Blueprint
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2019
OR
☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
Commission File Number 001-36498
CELLULAR BIOMEDICINE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
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86-1032927
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State of Incorporation
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IRS Employer Identification No.
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1345 Avenue of Americas, 15th Floor
New York, New York 10105
(Address of principal
executive offices)
(347) 905 5663
(Registrant’s telephone number)
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
than the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the
definition of “accelerated filer,” and “large
accelerated filer”, “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
|
☐
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Accelerated filer
|
☑
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Non-accelerated filer
|
☐
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Smaller reporting company
|
☐
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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 ☑
As
of April 30, 2019, there were 20,284,027 and 19,228,528 shares
of common stock, par value $.001 per share, issued and outstanding,
respectively.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
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3
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3
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4
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5
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6
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7
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21
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40
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43
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PART II OTHER
INFORMATION
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44
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44
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45
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45
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45
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46
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46
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47
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PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated
Financial Statements
(Unaudited)
CELLULAR
BIOMEDICINE GROUP, INC.
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CONDENSED
CONSOLIDATED BALANCE SHEETS
|
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Assets
|
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Cash
and cash equivalents
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$45,037,517
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$52,812,880
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Restricted
cash
|
17,000,000
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$-
|
Accounts
receivable, less allowance for doubtful accounts of
nil
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and
$94,868 as of March 31, 2019 and December 31, 2018,
respectively
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-
|
787
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Other
receivables
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263,158
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101,909
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Prepaid
expenses
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2,733,614
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1,692,135
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Total current assets
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65,034,289
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54,607,711
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Investments
|
240,000
|
240,000
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Property,
plant and equipment, net
|
15,157,707
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15,193,761
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Right
of use
|
16,017,978
|
15,938,203
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Goodwill
|
7,678,789
|
7,678,789
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Intangibles,
net
|
8,259,257
|
7,970,692
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Long-term
prepaid expenses and other assets
|
8,951,077
|
5,952,193
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Total assets (1)
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$121,339,097
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$107,581,349
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Liabilities and Stockholders' Equity
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Liabilities:
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Short-term debt
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$6,131,723
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$-
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Accounts payable
|
868,590
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422,752
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Accrued expenses
|
1,894,470
|
1,878,926
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Taxes payable
|
28,950
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28,950
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Other current liabilities
|
5,762,778
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5,710,578
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Total current liabilities
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14,686,511
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8,041,206
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Other
non-current liabilities
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14,141,557
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14,321,751
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Total liabilities (1)
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28,828,068
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22,362,957
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Commitments
and Contingencies (note 12)
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Stockholders'
equity:
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Preferred
stock, par value $.001, 50,000,000 shares
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authorized;
none issued and outstanding as of
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March
31, 2019 and December 31, 2018, respectively
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-
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-
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Common
stock, par value $.001, 300,000,000 shares authorized;
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20,182,654 and 19,120,781 issued; and 19,127,155 and 18,119,282
outstanding,
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as
of March 31, 2019 and December 31, 2018, respectively
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20,183
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19,121
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Treasury stock at cost; 1,055,499 and 1,001,499 shares of common
stock
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(14,992,694)
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(13,953,666)
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as
of March 31, 2019 and December 31, 2018, respectively
|
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Additional paid in capital
|
267,875,883
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250,604,618
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Accumulated
deficit
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(159,319,277)
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(149,982,489)
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Accumulated
other comprehensive loss
|
(1,073,066)
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(1,469,192)
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Total stockholders' equity
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92,511,029
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85,218,392
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Total liabilities and stockholders'
equity
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$121,339,097
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$107,581,349
|
_______________
(1)
|
The Company’s consolidated assets as of March 31, 2019 and
December 31, 2018 included $42,824,454 and $40,254,691,
respectively, of assets of variable interest entities, or VIEs,
that can only be used to settle obligations of the VIEs. Each of
the following amounts represent the balances as of March 31, 2019
and December 31, 2018, respectively. These assets include cash and
cash equivalents of $698,499 and $2,376,974; other receivables of
$111,018 and $61,722; prepaid expenses of $2,620,981 and
$1,497,072; property, plant and equipment, net, of $14,371,135 and
$14,280,949; right of use of $15,520,856 and $15,431,554;
intangibles of $1,396,799 and $1,412,375; and long-term prepaid
expenses and other assets of $8,105,166 and $5,194,045. The
Company’s consolidated liabilities as of March 31, 2019 and
December 31, 2018 included $27,306,444 and $20,548,793,
respectively, of liabilities of the VIEs whose creditors have no
recourse to the Company. These liabilities include short-term debt
of $6,131,723 and nil; accounts payable of $835,590 and $359,980;
other payables of $4,921,171 and $4,937,541; payroll accrual of
$1,708,888 and $1,367,658, which mainly includes bonus accrual of
$497,350 and $1,358,709; deferred income of $1,600 and $6,280; and
other non-current liabilities of $13,707,472 and $13,877,334. See
further description in Note 3, Variable Interest
Entities.
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
CELLULAR
BIOMEDICINE GROUP, INC.
|
CONDENSED
CONSOLIDATED STATEMENT OF
OPERATIONS AND COMPREHENSIVE LOSS
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For the
Three Months Ended
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Net
sales and revenue
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$49,265
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$50,961
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Operating
expenses:
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Cost of sales
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8,087
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22,300
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General and administrative
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3,447,734
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3,188,797
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Selling and marketing
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42,260
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74,585
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Research and development
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5,968,096
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5,273,951
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Total
operating expenses
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9,466,177
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8,559,633
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Operating
loss
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(9,416,912)
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(8,508,672)
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Other
income
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Interest income, net
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97,034
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5,449
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Other income (expense), net
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(14,510)
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9,200
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Total
other income
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82,524
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14,649
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Loss
before taxes
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(9,334,388)
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(8,494,023)
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Income
taxes provision
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(2,400)
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(2,400)
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Net
loss
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$(9,336,788)
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$(8,496,423)
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Other
comprehensive income:
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Cumulative translation adjustment
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396,126
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818,361
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Total other comprehensive income:
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396,126
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818,361
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Comprehensive
loss
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$(8,940,662)
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$(7,678,062)
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Net
loss per share :
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Basic
and diluted
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$(0.51)
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$(0.51)
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Weighted
average common shares outstanding:
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Basic
and diluted
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18,152,429
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16,742,591
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The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
CELLULAR
BIOMEDICINE GROUP,
INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the
Three Months Ended
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
loss
|
$(9,336,788)
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$(8,496,423)
|
Adjustments
to reconcile net loss to net cash
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used
in operating activities:
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Depreciation
and amortization
|
1,329,699
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1,175,488
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(Gain)
loss on disposal of assets
|
(23)
|
935
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Stock
based compensation expense
|
1,124,562
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1,134,881
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Interest
expense
|
39,619
|
-
|
Interest
from pledged bank deposits
|
(117,370)
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-
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Changes
in operating assets and liabilities:
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Accounts receivable
|
788
|
81,633
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Other receivables
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(43,704)
|
(4,820)
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Prepaid expenses
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(1,038,324)
|
(112,228)
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Long-term prepaid expenses and other assets
|
(378,024)
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(436,503)
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Accounts payable
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426,027
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26,596
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Accrued expenses
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12,704
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731,748
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Other current liabilities
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146,867
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276,230
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Taxes payable
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-
|
2,400
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Other non-current liabilities
|
(71,221)
|
8,012
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Net
cash used in operating activities
|
(7,905,188)
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(5,612,051)
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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Proceeds
from disposal of assets
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359
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-
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Purchases of intangibles
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(619,165)
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-
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Purchases of property, plant and equipment
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(3,545,355)
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(1,082,635)
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Net
cash used in investing activities
|
(4,164,161)
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(1,082,635)
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Net proceeds from the issuance of common stock
|
16,038,504
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30,508,670
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Proceeds from exercise of stock options
|
109,261
|
769,723
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Proceeds from short-term debt
|
6,131,723
|
-
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Interest paid
|
(30,506)
|
-
|
Repurchase of treasury stock
|
(1,039,028)
|
(715,668)
|
Net
cash provided by financing activities
|
21,209,954
|
30,562,725
|
|
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EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
84,032
|
119,430
|
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INCREASE
(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED
CASH
|
9,224,637
|
23,987,469
|
CASH,
CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF
PERIOD
|
52,812,880
|
21,568,422
|
CASH,
CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
|
$62,037,517
|
$45,555,891
|
|
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|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
Cash
paid for income taxes
|
$2,400
|
$-
|
|
|
|
|
|
|
Reconciliation
of cash, cash equivalents and restricted cash in condensed
consolidated statements of cash flows:
|
Restricted cash
|
$17,000,000
|
$-
|
Cash and cash equivalents
|
45,037,517
|
52,812,880
|
|
|
|
Cash, cash equivalents and restricted cash
|
$62,037,517
|
$52,812,880
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
CELLULAR BIOMEDICINE GROUP, INC.
|
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
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|
|
|
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Accumulated
Other
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2018
|
19,120,781
|
$19,121
|
-
|
$-
|
(1,001,499)
|
$(13,953,666)
|
$250,604,618
|
$(149,982,489)
|
$(1,469,192)
|
$85,218,392
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
issued with public offering
|
1,029,412
|
1,029
|
-
|
-
|
-
|
-
|
16,037,475
|
-
|
-
|
16,038,504
|
Restricted
stock grants
|
20,053
|
20
|
-
|
-
|
-
|
-
|
341,919
|
-
|
-
|
341,939
|
Accrual of
stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
782,623
|
-
|
-
|
782,623
|
Exercise of
stock options
|
12,408
|
13
|
-
|
-
|
-
|
-
|
109,248
|
-
|
-
|
109,261
|
Treasury stock
purchase
|
-
|
-
|
-
|
-
|
(54,000)
|
(1,039,028)
|
-
|
-
|
-
|
(1,039,028)
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
396,126
|
396,126
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(9,336,788)
|
-
|
(9,336,788)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
March 31, 2019
|
20,182,654
|
$20,183
|
-
|
$-
|
(1,055,499)
|
$(14,992,694)
|
$267,875,883
|
$(159,319,277)
|
$(1,073,066)
|
$92,511,029
|
|
|
|
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2017
|
15,615,558
|
$15,616
|
-
|
$-
|
(426,794)
|
$(3,977,929)
|
$172,691,339
|
$(111,036,997)
|
$(389,503)
|
$57,302,526
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
issued with PPM
|
1,719,324
|
1,719
|
-
|
-
|
-
|
-
|
30,506,951
|
-
|
-
|
30,508,670
|
Restricted
stock grants
|
16,311
|
16
|
-
|
-
|
-
|
-
|
430,322
|
-
|
-
|
430,338
|
Accrual of
stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
704,543
|
-
|
-
|
704,543
|
Exercise of
stock options
|
102,430
|
103
|
-
|
-
|
-
|
-
|
769,620
|
-
|
-
|
769,723
|
Treasury stock
purchase
|
-
|
-
|
-
|
-
|
(37,462)
|
(715,668)
|
|
-
|
-
|
(715,668)
|
Unrealized
loss on investments, net of tax
|
-
|
-
|
-
|
-
|
|
|
-
|
-
|
-
|
-
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
818,361
|
818,361
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(8,496,423)
|
-
|
(8,496,423)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
March 31, 2018
|
17,453,623
|
$17,454
|
-
|
$-
|
(464,256)
|
$(4,693,597)
|
$205,102,775
|
$(119,533,420)
|
$428,858
|
$81,322,070
|
Note: No dividend was declared for the three months ended March 31,
2019 and 2018.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
CELLULAR BIOMEDICINE
GROUP, INC.
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – DESCRIPTION OF BUSINESS
As
used in this quarterly report, "we", "us", "our", "CBMG", "Company"
or "our company" refers to Cellular Biomedicine Group, Inc. and,
unless the context otherwise requires, all of its subsidiaries and
variable interest entities.
Overview
We
are a clinical-stage biopharmaceutical company committed to using
our proprietary cell-based technologies to develop immunotherapies
for the treatment of cancer and stem cell therapies for the
treatment of degenerative diseases. As a drug developer our focus
is to bring our product to market and reduce the aggregate cost and
ensure quality products of cell therapies by leveraging our
innovative manufacturing and process optimization capabilities for
the development of our internal proprietary cell therapy based
pipeline and our ability to partner with leading cell therapy
companies seeking manufacturing capabilities for global
collaborative partnerships.
The
manufacturing and delivery of cell therapies involve complex,
integrated processes, comprised of harvesting T cells from
patients, T cell isolation, activation, viral vector transduction
and GMP grade purification. We use a semi-automated, fully closed
system and self-made high quality viral vector for our cell therapy
manufacturing, which enables us to reduce the aggregate cost of
cell therapies. Additionally, this system has the ability to scale
for commercial supply at an economical cost. Our technology
includes two major cell platforms:
●
Immune
cell therapy for treatment of a broad range of cancer indications
using Chimeric Antigen Receptor modified T cells (CAR-T), T cells
with genetic modified, tumor antigen-specific T-cell receptors
(TCRs), and next generation neoantigen-reactive tumor infiltrating
lymphocytes (TILs) for treatment of cancer; and
●
Human
adipose-derived mesenchymal progenitor cells (haMPC) for treatment
of joint diseases.
Our
primary target market is China, where we believe that our
cell-based therapies will be able to help patients with high unmet
medical needs. We also plan to submit Investigational New Drug
(IND) applications to the United States Food and Drug
Administration (FDA) in order to conduct clinical trials in the
United States using our T cell products targeting solid tumor
indications. We have been approved by the National Medical Products
Administration, or NMPA, in China to initiate a Phase II clinical
trial of AlloJoin™, our allogenic haMPC therapy for the
treatment of knee osteoarthritis, which represents the first stem
cell drug application approved by the NMPA for a Phase II clinical
trial in knee osteoarthritis since the NMPA clarified its cell
therapy regulations in December 2017. We also have initiated
patient recruitment in China for our Phase I clinical trial of our
B cell maturation antigen, or anti-BCMA, CAR-T therapy for the
treatment of multiple myeloma. We continue to develop our
preclinical programs and intend to initiate Phase I clinical trials
in China in at least seven different programs by the fourth quarter
of 2019.
In
addition to our own internal pipelines, we have formed, and plan to
continue to seek, partnerships with other cell therapy focused
companies as it pertains to their technology and platform’s
access into the Chinese market. We believe that our focus on cell
manufacturing process improvement, which offers the benefits of
improving product quality and creates cost savings, and our
established clinical network will enable us to collaborate with
those firms as they enter the Chinese market. In September 2018, we
established a license and collaboration agreement with Novartis to
manufacture and supply their FDA-approved CAR-T cell therapy
product Kymriah® in China. Pursuant to that agreement, we also
granted Novartis a worldwide license to certain of our CAR-T
intellectual property for the development, manufacturing and
commercialization of CAR-T products. We also have partnered with
the National Cancer Institute and Augusta University, USA related
to TIL and TCR.
Corporate History
Headquartered
in New York, the Company is a Delaware biopharmaceutical company
focused on developing treatment for cancer and orthopedic diseases
for patients in China. We also plan to develop our products
targeting solid tumor indications in the United States. The Company
started its regenerative medicine business in China in 2009 and
expanded to CAR-T therapies in 2014.
NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES
The
accompanying unaudited Condensed Consolidated Financial Statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S.
GAAP”) for interim financial information and the rules and
regulations of the Securities and Exchange Commission
(“SEC”) for reporting on Form 10-Q. Accordingly, they
do not include all the information and footnotes required by U.S.
GAAP for complete financial statements herein. The unaudited
Condensed Consolidated Financial Statements herein should be read
in conjunction with the historical consolidated financial
statements of the Company for the years ended December 31, 2018
included in our Annual Report on Form 10-K for the year ended
December 31, 2018. Operating results for the three months ended
March 31, 2019 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2019.
Principles of Consolidation
Our
unaudited condensed consolidated financial statements reflect all
adjustments, which are, in the opinion of management, necessary for
a fair presentation of our financial position and results of
operations. Such adjustments are of a normal recurring nature,
unless otherwise noted. The balance sheet as of March 31, 2019 and
the results of operations for the three months ended March 31, 2019
are not necessarily indicative of the results to be expected for
any future period.
Our
unaudited condensed consolidated financial statements are prepared
in accordance with U.S. GAAP. These accounting principles require
us to make certain estimates, judgments and assumptions that affect
the reported amounts if assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. We believe that the estimates, judgments and
assumptions are reasonable, based on information available at the
time they are made. Actual results could differ materially from
those estimates.
Lease
We
determine if an arrangement is a lease at inception. Operating
leases are included in operating lease right-of-use
(“ROU”) assets, other current liabilities, and
operating lease liabilities in our consolidated balance
sheets.
