PharmaCyte Biotech, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion may contain forward-looking statements that involve risks and uncertainties. As described under the caption “Cautionary Note Regarding Forward-Looking Statements,” our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, any factors discussed in this section as well as factors described in Part II, Item 1A. “Risk Factors” and under the caption “Cautionary Note Regarding Forward-Looking Statements.” Overview We are a biotechnology company focused on developing and preparing to commercialize cellular therapies for cancer, diabetes and malignant ascites based upon our proprietary cellulose-based live cell encapsulation technology we refer to as Cell-in-a-Box ® . We are working to advance clinical research and development of new cellular-based therapies in oncology and diabetes. 85 We are actively engaged preparing for a Phase 2b clinical trial in LAPC using encapsulated live cells like those used in the previous Phase 1/2 and Phase 2 clinical trials discussed above. On September 1, 2020, we submitted an IND to the FDA for our planned Phase 2b clinical trial in LAPC. On October 1, 2020, we received notice from the FDA that it had placed our IND on clinical hold. On October 30, 2020, the FDA sent a letter to us setting forth the reasons for the clinical hold and specific guidance on what we must do to have the clinical hold lifted. For the purpose of addressing the clinical hold, we assembled a team of regulatory and scientific experts to respond to the items requested by the FDA. That team has been working to complete the list of items requested by the FDA. For a complete discussion of what the FDA requires of us and the efforts we have undertaken to lift the clinical hold, see Item 1. Business under the Section entitled, “Clinical Hold” of this Report. We are also developing a way to delay the production and accumulation of malignant ascites that results from many types of abdominal cancerous tumors. Our therapy for malignant ascites involves using the same encapsulated cells we employ for pancreatic cancer but placing the encapsulated cells in the peritoneal cavity of a patient and administering ifosfamide intravenously. In addition to these cancer programs, we have also been considering ways to exploit the benefits of the Cell-in-a-Box ® technology to develop therapies for cancer that involve prodrugs based upon certain constituents of the Cannabis plant. However, until the FDA allows us to commence our clinical trial in LAPC and we are able to validate our Cell-in-a-Box ® encapsulation technology in a clinical trial, we are not spending any further resources developing our Cannabis Program. Finally, we have been developing a potential therapy for Type 1 diabetes and insulin-dependent Type 2 diabetes Our product candidate for the treatment of diabetes consists of encapsulated genetically modified insulin-producing cells. The encapsulation will be done using the Cell-in-a-Box ® technology. Implanting these encapsulated cells in the body is designed to function as a bio-artificial pancreas for purposes of insulin production. Reverse Stock Split Effective July 12, 2021, we filed a Certificate of Change with the Nevada Secretary of State that authorized a 1:1500 reverse stock split of our common stock. The reverse stock split resulted in reducing the authorized number of shares of our common stock from 50 billion to thirty-three million three hundred thirty-three thousand three hundred thirty-four with a par value of $0.0001 per share. Any fractional shares resulting from the reverse stock split were rounded up to the next whole share. All warrants, option, share and per share information in this Report gives retroactive effect to such 1:1500 reverse stock split. COVID-19 Impact on Our Financial Condition and Results of Operations COVID-19 continues to cause uncertainty and significant, industry-wide delays in clinical trials. The availability of vaccines holds promise for the future; however, new variants of the virus and potential waning immunity from vaccines may result in continued impact from COVID-19 in the future, which could adversely impact our operations. Although we are not yet in a clinical trial, we have filed an IND with the FDA to commence a clinical trial in LAPC. While the IND has been placed on clinical hold by the FDA, we have assessed the impact of COVID-19 on our operations and that impact is increasing. The impact relates to delays in: (i) completing studies required by the FDA; (ii) manufacturing a new batch of CypCap™ for our planned clinical trial in LAPC; (iii) manufacturing syringes of CypCaps™ for some of the preclinical studies to be completed and use in our Malignant Ascites Program; and (iv) securing third party contractors to conduct various R&D projects. As a result, there may be delays in generating responses to the requests from the FDA related to the clinical hold. Many of these potential delays are also due to the impact of COVID-19 in foreign countries where we are conducting these preclinical studies, including India, Europe, Singapore and Thailand. There have also been supply chain interruptions due to COVID-19. 