Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, that involve risks and uncertainties. All statements other than statements relating to historical matters including statements to the effect that we “believe”, “expect”, “anticipate”, “plan”, “target”, “intend” and similar expressions should be considered forward-looking statements. Our actual results could differ materially from those discussed in the forward-looking statements as a result of a number of important factors, including factors discussed in this section and elsewhere in this Quarterly Report on Form 10-Q, and the risks discussed in our other filings with the SEC. Such risks and uncertainties may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as the date hereof. We assume no obligation to update these forward-looking statements to reflect events or circumstance that arise after the date hereof.
As used in this quarterly report: (i) the terms “we”, “us”, “our”, “Marker” and the “Company” mean Marker Therapeutics, Inc. and its wholly owned subsidiaries, Marker Cell Therapy, Inc. and GeneMax Pharmaceuticals Inc. which wholly owns GeneMax Pharmaceuticals Canada Inc., unless the context otherwise requires; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.
The following should be read in conjunction with our unaudited condensed consolidated interim financial statements and related notes for the six months ended June 30, 2020 included in this Quarterly Report.
Company Overview
We are a clinical-stage immuno-oncology company specializing in the development and commercialization of novel T cell-based immunotherapies and innovative peptide-based vaccines for the treatment of hematological malignancies and solid tumor indications. We developed our lead product candidates from our MultiTAA-specific T cell technology, which is based on the selective expansion of non-engineered, tumor-specific T cells that recognize tumor associated antigens, or TAAs, which are tumor targets, and then kill tumor cells expressing those targets. These T cells are designed to recognize multiple tumor targets to produce broad spectrum anti-tumor activity. We are advancing two pipelines of product candidates as part of our MultiTAA-specific T cell program: the autologous T cells for the treatment of lymphoma, multiple myeloma, or MM, and selected solid tumors and the allogeneic T cells for the treatment of acute myeloid leukemia, or AML, and acute lymphoblastic leukemia, or ALL. Because we do not genetically engineer the MultiTAA-specific T cell therapies, we believe that our product candidates are easier and less expensive to manufacture, have lower toxicities than current engineered chimeric antigen receptor, or CAR-T, and T cell receptor-based therapies and may provide patients with meaningful clinical benefit. We are also developing innovative peptide-based immunotherapeutic vaccines for the treatment of metastatic solid tumors.
We are pursuing post-transplant AML as the lead indication for our first company-sponsored MultiTAA-specific T cell program. The MultiTAA-specific T cell therapy has been well tolerated in an ongoing Phase 1 clinical trial conducted by our strategic partner Baylor College of Medicine, or BCM. As reported in March 2019, eleven of the thirteen patients in the adjuvant disease setting dosed with the MultiTAA-specific T cell therapy after receiving an allogeneic stem cell transplant survived, ranging from 6 weeks to 2.5 years post-infusion, with nine of these remaining patients in continuing complete remission, or CCR. Survival of the six patients with active disease ranged from 4 to 21 months, as compared to a historical survival rate of approximately 4.5 months for patients who receive the standard of care post-transplant.
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We submitted an investigational new drug, or IND, application to the United States Food and Drug Administration, or the FDA, to initiate a Phase 2 clinical trial of MultiTAA-specific T cell therapy, which we refer to as MT-401 (zelenoleucel), in post-allogeneic hematopoietic stem cell transplant patients with AML in both the adjuvant and active disease setting. The dose administered in this multicenter trial is the approximate flat dose equivalent of the current maximum tolerated dose from the ongoing Phase 1 trial. In the adjuvant setting, patients will be randomized to either MultiTAA-specific T cell therapy at approximately 90 days post-transplant versus standard of care observation, while the active disease patients will receive MT-401 following relapse post-transplant as part of a single-arm group. In February 2020, we announced that the FDA has permitted us to initiate our Phase 2 clinical trial beginning with a safety lead-in portion of the trial. We expect that we will be delayed in initiating this trial per previously communicated timelines due to the COVID-19 pandemic. See “—Clinical Program Updates.” In April 2020, the FDA granted orphan drug designation to MT-401 for the treatment of AML after receiving an allogenic stem cell transplant.
