Renovaro Biosciences (RENB) - 2019 Q4 - Annual Report

Part I Business Enochian BioSciences is a pre-clinical biotechnology company developing genetically modified cellular and immune-therapies for HIV and cancer, funded by security sales and subject to intense regulation - The company is a pre-clinical biotechnology firm developing genetically modified cellular and immune-therapies for HIV and cancer[17] - Operations are currently funded by sales of securities, not revenue, and profitability is not expected until products are approved and successfully marketed[35][106] - As of June 30, 2019, the company had 8 full-time employees[85] Product Candidates The company's pipeline focuses on gene therapies for HIV/AIDS and cancer, including cell therapies and dendritic cell-based vaccines Key Development Programs (as of September 2019) | Product Candidate | Indication | Development Stage | Description | | :--- | :--- | :--- | :--- | | ENOB-HV-01 | HIV | Pre-clinical | Autologous cell therapy using patient's own CD34+ cells to silence the CCR5 gene, making cells resistant to HIV | | ENOB-HV-11 / HV-12 | HIV | Pre-clinical | Preventative and therapeutic vaccine programs | | ENOB-DB-01 / DC-01 | Colon Cancer | Discovery/Research | Dendritic cell cancer vaccine to prevent relapse after resection and chemotherapy | | ENOB-DC-11 | Multiple Solid Tumors | Pre-clinical | Off-the-shelf, universal dendritic cell delivery system for tailored cancer treatments | | ENOB-DC-21 | Cancer | Discovery/Research | Non-specific vaccine for intratumoral injection | Intellectual Property Intellectual property strategy combines owned patents, in-licensed technology, and trade secrets, including a key exclusive license for HIV-related IP - The company holds a patent for a melanoma cell lysate-pulsed dendritic cell vaccine, granted in multiple jurisdictions including the US and Europe, with expiration beginning in November 2022[39] - A patent for a method of generating dendritic cells at reduced temperatures is owned by the company, with an expiry date of December 2026[40] - On February 16, 2018, the company entered into an exclusive, perpetual, royalty-free worldwide license agreement with Weird Science, LLC for its intellectual property related to the prevention and treatment of HIV in humans[42] Competition The company faces intense competition from large pharmaceutical and biotech firms, new entrants, and academic institutions in gene and cell therapy - The company faces potential competition from larger, better-funded pharmaceutical and biotechnology companies, new market entrants, and new technologies[43] - Key competitors in gene therapy include Sangamo, uniQure N.V., bluebird bio, Inc., and Pfizer; cell therapy competitors include Novartis AG, Kite Pharma, and Juno Therapeutics[46][47] - For its lead HIV candidate ENOB-HV-01, the company identifies Sangamo and American Gene Technology as direct competitors[49] Government Regulation Products are subject to extensive FDA regulation, requiring rigorous preclinical and multi-phase clinical trials for safety and efficacy, alongside compliance with healthcare laws - Products require extensive preclinical and clinical trials to demonstrate safety and efficacy before seeking FDA approval via a Biologics License Application (BLA) or New Drug Application (NDA)[57][64] - The company may be eligible for Orphan Drug Designation for products treating rare diseases, which could provide seven years of market exclusivity if approved[68] - The company is subject to healthcare laws including the federal Anti-Kickback Statute, False Claims Act, and HIPAA, with violations carrying significant penalties[70][71][72] Risk Factors As a smaller reporting company, the registrant is not required to provide detailed risk factor information Unresolved Staff Comments The company reports no unresolved SEC staff comments Properties The company leases two office spaces in Los Angeles, CA, including its 3,554 sq ft corporate headquarters under a ten-year lease Leased Properties | Location | Size (sq. ft.) | Lease Term | | :--- | :--- | :--- | | 5901 W. Olympic Blvd, Los Angeles, CA | 2,325 | 5 years, 2 months (from Nov 2017) | | 2080 Century Park East, Los Angeles, CA | 3,554 | 10 years (expanded Feb 2019) | Legal Proceedings The company is not currently involved in any legal proceedings expected to materially impact its business or financial condition Mine Safety Disclosures This item is not applicable to the company Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common stock trades on Nasdaq under 'ENOB', with 46.3 million shares outstanding as of September 2019, and no cash dividends paid or planned - Common Stock trades on the Nasdaq Capital Market under the symbol "ENOB"[99] - As of September 27, 2019, there were 46,273,924 shares of common stock outstanding[5][100] - The company has not paid and