment, as well as research consultants and the cost of funding research at universities and other research institutions, and are expensed as incurred. Costs to acquire technologies that are utilized in research and development that have no alternative future use, are expensed when incurred. In accordance with Accounting Standards Codification (“ASC”) 730-20, we account for upfront, non-refundable research and development payments received from a related party as a long-term liability as there has not been a substantive and genuine transfer of risk and there is a presumption that we are obligated to repay the related party.
Equity-Based Awards
We grant equity-based awards (typically stock options or restricted stock units) under our stock-based compensation plan and occasionally outside of our stock-based compensation plan, with terms generally similar to the terms under our stock-based compensation plan. We estimate the fair value of stock option awards using the Black-Scholes option valuation model. For employees, directors and consultants, the fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. The Black-Scholes option valuation model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and expected life of the option. We estimate the fair value of restricted stock unit awards based on the closing price of the Company’s common stock on the date of grant.
Leases
We determine if an arrangement is a lease at inception. Operating lease right of use (“ROU”) assets represent our right to use an underlying asset during the lease term, and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease liabilities on our consolidated balance sheets.
Lease ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at commencement date calculated using our incremental borrowing rate applicable to the lease asset, unless the implicit rate is readily determinable. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recognized on the consolidated balance sheets. Our leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. We account for lease and non-lease components as a single lease component for all its leases.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained in Note 2 to our consolidated financial statements included in this report.
| 60 |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 consolidated 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 the reports we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to our Management, including our Principal Executive Officer and Principal 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 Principal Executive Officer and our Principal Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of July 31, 2022. Based on such evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of July 31, 2022, 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 Principal Executive Officer and our Principal Financial Officer, our Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of July 31, 2022. 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 July 31, 2022, 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 quarter ended July 31, 2022, 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.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
| 61 |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of Directors
The following table sets forth the names, ages as of October 31, 2022, and certain other information for each member of our board of directors (our “Board”):
| Name | Position with the Company | Age | Director Since | |||
| Dr. Linda Shi, M.D., Ph.D. | Chair of the Board | 58 | December 2021 | |||
| Dr. Robert H. Arch | Director, President and Chief Executive Officer | 56 | October 2022 | |||
| Stephany Foster | Director | 44 | October 2022 | |||
| Joon Kim | Director | 56 | December 2018 | |||
| Dr. Herbert Kim Lyerly, M.D. | Director | 64 | April 2020 | |||
| Kevin R. Smith | Director | 51 | February 2020 | |||
| Chao Zhou | Director | 33 | February 2020 |
Dr. Linda Shi, M.D., Ph.D., is the deputy president and Chief Medical officer of Grand Pharma (China) Co. Ltd. (Grand Pharma), as well as an Executive Director of Grand Pharmaceutical Group Limited, a publicly listed company in Hong Kong. Prior to joining Grand Pharma in 2019, Dr. Shi was the EU Regulatory Leader in the Global Regulatory Affairs (GRA) for Neuroscience at Janssen R&D in Belgium for more than 12 years.
Dr. Shi has over 30 years of clinical and research experience in academic settings and the pharmaceutical industry, with significant experience working with global multifunctional matrixed teams to drive forward complex projects. She led various applications for clinical trials (Clinical Trial Applications (CTA) and Investigational New Drug Applications (IND)) across Europe and in the United States, particularly in relation to strategic assessments of first-in-human clinical trials with innovative research paths. Dr. Shi obtained her M.D. in China and also a Ph.D. in Medical Sciences from Vrije Universiteit Brussel. She has been appointed as a guest professor and visiting fellow in various universities worldwide.
Dr. Robert H. Arch has served as an independent consultant to various pharmaceutical and biotechnology companies since July 2021. Previously, Dr. Arch served as Head of Research at Elpiscience Biopharma, Ltd. from October 2019 to June 2021 and Head of the Liver Disease Department at China Novartis Institutes for BioMedical Research from February 2017 to October 2019. Dr. Arch’s leadership roles have been focused on shaping strong teams and building diversified research and development pipelines with innovative assets, from ideas to late-stage clinical development programs. Dr. Arch’s career over 28 years extends from academia to the pharmaceutical industry, including positions at Novartis, Takeda, GlaxoSmithKline, and Pfizer. Dr. Arch’s expertise in basic research and drug development includes chronic liver disease, cancer, immuno-oncology, respiratory disease, and inflammatory disorders. Dr. Arch holds a Ph.D. in Germany from the University of Wuerzburg and the German Cancer Research Center (the “DKFZ”), Heidelberg. After postdoctoral training at the DKFZ and the University of Chicago, Dr. Arch started his independent career as a faculty member in the Departments of Medicine and Pathology & Immunology at Washington University in Saint Louis. Dr. Arch is an author on more than 40 publications and book chapters and co-inventor on several patents for clinical-stage assets.
| 62 |
Ms. Stephany Foster has over 20 years of experience in the fields of accounting and human resource management. Since October 2019, Ms. Foster has served as Chief Human Resources Officer, Senior Vice President, Head of Global Human Resources, and a member of the Executive Committee of QIAGEN N.V., a global provider of Sample to Insight solutions that enable customers to gain valuable molecular insights from samples containing the building blocks of life. Prior to this position, Ms. Foster served as Vice President, Head of Compensation and Benefits, at QIAGEN from January 2019, and earlier as Vice President, Head of Internal Audit, at QIAGEN from January 2005 to December 2018. Ms. Foster holds both a Bachelor’s and Master’s degree in Accounting from the University of Notre Dame.
Mr. Joon Kim has served on our Board since December 2018. Mr. Kim is an accomplished litigator with extensive experience in both business and criminal litigation matters. With a particularly strong background in representing clients in court proceedings, Mr. Kim has a comprehensive understanding of every stage of the litigation process, including all aspects of initial investigatory/discovery proceedings, settlement negotiations, contested hearings, pretrial and trial motions, evidentiary issues, trials, and the handling of post-judgment challenges and appeals. Mr. Kim advises corporate clients of varying sizes on a variety of subject matters, inclusive of assisting the top management with strategic decision-making. Mr. Kim has acted as an advisor to Alpha Holdings, Co., Ltd. since July 2018.
From April 2017 to March 2020, as a partner in Lee & Ko’s International Litigation and Dispute Resolution and White Collar Crime Practice Groups, Mr. Kim advised clients, both domestic and international, on a broad range of litigation and dispute-resolution matters. In addition, Mr. Kim served as a public prosecutor in California, representing the People of the State of California in criminal proceedings. In that capacity, Mr. Kim has first-chaired both jury and non-jury trials, and has been trained in all aspects of litigation. During his time as a public prosecutor, Mr. Kim also had the experience of serving as a research fellow at the Institute of Justice, under the auspices of the Ministry of Justice of the Republic of Korea, where he worked closely with Korean public prosecutors. Mr. Kim received his J.D. from Berkeley School of Law and his B.S. from the Berkeley School of Business. Mr. Kim’s legal experience and expertise are the primary qualifications for him to serve as a director of the Company.
Dr. Herbert Kim Lyerly, M.D., is the George Barth Geller Professor of Cancer Research (from 2004), Professor of Surgery (from 1997), Immunology (from 2017) and Pathology (from 2018), and Director of the Surgical Sciences Applied Therapeutics section at Duke University (from 2021), and former Director of the Duke Comprehensive Cancer Center, a position he held from 2003 to 2011. He is an internationally recognized expert in cancer therapy and immunotherapy, has published over 300 scientific articles and book chapters, and has edited ten textbooks on surgery, cancer immunotherapy and novel cancer therapies. He serves on the editorial board of 12 scientific journals.
Dr. Lyerly was appointed in 2008 by President George W. Bush to serve on the National Cancer Advisory Board, which oversees the National Cancer Institute, where he served until 2014. He has served as Chair of the Cancer Center’s Subcommittee and served on the Global Health Subcommittee of the National Cancer Advisory Board. He has served on the National Institutes of Health (“NIH”) Council of Councils, and on the board of the NIH Office of AIDS Research. He has also been a member of the scientific advisory boards of the Susan G. Komen Foundation and the Burroughs Welcome Foundation. He is a highly sought-after consultant and advisor and has served on the Cancer Center’s external advisory boards for the M.D. Anderson Cancer Center, University of Michigan, University of Chicago, University of Alabama, University of Arizona, Boston University and Purdue University. He has served as an advisor to the University of Washington and Case Western Reserve Clinical and Translational Science Institutes. Dr. Lyerly’s experience and expertise in the field of oncology are the primary qualifications for him to serve as a director of the Company.
| 63 |
Mr. Kevin R. Smith is currently the Chief Executive Officer and Executive Director of Sirtex Medical US Holdings, Inc. (“Sirtex”), a position that he has held since October 2019. Mr. Smith served as the interim Chief Executive Officer of OncoSec from February 2022 to May 2022. He combines more than 20 years of sales and marketing experience in the medical device industry with the keen instincts of an entrepreneur. Prior to his appointment to Chief Executive Officer of Sirtex, Mr. Smith served as Sirtex’s interim Chief Executive Officer from April 2019 to October 2019 and Executive Vice President of Sales & Marketing, Americas from August 2017 to April 2019. Before joining Sirtex, Mr. Smith was Executive Vice President of Business Development at Gel-e, Inc., a company based at the University of Maryland specializing in advanced material hemostasis products, a position he held since January 2017. Mr. Smith’s previous positions include Chief Commercial Officer of Sensium Healthcare along with Global Vice President of Sales & Marketing at Teleflex, where he was the senior sales and marketing executive in the company’s cardiac business unit. Mr. Smith holds a Master of Business Administration in Global Management from the University of Phoenix and a Bachelor of Science in Marketing from the University of Kentucky. Mr. Smith’s leadership experience, as well as his experience in the marketing and sales sector of the medical device industry, are the primary qualifications the Board considered in nominating him as a director of the Company.
Mr. Chao Zhou is currently the Chief Executive Officer of Grand Pharmaceutical Group Limited, a public company listed on the Hong Kong stock exchange that develops, manufactures and distributes pharmaceutical products and medical devices to retailers and medical organizations with significant experience in research and development and product commercialization in China, a position he has held since June 2021. Since 2018, Mr. Zhou has served on the Board of Directors of Grand Pharma Sphere Pte. Ltd, a Singapore based company, Sirtex Medical Pty Ltd., the Australian based global medical device company and Cloudbreak Pharmaceutical Inc., a Cayman Islands based company which is engaged in the business of the research, development, manufacturing and commercialization of biopharmaceutical product. Prior to his role as Chief Executive Officer of Grand Pharmaceutical Group Limited, from 2013 Mr. Zhou served as a Management Director in the Department of Legal Security for China Grand Enterprises, Inc., an investment company engaged in the operation and management of businesses covering pharmaceuticals and healthcare, commodity trading, real estate investment, financial service and other sectors. He earned his Bachelor in Law from Ocean University of China and a Master in International Law from the University of International Business and Economics. We believe that Mr. Zhou is qualified to serve on our Board of Directors due to his commercial experience in the biopharmaceutical industry.
Arrangements with Members of Our Board
On February 7, 2020, the Company closed (the “Closing”) a strategic transaction (the “CGP Transaction”) with Grand Decade Developments Limited, a direct, wholly-owned subsidiary of Grand Pharmaceutical Group Limited (formerly China Grand Pharmaceutical & Healthcare Holdings Ltd.), a company formed under the laws of the British Virgin Islands (“CGP”), and its affiliate, Sirtex Medical US Holdings, Inc., a Delaware corporation (“Sirtex”). In connection with the Closing, the Company entered into a Stockholders Agreement (the “Stockholders Agreements”) with each of CGP and Sirtex, pursuant to which, among other things, CGP exercised its option to nominate two (2) individuals to the Board and Sirtex exercised its option to nominate one (1) director to the Board. Pursuant to the Stockholders Agreements, CGP nominated Yuhang Zhao, Ph.D., and Chao Zhou to the Company’s Board, and Sirtex nominated Kevin R. Smith to the Company’s Board. On December 15, 2021, Dr. Zhao resigned from the Board and CGP exercised its option pursuant to its Stockholders Agreement and appointed Dr. Shi as her replacement. Additionally, pursuant to the CGP Stockholders Agreement, CGP is entitled to nominate up to two (2) replacement independent directors in the event that any independent director that was a director on the Board at the Closing resigns or otherwise ceases to be a director. On November 23, 2021, Robert E. Ward, former independent director, resigned from his position on the Board. CGP subsequently nominated Ms. Stephany Foster to the Board and on October 7, 2022, the Board formally appointed Ms. Foster as an independent director of the Board.
On August 31, 2018, OncoSec and Alpha Holdings, Inc. (“Alpha”) entered into a stock purchase agreement (the “Alpha Stock Purchase Agreement”), pursuant to which OncoSec agreed to issue and sell to Alpha shares of its common stock. Pursuant to the Alpha Stock Purchase Agreement, Alpha was given the option to nominate one individual to the Company’s Board. Mr. Kim was appointed to the Board in accordance with the terms of the Alpha Stock Purchase Agreement in conjunction with the closing of the transaction in December 2018.
| 64 |
Additionally, on August 13, 2021, of the Board of Directors formed a temporary Leadership Committee consisting of three board members, Dr. Margaret Dalesandro, Dr. Yuhang Zhao and Dr. Herbert Kim Lyerly, to lead all development efforts, with a focus on the Company’s lead asset, TAVO™, until a permanent Chief Executive Officer was hired. Subsequently, upon Dr. Dalesandro’s and Dr. Zhao’s resignation from the Board of Directors on December 13, 2021 and December 15, 2021, respectively, the Board of Directors appointed Dr. Linda Shi and Mr. Kevin Smith to serve on the Leadership Committee. On April 28, 2022, the Board of Directors approved the appointment of Robert H. Arch, Ph.D., as the Company’s President and Chief Executive Officer, after which the Leadership Committee was dissolved.
Other than as described above, there is no arrangement or understanding between any nominee and any other person or persons pursuant to which any nominee was or is to be selected as a director or director nominee of the Company. There are no family relationships between any of the directors or our executive officers.
Executive Officers
Set forth below is information regarding the current executive officers of the Company, including biographical summaries.
| Name | Position(s) with the Company | Age | Officer Since | |||
| Robert H. Arch, PH.D | Chief Executive Officer and President | 56 | May 2022 | |||
| George Chi | Chief Financial Officer | 53 | February 2022 |
Please see Item 10. Directors, Executive Officers and Corporate Governance—Board of Directors above for Dr. Robert H. Arch’s biography.
Mr. George Chi joined the Company from THPlasma, where he served as Chief Executive Officer since July 2020 and helped found the company’s plasma collection business and establish regular commercial sales. Prior to joining THPlasma, Mr. Chi served as Chief Financial Officer of CASI Pharmaceuticals, Inc. (“CASI”), a biopharmaceutical company focused on developing and commercializing innovative therapeutics and pharmaceutical products, from September 2018 to February 2020. Prior to joining CASI, Mr. Chi was Vice President of Finance at Flavors Holdings, Inc., a packaged food company, from October 2016 to September 2018, where he led the global accounting function, including financial reporting, planning, treasury, investor relations, tax and auditing with global sales in 90 countries. Prior to his time at Flavor Holdings, Inc. from 2014-2016, Mr. Chi was Chief Financial Officer at BPL Plasma, a large third party blood plasma collection business. From 2008-2013, Mr. Chi was finance director at Unilever PLC where he was responsible for leading the accounting function including financial reporting, annual budgeting and strategic planning. Mr. Chi holds a bachelor’s degree in engineering from Tsinghua University, Beijing, China and a M.B.A. in finance and operations from the Yale School of Management. He also holds certifications as a CPA and CFA.
CORPORATE GOVERNANCE
Role of the Board
The primary functions and responsibilities of the Board are to oversee Management’s operation of the business and affairs of the Company, the determination of our objectives and strategies, and the management of our risks. The functions of the Board are carried out by the full Board and, when delegated, by our Board committees, and each director is a full and equal participant in the major strategic and policy decisions of the Company. The Board has adopted Corporate Governance Guidelines to assist the Board and its committees in performing their duties and serving the best interests of the Company and its stockholders. These Corporate Governance Guidelines are available on our website, located at www.oncosec.com, on the Governance page under the Investors tab.
Between August 1, 2021 and July 31, 2022 (“Fiscal Year 2022”), our Board of Directors held 15 meetings and took 10 actions by unanimous written consent.
| 65 |
Board Committees
The Board has established the following standing committees: Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. The Board may also create additional, temporary committees from time to time, including committees relating to financings, strategic transactions or other significant corporate matters. The Board has adopted a written charter for each of the Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, current copies of which are available on our website, located at www.oncosec.com, on the Governance page under the Investors tab.
Audit Committee
The primary functions of the Audit Committee are, among other things: overseeing our accounting and financial reporting processes and the audits of our financial statements and internal control over financial reporting; reviewing the policies and procedures adopted by the Company to fulfill its responsibilities regarding the fair and accurate presentation of financial statements; appointing, retaining and overseeing the work of our independent registered public accounting firm; reviewing and discussing reports from our independent registered public accounting firm regarding critical accounting policies and practices, alternative treatments of financial information and any material written communications between such firm and Management; reviewing and discussing with Management and our independent registered public accounting firm the Company’s financial statements and financial disclosures prior to the filing thereof in any report filed with the SEC; taking appropriate action to oversee and ensure the independence of our independent registered public accounting firm; and establishing procedures for the confidential and anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. The Audit Committee met 5 times in Fiscal Year 2022.
Nasdaq has established rules and regulations regarding the composition of audit committees and the qualifications of audit committee members. Our Board of Directors has examined the composition of our Audit Committee and the qualifications of our Audit Committee members in light of the current rules and regulations governing audit committees. Based upon this examination, our Board of Directors has determined that each member of our Audit Committee is independent and is otherwise qualified to be a member of our Audit Committee in accordance with such rules. Ms. Foster, Dr. Lyerly and Mr. Kim currently serve on the Audit Committee.
Additionally, the U.S. Securities and Exchange Commission (“SEC”) requires that at least one member of the Audit Committee have a “heightened” level of financial and accounting sophistication. Such a person is known as the “audit committee financial expert” under the SEC’s rules. During his service on the board during fiscal year 2022, our Board determined that Dr. James DeMesa was an “audit committee financial expert,” as the SEC defines that term, and that each member of the Audit Committee has sufficient knowledge in reading and understanding the Company’s financial statements to serve on such committee. Dr. DeMesa resigned from his position on the Board on October 1, 2022. On October 7, 2022, Ms. Foster was appointed to the Board and Audit Committee, and concurrently our Board determined that Ms. Foster is an “audit committee financial expert,” as the SEC defines that term.
