UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018
OR
☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ____ TO ____.
COMMISSION FILE NUMBER: 001-37861
MABVAX THERAPEUTICS HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
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93-0987903
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(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
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(I.R.S. EMPLOYER
IDENTIFICATION NO.)
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11535 Sorrento Valley Road, Suite 400, San Diego, CA
92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP
CODE)
(858) 259-9405
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA
CODE)
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90
days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large
accelerated filer
|
☐
|
Accelerated
filer
|
☐
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Non-accelerated
filer
|
☐
|
Smaller
reporting company
|
☒
|
Emerging
growth company
|
☐
|
|
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
The
number of shares of registrant’s common stock outstanding as
of November 13, 2018 was 9,254,582.
Table of Contents
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NOTE ABOUT FORWARD-LOOKING
STATEMENTS
This
quarterly report on Form 10-Q (“Quarterly Report”)
contains forward-looking statements that involve substantial risks
and uncertainties. All statements, other than statements of
historical facts, contained in this Quarterly Report are, or may be
deemed to be, forward-looking statements. Words such as, but not
limited to, “anticipate,” “intend,”
“plan,” “continue,” “seek,”
“believe,” “project,”
“estimate,” “expect,”
“potential,” “future,”
“likely,” “may,” “should,”
“could,” “would,” “will,” and
similar expressions or phrases, or the negative of those
expressions or phrases, are intended to identify forward-looking
statements, although not all forward-looking statements contain
these identifying words. Although we believe we have a reasonable
basis for each forward-looking statement contained in this
Quarterly Report, we caution you that these statements are based on
our projections of the future that are subject to known and unknown
risks and uncertainties and other factors that may cause our actual
results, level of activity, performance or achievements expressed
or implied by these forward-looking statements, to differ. These
forward-looking statements are subject to a number of risks,
uncertainties and assumptions, including, among other
things:
●
Our
ability to raise additional funds to finance our operations and
remain a going concern;
●
Whether the Securities and Exchange Commission
(“SEC”) Action (as defined in Item 1 of Part II of this
Quarterly Report) could be concluded
in a manner adverse to the Company and members of its leadership
team;
●
Our
past inability to have certain of our previously filed registration
statements declared effective and whether any future registration
statements we may in the future file will be reviewed or declared
effective, generally or during the pendency of the SEC
Action;
●
Our
limited number of employees to manage and operate our business and
the necessity for these employees to devote substantial time to
matters relating to the SEC Action, which could materially harm our
business;
●
Our
ability to calculate beneficial ownership of our common stock held
by our investors;
●
Our
ability to conduct clinical trials or to meet any regulatory
conditions placed on our clinical trials;
●
Our
ability to obtain desirable results from clinical trials of our
product candidates; and
●
Our
ability to obtain regulatory approval for the commercialization of
any of our product candidates.
This
list is not an exhaustive list of the factors that may affect any
of our forward-looking statements. These and other factors
should be considered carefully, and readers should not place undue
reliance on our forward-looking statements.
You
should also carefully read the risk factors described under Item 1A
of Part II of this Quarterly Report and under Item 1A of our Annual
Report on Form 10-K for the year ended December 31, 2017 as
originally filed with the SEC on April 2, 2018 and amended on Form
10-K/A as filed with the SEC on October 15, 2018. You are advised
to consult any further disclosures we make on related subjects in
our subsequent Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, press releases and our website. It is not possible for
our management to predict all risks, nor can we assess the impact
of all factors on our business or the extent to which any factor,
or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements
we may make. The forward-looking statements contained in this
Quarterly Report are made as of the date of this Quarterly Report,
and we do not assume any obligation to update any forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required by applicable law.
Our
current product candidates are undergoing clinical development and
have not been approved by the United States Food and Drug
Administration (“FDA”) or any comparable foreign
regulatory authority. These product candidates have not been, nor
may they ever be, approved by any regulatory agency nor marketed
anywhere in the world.
PART I. FINANCIAL INFORMATION
Item
1.
Financial Statements.
MABVAX THERAPEUTICS HOLDINGS, INC.
Condensed Consolidated Balance Sheets
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Assets
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Current
assets:
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Cash and cash
equivalents
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$951,751
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$885,710
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Prepaid
expenses
|
341,511
|
150,462
|
Other current
assets
|
141,872
|
171,346
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Total current
assets
|
1,435,134
|
1,207,518
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Property and
equipment, net
|
457,526
|
578,206
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Goodwill
|
6,826,003
|
6,826,003
|
Other
assets
|
178,597
|
178,597
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Total
assets
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$8,897,260
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$8,790,324
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Liabilities
and Stockholders’ Equity
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Current
liabilities:
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Accounts
payable
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$2,447,175
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$1,090,904
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Accrued
compensation
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311,162
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311,675
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Accrued clinical
operations and site costs
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2,106,295
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1,669,201
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Accrued lease
termination fee
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590,504
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590,504
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Other accrued
expenses
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442,210
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404,923
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Interest
payable
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31,027
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39,373
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Current portion of
notes payable
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1,822,062
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1,681,876
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Current portion of
capital lease payable
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18,943
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17,810
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Total current
liabilities
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7,769,378
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5,806,266
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Non-current
liabilities:
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Non-current portion
of notes payable, net
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813,039
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1,621,483
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Non-current portion
of capital lease payable
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31,504
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45,857
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Other non-current
liabilities
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240,781
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186,278
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Total non-current
liabilities
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1,085,324
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1,853,618
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Total
liabilities
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8,854,702
|
7,659,884
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Commitments and
contingencies (Note 11)
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Stockholders’
equity:
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Series D
convertible preferred stock, $0.01 par value, 1,000,000 shares
authorized, 44,104 shares issued and outstanding as of September
30, 2018 and December 31, 2017, with a liquidation preference
of $441
|
441
|
441
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Series E
convertible preferred stock, $0.01 par value, 100,000 shares
authorized, 33,333 shares issued and outstanding as of September
30, 2018 and December 31, 2017, with a liquidation preference
of $333
|
333
|
333
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Series I
convertible preferred stock, $0.01 par value, 1,968,664 shares
authorized, 645,640 and 798,460 shares issued and outstanding as of
September 30, 2018 and December 31, 2017, respectively, with a
liquidation preference of $6,456 and $7,984 as of September 30,
2018 and December 31, 2017, respectively
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6,456
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7,984
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Series J
convertible preferred stock, $0.01 par value, 3,400 shares
authorized, 772.73 shares issued and outstanding as of
September 30, 2018 and December 31, 2017, with a liquidation
preference of $531,252
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8
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8
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Series K
convertible preferred stock, $0.01 par value, 65,000 shares
authorized, 63,150 shares issued and outstanding as of September
30, 2018 and December 31, 2017, with a liquidation preference of
$632
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632
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632
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Series L
convertible preferred stock, $0.01 par value, 58,000 shares
authorized, 45,500 and 58,000 shares issued and outstanding as
of September 30, 2018, and December 31, 2017, respectively, with a
liquidation preference of $4,550,000 and $5,800,000 as of September
30, 2018 and December 31, 2017, respectively
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455
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580
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Series M
convertible preferred stock, $0.01 par value, 10,000 shares
authorized, 5,000 and no shares issued and outstanding as of
September 30, 2018 and December 31, 2017, respectively, with a
liquidation preference of $1,500,000 and $0 as of September 30,
2018 and December 31, 2017, respectively
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50
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0
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Series N
convertible preferred stock, $0.01 par value, 20,000 shares
authorized, 5,363.64 and no shares issued and outstanding as of
September 30, 2018 and December 31, 2017, respectively, with a
liquidation preference of $53.64 and $0 as of September 30, 2018
and December 31, 2017, respectively
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54
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0
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Series O
convertible preferred stock, $0.01 par value, 20,000 shares
authorized, 10,605.56 and no shares issued and outstanding as of
September 30, 2018 and December 31, 2017, respectively, with a
liquidation preference of $106.06 and $0 as of September 30, 2018
and December 31, 2017, respectively
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106
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0
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Common stock, $0.01
par value, 150,000,000 shares authorized, 9,254,582 and 6,862,928
shares issued and outstanding as of September 30, 2018 and
December 31, 2017, respectively
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92,546
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68,629
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Additional paid-in
capital
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118,291,361
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112,105,470
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Accumulated
deficit
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(118,349,884)
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(111,053,637)
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Total
stockholders’ equity
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42,558
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1,130,440
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Total liabilities
and stockholders’ equity
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$8,897,260
|
$8,790,324
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements
MABVAX THERAPEUTICS HOLDINGS, INC.
Condensed Consolidated Statements of
Operations
(Unaudited)
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Revenues:
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License
agreements
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$4,000,000
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$—
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$4,700,000
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$—
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4,000,000
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—
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4,700,000
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—
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Cost of
revenues
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785,000
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—
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785,000
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—
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3,215,000
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—
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3,915,000
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—
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Operating costs and
expenses:
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Research
and development
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199,367
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1,017,061
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2,915,709
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6,168,125
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General
and administrative
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2,520,950
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1,831,629
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6,409,491
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7,513,621
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Total operating
costs and expenses
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2,720,317
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2,848,690
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9,325,200
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13,581,746
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Income/(loss) from
operations
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494,683
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(2,848,690)
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(5,410,200)
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(13,681,746)
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Interest and other
expense
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(154,002)
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(231,471)
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(497,868)
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(743,137)
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Net income
(loss)
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340,681
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(3,080,161)
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(5,908,068)
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(14,424,883)
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Deemed dividend on
inducement shares
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—
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—
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(1,388,179)
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(5,220,000)
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Deemed dividend on
incentive shares
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—
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(3,120,000)
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—
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(3,120,000)
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Deemed dividend on
warrant reprice
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—
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—
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—
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(19,413)
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Net income (loss)
allocable to common stockholders
|
$340,681
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$(6,200,161)
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$(7,296,247)
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$(22,784,296)
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Basic net income
(loss) per share
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$0.04
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$(1.62)
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$(0.81)
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$(8.04)
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Diluted net income
(loss) per share
|
$0.02
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$(1.62)
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$(0.81)
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$(8.04)
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Shares used in
calculation of net income (loss) per share
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Basic
|
9,253,880
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3,830,280
|
8,983,980
|
2,834,692
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Diluted
|
17,123,742
|
3,830,280
|
8,983,980
|
2,834,692
|
See
Accompanying Notes to Condensed Consolidated Financial
Statements
MABVAX
THERAPEUTICS HOLDINGS,
INC.
Condensed Consolidated Statement of Stockholders’
Equity
For the Nine Months Ended September 30, 2018
(Unaudited)
|
Series
D through O Convertible
Preferred
Stock
|
|
|
|
|
|
|
|
|
|
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Balance at
December 31, 2017
|
997,820
|
$9,978
|
6,862,928
|
$68,629
|
$112,105,470
|
$(111,053,637)
|
$1,130,440
|
Issuance of common
stock, Series M Convertible Preferred Stock and warrants in
connection with February 2018 financing
|
5,000
|
50
|
555,557
|
5,556
|
2,694,394
|
—
|
2,700,000
|
Issuance of common
stock, Series N Convertible Preferred Stock in connection with May
2018 financing
|
5,364
|
54
|
218,182
|
2,182
|
827,764
|
—
|
830,000
|
Issuance of
inducement shares of Series O Convertible Preferred Stock in
connection with May 2018 financing
|
10,606
|
106
|
—
|
—
|
(106)
|
—
|
—
|
Deemed dividends on
inducement shares, May 2018
|
—
|
—
|
—
|
—
|
1,388,179
|
(1,388,179)
|
—
|
|
|
|
|
|
|
|
|
Conversion of
Series I Preferred Stock to common stock
|
(152,820)
|
(1,528)
|
50,940
|
509
|
1,019
|
—
|
—
|
Conversion of
Series L Preferred Stock to common stock
|
(12,500)
|
(125)
|
694,445
|
6,944
|
(6,819)
|
—
|
—
|
Issuance of whole
in lieu of fractional shares resulting from reverse split in
February 2018
|
—
|
—
|
50,991
|
510
|
(510)
|
|
—
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Common stock issued
upon vesting of restricted stock units in January 2018, net of
payroll taxes
|
—
|
—
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797,977
|
7,980
|
(7,980)
|
—
|
—
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Common stock issued
upon vesting of restricted stock units in April 2018, net of shares
withheld for payroll taxes
|
—
|
—
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22,061
|
221
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(17,197)
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—
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(16,976)
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Common stock issued
upon vesting of restricted stock units in August 2018
|
—
|
—
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1,501
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15
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(15)
|
—
|
—
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Stock-based
compensation
|
—
|
—
|
—
|
—
|
1,307,162
|
—
|
1,307,162
|
Net
loss
|
—
|
—
|
|
—
|
—
|
(5,908,068)
|
(5,908,068)
|
Balance at
September 30, 2018
|
853,470
|
$8,535
|
9,254,582
|
$92,546
|
$118,291,361
|
$(118,349,884)
|
$42,558
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements
MABVAX
THERAPEUTICS HOLDINGS,
INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
Nine
Months
Ended
September 30,
|
|
|
|
Operating
activities
|
|
|
Net
loss
|
$(5,908,068)
|
$(14,424,883)
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
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Depreciation and
amortization
|
120,680
|
122,315
|
Stock-based
compensation
|
1,307,162
|
4,516,372
|
Issuance of
restricted stock for services
|
—
|
236,666
|
Amortization and
accretion related to notes payable
|
190,729
|
309,213
|
Increase (decrease)
in cash from changes in operating assets and
liabilities:
|
|
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Other
receivables
|
29,474
|
(7,061)
|
Prepaid expenses
and other
|
(189,916)
|
(62,672)
|
Accounts
payable
|
1,356,273
|
403,210
|
Accrued clinical
operations and site costs
|
437,094
|
283,864
|
Accrued
compensation
|
(513)
|
(28,307)
|
Other accrued
expenses
|
36,648
|
(51,649)
|
Net cash used in
operating activities
|
(2,620,437)
|
(8,702,932)
|
|
|
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Investing
activities
|
|
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Purchases of
property and equipment
|
—
|
(21,072)
|
Net cash used in
investing activities
|
—
|
(21,072)
|
|
|
|
Financing
activities
|
|
|
February 2018
private placement, net of issuance costs
|
2,700,000
|
—
|
May 2018 and 2017
private placements, net of issuance costs
|
830,000
|
820,571
|
Proceeds from
issuance of common stock and Series G Preferred Stock, Net of
costs, May 2017
|
—
|
3,647,391
|
Proceeds from
issuance of common stock, net of costs, August 2017
|
—
|
125,000
|
Proceeds from
issuance of Series J Preferred Stock, net of costs, August
2017
|
—
|
1,189,417
|
Proceeds from
issuance of common stock, net of costs, September 2017
|
—
|
1,852,361
|
Proceeds from
issuance of common stock, net of costs, September 2017
|
—
|
1,215,000
|
Principal payments
on notes payable to Oxford Finance
|
(833,333)
|
(972,223)
|
Principal payments
on financed insurance policies
|
21,140
|
(69,240)
|
Principal payments
on capital lease
|
(14,353)
|
(10,785)
|
Purchase of vested
employee stock in connection with tax withholding
obligation
|
(16,976)
|
—
|
Net cash provided
by financing activities
|
2,686,478
|
7,797,492
|
Net change in cash
and cash equivalents
|
(66,041)
|
(926,512)
|
Cash and cash
equivalents at beginning of period
|
885,710
|
3,979,290
|
Cash and cash
equivalents at end of period
|
$951,751
|
$3,052,778
|
|
|
|
Supplemental
disclosures:
|
|
|
Cash
paid during the period for income taxes
|
$1,900
|
$1,600
|
Cash
paid during the period for interest on notes payable and the
capital lease
|
$317,391
|
$302,256
|
|
|
|
Supplemental
disclosures of non-cash investing and financing
information:
|
|
|
Deemed dividend on
issuance of inducement shares
|
$1,388,179
|
$5,220,000
|
Deemed dividend on
issuance of incentive shares
|
$—
|
$3,120,000
|
Conversion of
preferred stock to common stock – Series D
|
$—
|
$3,981
|
|
|
|
Conversion of
preferred stock to common stock – Series I
|
$509
|
$3,067
|
Conversion of
preferred stock to common stock – Series J
|
$—
|
$5,227
|
|
|
|
Conversion of
preferred stock to common stock – Series L
|
$6,944
|
$—
|
Fair value of
repricing warrants issued in previous financing
|
$—
|
$19,413
|
Common stock issued
upon vesting of RSUs
|
$8,201
|
$—
|
See Accompanying Notes to Unaudited Condensed Consolidated
Financial Statements
MABVAX THERAPEUTICS HOLDINGS, INC.
Notes to
Unaudited Condensed Consolidated Financial Statements
1.
Nature
of Business and Basis of Presentation.
We are
a Delaware corporation, originally incorporated in 1988 under the
name “Terrapin Diagnostics, Inc.” in the State of
Delaware. In 1998, we changed our corporate name to “Telik,
Inc.” and changed our name again to “MabVax
Therapeutics Holdings, Inc.” in 2014. Unless the context
requires otherwise, references to “we,”
“our,” “us,” “MabVax” or the
“Company” in this Quarterly Report on Form 10-Q for the
quarter ended September 30, 2018 (this “Quarterly
Report”) mean MabVax Therapeutics Holdings, Inc. on a
condensed consolidated financial statement basis with our
wholly-owned subsidiary, MabVax Therapeutics, Inc.
Nature
of Business – About Us
MabVax
Therapeutics Holdings, Inc. is a clinical-stage biotechnology
company with a fully human antibody discovery platform focused on
the rapid translation into clinical development of products to
address unmet medical needs in the treatment of cancer and
pancreatitis. We discovered a pipeline of human monoclonal antibody
product candidates based on the protective immune responses
generated by patients who have been vaccinated against targeted
cancers. Our therapeutic vaccine product candidates under
development were discovered at Memorial Sloan Kettering Cancer
Center (“MSK”) and are exclusively licensed to us as
well as exclusive rights to blood samples from patients who were
vaccinated with the same licensed vaccines. We operate in only one
business segment.
Our
lead development product, MVT-5873, is a fully human IgG1
monoclonal antibody (mAb) that targets sialyl Lewis A (sLea), an
epitope on CA19-9. MVT-5873 is currently in Phase 1 clinical
trials as a therapeutic agent for patients with pancreatic cancer
and other CA19-9 positive tumors. CA19-9 is expressed in over 90%
of pancreatic cancers and in other diseases including pancreatitis.
CA19-9 plays an important role in tumor adhesion and metastasis and
is a marker of an aggressive cancer phenotype. CA19-9 also has an
important role in the biological pathways that can result in
pancreatitis. CA19-9 serum levels are considered a valuable adjunct
in the diagnosis, prognosis and treatment monitoring of pancreatic
cancer and now pancreatitis. With our collaborators including MSK,
Sarah Cannon Research Institute, Honor Health and Imaging
Endpoints, we have treated more than 56 patients with either our
therapeutic antibody designated as MVT-5873 or our PET imaging
diagnostic product designated as MVT-2163 in Phase 1 clinical
studies, and demonstrated early safety, specificity for the target
and a potential efficacy signal. The Company also has a
radioimmunotherapy product, designated as MVT-1075, that is also in
Phase 1 clinical development. For additional information,
please visit the Company's website, www.mabvax.com.
Information on the Company’s
website is not incorporated herein.
Studies
conducted by Cold Spring Harbor Laboratories have demonstrated that
antibodies capable of binding to CA19-9 and blocking the downstream
biological pathways of pancreatitis have a positive effect on
ameliorating the disease. Combining the preclinical science
supporting the use of the CA19-9 blocking antibodies in the
treatment of pancreatitis with the clinically validated data and
supplies of MVT-5873 already available gives MabVax the
opportunity, assuming adequate funding, to move quickly into the
clinic in a mid-stage proof of concept clinical trial in the
near-term.
The
Company completed a preclinical asset sale and license agreement
with Boehringer Ingelheim International GmbH (“Boehringer
Ingelheim”) in July 2018, and a license agreement for a
cancer vaccine to Y-mAbs Therapeutics, Inc. in June 2018. The
Company received nearly $5 million in upfront payments from these
two transactions to begin the third quarter, with an additional
$7.6 million in downstream milestones the Company may receive based
either on reaching an anniversary date of entering the agreement,
provided the agreement is not canceled before a milestone has been
earned or due, or upon reaching a milestone.
