Aug. 8, 2019, 7:49 a.m. EDT

10-Q: ZIOPHARM ONCOLOGY INC

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and

Overview

We are a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing next generation immunotherapy platforms that leverage cell- and gene-based therapies to treat patients with cancer. We are developing two immuno-oncology platform technologies that utilize the immune system by employing novel, controlled gene expression and innovative cell engineering technologies designed to deliver safe, effective, and scalable non-viral cell- and viral-based gene therapies for the treatment of multiple cancer types. Our first platform is referred to as Sleeping Beauty and is based on the genetic engineering of immune cells using a non-viraltransposon/transposase system that is intended to stably reprogram T cells outside of the body for subsequent infusion. Our second platform is termed Controlled IL-12, which is designed to stimulate expression of interleukin 12, or IL-12, a master regulator of the immune system, in a controlled and safe manner to focus the patient's immune system to attack cancer cells. We believe these two platforms have the potential to provide unique and powerful solutions to address the issues associated with (1) treating solid tumors with heterogeneous and unknown antigens, and (2) providing cost-effective scalable manufacturing solutions for T cell receptor T cell, or TCR+ T, therapies for solid tumors and chimeric antigen receptor, or CAR T cell, or CAR+ T, therapies targeting CD19 on malignant B cells. We expect programs from our two platform technologies to be in the clinic in 2019.

Using our Sleeping Beauty platform, we are developing TCR+ T therapies initially to target solid tumors. Our T cell receptor, or TCR, program designs and manufactures T cells that are intended to target tumor-specific antigens, thereby delivering personalized therapy that can attack an individual patient's cancer. These antigens are referred to as neoantigens as they are only expressed by the tumor, reducing the potential for toxicity upon targeting normal cells. A minority of neoantigens are shared between patients and between classes of tumors and are referred to as "hotspots". The Sleeping Beauty system uses DNA plasmids to reprogram T cells to express introduced TCRs on a patient-by-patient basis (addressing inter-tumor heterogeneity) and possibly to express more than one TCR for each patient (addressing intra-tumor heterogeneity). The genetic modification using the Sleeping Beauty system of recipient-derived products enables us to target neoantigens in two ways. The first recognizes that most neoantigens are unique to each patient's tumor and we plan to infuse TCR+ T cells expressing recipient-derived (autologous) TCRs. The second is based on the finding that some neoantigens in hotspots are shared between patients and we plan to administer TCR+ T expressing allogeneic TCRs from a library derived from third parties. We believe the scalability of our approach provides a competitive advantage to alternative viral-based approaches to T cell manufacturing. Under our Cooperative Research and Development Agreement, or CRADA, the National Cancer Institute, or the NCI, intends to initiate a clinical trial in patients with a variety of solid tumors using the Sleeping Beauty platform to genetically modify T cells to target patient-specific neoantigens in mid-2019. The clinical trial will be under the direction of Steven A. Rosenberg, M.D., Ph.D., Chief of the Surgery Branch at the NCI.

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We are also developing CAR+ T therapies using our Sleeping Beauty platform. Our CAR+ T program seeks to solve the complex and costly manufacturing limitations of existing CD19-specific CAR+ T therapies that we believe will continue limiting their commercial potential. We believe using DNA plasmids in the Sleeping Beauty system to express a CD19-specific CAR and our proprietary membrane-bound interleukin 15, or mbIL15, in resting T cells obtained from peripheral blood will enable infused T cells to propagate within the patient to target leukemia and lymphoma, thus avoiding the need to numerically expand T cells for weeks in bioreactors before patient administration. The mbIL15 is co-expressed with a "kill switch" or "safety switch" to conditionally eliminate infused T cells. We expect the lower cost of DNA plasmids compared with the virus used by other CAR+ T programs, together with the avoidance of lengthy ex vivo manufacturing, will reduce the cost and complexity of manufacturing CAR+ T cells. These technologies should enable T cells to be infused within two days of gene transfer in a process we refer to as rapid personalized manufacture, or RPM. We are advancing our CAR+ T therapies in the United States in collaboration with The University of Texas MD Anderson Cancer Center, or MD Anderson, to target CD19 on malignant B cells. In addition, in a joint venture with TriArm Therapeutics, Ltd., or TriArm, we have formed Eden BioCell, Ltd., or Eden BioCell, to lead clinical development and commercialization of Sleeping Beauty-generated CD19-specific RPM CAR-T therapies in the People's Republic of China, Taiwan and Korea. Eden BioCell is owned equally by us and TriArm and the parties share decision-making authority. TriArm has committed up to $35.0 million to this joint venture and will manage all clinical development to execute trials in the territory.