Compensation Committee
The primary functions of the Compensation Committee are, among other things: reviewing and approving compensation programs and arrangements applicable to our officers; determining the objectives of our executive officer compensation programs, including reviewing and establishing goals and objectives relevant to Chief Executive Officer compensation, and determining the extent to which they are achieved and any related compensation is earned; administering our incentive compensation and equity-based plans; reviewing Management’s risk assessment regarding the compensation policies and practices of the Company and taking steps to provide that such policies and practices do not encourage unnecessary or excessive risk-taking; and reviewing and approving director compensation and benefits. The Compensation Committee met 5 times in Fiscal Year 2022.
While certain members of senior management, including primarily our Chief Executive Officer, present their views regarding attainment of business objectives and recommended compensation, the Compensation Committee performs its own independent analysis and makes final determinations regarding compensation-related matters. Our Chief Executive Officer is not present during the Compensation Committee’s or the Board’s voting or deliberations regarding his own compensation.
The Compensation Committee’s charter gives the Compensation Committee the authority, without any approval of the Board or Management, to engage and compensate compensation consultants and other advisors as it deems necessary or desirable to carry out its duties, including its evaluation of director or executive officer compensation. Pursuant to its charter and in accordance with applicable Nasdaq and SEC rules, the Compensation Committee would assess the independence of any compensation consultant, including the existence of any conflicts of interest, prior to any engagement.
| 66 |
Nasdaq has established rules and regulations regarding the composition of compensation committees and the qualifications of compensation committee members. As a controlled company, we are not required to have a compensation committee composed entirely of independent directors. However, our Board of Directors has examined the composition of our Compensation Committee and the qualifications of our Compensation Committee members in light of the current rules and regulations governing compensation committees. Based upon this examination, our Board of Directors has determined that two members of our Compensation Committee are independent and all members are otherwise qualified to be a member of our Compensation Committee in accordance with such rules. Dr. Lyerly, Ms. Foster and Mr. Smith currently serve on the Compensation Committee.
Nominating and Corporate Governance Committee
The primary functions of the Nominating and Corporate Governance Committee are, among other things: assisting in the identification of nominees for election to our Board, consistent with qualifications and criteria approved by the Board; determining the composition of the Board and its committees; recommending to the Board the director nominees for the annual meeting of stockholders; establishing and monitoring a process of assessing the Board’s effectiveness; developing and overseeing a set of corporate governance guidelines and procedures; and overseeing the evaluation of the Board and the Company’s Management. The Nominating and Corporate Governance Committee met 2 times in Fiscal Year 2022.
Mr. Smith, Mr. Kim and Mr. Zhou currently serve on the Nominating and Corporate Governance Committee.
Nomination of Directors
Our Nominating and Corporate Governance Committee is responsible for identifying and evaluating individuals qualified to become directors and recommending these candidates to our Board for nomination or appointment.
Director Qualifications
In considering potential new directors, the Nominating and Corporate Governance Committee may review individuals from various disciplines and backgrounds. Among the qualifications to be considered in the selection of candidates are broad experience in business, finance or administration; familiarity with the Company’s industry; and prominence and reputation. Since prominence and reputation in a particular profession or field of endeavor are what bring most persons to the Board’s attention, there is further consideration of whether the individual has the time available to devote to the work of the Board and on one or more of its committees. To this end, our Corporate Governance Guidelines provide that no director is to hold more than four directorships of publicly traded companies, and no member of our Audit Committee is to sit on the Audit Committee of more than two other publicly traded companies. The Nominating and Corporate Governance Committee also reviews the activities and associations of each candidate to ensure there is no legal impediment, conflict of interest or other consideration that might hinder or prevent service on the Board. With respect to the nomination of continuing directors for re-election, an individual’s past contributions to the Board are also considered.
Other than the foregoing, there are no stated minimum criteria for director nominees and the Nominating and Corporate Governance Committee may also consider these factors and any such other factors as it deems appropriate and in the best interests of the Company and our stockholders. The Nominating and Corporate Governance Committee does, however, recognize that under applicable regulatory requirements at least one member of the Board should meet the criteria for an “audit committee financial expert” as defined by SEC rules and the members of certain of our Board committees must satisfy enhanced independence criteria under applicable Nasdaq and SEC rules. Further, although the Company does not have a formal diversity policy, the Nominating and Corporate Governance Committee seeks to assemble a Board that brings to the Company a variety of perspectives, skills, expertise, and sound business understanding and judgment, derived from a broad range of business, professional, governmental, finance, community and industry experience.
| 67 |
Identification and Evaluation of Director Nominees
The Nominating and Corporate Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. Potential director candidates may come to the attention of the Nominating and Corporate Governance Committee through current members of the Board, executive officers, professional search firms, stockholders or others. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee and may be considered at any point during the year. The Nominating and Corporate Governance Committee recommends the director nominees to our Board for approval for election at each annual meeting of stockholders. Under our bylaws, any director appointed by our Board is subject to re-election by our stockholders at our next annual meeting of stockholders.
Code of Business Conduct and Ethics
The Board has adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive officer and principal financial and accounting officer. The Code of Business Conduct and Ethics is available for review on our website at www.oncosec.com, on the Governance page under the Investors tab, and is also available in print, without charge, to any stockholder who requests a copy by writing to us at OncoSec Medical Incorporated, 24 N. Main Street, Pennington, NJ 08534, Attention: Investor Relations. We expect that any amendments to the Code of Business Conduct and Ethics, or any waivers of its requirements, will be disclosed on our website.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our officers, directors and persons who beneficially own more than 10% of our common stock to file reports of securities ownership and changes in such ownership with the SEC. To our knowledge, based solely on our review of such reports filed electronically with the SEC or written representations from persons subject to Section 16(a), we believe that during Fiscal Year 2022, all Section 16(a) reporting requirements applicable to our directors, executive officers and 10% stockholders were completed in a timely manner, except for a late Form 3 was filed by Dr. Linda Shi.
Family Relationships
There are no family relationships among our current directors and executive officers.
| 68 |
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the total compensation awarded to, earned by or paid to those individuals who served as our named executive officers during Fiscal Year 2022.
Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($)(2) | Option Awards ($)(2) | Nonequity Incentive Plan Compensation ($) | All Other Compensation ($)(3) | Total ($) | ||||||||||||||||||||||||
| Robert H. Arch, Ph.D. | 2022 | 106,827 | 50,000 | (1) | – | 429,167 | – | 2,331 | 588,325 | |||||||||||||||||||||||
| President and Chief Executive Officer (4) | 2021 | – | – | – | – | – | – | – | ||||||||||||||||||||||||
| George Chi | 2022 | 161,539 | – | – | – | – | 4,154 | 165,693 | ||||||||||||||||||||||||
| Chief Financial Officer (5) | 2021 | – | – | – | – | – | – | – | ||||||||||||||||||||||||
| Robert J. DelAversano | 2022 | 330,265 | 70,875 | (1) | – | – | – | 9,006 | 410,146 | |||||||||||||||||||||||
| VP, Finance, Treasurer and Secretary (6) | 2021 | 270,285 | 83,500 | 66,850 | 150,373 | – | 7,391 | 578,399 | ||||||||||||||||||||||||
| Brian A. Leuthner | 2022 | 58,317 | – | – | – | – | 344,881 | 403,198 | ||||||||||||||||||||||||
| Former Interim Chief Executive Officer, Former Chief Operating Officer (7) | 2021 | 167,058 | – | 606,720 | 856,477 | – | 54,446 | 1,684,701 | ||||||||||||||||||||||||
| Kevin R. Smith | 2022 | – | – | – | – | – | – | – | ||||||||||||||||||||||||
| Former Interim President and Chief Executive Officer (8) | 2021 | – | – | – | – | – | – | – | ||||||||||||||||||||||||
| (1) | Reflects discretionary bonuses approved by the Compensation Committee on March 3, 2022 and a sign on bonus awarded on May 2, 2022. (See Compensation Matters below) |
| (2) | Amounts represent the aggregate grant date fair value of stock and option awards granted during each period, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 Share Based Payments (“FASB Topic 718”). For a description of the assumptions and methodologies used to calculate these amounts, see Note 7—Stock-Based Compensation included in the consolidated financial statements in our Annual Report on Form 10-K for Fiscal Year 2022. |
| (3) | Amounts for fiscal year include for Mr. Arch: 401(k) Company match; for Mr. Chi: 401(k) Company match; for Mr. DelAversano: group term life insurance and 401(k) Company match; for Mr. Leuthner: severance pay of $344,881, 401(k) Company match and moving expenses.
|
| (4) | Mr. Arch was appointed as our President and Chief Executive Officer effective May 2, 2022. |
| (5) | Mr. Chi was appointed as our Chief Financial Officer effective February 21, 2022. |
| (6) | Mr. DelAversano was appointed as the Company’s Treasurer and Secretary effective as of February 17, 2022. |
| (7) | Mr. Leuthner was appointed as the Company’s Chief Operating Officer effective as of February 2, 2021. Mr. Leuthner was appointed as the Company’s interim Chief Executive Officer effective as of June 24, 2021. Mr. Leuthner voluntarily resigned from his position effective as of August 13, 2021. |
| (8) | Mr. Smith served as interim President and Chief Executive Officer from February 17, 2022 through May 1, 2022. Mr. Smith received no compensation or benefits in connection with his appointment as the Company’s interim President and Chief Executive Officer. |
| 69 |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding equity awards held by the named executive officers as of July 31, 2022:
| Option Awards(1) | Stock Awards(2) | |||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options, Exercisable (#) | Number of Securities Underlying Unexercised Options, Not Exercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | ||||||||||||||||||
| Robert H. Arch, Ph.D. | 175,000 | (9) | 525,000 | 0.8428 | 5/2/2032 | – | – | |||||||||||||||||
| – | – | – | – | – | – | |||||||||||||||||||
| Robert J. DelAversano | 54,000 | (4) | – | 1.56 | 4/14/2030 | – | – | |||||||||||||||||
| 15,750 | (5) | 11,250 | (5) | 3.82 | 8/24/2030 | – | – | |||||||||||||||||
| 21,875 | (6) | 13,125 | (6) | 3.16 | 6/28/2031 | – | – | |||||||||||||||||
| – | – | – | – | 3,281 | (7) | 2,363 | ||||||||||||||||||
| Brian A. Leuthner | 65,625 | (8) | – | 7.45 | 2/2/2031 | (10) | – | – | ||||||||||||||||
| 8,250 | (6) | – | 3.16 | 6/28/2031 | (10) | – | – | |||||||||||||||||
| (1) | Except as otherwise noted, all option awards reflect stock options granted under the OncoSec Medical Incorporated 2011 Stock Incentive Plan (the “2011 Plan”) that vest as follows: 25% of the shares subject to the award vested on the date of grant and 1/36th of the remaining 75% of the shares subject to the award will vest on each of the 36 monthly anniversaries of the date of grant, subject to continuing service by the named executive officer on each vesting date. Additionally, the stock options may vest immediately upon a corporate transaction or change in control, as defined in the 2011 Plan. |
| (2) | Except as otherwise noted, all stock awards reflect restricted stock units granted under the 2011 Plan that vest in full on the three-year anniversary of the date of grant. Additionally, the restricted stock units may vest immediately upon a corporate transaction or change in control, as defined in the 2011 Plan. |
| (3) | Determined by multiplying the unvested portion of the stock awards by $0.7202, the closing price of our common stock on July 29, 2022. |
| (4) | Represents an option award approved by our Compensation Committee and granted on April 14, 2020, subject to stockholder approval of an amendment to the Company’s 2011 Plan to increase the number of authorized shares. Our stockholders approved the 2011 Plan amendment on May 29, 2020. The options vested 25% on the date of the grant and the remainder vests quarterly over a three-year period from the date of grant. On August 24, 2020, the Compensation Committee approved the accelerated vesting of these awards and the awards were fully vested on such date. |
| (5) | Represents an option award approved by our Compensation Committee and granted on August 24, 2020. The options vest quarterly over a three-year period from the date of grant. |
| (6) | Represents an option award approved by our Compensation Committee and granted on June 28, 2021. The options vested 25% on the date of the grant and the remainder vests quarterly over a two-year period from the date of grant. |
| 70 |
| (7) | Represents a restricted stock unit award granted on February 1, 2021. The units vest in equal quarterly installments of 1,904 units beginning on May 1, 2021 and ending on February 1, 2023. |
| (8) | Represents a one-time inducement option award granted outside of the 2011 Plan on February 2, 2021. The options vested 25% on the date of the grant and the remainder vests quarterly over a two-year period from the date of grant. |
| (9) | Represents a one-time inducement option award granted outside of the 2011 Plan on May 2, 2022. The options vest quarterly over a one-year period commencing on July 31, 2022. |
| (10) | Mr. Leuthner voluntarily resigned from his position effective as of August 13, 2021 and 109,125 unvested options and 144,000 restricted stock units were forfeited on such date. 73,875 vested stock options remained exercisable for 12 months after the resignation date. |
Compensation Matters
Cash Bonuses
On March 3, 2022, the Compensation Committee approved discretionary cash bonus awards to certain of our employees, including our named executive officers, as follows: Mr. DelAversano received a cash bonus of $70,875.
On May 2, 2022, Mr. Arch was given a signing bonus equal to $150,000, payable in three installments over Mr. Arch’s first year of employment, provided that Mr. Arch is employed on each applicable installment date.
Equity Awards
The named executive officers received grants of equity awards in Fiscal Year 2022 as described below.
Robert H. Arch, Ph.D.
On May 2, 2022, in connection with the appointment of Mr. Arch as the Company’s President and Chief Executive Officer, Mr. Arch received a one-time inducement award of 700,000 stock options to purchase the Company’s common stock. The options vest quarterly over a one-year period commencing on July 31, 2022.
Employment Agreements
The following is a description of the employment agreement for Mr. Arch, our President and Chief Executive Officer.
On April 28, 2022, we entered into an executive employment agreement with Mr. Arch, our President and Chief Executive Officer. The employment agreement provides for the following, among other things:
| ● | An initial annual base salary of $505,000 in cash; | |
| ● | As a one-time grant in connection with his appointment as President and Chief Executive Officer, a one-time inducement award of 700,000 stock options to purchase the Company’s common stock. The options vest quarterly over a one-year period commencing on July 31, 2022; | |
| ● | Eligibility to receive an annual performance-based bonus in a target amount of 40% of Mr. Arch’s annual base salary. Mr. Arch shall be eligible for a pro-rated annual bonus for Fiscal Year 2022; | |
| ● | A signing bonus equal to $150,000, payable in three installments over Mr. Arch’s first year of employment, provided that Mr. Arch is employed on each applicable installment date; | |
| ● | If Mr. Arch’s employment is terminated by the Company without cause, or if Mr. Arch terminates his employment with the Company for good reason, Mr. Arch will be entitled to a payment equal to (i) six months base salary, if such termination occurs during Mr. Arch’s first year of employment; (ii) nine months base salary, if such termination occurs during Mr. Arch’s second year of employment; or (iii) twelve months base salary, if such termination occurs after Mr. Arch’s second year of employment; and | |
| ● | Certain additional benefits, including reimbursement of certain relocation expenses and other benefits customarily made available to our other senior employees. |
| 71 |
We do not have employment agreements with Mr. DelAversano and Mr. Chi and did not enter into employment agreements with Mr. Leuthner prior to his resignation. However, we entered into offer letters on February 1, 2021 with Mr. Leuthner and on January 28, 2022 with Mr. Chi, which provided for the following, among other things:
Terms of Mr. Leuthner’s offer letter:
| ● | An initial annual base salary of $365,000 in cash; | |
| ● | Eligibility to receive a performance bonus of 35% of base salary; and | |
| ● | As a one-time grant in connection with his appointment as Chief Operating Officer, an appointment stock option award to purchase up to 150,000 shares of our common stock. |
Terms of Mr. Chi’s offer letter:
| ● | An initial annual base salary of $400,000 in cash; and | |
| ● | Eligibility to receive a performance bonus of 25% of base salary commencing in calendar year 2023. |
Other Elements of Compensation
Health and Welfare Plans
Our executive officers are eligible to participate in our employee benefit plans, including our health and welfare plans, on the same basis as our other employees.
401(k) Plan
We currently maintain a defined contribution savings plan pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended. The plan is for the benefit of all qualifying employees, including our executive officers, and permits voluntary contributions by employees of up to 100% of eligible compensation, subject to maximum limits imposed by the Internal Revenue Service. The terms of the plan allow for discretionary employer contributions, and we currently match 100% of each employee’s contributions, up to a maximum of 3% of such employee’s annual compensation.
| 72 |
DIRECTOR COMPENSATION
Director Compensation Policy
The Board determines the form and amount of director compensation after its review of recommendations made by the Compensation Committee. Directors who are also employees of our Company do not receive any separate compensation for their service as directors, except that all directors receive reimbursement for reasonable out-of-pocket expenses incurred in attending Board or Board committee meetings or otherwise in connection with performance of their duties as directors. Under our director compensation policy in place for Fiscal Year 2022, our directors’ cash compensation was as follows:
| ● | Non-employee independent directors receive annual cash compensation of $50,000 for services as a director. Non-independent directors do not receive cash compensation; |
| ● | The Chair of the Board receives additional annual cash compensation of $40,000 for services in such capacity; and |
| ● | The Committee Chairs and Committee Members receive additional annual cash compensation as follows: |
| i) | Audit Committee Chair - $17,000 | |
| ii) | Audit Committee Member - $8,500 | |
| iii) | Compensation Committee Chair - $15,000 | |
| iv) | Compensation Committee Member - $7,500 | |
| v) | Nominating and Corporate Governance Committee Chair - $10,000 | |
| vi) | Nominating and Corporate Governance Committee Member - $5,000 |
In addition, each non-employee independent director will receive a stock option award of 50,000 upon election and 25,000 annually thereafter.
