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, 2016 and 2015, 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.
Factors that might affect our forward-looking statements include, among other things:
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overall economic and business conditions;
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the demand for our products and services;
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competitive factors in the industries in which we compete;
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the results of our pending and future litigation;
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the emergence of new technologies which compete with our product and service offerings;
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our cash position and cash burn rate;
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other capital market conditions, including availability of funding sources;
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the strength of our intellectual property portfolio; and
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changes in government regulations in China and the U.S. related to our industries.
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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
For purposes of this periodic report, “CBMG BVI” refers to Cellular Biomedicine Group Ltd., a British Virgin Islands corporation, which is now a wholly-owned subsidiary of the registrant, together with its business, operations, subsidiaries and controlled entities). 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 following the merger (formerly EastBridge Investment Group Corporation), unless the context otherwise requires. “EastBridge Sub” refers to the Company's wholly owned subsidiary EastBridge Investment Corp.
Recent Developments
In January 2015, we initiated patient recruitment to support a phase II clinical study, in China, of ReJoin
TM
human adipose derived mesenchymal progenitor cell (“haMPC”) therapy for Cartilage Damage (“CD”) resulting from osteoarthritis (“OA”) or sports injury. The study is based on the same science that has shown significant progress in the treatment of
Knee Osteoarthritis (“KOA”)
. Both arthroscopy and the use of magnetic resonance imaging (“MRI”) will be deployed to further demonstrate the regenerative efficacy of ReJoinTM on CD.
On February 4, 2015, the Company announced its agreement related to the acquisition of Chinese PLA General Hospital's ("PLAGH", Beijing, also known as "301 Hospital") Chimeric Antigen Receptor T cell (“CAR-T”) therapy, its recombinant expression vector CD19, CD20, CD30 and Human Epidermal Growth Factor Receptor's (EGFR or HER1) Immuno-Oncology patents applications, and Phase I clinical data of the aforementioned therapies and manufacturing knowledge. The 301 Hospital team has conducted several preliminary clinical studies of various CAR-T constructs targeting CD19-positive acute lymphocytic leukemia, CD20-positive advanced B-cell Non-Hodgkin’s lymphoma, CD30-positive Hodgkin's lymphoma and EGFR-HER1-positive advanced lung cancer, cholangiocarcinoma, pancreatic cancer, and renal cell carcinoma. Pursuant to the terms of the Transfer Agreement, PLAGH agreed to transfer to the Company all of its rights, titles and interests in and to certain technologies currently owned by PLAGH (including, without limitation, four technologies and their pending patent applications) that relate to genetic engineering of chimeric antigen receptor (CAR)-modified T cells and its applications (collectively, the “Technology”). In addition, PLAGH is responsible for obtaining governmental approval for the clinical trial related to the Technology.
We announced interim Phase IIb trial results for our ReJoin
TM
haMPC therapy for KOA on March 25, 2015, which confirmed that the primary and secondary endpoints of ReJoin
TM
therapy groups have all improved significantly compared to their baseline. We released positive 48-week follow-up data in January 2016.
In January 2016, we launched a Phase I clinical trial of an off-the-shelf allogeneic haMPC AlloJoin™ therapy for KOA.
On March 25, 2015, the Company announced results of the Phase I clinical studies on CAR-CD19 (CBM-C19.1) and CAR-CD20 (CBM-C20.1). The Phase I trial data showed an optimistic response rate under controllable toxicities. In comparison with leading clinical research reports on CAR-CD19 therapies by peers, we believe that the efficacy profile of both CBM-C19.1 and CBM-C20.1 therapies are distinguished for the following reasons:
I.
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The patient selection criteria of this study is highly selective. The participants enrolled in the studies were advanced, relapsed, and refractory to other standard-of-care therapies. This selection criterion is highly distinguishable from other studies, which avoided higher risk patients. Most of these high severity patients would not have been eligible for other entities’ studies because of extramedullary involvement or because the presence of bulky tumors were deemed too risky for their trials.
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II.
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The treatment program design of this study is very stringent.
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a.
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Our higher risk patients did not receive conditioning chemotherapy, which is known as a beneficial facilitator of adoptive T cell therapies.
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b.
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Moreover, our higher risk patients did not receive subsequent Hematopoietic Stem Cell transplantation (HSCT), which is also known as a beneficial facilitator of adoptive T cell therapies.
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From April 2015, the Company commenced cooperation with agents/hospitals through which it started to provide immune-cell therapy technology consulting services to hospitals located in Beijing, Shandong, Anhui and Shanghai. For the year ended December 31, 2015, revenue of $0.5 million was derived from this service.
On May 27, 2015, the Company announced the appointment of Richard L. Wang, Ph.D., MBA, PMP as Chief Operating Officer. Dr. Wang, a seasoned and accomplished scientist and industry professional, brings operational, project management, and R&D governance experience from multinational pharmaceutical companies, to support the Company’s research of osteoarthritis and oncology therapeutics. Dr. Wang oversees the Company’s research collaborations, technology transfers, drug development clinical trials, regulatory affairs, production, and oversight of the Company’s multicenter operations.
At the 10th Annual World Stem Cells & Regenerative Medicine Congress in London, UK on May 21, 2015, the Company announced results of the Phase I clinical studies of CD30-directed CAR-T therapy on
CD30-positive Stage III and IV Hodgkin's lymphoma patients. The results of this trial demonstrated that five out of seven patients responded to the treatment, and the therapy was demonstrated in this trial to be safe, feasible and efficacious.
On June 26, 2015, the Company completed the acquisition of Blackbird BioFinance, LLC (“Blackbird”)’s license from University of South Florida (“USF”) on the next generation cancer immunotherapy vaccine CD40LGVAX, its related technologies and technical knowledge. Of the total consideration to be delivered to Blackbird for the purchased assets, $2,500,000 was delivered in cash and 28,120 shares of Company common stock (the "Closing Shares"), representing $1,050,000 of the purchase consideration (based on the 20-day volume-weighted average price of the Company’s stock on the closing date), was issued and delivered to Blackbird. Another 18,747 shares (the
“
Holdback Shares
”
), representing $700,000 of the purchase consideration (based on the 20-day volume-weighted average price of the Company’s stock on the closing date), was issued and delivered to Blackbird in November 2015. Based on the terms of the license, we believe the Company will pay potentially more than $25 million in future milestones and royalty payments.
We believe this technological addition may address meaningful and sizable unmet medical needs. Based on the latest data available from NCCN Clinical Practice Guidelines in Oncology Non-Small Cell Lung Cancer (“NSCLC”) (Version 4. 2014), an estimated 224,210 people in the United States were diagnosed with lung cancer in 2014, with an estimated 159,260 deaths occurring because of the disease. In China, 728,552 individuals were diagnosed with lung cancer in 2012, and 592,410 individuals in China died of lung cancer in 2012 (source: Chinese Cancer Registry Annual Report 2012 & GMCD40L Study Synopsis).