Our Controlled IL-12 platform uses virotherapy based on an engineered replication-incompetent adenovirus (Ad-RTS-hIL-12) plus veledimex as a gene delivery system to conditionally produce IL-12, a potent, naturally occurring anti-cancer protein, to treat patients with solid tumors where a specific target is unknown, including brain cancer. Our Controlled IL-12 platform allows us to deliver IL-12 in a tunable dose, which is critical for this potent cytokine. In a phase 1 clinical trial of patients with recurrent glioblastoma multiforme, or rGBM, a subset of patients (n=6) who received low-dose steroids along with 20 mg of veledimex plus Ad-RTS-hIL-12, achieved 17.8 months median overall survival, or OS, compared with five to eight months OS established in historical controls. Thirty-six additional patients with rGBM have been recruited into a sub study designed to encourage use of low-dose steroids and 20 mg veledimex to further understand the potential of Controlled IL-12 as a monotherapy. We are also developing our Controlled IL-12 platform in combination with immune checkpoint inhibitors. We are currently enrolling patients with rGBM to receive Ad-RTS-hIL-12 plus veledimex in combination with OPDIVO(R)(nivolumab) in a phase 1 dose-escalation trial. In November 2018, we announced a clinical supply agreement with Regeneron Pharmaceuticals, Inc., or Regeneron, to evaluate Ad-RTS-hIL-12 plus veledimex in combination with Regeneron's PD-1antibody Libtayo(R) (cemiplimab-rwlc) for the treatment of patients with rGBM.

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As of June 30, 2019, we had cash and cash equivalents of approximately $43.6 million. Given our current development plans, along with the $45.0 million in gross proceeds from the July 2019 private placement, we expect that our existing cash and cash equivalents will be sufficient to fund our current operations into the first half of 2021. We currently do not have any committed sources of additional capital at this time. The forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than currently anticipated. Management does not know whether additional financing will be available on terms favorable or acceptable to us when needed, if at all. If adequate additional funds are not available when required, or if we our unsuccessful in entering into partnership agreements for further development of its products, management may need to curtail development efforts.

We have not generated significant revenue and have incurred significant net losses in each year since our inception. For the six months ended June 30, 2019, we had a net loss of $28.1 million, and, as of June 30, 2019, we have incurred approximately $594.4 million of accumulated deficit since our inception in 2003. We expect to continue to incur significant operating expenditures and net losses. Further development of our product candidates will likely require substantial increases in our expenses as we:

continue to undertake clinical trials for product candidates;

seek regulatory approvals for product candidates;

work with regulatory authorities to identify and address program-related inquiries;

implement additional internal systems and infrastructure;

hire additional personnel; and

scale-up the formulation and manufacturing of our product candidates.

We continue to seek additional financial resources to fund the further development of our product candidates. If we are unable to obtain sufficient additional capital, one or more of these programs could be delayed, and we may be unable to continue our operations at planned levels and be forced to reduce our operations. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability.

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Recent Developments

Organizational Updates

Satyavrat (Sath) Shukla was appointed as our Chief Financial Officer, effective July 22, 2019. Mr. Shukla will direct all financial planning, analysis and reporting, treasury and tax functions, and will take on a key leadership role in our capital strategy development and investor relations activities.

Effective July 29, 2019, Drew Deniger, Ph.D., joined us from the NCI to lead our TCR program. Since 2013, Dr. Deniger has worked at the NCI under Dr. Steven Rosenberg where he has served as Lead Investigator for the group's efforts in three initiatives: identifying hotspot neoantigens for T-cell therapy; targeting neoantigens in metastatic endometrial and ovarian cancers; and non-viral gene therapy using the Sleeping Beauty system to generate TCR-modified T cells targeting neoantigens.

On June 13, 2019, Heidi Hagen was appointed to our board of directors.

Clinical and Regulatory Developments

Under our CRADA, the NCI is undertaking a clinical trial with enrollment expected to begin in mid-2019. The NCI is developing autologous peripheral blood lymphocytes genetically modified with the Sleeping Beauty system to express TCRs that recognize neoantigens expressed by patients' solid tumors. On June 11, 2019, we announced that the U.S. Food and Drug Administration, or FDA, had cleared the investigational new drug application submitted by the NCI for this clinical trial.

