Anixa Biosciences, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter ended April 30, 2019; results are presented for the three and six months ended April 30. The filing was dated June 11, 2019.
Business context
Anixa is focused on cancer therapeutics and diagnostics: Certainty Therapeutics is developing CER-T immunotherapy, initially for ovarian cancer, and Anixa Diagnostics is developing the Cchek AI-driven blood-test platform. Legacy patent licensing remains active but management does not expect it to be a significant ongoing business.
Financial performance and liquidity
| Metric | Three months ended Apr. 30, 2019 | Three months ended Apr. 30, 2018 | Six months ended Apr. 30, 2019 | Six months ended Apr. 30, 2018 |
|---|---|---|---|---|
| Revenue | $250,000 | $750,000 | $250,000 | $750,000 |
| Operating costs and expenses | $2.843 million | $2.151 million | $7.827 million | $4.026 million |
| Net loss | $2.575 million | $1.393 million | $7.542 million | $3.258 million |
| Net loss attributable to common shareholders | $2.538 million | $1.379 million | $7.420 million | $3.217 million |
| Basic and diluted loss per share | $0.13 | $0.08 | $0.38 | $0.19 |
- Revenue came from one-time patent license agreements. No recurring product revenue or separate gross-margin measure was reported.
- At April 30, cash and cash equivalents were $3.822 million and short-term certificates of deposit were $2.750 million, totaling $6.572 million. Current liabilities were $1.596 million; the filing reports no debt.
- Six-month operating cash use was $2.764 million. Investing activities used $925,000; financing provided $4.456 million, including $4.358 million net from an at-the-market (ATM) stock offering. Cash and cash equivalents increased to $3.822 million from $3.056 million; cash plus short-term investments rose to $6.572 million from $5.056 million at October 31, 2018.
- Management said available cash, short-term investments and expected cash flows were expected to fund activities for the next 12 months, while cautioning that actual needs and funding availability could differ.
Material changes versus prior periods
- Revenue declined by $500,000 in both the quarter and six-month comparison, reflecting lower proceeds from one-time license agreements.
- Six-month R&D expense increased to $3.517 million from $1.438 million, and G&A increased to $3.348 million from $1.899 million. Management attributed much of the increases to higher employee stock-award and stock-option compensation; outside R&D spending also increased.
- Noncash share-based compensation rose to $4.072 million for the six months from $599,000 a year earlier, contributing substantially to the higher reported operating costs and net loss.
- The company recorded a $419,000 impairment of legacy patent assets in the six-month period, based on estimated future cash flows and licensing prospects. Patent amortization also increased to $377,000 from $163,000 following a reduction in estimated useful lives.
- Common shares outstanding increased from 18.909 million at October 31, 2018 to 20.005 million at April 30, 2019, mainly reflecting the ATM offering. The company reported 20,096,743 shares outstanding on June 11, 2019.
Outlook, risks and unusual items
- Management anticipated filing an FDA IND for the ovarian-cancer CER-T program in fall 2019, with clinical trials expected thereafter, by late 2019 or early 2020. It also targeted launch of Cchek Prostate Cancer Confirmation as a laboratory-developed test by the end of the third calendar quarter of 2019.
- Funding could be needed if cash needs exceed expectations or the company pursues acquisitions or additional technologies. Further equity or debt financing may not be available on acceptable terms; equity issuance could dilute shareholders. The ATM program had capacity to sell an additional 415,078 shares at the report date.
- A shareholder derivative action filed in Delaware alleges breach of fiduciary duty and unjust enrichment. A motion to dismiss was pending; damages are unspecified and the company could not estimate potential losses. Company legal costs were being funded by the company and available D&O insurance.
- The company’s development programs, potential commercialization and licensing proceeds involve execution and funding uncertainty. The filing reported no material change in risk factors from its fiscal 2018 Form 10-K.
- The six-month results include a patent impairment and substantial noncash compensation. The filing states interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether the CER-T IND and clinical-trial timetable, and the Cchek product launch target, were achieved.
- Cash burn and available funding relative to management’s stated 12-month runway, including any further ATM sales or other financing.
- Whether Cchek or other programs generate recurring revenue, given that reported revenue was a one-time license fee.
- Progress and potential financial exposure in the derivative lawsuit, including insurance coverage and legal costs.
- Future patent licensing prospects and any further impairment, as well as the ongoing impact of stock-based compensation and share dilution.