CELL SOURCE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 – Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Accrued research and development
|
|
$
|
117,949
|
|
|
$
|
186,815
|
|
Accrued legal fees
|
|
|
194,940
|
|
|
|
216,956
|
|
Accrued other professional fees
|
|
|
100,502
|
|
|
|
75,164
|
|
Accrued director compensation
|
|
|
12,000
|
|
|
|
12,000
|
|
Accrued Scientified Advisory Board compensation
|
|
|
57,000
|
|
|
|
31,000
|
|
Accrued interest, current portion
|
|
|
130,660
|
|
|
|
25,139
|
|
Other accrued expenses
|
|
|
114,007
|
|
|
|
39,411
|
|
Accounts payable and accrued expenses, current portion
|
|
|
727,058
|
|
|
|
586,485
|
|
Non-current portion of accrued interest
|
|
|
15,384
|
|
|
|
4,474
|
|
Total accounts payable and accrued expenses
|
|
$
|
742,442
|
|
|
$
|
590,959
|
|
Note 6 – Notes Payable
Non-Convertible Notes
On March 8, 2016, the Company issued six-month notes payable in the aggregate principal amount of $600,000 which bear interest at a rate of 10% per annum. In connection with the note issuances, the Company issued immediately vested warrants to purchase an aggregate of 300,000 shares of common stock at an exercise price of $0.75 per share with an issuance date fair value of $93,400, which were recorded as a debt discount.
In connection with the Company’s sequencing policy, the warrants were determined to be derivative liabilities. See Note 4 – Fair Value for additional details.
The warrants contain a provision that provides the Company with an option, prior to the expiration date, to redeem all of the warrants then outstanding upon not less than thirty (30) days nor more than (60) days notice to the applicable holder, at a redemption price of $0.01 per share, subject to the conditions that: (i) there is an effective registration statement covering the resale of the underlying shares of common stock and (ii) the common stock has traded for twenty (20) consecutive days with a closing price of at least $2.50 per share with an average trading volume of 100,000 shares per day. The warrants expire on March 25, 2019.
On April 4, 2016, the Company extended the maturity date of a note payable in the principal amount of $250,000, originally dated May 15, 2015, from December 31, 2015 to June 30, 2016. See Note 11 – Subsequent Events – Notes Payable for details related to the subsequent extension of this note.
On April 6, 2016, the Company extended the maturity date of a note payable in the principal amount of $250,000, originally dated March 26, 2015, from March 26, 2016 to June 27, 2016. See Note 11 – Subsequent Events – Notes Payable for details related to the subsequent extension of this note.
On April 6, 2016, the Company extended the maturity date of a note payable in the principal amount of $250,000, originally dated March 26, 2015, from March 26, 2016 to June 26, 2016. See Note 11 – Subsequent Events – Notes Payable for details related to the subsequent extension of this note.
On May 10, 2016, the Company issued a six-month note payable in the principal amount of $53,000 which bears interest at 6% per annum, payable at maturity.
See Note 8 – Related Parties for details related to non-convertible notes held by the Company’s Chief Executive Officer (“CEO”) and a director of the Company. See Note 11 – Subsequent Events – Notes Payable for details related to the issuance and extension of notes payable subsequent to June 30, 2016.
