Company Quick10K Filing
Aevi Genomic Medicine
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 65 $12
10-Q 2019-11-14 Quarter: 2019-09-30
10-Q 2019-08-13 Quarter: 2019-06-30
10-Q 2019-05-14 Quarter: 2019-03-31
10-K 2019-03-29 Annual: 2018-12-31
10-Q 2018-11-01 Quarter: 2018-09-30
10-Q 2018-08-02 Quarter: 2018-06-30
10-Q 2018-05-15 Quarter: 2018-03-31
10-K 2018-03-13 Annual: 2017-12-31
10-Q 2017-11-02 Quarter: 2017-09-30
10-Q 2017-08-09 Quarter: 2017-06-30
10-Q 2017-05-10 Quarter: 2017-03-31
10-K 2017-03-09 Annual: 2016-12-31
10-Q 2016-11-03 Quarter: 2016-09-30
10-Q 2016-08-04 Quarter: 2016-06-30
10-Q 2016-05-10 Quarter: 2016-03-31
10-K 2016-02-26 Annual: 2015-12-31
10-Q 2015-10-22 Quarter: 2015-09-30
10-Q 2015-08-10 Quarter: 2015-06-30
10-Q 2015-04-20 Quarter: 2015-03-31
10-K 2015-02-13 Annual: 2014-12-31
10-Q 2014-10-15 Quarter: 2014-09-30
10-Q 2014-07-16 Quarter: 2014-06-30
10-Q 2014-05-08 Quarter: 2014-03-31
10-K 2014-02-20 Annual: 2013-12-31
10-Q 2013-11-07 Quarter: 2013-09-30
10-Q 2013-08-06 Quarter: 2013-06-30
10-Q 2013-05-09 Quarter: 2013-03-31
10-K 2013-03-14 Annual: 2012-12-31
10-Q 2012-11-14 Quarter: 2012-09-30
10-Q 2012-08-13 Quarter: 2012-06-30
10-Q 2012-05-14 Quarter: 2012-03-31
10-Q 2011-11-10 Quarter: 2011-09-30
10-Q 2011-08-12 Quarter: 2011-06-30
10-Q 2011-05-12 Quarter: 2011-03-31
8-K 2020-02-03 M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Shareholder Vote, Exhibits
8-K 2019-12-05 Enter Agreement, Exhibits
8-K 2019-12-05 Enter Agreement, Other Events, Exhibits
8-K 2019-11-20 Other Events
8-K 2019-11-18 Enter Agreement
8-K 2019-10-09 Other Events, Exhibits
8-K 2019-10-04 Enter Agreement
8-K 2019-09-10 Shareholder Vote
8-K 2019-08-06 Enter Agreement, Sale of Shares, Other Events, Exhibits
8-K 2019-08-06
8-K 2019-07-19 Enter Agreement
8-K 2019-07-15 Enter Agreement, Exhibits
8-K 2019-06-20 Shareholder Vote
8-K 2019-05-15 Officers, Exhibits
8-K 2019-04-02
8-K 2019-02-06
8-K 2019-01-02 Other Events, Exhibits
8-K 2018-08-14 Other Events, Exhibits
8-K 2018-06-18
8-K 2018-06-14 Shareholder Vote
8-K 2018-05-15 Enter Agreement, Earnings, Exhibits
8-K 2018-03-19 Officers
8-K 2018-03-13 Earnings, Regulation FD, Exhibits
8-K 2018-01-22 Officers
GNMX 2019-09-30
Part I - Financial Information
Item 1. Financial Statements
Note 1: General
Note 2: Significant Accounting Policies
Note 3: Liquidity Risks and Management's Plans
Note 4: Commitments and Contingencies
Note 5:- Stockholders' Equity
Note 6: Loss per Share
Note 7: Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 tm1919467d1_ex10-1.htm
EX-10.2 tm1919467d1_ex10-2.htm
EX-31.1 tm1919467d1_ex31-1.htm
EX-31.2 tm1919467d1_ex31-2.htm
EX-32.1 tm1919467d1_ex32-1.htm

Aevi Genomic Medicine Earnings 2019-09-30

GNMX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
VICL 19 43 1 0 0 -12 -12 9 0% -0.7 -28%
TTNP 19 7 7 4 3 -15 -15 20 77% -1.4 -226%
TROV 14 14 5 0 0 -16 -15 3 94% -0.2 -115%
GNMX 12 4 4 0 0 -22 -22 8 -0.4 -556%
VXRT 11 37 21 8 0 -18 -14 -5 0% 0.4 -49%
CYTR 11 20 2 0 0 -8 -8 -8 0% 1.1 -42%
HEB 10 14 7 0 0 -10 -13 11 0% -0.8 -73%
PSTI 9 31 9 0 0 -35 -35 -16 19% 0.4 -113%
PRTO 8 12 2 0 0 -22 -22 -3 0.1 -186%
MBOT 3 13 5 0 0 -7 -7 -6 0.8 -59%

10-Q 1 tm1919467d1_10q.htm FORM 10-Q

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

 

 

 

FORM 10-Q

 

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission File Number: 001-35112

 

Aevi Genomic Medicine, Inc.
(Exact name of registrant as specified in its charter)

 

Delaware
(State or other jurisdiction of
incorporation or organization)
98-0217544
(I.R.S. Employer
Identification No.)
   
435 Devon Park Drive, Suite 715
Wayne, Pennsylvania
(Address of Principal Executive Offices)
19087
(Zip Code)
   
(610) 254-4201
(Registrant’s telephone number, including area code)
   
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of exchange on which
registered
Common stock, par value $0.0001 per share GNMX Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer ¨   Accelerated filer ¨
Non-accelerated filer x   Smaller reporting company x
Emerging growth company ¨      

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of November 11, 2019, the registrant had 64,766,882 shares of common stock, $0.0001 par value, outstanding.

 

 

 

 

 

AEVI GENOMIC MEDICINE, INC.
FORM 10-Q
TABLE OF CONTENTS

 

Page

 

PART I - FINANCIAL INFORMATION   2 
ITEM 1. Financial Statements   2 
CONDENSED CONSOLIDATED BALANCE SHEETS   2 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS   3 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY   4 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   5 
NOTES TO THE FINANCIAL STATEMENTS   6 
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   13 
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk   22 
ITEM 4. Controls and Procedures   22 
PART II - OTHER INFORMATION   22 
ITEM 1. Legal Proceedings   22 
ITEM 1A. Risk Factors   22 
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds   23 
ITEM 3. Defaults Upon Senior Securities   23 
ITEM 4. Mine Safety Disclosures   23 
ITEM 5. Other Information   23 
ITEM 6. Exhibits   23 

 

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to the “Company,” “Aevi Genomic Medicine,” “we,” “us” and “our” refer to Aevi Genomic Medicine, Inc., a Delaware corporation organized on January 27, 2000, and its wholly-owned subsidiaries, Medgenics Medical (Israel) Ltd., neuroFix, LLC and Aevi Genomic Medicine Europe BVBA/SPRL. We use the Aevi Genomic Medicine logo as a trademark in the United States and elsewhere. All other trademarks or trade names referred to in this document are the property of their respective owners.

 

 -i- 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

 

   September 30,
2019
   December 31,
2018
 
   Unaudited   Audited 
ASSETS          
           
CURRENT ASSETS:          
           
Cash and cash equivalents  $2,381   $12,076 
Prepaid expenses and other current assets   403    170 
           
Total current assets   2,784    12,246 
           
LONG-TERM ASSETS:          
           
Lease deposits   11    11 
Property and equipment, net   1    20 
           
Total long-term assets   12    31 
           
Total assets  $2,796   $12,277 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES:          
           
Trade payables  $123   $1,582 
Other accounts payable and accrued expenses   4,130    2,763 
           
Total current liabilities   4,253    4,345 
           
LONG-TERM LIABILITIES:          
           
Royalty agreement liability   2,000    - 
           
Total long-term liabilities   2,000    - 
           
Total liabilities   6,253    4,345 
           
STOCKHOLDERS’ EQUITY:          
           
Common stock - $0.0001 par value; 200,000,000 shares authorized; 64,766,882 shares issued and outstanding at September 30, 2019 and December 31, 2018  $7   $7 
Additional paid-in capital   254,815    253,678 
Accumulated deficit   (258,279)   (245,753)
           
Total stockholders’ equity   (3,457)   7,932 
           
Total liabilities and stockholders’ equity  $2,796   $12,277 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 -2- 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)

 

   Nine months ended
September 30,
   Three months ended
September 30,
 
   2019   2018   2019   2018 
   Unaudited   Unaudited 
Research and development expenses  $7,902   $17,433   $2,499   $5,125 
                     
General and administrative expenses   4,643    6,852    1,543    2,174 
                     
Operating loss   (12,545)   (24,285)   (4,042)   (7,299)
Financial income, net   19    136    -    50 
                     
