XML 27 R16.htm IDEA: XBRL DOCUMENT

COMMITMENTS AND CONTINGENCIES

12 Months Ended

Sep. 30, 2020

10.

COMMITMENTS AND CONTINGENCIES

Clinical Research Agreements

In April 2013, the Company entered into a co-development and revenue sharing agreement with Ergomed. Under the agreement, Ergomed will contribute up to $10 million towards the Company’s Phase III clinical study in the form of offering discounted clinical services in exchange for a single digit percentage of milestone and royalty payments, up to a specific maximum amount. In October 2015, the Company entered into a second co-development and revenue sharing agreement with Ergomed for an additional $2 million, for a total of $12 million. The Company accounted for the co-development and revenue sharing agreement in accordance with ASC 808 “Collaborative Arrangements”. The Company determined the payments to Ergomed are within the scope of ASC 730 “Research and Development.” Therefore, the Company records the discount on the clinical services as a credit to research and development expense on its Statements of Operations. Since the Company entered into the co-development and revenue sharing agreement with Ergomed, it has incurred research and development expenses of approximately $33.4 million related to Ergomed’s services. This amount is net of Ergomed’s discount of approximately $11.1 million. During the years ended September 30, 2020 and 2019, the Company recorded approximately $2.0 million and $2.8 million, respectively, as research and development expense related to Ergomed’s services. These amounts were net of Ergomed’s discount of approximately $0.6 million and $1.0 million during the years ended September 30, 2020 and 2019, respectively.

Lease Agreements

If a contract conveys the right to control the use of identified property, plant or equipment over a period of time in exchange for consideration, the Company accounts for the contract as a lease upon inception. The Company leases certain real estate, machinery, laboratory equipment and office equipment over varying periods. Many of these leases include an option to either renew or terminate the lease. For purposes of calculating lease liabilities, these options are included in the lease term when it is reasonably certain that the Company will exercise such options. The incremental borrowing rate utilized to calculate the lease liabilities is based on the information available at commencement date, as most of the leases do not provide an implicit borrowing rate. Short-term leases, defined as leases with initial terms of 12 months or less, are not reflected on the balance sheet. Lease expense for such short-term leases is not material. For purposes of calculating lease liabilities, lease and non-lease components are combined.

The Company leases a manufacturing facility near Baltimore, Maryland (the San Tomas lease). The building was remodeled in accordance with the Company’s specifications so that it can be used by the Company to manufacture Multikine for the Company’s Phase 3 clinical trial and sales of the drug if approved by the FDA. The lease is for a term of twenty years and requires annual base rent to escalate each year at 3%. The Company is required to pay all real estate and personal property taxes, insurance premiums, maintenance expenses, repair costs and utilities. The lease allows the Company, at its election, to extend the lease for two ten-year periods or to purchase the building at the end of the 20-year lease, which expires in October 2028.

Upon adoption of ASC 842 on October 1, 2019, the Company recorded a finance lease right of use asset of approximately $16.5 million and a finance lease liability of approximately $13.5 million. As of September 30, 2020, the net book value of the finance lease right of use asset is approximately $13.8 million and the balance of the finance lease liability is approximately $12.7 million, of which approximately $0.9 million is current. These amounts include the San Tomas lease as well as several other smaller finance leases for office equipment. The finance right of use assets are being depreciated using a straight-line method over the underlying lease terms. Total cash paid related to finance leases during the year ended September 30, 2020 was approximately $1.9 million, of which approximately $1.2 million was for interest. The weighted average discount rate of the Company’s finance leases is 8.8% and the weighted average time to maturity is 8.1 years.

In August 2020, the Company entered into an amendment to the lease agreement under which the landlord agreed to allow the Company to substantially upgrade the manufacturing facility in preparation for the potential commercial production of Multikine. The estimated cost of the upgrades is $10.5 million, of which approximately $3.1 million has been incurred to date. Pursuant to the amendment, the landlord agreed to finance the final $2.4 million of the costs incurred, i.e., after the Company has financed the initial $8.1 million. Per the terms of the financing, upon completion of the project, the $2.4 million will be repaid as through increased lease payments over the remaining lease term.

The Company was required to deposit the equivalent of one year of base rent in accordance with the lease. When the Company meets the minimum cash balance required by the lease, the deposit will be returned to the Company. The approximate $1.7 million deposit is included in non-current assets at September 30, 2020 and 2019.

Approximate future minimum lease payments under finance leases as of September 30, 2020 are as follows:

Year ending September 30,
2021	$	1,953,000
2022		2,014,000
2023		2,083,000
2024		2,148,000
2025		2,218,000
Thereafter		7,322,000
Total future minimum lease obligation		17,738,000
Less imputed interest on finance lease obligations		(5,050,000	)
Net present value of lease finance lease obligations	$	12,688,000

Effective April 30, 2020, the Company terminated a month-to-month arrangement with a sub-lessee as the sub-leased space is needed to prepare the facility to produce Multikine for commercial purposes and before the Company’s Biologics License Application (BLA) can be submitted to the FDA. The sublease rental income for the years ended September 30, 2020 and 2019 was approximately $39,000 and $73,000, respectively.

The Company leases two facilities under 60-month operating leases – the lease for its research and development laboratory expires February 28, 2022 and the lease for its office headquarters was renewed on July 1, 2020 and will expire on November 30, 2025. During the year ended September 30, 2020, the Company incurred approximately $80,000 in leasehold improvements costs for the research and development lab and is reasonably certain to renew the lease through February 28, 2027. The renewal period is included in the right of use asset and liability calculations. The operating leases include escalating rental payments. The Company is recognizing the related rent expense on a straight-line basis over the full 60-month terms of the leases. Upon adoption of ASC 842 on October 1, 2019, the Company recorded an operating lease right of use asset and an operating lease liability of approximately $1.0 million. As of September 30, 2020, the net book value of the operating lease right of use asset is approximately $1.2 million and the balance of the operating lease liability is approximately $1.3 million, of which approximately $0.1 million is current. The Company incurred lease expense under operating leases of approximately $268,000 for the year ended September 30, 2020. Total cash paid related to operating leases during the year ended September 30, 2020 was approximately $238,000.

As of September 30, 2020, future minimum lease payments on operating leases are as follows:

Year ending September 30,
2021	$	241,000
2022		264,000
2023		272,000
2024		280,000
2025		288,000
Thereafter		286,000
Total future minimum lease obligation		1,631,000
Less imputed interest on operating lease obligation		(381,000	)
Net present value of operating lease obligation	$	1,250,000

Vendor Obligations

The Company has contingent obligations with vendors for work that will be completed in relation to the Phase 3 clinical trial. The timing of these obligations cannot be determined at this time. The Company estimates it will incur additional expenses of approximately $5.9 million for the remainder of the Phase 3 clinical trial and the filing of the clinical study report with the FDA. This estimate is based only on the information currently available from the Clinical Research Organizations responsible for managing the Phase 3 clinical trial and does not include other related costs.