UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
ACT OF 1934
FOR
THE QUARTERLY PERIOD ENDED
OR
ACT OF 1934
FOR THE TRANSITION PERIOD FROM __ TO __
COMMISSION
FILE NO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
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).
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 | ☐ |
| ☒ | 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares outstanding of the Registrant’s Common Stock, $0.0001 par value, was as of June 14, 2022.
OncoSec Medical Incorporated
Form 10-Q
for the Quarterly Period Ended April 30, 2022
| 2 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
OncoSec Medical Incorporated
Condensed Consolidated Balance Sheets
| April 30, 2022 | July 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other long-term assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accrued compensation related | ||||||||
| Operating lease liabilities | ||||||||
| Note payable | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Liability under co-promotion agreement - related party | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock authorized – common shares with a par value of $ as of April 30, 2022 and July 31, 2021, common stock issued and outstanding – and common shares as of April 30, 2022 and July 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Warrants issued and outstanding – | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
OncoSec Medical Incorporated
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| April 30, 2022 | April 30, 2021 | April 30, 2022 | April 30, 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Other income (expense), net | ( | ) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency exchange gain (loss), net | ( | ) | ( | ) | ||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax (benefit) expense | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares used in computing basic and diluted net loss per common share | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
OncoSec Medical Incorporated
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
April 30, 2022 | April 30, 2021 | April 30, 2022 | April 30, 2021 | |||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
OncoSec Medical Incorporated
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Three Months Ended April 30, 2022
| Common Stock | Additional Paid-In | Warrants | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Loss | Deficit | Equity | |||||||||||||||||||||||||
| Balance, January 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | | |||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||||||
| Tax withholdings paid on equity awards | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||||
| Tax shares sold to pay for tax withholdings on equity awards | — | — | ||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, April 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
Nine Months Ended April 30, 2022
| Common Stock | Additional Paid-In | Warrants | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Loss | Deficit | Equity | |||||||||||||||||||||||||
| Balance, July 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | | |||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||||||
| Tax withholdings paid on equity awards | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||||
| Tax shares sold to pay for tax withholdings on equity awards | — | — | ||||||||||||||||||||||||||||||
| Common stock issued for services | — | |||||||||||||||||||||||||||||||
| Exercise of common stock options | — | |||||||||||||||||||||||||||||||
| Common stock issued for employee stock purchase plan | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, April 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
Three Months Ended April 30, 2021
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Warrants | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Loss | Deficit | Equity | |||||||||||||||||||||||||
| Balance, January 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | | |||||||||||||||||||||
| Exercise of common stock warrants | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Exercise of common stock options | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||||||
| Tax withholdings paid on equity awards | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||||
| Tax shares sold to pay for tax withholdings on equity awards | — | — | ||||||||||||||||||||||||||||||
| Purchase of shares under CGP and Sirtex stock purchase agreements | — | |||||||||||||||||||||||||||||||
| Common stock issued for services | — | |||||||||||||||||||||||||||||||
| Dividends declared ($ per share) | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, April 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
Nine Months Ended April 30, 2021
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Warrants | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Loss | Deficit | Equity | |||||||||||||||||||||||||
| Balance, July 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | | |||||||||||||||||||||
| Common stock issued for employee stock purchase plan | — | |||||||||||||||||||||||||||||||
| Exercise of common stock warrants | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Exercise of common stock options | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||||||
| Tax withholdings paid on equity awards | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||||
| Tax shares sold to pay for tax withholdings on equity awards | — | — | ||||||||||||||||||||||||||||||
| Cancellation of expired warrants | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| August 2020 Registered Direct Offering, net of $ | — | |||||||||||||||||||||||||||||||
| January 2021 Public Offering, net of $ | — | |||||||||||||||||||||||||||||||
| Purchase of shares under CGP and Sirtex stock purchase agreements | — | |||||||||||||||||||||||||||||||