CELL SOURCE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 – Notes Payable – Continued
Convertible Notes
Other Convertible Notes
In January 2016, the Company issued a convertible note payable in the principal amount of $250,000 to an investor who advanced the funds to the Company in January 2015. The note matures on July 27, 2016 and bears interest at a rate of 10% per annum, beginning from the date the funds were advanced. The note shall be automatically converted into shares of the Company’s common stock upon the earlier of (i) the closing of an offering of equity securities pursuant to which the Company receives an aggregate of at least $5,000,000 in gross proceeds (“Qualified Financing”); or (ii) the maturity date. In the event the note is converted upon the occurrence of a Qualified Financing (the “QF Conversion Shares”), the conversion price of the note shall be the lesser of (i) seventy percent (70%) of the price per share or per unit (assuming the unit includes one share of common stock or the price per unit divided by the number of shares of common stock underlying such unit) at which the Company sells its securities in a Qualified Financing; or (ii) the quotient obtained by dividing $35,000,000 by the aggregate number of outstanding shares of the common stock, measured on a fully-diluted basis, excluding certain shares, on the date immediately preceding the Qualified Financing. The QF Conversion Shares shall be subject to a prohibition from any sale, pledge or transfer for a period of six (6) months from the date of the closing on which the Company generates aggregate gross proceeds under the Qualified Financing of at least $5,000,000. In addition, upon conversion of the note following the occurrence of a Qualified Financing, the holder shall automatically receive five-year warrants to purchase that number of shares of common stock into which the note is convertible and such warrants shall have an exercise price equal to the lesser of (i) seventy percent (70%) of the price per share or per unit (assuming the unit includes one share of common stock or the price per unit divided by the number of shares of common stock underlying such unit) at which the Company sells its securities in a Qualified Financing; or (ii) $0.75. In the event the note is automatically converted upon the maturity date, the conversion price of the note shall be equal to the quotient obtained by dividing $20,000,000 by the aggregate number of outstanding shares of the common stock, measured on a fully-diluted basis, excluding certain shares, on the date immediately preceding the maturity date (the “Maturity Conversion Price”). In addition, in the event of an automatic conversion of the note upon the maturity date, the holder shall automatically receive five-year warrants to purchase that number of common stock into which the note is convertible and such warrants shall have an exercise price equal to the Maturity Conversion Price.
In connection with the Company’s sequencing policy, the conversion option of the note was determined to be a derivative liability. The $179,000 issuance date fair value was recorded as a debt discount and will be amortized over the term of the note. See Note 4 – Fair Value for additional details.
10% Convertible Note Offering
During the six months ended June 30, 2016, the Company closed on an aggregate of $390,000 in principal amount of convertible notes to investors (the”10% Convertible Notes”). The 10% Convertible Notes bear interest at a rate of 10% per annum and are payable eighteen (18) months from the date of issuance (the “Maturity Date”). The 10% Convertible Notes shall be automatically converted into shares of the Company’s common stock upon the earlier of (i) the closing of an offering of equity securities pursuant to which the Company receives an aggregate of at least $5,000,000 in gross proceeds (“Qualified Financing”); (ii) the closing of a strategic transaction (including but not limited to the Company’s entry into a joint venture or partnership agreement or the sublicensing of the Company’s intellectual property) pursuant to which the Company, directly or indirectly, receives, or expects to receive within eighteen months, cash, assets or other consideration with a total aggregate value of at least $4,000,000 (“Strategic Transaction”); or (iii) the Maturity Date of the 10% Convertible Notes.
CELL SOURCE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 – Notes Payable – Continued
Convertible Notes
- Continued
10% Convertible Note Offering – Continued
In the event the 10% Convertible Notes are converted upon the occurrence of a Qualified Financing (the “QF Conversion Shares”), the conversion price of the 10% Convertible Notes shall be the lesser of (i) seventy percent (70%) of the price per share or per unit (assuming the unit includes one share of common stock or the price per unit divided by the number of shares of common stock underlying such unit) at which the Company sells its securities in a Qualified Financing; or (ii) $0.75. The QF Conversion Shares shall be subject to a prohibition from any sale, pledge or transfer for a period of six (6) months from the date of the closing on which the Company generates aggregate gross proceeds under the Qualified Financing of at least $5,000,000. In the event the 10% Convertible Notes are converted upon the occurrence of a Strategic Transaction (the “ST Conversion Shares”), the conversion price of the 10% Convertible Notes shall be equal to $0.75. In addition, upon conversion of the 10% Convertible Notes following the occurrence of a Qualified Financing or a Strategic Transaction, each holder of a 10% Convertible Note shall automatically receive five-year warrants to purchase that number of shares of common stock into which the 10% Convertible Notes are convertible and such warrants shall have an exercise price equal to one hundred ten percent (110%) of the per-share or per unit (assuming the unit includes one share of common stock or the price per unit divided by the number of shares of common stock underlying such unit) at which the Company sells its securities in a Qualified Financing or $0.825 in the case of a Strategic Transaction, as applicable. The ST Conversion Shares shall be subject to a prohibition from any sale, pledge or transfer for a period of six (6) months from the date of the closing of a Strategic Transaction. In the event the 10% Convertible Notes are automatically converted upon the Maturity Date, the conversion price of the 10% Convertible Notes shall be equal to the quotient obtained by dividing $15 million by the aggregate number of outstanding shares of the common stock, measured on a fully-diluted basis, excluding certain shares, on the date immediately preceding the Maturity Date (the “Maturity Conversion Price”). In addition, in the event of an automatic conversion of the 10% Convertible Notes upon the Maturity Date, the holder shall automatically receive five-year warrants to purchase that number of common stock into which the 10% Convertible Notes are convertible and such warrants shall have an exercise price equal to the Maturity Conversion Price.