does not plan to pay any cash dividends[101] Selected Financial Data As a smaller reporting company, the registrant is not required to provide selected financial data Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported an $18.0 million net loss in FY2019, driven by increased operating expenses and a non-cash contingent consideration charge, with liquidity maintained through security sales Results of Operations (FY 2019 vs. FY 2018) Net loss increased by 185.4% to $18.0 million in FY2019 due to higher G&A, R&D, and a non-cash contingent consideration charge Consolidated Statement of Operations Summary | Metric | FY 2019 | FY 2018 (As Revised) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $0 | $0 | N/A | | Total Operating Expense | $10,990,032 | $5,329,329 | +106.2% | | General and administrative expenses | $8,271,540 | $3,899,718 | +112.1% | | Research and development expenses | $2,498,107 | $616,961 | +304.9% | | Loss from Operations | $(10,990,032) | $(5,329,329) | +106.2% | | Change in fair value of contingent consideration | $(7,073,579) | $(1,375,000) | +414.4% | | Net Loss | $(18,016,480) | $(6,311,835) | +185.4% | | Basic and Diluted Loss Per Share | $(0.48) | $(0.29) | +65.5% | - The increase in G&A expenses was primarily due to higher non-cash compensation, salaries, and security expenses[116] - The increase in R&D expenses was mainly attributable to $1.5 million in R&D consulting fees and costs for pre-clinical studies for ENOB-HV01 and ENOB-HV11/12[117] Liquidity and Capital Resources Liquidity is maintained through equity and warrant sales, with cash at $12.3 million and working capital at $11.4 million as of June 30, 2019 Cash and Working Capital Comparison | Metric | June 30, 2019 | June 30, 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Cash | $12,282,224 | $15,600,865 | -21.3% | | Working Capital | $11,384,571 | $14,888,293 | -23.5% | - In FY2019, the company received total proceeds of $6,020,000 from the exercise of warrants[125][133] - In FY2018, the company raised $13.4 million from a private placement and $3.3 million from warrant exercises[124][125] Cash Flows Net cash used in operating activities increased to $8.5 million in FY2019, while financing activities provided $6.0 million from warrant exercises Summary of Cash Flows | Cash Flow Activity | FY 2019 | FY 2018 (As Revised) | | :--- | :--- | :--- | | Net Cash Used by Operating Activities | $(8,507,341) | $(4,338,269) | | Net Cash Used by Investing Activities | $(716,669) | $(575,732) | | Net Cash Provided by Financing Activities | $6,020,000 | $16,712,715 | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the registrant is not required to provide market risk disclosures Financial Statements and Supplementary Data Audited consolidated financial statements show decreased cash, reduced liabilities due to contingent consideration, and an increased net loss, with 2018 financials revised for asset classification Consolidated Balance Sheet Highlights (at June 30) | Metric | 2019 | 2018 (As Revised) | | :--- | :--- | :--- | | Cash | $12,282,224 | $15,600,865 | | Total Assets | $179,877,353 | $182,502,456 | | Contingent Consideration Liability | $5,667,000 | $22,891,000 | | Total Liabilities | $6,777,416 | $23,764,722 | | Total Stockholders' Equity | $173,099,937 | $158,737,734 | - The financial statements for the year ended June 30, 2018 were revised to correct an error in classifying IPR&D assets as indefinite-lived rather than finite-lived, which reduced the reported 2018 net loss from $9.2 million to $6.3 million[208][209][211] - Subsequent to year-end, on July 3, 2019, the company issued 500,000 shares of common stock from the exercise of options for $1.0 million in proceeds and issued another 500,000 shares related to the Acquisition Agreement[282] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were ineffective as of June 30, 2019, due to inadequate resources and insufficient segregation of duties - The Certifying Officers concluded that disclosure controls and procedures were not effective as of June 30, 2019[287] - Management concluded that internal controls over financial reporting were not effective as of June 30, 2019[288] - The control deficiencies are attributed to inadequate resources for complex accounting and an inadequate number of persons to segregate accounting tasks[288] Other Information This item is not applicable Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for Items 10-14, covering governance, compensation, and ownership, is incorporated by reference from the 2019 Proxy Statement - Information for Part III (Items 10-14) is incorporated by reference from the company's 2019 Proxy Statement[294][295][296] Part IV Exhibits, Financial Statement Schedules This section lists exhibits filed with the Form 10-K, including key corporate documents, agreements, and officer certifications