We have never been profitable and have incurred net losses in each year since our inception. Our net losses were $2.9$7.0 million and $3.4$3.8 million for the years ended December 31, 20182019 and 2017,2018, respectively. As of SeptemberJune 30, 2019,2020, we had an accumulated deficit of $23.8$32.9 million. Substantially all of our net losses have resulted from costs incurred in connection with its research and development programs and from general and administrative costs associated with these operations.
Our future funding requirements will depend on many factors, including the following:
KEY COMPONENTS OF OUR STATEMENT OF OPERATIONS
Revenue
We have not generated any revenues from commercial product sales and do not expect to generate any such revenue in the near future. We may generate revenue in the future from a combination of research and development payments, license fees and other upfront payments or milestone payments.
Research and Development
Research and development expenses include employee-related expenses, licensing fees to use certain technology in our research and development projects, costs of acquiring, developing and manufacturing clinical trial materials, as well as fees paid to consultants and various entities that perform certain research and testing on our behalf. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the condensed consolidated financial statements as prepaid or accrued expenses. Costs incurred in connection with research and development activities are expensed as incurred.
We acquired an in-process The adverse impact of COVID-19 on research and development or IPR&D, asset relating to Edge's (as defined below) NEWTON 2 trials. Following the discontinuation of the NEWTON 2activities is being monitored closely including its impact on clinical trial for EG-1962, Edge had ceased all researchinitiation and development efforts related to EG-1962 and suspended efforts on other legacy Edge product candidates. We are currently seeking partners to continue the development of these product candidates and pursue them to commercialization.enrollment.
We expect that our research and development expenses will increase significantly over the next several years as we advance our Versamune®Versamune®-based immuno-oncology or I-O, candidates into and through clinical trials, pursuespursue regulatory approval of our injectable Versamune®Versamune® candidates and prepare for a possible commercial launch, all of which will also require a significant investment in contract and internal manufacturing and inventory related costs.
The process of conducting human clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for our
injectable I-O candidates.Versamune® based products. The probability of successful commercialization of our
I-Oimmuno-oncology and infectious disease candidates may be affected by numerous factors, including
clinical data obtained in future trials,unforeseen circumstances or other disruptions to normal business operations arising from or related to COVID-19, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our
tablet vaccineproduct candidates.
Results of Operations
Comparison of the Three Months Ended September 30, 2019 and 2018
The following table summarizes the results of our operations for the three months ended SeptemberJune 30, 20192020 and 2018:2019:
| | Three Months Ended September 30, | | | Increase (Decrease) | | | Three Months Ended June 30, | | | Increase (Decrease) | |
| | 2019 | | | 2018 | | | $
| | | % | | | 2020 | | | 2019 | | | | | | $ | % | |
| | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income (expense), net | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net loss and comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Research and Development Expenses
Research and development (R&D) expenses decreased to $1.4 million for the three months ended June 30, 2020 from $1.9 million for the three months ended June 30, 2019. The decrease of $0.5 is primarily attributable to a decrease of $0.5 in technical operations (manufacturing), $0.1 in regulatory expenses and $0.4 in clinical studies, offset by an increase of $0.4 in personnel costs and $0.1 in pre-clinical studies.
General and Administrative Expenses
General and administrative expenses decreased to $1.5 million for the three months ended June 30, 2020 from $2.4 million for the three months ended June 30, 2019. The decrease of $0.9 million is primarily attributable to a decrease of $0.2 million in personnel costs, $0.2 in legal fees, $0.1 in facilities and office expenses, $0.3 in insurance expense and $0.1 in professional fees.
Gain on Bargain Purchase was $0.0 for the three months ended June 30, 2020 and $0.2 million during the three months ended June 30, 2019. A decrease of $0.2 million as compared to the three months ended June 30, 2020, is due to the purchase price adjustments related to the Merger in March of 2019, resulting in excess of the fair value of net assets acquired over the fair value of the common stock issued to acquire Private PDS in the Merger.
Interest income
Interest income was $0.01 million for the three months ended June 30, 2020 and $0.18 million for the three months ended June 30, 2019. A decrease of $0.17 million due to interest received on invested cash and cash equivalents.
Comparison of the Six Months Ended June 30, 2020 and 2019
The following table summarizes the results of our operations for the six months ended June 30, 2020 and 2019:
| | Six Months Ended June 30, | | | Increase (Decrease) | |
| | 2020 | | | 2019 | | | | | | $ | % | |
| | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | |
Research and development expenses | | | | | | | | | | | | | | | | |
General and administrative expenses | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net (loss) income and comprehensive (loss) income | | | | | | | | | | | | | | | | |
Research and Development Expenses
Research and development (R&D) expenses increased to $1.8$3.4 million for the threesix months ended SeptemberJune 30, 20192020 from $0.2 million for the three months ended September 30, 2018. The increase of $1.6 million in 2019 was primarily attributable to an increase in external expenses for clinical studies of $1.1 million and an increase of $0.5 million in personnel costs.
General and Administrative Expenses
General and administrative expenses increased to $3.1 million for the three months ended September 30, 2019 from $0.5 million for the three months ended September 30, 2018. The increase of $2.6 million is primarily attributable to increases in personnel costs of $0.5 million, $0.5 million in D&O insurance, $0.6 for stock based consulting fees, $0.2 million for professional fees, $0.4 million in legal fees and $0.4 in other operating expenses.