In connection with the Company’s sequencing policy, the conversion options of the notes were determined to be derivative liabilities. The $327,700 aggregate issuance date fair value was recorded as a debt discount and will be amortized over the term of the notes. See Note 4 – Fair Value for additional details.
Summary
During the three and six months ended June 30, 2016, the Company recorded interest expense related to notes payable of $55,232 and $118,557, respectively. During the three and six months ended June 30, 2015, the Company recorded interest expense related to notes payable of $5,277 and $6,756, respectively.
During the three and six months ended June 30, 2016, the Company recorded amortization of debt discount of $325,288 and $598,676, respectively. During the three and six months ended June 30, 2015, the Company recorded amortization of debt discount of $77,100 and $79,500, respectively.
Note 7 – Advances Payable
See Note 6 – Notes Payable – Convertible Notes – Other Convertible Notes for details associated with the issuance of a note that previously was classified as an advance payable.
Note 8 – Related Parties
For the three and six months ended June 30, 2016, the Company recorded a charge to operations of $199,000 and $399,000, respectively, related to its research and license agreement with Yeda. For the three and six months ended June 30, 2015, the Company recorded a charge to operations of $200,000 and $400,000, respectively, related to its research and license agreement with Yeda. As of June 30, 2016 and December 31, 2015, approximately $200,000 and $208,000 has been accrued and is payable to Yeda, respectively
.
CELL SOURCE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8 – Related Parties – Continued
On March 29, 2016, the Company exercised its option pursuant to an October 3, 2011 exclusive option agreement with Yeda, as amended, such that the Company is now in the process of negotiating an agreement with Yeda whereby the Company would exclusively license certain organ regeneration technology from Yeda. As a result of exercising the option, the Company will fund research with Yeda in the additional amount of $100,000 per annum commencing during the third quarter of 2016. In addition, the Company shall pay Yeda an option initiation fee of $200,000 (the “Option Initiation Fee”) on or before the date on which the Company shall have received, beginning from October 11, 2011, an aggregate investment in the amount of $10,000,000.
During the six months ended June 30, 2016, the Company repaid a note payable in the principal amount of $50,000 to the Company’s CEO.
On April 4, 2016, the Company extended the maturity date of a note payable to the Company’s CEO in the principal amount of $50,000, originally dated November 26, 2014, from June 30, 2016 to September 30, 2016.
As of June 30, 2016 and December 31, 2015, there were outstanding notes payable to the Company’s CEO in the aggregate principal amount of $50,000 and $100,000, respectively. As of June 30, 2016 and December 31, 2015, there was an outstanding note payable to a director of the Company in the principal amount of $100,000.
Note 9 – Commitments and Contingencies
Litigation
Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows. As of June 30, 2016 and December 31, 2015, the Company has not accrued any amounts for contingencies.