Despite the advances of targeted therapies and recent breakthroughs with immune checkpoint inhibitors, such as anti-PD1 or PDL1 monoclonal antibody treatments, there are still significant unmet medical needs in NSCLC, and the disease remains largely incurable. We believe the CD40LGVAX vaccine, in combination with an anti-PD1 monoclonal antibody, may provide synergistic and improved clinical benefits in both PDL1 positive and negative patients. We previously anticipated a phase I/II clinical trial for the CD40LGVAX vaccine combined with PD-1 antibody to commence in the second half of 2015. We are currently evaluating both U.S. and non-U.S. options for furthering clinical trials for the CD40LGVAX vaccine following Moffitt Cancer Center’s notification to us that it will not be continuing its sponsorship of the U.S. CD40LGVAX Trial. In the third quarter of 2015, we reviewed and modified the design of CD40LGVAX trial by expanding the number of patient recruitment, changing from single site to multi-sites trial and adding stratification to the trial. We are converting the CD40LGVAX Investigator Sponsor Research (“ISR”) to a CBMG IND trial.
On June 26, 2015, the Russell Investments Group reconstituted its comprehensive set of U.S. indexes, the Company was selected to be included in the broad-market Russell 3000® Index. The Russell 3000® Index encompasses the 3,000 largest U.S.-traded stocks by objective, market-capitalization rankings and style attributes. This weighted index by market capitalization was constructed to provide a comprehensive barometer of the broad market and it now represents approximately 98% of the investable U.S. equity market. Membership in this index, which remains in place for one year, means automatic inclusion in the small-cap Russell 2000® Index as well as the appropriate growth and value style indexes. Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies.
In July 2015, the Company
has received two new certifications from the China Food and Drug Administration (the “CFDA”) for its proprietary cell and tissue preservation media kits, in accordance with the CFDA’s new regulations announced on June 1, 2015. These certified kits enable long-term preservation and long distance shipment of cells and tissue, without freezing them down, from and to the point of care for ready applications by physicians. The latest certifications further strengthen our Vertically Integrated Cell Manufacturing System (VICMS) to centralize the processing and supplying of autologous cell therapies, and reinforce our potential to be a world-class biotechnology company, serving large unmet medical needs.
On August 26, 2015 the Company filed new patents - “Preparation of HER1 chimeric antigen receptor and NKT cells and application” for China patent and PCT and “Preparation of CD19 chimeric antigen receptor and NKT cells and application” for China patent.
On September 26, 2015, the Company presented at the 2015 European Cancer Congress’ (“ECCO”) annual meeting held in Vienna, Austria results from the first 11 NSCLC patients in the trial outlined in the abstract, entitled
Chimeric Antigen Receptor-Modified T-Cells for the Immunotherapy of Patients with HER-1 Expressing Advanced Relapsed/Refractory Non-Small Cell Lung Cancer.
On September 28, 2015, the Company
announced results of the Phase I clinical studies of CAR-T EGFR-HER1 (“CBM-EGFR.1”) for the treatment of patients with EGFR expressing advanced relapsed/refractory solid tumors. Based on the results from 24 patients treated with CBM-EGFR.1 (17 patients with non-small cell lung cancer, 5 patients with cholangiocarcinoma, 1 patient with pancreatic cancer and 1 patient with renal cell carcinoma (“RCC”)), the early results showed that CBM-EGFR.1 immunotherapy was safe, well tolerated, and had positive signal of clinical activity in several indications. The data was selected for a late-breaking oral presentation entitled
EGFR-Targeted Chimeric Antigen Receptor-Modified T Cells Immunotherapy for Patients With EGFR-Expressing Advanced or Relapsed/Refractory Solid Tumors
at the 5th World Congress on Cancer Therapy in Atlanta, Georgia. Highlight of Phase I/II clinical trial for CBMG CAR-T products in multiple advanced, refractory/relapsing solid tumors is as follow:
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First known report of positive safety and signal of clinical activity of EGFR CAR-T in multiple solid tumor indications,
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Most NSCLC patients treated with CBM-EGFR.1 failed EGFR-TKI therapy prior to CBM-EGFR.1 treatment,
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Overall disease control rate (DCR) is 79% (19 of 24). 100% DCR in cholangiocarcinoma (5/5), 71% DCR in NSCLC (12/17),
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Objective response rate (ORR) of 25% in combined indications: 2 complete response (CR) and 1 partial response (PR) in cholangiocarcinoma, 2 PR in NSCLC and 1 PR in pancreatic cancer.
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The September 2015 reports on CBM-EGFR.1 therapy for late stage solid tumors have demonstrated our ability to innovate, advance boundaries between basic research and translational medicine and streamline the production of CAR-T and clinical treatment. With the talent addition of our COO and CSO, and the maturing of working relationship with PLAGH cancer immune cell therapy resources, we plan to evaluate and prioritize our cancer clinical trial indications for commercialization using safe and most effective therapy or combination therapies. The Company believes that, when integrated with CBMG's state-of-the-art infrastructure and clinical platform, the aforementioned acquired AG, 301 Hospital and USF technologies will improve our cancer immune cell therapies clinical pathway and pave the way for collaboration with renowned institutions. We plan to initiate certain cancer clinical trials upon receiving acceptance of the clinical trial designs with principal investigators and obtaining the requisite approvals.
On November 9, 2015, the Company announced the opening of its new state-of-the-art facility in the PKUCare Industrial Park, Changping District, Beijing, China. Eight hundred square meters of the 1,400 square meter site has been equipped with four independent production lines to support clinical batch production and commercial scale manufacturing. Designed and built to GMP standards, the facility has been certified by the Beijing Institute for Drug Control, accredited bodies of the China National Accreditation Service (CNAS) and China Metrology Accreditation (CMA). With this expansion into Beijing, the Company now operates three GMP facilities in China that will house nine independent production lines with the capacity to host more than 200,000 individual cell sources.
On March 23, 2016, the Company filed a Form S-3 Registration Statement (the “S-3 Registration Statement”) with the SEC. TheS-3 Registration Statement contains three prospectuses:
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Offering Prospectus. A base prospectus which covers the offering, issuance and sale by us of up to $150,000,000 of our common stock, preferred stock, debt securities, warrants, rights and/or units;
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Resale Prospectus. A prospectus to be used for the resale by the selling stockholders of up to 3,824,395 shares of the Common Stock; and
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Sales Agreement Prospectus. A sales agreement prospectus covering the offering, issuance and sale by the registrant of up to a maximum aggregate offering price of $50,000,000 of the Common Stock that may be issued and sold under a sales agreement with Cantor Fitzgerald & Co.