Net loss  $(12,526)  $(24,149)  $(4,042)  $(7,249)
                     
Basic and diluted loss per share  $(0.19)  $(0.40)  $(0.06)  $(0.12)
Weighted average number of common stock used in computing basic and diluted loss per share   64,766,882    60,240,787    64,766,882    62,019,780 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

  

 -3- 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited – In thousands, except share and per share data)

 

   For the Three Months ended September 30, 2019 and 2018 
   Common stock   Additional
paid-in
capital
   Accumulated
deficit
   Total
stockholders’
equity
 
   Shares   Amount             
Balance as of June 30, 2018   59,340,731   $6   $247,162   $(231,878)  $15,290 
Stock-based compensation related to options and warrants granted to directors and employees   -    -    750    -    750 
Issuance of common stock at an average of $0.97 per share, net   5,426,151    (*)    4,961    -    4,961 
Net loss   -    -    -    (7,249)   (7,249)
Balance as of September 30, 2018   64,766,882   $6   $252,873   $(239,127)  $13,752 
                          
Balance as of June 30, 2019   64,766,882   $7   $254,562   $(254,237)  $332 
Stock-based compensation related to options and warrants granted to directors and employees   -    -    253    -    253 
Net loss   -    -    -    (4,042)   (4,042)
Balance as of September 30, 2019   64,766,882   $7   $254,815   $(258,279)  $(3,457)

 

 

   For the Nine Months ended September 30, 2019 and 2018 
   Common stock   Additional
paid-in
capital
   Accumulated
deficit
   Total
stockholders’
equity
 
   Shares   Amount             
Balance as of December 31, 2017   59,332,265   $6   $245,593   $(214,978)  $30,621 
Stock-based compensation related to options and warrants granted to directors and employees   -    -    2,285    -    2,285 
Exercise of warrants and options   8,466    (*)    34    -    34 
Issuance of common stock at an average of $0.97 per share, net   5,426,151    (*)    4,961    -    4,961 
Net loss   -    -    -    (24,149)   (24,149)
Balance as of September 30, 2018   64,766,882   $6   $252,873   $(239,127)  $13,752 
                          
Balance as of December 31, 2018   64,766,882   $7   $253,678   $(245,753)  $7,932 
Stock-based compensation related to options and warrants granted to directors and employees   -    -    1,137    -    1,137 
Net loss   -    -    -    (12,526)   (12,526)
Balance as of September 30, 2019   64,766,882   $7   $254,815   $(258,279)  $(3,457)
                          

(*) Represents an amount lower than $1.

 

 -4- 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 

   Nine months ended
September 30,
 
   2019   2018 
   Unaudited 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(12,526)  $(24,149)
Adjustments to reconcile loss to net cash used in operating activities:          
Depreciation   19    49 
Stock-based compensation   1,137    2,285 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   (233)   355 
Trade payables   (1,459)   642 
Other accounts payable and accrued expenses   1,367    1,653 
Other long-term assets   -    43 
Net cash used in operating activities  $(11,695)  $(19,122)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Net cash provided by (used in) investing activities  $-   $- 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of shares, net   -    4,961 
Proceeds from exercise of options and warrants   -    34 
Proceeds from royalty agreement   2,000    - 
Net cash provided by financing activities  $2,000   $4,995 
           
Decrease in cash and cash equivalents   (9,695)   (14,127)
           
Balance of cash and cash equivalents at the beginning of the period   12,076    33,729 
           
Balance of cash and cash equivalents at the end of the period  $2,381   $19,602 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 -5- 

 

 

NOTES TO THE FINANCIAL STATEMENTS
(In thousands, except share and per share data)

 

NOTE 1: GENERAL

 

a.Aevi Genomic Medicine Inc. (the “Company”) was incorporated in January 2000 in Delaware as Medgenics, Inc. The Company has two wholly-owned subsidiaries (the “Subsidiaries”): Medgenics Medical Israel Ltd. (the “Israeli Subsidiary”), which was incorporated in Israel in March 2000 and Aevi Genomics Medicine Europe BVBA/SPRL, which was incorporated in Belgium in December 2018. The Company is a clinical stage biopharmaceutical company with an emphasis on identifying the drivers of disease and applying this understanding to the pursuit of differentiated novel therapies primarily for pediatric onset, life-altering diseases, including rare and orphan diseases.

 

As of October 15, 2019, the Company’s common stock (the “Common Stock”) is traded on the Nasdaq Capital Market, after transferring from the Nasdaq Global Market, which the Company’s Common Stock had been traded on since October 21, 2016.

 

b.As reflected in the accompanying financial statements, the Company incurred a net loss and negative cash flow from operating activities for the nine-month period ended September 30, 2019 of $12,526 and $11,695, respectively. The accumulated deficit as of September 30, 2019 was $258,279. As of September 30, 2019, the Company had cash and cash equivalents of $2,381 which it believes will provide funding for its operations into the fourth quarter of 2019. The Company and the Subsidiaries have not yet generated revenues from product sales. See Note 3 below, for additional information regarding liquidity risks and management’s plans. See Note 4 below, for additional information regarding that certain outstanding note payable to CHOP in cash.

 

c.The Children’s Hospital of Philadelphia Foundation (the “CHOP Foundation”) is the Company’s largest stockholder. As of September 30, 2019, the CHOP Foundation and certain related parties beneficially owned 21,311,586 shares of the Company’s Common Stock. The shares of Common Stock beneficially owned by the CHOP Foundation and certain related parties represent approximately 31.5% of the Company’s outstanding shares of Common Stock.

 

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

 

a.The accompanying unaudited condensed financial statements of the Company, have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”) as filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year as reported in the 2018 Form 10-K have been omitted.

 

b.Recently issued accounting pronouncements:

 

In 2016, the FASB issued ASU 2016-02, Leases, which replaced existing leasing guidance. ASU 2016-02 requires lessees to recognize operating and financing lease liabilities and related right-of-use assets, in addition to increased disclosures as to the nature of cash flows arising from a lease. The Company has adopted the new standard effective January 1, 2019, electing not to restate comparative periods. Adoption has not changed the classification of any of the Company’s leases. As a result of adopting ASU 2016-02, the primary impact on the Company’s financial statements was the recognition of a right-of-use asset and a corresponding current lease liability of approximately $42 on the Company’s Condensed Consolidated Balance Sheet, as of January 1, 2019.

 

In June 2018, the FASB issued ASU 2018-07, Compensation–Stock Compensation (Topic 718): Improvements to Nonemployee Shared-Based Payment Accounting. This guidance is intended to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. This guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods, and early adoption is permitted. The Company does not anticipate a material impact to the consolidated financial statements as a result of the adoption of this guidance.

 

 -6- 

 

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

 

NOTE 3: LIQUIDITY RISKS AND MANAGEMENT’S PLANS

 

The future success of the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations. The Company is subject to a number of risks similar to other early-stage life science companies, including, but not limited to, successful discovery and development of its product candidates, raising additional capital with favorable terms, development by its competitors of new technological innovations, protection of proprietary technology and market acceptance of the Company’s products. The successful discovery and development of product candidates requires substantial working capital which may not be available to the Company on favorable terms.

 

The Company has financed its operations primarily through issuance of equity. As of September 30, 2019, the Company had cash and cash equivalents of $2,381 and liabilities of $6,253. The Company has incurred recurring operating losses since inception. For the quarter ended September 30, 2019, the Company incurred a net loss of $4,042 and as of September 30, 2019 the Company has an accumulated deficit of $258,279. The Company anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to research, development of its product candidates and its preclinical programs, and its administrative organization. The Company will require substantial additional financing to fund its operations and to continue to execute its strategy. These conditions raise substantial doubt about its ability to continue as a going concern within one year after the date that the financial statements are issued.

 

To alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern, the board of directors has commenced a review to explore and evaluate potential strategic alternatives to enhance stockholder value. These alternatives could include, among others, continuing to execute the Company’s business plan, issuing or transferring shares of its Common Stock or other equity securities, the license, sale or disposition of certain assets or programs, the formation of a joint venture, a strategic business combination, a transaction that results in private ownership or the sale of the Company, or some combination of these. There can be no assurance that the review of strategic alternatives will result in the identification or consummation of any transaction or that our board of directors will determine that continuing our current business operations is in the best interest of the Company’s stockholders. If the Company raises additional funds through strategic collaborations and alliances or licensing agreements with third parties, which may include existing collaboration partners, the Company may have to relinquish valuable rights to its technologies or product candidates, including AEVI-002, AEVI-005, AEVI-006, AEVI-007 and other product candidates, or grant licenses on terms that are not favorable to the Company. To the extent that the Company raises additional capital through the sale of equity, the ownership interest of its existing shareholders will be diluted and other preferences may be necessary that adversely affect the rights of existing shareholders. If none of these alternatives is available, or if available, the Company is unable to raise sufficient capital through such transactions, it will not have sufficient cash resources and liquidity to fund its business operations for at least the next year following the date the financial statements are issued. Accordingly, management has concluded that substantial doubt exists with respect to the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

 

NOTE 4: COMMITMENTS AND CONTINGENCIES

 

The offices of the Company were rented under an operating lease agreement and committed through April 2019. In March 2019, the Company agreed to extend the operating lease through April 2020. Both the Company and the landlord have the right to terminate the lease 60 days after written notice is provided.