| Common stock issued for services | — | |||||||||||||||||||||||||||||||
| Dividends declared ($ per share) | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, April 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
OncoSec Medical Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||
| April 30, 2022 | April 30, 2021 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right-of-use asset | ||||||||
| Stock-based compensation | ||||||||
| Common stock issued for services | ||||||||
| Foreign currency exchange (gain) loss, net | ( | ) | ||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Other long-term assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
| Accrued compensation related | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Proceeds from issuance of common stock through ESPP | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Payment of financing and offering costs | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Purchase of shares under CGP and Sirtex stock purchase agreements | ||||||||
| Proceeds from co-promotion agreement | ||||||||
| Principal payments on note payable | ( | ) | ( | ) | ||||
| Tax withholdings paid on equity awards | ( | ) | ( | ) | ||||
| Tax shares sold to pay for tax withholdings on equity awards | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, at beginning of period | ||||||||
| Cash and cash equivalents, at end of period | $ | $ | ||||||
| Supplemental disclosure for cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Noncash investing and financing transactions: | ||||||||
| Expiration of warrants | $ | $ | ||||||
| Increase in right-of-use assets and operating lease liabilities resulting from contract modification | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 8 |
OncoSec Medical Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 to stimulate and augment anti-tumor immune responses for the treatment of cancers. Its core technology platform ImmunoPulse® is a drug-device therapeutic modality platform comprised of a proprietary intratumoral electroporation (“EP”) delivery device (the “OMS EP Device”) and a proprietary DNA plasmid 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 and disposable applicators. The Company’s 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 and elicit systemic tumor-specific immune responses in cancer patients. The activation of the appropriate inflammatory response in the treated tumor can drive 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™ for expedited FDA review, a rolling Biologics License Application (“BLA”) review and certain other benefits.
The Company’s primary focus is to pursue its study of TAVO™ in combination with KEYTRUDA® (pembrolizumab) in melanoma and triple negative breast cancer (“TNBC”).
The Company’s KEYNOTE-695 study is a registration-directed, Phase 2b open-label, single-arm, multicenter study in approximately 100 patients treated with TAVO™ 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 study. 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 study sponsor and is responsible for external costs. The study completed enrollment of the primary cohort 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.
| 9 |
The Company’s KEYNOTE-890 study is a Phase 2, open-label, single-arm, multicenter study conducted in the United States and Australia to evaluate the safety and efficacy of TAVO™ 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™ 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). 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 study, 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 study 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. 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 and is expected to be completed in 2023.
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 study 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™, KEYTRUDA® and epacadostat. Recruitment on this study has been halted after the last patient was treated in June 2021.
In August 2020, the Company supported commencement of an investigator-initiated Phase 2 study 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 study 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 study began enrolling patients in December of 2020. Enrollment for this trial is expected to be completed in 2023.
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.
In April 2021, the Company announced that it received authorization to CE mark the OMS EP Device for use in solid tumors. That CE mark indicates compliance with Medical Device Directives (MDD) of the European Commission for the OMS EP Device as configured at the time. Subsequent to receiving the CE mark for that version of the OMS EP Device, the Company has advanced the design of the applicator component of the OMS EP Device, which the Company refers to as the Series 3 Applicator. This newer version of the OMS EP Device, which still includes the GenPulseTM generator, is currently used as an investigational device in clinical trial sites in Australia, the EU and Switzerland. The Company is currently seeking FDA agreement for investigational use of the GenPulseTM and the Series 3 Applicator in US clinical sites.
| 10 |
The Company intends to continue to pursue potential new trials and studies related to TAVO™, 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, in addition to IL-12, can be encoded into proprietary plasmid-DNA and delivered intratumorally using EP. Specifically, the Company is developing proprietary technology to potentially treat liver, lung, bladder, pancreatic and other difficult to treat visceral lesions through the direct delivery of plasmid-based IL-12 with the VLA.
The VLA is being 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 organs. 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 therapy. 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.