ROU
assets represent our right to use an underlying asset for the lease
term and lease liabilities represent our obligation to make lease
payments arising from the lease. Operating lease ROU assets and
liabilities are recognized at commencement date based on the
present value of lease payments over the lease term. As most of our
leases do not provide an implicit rate, we use our incremental
borrowing rate based on the information available at commencement
date in determining the present value of lease payments. We use the
implicit rate when readily determinable. The operating lease ROU
asset also includes any lease payments made and excludes lease
incentives. Our lease terms may include options to extend or
terminate the lease when it is reasonably certain that we will
exercise that option. Lease expense for lease payments is
recognized on a straight-line basis over the lease
term.
Recent Accounting Pronouncements
Accounting pronouncements adopted during the three months ended
March 31, 2019
In
June 2018, the Financial Accounting Standards Board
(“FASB”) issued ASU 2018-07, which simplifies several
aspects of the accounting for nonemployee share-based payment
transactions resulting from expanding the scope of Topic 718,
Compensation-Stock Compensation, to include share-based payment
transactions for acquiring goods and services from non-employees.
Some of the areas for simplification apply only to nonpublic
entities. The amendments specify that Topic 718 applies to all
share-based payment transactions in which a grantor acquires goods
or services to be used or consumed in a grantor’s own
operations by issuing share-based payment awards. The amendments
also clarify that Topic 718 does not apply to share-based payments
used to effectively provide (1) financing to the issuer or (2)
awards granted in conjunction with selling goods or services to
customers as part of a contract accounted for under Topic 606,
Revenue from Contracts with Customers. The amendments in this
Update are effective for public business entities for fiscal years
beginning after December 15, 2018, including interim periods within
that fiscal year. Early adoption is permitted. The adoption of the
ASU 2018-07 did not have a material impact on the Company’s
consolidated financial statements.
In February 2018, the FASB issued ASU No.
2018-02, “Income
Statement—Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income” (“ASU 2018-02”), which provides
financial statement preparers with an option to reclassify stranded
tax effects within accumulated other comprehensive income to
retained earnings in each period in which the effect of the change
in the U.S. federal corporate income tax rate in the Tax Cuts and
Jobs Act (or portion thereof) is recorded. The amendments in this
ASU are effective for all entities for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years.
Early adoption of ASU 2018-02 is permitted, including adoption in
any interim period for the public business entities for reporting
periods for which financial statements have not yet been issued.
The amendments in this ASU should be applied either in the period
of adoption or retrospectively to each period (or periods) in which
the effect of the change in the U.S. federal corporate income tax
rate in the Tax Cuts and Jobs Act is recognized. The adoption of
the ASU 2018-02 did not have a material impact on the
Company’s consolidated financial
statements.
In July 2017, the FASB issued ASU No.
2017-11, “Earnings Per Share
(Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for
Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Non-controlling Interests with a Scope
Exception” (“ASU
2017-11”), which addresses the complexity of accounting for
certain financial instruments with down round features. Down round
features are features of certain equity-linked instruments (or
embedded features) that result in the strike price being reduced on
the basis of the pricing of future equity
offerings.
Current accounting guidance creates
cost and complexity for entities that issue financial instruments
(such as warrants and convertible instruments) with down round
features that require fair value measurement of the entire
instrument or conversion option. The amendments in Part I of this
ASU are effective for public business entities for fiscal years,
and interim periods within those fiscal years, beginning after
December 15, 2018. The adoption of the ASU 2018-07 did not have a
material impact on the Company’s consolidated financial
statements.
In February 2016, the FASB issued ASU No.
2016-02, “Leases (Topic
842)” (“ASU
2016-02”). The amendments in this update create Topic 842,
Leases, and supersede the leases requirements in Topic 840, Leases.
Topic 842 specifies the accounting for leases. The objective of
Topic 842 is to establish the principles that lessees and lessors
shall apply to report useful information to users of financial
statements about the amount, timing, and uncertainty of cash flows
arising from a lease. The main difference between Topic 842 and
Topic 840 is the recognition of lease assets and lease liabilities
for those leases classified as operating leases under Topic 840.
Topic 842 retains a distinction between finance leases and
operating leases. The classification criteria for distinguishing
between finance leases and operating leases are substantially
similar to the classification criteria for distinguishing between
capital leases and operating leases in the previous leases
guidance. The result of retaining a distinction between finance
leases and operating leases is that under the lessee accounting
model in Topic 842, the effect of leases in the statement of
comprehensive income and the statement of cash flows is largely
unchanged from previous GAAP. The amendments in ASU 2016-02 are
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years for public
business entities. Early application of the amendments in ASU
2016-02 is permitted. The adoption impact of the ASU 2016-02 on the
Company’s consolidated financial statements is illustrated in
Note 9.
Accounting pronouncements not yet effective to adopt
In August 2018, the FASB issued Accounting
Standards Update (“ASU”) No. 2018-13,
Fair Value
Measurement (Topic 820), which
eliminates, adds and modifies certain disclosure requirements for
fair value measurements. The modified standard eliminates the
requirement to disclose changes in unrealized gains and losses
included in earnings for recurring Level 3 fair value measurements
and requires changes in unrealized gains and losses be included in
other comprehensive income for recurring Level 3 fair value
measurements of instruments. The standard also requires the
disclosure of the range and weighted average used to develop
significant unobservable inputs and how weighted average is
calculate for recurring and nonrecurring Level 3 fair value
measurements. The amendment is effective for fiscal years beginning
after December 15, 2019 and interim periods within that fiscal year
with early adoption permitted. We do not expect the standard to
have a material impact on our consolidated financial
statements.
In January 2017, the FASB issued ASU No.
2017-04, “Intangibles—Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill
Impairment” (“ASU
2017-04”), which removes Step 2 from the goodwill impairment
test. An entity will apply a one-step quantitative test and record
the amount of goodwill impairment as the excess of a reporting
unit's carrying amount over its fair value, not to exceed the total
amount of goodwill allocated to the reporting unit. The new
guidance does not amend the optional qualitative assessment of
goodwill impairment. Public business entity that is a U.S.
Securities and Exchange Commission filer should adopt the
amendments in this ASU for its annual or any interim goodwill
impairment test in fiscal years beginning after December 15, 2019.
Early adoption is permitted for interim or annual goodwill
impairment tests performed on testing dates after January 1, 2017.
We are currently evaluating the impact of the adoption of ASU
2017-04 on our consolidated financial
statements.
In June 2016, the FASB issued ASU No.
2016-13, “Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments” (“ASU 2016-13”). Financial
Instruments—Credit Losses (Topic 326) amends guideline on
reporting credit losses for assets held at amortized cost basis and
available-for-sale debt securities. For assets held at amortized
cost basis, Topic 326 eliminates the probable initial recognition
threshold in current GAAP and, instead, requires an entity to
reflect its current estimate of all expected credit losses. The
allowance for credit losses is a valuation account that is deducted
from the amortized cost basis of the financial assets to present
the net amount expected to be collected. For available-for-sale
debt securities, credit losses should be measured in a manner
similar to current GAAP, however Topic 326 will require that credit
losses be presented as an allowance rather than as a write-down.
ASU 2016-13 affects entities holding financial assets and net
investment in leases that are not accounted for at fair value
through net income. The amendments affect loans, debt securities,
trade receivables, net investments in leases, off balance sheet
credit exposures, reinsurance receivables, and any other financial
assets not excluded from the scope that have the contractual right
to receive cash. The amendments in this ASU will be effective for
fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years. We are currently evaluating the
impact of the adoption of ASU 2016-13 on our consolidated financial
statements.
NOTE 3 – VARIABLE INTEREST ENTITIES
VIEs are those entities
in which a company, through contractual arrangements, bears the
risk of, and enjoys the rewards normally associated with ownership
of the entity, and therefore the Company is the primary beneficiary
of the entity. Cellular Biomedicine Group Ltd (Shanghai)
(“CBMG Shanghai”) and all of its subsidiaries are
variable interest entities (VIEs), through which the Company
conducts stem cell and immune therapy research and clinical trials
in China. The registered shareholders of CBMG Shanghai are Lu
Junfeng and Chen Mingzhe, who together own 100% of the equity
interests in CBMG Shanghai. The initial capitalization and
operating expenses of CBMG Shanghai are funded by our wholly
foreign-owned enterprise (“WFOE”), Cellular Biomedicine
Group Ltd. (Wuxi) (“CBMG Wuxi”). The registered capital
of CBMG Shanghai is ten million RMB and was incorporated on October
19, 2011. Agreen Biotech Co. Ltd. (“AG”) was 100%
acquired by CBMG Shanghai in September 2014. AG was incorporated on
April 27, 2011 and its registered capital is five million RMB. In
January 2017, CBMG Shanghai established two fully owned
subsidiaries - Wuxi Cellular
Biopharmaceutical Group Ltd. and Shanghai Cellular
Biopharmaceutical Group Ltd, which are located in Wuxi and Shanghai
respectively. For the period ended
March 31, 2019 and 2018, 32% and 52% of the Company revenue is
derived from VIEs respectively.
In February 2012, CBMG Wuxi provided financing to CBMG Shanghai in
the amount of $1,587,075 for working capital purposes. In
conjunction with the provided financing, exclusive option
agreements were executed granting CBMG Wuxi the irrevocable and
exclusive right to convert the unpaid portion of the provided
financing into equity interest of CBMG Shanghai at CBMG
Wuxi’s sole and absolute discretion. CBMG Wuxi and CBMG
Shanghai additionally executed a business cooperation agreement
whereby CBMG Wuxi is to provide CBMG Shanghai with technical and
business support, consulting services, and other commercial
services. The shareholders of CBMG Shanghai pledged their equity
interest in CBMG Shanghai as collateral in the event CBMG Shanghai
does not perform its obligations under the business cooperation
agreement.
The Company has determined it is the primary beneficiary of CBMG
Shanghai by reference to the power and benefits criterion under ASC
Topic 810, Consolidation. This determination was reached after
considering the financing provided by CBMG Wuxi to CBMG Shanghai is
convertible into equity interest of CBMG Shanghai and the business
cooperation agreement grants the Company and its officers the power
to manage and make decisions that affect the operation of CBMG
Shanghai.
There are substantial uncertainties regarding the interpretation,
application and enforcement of PRC laws and regulations, including
but not limited to the laws and regulations governing our business
or the enforcement and performance of our contractual arrangements.
See Risk Factors below regarding “Risks Related to Our
Structure”. The Company has not provided any guarantees
related to VIEs and no creditors of VIEs have recourse to the
general credit of the Company.
As the primary beneficiary of CBMG Shanghai and its subsidiaries,
the Company consolidates in its financial statements the financial
position, results of operations, and cash flows of CBMG Shanghai
and its subsidiaries, and all intercompany balances and
transactions between the Company and CBMG Shanghai and its
subsidiaries are eliminated in the consolidated financial
statements.
The
Company has aggregated the financial information of CBMG Shanghai
and its subsidiaries in the table below. The aggregate carrying
value of assets and liabilities of CBMG Shanghai and its
subsidiaries (after elimination of intercompany transactions and
balances) in the Company’s condensed consolidated balance
sheets as of March 31, 2019 and December 31, 2018 are as
follows:
|
|
|
|
|
|
Assets
|
|
|
Cash
|
$698,499
|
$2,376,974
|
Other
receivables
|
111,018
|
61,722
|
Prepaid
expenses
|
2,620,981
|
1,497,072
|
Total current assets
|
3,430,498
|
3,935,768
|
|
|
|
Property,
plant and equipment, net
|
14,371,135
|
14,280,949
|
Right
of use
|
15,520,856
|
15,431,554
|
Intangibles
|
1,396,799
|
1,412,375
|
Long-term
prepaid expenses and other assets
|
8,105,166
|
5,194,045
|
Total assets
|
$42,824,454
|
$40,254,691
|
|
|
|
Liabilities
|
|
|
Short-term
debt
|
$6,131,723
|
$-
|
Accounts
payable
|
835,590
|
359,980
|
Other
payables
|
4,921,171
|
4,937,541
|
Accrued
payroll *
|
1,708,888
|
1,367,658
|
Deferred
income
|
1,600
|
6,280
|
Total current liabilities
|
$13,598,972
|
$6,671,459
|
|
|
|
Other
non-current liabilities
|
13,707,472
|
13,877,334
|
Total liabilities
|
$27,306,444
|
$20,548,793
|
* Accrued payroll mainly includes bonus accrual of $497,350 and
$1,358,709.
NOTE 4 – RESTRICTED CASH AND SHORT-TERM
DEBT
On
January 19, 2019, Shanghai Cellular Biopharmaceutical Group Ltd., a
wholly owned subsidiary of the Company (“SH SBM”)
entered into a credit agreement (the “Credit
Agreement”) with China Merchants Bank, Shanghai Branch (the
“Merchants Bank”). Pursuant to the Credit Agreement,
the Merchants Bank agreed to extend credit of up to RMB 100 million
(approximately $14.7 million) to SH SBM via revolving and/or
one-time credit lines. The types of credit available under the
Credit Agreement, include, but not limited to, working capital
loans, trade financing, commercial draft acceptance, letters of
guarantee and derivative transactions. The credit period under the
Credit Agreement runs until December 30, 2019. As of March 31,
2019, $6.1 million had been drawn down under the Credit
Agreement.
Pursuant
to the Credit Agreement, SH SBM will enter into a supplemental
agreement with the Merchants Bank prior to the applicable drawdown
that will set forth the terms of each borrowing thereunder (except
for working capital loans), including principal, interest rate,
term of loan and use of borrowing proceeds. With regard to working
capital loans to be provided pursuant to the Credit Agreement, SH
SBM shall submit a withdrawal application that includes the
principal amount needed, purposes of the loan and a proposed
quarterly interest rate and term of the loan for the Merchants
Bank’s review and approval. The terms approved by the bank
will govern such working capital loans. The bank has the right to
adjust the interest rate for working capital loans from time to
time based on changes in national policy, changes in interest rate
published by the People’s Bank of China, credit market
conditions and the bank’s credit policies. Upon SH
SBM’s non-compliance with the agreed use of loan proceeds,
the interest rate for the amount of loan proceeds improperly used
will be the original rate plus 100% starting on the first day of
such use. If SH SBM fails to pay a working capital loan on time, an
extra 50% interest will be charged on the outstanding balances
starting on the first day of such default.
Pursuant
to a pledge agreement which became enforceable upon execution of
the Credit Agreement, Cellular Biomedicine Group Ltd. (HK), a
wholly owned subsidiary of the Company (“CBMG HK”),
provided a guarantee of SH SBM’s obligations under the Credit
Agreement. In connection with such guarantee, CBMG HK deposited
$17,000,000 into its account at the Merchants Bank for a 12-month
period starting January 7, 2019 and also granted Merchants Bank a
security interest in the cash deposited.
The
details of the bank borrowings as of March 31, 2019 and December
31, 2018 are as follows:
|
|
|
|
|
|
Lender
|
Inception date
|
Maturity date
|
|
|
|
|
|
|
|
|
|
Merchants
Bank
|
January
21, 2019 ~ February 1, 2019
|
January
20, 2020 ~ January 31, 2020
|
4.785%
|
3,622,383
|
-
|
Merchants
Bank
|
February
22, 2019 ~ March 12, 2019
|
February
21, 2020 ~ March 11, 2020
|
4.35%
|
2,509,340
|
-
|
|
|
|
|
|
|
6,131,723
|
-
|
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
As
of March 31, 2019 and December 31, 2018, property, plant and
equipment, carried at cost, consisted of the
following:
|
|
|
|
|
|
Office
equipment
|
$141,070
|
$101,608
|
Manufacturing
equipment
|
7,954,944
|
7,636,905
|
Computer
equipment
|
439,473
|
426,507
|
Leasehold
improvements
|
13,148,851
|
12,861,186
|
Construction
work in process
|
1,435,745
|
1,030,760
|
|
23,120,083
|
22,056,966
|
Less:
accumulated depreciation
|
(7,962,376)
|
(6,863,205)
|
|
$15,157,707
|
$15,193,761
|
For the three months ended March 31, 2019 and
2018, depreciation expense was $971,856 and $726,618,
respectively.
NOTE 6 – INVESTMENTS
The
Company’s investments represent the investment in equity
securities listed in Over-The-Counter (“OTC”) markets
of the United States of America:
March
31, 2019 and December 31, 2018
|
|
Gross
Unrealized Gains/(losses)
|
Gross
Unrealized Losses more than 12 months
|
Gross
Unrealized Losses less than 12 months
|
|
|
|
|
|
|
|
Equity
position in Arem Pacific Corporation
|
$480,000
|
$-
|
$(240,000)
|
$-
|
$240,000
|
There
were no unrealized holding gains or losses for the investments that
were recognized in other comprehensive income for the three months
ended March 31, 2019 and 2018.