We have
incurred net losses since inception and expect to incur substantial
losses for the foreseeable future as we continue our research,
development and clinical activities. To date, we have funded
operations primarily through revenues earned from asset sale and
license agreements, proceeds from the sale of common and preferred
stock, government grants, the issuance of debt, the issuance of
common stock in lieu of cash for services, payments from
collaborators, and interest income. The process of developing
products will require significant additional research and
development, preclinical testing and clinical trials, as well as
regulatory approvals. We expect these activities, together with
general and administrative expenses, to result in substantial
operating losses for the foreseeable future. We will not receive
substantial revenue unless we or our collaborative partners
complete clinical trials, obtain regulatory approvals and
successfully commercialize one or more product candidates; or we
license our technology after achieving one or more milestones of
interest to a potential partner.
Reverse
Stock Splits
On
August 16, 2016, we filed a certificate of amendment to our Amended
and Restated Certificate of Incorporation with the Secretary of
State of the State of Delaware to effectuate a reverse stock split
of our issued and outstanding common stock on a 1-for-7.4 basis,
effective on August 16, 2016 (the “2016 Reverse Stock
Split”). On February 14, 2018, we filed a certificate of
amendment to our Amended and Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware to effectuate
another reverse stock split of our issued and outstanding common
stock on a 1-for-3 basis, effective on February 16, 2018 (the
“2018 Reverse Stock Split”; collectively with the 2016
Reverse Stock Split, the “Reverse Stock Splits”). All
share and per share amounts, and number of shares of common stock
into which each share of preferred stock will convert, in the
financial statements and notes thereto have been retroactively
adjusted for all periods presented to give effect to the Reverse
Stock Splits, including rounding for fractional shares and
reclassifying any amount equal to the reduction in par value of
common stock to additional paid-in capital.
Delaware
Order Granting Petition for Relief
On
September 20, 2018, the Court of Chancery of the State of Delaware
(the “Court”) entered an order validating (i) issuances
of common stock upon conversions of the Company’s preferred
stock occurring between June 30, 2014 and February 12, 2018, and
(ii) stockholder approval of corporate actions presented to the
Company’s stockholders from June 30, 2014 to February 12,
2018. In so doing, the Court granted the Company’s Verified
Petition for Relief Under 8 Del.
C. § 205 (the “Delaware Petition”)
captioned In re: MabVax
Therapeutics Holdings, Inc., filed on July 27, 2018, in
order to rectify the uncertainty regarding whether shares of our
common stock were validly issued upon conversion of our preferred
stock from June 30, 2014 to February 12, 2018. The Delaware
Petition and the Court’s order granting the Delaware Petition
are discussed further in the Section below titled, “Court
Validation of Previously Issued Shares of Common Stock upon
Conversion of Preferred Stock.”
Basis
of Presentation
The
balance sheet data at December 31, 2017, was derived from audited
financial statements at that date. It does not include, however,
all the information and notes required by accounting principles
generally accepted in the United States of America
(“GAAP”) for complete financial
statements.
The
accompanying unaudited condensed consolidated financial statements
were prepared using GAAP for interim financial information and the
instructions to Regulation S-X. While these statements reflect all
normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of the results of the
interim period, they do not include all information or notes
required by GAAP for annual financial statements and should be read
in conjunction with the audited financial statements of MabVax
Therapeutics Holdings, Inc. for the year ended December 31,
2017, included in our Annual Report on Form 10-K filed with
the SEC on April 2, 2018 and amended
on Form 10-K/A as filed with the SEC on October 15, 2018.
These quarterly results are not necessarily indicative of future
results.
Use
of Estimates
The
preparation of condensed consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the condensed consolidated financial statements and the
reported amounts of expenses during the reporting period.
Management believes that these estimates are reasonable; however,
actual results may differ from these estimates.
Fair
Value Measurements
The
Company had no assets or liabilities that were measured using
quoted prices for similar assets and liabilities or significant
unobservable inputs (Level 2 and Level 3 assets and liabilities,
respectively) as of September 30, 2018 and December 31, 2017. The
carrying value of cash held in money market funds of $864,110 and
$1,196 as of September 30, 2018 and December 31, 2017,
respectively, is included in cash and cash equivalents and
approximates market values based on quoted market prices (Level 1
inputs).
Concentration
of Credit Risk
Credit
risk represents the risk that the Company would incur a loss if
counterparties failed to perform pursuant to the terms of their
agreements. Financial instruments that potentially expose the
Company to concentrations of credit risk consist primarily of cash
and cash equivalents. Cash and cash equivalents consist of money
market funds with major financial institutions in the United
States. These funds may be redeemed upon demand and, therefore,
bear minimal risk. The Company does not anticipate any losses on
such balances.
Consideration
of Impairment of Goodwill
The
Company maintains a goodwill balance of $6,826,003 on its balance
sheet as of September 30, 3018 and December 31, 2017, and tests for
impairment at least annually and whenever there has been a material
change in the Company by applying GAAP principles related to ASC
350 Intangibles – Goodwill
and Other (ASC 350). Based on a qualitative analysis of the
Company’s products in the pipeline as of September 30, 2018,
the $4.0 million in revenue earned during the quarter, and a
potential new indication for the Company’s lead antibody
program, MVT-5873, for the treatment of pancreatitis, the Company
concluded there was no goodwill impairment as of September 30,
2018. The goodwill was established in connection with the merger of
MabVax Therapeutics, Inc. a Delaware corporation, with a subsidiary
of the Company on July 8, 2014, pursuant to an Agreement and Plan
of Merger, dated May 12, 2014, by and among the Company, a
subsidiary of the Company and MabVax Therapeutics, Inc. as amended
June 30, 2014 and July 7, 2014 (the
“Merger”), whereby MabVax Therapeutics, Inc. is the
surviving company in the Merger, as a wholly-owned subsidiary of
the Company.
Revenue
Recognition
Effective January
1, 2018, the Company adopted Accounting Standards Codification, or
ASC, Topic 606, Revenue from
Contracts with Customers (Topic 606), using the full
retrospective transition method. Under this method, the Company
would have been required to revise its financial statements, if
applicable, for the years ended December 31, 2016 and 2017, and
applicable interim periods within those years, as if Topic 606 had
been effective for those periods. However, Topic 606 did not have
any impact on the Company’s revenue recognition upon
adoption. This standard applies to all contracts with customers,
except for contracts that are within the scope of other standards,
such as leases, insurance, collaboration arrangements and financial
instruments. Under Topic 606, an entity recognizes revenue when its
customer obtains control of promised goods or services in an amount
that reflects the consideration which the entity expects to receive
in exchange for those goods and services. To determine revenue
recognition for arrangements that an entity determines are within
the scope of Topic 606, the entity performs the following five
steps: (i) identify the contract(s) with the customer(s); (ii)
identify the performance obligations in the contract; (iii)
determine the transaction price; (iv) allocate the transaction
price to the performance obligations in the contract; and (v)
recognize revenue when (or as) the entity satisfies a performance
obligation. The Company only applies the five-step model to
contracts when it is probable that the entity will collect the
consideration it is entitled to in exchange for the goods and
services it transfers to the customer. At contract inception, the
Company assesses the goods or services promised within each
contract that falls under the scope of Topic 606, determines those
that are performance obligations and assesses whether each promised
good or service is distinct. The Company then recognizes as revenue
the amount of the transaction price that is allocated to the
respective performance obligation when (or as) the performance
obligation is satisfied.
License and Other Revenues
The
Company enters into licensing agreements which are within the scope
of Topic 606, under which it licenses certain of its product
candidates’ rights to third parties. The terms of these
arrangements typically include payment of one or more of the
following: non-refundable, up-front license fees; development,
regulatory and commercial milestone payments; and royalties on
Gross Profit of the licensed product, which will be classified as
royalty revenues, if and when earned.
In
determining the appropriate amount of revenue to be recognized as
it fulfills its obligation under each of its agreements, the
Company performs the five steps described above. As part of the
accounting for these arrangements, the Company must develop
assumptions that require judgment to determine the stand-alone
selling price, which may include forecasted revenues, development
timelines, reimbursement of personnel costs, discount rates and
probabilities of technical and regulatory success.
Licensing of Intellectual
Property – If
the license to the Company’s intellectual property is
determined to be distinct from the other performance obligations
identified in the arrangement, the Company recognizes revenue from
non-refundable, up-front fees allocated to the license when the
license is transferred to the licensee and the licensee is able to
use and benefit from the license. For licenses that are bundled
with other performance obligations, the Company utilizes judgment
to assess the nature of the combined performance obligation to
determine whether the combined performance obligation is satisfied
over time or at a point in time and, if over time, the appropriate
method of measuring progress for purposes of recognizing revenue
from non-refundable, up-front fees. The Company evaluates the
measure of progress each reporting period, and, if necessary,
adjusts the measure of performance and related revenue
recognition.
Milestone Payments
– At the inception of
each arrangement that includes development milestone payments, the
Company evaluates whether the milestones are considered probable of
being reached and estimates the amount to be included in the
transaction price using the most likely amount method. If it is
probable that a significant revenue reversal will not occur, the
associated milestone value is included in the transaction price.
Milestone payments that are not within the control of the Company
or the licensee, such as regulatory approvals, are not considered
probable of being achieved until those approvals are received. The
transaction price is then allocated to each performance obligation
on a relative stand-alone selling price basis, for which the
Company recognizes revenue as or when the performance obligations
under the contract are satisfied. At the end of each subsequent
reporting period, the Company re-evaluates the probability of
achievement of such development milestones and any related
constraint and, if necessary, adjusts its estimate of the overall
transaction price. Any such adjustments are recorded on a
cumulative catch-up basis, which would affect license,
collaboration and other revenues and earnings in their period of
adjustment. To date, the Company has not recognized any milestone
payments, because the milestones are not within the control of the
Company and the technology is at an early stage of development, or
the licensee has the ability to terminate the agreement before the
milestone payment is due.
Royalties –
For arrangements that include sales-based royalties, including
milestone payments based on the level of sales, and for which the
license is deemed to be the predominant item to which royalties
relate, the Company recognizes revenue at the later of (i) when the
related sales occur or (ii) when the performance obligation to
which some or all of the royalty has been allocated has been
satisfied (or partially satisfied). To date, the Company has not
recognized any royalty revenue from its license
agreements.
Accrued Liabilities
The
Company is required to estimate accrued liabilities as part of the
process of preparing its financial statements. The estimation of
accrued liabilities involves identifying services that have been
performed on the Company’s behalf, and then estimating the
level of service performed and the associated cost incurred for
such services as of each balance sheet date. Accrued liabilities
include professional service fees, such as for lawyers and
accountants, contract service fees, such as those under contracts
with clinical monitors, data management organizations and
investigators in conjunction with clinical trials, and fees to
contract manufacturers in conjunction with the production of
clinical materials. Pursuant to the Company’s assessment of
the services that have been performed, the Company recognizes these
expenses as the services are provided. Such assessments include:
(i) an evaluation by the project manager of the work that has been
completed during the period; (ii) measurement of progress prepared
internally and/or provided by the third-party service provider;
(iii) analyses of data that justify the progress; and (iv) the
Company’s judgment.
Research and Development Costs
Except
for payments made in advance of services, research and development
costs are expensed as incurred. For payments made in advance, the
Company recognizes research and development expense as the services
are rendered. Research and development costs primarily consist of
salaries and related expenses for personnel, laboratory supplies
and raw materials, and sponsored research, Other research and
development expenses include fees paid to consultants and outside
service providers including clinical research organizations and
clinical manufacturing organizations.
Recently Issued Accounting Standards
Adopted Accounting Standards
In May 2014, the FASB issued Topic 606 which
amends the guidance for accounting for revenue from contracts with
customers. This ASU supersedes the revenue recognition requirements
in ASC Topic 605, Revenue Recognition,
and creates a new Topic 606,
Revenue from
Contracts with Customers. The
Company did not have any revenue generating contracts in 2017,
therefore, the adoption of this standard had no effect on the
financial statement line items that could have been affected by the
transition. For further discussion on the adoption of this
standard, see “Revenue Recognition” above and Note 10,
“Contracts and Agreements.”
In
January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying
the Definition of a Business. The guidance changes the
definition of a business to assist entities with evaluating when a
set of transferred assets and activities is a business. The new
guidance requires an entity to evaluate if substantially all of the
fair value of the gross assets acquired is concentrated in a single
identifiable asset or a group of similar identifiable assets; if
so, the set of transferred assets and activities is not a business.
The Company adopted this ASU as of January 1, 2018. The adoption of
this ASU had no impact on the Company’s financial statements
for the three and nine months ended September 30,
2018.
In May
2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic
718), Scope of Modification Accounting, which clarifies when
a change to the terms or conditions of a share-based payment award
must be accounted for as a modification. The new guidance requires
modification accounting if the fair value, vesting conditions or
classification of the award is not the same immediately before and
after a change to the terms and conditions of the
award. The Company adopted this ASU on a prospective
basis as of January 1, 2018. The adoption of this ASU had no impact
on the Company’s financial statements for the three and nine
months ended September 30, 2018.
In
August 2016, the FASB issued ASU No. 2016-15 (“ASU
2016-15”), “Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments.” The standard provides guidance on
eight (8) cash flow issues: (1) debt prepayment or debt
extinguishment costs; (2) settlement of zero-coupon bonds; (3)
contingent consideration payments after a business combination; (4)
proceeds from the settlement of insurance claims; (5) proceeds from
the settlement of corporate-owned life insurance policies; (6)
distributions received from equity method investees; (7) beneficial
interests in securitization transactions; and (8) separately
identifiable cash flows and application of the predominance
principle. ASU 2016-15 addresses how certain cash receipts and cash
payments are presented and classified in the statement of cash
flows. The Company adopted this ASU effective January 1, 2018. The
adoption of this new standard did not have a material impact on our
condensed consolidated financial statements.
Accounting Standards Not Yet Adopted
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes
existing guidance on accounting for leases in Leases (Topic 840) and generally
requires all leases, including operating leases, to be recognized
in the statement of financial position as right-of-use assets and
lease liabilities by lessees. The provisions of ASU 2016-02 are to
be applied using a modified retrospective approach and are
effective for reporting periods beginning after December 15, 2018;
early adoption is permitted. The Company plans to elect the
transition option provided under ASU 2018-11, which will not
require adjustments to comparative periods nor require modified
disclosures in those comparative periods. Upon adoption, the
Company expects to elect the transition package of practical
expedients permitted within the new standard, which among other
things, allows the carryforward of the historical lease
classification. Based on its anticipated election of practical
expedients, the Company anticipates the recognition of right of use
assets and related lease liabilities on its balance sheets related
to its leases. The Company intends on engaging a professional
services firm to assist in the implementation of ASC 842, and to
analyze the impact of adopting ASC 842 on the Company’s
statements of income and balance sheets.
In June
2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic
718): Improvements to
Nonemployee Share-based Payment Accounting, to simplify the
accounting for share-based payments to nonemployees by aligning it
with the accounting for share-based payments to employees, with
certain exceptions. The provisions of ASU 2018-07 are effective for
reporting periods beginning after December 15, 2018, including
interim periods within that fiscal year; early adoption is
permitted, but no earlier than a company’s adoption date of
Topic 606. Upon transition, the Company will be required to measure
these nonemployee awards at fair value as of the adoption
date. The Company had not early adopted this ASU as of
September 30, 2018, but plans on adopting this ASU for its
reporting period beginning January 1, 2019. The Company is
currently evaluating the effect that this ASU will have on its
financial statements.
In
June 2016, the FASB issued ASU No. 2016-13,
“Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments.” This ASU requires
instruments measured at amortized cost to be presented at the net
amount expected to be collected. Entities are also required to
record allowances for available-for-sale debt securities rather
than reduce the carrying amount. This ASU is effective for fiscal
years beginning after December 15, 2019, including interim
periods within those fiscal years. We expect the adoption of this
new standard will not have a material impact on our condensed
consolidated financial statements.
In
January 2017, the FASB issued ASU
No. 2017-04, “Intangibles—Goodwill and Other (Topic
350): Simplifying the Test for Goodwill
Impairment.” This ASU eliminates Step 2 from the
goodwill impairment test. Instead, an entity should recognize an
impairment charge for the amount by which the carrying value
exceeds the reporting unit’s fair value, not to exceed the
total amount of goodwill allocated to that reporting unit. This ASU
is effective for annual or any interim goodwill impairment tests in
fiscal years beginning after December 15, 2019. We expect the
adoption of this new standard will not have a material impact on
our condensed consolidated financial statements.
With
the exception of the new standards discussed above, there have been
no new accounting pronouncements that have significance, or
potential significance, to the Company’s financial
statements.
2.
Liquidity
and Going Concern.
The
accompanying condensed consolidated financial statements have been
prepared on the going concern basis, which assumes that the Company
will continue to operate as a going concern and which contemplates
the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. As reflected in the
accompanying condensed consolidated financial statements, the
Company had a net loss of $5,908,068, net cash used in operating
activities of $2,620,437, net cash used in investing activities of
$0, and net cash provided by financing activities of $2,686,478 for
the nine months ended September 30, 2018. As of September 30, 2018,
the Company had $951,751 in cash and cash equivalents, a working
capital deficit of $6,334,244, an accumulated deficit of
$118,349,884, and stockholders’ equity of $42,558. The
Company also has significant debt payments due within the next
twelve months.
Overview
of 2018 Private Placements
Between
February 2 and February 10, 2018, the Company entered into separate
purchase agreements with investors pursuant to which the Company
sold (i) shares of its common stock, (ii) shares of its convertible
preferred stock, and
(iii) warrants to purchase shares of common (the “February
2018 Private Placements”). From April 30 to May 2, 2018, the
Company entered into separate purchase agreements with investors
pursuant to which we agreed to sell shares of its common stock and
convertible preferred stock (the “May 2018 Private
Placements”). No financial advisor was used in
connection with the February 2018 Private Placements nor the May
2018 Private Placements.
The
securities issued in connection with the February 2018 Private
Placements and the May 2018 Private Placements were offered and
sold solely to accredited investors in reliance on the exemption
from registration afforded by Rule 506 of Regulation D and Section
4(a)(2) of the Securities Act. The Company entered into separate
registration rights agreements with each of the investors in the
February 2018 Private Placements and the May 2018 Private
Placements, pursuant to which the Company agreed to undertake to
file a registration statement to register the resale of the shares
of common stock and the shares of common stock underlying the
warrants and preferred stock. The Company also agreed to use
reasonable best efforts to cause such registration statement to be
declared effective and to maintain the effectiveness of the
registration statement until all of such shares of common stock
have been sold or are otherwise able to be sold pursuant to Rule
144 under the Securities Act, without any
restrictions.
February
2018 Private Placements
In
connection with the February 2018 Private Placements, the Company
sold (i) an aggregate of 555,557 shares of its common stock for an
aggregate purchase price of $1,250,000, or $2.25 per share, (ii)
5,000 shares of our newly designated 0% Series M Convertible Preferred Stock
(the “Series M Preferred Stock”) for an aggregate
purchase price of $1,500,000, or $300.00 per share, and
(iii) warrants to purchase up to an aggregate of 855,561 shares of
common stock each with an exercise price of $2.70 per share. The
net proceeds of the February 2018 Private Placements were
$2,700,000 after transaction costs of $50,000.
May
2018 Private Placements
In
connection with the May 2018 Private Placements, the Company agreed
to sell (i) 218,182 shares of common stock at an aggregate purchase
price of $240,000, or $1.10 per share, and (ii) 5,363.64 shares of
newly designated 0% Series
N Convertible Preferred Stock (the “Series N Preferred
Stock”) at an aggregate purchase price of $590,000, or
$110.00 per share. The following investors in the May 2018
Private Placements also
invested in the February 2018 Private Placements (the “Prior
Investors”): GRQ Consultants Inc., Roth 401K FBO
Renee Honig; GRQ Consultants Inc., Roth 401K FBO Barry Honig;
Melechdavid, Inc.; Grander Holdings Inc. 401K; Robert S. Colman
Trust UDT 3/13/85; Ben Brauser; Joshua A. Brauser; Daniel A.
Brauser; Gregory Aaron Brauser; Erick E. Richardson; and Ronald B.
Low.
Under
the terms of the May 2018 Private Placements, we were required to
offer an aggregate of 12,777.77 shares (the “May 2018
Inducement Shares”) of newly designated 0% Series O Preferred
Stock (the “Series O Preferred Stock”) to investors who
previously purchased securities in the February 2018 Private
Placements and who also purchased securities in the May 2018
Private Placements with an aggregate purchase price of at least 40%
of their investment amounts in the February 2018 Private
Placements. Based on the closing of the offering, and participation
of the Prior Investors who invested an aggregate of $830,000 (the
“May 2018 Inducement Investors”), the Company issued an
aggregate of 10,605.56 May 2018 Inducement Shares in the form of
Series O Preferred Stock convertible into an aggregate of 1,060,556
shares of common stock. The
May 2018 Private Placements closed on May 15, 2018, with the
Company receiving gross proceeds totaling
$830,000.