The Company established a collaboration with Emerge Health Pty (“Emerge”), the leading Australian company providing full registration, reimbursement, sales, marketing and distribution services of therapeutic products in Australia and New Zealand, to commercialize TAVO™ and make it available under Australia’s Special Access Scheme (“SAS”). Emerge was acquired in late 2019 and in June 2021 informed the Company that oncology will not be a core therapeutic focus for Emerge into the future. The collaboration was terminated effective October 1, 2021, and the Company will not continue to participate in the SAS program.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet as of April 30, 2022, the condensed consolidated statements of operations for the three and nine months ended April 30, 2022 and 2021, the condensed consolidated statements of comprehensive loss for the three and nine months ended April 30, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three and nine months ended April 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the nine months ended April 30, 2022 and 2021, are unaudited, but include all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented and necessary in order to make the Company’s financial statements not misleading. The condensed consolidated results of operations for the three and nine months ended April 30, 2022 shown herein are not necessarily indicative of the consolidated results that may be expected for the year ending July 31, 2022, or for any other period. These condensed consolidated financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the fiscal year ended July 31, 2021, included in the Company’s Annual Report on Form 10-K (the “Annual Report”) filed with the U.S. Securities and Exchange Commission (“SEC”) on October 29, 2021. The condensed consolidated balance sheet at July 31, 2021 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. GAAP for complete financial statements.
| 11 |
Note 2—Significant Accounting Policies
Principles of Consolidation
The accompanying condensed 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 condensed 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. Such estimates include the Company’s ability to continue as a going concern and certain calculations related to that determination, stock-based compensation, the accrual of research, product development and clinical obligations, impairment of long-lived assets, determining the Incremental Borrowing Rate for calculating Right-Of-Use (“ROU”) assets and lease liabilities and accounting for income taxes, including the related valuation allowance on the deferred tax asset and uncertain tax positions. 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 $
Property and Equipment
The
Company’s capitalization threshold is $
| Computers and equipment: | ||
| Computer software: | ||
| Leasehold improvements: |
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.
| 12 |
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.
| 13 |
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.
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 April 30, 2022 and July 31, 2021.
| 14 |
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 April 30, 2022 and July 31, 2021, all outstanding warrants issued by the Company were classified as equity.
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:
| For the Three and Nine Months Ended | For the Three and Nine Months Ended | |||||||
| April 30, 2022 | April 30, 2021 | |||||||
| Stock options | ||||||||
| Restricted stock units | ||||||||
| Warrants | ||||||||
| Total | ||||||||
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 issuance.
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.
| 15 |
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 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 condensed 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 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 condensed 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 and cash equivalents,” on the Company’s condensed 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 condensed 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 condensed 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
| 16 |
The CARES Act
On March 27, 2020, the president signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) providing nearly $trillion in economic relief to eligible businesses impacted by the coronavirus outbreak. 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 condensed consolidated financial statements during the three and nine months ended April 30, 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.
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 $
As
of June 1, 2022, the Company had cash and cash equivalents of $
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.
| 17 |
Note 4—Balance Sheet Details
Property and Equipment
Property and equipment, net, is comprised of the following:
| April 30, 2022 | July 31, 2021 | |||||||
| Equipment and furniture | $ | $ | ||||||
| Computer software | ||||||||
| Leasehold improvements | ||||||||
| Construction in progress | ||||||||
| Property and equipment, gross | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation
and amortization expense recorded for the three and nine months ended April 30, 2022 was approximately $
Depreciation
and amortization expense recorded for the three and nine months ended April 30, 2021 was approximately $
Intangible Assets
Intangible assets, net, is comprised of the following:
| April 30, 2022 | July 31, 2021 | |||||||
| License | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
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
Intangible
asset amortization expense recorded for the three and nine months ended April 30, 2022 was approximately $
Intangible
asset amortization expense recorded for the three and nine months ended April 30, 2021 was approximately $
At April 30, 2022, the estimated amortization expense by fiscal year based on the current carrying value of intangible assets is as follows:
| Years ending July 31, | ||||
| 2022 – the remainder of the fiscal year | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
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Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities are comprised of the following:
| April 30, 2022 | July 31, 2021 | |||||||
| Research and development costs | $ | $ | ||||||
| Professional services fees | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
Accrued Compensation
Accrued compensation is comprised of the following:
| April 30, 2022 | July 31, 2021 | |||||||
| Accrued payroll | $ | $ | ||||||
| 401K payable | ||||||||
| Accrued severance | ||||||||
| Total | $ | $ |
Note 5—Note Payable
On
April 27, 2020, the Company was granted a two-year loan (the “Loan”) from the Banc of California in the aggregate amount
of $
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 $
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 $
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 $
| 19 |
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 $
Common Stock Option Exercise
During
the nine months ended April 30, 2022, shares of common stock issued related to option exercises totaled . The Company realized
proceeds of approximately $
Outstanding Warrants
There
were no warrants exercised during the nine months ended April 30, 2022. During the nine months ended April 30, 2021, shares of common
stock issued related to warrant exercises totaled . The Company realized proceeds of approximately $
At
April 30, 2022, the Company had outstanding warrants to purchase
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 $
During
the nine months ended April 30, 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 shares of common stock to CGP at an exercise
price of $per share, resulting in gross proceeds of approximately
$
| 20 |
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 nine months ended April 30, 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.