The
Company tracks each investment with an unrealized loss and evaluate
them on an individual basis for other-than-temporary impairments,
including obtaining corroborating opinions from third party
sources, performing trend analysis and reviewing management’s
future plans. When investments have declines determined
by management to be other-than-temporary the Company recognizes
write downs through earnings. There is no
other-than-temporary impairment of investments for the three months
ended March 31, 2019 and 2018.
NOTE 7 – FAIR VALUE ACCOUNTING
The
Company has adopted ASC Topic 820, Fair Value Measurement and
Disclosure, which defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair
value measurements. It does not require any new fair value
measurements, but provides guidance on how to measure fair value by
providing a fair value hierarchy used to classify the source of the
information. It establishes a three-level valuation hierarchy of
valuation techniques based on observable and unobservable inputs,
which may be used to measure fair value and include the
following:
Level 1 – Quoted prices in active markets for identical
assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable,
either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the
assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or
no market activity and that are significant to the fair value of
the assets or liabilities.
Classification
within the hierarchy is determined based on the lowest level of
input that is significant to the fair value
measurement.
The
carrying value of financial items of the Company including cash and
cash equivalents, accounts receivable, other receivables, accounts
payable and accrued liabilities, approximate their fair values due
to their short-term nature and are classified within Level 1 of the
fair value hierarchy. The Company’s investments are
classified within Level 2 of the fair value hierarchy because of
the limited trading of the three stocks traded in OTC
market.
Assets
measured at fair value within Level 2 on a recurring basis as of
March 31, 2019 and December 31, 2018 are summarized as
follows:
|
As of March 31, 2019 and December 31,
2018
|
|
Fair Value Measurements at Reporting Date
Using:
|
|
|
Quoted Prices in
|
Significant Other
|
Significant
|
|
|
Active Markets for
|
Observable
|
Unobservable
|
|
|
Identical Assets
|
Inputs
|
Inputs
|
|
Total
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Assets:
|
|
|
|
|
Equity position in Arem Pacific Corporation
|
$ 240,000
|
$ -
|
$ 240,000
|
$ -
|
No shares were acquired in the three months ended
March 31, 2019 and 2018.
As
of March 31, 2019 and December 31, 2018, the Company holds
8,000,000 shares in Arem Pacific Corporation (“ARPC”),
2,942,350 shares in Alpha Lujo, Inc. (“ALEV”) and
2,057,131 shares in Wonder International Education and Investment
Group Corporation (“Wonder”),
respectively. Full impairment has been provided for
shares of ALEV and Wonder. All available-for-sale investments held
by the Company at March 31, 2019 and December 31, 2018 have been
valued based on level 2 inputs due to the limited trading of these
companies.
NOTE 8 – INTANGIBLE ASSETS
Intangible
assets that are subject to amortization are reviewed for potential
impairment whenever events or circumstances indicate that carrying
amounts may not be recoverable. Assets not subject to amortization
are tested for impairment at least annually. The Company evaluates
the continuing value of the intangibles at each balance sheet date
and records write-downs if the continuing value has become
impaired. An impairment is determined to exist if the anticipated
undiscounted future cash flow attributable to the asset is less
than its carrying value. The asset is then reduced to the net
present value of the anticipated future cash flow.
As
of March 31, 2019 and December 31, 2018, intangible assets, net
consisted of the following:
Patents
& knowhow & license
|
|
|
Cost
basis
|
$18,216,353
|
$17,580,368
|
Less:
accumulated amortization
|
(7,305,780)
|
(6,950,656)
|
Less:
impairment
|
(2,884,896)
|
(2,884,896)
|
|
$8,025,677
|
$7,744,816
|
Software
|
|
|
Cost
basis
|
$366,580
|
$340,918
|
Less:
accumulated amortization
|
(133,000)
|
(115,042)
|
|
$233,580
|
$225,876
|
|
|
|
|
|
|
Total
intangibles, net
|
$8,259,257
|
$7,970,692
|
All
software is provided by a third party vendor, is not
internally developed, and has an estimated useful life of five
years. Patents and knowhow are amortized using an estimated useful
life of three to ten years. Amortization expense for the three
months ended March 31, 2019 and 2018 was $357,843 and $448,870,
respectively.
Estimated
amortization expense for each of the ensuing years are as follows
for the years ending March 31:
Years
ending March 31,
|
|
2020
|
$1,451,165
|
2021
|
1,446,498
|
2022
|
1,439,290
|
2023
|
1,429,993
|
2024
and thereafter
|
2,492,311
|
|
$8,259,257
|
NOTE 9 – LEASES
The
Company leases facilities and equipment under non-cancellable
operating lease agreements. These facilities and
equipment are located in the United States, Hong Kong and
China. The Company recognizes rental expense on a
straight-line basis over the life of the lease
period. Aggregate rent expense under operating leases
for the three months ended March 31, 2019 and 2018 was
approximately $762,690 and $967,432, respectively.
The
Company has elected to apply the short-term lease exception to all
leases of one year or less. As such, the Company applied the
guidance in ASC 842 to its corporate office and equipment leases
and has determined that these should be classified as operating
leases. Consequently, as a result of the adoption of ASC 842, the
Company recognized an operating liability with a corresponding
Right-Of-Use (“ROU”) asset of the same amounts based on
the present value of the minimum rental payments of such leases. As
of December 31, 2018, the ROU asset has a balance of $15,938,203
which is included in other non-current assets in the consolidated
balance sheets and current liabilities and non-current liabilities
relating to the ROU asset were $1,874,270, and $14,063,933,
respectively which are included in accrued liabilities and other
non-current liabilities in the consolidated balance sheets,
respectively. The discount rate used for leases accounted under ASC
842 is the Company’s estimated borrowing rate of
5%.
Quantitative
information regarding the Company’s leases is as
follows:
|
|
|
|
|
|
Operating
lease right-of-use assets
|
16,017,978
|
15,938,203
|
Other
current liabilities
|
2,063,545
|
1,874,270
|
Other
non-current liabilities
|
13,954,433
|
14,063,933
|
|
For the Three Months Ended
|
|
|
|
|
|
Lease
cost
|
|
|
Operating
lease cost
|
707,180
|
666,739
|
Short-term
lease cost
|
55,510
|
300,693
|
Total
lease cost
|
762,690
|
967,432
|
|
|
|
Other
information
|
|
|
Cash
paid for the amounts included in the measurement of lease
liabilities for operating leases:
|
|
|
Operating
cashflows
|
1,268,993
|
1,171,461
|
|
|
|
Weighted
Average Remaining Lease Term (in years): Operating
leases
|
7.4
|
7.7
|
|
|
|
Weighted
Average Discount Rate: Operating leases
|
5%
|
5%
|
As
of March 31, 2019, the Company has the following future minimum
lease payments due under the foregoing lease
agreements:
Years ending March 31,
|
|
2020
|
$3,235,061
|
2021
|
2,753,212
|
2022
|
2,466,557
|
2023
|
2,551,030
|
2024
and thereafter
|
8,973,488
|
|
|
|
$19,979,348
|
NOTE 10 – RELATED PARTY TRANSACTIONS
The
Company advanced petty cash to officers for business travel
purpose. As of March 31, 2019 and December 31, 2018,
other receivables due from officers for business travel purpose was
nil.
NOTE 11 – EQUITY
ASC Topic 505 Equity paragraph 505-50-30-6 establishes that
share-based payment transactions with nonemployees shall be
measured at the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more
reliably measurable.
On
January 30, 2018 and February 5, 2018, the Company entered into
securities purchase agreements with certain investors pursuant to
which the Company agreed to sell, and the investors agreed to
purchase from the Company, an aggregate of 1,719,324 shares of the
Company’s common stock, par value $0.001 per share, at $17.80
per share, for total gross proceeds of approximately $30.6
million. The transaction closed on February 5,
2018.
On
September 25, 2018, the Company entered into a share purchase
agreement with Novartis Pharma AG
(“Novartis”) pursuant to which the Company agreed
to sell, and Novartis agreed to purchase from the Company, an
aggregate of 1,458,257 shares of the Company’s common stock,
par value $0.001 per share, at a purchase price of $27.43 per
share, for total gross proceeds of approximately $40 million. The
transaction closed on September 26, 2018.
On
March 21, 2019, the Company entered into an underwriting agreement
with Cantor Fitzgerald & Co. and Robert W. Baird & Co.
Incorporated, as representatives of the several underwriters set
forth therein (collectively, the “Underwriters”),
relating to an underwritten public offering of 1,029,412 shares of
the Company’s common stock, par value $0.001 per share, at an
offering price to the public of $17.00 per share. Under the terms
of the Underwriting Agreement, the Company granted the Underwriters
a 30-day option to purchase up to an additional 154,411 shares of
Common Stock. The offering was closed on March 25, 2019 and the
Company received net proceeds of approximately $16
million.
During
the three months ended March 31, 2019 and 2018, the Company
expensed $782,623 and $704,543 associate with unvested options
awards, $341,939 and $430,338 associated with restricted common
stock, respectively.
During
the three months ended March 31, 2019 and 2018, options for 12,408
and 102,430 underlying shares were exercised, 12,408 and 102,430
shares of the Company’s common stock were issued
accordingly.
During
the three months ended March 31, 2019 and 2018, 20,053 and 16,311
shares of the Company's restricted common stock were issued to
directors, employees and advisors respectively.
As
previously disclosed on a Current Report on Form 8-K filed on June
1, 2017, the Company authorized a share repurchase program (the
“2017 Share Repurchase Program”), pursuant to which the
Company may, from time to time, purchase shares of its common stock
for an aggregate purchase price not to exceed $10 million under
which approximately $6.52 million in shares of common stock were
repurchased. On October 10, 2018, the Company commenced a share
repurchase program (the “2018 Share Repurchase
Program”), pursuant to which the Company may, from time to
time, purchase shares of its common stock for an aggregate purchase
price not to exceed approximately $8.48 million.
For
the three months ended March 31, 2019 and 2018, the Company
repurchased 54,000 and 37,462 shares of the Company’s common
stock with the total cost of $1,039,028 and $715,668, respectively.
Details are as follows:
|
Total
number of shares purchased
|
Average
price paid per share
|
|
|
|
Treasury
stock as of December 31, 2018
|
1,001,499
|
$13.93
|
Repurchased
from January 1, 2019 to March 31, 2019
|
54,000
|
$19.24
|
|
|
|
Treasury
stock as of March 31, 2019
|
1,055,499
|
$14.20
|
|
|
|
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Capital commitments
As
of March 31, 2019, the capital commitments of the Company are
summarized as follows:
|
|
Contracts
for acquisition of plant and equipment being or to be
executed
|
$2,111,643
|
NOTE 13 – STOCK BASED COMPENSATION
Our
stock-based compensation arrangements include grants of stock
options and restricted stock awards under the Stock Option Plan
(the “2009 Plan”,“2011 Plan”, “2013
Plan” and the “2014 Plan”), and certain awards
granted outside of these plans. The compensation cost that has been
charged against income related to stock options for the three
months ended March 31, 2019 and 2018 was $782,623 and $704,543,
respectively. The compensation cost that has been charged against
income related to restricted stock awards for the three months
ended March 31, 2019 and 2018 was $341,939 and $430,338,
respectively.
As
of March 31, 2019, there was $3,360,581 all unrecognized
compensation cost related to an aggregate of 419,132 of non-vested
stock option awards and $2,926,206 related to an aggregate of
227,398 of non-vested restricted stock awards. These
costs are expected to be recognized over a weighted-average period
of 1.5 years for the stock options awards and 1.2 years for the
restricted stock awards.
During
the three months ended March 31, 2019, no option was issued under
the 2011 Plan, 2013 Plan and 2014 Plan.
During the three months ended March 31, 2018, the
Company issued options under the 2011 Plan, 2013 Plan and 2014 Plan
of an aggregate of 30,593 shares of the Company’s common
stock. The grant date fair value of these options was
$420,679 using Black-Scholes option valuation models
with the following assumptions: exercise price equal to the grant
date stock price of $14.5 to $21.8, volatility 90.06% to 90.43%,
expected life 6.0 years, and risk-free rate of 2.33% to 2.71%. The
Company is expensing these options on a straight-line basis over
the requisite service period.
The
following table summarizes stock option activity as of March 31,
2019 and December 31, 2018 and for the three months ended March 31,
2019:
|
|
Weighted- Average Exercise Price
|
Weighted- Average Remaining Contractual Term (in
years)
|
Aggregate Intrinsic Value
|
|
|
|
|
|
Outstanding
at December 31, 2018
|
1,828,866
|
$12.41
|
6.5
|
$11,496,058
|
Grants
|
-
|
|
|
|
Forfeitures
|
(9,745)
|
|
|
|
Exercises
|
(12,408)
|
|
|
|
Outstanding
at March 31, 2019
|
1,806,713
|
$12.43
|
6.2
|
$10,873,931
|
|
|
|
|
|
Vested
and exercisable at March 31, 2019
|
1,387,581
|
$11.53
|
5.4
|
$9,719,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.00 - $4.95
|
185,547
|
185,547
|
|
|
$5.00 - $9.19
|
455,104
|
423,008
|
|
|
$9.20 - $15.00
|
518,290
|
358,081
|
|
|
$15.01 - $20.00
|
485,272
|
285,945
|
|
|
$20.10+
|
162,500
|
135,000
|
|
|
|
1,806,713
|
1,387,581
|
|
The
aggregate intrinsic value for stock options outstanding is defined
as the positive difference between the fair market value of our
common stock and the exercise price of the stock
options.
Cash
received from option exercises under all share-based payment
arrangements for the three months ended March 31, 2019 and 2018 was
$109,261 and $769,723.
NOTE 14 – NET LOSS PER SHARE
Basic
and diluted net loss per common share is computed on the basis of
our weighted average number of common shares outstanding, as
determined by using the calculations outlined below:
|
For the
Three Months Ended
|
|
|
|
|
|
|
|
|
Net
loss
|
$(9,336,788)
|
$(8,496,423)
|
|
|
|
Weighted
average shares of common stock
|
18,152,429
|
16,742,591
|
Dilutive
effect of stock options
|
-
|
-
|
Restricted
stock vested not issued
|
-
|
-
|
Common
stock and common stock equivalents
|
18,152,429
|
16,742,591
|
|
|
|
Net
loss per basic and diluted share
|
$(0.51)
|
$(0.51)
|
For
the three months ended March 31, 2019 and 2018, the effect of
conversion and exercise of the Company’s outstanding options
are excluded from the calculations of dilutive net income (loss)
per share as their effects would have been anti-dilutive since the
Company had generated losses for the three months ended March 31,
2019 and 2018.
NOTE 15 – INCOME TAXES
Income
taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the
period during which such rates are enacted.
The
Company considers all available evidence to determine whether it is
more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become
realizable. Management considers the scheduled reversal of deferred
tax liabilities (including the impact of available carryback and
carry-forward periods), and projected taxable income in assessing
the realizability of deferred tax assets. In making such judgments,
significant weight is given to evidence that can be objectively
verified. Based on all available evidence, in particular our
three-year historical cumulative losses, recent operating losses
and U.S. pre-tax loss for the three months ended March 31, 2019, we
recorded a valuation allowance against our U.S. and China net
deferred tax assets.
In
each period since inception, the Company has recorded a valuation
allowance for the full amount of net deferred tax assets, as the
realization of deferred tax assets is uncertain. As a result, the
Company has not recorded any federal or state income tax benefit in
the consolidated statements of operations and comprehensive income
(loss).
On
December 22, 2017, US President signed tax reform bill (Tax Cut and
Jobs Act (H.R.1)). Pursuant to this new Act, non-operating loss
carry back period is eliminated and an indefinite carry forward
period is permitted.
The
Company's effective tax rate differs from statutory rates of 21%
for U.S. federal income tax purposes, 15% ~ 25% for Chinese income
tax purpose and 16.5% for Hong Kong income tax purposes due to the
effects of the valuation allowance and certain permanent
differences as it pertains to book-tax differences in the value of
client shares received for services.
Pursuant
to the Corporate Income Tax Law of the PRC, all of the
Company’s PRC subsidiaries are liable to PRC Corporate Income
Taxes (“CIT”) at a rate of 25% except for CBMG Shanghai
and Shanghai SBM.
