ITUS Corporation (now identified in the request as Anixa Biosciences) — FY2015 Form 10-K
Reporting period: Fiscal year ended October 31, 2015; comparison is fiscal 2014. The filing is by ITUS Corporation, not under the name Anixa Biosciences. Anixa Diagnostics was a newly formed, wholly owned subsidiary and the company’s expected primary focus.
Business context
ITUS was transitioning from legacy patent licensing and technology activities toward developing Anixa’s proposed non-invasive blood tests for early detection of solid-tumor cancers. In July 2015, Anixa began a research collaboration with The Wistar Institute. Initial testing of a small group of breast cancer patients and healthy controls found the identified biomarkers in all tested cancer samples and none of the healthy-control samples; a larger study was underway. These preliminary results do not establish performance in broader populations or commercial usefulness.
Financial results and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Total revenue | $9.255 million | $3.667 million |
| Operating loss | $0.945 million | $5.044 million |
| Net loss | $1.379 million | $9.606 million |
| Net loss per share, basic and diluted | $0.16 | $1.10 |
| Cash and cash equivalents | $4.369 million | $3.361 million |
| Short-term certificate-of-deposit investments | $2.400 million | $2.500 million |
| Working capital | $6.302 million | Not clearly stated as a comparable figure |
| Patent acquisition obligation | $3.688 million | $3.236 million |
FY2015 operating and net losses were approximately 10.2% and 14.9% of revenue, respectively; the revenue base included the one-time AU Optronics settlement. Revenue from licensing activities was $255,000, down from $2.480 million; the company also recognized no display-technology development and license-fee revenue in FY2015, versus $1.187 million in FY2014.
Cash provided by operations was $1.363 million, compared with $2.379 million used in FY2014. Investing activities provided $45,000 and financing activities used $401,000. Cash, cash equivalents and short-term investments totaled $6.769 million at year-end, up from $5.861 million. The company reported no convertible debentures outstanding at October 31, 2015; the patent acquisition obligation remained, with payment due no later than November 2017 and payable, at the company’s option, in cash or common stock.
Material changes and unusual items
- The $9.0 million AU Optronics settlement, recognized as FY2015 revenue, resolved litigation and included assignment to AUO of the company’s ePaper patent portfolio. Associated legal fees and litigation costs were approximately $3.604 million in total; FY2015 litigation and licensing expense was $3.501 million, including approximately $3.298 million related to the settlement.
- Licensing revenue fell substantially, while settlement revenue drove the increase in total reported revenue. FY2015 licensing revenue came from six agreements versus 27 in FY2014.
- Marketing, general and administrative expense decreased to $6.226 million from $6.409 million. Litigation and licensing expense increased to $3.501 million from $0.575 million.
- FY2014 included $2.699 million of loss on extinguishment of debt and a $0.593 million loss from changes in derivative liability; neither was recorded in FY2015. Interest expense declined to $0.452 million from $1.264 million.
- In October 2015, ITUS established an at-the-market equity program permitting up to $10 million of stock sales; no shares had been sold under it by year-end.
- The company’s stock began trading on Nasdaq in July 2015, following a 1-for-25 reverse stock split in June 2015.
Outlook, risks and controls
Management stated that, based on information available December 21, 2015, existing cash, short-term investments and expected cash flows were expected to fund activities for at least 12 months. It cautioned that actual cash needs could differ and that further equity or debt financing might be unavailable, unfavorable or dilutive; failure to secure funding or reduce costs could require curtailing or ceasing operations. The filing reports a cumulative accumulated deficit of approximately $146.149 million and anticipates continued losses and material research and development spending.
Anixa had no revenue from its diagnostic technology and was an early-stage business. Key risks include failure to validate or reproduce early test results, clinical utility and regulatory hurdles, reliance on Wistar and other third parties for samples and testing, obtaining CLIA certification or FDA approval, reimbursement and market acceptance, competition, intellectual-property protection, and access to capital. Management reported effective disclosure controls and internal control over financial reporting as of year-end; the auditor did not provide an internal-control attestation. The financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Confirm the filing entity and corporate name: this 2015 10-K is filed by ITUS Corporation; Anixa Diagnostics is described as its subsidiary.
- Review the larger Wistar study’s sample size, methods, sensitivity, specificity, false-positive rates and subsequent results; the filing describes only favorable initial results from a small group.
- Track the regulatory pathway selected for each test, required validation studies, timing, costs and any resulting commercial or reimbursement evidence.
- Assess cash burn and funding runway against the stated 12-month outlook, including any later ATM sales, equity issuance, dilution or changes in spending.
- Examine the terms, cash-versus-stock settlement mechanics and remaining balance of the $3.688 million patent acquisition obligation, as well as the company’s other outstanding options, warrants and preferred stock.