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 consolidated 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 our consolidated 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 ”. Overview BriaCell 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 (Retifanlimab) in a pivotal Phase 3 study in metastatic breast cancer. Bria-IMT™ is currently under Fast Track Designation by the U.S. Food and Drug Administration(the “FDA”) intended to accelerate the review process of novel treatments that address unmet medical needs. Positive completion of the pivotal study, following review by FDA, could lead to full approval of the Bria-IMT™ immune checkpoint inhibitor combination in metastatic breast cancer. BriaCell reported benchmark-beating patient survival and clinical benefit in metastatic breast cancer with median overall survival of 13.4 months in BriaCell’s metastatic breast cancer patients vs. 6.7-9.8 months for similar patients reported in the literature in its Phase 2 study of Bria-IMT™ combination study with retifanlimab at the 2023 San Antonio Breast Cancer Symposium. 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 personalized off-the-shelf immunotherapies, Bria-OTS™ and 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 consolidated 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. 53 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: Going Concern 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. Warrants and options The Company uses the Black-Scholes option-pricing model to estimate the fair value of options at the grant date, and the warrant liability at the grant date and each reporting period 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. Income Taxes The Company accounts for income taxes in accordance with Accounting Standard Codification 740, Income Taxes (“FASB ASC 740”), on a tax jurisdictional basis. The Company files income tax returns in the United States. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and the consolidated financial statements reported amounts using enacted tax rates and laws in effect in the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized. Provision for Income Taxes. Management accounts for income taxes by estimating future tax effects of temporary differences between the tax and book basis of assets and liabilities considering the provisions of enacted tax laws. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, management is required to make many subjective assumptions and judgments regarding the Corporation’s income tax exposures, including judgments in determining the amount and timing of recognition of the resulting deferred tax assets and liabilities, including projections of future taxable income. Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in management’s subjective assumptions and judgments can materially affect amounts recognized in the Consolidated balance sheet and Consolidated Statements of Operations and Comprehensive Loss Intangible assets 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. Prepaid expenses The Company has prepaid certain expenses in respect of its pivotal phase III trial and estimates the period over which such expenses will be incurred. As of July 31, 2024, the Company revised its estimate of the time to completion in respect of this trial. Amounts estimated to be expenses in more than 12 months have been classified to long-term prepaid expenses. The useful life of property and equipment Property and equipment are depreciated over their useful lives. Useful lives are based on management’s estimates of the period that the assets will be used which are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the amounts charged to the consolidated statement of operations and comprehensive loss in specific periods. Investment equity method Investments in entities over which the Company does not have a controlling financial interest but has significant influence are accounted for using the equity method, with the Company’s share of losses reported in the loss from equity method investments on the statements of operation and comprehensive loss. The Company has a 51.2% interest in BC Therapeutics. Management evaluates whether it has control over the investee in accordance with the guidance of ASC 810, which requires judgment to assess factors such as power over significant activities of the investee, exposure to variable returns, and the ability to affect those returns. Based on this evaluation, management determines whether control or significant influence is present for accounting purposes. 2. New Accounting Policies Adopted No new accounting policies were adopted during the year ended July 31, 2024. 54 Results of Operations Comparison of the year ended July 31, 2024, compared to the year ended July 31, 2023 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, 2024 2023 Clinical trials $ 15,833,879 $ 7,843,760 Pre-clinical projects 7,727,058 3,787,673 Chemical, Manufacturing and Control Costs (“CMC Costs”) 1,685,223 1,801,287 Other 1,931,646 1,903,918 $ 27,177,807 $ 15,336,638 Our clinical trial expenses include our immunotherapy program, Bria-IMT™, a 46-subject Phase 1/2a clinical trial. Clinical trial expenses increased in 2024 as we recruited more patients into the Bria-IMT™ trial and began setting up the Bria-OTS™ trial. Clinical trial expenses increased in 2024 as patients stayed in the trial for a longer period of time (i.e. a longer than expected overall survival). Additionally, our costs increased significantly compared with the same period in 2023 for much higher set up costs for the pivotal Phase 3 study of Bria-IMT™ combination regimen with Retifanlimab in advanced breast cancer, and additional expenses in preparation for the upcoming clinical studies of Bria-OTS™. Our clinical trial expenses are broken down as follows: Year ended July 31, 2024 2023 Bria-IMT™ Pivotal Phase 3 study $ 10,518,593 $ 2,801,978 Bria-IMT™ Phase 1/2a 3,846,033 4,577,457 Indirect research and development expenses allocated to trials 1,469,253 464,325 $ 15,833,879 $ 7,843,760 During the year ended July 31, 2024 we pivoted from our Bria-IMT™ Phase 1/2a study to the Bria-IMT™ Pivotal Phase 3 Study. 