According
to Guoshuihan 2009 No. 203, if an entity is certified as an
“advanced and new technology enterprise”, it is
entitled to a preferential income tax rate of 15%. CBMG Shanghai
obtained the certificate of “advanced and new technology
enterprise” dated October 30, 2015 with an effective period
of three years and the provision for PRC corporate income tax for
CBMG Shanghai is calculated by applying the income tax rate of 15%
from 2015. CBMG Shanghai re-applied and Shanghai SBM applied for
the certificate of “advanced and new technology
enterprise” in 2018. Both of them received approval on
November 27, 2018. On August 23, 2018, State Administration of
Taxation (“SAT”) issued a Bulletin on Enterprise Income
Tax Issues Related to the Extension of Loss Carry-forward Period
for Advanced and New Technology Enterprises and Small and
Medium-sized Technology Enterprises (“Bulletin 45”).
According to the Bulletin 45, an enterprise that obtains the two
type of qualification in 2018, is allowed to carry forward all its
prior year loss incurred between 2013 and 2017 to up to ten years
instead of five years. The same requirement applies to the
enterprise obtaining the qualification after 2018.
As
of March 31, 2019, all the deferred income tax expense is offset by
changes in the valuation allowance pertaining to the Company's
existing net operating loss carryforwards due to the
unpredictability of future profit streams prior to the expiration
of the tax losses.
NOTE 16 – SEGMENT INFORMATION
The
Company is engaged in the development of new treatments for
cancerous and degenerative diseases utilizing proprietary
cell-based technologies, which have been organized as one reporting
segment as they have substantially similar economic characteristic
since they have similar nature and economic characteristics. The
Company’s principle operating decision maker, the Chief
Executive Officer, receives and reviews the result of the operation
for all major cell platforms as a whole when making decisions about
allocating resources and assessing performance of the Company. In
accordance with FASB ASC 280-10, the Company is not required to
report the segment information.
NOTE 17 – SUBSEQUENT EVENTS
On
March 21, 2019, the Company entered into an underwriting agreement
with Cantor Fitzgerald & Co. and Robert W. Baird & Co.
Incorporated, as representatives of the several underwriters, in
connection with an underwritten public offering of 1,029,412 shares
of the Company’s common stock at an offering price to the
public of $17.00 per share. Under the terms of the underwriting
agreement, the Company granted the underwriters a 30-day option to
purchase up to an additional 154,411 shares of Common Stock. The
offering closed on March 25, 2019 and the Company received net
proceeds of approximately $16 million. On April 2, 2019, the
underwriters partially exercised their option and purchased an
additional 77,549 shares of Common Stock for a net proceeds of
approximately $1.2 million.
Effective
with the opening of business on April 23, 2019, the Company’s
common stock commenced trading on the NASDAQ Global Select
Market.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis summarizes the significant
factors affecting our results of operations, financial condition
and liquidity position for the three months ended March 31, 2019
and 2018, and should be read in conjunction with our unaudited
condensed consolidated financial statements and related notes
included elsewhere in this filing.
This report contains forward-looking statements. These statements
relate to future events or to our future financial performance and
involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to
be materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements.
A variety of factors, some of which are outside our control, may
cause our operating results to fluctuate significantly. They
include:
●
our
anticipated cash needs and our estimates regarding our anticipated
expenses, capital requirements and our needs for additional
financings;
●
the
success, cost and timing of our product development activities and
clinical trials;
●
our
ability and the potential to successfully advance our technology
platform to improve the safety and effectiveness of our existing
product candidates; the potential for our identified research
priorities to advance our cancer and degenerative disease
technologies;
●
our
ability to obtain drug designation or breakthrough status for our
product candidates and any other product candidates, or to obtain
and maintain regulatory approval of our product candidates, and any
related restrictions, limitations and/or warnings in the label of
an approved product candidate;
●
the
ability to generate or license additional intellectual property
relating to our product candidates;
●
regulatory
developments in China, United States and other foreign
countries;
●
the
potential of the technologies we are developing;
●
fluctuations
in the exchange rate between the U.S. dollars and the Chinese
Yuan;
●
the
changes associated with our move to the new Zhangjiang building in
Shanghai;
●
our
plans to continue to develop our manufacturing facilities;
and
●
the
additional risks, uncertainties and other factors described under
the caption “Risk Factors” in our Annual Report on Form
10-K for the year ended December 31, 2018
In some cases, you can identify forward-looking statements by terms
such as “may”, “will”,
“should”, “could”, “would”,
“expects”, “plans”,
“anticipates”, “believes”,
“estimates”, “projects”,
“predicts”, “potential” and similar
expressions. These statements reflect our current views with
respect to future events and are based on assumptions and are
subject to risks and uncertainties. Given these uncertainties, you
should not place undue reliance on these forward-looking
statements. We discuss many of these risks in greater detail under
the heading “Risk Factors” included in other reports we
file with the Securities and Exchange Commission. Also, these
forward-looking statements represent our estimates and assumptions
only as of the date of the document containing the applicable
statement.
Unless required by law, we undertake no obligation to update or
revise any forward-looking statements to reflect new information or
future events or developments. Thus, you should not assume that our
silence over time means that actual events are bearing out as
expressed or implied in such forward-looking
statements.
OVERVIEW
The “Company”, “CBMG”, “we”,
“us”, “our” and similar terms refer to
Cellular Biomedicine Group, Inc. (a Delaware corporation) as a
combined entity including each of its subsidiaries and controlled
companies, unless the context otherwise requires.
Recent Developments
●
On January 8, 2019,
we initiated patient recruitment to support the study of B Cell
Maturation Antigen (Anti-BCMA) Chimeric Antigen Receptor T-Cell
(CAR-T) therapy targeting Multiple Myeloma in
China.
●
On January 17,
2019, we were approved to conduct a Phase II clinical trial in
China for its AlloJoin® Therapy for Knee Osteoarthritis
(KOA).
●
On January 19,
2019, Shanghai Cellular Biopharmaceutical Group Ltd., a controlled
entity of the Company, entered into a credit agreement with China
Merchants Bank, Shanghai Branch. Pursuant to the Credit Agreement,
the Merchants Bank agreed to extend credit of up to RMB 100 million
(approximately $14.7 million) to CBMG Shanghai via revolving and/or
one-time credit lines. The types of credit available under the
Credit Agreement, include, but not limited to, working capital
loans, trade financing, commercial draft acceptance, letters of
guarantee and derivative transactions. The credit period under the
Credit Agreement runs until December 30, 2019.
●
On March 21, 2019,
we entered into an underwriting agreement with Cantor Fitzgerald
& Co. and Robert W. Baird & Co. Incorporated, as
representatives of the several underwriters, relating to an
underwritten public offering of 1,029,412 shares of the
Company’s common stock at an offering price to the public of
$17.00 per share. Under the terms of the underwriting agreement,
the Company granted the underwriters a 30-day option to purchase up
to an additional 154,411 shares of Common Stock. On April 2, 2019,
the underwriters partially exercised their option and purchased an
additional 77,549 shares of Common Stock for a net proceeds of
approximately $1.2 million.
●
On April 23, 2019,
upon approval of our uplisting application by the Nasdaq Stock
Market, our common stock commenced trading on the NASDAQ Global
Select Market.
In the next 12 months, we aim to accomplish the following, though
there can be no assurances that we will be able to accomplish any
of these goals:
●
Execute the
technology transfer and align the manufacturing processes with
Novartis to support Novartis’ development of the
Kymriah® therapy in China;
●
Advance
Rejoin™ KOA IND applications with the NMPA’s CDE and
initiate clinical studies to support the BLA submission in
China;
●
Explore and
introduce gene therapy technology platform, product development and
manufacturing for our current business to create synergy with our
cell therapy pipelines;
●
Initiate
investigator sponsored and/or CBMG sponsored clinical trials and
obtain early preclinical or clinical proof of concept results for
the following clinical assets:
♦
Anti-BCMA CAR-T for
Multiple Myeloma (MM)
♦
Anti-CD22 CAR-T for
anti-CD19 CAR-T relapsing ALL
♦
NKG2D CAR-T for
acute myeloid leukemia (AML)
♦
Alpha Fetoprotein
Specific TCR-T for HCC
♦
anti-CD 20 CAR-T
for anti-CD19 CAR-T relapsing NHL
●
Bolster R&D
resources to fortify our intellectual properties portfolio and
scientific development. Continue to develop a competitive cell
therapy pipeline for CBMG. Seek opportunities to file new patent
applications in potentially the rest of the world and in
China;
●
Leverage our
quality system and our strong scientific expertise in both US and
China and collaborate with multinational pharmaceutical companies
to co-develop cell therapy products in China;
●
Evaluate and
implement digital data tracking and storage technology platform
system for research and development, material management, GMP
product production and clinical data management ;
●
Evaluate emerging
regenerative medicine technology platform for other indications and
review recent development in the competitive
landscape;
●
Advance our Quality
Management System (QMS), Validation Master Plan (VMP) and document
control for quality assurance;
●
Improve liquidity
and fortify our balance sheet by courting institutional investors;
and
●
Evaluate the
addition of gene therapy technology platform or products to our
portfolio; and
●
Evaluate
possibility of dual listing on the Hong Kong Stock Exchange or
listing in China to expand investor base in Asia.
Our
operating expenses for the three months ended March 31, 2019 were
in line with management’s plans and expectations. We have an
increase in total operating expenses of approximately $0.9 million
for three months period ended March 31, 2019, as compared to the
same period ended March 31, 2018, which was primarily attributable
to increased R&D expenses in 2019.
Corporate History
Please
refer to Note 1 of unaudited condensed consolidated financial
statements for the corporate history.
BIOPHARMACEUTICAL BUSINESS
The
biopharmaceutical business was founded in 2009 by a team of
seasoned Chinese-American executives, scientists and doctors. In
2010, we established a facility designed and built to China's Good
Manufacture Practice (GMP) standards in Wuxi, China and in 2012 we
established a U.S. Food and Drug Administration (FDA) GMP standard
protocol-compliant manufacturing facility in Shanghai. In October
2015, we opened a facility designed and built to GMP standards in
Beijing. In November 2017, we opened our Zhangjiang facility in
Shanghai, of which 40,000 square feet was designed and built to GMP
standards and dedicated to advanced cell manufacturing. Our focus
has been to serve the rapidly growing health care market in China
by marketing and commercializing immune cell and stem cell
therapeutics, related tools and products from our patent-protected
homegrown and acquired cell technology, as well as by utilizing
in-licensed and other acquired intellectual
properties.
Our
current treatment focal points are KOA and cancer.
Cancer. We are focusing our clinical development
efforts on CD20-, CD22- and B-cell maturation antigen
(BCMA)-specific CAR-T therapies, T cells with genetically
engineered T-cell receptor (TCR-Ts) and tumor infiltrating
lymphocytes (TILs) technologies. With the execution of the Novartis
Collaboration Agreement we have prioritized our efforts on working
with Novartis to bring Kymriah® to patients in China as soon
as practicable. In view of our collaboration with Novartis, we will
no longer pursue our own ALL and DLBCL BLA submission with the
NMPA. On the research and development side we will endeavor to
bring our CD22 CAR-T for hairy cell leukemia (HCL) and CD19 CAR-T
relapsing ALL, CD 20 CAR-T for CD19 CAR-T Relapsing NHL, BCMA CAR-T
for Multiple Myeloma (MM), NKG2D CAR-T for acute myeloid leukemia
(AML), AFP TCR-T for Hepatocellular carcinoma (HCC) and neoantigen
reactive TIL on solid tumors, respectively, in First-in- Human
trial as soon as possible. We plan to continue to leverage our
manufacturing Quality Management system and our strong scientific
expertise in the U.S and in China to collaborate with multinational
pharmaceutical companies to co-develop cell therapies in
China
KOA. In 2013, we completed a Phase I/IIa
clinical study, in China, for our KOA therapy named Re-Join®.
The trial tested the safety and efficacy of intra-articular
injections of autologous haMPCs in order to reduce inflammation and
repair damaged joint cartilage. The 6-month follow-up clinical data
showed Re-Join® therapy to be both safe and
effective.
In
Q2 of 2014, we completed patient enrollment for the Phase IIb
clinical trial of Re-Join® for KOA. The multi-center study
enrolled 53 patients to participate in a randomized, single blind
trial. We published 48 weeks’ follow-up data of Phase I/IIa
on December 5, 2014. The 48-week data indicated
that patients have reported a decrease in pain and a significant
improvement in mobility and flexibility, while the clinical data
shows our Re-Join® regenerative medicine treatment to be
safe. We announced the interim 24 week results for
Re-Join® on March 25, 2015 and released positive Phase
IIb 48 week follow-up data in January 2016, which shows the primary
and secondary endpoints of Re-Join® therapy group having all
improved significantly compared to their baseline, which has
confirmed some of the Company’s Phase I/IIa results. Our
Re-Join® human adipose-derived mesenchymal progenitor cell
(haMPC) therapy for KOA is an interventional therapy using
proprietary process, culture and medium.
Our
process is distinguishable from sole Stromal Vascular Fraction
(SVF) therapy. The immunophenotype of our haMPCs exhibited a
homogenous population expressing multiple biomarkers such as CD73+,
CD90+, CD105+, HLA-DR-, CD14-, CD34-, and CD45-. In
contrast, SVF is merely a heterogeneous fraction including
preadipocytes, endothelial cells, smooth muscle cells, pericytes,
macrophages, fibroblasts, and adipose-derived stem
cells.
In January 2016, we launched the Allogeneic KOA
Phase I Trial in China to evaluate the safety and efficacy of
AlloJoin™, an off-the-shelf allogeneic adipose derived
progenitor cell (haMPC) therapy for the treatment of KOA. On August
5, 2016 we completed patient treatment for the Allogeneic KOA Phase
I trial, and on December 9, 2016 we announced interim 3-month
safety data from the Allogenic KOA Phase I Trial in China. The
interim analysis of the trial has preliminarily demonstrated a
safety and tolerability profile of AlloJoin™ in the three
doses tested, and no serious adverse events (SAE) have been
observed. On March 16, 2018, we announced the positive 48-week
Allojoin™ Phase I data in China, which demonstrated good
safety and early efficacy for the slowing of cartilage
deterioration. China has finalized its cell therapy regulatory
pathway in December, 2017. Our AlloJoinTM Phase II IND application with the NMPA has
been approved and we plan to implement our Phase II clinical trial
soon. We plan to advance the KOA IND application for Rejoin™
with NMPA in the near future.
CBMG
established adult adipose-derived progenitor cell and
Immunology/Oncology cellular therapy platforms in treating specific
medical conditions and diseases. The Quality Management Systems
(QMS) of CBMG have been assessed and certified as meeting the
requirements of ISO 9001: 2015, and a quality manual based on Good
Manufacturing Practice (GMP) guidelines is being drafted. The
facilities, utilities and equipment in both Zhangjiang and Wuxi
Sites have been calibrated and/or qualified and in compliance with
requirement of local Health Authorities. An Enterprise Quality
Management System (EQMS) is installed and being qualified to
facilitate the quality activities.
Our
proprietary manufacturing processes and procedures include (i)
banking of allogenic cellular product and intermediate product;
(ii) manufacturing process of GMP-grade viral vectors; (iii)
manufacturing process of GMP-grade cellular product; (iv)
analytical testing to ensure the safety, identity, purity and
potency of cellular product.
Recent Developments in Adoptive Immune Cell Therapy
(ACT)
The
immune system plays an essential role in cancer development and
growth. In the past decade, immune checkpoint blockade has
demonstrated a major breakthrough in cancer treatment and has
currently been approved for the treatment of multiple tumor types.
Adoptive immune cell therapy (ACT) with tumor-infiltrating
lymphocytes (TIL) or gene-modified T cells expressing engineered T
cell receptors (TCR) or chimeric antigen receptors (CAR) is another
strategy to modify the immune system to recognize tumor cells and
thus carry out an anti-tumor effector function.
The TILs consist tumor-resident T cells which are
isolated and expanded ex vivo after surgical resection of the tumor. Thereafter,
the TILs are further expanded in a rapid expansion protocol (REP).
Before intravenous adoptive transfer into the patient, the patient
is treated with a lymphodepleting conditioning regimen. TCR gene
therapy and CAR gene therapy are ACT with genetically modified
peripheral blood T cells. For both treatment modalities, peripheral
blood T cells are isolated via leukapheresis. These T cells are
then transduced by viral vectors to either express a specific TCR
or CAR, respectively. These treatments have shown promising results
in various tumor types.
CAR-Ts
According
to the U.S. National Cancer Institute’s 2013 cancer topics
research update on CAR-T-Cells, excitement is growing for
immunotherapy—therapies that harness the power of a
patient’s immune system to combat their disease, or what some
in the research community are calling the “fifth
pillar” of cancer treatment.