We reported interim data for an ongoing Phase 1/2 clinical trial of the MultiTAA-specific T cell therapy for the treatment of pancreatic adenocarcinoma being conducted by BCM. In this trial, we have observed a clinical benefit correlated with the post-infusion detection of tumor-reactive T cells in patient peripheral blood and within tumor biopsy samples in patients in the tumor-resection arm of the trial. These T cells exhibited activity against both targeted antigens and non-targeted TAAs, indicating induction of antigen spreading. To date, we have not observed any cytokine release syndrome or neurotoxicity in this trial.
We are also evaluating the MultiTAA-specific T cell therapies in a Phase 2 clinical trial for the treatment of breast cancer and in Phase 1 clinical trials for the treatment of ALL, lymphoma, MM and sarcoma, all of which are being conducted by BCM. As of December 2019, the MultiTAA-specific T cell therapies have been generally well tolerated by all of the patients enrolled in clinical trials in hematological and solid tumor indications with no incidents of cytokine release syndrome or neurotoxicity, which are frequently associated with CAR-T therapies. Our ongoing clinical trials may be also affected by the COVID-19 pandemic. Based on our observations in clinical trials in AML, pancreatic cancer, lymphoma, ALL and MM, we believe that the MultiTAA-specific T cell therapies have the potential to mediate a meaningful anti-tumor effect, as well as significant in vivo expansion of T cells. We may initiate additional Phase 2 clinical trials investigating other indications in addition to our planned Phase 2 trial in post-transplant AML patients.
Pipeline
Our clinical-stage pipeline, including clinical trials being conducted by BCM and other partners, is set forth below:
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Clinical Program Updates
MT-401 (zelenoleucel) for the Treatment of Post-Transplant AML
In February 2020, we announced that the FDA lifted the clinical hold on the Phase 2 clinical trial investigating the safety and efficacy of MT-401 for the treatment of patients with AML post-transplant permitting us to initiate the trial with the safety lead-in portion that is expected to enroll approximately six patients. Three patients will be dosed with MT-401 manufactured with the legacy reagent used in the Phase 1 trial, and three patients will be dosed with MT-401 manufactured using a new reagent from an alternative supplier. We anticipate using this supplier for clinical and commercial manufacturing of MT-401. The FDA placed a partial clinical hold on the trial for the use of the MT-401 product manufactured using one of the reagents supplied by the alternative supplier until the final data and certificate of analysis for the reagent are reviewed and accepted by the FDA. As a result of the COVID-19 pandemic, we may be delayed in our ability to enroll the first three patients in the safety lead-in portion of the trial, but we continue to work to identify clinical trial sites. Further, our alternate supplier has notified us that they will also be delayed in providing the new reagent for MT-401, along with the final data and certificate of analysis required by the FDA to satisfy the requirements for lifting the partial hold. Accordingly, we expect that we will be delayed in initiating the Phase 2 trial per previously communicated timelines.
Interim Results of Phase 1 Trial of MultiTAA-specific T cell Therapy for the Treatment of Pancreatic Adenocarcinoma
In May 2020, we reported additional interim data of a cohort of patients receiving MultiTAA-specific T cell therapy in combination with standard-of-care chemotherapy in the first-line setting (Arm A). Arm A is evaluating the safety and potential efficacy of using MultiTAA-specific T cells in the first line setting for chemo-responsive patients with locally advanced or metastatic pancreatic adenocarcinoma. Patients in Arm A receive at least three months of standard-of-care chemotherapy (gemcitabine/nab-paclitaxel or FOLFIRINOX) - the period during which a response to chemotherapy would typically occur - before receiving up to six administrations of MultiTAA-specific T cells in conjunction with chemotherapy.
Between June 2018 and December 2019, 13 patients have been treated, each of whom received up to six monthly infusions of 1x10 7 MultiTAA-specific T cells/m 2 in conjunction with ongoing first-line chemotherapy and without prior lymphodepletion. For 12 of the 13 patients, sufficient cells for all six planned doses were generated; two doses were available for the remaining patient.