Director Compensation Table
The following table provides information about the compensation of our non-employee directors for Fiscal Year 2022:
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($)(1)(6) | Total ($) | ||||||||||||
| Robert E. Ward (2) | 36,000 | – | – | 36,000 | ||||||||||||
| Dr. James M. DeMesa, M.D. (3) | 81,624 | – | – | 81,624 | ||||||||||||
| Margaret Dalesandro, Ph.D. (4) | 101,639 | – | – | 101,639 | ||||||||||||
| Joon Kim | 9,864 | – | – | 9,864 | ||||||||||||
| Dr. Herbert Kim Lyerly, M.D. | 240,500 | – | – | 240,500 | ||||||||||||
| Yuhang Zhao, Ph.D. (5) | 62,000 | – | – | 62,000 | ||||||||||||
| Chao Zhou | – | – | – | – | ||||||||||||
| Kevin R. Smith | – | – | – | – | ||||||||||||
| Dr. Linda Shi, M.D., Ph.D. | – | – | – | – | ||||||||||||
| (1) | Amounts represent the aggregate grant date fair value of option awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 Share Based Payments (“FASB Topic 718”). For a description of the assumptions and methodologies used to calculate these amounts, see Note 7—Stock-Based Compensation to our consolidated financial statements included elsewhere in this Form 10-K. |
| (2) | Mr. Ward resigned from the Company’s Board on November 23, 2021. |
| (3) | Dr. DeMesa resigned from the Company’s Board on October 1, 2022. |
| (4) | Dr. Dalesandro resigned from the Company’s Board on December 13, 2021. |
| (5) | Dr. Zhao resigned from the Company’s Board on December 15, 2021. |
| (6) | As of July 31, 2022, the number of shares subject to all outstanding option awards and stock awards held by our non-employee directors were as follows: |
| Director | Number of Shares Option Awards | Number of Shares | ||||||
| Robert E. Ward | 56,250 | — | ||||||
| Dr. James M. DeMesa, M.D. | 112,500 | — | ||||||
| Margaret Dalesandro, Ph.D. | 71,875 | — | ||||||
| Joon Kim | 65,000 | — | ||||||
| Dr. Herbert Kim Lyerly, M.D. | 75,000 | — | ||||||
| Yuhang Zhao, Ph.D. | 27,083 | — | ||||||
| Chao Zhou | 50,000 | — | ||||||
| Kevin R. Smith | 50,000 | — | ||||||
| Dr. Linda Shi, M.D., Ph.D. | — | — | ||||||
| 73 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The table below sets forth certain information regarding the beneficial ownership of our common stock of (i) each person who, to our knowledge, owns more than 5% of our common stock as of October 18, 2022, (ii) each of our directors and named executive officers (consisting of the persons described under “Executive Compensation” above), and (iii) all of our current directors and executive officers as a group. Unless otherwise indicated in the footnotes to the table below, the address of each person named in the table is: c/o OncoSec Medical Incorporated, 24 N. Main Street, Pennington, NJ 08534.
Beneficial ownership is determined and calculated in accordance with applicable SEC rules, and generally includes sole or shared voting and/or investment power with respect to securities. These rules provide that shares of our common stock subject to options, warrants, restricted stock units or other rights that are currently exercisable or subject to vesting within 60 days after October 18, 2022 are deemed to be beneficially owned and outstanding for purposes of computing the share and percentage ownership of the person holding such options, warrants, restricted stock units or other rights, but are not deemed outstanding for computing the percentage ownership of any other person.
| Name of Beneficial Owner | Amount and Nature of Beneficial Ownership (No. of Shares) | Percentage Beneficially Owned (%)(1) | ||||||
| Directors and Named Executive Officers | ||||||||
| Robert H. Arch, Ph.D.(2) | 350,000 | * | ||||||
| George Chi | - | - | ||||||
| Robert J. DelAversano(3) | 121,570 | * | ||||||
| Brian A. Leuthner(4) | 34,387 | * | ||||||
| Dr. James M. DeMesa, M.D.(5) | 114,750 | * | ||||||
| Joon Kim(6) | 60,833 | * | ||||||
| Dr. Herbert Kim Lyerly, M.D.(7) | 75,000 | * | ||||||
| Kevin R. Smith(8) | 45,833 | * | ||||||
| Chao Zhou(8) | 45,833 | * | ||||||
| Dr. Linda Shi, M.D., Ph.D. | - | - | ||||||
| Stephany Foster | - | - | ||||||
| All directors, nominees and current executive officers as a group (11 persons) | 848,206 | 2.11 | ||||||
| 5% Stockholders | ||||||||
| Grand Pharmaceutical Group Limited (formerly China Grand Pharmaceutical & Healthcare Holdings Ltd.) and Grand Decade Developments Limited(9) | 16,798,036 | 42.6 | ||||||
| Sirtex Medical US Holdings, Inc.(10) | 3,359,607 | 8.5 | ||||||
| Avidity Partners Management LP(11) | 2,945,000 | 7.5 | ||||||
* Indicates beneficial ownership of less than 1% of the total outstanding stock.
| 74 |
| (1) | Based on 39,396,309 shares of our common stock issued and outstanding as of October 18, 2022. Except as otherwise indicated, we believe the beneficial owners of our common stock listed in this table, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. |
| (2) | Includes 350,000 shares of common stock issuable upon exercise of options currently exercisable or exercisable within 60 days after October 18, 2022. |
| (3) | Includes 1,093 RSUs to be vested and 99,406 stock options that are vested or will vest within 60 days after May 18, 2022. |
| (4) | Mr. Leuthner voluntarily resigned as the Company’s Chief Operating Officer and Interim Chief Executive Officer on August 13, 2021. |
| (5) | Includes 112,500 shares of common stock issuable upon exercise of options currently exercisable or exercisable within 60 days after October 18, 2022. |
| (6) | Includes 60,833 shares of common stock issuable upon exercise of options currently exercisable or exercisable within 60 days after October 18, 2022. |
| (7) | Includes 75,000 shares of common stock issuable upon exercise of options currently exercisable or exercisable within 60 days after October 18, 2022. |
| (8) | Includes 45,833 shares of common stock issuable upon exercise of options currently exercisable or exercisable within 60 days after October 18, 2022. |
| (9) | Based solely upon a Form 4 filed on April 26, 2021 by Grand Pharmaceutical Group Limited (formerly China Grand Pharmaceutical & Healthcare Holdings Ltd.) (“CGP”) and Grand Decade Developments Limited (“Grand Decade”). CGP and Grand Decade may each be deemed to beneficially own 16,798,036 shares of our common stock and have shared dispositive power as to 16,798,036 shares of our common stock. The address of CGP and Grand Decade is Unit 3302,33/F, The Center, 99 Queen’s Road Central, Hong Kong. |
| (10) | Based solely upon a Form 4 filed on April 26, 2021 by Sirtex Medical US Holdings, Inc. (“Sirtex”). Sirtex beneficially owns 3,359,607 shares of our common stock and has sole dispositive power as to 3,359,607 shares of our common stock. The address of Sirtex is 300 Unicorn Park Drive, Woburn MA 01801, USA. |
| (11) | Based solely upon a Schedule 13G/A filed on February 14, 2022 by Avidity Partners Management LP, Avidity Partners Management (GP) LLC, Avidity Capital Partners Fund (GP) LP, Avidity Capital Partners (GP) LLC, Avidity Master Fund LP, David Witzke, and Michael Gregory (“Avidity”). Avidity beneficially owns 2,945,000 shares of our common stock and has sole dispositive power as to 2,945,000 shares of our common stock. The address of Avidity is 2828 N Harwood Street, Suite 1220 Dallas, Texas 75201. |
| 75 |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of July 31, 2022 regarding compensation plans under which our equity securities are authorized for issuance:
| Equity Compensation Plan Information | ||||||||||||
| Number of securities to be issued upon 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 | ||||||||||
| Equity compensation plans approved by security holders | 1,811,249 | (1) | $ | 2.77 | 1,775,433 | (2) | ||||||
| Equity compensation plans not approved by security holders | 1,195,781 | (3) | $ | 2.37 | - | |||||||
| TOTAL | 3,007,030 | $ | 2.61 | 1,775,433 | ||||||||
| (1) | 1,751,624 of these shares were subject to stock options outstanding under the 2011 Plan and 59,625 were subject to restricted stock units outstanding under the 2011 Plan. |
| (2) | Represents (i) an aggregate of 1,748,639 shares of common stock available for future issuance under the 2011 Plan, and (ii) an aggregate of 26,794 shares of common stock available for future issuance under the OncoSec Medical Incorporated 2015 Employee Stock Purchase Plan. |
| (3) | Represents (i) 1,195,781 stock option awards that were not granted under the 2011 Plan. These out-of-plan stock option awards were granted as follows: (i) a stock option award to purchase up to 300,000 shares on October 9, 2020 to a new employee as an inducement material to entering into employment with the Company, 25% vested at grant and remaining 75% cliff vesting at 1 year anniversary; (ii) a stock option award to purchase up to 150,000 shares on February 2, 2021 to a new employee as an inducement material to entering into employment with the Company, 25% vested at grant remaining 75% vesting quarterly over 2 years; (iii) a stock option award to purchase up to 35,000 shares on February 2, 2021 to a new employee as an inducement material to entering into employment with the Company, 25% vested at grant remaining 75% vesting quarterly over 2 years; (iv) a stock option award to purchase up to 35,000 shares on February 18, 2021 to a new employee as an inducement material to entering into employment with the Company, 25% vested at grant remaining 75% vesting quarterly over 2 years; (v) a stock option award to purchase up to 35,000 shares on May 17, 2021 to a new employee as an inducement material to entering into employment with the Company, 25% vested at grant remaining 75% vesting quarterly over 2 years; (vi) a stock option award to purchase up to 35,000 shares on June 14, 2021 to a new employee as an inducement material to entering into employment with the Company, 25% at grant remaining 75% vesting quarterly over 2 years; and (vii) a stock option award to purchase up to 700,000 shares on May 2, 2022 to a new employee as an inducement material to entering into employment with the Company, vesting quarterly over a one-year period commencing on July 31, 2022. |
| 76 |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
Except for employment arrangements and compensation for Board service, which are described under “Executive Compensation” above, during Fiscal Year 2022, there has not been, nor is there currently proposed, any transaction in which we are or were a participant, the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and any of our directors, executive officers, holders of more than 5% of our common stock or any immediate family member of any of the foregoing had or will have a direct or indirect material interest.
We have entered into indemnification agreements with each of our directors and executive officers. In general, these indemnification agreements require the Company to indemnify a director to the fullest extent permitted by law against liabilities that may arise in connection with that director’s service as a director for the Company.
Policies and Procedures for Review and Approval of Related Party Transactions
Pursuant to its charter and in accordance with applicable Nasdaq rules, our Audit Committee has the responsibility to review and approve in advance any transactions with a related party. In addition, our Code of Business Conduct and Ethics addresses conflicts of interest, and requires that the existence of any actual or potential conflict be disclosed to the Chairman of the Audit Committee to enable the committee’s full review of the potential conflict. The Audit Committee intends to approve only those related party or conflict of interest transactions that are considered to be in the best interests of the Company and our stockholders. In considering whether to approve any such transaction, the Audit Committee considers such factors as it deems appropriate, and generally focuses on whether the terms of the transaction are at least as favorable to us as terms we would receive on an arm’s-length basis from an unaffiliated third party and whether any such transaction might impair the independence of a director or present a conflict of interest for a director or executive officer.
Director Independence and Controlled Company Exemption
The Company’s common stock is listed on the Nasdaq Capital Market. The rules of Nasdaq require our Board to make an affirmative determination as to the independence of each director, and require a majority of the Company’s directors be “independent directors,” as defined by Nasdaq rules. In addition, Nasdaq rules require that, subject to specified exceptions, each member of a company’s audit, compensation and nominating committee be independent. Audit committee and compensation committee members must also satisfy enhanced independence criteria under certain SEC rules and corresponding Nasdaq rules.
Consistent with these rules, our Board undertook its annual review of director independence on May 30, 2022, and subsequently as needed as new directors have joined the Board. During the review, our Board considered relationships and transactions during Fiscal Year 2021 and 2022 and since inception between each director or any member of his immediate family, on the one hand, and the Company and our subsidiaries and affiliates, on the other hand. The purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent. Based on this review, our Board determined that Ms. Stephany Foster, Dr. Herbert Kim Lyerly and Mr. Joon Kim are independent under the criteria established by Nasdaq and our Board.
Upon the Closing of the CGP Transaction described above, CGP and Sirtex, acting as a “group” for purposes of Section 13(d) of the Exchange Act, collectively beneficially owns common stock representing more than 50% of the voting power of our Common Stock eligible to vote in the election of directors. As a result, we qualify as a “controlled company” and avail ourselves of certain “controlled company” exemptions under the Nasdaq corporate governance rules. As a controlled company, we are not required to have a majority of “independent directors” on our Board as defined under the Nasdaq rules, or have a compensation, nominating or governance committee composed entirely of independent directors. In light of our status as a controlled company, our Board has determined to utilize the majority board independence exemption and the exemption applying to compensation committee member independence.
| 77 |
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents the aggregate fees billed to the Company for professional services rendered by Mayer Hoffman McCann P.C. (“MHM”) in our fiscal years ended July 31, 2022 and 2021.
| Fiscal Year | ||||||||
| 2022 | 2021 | |||||||
| Audit Fees (1) | $ | 327,548 | $ | 345,548 | ||||
| Audit Related Fees (2) | – | – | ||||||
| Tax Fees (3) | – | – | ||||||
| All Other Fees (4) | – | – | ||||||
| Total (5) | $ | 327,548 | $ | 345,548 | ||||
| (1) | Audit Fees consist of fees for professional services rendered by MHM for the audit of our annual consolidated financial statements and review of our interim consolidated financial statements included in our quarterly reports on Form 10-Q, as well as audit services that are normally provided in connection with other statutory and regulatory filings, including consents related to registration statements on Forms S-3 and S-8, and prospectus supplement review or comfort letter preparation related thereto. |
| (2) | Audit-Related Fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported as Audit Fees. No such fees were billed by MHM for these services during the periods presented. |
| (3) | Tax Fees consist of fees for professional services rendered for tax compliance, tax advice and tax planning. No such fees were billed by MHM for these services during the periods presented. |
| (4) | All Other Fees consist of fees billed for all products and services provided that are not included in (1), (2) and (3) above. No such fees were billed by MHM for any such services during the periods presented. |
| (5) | Substantially all MHM’s personnel, who work under the control of MHM shareholders, are employees of wholly-owned subsidiaries of CBIZ, Inc., which provides personnel and various services to MHM in an alternative practice structure. |
Pre-Approval Policies and Procedures
Our Audit Committee’s charter requires this Committee to pre-approve all audit and permissible non-audit services to be performed for the Company by our independent registered public accounting firm, as well as the fees and terms for these services, subject to certain exceptions for “de minimis” amounts as permitted by applicable SEC rules. In considering such services and fees for approval, the Audit Committee considers whether the provision of the services and the payment of the related fees are compatible with maintaining the independence of our independent registered public accounting firm.
All of the fees and services provided by MHM described in the table above were authorized and approved by the Audit Committee in compliance with these pre-approval policies and procedures.
| 78 |
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) The following financial statements of OncoSec Medical Incorporated are filed as part of this report under Item 8 — Financial Statements and Supplementary Data:
(a)(2) All financial statement schedules are omitted because they are not required, or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto included in this report.
(a)(3) The exhibits listed in the Exhibit Index, which appears immediately following the last page of this report and is incorporated herein by reference, are filed or incorporated by reference as part of this report.
| 79 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of OncoSec Medical Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of OncoSec Medical Incorporated (the “Company”) as of July 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended July 31, 2022, 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 July 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended July 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has incurred recurring losses from operations, and is dependent on additional financing to fund 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 described in Note 3 to the financial statements. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may 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 audit 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.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. We determined that there were no critical audit matters.
/s/ Mayer Hoffman McCann P.C.
We have served as the Company’s auditor since 2011.