Plans
for Continuing to Fund the Company’s Losses from
Operations
We plan
to continue to fund the Company’s losses from operations and
capital funding needs through equity financings in the form of
common stock and preferred stock, licensing agreements, asset
sales, strategic collaborations, government grants, issuance of
common stock in lieu of cash for services, debt financings or other
arrangements. Further, to extend availability of existing cash
available for our programs for achieving milestones or a strategic
transaction, in mid-2017 we began reducing personnel from
twenty-five (25) full time employees to six (6) as of November 13,
2018, and reduced other operating expenses following the completion
of two (2) Phase 1a clinical trials of our lead antibody product
candidate, HuMab 5B1, which has enabled us to reduce our
expenditures on clinical trials. We plan to continue funding Phase
1 clinical trials of our product candidate MVT-5873 in cancer
patients, MVT-2163 as a diagnostic agent in pancreatic cancer
patients, and MVT-1075 as a radioimmunotherapy agent for the
treatment of various cancers, preclinical testing of follow-on
antibody candidates, investor and public relations, SEC compliance
efforts, and the general and administrative expenses associated
with each of these activities, and prepare for a mid-stage
proof-of-concept clinical trial of MVT-5873 as a treatment for
pancreatitis. We will also support research efforts and continued
Phase 1 clinical development by MSK of our Positron-emission
tomography (“PET”) imaging agent MVT-2163 under an R01
Research Grant provided by the National Institutes of Health
(“NIH”) to MSK in April 2018, with the bulk of the
costs of the research and clinical development being borne by the
NIH. Although we achieved two strategic transactions in late June
2018 and early July 2018, there can be no assurance that we will be
able to achieve additional license and or sales agreements and earn
revenues large enough to offset our operating expenses in the
future, as discussed further in Management’s Discussion and
Analysis of Financial Condition and Results of Operations of our
Quarterly Report. We cannot be sure that asset sales or licensing
agreements can be signed in a timely manner, if any, or that
capital funding will be available on reasonable terms, or at all.
If we are unable to secure significant asset sales or licensing
agreements and adequate additional funding, we may be forced to
make additional reductions in spending, incur further cutbacks in
personnel, extend payment terms with suppliers, liquidate assets
where possible, suspend or curtail planned programs and/or cease
our operations entirely. In addition, if the Company does not meet
its payment obligations to third parties as they come due, it may
be subject to litigation claims. Even if we are successful in
defending against these claims, litigation could result in
substantial costs and be a distraction to management.
We
anticipate the Company will continue to incur net losses into the
foreseeable future as we: (i) continue our clinical trial of
MVT-5873 in cancer patients, (ii) continue our clinical trial for
the development of MVT-1075 as a radioimmunotherapy, (iii) prepare
for a mid-stage proof-of-concept clinical trial of MVT-5873 as a
treatment for pancreatitis, to be initiated in early 2019, and (iv)
continue operations as a public company. Based on receipt of $2.7
million net of transaction costs in February 2018, an additional
$830,000 from a financing in May 2018, and receipt of $700,000 from
an upfront payment under a sublicense agreement with Y-mAbs
Therapeutics, Inc. (“Y-mAbs”) during the first nine
months of 2018; and receipt of $4.0 million in gross proceeds from
an asset purchase and license agreement with Boehringer Ingelheim
International GmbH (“Boehringer Ingelheim”) in July
2018, and without any other additional funding or receipt of
payments from potential asset sales or licensing agreements, we
expect we will have sufficient funds to meet our obligations until
December 2018. These conditions give rise to substantial doubt as
to the Company’s ability to continue as a going concern. Any
of these actions could materially harm the Company’s
business, results of operations, and prospects. The accompanying
consolidated financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
If the
Company raises additional funds by issuing equity securities,
substantial dilution to existing stockholders could result. If the
Company raises additional funds by incurring debt financing, the
terms of the debt may involve significant cash payment obligations
as well as covenants and specific financial ratios that may
restrict the Company’s ability to operate its
business.
3.
Cash
and Cash Equivalents.
We
consider all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The
Company limits its exposure to credit loss by holding cash in U.S.
dollars or, from time to time, placing cash and investments in U.S.
government, agency and government-sponsored enterprise
obligations.
4.
Fair
Value of Financial Instruments.
Our
financial instruments consist of cash and cash equivalents and
accounts payable, all of which are generally considered to be
representative of their respective fair values because of the
short-term nature of those instruments.
5.
Convertible
Preferred Stock, Common Stock and Warrants.
Dividends
on Preferred Stock
We
immediately recognize the changes in the redemption value on
preferred stock as they occur and the carrying value of the
security is adjusted to equal what the redemption amount would be
as if redemption were to occur at the end of the reporting date
based on the conditions that exist as of that date.
No
dividends have ever been declared by the Board of Directors of the
Company (the “Board of Directors”) since our inception
on any series of convertible preferred stock.
Overview of Preferred Stock & Beneficial Ownership
Blockers
All
issued and outstanding shares of the Company’s preferred
stock have a par value of $0.01 per share and rank prior to any
class or series of the Company’s common stock as to the
distribution of assets upon liquidation, dissolution or winding up
of the Company or as to the payment of dividends. The Company must
obtain the consent of a majority of the holders of each series of
preferred stock before taking any action that materially and
adversely affects the rights, preferences, or privileges of the
applicable series of preferred stock. Also, the holders of each
series of preferred stock are entitled to vote on any matter on
which the holders of common stock are entitled to vote.
Additionally, the Company must obtain the consent of the holders of
the Series E Preferred Stock, Series J Preferred Stock, Series L
Preferred Stock, and Series N Preferred Stock (as each of those
terms are defined below) prior to increasing or decreasing (other
than by conversion) the authorized number of the applicable series
of preferred stock or issuing any additional shares of the
applicable series of preferred stock.
Generally, the same investors participated in each
of the Company’s preferred stock offerings such that the same
investors own most of the shares of each series of the
Company’s issued and outstanding preferred stock. Pursuant to
terms negotiated in connection with the Company’s sales of
preferred stock, the certificates of
designation for the Company’s preferred stock each include a
4.99% and/or 9.99% beneficial ownership conversion blocker.
These conversion blockers
may be decreased or increased, at the option of each holder, to a
percentage not to exceed 9.99% upon written notice to the Company,
as further specified in the applicable certificate of
designation. The certificate of
designation for our Series N
Preferred Stock includes a 19.99%
blocker provision applicable until stockholders approve issuances of common stock in
excess of such amount. The stated values, as applicable, and
conversion prices of our preferred stock are subject to adjustment
in the event of stock splits, stock dividends, combination of
shares and similar recapitalization transactions. The
Company’s ability to administer the blockers according to
their terms depends on group determinations and accurate reporting
by outside investors with respect to their own beneficial
ownership.
Series
D Preferred Stock
As of
September 30, 2018 and December 31, 2017, there were 44,104 shares
of Series D Convertible Preferred Stock (“Series D Preferred
Stock”) issued and outstanding, and convertible into an
aggregate of 198,667 shares of common stock. As of September 30, 2018, each one share of Series
D Preferred Stock is convertible into 4.5045 shares of Common Stock.
Series
E Preferred Stock
As of
September 30, 2018 and December 31, 2017, there were 33,333 shares
of Series E Convertible Preferred Stock (“Series E Preferred
Stock”) issued and outstanding, and convertible into 173,249
shares of common stock.
The shares of Series E Preferred Stock are
convertible into shares of common stock based on a conversion
calculation equal to the stated value of such preferred share ($75
per share), plus all accrued and unpaid dividends, if any, on such
share of Series E Preferred Stock, as of such date of
determination, divided by the conversion price $14.43 per
share.
Series
I Preferred Stock
As of
September 30, 2018 and December 31, 2017, there were 645,640 and
798,460 shares of our Series I Preferred Stock issued and
outstanding, and convertible into 215,214 and 266,154 shares of our
common stock, respectively. During the nine months ended September
30, 2018, 152,820 shares of Series I Preferred Stock were converted
by Grander Holdings, Inc. 401K into 50,940 shares of common
stock.
The Series I Preferred Stock has a stated value of
$0.01 per share. Each one share of Series I Preferred Stock is
convertible into one-third share of common stock.
Series
J Preferred Stock
As of
September 30, 2018 and December 31, 2017, there were 772.73 shares
of our Series J Convertible Preferred Stock (“Series J
Preferred Stock”) issued and outstanding and convertible into
386,365 shares of our common stock.
The shares of Series J Preferred Stock are
convertible into shares of common stock based on a conversion
calculation equal to the stated value of the Series J Preferred
Stock ($550), plus all accrued and unpaid dividends, if any, on
such Series J Preferred Stock, as of such date of determination,
divided by the conversion price ($1.10). If we issue or sell common
stock, or common equivalent shares, for consideration per share
that is less than the conversion price in effect immediately prior
to the issuance, then the conversion price in effect immediately
prior to such issuance will be adjusted to the lower issuance
price, but not be less than $0.10.
Series
K Preferred Stock
As of
September 30, 2018 and December 31, 2017, there were 63,150 shares
of our Series K convertible preferred stock (“Series K
Preferred Stock”) issued and outstanding, and convertible
into 2,105,000 of our common stock.
The
shares of Series K Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series K Preferred Stock ($0.01) divided by the
conversion price ($0.0003).
Series
L Preferred Stock
As of
September 30, 2018, and December 31, 2017, there were 45,500 and
58,000 shares of our Series L Preferred Stock issued and
outstanding, and convertible into 2,527,778 and 3,222,223 shares of
our common stock, respectively. During the nine months ended
September 30, 2018, 12,500 shares of Series L Preferred Stock were
converted into 694,445 shares of common stock by GRQ Consultants, Inc. Roth 401K FBO Renee Honig
Trustee, and HS Contrarian Investments, LLC.
The
shares of Series L Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series L Preferred Stock ($100), plus all accrued and
unpaid dividends, if any, on such Series L Preferred Stock, as of
such date of determination, divided by the conversion price
($1.80).
Series
M Preferred Stock
As of
September 30, 2018 and December 31, 2017, there were 5,000 and no
shares of our Series M Preferred Stock issued and outstanding, and
convertible into 666,667 and no shares of our common stock,
respectively.
The
shares of Series M Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series M Preferred Stock ($300), plus all accrued and
unpaid dividends, if any, on such Series M Preferred Stock, as of
such date of determination, divided by the conversion price
($2.25).
Series
N Preferred Stock
As of
September 30, 2018, and December 31, 2017, there were 5,363.64 and
no shares of our Series N Preferred Stock issued and outstanding,
and convertible into 536,364 and no shares of our common stock,
respectively.
The
shares of Series N Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series N Preferred Stock ($110), plus all accrued and
unpaid dividends, if any, on such Series N Preferred Stock, as of
such date of determination, divided by the conversion price
($1.10). If we issue or sell common stock, or common equivalent
shares, for consideration per share that is less than the
conversion price in effect immediately prior to the issuance, then
the conversion price in effect immediately prior to such issuance
will be adjusted to the lower issuance price, but not be less than
$0.10.
Series
O Preferred Stock
As of
September 30, 2018, and December 31, 2017, there were 10,605.56 and
no shares of our Series O Preferred Stock issued and outstanding,
and convertible into 1,060,556 and no shares of our common stock,
respectively.
The
shares of Series O Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series O Preferred Stock ($0.01), plus all accrued and
unpaid dividends, if any, on such Series O Preferred Stock, as of
such date of determination, divided by the conversion price
($0.0001). We are not permitted to issue any shares of common stock
upon conversion of the Series O Preferred Stock until our
stockholders approve, in accordance with the rules of the Nasdaq
Stock Market LLC, the conversion of Series N Preferred Stock
authorized on April 26, 2018, or the conversion of Series O
Preferred Stock.
Warrants
Issued in Connection with February 2018 Private
Placements
The warrants
issued in the February 2018 Private Placements (the “February
2018 Warrants”) are exercisable, at any time on or after the
sixth month anniversary of the closing date, at a price of $2.70
per share, subject to adjustment, and expire three years from the
initial exercise date. The holders of the February 2018 Warrants
may, subject to certain limitations, exercise the February 2018
Warrants on a cashless basis if the shares of common stock issuable
upon exercise of the February 2018 Warrants are not registered for
resale under the Securities Act within four (4) months of issuance,
or between June 2 and June 10, 2018. The Company is prohibited from
effecting an exercise of any February 2018 Warrants to the extent
that, as a result of any such exercise, the holder would
beneficially own more than 9.99% of the number of shares of common
stock outstanding immediately after giving effect to the issuance
of shares of common stock upon exercise of such February 2018
Warrants. The February 2018 Warrants are not listed or quoted on
any securities exchange or other trading market.
Warrants
Issued in Connection with October 2015 Public Offering
As of
September 30, 2018, and December 31, 2017, warrants to purchase
56,306 shares of common stock previously issued in connection with
our public offering closing on October 5, 2015 (the “October
2015 Warrants”) were outstanding. The October 2015 Warrants,
which had an exercise price of $29.31 per share, expired on
September 30, 2018.
Consultant Grants
On
February 10, 2017, the Company entered into a consulting agreement
with MDM Worldwide, pursuant to which MDM Worldwide agreed to
provide investor relations services to the Company in consideration
for an immediate grant of 6,667 shares of the Company’s
common stock and a monthly cash retainer of $10,000 a month for
ongoing services for a period of one year. The shares granted were
fully vested upon grant and the Company recognized the grant date
fair value of the shares of $56,600 as investor relations expense
upon grant during the first quarter of 2017. The services with MDM
Worldwide, which the Company was required to purchase by some
investors in connection with prior financings of the Company, were
terminated effective June 1, 2018.
On
March 7, 2017, the Company entered into a consulting agreement with
Jenene Thomas Communications, pursuant to which Jenene Thomas
Communications agreed to provide investor relations services to the
Company. In consideration for these services, which began on April
1, 2017, we paid a monthly cash retainer of $12,500. Additionally,
we issued 6,667 restricted shares of common stock on April 1, 2017,
to be vested at 1,667 per quarter over the four quarters of
services under the agreement beginning April 1, 2017. The shares
granted were vested over a one-year period over which the services
were performed and, as such, were amortized over the same period
beginning in April 1, 2017. The services with Jenene Thomas
Communications terminated effective June 1, 2018.
6.
Notes
Payable.
Loan
and Security Agreement with Oxford Finance, LLC
On
January 15, 2016, we entered into a loan and security agreement
with Oxford Finance, LLC (“Oxford Finance”) pursuant to
which we had the option to borrow $10,000,000 in two equal tranches
of $5,000,000 each (the “Loan Agreement”). The first
tranche of $5,000,000 was funded at close on January 15, 2016 (the
“Term A Loans”). The option to fund the second tranche
of $5,000,000 (the “Term B Loans”) was exercisable upon
the Company achieving positive interim data on the Phase 1
HuMab-5B1 antibody trial in pancreatic cancer and successfully
uplisting to either the Nasdaq Stock Market or NYSE MKT on or
before September 30, 2016. The option for the Term B Loans expired
unexercised on September 30, 2016. The interest rate for the Term A
Loans is set on a monthly basis at the index rate plus 11.29%,
where the index rate is the greater of the 30-day LIBOR rate or
0.21%. Interest is due on the first day of each month, in arrears,
calculated based on a 360-day year. The Term A Loans were interest
only for the first year after funding, and the principal amount of
the loan is amortized in equal principal payments, plus period
interest, over the next 36 months. A facility fee of 1.0% or
$100,000 was due at closing of the transaction and was earned and
paid by the Company on January 15, 2016. The Company is obligated
to pay a $150,000 final payment upon completion of the term of the
Term A Loans, and this amount is being accreted using the effective
interest rate method over the term of the loans. The Term A Loans
can be prepaid subject to a graduated prepayment fee, depending on
the timing of the prepayment.
Concurrent with the
execution of the Loan Agreement, the Company issued warrants to
purchase up to 75,075 shares of common stock to Oxford Finance with
an exercise price of $16.65 per share. The warrants were
immediately exercisable, may be exercised on a cashless basis and
expire on January 15, 2021. The Company recorded $607,338 for the
fair value of the warrants as a debt discount within notes payable
and an increase to additional paid-in capital on the
Company’s balance sheet. We used the Black-Scholes-Merton
valuation method to calculate the value of the warrants. The debt
discount is being amortized as interest expense over the term of
the loan using the effective interest method.
We
granted Oxford Finance a perfected first priority lien on all of
the Company’s assets with a negative pledge on IP. The
Company paid Oxford Finance a good faith deposit of $50,000, which
was applied towards the facility fee at closing. The Company agreed
to pay all costs, fees and expenses incurred by Oxford Finance in
the initiation and administration of the facilities including the
cost of loan documentation.
At the
initial funding on January 15, 2016, the Company received net
proceeds from the Term A Loans of approximately $4,610,000 after
fees and expenses. These fees and expenses are being accounted for
as a debt discount and classified within notes payable on the
Company’s condensed consolidated balance sheet. The Company's
transaction costs of approximately $390,000 are presented in the
condensed consolidated balance sheet as a direct deduction from the
carrying amount of the notes payable, consistent with debt
discounts. Debt discounts, issuance costs and the final payment are
being amortized or accreted as interest expense over the term of
the loan using the effective interest method.
The
Loan Agreement also contains customary indemnification obligations
and customary events of default, including, among other things, our
failure to fulfill certain of the Company's obligations under the
Loan Agreement, the occurrence of a material adverse change, which
is defined as a material adverse change in the Company's business,
operations, or condition (financial or otherwise), a material
impairment of the prospect of repayment of any portion of the loan,
or a material impairment in the perfection or priority of Oxford
Finance’s lien in the collateral or in the value of such
collateral. In the event of default by the Company under the
Loan Agreement, Oxford Finance would be entitled to exercise their
remedies thereunder, including the right to accelerate payment of
the debt, upon which we may be required to repay all amounts then
outstanding under the Loan Agreement, which could harm the
Company's financial condition.
First
Amendment to Loan and Security Agreement
On
March 31, 2017, we and Oxford Finance signed the First Amendment to
Loan and Security Agreement providing that the payment of principal
on the Term A Loans that otherwise would have been due on the March
1, 2017 will be due and payable on May 1, 2017 along with any other
payment of principal due on May 1, 2017. We were obligated to pay a
fully earned and non-refundable amendment fee of $15,000 to the
Collateral Agent (as defined in the Loan Agreement). On May 1,
2017, we paid the principal due on May 1, 2017, along with the
$15,000 amendment fee.
Second
Amendment to Loan and Security Agreement
On July
3, 2018, we and Oxford Finance signed the Second Amendment to Loan
and Security Agreement whereby Oxford Finance has (i) consented to
the Company’s license and sale to Boehringer Ingelheim of
certain preclinical assets (the “Acquired Assets”) and
release of any encumbrances under the Loan Agreement that relate to
the Acquired Assets, (ii) payments of advisory fees to Greenhill
& Company of $385,000 over the course of six months in equal
monthly payments, and (iii) deferred principal payments under the
Loan Agreement for six months starting with the July 2018 payment,
in exchange for the Company granting such additional collateral
that was not pledged previously or in which security interest was
not granted prior to the Second Amendment. We are obligated to pay
a fully earned and non-refundable amendment fee of $5,000 to Oxford
Finance, which shall become due and payable upon the earlier of:
(i) the maturity date of the term loans, (ii) the acceleration of
any term loan, or (iii) the prepayment of the term loans pursuant
to the Loan Agreement.
For the
three and nine months ended September 30, 2018, the Company
recorded interest expense related to the Loan Agreement of $94,755
and $308,271, respectively. For the three and nine months ended
September 30, 2017, the Company recorded $138,642 and $445,934 in
interest expense related to the term loan, respectively. The annual
effective interest rate on the note payable, including the
amortization of the debt discounts and accretion of the final
payment, but excluding the warrant amortization, was approximately
11.82% and 12.30% as of September 30, 2018 and 2017,
respectively.
The
future principal payments under notes payable for the Loan
Agreement and financed insurance as of September 30, 2018 are as
follows:
Years ending
December 31:
|
|
2018
(remaining)
|
$36,348
|
2019
|
2,380,952
|
2020
|
396,826
|
Notes payable,
balance as of September 30, 2018
|
2,814,126
|
Unamortized
discount on notes payable
|
(179,025)
|
Notes payable, net,
balance as of September 30, 2018
|
2,635,101
|
Current portion of
notes payable, net
|
(1,822,062)
|
Non-current portion
of notes payable, net
|
$813,039
|
Notice
of Events of Default under Loan and Security Agreement
The
Company believes it was in compliance with all applicable covenants
set forth in the Loan Agreement as of September 30, 2018.
