ITUS Corporation (now identified in request as Anixa Biosciences) — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended July 31, 2018. The filing registrant is ITUS Corporation; the filing describes its cancer-diagnostics subsidiary as Anixa Diagnostics. Financial statements are unaudited.
Business context and results
The company was shifting from legacy patent licensing toward development of Cchek, a blood-based cancer-detection platform, and Certainty Therapeutics’ cancer immunotherapy program. Management said prostate cancer would be Cchek’s first commercial focus, followed by breast cancer, and that Cchek and Certainty’s ovarian-cancer program were expected to be the primary focus over the next several quarters. Legacy patent licensing was not expected to be a significant ongoing business.
| Metric | Three months ended July 31, 2018 | Three months ended July 31, 2017 | Nine months ended July 31, 2018 | Nine months ended July 31, 2017 |
|---|---|---|---|---|
| Revenue | $362,500 | $362,500 | $1,112,500 | $362,500 |
| Operating costs and expenses | $5,968,304 | $2,093,425 | $9,993,844 | $4,700,403 |
| Operating loss | $5,605,804 | $1,730,925 | $8,881,344 | $4,337,903 |
| Net loss attributable to common shareholders | $5,476,926 | $1,794,400 | $8,693,532 | $5,231,946 |
| Loss per common share, basic and diluted | $0.30 | $0.12 | $0.50 | $0.47 |
Revenue came from one-time patent-license or covenant-not-to-sue agreements: two agreements in the 2018 nine-month period versus one in 2017. No recurring product revenue is reported. Nine-month research and development expense rose to $4.38 million from $1.25 million, and general and administrative expense rose to $4.60 million from $3.07 million. The filing attributes much of the expense growth to stock-based compensation and awards, as well as collaboration and licensing costs. Nine-month noncash stock-based compensation included approximately $2.67 million in R&D and $2.52 million in G&A.
Liquidity, cash flow, and capital
- At July 31, 2018, cash and cash equivalents were $2.59 million and short-term certificates of deposit were $2.75 million, totaling approximately $5.34 million in cash and short-term investments, down from approximately $6.84 million at October 31, 2017.
- Current assets were $5.72 million; current liabilities were $1.13 million. Total assets were $7.29 million. No debt was reported; the patent acquisition obligation and secured debenture had been paid or extinguished in fiscal 2017.
- For the nine months, operating activities used $3.25 million; investing activities provided $0.72 million, primarily reflecting net certificate-of-deposit maturities; and financing activities provided $1.79 million from an at-the-market equity offering. Cash declined by $0.75 million.
- Common shares outstanding increased from 16.60 million at October 31, 2017 to 18.70 million at July 31, 2018. The company reported an accumulated deficit of $164.87 million.
Changes, outlook, and risks
Compared with the prior-year nine-month period, revenue increased by $750,000, but operating loss widened by approximately $4.54 million. The prior period included a $1.55 million gain on extinguishment of a patent acquisition obligation and $443,000 of interest expense; neither recurred in 2018. The 2017 common-shareholder loss also included a $2.01 million deemed preferred-stock dividend. In the 2018 quarter, revenue was unchanged year over year while operating costs increased substantially.
Management stated, based on information available September 6, 2018, that cash, short-term investments, and expected cash flows were expected to fund activities for the next 12 months. This is not a guarantee: the company warned that actual cash needs could differ, further funding might be required, and equity or convertible-debt financing could dilute shareholders or have other adverse terms. It raised approximately $1.79 million through an at-the-market offering during the period and said the program could remain available.
The filing reports a 92% sensitivity and 92% specificity result in a retrospective, blinded re-analysis of 121 prostate-cancer and 125 healthy-donor samples using Cchek; this is a study result, not evidence of regulatory approval or commercial validation. Certainty was working with Moffitt and Wistar toward studies intended to support an FDA Investigational New Drug application for an ovarian-cancer therapy. The filing provides no revenue or earnings guidance. Management said there were no material changes to previously disclosed risk factors. It reported no material pending litigation beyond ordinary-course matters and patent-enforcement suits, and said disclosure controls were effective.
Important facts for investors to verify
- Whether management’s stated 12-month funding runway proved sufficient given operating cash use and development spending.
- Whether Cchek’s reported study performance is replicated in prospective clinical studies and supports regulatory and commercial plans.
- Progress, costs, and timing for Certainty’s preclinical work and intended IND submission, including obligations under its Wistar and Moffitt arrangements.
- The sustainability of cash flows given that reported licensing revenue was one-time and management did not expect legacy patent activity to be significant.
- The scale and future recognition of equity compensation: the filing reported unrecognized compensation costs of approximately $1.69 million for market-condition options and $3.44 million for a restricted-stock award.
- Potential dilution from future equity or convertible-debt financing and the company’s substantial accumulated deficit.