Lease Termination Costs
The lease termination costs relates to moving the Company’s corporate offices and consists of $0.6 million for lease termination fees and $0.3 million for disposal of leasehold improvements and office furniture.
Interest income (expense), net
Interest income, net was $0.1 million during the three months ended September 30, 2019, an increase of $0.1 million, as compared to an expense of $(0.01) million during the three months ended September 30, 2018, due primarily to interest received on invested cash and cash equivalents.
Liquidity and Capital Resources
Since inception, our operations have been financed primarilyIn February 2020, we completed an underwritten public offering, in which we sold 10,000,000 shares of common stock at a public offering price of $1.30 per share. The shares sold included 769,230 shares issued upon the exercise by
the underwriter of its option to purchase additional shares at the public offering price, minus underwriting discounts and commissions. We received gross proceeds of approximately $13 million and net proceeds of
$12.3approximately $11.9 million after deducting underwriting discounts and commissions. Our operations have also been financed from cash of $29.1 million from the
saleconsummation of
our common stock and $5.4 million from the
issuance of convertible promissory notes.Merger in March 2019. As of
SeptemberJune 30,
2019,2020, we had
$17.4$16.9 million of cash and cash
equivalents, primarily derived fromequivalents.
On July 22, 2020, we filed a shelf registration statement, or the $29.12020 Shelf Registration Statement, with the SEC, for the issuance of common stock, preferred stock, warrants, rights, debt securities and units, which we refer to collectively as the Shelf Securities, up to an aggregate amount of $100 million. The 2020 Shelf Registration Statement was declared effective on July 31, 2020. On August 13, 2020, the Company sold 6,900,000 shares of its common stock at a public offering price of $2.75 per share pursuant to the 2020 Shelf Registration Statement, which includes 900,000 shares issued upon the exercise by the underwriter of its option to purchase additional shares at the public offering price, minus underwriting discounts and commissions. We received gross proceeds of approximately $19.0 million and net proceeds of pre-existing cash on Edge’s balance sheets that we obtained as a resultapproximately $17.1 million, after deducting underwriting discounts and offering expenses. Approximately $81,000,000 of Shelf Securities remain available for future sale under the Merger. 2020 Shelf Registration Statement.
Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
We evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q. Based on such evaluation and our current plans, which are subject to change, management believes that our existing cash and cash equivalents as of SeptemberJune 30, 20192020 and proceeds expected to become available through government funding programs will be sufficient to satisfy our operating cash needs for at least one year after the filing of this Quarterly Report on Form 10-Q.
We plan to continue to fund our operations and capital funding needs through equity and/or debt financings. We may also enter into government funding programs and consider selectively partnering for clinical development and commercialization. The sale of additional equity would result in additional dilution to our stockholders. Incurring debt financing would result in debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market immunotherapies that we would otherwise prefer to develop and market ourselves. Any of these actions could harm our business, results of operations and prospects.
On July 29, 2019, we entered into a common stock purchase agreement, or the Aspire Purchase Agreement, pursuant to which, we have the right, in our sole discretion, to present Aspire Capital Fund, LLC, or Aspire Capital, with a purchase notice, directing Aspire Capital (as principal) to purchase up to 100,000 shares of our common stock per business day, in an aggregate amount of up to $20.0 million of our common stock, or the Purchased Shares, over the term of the Aspire Purchase Agreement at a per share price equal to the lesser of the lowest sale price of our common stock on the purchase date or the arithmetic average of the three lowest closing sale prices for our common stock during the ten consecutive trading days ending on the trading day immediately preceding the purchase date. We may sell an aggregate of 1,034,979 shares of our common stock (which represented 19.99% of the Company’s outstanding shares of common stock on the date of the Aspire Purchase Agreement) without stockholder approval. We may sell additional shares of our common stock above the 19.99% limit provided that (i) we obtain stockholder approval or (ii) stockholder approval has not been obtained at any time the 1,034,979 share limitation is reached and at all times thereafter the average price paid for all shares issued under the Aspire Purchase Agreement, is equal to or greater than $5.76, which was the consolidated closing bid price of our common stock on July 26, 2019. The minimum price at which we can sell shares under the Aspire Purchase Agreement is $0.50. On July 29, 2019, we issued 100,654 shares of our common stock to Aspire Capital,, as consideration for entering into the Aspire Purchase Agreement, which we refer to as the Commitment Shares. We recorded the fair value of the shares at July 29, 2019 of $603,924 as an expense in the third quarter of 2019. Concurrently with the Aspire Purchase Agreement, we entered into a registration rights agreement with Aspire Capital, or the Registration Rights Agreement. In accordance with the Registration Rights Agreement, on August 20, 2019 we filed a Registration Statement on Form S-1 (File No. 333-232988) to cover the resale of the Commitment Shares and any Purchased Shares issuable to Aspire Capital under the Aspire Purchase Agreement. There is market uncertainty regarding the utilization of financing associated from the Aspire Purchase Agreement. As of SeptemberJune 30, 2019,2020, no Purchase Shares were sold to Aspire Capital under the Aspire Purchase Agreement.