CELL SOURCE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10 – Stockholders’ Deficiency
Stock-Based Compensation
During the three and six months ended June 30, 2016, the Company recognized $23,092 and $91,962 of stock-based compensation expense related to warrants.
During the three and six months ended June 30, 2015, the Company recognized $(23,500) and $(33,400) of stock-based compensation expense related to warrants.
As of June 30, 2016, there was $92,686 of unrecognized stock-based compensation expense that will be recognized over approximately 1.0 years.
Note 11 – Subsequent Events
The Company evaluates events that have occurred after the balance sheet date but before the condensed consolidated financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would require adjustment or disclosure in the condensed consolidated financial statements.
Notes Payable
Issuances
Subsequent to June 30, 2016, the Company issued six-month notes payable in the aggregate principal amount of $300,000 which bear interest at a rate of 10% per annum, payable at maturity. In connection with the note issuances, the Company issued to the purchasers immediately-vested, five-year warrants to purchase an aggregate of 225,000 shares of common stock at an exercise price of $0.75 per share.
Extensions
On July 20, 2016, the Company extended the maturity date of a note payable to a director of the Company in the principal amount of $100,000 from July 20, 2016 to January 24, 2017. In connection with the extension, the Company issued to the holder an immediately vested, three-year warrant to purchase 50,000 shares of common stock at an exercise price of $0.75 per share. In addition, in connection with the terms of the original note, because the principal amount of the note was not repaid by July 20, 2016, the Company issued to the holder an immediately vested, three-year warrant to purchase 10,000 shares of common stock at an exercise price of $0.75 per share and shall pay a cash penalty of $5,000 to the holder.
On July 22, 2016, the Company extended the maturity date of convertible notes payable in the aggregate principal amount of $145,000 from July 24, 2016 to January 24, 2017. In connection with the extension, the Company issued immediately vested, three-year warrants to purchase an aggregate of 72,500 shares of common stock at an exercise price of $0.75 per share.
On August 10, 2016, the Company extended the maturity date of a note payable in the principal amount of $250,000 from June 30, 2016 to September 30, 2016. In connection with the extension, the Company issued to the holder 250,000 shares of immediately vested common stock.
On August 10, 2016, the Company extended the maturity date of a note payable in the principal amount of $250,000 from June 27, 2016 to September 26, 2016. In connection with the extension, the Company issued to the holder 250,000 shares of immediately vested common stock. The note will become payable in full in the event that the Company raises $2.5 million or more of funding in its private placement. Furthermore, in the event the Company raises $3.0 million or more of funding, the holder’s note issued in October 2015 in the original principal amount of $125,000 shall become payable in full.
On August 10, 2016, the Company extended the maturity date of a note payable in the principal amount of $250,000 from June 26, 2016 to September 26, 2016. In connection with the extension, the Company issued to the holder 250,000 shares of immediately vested common stock. The note will become payable in full in the event that the Company raises $2.5 million or more of funding in its private placement. Furthermore, in the event the Company raises $3.0 million or more of funding, the advance of $100,000 made to the Company by the investor in January 2015 shall become payable in full as well as at least $15,000 of interest.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the consolidated results of operations and financial condition of Cell Source, Inc. ("CSI", “Cell Source” or the “Company”) as of June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016
and 2015 should be read in conjunction with our condensed consolidated financial statements and the notes thereto that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to CSI. This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may affect our results include, but are not limited to, the risks and uncertainties discussed in Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2016.