 

In November 2014, the Company entered into a license agreement (the “License Agreement”), and a sponsored research agreement (the “Research Agreement”), each with the Children’s Hospital of Philadelphia (“CHOP”). Under the terms of the License Agreement, CHOP granted the Company (i) an exclusive, sublicensable license to use certain patent rights covering potential diagnostic and therapeutic targets, (ii) an exclusive, non-sublicensable license to use certain biospecimen and phenotypic data collected from patients with rare and orphan diseases and their family members, or the Biobank. A License Issuance Fee of $500 was paid and expensed in 2014. Beginning in 2016 and continuing through 2020, the Company paid, and is contractually required to pay, to CHOP an annual license maintenance fee of $100. This annual license maintenance fee increases to $200 beginning in 2021. The Company is required to pay to CHOP certain milestone payments, ranging from $250 to $500; low single-digit royalties on net sales of all licensed products and a percentage of amounts received from sublicensing activities.

 

 -7- 

 

 

The License Agreement terminates upon the expiration date of the last-to-expire royalty term under the License Agreement. The Company may terminate the License Agreement at any time with six months’ prior written notice to CHOP, and CHOP may terminate the License Agreement upon (i) an uncured default by the Company of the License Agreement, (ii) the failure by the Company to meet certain development and/or commercialization milestones under the License Agreement, or (iii) the Company entering into liquidation, having a receiver or administrator appointed over any assets related to the License Agreement, makes any voluntary assignment of our assets for the benefit of creditors, ceases to carry on business, files for bankruptcy under Chapter 7 of the US Bankruptcy Code or has an involuntary petition under Chapter 7 of the US Bankruptcy Code filed against us.

 

In February 2017, the Company amended the License Agreement. The amendment allows the Company to extend the period of its exclusive commercial access to the Biobank for rolling two-year periods. The cost of the first extension was $198 with each subsequent extension costing $125. The Company has exercised such option in each of 2017 and 2018.

 

In December 2015, the Company entered into an amendment to the Research Agreement, which amendment, amongst other things, granted it the right to extend the term of the Research Agreement until November 12, 2017. In February 2017, the Company entered into a second amendment to the Research Agreement, which extended the term of the Research Agreement through June 30, 2018. This amendment also granted the Company rights to continually extend the term of the Research Agreement by one year by giving CHOP written notice of extension no later than one year prior to the expiration of the then-current term of the Research Agreement. In June 2017, the Company extended the term of the Research Agreement through June 30, 2019, and in June 2018, it extended the term of the Research Agreement through June 30, 2020. $5,937 was due under the Research Agreement in 2018. $4,750 is due under the Research Agreement in 2019, and in the first half of 2020, $2,375 will be due.

 

In March 2019, the Company reached agreement with CHOP to further amend the Research Agreement and the License Agreement (the “CHOP Amendments”). The CHOP Amendments allow the Company to defer the monthly payments due under the Research Agreement for the period from February 1, 2019 through September 30, 2019 in exchange for a non-interest bearing note in the amount of such deferral. Such note matures September 30, 2019 and is secured by all of the Company’s intellectual property and other assets (the “Note”). At maturity, and at CHOP’s option, the Note will be payable in cash or a number of shares of the Company’s Common Stock calculated based on the price of the Company’s Common Stock at such time; provided, however, if conversion upon such election would cause CHOP and its affiliates including the CHOP Foundation to own, in the aggregate, in excess of 47.5% of the then-outstanding shares of the Company’s Common Stock (after giving effect to such conversion), then CHOP would only receive the number of shares of the Company Common Stock such that CHOP and its affiliates including the CHOP Foundation would own, in the aggregate, 47.5% of the then outstanding shares of the Company’s Common Stock (after giving effect to such conversion), and the balance of the Note would be payable to CHOP in cash. Depending on the price of the Company’s Common Stock at the time of such conversion, the percentage conversion cap discussed above may result in a significant amount of the Note payable to CHOP in cash. In such case, depending on the amount, the Company may not have enough cash on hand for such cash payment. Based on the Company’s closing stock price of $0.15 as of the close of business on September 30, 2019 the $3,167 reflected on the balance sheet relating to the Note and CHOP’s current ownership of 18,424,036 shares of Common Stock, excluding its ability to exercise warrants and options, a cash payment would not be required as a result of the percentage conversion cap, if so elected.

 

The CHOP Amendments with respect to the Research Agreement and the License Agreement prohibits the assignment or sublicense of CHOP’s intellectual property without CHOP’s prior written consent, allows CHOP to terminate the Research Agreement and the License Agreement upon a change of control without CHOP’s prior written consent, reduces the period of time during which the Company has to exercise its options to license new intellectual property of CHOP and to negotiate the terms of any such license and requires the Company to meet certain diligence requirements related to acquiring rights to and commencing a clinical trial for a viable molecule that addresses the optioned intellectual property.

 

Furthermore, until the later of repayment in full of the Note or June 30, 2020, the Company has agreed to only undertake an equity financing (including convertible notes) if the net proceeds of such financing provide at least six months of cash to sustain the Company’s operations; provided, that CHOP will have a right of first refusal to purchase any or all equity proposed to be issued in such financing on equivalent terms.

 

On October 4, 2019, the Company entered into an agreement with CHOP to extend the maturity date of the Note (the “Agreement”). Pursuant to the Agreement, the maturity of the Note was extended until November 15, 2019, with an automatic further extension to December 15, 2019, if the Company has entered into a definitive agreement concerning a financing of at least $20,000 on or prior to November 15, 2019. In addition, pursuant to the Agreement, the Company and CHOP agreed to amend the SRA and certain license agreements between the Company and CHOP, to return to CHOP certain intellectual property on which the Company is no longer focused and provide that the SRA continues after June 30, 2020, only upon the mutual agreement of CHOP and the Company.

 

 -8- 

 

 

CHOP is the Company’s largest shareholder, and the CHOP Foundation has the right to nominate one of the Company’s Board of Directors. Expenses related to CHOP, within the Research Agreement or otherwise, were $1,247 and $3,811 for the three and nine months periods ended September 30, 2019, respectively, and $1,239 and $5,725 for the three and nine months periods ended September 30, 2018, respectively. As of September 30, 2019, the Company had total payables related to CHOP, inclusive of those related to the Research Agreement, of $3,211 allocated between accrued expenses and trade payables.

 

In July 2019, the Company entered into an exclusive license agreement with OSI Pharmaceuticals, LLC, an indirect wholly-owned subsidiary of Astellas Pharma Inc. (“Astellas”) for the worldwide development and commercialization of Astellas’ novel, second generation mTORC1/2 inhibitor, AEVI-006. Under the terms of the license agreement, the Company paid Astellas an up-front license fee of $500 and Astellas will be eligible to receive milestones payments based upon the achievement of specified development and regulatory milestones. Upon commercialization, Astellas will be entitled to a tiered, single-digit royalty on worldwide annual net sales. The Company will be fully responsible for the development and commercialization of the program. The Company plans to initially develop AEVI-006 for use in congenital complex Lymphatic Malformations. The Company has scheduled a pre-IND meeting with FDA to discuss the path forward for development of AEVI-006 for the treatment of lymphoid malformations. The Company plans to propose to open the IND with a 4-week phase 1/2 PK/PD, safety and Proof of Concept study in adult patients with lymphatic malformations and begin enrollment in 2020. Detailed study design will be based on FDA and investigator feedback.

 

Also in July 2019, the Company entered into a royalty agreement with Michael F. Cola, Joseph J. Grano, Jr., Kathleen Jane Grano, Joseph C. Grano, The Grano Children’s Trust, Joseph C. Grano, trustee and LeoGroup Private Investment Access, LLC on behalf of Garry A. Neil (each individually, an “Investor” and collectively, the “Investors”), in exchange for a one-time aggregate payment of $2,000 (the “Royalty Agreement”). These investors are considered related parties as Mr. Cola is President and Chief Executive Officer of the Company and a member of its board of directors (the “Board”), Dr. Neil is the Chief Scientific Officer of the Company and Mr. Grano is a member of the Board and is affiliated with the three other Investors party to the Royalty Agreement. Collectively, the Investors will be entitled to an aggregate amount equal to a low-single digit percentage of the aggregate net sales of the OSI Products. At any time beginning three years after the date of the first public launch of an OSI Product, the Company may exercise, at its sole discretion, a buyout option that terminates the Company’s further obligations under the Royalty Agreement in exchange for a payment to the investors of an aggregate of 75% of the net present value of the royalty payments.