San Diego, California
October 31, 2022
| F-1 |
OncoSec Medical Incorporated
Consolidated Balance Sheets
| July 31, 2022 | July 31, 2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 12,299,740 | $ | 45,951,233 | ||||
| Prepaid expenses and other current assets | 2,932,731 | 3,228,191 | ||||||
| Total Current Assets | 15,232,471 | 49,179,424 | ||||||
| Property and equipment, net | 978,614 | 928,821 | ||||||
| Intangible assets, net | 378,529 | 448,412 | ||||||
| Operating lease right-of-use assets | 4,665,515 | 5,445,744 | ||||||
| Other long-term assets | 623,239 | 273,523 | ||||||
| Total Assets | $ | 21,878,368 | $ | 56,275,924 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 4,208,222 | $ | 5,561,645 | ||||
| Accrued compensation related | 376,977 | 320,655 | ||||||
| Operating lease liabilities | 1,111,571 | 845,483 | ||||||
| Notes payable | 936,558 | 1,234,133 | ||||||
| Total Current Liabilities | 6,633,328 | 7,961,916 | ||||||
| Operating lease liabilities, net of current portion | 4,126,636 | 5,238,207 | ||||||
| Liability under co-promotion agreement - related party | 5,000,000 | 5,000,000 | ||||||
| Total Liabilities | 15,759,964 | 18,200,123 | ||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock authorized - common shares with a par value of $ as of July 31, 2022 and July 31, 2021, common stock issued and outstanding and common shares as of July 31, 2022 and July 31, 2021, respectively | 3,938 | 3,916 | ||||||
| Additional paid-in capital | 288,233,186 | 286,337,291 | ||||||
| Warrants issued and outstanding - 1,706,190 warrants as of July 31, 2022 and July 31, 2021 | 3,591,734 | 3,591,734 | ||||||
| Accumulated other comprehensive income (loss) | 247,211 | (79,109 | ) | |||||
| Accumulated deficit | (285,957,665 | ) | (251,778,031 | ) | ||||
| Total Stockholders’ Equity | 6,118,404 | 38,075,801 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 21,878,368 | $ | 56,275,924 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-2 |
OncoSec Medical Incorporated
Consolidated Statements of Operations
| Year Ended | Year Ended | |||||||
| July 31, 2022 | July 31, 2021 | |||||||
| Revenue | $ | $ | ||||||
| Expenses: | ||||||||
| Research and development | 25,821,543 | 34,097,641 | ||||||
| General and administrative | 11,190,519 | 14,282,417 | ||||||
| Loss from operations | (37,012,062 | ) | (48,380,058 | ) | ||||
| Gain on extinguishment of debt | 960,790 | |||||||
| Other (loss) income, net | 28,857 | (704 | ) | |||||
| Interest expense | (20,925 | ) | (15,857 | ) | ||||
| Foreign currency exchange loss | (509,652 | ) | (144,085 | ) | ||||
| Loss before income taxes | (37,513,782 | ) | (47,579,914 | ) | ||||
| Income tax benefit | (3,334,148 | ) | (2,412,183 | ) | ||||
| Net loss | $ | (34,179,634 | ) | $ | (45,167,731 | ) | ||
| Basic and diluted net loss per common share | $ | (0.87 | ) | $ | (1.37 | ) | ||
| Weighted average shares used in computing basic and diluted net loss per common share | 39,304,263 | 32,903,366 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
OncoSec Medical Incorporated
Consolidated Statements of Comprehensive Loss
| Year Ended | Year Ended | |||||||
| July 31, 2022 | July 31, 2021 | |||||||
| Net Loss | $ | (34,179,634 | ) | $ | (45,167,731 | ) | ||
| Foreign currency translation adjustments | 326,320 | (59,605 | ) | |||||
| Comprehensive Loss | $ | (33,853,314 | ) | $ | (45,227,336 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
OncoSec Medical Incorporated
Consolidated Statements of Stockholders’ Equity
| Common Stock | Additional Paid-In | Warrants | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Income (Loss) | Deficit | Equity | |||||||||||||||||||||||||
| Balance, July 31, 2020 | 23,054,474 | 2,305 | 214,789,808 | 3,114,288 | 5,708,127 | (19,504 | ) | (206,610,300 | ) | 13,870,436 | ||||||||||||||||||||||
| Common stock issued for employee stock purchase plan | 3,795 | 9,973 | — | 9,973 | ||||||||||||||||||||||||||||
| Exercise of common stock warrants | 1,389,261 | 139 | 6,580,106 | (1,389,261 | ) | (1,787,294 | ) | 4,792,951 | ||||||||||||||||||||||||
| Exercise of common stock options | 377,361 | 38 | 636,955 | — | 636,993 | |||||||||||||||||||||||||||
| Stock-based compensation expense | 178,540 | 19 | 5,137,049 | — | 5,137,068 | |||||||||||||||||||||||||||
| Tax withholdings paid on equity awards | — | (238,976 | ) | — | (238,976 | ) | ||||||||||||||||||||||||||
| Tax shares sold to pay for tax withholdings on equity awards | — | 220,490 | — | 220,490 | ||||||||||||||||||||||||||||
| Cancellation of expired warrants | — | 329,099 | (18,837 | ) | (329,099 | ) | ||||||||||||||||||||||||||
| August 2020 Registered Direct Offering, net of $1,464,276 issuance costs | 4,608,589 | 461 | 13,513,177 | — | 13,513,638 | |||||||||||||||||||||||||||
| January 2021 Public Offering, net of $2,970,165 issuance costs | 7,711,284 | 771 | 39,055,562 | — | 39,056,333 | |||||||||||||||||||||||||||
| Purchase of shares under CGP and Sirtex stock purchase agreements | 1,691,806 | 169 | 5,836,562 | — | 5,836,731 | |||||||||||||||||||||||||||
| Common stock issued for services | 137,500 | 14 | 467,486 | — | 467,500 | |||||||||||||||||||||||||||
| Other comprehensive loss | — | — | (59,605 | ) | (59,605 | ) | ||||||||||||||||||||||||||
| Net loss | — | — | (45,167,731 | ) | (45,167,731 | ) | ||||||||||||||||||||||||||
| Balance, July 31, 2021 | 39,152,610 | $ | 3,916 | $ | 286,337,291 | 1,706,190 | $ | 3,591,734 | $ | (79,109 | ) | $ | (251,778,031 | ) | $ | 38,075,801 | ||||||||||||||||
| Common stock issued for employee stock purchase plan | 3,000 | 2,100 | — | 2,100 | ||||||||||||||||||||||||||||
| Exercise of common stock options | 130,000 | 13 | 202,787 | — | 202,800 | |||||||||||||||||||||||||||
| Stock-based compensation expense | 83,019 | 8 | 1,649,678 | — | 1,649,686 | |||||||||||||||||||||||||||
| Tax withholdings paid on equity awards | — | (47,515 | ) | — | (47,515 | ) | ||||||||||||||||||||||||||
| Tax shares sold to pay for tax withholdings on equity awards | — | 46,346 | — | 46,346 | ||||||||||||||||||||||||||||
| Common stock issued for services | 12,500 | 1 | 42,499 | — | 42,500 | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | 326,320 | 326,320 | ||||||||||||||||||||||||||||
| Net loss | — | — | (34,179,634 | ) | (34,179,634 | ) | ||||||||||||||||||||||||||
| Balance, July 31, 2022 | 39,381,129 | $ | 3,938 | $ | 288,233,186 | 1,706,190 | $ | 3,591,734 | $ | 247,211 | $ | (285,957,665 | ) | $ | 6,118,404 | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
OncoSec Medical Incorporated
Consolidated Statements of Cash Flows
| Year Ended | Year Ended | |||||||
| July 31, 2022 | July 31, 2021 | |||||||
| Operating activities | ||||||||
| Net loss | $ | (34,179,634 | ) | $ | (45,167,731 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 257,286 | 236,864 | ||||||
| Amortization of right-of-use assets | 809,030 | 841,299 | ||||||
| Stock-based compensation | 1,649,686 | 5,137,068 | ||||||
| Common stock issued for services | 42,500 | 467,500 | ||||||
| Foreign currency exchange loss | 509,652 | 144,085 | ||||||
| Gain on extinguishment of debt | (960,790 | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 1,323,584 | 613,432 | ||||||
| Other long-term assets | (380,083 | ) | 49,854 | |||||
| Accounts payable and accrued liabilities | (1,381,199 | ) | (2,561,215 | ) | ||||
| Accrued compensation related | 56,322 | 35,528 | ||||||
| Operating lease liabilities | (845,483 | ) | (629,928 | ) | ||||
| Net cash used in operating activities | (32,138,339 | ) | (41,794,034 | ) | ||||
| Investing activities | ||||||||
| Purchases of property and equipment | (244,857 | ) | (304,603 | ) | ||||
| Purchase of intangible assets | (495,000 | ) | ||||||
| Net cash used in investing activities | (244,857 | ) | (799,603 | ) | ||||
| Financing activities | ||||||||
| Proceeds from issuance of common stock through ESPP | 2,100 | 9,973 | ||||||
| Proceeds from issuance of common stock and/or warrants | 57,004,412 | |||||||
| Payment of financing and offering costs | (39,794 | ) | (4,434,441 | ) | ||||
| Proceeds from exercise of stock options | 202,800 | 636,993 | ||||||
| Proceeds from exercise of warrants | 4,792,951 | |||||||
| Purchase of shares under CGP and Sirtex stock purchase agreements | 5,836,731 | |||||||
| Principal payments on notes payable | (1,325,560 | ) | (619,105 | ) | ||||
| Tax withholdings paid on equity awards | (47,515 | ) | (238,976 | ) | ||||
| Tax shares sold to pay for tax withholdings on equity awards | 46,346 | 220,490 | ||||||
| Proceeds from co-promotion agreement | 5,000,000 | |||||||
| Net cash provided by (used in) financing activities | (1,161,623 | ) | 68,209,028 | |||||
| Effect of exchange rate changes on cash | (106,674 | ) | (18,620 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | (33,651,493 | ) | 25,596,771 | |||||
| Cash and cash equivalents, at beginning of year | 45,951,233 | 20,354,462 | ||||||
| Cash and cash equivalents, at end of year | $ | 12,299,740 | $ | 45,951,233 | ||||
| Supplemental disclosure for cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 20,925 | $ | 10,302 | ||||
| Income taxes | $ | 2,969 | $ | 4,992 | ||||
| Noncash investing and financing transactions: | ||||||||
| Expiration of warrants | $ | $ | 329,099 | |||||
| Increase in right-of-use assets and operating lease liabilities resulting from contract modification | $ | $ | 338,819 | |||||
| Note issued for insurance premium | $ | 1,027,986 | $ | 1,355,919 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
OncoSec Medical Incorporated
Notes to Consolidated Financial Statements
Note 1 – Nature of Operations and Basis of Presentation
OncoSec Medical Incorporated (together with its subsidiary, unless the context indicates otherwise, being collectively referred to as the “Company”) began its operations as a biotechnology company in March 2011. The Company has not generated any revenues since its inception. The Company was incorporated in the State of Nevada on February 8, 2008 under the name of Netventory Solutions, Inc. and changed its name to OncoSec Medical Incorporated in March 2011 when it began operating as a biotechnology company.
The Company is a late-stage immuno-oncology company focused on designing, developing and commercializing innovative, proprietary, intra-tumoral DNA-based therapeutics delivered by electroporation (“EP”) to stimulate and augment anti-tumor immune responses for the treatment of cancers. Its core technology, ImmunoPulse®, is a drug-device therapeutic modality platform comprised of a proprietary OncoSec Medical System EP device (the “OMS EP Device”) and a proprietary DNA plasmid delivery and application method that enables transient expression of recombinant therapeutic molecules in cells. The OMS EP Device is designed to promote cellular uptake of plasmid DNA injected directly into solid tumors to allow subsequent expression of the encoded therapeutic protein. The OMS EP Device can be adapted to treat different tumor types, and consists of an electrical pulse generator and disposable applicator. The Company’s lead product candidate is a plasmid encoding interleukin-12 (“IL-12”) called tavokinogene telseplasmid (“TAVO™”). The OMS EP Device is used to deliver TAVO™ into cells in tumor lesions, with the aim of reversing the immunosuppressive microenvironment in the treated tumor and elicit systemic tumor-specific immune responses in cancer patients. Activation of an appropriate anti-tumor inflammatory response in the treated lesion can drive the immune system to mount a systemic anti-tumor response against untreated tumors in other parts of the body. In 2017, the Company received Fast Track Designation and Orphan Drug Designation from the U.S. Food and Drug Administration (“FDA”) for TAVO™ in metastatic melanoma, which could qualify TAVO™-EP for expedited FDA review, a rolling Biologics License Application (“BLA”) review and certain other benefits to achieve faster registration of a therapeutic product.
The Company’s primary focus is to pursue its study of TAVO™-EP in combination with KEYTRUDA® (pembrolizumab) in melanoma. During October of 2022, due to the Company’s financial position the Company decreased all clinical activity outside of its melanoma clinical pipeline, including trials and studies involving triple negative breast cancer (“TNBC”) and squamous cell carcinoma head and neck cancer.
The Company’s KEYNOTE-695 clinical trial is a registration-directed, Phase 2b open-label, single-arm, multicenter trial in approximately 100 patients treated with TAVO™-EP in combination with KEYTRUDA® (pembrolizumab) in anti-PD-1 checkpoint inhibitor (nivolumab or pembrolizumab) relapsed or refractory metastatic melanoma, being conducted in the United States, Canada, Australia and Europe. In May 2017, the Company entered into a clinical trial collaboration and supply agreement with a subsidiary of Merck & Co., Inc. (“Merck”) in connection with the KEYNOTE-695 trial. Pursuant to the terms of the agreement, each company will bear its own costs related to manufacturing and supply of its product, as well as be responsible for its own internal costs. The Company is the trial sponsor and is responsible for external costs. The trial completed enrollment of Cohort 1 in December 2020. In December 2020, the protocol was amended to include an additional cohort, consisting of patients who were exposed to treatment with ipilimumab and progressed on prior anti-PD-1 checkpoint inhibitor. The amendment also enabled enrollment of approximately 25 additional patients to be treated with an updated version of the OMS EP Device (i.e., GenPulseTM generator and Series 3 Applicator), in preparation for seeking FDA approval. Database lock for the 105 patients enrolled in Cohort 1 is November 2022 and the final data analyses of the primary and secondary endpoints are expected to be available during the first quarter of 2023 and fourth quarter of 2022, respectively.
The Company’s KEYNOTE-890 clinical trial is a Phase 2, open-label, single-arm, multicenter trial conducted in the United States and Australia to evaluate the safety and efficacy of TAVO™-EP in combination with KEYTRUDA® in patients with inoperable locally advanced or metastatic TNBC who have previously failed at least one systemic chemotherapy or immunotherapy (Cohort 1) or TAVO™-EP in combination with KEYTRUDA® and chemotherapy in patients with inoperable locally advanced or metastatic TNBC who have had no prior systemic therapy in the advanced or metastatic setting (Cohort 2).
| F-7 |
In May 2018, the Company entered into a second clinical trial collaboration and supply agreement with a subsidiary of Merck with respect to the KEYNOTE-890 trial, Cohort 1. Pursuant to the terms of the agreement, each company will bear its own costs related to manufacturing and supply of its product, as well as be responsible for its own internal costs. The Company is the trial sponsor and is responsible for external costs. In June 2020, the Company amended its second clinical trial collaboration and supply agreement to include KEYNOTE-890, Cohort 2, for the frontline treatment of patients with inoperable locally advanced or metastatic TNBC with the combination of TAVO-EP, KEYTRUDA, and chemotherapy. Enrollment of Cohort 1 was completed (26 patients) in December 2020. Interim data for Cohort 1 was initially presented at the San Antonio Breast Cancer Symposium (“SABCS”) in December 2019, and an update on this cohort was presented at the SABCS in December 2021. Enrollment of Cohort 2 (target 40 patients) began in January 2021. Due to slow enrollment and competing studies in front-line TNBC, recruitment on Cohort 2 has been halted as of October 2022. The Company has deferred further development of TAVO™-EP for the treatment of TNBC in order to focus its efforts and resources on our ongoing development of TAVO™-EP in melanoma.
In May 2019, the Company supported commencement of an investigator-initiated Phase 1 clinical trial conducted by the University of California San Francisco (“UCSF”) Helen Diller Family Comprehensive Cancer Center. This trial targets patients with Squamous Cell Carcinoma of the Head & Neck and is a single-arm open-label clinical trial in which 68 evaluable patients will receive TAVO™-EP, KEYTRUDA® and epacadostat. Recruitment on this trial was halted for strategic reasons in June 2021.
In August 2020, the Company supported commencement of an investigator-initiated Phase 2 clinical trial conducted by the H. Lee Moffitt Cancer Center and Research Institute and the University of South Florida Morsani College of Medicine to evaluate TAVO™-EP as neoadjuvant treatment (administered before surgery) in combination with intravenous OPDIVO® (nivolumab) in up to 33 patients with operable locally/regionally advanced melanoma. This trial has been designed to evaluate whether the addition of TAVO™-EP can increase the published anti-tumor response observed with monotherapy OPDIVO®, an anti-PD-1 checkpoint inhibitor, in patients with locally/regionally advanced melanoma prior to surgical resection of tumors. This trial began enrolling patients in December of 2020. Enrollment for this trial is expected to be completed in 2023. Preliminary data from this trial will be presented at an international medical conference, the Society for Immunotherapy of Cancer (SITC), in November 2022.
In November 2020, the Company obtained an exclusive license to the Cliniporator® electroporation gene electrotransfer platform from IGEA Clinical Biophysics. This platform has been used for electrochemotherapy in and outside of Europe in over 200 major oncological centers to treat cutaneous metastatic cancer nodules, including melanoma. The license encompasses a broad field of use for gene delivery in oncology, including use as part of the Company’s Visceral Lesion applicator (“VLA”) program.
The Company intends to continue to pursue potential new trials and studies related to TAVO™-EP, in various tumor types. In addition, the Company is also developing its next-generation EP device and applicator, including advancements toward prototypes, pursuing discovery research to identify other product candidates that, similar to IL-12, can be encoded into plasmid-DNA and delivered, using our proprietary delivery and application method, intratumorally using EP. For example, the Company has been, and intends to continue once the Company’s financial position allows, developing proprietary technology to potentially treat liver, lung, bladder, pancreatic and other difficult to treat visceral lesions through the direct delivery of plasmid encoded therapeutics with the VLA. While currently paused to focus activities on melanoma and clinical stage programs, the Company intends to continue this work in the future.
The VLA is intended and may be designed to work with low voltage EP generators, including but not limited to the Company’s proprietary APOLLOTM EP generator and Cliniporator®, and is expected to enable transfection of immunologically relevant genes into cells located in visceral primary or metastatic tumor lesions. In early 2020, the Company had two poster presentations, one at the Society for Interventional Oncology and one at the Society for Interventional Radiology, where it presented preclinical data pertaining to visceral delivery of plasmid-based therapeutics. Additionally, the Company has successfully completed several large animal studies to assess VLA design. The Company expected to bring a VLA into the clinic in 2023. However, this timeline is under evaluation and may extend beyond 2023. The Company believes that the flexibility of the Company’s proprietary plasmid-DNA technology allows the Company to deliver other immunologically relevant molecules into the tumor microenvironment in addition to the delivery of plasmid-DNA encoding for IL-12.
| F-8 |
Note 2 – Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, OncoSec Medical Australia PTY LTD. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant accounting estimates related to the Company’s ability to continue as a going concern and certain calculations related to that determination. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, the Company reviews its estimates to ensure that they appropriately reflect changes in the business or as new information becomes available. Actual results may differ from these estimates.
Segment Reporting
The Company operates in a single industry segment—the discovery and development of novel immunotherapeutic product candidates to improve treatment options for patients and physicians, intended to treat a wide range of oncology indications.
Cash and Cash Equivalents
The Company considers all highly liquid investments that are readily convertible into cash and have an original maturity of three months or less at the time of purchase to be cash equivalents.
Concentrations and Credit Risk
The Company maintains cash balances at a small number of financial institutions in both the United States and Australia and such balances commonly exceed the $250,000 amount insured by the Federal Deposit Insurance Corporation and $250,000 AUD (approximately $175,000 USD) insured by the Australian Financial Claims Scheme. The Company has not experienced any losses in such accounts and Management believes that the Company does not have significant credit risk with respect to such cash and cash equivalents.
Property and Equipment
The Company’s capitalization threshold is $5,000 for property and equipment. The cost of property and equipment is depreciated on a straight-line basis over the estimated useful lives of the related assets. The useful lives of property and equipment for the purpose of computing depreciation are as follows:
| Computers and equipment: | 3 to 10 years | |
| Computer software: | 1 to 3 years | |
| Leasehold improvements: | Shorter of lease period or useful life |
Construction-in-progress is stated at cost, which relates to the cost of equipment not yet placed into service. No depreciation expense is recorded on construction-in-progress until such time as the relevant assets are completed and put into use.
| F-9 |
Intangible Assets
Definite life intangible assets include a license. Intangible assets are recorded at cost. License agreement cost represents the fair value of the license agreement on the date acquired. Intangible assets are amortized on a straight-line basis over their estimated useful life.
Impairment of Long-Lived Assets
The Company periodically assesses the carrying value of intangible and other long-lived assets, and whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. The assets are considered to be impaired if the Company determines that the carrying value may not be recoverable based upon its assessment, which includes consideration of the following events or changes in circumstances:
| ● | the asset’s ability to continue to generate income from operations and positive cash flow in future periods; | |
| ● | loss of legal ownership or title to the asset(s); | |
| ● | significant changes in the Company’s strategic business objectives and utilization of the asset(s); and | |
| ● | the impact of significant negative industry or economic trends. |
If the assets are considered to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Fair value is determined by the application of discounted cash flow models to project cash flows from the assets. In addition, the Company bases estimates of the useful lives and related amortization or depreciation expense on its subjective estimate of the period the assets will generate revenue or otherwise be used by it. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less selling costs. The Company also periodically reviews the lives assigned to long-lived assets to ensure that the initial estimates do not exceed any revised estimated periods from which the Company expects to realize cash flows from its assets.
Research and Development Expenses
Research and development expenses consist of costs incurred for internal projects, as well as partner-funded collaborative research and development activities. These costs include direct and research-related overhead expenses, which include salaries, stock-based compensation and other personnel-related expenses, facility costs, supplies, depreciation of facilities and laboratory equipment, as well as research consultants and the cost of funding research at universities and other research institutions, and are expensed as incurred. Costs to acquire technologies that are utilized in research and development that have no alternative future use, are expensed when incurred. In accordance with Accounting Standards Codification (“ASC”) 730-20, the Company accounts for upfront, non-refundable research and development payments received from a related party as a long-term liability as there has not been a substantive and genuine transfer of risk and there is a presumption that the Company is obligated to repay the related party.