Our wholly-owned subsidiary, Cell Source Israel was founded in 2011 as a privately held company located in Tel Aviv, Israel. Our business is based on over ten (10) years of prominent research at the Weizmann Institute from whom we license patented and patent pending technology. Our exclusive, world-wide license provides us with access to certain discoveries, inventions and other intellectual property generated by Professor Yair Reisner, formerly Head of the Immunology Department at the Weizmann Institute, together with others. Professor Reisner leads a team at the Weizmann Institute to continue the development of these technologies in order to facilitate the transition of those technologies from the laboratory to clinical trials. Our Scientific Advisory Board is chaired by Dr. Terry Strom, Professor of Medicine and Surgery at Harvard Medical School and Director of The Transplant Institute at Beth Israel Deaconess Medical Center, the founding President of the American Society of Transplantation, from which he received a Lifetime Achievement Award, and past President of the Clinical Immunology Society. Its other members include Dr. Robert Negrin, Director of Bone and Marrow Transplantation and Professor of Medicine at Stanford University who is a past President of the American Society of Bone and Marrow Transplantation and the International Society of Cellular Therapy; Dr. Steven Burakoff, Director of the Tisch Cancer Institute at Mount Sinai
Medical Center, Professor of Cancer Medicine at the Icahn School of Medicine, past Professor of Medicine at Harvard Medical School and Director of the NYU Cancer Institute, who won the American Association of Immunologists Lifetime Achievement Award; Dr. Herman Waldman, Department Head and Professor Emeritus of Pathology and Head of the Therapeutic Immunology Group at Oxford Medical School, former Cambridge Immunology Professor and SCRIP Lifetime Achievement Award winner; and Dr. Hermann Einsele, Professor and Director of Internal Medicine at Julius Maximilian University, Würzburg, Germany, a former visiting professor at the Fred Hutchinson Cancer Research Center in Seattle, Director of the German and member of the European Blood and Marrow Transplantation Groups.
Our lead prospective product is our patented Veto Cell immune system management technology, which is an immune tolerance biotechnology that enables the selective blocking of immune responses. The Company’s target indications include: lymphoma, multiple myeloma and BCLL (a form of leukemia), facilitating transplantation acceptance (initially bone marrow transplantation and subsequently organ transplantation), and ultimately treating a variety of non-malignant diseases.
Cell Source, under its exclusive license with Yeda Research & Development Ltd., the commercial arm of the Weizmann Institute of Science, has recently filed two new provisional patent applications that extend the usage of Veto Cell technology as a critical enabler for other cell therapy treatments. One patent application highlights, based on preclinical data, the ability of Veto Cells to accompany other cell therapy treatments and help them overcome rejection and avoid Graft vs. Host Disease (GvHD) in an allogeneic (using a third party donor) treatment setting. The other patent application involves a genetically modified Veto Cell that can have sustained survival in the patient’s body while avoiding rejection and GvHD. Both of these applications holds the potential to make CAR-T cells, which to date been effective primarily in an autologous (patient’s own cells) setting, succeed in an allogeneic setting.
Cell Source is actively exploring collaborations with larger biopharmaceutical firms where Veto Cell technology can significantly enhance the efficacy of cell therapy treatments for a variety of indications. This may allow Cell Source to complement the development of its own treatment candidates with parallel development with partners, thus multiplying the potential impact of this technology in the clinic.
Prior to commercializing its products, the Company must conduct human clinical trials and obtain FDA approval and/or approvals from comparable foreign regulatory authorities.
Generally speaking, as a preclinical biotechnology firm, Cell Source needs to go through several necessary steps in order to commercialize its products and commence revenue generation. These steps are per product, but can run in parallel for multiple products, which are each in different stages of the development “pipeline”, so that, for example, when a certain product is already in a human clinical trial, another product may still be in preclinical development and a third may be awaiting regulatory approval to commence human trials. These can also take place in parallel, and varied stages, for the same product in different geographic jurisdictions. The typical steps per product (and range of time frame for each) are:
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1.
|
Complete development of human treatment protocol (2-5 years)
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|
2.
|
Apply for and receive approval to commence human trials (9-18 months)
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|
3.
|
Recruit patients (1-6 months)
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|
4.
|
Conduct Phase I trials showing safety of product (1-2 years)
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|
5.
|
Apply for and receive approval to conduct trials showing product efficacy (6-12 months)
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|
6.
|
Data collecting and analysis (6-12 months)
|
|
7.
