Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis
should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report. This discussion
and other parts of this Annual Report contain forward-looking statements based upon current expectations that involve risks and uncertainties.
Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements
as a result of several factors, including those set forth under “ Risk Factors ” and elsewhere in this Annual Report.
The preparation of financial statements
in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent liabilities at the financial statement date and reported amounts of revenue and expenses during
the reporting period. On an on-going basis, we review our estimates and assumptions. The estimates were based on historical experience
and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates
or other forward-looking statements under different assumptions or conditions, but we do not believe such differences will materially
affect our financial position or results of operations. Our actual results may differ materially as a result of many factors, including
those set forth under the headings entitled “ Special Note Regarding Forward-Looking Statements ” and “ Risk
Factors ”.
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Recent Developments
BriaCell
(the “ Company ”) is an immuno-oncology biotechnology company with a strong focus on cancer immunotherapy. Immunotherapies
have come to the forefront in the fight against cancer since they harness the body’s own immune system to recognize and destroy
cancer cells. BriaCell owns the U.S. patent to SV-BR-1-GM (“ Bria-IMT™ ”), a whole-cell targeted immunotherapy
for cancer (U.S. Patent No. 7,674,456), as well as patents related to PKCδ inhibitors (U.S. Patent Nos. 9,364,460 and 9,572,793).
The Company is currently advancing our targeted immunotherapy program by prioritizing a Phase I/IIa clinical trial with Bria-IMT™
in combination with an immune checkpoint inhibitor and a companion diagnostic test, BriaDx™, to identify patients most likely to
benefit from Bria-IMT™. The Bria-IMT™ regimen was evaluated in four patients in a prior study in 2004-2006 by Dr. Charles
Wiseman, the scientific founder, former member of the board of directors of the Company (the “ Board ”) and principal
scientific advisor. Encouraging results were obtained, especially in a patient who matched Bria-IMT™ at HLA-DR alleles and had
a grade II tumor. In 2017-2018 BriaCell evaluated 23 patients with advanced breast cancer with the Bria-IMT™ regimen and obtained
confirmation of the ability of the Bria-IMT™ regimen to induce regression of metastatic breast cancer in patients who match Bria-IMT™
at least at one HLA allele and/or if they had grade I or grade II tumors. A combination study with the immune checkpoint inhibitor pembrolizumab
(KEYTRUDA®) was initiated and the first patient dosing in the “combination therapy” clinical trial occurred in September
2018. BriaCell purchased the KEYTRUDA® for this study as BriaCell does not have an agreement with Merck & Co., Inc. for the supply
of KEYTRUDA®. Eleven patients were dosed in the combination therapy trial with Bria-IMT™ and the immune checkpoint inhibitor
KEYTRUDA® and subsequently dosing with this combination was discontinued. The study was modified under an amended protocol which
evaluates the combination of the Bria-IMT™ regimen with Incyte Corporation experimental drugs retifanlimab (anti-PD-1 antibody
similar to pembrolizumab). The study is ongoing.
It
is estimated by the National Cancer Institute that in 2022, approximately 287,500 women will be diagnosed with breast cancer in the United
States. That means that every two minutes an American woman is diagnosed with breast cancer and more than 43,000 are projected to die
in 2022. Although about 100 times less common than in women, breast cancer also affects men. It is estimated that the lifetime risk of
men getting breast cancer is about 1 in 1,000, and the American Cancer Society estimates that approximately 2,710 new cases of invasive
male breast cancer will be diagnosed and approximately 530 men will die from breast cancer in 2022.
According
to the May 2019 “Global Oncology Trends 2021” report by the IQVIA Institute, the global market for cancer drugs (including
immunotherapy drugs) is expected to reach nearly $269 billion by the end of 2025, growing at a compound annual growth rate (“ CAGR ”)
of 10% between 2021 and 2025, of which about 20% is expected to be immuno-oncology drugs.