Accruals for Research and Development Expenses and Clinical Trials
The Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided under such contracts. The Company accounts for these expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company determines accrual estimates through financial models and takes into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services completed. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates.
| F-10 |
Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses and notes payable approximate fair value due to the short-term nature of these instruments. It is Management’s opinion that the Company is not exposed to significant interest, currency, or credit risks arising from its other financial instruments and that their fair values approximate their carrying values except where expressly disclosed.
The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in the absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
| ● | Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. |
| ● | Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities. |
| ● | Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s Management.
Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
The Company had no assets or liabilities that required remeasurement on a recurring basis as of July 31, 2022 and July 31, 2021.
Warrants
The Company assesses its warrants as either equity or a liability based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of issuance on the Company’s balance sheet and no further adjustments to their valuation are made. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as liabilities are recorded on the Company’s balance sheet at their fair value on the date of issuance and are re-measured on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. Management estimates the fair value of these liabilities using option pricing models and assumptions that are based on the individual characteristics of the warrants or other instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield and risk-free interest rate. As of July 31, 2022 and July 31, 2021, all outstanding warrants issued by the Company were classified as equity.
| F-11 |
The Company computes basic net loss per common share by dividing the applicable net loss by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the applicable net loss by the weighted-average number of common shares outstanding during the period plus additional shares to account for the dilutive effect of potential future issuances of common stock relating to stock options and other potentially dilutive securities using the treasury stock method.
The Company did not include shares underlying stock options, restricted stock units and warrants issued and outstanding during any of the periods presented in the computation of net loss per share, as the effect would have been anti-dilutive. The following potentially dilutive outstanding securities were excluded from diluted net loss per share because of their anti-dilutive effect:
| July 31, 2022 | July 31, 2021 | |||||||
| Stock options | 2,947,405 | 3,111,642 | ||||||
| Restricted stock units | 59,625 | 442,749 | ||||||
| Warrants | 1,706,190 | 1,706,190 | ||||||
| Total | 4,713,220 | 5,260,581 | ||||||
The Company grants equity-based awards (typically stock options or restricted stock units) under its stock-based compensation plan and occasionally outside of its stock-based compensation plan, with terms generally similar to the terms under the Company’s stock-based compensation plan. The Company estimates the fair value of stock option awards using the Black-Scholes option valuation model. For employees, directors and consultants, the fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. The Black-Scholes option valuation model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and expected life of the option. The Company estimates the fair value of restricted stock unit awards based on the closing price of the Company’s common stock on the date of grant.
Employee Stock Purchase Plan
Employees may elect to participate in the Company’s stockholder-approved employee stock purchase plan. The stock purchase plan allows for the purchase of the Company’s common stock at not less than 85% of the lesser of (i) the fair market value of a share of common stock on the beginning date of the offering period and (ii) the fair market value of a share of common stock on the purchase date of the offering period, subject to a share and dollar limit as defined in the plan and subject to the applicable legal requirements. There are two six-month offering periods during each fiscal year, ending on January 31 and July 31.
In accordance with applicable accounting guidance, the fair value of awards under the stock purchase plan is calculated at the beginning of each offering period. The Company estimates the fair value of the awards using the Black-Scholes option valuation model. The Black-Scholes option valuation model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and the offering period. This fair value is then amortized at the beginning of the offering period. Stock-based compensation expense is based on awards expected to be purchased at the beginning of the offering period, and therefore is reduced when participants withdraw during the offering period.
Leases
The Company determines if an arrangement is a lease at inception. Operating lease right of use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease liabilities on the Company’s consolidated balance sheets.
| F-12 |
Lease ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at commencement date calculated using the Company’s incremental borrowing rate applicable to the lease asset, unless the implicit rate is readily determinable. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recognized on the consolidated balance sheets. The Company’s leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company accounts for lease and non-lease components as a single lease component for all its leases.
Foreign Currency Translation
The Company uses the U.S. Dollar as the reporting currency for its financial statements. Functional currency is the currency of the primary economic environment in which an entity operates. The functional currency of the Company’s wholly owned subsidiary is the Australian dollar.
Assets and liabilities of the Company’s subsidiary are translated into U.S. Dollars at period-end foreign exchange rates, and revenues and expenses are translated at average rates prevailing throughout the period. Translation adjustments are included in “Accumulated other comprehensive income” as a separate component of stockholders’ equity, and in the “Effect of exchange rate changes on cash,” on the Company’s consolidated statements of cash flows. Transaction gains and losses including intercompany transactions denominated in a currency other than the functional currency of the entity involved are included in “Foreign currency exchange gain (loss), net” on the Company’s consolidated statements of operations.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes foreign currency translation adjustments related to the Company’s subsidiary in Australia and is excluded from the accompanying consolidated statements of operations.
Australia Research and Development Tax Credit
The Company’s wholly-owned Australian subsidiary incurs research and development expenses, primarily in the course of conducting clinical trials. The Company’s Australian research and development activities qualify for the Australian government’s tax credit program, which provides a 43.5% credit for qualifying research and development expenses. The tax credit does not depend on the Company’s generation of future taxable income or ongoing tax status or position. Accordingly, the credit is not considered an element of income tax accounting under ASC 740 “Income Taxes” and is recorded against qualifying research and development expenses
The CARES Act
On March 27, 2020, . The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss (“NOL”) utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In addition to the loan under the Paycheck Protection Program (the “PPP”) under the CARES Act received in April 2020 (see Note 5), the Company continues to review, and intends to seek, any other available potential benefits under the CARES Act as well as any future legislation signed into law during 2022. Other than the forgiveness of the PPP loan, the effects of the CARES Act did not have a significant impact on the Company’s consolidated financial statements during the year ended July 31, 2022 and 2021.
Recent Accounting Pronouncements
No recent accounting pronouncements are anticipated to have an impact on or related to the Company’s financial condition, results of operations, or related disclosures.
| F-13 |
Note 3 – Going Concern and Management’s Plans
The Company has sustained losses in all reporting periods since inception, with an accumulated deficit of approximately $286 million as of July 31, 2022. These losses are expected to continue for an extended period of time. Further, the Company has never generated any cash from its operations and does not expect to generate such cash in the near term. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance date of the consolidated financial statements. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated 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 consolidated financial statements are issued.
As of October 17, 2022, the Company had cash and cash equivalents of $6.7 million. Since inception, cash flows from financing activities have been the primary source of the Company’s liquidity. Based on the Company’s current cash levels, the Company believes its cash resources are insufficient to meet the Company’s anticipated needs for the 12 months following the date the consolidated financial statements are issued.
The Company recognizes it will need to raise additional capital to continue operating its business and fund its planned operations, including research and development, clinical trials and, if regulatory approval is obtained, commercialization of its product candidates. In addition, the Company will require additional financing if it desires to in-license or acquire new assets, research and develop new compounds or new technologies and pursue related patent protection, or obtain any other intellectual property rights or other assets. There is no assurance that additional financing will be available to the Company when needed, 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. The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our clinical development programs. Similarly, if our common stock is delisted from the Nasdaq Capital Market, it may limit our ability to raise additional funds (see Note 13). The ongoing COVID-19 pandemic has also caused volatility in the global financial markets and threatened a slowdown in the global economy, which may negatively affect our ability to raise additional capital on attractive terms or at all. If the Company is unable to raise sufficient additional funds when needed, on favorable terms or at all, the Company will not be able to continue the development of its product candidates as currently planned or at all, will need to reevaluate its planned operations and may need to delay, scale back or eliminate some or all of its development programs, reduce expenses or cease operations, any of which would have a significant negative impact on the Company’s prospects and financial condition.
Note 4 – Balance Sheet Details
Property and Equipment
Property and equipment, net, is comprised of the following:
| July 31, 2022 | July 31, 2021 | |||||||
| Equipment and furniture | $ | 1,944,540 | $ | 1,919,301 | ||||
| Computer software | 109,242 | 109,242 | ||||||
| Leasehold improvements | 32,651 | 32,651 | ||||||
| Construction in progress | 446,367 | 234,409 | ||||||
| Property and equipment, gross | 2,532,800 | 2,295,603 | ||||||
| Accumulated depreciation and amortization | (1,554,186 | ) | (1,366,782 | ) | ||||
| Total | $ | 978,614 | $ | 928,821 | ||||
Depreciation and amortization expense recorded for the years ended July 31, 2022 and 2021 was approximately $0.2 million.
| F-14 |
Intangible Assets
Intangible assets, net, is comprised of the following:
| July 31, 2022 | July 31, 2021 | |||||||
| License | $ | 495,000 | $ | 495,000 | ||||
| Accumulated amortization | (116,471 | ) | (46,588 | ) | ||||
| Total | $ | 378,529 | $ | 448,412 | ||||
In November 2020, the Company licensed generator technology for use in its clinical trials and other research and development efforts. Unless earlier terminated, the term of the license agreement will remain in effect for 85 months. The Company has determined that the license has alternative future uses in research and development projects. The value of the acquired license is recorded as an intangible asset with amortization over the estimated useful life of 85 months.
Intangible asset amortization expense recorded for the year ended July 31, 2022 and 2021 was approximately $70,000 and $47,000, respectively.
At July 31, 2022, the estimated amortization expense by fiscal year based on the current carrying value of intangible assets is as follows:
| Years ending July 31, | ||||
| 2023 | $ | 69,882 | ||
| 2024 | 69,882 | |||
| 2025 | 69,882 | |||
| 2026 | 69,882 | |||
| 2027 | 69,882 | |||
| Thereafter | 29,119 | |||
| Total | $ | 378,529 | ||
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities are comprised of the following:
| July 31, 2022 | July 31, 2021 | |||||||
| Research and development costs | $ | 3,210,627 | $ | 4,206,926 | ||||
| Professional services fees | 877,411 | 1,229,040 | ||||||
| Other | 120,184 | 125,679 | ||||||
| Total | $ | 4,208,222 | $ | 5,561,645 | ||||
Accrued Compensation
Accrued compensation is comprised of the following:
| July 31, 2022 | July 31, 2021 | |||||||
| Accrued payroll | $ | 311,662 | $ | 311,590 | ||||
| 401K payable | 7,333 | 9,065 | ||||||
| Accrued severance | 57,982 | |||||||
| Total | $ | 376,977 | $ | 320,655 | ||||
| F-15 |
Note 5 – Notes Payable
On April 27, 2020, the Company was granted a -year loan (the “Loan”) from the Banc of California in the aggregate amount of $952,744, pursuant to the PPP under the CARES Act, which was enacted March 27, 2020. Interest accrued at 1% per year, effective on the date of initial disbursement.
The Company submitted its application for full loan forgiveness on January 6, 2021. On February 12, 2021, the Company received notice that the full Loan amount of $952,744 and $8,046 of accrued interest had been forgiven. As a result, the Company recorded a $960,790 gain on extinguishment of debt in its consolidated statement of operations for the year ended July 31, 2021.
On July 1, 2021, the Company entered into a finance agreement with AFCO Premium Credit LLC (“AFCO”). Pursuant to the terms of the agreement, AFCO loaned the Company the principal amount of $1,355,919, which would accrue interest at 2.894% per annum, to partially fund the payment of the premium of the Company’s Director & Officer insurance. The agreement requires the Company to make eleven monthly payments of $125,056, including interest starting on July 18, 2021. On July 31, 2022 and 2021, the outstanding balances related to this finance agreement were $0 and $1,234,133, respectively.
On July 11, 2022, the Company entered into a finance agreement with AFCO Premium Credit LLC (“AFCO”). Pursuant to the terms of the agreement, AFCO loaned the Company the principal amount of $1,027,986, which would accrue interest at 5.248% per annum, to partially fund the payment of the premium of the Company’s Director & Officer insurance. The agreement requires the Company to make eleven monthly payments of $95,923, including interest starting on July 18, 2022. At July 31, 2022, the outstanding balance related to this finance agreement was $936,558.
Future minimum payments under note payable liabilities as of July 31, 2022 are as follows:
| Years ending July 31, | ||||
| 2023 | $ | 936,558 | ||
| Total | $ | 936,558 | ||
Note 6 – Stockholders’ Equity
January 2021 Offering
On January 25, 2021, the Company completed the offer and sale of an aggregate of shares of its common stock at a purchase price of $ per share in a public offering. The gross proceeds from the offering were approximately $42.0 million, and the net proceeds, after deducting the placement agent’s fee and other offering fees and expenses paid by the Company, were approximately $39.1 million. In connection with the offering, the Company paid the underwriters an aggregate cash fee equal to 6.0% of the gross proceeds of the offering, as well as legal and other expenses equal to approximately $0.4 million.
August 2020 Offering
On August 19, 2020, the Company completed the offer and sale of an aggregate of shares of its common stock at a purchase price of $ per share in a registered direct public offering. The gross proceeds from the offering were approximately $15.0 million, and the net proceeds, after deducting the placement agent’s fee and other offering fees and expenses paid by the Company, were approximately $13.5 million. In connection with the offering, the Company paid the placement agent and other financial advisors an aggregate cash fee equal to 8.0% of the gross proceeds of the offering, as well as legal and other expenses equal to approximately $0.3 million.
Common Stock Option Exercise
During the year ended July 31, 2022, shares of common stock issued related to option exercises totaled . The Company realized proceeds of approximately $0.2 million from the stock option exercises. During the year ended July 31, 2021, shares of common stock issued related to option exercises totaled . The Company realized proceeds of $0.6 million from the stock option exercises.
| F-16 |
Outstanding Warrants
There were no warrants exercised during the year ended July 31, 2022. During the year ended July 31, 2021, shares of common stock issued related to warrant exercises totaled . The Company realized proceeds of approximately $4.8 million from the warrant exercises.
On July 31, 2022, the Company had outstanding warrants to purchase 1,706,190 shares of its common stock, with exercise prices ranging from $3.45 to $16.80, all of which were classified as equity instruments. These warrants expire at various dates between October 2022 and May 2024.
China Grand Pharmaceutical and Healthcare Holdings Limited and Sirtex Medical US Holdings, Inc.
On October 10, 2019, the Company and Grand Pharmaceutical Group Limited (formerly China Grand Pharmaceutical and Healthcare Holdings Limited), a company formed under the laws of the British Virgin Islands (“CGP”), and its affiliate, Sirtex Medical US Holdings, Inc., a Delaware corporation (“Sirtex”) entered into Stock Purchase Agreements (as amended, the “Purchase Agreements”), pursuant to which the Company agreed to sell and issue to CGP and Sirtex shares and shares, respectively, of the Company’s common stock for a total purchase price of $30.0 million. The net proceeds, after deducting offering fees and expenses paid by the Company, were approximately $28.0 million. This transaction closed on February 7, 2020 (the “Closing”). Pursuant to the Purchase Agreements, CGP and Sirtex were given the right under certain circumstances to purchase in the future additional shares of common stock in order to maintain CGP and Sirtex’s respective ownership percentages of the outstanding shares of common stock of the Company as of the Closing.
During the year ended July 31, 2021, shares of common stock issued to third party investors related to warrant exercises totaled 1,389,261. On April 16, 2021, in accordance with their respective Purchase Agreement, CGP and Sirtex exercised their rights to purchase additional shares of common stock at a purchase price equal to the same exercise price paid by each warrant holder. The Company issued 1,409,838 shares of common stock to CGP at an exercise price of $3.45 per share, resulting in gross proceeds of approximately $4.8 million. The Company issued 281,968 shares of common stock to Sirtex at an exercise price of $3.45 per share, resulting in gross proceeds of approximately $1.0 million.
The OncoSec Medical Incorporated 2011 Stock Incentive Plan (as amended and approved by the Company’s stockholders (the “2011 Plan”)), authorizes the Company’s Board of Directors to grant equity awards, including but not limited to, stock options and restricted stock units, to employees, directors and consultants. The 2011 Plan authorizes a total of shares of common stock for issuance. Under the 2011 Plan, incentive stock options are to be granted at a price that is no less than % of the fair value of the Company’s common stock at the date of grant. Stock options vest over a period specified in the individual option agreements entered into with grantees and are exercisable for a maximum period of years after the date of grant. Incentive stock options granted to stockholders who own more than 10% of the outstanding stock of the Company at the time of grant must be issued at an exercise price of no less than % of the fair value of the Company’s common stock on the date of grant.
Modification of Stock Option Awards
During the year ended July 31, 2021, the compensation committee of the Company’s Board of Directors approved the accelerated vesting of and previously granted time-vesting awards for employees and directors, respectively. The Company accounted for the effects of the stock option modifications described above under the guidance of ASC 718 as follows:
● The unamortized compensation costs associated with the time-vesting options was expensed on the date of acceleration, which was approximately $ million and $ million for the employees and directors, respectively.
● Upon modification, it is required under ASC 718 to analyze the fair value of the instruments, before and after the modification, recognizing additional compensation cost for any incremental value. The Company computed the fair value of the award immediately prior to the modification and compared the fair value to that of the modified award. Since the value of the awards were less after the modification as compared to immediately prior to the modification, no additional compensation expense was recorded.
| F-17 |
Stock Options
During the year ended July 31, 2022, the Company granted options to purchase and shares of its common stock to employees and a consultant under the 2011 Plan, respectively. The stock options issued to employees have a -year term, vest over two years and have exercise prices ranging from $ to $. The stock options issued to the consultant have a -year term, vest over one year and have an exercise price of $.
During the year ended July 31, 2021, the Company granted options to purchase , and shares of its common stock to employees, directors and a consultant under the 2011 Plan, respectively. The stock options issued to employees have a -year term, vest over two to three years and have exercise prices ranging from $ to $. The stock options issued to directors have a -year term, vest over one year and have an exercise price of $ to $. The stock options issued to the consultant have a -year term, vest over one year and have an exercise price of $.
During the year ended July 31, 2022, in accordance with Nasdaq Listing Rule 5635(c)(4), the Company granted inducement equity awards that consisted of options to purchase shares of its common stock to employees outside the 2011 Plan. The stock options issued to the employee are nonqualified, have a -year term, vest over one year and have exercise price of $.
During the year ended July 31, 2021, in accordance with Nasdaq Listing Rule 5635(c)(4), the Company granted inducement equity awards that consisted of options to purchase shares of its common stock to employees outside the 2011 Plan. The stock options issued to the employee are nonqualified, have a -year term, vest over one to two years and have exercise prices ranging from $ to $.
The Company accounts for stock-based compensation based on the fair value of the stock-based awards granted 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. The service period is generally the vesting period, with the exception of stock options granted pursuant to a consulting agreement, in which case the stock option vesting period and the service period are defined pursuant to the terms of the consulting agreement.