|
Conduct Phase II efficacy trials (2-3 years)
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|
8.
|
Data collecting and analysis (6-12 months)
|
|
9.
|
Apply for and receive approval to conduct trials showing efficacy in larger numbers of patients (6-12 months)
|
|
10.
|
Conduct Phase III efficacy trials with larger numbers of patients (2-4 years)
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|
11.
|
Data collecting and analysis (6-12 months)
|
|
12.
|
Apply for and receive approval for production scale manufacturing facilities (6-12 months)
|
|
13.
|
Contract third party or establish own production facilities (6-30 months)
|
|
14.
|
Contract third party or establish own distribution platform (6-18 months)
|
|
15.
|
Commence manufacturing and distribution (6-12 months)
|
Please note that steps 12-15 can be conducted in parallel with some of the steps above. In the case of Cell Source and other firms that treat terminal patients with either rare diseases or those for which there is currently no effective treatment, or where preclinical studies indicate a reasonable expectation to increase life expectancy and survival rates by a substantive margin, several of these steps can be combined and or shortened, subject to regulatory discretion. For example, Phase I and II (safety and efficacy) can be combined in a single concurrent step; approvals for subsequent steps can be accelerated; in some countries patients can already be treated commercially after the end of Phase II, foregoing the requirement for Phase III data as a prerequisite.
Although we have provided estimated timeframes for each step above, no assurances can be made that such timeframes are accurate or that they would not be delayed for one or more reasons. At any stage of a human clinical trial, there could be problems with either safety or efficacy of treatment. In these instances the Company could be required to reformulate the treatment and proceed with additional patients, which could involve a delay of months or years, depending on whether we would have to seek approval from the very beginning of the approval process. There can also be a delay of up to 1 to 2 years between phases of a human clinical trial, as the regulator may wish to take additional time to review the approval of a subsequent stage. Furthermore, if a significant modification to the treatment is required, the application process begins again from the very first stage. If the treatment is not effective at all or if it’s harmful to patients, even after modifications are made, it is possible that the trials may be halted completely and the product candidates permanently withdrawn. While the timescales presented here are representative of the typical experience, there is no assurance that there will not be significant delays at any stage or step in the process or a complete failure of trials.
The specific detailed next steps the Company must take to get the treatments or products to market include the following:
We have not submitted any drug applications to the FDA and do not have anything pending for approval with the FDA. Cell Source itself has not had any contact with any regulator anywhere regarding treatment approvals or clinical trials associated with regulatory approvals. We are aware that a hospital in Italy in May, 2014 independently requested and in September, 2014 received approval to conduct a trial with the same protocol that we plan to use, but we are not mentioned in the application nor in the approval. However, we may indirectly benefit from the outcome of the trial, if successful, although we are not the sponsor of this trial. There are no written or verbal agreements between the hospital and Cell Source regarding the use of the technology. That said, Cell Source is aware and in favor of the hospital plans to use the technology and would of course find a positive initial outcome encouraging. Since the treatment is being done on compassionate grounds as a non-commercial clinical trial, there is no legal requirement for the hospital to obtain approval to use the treatment protocol. The hospital has successfully treated a cancer patient using the Megadose Drug Combination technology that Cell Source exclusively licenses from Yeda Research & Development Ltd., commercial arm of the Weizmann Institute of Science. While Cell Source is not a sponsor of the trial, the results provide a positive initial indication with respect to the technology. The patient received a bone marrow transplantation from a haploidentical or “mismatched” donor under a reduced intensity conditioning regimen (i.e., a relatively low level of immune suppression treatment). There was successful initial engraftment of the transplantation in the absence of GVHD.