Cash Flows
The following table shows a summary of our cash flows for each of the periods indicated (in thousands):
| | Nine Months Ended September 30, | | | Six Months Ended June 30, | |
| | 2019 | | | 2018 | | | 2020 | | | 2019 | |
Net cash used in operating activities | | | | | | | | | | | | | | | | |
Net cash provided by investing activities | | | | | | | | | | | | |
Net cash provided by financing activities | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | | | | | | | |
Net increase in cash and cash equivalents | | | | | | | | | |
Net Cash Used in Operating Activities
Net cash used in operating activities was $12.6$7.3 million and $1.3$8.2 million for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. The increasedecrease in cash used in operating activities of $11.3$0.9 million was primarily due to a halt in expenses related to progress and performance of the PDS0101 in combination with KEYTRUDA® in first-line treatment of recurrent/metastatic head and neck cancer clinical trial due to the increaseCOVID 19 pandemic, resulting in research and development costs, increase in general and administrative expenses including paymentless utilization of Merger related costs, and payments of liabilities that had built up prior to the Merger as compared to the prior year.cash for expenses.
Net Cash Provided by Investing Activities
Net cash provided by investing activities infor the six months ended June 30, 2019 relates entirely to cash received in the Merger.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the ninesix months ended SeptemberJune 30, 20192020 was due to the receipt of net proceeds from the issuance of common stock of $0.8$12.0 million.
Net cash provided by financing activities for the ninesix months ended SeptemberJune 30, 20182019 was primarily due to the receipt of net proceeds of $1.2$0.8 million due to the issuance of common stock.
Operating Capital Requirements
To date, we have not generated any product revenue. We do not know when, or if, we will generate any product revenue and we do not expect to generate significant product revenue unless and until we obtain regulatory approval and commercialize one of our current or future tablet vaccineproduct candidates. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our tablet vaccine candidates, and begin to commercialize any approved vaccine candidates. We are subject to all of the risks incident into the development of new products, and may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. We expect to incur additional costs associated with operating as a public company and anticipate that we will need substantial additional funding in connection with our continuing operations.
We evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year beyond the filing of this Quarterly Report. Our budgeted cash requirements in 2020 and beyond include expenses related to continuing development and clinical studies. We believe that our existing cash and cash equivalents as of
SeptemberJune 30,
2019 will be2020 are sufficient to
meet our anticipated cash requirementscontinue operations and research and development programs for at least the next 12 months from the date of this Quarterly Report.
Until we can generate significant cash from our operations, we expect to continue to fund our operations with available financial resources. These financial resources may not be adequate to sustain our operations.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
| ● | the initiation, progress, timing, costs and results of our planned clinical trials; |
| ● | the effects of health epidemics, pandemics, or outbreaks of infectious diseases, including the recent COVID-19 pandemic, on our business operations, financial condition, results of operations and cash flows; |
| ● | the outcome, timing and cost of meeting regulatory requirements established by the U.S. Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, and other comparable foreign regulatory authorities; |
| ● | the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; |
| ● | the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us now or in the future; |
| ● | the effect of competing technological and market developments; |
| ● | the cost of establishing sales, marketing and distribution capabilities in regions where we choose to commercialize our tablet vaccines on our own; and |
| ● | the initiation, progress, timing and results of our commercialization of our tablet vaccine candidates, if approved, for commercial sale. |
Please see the section titled “Risk Factors” elsewhere in the Quarterly Report for additional risks associated with our operations.
Contractual Obligations and Commitments
The following is a summary of our contractual obligations as of the date indicated:
As of September 30, 2019 | | Total | | | Less than one year | | | 1-3 Years | | | 3-5 Years | | | More than 5 Years | |
| | (in thousands) | |
| | | | | | | | | | | | | | | | | | | | |
Total contractual obligations | | | | | | | | | | | | | | | | | | | | |
The table above does not include (a) any milestone payments related to contingent events which may become payable to third parties under our license agreements as the timing and likelihood of such payments are not known, or (b) contracts that are entered into in the ordinary course of business which are not material in the aggregate in any period presented above.
Purchase Commitments
We have no material non-cancelable purchase commitments with service providers as we have generally contracted on a cancelable, purchase order basis.
Critical Accounting Polices and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these 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 financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our 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 from these estimates under different assumptions or conditions.
We consider ourAs a result of the impairment and write-off of the IPR&D asset at year end, the only critical accounting policiespolicy and estimatesestimate we have for the three months ended June 30, 2020 is related to the stock- based compensation.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was enacted and signed into law, and GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act, among other things, includes changes to the tax provisions that benefits business entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act, including, permitting net operating losses, or NOLs, carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be
carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act provides other reliefs and stimulus measures. We have evaluated the impact of the CARES Act, and do not expect that any provision of the CARES Act would result in a material cash benefit to us or have a material impact on our financial statements or internal controls over financial reporting.
Impact of COVID-19 on our Business
In December 2019, a novel coronavirus known as SARS-CoV-2 was first detected in Wuhan, Hubei Province, People’s Republic of China, causing outbreaks of the coronavirus disease, known as COVID-19, that has now spread globally. On January 30, 2020, the World Health Organization (WHO) declared COVID-19 a pandemic, which we refer to herein as the COVID-19 Pandemic. The Secretary of Health and Human Services declared a public health emergency on January 31, 2020, under section 319 of the Public Health Service Act (42 U.S.C. 247d), in response to the COVID-19 Pandemic.