Year Ended July 31, 2022 |
Year Ended July 31, 2021 |
|||||||
| Expected term (years) | – years | – years | ||||||
| Risk-free interest rate | – | % | - | % | ||||
| Volatility | – | % | – | % | ||||
| Dividend yield | % | % | ||||||
The Company’s expected volatility is derived from the historical daily change in the market price of its common stock. The Company uses the simplified method to calculate the expected term of options issued to employees, non-employees and directors, as the Company does not have much stock option exercise history and thus does not have enough information on exercise behavior to calculate a refined expected term based on that information. The risk-free interest rate used in the Black-Scholes calculation is based on the prevailing U.S. Treasury yield in effect at the time of grant, commensurate with the expected term. For the expected dividend yield used in the Black-Scholes calculation, the Company has never paid any dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future.
| F-18 |
| Options | Weighted Average Exercise Price | Weighted - Average Remaining Contract | Aggregate Intrinsic Value ($000) | |||||||||||||
| Outstanding - July 31, 2021 | 3,111,642 | $ | 3.27 | |||||||||||||
| Granted | 748,400 | $ | 0.90 | |||||||||||||
| Exercised | (130,000 | ) | $ | 1.56 | ||||||||||||
| Forfeited/Cancelled | (782,637 | ) | $ | 3.80 | ||||||||||||
| Outstanding - July 31, 2022 | 2,947,405 | $ | 2.61 | 8.6 | $ | |||||||||||
| Exercisable - July 31, 2022 | 2,170,263 | $ | 2.91 | 8.3 | $ | |||||||||||
The weighted-average grant date fair value of stock options granted during the year ended July 31, 2022 and 2021 was $ and $, respectively. The total intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was approximately $ and $ million, respectively.
As of July 31, 2022, the Company has approximately $ million in unrecognized stock-based compensation expense attributable to the outstanding options, which is expected to be recognized over a weighted-average period of years. The total fair value of shares vested during the years ended July 31, 2022 and 2021 was approximately $ million and $ million, respectively.
Stock-based compensation expense recorded in the Company’s consolidated statements of operations for the year ended July 31, 2022 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $ million. Of the total expense, $ million was recorded to research and development and $ million was recorded in general and administrative in the Company’s consolidated statements of operations for the year ended July 31, 2022.
Stock-based compensation expense recorded in the Company’s consolidated statements of operations for the year ended July 31, 2021 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $ million. Of the total expense, $ million was recorded to research and development and $ million was recorded in general and administrative in the Company’s consolidated statements of operations for the year ended July 31, 2021.
Restricted Stock Units (“RSUs”)
For the year ended July 31, 2022, the Company recorded approximately $ million in stock-based compensation related to RSUs, which is reflected in the consolidated statements of operations.
For the year ended July 31, 2021, the Company recorded approximately $ million, in stock-based compensation related to RSUs, which is reflected in the consolidated statements of operations.
| RSUs | Weighted Average Grant Date Fair Value | |||||||
| Nonvested - July 31, 2021 | 442,749 | $ | 3.24 | |||||
| Vested | (83,019 | ) | $ | 3.40 | ||||
| Forfeited/Cancelled | (300,105 | ) | $ | 3.16 | ||||
| Nonvested - July 31, 2022 | 59,625 | $ | 3.41 | |||||
As of July 31, 2022, there was approximately $ million unrecognized compensation cost related to unvested RSUs. This amount is expected to be recognized over a weighted-average period of years.
| F-19 |
Shares Issued to Consultants
During the year ended July 31, 2022, shares of common stock valued at approximately $0.04 million were issued to a consultant for services. The common stock share values were based on the closing stock price of the Company’s common stock on the date the shares were granted.
During the year ended July 31, 2021, shares of common stock valued at approximately $0.5 million were issued to consultants for services. The common stock share values were based on the closing stock price of the Company’s common stock on the dates the shares were granted.
2015 Employee Stock Purchase Plan
Under the Company’s 2015 Employee Stock Purchase Plan (“ESPP”), the Company is authorized to issue shares of the Company’s common stock. At July 31, 2022, there were shares remaining available for issuance under the ESPP.
The ESPP is considered a Type B plan under FASB ASC Topic 718 because the number of shares a participant is permitted to purchase is not fixed based on the stock price at the beginning of the offering period and the expected withholdings. The ESPP enables the participant to “buy-up” to the plan’s share limit, if the stock price is lower on the purchase date. As a result, the fair value of the awards granted under the ESPP is calculated at the beginning of each offering period as the sum of:
| ● | % of the share price of an unvested share at the beginning of the offering period, | |
| ● | % of the fair market value of a six-month call on the unvested share aforementioned, and | |
| ● | % of the fair market value of a six-month put on the unvested share aforementioned. |
The fair market value of the six-month call and six-month put are based on the Black-Scholes option valuation model.
For the six-month offering period ended on July 31, 2022, the following assumptions were used: maturity, % risk-free interest, % volatility, % forfeitures and $ dividends. For the six-month offering period ended on January 31, 2022, the following assumptions were used: maturity, % risk free interest, % volatility, % forfeitures and $ dividends.
For the six-month offering period ended July 31, 2021, the following assumptions were used: maturity, % risk-free interest, % volatility, % forfeitures and $ dividends. For the six-month offering period ended January 31, 2021, the following assumptions were used: maturity, % risk free interest, % volatility, % forfeitures and $ dividends.
Approximately $ and $ was recorded as stock-based compensation during the years ended July 31, 2022 and 2021, respectively.
Common Stock Reserved for Future Issuance
The following table summarizes all common stock reserved for future issuance at July 31, 2022:
| Common Stock options outstanding (within the 2011 Plan and outside of the terms of the 2011 Plan) | 2,947,405 | |||
| Common Stock reserved for restricted stock unit release | 59,625 | |||
| Common Stock authorized for future grant under the 2011 Plan | 1,748,639 | |||
| Common Stock reserved for warrant exercise | 1,706,190 | |||
| Shares issuable under CGP and Sirtex stock purchase agreements (Note 6) | 1,924,001 | |||
| Common Stock reserved for future ESPP issuance | 26,794 | |||
| Total Common Stock reserved for future issuance | 8,412,654 |
| F-20 |
Note 8 – Income Taxes
The FASB Topic on Income Taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company has had no unrecognized tax benefits.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company has not recognized any interest and/or penalties in the accompanying consolidated statements of operations for the years ended July 31, 2022 and 2021.
The Company is subject to taxation in the United States, various states and in Australia. The Company’s tax years for 2007 and forward, 2010 and forward and 2017 and forward are subject to examination by the United States federal tax authorities, California tax authorities and New Jersey tax authorities, respectively, due to the carry forward of unutilized net operating losses and research and development credits.
At July 31, 2022, the Company had federal, California and New Jersey net operating loss carryforwards of approximately $241 million, $87 million and $75 million, respectively. In addition, the Company has federal, California and New Jersey research and development tax credit carryforwards of approximately $4.4 million, $3.2 million and $0.2 million, respectively. The Company also has California Hiring Credits of approximately $9,300. The federal net operating losses incurred in years beginning after January 1, 2018 in the amount of $138 million can be carried forward indefinitely. The remaining $103 million of federal net operating loss, research tax credit carryforwards and California and New Jersey net operating loss carryforwards will begin to expire in 2030 unless previously utilized. The California research and development credit carryforwards will carry forward indefinitely until utilized. The Company has foreign net operating loss carryforwards in Australia of $7.5 million.
The Company has not completed a study to assess whether one or more ownership changes, as defined by IRC Section 382/383 of the Internal Revenue Code of 1986, as amended (the “Code”), have occurred since the Company’s formation, due to the complexity and cost associated with such a study, and the fact that there may be additional such ownership changes in the future. Based on a preliminary assessment, the Company believes that ownership changes have occurred. The Company estimates that if such an ownership change had occurred, the federal and state net operating loss carry-forwards and research and development tax credits that can be utilized in the future will be significantly limited. The Company may never be able to realize the benefit of some or all of the federal and state net loss carryforwards or research and development tax credit carryforwards, either due to ongoing operating losses or due to ownership changes, which limits the usefulness of the loss carryforwards.
Set forth below is the (benefit) provision for income taxes for continuing operations for the years ended July 31:
| All figures below are rounded to the nearest thousand | 2022 | 2021 | ||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| State | (3,334,000 | ) | (2,412,000 | ) | ||||
| Foreign | ||||||||
| Total (benefit from) provision for income taxes | $ | (3,334,000 | ) | $ | (2,412,000 | ) | ||
| F-21 |
Significant components of the Company’s deferred tax assets as of July 31, 2022 and 2021 are listed below:
| All figures below are rounded to the nearest thousand | 2022 | 2021 | ||||||
| Net operating loss carryforwards | $ | 63,759,000 | $ | 56,369,000 | ||||
| Credits | 7,082,000 | 5,566,000 | ||||||
| Start-up costs | 14,000 | 17,000 | ||||||
| Accumulated depreciation | 68,000 | 74,000 | ||||||
| Option and stock awards | 1,148,000 | 1,179,000 | ||||||
| Other | 162,000 | 180,000 | ||||||
| Net deferred tax assets | 72,233,000 | 63,385,000 | ||||||
| Valuation allowance for deferred tax assets | (72,233,000 | ) | (63,385,000 | ) | ||||
| Net deferred taxes | $ | $ | ||||||
A valuation allowance of $72.2 million and $63.4 million at July 31, 2022 and 2021, respectively, has been recognized to offset the net deferred tax assets as realization of such assets is uncertain. The valuation allowance increased by $8.8 million and increased by $11.8 million for the years ended July 31, 2022 and 2021, respectively.
A reconciliation of income taxes using the statutory income tax rate, compared to the effective rate, is as follows:
| 2022 | 2021 | |||||||
| Federal tax benefit at the expected statutory rate | 21.00 | % | 21.00 | % | ||||
| State income tax, net of federal tax benefit | 7.02 | % | 4.01 | % | ||||
| Non-deductible expenses | 0.38 | % | (1.17 | )% | ||||
| Tax impact of stock option cancellations | % | % | ||||||
| Tax impact of sales of state net operating losses and credits | (1.87 | )% | (1.07 | )% | ||||
| Change in valuation allowance | (19.15 | )% | (20.05 | )% | ||||
| Other | 1.51 | % | 2.35 | % | ||||
| Income tax benefit – effective rate | 8.89 | % | 5.07 | % | ||||
Sale of New Jersey Net Operating Losses
In April 2022, the Company received $3.3 million in net proceeds from the sale of its New Jersey Net Operating Losses under the State of New Jersey NOL Transfer Program.
In June 2021, the Company received $2.4 million in net proceeds from the sale of its New Jersey Net Operating Losses under the State of New Jersey NOL Transfer Program.
Note 9 – Commitments and Contingencies
Contingencies
The Company is not a party to any legal proceeding or aware of any threatened action as of the date of this report.
Employment Agreements
The Company has entered into employment agreements with certain executive officers and certain other key employees. Generally, the terms of these agreements provide that, if the Company terminates the officer or employee other than for cause, death or disability, or if the officer terminates his or her employment with the Company for good cause, the officer shall be entitled to receive certain severance compensation and benefits as described in each such agreement.
| F-22 |
Note 10 – Leases
Lease Agreements
The Company has operating leases for corporate offices and lab space. These leases have remaining lease terms of approximately one year to five years, some of which include options to extend the lease. For any lease where the Company is reasonably certain that a renewal option will be exercised, the lease payments associated with the renewal option period are included in the ROU asset and lease liability as of July 31, 2022.
Supplemental balance sheet information related to leases as of July 31, 2022 and 2021 is as follows:
| Operating Leases: | As of July 31, 2022 | As of July 31, 2021 | ||||||
| Operating lease right-of-use assets | $ | 4,665,515 | $ | 5,445,744 | ||||
| Operating Leases: | ||||||||
| Current portion included in current liabilities | $ | 1,111,571 | $ | 845,483 | ||||
| Long-term portion included in non-current liabilities | 4,126,636 | 5,238,207 | ||||||
| Total operating lease liabilities | $ | 5,238,207 | $ | 6,083,690 | ||||
Supplemental lease expense related to leases is as follows:
| For the Year Ended July 31, 2022 | For the Year Ended July 31, 2021 | |||||||
| Operating lease cost | $ | 1,506,546 | $ | 1,482,956 | ||||
| Total operating lease cost | $ | 1,506,546 | $ | 1,482,956 | ||||
Other information related to leases where the Company is the lessee is as follows:
| As of July 31, 2022 | As of July 31, 2021 | |||||||
| Weighted-average remaining lease term | 4.0 years | 5.0 years | ||||||
| Weighted-average discount rate | 9.97 | % | 9.95 | % | ||||
Supplemental cash flow information related to operating leases are as follows:
| For the Year Ended July 31, 2022 | For the Year Ended July 31, 2021 | |||||||
| Cash paid for operating lease liabilities | $ | 1,543,000 | $ | 1,272,290 | ||||
| Total cash flows related to operating lease liabilities | $ | 1,543,000 | $ | 1,272,290 | ||||
| F-23 |
Future minimum lease payments under non-cancellable leases as of July 31, 2022 is as follows:
| Years ending July 31, | ||||
| 2023 | $ | 1,585,224 | ||
| 2024 | 1,539,142 | |||
| 2025 | 1,516,126 | |||
| 2026 | 1,533,882 | |||
| 2027 | 240,688 | |||
| Total minimum lease payments | 6,415,062 | |||
| Less: Imputed interest | (1,176,855 | ) | ||
| Total | $ | 5,238,207 | ||
Note 11 – 401(k) Plan
Effective May 15, 2012, the Company adopted a defined contribution savings plan pursuant to Section 401(k) of the Code. The plan is for the benefit of all qualifying employees and permits voluntary contributions by employees of up to 100% of eligible compensation, subject to the maximum limits imposed by Internal Revenue Service. The terms of the plan allow for discretionary employer contributions and the Company currently matches 100% of its employees’ contributions, up to 3% of their annual compensation. The Company’s contributions are recorded as expense in the accompanying consolidated statements of operations. The Company’s contributions are recorded as expense in the accompanying consolidated statements of operations and totaled approximately $176,000 and $149,000 for the years ended July 31, 2022 and 2021.
Note 12 – Related Party Transactions
Except as disclosed elsewhere herein, below are the Company’s related party transactions for the years ended July 31, 2022 and 2021.
Equity Offerings
During the year ended July 31, 2021, shares of common stock issued to third party investors related to warrant exercises totaled . On April 16, 2021, in accordance with their Stock Purchase Agreements, CGP and Sirtex exercised their rights to purchase additional shares of common stock at a purchase price equal to the same exercise price paid by each warrant holder in order to maintain their respective ownership percentages of the outstanding shares of common stock of the Company upon the Closing. The Company issued shares of common stock to CGP at an exercise price of $3.45 per share, resulting in gross proceeds of approximately $4.8 million. The Company issued shares of common stock to Sirtex at an exercise price of $3.45 per share, resulting in gross proceeds of approximately $1.0 million.
On January 25, 2021, the Company completed the offer and sale of an aggregate of shares of its common stock at a purchase price of $ per share in a public offering (see Note 6). CGP and Sirtex participated in the offering. Each of CGP and Sirtex exercised its right of participation in future offerings in order to maintain respective ownership percentages of the outstanding shares of common stock of the Company upon the Closing, and purchased and shares of common stock, respectively, at a purchase price of $ per share.
On August 19, 2020, the Company completed the offer and sale of an aggregate of shares of its common stock at a purchase price of $ per share in a registered direct offering (see Note 6). CGP and Sirtex participated in the registered direct offering and maintained their respective ownership percentages of the outstanding shares of common stock of the Company upon the Closing, and purchased and shares of common stock, respectively, at a purchase price of $ per share.
| F-24 |
Co-Promotion Agreement
In January 2021, the Company entered into a co-promotion agreement with Sirtex, pursuant to which the Company granted Sirtex the option to co-promote TAVO™-EP for the treatment of anti-PD-1 refractory locally advanced or metastatic melanoma in the U.S., including its territories and possessions. In consideration for the option, the Company received an upfront, non-refundable payment of $5.0 million from Sirtex (the “option fee”). The option to co-promote is non-exclusive and may be exercised at any time by Sirtex from the effective date until 90 days following the receipt by Sirtex of a complete copy of the final BLA filed by the Company with the FDA (the “option period”). If Sirtex exercises the option, the Company will receive an additional non-refundable and non-creditable option exercise fee of $25.0 million, comprised of $20.0 million in cash, and $ million for the issuance of common shares of the Company determined by the average closing price of the stock for the 30 days prior to the date of receipt of the exercise notice for the option.
Under the terms of the co-promotion agreement, if Sirtex exercises the co-promote option, the Company will pay to Sirtex a high-teens to low-twenties royalty (“promotion fee”) of U.S. net sales of the TAVO™ products. The co-promotion agreement will continue until the earlier of the expiration of the option period without Sirtex extending the option or the eighth anniversary of the first FDA approval of the BLA, and can be extended by mutual agreement between the Company and Sirtex. During the co-promotion term, the Company is responsible for funding approximately two-thirds of the promotional costs incurred by Sirtex and Sirtex shall be responsible for approximately one-third.
The Company has determined that the co-promotion agreement represents a funded research and development arrangement within the scope of ASC Subtopic 730-20, Research and Development—Research and Development Arrangements (ASC 730-20). The Company concluded that there has not been a substantive and genuine transfer of risk related to the co-promotion agreement and the Company’s ongoing development of TAVO™-EP as there is a presumption that the Company is obligated to repay Sirtex based on the significant related party relationship that exists between the parties. This significant related party relationship is based on Sirtex’s approximate 8% ownership of the outstanding shares of the Company’s common stock, and that of its significant equity holder, CGP (which owns 49% of Sirtex), which, at the time of entering into the agreement, owned approximately % of the outstanding shares of the Company’s common stock and is the Company’s largest shareholder.
The Company has determined that the appropriate accounting treatment under ASC 730-20 is to record any proceeds received from Sirtex for the co-promote option or upon exercise of the option as cash and cash equivalents as the Company has the ability to direct the usage of funds, and as a corresponding long-term liability (“Liability under co-promotion agreement – related party”) on the Company’s consolidated balance sheet when received. The liability will remain on the balance sheet until (i) Sirtex exercises the option which results in royalties paid by the Company to Sirtex based on the net sales of the TAVO™ products, or (ii) Sirtex does not exercise the option and the co-promotion agreement is terminated by the parties.
As of July 31, 2022, the balance of the Liability under co-promotion agreement – related party relates to the option fee payment of $5.0 million received from Sirtex.
Note 13 – Nasdaq Deficiency Notices
On June 2, 2022, the Company received notice (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) that the Company is not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price of its common stock had been below $ per share for 30 consecutive business days as of the date of the Notice. The Notice had no immediate effect on the listing of the Company’s common stock, which continues to trade at this time on the Nasdaq Capital Market under the symbol “ONCS.”