Stock Options
During the nine months ended April 30, 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 nine months ended April 30, 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 $. The stock options issued to the consultant have a -year term, vest over one year and have an exercise price of $.
During the nine months ended April 30, 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.
| 21 |
Nine Months Ended April 30, 2022 | Nine Months Ended April 30, 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.
| Options | Weighted Average Exercise Price | Weighted - Average
Remaining
Contract | Aggregate Intrinsic Value ($000) | |||||||||||||
| Outstanding - July 31, 2021 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Forfeited/Cancelled | ( | ) | $ | |||||||||||||
| Outstanding - April 30, 2022 | $ | $ | ||||||||||||||
| Exercisable - April 30, 2022 | $ | $ | ||||||||||||||
The weighted-average grant date fair value of stock options granted during the nine months ended April 30, 2022 and 2021 was $ and $, respectively.
As of April 30, 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.
Stock-based compensation expense recorded in the Company’s condensed consolidated statements of operations for the three and nine months ended April 30, 2022 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $ million and $ million, respectively. Of the total expense, $ million and $ million, respectively, was recorded to research and development and $ million and $ million, respectively was recorded in general and administrative in the Company’s condensed consolidated statements of operations for the three and nine months ended April 30, 2022.
| 22 |
Stock-based compensation expense recorded in the Company’s condensed consolidated statements of operations for the three and nine months ended April 30, 2021 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $ million and $ million, which included approximately $ and $ million, respectively, related to the accelerated vesting of time-vesting options. Of the total expense, $ million and $ million, respectively, was recorded to research and development and $ million and $ million, respectively, was recorded in general and administrative in the Company’s condensed consolidated statements of operations for the three and nine months ended April 30, 2021.
Restricted Stock Units (“RSUs”)
For the three and nine months ended April 30, 2022, the Company recorded approximately $ million and $ million, respectively, in stock-based compensation related to RSUs, which is reflected in the condensed consolidated statements of operations.
For the three and nine months ended April 30, 2021, the Company recorded approximately $ million and $ million, respectively, in stock-based compensation related to RSUs, which is reflected in the condensed consolidated statements of operations.
| RSUs | Weighted Average Grant Date Fair Value | |||||||
| Nonvested - July 31, 2021 | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited/Cancelled | ( | ) | $ | |||||
| Nonvested - April 30, 2022 | $ | |||||||
As of April 30, 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.
Shares Issued to Consultants
During
the three and nine months ended April 30, 2022, and shares of common stock valued at approximately
$
During
the three and nine months ended April 30, 2021, and shares of common stock valued at approximately
$
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 April 30, 2022, there were shares remaining available for issuance under the ESPP.
| 23 |
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 to end on July 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.
Approximately $ and $ was recorded as stock-based compensation during the nine months ended April 30, 2022 and 2021, respectively.
Common Stock Reserved for Future Issuance
The following table summarizes all common stock reserved for future issuance at April 30, 2022:
| Common Stock options outstanding (within the 2011 Plan and outside of the terms of the 2011 Plan) | ||||
| Common Stock reserved for restricted stock unit release | ||||
| Common Stock authorized for future grant under the 2011 Plan | ||||
| Common Stock reserved for warrant exercise | ||||
| Shares issuable under CGP and Sirtex stock purchase agreements (Note 6) | ||||
| Common Stock reserved for future ESPP issuance | ||||
| Total Common Stock reserved for future issuance |
Note 8—Income Taxes
Sale of New Jersey Net Operating Losses
In
April 2022, the Company received $
In
June 2021, the Company received $
Note 9—Commitments and Contingencies
Contingencies
The Company is not a party to any other legal proceeding or aware of any other 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.