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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:
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Confirm the safety and tolerability profile of CBM-EGFR.1 in cholangiocarcinoma and NSCLC;
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Explore the CBM-EGFR.1 opportunities in other solid tumor indications;
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Seek early possibilities of conducting multi-center Phase IIb trials to validate the clinical activity from early CBM-EGFR.1 observation;
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Confirm the safety and tolerability profile of CBM-CD20.1 targeting CD20 for NHL;
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Explore the CBM-CD20.1 opportunities in other cancer indications;
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Seek early possibilities of conducting multi-center Phase IIb trials to validate the clinical activity from early CBM-CD20.1 observation;
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Evaluate potential partners to develop an immunohistochemistry based diagnostic assay to aid in the patient selection whenever needed;
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Launch Phase II trials to explore the efficacy and safety of CD19 or CD20 CAR-T mono or combination therapies in chemo refractory/relapsing patients with hematological malignancies;
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File new CAR-T and other patents;
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Obtain approval for pending patents;
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Evaluate the feasibility of sponsoring a multi-sites Phase I/II clinical study to support the New Drug Application (NDA) for the U.S. CD40LGVAX trial;
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Evaluate feasibility of sponsoring a registration trial-like clinical study to support the New Drug Application (NDA) for an allogeneic haMPC Knee Osteoarthritis therapy (“Allo KOA”) study in the United States;
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Complete preclinical GLP safety evaluation studies of haMPC for Asthma and Chronic Obstructive Pulmonary Disease (COPD);
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Provide update on Cartilage Damage clinical study;
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Develop preclinical package for allogeneic haMPC therapy for COPD/Asthma clinical trial;
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Continue to seek advanced technologies to bolster our CAR-T China market position;
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Bolster R&D resources to fortify our intellectual properties portfolio and scientific development;
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File registration statement on Form S-8 for our 2014 Stock Option Plan;
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Upon declaration of the S-3 Registration Statement’s effectiveness, improve liquidity and fortify our balance sheet by courting institutional investors;
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Evaluate new regenerative medicine technology platform for other indications; and
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Explore new CAR-T international collaboration and /or partnership.
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For the three months ended March 31, 2016 and 2015, we generated $488,491 and $603,390 in revenue, respectively. The revenue are all from our technology consulting service. We expect our biomedicine business to generate revenues primarily from immune therapy and the development of therapies for the treatment of KOA in the next three to four years.
Our operating expenses for the three months ended March 31, 2016 were in line with management’s plans and expectations. We incurred an increase in total operating expenses of approximately $0.95 million for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015, which is primarily attributable to an increase in professional service costs and increased input into expenditures for R&D projects.
Corporate History
Please refer to Note 1 of unaudited condensed consolidated financial statements for the corporate history.
BIOMEDICINE BUSINESS
Our biomedicine business was founded in 2009 as a newly formed specialty biomedicine company by a team of seasoned Chinese-American executives, scientists and doctors. In 2010, we established a GMP facility in Wuxi, 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 GMP facility in Beijing. Our focus has been to serve the rapidly growing health care market in China by marketing and commercializing stem cell and immune cell therapeutics, related tools and products from our patent-protected homegrown and acquired cell technology, as well as by utilizing exclusively in-licensed and other acquired intellectual properties.
Our current treatment focal points are cancer and other degenerative diseases such as KOA, Asthma, COPD and Cartilage Defects.
Cancer.
In the cancer field, our in-licensed Tumor Cell Target Dendritic Cell (“TC-DC”) therapy utilizes dendritic cells that have been taught the unique "signature" of the patient's’ cancer, in order to trigger an effective immune response against cancer stem cells, the root cause of cancer metastasis and recurrence. Our TC-DC product candidate has successfully completed a U.S. FDA Phase II clinical trial for the treatment of Metastatic Melanoma at the Hoag Medical Center in California. We have a process to develop human embryo-derived motor neuronal precursor cells and human embryo-derived neuronal precursor cells with high purity levels, validated by synapse formation, and have shown functional innervation with human muscle cells. Under applicable international reciprocity procedures we are utilizing data generated in a U.S. Phase II clinical trial in an analogous China-based Phase I/II Clinical Trial for the treatment of Hepatocellular Carcinoma (“HCC”), a major type of Liver Cancer. Management believes we will be able to leverage skin cancer data produced in ongoing trials in the U.S., and apply it toward advancing our product candidate for the treatment of liver cancer and other cancer-related indications. As of December 31, 2013, we have completed the HCC Phase I trial. With the advent of more advanced technologies in our portfolio, at present we do not plan on continuing the HCC trial. And with the recent build-up of our Vaccine, Tcm, TCR clonality, CAR-T and anti-PD-1 technologies we plan to evaluate and prioritize our cancer clinical trial indications for commercialization using safe and most effective therapy or combination therapies. We announced results from our Phase I trial for certain of CAR-T cancer immunotherapy programs on March 25, May 21, and late September 2015. The Phase I trial data for the CD19, CD20 and CD30 and EGFR HER 1 constructs showed a positive response rate under controllable toxicities.
KOA.
In 2013, we completed a Phase I/IIa clinical trial, in China, for our Knee Osteoarthritis (“KOA”) therapy named ReJoinTM . 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 ReJoinTM therapy to be both safe and effective.
In Q2 of 2014, we completed patient enrollment for the Phase IIb clinical trial of ReJoin™ 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 ReJoinTM regenerative medicine treatment to be safe. We announced interim 24 week results for ReJoinTM 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 ReJoin® therapy group having all improved significantly compared to their baseline, which has confirmed some of the Company’s Phase I/IIa results. Our ReJoinTM human adipose-derived mesenchymal progenitor cell (haMPC) therapy for KOA is an interventional therapy using proprietary device, process, culture and medium:
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Obtain adipose (fat) tissue from the patient using our CFDA approved medical device, the A-StromalTM Kit;
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Expand haMPCs using our proprietary culture medium (serum-free and antibiotics-free); and
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Formulated for ReJoinTM therapy using our proprietary formulation.
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Our process is distinguishable from sole Stromal Vascular Fraction (SVF) therapy. The immunophenotype of our haMPCs exhibited multiple biomarkers such as CD29+, CD73+, CD90+, CD49d+, HLA-I+, HLA-DR-, Actin-, 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 (ASCs).
Cartilage Damage
.
In January 2015, we initiated patient recruitment to support a study, in China, of ReJoinTM human adipose derived mesenchymal progenitor cell (“haMPC”) therapy for Cartilage Damage (“CD”) resulting from osteoarthritis (“OA”) or sports injury. The study is based on the same science that has shown significant progress in the treatment of KOA. Both arthroscopy and the use of magnetic resonance imaging (“MRI”) will be deployed to further demonstrate the regenerative efficacy of ReJoinTM on CD. We announced interim Phase IIb trial results for our ReJoinTM haMPC therapy for KOA on March 25, 2015, which confirmed that the primary and secondary endpoints of ReJoin TM therapy groups have all improved significantly compared to their baseline. We released positive 48-week follow-up data in January 2016.
Asthma.