86 As a result of COVID-19 and the mitigation efforts to address it, we may experience additional disruptions that could adversely impact our business and clinical trial, if allowed to proceed, including: (i) delays or difficulties in enrolling patients in our Phase 2b clinical trial if the FDA allows us to go forward with the trial; (ii) delays or difficulties in clinical site activation, including difficulties in recruiting clinical site investigators and clinical site personnel; (iii) delays in clinical sites receiving the supplies and materials needed to conduct our clinical trial, including interruption in global shipping that may affect the transport of our clinical trial product; (iv) changes in local regulations as part of a response to COVID-19 which may require us to change the ways in which our clinical trial is to be conducted, which may result in unexpected costs, or to discontinue the clinical trial altogether; (v) diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trial; (vi) interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity of clinical trial data; (vii) risk that participants enrolled in our clinical trials will acquire COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events; (viii) delays in necessary interactions with local regulators, ethics committees, and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; (ix) limitations in employee resources that would otherwise be focused on the conduct of our clinical trial because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; (x) refusal of the FDA to accept data from clinical trials in affected geographies; and (xi) interruption or delays to our clinical trial activities. As a result of COVID-19, commencement of our planned clinical trial to treat LAPC may be delayed beyond the lifting of the clinical hold by the FDA should that occur. Also, enrollment may be difficult for the reasons discussed above. In addition, after enrollment in the trial, if patients contract COVID-19 during their participation in the trial or are subject to isolation or shelter in place restrictions, this may cause them to drop out of our clinical trial, miss scheduled therapy appointments or follow-up visits or otherwise fail to follow the clinical trial protocol. If patients are unable to follow the clinical trial protocol or if the trial results are otherwise affected by the consequences of COVID-19 on patient participation or actions taken to mitigate COVID-19 spread, the integrity of data from the clinical trial may be compromised or not be accepted by the FDA. This could further adversely impact or delay our clinical development program if the FDA allows it to proceed. Clinical trials in the biopharma industry may be delayed due to COVID-19. There are numerous reasons for these potential delays. For example, patients have shown a reluctance to enroll or continue in a clinical trial due to fear of exposure to COVID-19 when they are in a hospital or doctor’s office. There are local, regional and state-wide orders and regulations restricting usual normal activity by people. These discourage and interfere with patient visits to a doctor’s office if the visit is not COVID-19 related. Healthcare providers and health systems have shifted their resources away from clinical trials toward the care of COVID-19 patients. The FDA and other healthcare providers are making product candidates for the treatment of COVID-19 a priority over product candidates unrelated to COVID-19. It is highly speculative in projecting the effects of COVID-19 on our proposed clinical development program and the Company generally. Moreover, the various precautionary measures taken by many governmental authorities around the world in order to limit the spread of COVID-19 has had and may continue to have an adverse effect on the global markets and global economy, including on the availability and pricing of employees, resources, materials, manufacturing and delivery efforts and other aspects of the global economy. The continuation of the COVID-19 pandemic could materially disrupt our business and operations, hamper our ability to raise additional funds or sell or securities, continue to slow down the overall economy, curtail consumer spending, interrupt our sources of supply, and make it hard to adequately staff our operations. The effects of COVID-19 quickly and dramatically change over time. Its evolution is difficult to predict, and no one is able to say with certainty when the pandemic will fully cease to have an impact on our operations. Performance Indicators Non-financial performance indicators used by management to manage and assess how the business is progressing will include, but are not limited to, the ability to: (i) acquire appropriate funding for all aspects of our operations; (ii) acquire and complete necessary contracts; (iii) complete activities for producing genetically modified human cells and having them