One
approach to immunotherapy involves engineering patients’ own
immune cells to recognize and attack their tumors. This approach is
called adoptive cell transfer (ACT). ACT’s building blocks
are T cells, a type of immune cell collected from the
patient’s own blood. One of the well-established ACT
approaches is CAR-T cancer therapy. After collection, the T cells
are genetically engineered to produce special receptors on their
surface called chimeric antigen receptors (CARs). CARs are proteins
that allow the T cells to recognize a specific protein (antigen) on
tumor cells. These engineered CAR-T cells are then grown until the
number reaches dose level. The expanded population of CAR-T cells
is then infused into the patient. After the infusion, if all goes
as planned, the T cells multiply in the patient’s body and,
with guidance from their engineered receptor, recognize and kill
cancer cells that harbor the antigen on their surfaces. This
process builds on a similar form of ACT pioneered from NCI’s
Surgery Branch for patients with advanced melanoma. According to
NCI (www.cancer.gov/.../research-updates/2013/CAR-T-Cells), in 2013
NCI’s Pediatric Oncology Branch commented that the CAR-T
cells are much more potent than anything they can achieve with
other immune-based treatments being studied. Although investigators
working in this field caution that there is still much to learn
about CAR T-cell therapy, the early results from trials like these
have generated considerable optimism.
CAR-T
cell therapies, such as anti-CD19 CAR-T and anti-BCMA CAR-T, have
been tested in several hematological indications on patients that
are refractory/relapsing to chemotherapy, and many of them have
relapsed after stem cell transplantation. All of these patients had
very limited treatment option prior to CAR-T therapy. CAR-T has
shown encouraging clinical efficacy in many of these patients, and
some of them have durable clinical response for years. However,
some adverse effects, such as cytokine release syndrome (CRS) and
neurological toxicity, have been observed in patients treated with
CAR-T cells. For example, in July 2016, Juno Therapeutics, Inc.
reported the death of patients enrolled in the U.S. Phase II
clinical trial of JCAR015 (anti-CD19 CAR-T) for the treatment of
relapsed or refractory B cell acute lymphoblastic leukemia (B-ALL).
The US FDA put the trial on hold and lifted the hold within a week
after Juno provided satisfactory explanation and solution. Juno
attributed the cause of patient deaths to the use of Fludarabine
preconditioning and they switched to use only cyclophosphamide
pre-conditioning in subsequent enrollment. However, the JCAR015
clinical trial was terminated in 2018 due to safety
reasons.
In
August 2017, the U.S. FDA approved Novartis’ Kymriah®
(tisagenlecleucel), a CD19-targeted CAR-T therapy, for the
treatment of patients up to 25 years old for relapsed or refractory
(r/r) acute lymphoblastic leukemia (ALL), the most common cancer in
children. Current treatments show a rate of 80% remission using
intensive chemotherapy. However, there are almost no conventional
treatments to help patients who have relapsed or are refractory to
traditional treatment. Kymriah® has shown results of complete
and long lasting remission, and was the first FDA-approved CAR-T
therapy. In October 2017, the U.S. FDA approved Kite
Pharmaceuticals’ (Gilead) CAR-T therapy for diffuse large
B-cell lymphoma (DLBCL), the most common type of NHL in adults. The
initial results of axicabtagene ciloleucel (Yescarta), the
prognosis of high-grade chemo refractory NHL is dismal with a
medium survival time of a few weeks. Yescarta is a therapy for
patients who have not responded to or who have relapsed after at
least two other kinds of treatment.
In
May 2018, the FDA approved Novartis’ Kymriah® for
intravenous infusion for its second indication - the treatment of
adult patients with relapsed or refractory (r/r) large B-cell
lymphoma after two or more lines of systemic therapy including
diffuse large B-cell lymphoma (DLBCL) not otherwise specified, high
grade B-cell lymphoma and DLBCL arising from follicular lymphoma.
Kymriah® is now the only CAR-T cell therapy to receive FDA
approval for two distinct indications in non-Hodgkin lymphoma (NHL)
and B-cell ALL. On September 25, 2018, we entered into the
Collaboration Agreement with Novartis to manufacture and supply
Kymriah® to Novartis in China.
Besides
anti-CD19 CAR-T, anti-BCMA CAR-T has shown promising clinical
efficacy in treatment of multiple myeloma. For example, bb2121, a
CAR-T therapy targeting BCMA, has been developed by Bluebird bio,
Inc. and Celgene for multiple myeloma patients who have failed
standard therapy options. Based on preliminary clinical data from
the ongoing phase 1 study CRB-401, bb2121 has been granted
Breakthrough Therapy Designation by the U.S. FDA and PRIME
eligibility by the European Medicines Agency (EMA) in November
2017. We plan to initiate our anti-BCMA CAR-T investigator
initiated trial in the near future.
Recent
progress in Universal Chimeric Antigen Receptor (UCAR) T-cells
showed benefits such as ease of use, availability and the drug
pricing challenge. Currently, most therapeutic UCAR products have
been developed with gene editing platforms such as CRISPR or TALEN.
For example, UCART19 is an allogeneic CAR T-cell product candidate
developed by Cellectis for treatment of CD19-expressing
hematological malignancies. UCART19 Phase I clinical trials started
in adult and pediatric patients in Europe in June 2016 and in the
U.S. in 2017. The use of UCAR may has the potential to overcome the
limitation of the current autologous approach by providing an
allogeneic, frozen, “off-the-shelf” T cell product for
cancer treatment.
TILs
While
CAR-T cell therapy has been proven successful in treatment of
several hematological malignancies, other cell therapy approaches,
including TIL are being developed to treat solid tumors. For
example, Iovance Biotherapeutics is focused on the development of
autologous tumor-directed TILs for treatments of patients with
various solid tumor indications. Iovance is conducting several
Phase 2 clinical trials to assess the efficacy and safety of
autologous TIL for treatment of patients with Metastatic Melanoma,
Squamous Cell Carcinoma of the Head and Neck, Non-Small Cell Lung
Cancer (NSCLC) and Cervical Cancer in the US and Europe. Iovance
recently reported the pharmacokinetics of lifileucel TIL in
metastatic melanoma patients in AACR 2019. The excellent long-term
persistence of lifileucel post-infusion in responders and the
uniqueness of the clonal profiles associated with response
highlight the challenge of identifying a few T cell receptors as
mediators of activity and support using a polyclonal product such
as the Iovance bulk TIL to treat high mutational load solid
tumors.
TCRs
Adaptimmune
is partnering with GlaxoSmithKline to develop TCR-T therapy
targeting the NY-ESO-1 peptide, which is present across multiple
cancer types. Their NY-ESO SPEAR T-cell has been used in multiple
Phase 1/2 clinical trials in patients with solid tumors and
haematological malignancies, including synovial sarcoma, myxoid
round cell liposarcoma, multiple myeloma, melanoma, NSCLC and
ovarian cancer. The initial data suggested positive clinical
responses and evidence of tumor reduction in patients. NY-ESO
SPEART T-cell has been granted breakthrough therapy designation by
the U.S. FDA and PRIME regulatory access in Europe.
Adaptimmune’s other TCR-T product, AFP SPEAR T-cell targeting
AFP peptide, is aimed at the treatment of patients with
hepatocellular carcinoma (HCC). AFP SPEAR T-cell is in a Phase I
study and enrolling HCC patients in the U.S. Adaptimmune presented
initial safety data from two patients with advanced HCC from the
first dose cohort of the AFP SPEAR T-cell study AACR 2019. There
was no evidence of clinically significant hepatotoxicity,
off-target toxicity, or alloreactivity, and no protocol-defined
dose limiting toxicities were observed. Based on these initial
safety data, the Safety Review Committee (SRC) endorsed advancing
to Cohort 2.
CBMG’s
Adoptive Immune Cell Therapy (ACT) Programs
In
December 2017, the Chinese government issued pilot guidelines
concerning the development and testing of cell therapy products in
China. Although these pilot guidelines are not yet codified as
mandatory regulation, we believe they provide a measure of clarity
and a preliminary regulatory pathway for our cell therapy
operations in a still uncertain regulatory environment. On April 18
and April 21, 2018, the CDE posted on its website acceptance of the
IND application for CAR-T cancer therapies in treating patients
with NHL and adult ALL submitted by the Company’s
wholly-owned subsidiaries Cellular Biomedicine Group (Shanghai)
Ltd. and Shanghai Cellular Biopharmaceutical Group Ltd. On
September 25, 2018 we entered into a strategic licensing and
collaboration agreement with Novartis to manufacture and supply
Kymriah® in China. As part of the deal, Novartis took
approximately a 9% equity stake in CBMG, and CBMG is discontinuing
development of its own anti-CD19 CAR-T cell therapy. This
collaboration with Novartis reflects our shared commitment to
bringing the first marketed CAR-T cell therapy, Kymriah®, a
transformative treatment option currently approved in the US, EU
and Canada for two difficult-to-treat cancers, to China where the
number of patients in need remains the highest in the world.
Together with Novartis, we plan to bring the first CAR-T cell
therapy to patients in China as soon as possible. We continue to
develop CAR-T therapies other than CD 19 on our own and Novartis
has the first right of negotiation on these CAR-T developments. The
CBMG oncology pipeline includes CAR-T targeting CD20-, CD22- and
B-cell maturation antigen (BCMA), AFP TCR-T, which could
specifically eradicate AFP positive HCC tumors and TIL
technologies. Our current priority is to collaborate with Novartis
to bring Kymriah® to China. At the same time, we remain
committed to developing our existing pipeline of immunotherapy
candidates for hematologic and solid tumor cancers to help deliver
potential new treatment options for patients in China. We are
striving to build a competitive research and development function,
a translational medicine unit, along with a well-established
cellular manufacturing capability and ample capacity, to support
Kymriah® in China and our development of multiple assets in
multiple indications. We believe that these efforts will allow us
to boost the Company's Immuno-Oncology presence. We have initiated
a clinical trial to evaluate anti-BCMA CAR-T therapy in Multiple
Myeloma (“MM”) in Jiangsu People’s Hospital and
expect to initiate first in-human studies for multiple CAR-T and
TCR-T programs in 2019.
Market for Stem Cell-Based Therapies
The forecast is that in the United States, shipments of treatments
with stem cells or instruments which concentrate stem cell
preparations for injection into painful joints will fuel an overall
increase in the use of stem cell based treatments and an increase
to $5.7 billion in 2020, with key growth areas being Spinal Fusion,
Sports Medicine and Osteoarthritis of the joints. According to
Centers for Disease Control and Prevention. Prevalence of
doctor-diagnosed arthritis and arthritis-attributable activity
limitation United States. 2010-2012, Osteoarthritis (OA) is a
chronic disease that is characterized by degeneration of the
articular cartilage, hyperosteogeny, and ultimately, joint
destruction that can affect all of the joints. According to a paper
published by Dillon CF, Rasch EK, Gu Q et
al. entitled Prevalence of knee
osteoarthritis in the United States: Arthritis Data from the Third
National Health and Nutrition Examination Survey 1991-94. J
Rheumatol. 2006, the incidence of OA is 50% among people over age
60 and 90% among people over age 65. KOA accounts for the majority
of total OA conditions and in adults, OA is the second leading
cause of work disability and the disability incidence is high
(53%). The costs of OA management have grown exponentially over
recent decades, accounting for up to 1% to 2.5% of the gross
national product of countries with aging populations, including the
U.S., Canada, the UK, France, and Australia. According to the
American Academy of Orthopedic Surgeons (AAOS), the only
pharmacologic therapies recommended for OA symptom management are
non-steroidal anti-inflammatory drugs (NSAIDs) and tramadol (for
patients with symptomatic osteoarthritis). Moreover, there is no
approved disease modification therapy for OA in the world. Disease
progression is a leading cause of hospitalization and ultimately
requires joint replacement surgery. According to an article
published by the Journal of the American Medical Association,
approximately 505,000 hip replacements and 723,000 knee
replacements were performed in the United States in 2014 and they
cost more than $20 billion. International regulatory guidelines on
clinical investigation of medicinal products used in the treatment
of OA were updated in 2015, and clinical benefits (or trial
outcomes) of a disease modification therapy for KOA has been well
defined and recommended. Medicinal products used in the treatment
of osteoarthritis need to provide both a symptom relief effect for
at least 6 months and a structure modification effect to slow
cartilage degradation by at least 12 months. Symptom relief is
generally measured by a composite questionnaire Western Ontario and
McMaster Universities Osteoarthritis Index (WOMAC) score, and
structure modification is measured by MRI, or radiographic image as
accepted by international communities. The Company uses the WOMAC
as primary end point to demonstrate symptom relief, and MRI to
assess structure and regeneration benefits as a secondary
endpoint.
According to the Foundation for the National Institutes of Health,
there are 27 million Americans with Osteoarthritis (OA), and
symptomatic Knee Osteoarthritis (KOA) occurs in 13% of persons aged
60 and older. According to a nationwide population-based
longitudinal survey among the Chinese retired population,
approximately 8.1% of participants were found to suffer from
symptomatic knee OA. Currently no treatment exists that can
effectively preserve knee joint cartilage or slow the progression
of KOA.
According to the Alternative and Integrative
Medicine, 2017, 53% of KOA
patients will degenerate to the point of disability. Conventional
treatment usually involves invasive surgery with painful recovery
and physical therapy and replacement surgeries are typically only
suggested and performed on patients in the late stage of
KOA.
Our Strategy
CBMG is a drug development company focusing on developing cell
therapies first in China, and seeking opportunity globally when
appropriate. Our goal is to develop safe and effective cellular
therapies for indications that represent a large unmet need in
China. We intend to use our first-mover advantage in China, against
a backdrop of enhanced regulation by the central government, to
differentiate ourselves from the competition and establish a
leading position in the China cell therapeutic market. We believe
that few competitors in China are as well-equipped as we are in the
clinical trial development, diversified international standard
compliant manufacturing facilities, quality assurance and control
processes, regulatory compliance vigor, as well as continuous
process improvement to speed up manufacturing timelines for its
cell therapy clinical trials and commercial launch.
The key issues with cell therapy as a modality are drug therapeutic
index, institutionalized, scalable manufacturing and an affordable
price for the patients. Our continuous improvement approach in our
manufacturing platform is unique as we utilize a semi-automatic,
fully closed system, which is expected to lead to economies of
scale. Additionally, our focus on being a fully integrated, cell
therapy company has enabled us to be one of only a few companies
that are able to manufacture clinical grade viral vectors in
China.
In China, the Good Clinical Practice (“GCP”) compliant
Investigator Initialized Trial (“IIT”) only requires
IRB approval from hospital and local approval. IITs can provide
early evidences of proof of concept for novel drugs which are time
and cost efficient. IITs are also good ways to identify and develop
novel platforms. Currently, we have our own drug development
pipeline in CAR-T, AFP TCR-T, TIL and KOA. Our R&D team
continues to identify additional platform cell therapy technologies
to develop internally or acquire established
technologies.
In addition to the manufacturing Novartis’ Kymriah® for
patients in China that is contemplated by the Collaboration
Agreement and Manufacture and Supply Agreement with Novartis, we
are also actively developing and evaluating other therapies
comprised of other CAR-T, TCR-T and TIL. We plan to advance our KOA
Allojoin™ to Phase II clinical trial and IND applications for
Rejoin™ with the NMPA in the near future.
In addition to our drug development efforts, we also actively seek
co-development opportunities with multinational partners. Such
partnership will enable us to take advantage of the technologies of
our partners while leveraging our quality control and manufacturing
infrastructure and further expand our pipelines in a relatively
rapid fashion.
In order to expedite fulfillment of patient treatment,
we have been actively developing technologies and products with a
strong intellectual properties protection, including haMPC, derived
from fat tissue, for the treatment of KOA and other indications.
CBMG’s world-wide exclusive license to the AFP TCR-T patent
rights owned by the Augusta University provides an enlarged
opportunity to expand the application of CBMG’s cancer
therapy-enabling technologies and to initiate clinical trials with
leading cancer hospitals.
Our proprietary and patent-protected production processes enable us
to produce raw material, manufacture cells, and conduct cell
banking and distribution. Our clinical protocols include medical
assessment to qualify each patient for treatment, evaluation of
each patient before and after a specific therapy, cell infusion
methodologies including dosage, frequency and the use of adjunct
therapies, handling potential adverse effects and their proper
management. Applying our proprietary intellectual property, we plan
to customize specialize formulations to address complex diseases
and debilitating conditions.
We have a total of approximately 70,000 square feet of
manufacturing space in three locations, the majority of which is in
the new Shanghai facility. We operate our manufacturing facilities
under the design of the standard GMP conditions as well ISO
standards. We employ institutionalized and proprietary process and
quality management system to optimize reproducibility and to hone
our efficiency. Our Shanghai and Wuxi facilities are designed and
built to meet international GMP standards. With our integrated
Plasmid, Viral Vectors platforms, our T cells manufacturing
capacities are highly distinguishable from other companies in the
cellular therapy industry.