However, on August 14, 2018, the Company received a letter from
Oxford Finance (the “Notice”) asserting certain events
of default under the Loan Agreement had occurred as a result of
certain events the Company reported as having occurred, including,
without limitation, (i) the resignation of the Company’s
external auditor, CohnReznick LLP (“CohnReznick”),
effective August 3, 2018, and its withdrawal of its audit reports
for the years 2014 through 2017, (ii) the resignation of four (4)
members of the Board of Directors, effective as of July 31, 2018,
and (iii) the delisting of the Company’s common stock from
The Nasdaq Stock Market LLC on July 11, 2018 (collectively, the
“Alleged Default Events”). The Company informed Oxford
Finance that it disputes the Alleged Default Events, individually
or collectively, constitute a “Material Adverse Change”
or other event of default under the Loan Agreement. In addition,
the Company already engaged a new auditor, Haskell & White LLP,
effective August 22, 2018, and on September 20, 2018, the Court
ratified the Delaware Petition. Also, on October 16, 2018, the
Company applied for listing on the OTCQB Venture Marketplace (the
“OTCQB Marketplace”) and believes it now meets the
requisite eligibility requirements; however, there can be no
assurance of being listed while the SEC Action is underway. As of
November 13, 2018, Company management has been meeting at least
weekly since September 30, 2018, to keep Oxford Finance informed on
potential fund-raising activities.
7.
Related
Party Transactions
On
April 1, 2016, the Company entered into a two-year consulting
agreement with Jeffrey Ravetch, M.D., Ph.D., a member of the Board
of Directors at that time, for work beginning January 1, 2016
through December 31, 2017, at a rate of $100,000 a year, in support
of scientific and technical advice on the discovery and development
of technology and products for the Company primarily related to
monoclonal antibodies, corporate development, and corporate
partnering efforts. In April 2016, the Company paid Dr. Ravetch
$100,000 for services to be performed in 2016, and made quarterly
payments thereafter beginning January 1, 2017. On February 16,
2018, the Company extended Dr. Ravetch’s consulting agreement
until February 16, 2019, with services to be provided, as may be
needed by the Company. During the three and nine months ended
September 30, 2018, Dr. Ravetch provided no consulting services
related to this agreement and no payments were made. During the
three and nine months ended September 30, 2017, the Company
recorded $25,000 and $50,000, respectively, in consulting expenses
as part of general and administration expenses related to this
agreement.
On
November 3, 2016, the Company granted 5,833 stock options to
Jeffrey Ravetch, M.D., Ph.D., for his ongoing consulting services
to the Company. The option award vests over a three-year period.
During the three and nine months ended September 30, 2018, the
Company recognized $0 and $6,584, respectively, of stock-based
compensation expense, as part of general and administration
expenses, related to this option grant. During the three and nine
months ended September 30, 2017, the Company recognized $3,826 and
$7,652, respectively, of stock-based compensation expense, as part
of general and administration expenses, related to this option
grant.
On May
19, 2017, the Company granted each director, other than J. David
Hansen, Jeffrey Ravetch (a member of the Board of Directors at the
time) and Philip Livingston, 16,667 options at a market price of
$5.40, with immediate vesting for their continuing service to the
Company, in exchange for giving up their director fees for the
remainder of the year. J. David Hansen and Jeffrey Ravetch were
each granted 166,667 options and Philip Livingston was granted
16,667 options each at an exercise price of $6.00 per share with
immediate vesting and no performance obligations. Options granted
to J. David Hansen and Philip Livingston were granted as a
condition of the May 2017 financing transaction. The 166,667
options granted to Dr. Ravetch in addition to the 16,667 options
granted to other non-employee members of the Company’s Board
of Directors were in recognition of the additional value provided
by Dr. Ravetch as a scientific expert. Because of the immediate
vesting and all of the expenses recorded in 2017, no expenses are
being recorded for these grants in 2018. During the three and nine
months ended September 30, 2017, the Company recorded $0 and
$1,480,089, respectively, in stock-based compensation expenses in
general and administration expenses, related to these
grants.
8.
Stock-based
Activity
Stock-based
Compensation
We
measure stock-based compensation expense for equity-classified
awards, principally related to stock options and restricted stock
units (“RSUs”), based on the estimated fair value of
the award on the date of grant. We recognize the value of the
portion of the award that we ultimately expect to vest as
stock-based compensation expense over the requisite service period
in our condensed consolidated statements of
operations.
We use
the Black-Scholes model to estimate the fair value of stock options
granted. The expected term of stock options granted represents the
period of time that we expect them to be outstanding. For the three
and nine months ended September 30, 2018 and 2017, the following
valuation assumptions were used:
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
Risk-free interest
rate
|
-
|
-
|
2.4%
|
|
Dividend
yield
|
-
|
-
|
0%
|
0%
|
Expected
volatility
|
-
|
-
|
87%
|
|
Expected life of
options, in years
|
-
|
-
|
5.5 yrs.
|
|
Weighted-average
grant date fair value
|
-
|
-
|
$1.42
|
$1.53
|
Total
estimated stock-based compensation expense, related to all the
Company’s stock-based payment awards recognized under ASC
718, “Compensation—Stock
Compensation” was comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
$96,157
|
$292,523
|
$340,979
|
$989,884
|
General and
administrative
|
172,458
|
721,213
|
966,183
|
3,526,488
|
Total stock-based
compensation expense
|
$268,615
|
$1,013,736
|
$1,307,162
|
$4,516,372
|
Stock-based
Award Activity
The
following table summarizes the Company’s stock option
activity during the nine months ended September 30,
2018:
|
|
Weighted-Average
Exercise
Price
|
Outstanding at
December 31, 2017
|
953,937
|
$13.97
|
Granted
|
1,186,000
|
1.99
|
Exercised
|
—
|
—
|
Forfeited/cancelled/expired
|
(319,348)
|
6.71
|
Outstanding and
expected to vest at September 30, 2018
|
1,820,589
|
$7.44
|
Vested and
exercisable at September 30, 2018
|
1,060,093
|
$10.24
|
The
total unrecognized compensation cost related to unvested stock
option grants as of September 30, 2018, was $1,549,114 and the
weighted average period over which these grants are expected to
vest is 1.3 years. The weighted average remaining contractual life
of stock options outstanding at September 30, 2018 and 2017 is 9.2
and 9.1 years, respectively.
During
the first nine months of 2018, the Company granted 1,186,000
options to officers and employees with a weighted average exercise
price of $1.99 and vesting over a three-year period with a vesting
starting at the one-year anniversary date of the grant date. During
the first nine months of 2017, the Company granted 682,230 options
to officers and employees with a weighted average exercise price of
$7.11 and vesting over a three-year period with vesting starting at
the one-year anniversary of the grant date.
Stock
options granted to employees generally vest over a three-year
period with one third of the grants vesting at each one-year
anniversary of the grant date.
Because
the Company had a net operating loss carryforward as of September
30, 2018, no tax benefits for the tax deductions related to
stock-based compensation expense were recognized in the
Company’s condensed consolidated statements of operations.
Additionally, no stock options were exercised in the three and nine
months ended September 30, 2018 and 2017.
A
summary of activity related to restricted stock grants under the
Fifth Amended and Restated MabVax Therapeutics Holdings, Inc. 2014
Employee, Director and Consultant Equity Incentive Plan for the
nine months ended September 30, 2018 is presented
below:
|
|
Weighted
Average
Grant-Date
Fair
Value
|
Non-vested at
December 31, 2017
|
832,226
|
$3.88
|
Granted
|
—
|
—
|
Vested
|
(832,226)
|
50.26
|
Forfeited
|
—
|
—
|
Non-vested at
September 30, 2018
|
—
|
$—
|
As of
September 30, 2018, there were no non-vested RSUs remaining
outstanding.
Management
Bonus Plan
On
February 21, 2018, the compensation committee of the Board of
Directors reviewed 2017 results and concluded that the year’s
performance, relative to the objectives set at the beginning of the
year, did not merit any bonus payment. The compensation committee
also determined that management base salaries would currently
remain unchanged from 2017 levels.
Common
stock reserved for future issuance
Common
stock reserved for future issuance consists of the following at
September 30, 2018:
Common stock
reserved for conversion of preferred stock
|
7,869,862
|
Warrants to
purchase common stock
|
1,221,935
|
Common stock
options outstanding
|
1,820,589
|
Authorized for
future grant or issuance under the Stock Plan
|
646,059
|
Total
|
11,558,445
|
9.
Net
Income (Loss) per Share
The
Company calculates basic and diluted net income (loss) per share
using the weighted-average number of shares of common stock
outstanding during the period.
When
the Company is in a net loss position, it excludes from the
calculation of diluted net loss per share all potentially dilutive
stock options, preferred stock and warrants, and the diluted net
loss per share is the same as the basic net loss per share for such
periods. If the Company was to be in a net income position, the
weighted average number of shares used to calculate the diluted net
income per share would include the potential dilutive effect of
in-the-money securities, as determined using the treasury stock
method.
Basic
and diluted net loss per share is computed as follows:
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|
|
|
|
|
Net
income (loss) allocable to common stockholders
|
$340,681
|
$(6,200,161)
|
$(7,296,247)
|
$(22,784,296)
|
Basic
net income (loss) per common share
|
$0.04
|
$(1.62)
|
$(0.81)
|
$(8.04)
|
Diluted
net income (loss) per share
|
$0.02
|
$(1.62)
|
$(0.81)
|
$(8.04)
|
Weighted
average common shares outstanding
|
9,253,880
|
3,830,280
|
8,983,980
|
2,834,692
|
Diluted
weighted average shares outstanding
|
17,123,742
|
3,830,280
|
8,983,980
|
2,834,692
|
Diluted
weighted average shares outstanding for the three months ended
September 30, 2018, includes only the common stock reserved for
conversion of preferred stock, as the exercise price for the
warrants to purchase common stock and the exercise price for common
stock options outstanding are substantially above the weighted
average price per share during the period. The table below presents
the potentially dilutive securities that would have been included
in the calculation of diluted net loss per share for the three
months ended September 30, 2017, and for the Nine Months ended
September 30, 2018 and 2017, respectively, if they were not
antidilutive for those periods presented.
|
Nine
Months Ended September 30,
|
|
|
|
Common stock
reserved for conversion of preferred stock
|
7,869,862
|
3,877,796
|
Warrants to
purchase common stock
|
1,221,935
|
691,139
|
Common stock
options outstanding
|
1,820,589
|
938,413
|
Unvested restricted
stock
|
—
|
317,902
|
Total
|
10,912,386
|
5,825,250
|
10.
Contracts
and Agreements
Asset
Purchase and License Agreement with Boehringer
Ingelheim
On July
4, 2018, the Company entered into an Asset Purchase Agreement and License
Agreement with Boehringer Ingelheim International GmbH
(hereafter, “BII” and the “Asset Purchase Agreement”)
centered on MabVax's program targeting a glycan commonly
overexpressed on multiple solid tumor cancers. BII has acquired all
rights in and to the program. MabVax received a non-refundable $4
million payment upon signing the agreement and expects to receive
an additional $7 million in connection with BII reaching certain
near-term milestones and downstream regulatory milestones plus
further earn-out payments.
The
Company recognized the initial $4 million non-refundable upfront
payment as revenue, as BII obtained the exclusive rights to use the
intellectual property and there were no continuing obligations
other than to deliver materials and documents of an administrative
nature that were completed within 15 days of entering into the
agreement. As of September 30, 2018, the Company had not recognized
as revenue any of the future milestones given the high risk and
uncertainty of continuing development by BII given such
risks.
In
connection with the Asset Purchase Agreement, the Company incurred
cost of sales totaling $785,000, including 10% of the $4 million
payment or $400,000 to MSK to obtain MSK’s consent to enter
into the Asset Purchase Agreement, and $385,000 in a fixed fee to
investment banker Greenhill & Co. MabVax agreed to share with
MSK 20% or $1.4 million of the $7.0 million in near-term milestones
if achieved by BII.
The
asset acquisition is separate and distinct from other programs
under development at MabVax, enabling MabVax to retain all rights
to its lead HuMab-5B1 antibody program which is in Phase 1 clinical
trials as a therapeutic product candidate and as a diagnostic
product candidate, as well as other antibody discovery programs
from the Company's antibody discovery portfolio targeting other
cancer antigens.
Cold
Spring Harbor Laboratory License Agreement
On
September 8, 2018, the Company entered into an agreement with Cold
Spring Harbor Laboratory (“CSHL”), a nonprofit New York
State education corporation, whereby the Company licensed the
exclusive worldwide rights to certain discoveries and technology
including exclusive interest in certain patent applications filed
by the Company on behalf of CSHL for use of MVT-5873 as a treatment
for pancreatitis. The Company paid $20,000 as an upfront license
fee and will pay to CSHL a nonrefundable annual license maintenance
fee of the same amount beginning on January 1, 2020 and continuing
each year thereafter during the term of the agreement and will
increase to $50,000 a year upon issuance of the first patent in
connection with the technology. The annual license fee will be
reduced for any patent prosecution and maintenance costs and will
be fully creditable against any royalties or milestone payments
earned during the year. Future milestone payments are in the
aggregate less than $2.5 million, with royalties that range from
0.25% if no valid claim to patents, to 2.5% if there is a valid
claim of the patent in the territory of sales.
Sublicense Grant to Y-mAbs Therapeutics, Inc.
On June 27, 2018, we granted an exclusive
sublicense to Y-mAbs, a privately held clinical stage
biopharmaceutical company, for a bi-valent ganglioside-based
vaccine intended to treat neuroblastoma, a rare pediatric cancer
(the “Y-mAbs Sublicense”). Total value of the
transaction to MabVax is $1.3 million plus a share of a Priority
Review Voucher (as defined in the sublicense agreement) if granted
by the FDA to Y-mAbs on approval of the vaccine and the Priority
Review Voucher is subsequently sold. Additionally, Y-mAbs will be
responsible for all further development of the product as well as
any downstream payment obligations related to this specific vaccine
to MSK that were specified in the original MabVax-MSK license
agreement dated April 30, 2008. If Y-mAbs successfully develops and
receives FDA approval for the neuroblastoma vaccine, it is
obligated to file with the FDA for a Priority Review Voucher. If
the voucher is granted to Y-mAbs and subsequently sold, then MabVax
will receive a percentage of the proceeds from the sale of the
voucher by Y-mAbs. Upon entering the Y-mAbs Sublicense, the Company
received a non-refundable upfront payment of $700,000 and will
receive an additional $600,000 upon the one-year anniversary of
entering into the agreement, provided Y-mAbs has not terminated the
agreement prior to the one-year anniversary. The Sublicense
Agreement contains termination provisions allowing for the
termination of the agreement (i) upon material breach if the
breaching party fails to cure the breach within 60 days of notice
by the non-breaching party, (ii) by Y-mAbs at any time upon 90
days’ advance notice to MabVax, or (iii) the expiration or
termination of the underlying license from MSK to MabVax, provided
that MSK will assume the agreement if Y-mAbs is in material
compliance with the agreement upon the termination of the
MSK-MabVax license. There were no
continuing obligations on the part of the Company in connection
with the agreement other than one-time administrative matters that
were completed within thirty (30) days of signing the agreement.
Therefore, the Company recognized $700,000 as revenue upon signing
the agreement and receiving the funds. Because Y-mAbs has the right
to terminate the Y-mAbs Sublicense before the one-year anniversary
and the uncertainty of continuing clinical development by Y-mAbs,
the Company will not recognize additional revenue until it is
likely the termination provisions are no longer
applicable.
Letter Agreement with MSK
On
June 27, 2018, we entered into a letter agreement with MSK (the
“MSK Letter”) in connection with obtaining the consent
from MSK for the Company to enter into the Y-mAbs Sublicense and
allow Y-mAbs to “step into the shoes” of the
obligations that the Company would have had to pay MSK if the
Company had continued development of the neuroblastoma vaccine,
including future payment obligations of the Company regarding
future milestones. As part of the agreement, the Company and MSK
agreed that MabVax would receive 100% of both the $700,000 upfront
payment and $600,000 upon the one-year anniversary of the Y-mAbs
Sublicense. All of the obligations to MSK in the MSK Letter were
fully expensed as of June 30, 2018.
May
2017 Letter Agreement
On May
15, 2017, as a condition to the participation of HS Contrarian
Investments, LLC (“HS Contrarian”) in the public
offering of the Company’s common stock and Series G Preferred
Stock in May 2017 (the “May 2017 Public Offering”), the
Company entered into a Letter Agreement with HS Contrarian (the
“May 2017 Letter Agreement”) where the Company agreed
to offer incentive shares (the “May 2017 Inducement
Shares”) to investors who (i) participated in both the
Company’s August 2016 public offering and the Company’s
April 2015 private offering, (ii) purchased securities in the May
2017 Public Offering equal to at least 50% of their original
investment in the August 2016 public offering or 25% of their
original investment in the April 2015 private offering, and (iii)
still hold 100% of their common stock or preferred stock purchased
in those investments.
Further, the
Company agreed to the following in the May 2017 Letter
Agreement:
Board
Nomination:
|
|
To
nominate one (1) candidate to the Board of Directors acceptable to
the holder of a majority of the Series G Preferred Stock by
December 31, 2017, and that (2) two current Board members would
resign.
|
Executive
Hire:
|
|
To hire
a new C-level executive in a leadership role by July 15,
2017.
|
Board
Compensation:
|
|
To
issue an aggregate of 350,000 options to certain employees and
members of the Board of Directors, at a price not less than $6.00
per share, and 16,667 options to each other member of the Board of
Directors at the current market price in connection with this
offering. The options were issued pursuant to the Company’s
option plan, subject to the requisite approvals and availability
under the plan. The company was responsible for obtaining the
approval of the Board of Directors and stockholders of the Company
to the extent the company needed their approval to increase the
number of shares available under the plan. All Board of Director
fees were waived for 2017.
|
Funds
Held in Escrow:
|
|
$500,000
of the funds from the May 2017 Public Offering were to be held in
escrow and released to one or more investor relations services
acceptable to the Company following the closing of this
offering.
|
Additionally, we
granted HS Contrarian consent rights: the right to approve future
(i) issuances of our securities, (ii) equity or debt financings and
(iii) sales of any development product assets currently held by us,
subject to certain exceptions, if such securities are sold at a
price below $7.50 per share and for as long as HS Contrarian in the
offering holds 50% or more of the shares of Series G Preferred
Stock purchased by HS Contrarian in the May 2017 Public Offering
(the “Consent Rights”). All other prior consent rights
of HS Contrarian were superseded by these consent rights. As of
September 30, 2018, none of the shares of Series G Preferred Stock
is outstanding. Thus, HS Contrarian no longer holds the Consent
Rights.
For the
period from the May 2017 Public Offering to December 31, 2017, the
Company exceeded the minimum $500,000 in expenses related to
outside investor relations services fulfilling the Company’s
obligation for spending on investor relations. HS Contrarian
elected not to hold the funds in escrow. Further, the Company
issued the May 2017 Inducement Shares and adjusted the Board of
Directors compensation per the May 2017 Letter Agreement. Also, two
members of the Board of Directors resigned during 2017, achieving
one of the conditions of HS Contrarian. The Company did not
nominate a new member to the Board of Directors, nor did it hire a
new C-level executive in light of limited amount of cash available
to the Company.
Letter
Agreement Regarding Future Financing Transactions
On
August 9, 2017, in connection with an offering in the aggregate
amount of $1,312,500 in which the Company sold shares of its Series
J Preferred Stock (the “August 2017 Offering”), we
entered into a Letter Agreement with HS Contrarian (the
“August 2017 Letter Agreement”), whereby HS Contrarian
consented to and agreed that, the Company may sell securities to
the investors set forth below, of an aggregate amount of up to
$2,350,000, and the Company would issue incentive shares in the
form of newly designated shares of Series K Preferred Stock
convertible into an aggregate of 2,166,667 shares of common stock
to be distributed to the following individuals or entities, as
directed by HS Contrarian, as an incentive (the “Inducement
Shares”) for HS Contrarian and these entities and individuals
to invest in the August 2017 Offering.
HS
Contrarian Investments, LLC
|
GRQ
Consultants, Inc. Roth 401K FBO Barry Honig Trustee
|
GRQ
Consultants, Inc. Roth 401K FBO Renee Honig Trustee
|
Grander
Holdings, Inc. 401K
|
Robert
B. Prag
|
David
Moss
|
Paradox
Capital Partners, LLC
|
Melechdavid,
Inc.
|
Melechdavid, Inc.
Retirement Plan
|
Robert
S. Colman Trust UDT 3/13/85
|
Sargeant Capital
Ventures, LLC
|
Edward
W. Easton TTEE The Easton Group ORP PSP U/A DTD
02/09/2000
|
Donald
E. Garlikov
|
Airy
Properties
|
Ryan
O'Rourke
|
Corey
Patrick O'Rourke
|
In addition, the Company agreed to the following in the August 2017
Letter Agreement:
●
To file a proxy statement for a special meeting of stockholders
within 10 days of closing the August 2017 Offering.