 

The $2,000 in proceeds received form the Investors was recorded as a royalty agreement liability on the Company's Balance Sheet, in accordance with ASC 730, Research and Development. Because there was a significant related party relationship between the Company and the Investors, the Company treated its obligation to make royalty payments under the Royalty Agreement as an implicit obligation to repay the funds advanced by the Investors. As the Company makes royalty payments in accordance with the Royalty Agreement, it will reduce the liability balance. At the time that such royalty payments become probable and estimable, and if such amounts exceed the liability balance, the Company will impute interest accordingly on a prospective basis based on such estimates, which would result in a corresponding increase in the liability balance.

 

In August 2019, the Company obtained the right to exercise an exclusive global license from Medimmune Limited, a subsidiary of AstraZeneca, for a Phase 2-ready fully human monoclonal antibody that targets interleukin 18, or IL-18, AEVI-007. Under the terms of the agreement, the Company will have the right to exercise an exclusive global license to develop and commercialize AEVI-007. Contingent upon raising additional capital, the Company intends to exercise the option and would be required to pay AstraZeneca a combined mid-single digit millions in cash and equity upon execution of the option, up to $162,000 upon achievement of certain development and sales-related milestones and tiered low double-digit royalties on global annual product sales. The Company will be fully responsible for the development and commercialization of the program.

 

 -9- 

 

 

NOTE 5:- STOCKHOLDERS’ EQUITY

 

a.On September 10, 2019, the Company obtained approval of an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s outstanding Common Stock by a ratio of not less than one-for-twenty and not more than one-for-sixty, with the exact ratio to be set within this range by the Company’s Board of Directors in its sole discretion, at any time prior to December 31, 2019, the implementation and timing of which shall be subject to the discretion of the Company’s Board of Directors.

 

b.Issuance of stock options and warrants to employees and directors:

 

A summary of the Company’s activity for options and warrants granted to employees and directors is as follows:

 

   Nine months ended
September 30, 2019
 
   Number of
options and
warrants
   Weighted
average
exercise
price
   Weighted
average
remaining
contractual
terms (years)
   Aggregate
intrinsic
value
 
Outstanding at December 31, 2018   10,308,328   $3.84    6.85   $          - 
                     
Granted   -   $-           
                     
Exercised   -   $-           
                     
Forfeited   (1,441,913)  $3.61           
                     
Outstanding at September 30, 2019   8,866,415   $3.88    5.92   $- 
                     
Vested and expected to vest at September 30, 2019   8,866,415   $3.88    5.92   $- 
                     
Exercisable at September 30, 2019   7,482,805   $4.24    5.47   $- 

 

As of September 30, 2019, there was $945 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted to employees and directors. That cost is expected to be recognized over a weighted-average period of 1.24 years.

 

c.Issuance of options and warrants to consultants:

 

A summary of the Company’s activity for warrants and options granted to consultants is as follows:

 

   Nine months ended
September 30, 2019
 
   Number of
options and
warrants
   Weighted
average
exercise
price
   Weighted
average
remaining
contractual
terms (years)
   Aggregate
intrinsic
value
 
Outstanding at December 31, 2018   10,000   $4.82    7.84   $         - 
                     
Granted   -   $-           
                     
Exercised   -   $-           
                     
Forfeited   -   $-           
                     
Outstanding at September 30, 2019   10,000   $4.82    7.09   $- 
                     
Exercisable at September 30, 2019   10,000   $4.82    7.09   $- 

 

 -10- 

 

 

As of September 30, 2019, there was no unrecognized compensation cost related to non-vested stock-based compensation arrangements granted to consultants.

 

d.Stock-based compensation expense:

 

Compensation expense related to warrants and options granted to employees, directors and consultants was recorded in the Consolidated Statement of Operations in the following line items:

 

   Nine months ended
September 30,
   Three months ended
September 30,
 
   2019   2018   2019   2018 
Research and development expenses  $485   $936   $122   $290 
General and administrative expenses   652    1,349    131    460 
Total stock-based compensation expense  $1,137   $2,285   $253   $750 

 

e.Summary of shares to be issued upon exercise of options and warrants:

 

A summary of shares to be issued upon exercise of all the options and warrants, segregated into ranges, as of September 30, 2019 is presented in the following table:

 

       As of September 30, 2019 
Options / Warrants  Exercise
price
per share ($)
   Shares to be issued
upon exercise of
options and
warrants
outstanding
   Shares to be issued
upon exercise of
options and
warrants
exercisable
   Weighted average
remaining
contractual terms of
options and
warrants (in years)
 
Options:                    
Granted to employees and directors                    
    1.07-2.66    2,914,667    1,717,057    8.3 
    3.14-4.91    3,993,000    3,807,000    5.0 
    5.22-8.80    1,817,538    1,817,538    4.4 
         8,725,205    7,341,595      
                     
Granted to consultants   4.82    10,000    10,000    7.1 
                     
Total shares to be issued upon exercise of options        8,735,205    7,351,595      
                     
Warrants:                    
                     
Issued to employees and directors   2.84    141,210    141,210    3.0 
                     
Issued to investors   2.84    3,812,694    3,812,694    3.0 
                     
Total shares to be issued upon exercise of warrants        3,953,904    3,953,904      
                     
Total shares to be issued upon exercise of options and warrants        12,689,109    11,305,499      

 

 -11- 

 

 

NOTE 6: LOSS PER SHARE

 

The Company computes basic net loss per share by dividing net loss by the weighted average number of shares outstanding, which includes stock issued and outstanding. The Company computes diluted net loss per share by dividing net loss by the weighted average number of shares and potential shares from outstanding stock options. Since the Company had a net loss for all periods presented, the effect of all potentially dilutive securities is anti-dilutive.

 

The following table presents anti-dilutive shares for the nine and three months ended September 30, 2019 and 2018:

 

   Nine months ended
September 30,
   Three months ended
September 30,
 
   2019   2018   2019   2018 
Weighted-average anti-dilutive shares related to:                    
Outstanding stock options   9,797,536    10,219,710    9,294,613    10,623,655 
Outstanding warrants   3,953,904    4,532,000    3,953,904    3,953,904 
Total weighted-average anti-dilutive shares   13,751,440    14,751,710    13,248,517    14,577,559 

 

NOTE 7: SUBSEQUENT EVENTS

 

On October 9, 2019, the Nasdaq Hearing’s Panel (the “Panel”) issued a decision granting (i) the Company’s request for transfer of the Company’s common stock from the Nasdaq Global Market to the Nasdaq Capital Market effective at the open of business on October 15, 2019 and (ii) the Company’s request for continued listing of its common stock on the Nasdaq Capital Market pursuant to an exception through February 3, 2020. Such exception is subject to the conditions that on or before February 3, 2020 (i) the Company must demonstrate a closing bid price of $1.00 or more for a minimum of ten prior consecutive trading days and (ii) the Company must have stockholders’ equity above $2,500. If the Company does not regain compliance with the minimum bid price and stockholders’ equity requirements by February 3, 2020 or, based on any significant events that occur during the extension period, the Panel reconsiders the extension, the Nasdaq Stock Market LLC (“Nasdaq”) could delist the Company’s common stock from the Nasdaq Capital Market. There can be no assurance that the Company will regain compliance on or before February 3, 2020, or that it will be able to maintain compliance in the future.

 

 -12- 

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are often identified by the use of words such as, but not limited to, “can,” “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “continues,” “anticipates,” “intends,” “seeks,” “targets,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to them. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, and any updates to those risk factors included in Part II, Item 1A of this Quarterly Report on Form 10-Q. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

 

Overview

 

We are a clinical stage biopharmaceutical company with an emphasis on identifying the drivers of disease and applying this understanding to the pursuit of differentiated novel therapies primarily for pediatric onset, life-altering diseases, including rare and orphan diseases. We look to find treatments for rare and orphan diseases for which there are limited therapeutic options currently available, with a primary focus on pediatric patients. This strategy begins with identifying and validating a therapeutic target and using biomarkers to guide product development. The strategy also involves identifying and acquiring otherwise abandoned or overlooked drug candidates and matching targets and mechanisms of action to novel discoveries. 

 

We have partnered with the Center for Applied Genomics, or CAG, at The Children’s Hospital of Philadelphia, or CHOP, to implement a genomic medicine driven approach to drug development. Included in the assets at CAG is a fully automated biorepository containing specimens from more than 75,000 pediatric patients and 150,000 relatives of those patients. The sample is highly enriched for rare and orphan diseases and the large majority of patients have been genotyped. Their phenotypes are recorded in a modern electronic health record that is linked to the genomics database and biorepository. The patients in the database have consented to anonymized use of their data for research and follow up contact if needed.