Most importantly, our seasoned cell therapy team members have
decades of highly-relevant experience in the United States, China,
and European Union. We believe that these are the primary factors
that make CBMG a high quality cell products manufacturer in
China.
Our Targeted Indications and Potential Therapies
Our clinical and preclinical pipeline, including stage of clinical
development in China, is set forth below:
** In December 2017, the NMPA issued trial guidelines concerning
development and testing of cell therapy products in China. The NMPA
has approved our Phase I IND application under the new regulation.
We plan to start our Phase II clinical trial as soon as
practicable.
* Although we completed our Phase IIb study prior to the
NMPA’s new cell therapy regulations, we have not yet filed a
new IND under the new regulation. We plan to apply for IND under
the new regulation as soon as practicable.
Immuno-oncology (I/o)
Our CAR-T platform is built on lenti-virial vector and
second-generation CAR design, which is used by most of the current
trials and studies. We select the patient population for each asset
and indication to allow the optimal path forward for potential
regulatory approval. We integrate the state of art translational
medicine effort into each clinical study to aid in dose selection,
to confirm the mechanism of action and proof of concept, and to
attempt to identify the optimal targeting patient population. We
plan to continue to grow our translational medicine team and engage
key opinion leaders to support our development
efforts.
We have developed a serial of CAR-Ts to treat hematological
malignancies including CD20, CD22, and BCMA CAR-Ts, which have been
proved to be potent and effective in treating hematology tumors in
early phase of clinical studies.
CD20 CAR
CD20 is broadly overexpressed in a serial of B cell malignant
tumors. In the patients relapsed after CD19 CAR-T treatment, the
expression of CD20 on target tumor cells is relatively stable. It
is proven to be an optimal target for treating CD19 CAR-T relapsing
patients. We have developed a novel CD20 CARs clinical lead, which
demonstrated strong anti-tumor activity in both in vitro assays and
in vivo animal studies. We have filed patent in China and plan to
initiate first in human investigator initiated trial with CD19
CAR-T relapsed NHL patients in 2019.
CD22 CAR
CD22 is another surface maker highly expressed in B cell
malignancies especially in Hairy cell leukemia. It also expresses
in the patients relapsed after CD19 CAR-T treatment. We have
developed a novel CD22 CARs clinical lead, which displayed
effective anti-tumor activity in in vitro cytotoxicity assays. We
plan to initiate investigator initiated trial with CD19 CAR-T
relapsing ALL patients and Hairy cell leukemia in the first half of
2019.
BCMA CAR
BCMA is a member of the TNF receptor superfamily, universally
expressed in multiple myeloma (MM) cells. It is not detectable in
normal tissues except plasma and mature B cells. It is proven to be
an effective and safer target for treating refractory MM patients
in several clinical trials. We have developed unique BCMA CARs. Our
BCMA CAR clinical lead exhibits potent anti-tumor activity both in
vitro and in vivo. We have filed patent for BCMA CAR in China and
initiated investigator initiated trial in refractory MM patients in
January, 2019.
NKG2D CAR
Early studies on CAR-T therapy targeting NK cell signaling has
shown promising clinical benefits. We are developing novel second
generation CARs using NKG2D extracellular fragment as antigen
binding domain. These CARs can recognize targets tumor cells
expressing NKG2D ligands. We plan to initiate first in human
investigator initiated trial with R/R AML patients in the second
half of 2019.
Solid tumors pose more challenges than hematological cancers. The
patients are more heterogeneous, making it difficult to have one
drug to work effectively in the majority of the patients in any
cancer indication. The duration of response is most likely shorter
and patients are likely to relapse even after initial positive
clinical response. We will continue our effort in developing cell
based therapies to target both hematological cancers and solid
tumors.
AFP TCR
We license the technology from Augusta University. We are
continuing our evaluation on the efficacy and specificity of the
AFP TCRs to identity the most appropriate candidate for first time
in human (FTIH) study. We plan to redirect Human T cells with the
AFP TCRs and evaluate their anti-tumor activity on in vitro
cytokine release and cytotoxicity assays; and potential
on/off-target toxicity including allo-reactivity as well as in vivo
efficacy tests in animal models.
TIL
Augmented by the U.S. National Cancer Institute (“NCI”)
technology license, CBMG is developing neoantigen reactive TIL
therapies to treat immunogenic cancers. In the early stages of
cancer, lymphocytes infiltrate into the tumor, specifically
recognizing the tumor targets and mediating anti-tumor response.
These cells are known as TIL. TIL based therapies have shown
encouraging clinical results in early development. For example, in
Phase-2 clinical studies in patients with metastatic melanoma
performed by Dr. Rosenberg at NCI, TIL therapy demonstrated robust
efficacy in patients with metastatic melanoma with objective
response rates of 56% and complete response rates of 24%. We plan
to start our development with NSCLC in 2019, and eventually expand
into other cancer indications.
Knee Osteoarthritis (KOA)
We are currently pursuing two primary therapies for the treatment
of KOA: Re-Join® therapy and AlloJoin™
therapy.
We completed the Phase I/IIa clinical trial for the treatment of
KOA. The trial tested the safety and efficacy of intra-articular
injections of autologous haMPCs in order to reduce inflammation and
repair damaged joint cartilage. The 6-month follow-up clinical data
showed Re-Join® therapy to be both safe and
effective.
In the second quarter of 2014, we completed patient enrollment for
the Phase IIb clinical trial of Re-Join® for KOA. The
multi-center study has enrolled 53 patients to participate in a
randomized, single blind trial. We published 48 weeks’
follow-up data of Phase I/IIa on December 5, 2014. The 48
weeks’ data indicated that patients have reported a decrease
in pain and a significant improvement in mobility and flexibility,
while the clinical data shows our Re-Join® regenerative
medicine treatment to be safe. We announced positive Phase IIb
48-week follow-up data in January 2016, with statistical
significant evidence that Re-Join® enhanced cartilage
regeneration, which concluded the planned phase IIb
trial.
In January 2016, we launched the Allogeneic KOA Phase I Trial in
China to evaluate the safety and efficacy of AlloJoin™, an
off-the shelf haMPC therapy for the treatment of KOA. On August 5,
2016 we completed patient treatment for the Allogeneic KOA Phase I
trial. On August 5, 2016 we completed patient treatment for the
Allogenic KOA Phase I Trial, and on December 9, 2016, we announced
interim 3-month safety data from the Allogenic KOA Phase I Trial in
China. The interim analysis of the trial has preliminarily
demonstrated a safety and tolerability profile of AlloJoin™
in the three doses tested, and no SAEs have been observed. On March
16, 2018, we announced the positive 48-week Allojoin™ Phase I
data in China, which demonstrated good safety and early efficacy
for the prevention of cartilage deterioration. In January 2019, the
NMPA approved the Company’s Phase I AlloJoin™ IND
application. We plan to initiate our Phase II AlloJoin™
clinical trial as soon as practicable.
Osteoarthritis is a degenerative disease of the joints. KOA is one
of the most common types of osteoarthritis. Pathological
manifestation of osteoarthritis is primarily local inflammation
caused by immune response and subsequent damage of joints.
Restoration of immune response and joint tissues are the objective
of therapies.
According to International Journal of Rheumatic Diseases, 2011, 53%
of KOA patients will degenerate to the point of disability.
Conventional treatment usually involves invasive surgery with
painful recovery and physical therapy. As drug-based methods of
management are ineffective, the same journal estimates that some
1.5 million patients with this disability will degenerate to the
point of requiring artificial joint replacement surgery every year.
However, only 40,000 patients will actually be able to undergo
replacement surgery, leaving the majority of patients to suffer
from a life-long disability due to lack of effective
treatment.
Adult mesenchymal stem cells can currently be isolated from a
variety of adult human sources, such as liver, bone marrow, and
adipose (fat) tissue. We believe the advantages in using adipose
tissue (as opposed to bone marrow or blood) are that it is one of
the richest sources of multipotent cells in the body, the easy and
repeatable access to fat via liposuction, and the simple cell
isolation procedures that can begin to take place even on-site with
minor equipment needs. The procedure we are testing for autologous
KOA involves extracting a very small amount of fat using a
minimally invasive extraction process which takes up to 20 minutes
and leaves no scarring. The haMPC cells are then processed and
isolated on site, and injected intra articularly into the knee
joint with ultrasound guidance. For allogeneic KOA we use donor
haMPC cells.
These haMPC cells are capable of differentiating into bone,
cartilage, and fat under the right conditions. As such, haMPCs are
an attractive focus for medical research and clinical development.
Importantly, we believe both allogeneic and autologous haMPCs may
be used in the treatment of disease. Numerous studies have provided
preclinical data that support the safety and efficacy of allogeneic
and autologous haMPC, offering a choice for those where factors
such as donor age and health are an issue.
haMPCs are currently being considered as a new and effective
treatment for osteoarthritis, with a huge potential market.
Osteoarthritis is one of the ten most disabling diseases in
developed countries. Worldwide estimates are that 9.6% of men and
18.0% of women aged over 60 years have symptomatic osteoarthritis.
It is estimated that the global OA therapeutics market was worth
$4.4 billion in 2010 and is forecast to grow at a compound annual
growth rate of 3.8% to reach $5.9 billion by 2018.
In order to bring haMPC-based KOA therapy to market, our market
strategy is to: (a) establish regional laboratories that comply
with cGMP standards that meet Chinese regulatory approval; and (b)
submit to the NMPA an IND package for Allojoin™ to treat
patients with donor haMPC cells, and (c) file joint applications
with Class AAA hospitals to use Re-Join® to treat patients
with their own haMPC cells.
Our competitors are pursuing treatments for osteoarthritis with
knee cartilage implants. However, unlike their approach, our KOA
therapy is not surgically invasive – it uses a small amount
(30ml) of adipose tissue obtained via liposuction from the patient,
which is cultured and re-injected into the patient. The
down-regulation of the patient’s immune response is aimed at
reducing and controlling inflammation which is a central cause of
KOA.
We believe our proprietary method, subsequent haMPC proliferation
and processing know-how will enable haMPC therapy to be a low cost
and relatively safe and effective treatment for KOA. Additionally,
banked haMPCs can continue to be stored for additional use in the
future.
Based on current estimates, we expect to generate collaboration
payment and revenues through our sale of Kymriah® products to
Novartis within the next two to three years. We plan to
systematically advance our own cell therapy pipeline and timely
seek BLA opportunities to commercialize our products within the
next three to four years although we cannot assure you that we will
be successful at all or within the foregoing
timeframe.
Competition
Many companies operate in the cellular biopharmaceutical field.
Currently there are several approved stem cell therapies on the
market including Canada’s pediatric graft-versus-host disease
and the European Commission’s approval in March 2018 for the
treatment of complex perianal fistulas in adult Crohn’s
disease. There are several public and private cellular
biopharmaceutical-focused companies outside of China with varying
phases of clinical trials addressing a variety of diseases. We
compete with these companies in bringing cellular therapies to the
market. However, our focus is to develop a core business in the
China market. This difference in focus places us in a different
competitive environment from other western companies with respect
to fund raising, clinical trials, collaborative partnerships, and
the markets in which we compete.
The PRC central government has a focused strategy to enable China
to compete effectively in certain designated areas of biotechnology
and the health sciences. Because of the aging population in China,
China’s Ministry of Science and Technology (MOST) has
targeted stem cell development as high priority field, and
development in this field has been intense in the agencies under
MOST. For example, the 973 Program has funded a number of stem cell
research projects such as differentiation of human embryonic stem
cells and the plasticity of adult stem cells. To the best of our
knowledge, none of the companies in China are utilizing our
proposed international manufacturing protocol and our unique
technologies in conducting what we believe will be fully compliant
NMPA-sanctioned clinical trials to commercialize cell therapies in
China. Our management believes that it is difficult for most of
these Chinese companies to turn their results into translational
stem cell science or commercially successful therapeutic products
using internationally acceptable standards.
We compete globally with respect to the discovery and development
of new cell-based therapies, and we also compete within China to
bring new therapies to market. In the biopharmaceutical specialty
segment, namely in the areas of cell processing and manufacturing,
clinical development of cellular therapies and cell collection,
processing and storage, are characterized by rapidly evolving
technology and intense competition. Our competitors worldwide
include pharmaceutical, biopharmaceutical and biotechnology
companies, as well as numerous academic and research institutions
and government agencies engaged in drug discovery activities or
funding, in the U.S., Europe and Asia. Many of these companies are
well-established and possess technical, research and development,
financial, and sales and marketing resources significantly greater
than ours. In addition, many of our smaller potential competitors
have formed strategic collaborations, partnerships and other types
of joint ventures with larger, well established industry
competitors that afford these companies potential research and
development and commercialization advantages in the technology and
therapeutic areas currently being pursued by us. Academic
institutions, governmental agencies and other public and private
research organizations are also conducting and financing research
activities which may produce products directly competitive to those
being commercialized by us. Moreover, many of these competitors may
be able to obtain patent protection, obtain government (e.g. FDA)
and other regulatory approvals and begin commercial sales of their
products before us.
Our primary competitors in the field of stem cell therapy for
osteoarthritis, and other indications include Cytori Therapeutics
Inc., Caladrius Biosciences, Inc. and others. Among our
competitors, to our knowledge, the only ones based in and operating
in Greater China are Lorem Vascular, which has partnered with
Cytori to commercialize Cytori Cell Therapy for the cardiovascular,
renal and diabetes markets in China and Hong Kong, and OLife Bio, a
Medi-Post joint venture with JingYuan Bio in Taian, Shandong
Province, who planned to initiate clinical trial in China in 2016.
Presently our adipose derived progenitor cell drug
(Allojoin®)for treatment of knee osteoarthritis has been
approved to perform the phase II clinical trial as the first in
class biologics in China NMPA, which is the first clinical trial
permission for the stem cell IND in China. So far there is not the
second type of cell or stem cell IND for treatment of
osteoarthritis in registration in China. Our autologous adipose
stem cell therapy (Rejoin®) for the treatment of KOA will be
progressing for registration with the NMPA.
Our primary competitors in the field of cancer immune cell
therapies include pharmaceutical, biotechnology companies such as
Eureka Therapeutics, Inc., Iovance Biotherapeutics Inc., Juno
Therapeutics, Inc. (BMS), Kite Pharma, Inc. (Gilead), CARSgen,
Sorrento Therapeutics, Inc. and others. Among our competitors, the
ones based in and operating in Greater China are CARsgen, Hrain
Biotechnology, Nanjing Legend Biotechnology(Cooperated with
Johnson-Johnson), Galaxy Biomed, Persongen and Anke
Biotechnology, Shanghai Minju Biotechnology, Unicar Therapy
(Cooperated with Terumo BCT), Wuxi Biologics, Junshi Pharma,
BeiGene, Immuno China Biotech, Chongqing Precision Biotech,
SiDanSai Biotechnology and China Oncology Focus Limited, which has
licensed Sorrento’s anti-PD-L1 monoclonal antibody for
Greater China. Other western big pharma and biotech companies in
the cancer immune cell therapies space have made inroads in China
by partnering with local companies. For example, in April, 2016,
Seattle-based Juno Therapeutics, Inc. (Celgene) started a new
company with WuXi AppTec in China named JW Biotechnology (Shanghai)
Co., Ltd. by leveraging Juno's CAR-T and TCR technologies together
with WuXi AppTec's R&D and manufacturing platform and local
expertise to develop novel cell-based immunotherapies for patients
with hematologic and solid cancers. In January 2017, Shanghai Fosun
Pharmaceutical created a joint venture with Santa Monica-based Kite
Pharma Inc. (Gilead) to develop, manufacture and commercialize
CAR-T and TCR products in China. In late 2017 Gilead acquired Kite
Pharma for $11.9 billion. On March 6, 2018 Celgene completed its
acquisition of Juno Therapeutics for approximately $9 billion. On
January 3, 2019, Bristol-Myers Squibb announced it will acquire
Celgene in a cash and stock transaction with an equity value of
approximately $74 billion.
The NMPA has received IND applications for CD19 chimeric antigen
receptor T cells cancer therapies from many companies and have
granted the initial phase of acceptance to several companies thus
far.