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has a period of 180 calendar days, or until November 29, 2022, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for at least ten consecutive business days during this 180 calendar day period. In the event the Company does not regain compliance by November 29, 2022, it may be eligible for an additional 180 calendar day grace period if the Company meets the continued listing requirement for market value of publicly held shares ($1 million) and all other initial listing standards for the Nasdaq Capital Market, with the exception of the minimum bid price, and the Company provides written notice to Nasdaq of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. If the Company does not regain compliance within the allotted compliance period(s), Nasdaq will provide notice that the Company’s common stock will be subject to delisting from the Nasdaq Capital Market. In that event, the Company may appeal such delisting determination to a hearings panel.
| F-25 |
The Company is currently evaluating its alternatives to resolve the listing deficiency. To the extent that the Company is unable to resolve the listing deficiency, there is a risk that its common stock may be delisted from Nasdaq, which would adversely impact liquidity of the Company’s common stock and potentially result in even lower bid prices for its common stock.
On November 29, 2021, the Company notified Nasdaq that Robert E. Ward had resigned as a member of the Board of Directors and the Company’s Audit Committee, as disclosed on the Company’s Current Report filed on Form 8-K on November 30, 2021. After giving effect to Mr. Ward’s resignation, the Company’s Audit Committee no longer consisted of three independent members as required by Nasdaq Listing Rule 5605(c)(2)(A).
On December 8, 2021, the Company received a letter from Nasdaq noting that it no longer complied with the requirement of Listing Rule 5605. The letter also acknowledged that the Listing Rules provide a cure period in order for the Company to regain compliance until the earlier of the Company’s next annual meeting of stockholders or November 23, 2022.
On June 9, 2022, the Board of Directors appointed Mr. Joon Kim, an incumbent independent director, to the Audit Committee. On June 13, 2022, Nasdaq confirmed that the Company had regained compliance under Listing Rule 5605.
Note 14 – Subsequent Events
Except as disclosed elsewhere herein, below are the Company’s subsequent events.
On September 6, 2022, the Company entered in an agreement with Mountain View Office Park LLC for office space at Mountain View Office Park, Building 820, Suite 200, in Ewing, New Jersey. The lease is estimated to commence on January 1, 2023 and expire on December 31, 2025, with an option to renew for one additional -year term. Estimated future commitments for fixed rental payments total $0.3 million.
On October 2, 2022, the Company’s Board of Directors authorized a restructuring plan (the “Restructuring Plan”) that is designed to prioritize clinical activities in melanoma to reduce operating expenses while advancing our lead product candidate, TAVO™-EP, toward near-term data milestones in connection with the KEYNOTE-695 clinical trial. As part of the Restructuring Plan, the Company restructured its internal operations and reduced its workforce by approximately 45%, or approximately 18 employees.
The Company currently estimates that it will incur charges of approximately $750,000 to $800,000 in connection with the Restructuring Plan, consisting primarily of cash expenditures for employee transition, notice period and severance payments, retention bonus payments, and related costs as well as non-cash expenses related to vesting of share-based awards. The Company expects that the majority of the restructuring charges will be incurred in the fourth calendar quarter of 2022 and first calendar quarter of 2023, and that the execution of the Restructuring Plan will be substantially complete by the second calendar quarter of 2023.
The charges that the Company expects to incur in connection with the Restructuring Plan are estimates and subject to a number of assumptions, and actual results may differ materially. The foregoing estimated amounts do not include any non-cash charges associated with stock-based compensation. The Company expects to operationalize additional cost reduction actions that will include other incremental cost reduction actions unrelated to workforce reductions.
| F-26 |
ITEM 16. FORM 10-K SUMMARY
The Company has elected not to provide summary information.
EXHIBIT INDEX
| 80 |
| 81 |
* Filed herewith.
** Furnished herewith.
# Management contract or compensatory plan or arrangement.
† Confidential treatment has been granted or requested with respect to portions of this exhibit pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 and these confidential portions have been redacted from the filing that is incorporated by reference. A complete copy of this exhibit, including the redacted terms, has been separately filed with the Securities and Exchange Commission.
| 82 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ONCOSEC MEDICAL INCORPORATED | ||
| By: | /s/ Robert H. Arch, Ph.D. | |
| Date: October 31, 2022 | Robert H. Arch, Ph.D. | |
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert H. Arch and George Chi, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
| SIGNATURE | TITLE | DATE | ||
| /s/ Robert H. Arch, Ph.D. | President, Chief Executive Officer and Director (Principal Executive Officer) |
October 31, 2022 | ||
| Robert H. Arch, Ph.D. | ||||
| /s/ George Chi | Chief Financial Officer (Principal Financial Officer) |
October 31, 2022 | ||
| George Chi | ||||
| /s/ Dr. Linda Shi, MD, PH.D. | Director, Chair of the Board | October 31, 2022 | ||
| Dr. Linda Shi, MD, PH.D. | ||||
| /s/ Stephany Foster | Director | October 31, 2022 | ||
| Stephany Foster | ||||
| /s/ Joon Kim | Director | October 31, 2022 | ||
| Joon Kim | ||||
| /s/ Herbert Kim Lyerly | Director | October 31, 2022 | ||
| Dr. Herbert Kim Lyerly | ||||
| /s/ Kevin R. Smith | Director | October 31, 2022 | ||
| Kevin R. Smith | ||||
| /s/ Chao Zhou | Director | October 31, 2022 | ||
| Chao Zhou |
| 83 |
Exhibit 3.4
AMENDED AND RESTATED BYLAWS
OF
ONCOSEC MEDICAL INCORPORATED
TABLE OF CONTENTS
| Page | ||
| ARTICLE 1 | OFFICES | 1 |
| Section 1.1 | Principal Office | 1 |
| Section 1.2 | Other Offices | 1 |
| ARTICLE 2 | STOCKHOLDERS’ MEETINGS | 1 |
| Section 2.1 | Place of Meetings | 1 |
| Section 2.2 | Annual Meetings | 1 |
| Section 2.3 | Special Meetings | 2 |
| Section 2.4 | Notice of Meetings | 2 |
| Section 2.5 | Quorum and Voting | 2 |
| Section 2.6 | Voting Rights | 3 |
| Section 2.7 | Voting Procedures and Inspectors of Elections | 3 |
| Section 2.8 | Stockholder Proposals at Annual Meetings | 4 |
| Section 2.9 | Nominations of Persons for Election to the Board of Directors | 5 |
| Section 2.10 | Action Without Meeting | 6 |
| Section 2.11 | Fixing of Record Date | 6 |
| ARTICLE 3 | DIRECTORS | 7 |
| Section 3.1 | Election, Qualification, Number and Term of Office | 7 |
| Section 3.2 | Powers | 7 |
| Section 3.3 | Vacancies | 7 |
| Section 3.4 | Resignations and Removals | 7 |
| Section 3.5 | Meetings | 8 |
| Section 3.6 | Quorum and Voting | 8 |
| Section 3.7 | Action Without Meeting | 9 |
| Section 3.8 | Fees and Compensation | 9 |
| Section 3.9 | Committees | 9 |
| ARTICLE 4 | OFFICERS | 10 |
| Section 4.1 | Officers Designated | 10 |
| Section 4.2 | Tenure and Duties of Officers | 10 |
TABLE OF CONTENTS
(continued)
| Page | ||
| ARTICLE 5 | EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY THE CORPORATION | 11 |
| Section 5.1 | Execution of Corporate Instruments | 11 |
| Section 5.2 | Voting of Securities Owned by Corporation | 11 |
| ARTICLE 6 | SHARES OF STOCK | 12 |
| Section 6.1 | Form and Execution of Certificates | 12 |
| Section 6.2 | Lost Certificates | 12 |
| Section 6.3 | Transfers | 12 |
| Section 6.4 | Registered Stockholders | 12 |
| ARTICLE 7 | OTHER SECURITIES OF THE CORPORATION | 12 |
| ARTICLE 8 | INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS | 13 |
| Section 8.1 | Right to Indemnification | 13 |
| Section 8.2 | Authority to Advance Expenses | 13 |
| Section 8.3 | Right of Claimant to Bring Suit | 13 |
| Section 8.4 | Provisions Nonexclusive | 14 |
| Section 8.5 | Authority to Insure | 14 |
| Section 8.6 | Enforcement of Rights | 14 |
| Section 8.7 | Survival of Rights | 14 |
| Section 8.8 | Settlement of Claims | 14 |
| Section 8.9 | Effect of Amendment | 14 |
| Section 8.10 | Subrogation | 14 |
| Section 8.11 | No Duplication of Payments | 15 |
| Section 8.12 | Saving Clause | 15 |
| ARTICLE 9 | NOTICES | 15 |
| ARTICLE 10 | AMENDMENTS | 16 |
| ARTICLE 11 | MISCELLANEOUS | 16 |
| Section 11.1 | Corporate Seal | 16 |
| Section 11.2 | Books | 16 |
| Section 11.3 | Fiscal Year | 16 |
| Section 11.4 | Certain Acquisitions by Fiduciaries | 16 |
AMENDED AND RESTATED BYLAWS
OF
ONCOSEC MEDICAL INCORPORATED
ARTICLE 1
OFFICES
Section 1.1 Principal Office.
The principal offices of OncoSec Medical Incorporated (the “Corporation”) shall be located at such place as the Board of Directors may from time to time determine.
Section 1.2 Other Offices.
The Corporation may also have offices at such other places, either within or without the State of Nevada, as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE 2
STOCKHOLDERS’ MEETINGS
Section 2.1 Place of Meetings.
(a) All meetings of stockholders shall be held at such place, either within or without the State of Nevada, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by paragraph (b) of this Section 2.1.
(b) If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:
(1) Participate in a meeting of stockholders; and
(2) Be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (A) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (B) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (C) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
(c) For purposes of these Bylaws, “remote communication” shall include electronic communications, videoconferencing, teleconferencing or other available technology which allows the stockholders to communicate simultaneously or sequentially.
Section 2.2 Annual Meetings.
The annual meetings of the stockholders of the Corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors and stated in the notice of meeting.
| 1 |
Section 2.3 Special Meetings.
Special meetings of the stockholders may be called for any purpose or purposes, unless otherwise prescribed by the Nevada Revised Statutes (“NRS”) or by the Articles of Incorporation of the Corporation, as amended (the “Articles of Incorporation”), by the Chairman of the Board, the President or the Board of Directors at any time. Only such business shall be brought before a special meeting of stockholders as shall have been specified in the notice of such meeting.
Section 2.4 Notice of Meetings.
(a) Except as otherwise provided by the NRS or the Articles of Incorporation, written notice of each meeting of stockholders, specifying (i) the place, if any, date and hour and, for a special meeting, the purpose or purposes of the meeting, (ii) the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, and (iii) the record date for determining the stockholders entitled to notice of and to vote at such meeting, shall be delivered or mailed not less than 10 nor more than 60 days before the date of such meeting to each stockholder entitled to vote thereat.
(b) When a meeting is adjourned to another time or place, notice need not be delivered of the adjourned meeting if the place, if any, date and hour thereof, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to notice of and to vote at such meeting. If the adjournment is for more than 60 days, the Board of Directors shall set a new record date and notice of the adjourned meeting shall be delivered to each stockholder of record entitled to vote at the adjourned meeting.
(c) Notice of the date, time, place (if any) and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and, to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy.
(d) Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the NRS, the Articles of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if (i) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent, and (ii) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent or other person responsible for the giving of notice; provided, however, that the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given in the form of electronic transmission shall be deemed given when (1) it enters an information processing system that the recipient has designated or uses for the purpose of receiving electronic transmissions or information of the type being sent, and (2) it is in a form ordinarily capable of being processed by that system. An affidavit of the Secretary or of the transfer agent or any other agent of the Corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of these Bylaws, “electronic transmission” means any form or process of communication not directly involving the physical transfer of paper or another tangible medium which (A) is suitable for the retention, retrieval and reproduction of information by the recipient and (B) is retrievable and reproducible in paper form by such a recipient through an automated process used in conventional commercial practice.
Section 2.5 Quorum and Voting.
(a) The holders of a majority of the shares of capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy (regardless of whether the proxy has authority to vote on each matter at such meeting), shall constitute a quorum at any meeting of stockholders for the transaction of business, except as otherwise provided by the NRS or by the Articles of Incorporation. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. At such adjourned meeting at which a quorum is present or represented, any business may be transacted which might have been transacted at the original meeting.
| 2 |
(b) When a quorum is present at any meeting of the stockholders, an action by the stockholders is approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, unless the action is one upon which, by express provision of applicable law, the Articles of Incorporation or these Bylaws (including, without limitation, Section 3.1 and Section 3.6(e)), a different vote is required, in which, case such express provision shall govern and control the vote required to approve such action. For purposes of these Bylaws, a share present at a meeting, but for which there is an abstention or as to which a stockholder gives no authority or direction as to a particular proposal or director nominee, shall be counted as present for the purpose of establishing a quorum but shall not be counted as a vote cast.
Section 2.6 Voting Rights.
(a) Every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by a writing subscribed by such stockholder or by his or her duly authorized attorney; provided, however, that no such proxy shall be valid after the expiration of six (6) months from the date of its execution, unless coupled with an interest, or unless the person executing it specifies therein the length of time for which it is to continue in force, which in no case shall exceed seven (7) years from the date of its execution. If such instrument or record shall designate two (2) or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting, giving consents or exercising a right of dissent in writing thereby conferred, or if only one (1) be present, then such powers may be exercised by that one (1). Unless required by the NRS or determined by the Chairman of the meeting to be advisable, the vote on any matter need not be by written ballot. No stockholder shall have cumulative voting rights.
(b) For purposes of this Section 2.6, “writing” means any information in the form of a record that is inscribed on any tangible medium, including without limitation any written instrument or any information that is stored in an electronic or other medium and is retrievable in paper form through an automated process used in conventional commercial practice. Any copy, communication by electronic transmission or other reliable reproduction of such writing may be substituted for the original writing for any purpose for which the original writing could be used, if the copy, communication by electronic transmission or other reproduction is a complete reproduction of the entire original writing.
(c) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the Corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum.
Section 2.7 Voting Procedures and Inspectors of Elections.
(a) The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.
(b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
| 3 |
(c) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Sections 78.350, 78.352 and 78.355 of the NRS, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to this section shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.
Section 2.8 Stockholder Proposals at Annual Meetings.
At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. The foregoing clause (c) shall be the exclusive means for a stockholder to propose business (other than business included in the Corporation’s proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at an annual meeting of stockholders.
In addition to any other applicable requirements for business to be properly brought before an annual meeting by a stockholder, whether or not the stockholder is seeking to have a proposal included in the Corporation’s proxy statement or information statement under Rule 14a-8 under the Exchange Act, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, in the case of a stockholder seeking to have a proposal included in the Corporation’s proxy statement or information statement, a stockholder’s notice must be delivered to the Secretary at the Corporation’s principal executive offices not less than 120 days or more than 180 days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials (or, in the absence of proxy materials, its notice of meeting) for the previous year’s annual meeting of stockholders. However, if the Corporation did not hold an annual meeting the previous year, or if the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 30 days after the anniversary of the preceding year’s annual meeting, then to be timely, notice by the stockholder must be delivered to the Secretary at the Corporation’s principal executive offices not later than the close of business on the later of (i) the 90th day prior to such annual meeting or (ii) the 15th day following the day on which public announcement of the date of such meeting is first made. If the stockholder is not seeking inclusion of the proposal in the Corporation’s proxy statement or information statement, timely notice consists of a stockholder’s notice delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days prior to the date of the annual meeting. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above. Other than with respect to stockholder proposals relating to director nomination(s), which requirements are set forth in Section 2.9 below, a stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business, (v) as to the stockholder giving the notice and any Stockholder Associated Person (as defined below) or any member of such stockholder’s immediate family sharing the same household, whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any short position or any borrowing or lending of shares of stock) has been made, the effect or intent of which is to mitigate loss or increase profit to or manage the risk or benefit of stock price changes for, or to increase or decrease the voting power of, such stockholder, such Stockholder Associated Person or family member with respect to any share of stock of the Corporation (each, a “Relevant Hedge Transaction”), and (vi) as to the stockholder giving the notice and any Stockholder Associated Person or any member of such stockholder’s immediate family sharing the same household, to the extent not set forth pursuant to the immediately preceding clause, (A) whether and the extent to which such stockholder, Stockholder Associated Person or family member has direct or indirect beneficial ownership of any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise, or any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation (a “Derivative Instrument”), (B) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder, Stockholder Associated Person or family member that are separated or separable from the underlying shares of the Corporation, (C) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder, Stockholder Associated Person or family member is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (D) any performance-related fees (other than an asset-based fee) that such stockholder, Stockholder Associated Person or family member is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice (which information shall be supplemented by such stockholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such ownership as of the record date).
| 4 |
For purposes of this Section 2.8 and Section 2.9, “Stockholder Associated Person” of any stockholder shall mean (i) any person controlling or controlled by, directly or indirectly, or acting in concert with, such stockholder, (ii) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder and (iii) any person controlling, controlled by or under common control with such Stockholder Associated Person.
Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.8, provided, however, that nothing in this Section 2.8 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure.
The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.8, and if he should so determine he shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted.
Nothing in this Section 2.8 shall affect the right of a stockholder to request inclusion of a proposal in the Corporation’s proxy statement or information statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2.9 Nominations of Persons for Election to the Board of Directors.