About
12.9% percent of women will be diagnosed with breast cancer at some point during their lifetime. In 2018, there were an estimated 3,676,262
women living with female breast cancer in the United States. Approximately 81% of cases present as invasive breast cancer. Approximately
6% of new breast cancer diagnoses are Stage IV (metastatic breast cancer (“ MBC ”), which has already spread to other
organs). Twenty to thirty percent of all women diagnosed with breast cancer will develop MBC. Breast cancer can be subdivided based on
receptor status – the hormone receptors for estrogen (ER) and progesterone (PR), collectively referred to as hormone receptors
(HR), and the Her2/neu growth factor receptor (HER2). Based on the latest SEER statistics, 74.6% were found to be HR+/HER2−, 10.8%
were triple-negative (HR−/HER2−), 10.5% were HR+/HER2+, and 4.0% were HR−/HER2+. 1
It
is estimated that over 150,000 women in the US are living with MBC. For those with metastatic disease at diagnosis, their 5-year survival
rate is 27%. For patients who develop MBC after initially having localized disease, if they had a good response to treatment (i.e. a
disease-free interval of more than 24 months), their survival rate is similar to that of patients with MBC at initial diagnosis, but
if their disease-free interval is less than 24 months, their prognosis is worse. 4 We currently propose that Bria-IMT’s™
indication will be for the treatment of patients with MBC who have failed at least two lines of therapy. Similarly, another study showed
that the median overall survival among patients with de novo stage IV MBC was 39.2 months, while for patients with relapsed disease it
was 27.2 months. Median progression free survival after first-line therapy is only 9 months and the survival benefit decreases with subsequent
lines of therapy. One study showed that of 386 patients with MBC, 374 (97%) received first-line therapy, 254 (66%) received second-line
therapy, 175 (45%) received third-line therapy, and 105 (27%) received therapy beyond third-line.
On
September 14, 2022, the Company signed an agreement with Caris Life Sciences ® (Caris), a leading molecular science a nd technology
company actively developing and delivering innovative solutions to revolutionize healthcare.
60
Under the terms of the agreement, Caris will help
BriaCell with efficient patient identification, accelerating enrollment for its current Phase I/II clinical trial in advanced metastatic
breast cancer of certain genetically defined subgroups. The partnership between BriaCell and Caris leverages Caris’ Right-In-Time
(RIT) Clinical Trial Network, a group of over 495 oncology sites that are able to quickly identify and enroll eligible patients in biomarker-directed
clinical trials. This service offers patients and physicians access to the most cutting-edge precision medicine in development. Additionally,
through Caris’ comprehensive molecular profiling (Whole Exome and Whole Transcriptome Sequencing), Caris will perform tumor profiling
for the patients enrolled in the clinical trial.
On August 2, 2022, the Company
secured an exclusive license from University of Maryland, Baltimore County (“ UMBC ”) to develop and commercialize Soluble
CD80 (“ sCD80 ”) as a biologic agent for the treatment of cancer. The novel technology, originally developed by Suzanne
Ostrand-Rosenberg, PhD, Faculty at UMBC, and BriaCell’s scientific advisory board member, is entitled “Soluble CD80 as a Therapeutic
to Reverse Immune Suppression in Cancer Patients” (Patent No. US 9,650,429 B2). In animal models, sCD80 has been shown to be safe
and effective in stopping the tumor growth in animal models by potentially restoring natural anti-tumor immunity. Importantly, sCD80’s
unique actions may involve both awakening and boosting the immune system to recognize and destroy tumor cells.
Under the terms of the agreement, BriaCell gains the
worldwide rights to develop and commercialize sCD80 as a therapeutic agent for the treatment of cancer, while UMBC holds all rights, title
and interest in the inventions and the patent, except for certain rights retained by the United States Government. BriaCell will pay 2%
royalties to UMBC upon the commercialization of the product plus other development costs. The licensing agreement was coordinated by UMBC.
On October 12, 2022, the Company
announced it has added Mayo Clinic, Jacksonville, Florida as a clinical site in the Phase I/II study of BriaCell’s lead candidate,
Bria-IMT™, with Incyte’s PD-1 inhibitor, retifanlimab, in advanced breast cancer.
On October 21, 2022, the Company
announced the completion of the Phase I part of the clinical trial of its lead candidate, Bria-IMT™, in combination with Incyte’s
PD-1 inhibitor, retifanlimab, in advanced breast cancer. The efficacy and survival data of the treated patients is being evaluated in
the Phase II part of the study which was recently awarded the FDA’s fast track designation. Under an FDA approved protocol, another
arm has recently been added to the Phase II study to evaluate the effects of dosing schedules for patients in the study.
The Phase I portion of the trial,
with the primary goal of assessing safety and tolerability of the combination, enrolled 12 subjects who had previously failed at least
two prior lines of therapy, characterized as a difficult-to-treat patient population. The combination treatment had a favorable safety
profile and appeared well-tolerated with no dose-limiting toxicities.
Progressing through the Phase
II part of the clinical trial, a randomized controlled design will be used to allow comparison of the effectiveness of the treatment regimens
between the two arms of the study with different dosing schedules.
BriaCell noted it is on schedule to meet with the
FDA later this year to discuss the design of a key registration study.