Proposals were to include (i) an amendment to the Company’s
Certificate of Incorporation to effect a reverse stock split of its
issued and outstanding common stock by a ratio of not less than
one-for-two and not more than one-for-twenty at any time prior to
one year from the date of the special meeting, with the exact ratio
to be set at a whole number within this range as determined by the
Board of Directors, (ii) the issuance of securities in one or more
non-public offerings where the maximum discount at which securities
will be offered will be equivalent to a discount of 30% below the
market price of the common stock, as required by and in accordance
with Nasdaq Marketplace Rule 5635(d), (iii) the issuance of
securities in one or more non-public offerings where the maximum
discount at which securities will be offered will be equivalent to
a discount of 20% below the market price of the Common Stock, as
required by and in accordance with Nasdaq Marketplace Rule 5635(d),
(iv) the issuance of common stock upon the conversion of Series J
Preferred Stock and (v) the issuance of incentive shares in the form of shares of Series K
Preferred Stock convertible into an aggregate of 2,166,667 shares
of common stock.
●
Subject
to agreement on terms and conditions of the investment, HS
Contrarian committed to a $1,000,000 lead order in an offering
amount of $8,000,000 (the “$8,000,000 Financing”). The
$8,000,000 Financing was subject to the Company obtaining approval
of a reverse stock split, issuance of the Series J Preferred Stock,
and filing a proxy statement for stockholder approval of the
Inducement Shares as identified in the August 2017 Letter
Agreement.
●
That
the employment terms of all
management be reduced to two years from three years and that
management defer portions of their salary for the remainder of the
year, which would be paid upon the earlier of completion of the
$8,000,000 Financing or a business transaction that represents, or
transactions in the aggregate that represent, in excess of
$10,000,000.
In
connection with HS Contrarian’s and the Company’s
obligations under the August 2017 Letter Agreement, neither the
$8,000,000 Financing nor the change in employment terms from three
years to two years were completed as of November 13,
2018.
Memorial
Sloan Kettering Cancer Center
Since
2008, the Company has engaged in various research agreements and
collaborations with MSK including licensed rights to cancer
vaccines and the blood samples from patients who have been
vaccinated with MSK’s cancer vaccines. Total sponsored
research contracts outstanding in 2016 amounting to approximately
$800,000 in 2016 were 100% complete as of the year ended December
31, 2016. Such sponsored research agreements provide support for
preclinical work on the Company’s product development
programs. The work includes preparing radioimmunoconjugates of the
Company’s antibodies and performing in vitro and in vivo pharmacology studies for our
therapeutic antibody product candidate, imaging agent product
candidate, and radioimmunotherapy product candidate programs. For
the three months ended September 30, 2018, there were no expenses
incurred related to these contracts.
Patheon
Biologics LLC Agreement
On
April 14, 2014, the Company entered into a development and
manufacturing services agreement with Patheon Biologics LLC (f.k.a.
Gallus Biopharmaceuticals) to provide a full range of manufacturing
and bioprocessing services, including cell line development,
process development, protein production, cell culture, protein
purification, bio-analytical chemistry and QC testing. Total amount
of the contract is estimated at approximately $3.0
million. For the three months ended September 30, 2018 and
2017, the Company recorded no expenses associated with the
agreement, as no manufacturing was completed during either
period.
11.
Commitments
and Contingencies
Capital
Leases
On March 21, 2016, the Company entered into
a lease agreement with ThermoFisher Scientific
(“Lessor”). Under the terms of the agreement, the
Company agreed to lease two pieces of equipment from the Lessor, a
liquid chromatography system and an incubator, totaling in cost of
$95,656. The term of the lease is five years (60 months), and
the monthly lease payment is $1,942. In addition, there is a $1.00
buyout option at the end of the lease term.
Minimum
future annual capital lease obligations are as follows as of
September 30, 2018:
2018
(remaining)
|
$5,601
|
2019
|
22,402
|
2020
|
22,402
|
2021
|
7,468
|
Less
interest
|
(7,426)
|
Principal
|
50,447
|
Less current
portion
|
(18,943)
|
Noncurrent
portion
|
$31,504
|
Operating
Leases
In
2015, the Company recorded a $590,504 contingent lease termination
fee of the master lease and sublease of 3165 Porter Drive in Palo
Alto, California, which was payable to ARE-San Francisco No. 24
(“ARE”), if the Company received $15 million or more in
additional financing in the aggregate. The additional financing was
achieved in 2015 and the termination fee is reflected on the
condensed consolidated balance sheet as an accrued lease
contingency fee.
On
September 2, 2015, the
Company entered a lease (the “Lease”) with AGP
Sorrento Business Complex, L.P., for certain premises of office and
laboratory space in buildings located at 11535 Sorrento Valley Rd.,
San Diego, California, to serve as the Company’s corporate
offices and laboratories (the “New
Premises”). Because certain tenant improvements needed
to be made to the New Premises before the Company could take
occupancy, the term of the Lease did not commence until the New
Premises were ready for occupancy, which was on February 4,
2016. The Lease terminates on February 28, 2022, unless
earlier terminated in accordance with the Lease. Pursuant to the
terms of the Lease, the monthly base rent is $35,631, subject to
annual increases as set forth in the Lease.
The
Company has an option to extend the Lease term for a single,
five-year period. If the Lease term is extended for the optional
five-year period, the monthly base rent will be adjusted based on
fair market rental value. In addition to rent, the Company agreed
to pay a portion of the taxes and utility, maintenance and other
operating costs paid or accrued in connection with the ownership
and operation of the property.
The
Company recognized rent expense on a straight-line basis over the
term of the lease.
During
the three and nine months ended September 30, 2018, the Company
recorded rent expense of $115,238 and $345,714,
respectively.
Minimum
future annual operating lease obligations are as follows as of
September 30, 2018:
2018
(remaining)
|
$151,204
|
2019
|
466,085
|
2020
|
480,068
|
2021
|
494,470
|
2022
|
41,306
|
Total
|
$1,633,133
|
Legal
Proceedings
See
Item 1 of Part II “Other Information” and Note 12
“Subsequent Events” for a discussion of legal
proceedings.
12.
Subsequent
Events
Legal
Proceedings
Jackson v. Hansen et
al., Case No.
18-cv-2302-BEN-BGS. On October 4,
2018, a shareholder derivative complaint was filed in the United
States District Court for the Southern District of
California. The complaint arises from similar allegations as
In re MabVax Therapeutics
Securities Litigation and Liesman v. Hansen et al., filed on
September 26, 2018 (See Part II. Item 1. “Legal
Proceedings”) but, in addition to a breach of fiduciary duty
claim, also includes causes of action for unjust enrichment, abuse
of control, gross mismanagement and waste of corporate
assets. Plaintiff seeks, on behalf of the Company, damages,
fees, costs, and equitable relief.
Item
2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
About Us
MabVax
Therapeutics Holdings, Inc. is a clinical-stage biotechnology
company with a fully human antibody discovery platform focused on
the rapid translation into clinical development of products to
address unmet medical needs in the treatment of cancer and
pancreatitis. We discovered a pipeline of human monoclonal antibody
product candidates based on the protective immune responses
generated by patients who have been vaccinated against targeted
cancers. Our therapeutic vaccine product candidates under
development were discovered at Memorial Sloan Kettering Cancer
Center (“MSK”) and are exclusively licensed to us as
well as exclusive rights to blood samples from patients who were
vaccinated with the same licensed vaccines. We operate in only one
business segment.
Our
lead development product, MVT-5873, is a fully human IgG1
monoclonal antibody (mAb) that targets sialyl Lewis A (sLea), an
epitope on CA19-9. MVT-5873 is currently in Phase 1 clinical
trials as a therapeutic agent for patients with pancreatic cancer
and other CA19-9 positive tumors. CA19-9 is expressed in over 90%
of pancreatic cancers and in other diseases including pancreatitis.
CA19-9 plays an important role in tumor adhesion and metastasis and
is a marker of an aggressive cancer phenotype. CA19-9 also has an
important role in the biological pathways that can result in
pancreatitis. CA19-9 serum levels are considered a valuable adjunct
in the diagnosis, prognosis and treatment monitoring of pancreatic
cancer and now pancreatitis. With our collaborators including MSK,
Sarah Cannon Research Institute, Honor Health and Imaging
Endpoints, we have treated more than 56 patients with either our
therapeutic antibody designated as MVT-5873 or our PET imaging
diagnostic product designated as MVT-2163 in Phase 1 clinical
studies, and demonstrated early safety, specificity for the target
and a potential efficacy signal. The Company also has a
radioimmunotherapy product, designated as MVT-1075, that is also in
Phase 1 clinical development. For additional information,
please visit the Company's website, www.mabvax.com.
Information on the Company’s
website is not incorporated into this Quarterly
Report.
Studies
conducted by Cold Spring Harbor Laboratories have demonstrated that
antibodies capable of binding to CA19-9 and blocking the downstream
biological pathways of pancreatitis have a positive effect on
ameliorating the disease. Combining the preclinical science
supporting the use of the CA19-9 blocking antibodies in the
treatment of pancreatitis with the clinically validated data and
supplies of MVT-5873 already available gives MabVax the
opportunity, assuming adequate funding, to move quickly into the
clinic in a mid-stage proof of concept clinical trial in the
near-term.
The
Company completed a preclinical asset sale and license agreement
with Boehringer Ingelheim in July 2018, and a license agreement for
a cancer vaccine to Y-mAbs Therapeutics, Inc. in June 2018.
The Company received nearly $5 million in upfront payments from
these two transactions to begin the third quarter, with an
additional $7.6 million in downstream milestones the Company may
receive based either on reaching an anniversary date of entering
the agreement, provided the agreement is not canceled prior to
reaching the milestone or due date, or upon reaching a
milestone.
We have
incurred substantial losses since inception, and we expect to incur
additional substantial losses for the foreseeable future as we
continue our research and development activities. To date, we have
funded our operations primarily through equity financings in the
form of common stock and preferred stock, licensing agreements,
asset sales, strategic collaborations, issuance of common stock in
lieu of cash for services, government grants, debt financings or
other arrangements. The process of developing our product
candidates will require significant additional research and
development, preclinical testing and clinical trials, as well as
regulatory approval. We expect these activities, together with
general and administrative expenses, to result in substantial
operating losses for the foreseeable future. We will not receive
product revenue unless we, or our collaborative partners, complete
clinical trials, obtain regulatory approval and successfully
commercialize one or more of our product candidates. We cannot
provide assurance that we will ever generate revenues or achieve
and sustain profitability in the future or obtain the necessary
working capital for our operations.
During
the nine months ended September 30, 2018, we recognized revenue of
$700,000 from a license agreement with Y-mAbs and $4,000,000 from
an asset sale to Boehringer Ingelheim, resulting in gross profit of
$3,915,000. Our loss from operations during this nine-month period
was $5,410,200 and our net loss was $5,908,068. Net cash used in
operating activities for the nine months ended September 30, 2018
was $2,620,437, cash and cash equivalents and working capital
deficit of as of September 30, 2018 were $951,751 and $6,334,244
respectively. As of September 30, 2018, we had
an accumulated deficit of $118,349,884 and a
stockholders’ equity of $42,558.
We are
subject to risks common to biopharmaceutical companies, including
the need for capital, risks inherent in our research, development
and commercialization efforts, preclinical testing, clinical
trials, uncertainty of regulatory and marketing approvals,
enforcement of patent and proprietary rights, potential competition
and retention of key employees. For a product candidate to be
commercialized, it is necessary for us to conduct preclinical tests
and clinical trials, demonstrate efficacy and safety of our product
candidates to the satisfaction of regulatory authorities, obtain
marketing approval, enter into manufacturing, distribution and
marketing arrangements, obtain market acceptance and, in many
cases, obtain adequate reimbursement from government and private
insurers. We cannot provide assurance that we will ever generate
revenues or achieve and sustain profitability in the future or
obtain the necessary working capital for our
operations.
Reverse
Stock Splits
On
August 16, 2016, we filed a certificate of amendment to our Amended
and Restated Certificate of Incorporation with the Secretary of
State of the State of Delaware to effectuate a reverse stock split
of our issued and outstanding common stock on a 1-for-7.4 basis,
effective on August 16, 2016 (the “2016 Reverse Stock
Split”). On February 14, 2018, we filed a certificate of
amendment to our Amended and Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware to effectuate
another reverse stock split of our issued and outstanding common
stock on a 1-for-3 basis, effective on February 16, 2018 (the
“2018 Reverse Stock Split”; collectively with the 2016
Reverse Stock Split, the “Reverse Stock Splits”). All
share and per share amounts, and number of shares of common stock
into which each share of preferred stock will convert, in the
financial statements and notes thereto included in Item 1 of Part I
of this Quarterly Report and elsewhere in this Quarterly Report
have been retroactively adjusted for all periods presented to give
effect to the Reverse Stock Splits, including reclassifying an
amount equal to the reduction in par value of common stock to
additional paid-in capital.
Court
Validation of Previously Issued Shares of Common Stock upon
Conversion of Preferred Stock
On
September 20, 2018, the Court of Chancery of the State of Delaware
(the “Court”) entered an order validating (i) issuances
of common stock upon conversions of the Company’s preferred
stock occurring between June 30, 2014 and February 12, 2018, and
(ii) stockholder approval of corporate actions presented to the
Company’s stockholders from June 30, 2014 to February 12,
2018. In so doing, the Court granted the Company’s Verified
Petition for Relief Under 8 Del.
C. § 205 (the “Delaware Petition”)
captioned In re: MabVax
Therapeutics Holdings, Inc., filed on July 27, 2018, in
order to rectify the uncertainty regarding whether shares of our
common stock were validly issued upon conversion of our preferred
stock from June 30, 2014 to February 12, 2018.
As
disclosed in our Current Report on Form 8-K filed with the SEC on
May 21, 2018 (the “May Form 8-K”), facts previously
came to our attention indicating that certain shares of our common
stock issued upon conversion of shares of our preferred stock may
not have been validly issued in compliance with the 4.99% blocker
provisions set forth in the applicable certificates of designation
for conversions occurring between June 30, 2014 and February 12,
2018.
Withdrawal
and Reinstatement of Auditor Reports; Auditor Resignation and
Appointment of New Auditor
As disclosed in the May Form 8-K and in part due to the
uncertainty regarding the valid issuance of certain shares of our
common stock addressed in the Delaware Petition, on May 20, 2018,
our Board of Directors, upon the recommendation of management,
concluded our prior annual and interim period financial statements
for the years 2014, 2015, 2016 and 2017 included in our Reports on
Form 10-K and Form 10-Q for such years, and our registration
statements filed during the years 2014, 2015, 2016, 2017 and to
date for 2018 with respect to the number of shares of common stock
outstanding, and the weighted average number of shares used in
calculating earnings per share and related per share figures should
not be relied upon. Accordingly, on May 20, 2018, our then-engaged
independent accounting firm, CohnReznick, withdrew their audit
reports included in our Annual Reports on Form 10-K for the years
2014, 2015, 2016 and 2017. Our Board of Directors further
determined the Company could not file its Quarterly Report on Form
10-Q for the quarter ended March 31, 2018 in compliance with
applicable laws and regulations.
As disclosed on August 8, 2018, effective August 3, 2018,
CohnReznick resigned as the Company’s independent auditor.
During the Company’s two most recent fiscal years ended
December 31, 2017 and December 31, 2016, and during the subsequent
interim reporting periods through March 31, 2018, and the
interim period through August 3, 2018, there were no disagreements
with CohnReznick on any matter of GAAP or practices, financial
statement disclosures, or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of CohnReznick
would have caused CohnReznick to make reference to the subject
matter of the disagreements in connection with its reports.
Additionally, there were no events of the type listed in
paragraphs (A) through (D) of Item 304(a)(1)(v) of
Regulation S-K.
Subsequent to the
ratification of the shares by the Court on September 20, 2018, on
October 12, 2018 CohnReznick issued their audit report for the
consolidated financial statements for the years 2016 and 2017,
included in our Form 10-K/A
filed with the SEC on October 15, 2018, and the
auditors’ consent to including their reports in our
registration statements filed during the years 2016 and
2017.
On
August 22, 2018, we entered into an engagement agreement pursuant
to which we appointed our new independent accounting firm, Haskell
& White LLP.
Nasdaq
De-listing and Application for Listing on the OTCQB
Marketplace
On
October 16, 2018, the Company applied for listing on the OTCQB
Marketplace since the Company believes it now meets the requisite
eligibility requirements; however, there can be no assurance of
being listed while the SEC Action is underway.
On July
2, 2018, the Listing Qualifications Department of the Nasdaq Stock
Market (the “Staff”) notified the Company of its
determination to delist our securities. In this notice, the Staff
indicated their determination was based upon the Company’s
non-compliance with the Rule as well as the Company’s
non-compliance with the $2.5 million stockholders’ equity
requirement for continued listing on The Nasdaq Capital Market per
Nasdaq listing rule 5550(b)(1). The Company elected not to appeal
the Staff’s decision and, as a result, on July 2, 2018, we
received a letter from the Staff indicating trading of the
Company’s common stock would be suspended on Nasdaq Capital
Market at the open of business on Wednesday, July 11, 2018. On July
11, 2018, our common stock began trading on the OTC Pink,
continuing under the symbol MBVX. On May 21, 2018, we notified the
Staff that we would not be filing our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2018, by the required deadline as
required for continued listing on the Nasdaq Capital Market per
Nasdaq listing rule 5250(c)(1) (the “Rule”). Further,
on June 29, 2018, the Company’s Board of Directors determined
not to submit a plan to the Staff to regain compliance with the
Rule, and we announced this decision in a press release on July 2,
2018. On September 26, 2018, the Nasdaq Stock Market announced that
it will delist the common stock of MabVax by filing a Form 25 with
the SEC to complete the delisting process. The delisting became
effective ten days after the Form 25 was filed.
Resignation
and Appointment of Members of the Board of Directors
Effective July 31, 2018, Paul Maier,
Jeffrey E. Eisenberg, Thomas C. Varvaro and Kenneth Cohen, resigned
as members of the Company’s Board of Directors. There
were no disagreements between the resigning Board members and
management.
Following the
resignations, in a separate action, the Board of Directors
appointed our Chief Financial Officer, Gregory Hanson, as a member
of the Board. Mr. Hanson has served as our Chief Financial Officer
since July 2014, and of its subsidiary, MabVax Therapeutics, Inc.
since February 2014. Mr.
Hanson has over 30 years' experience serving as the CFO, financial
executive and director of public and private life sciences and
hi-tech companies. Since October 2016, he has served as a member of
the board of directors of a private pharmaceutical contract
research organization.
Our
Clinical Development Programs
MVT-5873
– for the Treatment of Pancreatic Cancer
MVT-5873 as a Monotherapy in Late Stage Cancer
Patients – We reported results from our Phase 1a
clinical trial of 32 patients treated with our therapeutic antibody
product candidate, MVT-5873, as a monotherapy in a poster
presentation at the American Society of Clinical Oncology
(“ASCO”) Annual Meeting on June 3, 2017. MVT-5873 has
been evaluated for safety and tolerability in patients with
advanced pancreatic cancer and other CA19-9 positive cancers. In
this poster presentation, the Company highlighted that the single
agent MVT-5837 appeared safe and well tolerated in patients at
biologically active doses based on the results of the Phase 1a
trial. Furthermore, all patients in the Phase 1a trial were
evaluated by RECIST 1.1 for tumor response, and the Company
reported 11 patients achieved stable disease in this dose
escalation safety trial of 32 patients.
The
results of the Phase 1a trial with MVT-5873 support that this
fully-human antibody targeting CA19-9 cancers can be administered
at doses with acceptable safety and have a potentially positive
impact on disease. The cancer antigen CA19-9 is broadly expressed
in various cancers including pancreatic, colon, and small cell lung
cancer making this antibody potentially useful for a larger patient
population. Clinical signals from an identifiable subset of
subjects enabled us to understand those patients most likely to
respond to a MVT-5873 based therapy. We plan to continue to
evaluate MVT-5873 at higher doses.
MVT-5873 in Combination with a Standard of
Care Chemotherapy – Based upon observations from the
first two cohorts of patients treated, we are evaluating further
clinical development of MVT-5873 in combination with gemcitabine
and nab-paclitaxel as a first line therapy for the treatment of
patients newly diagnosed with pancreatic cancer. MabVax has treated
seventeen patients as of August 24, 2018, with the objective of
obtaining additional safety and tumor response (RECIST 1.1) data
for this treatment regimen. Dr. Eileen O’Reilly,
Associate Director of the David M. Rubenstein Center for Pancreatic
Cancer Research, attending physician, member at MSK and Professor
of Medicine at Weill Cornell Medical College, is the lead
investigator in the MVT-5873 Phase 1 clinical trial.