| 24 |
Note 10—Leases
Lease Agreements
The
Company has operating leases for corporate offices and lab space. These leases have remaining lease terms of approximately
Supplemental balance sheet information related to leases as of April 30, 2022 was as follows:
| Operating Leases: | ||||
| Operating lease right-of-use assets | $ | |||
| Operating Leases: | ||||
| Current portion included in current liabilities | $ | |||
| Long-term portion included in non-current liabilities | ||||
| Total operating lease liabilities | $ | |||
Supplemental lease expense related to leases is as follows:
For the Three Months Ended April 30, 2022 | For the Nine Months Ended April 30, 2022 | |||||||
| Operating lease cost | $ | $ | ||||||
| Total lease expense | $ | $ | ||||||
Other information related to leases where the Company is the lessee is as follows:
As of April 30, 2022 | ||||
| Weighted-average remaining lease term | ||||
| Weighted-average discount rate | % | |||
Supplemental cash flow information related to operating leases is as follows:
For the Three Months Ended April 30, 2022 | For the Nine Months Ended April 30, 2022 | |||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
| Total cash flows related to operating lease liabilities | $ | $ | ||||||
| 25 |
Future minimum lease payments under non-cancellable leases as of April 30, 2022 is as follows:
| Years ending July 31, | ||||
| 2022 – the remainder of the fiscal year | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Total | $ | |||
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
Note 12—Related Party Transactions
Except as disclosed elsewhere herein, below are the Company’s related party transactions for the nine months ended April 30, 2022 and 2021.
Equity Offerings
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.
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™ 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 $
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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™ 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
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 condensed 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 April 30, 2022, the balance of the Liability under co-promotion agreement – related party relates to the option fee payment
of $
Note 13—Subsequent Events
On April 28, 2022, the Board
of Directors (the “Board”) of OncoSec Medical Incorporated (the “Company”) approved the appointment of Robert
H. Arch, Ph.D., as the Company’s President and Chief Executive Officer, effective May 2, 2022. In connection with Dr. Arch’s
appointment as the Company’s President and Chief Executive Officer, the Company entered into an executive employment agreement,
dated April 28, 2022, and effective as of May 2, 2022 (the “Employment Agreement”), with Dr. Arch that governs the terms
of Dr. Arch’s employment with the Company. The Employment Agreement provides that Dr. Arch will be entitled to an initial annual
base salary of $
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 the Company’s common stock had been below $1.00 per share for 30 consecutive business days as of the date of the Notice. The Notice has no immediate effect on the listing of the Company’s 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), 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, the Company may be eligible for an additional 180 calendar day grace period if it 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 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.
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 the Company’s common stock may be delisted from Nasdaq, which would adversely impact liquidity of its 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 the Company 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.
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ITEM 2. 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 report refer to OncoSec Medical Incorporated and its consolidated subsidiary. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included in this report.
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 condensed consolidated financial statements and related notes included in this 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, including our Annual Report on Form 10-K for our fiscal year ended July 31, 2021 filed with the SEC on October 29, 2021 (the “Annual Report”). Pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K promulgated by the SEC, in preparing this discussion and analysis, we have presumed that readers have access to and have read the discussion and analysis of our financial condition and results of operations included in the Annual Report.
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 Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or 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. The forward-looking statements in this discussion and analysis and elsewhere in this 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” herein and in Part I, Item IA of the Company’s most recent Annual Report on Form 10-K 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 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 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, a reusable handle and 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™ in combination with KEYTRUDA® (pembrolizumab) in melanoma and triple negative breast cancer.
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Performance Outlook
We expect to use our available working capital in the near term primarily for the advancement of our existing and planned clinical programs, including performance of the KEYNOTE-695 and KEYNOTE-890 studies and, to a lesser extent, the continuation of our other clinical trials and studies. We anticipate our spending on clinical programs and the development of our next-generation OMS EP Device will continue throughout our current fiscal year, primarily in support of the KEYNOTE-695 and KEYNOTE-890 studies, while our spending on research and development programs will be prioritized, based on our focus on the KEYNOTE-695 and KEYNOTE-890 studies. 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.
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.
Results of Operations for the Three Months Ended April 30, 2022 Compared to the Three Months Ended April 30, 2021
The unaudited financial data for the three months ended April 30, 2022 and 2021 is presented in the following table and the results of these two periods are included in the discussion thereafter.