61
Approval
of Omnibus Incentive Plan
On
August 2, 2022, the Company approved an omnibus equity incentive plan (“Omnibus Plan), which will permit the Company to grant incentive
stock options, preferred share units, restricted share units (“RSU’s”), and deferred share units (collectively, the
“Awards”) for the benefit of any employee, officer, director, or consultant of the Company or any subsidiary of the Company.
The maximum number of Shares available for issuance under the Omnibus Plan shall not exceed 15% of the issued and outstanding Shares,
from time to time, less the number of Shares reserved for issuance under all other security-based compensation arrangements of the Company,
including the existing Stock Option Plan. The Omnibus Plan remains subject to approval by the shareholders of the Company (the “Shareholders”)
and final approval of the Toronto Stock Exchange (“Exchange”) and will replace the Company’s existing Stock Option
Plan upon receipt of such approvals (“Approvals”).
The
Company may make grants under the Omnibus Plan, however, the grants cannot be settled until the Approvals have been received.
Stock Option and RSU Grants
On
September 1, 2021, the Company issued 100,000 options to a consultant with an exercise price of $5.74, which vest immediately and expire
on September 1, 2026.
On
November 1, 2021, the Company issued 12,600 options with an exercise price of $7.94, and expire on November 1, 2026. 10,000 of the options
were issued to a director and vest immediately, and 2,600 options were issued to members of the Company’s scientific advisory board and
vest in five equal instalments every six months, with the first instalment vesting immediately.
On
January 13, 2022, the Company issued 524,700 options to directors, officers, and employees with an exercise price of $8.47 and expire
on January 13, 2027. 482,300 of the options were granted to Insiders, as such term is defined in the Securities Act (British Columbia)
and vest in four equal instalments every 90 days, with the first instalment vesting immediately. The remaining 42,400 options vest in
eight equal instalments every 90 days, with the first installment vesting immediately.
On
February 16, 2022, the Company issued 150,000 options to an officer with an exercise price of $7.51 and expire on February 16, 2027.
The options vest in eight equal instalments every 90 days, with the first instalment vesting immediately.
On
May 20, 2022, the Company issued 31,000 options with an exercise price of $4.71 and expire on May 20, 2027. The options vest in eight
equal instalments every 90 days, with the first instalment vesting immediately. 20,000 options were issued to the Company’s CFO.
On
August 2, 2022, the Company issued 180,100 options with an exercise price of C$8.38 and expire on August 2, 2027. The options vest in
eight equal instalments every 90 days, with the first instalment vesting immediately. 142,100 of the options were issued to the Company’s
officers. In addition, the Company issued RSU
On
August 2, 2022, the Company also granted, under the Omnibus Plan, 19,200 RSU’s to the CEO. The RSU’s vested immediately.
Exercise of warrants
During the year ended July 2022,
1,615,645 warrants with an weighted aggregate exercise price of $5.98 were exercised for gross proceeds of $6,509,767.
Securities Repurchase Program
As noted in a press release
dated September 9, 2021, BriaCell announced that the Board has authorized the Company’s securities repurchase program whereby the
Company may purchase through the facilities of the TSX Venture Exchange (“TSXV”) or The NASDAQ Capital Market (“NASDAQ”)
(i) up to 1,341,515 common shares (the “Common Shares”) and (ii) up to 411,962 publicly traded BCTXW warrants (the “Listed
Warrants”) in total, representing 10% of the 13,415,154 Common Shares and 10% of the 4,119,622 Listed Warrants comprising the “public
float” as of September 8, 2021, over the next 12 months (the “Buyback”). Independent Trading Group (ITG), Inc. will
act as the Company’s advisor and dealer manager in respect of the Buyback. The Company received final regulatory approval on September
22, 2021.
The repurchase program will in no way interfere with BriaCell’s ambitious growth plans to expand into previously-announced
areas of cancer immunotherapy and/or advance its current breast cancer clinical trials. BriaCell’s proposed repurchases may be conducted
through open market transactions at prevailing market prices, in privately negotiated transactions, in block trades, and/or through other
legally permissible means, subject to the market conditions and in compliance with applicable rules and regulations. The timing and dollar
amount of repurchase transactions will be subject to the SEC’s Rule 10b-18 and/or Rule 10b5-1 requirements. Purchases of Common Shares
or Listed Warrants through the NASDAQ will not, during the 12-month period, exceed 5% of the outstanding Common Shares or Listed Warrants
in the aggregate, as at the commencement of the Buyback. BriaCell’s
Board of Directors will be reviewing the program periodically and may revise the terms and/or size or suspend or discontinue the program.
