Scorpius Holdings(SCPX) - 2020 Q4 - Annual Report

PART I Business Heat Biologics develops immune therapies and vaccines using its gp96 platform, with a diverse clinical pipeline Overview and Technology Platforms The gp96 platform (ImPACT®, ComPACT™) activates T-cells for cancer and infectious diseases, featuring HS-110, HS-130, PTX-35, and a COVID-19 vaccine - The company's core technology is the gp96 platform, designed to activate the immune system for applications in oncology and infectious diseases[25] - The platform includes two main technologies: ImPACT®, which functions as an immune activator, and ComPACT™, which combines T-cell activation with co-stimulation in a single product[32][34] - A COVID-19 vaccine program was initiated in March 2020 in collaboration with the University of Miami, utilizing the gp96 platform to express SARS-CoV-2 antigens[35] - Subsidiary Pelican Therapeutics is developing PTX-35, an agonist antibody targeting TNFRSF25, a T-cell costimulatory receptor, to stimulate 'memory' CD8+ cytotoxic T-cells[40] Clinical and Preclinical Pipeline The clinical pipeline includes HS-110 for NSCLC and HS-130 for solid tumors, with PTX-35 and a COVID-19 vaccine in preclinical or early clinical stages HS-110 Phase 2 NSCLC Trial Interim Data (as of Feb 9, 2021) | Cohort | Description | N | Median OS | 1-Year Survival Rate | | :--- | :--- | :-: | :--- | :--- | | Cohort A | Checkpoint inhibitor naïve | 47 | 24.6 months | 61.7% | | Cohort B | Previously treated with checkpoint inhibitor | 68 | 11.9 months | N/A | - The COVID-19 vaccine cell line (ZVX-60) was completed and transferred to Waisman Biomanufacturing in January 2021 to initiate the manufacturing process[52][53] - The FDA cleared the Investigational New Drug (IND) application for PTX-35 in June 2020, and the first patient was treated in a Phase 1 trial for advanced solid tumors the same month[58] Strategy, Acquisitions, and Grants The strategy focuses on regulatory approval, commercialization, partnerships, IP expansion, and non-dilutive funding, notably through the Pelican Therapeutics acquisition and CPRIT grant - Key strategic elements include obtaining regulatory approval, maximizing commercial opportunities, enhancing partnerships, expanding the patent portfolio, and securing non-dilutive grant funding[77][79] - In April 2017, the company acquired an 80% controlling interest in Pelican Therapeutics, which was later increased to 85%, involving cash, stock, and future milestone-based payments[78][81][85] - Pelican was awarded a $15.2 million grant from CPRIT for the development of PTX-35, with $13.7 million provided as of December 31, 2020, requiring $7.6 million in matching funds[86][87][88] Intellectual Property and Licensing The company protects its technology via patents, trade secrets, and exclusive licenses from the University of Miami for its core programs - Heat holds approximately 30 granted U.S. and foreign patents and has 40 pending applications, while Pelican holds approximately 50 granted patents and has 20 pending applications[93] - The company's core ImPACT®, ComPACT™, PTX-35, and COVID-19 vaccine technologies are based on intellectual property exclusively licensed from the University of Miami (UM)[94][95][96][97] - License agreements with UM obligate the company and its subsidiaries to pay various fees, including upfront, annual, milestone, and royalty payments on net sales of products covered by the licensed patents[98][101][109][110] Manufacturing, Competition, and Regulation The company relies on third-party manufacturers, faces intense competition, and operates under extensive FDA and other healthcare regulations - The company does not own or operate manufacturing facilities and relies on third-party manufacturers like GenCure Biomanufacturing and Waisman Biomanufacturing for its product candidates[114][116] - The company faces intense competition from major pharmaceutical and biotechnology companies such as Bristol-Myers Squibb, Merck, Genentech, and Amgen, which have greater resources and more established products[120] - Products are subject to extensive regulation by the FDA, requiring a multi-phase clinical trial process to demonstrate safety and efficacy before a Biologics License Application (BLA) can be submitted for marketing approval[127][128][135] - Beyond the FDA, the company's activities are subject to other healthcare laws, including the federal anti-kickback statute, False Claims Act, and HIPAA, which govern sales, marketing, and data privacy[153][154][157] Corporate and Human Capital Heat Biologics, incorporated in Delaware, has 39 employees across its subsidiaries, with research teams in San Antonio and Morrisville, implementing COVID-19 safety measures - As of December 31, 2020, the company had 39 full-time employees, with research teams located in San Antonio, Texas (10) and Morrisville, North Carolina (21)[188] - The company operates through multiple wholly-owned or majority-owned subsidiaries, including Heat Biologics I, Zolovax, Pelican Therapeutics, Skunkworx Bio, and Scorpion Biological Services[184] - In response to COVID-19, the company implemented health and safety measures including work-from-home flexibility, increased cleaning protocols, and adjusted attendance policies[195] Risk Factors The company faces significant risks related to its financial position, clinical development, intellectual property, and general business operations Risks Relating to our Company, Financial Position and Capital Requirements The company has