● Out of the 13 evaluable patients (best overall response):
o 4 patients experienced objective responses after administration of MultiTAA cells;
o 1 patient experienced a radiographic complete response occurring at month 9 after starting chemotherapy;
o 3 patients experienced partial responses per RECIST occurring at 6-9 months after starting chemotherapy;
o 6 patients experienced stable disease;
o 1 patient experienced a mixed response (some lesions increased in size and others decreased for a net zero change in size of tumor lesions);
● Patients had durable cancer control with 9 of the 13 patients exceeding historical control of overall survival;
● 5 patients enrolled in the study were not administered MultiTAA-specific T cells, either because of disease progression (4 patients) which made them ineligible for treatment, or because insufficient starting material from the patient was available for manufacturing (1 patient);
● Evidence of epitope-spreading was observed in all responders, suggesting that the MultiTAA T cell therapy triggered the recruitment of a broader endogenous immune system response for improved anti-tumor activity; and
● No infusion-related reactions, cytokine release syndrome or neurotoxicity was observed.
Results of Operations
In this discussion of our results of operations and financial condition, amounts, other than per-share amounts, have been rounded to the nearest thousand dollars.
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Comparison of the Three Months Ended June 30, 2020 and June 30, 2019
The following table summarizes the results of our operations for the three months ended June 30, 2020 and 2019:
For the Three Months Ended
June 30,
2020
2019
Change
Revenues:
Grant income
$
467,000
$
—
$
467,000
0
%
Total revenues
467,000
—
467,000
0
%
Operating expenses:
Research and development
4,277,000
3,152,000
1,125,000
36
%
General and administrative
2,547,000
2,721,000
(174,000)
(6)
%
Total operating expenses
6,824,000
5,874,000
950,000
16
%
Loss from operations
(6,358,000)
(5,874,000)
(484,000)
8
%
Other income (expense):
Change in fair value of warrant liabilities
—
(7,000)
7,000
(100)
%
Interest income
16,000
310,000
(294,000)
(95)
%
Net loss
$
(6,342,000)
$
(5,570,000)
$
(772,000)
14
%
Net loss per share, basic and diluted
$
(0.14)
$
(0.12)
$
(0.02)
19
%
Weighted average number of common shares outstanding
46,573,000
45,501,000
1,072,000
2
%
Revenue
Grant income
During the three months ended June 30, 2020, we received $0.5 million of a grant awarded to the Mayo Foundation from the U.S. Department of Defense to fund the Phase 2 clinical trial of TPIV100 for the treatment of HER2/neu breast cancer. The portion of the grant we received compensated us for clinical supplies manufactured by us for the clinical trial. We did not receive any grant income during the three months ended June 30, 2019.
Operating Expenses
Operating expenses incurred during the three months ended June 30, 2020 were $6.8 million compared to $5.9 million during the three months ended June 30, 2019.
Significant changes and expenditures in operating expenses are outlined as follows:
Research and Development Expenses
Research and development expenses increased by 36% to $4.3 million for the three months ended June 30, 2020, compared to $3.2 million for the three months ended June 30, 2019.
The increase of $1.1 million in 2020 was primarily attributable to the following:
o increase of $0.6 million in headcount-related expenses as we increased the number of research and development personnel,
o increase of $0.8 million in process development expenses,
o increase of $0.1 million in sponsored research expenses from BCM agreements,
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o increase of $0.1 million in other expenses, and
o decrease of $0.5 million in our peptide vaccine clinical trial expenses due to the stages of ongoing clinical trials and the decreased number of active patients in such trials.
General and Administrative Expenses
General and administrative expenses were $ 2.5 million and $2.7 million for the three months ended June 30, 2020 and 2019, respectively. The decrease in general and administrative expenses was mainly comprised of a decrease in legal and professional fees.
Other Income (Expense)
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities for the three months ended June 30, 2020 was $0 as compared to $(7,000) for the three months ended June 30, 2019.
Interest Income
Interest income was $16,000 and $0.3 million for the three months ended June 30, 2020 and 2019, respectively, and was attributable to interest income relating to funds that are held in U.S. Treasury notes and U.S. government agency-backed securities. As part of the reaction to the COVID-19 pandemic, the Federal Reserve cut rates in mid-March to a range of 0.0% - 0.25%. As such, we recorded lower interest income during the three months ended June 30, 2020.
Net Loss
We recorded a net loss of $6.3 million, or a net loss per share, basic and diluted of $(0.14), during the three months ended June 30, 2020, compared to a net loss of $5.6 million, or a net loss per share, basic and diluted of $(0.12), during the three months ended June 30, 2019. The increase in our net loss during the three months ended June 30, 2020 compared to during the three months ended June 30, 2019 was due to the continued expansion of our research and development activities, increased expenses relating to current and future clinical trials, and the overall growth of our corporate infrastructure. We anticipate that we will continue to incur net losses in the future as we continue to invest in research and development activities, including clinical development of our MultiTAA T cell product candidates.