As of October 27, 2022, the
company has repurchased 1,031,672 common shares and 259,059 publicly traded warrants. All of the warrants and shares repurchased
have been cancelled.
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Changes in the Board of Directors
On September 1, 2021, Mr. Marc
Lustig was appointed to the Company’s Board of Directors. Mr. Lustig is a highly regarded investor, entrepreneur, and corporate
finance veteran with a deep understanding of the life sciences industry, including biotechnology and pharmaceuticals, as well as the legal
cannabis industry. Marc holds MSc and MBA degrees from McGill University. His professional experience includes working at Merck &
Co., and his capital markets career includes roles in biotechnology equity research and corporate finance. Mr. Lustig was the founder
and CEO of Origin House, which was sold to Cresco Labs Inc. (CSE: CL; OTCQX: CRLBF) in 2020, where he currently serves as a director and
as Head of Capital Markets. In addition to being a director of a number of public companies, Marc founded the Lustig Family Medical Cannabis
Research & Care Fund of the Cedars Cancer Foundation that provides cannabis to palliative cancer patients.
Shareholder Meeting
On May 19, 2021, BriaCell
announced the results of its annual general and special meeting of shareholders of the Company (the “Shareholders”) for the
years ended July 31, 2019 and July 31, 2020, held on May 18, 2021 (the “Meeting”). A total of 1,685,180 common shares of
the Company (the “Common Shares”) were voted, representing 22.36% of the Company’s issued and outstanding Common Shares.
At the Meeting, the Shareholders overwhelmingly voted in favor of all proposed resolutions that consisted of the following:
●
The number of directors set at six;
●
Election of Dr. William V. Williams, Mr. Jamieson Bondarenko, Dr. Charles Wiseman, Dr. Rebecca Taub, Mr. Vaughn C. Embro-Pantalony, and Mr. Martin Schmieg as directors of the Company;
●
Appointment of MNP LLP as auditors of the Company for the ensuing year and authorizing the directors to fix their remuneration;
●
Renewal of the Company’s stock option plan;
●
Ratification of the number of directors set at six for the prior year ended July 31, 2019;
●
Ratification of the election of Dr. William V. Williams, Mr. Jamieson Bondarenko, Mr. Richard Berman, Mr. Vaughn C. Embro-Pantalony, Dr. Rebecca Taub, and Dr. Charles Wiseman as directors of the Company for the prior year ended July 31, 2019;
●
Ratification of the appointment of MNP LLP as the auditors of the Company for the prior year ended July 31, 2019 and ratifying the directors authorization to fix their remuneration;
●
Ratification of the Company’s stock option plan for the prior year ended July 31, 2019; and
●
Ratification of holding the Company’s annual general and special meeting for the year ended July 31, 2019 on May 18, 2021.
Having received shareholder approval,
the Company’s stock option plan remains subject to approval from the TSX Venture Exchange. The formal report on voting results with
respect to all matters voted upon during the Meeting will be filed on the Company’s SEDAR profile at www.sedar.com and will
be filed with the SEC at www.sec.gov.
Overview
Critical Accounting Policies and Estimates
1. Critical Estimates and Judgements
The preparation of these consolidated
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from
these estimates. The financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive
throughout the financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates
are recognized in the period in which the estimate is revised and also in future periods when the revision affects both current and future
periods.
The critical judgments and significant
estimates in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial
statements are:
●
Intangible assets are tested for impairment annually or more frequently if there is an indication of impairment. The carrying value of intangibles with definite lives is reviewed each reporting period to determine whether there is any indication of impairment. If there are indications of impairment the impairment analysis is completed and if the carrying amount of an asset exceeds its recoverable amount, the asset is impaired and impairment loss is recognized.
63
●
The Company uses the Black-Scholes option-pricing model to estimate fair value of options and the warrant liability at each reporting date. The key assumptions used in the model are the expected future volatility in the price of the Company’s shares and the expected life of the warrants.
●
The financial statements of each company within the consolidated group are measured using their functional currency which is the currency of the primary economic environment in which an entity operates. The Company changed its functional currency from the Canadian dollar (C$) to the United States dollar (US$) as of May 1, 2021. The change in presentation currency is a voluntary change which is accounted for retrospectively. For comparative reporting purposes, historical financial information has been translated to United States dollars using the exchange rate as of May 1, 2021, which is the date of the change in the functional and presentation currency.
2. New Accounting Policies Adopted
No new accounting policies were
adopted during the year ended July 31, 2022.