April 30, 2022 | April 30, 2021 | $ Change | % Change | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | - | |||||||||
| Expenses | ||||||||||||||||
| Research and development | 7,030,607 | 7,589,779 | (559,172 | ) | (7 | ) | ||||||||||
| General and administrative | 2,517,105 | 2,847,151 | (330,046 | ) | (12 | ) | ||||||||||
| Loss from operations | (9,547,712 | ) | (10,436,930 | ) | 889,218 | (9 | ) | |||||||||
| Gain on extinguishment of debt | - | 960,790 | (960,790 | ) | (100 | ) | ||||||||||
| Other income, net | 2,182 | 1,723 | 459 | 27 | ||||||||||||
| Interest expense | (2,701 | ) | (1,732 | ) | (969 | ) | 56 | |||||||||
| Foreign currency exchange gain (loss), net | (36,191 | ) | 35,365 | (71,556 | ) | (202 | ) | |||||||||
| Loss before income taxes | (9,584,422 | ) | (9,440,784 | ) | (143,638 | ) | 2 | |||||||||
| Income tax (benefit) expense | (3,337,117 | ) | 1,542 | (3,338,659 | ) | (216,515 | ) | |||||||||
| Net loss | $ | (6,247,305 | ) | $ | (9,442,326 | ) | $ | 3,195,021 | (34 | ) | ||||||
Revenue
We have not generated any revenue since our inception, and we do not anticipate generating revenue in the near term.
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Research and Development Expenses
Our research and development expenses decreased by approximately $0.6 million, from $7.6 million during the three months ended April 30, 2021 to $7.0 million during the three months ended April 30, 2022. This decrease was primarily due to: (i) a $0.8 million decrease in clinical trial related costs to support our various clinical studies and costs for discovery research and product development and (ii) a $0.2 million decrease in stock-based compensation to employees and consultants. These decreases were partially offset by a $0.4 million increase in payroll and related benefit expenses, primarily due to bonuses awarded during the three months ended April 30, 2022, while no bonuses were awarded during the three months ended April 30, 2021.
General and Administrative
Our general and administrative expenses decreased by $0.3 million, from $2.8 million during the three months ended April 30, 2021, to $2.5 million during the three months ended April 30, 2022. This decrease was largely due to the following: (i) a $0.5 million decrease in stock-based compensation to employees and consultants, and (ii) a $0.3 million decrease in consulting expenses. These decreases were partially offset by a $0.2 million increase in payroll and related benefit expenses primarily due to bonuses awarded during the three months ended April 30, 2022, while no bonuses were awarded during the three months ended April 30, 2021, and a $0.2 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 three months ended April 30, 2021 to $0 for the three months ended April 30, 2022. During the three months ended April 30, 2021, the loan under the Paycheck Protection Program (the “PPP”) under the CARES Act was forgiven, which resulted in a gain on extinguishment of debt of approximately $1.0 million.
Foreign Currency Exchange Gain (Loss), Net
Foreign currency exchange gain (loss), net, decreased by approximately $0.07 million from a $0.04 million gain during the three months ended April 30, 2021 to a $0.04 million loss for the three months ended April 30, 2022. This decrease was primarily due to unrealized foreign currency transaction loss recognized in connection with our Australian subsidiary’s intercompany loan.
Income Tax (Benefit) Expense
In April 2022, the Company received $3.3 million in net proceeds from the sale of its New Jersey Net Operating Losses (“NOL”) under the State of New Jersey NOL Transfer Program. In 2021, the net proceeds from the sale of its New Jersey NOLs under the State of New Jersey NOL Transfer Program were received in June.
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Results of Operations for the Nine Months Ended April 30, 2022 Compared to the Nine Months Ended April 30, 2021
The unaudited financial data for the nine months ended April 30, 2022 and April 30, 2021 is presented in the following table and the results of these two periods are included in the discussion thereafter.