Operations and Liquidity
The full impact of the COVID-19 Pandemic is unknown and rapidly evolving. While the potential economic impact brought by and over the duration of the COVID-19 Pandemic may be difficult to assess or predict, the COVID-19 Pandemic has resulted in significant disruption of global financial markets, which could in the future negatively affect our liquidity. In addition, a recession or market volatility resulting from the COVID-19 Pandemic could affect our business. We have taken proactive, aggressive action throughout the COVID-19 Pandemic to protect the health and safety of our employees, and expect to continue to implement these measures until we determine that the COVID-19 Pandemic is adequately contained for purposes of our business. We may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees. Given the nature and type of our short-term investments, we do not believe that the COVID-19 Pandemic will have a material impact on our current investment liquidity.
Delay of Clinical Trials
To date, two of the three currently planned PDS0101 clinical trials have been delayed, specifically as a result of the adverse impact the COVID-19 Pandemic has had on clinical trial operations for cancer indications in the United States.
Outlook
Although there is uncertainty related to stock-based compensationthe anticipated impact of the recent COVID-19 Pandemic on our future results, we believe our current cash reserves, which includes approximately $17.1 million in net proceeds from our August 2020 public offering, leave us well-positioned to manage our business through this crisis as it continues to unfold. However, the impacts of the COVID-19 Pandemic are broad-reaching and IPR&D. There have been no material changescontinuing and the financial impacts associated with the COVID-19 Pandemic are still uncertain.
The COVID-19 Pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the pandemic, and actions that would be taken by governmental authorities to contain the pandemic or to treat its impact, makes it difficult to forecast any effects on our critical accounting policies and estimates during the nine months ended September 30, 2019 from those disclosed in our audited financial statementsresults for the fiscal year endedending December 31, 2018, which2020.
Despite the economic uncertainty resulting from the COVID-19 Pandemic, we filed withintend to continue to focus on the Securitiesdevelopment of our product candidates. We continue to monitor the rapidly evolving situation and Exchange Commissionguidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in our Current Report on Form 8-K/A on April 30, 2019.the future.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards asother public companies that are not emerging growth companies. Furthermore, we anticipate that we will no longer be an emerging growth company as of December 31, 2020.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKITEM 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
The primary objectives of our investment activities are to ensure liquidity and to preserve principal, while at the same time maximizing the income we receive from our cash and marketable securities without significantly increasing risk. As of SeptemberJune 30, 2019,2020, we had cash equivalents of $17.4$16.9 million that were held in a non-interest-bearing money operating account and an institutional U.S. Treasury money market fund. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments, we do not believe that an immediate 100 basis point change in interest rates would have a material effect on the fair market value of our cash equivalents. To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in institutional market funds that are comprised of U.S. Treasury and Treasury backed repurchase agreements.
| ITEM 4: CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out, under the supervision of andOur management, with the participation of our
management, including our Chief Executive Officer and
our Chief FinancialPrincipal Accounting Officer,
ofevaluated the effectiveness of our disclosure controls and procedures
(asas of June 30, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-15 (e))15d-15(e) under the
Securities Exchange Act,
of 1934, or
the Exchange Act, as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosureDCPs, means controls and
other procedures
of a company that are
effectivedesigned to ensure that
the information required to be disclosed by
usa company in the reports
we filethat it files or
submitsubmits under the Exchange Act
wasis recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
DCPs include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. 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.
Based on the evaluation of our DCPs, our Chief Executive Officer and Principal Accounting Officer concluded that, due to a previously reported material weakness, our internal control over financial reporting was not effective as of June 30, 2020. Specifically, we identified a material weakness in four components of internal control as defined by COSO 2013 (Control Environment, Risk Assessment, Control Activities and Information & Communication). These material weaknesses resulted in the immaterial error correction of the consolidated financial statements and related notes as of December 31, 2018 and for the year then ended and immaterial errors corrected within the consolidated financial statements as of and for the year then ended December 31, 2019.
Control Environment - We did not have adequate finance and accounting personnel with the appropriate U.S. GAAP technical expertise to identify, evaluate and account for complex and non-routine transactions.
Risk Assessment – We did not maintain an effective risk assessment that successfully identified and assessed risks of misstatement to ensure controls were designed and implemented to respond to the risks related to the reverse-merger transaction.
Information & Communication – We did not maintain an effective information and communication process to identify, capture and process relevant financial information necessary for financial accounting and reporting.
As a consequence, we did not have effective control activities related to the design, implementation and operation for process level control activities related to equity transactions, stock- based compensation, recognition of intangible assets, debt extinguishment, and business combination transaction costs.
A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), or ICFR, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Remediation Efforts to Address Material Weakness
As previously described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2019, we began implementing a remediation plan to address the material weaknesses mentioned above.
While we believe that we have improved our organizational capabilities, the material weaknesses remained unremediated as of June 30, 2020 and our remediation activities are continuing to take place in 2020. We continue to strengthen our internal control over financial reporting and we are committed to ensuring that such controls are designed and operating effectively.
The material weakness will not be considered remediated until the applicable controls are designed, implemented and operating for a sufficient period of time and management has concluded, that these controls are operating effectively
Changes in Internal Control over Financial Reporting
WeIn addition to our identification and assessment of the material weakness described above, we are currently integrating our pre-Merger business into the pre-established internal control framework of Edge
Therapeutics through the acquisition, including internal controls and information systems. This work began upon completion of the Merger in March 2019 and will continue throughout calendar year
2019. 2020. We have modified some of our internal control procedures due to the COVID-19 restrictions.
Edge Therapeutics was previously subject to the provisions of the Sarbanes-Oxley Act of 2002, as amended, whereas Private PDS Biotechnology Corporation, which prior to the Merger was a private, non-reporting operating company was not. Our company has an appropriate structure for internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report.