a limited operating history, consistent net losses, no product revenue, and requires additional capital, with COVID-19 posing further risks - The company has incurred net losses every year since inception, with a net loss of $26.4 million in 2020 and an accumulated deficit of $130.6 million as of December 31, 2020[199] - The company may need to raise additional capital to fund long-term operations, and failure to do so could force delays or elimination of development programs[201][202] - The COVID-19 pandemic could adversely impact business and clinical trials through delays in patient enrollment, supply chain interruptions, and diversion of healthcare resources[207][208] - The company's stock price has been volatile, with a high of $17.00 and a low of $11.51 on a single day (February 9, 2021), which could lead to substantial investor losses[218] Risks Related to Our Clinical Development, Regulatory Approval and Commercialization Success depends on navigating expensive, uncertain clinical trials, obtaining regulatory approvals, and managing third-party dependencies and intense competition - Clinical trials are very expensive, time-consuming, and difficult to design, with a high risk of failure at any stage[235] - The company relies on third-party CROs to conduct clinical trials and third-party manufacturers for product supply, making it vulnerable to their performance and potential disruptions[252][256] - The COVID-19 vaccine program faces significant competition from companies like Pfizer-BioNTech, Moderna, and Johnson & Johnson, which have already received emergency use authorization for their vaccines[245] - The company has no experience in selling, marketing, or distributing products and will need to establish these capabilities or rely on strategic partnerships, which may not be successful[270] Risks Related to Intellectual Property The company's competitive position relies on limited IP protection, licensed technologies, and faces potential infringement claims and government "march-in rights" - The company has limited protection for its intellectual property and relies on licenses for various technologies material to its business; termination of these licenses would have a material adverse effect[310][316] - The company's technology or products may be found to infringe upon third-party intellectual property rights, which could lead to costly litigation and potentially halt development[313] - The U.S. government may have "march-in rights" to certain intellectual property developed with federal grant money, allowing it to grant licenses to third parties under specific circumstances[318][320] General Risk Factors General risks include high dependence on key personnel, potential Nasdaq delisting, stockholder dilution from future financings, and stock price volatility - The company is highly dependent on its key executive officers and scientific advisors, whose knowledge would be difficult to replace[322] - Failure to meet The Nasdaq Capital Market's continued listing requirements, such as the minimum bid price, could result in the delisting of the company's common stock[326] - Future financing needs may result in the issuance of additional securities, causing dilution to existing stockholders[345] Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[346] Properties The company leases executive offices and laboratory spaces in Morrisville, NC, San Antonio, TX, and other locations for its subsidiaries - The company's executive offices and lab are located in Morrisville, NC, with a lease expiring in October 2027[347] - Subsidiary Pelican Therapeutics leases office and lab space in San Antonio, TX, and subsidiary Skunkworx leases lab space[348] Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not presently a party to any material legal proceedings[349] Mine Safety Disclosures This item is not applicable to the company - Not applicable[350] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The common stock trades on Nasdaq under "HTBX", underwent a reverse stock split, and the company has no plans for cash dividends - The company's common stock trades on the Nasdaq Capital Market under the symbol "HTBX"[353] - A one-for-seven reverse stock split was effected on December 11, 2020, reducing the number of outstanding shares from approximately 159.8 million to 22.8 million[355] - The company has never paid cash dividends and does not plan to in the foreseeable future[356] Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 1,480,139 | $11.05 | 1,788,730 | Selected Financial Data This section is not applicable as the company qualifies as a smaller reporting company - Not applicable because the company is a smaller reporting company[363] Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported an increased net loss in 2020, stable R&D, higher G&A, and significantly improved liquidity from stock offerings, sufficient into 2024 Results of Operations Grant revenue slightly decreased, total operating expenses rose due to G&A, and the net loss attributable to Heat Biologics widened in 2020 compared to 2019 Financial Performance Comparison (in millions) | Metric | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Grant Revenue | $2.8 | $3.0 | | R&D Expense | $12.9 | $13.0 | | G&A Expense | $14.9 | $9.4 | | Total Operating Expenses | $29.1 | $23.8 | | Net Loss Attributable to Heat Biologics | $26.0 | $20.0 | R&D Expense by Program (in millions) | Program | 2020 | 2019 | | :--- | :--- | :--- | | HS-110 | $1.3 | $0.1 | | HS-130 | $0.8 | $0.4 | | PTX 