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 2024 as we hired more staff to accelerate our existing pre-clinical program and added an additional pre-clinical program (sCD80). Towards the end of 2024 the financial year end, we have slowed these programs in order to direct more attention and resources to our clinical trials. 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 decreased in 2024; this reduction can be attributed to efficiencies gained in the manufacturing process and a streamlined approach to quality control. 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 2024 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, 2024 2023 Clinical trial sites and investigational drug costs $ 20,890,266 $ 9,611,630 Wages and salaries 4,567,307 3,878,367 Laboratory rent 420,310 194,880 Supplies 496,312 579,169 Depreciation 68,626 - Share-based compensation 734,986 1,072,592 $ 27,177,807 $ 15,336,638 For the year ended July 31, 2024, research costs totaled $27,177,807, compared to $15,336,638 for the same period in 2023. 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 $9,611,630 in 2023 to $20,890,266 in 2024. Wages and salaries increased from $3,878,367 to $4,567,307, reflecting the hiring of additional employees. Additionally, non-cash share-based compensation expenses decreased from $1,072,592 in 2023 to $734,986 in 2024, offsetting some of the overall increase in research and development expenses. General and Administrative Expenses For the year ended July 31, 2024, general and administrative expenses amounted to $6,152,269 as compared to $7,935,626 for the year ended July 31, 2023. The decrease in general and administrative expenses primarily stems from lower insurance premiums, professional fees and share-based compensation expenses. The Company has reduced general and administrative expenses in order to devote more resources to its clinical program. Financial income (expenses), net For the year ended July 31, 2024, financial income, net amounted to $262,566, compared to $850,340 for the year ended July 31, 2023. Financial income for 2024 primarily consists of interest income of $288,018, offset by a foreign exchange loss of $25,450. In comparison, for the year ended July 31, 2023, interest income was $891,213, while foreign exchange losses totaled $40,873. The decrease in financial income from 2023 to 2024 reflects lower interest income due to reduced cash and cash equivalents available for investment in interest-bearing funds. Loss for the period The Company reported a loss for the year ended July 31, 2024, of $4,791,466, compared to $20,302,394 for the year ended July 31, 2023. The loss in 2024 primarily stems from increased operational spending, particularly in research and development. However, the decrease in the fair value of the warrant liability substantially offset the increase in research and development expenses, leading to a significantly lower reported loss for the year. In contrast, the larger loss in 2023 is attributed to lower operational costs but a smaller decrease in the warrant liability, which did not offset expenses to the same extent as in 2024. This highlights the significant role the warrant liability valuation plays in influencing the Company’s overall financial performance. 55 Liquidity and Capital Resources As of July 31, 2024, the Company has a negative working capital of ($3,807,303) (July 31, 2023- $25,147,050) and an accumulated deficit of $85,443,697 (July 31, 2023 - $80,652,231). As of July 31, 2024, 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. To this end, for several months during calendar year 2024, certain directors and officers agreed to defer payment of their directors’ fees/compensation until we completed a financing, after which, these fees were paid in full. Further, certain officers have indicated their willingness to receive a portion of their compensation in shares of the Company, subject to applicable Nasdaq rules. In addition, we continue to reduce expenditure on certain non-core activities whilst maintaining our focus on our Phase 3 Bria-IMT™ pivotal study in advanced metastatic breast cancer. During the year ended July 31, 2024, the Company’s overall position of cash and cash equivalents decreased by $20,389,003 from the year ended July 31, 2023 (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, 2024, was $24,126,128 as compared to $23,744,860 for the year ended July 31, 2023. Although the operating loss was higher during the period ended July 31, 2024, this was offset by an increase in accounts payable, such that the cash flows from operating activities during both periods were similar. Cash generated from financing activities for the year ended July 31, 2024, was $4,418,926, as compared to $3,954,300 for the year ended July 31, 2023. In both periods, this relates to proceeds for the issuance of shares. Off-balance Sheet Arrangements None. Tabular Disclosure of Contractual Obligations None. 56 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.