Enrollment has commenced in our phase 2 clinical trial evaluating Controlled IL-12 in combination with PD-1 antibody Libtayo(R) (cemiplimab-rwlc) for the treatment of rGBM in adults. The multi-center trial will be conducted at approximately 10 hospitals specializing in the treatment of brain cancers in the United States. This open-label, single-arm phase 2 trial will enroll approximately 30 patients with rGBM, with the primary endpoints being safety and efficacy. Patients with rGBM scheduled for resection who have not been treated previously with inhibitors of immune-checkpoint pathways will receive Ad-RTS-hIL-12 intratumorally at the time of surgical resection plus a dose of veledimex

On June 26, 2019, we announced the completion of enrollment of the third cohort of a phase 1 clinical trial evaluating Controlled IL-12 in combination with the PD-1 inhibitor OPDIVO(R) (nivolumab) for the treatment of rGBM in adults. Following the completion of enrollment of the third cohort, we elected to expand this clinical trial to include additional patients with rGBM.

On June 2, 2019, we announced the presentation of new interim analyses of clinical data from Ad-RTS-hIL-12 plus veledimex, both as monotherapy and in combination with a PD-1 inhibitor, for the treatment of recurrent or progressive glioblastoma multiforme in adults, at the American Society for Clinical Oncology (ASCO) Annual Meeting.

On April 1, 2019, we announced that the FDA has granted Fast Track Designation for our Controlled IL-12 program for the treatment of recurrent or progressive glioblastoma multiforme in adults. The FDA's Fast Track program is designed to facilitate the development and expedite the review of drugs that treat serious conditions and fill an unmet medical need. Additionally, on August 8, 2019, we announced that the European Medicines Agency Committee for Orphan Medicinal Products adopted a positive opinion recommending Controlled IL-12 for designation as an orphan medicinal product for the treatment of glioma.

Patients are being followed in a phase 1 investigator-led trial at MD Anderson to infuse CD19-specific CAR+ T cells based on genetic modification with the Sleeping Beauty system for patients with B-cell leukemias and lymphomas. This second-generation trial explored T cell dosing and time to manufacture.

In 2019, we expect to file an investigational new drug application with the FDA and initiate a phase 1 clinical trial in the United States infusing CD19-specific CAR+ T therapies manufactured using our RPM technology to produce T cells in two days or less after gene transfer. This clinical trial will infuse donor-derived T cells after allogeneic bone marrow transplantation for recipients who relapse with CD19+ leukemias and leukemias. We have prioritized this clinical trial while efforts remain ongoing to advance our RPM technology using patient-derived (autologous) T cells to treat patients with relapsed or refractory CD19+ leukemias and lymphomas.

Business Developments

On July 5, 2019, we closed our joint venture with TriArm, launching Eden BioCell, which will lead clinical development and commercialization of Sleeping Beauty-generated CD19-specific RPM CAR-T therapies in the People's Republic of China, Taiwan and Korea.

On July 26, 2019, we entered into a securities issuance agreement with certain institutional and accredited investors who are holders of warrants to purchase our common stock that were issued in November 2018, pursuant to which (i) the investors agreed to exercise their existing warrants for an aggregate of 15,015,152 shares of common stock, at an exercise price of $3.01 per share and (ii) we agreed to issue to the investors new warrants to purchase 15,015,152 additional shares of our common stock, at an exercise price of $7.00 per share, for gross proceeds to us of approximately $45.0 million. The securities issued by us pursuant to the securities issuance agreement and to be issued upon exercise of the warrants were not registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. When issuing the new warrants, we relied on the private placement exemption from registration provided by Section 4(a)(2) of the Securities Act and by Rule 506 of Registration D, promulgated thereunder and on similar exemptions under applicable state laws and will file a Form D with the SEC within the required timeframe. In connection with the entry into the securities issuance agreement, we also entered into a registration rights agreement with the investors, pursuant to which, we agreed to prepare and file a registration statement with the SEC within 60 business days after the closing of the transaction for the purposes of registering the resale of the common stock underlying the new warrants.

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        Financial Overview
        Overview of Results of Operations
        Three and Six Months Ended June 30, 2019 Compared to Three and Six Months ended
        June 30, 2018
        Revenue. Revenue during the three and six months ended June 30, 2019 and 2018
        was as follows:
                                                  Three months ended                       Six months ended
                                                       June 30,                                June 30,
                                                 2019            2018         Change       2019          2018          Change
        ($ in thousands)
        


We recognized previously deferred revenue from our License and Collaboration Agreement among us, Precigen and Ares Trading S.A., or the Ares Trading Agreement, amounting to $0.1 million for the six months ended June 30, 2018 under ASC 605. During the three months ended June 30, 2019 and 2018, we did not recognize any revenue as we did not have any outstanding contract liability under ASC 606.