35/other biologics | $2.0 | $3.0 | | COVID-19 | $0.5 | $— | | Other programs | $0.5 | $3.3 | | Unallocated R&D expenses | $7.8 | $6.2 | | Total | $12.9 | $13.0 | Liquidity and Capital Resources The company significantly strengthened its financial position in 2020, ending with $111.8 million in cash, primarily from $114.4 million in stock offerings, sufficient into 2024 - The company raised an aggregate of $114.4 million through at-the-market offerings during the year ended December 31, 2020[383][432] Key Liquidity and Cash Flow Data (in millions) | Metric | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash, Cash Equivalents & Short-term Investments | $111.8 | $14.8 | | Net Cash Used in Operating Activities | ($22.0) | ($12.8) | | Net Cash Provided by Financing Activities | $119.3 | $0.02 | - Management expects current funds to be sufficient to fund operations into 2024[384][433] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - Not applicable because the company is a smaller reporting company[448] Financial Statements and Supplementary Data This section refers to the consolidated financial statements and related notes, included from page F-1 to F-32 of the report - This section directs the reader to the full financial statements beginning on page F-1[449] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on accounting and financial disclosure - None[450] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of December 31, 2020, with no material changes in Q4 2020 - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[452] - Management concluded that internal controls over financial reporting were effective as of December 31, 2020, based on the COSO framework[453] - There were no changes in internal control over financial reporting during the fourth quarter of 2020 that materially affected, or are reasonably likely to materially affect, the company's internal control[456] PART III Directors, Executive Officers and Corporate Governance This section details the company's directors and executive officers, board structure, and committee composition, including an independent Lead Director - The executive team includes Jeffrey Wolf (Chairman & CEO) and William L. Ostrander (CFO)[461] - The Board has three independent directors: John Monahan, Ph.D., Edward B. Smith, III, and John K.A. Prendergast, Ph.D[480] - The Board has standing Audit, Compensation, and Nominating and Governance Committees, all composed of independent directors[476] - The company has a separate independent Lead Director, Dr. Prendergast, who presides over executive sessions of independent directors and liaises with management[496] Executive Compensation The executive compensation program aligns pay with stockholder interests, using independent consultants to benchmark base salary, performance bonuses, and equity incentives 2020 Summary Compensation Table | Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Other | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Jeffrey Wolf (CEO) | 2020 | $440,406 | $220,203 | $910,800 | $4,348,528 | $500,000 | $6,419,937 | | William L. Ostrander (CFO) | 2020 | $226,600 | $45,321 | $— | $66,427 | $— | $338,348 | | Jeff T. Hutchins (Former CSO/COO) | 2020 | $331,667 | $— | $— | $218,733 | $129,987 | $680,387 | - The compensation philosophy is to align executive pay with stockholder interests, be competitive to attract talent, and reward the achievement of goals[505][510] - CEO Jeffrey Wolf's 2020 compensation included a $500,000 special bonus to cover estimated taxes from a restricted share award[503][506] - Non-employee directors receive annual cash fees for board and committee service, as well as equity awards, with the lead independent director receiving a monthly fee of $14,000[565] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 22, 2021, directors and executive officers as a group beneficially owned 7.7% of common stock, with Jeffrey Wolf holding 5.6% Security Ownership of Management (as of March 22, 2021) | Name of Beneficial Owner | Total Number of Shares Beneficially Owned | Percentage Ownership | | :--- | :--- | :--- | | Jeffrey Wolf (CEO) | 1,450,930 | 5.6% | | All Executive Officers and Directors, as a group (6 persons) | 2,014,226 | 7.7% | Certain Relationships and Related Transactions, and Director Independence This section discloses related party transactions, including executive compensation and future milestone payments, and confirms three directors are independent under Nasdaq rules - The Audit Committee is responsible for reviewing and approving all related party transactions[573] - The Board has determined that directors John Monahan, John K.A. Prendergast, and Edward B. Smith, III are independent as defined by Nasdaq rules[579] Principal Accountant Fees and Services BDO USA, LLP served as the independent auditor, with fees primarily for audit services in 2020 and 2019, all pre-approved by the Audit Committee Accountant Fees | Fee Type | 2020 | 2019 | | :--- | :--- | :--- | | Audit Fees and Expenses | $329,213 | $321,175 | - All audit and non-audit services provided by the independent registered public accounting firm were pre-approved by the Audit Committee[582] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Annual Report on Form 10-K, covering fiscal years 2020 and 2019 - This item lists the consolidated financial statements for the years ended December 31, 2020 and 2019, and all exhibits filed with the report[587] Form 10-K Summary This item is not applicable to the company - Not applicable[602]