 

We have successfully added two phase 2 ready programs to our development pipeline, AEVI-006 and AEV-007, and we continue to pursue discussions related to potentially expanding our pipeline of development programs through the in-license or acquisition of future product development candidates.

 

We have generated significant losses to date, and we expect to continue to generate losses as we progress towards the commercialization of our product candidates. We have incurred net losses of approximately $4.04 million for the three-month period ended September 30, 2019. As of September 30, 2019, we had cash and cash equivalents of $2.38 million, which we believe will provide funding for us into the fourth quarter of 2019. We are unable to predict the extent of any future losses or when we will become profitable, if at all.

 

The Children’s Hospital of Philadelphia Foundation (the “CHOP Foundation”) is our largest stockholder. As of September 30, 2019, the CHOP Foundation and certain related parties beneficially owned 21,311,586 shares of our Common Stock. The shares of Common Stock beneficially owned by the CHOP Foundation and certain related parties represent approximately 31.5% of our outstanding shares of Common Stock. In March 2019, we amended our Research Agreement and License Agreement with CHOP to allow us to defer the monthly payments due under the Research Agreement for the period from February 1, 2019 through September 30, 2019 in exchange for a non-interest bearing convertible note in the amount of such deferral. On October 4, 2019, we entered into an agreement with CHOP to extend the maturity date of the convertible note until November 15, 2019, with an automatic further extension to December 15, 2019, if we have entered into a definitive agreement concerning a financing of at least $20 million on or prior to November 15, 2019. In addition, pursuant to such agreement, we and CHOP agreed to amend the SRA and certain license agreements between us and CHOP, to return to CHOP certain intellectual property on which we are no longer focused and provide that the SRA continues after June 30, 2020, only upon the mutual agreement of CHOP and us.

 

 -13- 

 

 

AEVI-004 (novel co-crystal version of AEVI-001)

 

AEVI-004 is a co-crystal of AEVI-001, with enhanced physical and chemical properties. The new molecule has comparatively greater stability and a higher melting point than AEVI-001. The molecule was engineered to maintain solubility, dissolution and pharmacokinetics substantially similar to AEVI- 001.

 

Given the negative outcomes of the ASCEND trial, there are no current clinical development plans for AEVI-004 in ADHD. Additionally, we initiated work with the National Institutes of Health (NIH) to evaluate the potential anti-seizure activity of AEVI-004 in a preclinical model as part of the NIH Epilepsy Treatment Screening Program. To date, no evidence of anti-epileptic activity has been observed. We intend to notify NIH that we plan to discontinue the evaluation of AEVI-004 as part of the NIH Epilepsy Treatment Screening Program. We currently have no plans to further develop AEVI-004.

 

AEVI-002 (Anti-LIGHT Monoclonal Antibody)

 

The second program arising out of our genomic research collaboration with CHOP is the development candidate AEVI-002, a potential first-in-class anti-LIGHT monoclonal antibody, or the Antibody, being developed for use in Pediatric Onset Crohn’s disease. Pediatric Onset Crohn’s disease may have a more aggressive phenotype than adult onset disease. The genomic rationale for the use of anti-LIGHT antibody in Crohn’s disease was validated by CAG research showing the association to a loss of function mutation in decoy receptor 3 (DcR3). Aevi has subsequently shown that a majority of pediatric patients with active Crohn’s disease have elevated levels of free LIGHT, in serum.

 

In June 2016, we entered into a Clinical Development and Option Agreement, or the Development and Option Agreement, with Kyowa Hakko Kirin Co., Ltd., or KHK, pursuant to which we acquired certain rights with respect to the development and potential commercialization of the Antibody. Under the Development and Option Agreement, we received an exclusive option for exclusive rights to develop products containing the Antibody, or an Antibody Licensed Product, exclusive rights to commercialize Antibody Licensed Product in various countries and to conduct various development activities with respect to the Antibody Licensed Product, including the conduct of a signal finding study testing the Antibody in Severe Pediatric Onset Inflammatory Bowel Disease.

 

An 8-week Phase Ib proof-of-concept study has been initiated, with the goal of enrolling up to 12 patients with a Pediatric Onset Crohn’s disease diagnosis with most patients being refractory to treatment with TNF-α inhibitors, with or without a DcR3 mutation. The endpoints of the trial include endoscopic evaluation, Crohn’s Disease Activity Index ratings and safety. Active recruitment for the trial has been underway for more than two years, and thus far we have been unable to enroll any patients into the trial. The ability to produce initial data from the trial is directly dependent on successful patient recruitment; thus, continued difficulties in recruitment could cause an extensive delay or an inability to deliver any initial data for the program.

 

AEVI-005 (Monoclonal Antibody)

 

AEVI-005 is the second monoclonal antibody we are developing as part of our ongoing collaboration with KHK. We are studying AEVI-005 in an undisclosed ultra-orphan auto-immune pediatric disease. We initiated a preclinical research program with AEVI-005 in the second quarter of 2018.

 

AEVI-006 (mTORC1/2 Inhibitor)

 

In July 2019, we entered into an exclusive license agreement with OSI Pharmaceuticals, LLC, an indirect wholly-owned subsidiary of Astellas Pharma Inc., or Astellas, for the worldwide development and commercialization of Astellas’ novel, second generation mTORC1/2 inhibitor, AEVI-006.

 

 -14- 

 

 

We plan to initially develop AEVI-006 for use in congenital complex Lymphatic Malformations, which includes a number of rare and orphan diseases. Lymphatic Malformations are rare and orphan congenital and potentially life-threatening diseases of the lymphatic system. Some of the diseases involved are Generalized Lymphatic Anomaly (GLA), Kaposiform lymphangiomatosis (KLA), and Gorham-Stoudt disease (GSD). Most lymphatic malformations are evident at birth or within the first two years of age. The exact prevalence of lymphatic malformations in the general population is unknown, but is thought to be approximately 1 in every 4,000 live births. There may be as many as 30,000 to 60,000 Americans living with congenital lymphatic malformations. In some cases, the disease may be familial and have a recognizable genetic cause. In most cases it appears to be sporadic, although somatic genetic mutations are often present. The mTORC1/2 pathway is believed to be involved in greater than 80% of patients with congenital Lymphatic Malformations.

 

There are currently no approved drug therapies for Lymphatic Malformations. AEVI-006 is a new targeted therapy that may address the underlying cause in the majority of these patients.

 

We have scheduled a pre-IND meeting with FDA to discuss the path forward for development of AEVI-006 for the treatment of lymphoid malformations. We plan to propose to open the IND with a 4-week phase 1/2 PK/PD, safety and POC study in adult patients with lymphatic malformations and begin enrollment in 2020. Detailed study design will be based on FDA and investigator feedback.

 

AEVI-007 (Anti-IL18 Monoclonal Antibody)

 

In August 2019, we obtained the right to exercise an exclusive global license from Medimmune Limited, a subsidiary of AstraZeneca, for a Phase 2-ready fully human monoclonal antibody that targets interleukin 18, or IL-18, AEVI-007.

 

Upon exercise of the option which is contingent upon obtaining additional funding, we initially plan to develop AEVI-007 for adult onset Still’s disease, or AOSD, a serious rare and orphan rheumatological disease affecting adults. The disease is similar to systemic onset juvenile idiopathic arthritis that affects children. The etiology of AOSD is unknown with both genetic and infectious factors being implicated. The hallmarks of the disease are persistent daily fever, rash and arthralgias. Many patients suffer complications including splenomegaly, heart and liver disease. Some AOSD patients develop macrophage activation syndrome, a severe acute complication that may cause rapid multi-organ failure and even death. There are currently no approved biologic therapies in the United States for the treatment of AOSD.

 

We intend to request a pre-IND meeting with FDA to discuss the path forward for development of AEVI-007 for the treatment of AOSD. We plan to propose to open the IND with a 12-week phase 1/2 PK/PD, safety and POC study in adult patients with AOSD and potentially begin enrollment in 2020. Detailed study design and the ability to meet the enrollment initiation timeline will be based on FDA and investigator feedback.

 

Current Strategy

 

In light of our decision to discontinue the AEVI-001 program in ADHD, our board of directors has commenced and continues to review to explore and evaluate potential strategic alternatives to enhance stockholder value. These alternatives could include, among others, continuing to execute on our business plan such as the recent additions of AEVI-006 and AEVI-007 to our development program, issuing or transferring shares of our common stock or other equity securities, the license, sale or disposition of certain assets or programs, the formation of a joint venture, a strategic business combination, a transaction that results in private ownership or the sale of the Company, or some combination of these. There can be no assurance that the review of strategic alternatives will result in the identification or consummation of any transaction or that our board of directors will determine that continuing our current business operations is in the best interests of our stockholders.