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Comparison of the Six Months Ended June 30, 2020 and June 30, 2019
The following table summarizes the results of our operations for the six months ended June 30, 2020 and 2019:
For the Six Months Ended
June 30,
2020
2019
Change
Revenues:
Grant income
$
467,000
$
—
$
467,000
0
%
Total revenues
467,000
—
467,000
0
%
Operating expenses:
Research and development
8,094,000
5,985,000
2,109,000
35
%
General and administrative
5,374,000
5,527,000
(153,000)
(3)
%
Total operating expenses
13,468,000
11,512,000
1,956,000
17
%
Loss from operations
(13,001,000)
(11,512,000)
(1,489,000)
13
%
Other income (expense):
Change in fair value of warrant liabilities
31,000
(16,000)
47,000
(294)
%
Interest income
143,000
639,000
(496,000)
(78)
%
Net loss
$
(12,827,000)
$
(10,889,000)
$
(1,938,000)
18
%
Net loss per share, basic and diluted
$
(0.28)
$
(0.24)
$
(0.04)
16
%
Weighted average number of common shares outstanding
46,329,000
45,484,000
845,000
2
%
Revenue
Grant income
During the six months ended June 30, 2020, we received $0.5 million of a grant awarded to the Mayo Foundation from the U.S. Department of Defense to fund the Phase 2 clinical trial of TPIV100 for the treatment of HER2/neu breast cancer. The portion of the grant we received compensated us for clinical supplies manufactured by us for the clinical trial. We did not receive any grant income during the six months ended June 30, 2019.
Operating Expenses
Operating expenses incurred during the six months ended June 30, 2020 were $13.5 million compared to $11.5 million during the six months ended June 30, 2019.
Significant changes and expenditures in operating expenses are outlined as follows:
Research and Development Expenses
Research and development expenses increased by 35% to $8.1 million for the six months ended June 30, 2020, compared to $6.0 million for the six months ended June 30, 2019.
The increase of $2.1 million in 2020 was primarily attributable to the following:
o increase of $1.4 million in headcount-related expenses as we increased the number of research and development personnel,
o increase of $1.5 million in process development expenses,
o increase of $0.1 million in sponsored research expenses from BCM agreements,
o increase of $0.2 million in other expenses, and
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o decrease of $1.1 million in our peptide vaccine clinical trial expenses due to the stages of ongoing clinical trials and the decreased number of active patients in such trials.
General and Administrative Expenses
General and administrative expenses were $5.4 million and $5.5 million for the six months ended June 30, 2020 and 2019, respectively. The decrease in general and administrative expenses was mainly comprised of a decrease in legal and professional fees and other.
Other Income (Expense)
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities for the six months ended June 30, 2020 was $31,000 as compared to $(16,000) for the six months ended June 30, 2019.
Interest Income
Interest income was $0.1 million and $0.6 million for the six months ended June 30, 2020 and 2019, respectively, and was attributable to interest income relating to funds that are held in U.S. Treasury notes and U.S. government agency-backed securities. As part of the reaction to the COVID-19 pandemic, the Federal Reserve cut rates in mid-March to a range of 0.0% - 0.25%. As such, we recorded lower interest income during the six months ended June 30, 2020.
Net Loss
We recorded a net loss of $12.8 million, or a net loss per share, basic and diluted of $(0.28), during the six months ended June 30, 2020, compared to a net loss of $10.9 million, or a net loss per share, basic and diluted of $(0.24), during the six months ended June 30, 2019. The increase in our net loss during the six months ended June 30, 2020 compared to during the six months ended June 30, 2019 was due to the continued expansion of our research and development activities, increased expenses relating to current and future clinical trials, and the overall growth of our corporate infrastructure. We anticipate that we will continue to incur net losses in the future as we continue to invest in research and development activities, including clinical development of our MultiTAA T cell product candidates.
Liquidity and Capital Resources
We have not generated any revenues from product sales since inception. We have financed our operations primarily through public and private offerings of our debt and equity securities.