In Q1 of 2014, we began a pre-clinical study on haMPC therapy for asthma. The pre-clinical study, conducted by Shanghai First People’s Hospital, a leading teaching hospital affiliated with Shanghai Jiaotong University, will evaluate the safety and efficacy of haMPCs to treat severe asthma.
COPD.
COPD refers to a group of diseases that block airflow to the lungs and make it difficult to breathe. The two most common conditions that make up COPD are chronic bronchitis and emphysema, which gradually destroys the smallest air passages (bronchioles) in the lungs. Currently the common treatments for COPD, such as use of steroids, inhalers and bronchodilator drugs, aim to control the symptoms and minimize further damage, but do not reverse the tissue damage. The major causes of COPD in China are tobacco smoking, biomass fuel use and genetic susceptibility.
Our pre-clinical COPD study is being conducted by Shanghai First People's Hospital, a leading teaching hospital affiliated with Shanghai Jiaotong University. Professor Zhou Xin, director of the hospital's respiratory department and chairperson of Respiratory Diseases Division of Shanghai Medical Association, will lead the study as Principal Investigator.
The unique lines of adult adipose-derived stem cells and the immune cell therapies enable us to create multiple cell formulations in treating specific medical conditions and diseases, as well as applying single cell types in a specific treatment protocol. Management believes that our adult adipose-derived line will become commercially viable and market-ready in China within three to four years, and will continue to grow the budding immune cell technical service revenue. In addition, we plan to assess and initiate cancer clinical trials leading to commercialization using safe and most effective therapy or combination therapies. Our facilities are certified to meet the international standards NSF/ANSI 49, ISO-14644 (or equivalent), ANSI/NCSL Z-540-1 and 10CFR21, as well as Chinese CFDA standards CNAS L0221. In addition to standard protocols, we use proprietary processes and procedures for manufacturing our cell lines, comprised of:
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Banking processes that ensure cell preservation and viability;
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DNA identification for stem cell ownership; and
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Bio-safety testing at independently certified laboratories.
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Regenerative Medicine and Cell Therapy
Regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normal function”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damaged tissue and by stimulating the body’s own repair mechanisms to heal previously irreparable tissues and organs. Medical cell therapies are classified into two types: allogeneic (cells from a third-party donor) or autologous (cells from one’s own body), with each offering its own distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from a healthy donor. Similarly, in cases such as cancer, where the disease is so unique to the individual, autologous cells can offer true personalized medicine.
Regenerative medicine can be categorized into major subfields as follows:
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Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, third party donors or patients, from various parts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immune-therapy, arthritis, heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfield also includes the development of growth factors and serums and natural reagents that promote and guide cell development.
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Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fully functional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used as biomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractive for certain applications. Therapeutic applications may include heart patch, bone re-growth, wound repair, replacement neo-urinary conduits, saphenous arterial grafts, inter-vertebral disc and spinal cord repair.
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Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs and treatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerative medicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cell-based diagnostic tools.
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All living complex organisms start as a single cell that replicates, differentiates (matures) and perpetuates in an adult through its lifetime. Cell therapy is aimed at tapping into the power of cells to prevent and treat disease, regenerate damaged or aged tissue and provide cosmetic applications. The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bone marrow and then blood and umbilical cord-derived stem cells have been used to restore bone marrow and blood and immune system cells damaged by chemotherapy and radiation used to treat many cancers. These types of cell therapies have been approved for use world-wide and are typically reimbursed by insurance.
Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (self-derived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Researchers around the globe are evaluating the effectiveness of cell therapy as a form of replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are also being evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease, joint diseases and cancerous diseases. While no assurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improve human health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.
Recent Developments in Cancer Cell Therapy
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. And although this approach, called adoptive cell transfer ("ACT"), has been restricted to small clinical trials so far, treatments using these engineered immune cells have generated some remarkable responses in patients with advanced cancer. For example, in several early-stage trials testing ACT in patients with advanced acute lymphoblastic leukemia ("ALL") who had few if any remaining treatment options, many patients’ cancers have disappeared entirely. Several of these patients have remained cancer free for extended periods.
Equally promising results have been reported in several small clinical trials involving patients with lymphoma. Although the lead investigators cautioned that much more research is needed, the results from the trials performed thus far indicate that researchers can successfully alter patients’ T cells so that they attack their cancer cells. As an example, we look to Spectrum Pharmaceutical’s Folotyn approved in September 2009 for treatment of R/R peripheral T-cell lymphoma with approval supported by a single arm trial observing an overall response rate of 27% and median duration of response of 9.4 months. In addition, CTI Therapeutics Pixuvri received a complete response letter in April 2010 in R/R aggressive NHL in which a 37% overall response rate and 5.5 month duration of response was observed.
ACT’s building blocks are T cells, a type of immune cell collected from the patient’s own blood. 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 in the laboratory until they number in the billions. 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 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. Researchers opined that CAR T-cell therapy eventually may become a standard therapy for some B-cell malignancies like ALL and chronic lymphocytic leukemia.
The traditional cancer treatment includes surgery, chemotherapy, and radiation therapy. In the last decade, we witnessed a boom in targeted therapies including monoclonal antibody and small molecule therapies, such as Iressa and Tarciva that targets EGFR activating mutations in the NSCLC, Herceptin that treats breast cancer patients with HER2 overexpression, Crizotinib that targets NSCLC patients with positive ALK fusion gene.
So far, chimeric antigen receptor T cell therapy (“CAR-T”) such as CD19 CAR-T, have been tested in many hematological indications on patients that are refractory/replapsing to chemotherapy, and many of them have relapsed after stem cell transplantation. Basically these patients have very limited treatment option. CAR-T has shown good efficacy in these patients and many have lived for years.
Market for Cell-Based Therapies
In 2013, U.S. sales of products which contain stem cells or progenitor cells or which are used to concentrate autologous blood, bone marrow or adipose tissues to yield concentrations of stem cells for therapeutic use were, conservatively, valued at $236 million at the hospital level. It is estimated that the orthopedics industry used approximately 92% of the stem cell products.
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 data published in the executive summary of the 2014 New York Stem Cell Summit Report, the U.S. specific addressable market in KOA is $83 million, estimated to grow to $1.84 billion by 2020. It is forecast that within the Orthopedic Stem Cell Market, cartilage repair in 2014 will be 23% ($77 million) and will rise to 56% ($1.7 billion) by 2020. According to International Journal of Rheumatic Diseases, 2011 there are over 57 million people with KOA in China.
There over 30 million people in China suffering from asthma without effective therapies. According to Respirology 2013, Asian Pacific Society of Respirology, China has the largest asthmatic population in the world and is one of the countries with the highest asthma mortality rate.
COPD account for 15% of deaths in China and poses a high economic and social burden on families and communities in China, due to the expense of prescription drugs and the impact on quality of life, with many patients deteriorating to the point of being unable to work and a shortened life span. Based on estimates by World Health Organization (WHO) of 2.5% prevalence of COPD in China. Over 32 million people in China suffer from COPD, so the need for innovative solutions is pressing as this disease represents a significant unmet medical need.