 

We have successfully added two phase 2 ready programs to our development pipeline, AEVI-006 and AEV-007, and we continue to pursue discussions related to potentially expanding the Company’s pipeline of development programs through the in-license or acquisition of future product development candidates.

 

Financial Operations Overview

 

We have generated significant losses to date, and we expect to continue to generate losses as we progress towards the commercialization of our product candidates. We incurred net losses of approximately $12.53 million for the nine-month period ended September 30, 2019. As of September 30, 2019, we had negative stockholders’ equity of approximately $3.46 million. As of September 30, 2019, we had cash and cash equivalents of $2.38 million. We believe that cash on hand will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2019, however, our current resources would not enable us to repay the CHOP Note if CHOP elected to be paid in cash. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date of the filing of this Quarterly Report on Form 10-Q. We are unable to predict the extent of any future losses or when we will become profitable, if at all.

 

 -15- 

 

 

To alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern, the board of directors has commenced a review to explore and evaluate potential strategic alternatives to enhance stockholder value. These alternatives could include, among others, continuing to execute the Company’s business plan, issuing or transferring shares of its common stock or other equity securities, the license, sale or disposition of certain assets or programs, the formation of a joint venture, a strategic business combination, a transaction that results in private ownership or the sale of the Company, or some combination of these. There can be no assurance that the review of strategic alternatives will result in the identification or consummation of any transaction or that our board of directors will determine that continuing our current business operations is in the best interest of our stockholders. If we raise additional funds through strategic collaborations and alliances or licensing agreements with third parties, which may include existing collaboration partners, we may have to relinquish valuable rights to its technologies or product candidates, including AEVI-002, AEVI-005, AEVI-006, AEVI-007 and other product candidates, or grant licenses on terms that are not favorable to us. To the extent that we raise additional capital through the sale of equity, the ownership interest of our existing shareholders will be diluted and other preferences may be necessary that adversely affect the rights of existing shareholders. If none of these alternatives is available, or if available, we are unable to raise sufficient capital through such transactions, we will not have sufficient cash resources and liquidity to fund our business operations for one year after the date of the filing of this Quarterly Report on Form 10-Q. Accordingly, management has concluded that substantial doubt exists with respect to our ability to continue as a going concern within one year after the date that the financial statements are issued.

 

In light of our decision to discontinue the AEVI-001 program in ADHD, our board of directors has commenced a review to explore and evaluate potential strategic alternatives to enhance stockholder value. These alternatives could include, among others, continuing to execute the Company’s business plan, issuing or transferring shares of our common stock or other equity securities, the license, sale or disposition of certain assets or programs, the formation of a joint venture, a strategic business combination, a transaction that results in private ownership or the sale of the Company, or some combination of these. There can be no assurance that the review of strategic alternatives will result in the identification or consummation of any transaction or that our board of directors will determine that continuing our current business operations is in the best interests of our stockholders.

 

Research and Development Expense

 

Research and development expense consists of: (i) internal costs associated with our development activities; (ii) payments we make to third party contract research organizations, contract manufacturers, clinical trial sites and consultants; (iii) technology and intellectual property license costs, including in-licensing; (iv) manufacturing development costs; (v) personnel related expenses, including salaries, and other related costs, including stock-based compensation expense, for the personnel involved in product development; (vi) activities related to regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials; and (vii) facilities and other allocated expenses, which include direct and allocated expenses for rent, facility maintenance, as well as laboratory and other supplies. All research and development costs are expensed as incurred.

 

Conducting a significant amount of development is central to our business model. Product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development, primarily due to the significantly increased size and duration of the clinical trials.

 

The process of conducting pre-clinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among others, the quality of the product candidate’s early clinical data, investment in the program, competition, manufacturing capabilities and commercial viability. As a result of these uncertainties, together with the uncertainty associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates. Development timelines, probability of success and development costs vary widely. We are concurrently focusing on pursuing clinical and pre-clinical research and development in targeted orphan and rare disease.

 

 -16- 

 

 

General and Administrative Expense

 

General and administrative expense consists primarily of salaries and other related costs, including stock-based compensation expense, for persons serving as our directors and in our executive, finance and accounting functions. Other general and administrative expense includes facility-related costs not otherwise included in research and development expense, costs associated with industry and trade shows, and professional fees for legal services and accounting services. We expect that our general and administrative expenses will increase and decrease as personnel increase and decrease.

 

Results of Operations for the Nine Months Ended September 30, 2019 and 2018

 

Research and Development Expenses

 

Research and development expenses for the nine months ended September 30, 2019 were $7.90 million, decreasing from $17.43 million for the same period in 2018 primarily driven by a reduction of expenses relating to development of AEVI-001 in ADHD.

 

General and Administrative Expenses

 

General and administrative expenses for the nine months ended September 30, 2019 were $4.64 million, decreasing from $6.85 million for the same period in 2018, due in part to a reduction in the scale of our operations.

 

Financial Income and Expenses

 

Financial income and expense for the nine months ended September 30, 2019 and 2018 were de minimis.

 

Results of Operations for the Three Months Ended September 30, 2019 and 2018

 

Research and Development Expenses

 

Research and development expenses for the three months ended September 30, 2019 were $2.50 million, decreasing from $5.13 million for the same period in 2018 primarily driven by a reduction of expenses relating to development of AEVI-001 in ADHD.

 

General and Administrative Expenses

 

General and administrative expenses for the three months ended September 30, 2019 were $1.54 million, decreasing from $2.17 million for the same period in 2018, due in part to a reduction in the scale of our operations.

 

Financial Income and Expenses

 

Financial income and expense for the three months ended September 30, 2019 and 2018 were de minimis.

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

We have financed our operations primarily through issuance of equity.

 

Cash Flows

 

We had cash and cash equivalents of $2.38 million at September 30, 2019, compared to $12.08 million as of December 31, 2018. The decrease in cash during the nine months ended September 30, 2019 primarily reflected our cash expenses for operations.

 

Net cash used in operating activities of $11.70 million for the nine months ended September 30, 2019 and $19.12 million for the nine months ended September 30, 2018 primarily reflected our cash expenses for operations.

 

Net cash provided by and used in investing activities for the nine months ended September 30, 2019 and 2018 were de minimis.

 

Net cash provided by financing activities was $2.00 million for the nine months ended September 30, 2019, as a result of our royalty agreement. Net cash provided by financing activities was $5.00 million for the nine months ended September 30, 2018, relating to the issuance of common stock under our ATM facility.

 

 -17- 

 

 

Funding Requirements

 

Our future capital requirements will depend on a number of factors, including our success in targeting rare and orphan disease candidates, the timing and outcome of clinical trials and regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims and other intellectual property rights, the acquisition of licenses to new products or compounds, the status of competitive products, the availability of financing, and our success in developing markets for our product candidates.

 

We believe that cash on hand will be sufficient to enable us to fund our operating expenses and capital expenditure requirements (not including repayment of the CHOP Note) into the fourth quarter of 2019. We have based this estimate on assumptions that may prove to be wrong and we could use our available resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials.

 

We do not anticipate that we will generate revenue from the sale of products for several years, if at all, or more given the uncertainty of drug development. Absent significant corporate collaboration and licensing arrangements, we will need to finance our future cash needs through additional public or private equity offerings or debt financings in 2019. We do not currently have any commitments for future external funding. We may need to raise additional funds more quickly if one or more of our assumptions prove to be incorrect or if we choose to expand our product development efforts more rapidly than we presently anticipate. We may seek to sell additional equity or debt securities or obtain a bank credit facility. The sale of additional equity or debt securities, if convertible, could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could also result in covenants that would restrict our operations.

 

In light of our decision to discontinue the AEVI-001 program in ADHD, our board of directors has commenced a review to explore and evaluate potential strategic alternatives to enhance stockholder value. These alternatives could include, among others, continuing to execute the Company’s business plan, issuing or transferring shares of our common stock or other equity securities, the license, sale or disposition of certain assets or programs, the formation of a joint venture, a strategic business combination, a transaction that results in private ownership or the sale of the Company, or some combination of these. There can be no assurance that the review of strategic alternatives will result in the identification or consummation of any transaction or that our board of directors will determine that continuing our current business operations is in the best interests of our stockholders.

 

On April 2, 2019, we received a notification from the Nasdaq Stock Market (“Nasdaq”) stating that we no longer comply with the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5450(b)(1)(A) for continued listing on The Nasdaq Global Market because our stockholder’s equity, as reported in our Annual Report on Form 10-K for the year ended December 31, 2018, had fallen below $10 million. The notification also indicated that we did not meet the alternative compliance standards set forth in Nasdaq Listing Rule 5450(b).