Additionally, in the general area of cell-based therapies for knee
osteoarthritis ailments, we potentially compete with a variety of
companies, from big pharma to specialty medical products or
biotechnology companies. Some of these, such as Abbvie, Merck KGaA,
Sanofi, Teva, GlaxosmithKline, Baxter, Johnson & Johnson,
Sanumed, Medtronic and Miltenyi Biotech, are well-established and
have substantial technical and financial resources compared to
ours. However, as cell-based products are only just emerging as
viable medical therapies, many of our more direct competitors are
smaller biotechnology and specialty medical products companies
comprised of Vericel Corporation, Regeneus Ltd., Advanced Cell
Technology, Inc., Nuo Therapeutics, Inc., Arteriocyte Medical
Systems, Inc., ISTO technologies, Inc., Ember Therapeutics,
Athersys, Inc., Bioheart, Inc., Cytori Therapeutics, Inc., Harvest
Technologies Corporation, Mesoblast, Pluristem, Inc., TissueGene,
Inc. Medipost Co. Ltd. and others. There are also several
non-cell-based, small molecule and peptide clinical trials
targeting knee osteoarthritis, and several other FDA approved
treatments for knee pain.
Certain CBMG competitors also work with adipose-derived stem cells.
To the best of our knowledge, none of these companies are currently
utilizing the same technologies as ours to treat KOA, nor to our
knowledge are any of these companies conducting government-approved
clinical trials in China.
Some of our targeted disease applications may compete with drugs
from traditional pharmaceutical or Traditional Chinese Medicine
companies. We believe that our chosen targeted disease applications
are not effectively in competition with the products and therapies
offered by traditional pharmaceutical or Traditional Chinese
Medicine companies.
We believe we have a strategic advantage over our competitors based
on our outstanding quality management system, robust and efficient
manufacturing capability which we believe is possessed by few to
none of our competitors in China, in an industry in which meeting
exacting standards and achieving extremely high purity levels is
crucial to success. In addition, in comparison to the broader range
of cellar biopharmaceutical firms, we believe we have the
advantages of cost and expediency, and a first mover advantage with
respect to commercialization of cell therapy products and
treatments in the China market.
Critical Accounting Policies
The
discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S.
GAAP”). The preparation of these financial statements
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and
expenses during the reporting period. On an ongoing basis, our
management evaluates the estimates, including those related to
revenue recognition, accounts receivable, long-lived assets,
goodwill and other intangibles, investments, stock-based
compensation, and income taxes. Of the accounting estimates we
routinely make relating to our critical accounting policies, those
estimates made in the process of determining the valuation of
accounts receivable, long-lived assets, and goodwill and other
intangibles, measuring share-based compensation expense, preparing
investment valuations, and establishing income tax valuation
allowances and liabilities are the estimates most likely to have a
material impact on our financial position and results of
operations. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be
reasonable under the circumstances. However, because these
estimates inherently involve judgments and uncertainties, there can
be no assurance that actual results will not differ materially from
those estimates.
In February 2016, the FASB issued ASU No.
2016-02, “Leases (Topic
842)” (“ASU
2016-02”). The amendments in this update create Topic 842,
Leases, and supersede the leases requirements in Topic 840, Leases.
Topic 842 specifies the accounting for leases. The objective of
Topic 842 is to establish the principles that lessees and lessors
shall apply to report useful information to users of financial
statements about the amount, timing, and uncertainty of cash flows
arising from a lease. The main difference between Topic 842 and
Topic 840 is the recognition of lease assets and lease liabilities
for those leases classified as operating leases under Topic 840.
Topic 842 retains a distinction between finance leases and
operating leases. The classification criteria for distinguishing
between finance leases and operating leases are substantially
similar to the classification criteria for distinguishing between
capital leases and operating leases in the previous leases
guidance. The result of retaining a distinction between finance
leases and operating leases is that under the lessee accounting
model in Topic 842, the effect of leases in the statement of
comprehensive income and the statement of cash flows is largely
unchanged from previous GAAP. The amendments in ASU 2016-02 are
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years for public
business entities. The adoption impact of the ASU 2016-02 is
illustrated in accompanying consolidated financial statements Note
9.
Other
than as
discussed above, during the three months ended March 31,
2019, we believe that there have been no significant changes to the
items that we disclosed as our critical accounting policies and
estimates in the “Critical Accounting Policies and
Estimates” section of Item 7 - Management’s Discussion
and Analysis of Financial Condition and Results of Operations in
our Annual Report on Form 10-K for the fiscal year ended December
31, 2018.
Results of Operations
Below is a discussion of
the results of our operations for the
three months ended March 31, 2019 and 2018. These results are
not necessarily indicative of result that may
be expected in any future period. Our prospects
should be considered in light of the risks, expenses
and difficulties that we may encounter. We may not be successful in addressing
these risks and difficulties.
Comparison of Three Months Ended March 31, 2019 to Three Months
Ended March 31, 2018
The descriptions in the results of operations below reflect our
operating results as set forth in our Condensed Consolidated
Statement of Operations filed herewith.
|
Three
Months Ended March 31, 2019
|
Three
Months Ended March 31, 2018
|
Net
sales and revenue
|
$49,265
|
$50,961
|
|
|
|
Operating
expenses:
|
|
|
Cost of sales
|
8,087
|
22,300
|
General and administrative
|
3,447,734
|
3,188,797
|
Selling and marketing
|
42,260
|
74,585
|
Research and development
|
5,968,096
|
5,273,951
|
Total
operating expenses
|
9,466,177
|
8,559,633
|
Operating
loss
|
(9,416,912)
|
(8,508,672)
|
|
|
|
Other
income
|
|
|
Interest income, net
|
97,034
|
5,449
|
Other income (expense), net
|
(14,510)
|
9,200
|
Total
other income
|
82,524
|
14,649
|
Loss
before taxes
|
(9,334,388)
|
(8,494,023)
|
|
|
|
Income taxes provision
|
(2,400)
|
(2,400)
|
|
|
|
Net
loss
|
$(9,336,788)
|
$(8,496,423)
|
Other
comprehensive income:
|
|
|
Cumulative translation adjustment
|
396,126
|
818,361
|
Total other comprehensive income:
|
396,126
|
818,361
|
Comprehensive
loss
|
$(8,940,662)
|
$(7,678,062)
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
Basic
and diluted
|
$(0.51)
|
$(0.51)
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
Basic
and diluted
|
18,152,429
|
16,742,591
|
_______________________
* These
line items include the following amounts of non-cash, stock-based
compensation expense for the periods
indicated:
|
Three Months Ended March 31, 2019
|
Three Months Ended March 31, 2018
|
|
|
|
General
and administrative
|
566,592
|
562,321
|
Selling
and marketing
|
9,816
|
20,992
|
Research
and development
|
548,154
|
551,568
|
|
1,124,562
|
1,134,881
|
Results of Operations
Net sales and revenue
|
|
|
|
|
For the three
months ended March 31,
|
$49,265
|
$50,961
|
$(1,696)
|
(3)%
|
We
are a clinical stage company, and currently have no material
revenues or other income with similar effect.
Cost of Sales
|
|
|
|
|
For the three
months ended March 31,
|
$8,087
|
$22,300
|
$(14,213)
|
(64)%
|
The
gross margin change was immaterial as currently we have no material
revenues.
General and Administrative Expenses
|
|
|
|
|
For the three
months ended March 31,
|
$3,447,734
|
$3,188,797
|
$258,937
|
8%
|
No
material change as compared with the period ended March 31,
2018.
Selling and Marketing Expenses
|
|
|
|
|
For the three
months ended March 31,
|
$42,260
|
$74,585
|
$(32,325)
|
(43)%
|
No
material change as compared with the period ended March 31,
2018.
Research and Development Expenses
|
|
|
|
|
For the three
months ended March 31,
|
$5,968,096
|
$5,273,951
|
$694,145
|
13%
|
Research and development costs increased by
approximately $694,000 in the three months ended March 31, 2019 as
compared to the three months ended March 31, 2018.
The
increase was primarily attributed to the increased spending in the growth of our pipeline
in both liquid tumor and solid tumor development and expanding the
U.S. R&D operations at Gaithersburg,
Maryland.
Operating Loss
|
|
|
|
|
For the three
months ended March 31,
|
$(9,416,912)
|
$(8,508,672)
|
$(908,240)
|
11%
|
The
increase in the operating loss for the three months ended March 31,
2019 as compared to the same period in 2018 is primarily due to
changes in general and administration expenses and research and
development expenses, each of which is described
above.
Total Other Income
|
|
|
|
|
For the three
months ended March 31,
|
$82,524
|
$14,649
|
$67,875
|
463%
|
Other income for the three months ended March 31,
2019 was primarily net interest income of $97,000, netting of
foreign currency exchange loss of $14,000. Other income for the
three months ended March 31, 2018 was primarily interest income of
$5,000 and subsidy income of $15,000, netting of foreign currency
exchange loss of $4,000
and equipment disposal loss of $1,000.
Income Taxes Provision
|
|
|
|
|
For the three
months ended March 31,
|
$(2,400)
|
$(2,400)
|
$-
|
0%
|
While
we have optimistic plans for our business strategy, we determined
that a valuation allowance was necessary given the current and
expected near term losses and the uncertainty with respect to our
ability to generate sufficient profits from our business model.
Therefore, we established a valuation allowance for deferred tax
assets other than the extent of the benefit from other
comprehensive income. Income tax expense for three months ended
March 31, 2019 and 2018 all represent US state
tax.
Net Loss
|
|
|
|
|
For the three
months ended March 31,
|
$(9,336,788)
|
$(8,496,423)
|
$(840,365)
|
10%
|
Changes
in net loss are primarily attributable to changes in operations
which are described above.
Comprehensive Loss
|
|
|
|
|
For the three
months ended March 31,
|
$(8,940,662)
|
$(7,678,062)
|
$(1,262,600)
|
16%
|
Comprehensive loss for the three months ended March 31, 2019 and
2018 includes a currency translation net gain of approximately
$396,000 and $818,000 combined with the changes in net loss,
respectively.
Liquidity and Capital Resources
We had working capital of $50,347,778 as of March 31, 2019 compared
to $46,566,505 as of December 31, 2018. Our cash position increased
to $62,037,517 at March 31, 2019 compared to $52,812,880 at
December 31, 2018, primarily due to an increase in cash provided by
financing activities, offset by cash used in operating and
investment activities, as further described below.
Net cash provided by or used in operating, investing and financing
activities from continuing operations was as follows:
Net cash used in operating activities was approximately $7,905,000
and $5,612,000 for the three months ended March 31, 2019 and 2018,
respectively. The following table reconciles net loss to net cash
used in operating activities:
For
the three months ended March 31,
|
|
|
|
Net
loss
|
$(9,336,788)
|
$(8,496,423)
|
$(840,365)
|
Non
cash transactions
|
2,376,487
|
2,311,304
|
65,183
|
Changes
in operating assets, net
|
(944,887)
|
573,068
|
(1,517,955)
|
Net
cash used in operating activities
|
$(7,905,188)
|
$(5,612,051)
|
$(2,293,137)
|
There is no material change in non-cash transaction in the three
months ended March 31, 2019 compared with same period in
2018.
Net cash used in investing activities was approximately $4,164,000
and $1,083,000 in the three months ended March 31, 2019 and 2018,
respectively. The increase was primarily the result of
additional new equipment and facility improvement.
Cash provided by financing activities was approximately $21,210,000
and $30,563,000 in the three months ended March 31, 2019 and 2018,
respectively. Net cash inflow in the financing activities in 2019
was mainly attributed to the proceeds of $16 million received from
the issuance of common stock and debt borrowings of $6 million. Net
cash inflow in the financing activities in 2018 was mainly
attributed to the proceeds received from the issuance of common
stock.
Liquidity and Capital Requirements Outlook
We
anticipate that the Company will require approximately $48 million
in cash to operate as planned in the coming 12 months. Of this
amount, approximately $35 million will be used in daily operation
and approximately $13 million will be used as capital expenditure,
although we may revise these plans depending on the changing
circumstances of our biopharmaceutical business.
We
expect to rely on current cash balances that we hold to provide for
these capital requirements. We do not intend to use, and will not
rely on our holdings in securities to fund our operations.
One of our stocks held, Arem Pacific Corporation, has a
declared effective S-1 prospectus which relates to the resale of up
to 13,694,711 shares of common stock, inclusive of the 8,000,000
shares held by the Company. However, the shares offered by this
filing may only be sold by the selling stockholders at $0.05 per
share until the shares are quoted on the OTCQB® tier of OTC
Markets or an exchange. Another one of our stocks held, Wonder
International Education & Investment Group Corporation
(“Wonder”), is no longer traded on any stock market.
We do not know whether we can liquidate our 8,000,000 shares
of Arem Pacific stock or the 2,057,131 shares of Wonder stock or
any of our other portfolio securities, or if liquidated,
whether the realized amount will be meaningful at all. As a result,
we have written down above stocks to their fair value.
On
April 15, 2016, the Company completed the second and final closing
of a financing transaction with Wuhan Dangdai Science &
Technology Industries Group Inc., pursuant to which the Company
sold to the Investor 2,006,842 shares of the Company’s common
stock, par value $0.001 per share, for approximately $38,130,000 in
gross proceeds. As previously disclosed in a Current Report on Form
8-K filed on February 10, 2016, the Company conducted the initial
closing of the financing on February 4, 2016. The aggregate gross
proceeds from both closings in the financing totaled approximately
$43,130,000. In the aggregate, 2,270,000 shares of Common Stock
were issued in the financing. On March 22, 2016, the Company filed
a registration statement on Form S-3 to offer and sell from time to
time, in one or more series, any of the securities of the Company,
for total gross proceeds up to $150,000,000. On June 17, 2016, the
SEC declared the S-3 effective; we have yet to utilize any of the
$150,000,000 registered under the S-3. On December 26, 2017, the
Company entered into a Share Purchase Agreement with two investors,
pursuant to which the Company agreed to sell and the two investors
agreed to purchase from the Company, an aggregate of 1,166,667
shares of the Company’s common stock, par value $0.001 per
share, at $12.00 per share, for total gross proceeds of
approximately $14,000,000. The transaction closed on December 28,
2017. Together with a private placement with three of its executive
officers on December 22, 2017, the Company raised an aggregate of
approximately $14.5 million in the two private placements in
December 2017. On January 30, 2018 and February 5, 2018, the
Company entered into Securities Purchase Agreements with certain
investors, pursuant to which the Company agreed to sell, and the
Investors agreed to purchase from the Company, an aggregate of
1,719,324 shares of the Company’s common stock, par value
$0.001 per share, at $17.80 per share, for total gross proceeds of
approximately $30.6 million. The February 2018 Private
Placement closed on February 5, 2018. On March 5, 2018, the
Company filed a registration statement on Form S-3 for resale of up
to 2,927,658 shares acquired on three private placement financing
on December, 2017 and on February 2018. On April 9, 2018, the SEC
declared the S-3 effective; and on April 11, 2018 we filed the
requisite resale prospectus. On March 21, 2019, the Company entered
into an underwriting agreement with the Underwriters, relating to
an underwritten public offering of 1,029,412 shares of the
Company’s common stock, par value $0.001 per share, at an
offering price to the public of $17.00 per share. Under the terms
of the Underwriting Agreement, the Company granted the Underwriters
a 30-day option to purchase up to an additional 154,411 shares of
Common Stock. Till April 2, 2019, 1,106,961 shares of the
Company’s common stock has been issued and the Company
received approximately $17 million proceeds. As we continue to
incur losses, achieving profitability is dependent upon the
successful development of our cell therapy business and
commercialization of our technology in research and development
phase, which is a number of years in the future. Once that occurs,
we will have to achieve a level of revenues adequate to support our
cost structure. We may never achieve profitability, and unless and
until we do, we will continue to need to raise additional capital.
Management intends to fund future operations through additional
private or public debt or equity offerings, and may seek additional
capital through arrangements with strategic partners or from other
sources.
Our
medium to long term capital needs involve the further development
of our biopharmaceutical business, and may include, at
management’s discretion, new clinical trials for other
indications, strategic partnerships, joint ventures, acquisition of
licensing rights from new or current partners and/or expansion of
our research and development programs. Furthermore, as our
therapies pass through the clinical trial process and if they gain
regulatory approval, we expect to expend significant resources on
sales and marketing of our future products, services and
therapies.
In
order to finance our medium to long-term plans, we intend to rely
upon external financing. This financing may be in the form of
equity and or debt, in private placements and/or public offerings,
or arrangements with private lenders. Due to our short operating
history and our early stage of development, particularly in our
biopharmaceutical business, we may find it challenging to raise
capital on terms that are acceptable to us, or at all. Furthermore,
our negotiating position in the capital raising process may worsen
as we consume our existing resources. Investor interest in a
company such as ours is dependent on a wide array of factors,
including the state of regulation of our industry in China (e.g.
the policies of MOH and the NMPA), the U.S. and other countries,
political headwinds affecting our industry, the investment climate
for issuers involved in businesses located or conducted within
China, the risks associated with our corporate structure, risks
relating to our partners, licensed intellectual property, as well
as the condition of the global economy and financial markets in
general. Additional equity financing may be dilutive to our
stockholders; debt financing, if available, may involve significant
cash payment obligations and covenants that restrict our ability to
operate as a business; our stock price may not reach levels
necessary to induce option or warrant exercises; and asset sales
may not be possible on terms we consider acceptable. If we are
unable to raise the capital necessary to meet our medium- and
long-term liquidity needs, we may have to delay or discontinue
certain clinical trials, the licensing, acquisition and/or
development of cell therapy technologies, and/or the expansion of
our biopharmaceutical business; or we may have to raise funds on
terms that we consider unfavorable.