The current data on CAR T-cell therapies, presented from various institutions including MSKCC, University of Pennsylvania, National Cancer Institute, and Fred Hutchinson Cancer Center, has been extremely positive. Recently, T cell checkpoint manipulation has brought hope to the struggling battle against cancer using immune cell therapy technologies. Merck has received fast approval for its PD-1 antibody therapy for Melanoma. Novartis CAR-T technology has made breakthroughs in treating B cell lymphoma using genetically modified T cell technology.
Approved cell therapies have been appearing on the market in recent years. In 2011, however, the industry was dealt two setbacks when Geron Corporation discontinued its embryonic program, and when Sanofi-Aventis acquired Genzyme Corporation and did not acquire the product rights relating to the allogeneic cell technology of Osiris Therapeutics, Inc., a partner of Genzyme and a leader in the field. In both cases there were difficulties navigating the U.S. regulatory requirements for product approval. Inadequate trial designs were cited in the executive summary of the 2012 New York Stem Cell Summit Report as contributing to these failures.
The number of cell therapy companies that are currently in Phase 2 and Phase 3 trials has been gathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.
Management believes the remaining risk in monetizing cancer immune cell therapies is concentrated in late stage clinical studies, speed-to-approval, manufacturing and process optimization.
Our Strategy
The majority of our biomedicine business is in the development stage. We intend to concentrate our business on cell therapies and in the near-term, carrying our KOA stem cell therapy and cancer immune cell therapies to commercialization.
We are developing our business in cell therapeutics and capitalizing on the increasing importance and promise that adult stem cells have in regenerative medicine. Our most advanced candidate involves adipose-derived mesenchymal stem cells to treat KOA. Based on current estimates, we expect our biomedicine business to generate revenues primarily through the development of therapies for the treatment of KOA within the next three to four years.
Presently we have two autologous cell therapy candidates undergoing clinical trials in China, for the treatment of KOA and CD. If and when these therapies gain regulatory approval in the PRC, we will be able to market and offer them for clinical use. Although our biomedicine business is relatively new, our technologies have been in development for decades, and our focus is on the latest translational stages of product development, principally from the pre-clinical trial stage to regulatory approval and commercialization of new therapies.
Our strategy is to develop safe and effective cellular medicine therapies for indications that represent a large unmet need in China, based on technologies developed both in-house and obtained through acquisition, licensing and collaboration arrangements with other companies. Our near term objective is to pursue successful clinical trials in China for our KOA application, followed by our CD and Asthma therapies. We intend to utilize our comprehensive cell platform to support multiple cell lines to pursue multiple therapies, both allogeneic and autologous. We intend to apply U.S. Standard Operating Procedures ("SOPs") and protocols while complying with Chinese regulations, while owning, developing and executing our own clinical trial protocols. We plan to establish domestic and international joint ventures or partnerships to set up cell laboratories and/or research facilities, acquire technology or in-license technology from outside of China, and build affiliations with hospitals, to develop a commercialization path for our therapies, once approved. 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 also intend to out-license our technologies to interested parties and are exploring the feasibility of a U.S. allogeneic KOA clinical study with the FDA.
CBMG initially plans to use its centralized manufacturing facility located in Shanghai to service multiple hospitals within 200 km of the facility. We aim to complete clinical trials for our KOA and CD therapy candidates as soon as practicable. Our goal is to first obtain regulatory permission for commercial use of the therapies for the respective hospitals in which the trials are being conducted. CBMG plans to scale up its customer base by qualifying multiple additional hospitals for the post-trial use of therapies, once approved, by following regulatory guidelines. Based on current regulation and estimates we expect our biomedicine business to generate revenue from the development of therapies for the treatment of KOA within the next three to four years.
With the AG acquisition we intend to monetize AG’s U.S. and Chinese intellectual property for immune cell therapy preparation methodologies and patient immunity assessment by engaging with prominent hospitals to conduct pre-clinical and clinical studies in specific cancer indications. The T Cell clonality analysis technology patent, together with AG’s other know-how for immunity analysis, will enable the Company to establish an immunoassay platform that is crucial for immunity evaluation of patients with immune disorders as well as cancerous diseases that are undergoing therapy.
We believe that few competitors in China are as well-equipped as we are in the clinical trial development, diversified U.S. FDA protocol compliant manufacturing facilities, regulatory compliance and policy making participation, as well as a long-term presence in the U.S. with U.S.-based management and investor base.
We intend to continue our business development efforts by adding other proven domestic and international biotechnology partners to monetize the China health care market.
In order to expedite fulfillment of patient treatment CBMG has been actively developing technologies and products with a strong intellectual properties protection, including haMPC, derived from fat tissue, for the treatment of KOA, CD, Asthma, COPD and other indications. CBMG’s acquisition of AG provides an enlarged opportunity to expand the application of its cancer therapy-enabling technologies and to initiate clinical trials with leading cancer hospitals. With the AG acquisition, we will continue to seek to empower hospitals' immune cell cancer therapy development programs that help patients improve their quality of life and improve their survival rate.
CBMG's proprietary and patent-protected production processes and clinical protocols enable us to produce raw material, manufacture cells, and conduct cell banking and distribution. Applying our proprietary intellectual property, we will be able to customize specialize formulations to address complex diseases and debilitating conditions.
CBMG has been developing disease-specific clinical treatment protocols. These protocols are designed for each of these proprietary cell lines to address patient-specific medical conditions. These protocols include medical assessment to qualify each patient for treatment, evaluation of each patient before and after a specific therapy, cell transplantation methodologies including dosage, frequency and the use of adjunct therapies, potential adverse effects and their proper management.
The protocols of haMPC therapy for KOA and CD have been approved by the hospitals’ Institutional Review Board for clinical trials. Once the trials are completed, the clinical data will be analyzed by a qualified third party statistician and reports will be filed by the hospitals to regulatory agencies for approval for use in treating patients.
CBMG has three cGMP facilities in Beijing, Shanghai and Wuxi, China that meet international standards and have been certified by the CFDA. In any precision setting, it is vital that all controlled-environment equipment meet certain design standards. To achieve this goal, our Shanghai cleanroom facility underwent an ISO-14644 cleanroom certification. Additionally, our facilities have been certified to meet the ISO-9001 Quality Management standard by SGS Group, and accredited by the American National Bureau of Accreditation (“ANBA”). These cGMP facilities make CBMG one of the few companies in China with facilities that have been certified by US- and European-based, FDA authorized ISO accreditation institutions.
In total, our cGMP facilities have over 23,000 sq. ft. of cleanroom space with the capacity for nine independent cell production lines.
Most importantly, our most experienced team members have more than 30 years of relevant experience in China, EU, and the United States. All of these factors make CBMG a high quality cell products manufacturer in China.