PART II. PART II. | OTHER INFORMATION |
We, and our subsidiaries, are not currently a party to, and our property is not currently the subject of, any material pending legal proceedings; however, we may become involved in various claims and legal actions arising in the ordinary course of business.
Any investment in our business involves a high degree of risk. Before making an investment decision, you should carefully consider the information we include in this Quarterly Report on Form 10-Q, including our unaudited interim condensed consolidated financial statements and accompanying notes, and the additional information in the other reports we file with the Securities and Exchange Commission. These risks may result in material harm to our business and our financial condition and results of operations. In this event, the market price of our common stock may decline and you could lose part or all of your investment.The risks described below may not be the only ones relating to our company. Additional risks that we currently believe are immaterial may also impair our business operations. Our business, financial conditions and future prospects and the trading price of our common stock could be harmed as a result of any of these risks. Investors should also refer to the other information contained or incorporated by reference in our Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 27, 2020, including our financial statements and related notes, and our other filings from time to time with the Securities and Exchange Commission or SEC.
The risk factors set forth below contain material changes from, or additions to, the risk factors previously disclosed and included in our QuarterlyAnnual Report on Form 10-Q10-K for the three monthsyear ended MarchDecember 31, 2019 as supplemented byfiled with the risk factors previously disclosed and included in our Quarterly ReportSEC on Form 10-Q for the three and six months ended June 30, 2019.March 27, 2020.
Risks Related to Our Business, Financial Position and Capital Requirements
We have incurred significant losses since our inception and expect to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability.
We have never generated any product revenues and expect to continue to incur substantial and increasing losses as we continue to develop PDS0101 and other Versamune® based Products. PDS0101 has not been approved for marketing in the United States and may never receive such approval. As a result, we are uncertain when or if we will achieve profitability and, if so, whether we will be able to sustain it. Our ability to generate revenue and achieve profitability is dependent on our ability to complete development, obtain necessary regulatory approvals, and have PDS0101 manufactured and successfully marketed. We cannot assure you that we will be profitable even if we successfully commercialize PDS0101 or other Versamune® Products. If we successfully obtain regulatory approval to market PDS0101, our revenues will be dependent, in part, upon, the size of the markets in the territories for which regulatory approval is received, the number of competitors in such markets for the approved indication, and the price at which we can offer PDS0101. If the indication approved by regulatory authorities is narrower than we expect, or the treatment population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of PDS0101, even if approved. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become and remain profitable the market price of our common stock and our ability to raise capital and continue operations will be adversely affected.
We expect research and development expenses to increase significantly for PDS0101 and other Versamune
® Products. In addition, even if we obtain regulatory approval, significant sales and marketing expenses will be required to commercialize PDS0101. As a result, we expect to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have an adverse effect on our financial position and working capital. As of
Septemberthe three months ended June 30,
2019,2020, we had an accumulated deficit of
$$35.9 million.
We will require additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of PDS0101.
Based upon our current operating plan, we believe that our cash reserves will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12 months from the date of this report. Our estimate as to what we will be able to accomplish is based on assumptions that may prove to be inaccurate, and we could exhaust our available capital resources sooner than is currently expected. Because the length of time and activities associated with successful development of PDS0101 is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
| ● | the initiation, progress, timing, costs and results of our planned clinical trials; |
| ● | the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authority; |
| ● | the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; |
| ● | the cost of defending potential intellectual property disputes, including any patent infringement actions brought by third parties against us now or in the future; |
| ● | the effect of competing technological and market developments; |
| ● | the cost of establishing sales, marketing and distribution capabilities in regions where we choose to commercialize PDS0101 on our own; and |
| ● | the initiation, progress, timing and results of the commercialization of PDS0101, if approved, for commercial sale. |
Additional funding may not be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of PDS0101 or potentially discontinue operations. In July 2019, we entered into a common stock purchase agreement, or the Aspire Purchase Agreement, with Aspire Capital, which provides that, upon the terms and subject to the conditions and limitations set forth therein, at our discretion, Aspire Capital is committed to purchase up to an aggregate of
$20.0$20.0 million of shares of our common stock, or the Purchased Shares, over the 30-month term of the Aspire Purchase Agreement.
The minimumWe may sell an aggregate of 1,034,979 shares of our common stock (which represented 19.99% of the Company’s outstanding shares of common stock on the date of the Aspire Purchase Agreement) without stockholder approval. We may sell additional shares of our common stock above the 19.99% limit provided that (i) we obtain stockholder approval or (ii) stockholder approval has not been obtained at any time the 1,034,979 share limitation is reached and at all times thereafter the average price
at which we can sellpaid for all shares
issued under the Aspire Purchase Agreement, is
$0.50.equal to or greater than $5.76, which was the consolidated closing bid price of our common stock on July 26, 2019. On July 29, 2019, we issued 100,654 shares of our common stock to Aspire Capital,
, as consideration for entering into the Aspire Purchase Agreement, which we refer to as the Commitment Shares.
Concurrently with the Aspire Purchase Agreement, we entered into a registration rights agreement with Aspire Capital, or the Registration Rights Agreement. In accordance with the Registration Rights Agreement, on August 20, 2019 we filed a Registration Statement on Form S-1 (File No. 333-232988) to cover the resale of the Commitment Shares and any Purchased Shares issuable to Aspire Capital under the Aspire Purchase Agreement. As of
SeptemberJune 30,
2019,2020, no Purchase Shares
werehave been sold to Aspire Capital under the Aspire Purchase Agreement. Further, our use of the Aspire Purchase Agreement is subject to certain additional limitations set forth elsewhere in this report. As such, our ability to use the Aspire Purchase Agreement to raise
additional capital is uncertain.