encapsulated for our preclinical studies and the planned Phase 2b clinical trial in LAPC; (iv) have regulatory work completed to enable studies and trials to be submitted to regulatory agencies; (v) complete all required tests and studies on the cells and capsules we plan to use in our clinical trial in patients with LAPC; (vi) ensure completion of the production of encapsulated cells according to cGMP regulations to use in our planned clinical trial; (vii) complete all of the tasked the FDA requires of us in order to have the clinical hold lifted; and (viii) obtain approval from the FDA to lift the clinical hold on our IND that we may commence our planned Phase 2b clinical trial in LAPC. 87 There are numerous items required to be completed successfully to ensure our final product candidate is ready for use in our planned clinical trial in LAPC. The effects of material transactions with related parties, and certain other parties to the extent necessary for such an undertaking, may have substantial effects on both the timeliness and success of our current and prospective financial position and operating results. Nonetheless, we are actively working to ensure strong ties and interactions to minimize the inherent risks regarding success. We do not believe there are factors which will cause materially different amounts to be reported than those presented in this Report. We aim to assess this regularly to provide accurate information to our shareholders. Liquidity and Capital Resources As of April 30, 2022, our cash and cash equivalents totaled approximately $85.4 million, compared to approximately $2.2 million as of April 30, 2021. Working capital was approximately $84.8 million as of April 30, 2022, and approximately $1.6 million as of April 30, 2021. The increase in cash is attributable to proceeds from the sale of our common stock net of an increase in our operating expenses. On August 9, 2021, the Company entered into an underwriting agreement to offer and sell shares of common stock, pre-funded warrants to purchase common stock and warrants to purchase common stock in a public offering (“First Offering”). The gross proceeds of the First Offering were $15 million, before deduction of underwriting discounts, commissions, and estimated offering expenses. In August 2021, the Company received twenty-seven (27) cash exercise notices relating to the common warrants with respect to the First Offering totaling 2,522,387 warrant shares (“Warrant Exercises”). The Company received approximately $10,720,000 and issued 2,522,387 shares of common stock as a result of the exercise notices. On August 19, 2021, the Company entered into a securities purchase agreement (“Securities Purchase Agreement”) with certain institutional investors (“Purchasers”) pursuant to which the Company agreed to sell in a registered direct offering (“Registered Direct Offering”), shares of the Company’s common stock and pre-funded warrants to purchase shares of common stock. Further, pursuant to the Securities Purchase Agreement, in a concurrent private placement (together with the Registered Direct Offering, “Second Offering”), the Company also agreed to issue to the Purchasers unregistered warrants (“Series A Warrants”) to purchase shares of common stock. The Company received gross proceeds from the Second Offering, before deducting placement agent fees and other estimated offering expenses payable by the Company, of approximately $70 million. On November 17, 2021, the Company’s Registration Statement on Form S-3 registering the resale of the common stock underlying the Series A Warrants was declared effective by the U.S. Securities and Exchange Commission (“Commission”). During the year ended April 30, 2022, funding in the amount of approximately $87.4 million was provided by investors to maintain and expand our operations and R&D through the First Offering and the Second Offering and the Warrant Exercises. Sales of our common stock, pre-funded warrants and exercise of Common Warrants occurred in the First Offering, Second Offering, and the Warrant Exercises. During the year ended April 30, 2021, the Company sold and issued approximately 462,000 shares of common stock, pursuant to an effective S-3 registration statement, at prices ranging from approximately $15 to $45 per share. Net of underwriting discounts, legal, accounting, and other offering expenses, the Company received proceeds of approximately $4.7 million from the sale of these shares for the year ended April 30, 2021. On May 14, 2018, we entered into amendments to all of the material agreements with SG Austria and Austrianova. See Section entitled, History of the Business” in Item 1. Business. above for a description of these amendments. We have no other off-balance sheet arrangements that could have a material current effect or that are reasonably likely to have a material adverse effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Year ended April 30, 2022, compared to year ended April 30, 2021 Revenue We had no revenues in the fiscal years ended April 30, 2022, and 2021. 