April 30, 2022 | April 30, 2021 | $ Change | % Change | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | - | |||||||||
| Expenses | ||||||||||||||||
| Research and development | 20,501,917 | 26,304,520 | (5,802,603 | ) | (22 | ) | ||||||||||
| General and administrative | 8,377,722 | 8,198,580 | 179,142 | 2 | ||||||||||||
| Loss from operations | (28,879,639 | ) | (34,503,100 | ) | 5,623,461 | (16 | ) | |||||||||
| Gain on extinguishment of debt | - | 960,790 | (960,790 | ) | (100 | ) | ||||||||||
| Other income (expense), net | (2,412 | ) | 660 | (3,072 | ) | (465 | ) | |||||||||
| Interest expense | (16,128 | ) | (12,587 | ) | (3,541 | ) | 28 | |||||||||
| Foreign currency exchange gain (loss), net | (399,338 | ) | 187,039 | (586,377 | ) | (314 | ) | |||||||||
| Loss before income taxes | (29,297,517 | ) | (33,367,198 | ) | 4,069,681 | (12 | ) | |||||||||
| Income tax expense | (3,334,167 | ) | 4,492 | (3,338,659 | ) | (74,325 | ) | |||||||||
| Net loss | $ | (25,963,350 | ) | $ | (33,371,690 | ) | $ | 7,408,340 | (22 | ) | ||||||
Revenue
We have not generated any revenue since our inception, and we do not anticipate generating revenue in the near term.
Research and Development Expenses
Our research and development expenses decreased by approximately $5.8 million, from $26.3 million during the nine months ended April 30, 2021 to $20.5 million during the nine months ended April 30, 2022. This decrease was primarily due to the following: (i) a $5.0 million decrease in clinical trial-related costs to support our various clinical studies and costs for discovery research and product development, and (ii) a $0.9 million decrease in stock-based compensation expense to employees and consultants, as there was an accelerated vesting of options during the nine months ended April 30, 2021 that was not repeated during the nine months ended April 30, 2022.
General and Administrative
Our general and administrative expenses increased by approximately $0.2 million, from $8.2 million during the nine months ended April 30, 2021, to $8.4 million during the nine months ended April 30, 2022. This increase was largely due to the following: (i) a $0.9 million increase in legal costs, primarily related to $1 million in insurance recoveries received in connection with prior litigation with Alpha Holdings, Inc. in the prior period, (ii) a $0.6 million increase in insurance costs related to increased D&O insurance premiums, and (iii) a $0.2 million increase in director fees paid to the members of the Leadership Committee of the Company’s Board of Directors. These increases were partially offset by a $1.4 million decrease in stock-based compensation expense to employees and consultants, as there was an accelerated vesting of options during the nine months ended April 30, 2021 that was not repeated during the nine months ended April 30, 2022.
Gain on Extinguishment of Debt
Gain on extinguishment of debt decreased by approximately $1.0 million, from $1.0 million for the nine months ended April 30, 2021 to $0 for the nine months ended April 30, 2022. During the nine months ended April 30, 2021, the PPP loan was forgiven, which resulted in a gain on extinguishment of debt of approximately $1.0 million.
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Foreign Currency Exchange Gain (Loss), Net
Foreign currency exchange gain (loss), net, decreased by approximately $0.6 million from a $0.2 million gain during the nine months ended April 30, 2021 to a $0.4 million loss for the nine months ended April 30, 2022. This decrease was primarily due to unrealized foreign currency transaction loss recognized in connection with the Australian subsidiary’s intercompany loan.
Income Tax (Benefit) Expense
In April 2022, the Company received $3.3 million in net proceeds from the sale of its NOL under the State of New Jersey NOL Transfer Program. In 2021, the net proceeds from the sale of its New Jersey NOLs under the State of New Jersey NOL Transfer Program were received in June.
Liquidity and Capital Resources
Working Capital
The following table and subsequent discussion summarize our working capital as of each of the periods presented:
At April 30, 2022 | At July 31, 2021 | |||||||
| Current assets | $ | 21,135,929 | $ | 49,179,424 | ||||
| Current liabilities | 4,686,904 | 7,961,916 | ||||||
| Working capital | $ | 16,449,025 | $ | 41,217,508 | ||||
Current Assets
Current assets as of April 30, 2022 decreased by $28.1 million to $21.1 million, from $49.2 million as of July 31, 2021. This decrease was primarily related to the decrease of cash in the amount of $26.5 million and the decrease of prepaid insurance in the amount of $1.1 million. The decrease in cash was due to cash used to support our operations during the nine months ended April 30, 2022. The decrease in prepaid insurance was due to amortization of the prepaid director and officer policy.