 

On August 6, 2019, we received a written notice (the “Notice”) from Nasdaq. As described in the Notice, we had not regained compliance with Nasdaq’s minimum bid price rule, Listing Rule 5550(a)(2) or minimum stockholders’ equity requirement under Nasdaq Listing Rule 5450(b)(1)(A). Although we have stockholder approval to enable us to implement a reverse stock split, we need to maintain a bid price of $1.00 or greater for a minimum of 10 consecutive business days in order to regain compliance with the rules.

 

Accordingly, Nasdaq determined that the Company’s securities would be scheduled for delisting from the Nasdaq Global Market and would be suspended on August 15, 2019. On August 13, 2019, the Company requested an oral hearing to appeal the decision of Nasdaq to delist the Company’s securities.

 

On October 9, 2019, the Nasdaq Hearing’s Panel issued a decision granting (i) the request for transfer of our common stock from the Nasdaq Global Market to the Nasdaq Capital Market effective at the open of business on October 15, 2019 and (ii) the request for continued listing of our common stock on the Nasdaq Capital Market pursuant to an exception through February 3, 2020. Such exception is subject to the conditions that on or before February 3, 2020 (i) we must demonstrate a closing bid price of $1.00 or more for a minimum of ten prior consecutive trading days and (ii) we must have stockholders’ equity above $2.5 million. If the we do not regain compliance with the minimum bid price and stockholders’ equity requirements by February 3, 2020 or, based on any significant events that occur during the extension period, the Panel reconsiders the extension, Nasdaq could delist the our common stock from the Nasdaq Capital Market. There can be no assurance that the we will regain compliance on or before February 3, 2020, or that we will be able to maintain compliance in the future.

 

 -18- 

 

 

Critical Accounting Policies

 

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates.

 

While our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements.

 

Stock-Based Compensation

 

We account for stock options granted to employees and directors according to the Accounting Standards Codification No. 718 (ASC 718) “Compensation – Stock Compensation.” Under ASC 718, stock-based compensation cost is measured at grant date, based on the estimated fair value of the award, and is recognized as an expense over the requisite service period on a straight-line basis.

 

For the purpose of valuing options granted to our employees and directors during the nine months ended September 30, 2019 and 2018, we used the Binomial options pricing model. To determine the risk-free interest rate, we utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the contractual life of our awards. We estimated the expected life of the options granted based on anticipated exercises in the future periods assuming the success of our business model as currently forecast. The expected dividend yield reflects our current and expected future policy for dividends on our common stock. The expected stock price volatility for our stock options was calculated by examining historical volatilities for publicly traded industry peers and blending in our historical volatility. We will continue to analyze the expected stock price volatility as more historical data for our common stock becomes available. After adoption of ASU 2016-09 in the first quarter of 2017, we recognize forfeitures as they occur.

 

Off-Balance Sheet Arrangements

 

CHOP License Agreement and Research Agreement

 

In November 2014, we entered into a license agreement, or the License Agreement, and a sponsored research agreement, or the Research Agreement, each with CHOP. Under the terms of the License Agreement, CHOP granted us (i) an exclusive, sublicensable license to use certain patent rights covering potential diagnostic and therapeutic targets, (ii) an exclusive, non-sublicensable license to use certain biospecimen and phenotypic data collected from patients with rare and orphan diseases and their family members, or the Biobank. In February 2017, we amended the License Agreement. The amendment allows us to extend the period of our exclusive commercial access to the Biobank for rolling two-year periods. The cost of the first extension was $197,603 with each subsequent extension costing $125,000. We have exercised such option in each of 2017 and 2018. The amendment also allows us to extend the Research Agreement for rolling two-year periods in connection with us extending our exclusive commercial access to the Biobank under the License Agreement.

 

In December 2015, we entered into an amendment to the Research Agreement, which amendment (i) set the payment schedule under such agreement through March 2017 and (ii) granted us the right to extend the term of the Research Agreement until November 12, 2017. In February 2017, we entered into a second amendment to the Research Agreement, which extended the term of the Research Agreement through June 30, 2018. This amendment also granted us rights to continually extend the term of the Research Agreement by one year by giving CHOP written notice of extension no later than one year prior to the expiration of the then-current term of the Research Agreement. In June 2017, we extended the term of the Research Agreement through June 30, 2019, and in June 2018, we extended the term of Research Agreement through June 30, 2020. $5.94 million was due for the Research Agreement in 2018. $4.75 million will be due under the Research Agreement in 2019, and in the first half of 2020, $2.38 million will be due.

 

 -19- 

 

 

In March 2019, we reached agreement with CHOP to further amend the Research Agreement and the License Agreement (the “CHOP Amendments”). The CHOP Amendments allow us to defer the monthly payments due under the Research Agreement for the period from February 1, 2019 through September 30, 2019 in exchange for a non-interest bearing note in the amount of such deferral. Such note matures September 30, 2019 and is secured by all of the Company’s intellectual property and other assets (the “Note”). At maturity, and at CHOP’s option, the Note will be payable in cash or a number of shares of our common stock calculated based on the price of our common stock at such time; provided, however, if conversion upon such election would cause CHOP and its affiliates including the CHOP Foundation to own, in the aggregate, in excess of 47.5% of the then-outstanding shares of our common stock (after giving effect to such conversion), then CHOP would only receive the number of shares of our common stock such that CHOP and its affiliates including the CHOP Foundation would own, in the aggregate, 47.5% of the then outstanding shares of our common stock (after giving effect to such conversion), and the balance of the Note would be payable to CHOP in cash. Depending on the price of the Company’s Common Stock at the time of such conversion, the percentage conversion cap discussed above may result in a significant amount of the Note payable to CHOP in cash. In such case, depending on the amount, the Company may not have enough cash on hand for such cash payment. Based on the Company’s closing stock price of $0.15 as of the close of business on September 30, 2019 the $3.17 million reflected on the balance sheet relating to the Note and CHOP’s current ownership of 18,424,036 shares of Common Stock, excluding its ability to exercise warrants and options, a cash payment would not be required as a result of the percentage conversion cap, if so elected.

 

The CHOP Amendments with respect to the Research Agreement and the License Agreement prohibits the assignment or sublicense of CHOP’s intellectual property without CHOP’s prior written consent, allows CHOP to terminate the Research Agreement and the License Agreement upon a change of control without CHOP’s prior written consent, reduces the period of time during which we have to exercise its options to license new intellectual property of CHOP and to negotiate the terms of any such license and requires us to meet certain diligence requirements related to acquiring rights to and commencing a clinical trial for a viable molecule that addresses the optioned intellectual property.

 

Furthermore, we have agreed until the later of repayment in full of the Note or June 30, 2020, we have agreed to only undertake an equity financing (including convertible notes) if the net proceeds of such financing provide at least six months of cash to sustain our operations; provided, that CHOP will have a right of first refusal to purchase any or all equity proposed to be issued in such financing on equivalent terms.

 

On October 4, 2019, we entered into an agreement with CHOP to extend the maturity date of the Note until November 15, 2019, with an automatic further extension to December 15, 2019, if we have entered into a definitive agreement concerning a financing of at least $20 million on or prior to November 15, 2019. In addition, pursuant to such agreement, we and CHOP agreed to amend the SRA and certain license agreements between us and CHOP, to return to CHOP certain intellectual property on which we are no longer focused and provide that the SRA continues after June 30, 2020, only upon the mutual agreement of CHOP and us.

 

Development and Option Agreement, with Kyowa Hakko Kirin Co., Ltd. (KHK) related to AEVI-002

 

In June 2016, we entered into the Development and Option Agreement with KHK pursuant to which we acquired certain rights with respect to the development and potential commercialization of AEVI-002, the Antibody. If we exercise our option under the Development and Option Agreement, KHK has 60 days to select one of two development and commercialization structures as follows:

 

PLAN A: Co-Development/Co-Commercialization Arrangement

 

If KHK selects the co-development/co-commercialization arrangement (Plan A), we will have the exclusive right to develop, manufacture and commercialize the Antibody Licensed Products in the Field in the United States and Canada. We will also be responsible for development and regulatory approval of the first Antibody Licensed Product in the European Union and then transferring such regulatory approval to KHK or its designee. We will be responsible for the manufacture of the Antibody Licensed Products for use by the parties in clinical trials as well as for commercialization in their respective fields and/or territories, with KHK purchasing the Antibody Licensed Products from us.

 

 -20- 

 

 

We will be required to pay KHK an initial license fee in the low single-digit millions of dollars upon the co-development/co-commercialization arrangement becoming effective. We may pay KHK up to an additional $18 million upon the achievement of certain regulatory milestones related to the Antibody Licensed Products. The parties will share the anticipated costs of development of the first Antibody Licensed Product in the Field in the United States, Canada and the European Union with us being responsible for any costs in excess of an agreed cap. The parties will split profits from our sales of Antibody Licensed Products in the United States and Canada equally. KHK will pay us low double-digit royalties for sales of Antibody Licensed Products outside the United States and Canada and outside the Field in the United States and Canada.