Results of Operations
Comparison of the year ended July 31, 2022,
compared to the year ended July 31, 2021
Research Costs
Research costs are comprised primarily
of (i) Salaries and wages to Company employees at our laboratory; and (ii) Clinical trials and investigational drug costs, which include
the testing and manufacture of our investigational drugs and costs of our clinical trials.
For the year ended July 31, 2022,
research costs amounted to $8,021,489 as compared to $2,020,899 for the year ended July 31, 2021. The increase is attributed to the recommencing
of the Company’s clinical trials and the increased activity in the lab, including the hiring of additional lab employees .
General and Administrative Expenses
For the year ended July 31, 2022,
general and administrative expenses amounted to $7,267,452 as compared to $ 4,955,136 for the year ended July 31, 2021. The increase in
2022 is mainly due to a significant ramp up of activity in the Company, following the financings completed in 2021. These increases relate
primarily to share based compensation (i.e. non-cash), increase in salaries due to hiring more personnel, and consulting and professional
fees incurred by the Company.
Financial expenses, net
For the year ended July 31, 2022,
financial expense, net amounted to $11,549,962 as compared to $6,840,165 for the year ended July 31, 2021. Financial expense, net in 2022
is the result of the revaluation of warrant liability at period end offset slightly by interest income earned during the period on funds
held in interest bearing accounts. The higher expense in 2021 can be attributed to a larger adjustment to the warrant liability from the
issuance of warrants and the revaluation of warrants at period end.
Loss for the period
The Company reported a loss for
the year ended July 31, 2022, of $26,838,903 as compared to $13,816,200 for the year ended July 31, 2021. The primary reason for reduced
losses in 2022 is due to the decrease in fair value of the warrant liability.
64
Going Concern Uncertainty
The financial statements have
been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities
in the normal course of business for the foreseeable future. The continuing operations of the Company are dependent upon its ability to
continue to raise adequate financing and to commence profitable operations in the future.
As of July 31, 2022, the Company
has total assets of $42,577,041 (July 31, 2021 - $58,043,762) and a positive working capital balance of $41,405,614 (July 31, 2021 –$57,241,355).
The Company is planning to finance
its research and developmental activities from its existing and future working capital resources and to continue to evaluate additional
sources of capital and financing. The Company believes that its existing capital resources will be adequate to satisfy its expected liquidity
requirements for at least twelve months from the issuance of the consolidated financial statements.
Liquidity and Capital Resources
As of July 31, 2022, the
Company has a working capital of $41,405,614 (July 31, 2021 – $57,241,355) and an accumulated deficit of $60,349,837 (July 31,
2021 - $29,141,897). In June 2021, the Company completed a private placement of gross proceeds of $27.2 million.
As of July 31, 2022, the Company’s
capital resources consist primarily of cash and cash equivalents, comprising mostly of cash on deposit
with banks, investments in money market funds, investments in U.S. government securities, U.S. government agency securities, and investment
grade corporate debt securities . Our investment policy and strategy are focused on preservation
of capital and supporting our liquidity requirements.
65
Historically, the Company
has financed its operation through private and public placement of equity securities, as well as debt financing. The Company’s
ability to fund its longer-term cash requirements is subject to multiple risks, many of which are beyond its control. The Company intends
to raise additional capital, either through debt or equity financings in order to achieve its business plan objectives. Management believes
that it can be successful in obtaining additional capital; however, no assurance can be provided that the Company will be able to do
so. There is no assurance that any funds raised will be sufficient to enable the Company to attain profitable operations or continue
as a going concern. To the extent that the Company is unsuccessful, the Company may need to curtail or cease its operations and implement
a plan to extend payables or reduce overhead until sufficient additional capital is raised to support further operations. There can be
no assurance that such a plan will be successful
During the year ended
July 31, 2022, the Company’s overall position of cash and cash equivalents decreased by $16,227,033 from the year ended July 31,
2021 (including effects of foreign exchange). This decrease in cash can be attributed to the following:
The Company’s net cash used
in operating activities during the year ended July 31, 2022 was $12,484,376 as compared to $7,750,188 for year ended July 31, 2021. This increase is mostly due to company growth and increased expenditures
during the period.
Cash used in
financing activities for the year ended July 31, 2022 was $3,742,657 as compared to $64,997,624 for the year ended July 31, 2021. Cash
used in 2022 is attributed to the money spent on the buyback program offset by warrant exercise proceeds. Cash provided in 2021
was mainly from the Nasdaq Financing in February 2021, the private placement proceeds in June 2021, and the exercise of warrants
offset by the repayment of these loans.
Off-balance Sheet Arrangements
None.
Tabular Disclosure of Contractual Obligations
None.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We are a smaller reporting company, as defined by
Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this Item
7A.