Current Liabilities
Current liabilities as of April 30, 2022 decreased by $3.3 million to $4.7 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 manufacturing and clinical research activities.
Cash Flow
Cash Used in Operating Activities
Net cash used in operating activities for the nine months ended April 30, 2022 was $25.2 million, as compared to $33.4 million for the nine months ended April 30, 2021. The $8.2 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, research and development activities and general working capital requirements.
Cash Used in Investing Activities
Net cash used in investing activities for the nine months ended April 30, 2022 was $0.2 million, as compared to $0.8 million for the nine months ended April 30, 2021. During the nine months ended April 30, 2022, the Company purchased fixed assets for use in its clinical trials. During the nine months ended April 30, 2021, the Company licensed generator technology and purchased property and equipment for use in its clinical trials and other research and development efforts.
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Cash (Used in) Provided by Financing Activities
Net cash used in financing activities was $0.9 million for the nine months ended April 30, 2022, as compared to $68.2 million cash provided by financing activities for the nine months ended April 30, 2021. Net cash used in financing activities during the nine months ended April 30, 2022 was primarily attributable to payments on a note payable. Net proceeds during the nine months ended April 30, 2021 was primarily attributable to the $52.6 million net proceeds received from the August 2020 and January 2021 offerings, $5.0 million received from the co-promotion agreement with Sirtex, $5.3 million received from warrant and option exercises and $5.8 million from the purchase of shares under the CGP and Sirtex stock purchase 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 and KEYNOTE-890 studies and, to a lesser extent, our other ongoing clinical trials and studies, and to continue our research and development activities for our next-generation EP device and drug discovery efforts. 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
The Company has sustained losses in all reporting periods since inception, with an accumulated deficit of approximately $277.7 million as of April 30, 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 any 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 condensed consolidated financial statements. The accompanying condensed 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 condensed 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 condensed consolidated financial statements are issued.
As of June 1, 2022, the Company had cash and cash equivalents of $17.3 million. Since inception, cash flows from financing activities has been the primary source of the Company’s liquidity. Based on its 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 condensed 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 “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 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 its prospects and financial condition.
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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 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. 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.
Critical Accounting Policies
Use of Estimates
The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“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. Such estimates include the Company’s ability to continue as a going concern and certain calculations related to that determination, stock-based compensation, the accrual of research, product development and clinical obligations, impairment of long-lived assets, determining the Incremental Borrowing Rate for calculating Right-Of-Use (“ROU”) assets and lease liabilities and accounting for income taxes, including the related valuation allowance on the deferred tax asset and uncertain tax positions. 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.
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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 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.
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Equity-Based Awards
The Company grants equity-based awards (typically stock options or restricted stock units) under our stock-based compensation plan and outside of our stock-based compensation plan, with terms generally similar to the terms under our 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 issuance.
Australia Research and Development Tax Credit
Our Australian, wholly-owned, subsidiary incurs research and development expenses, primarily in the course of conducting clinical trials. The 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 our 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 and is recorded against qualifying research and development expenses in the Company’s condensed consolidated statements of operations.
Leases
The Company determines if an arrangement is a lease at inception. Operating lease 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 condensed 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. 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 condensed consolidated balance sheet. 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.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained in Note 2 to our condensed consolidated financial statements included in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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ITEM 4. 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 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 April 30, 2022. Based on such evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of April 30, 2022, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during our fiscal quarter ended April 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we are involved in legal proceedings in the ordinary course of our business. Refer to Note 9: Commitments and Contingencies for more information on legal proceedings.
ITEM 1A. RISK FACTORS.
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended July 31, 2021, except as noted below. The risk factors disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended July 31, 2021, in addition to the other information set forth in this report, could materially affect our business, financial condition, or results of operations.
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.
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. 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, 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.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
The following exhibits are either filed or furnished with this report:
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements 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. | |
| Robert H. Arch, Ph.D. | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Dated: June 14, 2022 | ||
| By: | /s/ George Chi | |
| George Chi | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| Dated: June 14, 2022 | ||
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