If we fail to obtain or maintain adequate coverage and reimbursement for PDS0101, our ability to generate revenue could be limited.
The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments. Sales of any of PDS0101 that receive marketing approval will depend substantially, both in the United States and internationally, on the extent to which the costs of PDS0101 will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only on a limited basis, we may not be able to successfully commercialize PDS0101. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain adequate pricing that will allow it to realize a sufficient return on our investment.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries may cause us to price PDS0101 on less favorable terms than we currently anticipate. In many countries, particularly the countries of the European Union, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of PDS0101 to other available therapies. In general, the prices of products under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for PDS0101. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.
Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for PDS0101. We expect to experience pricing pressures in connection with the sale of PDS0101 due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products into the healthcare market.
Additionally, on May 11, 2018, President Trump laid out his administration’s “Blueprint” to lower drug prices and reduce out of pocket costs of drugs, as well as additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, and incentivize manufacturers to lower the list price of their products. Although some proposals related to the administration’s Blueprint may require additional authorization to become effective, may ultimately be withdrawn, or may face challenges in the courts, the U.S. Congress and the Trump administration have indicated that they will continue to seek new legislative and administrative measures to control drug costs, including by addressing the role of pharmacy benefit managers in the supply chain. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We are unable to predict the future course of federal or state healthcare legislation in the United States directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. The ACA and any further changes in the law or regulatory framework that reduce our revenue or increase our costs could also have a material and adverse effect on our business, financial condition and results of operations.
We will need to expand our organization, and may experience difficulties in managing this growth, which could disrupt operations.
Our future financial performance and our ability to commercialize PDS0101 and compete effectively will depend, in part, on our ability to effectively manage any future growth. As of
SeptemberJune 30,
2019, 2020, we had 1413 employees and 5 consultants. consultants. We expect to hire additional employees for our managerial, clinical, scientific and engineering, operational, manufacturing, sales and marketing teams.
Additionally, as part of our material weakness remediation plan, we intend to hire a new Chief Financial Officer and accounting and finance personnel as needed. We may have operational difficulties in connection with identifying, hiring and integrating new personnel. Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need to divert a disproportionate amount of our attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of PDS0101. If we are unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy.
Many of the other pharmaceutical companies that we compete against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history in the industry than us. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates and consultants than what it has to offer. If we are unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which we can select and develop PDS0101 and our business will be limited.
Page | 3134
Risks Related to Clinical Development, Regulatory Approval and Commercialization
If we fail to comply with federal and state healthcare regulatory laws, including in our relationships with healthcare providers and customers and third-party payors, we could face criminal prosecution and sanctions, substantial civil penalties, damages, fines, disgorgement, exclusion from participation in governmental healthcare programs, contractual damages, reputational harm, and the curtailment of our operations, any of which could harm our business.
Although we do not provide healthcare services or submit claims for third-party reimbursement, we are subject to healthcare fraud and abuse regulation and enforcement by federal and state governments, which could significantly impact our business, particularly if and when we commercialize any product candidates and if and when payment becomes available from payors for our products. The laws that may affect our ability to operate include, but are not limited to:
| ● | The Federal Anti-Kickback Statute (AKS), which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. The Affordable Care Act, among other things, amended the intent requirements of the federal AKS. A person or entity can now be found guilty of violating the AKS without actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provides that a claim including items or services resulting from a violation of the federal AKS constitutes a false or fraudulent claim for purposes of the FCA. |
| ● | The False Claims Act’s civil provisions, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; knowingly making using, or causing to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government; or knowingly making, using, or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government. Intent to deceive is not required to establish liability under the civil False Claims Act. |
| ● | The False Claims Act’s criminal provisions, which imposes criminal fines or imprisonment against individuals or entities who make or present a claim to the government knowing such claim to be false, fictitious or fraudulent. |
| ● | The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended, prohibits, among other actions, executing or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, a healthcare benefit program, regardless of whether the payor is public or private, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense, and knowingly and willfully falsifying, concealing, or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items, or services relating to healthcare matters. |
| ● | HIPAA, as amended by the HITECH Act, and its respective implementing regulations, including the final omnibus rule published on January 25, 2013, which imposes requirements relating to the privacy, security and transmission of individually identifiable health information for “covered entities” and “business associates.” Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity.
|
| ● | Section 5(a) of the Federal Trade Commission Act, or the FTCA, 15 USC § 45(a), given that even for entities that are not deemed “covered entities” or “business associates” under HIPAA, according to the United States Federal Trade Commission, or the FTC, failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of its laws. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Medical data is considered sensitive data that merits stronger safeguards. The FTC’s guidance for appropriately securing consumers’ personal information is similar to what is required by the HIPAA Security Rule.
|
| ●
| The federal ”Sunshine” and “Open Payments” requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or collectively, the Affordable Care Act, which require certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members. Failure to submit timely, accurately, and completely the required information may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1 million per year for “knowing failures.” In 2022 the Sunshine Act will be extended to payments and transfers of value to physician assistants, nurse practitioners, and other mid-level practitioners (with reporting requirements going into effect in 2022 for payments made in 2021). In addition, Section 6004 of the ACA requires annual reporting of information about drug samples that manufacturers and authorized distributors provide to healthcare providers.