The following table sets forth our cash and cash equivalents and working capital as of June 30, 2020 and December 31, 2019:
June 30,
December 31,
2020
2019
Cash and cash equivalents
$
32,124,000
$
43,904,000
Working capital
$
29,776,000
$
43,494,000
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Cash Flows
The following table summarizes our cash flows for the six months ended June 30, 2020 and 2019:
For the Six Months Ended
June 30,
2020
2019
Net Cash provided by (used in):
Operating activities
$
(8,401,000)
$
(8,060,000)
Investing activities
(3,928,000)
(305,000)
Financing activities
550,000
63,000
Net decrease in cash and cash equivalents
$
(11,779,000)
$
(8,302,000)
Operating Activities
Net cash used in operating activities during the six months ended June 30, 2020 was $8.4 million. The use of cash primarily related to our net loss of $12.8 million, in addition to the effect of changes in asset and liability accounts, including an increase in prepaid expenses and deposits of $1.1 million, an increase in accounts payable and accrued liabilities of $2.8 million, a decrease in interest receivable of $53,000 and an increase in lease liabilities of $0.3 million.
Net cash used in operating activities during the six months ended June 30, 2019 was $8.1 million. The use of cash primarily related to our net loss of $10.9 million, in addition to the effect of changes in asset and liability accounts, including an increase in prepaid expenses and deposits of $350,000, an increase in accounts payable and accrued liabilities of $225,000, a decrease in lease liabilities of $90,000 and a decrease in interest receivable of $10,000.
Investing Activities
Net cash used in investing activities was $3.9 million and $0.3 million for the purchase of property and equipment during the six months ended June 30, 2020 and 2019, respectively. The increase relates to $2.6 million in construction in progress towards the new modular cleanrooms in our manufacturing facility, an additional $1.0 million in laboratory equipment and $0.3 million in leasehold improvements at the new research facility.
Financing Activities
Net cash provided by financing activities was $550,000 during the six months ended June 30, 2020, due to the exercise of stock warrants. Net cash provided by financing activities was $63,000 during the six months ended June 30, 2019, due to the exercise of stock warrants and stock options.
Future Capital Requirements
To date, we have not generated any revenues from the commercial sale of approved drug products, and we do not expect to generate substantial revenue for at least the next several years. If we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval, our ability to generate future revenue will be compromised. We do not know when, or if, we will generate any revenue from our product candidates, and we do not expect to generate significant revenue unless and until we obtain regulatory approval of, and commercialize, our product candidates. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of and seek marketing approval for our product candidates. In addition, if we obtain approval for any of our product candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
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As of June 30, 2020, we had working capital of $29.8 million, compared to working capital of $43.5 million as of December 31, 2019. Based on our revised clinical and research and development plans and our revised timing expectations related to the progress of our programs, and buildout of manufacturing and research facilities, and expansion of our corporate headquarters, we expect that our cash and cash equivalents as of June 30, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2021. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Furthermore, our operating plan may change, and we may need additional funds sooner than planned in order to meet operational needs and capital requirements for product development and commercialization. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, as we:
● initiate or continue clinical trials of our product candidates;
● continue the research and development of our product candidates and seek to discover additional product candidates;seek regulatory approvals for our product candidates if they successfully complete clinical trials;
● establish sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any product candidates that may receive regulatory approval;
● evaluate strategic transactions we may undertake; and
● enhance operational, financial and information management systems and hire additional personnel, including personnel to support development of our product candidates and, if a product candidate is approved, our commercialization efforts.
Because all of our product candidates are in the early stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability. Until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements.
During fiscal 2020, we have entered into agreements to buildout a manufacturing facility, to lease a research lab and to expand our corporate headquarters in Houston, Texas. A summary of these future capital requirements is below:
● On March 23, 2020, we entered into an agreement to expand our corporate headquarters in Houston, Texas, which is expected to commence in the third quarter of 2020. The initial lease term is ten years with two five-year renewal options. Fixed rent payments under the initial term are approximately $5.6 million. Additionally, we are also responsible for our share of operating expenses.
● On March 26, 2020 we entered into an agreement with a vendor to design, engineer, build and eventually install modular cleanrooms in the manufacturing facility in Houston, Texas. The total fees for this project to be substantially completed by December 31, 2020 are estimated to be $6.0 million.
● On April 30, 2020, we entered into a lease for a research facility in Houston, Texas. The lease term is 71 months. Fixed rent payments under the initial term are approximately $1.1 million. Additionally, we are also responsible for our share of operating expenses.