 

PLAN B: Licensing Arrangement

 

If KHK selects the licensing arrangement (Plan B), we will have the exclusive right to develop, manufacture and commercialize the Antibody Licensed Products in the Field in the United States, Canada and the European Union. We will be responsible for the manufacture of the Antibody Licensed Products for use by the parties in clinical trials as well as for commercialization in their respective fields and/or territories. 

 

We will be required to pay KHK an initial license fee in the low single-digit millions of dollars upon the licensing arrangement becoming effective. We may pay KHK up to an additional $28 million upon the achievement of certain regulatory milestones related to the Antibody Licensed Products. The parties will split profits from our sales of Antibody Licensed Products in the United States, Canada and the European Union with us being entitled to approximately 74% of such profits and KHK being entitled to approximately 26% of such profits. KHK will pay us low double-digit royalties for sales of Antibody Licensed Products outside the United States, Canada and the European Union and outside the Field in the United States, Canada and the European Union. We will be responsible for costs of development of Antibody Licensed Products in the United States, Canada and the European Union. KHK will have the right to purchase the Antibody Licensed Products from us.

 

Research Collaboration and Option Agreement with Kyowa Hakko Kirin Co., Ltd. (KHK) related to AEVI-005

 

During 2018, we expanded our collaboration with KHK by entering a Research Collaboration and Option Agreement related to AEVI-005. AEVI- 005 is the second monoclonal antibody we are developing as part of our ongoing collaboration with KHK. We are studying AEVI-005 in an undisclosed ultra-orphan auto-immune pediatric disease. We initiated a preclinical research program with AEVI-005 in the second quarter of 2018.

 

Exclusive License Agreement with OSI Pharmaceuticals, LLC, a subsidiary of Astellas Pharma Inc., or Astellas

 

In July 2019, we entered into an exclusive license agreement with OSI Pharmaceuticals, LLC, an indirect wholly-owned subsidiary of Astellas Pharma Inc., or Astellas, for the worldwide development and commercialization of Astellas’ novel, second generation mTORC1/2 inhibitor, AEVI-006. Under the terms of the license agreement, we paid Astellas an up-front license fee of $500,000 and Astellas will be eligible to receive milestones payments based upon the achievement of specified development and regulatory milestones. Upon commercialization, Astellas will be entitled to a tiered, single-digit royalty on worldwide annual net sales. We are fully responsible for the development and commercialization of the program.

 

Royalty Agreement with Certain Related Parties

 

In July 2019, we entered into a royalty agreement with Michael F. Cola, Joseph J. Grano, Jr., Kathleen Jane Grano, Joseph C. Grano, The Grano Children’s Trust, Joseph C. Grano, trustee and LeoGroup Private Investment Access, LLC on behalf of Garry A. Neil in exchange for a one-time aggregate payment of $2 million, which we refer to as the Royalty Agreement. Collectively, the investors will be entitled to an aggregate amount equal to a low-single digit percentage of the aggregate net sales of the OSI Products. At any time beginning three years after the date of the first public launch of an OSI Product we may exercise, at our sole discretion, a buyout option that terminates any further obligations under the Royalty Agreement in exchange for a payment to Investors of an aggregate of 75% of the net present value of the royalty payments.

 

Option to Exercise an Exclusive License Agreement with AstraZeneca

 

In August 2019, we obtained the right to exercise an exclusive global license from Medimmune Limited, a subsidiary of AstraZeneca, for a Phase 2-ready fully human monoclonal antibody that targets interleukin 18, or IL-18, AEVI-007. Under the terms of the agreement, we will have the right to exercise an exclusive global license to develop and commercialize AEVI-007. Contingent upon raising additional capital, we intend to exercise the option and we would be required to pay AstraZeneca a combined mid-single digit millions in cash and equity upon execution of the option, up to $162 million upon achievement of certain development and sales-related milestones and tiered low double-digit royalties on global annual product sales. We will be fully responsible for the development and commercialization of the program.

 

 -21- 

 

 

OCS Agreements

 

Under agreements with the OCS in Israel regarding research and development projects, the Israeli Subsidiary committed to pay royalties to the OCS at rates between 3.5% and 5% of the income resulting from this research and development, at an amount not to exceed the amount of the grants received by the Israeli Subsidiary as participation in the research and development program, plus interest at LIBOR. The obligation to pay these royalties is contingent on actual income. Proceeds from any potential transactions relating to the Israeli Subsidiary’s research and development program may be subject to the terms and conditions of the OCS agreement. As of December 31, 2018, the principal amount of the aggregate contingent liability amounted to approximately $13.97 million.

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

There has been no significant change in our exposure to market risk during the nine months ended September 30, 2019. For a discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

ITEM 4. Controls and Procedures

 

Evaluation of disclosure controls and procedures

 

As required by Rule 13a-15(b) of the Exchange Act, in connection with the filing of this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2019, the end of the period covered by this report.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the first quarter of 2019, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

We are not currently a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, are expected by us to have a material effect on our business, financial condition or results of operation if determined adversely to us.

 

ITEM 1A. Risk Factors

 

The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

 

 -22- 

 

 

Business-Related Risks

 

If we fail to comply with the continued listing requirements of the Nasdaq Capital Market, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.

 

Through October 14, 2019, our common stock was listed for trading on the Nasdaq Global Market, effective October 15, 2019 our common stock has been listed on the Nasdaq Capital Market. On February 6, 2019, we received a notification from Nasdaq that the closing bid price for our common stock had been below $1.00 for 30 consecutive business days and, on April 2, 2019, we received notification from Nasdaq that our stockholder’s equity, as reported in our Annual Report on Form 10-K for the year ended December 31, 2018, had fallen below $10 million. On August 6, 2019, we received a written delisting notice from Nasdaq notifying us that our common stock had been scheduled for delisting from the Nasdaq Global Market. On October 9, 2019, the Nasdaq Hearing’s Panel issued a decision granting (i) the request for transfer of the our common stock from the Nasdaq Global Market to the Nasdaq Capital Market effective at the open of business on October 15, 2019 and (ii) the request for continued listing of our common stock on the Nasdaq Capital Market pursuant to an exception through February 3, 2020. Such exception is subject to the conditions that on or before February 3, 2020 (i) we must demonstrate a closing bid price of $1.00 or more for a minimum of ten prior consecutive trading days and (ii) we must have stockholders’ equity above $2.5 million. If the we do not regain compliance with the minimum bid price and stockholders’ equity requirements by February 3, 2020 or, based on any significant events that occur during the extension period, the Nasdaq Hearing’s Panel reconsiders the extension, Nasdaq could delist the our common stock from the Nasdaq Capital Market. There can be no assurance that the we will regain compliance on or before February 3, 2020, or that we will be able to maintain compliance in the future.

 

A delisting of our common stock from Nasdaq could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and fewer business development opportunities.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Recent Sales of Unregistered Securities

 

None

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None

 

ITEM 3. Defaults Upon Senior Securities

 

None

 

ITEM 4. Mine Safety Disclosures

 

Not applicable

 

ITEM 5. Other Information

 

On November 13, 2019, we entered into a Letter Agreement with Michael McInaw, our interim Chief Financial Officer, providing for, among other things, two cash retention bonuses in the amounts of $25,000 and $35,000. The first bonus, of $25,000, will become payable if Mr. McInaw remains in active service with us through the filing date of our Form 10-Q for the fiscal quarter ended March 31, 2020 (the “First Bonus”). The second bonus, of $35,000, will become payable if Mr. McInaw remains in active service with us through the filing date of our Form 10-Q for the fiscal quarter ended June 30, 2020 (the “Second Bonus”). In the event that Mr. McInaw is terminated by us without cause prior to the filing date of our Form 10-Q for the fiscal quarter ended March 31, 2020, we will pay Mr. McInaw the First Bonus and Second Bonus. In the event that Mr. McInaw is terminated by us without cause after the First Bonus is earned and before the filing date of our Form 10-Q for the fiscal quarter ended June 30, 2020, we will pay Mr. McInaw the Second Bonus. The foregoing description of the Letter Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Letter Agreement, a copy of which is filed as Exhibit 10.2 to this Form 10-Q.

 

ITEM 6. Exhibits

 

* Certain confidential portions of this exhibit were omitted in accordance with Item 601(b)(10) of Regulation S-K.

 

 -23- 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: November 14, 2019 AEVI GENOMIC MEDICINE, INC.
     
  By: /s/ Michael F. Cola
    Michael F. Cola
    President and Chief Executive Officer
    (Principal Executive Officer)
     
Date: November 14, 2019    
  By: /s/ Michael H. McInaw
    Michael H. McInaw
    Interim Chief Financial Officer and Corporate Secretary
    (Principal Financial Officer)

 

 -24-