|
| ●
| state law equivalents of each of the above federal laws and state laws otherwise addressing the pharmaceutical and healthcare industries, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers, and in some cases that may apply regardless of payor, i.e., even if reimbursement is not available; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines (the PhRMA Code) and the relevant compliance program guidance promulgated by the federal government (HHS-OIG), or otherwise prohibit, restrict or impose tracking and disclosure requirements related to payments, gifts, or others remuneration that may be made to healthcare providers and other potential referral sources, or marketing practices to such persons and entities or drug pricing information; data privacy and security laws and regulations in foreign jurisdictions that may be more stringent than those in the United States (such as the European Union, which adopted the General Data Protection Regulation, which became effective in May 2018) and state laws governing the privacy and security of information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, and may apply more broadly than HIPAA, thus complicating compliance efforts – for example, the California Consumer Privacy Act, or CCPA, which goes into effect January 1, 2020. |
In our business, healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of our product candidates, if approved for marketing. Moreover, while we do not plan to submit claims and our customers will make the ultimate decision on how to submit claims, from time to time, we may provide reimbursement guidance to our customers. Current or future arrangements with physicians and other healthcare providers and customers, and third-party payors, may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our medicines for which we obtain marketing approval. If a government authority were to conclude that we provided improper advice to our customers or encouraged the submission of false claims for reimbursement or failed to comply with government price reporting requirements, or engaged in off-label promotion of products, we could face action by government authorities. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial condition.
We have entered into consulting and employment arrangements with individuals, physicians and other healthcare providers. Compensation for some of these arrangements includes the provision of stock options. While we have worked to structure our arrangements to comply with applicable laws, because of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our financial relationships with providers who serve as clinical investigators in our clinical trials, or influence the ordering of and use our products to be in violation of applicable laws.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry.
Responding to investigations can be time- and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
General Market Risk Factors
Future sales of shares by existing stockholders could cause our stock price to decline.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after certain legal restrictions on resale lapse, the trading price of our common stock could decline. As of SeptemberJune 30, 2019,2020, we had 5,278,85015,361,619 shares of common stock outstanding. Approximately 3,460,000 12,253,506 of such shares are freely tradable, without restriction, in the public market. Approximately 1,817,0003,108,113 of such shares of common stock are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.
Ownership of our common stock is highly concentrated, which may prevent our stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.
Our
current executive officers and directors
and their affiliatesas a group beneficially own or control approximately
31% 13% of the outstanding shares of our common stock as of
SeptemberJune 30,
2019.2020. Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of our company, even if such a change of control would benefit our other stockholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to
investors’investors’ perception that conflicts of interest may exist or arise.
Our eighth amended business operations, financial condition, results of operations and restated certificatecash flows have been adversely affected and will likely continue to be adversely affected by the effects of incorporation, as amended, provides thathealth epidemics, pandemics, or outbreaks of infectious diseases, including the Court of Chancery of the State of Delaware is the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. recent COVID-19pandemic.
Our
eighth amended and restated certificatebusiness could be adversely affected by health epidemics in regions where we have concentrations of
incorporation, as amended, provides that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum, to the fullest extent permitted by law, for: (a) any derivative action or proceeding brought on our behalf; (b) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officersclinical trial sites or other
employeesbusiness operations and could cause significant disruption in the operations of third-party manufacturers and CROs upon whom we rely.
For example, in December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to us or our stockholders; (c) any action assertingspread globally and in March 2020, the World Health Organization declared COVID-19 a claim arising pursuant topandemic. The COVID-19 pandemic has negatively impacted the DGCL, our eighth amendedglobal economy, disrupted global supply chains and restated certificatecreated significant volatility and disruption of incorporation, as amended, or our second amended and restated bylaws; or (d) any action asserting a claim against us governed by the internal affairs doctrine. This choice of forum provision does not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any actions brought under the Securities Act or the Exchange Act. Accordingly, our exclusive forum provision will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemedfinancial markets. The COVID-19 pandemic began to have waiveda material adverse impact on our compliance with these laws, rules and regulations.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees.
If a court were to find the choice of forum provision contained in our eighth amended and restated certificate of incorporation, as amended, to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations
in the quarter ended March 31, 2020, and
financial condition. Even if we
are successfulexpect it to continue to adversely affect our business. In response to the COVID-19 outbreak, “shelter in defending against these claims, litigationplace” orders and other public health guidance measures have been implemented across much of the United States, Europe and Asia, including in the locations of our offices, clinical trial sites, key vendors and partners. Our clinical development program timelines have been and continue to be negatively affected by COVID-19, as evidenced by the delay in the initiation of our planned Phase 2 study of PDS0101 in combination with KEYTRUDA® in first-line treatment of recurrent/metastatic head and neck cancer and initiation of the Phase 2 clinical study at The MD Anderson Cancer Center in combination with CRT. The evolving COVID-19 pandemic has also impacted the pace of enrollment in clinical trials and we may be affected by similar delays as patients may avoid or may not be able to travel to healthcare facilities and physicians’ offices unless due to a health emergency and clinical trial staff can no longer get to the clinic. Such facilities and offices have been and may continue to be required to focus limited resources on non-clinical trial matters, including treatment of COVID-19 patients, thereby decreasing availability, in whole or in part, for clinical trial services. Further, due to “shelter in place” orders and other public health guidance measures, we have implemented a work-from-home policy for all staff members excluding those necessary to maintain minimum basic operations. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay or otherwise adversely impact our business. In addition, the COVID-19 pandemic has affected and may continue to affect the operations of the FDA and other health authorities, which could result in substantial costsdelays of reviews and be a distraction to management and other employees.approvals.