Research and development expenses. Research and development expenses during the three and six months ended June 30, 2019 and 2018 were as follows:







                                             Three months ended                                  Six months ended
                                                  June 30,                                           June 30,
                                              2019          2018            Change              2019          2018             Change
        ($ in thousands)
        


Research and development expenses for the three months ended June 30, 2019 increased by $2.5 million when compared to the three months ended June 30, 2018. During the three months ended June 30, 2019, our research and development costs increased by $3.2 million as a result of payments under our patent license agreement with the NCI and increased nonclinical research and development to support our cell therapy programs. These increases were offset by decreases of approximately $0.1 million related to gene therapy programs and $0.6 million related to stock compensation, contracted outside services, and other employee related expenses during the three months ended June 30, 2019.

Research and development expenses for the six months ended June 30, 2019 increased by $1.8 million when compared to the six months ended June 30, 2018. During the six months ended June 30, 2019, our research and development costs increased by $1.5 million as a result of a milestone payment after our entry into a patent license with the NCI in May 2019 $0.9 million for increased manufacturing and nonclinical research and development costs to support our cell therapy programs, and $1.3 million for increased manufacturing and clinical research and development costs to support our gene therapy programs. These increases were offset by a decrease of approximately $1.5 million related to activities associated with our CD33-specific CAR+ program, which has been transferred to Precigen under the terms of the License Agreement. Additionally, the increased costs associated with our research and development efforts were offset by a decrease of approximately $0.4 million related to stock compensation, contracted outside services, and other employee related expenses during the three months ended June 30, 2019.

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Our research and development expense consists primarily of salaries and related expenses for personnel, costs of contract manufacturing services, costs of facilities and equipment, fees paid to professional service providers in conjunction with our clinical trials, fees paid to contract research organizations in conjunction with preclinical animal studies, costs of materials used in research and development, consulting, license and milestone payments and sponsored research fees paid to third parties.

We have not accumulated and tracked our internal historical research and development costs or our personnel and personnel-related costs on a program-by-program basis. Our employee and infrastructure resources are allocated across several projects, and many of our costs are directed to broadly applicable research endeavors. As a result, we cannot state the costs incurred for each of our oncology programs on a program-by-program basis.

For the six months ended June 30, 2019, our clinical stage projects included a phase 1 clinical trial with Ad-RTS-IL-12 plus veledimex in progressive glioblastoma; an investigator-led phase 1 clinical trial infusing our 2nd generation CD19-specific CAR+ T cells in patients with advanced lymphoid malignancies; and a phase 1 clinical trial of Ad-RTS-hIL-12 with veledimex for the treatment of pediatric brain tumors. The expenses incurred by us to third parties for our phase 1 clinical trial with Ad-RTS-IL-12 plus veledimex in progressive glioblastoma were $0.6 million for the six months ended June 30, 2019, and $7.4 million from the project's inception in June 2015 through June 30, 2019. The expenses incurred by us to third parties for our investigator-led phase 1 clinical trial infusing our 2nd generation CD19-specific CAR+ T cells in patients with advanced lymphoid malignancies were $0.6 million for the six months ended June 30, 2019 and $5.3 million from the project's inception in December 2015 through June 30, 2019. The expenses incurred by us to third parties for our investigator-led phase 1 clinical trial of Ad-RTS-hIL-12 with veledimex for the treatment of pediatric brain tumors were $34 thousand for the six months ended June 30, 2019 and $1.5 million from the project's inception in October 2017 through June 30, 2019.

Our future research and development expenses in support of our current and future programs will be subject to numerous uncertainties in timing and cost to completion. We test potential products in numerous preclinical studies for safety, toxicology and efficacy. We may conduct multiple clinical trials for each product. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain products to focus our resources on more promising products or indications. Completion of clinical trials may take several years or more, and the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product. It is not unusual for preclinical and clinical development of each of these types of products to require the expenditure of substantial resources.

We estimate that clinical trials of the type generally needed to secure new drug approval are typically completed over the following timelines:







                          Clinical Phase    Estimated Completion Period
                          Phase 1                            1 - 2 years
                          Phase 2                            2 - 3 years
                          Phase 3                            2 - 4 years
        


The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others, the following:

The number of clinical sites included in the trials;

The length of time required to enroll suitable patents;

The number of patients that ultimately participate in the trials;

The duration of patient follow-up to ensure the absence of long-term product-related adverse events; and

The efficacy and safety profile of the product.

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As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our programs or when and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete our programs in a timely manner or our failure to enter into appropriate collaborative agreements could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time-to-time in order to continue with our product development strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

General and administrative expenses. General and administrative expenses during the three and six months ended June 30, 2019 and 2018 were as follows:







                                               Three months ended                                Six months ended
                                                    June 30,                                         June 30,
                                                2019          2018           Change             2019         2018              Change
        ($ in thousands)
        


. . .

Aug 08, 2019

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