● On June 26, 2020, we entered into a lease for a manufacturing facility in Houston, Texas. The initial lease term is ten years from the expected commencement date in the third quarter 2020, with two five-year renewal options. Fixed rent payments under the initial term are approximately $11.1 million. Additionally, we are responsible for our share of operating expenses.
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We plan to continue to fund our operations and capital funding needs through equity and/or debt financing. We may also consider new collaborations or selectively partner our technology. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our existing stockholders’ common stock. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates or grant licenses on terms unfavorable to us. We may also be required to pay damages or have liabilities associated with litigation or other legal proceedings involving our company.
In addition to the foregoing, based on our current assessment, we do not expect any material impact on our long-term liquidity due to the COVID-19 pandemic. However, we will continue to assess the effect of the pandemic on our operations. The extent to which the COVID-19 pandemic will impact our business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, the duration and effect of business disruptions and the short-term effects and ultimate effectiveness of the travel restrictions, quarantines, social distancing requirements and business closures in the United States and other countries to contain and treat the disease. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
Aspire Common Stock Purchase Agreement
In February 2020, we entered into a common stock purchase agreement, or the Purchase Agreement, with Aspire Capital Fund, LLC, or Aspire Capital, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of shares of our common stock over the 30-month term of the Purchase Agreement. As of June 30, 2020, Aspire Capital had not purchased any shares under the Purchase Agreement.
In consideration for entering into the Purchase Agreement, concurrently with the execution of the Purchase Agreement, we issued to Aspire Capital 345,357 shares of our common stock, or the Commitment Shares. Under the Purchase Agreement, on any trading day selected by the Company, the Company has the right, in its sole discretion, to present 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, up to $30.0 million of our common stock in the aggregate at a Purchase 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 and Aspire Capital also may mutually agree to increase the number of shares that may be sold to as much as an additional 2,000,000 shares per business day.
In addition, on any date on which we submit a Purchase Notice to Aspire Capital in an amount equal to at least 100,000 shares, we also have the right, in our sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice, or a VWAP Purchase Notice, directing Aspire Capital to purchase an amount of stock equal to up to 30% of the aggregate shares of our common stock traded on its principal market on the next trading day, which we refer to as the VWAP Purchase Date, subject to a maximum number of shares we may determine. The purchase price per share pursuant to such VWAP Purchase Notice is generally 97% of the volume-weighted average price for our common stock traded on its principal market on the VWAP. We may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.
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The Purchase Agreement provides that we and Aspire Capital shall not effect any sales under the Purchase Agreement on any purchase date where the closing sale price of our common stock is less than $0.25. There are no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of sales of our common stock to Aspire Capital. Aspire Capital has no right to require any sales by us but is obligated to make purchases from us as directed by us on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. The Purchase Agreement may be terminated by us at any time, at its discretion, without any cost to us. Aspire Capital has agreed that neither it nor any of its agents, representatives and affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the Purchase Agreement. We expect to use any proceeds under the Purchase Agreement for working capital and general corporate purposes.
The Purchase Agreement provides that the number of shares that may be sold pursuant to the Purchase Agreement will be limited to 9,232,814 shares, including the Commitment Shares, or the Exchange Cap, which represents 19.99% of our outstanding shares of common stock as of the date of the Purchase Agreement, unless stockholder approval is obtained to issue more than 19.99%. This limitation will not apply if, at any time the Exchange Cap is reached and at all times thereafter, the average price paid for all shares issued under the Purchase Agreement is equal to or greater than $2.41, which was the closing price of our shares on The Nasdaq Global Market immediately preceding the execution of the Purchase Agreement. We are not required or permitted to issue any shares of common stock under the Purchase Agreement if such issuance would breach our obligations under the rules or regulations of The Nasdaq Global Market.
Critical Accounting Policies
The condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the consolidated financial statements and the judgments and assumptions used are consistent with those described under Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.
Going Concern
The below excludes any potential funding provided by the $30 million Purchase Agreement with Aspire Capital.
We have no sources of revenue to provide incoming cash flows to sustain our future operations. As outlined above, our ability to pursue our planned business activities is dependent upon our successful efforts to raise additional capital.
The factors discussed above raise substantial doubt regarding our ability to continue as a going concern. Our condensed consolidated financial statements have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes of financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
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