Off Balance Sheet Transactions
CBMG does not have any off-balance sheet arrangements except the
lease and capital commitment disclosed in the unaudited condensed
consolidated financial statements.
Contractual Obligations
We have various contractual obligations that will affect our
liquidity. The following table sets forth our contractual
obligations as of March 31, 2019.
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Commitment
|
$2,111,643
|
$2,111,643
|
$-
|
$-
|
$-
|
Operating
Lease Obligations
|
19,979,348
|
3,235,061
|
5,219,769
|
5,034,674
|
6,489,844
|
Total
|
$22,090,991
|
$5,346,704
|
$5,219,769
|
$5,034,674
|
$6,489,844
|
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Exposure
to credit, liquidity, interest rate and currency risks arises in
the normal course of the Company’s business. The
Company’s exposure to these risks and the financial risk
management policies and practices used by the Company to manage
these risks are described below.
Credit Risk
Credit
risk is the risk that one party to a financial instrument will
cause a financial loss for the other party by failing to discharge
an obligation. The Company’s credit risk is primarily
attributable to cash at bank and receivables etc. Exposure to these
credit risks are monitored by management on an ongoing
basis.
The
Company’s cash is mainly held with well-known or state owned
financial institutions, such as HSBC, Bank of China, China CITIC
Bank and China Merchant Bank. Management does not foresee any
significant credit risks from these deposits and does not expect
that these financial institutions may default and cause losses to
the Company.
The
maximum exposure to credit risk is represented by the carrying
amount of each financial asset in the balance sheet.
Liquidity Risk
Liquidity
risk is the risk that an enterprise may encounter deficiency of
funds in meeting obligations associated with financial liabilities.
The Company and its individual subsidiaries are responsible for
their own cash management, including short term investment of cash
surpluses and the raising of loans to cover expected cash demands.
The Company’s policy is to regularly monitor its liquidity
requirements and its compliance with lending covenants, to ensure
that it maintains sufficient reserves of cash, readily realisable
marketable investments and adequate committed lines of funding from
major financial institutions to meet its liquidity requirements in
the short and longer term.
The
following tables show the remaining contractual maturities at the
balance sheet date of the Company’s financial assets and
financial liabilities, which are based on contractual cash flows
(including interest payments computed using contractual rates or,
if floating, based on rates current at the balance sheet date) and
the earliest date the Group can be required to pay:
|
|
|
Contractual undiscounted cash flow
|
|
Within 1 year or on demand
|
More than 1 year but less than 2 years
|
More than 2 year but less than 5years
|
|
|
|
Financial
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
45,037,517
|
-
|
-
|
-
|
45,037,517
|
45,037,517
|
Restricted
cash
|
17,000,000
|
-
|
-
|
-
|
17,000,000
|
17,000,000
|
Other
receivables
|
263,158
|
-
|
-
|
-
|
263,158
|
263,158
|
|
|
|
|
|
|
|
Sub-total
|
62,300,675
|
-
|
-
|
-
|
62,300,675
|
62,300,675
|
|
|
|
|
|
|
|
Financial
liabilities
|
|
|
|
|
|
|
Short-term
debt
|
6,131,723
|
-
|
-
|
-
|
6,131,723
|
6,131,723
|
Accounts
payable
|
868,590
|
-
|
-
|
-
|
868,590
|
868,590
|
Accrued
expenses
|
1,894,470
|
-
|
-
|
-
|
1,894,470
|
1,894,470
|
Other
current liabilities excluding operating lease liabilities and
deferred income
|
3,697,633
|
-
|
-
|
-
|
3,697,633
|
3,697,633
|
Operating
lease liabilities (lease terms over 12 months)
|
2,875,519
|
2,753,212
|
7,501,231
|
6,489,844
|
19,619,806
|
16,017,978
|
|
|
|
|
|
|
|
Sub-total
|
15,467,935
|
2,753,212
|
7,501,231
|
6,489,844
|
32,212,222
|
28,610,394
|
|
|
|
|
|
|
|
|
46,832,740
|
(2,753,212)
|
(7,501,231)
|
(6,489,844)
|
30,088,453
|
33,690,281
|
Interest Rate Risk
Interest-bearing
financial instruments at variable rates and at fixed rates expose
the Company to cash flow interest rate risk and fair value interest
risk, respectively. The Company’s interest rate risk arises
primarily from cash deposited at banks and short-term debt. The
Company doesn’t have any interest-bearing long-term payable/
borrowing, therefore its exposure to interest rate risk is
limited.
As
at March 31, 2019, the Company held the following interest-bearing
financial instruments:
|
|
|
|
|
Fixed rate
instruments
|
|
|
Financial
assets
|
|
|
- Restricted
cash
|
3%
|
17,000,000
|
|
|
|
Financial
liabilities
|
|
|
- Short-term
debt
|
4.35% ~
4.785%
|
6,131,723
|
|
|
|
|
|
10,868,277
|
Currency Risk
The
Company is exposed to currency risk primarily from sales and
purchases which give rise to receivables, payables that are
denominated in a foreign currency (mainly RMB). The Company has
adopted USD as its functional currency, thus the fluctuation of
exchange rates between RMB and USD exposes the Company to currency
risk.
The
following table details the Company’s exposure as of March
31, 2019 to currency risk arising from recognised assets or
liabilities denominated in a currency other than the functional
currency of the entity to which they relate. For presentation
purposes, the amounts of the exposure are shown in USD translated
using the spot rate as of March 31, 2019. Differences resulting
from the translation of the financial statements of entities into
the Company’s presentation currency are
excluded.
|
Exposure to foreign currencies (Expressed in USD)
|
|
|
|
|
|
Cash
and cash equivalents
|
8,362
|
943,228
|
|
|
|
Net
exposure arising from recognised assets and
liabilities
|
8,362
|
943,228
|
The
following table indicates the instantaneous change in the
Company’s net loss that would arise if foreign exchange rates
to which the Company has significant exposure at the end of the
reporting period had changed at that date, assuming all other risk
variables remained constant.
|
|
|
increase/(decrease)
in foreign exchange rates
|
Effect on net
loss (Expressed in USD)
|
|
|
|
RMB (against
USD)
|
5%
|
(46,743)
|
|
|
|
|
-5%
|
46,743
|
Results
of the analysis as presented in the above table represent an
aggregation of the instantaneous effects on each of the
Company’s subsidiaries’ net loss measured in the
respective functional currencies, translated into USD at the
exchange rate ruling at the end of the reporting period for
presentation purposes.
The
sensitivity analysis assumes that the change in foreign exchange
rates had been applied to re-measure those financial instruments
held by the Company which expose the Company to foreign currency
risk at the end of the reporting period, including inter-company
payables and receivables within the Company which are denominated
in a currency other than the functional currencies of the lender or
the borrower. The analysis excludes differences that would result
from the translation of the financial statements of subsidiaries
into the Company’s presentation currency.
ITEM 4. CONTROLS AND
PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files
or submits under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) is recorded, processed, summarized
and reported within the time periods specified in the Securities
and Exchange Commission’s rules and forms. It should be
noted that the design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions, regardless
of how remote.
We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that,
as of the end of the period covered in this report, our disclosure
controls and procedures were effective to ensure that information
required to be disclosed in reports filed under the Exchange Act is
recorded, processed, summarized and reported within the required
time periods and is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2019, there was no change
in our internal control over financial reporting (as such term is
defined in Rule 13a-15(f) under the Exchange Act) that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
We are currently not involved in any litigation that we believe
could have a materially adverse effect on our financial condition
or results of operations.
Changes and new proposed rulemaking in China regarding foreign
investment may affect our operations in China.
The
PRC government has imposed regulations that limit foreign
investors’ equity ownership or prohibit foreign investments
altogether in companies that operate in such industries. We are
currently structured as a U.S. corporation (Delaware) with
subsidiaries and controlled entities in China. As a result of these
changes and regulations and the manner in which they may be applied
or enforced, our operations in China may be limited or
restricted.
China’s
legal framework surrounding foreign investment will enter into a
new era after the new Foreign Investment Law goes into effect on 1
January 1, 2020. The Foreign Investment Law is positioned as the
foundational law in the field of foreign investment and will apply
uniformly across all foreign investment in China. It will replace
the Law of the People’s Republic of China on Wholly
Foreign-Owned Enterprises, the Law of the People’s Republic
of China on Sino-Foreign Equity Joint Ventures, and the Law of the
People’s Republic of China on Sino-Foreign Cooperative Joint
Ventures (the three previous foreign investment laws). It is
expected that the relevant authorities will take this opportunity
to systematically evaluate and revise the current foreign
investment system and rules in order to form a unified legal system
for foreign investment, which comprised of:
●
Pre-establishment
national treatment and negative list system. Foreign investors and
their investments will be granted treatment no less favorable than
that granted to Chinese domestic investors and their investments at
the entrance stage of the investment. Foreign investors may not
invest in fields where a “negative list” prohibits
foreign investment, unless the investor meets certain conditions
stipulated in the list.
●
Foreign investment
information reporting system. Foreign investors or foreign-invested
enterprises must submit investment information to the competent
department of commerce through the enterprise registration system
and the enterprise credit information publicity
system.
●
Foreign investment
national security review system. This system is adopted to
determine whether a foreign investment may affect national
security. Subsequent legislation may clarify the scope, content,
procedure, time limit and legal consequences of the review
process.
The
Foreign Investment Law is expected to affect foreign investors with
regard to organizational structure and governance structure,
transfer of monetary funds, and intellectual property protection
and technology transfer. If the relevant Chinese authorities find
us or any business combination to be in violation of the Foreign
Investment Law and its implementation rules, our current corporate
governance practices and business operations may be materially
affected and our compliance costs may increase
significantly.
The pharmaceutical industry in China is highly regulated, and such
regulations are subject to change, which may affect approval and
commercialization of our drugs.
The
pharmaceutical industry in China is subject to comprehensive
government regulation and supervision, encompassing the approval,
registration, manufacturing, packaging, licensing and marketing of
new drugs. In recent years, The NMPA and other regulatory
authorities in China have implemented a series of new laws and
regulations regarding the pharmaceuticals industry, including
medical research and the stem cell industry, and we expect such
significant changes will continue. In addition, there are
uncertainties regarding the interpretation and enforcement of PRC
laws, rules and regulations. For example, under the trial
guidelines concerning development and testing of cell therapy
products issued in December 2017, there remain uncertainties
regarding the interpretation and application of PRC Laws on our
clinical studies and these factors could adversely affect the
timing of the clinical studies, the timing of receipt and reporting
of clinical data, the timing of Company-sponsored IND filings, and
our ability to conduct future planned clinical studies, and any of
the above could have a material adverse effect on our
business.
The NMPA’s recent reform of the drug and
approval system may face implementation challenges. The timing and
full impact of such reforms is uncertain and could prevent us from
commercializing our drug candidates in a timely manner. The Drug
Administrative Law has been under proposed revision for the past
few years and the timeline for its publish and promulgation has
been postponed for a few times due to a variety of factors such as
legislation priorities of the National People’s
Congress, ad hoc events in the pharmaceutical industry, and
internal reforms of the Chinese government. The Drug Administrative
Law is positioned as the foundational law in the field of drug
regulation and may also materially impact commercialization of
Kymriah® and our pipeline drugs and increase our compliance
costs.
While
we believe our strategies regarding pharmaceutical research,
development, manufacturing and commercialization in China are
aligned with the Chinese government's policies, they may in the
future diverge, requiring a change in our strategies. Any such
change may result in increased compliance costs on our business or
cause delays in or prevent the successful research, development,
manufacturing or commercialization of our drug candidates or drugs
in China and reduce the current benefits we believe are available
to us from developing and manufacturing drugs in
China.
Certain of our clinical studies are not registered with relevant
authorities.
Under
the trial guidelines concerning development and testing of cell
therapy products issued in December 2017, an applicant of the
clinical trial of the said cell therapy products can be divided
into early clinical trials and confirmatory clinical trials,
instead of the application of the traditional phases I, II and III
of a clinical trial. Certain of our clinical studies initiated or
sponsored or being initiated or being sponsored by our PRC
subsidiaries have not been duly registered or filed by our clinical
trial partners with, or have been issued the approval by, the NMPA
the lack or the National Health Commission of the PRC, or the NHC,
in accordance with then-applicable PRC Law because of the lack of
the relevant implementing regulations. All clinical studies on
trials conducted in China will be required to be approved,
registered or filed and conducted at hospitals accredited by the
NMPA or by the NHC after the relevant implementing regulations are
implemented within the allotted time and any failure of the
hospitals to register or file the clinical studies with the NMPA
may result in delays or interruptions to such clinical studies or
trials. There remain uncertainties regarding the interpretation and
application of PRC Laws on our clinical studies and these factors
could adversely affect the timing of the clinical studies, the
timing of receipt and reporting of clinical data, the timing of
Company-sponsored IND filings, and our ability to conduct future
planned clinical studies, and any of the above could have a
material adverse effect on our business.
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As previously disclosed on a Current Report on Form 8-K filed on
June 1, 2017, the Company authorized a share repurchase program
(the “2017 Share Repurchase Program”), pursuant to
which the Company may, from time to time, purchase shares of its
common stock for an aggregate purchase price not to exceed $10
million under which approximately $6.52 million in shares of common
stock were repurchased. On October 10, 2018, the Company commenced
a share repurchase program (the “2018 Share Repurchase
Program”), pursuant to which the Company may, from time to
time, purchase shares of its common stock for an aggregate purchase
price not to exceed approximately $8.48 million. It is contemplated
that total shares to be repurchased under the 2017 and 2018 Share
Repurchase Programs shall not exceed $15 million in the aggregate.
The table below summarizes purchases made by or on behalf of the
Company or affiliated purchasers as defined in Regulation S-K under
the 2017 and 2018 Share Purchase Program during the three months
ended March 31, 2019. We terminated the 2018 repurchase program on
March 31, 2019.
Period
|
Total
number of shares purchased
|
Average
price paid per share
|
Total
number of shares purchased as part of publicly announced plans or
programs
|
Maximum
dollar value of shares that may yet be purchased under the plans or
programs
|
|
|
|
|
|
Prior
to 2019
|
1,001,499
|
$13.93
|
1,001,499
|
|
January
1, 2019 ~ January 31, 2019
|
54,000
|
$19.24
|
54,000
|
|
February
1, 2019 ~ February 28, 2019
|
-
|
$-
|
-
|
|
March
1, 2019 ~ March 31, 2019
|
-
|
$-
|
-
|
|
Total
|
1,055,499
|
$14.20
|
1,055,499
|
7,307
|
ITEM 3. DEFAULTS UPON
SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY
DISCLOSURES
Not applicable.
ITEM 5. OTHER
INFORMATION
On
April 29, 2019, upon the initiation of the new term of our board of
directors following our annual meeting of stockholders, we
terminated our consulting agreement entered into on February 7th,
2016 with our director Mr. Wentao (Steve) Liu. Following such
termination, Mr. Liu will be compensated solely in his capacity and
on the same terms as the Company’s other independent
directors under the director compensation plan approved on
September 19, 2015. The terms of Mr. Liu’s existing stock
options remain unchanged and will expire 3 months after Mr. Liu
ceases to serve on the Board.
On
April 23, 2019, after moving from Moffitt Cancer Center to Duke
University, Dr. Scott Antonia resigned from the CBMG Scientific
Advisory Board (SAB). Dr. Antonia will transition from an SAB
member to an academic collaborator of CBMG.
ITEM 6. EXHIBITS
Exhibit Number
|
|
Description
|
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 - Chief Executive Officer and Chief Financial
Officer.
|
|
|
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
101.INS
|
|
XBRL Instance Document
|
101.SCH
|
|
XBRL Taxonomy Extension Schema
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
CELLULAR BIOMEDICINE GROUP, INC.
|
|
|
|
|
|
April
30, 2019
|
By:
|
/s/
Bizuo
(Tony) Liu
|
|
|
|
Bizuo
(Tony) Liu
|
|
|
|
Chief
Executive Officer and Chief Financial Officer
(Principal
Executive Officer and Principal Financial and Accounting
Officer)
|
|