On
February 12, 2018, we reported on interim results of the current
cohort of the Phase 1 study, in which MVT-5873 was given in
combination with nab-paclitaxel and gemcitabine to patients newly
diagnosed with CA19-9 positive pancreatic cancer. MVT-5873 at a
dose of 0.125 mg/kg when added to first-line chemotherapy was
generally well tolerated by all subjects. At that time, all six
patients in the current cohort demonstrated measurable tumor
reductions, with four patients meeting the criteria for partial
response (PR) and two patients meeting the criteria for stable
disease (SD). We believe these results further confirm results
reported on a portion of the cohort in late 2017. Patient CA19-9
levels, which are a prognostic indicator of the disease state, were
markedly reduced in all subjects with this combination therapy. Due
to adverse events potentially related to the combination of
nab-paclitaxel, gemcitabine and MVT-5873, not seen in the
monotherapy clinical study, the Company has suspended patient
enrollment at the current dose. We are evaluating plans to enroll
additional patients at a lower dose to further explore safety and
response in a larger population.
MVT-5873
– for the Treatment of Pancreatitis
Pancreatitis is a
severe and common medical condition that can lead to death or a
chronic condition with significant morbidity, systemic inflammatory
response and multiple organ dysfunction syndromes. Pancreatitis is
also associated with a 16.5-fold elevated risk for developing
pancreatic cancer. Best available treatment for pancreatitis is
primarily supportive care consisting of rehydration, pain relief,
nutritional support followed by antibiotic therapy, and surgery for
biliary pancreatitis and other more severe cases. Acute and chronic
pancreatitis in the United States accounts for 361,000 hospital
admissions each year and for direct health care costs of $3.1
billion annually (Forsmark et al, NEJM 375;20 and Yadav et al,
Pancreapedia, July 28,
2016).
Investigators at
CSHL have made significant new discoveries elucidating the
biological pathways that cause both acute and chronic pancreatitis.
Investigators found that expression of
CA19-9 in the pancreas is sufficient to induce pancreatitis.
Specifically, CA19-9 elevation resulted in rapid elevation of
pancreatic enzymes in the blood, pancreatic infiltration of immune
cells, acinar-to-ductal metaplasia and atrophy, as well as
increased proliferation. Investigators then explored the utility of
CA19-9 as a therapeutic target for both acute and chronic
pancreatitis. This avenue of treatment strategy exhibits potential
given that turning off or blocking CA19-9 expression results in the
normalization of pancreatic enzyme levels within four days
following an acute episode of pancreatitis.
MVT-5873
specifically targets CA19-9, and subsequent studies have
demonstrated that antibodies capable of binding to CA19-9 and
blocking the downstream biological pathways of pancreatitis have a
positive effect on ameliorating the disease. Combining the
preclinical science supporting the use of the CA19-9 blocking
antibodies in the treatment of pancreatitis with the clinically
validated data and supplies of MVT-5873 already available gives
MabVax the opportunity, assuming adequate funding, to move quickly
into the clinic in a mid-stage proof of concept clinical trial in
the near-term.
MVT-2163 – as an Imaging Agent for Pancreatic
Cancer
We
reported results from our Phase 1a clinical trial of ImmunoPET
imaging agent product candidate, MVT-2163, in 12 patients with
locally advanced or metastatic adenocarcinoma of the pancreas
(“PDAC”) or other CA19-9 positive malignancies in a
poster presentation and podium talk at the Society of Nuclear
Medicine and Molecular Imaging (“SNMMI”) Annual Meeting
held in Denver, Colorado on June 10-14, 2017.
The
Phase 1a clinical trial of MVT-2163 Phase I trial was intended to
evaluate our next generation diagnostic PET imaging agent in
patients with PDAC or other CA19-9 positive malignancies. MVT-2163
(89Zr-HuMab-5B1) combines the well-established PET imaging
radiolabel Zirconium-89, a positron emitting isotope typically
labeled as 89Zr, with the targeting specificity of MVT-5873. We
designed the trial to establish safety, pharmacokinetics,
biodistribution, optimal time to obtain the PET image, and the
amount of MVT-5873 to be administered as a blocking dose prior to
administration of MVT-2163 to obtain optimized PET scan
images.
As of
July 2017, twelve (12) patients were treated in this first-in-human
trial evaluating the safety and feasibility of MVT-2163 to image
pancreatic tumors and other CA19-9 positive malignancies. MVT-2163
was administered alone and in combination with MVT-5873 and was
well tolerated in all cohorts. The only toxicities were infusion
reactions that resolved on the day of the injection, with some
patients requiring standard supportive medication. We reported that
administering MVT-5873 prior to dosing MVT-2163 reduces liver
uptake facilitating detection of liver metastases. In addition, we
determined that the MVT-5873 cold antibody pre-dose did not
interfere with the uptake of MVT-2163 on cancer
lesions.
Uptake
of MVT-2163 was observed in primary tumors and metastases as early
as day two and continuously through day seven. Standard Uptake
Values (“SUVs”), a measurement of activity in PET
imaging, reached as high as 101 in the study. The investigators
reported that the SUVs are amongst the highest lesion uptake values
they have ever seen for a radiolabeled antibody. Bone and soft
tissue disease were readily visualized, and lesion uptake of the
radiotracer was higher than typically seen with PET imaging agents.
The correlation with Computerized Tomography (“CT”)
scans was high.
In
summary, the MVT-2163 product candidate demonstrated acceptable
safety tolerability, pharmacokinetics and biodistribution in this
trial. MVT-2163 also produced high quality PET images identifying
both primary tumor and metastatic sites. We believe there was a
promising correlation with diagnostic CT that warrants further
studies correlating these findings with histopathology to assess
the accuracy of MVT-2163 in identifying smaller metastatic nodes
below the detection level of standard CT scans. We believe the
continual increase in high SUVs on cancer lesions in this study
supports the use of the Company’s MVT-1075 radioimmunotherapy
product candidate, which utilizes the same antibody to deliver a
radiation dose for the treatment of patients with pancreatic, lung
and colon cancers.
In
April 2018, the NIH awarded an R01 Research Grant to MSK for
continued Phase 1b development of MVT-2163 as a PET diagnostic
imaging agent. The R01 grant extends
the Phase 1 work already completed by MabVax by evaluating MVT-2163
visual images and biopsies of targeted tissues
illuminated with the PET agent. This information will then be used
to determine if the new PET imaging agent can improve pre-surgical
staging of patients with pancreatic ductal adenocarcinoma. Since
surgery is currently the only cure for pancreatic cancer and the
success rate of surgical intervention is low, having a new
diagnostic tool to more accurately assess the location and extent
of the dissemination of the cancer has the potential to improve
surgical outcomes. Additionally, these data can be used to support
the dose and dose distribution determinations for the
Company’s HuMab-5B1 antibody based radioimmunotherapy
agent, MVT-1075, currently
being evaluated in a Phase 1 trial. MabVax will support MSK
in its research efforts and allow the clinical study to be
conducted under a MabVax IND; however, the bulk of the costs will
be borne by the NIH.
MVT-1075 – as a Radioimmunotherapy for Pancreatic
Cancer
On
February 28, 2018, we announced positive interim results from the
initial three-patient cohort of the Phase 1 clinical trial for
MVT-1075, which combines the demonstrated targeting specificity of
the MVT-5873 antibody with the proven clinical success of a
low-energy radiation emitter, 177Lutetium, often referred to as
177Lu. Results from the first three patients dosed in the initial
cohort of this dose escalation Phase 1 safety trial demonstrated
that MVT-1075 was reasonably well tolerated and accumulated on
tumor as evidenced by dosimetry measurements performed after the
first dose. At this initial dose, two subjects met the criteria for
stable disease (SD) and one met the criteria of progressive disease
(PD) as measured using RECIST 1.1 criteria. Hematologic toxicities
were manageable, and the Company is enrolling the first patient in
the second cohort.
This
Phase 1 first-in human dose escalation clinical trial, which began
in June 2017, is an open-label, multi-center study evaluating the
safety and efficacy of MVT-1075 in up to 22 patients for patients
with PDAC or other CA19-9 positive malignancies including colon and
lung cancers. The primary endpoint of this trial is to determine
the maximum tolerated dose and safety profile in late stage
patients with recurring disease who have failed prior therapies.
Secondary endpoints include evaluating tumor response rate and
duration of response by RECIST 1.1 and determining dosimetry and
pharmacokinetics. This dose-escalation study utilizes a traditional
3+3 design and is based on experience we gained through prior
clinical studies that treated 50 patients with either MVT-5873, or
our imaging agent MVT-2163. The
investigative sites are Honor Health in Scottsdale, Arizona, and
MSK in New York City.
In
April 2017, we reported preclinical results for MVT-1075 at the
American Association of Clinical Research (AACR) Annual Meeting,
demonstrating suppression, and in some instances, regression, of
tumor growth in xenograft animal models of pancreatic cancer,
potentially making this product candidate an important new
therapeutic agent in the treatment of pancreatic, colon and lung
cancers. Supporting the MVT-1075 RIT clinical investigation are the
Company's successful MVT-5873 and MVT-2163 Phase 1a safety and
target specificity data which were reported earlier this year at
the annual meetings of the ASCO and the SSNMMI, respectively. The
combined results from 50 patients in the Phase 1 MVT-5873 and
MVT-2163 studies established safety and provided significant
insight into drug biodistribution and an optimal dosing strategy,
which the Company has incorporated into the MVT-1075
program.
Asset
Sales and License Agreements
License Grant to Y-mAbs Therapeutics, Inc.
On
June 27, 2018, we entered into a Sublicense Agreement with Y-mAbs,
pursuant to which we granted Y-mAbs an exclusive sublicense to a
bi-valent ganglioside-based vaccine product candidate intended to
treat neuroblastoma, a rare pediatric cancer.
Neuroblastoma is a
rare solid tumor in childhood with only about 650 cases diagnosed
each year in North America. The incidence is about 10.54 cases per
1 million per year in children younger than 15 years. About 37% are
diagnosed as infants, and 90% are younger than 5 years at
diagnosis, with a median age at diagnosis of 19 months.
Neuroblastoma is responsible for 12% of all cancer deaths in
children less than 15 years of age.
Total value of the transaction to MabVax is $1.3
million, $700,000 of which was paid upon execution of the
agreement and $600,000 of which is to be paid within five (5) days
of the first anniversary of the execution date, provided the
agreement as not been terminated prior to the anniversary,
plus a share of a Priority Review
Voucher if granted by the FDA to Y-mAbs on approval of the vaccine
and the Priority Review Voucher is subsequently sold. Additionally,
Y-mAbs will be responsible for all further development of the
product candidate as well as any downstream payment obligations
related to this specific vaccine to MSK that were specified in the
original MabVax-MSK license agreement. If Y-mAbs successfully
develops and receives FDA approval for the Neuroblastoma vaccine
product candidate, it is obligated to file with the FDA for a
Priority Review Voucher. If this voucher is granted to Y-mAbs and
subsequently sold, then MabVax will receive a percentage of the
proceeds from the sale of the voucher by
Y-mAbs.
The neuroblastoma vaccine product candidate was
originally developed by Dr. Philip Livingston and colleagues at MSK
and licensed as part of a broader portfolio of anti-cancer vaccines
licensed to MabVax. MabVax filed for and was granted an Orphan Drug
Designation for the neuroblastoma vaccine and has manufactured
Phase II clinical supplies for a planned but not initiated clinical
trial to be conducted with the consortium New Advances in
Neuroblastoma Therapy (“NANT”). NANT is the only consortium of academic
medical centers in the world solely dedicated to developing novel
treatments and biomarkers for children with Neuroblastoma.
Over the last several years, MabVax
has shifted its focus and resources to the Company’s human
antibody discovery and development programs that are currently in
early stage clinical trials and have attracted partner
interest.
Sale of Asset to Boehringer Ingelheim and Related
Agreements
On July 6, 2018, we entered into the Asset
Purchase Agreement with Boehringer Ingelheim, pursuant to which
Boehringer Ingelheim purchased all of our rights to assets owned or
controlled by us that related to a specific human antibody research
and development program to identify and characterize antibodies
that bind to an undisclosed glycan antigen. The transaction closed on July 6,
2018.
Pursuant
to the Asset Purchase Agreement, MabVax may receive a total of $11
million, $4 million of which was paid upfront and the remainder
upon the achievement by Boehringer Ingelheim of various specified
milestone events, plus further earn-out payments through the later
of the expiration of the last to expire valid claim of the licensed
program patent covering a Boehringer Ingelheim product, or ten (10)
years from the date of first commercial sale of such Boehringer
Ingelheim product on a country-by-country and product-by-product
basis.
MabVax
discovered the antibody series at the center of this transaction
from biological samples, originally from patients who were
vaccinated against their solid tumors with a glycan
antigen-containing vaccine. We believe our methods of discovery of
fully human antibodies directly from vaccinated cancer patients has
potential advantages, which include greater specificity and reduced
toxicities.
Plan
for Remainder of 2018
Based
on the experience with recent asset sales and license agreements,
and continuing inquiries from third parties regarding their
interest in other MabVax assets and clinical progress to date
related to MVT-5873, MVT-1075, and MVT-2163, we intend on
continuing to explore additional licensing and/or collaboration
opportunities for certain fields of use of our technology. However,
there can be no assurance that any such transaction will
occur.
If we
are able to secure additional funds, we intend to, among other
things:
●
continue
enrollment in our clinical study of MVT-5873 in combination with
gemcitabine and nab-paclitaxel in first line therapy for the
treatment of patients newly diagnosed with pancreatic cancer with
the objective of confirming early observations seen to date, to
enable discussions with potential strategic partners and
investors.
●
enroll
additional patients into the MVT-5873 monotherapy trial with the
aim of establishing a higher maximum tolerated dose. We have
submitted our Investigational New Drug Application
(“IND”), to the FDA, for a revised protocol to enable
continuation of the trial at higher doses.
●
support
the continued development of the MVT-2163 imaging agent under the
R01 grant made to MSK for the Phase 1b portion of this clinical
program.
●
continue
clinical development of MVT-1075 for the treatment of locally
advanced or metastatic pancreatic cancer patients, by completing
additional cohorts of patients in a dose escalation safety trial to
continue to assess the safety and potential efficacy of this
treatment; also, to enable discussions with potential strategic
partners and investors.
●
Use a
portion of existing supplies of MVT-5873 to pursue a proof of
concept clinical trial of MVT-5873 in the treatment of
pancreatitis.
RESULTS OF OPERATIONS
We are
providing the following information about our revenues, expenses,
and cash and liquidity.
Comparison
of the Three and Nine Months Ended September 30, 2018 and
2017
Revenues, Cost of Revenues and Net Sales:
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
|
|
Revenues
|
$4,000,000
|
$-
|
100%
|
$4,700,000
|
$-
|
100%
|
Cost of
revenues
|
785,000
|
-
|
100%
|
785,000
|
-
|
100%
|
Gross
profit
|
$3,215,000
|
-
|
100%
|
$3,915,000
|
-
|
100%
|
|
|
|
|
|
|
|
For the
three months ended September 30, 2018, we recognized $4,000,000 in
revenues, as compared to no revenues for the same period in the
prior year. The revenues in 2018 were due to the revenues
recognized from the sale to Boehringer Ingelheim of all of our rights to certain assets owned or
controlled by us that related to a specific human antibody research
and development program to identify and characterize antibodies
that bind to an undisclosed glycan antigen. The cost of
revenues was $785,000 resulting in a gross profit of $3,215,000.
The Company had no continuing obligations to provide any services
under the contract, enabling the revenues to be recognized. Given
the uncertainty of Boehringer Ingelheim achieving any of the future
milestones, the Company did not recognize as revenue any of the
future potential milestones as of September 30, 2018.
For the
nine months ended September 30, 2018, we recognized $4,700,000 in
revenues, as compared to no revenues for the same period in the
prior year. The cost of revenues was $785,000 resulting in a gross
profit of $3,915,000. The revenues in 2018 were due to the revenues
recognized from the upfront payment by Y-mAbs for rights to develop
the neuroblastoma vaccine and the sale to Boehringer Ingelheim of
our rights to certain assets owned or controlled by us related to a
specific human antibody research and development program to
identify and characterize antibodies that bind to an undisclosed
glycan antigen.
Research and development expenses:
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
|
|
Research and
development
|
$199,367
|
$1,017,061
|
(80.4)%
|
$2,915,709
|
$6,168,125
|
(52.7)%
|
For the
three months ended September 30, 2018, we incurred research and
development expenses of $199,367, as compared to $1,017,061 for the
same period a year ago. Stock-based compensation expense included
in research and development expenses for the three months ended
September 30, 2018 and 2017 was $96,157 and $292,523, respectively.
Decreased expenses in the three months ended September 30, 2018,
compared to the same period in the prior year are primarily due to
reduced spending on our Phase I clinical trials of MVT-5873 as a
therapeutic and MVT-2163 as a diagnostic for pancreatic cancer and
other CA 19.9 malignancies, and a reduction in staff that supported
preclinical and clinical development efforts.
For the
nine months ended September 30, 2018, we incurred research and
development expenses of $2,915,709 as compared to $6,168,125 for
the same period a year ago. Stock-based compensation expense
included in research and development expenses for the nine months
ended September 30, 2018 and 2017 was $340,979 and $989,884,
respectively. Decreased expenses in the nine months ended September
30, 2018, compared to the same period in the prior year are
primarily due to decreased spending on our Phase I clinical trials
of MVT-5873 as a therapeutic and MVT-2163 as a diagnostic for
pancreatic cancer and other CA 19.9 malignancies, and a reduction
in staff that supported preclinical and clinical development
efforts.
General and administrative expenses:
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
|
|
General and
administrative
|
$2, 520,950
|
$1,831,629
|
37.6%
|
$6,409,491
|
$7,513,621
|
(14.7)%
|
For the
three months ended September 30, 2018, we incurred general and
administrative expenses of $2,520,950 as compared to $1,831,629 for
the same period a year ago. Stock-based compensation expense
included in general and administrative expenses for the three
months ended September 30, 2018 and 2017 was $172,458 and $721,213,
respectively. Stock-based compensation expense for the three months
ended September 30, 2018 and 2017 included $0 and $ 68,250 in
restricted stock for services, respectively. The increase in
general and administrative expenses was primarily due to higher
legal costs of $1,553,041 and outside professional services of
$208,098, partially offset by lower staff costs, as compared to the
same period last year.
For the
nine months ended September 30, 2018, we incurred general and
administrative expenses of $6,409,491, as compared to $7,513,621
for the same period a year ago. Stock-based compensation expense
included in general and administrative expenses for the nine months
ended September 30, 2018 and 2017 was $966,183 and $3,526,488,
respectively. Stock-based compensation expense for the nine months
ended September 30, 2018 and 2017 included $0 and $ 131,800 in
restricted stock for services, respectively. The decrease in
general and administrative expenses was primarily due to lower
compensation costs of $2,966,631 including a decrease of
stock-based compensation expenses of $2,560,305, and lower
consulting service costs of $48,420 offset by higher legal costs of
$2,569,994 compared to the same period last year.
Interest income and other income (expense):
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
|
|
Interest and other
expense
|
$(154,002)
|
$(231,471)
|
(32.3)%
|
$(497,689)
|
$(743,137)
|
(33.0)%
|
Interest and other
expense was $154,002 and $231,471 for the three months ended
September 30, 2018 and 2017, respectively. The amount for the three
months ended September 30, 2018, consisted primarily of $96,755 of
interest expense related to interest on the Company’s term
loan from Oxford Finance, LLC (“Oxford Finance”),
$23,612 of financing cost amortization, and $31,468 of warrant
amortization. The amount for the three months ended September 30,
2017, consisted primarily of $142,007 related to Oxford Finance,
First Insurance financing, and the Company's capital lease, $39,654
of financing cost amortization, and $49,782 of warrant
amortization.
The
amount of interest for the nine months ended September 30, 2018,
consisted primarily of $308,271 interest expense related to
interest on the Company’s term loan from Oxford Finance,
$82,636 of financing cost amortization, and $105,568 of warrant
amortization. The amount of interest and other expense for the nine
months ended September 30, 2017, consisted primarily of $449,300
interest expense related to the Company’s term loan from
Oxford Finance, $130,416 of financing cost amortization, $163,727
of warrant amortization and other items of $306.
The
fair value of the warrants issued to Oxford Finance related to the
term loan was recorded as a discount to the value of the note
payable and is being amortized over the term of the loan. Financing
costs incurred related to the term loan are also amortized over the
term of the loan.