Our Targeted Indications and Potential Therapies
Knee Osteoarthritis (KOA)
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 ReJoin
TM
therapy to be both safe and effective.
In the second quarter of 2014, we completed patient enrollment for the Phase IIb clinical trial of ReJoin
TM
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 ReJoin
TM
regenerative medicine treatment to be safe. We announced positive Phase IIb 48-week follow-up data in January 2016.
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.
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 (“CAGR”) 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 in Shanghai and Beijing that meet Chinese regulatory approval; and (b) file joint applications with Class AAA hospitals to use haMPCs to treat KOA in a clinical trial setting.
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 injections are designed to induce the body’s secretion of growth factors promoting immune response and regulation, and regrowth of cartilage. 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.
Hepatocellular Carcinoma (HCC)
In January 2013, we commenced a Phase I clinical trial with PLA 85 hospital in Shanghai, for HCC therapy. Treatment for all the patients was completed in 2013 and the study revealed the TC-DC therapy to be safe. The purpose of this trial was to evaluate the safety of an autologous immune cell therapy in primary HCC patients following resection (surgical tumor removal) and Transarterial Chemo Embolization (“TACE”) Therapy, a type of localized chemotherapy technique. With the recent build-up of our Tcm, TCR clonality, CAR-T and anti-PD-1 technologies we do not plan to continue the next stage HCC clinical studies.
Immuno-oncology (I/o)
We continue to fortify our cancer breakthrough technology platform with I/o, programmed cell death and vaccine technology.
We believe our immuno-oncology platform is different from other current trials and studies being conducted in the marketplace. Our CAR-T platform is built on well-studied lenti-virial vector and second generation CAR design, this is used by most of the current trials and studies. We modify our treatment protocols to optimize the balance of safety and efficacy. For example, our patients received relatively lower number of CAR-expressing T cells (1e7/kg) compared to those enrolled in other trials. This is especially important for clinical trials conducted in solid tumors. We believe our design is unique in the leading sequence in our CAR constructs, and we are focusing our effort on developing CAR-T therapies for both hematological tumors and solid tumors.
Because there are many differences between hematological and solid tumors, drug penetration or infiltration into solid tumors sites is more challenging than hematological cancer. Antibody dependent cell-mediated (“ADCC”) toxicity works much better in hematological cancers. Hematological cancers usually carry fewest mutations among all cancers and are usually less molecularly heterogeneous than that of solid tumors. As such, routinely hematological cancers respond better to therapeutic interventions, there are more complete, as well as partial responses. And the duration of response is usually longer.
We believe that it is more difficult to treat solid tumors. The patients are more heterogenous, making it difficult to have one drug to work effectively in the majority of the patients in any cancer indication. We believe the duration of response is shorter and patients are likely to relapse even after initial positive clinical response. We believe that CAR-T therapy can successfully treat hematopoietic cancers because the therapy can deplete all B cells or T cells including normal and cancer cells in leukemia and lymphoma. When the stem cells are not targeted these stem cells can regenerate normal B and T cells. In contrast, effective tumor specific antigens found to be less to target in solid tumors. When the drugs kill tumor cells, they also kill the normal cells to a certain degree, leading to different degrees of toxicity. We believe that generally this has been the reason for disappointing toxicity data from CAR-T treatment in solid tumors. In conjunction with optimizing our protocol and production procedures, we plan to work with PLAGH to validate our initial success with treating solid tumors by expanding the study to confirm early safety and efficacy signal. We plan to move the CAR-T studies into multi center, phase 2b trials in China in a timely manner.
In September 2015, we released the first report of encouraging safety and early signal of clinical activity of EGFR CAR-T therapy in multiple indications of solid tumors with overexpression of EGFR. Although there are many promising data of CAR-T therapies in hematological cancer out in the field comprised of pediatric and adult B-ALL, NHL and HL, the CAR-T data in solid tumors is underwhelming. We believe our data provide support to allow the scientific community to believe that there is potential for CAR-T therapy in solid tumor indications as well.
We are integrating state of the art translational I/o medicine strategy in selection of the certain cancer indications utilizing our different assets. We plan to incorporate the appropriate biomarker strategy to identify the right patient population that might benefit patients, to understand why patients respond and why they are refractory or relapsing. We plan to continue to grow our translational medicine team and engage key opinion leaders to meet the demand.
Cancer vaccine holds potential in combination with other effective therapies. For example, Boehringer Ingleheim is partnering with CureVac http://www.curevac.com/ to develop mRNA based vaccine in combination with EGFR and HER2 TKI in advanced NSCLC patients with EGFR mutation. Our acquired CD40LGVAX has a CD40L and a GMCSF component. It recognizes NSCLC adenocarcinoma antigens. For adenocarcinoma NSCLC, anti-PD1 therapy, Nivolumab and Keytruda from Bristol Meyer Squibb and Merck respectively have shown promising clinical activity in PDL1 IHC positive patients. The PDL1 negative patient population, which comprises about 2/3 of the NSCLC population, still has significant unmet medical needs. The early phase 1 data for CD40LGVAX, showed some early signal that it might have survival benefit in adenocarcinoma NSCLC. We plan to evaluate the potential of PD1 and CD40LGVAX combo in an expanded patient population. We plan to also evaluate the potential of alternative biomarker’s enrichment that might respond to the CD40LGVAX combination therapy.
Our most recent preliminary data for EGFR CAR-T in NSCLC raised the possibility of testing its combination with CD40LGVAX in adenocarcinoma NSCLC. We plan to explore CD40LGVAX’s potential value add to our I/o assets.
One of the primary difficulties in administering effective cancer therapy is in the uniqueness of the disease – no two cancers are the same. Importantly, CBMG sources both immune and cancer cells directly from the patient, and our completely autologous approach to cancer therapy means that each dose is specific to each individual, an ultimate personalized therapeutic approach.
Human Adipose-Derived Mesenchymal Progenitor Cells (haMPC)
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 pluripotent 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 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.
These haMPC cells are capable of differentiating into bone, cartilage, tendon, skeletal muscle, 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 autologously sourced haMPCs may be used in the treatment of disease. Numerous studies have provided preclinical data that support the safety and efficacy of allogeneic and autologously derived haMPC, offering a choice for those where factors such as donor age and health are an issue.
Additionally, certain disease treatment plans call for an initial infusion of these cells in the form of SVF, an initial form of cell isolation that can be completed and injected within ninety minutes of receiving lipoaspirate. The therapeutic potential conferred by the cocktail of ingredients present in the SVF is also evident, as it is a rich source for preadipocytes, mesenchymal stem cells, endothelial progenitor cells, T regulatory cells and anti-inflammatory macrophages.
Immune Cell Therapy, Adoptive T cell
Adoptive T cell therapy for cancer is a form of transfusion therapy consisting of the infusion of various mature T cell subsets with the goal of eliminating a tumor and preventing its recurrence. In cases such as cancer, where the disease is unique to the individual, the adoptive T cell therapy is a personalized treatment.