As a result of the COVID-19 outbreak, or similar pandemics, and related “shelter in place” orders and other public health guidance measures, we have and may in the future experience disruptions that materially and adversely impact our clinical trials, business, financial condition and results of operations. Potential disruptions include but are not limited to:
| ● | delays or difficulties in enrolling patients in our clinical trials; |
| ● | delays or difficulties in initiating or expanding clinical trials, including delays or difficulties with clinical site initiation and recruiting clinical site investigators and clinical site staff; |
| ● | increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or being forced to quarantine; |
| ● | diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials; |
| ● | interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures, which may impact the integrity of subject data and clinical study endpoints; |
| ● | interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines; |
| ● | delays or disruptions in preclinical experiments and investigational new drug application-enabling studies due to restrictions of on-site staff and unforeseen circumstances at contract research organizations and vendors; |
| ● | interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; |
| ● | limitations on our ability to recruit and hire key personnel due to our inability to meet with candidates because of travel restrictions and “shelter in place” orders; |
| ● | limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; and |
| ● | interruption or delays to our sourced discovery and clinical activities. |
Further, on March 25, 2020, the FDA issued Guidance on Conduct of Clinical Trials of Medical Products during the COVID-19 Pandemic for Industry, Investigators, and Institutional Review Boards to assist sponsors in assuring the safety of trial participants, maintaining compliance with good clinical practices, and minimizing risks to trial integrity during the COVID-19 Pandemic, or the COVID-19 Guidelines. The policy is intended to remain in effect only for the duration of the public health emergency related to COVID-19 declared by the Department of Health and Human Services on January 31, 2020. We have implemented several procedures in accordance with the COVID-19 Guidelines to address patient safety and clinical trial conduct during the COVID-19 pandemic, including remote monitoring of patients through telemedical visits, remote monitoring of sites by our clinical trial monitors, remote data entry, and follow-up visits at sites other than the site where the patient was initially treated. Our implementation of the COVID-19 Guidelines and potential disruptions to patient follow up, site monitoring or the timely completion of our trials may have a negative effect on our ability to complete trials and associated regulatory filings.
While the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets has reduced and may continue to reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity.
We do not yet know the full extent of potential delays or impacts on our business, financing or clinical trial activities or on healthcare systems or the global economy as a whole. However, these effects have had and may continue to have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely and a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. In addition, the trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. We will continue to monitor the COVID-19 situation closely.
ITEM 2. | ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
There were no unregistered sales of the Company’s equity securities during the three months ended SeptemberJune 30, 2019.2020.
ITEM 3. | ITEM 3.DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | ITEM 4.MINE SAFETY DISCLOSURES |
Not applicable.
On October 28, 2019, PDS entered into an amendment to the clinical trial collaboration agreement with a subsidiary of Merck (known as MSD outside the United States and Canada) to evaluate the combination of PDS's lead Versamune®-based immunotherapy, PDS0101, with Merck's anti-PD-1 therapy, KEYTRUDA® (pembrolizumab), in a Phase II clinical trial. The planned clinical trial will now evaluate the efficacy and safety of the combination as a first-line treatment in patients with recurrent or metastatic head and neck cancer and high-risk human papillomavirus-16 (HPV16) infection and is expected to be initiated in the first quarter of 2020. The modification to the clinical trial design to evaluate PDS0101 in combination with KEYTRUDA® as first-line treatment comes as a result of Merck’s recent approval by the FDA on June 10, 2019 for first line treatment of patients with metastatic or unresectable recurrent head and neck squamous cell carcinoma (HNSCC) using KEYTRUDA® in combination with platinum and fluorouracil (FU) for all patients and as a single agent for patients whose tumors express PD-L1 as determined by an FDA-approved test.None.
A list of exhibits filed with this Quarterly Report or incorporated herein by reference is set forth in the Exhibit Index immediately preceding the signature page of this report and is incorporated into this Item 6 by reference.
Exhibit Number | | Exhibit Description |
| | |
| | Amendment No. 1 to Clinical Trial Collaboration and SupplyConsulting Agreement datedmade as of October 28, 2019,June 23, 2020 by and between PDS Biotechnology Corporation and MSD International GmbH.King Partners II (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on June 24, 2020 and incorporated herein by reference). |
| | |
| | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
| | |
| | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
| | |
| | Certification of Principal Accounting Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
| | |
| | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
| | |
| | Certification of Principaland Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
| | |
| | Certification of Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
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101.INS | | XBRL Instance Document |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
* | The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference. |
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| Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
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Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PDS Biotechnology Corporation |
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November 7, 2019August 13, 2020
| By: | /s/ Frank Bedu-Addo |
| | Frank Bedu-Addo |
| | President and Chief Executive Officer |
| | (Principal Executive Officer)
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November 7, 2019August 13, 2020
| By: | /s/ Andrew SaikMichael King |
| | Andrew Saik Michael King |
| | Interim Chief Financial Officer |
| | (Principal Financial and Accounting Officer)
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