Critical
Accounting Policies and Significant Judgments and
Estimates
Our
management’s discussion and analysis of our financial
condition and results of operations are based on our consolidated
financial statements, which have been prepared in accordance with
GAAP. The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements as well as the reported revenues and expenses
during the reporting periods. On an on-going basis, we evaluate our
estimates and judgments related to our operating costs. We base our
estimates on historical experience and on various other factors
that we believe are reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ significantly from these
estimates under different assumptions or conditions.
Our
critical accounting policies include:
Revenue
recognition
Effective January
1, 2018, the Company adopted Accounting Standards Codification, or
ASC, Topic 606, Revenue from
Contracts with Customers (Topic 606), using the full
retrospective transition method. Under this method, the Company
would have been required to revise its financial statements, if
applicable, for the years ended December 31, 2016 and 2017, and
applicable interim periods within those years, as if Topic 606 had
been effective for those periods. However, Topic 606 did not have
any impact on the Company’s revenue recognition upon
adoption. This standard applies to all contracts with customers,
except for contracts that are within the scope of other standards,
such as leases, insurance, collaboration arrangements and financial
instruments. Under Topic 606, an entity recognizes revenue when its
customer obtains control of promised goods or services in an amount
that reflects the consideration which the entity expects to receive
in exchange for those goods and services. To determine revenue
recognition for arrangements that an entity determines are within
the scope of Topic 606, the entity performs the following five
steps: (i) identify the contract(s) with the customer(s); (ii)
identify the performance obligations in the contract; (iii)
determine the transaction price; (iv) allocate the transaction
price to the performance obligations in the contract; and (v)
recognize revenue when (or as) the entity satisfies a performance
obligation. The Company only applies the five-step model to
contracts when it is probable that the entity will collect the
consideration it is entitled to in exchange for the goods and
services it transfers to the customer. At contract inception, the
Company assesses the goods or services promised within each
contract that falls under the scope of Topic 606, determines those
that are performance obligations and assesses whether each promised
good or service is distinct. The Company then recognizes as revenue
the amount of the transaction price that is allocated to the
respective performance obligation when (or as) the performance
obligation is satisfied.
License and Other Revenues
The
Company enters into licensing agreements which are within the scope
of Topic 606, under which it licenses certain of its product
candidates’ rights to third parties. The terms of these
arrangements typically include payment of one or more of the
following: non-refundable, up-front license fees; development,
regulatory and commercial milestone payments; and royalties on
Gross Profit of the licensed product, which will be classified as
royalty revenues, if and when earned.
In
determining the appropriate amount of revenue to be recognized as
it fulfills its obligation under each of its agreements, the
Company performs the five steps described above. As part of the
accounting for these arrangements, the Company must develop
assumptions that require judgment to determine the stand-alone
selling price, which may include forecasted revenues, development
timelines, reimbursement of personnel costs, discount rates and
probabilities of technical and regulatory success.
Licensing of Intellectual
Property – If
the license to the Company’s intellectual property is
determined to be distinct from the other performance obligations
identified in the arrangement, the Company recognizes revenue from
non-refundable, up-front fees allocated to the license when the
license is transferred to the licensee and the licensee is able to
use and benefit from the license. For licenses that are bundled
with other performance obligations, the Company utilizes judgment
to assess the nature of the combined performance obligation to
determine whether the combined performance obligation is satisfied
over time or at a point in time and, if over time, the appropriate
method of measuring progress for purposes of recognizing revenue
from non-refundable, up-front fees. The Company evaluates the
measure of progress each reporting period, and, if necessary,
adjusts the measure of performance and related revenue
recognition.
Milestone Payments
– At the inception of
each arrangement that includes development milestone payments, the
Company evaluates whether the milestones are considered probable of
being reached and estimates the amount to be included in the
transaction price using the most likely amount method. If it is
probable that a significant revenue reversal will not occur, the
associated milestone value is included in the transaction price.
Milestone payments that are not within the control of the Company
or the licensee, such as regulatory approvals, are not considered
probable of being achieved until those approvals are received. The
transaction price is then allocated to each performance obligation
on a relative stand-alone selling price basis, for which the
Company recognizes revenue as or when the performance obligations
under the contract are satisfied. At the end of each subsequent
reporting period, the Company re-evaluates the probability of
achievement of such development milestones and any related
constraint and, if necessary, adjusts its estimate of the overall
transaction price. Any such adjustments are recorded on a
cumulative catch-up basis, which would affect license,
collaboration and other revenues and earnings in their period of
adjustment. To date, the Company has not recognized any milestone
payments, because the milestones are not within the control of the
Company and the technology is at an early stage of development, or
the licensee has the ability to terminate the agreement before the
milestone payment is due.
Royalties –
For arrangements that include sales-based royalties, including
milestone payments based on the level of sales, and for which the
license is deemed to be the predominant item to which royalties
relate, the Company recognizes revenue at the later of (i) when the
related sales occur or (ii) when the performance obligation to
which some or all of the royalty has been allocated has been
satisfied (or partially satisfied). To date, the Company has not
recognized any royalty revenue from its license
agreements.
Clinical trial expenses
We
accrue clinical trial expenses based on work performed. In
determining the amount to accrue, we rely on estimates of total
costs incurred based on the enrollment of subjects, the completion
of trials and other events defined in contracts. We follow this
method because we believe reasonably dependable estimates of the
costs applicable to various stages of a clinical trial can be made.
However, the actual costs and timing of clinical trials are highly
uncertain, subject to risks, and may change depending on several
factors. Differences between the actual clinical trial costs and
the estimated clinical trial costs that we have accrued in any
prior period are recognized in the subsequent period in which the
actual costs become known. Historically, these differences have not
been material; however, material differences could occur in the
future.
Consideration
of Impairment of Goodwill
The
Company maintains a goodwill balance of $6,826,003 on its balance
sheet as of September 30, 3018 and December 31, 2017, and tests for
impairment at least annually and whenever there has been a material
change in the Company by applying GAAP principles related to ASC
350 Intangibles – Goodwill
and Other (ASC 350). Based on a qualitative analysis of the
Company’s products in the pipeline as of September 30, 2018,
the $4.0 million in revenue earned during the quarter, and a
potential new indication for the Company’s lead antibody
program, MVT-5873, for the treatment of pancreatitis, the Company
concluded there was no goodwill impairment as of September 30,
2018. The goodwill was established in connection with the merger of
MabVax Therapeutics, Inc. a Delaware corporation, with a subsidiary
of the Company on July 8, 2014, pursuant to an Agreement and Plan
of Merger, dated May 12, 2014, by and among the Company, a
subsidiary of the Company and MabVax Therapeutics, Inc. as amended
June 30, 2014 and July 7, 2014 (the
“Merger”), whereby MabVax Therapeutics, Inc. is the
surviving company in the Merger, as a wholly-owned subsidiary of
the Company.
Stock-based compensation
Our
stock-based compensation programs include grants of stock options
and restricted stock to employees, non-employee directors and
non-employee consultants. Stock-based compensation cost is measured
at the grant date, based on the calculated fair value of the award,
and is recognized as an expense, under the straight-line method,
over the employee, non-employee director or non-employee
consultant’s requisite service period (generally the vesting
period of the equity grant).
We
account for equity instruments, including stock options and
restricted stock, issued to employees and non-employees in
accordance with authoritative guidance for equity-based payments.
Stock options issued are accounted for at their estimated fair
value determined using the Black-Scholes-Merton option-pricing
model, and restricted stock is accounted for using the grant date
fair value of our common stock granted. The fair value of options
and restricted stock granted to non-employees is re-measured as
they vest, and the resulting increase in value, if any, is
recognized as expense during the period the related services are
rendered.
Income taxes
Significant
judgment is required by management to determine our provision for
income taxes, our deferred tax assets and liabilities, and the
valuation allowance to record against our net deferred tax assets,
which are based on complex and evolving tax regulations. Our tax
calculation is impacted by tax rates in the jurisdictions in which
we are subject to tax and the relative amount of income earned in
each jurisdiction. Our deferred tax assets and liabilities are
determined using the enacted tax rates expected to be in effect for
the years in which those tax assets are expected to be
realized.
The
effect of an uncertain income tax position is recognized as the
largest amount that is “more-likely-than-not” to be
sustained under audit by the taxing authority. An uncertain income
tax position will not be recognized if it has less than a 50%
likelihood of being sustained.
The
realization of our deferred tax assets is dependent upon our
ability to generate sufficient future taxable income. We establish
a valuation allowance when it is more-likely-than-not that the
future realization of all or some of the deferred tax assets will
not be achieved. The evaluation of the need for a valuation
allowance is performed on a jurisdiction-by-jurisdiction basis, and
includes a review of all available evidence, both positive and
negative. As of September 30, 2018, the Company concluded that it
was more-likely-than-not that its deferred tax assets would not be
realized, and a full valuation allowance has been
recorded.
The above listing is not intended to be a comprehensive list of all
our accounting policies. In many cases, the accounting treatment of
a transaction is specifically dictated by GAAP. See our audited
consolidated financial statements and notes thereto included in our
2017 Annual Report on Form 10-K, which contain additional
accounting policies and other disclosures required by
GAAP.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have
funded our operations primarily through upfront payments from asset
sales and license agreements, government grants, proceeds from the
sale of common and preferred stock, the issuance of debt, the
issuance of common stock in lieu of cash for services, payments
from collaborators and interest income. We have experienced
negative cash flow from operations each year since our inception.
As of September 30, 2018, we had an accumulated deficit of
$118,349,884. We expect to continue to incur increased expenses,
resulting in losses, over the next several years due to, among
other factors, our continuing and planned clinical trials and
anticipated research and development activities, unless we can
achieve additional licenses or asset sales of our product
candidates that are under development, or revenues from research
collaborations or services. There can be no assurance that we will
be able to achieve additional license and sales revenue, or that
such revenues would be large enough to offset our operating
expenses. We had cash of $951,751 and a working capital deficit of
$6,334,244 as of September 30, 2018. We also have approximately
$2.4 million in debt maturing in 2019.
|
Nine
Months Ended
September
30,
|
|
|
|
Cash provided by
(used in):
|
|
|
Operating
activities
|
$(2,620,437)
|
$(8,702,932)
|
Investing
activities
|
$—
|
$(21,072)
|
Financing
activities
|
$2,686,478
|
$3,897,063
|
Net
cash used in operating activities was $2,620,437 for the nine
months ended September 30, 2018, compared to $8,702,932 for the
same period a year ago. The net cash used in both periods was
primarily attributable to the net losses, adjusted to exclude
certain non-cash items, primarily stock-based compensation and
amortization of finance costs related to the term loan. Net cash
used in operating activities for the nine months ended September
30, 2018 was also impacted by a decrease of $437,094 in accrued
clinical operations and site costs and an increase of $1,356,273 in
accounts payable related primarily to unpaid professional
fees.
The net
cash used in investing activities for the nine months
ended September 30, 2018 and 2017, amounted to $0 and $21,072,
respectively.
Net
cash provided by financing activities for the nine months ended
September 30, 2018 was $2,686,478. Net cash provided by financing
activities was $3,897,063 for the nine months ended September 30,
2017. Net cash provided by financing activities for the nine months
ended September 30, 2018 was attributable to the fundraising from
the February 2018 Private Placements and May 2018 Private
Placements. Net cash provided by financing activities for the nine
months ended September 30, 2017 was attributable to the net
proceeds from the May 2017 Public Offering, a private offering that
closed on May 3, 2017, in which the Company sold 850 shares of
Series H
Preferred Stock for an aggregate purchase price of $850,000
before offering costs of $29,429, and
a private placement and underwritten offering in August 2017
and two registered direct offerings in September 2017.
Overview
of 2018 Private Placements
Between
February 2 and February 10, 2018, the Company entered into separate
purchase agreements with investors pursuant to which the Company
sold (i) shares of its common stock, (ii) shares of its convertible
preferred stock, and
(iii) warrants to purchase shares of common (the “February
2018 Private Placements”). From April 30 to May 2, 2018, the
Company entered into separate purchase agreements with investors
pursuant to which we agreed to sell shares of its common stock and
convertible preferred stock (the “May 2018 Private
Placements”). No financial advisor was used in
connection with the February 2018 Private Placements nor the May
2018 Private Placements.
The
securities issued in connection with the February 2018 Private
Placements and the May 2018 Private Placements were offered and
sold solely to accredited investors in reliance on the exemption
from registration afforded by Rule 506 of Regulation D and Section
4(a)(2) of the Securities Act. The Company entered into separate
registration rights agreements with each of the investors in the
February 2018 Private Placements and the May 2018 Private
Placements, pursuant to which the Company agreed to undertake to
file a registration statement to register the resale of the shares
of common stock and the shares of common stock underlying the
warrants and preferred stock. The Company also agreed to use
reasonable best efforts to cause such registration statement to be
declared effective and to maintain the effectiveness of the
registration statement until all of such shares of common stock
have been sold or are otherwise able to be sold pursuant to Rule
144 under the Securities Act, without any
restrictions.
February
2018 Private Placements
In
connection with the February 2018 Private Placements, the Company
sold (i) an aggregate of 555,562 shares of its common stock for an
aggregate purchase price of $1,250,000, or $2.25 per share, (ii)
5,000 shares of our newly designated 0% Series M Convertible Preferred Stock
(the “Series M Preferred Stock”) for an aggregate
purchase price of $1,500,000, or $300.00 per share, and
(iii) warrants to purchase up to an aggregate of 855,561 shares of
common stock each with an exercise price of $2.70 per share. The
net proceeds of the February 2018 Private Placements were
$2,700,000 after transaction costs of $50,000.
May
2018 Private Placements
In
connection with the May 2018 Private Placements, the Company agreed
to sell (i) 218,182 shares of common stock at an aggregate purchase
price of $240,000, or $1.10 per share, and (ii) 5,363.64 shares of
newly designated 0% Series
N Convertible Preferred Stock (the “Series N Preferred
Stock”) at an aggregate purchase price of $590,000, or
$110.00 per share. The following investors in the May 2018
Private Placements also
invested in the February 2018 Private Placements (the “Prior
Investors”): GRQ Consultants Inc., Roth 401K FBO Renee Honig;
GRQ Consultants Inc., Roth 401K FBO Barry Honig; Melechdavid, Inc.;
Grander Holdings Inc. 401K; Robert S. Colman Trust UDT 3/13/85; Ben
Brauser; Joshua A. Brauser; Daniel A. Brauser; Gregory Aaron
Brauser; Erick E. Richardson; and Ronald B.
Low.
Under
the terms of the May 2018 Private Placements, we were required to
offer an aggregate of 12,777.77 shares (the “May 2018
Inducement Shares”) of newly designated 0% Series O Preferred
Stock (the “Series O Preferred Stock”) to investors who
previously purchased securities in the February 2018 Private
Placements and who also purchased securities in the May 2018
Private Placements with an aggregate purchase price of at least 40%
of their investment amounts in the February 2018 Private
Placements. Based on the closing of the offering, and participation
of the Prior Investors who invested an aggregate of $830,000 (the
“May 2018 Inducement Investors”), the Company issued an
aggregate of 10,605.56 May 2018 Inducement Shares in the form of
Series O Preferred Stock convertible into an aggregate of 1,060,556
shares of common stock. The
May 2018 Private Placements closed on May 15, 2018, with the
Company receiving gross proceeds totaling
$830,000.
Working
Capital
Our
working capital deficit was $6,334,244 at September 30, 2018, as
compared to a working capital deficit of $4,598,748 at
December 31, 2017. The decrease in working capital was
primarily due to increased capital usage during the first nine
months of 2018 primarily related to the Company’s clinical
development programs and professional services.
Going
Concern
We
believe our cash and cash equivalents as of September 30, 2018,
will be sufficient to fund our projected operating requirements
into December 2018. In order to continue our current and future
operations and continue our clinical product development programs
beyond December 2018, we will depend substantially on our ability
to obtain upfront and milestone payments from potential additional
license and/or partnering agreements for use of our technologies in
certain fields of use and on raising capital through other
financing transactions in a timely manner, of which we can make no
assurances that any such transaction will occur. As discussed in
Item 1 of Part II of this Quarterly Report, we cannot conclude that
any future registration statements that we may file with the SEC
will be declared effective during the pendency of the SEC Action
(as defined in Item 1 of Part II of this Quarterly Report). As a
result, our ability to raise capital is and will likely remain
severely impaired during the pendency of the SEC Action, and
certain capital raising structures involving the registration of
our securities with the SEC upon which we have heavily relied in
the past to fund our operations may not be available to us for the
immediate future. Further, we still owe a balance of approximately
$2.8 million to Oxford Finance for which principal payments will
begin to be made in January 2019 under the Second Amendment to the
Loan and Security Agreement (see Note 6). We are uncertain about
our ability to raise sufficient funds to continue our existing
operations after December 2018 without additional licensing and/or
collaborating transactions and without financing structures that do
not involve the use of or reliance upon our ability to register
securities with the SEC. We have been exploring potential
additional licensing and/or partnering transactions and other
arrangements through which the value of our Company could be
enhanced. We may raise funds through such potential arrangements
with collaborators or others that may require us to sell product
candidates that we might otherwise seek to develop or commercialize
independently. Our failure to enter into licensing and/or
partnering transactions or raise capital when needed could
materially harm our business, financial condition and results of
operations.
We
anticipate we will continue to incur substantial net losses into
the foreseeable future as we: (i) continue our Phase I clinical
trials of MVT-5873 in combination with chemotherapy and our Phase I
clinical trial of our radioimmunotherapy product candidate MVT-1075
for the treatment of various cancers, (ii) continue preclinical
development activities related to developing other product
candidates in our library, (iii) monitor patients in clinical
trials that have already completed their treatment regimens, and
(iv) incur legal expenses related to the SEC Action. Based on
management’s assumptions for continuing to develop its
existing pipeline of product candidates without additional funding
or licensing portions of our technology for particular uses, we
expect we will have sufficient funds to meet our obligations into
December 2018. We may also incur costs and expenses in connection
with liabilities under our organizational documents and
indemnification agreements that we have with our officers and
directors who may individually incur expenses in relation to the
SEC Action.
We plan to continue
to fund our debt maturities, research and development and operating
activities through additional strategic partnerships or other
arrangements with organizations that have capabilities and/or
products that are complementary to our own capabilities and/or
product candidates, licensing arrangements, and through public or
private equity financings and debt financings or other arrangements
if the strategic transactions are not timely, if at all. However,
we cannot be sure that such strategic transactions or additional
funds will be available on reasonable terms, or at all. If we are
unable to secure strategic transactions or adequate additional
funding, we may be forced to reduce spending, extend payment terms
with suppliers, liquidate assets where possible, suspend or curtail
planned programs and/or cease our operations entirely. In addition,
if we do not meet our payment obligations to third parties as they
come due, including any payment we owe to Oxford Finance, we may be
subject to litigation claims. Even if we are successful in
defending against these claims, litigation could result in
substantial costs and be a distraction to our management. Any of
these actions could materially harm our business and results of
operations.
If we
raise additional funds by issuing equity securities, substantial
dilution to our existing stockholders would result. If we raise
additional funds by incurring debt financing, the terms of the debt
may involve significant cash payment obligations as well as
covenants and specific financial ratios that may restrict our
ability to operate our business.
Our
future capital uses and requirements depend on numerous factors,
including the following:
●
our
ability to establish license agreements with third parties and
reliance on receipt of payments from milestones;
●
the
costs associated with conducting Phase I and II clinical
trials;
●
the
costs and timing of obtaining regulatory approvals;
●
our
ability to establish, and the scope of, any new research
collaborations;
●
our
ability to raise capital on attractive terms, if at all, during the
pendency of the SEC Action;
●
the
costs and timing of obtaining, enforcing and defending our patent
and IP rights; and
●
competing
technological and market developments.
Future
Contractual Obligations
On
September 2, 2015, the Company entered into the Lease with AGP
Sorrento Business Complex, L.P., for certain premises consisting of
office and laboratory space in buildings located at 11535
Sorrento Valley Rd., San Diego, California, to serve as the
Company’s New Premises. Because certain tenant improvements
needed to be made to the New Premises before the Company could take
occupancy, the term of the Lease did not commence until the New
Premises were ready for occupancy, which was on February 4, 2016.
The Lease terminates on February 28, 2022, unless earlier
terminated in accordance with the Lease. Pursuant to the terms of
the Lease, the current monthly base rent paid by the Company is
$37,801, subject to annual increases as set forth in the
Lease.
The
Company has an option to extend the Lease term for a single,
five-year period. If the Lease term is extended for the optional
five-year period, the monthly base rent will be adjusted based on
fair market rental value. In addition to rent, the Company agreed
to pay a portion of the taxes and utility, maintenance and other
operating costs paid or accrued relating to the ownership and
operation of the property.