88 Operating Expenses The total operating expenses during the year ended April 30, 2022, increased by $769,033 to $4,392,014 from $3,622,981 in the year ended April 30, 2021. The increase is mainly attributable to increases in compensation expense, legal and professional expense, and consulting expense in 2022 from 2021, net of decreases in R&D costs and director fees. Operating expenses: Year ended April 30, 2022 Change - Increase (Decrease) and Percent Year ended April 30, 2021 R&D $ 690,937 $ (225,312 ) $ 916,249 (25% ) Compensation expense $ 1,544,751 $ 115,601 $ 1,429,150 8% Director fees $ 256,490 $ (16,740 ) $ 273,230 (6% ) General and administrative, legal and professional $ 1,899,836 $ 895,484 $ 1,004,352 89% Loss from Operations Loss from operations during the year ended April 30, 2022, increased by $769,033 to $4,392,014 from $3,622,981 in the year ended April 30, 2021. The increase is mainly attributable to increases in compensation expense, legal and professional expense, and consulting expense in 2022 from 2021, net of decreases in R&D costs and director fees. Other Income (Expenses), Net Other income, net for the year ended April 30, 2022, was $152,853 as compared to other expense, net of $71,745 in the year ended April 30, 2021. Other income, net for the year ended April 30, 2022, is attributable to interest income of $157,645 net of interest expense and other expenses of $4,792. Other income, net for the year ended April 30, 2021, is attributable to the forgiveness of the Paycheck Protection Program loan and accrued interest of $75,979 net of interest and other expenses of $4,234. Discussion of Operating, Investing and Financing Activities The following table presents a summary of our sources and uses of cash for the years ended April 30, 2022, and 2021. Year Ended April 30, 2022 Year Ended April 30, 2021 Net cash used in operating activities: $ (4,117,319 ) $ (3,330,889 ) Net cash used in investing activities: $ – $ – Net cash provided by financing activities: $ 87,311,244 $ 4,636,807 Effect of currency rate exchange $ 4,625 $ 1,327 Increase in cash $ 83,198,550 $ 1,307,245 Operating Activities: The cash used in operating activities for the years ended April 30, 2022, and 2021, is a result of our net losses offset by securities issued for services and compensation, changes to prepaid expenses, accounts payable and accrued expenses. 89 Investing Activities : We had no investing activities for the years ended April 30, 2022, and 2021. Financing Activities: The cash provided from financing activities for the years ended April 30, 2022, and 2021, is mainly attributable to the proceeds from the sale of our common stock. Critical Accounting Estimates and Policies Our Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). We are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our Consolidated Financial Statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our Consolidated Financial Statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our significant accounting policies are discussed in Note 2 of the Notes to our Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this Report. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results and require management’s most difficult, subjective or complex judgments resulting from the need to make estimates about the effects of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with our Board. Research and Development Expenses R&D expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies, including licenses, which are utilized in R&D and that have no alternative future use are expensed when incurred. Technology developed for use in our product candidates is expensed as incurred until technological feasibility has been established. Stock-Based Compensation Our stock-based compensation plans are described in Note 4 and 5 of the Notes of the Consolidated Financial Statements to this Report. We follow the provisions of ASC 718, Compensation - Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees. Net Income (Loss) Per Share Basic net income (loss) per share of common stock is computed using the weighted-average number of shares of common stock outstanding. Diluted net income (loss) per share of common stock is computed using the weighted-average number of shares of common stock and shares of common stock equivalents outstanding. Potentially dilutive stock options and warrants to purchase 10,813,635 and 44,314 post reverse stock split shares of common stock at April 30, 2022, and 2021, respectively, were excluded from the computation of diluted net income (loss) per share because the effect would be anti-dilutive. New Accounting Pronouncements For a discussion of all recently adopted and recently issued but not yet adopted accounting pronouncements, see “Recent Accounting Pronouncements” in Note 2 of our Notes to our Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this Report. 90 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company and are not required to include information called for by this Item 7A.