We believe that an increasing portion of healthcare spending both in China and worldwide will be directed to immune cell therapies, driven by an aging population, and the potential for immune cell therapy treatments to become a safe, effective, and cost-effective method for treating millions of cancer patients.
Cancer is a major threat to public health and the solvency of health systems worldwide. Current treatments for these diseases cannot meet medical needs. We believe that immune cell therapy is a new technology that has the potential to alleviate much of the burden of these chronic and degenerative diseases in a cost-effective manner.
Tumor Cell Specific Dendritic Cells (TC-DC)
Recent scientific findings indicate the presence of special cells in tumors that are responsible for cancer metastases and relapse. Referred to as “cancer stem cells”, these cells make up only a small portion of the tumor mass. The central concept behind TC-DC therapy is to immunize against these cells. TC-DC therapy takes a sample of the patient’s own purified and irradiated cancer cells and combines them with specialized immune cells, thereby ‘educating’ the immune cells to destroy the cancer stem cells from which tumors arise. We believe the selective targeting of cells that drive tumor growth would allow for effective cancer treatment without the risks and side effects of current therapies that also destroy healthy cells in the body.
Our strategy is, through the acquisition of AG and the technologies and pre-clinical and clinical data of University of the South Florida and PLAGH, to become an immune cell business leader in the China cancer therapy market and specialty pharmaceutical market by utilizing CBMG’s attractiveness as a NASDAQ listed company to consolidate key China immune cell technology leaders with fortified intellectual property and ramp up revenue with first mover’s advantage in a safe and efficient manner. The Company plans to accelerate cancer trials by using the knowledge and experience gained from the Company’s ongoing KOA trials and the recent Tcm, CAR-T and PD-1 technologies. Immune cell therapies have not been codified by any of the Chinese regulatory agencies. China has a bifurcated regulatory pathway, which is different than the singular path in the United States. Immune cell therapy is considered in China as a Class III medical technology and it remains unclear if it will be offered U.S.FDA-liked Fast Track designation as maintenance therapy in subjects with advanced cancer who have limited options following surgery and front-line platinum/taxane chemotherapy to improve their progression-free survival. By applying U.S. SOP and protocols and following authorized treatment plans in China, we believe we are differentiated from our competition as we believe we have first mover’s advantage and a fortified barrier to entry. In addition, we began to review the feasibility of performing synergistic U.S. clinical studies.
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, inventory, 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, inventory, 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.
During the three months ended March 31, 2016, 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, 2015.
Results of Operations
Below is a discussion of the results of our operations for the three months ended March 31, 2016 and 2015. 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, 2016 to Three Months Ended March 31, 2015
The descriptions in the results of operations below reflect our operating results as set forth in our Consolidated Statement of Operations filed herewith.
|
|
Three Months Ended March 31, 2016
|
|
|
Three Months Ended March 31, 2015
|
|
|
|
CBMG
|
|
|
CBMG
|
|
|
|
As stated
|
|
|
As stated
|
|
Net sales and revenue
|
|
$
|
488,491
|
|
|
$
|
603,390
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
503,193
|
|
|
|
494,062
|
|
General and administrative
|
|
|
2,775,925
|
|
|
|
2,680,237
|
|
Selling and marketing
|
|
|
178,754
|
|
|
|
149,022
|
|
Research and development
|
|
|
2,398,362
|
|
|
|
1,455,420
|
|
Impairment of investments
|
|
|
-
|
|
|
|
123,428
|
|
Total operating expenses
|
|
|
5,856,234
|
|
|
|
4,902,169
|
|
Operating loss
|
|
|
(5,367,743
|
)
|
|
|
(4,298,779
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
17,050
|
|
|
|
15,111
|
|
Other income (expense)
|
|
|
16,320
|
|
|
|
(2,703
|
)
|
Total other income
|
|
|
33,370
|
|
|
|
12,408
|
|
Loss before taxes
|
|
|
(5,334,373
|
)
|
|
|
(4,286,371
|
)
|
|
|
|
|
|
|
|
|
|
Income taxes credit (provision)
|
|
|
1,124,260
|
|
|
|
(800
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,210,113
|
)
|
|
$
|
(4,287,171
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment
|
|
|
16,073
|
|
|
|
19,609
|
|
Unrealized gain (loss) on investments, net of tax of $4,514,060 and $nil, for the three months ended March 31, 2016 and 2015, respectively
|
|
|
16,416,517
|
|
|
|
(2,568,271
|
)
|
Total other comprehensive income (loss):
|
|
|
16,432,590
|
|
|
|
(2,548,662
|
)
|
Comprehensive gain (loss)
|
|
$
|
12,222,477
|
|
|
$
|
(6,835,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.35
|
)
|
|
$
|
(0.39
|
)
|
Diluted
|
|
$
|
(0.35
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,884,066
|
|
|
|
11,039,208
|
|
Diluted
|
|
|
11,884,066
|
|
|
|
11,039,208
|
|
* These line items include the following amounts of non-cash, stock-based compensation expense for the periods indicated:
|
|
Three Months Ended March 31, 2016
|
|
|
Three Months Ended March 31, 2015
|
|
|
|
CBMG
|
|
|
CBMG
|
|
|
|
As stated
|
|
|
As stated
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
37,039
|
|
|
|
35,078
|
|
General and administrative
|
|
|
449,781
|
|
|
|
915,829
|
|
Selling and marketing
|
|
|
47,761
|
|
|
|
47,615
|
|
Research and development
|
|
|
731,482
|
|
|
|
720,936
|
|
|
|
|
1,266,063
|
|
|
|
1,719,458
|
|
Results of Operations
Net sales and revenue
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
$
|
488,491
|
|
|
$
|
603,390
|
|
|
$
|
(114,899
|
)
|
|
|
(19
|
)%
|
All the revenue was derived from cell therapy treatments for the three months ended March 31, 2016 and 2015. The decrease is attributable to the non-linear nature of
the business.
Cost of Sales
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
$
|
503,193
|
|
|
$
|
494,062
|
|
|
$
|
9,131
|
|
|
|
2
|
%
|
The increase in cost of sales is mainly due to the Beijing center start-up cost. .
General and Administrative Expenses
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
$
|
2,775,925
|
|
|
$
|
2,680,237
|
|
|
$
|
95,688
|
|
|
|
4
|
%
|
Increased expenses in 2016 was associated with increased corporate activities related the management and the development of our biomedicine business, was primarily attributed to below facts:
●
|
An increase in legal, audit and other professional fee of $365,000;
|
●
|
An increase in director fee of $52,000;
|
●
|
An increase in insurance fee of $43,000, which mainly resulted from the increase in premium of director and officer liability and Company reimbursement insurance;
|
●
|
An increase in rental expenses of $48,000;
|
●
|
An increase in miscellaneous taxes of $39,000; and
|
●
|
A decrease in stock-based compensation expense of $466,000, which primarily resulted from forfeiture of the options due to Wei Cao who resigned as the CEO of the Company in February 2016. For further details please refer to Item 1 Note 13-Commitments and Contingencies - Service Agreement with Wei (William) Cao.
|
Selling and Marketing Expenses
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
$
|
178,754
|
|
|
$
|
149,022
|
|
|
$
|
29,732
|
|
|
|
20
|
%
|
We are now increasing our sales and marketing teams in the immunotherapy business. Sales and marketing expenses increased by approximately $30,000 in the three months ended March 31, 2016 as compared to the three months ended March 31, 2015, primarily as a result of an increase in payroll expenses of $29,000 and an increase in entertainment expenses of $15,000, net of the decrease in market analysis professional fees of $20,000.