Our
master lease and sublease of our facility located at 3165 Porter
Drive in Palo Alto, California were terminated on February 28,
2013, and we entered into a termination agreement with ARE on
February 19, 2013 to voluntarily surrender its premises. Because of
the termination agreement, we were relieved of further obligations
under the master lease and further rights to rental income under
the sublease and paid a termination fee of approximately $700,000.
In addition to the termination fee, if we receive $15 million or
more in additional financing, in the aggregate, an additional
termination fee of $590,504 will be due to ARE. The additional
financing was achieved in 2015 and the termination fee is reflected
on the condensed consolidated balance sheet as an accrued lease
contingency fee.
Recently
Issued Accounting Standards
See
Note 1, "Adopted Accounting Standards" and "Accounting Standards
Not Yet Adopted."
Off-Balance
Sheet Arrangements
We have
no material off-balance sheet arrangements.
Item
3. Quantitative and Qualitative
Disclosures About Market Risk
Interest
Rate Sensitivity
Our
cash and cash equivalents of $951,751 at September 30, 2018,
consisted of cash and money market funds, all of which will be used
for working capital purposes. We do not enter into investments for
trading or speculative purposes. Our primary exposure to market
risk is related to the variability of interest rates under the Loan
Agreement (as defined in Note 6 to the Unaudited Condensed
Consolidated Financial Statements included in Item 1 of Part I of
this Quarterly Report) we entered into with Oxford Finance in
January 2016. Under the Loan Agreement, the interest rate for the
term loan is set monthly at an Index Rate plus 11.29%, where the
Index Rate is the greater of the 30-day LIBOR rate or 0.21%.
Interest is due on the first day of each month, in arrears,
calculated based on a 360-day year. In addition, interest income on
our deposits is affected by changes in the general level of
interest rates in the United States. Because of the short-term
nature of our cash and cash equivalents, we do not believe that we
have any material exposure to changes in their fair values as a
result of changes in interest rates. The continuation of
historically low interest rates in the United States will limit our
earnings on investments held in U.S. dollars.
We do
not hold any derivative financial instruments or commodity-based
instruments.
Item
4. Controls and
Procedures
Disclosure
Controls and Procedures
As
required by Rules 13a-15 and 15d-15 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), the Company has
evaluated, with the participation of management, including the
Chief Executive Officer and the Chief Financial Officer, the
effectiveness of its disclosure controls and procedures (as defined
in such rules) as of the end of the period covered by this report.
The Chief Executive Officer and Chief Financial Officer concluded
that the Company’s disclosure controls and procedures are
effective as of September 30, 2018.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. For example,
prior to September 30, 3018, the Company relied upon filings by
investors who are required to file their ownership positions on
Schedules 13D and 13G. In light of previously unavailable
information that the Company learned in connection with the SEC
Action, the Company believes it can no longer rely upon such
filings by any of the Aggregated Investors (as defined in Item 12 of Part III of the
Company’s Amendment to Annual Report on Form 10-K/A filed
with the SEC on October 15, 2018) on a going forward basis.
In order to continue to ensure internal control is maintained on a
going forward basis, which is likely to continue until such SEC
Action is closed, the Company will not rely on the Schedules 13D
and 13G filed by any Aggregated Investor but will aggregate the
beneficial ownership of all Aggregated Investors for reporting
purposes and when applying any applicable conversion blockers. The
Company will continue to aggregate the holdings of all the
Aggregated Investors until the Company is confident, based on facts
and information received from an individual or entity or through
the Company’s own investigation and verification of facts
reasonably attainable, that the individual or entity should no
longer be included as an Aggregated Investor. Projections of any
evaluation of effectiveness to future periods, including assessment
of beneficial ownership by the Aggregated Investors, are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate. Management recognizes that any controls
and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and
procedures.
Changes
in Internal Control over Financial Reporting
As
required by Rule 13a-15(d) of the Exchange Act, our management,
including our principal executive officer and our principal
financial officer, conducted an evaluation of the internal control
over financial reporting to determine whether any changes occurred
during the period covered by this Quarterly Report on Form 10-Q
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Based on that evaluation, our principal executive officer and
principal financial officer concluded there were no changes in our
internal controls over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) that could significantly affect
internal controls over financial reporting as of September 30,
2018.
PART II. OTHER INFORMATION
Item
1. Legal Proceedings
On
January 29, 2018, the Company received
notice from the SEC of an investigation (along with the SEC
Complaint, defined below, the “SEC Action”). We believe
the SEC is investigating (i) potential violations by the Company
and its officers, directors and others of Section 10(b) of the
Securities and Exchange Act of 1934, as amended (as amended, the
“Exchange Act”) and Section 17(a) of the Securities Act
of 1933, as amended (as amended, the “Securities Act”);
and (ii) potential violations by multiple holders of our preferred
stock of the reporting and disclosure requirements imposed by
Section 13(d) of the Exchange Act and pursuant to Schedules 13D and
13G. We further believe the SEC Action pertains to our
relationships with the Investor Defendants (defined below),
including (i) the circumstances under which the Investor Defendants
invested in the Company and whether they have acted as an
undisclosed group in connection with their investment; (ii) the
manner with or in which the Investor Defendants may have sought to
control or influence the Company and its leadership since their
respective investments (and the extent to which those efforts to
control or influence have been successful); and (iii) our prior
disclosures regarding the control of the Company and beneficial
ownership of our common and preferred stock included in our
registration statements filed in 2017 and 2018 and in our Exchange
Act reports.
On
September 7, 2018, the SEC filed a complaint (the “SEC
Complaint”) in the U.S. District Court for the Southern
District of New York against the following individuals and entities
who have purchased securities of the Company: Barry C. Honig, John
Stetson, Michael Brauser, John R. O'Rourke III, Mark Groussman,
Phillip Frost, Alpha Capital Anstalt, ATG Capital LLC,
Frost Gamma Investments Trust, GRQ Consultants,
Inc., Grander Holdings, Inc., Melechdavid, Inc., OPKO Health,
Inc., HS Contrarian Investments, LLC, and Southern Biotech, Inc.
(collectively, the “Investor Defendants”), and
against others who we believe have not made any investment in the
Company. SEC v. Honig, et
al., No. 1:18-cv-01875 (S.D.N.Y. 2018). In the Complaint,
the SEC alleges a variety of misconduct with respect to the
Investor Defendants’ transactions and/or relationships with
three public issuers, including a public issuer identified as
“Company C,” which we understand to be MabVax. With
respect to “Company C” in particular, the SEC alleges
that some of the Investor Defendants manipulated the price of the
Company’s securities by writing, or causing to be written,
false or misleading promotional articles, and a variety of other
manipulative trading practices. The SEC further alleges that some
of the Investor Defendants filed false reports of their beneficial
ownership or failed to file reports of their beneficial ownership
when required to do so. The SEC claims that, by engaging in this
and the other alleged actions in the Complaint, the Investor
Defendants and other defendants violated the anti-fraud and many
other provisions of the Exchange Act, the Securities Act and SEC
Rules promulgated thereunder. The SEC Complaint does not assert any
claims against the Company or any of its directors or officers, nor
otherwise allege that they were culpable participants in the
misconduct allegedly undertaken by the Investor
Defendants.
We
have cooperated with the SEC in connection with the SEC Action.
Although the SEC has not asserted claims against the Company or any
of its directors or officers, we cannot predict whether the SEC
Action ultimately will conclude in a manner adverse to the Company
or any of its directors and officers, or in a manner adverse to the
Investor Defendants or other of the Company’s current or
former stockholders. We also cannot predict when the SEC Action or
any related matters may conclude, or how any such matters or
resolution may impact how the Company is perceived by the market,
potential partners and potential investors in our securities. In
the past, the SEC informed us it would not declare effective any
registration statements registering our securities effective during
the pendency of the SEC Action.
Company Filed Complaint Against Sichenzia Ross Ference
LLP
On September 10, 2018, the Company
filed, in the Superior Court of California, County of San Diego, a
complaint (the “Sichenzia Complaint”) against Sichenzia
Ross Ference LLP, a law firm that previously represented the
Company in certain corporate, securities, and SEC matters
(“Sichenzia”), and eight current Sichenzia partners,
and one former Sichenzia partner, Harvey Kesner,
MabVax
Therapeutics Holdings, Inc. v.
Sichenzia Ross Ference LLP et al., No.
37-2018-00045609-CU-PN-CTL. The Sichenzia Complaint asserts claims
for negligent professional practice, breach of fiduciary duty,
breach of contract, unjust enrichment, deceit, and fraud by the
defendants. The Company is evaluating additional claims it may have
against others in connection with the same or similar subject
matter.
Delaware
Order Granting Petition for Relief
On
September 20, 2018, the Court entered an order validating (i)
issuances of common stock upon conversions of the Company’s
preferred stock occurring between June 30, 2014 and February 12,
2018, and (ii) stockholder approval of corporate actions presented
to the Company’s stockholders from June 30, 2014 to February
12, 2018. In so doing, the Court granted the Delaware Petition
captioned In re: MabVax
Therapeutics Holdings, Inc., filed on July 27, 2018, in
order to rectify the uncertainty regarding whether shares of our
common stock were validly issued upon conversion of our preferred
stock from June 30, 2014 to February 12, 2018.
Class Action and Derivative Complaints
In re MabVax Therapeutics
Securities Litigation, Case
No. 18-cv-1160-BAS-NLS
On June
4, 2018, and August 3, 2018, two securities class action complaints
were filed by purported stockholders of the Company in the United
States District Court for the Southern District of California (the
“U. S. District Court”) against the Company and certain
of its current officers. On September 6, 2018, the U.S. District
Court consolidated the two actions and appointed lead plaintiffs.
On October 10, 2018, lead plaintiffs filed their consolidated
complaint, which, in addition to naming the Company and certain
current officers as defendants, also names certain investors as
defendants. The consolidated complaint alleges, among other things,
that the defendants violated Sections 10(b) and 20(a) of the
Exchange Act, and Rule 10b-5 thereunder, by misleading investors
about problems with the Company’s internal controls, improper
calculation of its beneficial ownership, and improper influence by
certain investors. The consolidated complaint also alleges that
some of the investor defendants violated Section 9 of the Exchange
Act by manipulating the Company’s stock price. The
consolidated complaint seeks unspecified damages, interest, fees
and costs. The current deadline to respond to the consolidated
complaint is December 6, 2018.
Liesman v. Hansen et
al., Case No.
18-cv-2237-BTM-WVG
On
September 26, 2018, a shareholder derivative complaint was filed in
the United States District Court for the Southern District of
California. The complaint arises from similar allegations as
In re MabVax Therapeutics
Securities Litigation but asserts a state law breach of
fiduciary duty claim against certain of the Company’s current
and former directors and officers. In particular, the
complaint alleges that the defendants breached their fiduciary
duties by failing to implement the necessary controls to ensure
that certain financial disclosures and disclosures concerning stock
ownership were accurate. Plaintiff seeks, on behalf of the
Company, damages, fees, costs, and equitable relief.
Jackson v. Hansen et al., Case No.
18-cv-2302-BAS-MSB-BGS
On
October 4, 2018, a shareholder derivative complaint was filed in
the United States District Court for the Southern District of
California. The complaint arises from similar allegations as
In re MabVax Therapeutics
Securities Litigation and Liesman v. Hansen et al. but, in
addition to a breach of fiduciary duty claim, also includes causes
of action for unjust enrichment, abuse of control, gross
mismanagement and waste of corporate assets. Plaintiff seeks,
on behalf of the Company, damages, fees, costs, and equitable
relief. The deadline to respond to the complaint is December 21,
2018.
RISK FACTORS
Other than stated
below, there have been no material changes in or additions to the
Risk Factors included in our Annual Report on Form 10-K, as amended
on Form 10-K/A on October 15, 2018, for the year ended December 31,
2017 and our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2018.
The rights of our common stockholders are limited by and
subordinate to the rights of the holders of Series D Preferred
Stock, Series E Preferred Stock, Series I Preferred Stock, Series J
Preferred Stock, Series K Preferred Stock, Series L Preferred
Stock, Series M Preferred Stock, Series N Preferred Stock and
Series O Preferred Stock; these rights may have a negative effect
on the value of shares of our common stock.
As
of November 13, 2018, the holders of our Series D Convertible
Preferred Stock (the “Series D Preferred Stock”),
Series E Convertible Preferred Stock (the “Series E Preferred
Stock”), Series I Convertible Preferred Stock (the
“Series I Preferred Stock”), Series J Convertible
Preferred Stock (the “Series J Preferred Stock”),
Series K Convertible Preferred Stock (the “Series K Preferred
Stock”), Series L Convertible Preferred Stock (the
“Series L Preferred Stock”), Series M Convertible
Preferred Stock (the “Series M Preferred Stock”),
Series N Convertible Preferred Stock (the “Series N Preferred
Stock”), and Series O Convertible Preferred Stock (the
“Series O Preferred Stock”) have rights and preferences
generally superior to those of the holders of common stock. The
existence of these superior rights and preferences may have a
negative effect on the value of shares of our common stock. These
rights are more fully set forth in the Series D Preferred Stock
certificate of designations, Series E Preferred Stock certificate
of designations, Series I Preferred Stock certificate of
designations, Series J Preferred Stock certificate of designations,
Series K Preferred Stock certificate of designations, Series L
Preferred Stock certificate of designations, Series M Preferred
Stock certificate of designations, Series N Preferred Stock
certificate of designations, and Series O Preferred Stock
certificate of designations, respectively, and include, but are not
limited to the right to receive a liquidation preference, prior to
any distribution of our assets to the holders of our common stock,
in an amount equal to $0.01 per share or $441 for the Series D
Preferred Stock, $0.01 per share or $333 for the Series E Preferred
Stock, $0.01 per share or $6,456 for the Series I Preferred Stock,
$687.50 per share or approximately $531,252 for the Series J
Preferred Stock, $0.01 per share or $632 for the Series K Preferred
Stock, $100.00 per share or approximately $4.6 million for the
Series L Preferred Stock, $300 per share or approximately $1.5
million for the Series M Preferred Stock, $0.01per share or
approximately $54 for the Series N Preferred Stock and $0.01 per
share or approximately $106 for Series O Preferred
Stock.
We may not be able to achieve compliance for listing on a national
exchange which could make it more difficult for investors to sell
their shares
Our
common stock was delisted on The NASDAQ Capital Market on July 11, 2018, and
currently trades on the OTC Pink market. Delisting of our common
stock effectively results in our common stock being designated a
“penny stock” is that securities broker-dealers cannot
recommend the shares but must trade it on an unsolicited basis.
Penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from those rules, to deliver
a standardized risk disclosure document prepared by the SEC, which
specifies information about penny stocks and the nature and
significance of risks of the penny stock market. A broker-dealer
must also provide the customer with bid and offer quotations for
the penny stock, the compensation of the broker-dealer and sales
person in the transaction, and monthly account statements
indicating the market value of each penny stock held in the
customer’s account. In addition, the penny stock rules
require that, prior to a transaction in a penny stock not otherwise
exempt from those rules; the broker-dealer must make a special
written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser’s written
agreement to the transaction. These disclosure requirements may
have the effect of reducing the trading activity in the secondary
market for shares that become subject to those penny stock rules.
Under such circumstances, shareholders may find it more difficult
to sell, or to obtain accurate quotations, for our common stock,
and our common stock would become substantially less attractive to
certain purchasers such as financial institutions, hedge funds and
other similar investors.
Future sales of our securities, or the perception in the markets
that these sales may occur, could depress our stock
price.
Additional equity financings or other share
issuances by us, including shares issued in connection with
strategic alliances and corporate partnering transactions, could
adversely affect the market price of our common stock. As of
November 13, 2018, we had 7,869,860 shares held by our existing
shareholders available for resale pursuant to Rule 144 or resale
registration statements, upon conversion of Series D Preferred
Stock, Series E Preferred Stock, Series I Preferred Stock, Series J
Preferred Stock, Series K Preferred Stock, Series L Preferred
Stock, Series M Preferred Stock, Series N Preferred Stock, and
Series O Preferred Stock. Sales by existing stockholders of a large
number of shares of our common stock in the public market or the
perception that additional sales could occur could cause the market
price of our common stock to drop. Moreover, to the extent
that additional shares of our outstanding stock are registered, or
otherwise become eligible for resale, and are sold, or the holders
of such shares are perceived as intended to sell them, this could
further depress the market price of our common
stock. These factors could also make it more difficult
for us to raise capital or make acquisitions through the issuance
of additional shares of our common stock or other equity
securities.
The number of shares of issued and outstanding common stock as of
October 31, 2018, represents approximately 46% of our fully diluted
shares of common stock. Additional issuances of shares
of common stock upon conversion and/or exercise of preferred stock,
options to purchase common stock and warrants to purchase common
stock will cause substantial dilution to existing
stockholders.
At November 13, 2018, we had 9,254,582
shares of common stock issued and
outstanding. Up to an additional 7,869,860 shares may be issued
upon conversion of our Series D Preferred Stock, Series E Preferred
Stock, Series I Preferred Stock, Series J Preferred Stock, Series K
Preferred Stock, Series L Preferred Stock; Series M Preferred
Stock; Series N Preferred Stock and Series O Preferred Stock
1,221,935 shares issuable upon exercise of warrants at a weighted
average price of $7.15; 1,820,589 shares upon exercise of all
outstanding options to purchase our common stock at a weighted
average price of $7.44, resulting in a total of up to 20,166,968
shares that may be issued and outstanding. The issuance of any and
all of the 10,912,384 shares issuable upon exercise or conversion
of our outstanding convertible securities will cause substantial
dilution to existing stockholders and may depress the market price
of our common stock.
Our common stock trades on the OTC Pink Market, therefore
compliance with applicable state securities laws may be required
for subsequent offers, transfers and sales of the shares of common
stock offered hereby.
Our
common stock is traded on the OTC Pink and not currently eligible
to be listed on a national securities exchange, therefore,
subsequent transfers of the shares of our common stock offered
hereby by U.S. holders may not be exempt from state securities
laws. In such event, it will be the responsibility of the holder of
shares or warrants to register or qualify the shares for any
subsequent offer, transfer or sale in the United States or to
determine that any such offer, transfer or sale is exempt under
applicable state securities laws.
Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds.
None.
Item
3. Defaults Upon Senior
Securities.
Oxford Finance Assertion of
Events of Default under the Loan Agreement – On August 14, 2018, Oxford
Finance gave Notice asserting that certain “Events of
Default” have occurred and are continuing under Sections 8.3
and 8.11 the Loan Agreement. Specifically, Oxford Finance makes
general reference to the Alleged Default Events. In the Notice,
Oxford Finance does not specify which provisions of the Loan
Agreement are allegedly implicated by each of the Alleged Default
Events, stating only generally its position that Events of Default
have occurred under Sections 8.3 and 8.11 of the Loan Agreement and
other Events of Default “may” have occurred. The
Company informed Oxford Finance that it disputes the Alleged
Default Events, individually or collectively, constitute a
“Material Adverse Change” or other event of default
under the Loan Agreement. In addition, the Company already engaged
a new auditor, Haskell & White LLP, effective August 22, 2018,
and on September 20, 2018, the Court ratified the Delaware
Petition. Also, on October 16, 2018, the Company applied for
listing on the OTCQB Marketplace and believes it now meets the
requisite eligibility requirements; however, there can be no
assurance of being listed while the SEC Action is underway. As of
November 13, 2018, Company management has been meeting at least
weekly since September 30, 2018, to keep Oxford Finance informed on
potential fund-raising activities.
For
additional information, see Note 6 to Unaudited Condensed
Consolidated Financial Statements included in Item 1 of Part I of
this Quarterly Report.
Item
4. Mine Safety Disclosures.
None.
Item
5. Other Information.
None.
The
following is a list of exhibits filed as part of this Quarterly
Report on Form 10-Q.
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|
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Exhibit
No.
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Exhibit
Name
|
Filed
with
this Form 10-Q
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Asset
Purchase and License Agreement with Boehringer Ingelheim
International GmbH
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X
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Certification of
Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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X
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Certification of
Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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X
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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X
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101*
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Interactive data
file
|
|
*
Furnished herewith
†
Confidential treatment requested for portions of this exhibit.
Confidential materials omitted and filed separately with the
SEC.
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.
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Date:
November 13, 2018
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MABVAX
THERAPEUTICS HOLDINGS, INC.
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By:
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/s/ J.
David Hansen
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J.
David Hansen
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President
and Chief Executive Officer
(Principal
Executive Officer authorized
to sign
on behalf of the registrant)
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By:
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/s/
Gregory P. Hanson
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Gregory
P. Hanson
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Chief
Financial Officer
(Principal
Financial and Accounting Officer
authorized
to sign on behalf of the registrant)
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