For the Veto Cell application for reducing rejection in Bone Marrow Transplants, Cell Source expects to commence Phase I/II human clinical trials in the US and EU starting sometime in 2017. Cell Source anticipates that Phase I/II studies will last until 2019 or 2020. These would be followed by completion of Phase II and Phase III, which would last another 2-3 years each, so that full approval, if successful, would be expected sometime in 2025. In Germany there is a possibility of approval for commercial use on a “compassionate grounds” basis at the end of Phase II, which could take place by 2023. In the US, Cell Source plans to commence the IND approval process with the FDA in 2017, which could last until between 2021 and 2024. Cell Source also aspires to enter into a collaboration with respect to combining CAR-T cell therapy with Veto Cell therapy and commence pre-clinical proof of concept trials in 2016. If successful, this could lead to a commencement of a combined FDA trial in 2017 or 2018 and could last until 2025 or 2026.
It is possible that Cell Source treatments could qualify for any or all of Fast Track, Breakthrough Therapy, Accelerated Approval and Priority Review designation under the FDA, which would hasten their approval if successful.
The costs for each step of development, in terms of clinical trials, are delineated below:
Cell Source estimates the cost of clinical trials alone to be up to $5-10 million in each of the coming two years and another $25-50 million in order to reach commercialization for both the Anti-rejection Veto Cell and the Veto Cell + CAR-T cell products. This would mean that Cell Source will need to secure one or more significant capital infusions in order to reach the point that meaningful revenues could be generated.
Cell Source will require additional financing for any and all of the steps described above.
Recent Developments
On May 10, 2016, the Company issued a six-month notes payable in the principal amount of $53,000 which bears interest at 6% per annum, payable at maturity. The foregoing description of the six-month promissory note does not purport to be complete and is qualified in its entirety by reference to the complete text of the note which is filed as Exhibit 10.1 hereto, which is incorporated herein by reference.
Subsequent to June 30, 2016, the Company issued six-month notes payable in the aggregate principal amount of $300,000 which bear interest at a rate of 10% per annum, payable at maturity. In connection with the note issuances, the Company issued to the purchasers immediately-vested, five-year warrants to purchase an aggregate of 225,000 shares of common stock at an exercise price of $0.75 per share.
On July 20, 2016, the Company extended the maturity date of a note payable to a director of the Company in the principal amount of $100,000 from July 20, 2016 to January 24, 2017. In connection with the extension, the Company issued to the holder an immediately vested, three-year warrant to purchase 50,000 shares of common stock at an exercise price of $0.75 per share. In addition, in connection with the terms of the original note, because the principal amount of the note was not repaid by July 20, 2016, the Company issued to the holder an immediately vested, three-year warrant to purchase 10,000 shares of common stock at an exercise price of $0.75 per share and shall pay a cash penalty of $5,000 to the holder.
On July 22, 2016, the Company extended the maturity date of convertible notes payable in the aggregate principal amount of $145,000 from July 24, 2016 to January 24, 2017. In connection with the extension, the Company issued immediately vested, three-year warrants to purchase an aggregate of 72,500 shares of common stock at an exercise price of $0.75 per share.
On August 10, 2016, the Company extended the maturity date of a note payable in the principal amount of $250,000 from June 30, 2016 to September 30, 2016. In connection with the extension, the Company issued to the holder 250,000 shares of immediately vested common stock.
On August 10, 2016, the Company extended the maturity date of a note payable in the principal amount of $250,000 from June 27, 2016 to September 26, 2016. In connection with the extension, the Company issued to the holder 250,000 shares of immediately vested common stock. The note will become payable in full in the event that the Company raises $2.5 million or more of funding in its private placement. Furthermore, in the event the Company raises $3.0 million or more of funding, the holder’s note issued in October 2015 in the original principal amount of $125,000 shall become payable in full.
On August 10, 2016, the Company extended the maturity date of a note payable in the principal amount of $250,000 from June 26, 2016 to September 26, 2016. In connection with the extension, the Company issued to the holder 250,000 shares of immediately vested common stock. The note will become payable in full in the event that the Company raises $2.5 million or more of funding in its private placement. Furthermore, in the event the Company raises $3.0 million or more of funding, the advance of $100,000 made to the Company by the investor in January 2015 shall become payable in full as well as at least $15,000 of interest.