BriaCell Therapeutics Corp. 10-K

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 ”. 50 Overview BriaCell Therapeutics Corp. (the “Company”), is a clinical-stage biotechnology company that is developing novel immunotherapies to transform cancer care. Immunotherapies have come to the forefront in the fight against cancer as they harness the body’s own immune system to recognize and destroy cancer cells. The Company is currently advancing its Bria-IMT™ targeted immunotherapy in combination with an immune check point inhibitor in a pivotal1 Phase 3 study in advanced metastatic breast cancer. BriaCell recently reported benchmark-beating patient survival and clinical benefit in advanced metastatic breast with median overall survival of 13.5 months in BriaCell’s advanced metastatic breast cancer patients vs. 6.7-9.8 months for similar patients reported in the literature2. A completed Bria-IMT™ Phase 1 combination study with retifanlimab (an anti-PD1 antibody manufactured by Incyte) confirmed tolerability and early-stage efficacy. BriaCell is also developing a personalized off-the-shelf immunotherapy, Bria-OTS™, which provides a platform technology to develop personalized off-the-shelf immunotherapies for numerous types of cancer, and a soluble CD80 protein therapeutic which acts both as a stimulator of the immune system as well as an immune checkpoint inhibitor. 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. ● 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. ● Preparation of the consolidated financial statement on a going concern basis, which contemplates the realization of assets and payments of liabilities in the ordinary course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets, including its intangible assets and to meet its liabilities as they become due ● Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made. 2. New Accounting Policies Adopted No new accounting policies were adopted during the year ended July 31, 2023. Results of Operations Comparison of the year ended July 31, 2023, compared to the year ended July 31, 2022 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. The following is a breakdown of our research and development costs by project: Year ended July 31, 2023 2022 Clinical trials $ 7,843,760 $ 3,540,955 Pre-clinical projects 3,787,673 2,076,127 Chemical, Manufacturing and Control Costs (“CMC Costs”) 1,801,287 1,346,810 Other 1,903,918 1,057,597 $ 15,336,638 $ 8,021,489 51 Our clinical trial expenses include our immunotherapy program, Bria-IMT™, a 46-subject Phase I/IIa clinical trial. Clinical trial expenses increased in 2023 as we recruited more patients into the Bria-IMT™ trial and began setting up the Bria-OTS™ trial. Pre-clinical projects include expenses incurred in our off-the-shelf personalized immunotherapies, including Bria-OTS+™, and Bria-PROS™. Our pre-clinical costs have increased in 2023 as we hired more staff to accelerate our existing pre-clinical program and added an additional pre-clinical program (sCD80). CMC costs include the manufacturing of Bria-IMT™ and Bria-OTS™ and all quality control and quality assurance testing on the investigational product. CMC costs increased in 2023 to support the additional patients in our trials. Other costs are ancillary expenses we incur such as costs to maintain our patents, investigation of early-stage projects, scientific advisory board expenses, contracts with vendors for pre-clinical work, and administration costs associated with all our research and development expenditure. Other costs increased in 2023 as we investigated additional potential pre-clinical projects. The following is a breakdown of our research and development costs by nature of expenses: Year ended July 31, 2023 2022 Clinical trial sites and investigational drug costs $ 9,611,630 $ 4,912,530 Wages and salaries 3,878,367 2,225,050 Laboratory Rent 194,880 138,354 Supplies 579,169 309,992 Share-based compensation 1,072,592 435,563 $ 15,336,638 $ 8,021,489 For the year ended July 31, 2023, research costs totaled $15,336,638, compared to $8,021,489 for the same period in 2022. The increase primarily resulted from the expansion of the Company’s Bria-IMT™ trial and higher clinical trials and investigational drug costs, which rose from $4,912,530 in 2022 to $9,611,630 in 2023. Laboratory costs also increased due to the hiring of additional employees and higher supplies, growing from $138,354 to $194,880 and $309,992 to $579,169, respectively. Additionally, non-cash share-based compensation expenses rose from $435,563 in 2022 to $1,072,592 in 2023, contributing to the overall increase in research and development expenses. General and Administrative Expenses For the year ended July 31, 2023, general and administrative expenses amounted to $7,935,626 as compared to $7,267,452 for the year ended July 31, 2022 The increase in general and administrative expenses primarily stems from higher insurance premiums, professional fees, and salaries, offset by a decrease in share-based compensation expenses. Financial income (expenses), net For the year ended July 31, 2023, financial income, net amounted to $2,969,870 as compared to financial loss $11,549,962 for the year ended July 31, 2022. Financial income (expenses) comprises, primarily, changes in the fair value of the warrant liability and interest earned on our treasury. For the year ended July 31, 2023, the value of the warrant liability decreased by $2,119,530. The decrease was primarily due to the decrease in the share price at period end. For the year ended July 31, 2022, there was an increase in the value of the liability of $11,658,372 due to the increased share price at the period end. Interest income for the year ended July 31, 2023 was $891,213 as compared to $136,731 for the year ended July 31, 2022. The increase in 2023 is attributable to higher interest rates in North America. Loss for the period The Company reported a loss for the year ended July 31, 2023, of $20,302,394 as compared to $26,838,903 for the year ended July 31, 2022. The loss in 2023 primarily stems from a substantial increase in operational spending, offset by a gain in from a decrease in the fair value of the warrant liability. Conversely, the higher loss in the prior period can be attributed to a larger increase in the fair value of the warrant liability. These factors account for the variance in the reported losses between the two periods, highlighting the impact of changes in warrant valuation and operational spending on the Company’s financial performance. 52 Liquidity and Capital Resources As of July 31, 2023, the Company has a working capital of 25,147,050 (July 31, 2022 – $41,405,613) and an accumulated deficit of $80,652,231 (July 31, 2022 - $60,349,837). As of July 31, 2023, the Company’s capital resources consist primarily of cash and cash equivalents, comprised 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. 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, there can be no assurance 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, 2023, the Company’s overall position of cash and cash equivalents decreased by $19,790,560 from the year ended July 31, 2022 (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, 2023, was $23,744,860 as compared to $12,484,376 for the year ended July 31, 2022. Cash gained in financing activities for the year ended July 31, 2023, was $3,954,300, as compared to a loss of $3,742,657 for the year ended July 31, 2022. Off-balance Sheet Arrangements None. Tabular Disclosure of Contractual Obligations None. 53 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.