Research and Development Expenses
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
$
|
2,398,362
|
|
|
$
|
1,455,420
|
|
|
$
|
942,942
|
|
|
|
65
|
%
|
Research and development costs increased by approximately $943,000 in the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. The increase was primarily attributed to below facts:
●
|
An increase in payroll expenses of $372,000 in line with the increase of our immunotherapy research and development team. Total headcount of our R&D team increased from 34 as of March 31, 2015 to 48 as of March 31, 2016;
|
●
|
An increase in clinical trial expenditure of $311,000; and
|
●
|
An increase in depreciation and amortization of $141,000, which was mainly attributed to the technology obtained from 301 Hospital in June 2015 and newly purchased equipment for immunotherapy research and development.
|
Impairment of Investments
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
$
|
-
|
|
|
$
|
123,428
|
|
|
$
|
(123,428
|
)
|
|
|
(100
|
)%
|
The impairment of investments for the three months ended March 31, 2015 is attributed to the recognition of other than temporary impairment on the value of shares in one investment, no such expense existed in the same period 2016.
Operating Loss
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
$
|
(5,367,743
|
)
|
|
$
|
(4,298,779
|
)
|
|
$
|
(1,068,964
|
)
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in the operating loss for the three months ended March 31, 2016 as compared to the same period in 2015 is primarily due to changes in revenues, research and development expenses and impairment of investments, each of which is described above.
Total Other Income
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
$
|
33,370
|
|
|
$
|
12,408
|
|
|
$
|
20,962
|
|
|
|
169
|
%
|
Other income for the three months ended March 31, 2016 was primarily interest income of $17,000, foreign exchange gain of $15,000 and subsidy income of $1,000. Other income for the three months ended March 31, 2015 was primarily interest income of $15,000, subsidy income of $5,000, net of the disposal loss of investment stock of $5,000 and foreign exchange loss of $2,000.
Income Taxes Credit (Provision)
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
$
|
1,124,260
|
|
|
$
|
(800
|
)
|
|
$
|
(3,455
|
)
|
|
|
N/A
|
|
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 credit for three months ended March 31, 2016 mainly represents deferred income tax as a result of recognizing tax benefit of current period loss due to other comprehensive income recorded this quarter. Income tax for three months ended march 31, 2015 represents the US state current tax.
Net Loss
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
$
|
(4,210,113
|
)
|
|
$
|
(4,287,171
|
)
|
|
$
|
(1,051,457
|
)
|
|
|
25
|
%
|
Changes in net loss are primarily attributable to changes in operations of our biomedicine segment which are described above.
Comprehensive Gain (Loss)
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
$
|
12,222,477
|
|
|
$
|
(6,835,833
|
)
|
|
$
|
22,443,855
|
|
|
|
(328
|
)%
|
Comprehensive net loss for three months ended March 31, 2016 includes unrealized net gain on investments of approximately $16,416,517 and a currency translation net gain of approximately $16,000 combined with the changes in net income. The unrealized gain on investments was primarily attributed to the valuation gain for the stock investment in Arem Pacific Corporation. The stock of Arem Pacific Corporation (ARPC) held by us are illiquid restricted shares. ARPC is a very thinly traded OTC company.
Liquidity and Capital Resources
We had working capital of $14,527,960 as of March 31, 2016 compared to $13,675,034 as of December 31, 2015. Our cash position increased to $15,667,528 at March 31, 2016 compared to $14,884,597 at December 31, 2015, as we had cash generated from financing activities due to a private placement financing in February 2016 for gross proceeds of approximately $5 million through the sale of 263,158 shares of Common Stock, partially offset cash used in operating and investment activities.
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 $3,583,000 and $2,406,000 for the three months ended March 31, 2016 and 2015, respectively. The following table reconciles net loss to net cash used in operating activities:
For the three months ended March 31,
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Net loss
|
|
$
|
(4,210,113
|
)
|
|
$
|
(4,287,171
|
)
|
|
$
|
(1,051,457
|
)
|
Non cash transactions
|
|
|
1,937,712
|
|
|
|
2,287,306
|
|
|
|
(349,594
|
)
|
Changes in operating assets, net
|
|
|
(1,310,396
|
)
|
|
|
(406,030
|
)
|
|
|
224,149
|
|
Net cash used in operating activities
|
|
$
|
(3,582,797
|
)
|
|
$
|
(2,405,895
|
)
|
|
$
|
(1,176,902
|
)
|
The 2016 change in non-cash transaction was primarily due to the increase in depreciation and amortization of $232,000 and decrease in share based compensation of $453,000 and decrease in non-temporary impairment of investments of $123,000 compared with same period in 2015.
Net cash used in investing activities was approximately $675,000 and $748,000 in the three months ended March 31, 2016 and 2015, respectively. These amounts were primarily the result of purchases of fixed assets and intangible assets.
Cash provided by financing activities was approximately $5,063,000 and $19,591,000 in the three months ended March 31, 2016 and 2015, respectively. These amounts were mainly attributable to the proceeds received from the issuance of common stock.
Liquidity and Capital Requirements Outlook
Excluding any potential sponsorship in any U.S. clinical trials, and other regions out of China CD40LGVAX Trial, we anticipate that the Company will require approximately $26 million in cash to operate as planned in the coming 12 months. Of this amount, approximately $20.5 million will be used to operate our facilities and offices, including but not limited to payroll expenses, rent and other operating costs, and to fund our research and development as we continue to develop our products through the clinical study process. Approximately $5.6 million will be used as capital expenditure in machinery, equipment and facilities to expand our immune cell therapy business and CAR-T research and development, although we may revise these plans depending on the changing circumstances of our biomedicine 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, Wonder International Education & Investment Group Corporation (“Wonder”), is delinquent in its SEC filings for multiple periods. We do not know whether we can liquidate our 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.
On April 15, 2016, the Company completed the second and final closing of a 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 and the Company may 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. As we continue to incur losses, achieving profitability is dependent upon the successful development of our immune 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 biomedicine 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 biomedicine 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 CFDA), 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 biomedicine 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.
A summary of the Company’s contractual obligations was included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. The Company’s contractual obligations and other commercial commitments did not change materially between December 31, 2015 and March 31, 2016.