In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (i) pursuant to the Corporation’s notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) by or at the direction of the Board of Directors, or by any nominating committee or person appointed by the Board of Directors, (iii) by Grand Decade Developments Limited, a British Virgin Islands limited company and a wholly owned subsidiary of China Grand Pharmaceutical and Healthcare Holdings Limited (“GDD”), in accordance with GDD’s right to nominate two members of the Board of Directors as well as up to two independent directors at the time any independent director serving on the Board of Directors as of October 8, 2019 ceases to serve as a director of the Corporation for any reason, in each case pursuant to the GDD Stockholders Agreement, (iv) by Sirtex Medical US Holdings, Inc., a Delaware corporation (“Sirtex”), in accordance with Sirtex’s right to nominate one member of the Board of Directors pursuant to the Sirtex Stockholders Agreement, or (v) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.9. The foregoing clauses (iii) and (iv) shall no longer be applicable at any time GDD, Sirtex and their affiliates collectively own less than 4,800,000 shares of the Corporation’s common stock (as shall be proportionally adjusted due to any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other substantially similar transaction (a “Recapitalization”)). A stockholder who complies with the notice procedures set forth in this Section 2.9 is permitted to present the nomination at the meeting of stockholders but, other than nominees of GDD and Sirtex, is not entitled to have a nominee included in the Corporation’s proxy statement in the absence of an applicable rule of the SEC requiring the Corporation to include a director nomination made by a stockholder in the Corporation’s proxy statement or information statement.
| 5 |
Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, such notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days prior to the date of the annual meeting. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above. The stockholder’s notice relating to director nomination(s) shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the Corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Exchange Act; (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, and (ii) the class and number of shares of the Corporation which are beneficially owned by the stockholder; (c) as to the stockholder giving the notice and any Stockholder Associated Person (as defined in Section 2.8), to the extent not set forth pursuant to the immediately preceding clause, whether and the extent to which any Relevant Hedge Transaction (as defined in Section 2.8) has been entered into, and (d) as to the stockholder giving the notice and any Stockholder Associated Person, (i) whether and the extent to which any Derivative Instrument (as defined in Section 2 8) is directly or indirectly beneficially owned, any rights to dividends on the shares of the Corporation owned beneficially by such stockholder that are separated or separable from the underlying shares of the Corporation, any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (iv) any performance-related fees (other than an asset-based fee) that such stockholder is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such stockholder’s immediate family sharing the same household (which information shall be supplemented by such stockholder and beneficial owner, if any, not later than ten (10) days after the record date for the meeting to disclose such ownership as of the record date). The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by GDD, Sirtex or holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
Section 2.10 Action Without Meeting.
The stockholders of the Corporation may not act by written consent.
Section 2.11 Fixing of Record Date.
In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the date on which the meeting is held. A determination of stockholders of record entitled notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting; provided, further, that if the adjournment is for more than 60 days, the Board of Directors shall set a new record date and notice of the adjourned meeting shall be delivered to each stockholder of record entitled to vote at the adjourned meeting.
| 6 |
ARTICLE 3
DIRECTORS
Section 3.1 Election, Qualification, Number and Term of Office.
(a) The number of directors of the Corporation shall be fixed at seven (7) until changed by amendment of the Articles of Incorporation or by a Bylaw amending this Section 3.1 duly adopted by the vote of holders of a majority of the stock entitled to vote at such meeting or by the Board of Directors, subject to Section 3.6(e). The exact number of directors shall be fixed from time to time, within the limits specified in the Articles of Incorporation or in this Section 3.1, exclusively by the Board of Directors, but subject to Section 3.6(e). Elected directors shall hold office until the next annual meeting and until their successors shall be duly elected and qualified. Directors need not be residents of Nevada or stockholders of the Corporation. In no case will a decrease in the number of directors shorten the term of any incumbent director.
(b) Except as provided in Section 3.3 of this Article 3 and in Section 2.9, the directors shall be elected by a plurality vote of the votes cast and entitled to vote on the election of directors at any meeting for the election of directors at which a quorum is present.
Section 3.2 Powers.
The business and affairs of the Corporation shall be managed by its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things, subject only to such limitations as may be provided by Chapter 78 of the NRS, the Articles of Incorporation and these Bylaws.
Section 3.3 Vacancies.
Except as provided in Section 2.9, if any vacancy occurs in the Board of Directors caused by death, resignation, retirement, disqualification, expansion of the size of the Board of Directors or removal from office of any director, or otherwise, or if any new directorship is created by an increase in the authorized number of directors, a majority vote of the directors then in office, or a sole remaining director, may choose a successor or fill the newly created directorship. Any director so chosen shall hold office for the unexpired term of his or her predecessor in his or her office and until his or her successor shall be elected and qualified, unless sooner displaced. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
Section 3.4 Resignations and Removals.
(a) Any director may resign at any time by delivering his resignation to the Secretary in writing or by electronic transmission, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors effective at a future date, except as provided in Section 2.9, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.
(b) Notwithstanding any other provisions of these Bylaws or the fact that some lesser percentage may be specified by law, any director or the entire Board of Directors (except for those directors nominated by GDD and Sirtex in accordance with Section 2.9) may be removed at any time, but only for cause or only by the affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) or more of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose.
| 7 |
Section 3.5 Meetings.
(a) The annual meeting of the Board of Directors shall be held immediately after the annual stockholders’ meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors shall be necessary, and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held at the principal executive office of the Corporation. Regular meetings of the Board of Directors may also be held at any place, within or without the State of Nevada, which has been designated by resolutions of the Board of Directors or the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any time and place within or without the State of Nevada whenever called by the Chairman of the Board or, if there is no Chairman of the Board, by the President, or by any of the directors.
(d) Written notice of the time and place of all regular and special meetings of the Board of Directors shall be delivered personally to each director or sent by any form of electronic transmission at least 48 hours before the start of the meeting, or sent by first class mail at least 120 hours before the start of the meeting. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute waiver of notice of such meeting, except where a director attends a meeting solely for the purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, except that notice shall be given with respect to any matter when notice is required by the NRS.
Section 3.6 Quorum and Voting.
(a) A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with Section 3.1 of Article 3 of these Bylaws, but not less than one; provided that a quorum of the Board of Directors (and written consents executed by directors) must include at least one non-independent director nominated by GDD or Sirtex. Further, at any meeting, whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by a vote of no less than a majority of the directors present, unless a different vote be required by law, the Articles of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of electronic communications, videoconferencing, teleconferencing or other available technology which allows the members to communicate simultaneously or sequentially.
(d) The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
| 8 |
(e) Notwithstanding anything to the contrary, until such time that GDD, Sirtex and their affiliates collectively own less than 4,800,000 shares of the Corporation’s common stock (as shall be proportionally adjusted due to a Recapitalization), none of the actions set forth below shall be taken by, or on behalf of, directly or indirectly, the Corporation (or any subsidiary thereof) without the approval of at least 70% of the members constituting the entire Board of Directors, and until such time that GDD, Sirtex and their affiliates collectively own less than 8,400,000 shares of the Corporation’s common stock (as shall be proportionally adjusted due to a Recapitalization), none of the actions set forth below shall be taken by, or on behalf of, directly or indirectly, the Corporation (or any subsidiary) without the consent of GDD: (i) amending the Corporation’s Articles of Incorporation or these Bylaws; (ii) increasing the size of the Board of Directors to more than nine; (iii) declaring, setting aside or paying any dividend or other distribution (whether cash, stock or property or any combination thereof); (iv) redeeming, repurchasing or otherwise acquiring any of the Corporation’s securities; (v) issuing pledging, disposing of, transferring, encumbering, granting, selling or otherwise delivering, or authorizing the issuance, pledge, disposal of, transfer, encumbrance, grant, sale or other delivery of, any of the Corporation’s securities; provided, however, that issuances of any Corporation’s security pursuant to a stock option or warrant existing as of October 7, 2019 or under the Corporation’s 2015 Employee Stock Purchase Plan as it exists as of October 7, 2019 shall not require the approval of 70% of the Board of Directors or the consent of GDD or Sirtex unless such issuance would result in GDD and Sirtex, in the aggregate, holding, directly or indirectly, less than 50.1% of any class or series of the Corporation’s securities on a fully diluted basis (taking into account all options, warrants, convertible securities and obligations to issue the same); (vi) creating or incurring any indebtedness or lien on any of the Corporation’s or its subsidiary’s assets, in excess of $250,000; (vii) selling, assigning, leasing, licensing or otherwise transferring, abandoning, disposing of or permitting to lapse any of the Corporation’s or its subsidiary’s assets; (viii) incurring any capital expenditures or any obligations or liabilities in respect thereof in excess of $500,000; (ix) approving the Corporation’s annual budget; (x) making any loans, advances or capital contributions to, or investments in, any other person; and (xi) entering into any agreement with an affiliate.
Section 3.7 Action Without Meeting.
Unless otherwise restricted by the Articles of Incorporation or these Bylaws or as provided for in Section 3.6, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if a written consent is signed by all (or such lesser proportion as may be permitted by the NRS) of the members of the Board of Directors or of such committee, as the case may be.
Section 3.8 Fees and Compensation.
Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving additional compensation therefor.
Section 3.9 Committees.
(a) Designation: The Board of Directors may, by resolution passed by a vote of no less than a majority of the directors then in office, from time to time appoint such committees of the Board of Directors as may be permitted by law. Such committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee. The non-independent directors nominated by GDD and Sirtex shall be appointed to authorized committees in proportion with such directors’ representation on the Board of Directors.
(b) Term: The terms of members of all committees of the Board of Directors shall expire on the date of the next annual meeting of the Board of Directors following their appointment; provided that they shall continue in office until their successors are appointed. Subject to the provisions of subsections (a) or (b) of this Section 3.9, the Board of Directors may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but, except as provided in Section 3.9(a), the Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
| 9 |
(c) Meetings: Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 3.9 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any such committee may be held at the principal executive office of the Corporation or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee provided that a quorum of any such committee must include at least one non-independent director nominated by GDD or Sirtex to the extent any such person serves on such committee.
ARTICLE 4
OFFICERS
Section 4.1 Officers Designated.
The officers of the Corporation shall be a President, a Secretary and a Treasurer. The Board of Directors or the President may also appoint a Chairman of the Board, one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers, and such other officers and agents with such powers and duties as it or he shall deem necessary. The order of the seniority of the Vice Presidents shall be in the order of their nomination unless otherwise determined by the Board of Directors. The Board of Directors may assign such additional titles to one or more of the officers as they shall deem appropriate. Any one person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the Corporation shall be fixed by or in the manner designated by the Board of Directors.
Section 4.2 Tenure and Duties of Officers.
(a) General: All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the Corporation.
(b) Duties of the Chairman of the Board of Directors: The Chairman of the Board of Directors (if there be such an officer appointed) when present shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(c) Duties of President: The President shall be the chief executive officer of the Corporation shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The President shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(d) Duties of Vice Presidents: The Vice Presidents, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant. The Vice President shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(e) Duties of Secretary: The Secretary shall attend all meetings of the stockholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the Corporation, which may be maintained in either paper or electronic form. The Secretary shall give notice, in conformity with these Bylaws, of all meetings of the stockholders and of all meetings of the Board of Directors and any Committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(f) Duties of Treasurer: The Treasurer shall keep or cause to be kept the books of account of the Corporation in a thorough and proper manner, and shall render statements of the financial affairs of the Corporation in such form and as often as required by the Board of Directors or the President. The Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the Corporation. The Treasurer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each Assistant Treasurer shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
| 10 |
ARTICLE 5
EXECUTION
OF CORPORATE INSTRUMENTS, AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
Section 5.1 Execution of Corporate Instruments.
(a) The Board of Directors may in its discretion determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the Corporation.
(b) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, formal contracts of the Corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the Corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the Corporation, shall be executed, signed or endorsed by the Chairman of the Board (if there be such an officer appointed) or by the President; such documents may also be executed by any Vice President and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature but not requiring the corporate seal may be executed as aforesaid or in such other manner as may be directed by the Board of Directors.
(c) All checks and drafts drawn on banks or other depositaries on funds to the credit of the Corporation or in special accounts of the Corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.
(d) Execution of any corporate instrument may be effected in such form, either manual, facsimile or electronic signature, as may be authorized by the Board of Directors.
Section 5.2 Voting of Securities Owned by Corporation.
All stock and other securities of other Corporations owned or held by the Corporation for itself or for other parties in any capacity shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), or by the President, or by any Vice President.
| 11 |
ARTICLE 6
SHARES OF STOCK
Section 6.1 Form and Execution of Certificates.
The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may approve the issuance of uncertificated shares of some or all of the shares of any or all of its classes or series of capital stock. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Certificates for the shares of stock of the Corporation shall be in such form as is consistent with the Articles of Incorporation and applicable law. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided by the NRS, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 6.2 Lost Certificates.
The Board of Directors may direct a new certificate or certificates (or uncertificated shares in lieu of a new certificate) to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates (or uncertificated shares in lieu of a new certificate), the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the Corporation in such manner as it shall require and/or to give the Corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed.
Section 6.3 Transfers.
Transfers of record of shares of stock of the Corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, who shall furnish proper evidence of authority to transfer, and in the case of stock represented by a certificate, upon the surrender of a certificate or certificates for a like number of shares, properly endorsed.
Section 6.4 Registered Stockholders.
The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Nevada.
ARTICLE 7
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the Corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the Corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon has ceased to be an officer of the Corporation before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Corporation.
| 12 |
ARTICLE 8
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
Section 8.1 Right to Indemnification.
Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a “Proceeding”), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another Corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent (hereafter an “Agent”), shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the NRS, as the same exists or may hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the Corporation to provide broader indemnification rights than were permitted prior thereto) against all expenses, liability, and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article) reasonably incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereinafter “Expenses”); provided, however, that except as to actions to enforce indemnification rights pursuant to Section 8.3 of this Article, the Corporation shall indemnify any Agent seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.
Section 8.2 Authority to Advance Expenses.
Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding, provided, however, such Expenses shall be advanced only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article or otherwise. Expenses incurred by other Agents of the Corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the Corporation for Expense advances shall be unsecured and no interest shall be charged thereon.
Section 8.3 Right of Claimant to Bring Suit.
If a claim under Section 8.1 or 8.2 of this Article is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys’ fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct that make it permissible under the NRS for the Corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the NRS, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.
| 13 |
Section 8.4 Provisions Nonexclusive.
The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Articles of Incorporation, agreement, or vote of the stockholders or disinterested directors is inconsistent with these Bylaws, the provision, agreement, or vote shall take precedence.
Section 8.5 Authority to Insure.
The Corporation may purchase and maintain insurance to protect itself and any Agent against any Expense, whether or not the Corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article.
Section 8.6 Enforcement of Rights
Without the necessity of entering into an express contract, all rights provided under this Article shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the Corporation and such Agent. Any rights granted by this Article to an Agent shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction.
Section 8.7 Survival of Rights.
The rights provided by this Article shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.
Section 8.8 Settlement of Claims.
The Corporation shall not be liable to indemnify any Agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the Corporation’s written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the Corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action.
Section 8.9 Effect of Amendment.
Any amendment, repeal, or modification of this Article that adversely affects any rights provided in this Article to an Agent shall only be effective upon the prior written consent of such Agent.
Section 8.10 Subrogation.
In the event of payment under this Article, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights.
| 14 |
Section 8.11 No Duplication of Payments.
The Corporation shall not be liable under this Article to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
Section 8.12 Saving Clause.
If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Agent to the fullest extent not prohibited by any applicable portion of this Article that shall not have been invalidated, or by any other applicable law.
ARTICLE 9
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given either (1) in writing, timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the Corporation or its transfer agent, or (2) by a means of electronic transmission that satisfies the requirements of Section 2.4(d) of these Bylaws, and has been consented to by the stockholder to whom the notice is given. Any notice required to be given to any director may be given by either of the methods hereinabove stated, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of electronic communication) such e-mail address, facsimile telephone number or other form of electronic address as such director shall have filed in writing or by electronic communication with the Secretary of the Corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the principal executive office of the Corporation. An affidavit of mailing, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by means of electronic transmission shall be deemed to have been given as at the sending time recorded by the electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Articles of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Articles of Incorporation or Bylaws of the Corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any provision of the NRS, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
| 15 |
ARTICLE 10
AMENDMENTS
Except as otherwise provided in Section 8.9 above, these Bylaws may be repealed, altered or amended or new Bylaws adopted at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting, unless a larger vote is required by these Bylaws or the Articles of Incorporation. Except as otherwise provided in Section 8.9 above, the Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaws setting forth the number of directors who shall constitute the whole Board of Directors) by unanimous written consent or at any annual, regular, or special meeting by the affirmative vote of a majority of the whole number of directors, subject to the power of the stockholders to change or repeal such Bylaws. So long as the Stockholder Agreements remain in effect, the Board shall not approve any amendment, alteration or repeal of any provision of these Bylaws, or the adoption of any new Bylaws, that would be contrary to or inconsistent with Sections 2.9, 3.6(a), 3.6(e), 3.9(a), 3.9(c), this Article 10, or the rights of GDD or Sirtex, included in the Stockholders Agreements, by and between the Corporation and each of GDD and Sirtex, dated as of October 8, 2019 (the “GDD Stockholders Agreement” and the “Sirtex Stockholders Agreement”, respectively).
ARTICLE 11
MISCELLANEOUS
Section 11.1 Corporate Seal.
The corporate seal shall have inscribed thereon the name of the Corporation and the words “Corporate Seal, Nevada”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 11.2 Books.
The books of the Corporation may be kept within or without the State of Nevada (subject to any provisions contained in the NRS) at such place or places as may be designated from time to time by the Board of Directors.
Section 11.3 Fiscal Year.
The fiscal year of the Corporation shall begin the first day of August of each year or upon such other day as may be designated by the Board of Directors.
Section 11.4 Certain Acquisitions by Fiduciaries.
The provisions of NRS 78.378 to 78.3793, inclusive (entitled “Acquisition of a Controlling Interest”), shall not apply to the Corporation or to any “Acquisition” of a “Controlling Interest” (as each term is defined therein) in the Corporation by any existing or future stockholder or stockholders.
| 16 |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-260850, Registration Statement No. 333-252281, and Registration Statement No. 333-233447 on Form S-3 and Registration Statement No. 333-266415, Registration Statement No. 333-257049, and Registration Statement No. 333-238823 on Form S-8, of our report dated October 31, 2022, (which report includes an explanatory paragraph relating to the existence of substantial doubt about the Company’s ability to continue as a going concern), with respect to the consolidated financial statements of OncoSec Medical Incorporated as of July 31, 2022 and 2021, and for each of the years in the two year period ended July 31, 2022, included in this Annual Report on Form 10-K for the year ended July 31, 2022.
/s/ Mayer Hoffman McCann P.C.
San Diego, California
October 31, 2022
Exhibit 31.1
CERTIFICATIONS
I, Robert H. Arch, Ph.D., certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of OncoSec Medical Incorporated; |
| 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(s) 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(s) 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. |
| October 31, 2022 | |
| /s/ Robert H. Arch, Ph.D. | |
| Robert H. Arch, Ph.D. | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, George Chi, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of OncoSec Medical Incorporated; |
| 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(s) 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(s) 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. |
| October 31, 2022 | |
| /s/ George Chi | |
| George Chi | |
Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Robert H. Arch, Ph.D., Principal Executive Officer and President of OncoSec Medical Incorporated (the “Company”) hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Annual Report on Form 10-K of the Company for the period ended July 31, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, 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 operations of the Company. |
| Dated: October 31, 2022 | By: | /s/ Robert H. Arch, Ph.D. |
| Robert H. Arch, Ph.D. | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, George Chi, Principal Financial Officer of OncoSec Medical Incorporated (the “Company”) hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Annual Report on Form 10-K of the Company for the period ended July 31, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, 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 operations of the Company. |
| Dated: October 31, 2022 | By: | /s/ George Chi |
| George Chi | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |