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EX-32 - EXHIBIT 32 - GENEREX BIOTECHNOLOGY CORP | ex32.htm |
EX-31.2 - EXHIBIT 31.2 - GENEREX BIOTECHNOLOGY CORP | ex31_2.htm |
EX-31.1 - EXHIBIT 31.1 - GENEREX BIOTECHNOLOGY CORP | ex31_1.htm |
EX-21 - EXHIBIT 21 - GENEREX BIOTECHNOLOGY CORP | ex21.htm |
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: July 31, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: ________________ to _______________
Commission File No. 000-29169
Generex Biotechnology _Corporation
(Exact name of registrant as specified in its charter)
Delaware | 98-0178636 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
10102 USA Today Way, Miramar, Florida 33025
(Address of principal executive office)
Registrant's telephone number: (416) 364-2551
Title of each class | Trading Symbol | Name of each exchange on which traded |
Common voting shares | GNBT | OTC |
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act:
☐ Yes ☒ NO
Indicate by check mark if the registrant not required to file reports pursuant to Section 13 or Section 15 (d) of the Act:
☐ Yes ☒ NO
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ YES ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒ YES ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ YES ☒ NO
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
Non Affiliate Float | Closing price as of January 31, 2020 | Market Capitalization |
49,829,332 | $0.5380 | $26,808,181 |
Indicate the number of the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of Date | Outstanding |
November 5, 2020 | 107,949,089 |
1 |
Table of Contents
PART I | 4 |
Item 1. Business. | 4 |
Corporate History | 6 |
Business Overview | 6 |
Historical Business | 9 |
Treatment of Legacy Assets | 9 |
NuGenerex Therapeutics | 9 |
NuGenerex Immuno-Oncology (NGIO, formerly Antigen Express) | 12 |
NuGenerex Diagnostics (NGDx, formerly Hema Diagnostic Systems LLC) | 14 |
The “New” Generex & The NuGenerex Family of Subsidiary Companies | 16 |
NuGenerex Regenerative Medicine | 17 |
Regentys Corporation | 19 |
NuGenerex Surgical Products | 21 |
NuGenerex Health, LLC | 22 |
NuGenerex Health HMO | 23 |
Contemplated Product Positioning and Plan Design | 23 |
GOVERNMENT REGULATION | 24 |
MARKETING AND DISTRIBUTION | 31 |
Manufacturing | 32 |
RAW MATERIAL SUPPLIES | 33 |
Intellectual Property | 34 |
Competition | 37 |
Environmental Compliance | 40 |
Research and Development Expenditures | 40 |
Employees | 40 |
Item 1A. Risk Factors. | 41 |
Item 1B. Unresolved Staff Comments. | 64 |
Item 2. Properties. | 64 |
Item 3. Legal Proceedings. | 65 |
Item 4. Mine Safety Disclosures. | 67 |
PART II | 68 |
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | 68 |
Market Information | 68 |
Holders | 69 |
Dividends | 69 |
Equity Compensation Plan Information | 69 |
Recent sales of unregistered securities; use of proceeds from registered securities | 69 |
Purchases of equity securities by the issuer and affiliated purchasers. | 78 |
Item 6. Selected Financial Data. | 78 |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 78 |
Executive Summary | 80 |
Financial Condition, Liquidity and Resources | 83 |
Funding Requirements and Commitments | 87 |
Off-Balance Sheet Arrangements | 90 |
Tabular Disclosure of Contractual Obligations | 90 |
Accounting for Research and Development Projects | |
Critical Accounting Policies | 90 |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. | 91 |
Item 8. Financial Statements and Supplementary Data. | 92 |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 138 |
Item 9A. Controls and Procedures. | 138 |
Preliminary Note | 138 |
Evaluation of Disclosure Controls and Procedures | 138 |
Changes in Internal Control over Financial Reporting | |
Management’s Report on Internal Control over Financial Reporting | 139 |
PART III | 141 |
Item 10. Directors, Executive Officers and Corporate Governance | 141 |
Family Relationships | 145 |
Involvement in Certain Legal Proceedings | 145 |
Code of Ethics | |
Corporate Governance | |
Item 11. Executive Compensation. | 147 |
Compensation, Discussion & Analysis | 147 |
Summary Compensation Table | 150 |
Outstanding Equity Awards at Fiscal Year-End | 151 |
OUTSTANDING EQUITY AWARDS AT JULY 31, 2020 | 151 |
Director Compensation | 152 |
DIRECTOR COMPENSATION | 152 |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 153 |
Security Ownership of certain Beneficial Holders and Management | 153 |
Item 13. Certain Relationships and Related Transactions, and Director Independence. | 154 |
Item 14. Principal Accounting Fees and Services. | 155 |
PART IV | 155 |
Item 15. Exhibits, Financial Statement Schedules. | 155 |
2 |
As used herein, the terms the “Company,” “Generex,” “we,” “us,” or “our” refer to Generex Biotechnology Corporation, a Delaware corporation.
Forward-Looking Statements
Certain matters in this Annual Report on Form 10-K, including, without limitation, certain matters discussed under Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this Annual Report that address activities, events or developments that we expect or anticipate will or may occur in the future, including such matters as our projections, future capital expenditures, business strategy, competitive strengths, goals, expansion, market and industry developments and the growth of our businesses and operations, are forward-looking statements. These statements can be identified by introductory words such as "expects," “anticipates,” "plans," "intends," "believes," "will," "estimates," "projects" or words of similar meaning, and by the fact that they do not relate strictly to historical or current facts. Our forward-looking statements address, among other things:
• | our expectations of future revenues, expenditures, capital or other funding requirements, |
• | the adequacy of our cash and working capital to fund present and planned operations and growth, |
• | the timing of our expansion plans; |
• | our expectations concerning product candidates for our technologies; |
• | our expectations concerning existing or potential development and license agreements for third-party collaborations and joint ventures; |
• | our expectations of when different phases of clinical activity may commence and conclude; |
• | the effect of governmental regulations generally; |
• | our expectations of when regulatory submissions may be filed or when regulatory approvals may be received; and; |
• | our expectations of when commercial sales of our products may commence and when actual revenue from the product sales may be received. |
Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions that we might make or by known or unknown risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in our forward-looking statements. Among the factors that could affect future results are:
• | the inherent uncertainties of product development based on our new and as yet not fully proven technologies; |
• | the risks and uncertainties regarding the actual effect on humans of seemingly safe and efficacious formulations and treatments when tested clinically; |
• | the inherent uncertainties associated with clinical trials of product candidates; |
• | the inherent uncertainties associated with the process of obtaining regulatory approval to market product candidates; |
• | the inherent uncertainties associated with commercialization of products that have received regulatory approval; |
• | economic and industry conditions generally and in our specific markets. |
• | the volatility of, and decline in, our stock price; and |
• | our current lack of financing for operations and our ability to obtain the necessary financing to fund our operations and effect our strategic development plan. |
Additional factors that could affect future results are set forth below under Item 1A. Risk Factors. We caution investors that the forward-looking statements contained in this Annual Report must be interpreted and understood in light of conditions and circumstances that exist as of the date of this Annual Report. We expressly disclaim any obligation or undertaking to update or revise forward-looking statements made in this Annual Report to reflect any changes in management's expectations resulting from future events or changes in the conditions or circumstances upon which such expectations are based.
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PART I
Item 1. Business.
Corporate History
Generex Biotechnology Corporation (the “Company,” “Generex,” “we,” “us” or “our”) is based in Miramar, Florida, with offices in Dallas, Texas, Toronto, Canada and Wellesley, Massachusetts. The Company was originally incorporated in the state of Delaware on September 4, 1997, for the purpose of acquiring Generex Pharmaceuticals Inc., a Canadian (Province of Ontario) corporation formed in November 1995 to engage in pharmaceutical and biotechnological research and development and other activities. The Company’s acquisition of Generex Pharmaceuticals Inc. was completed in October 1997 in a transaction in which the holders of all outstanding shares of Generex Pharmaceuticals Inc. exchanged their shares for shares of Generex common stock.
In January 1998, Generex participated in a “reverse acquisition” with Green Mt. P.S., Inc, (“Green Mt.”), an inactive Idaho corporation formed in 1983. As a result of this transaction, the shareholders of Generex (the former shareholders of Generex Pharmaceuticals Inc.) acquired a majority (approximately 90%) of the outstanding capital stock of Green Mt., and Generex became a wholly-owned subsidiary of Green Mt.; Green Mt. changed its corporate name to Generex Biotechnology Corporation ("Generex Idaho"), and Generex changed its corporate name to GBC - Delaware, Inc. Because the reverse acquisition resulted in GBC - Delaware, Inc. shareholders (formally Generex shareholders) becoming the majority holders of Generex Idaho, GBC Delaware, Inc. was treated as the acquiring corporation in the transaction for accounting purposes. Thus, our, GBC - Delaware, Inc. (formally Generex), historical financial statements, which essentially represented the historical financial statements of Generex Pharmaceuticals Inc., were deemed to be the historical financial statements of Generex Idaho.
In April 1999, we completed a reorganization in which GBC - Delaware, Inc. merged with Generex Idaho. In this transaction, all outstanding shares of Generex Idaho were converted into shares of GBC - Delaware, Inc.; Generex Idaho ceased to exist as a separate entity, and we, GBC - Delaware, Inc., changed our corporate name back to "Generex Biotechnology Corporation." This reorganization did not result in any material change in our historical financial statements or current financial reporting.
Following our reorganization in 1999, Generex Pharmaceuticals Inc., which was incorporated in Ontario, Canada, remained as our wholly-owned subsidiary. All of our Canadian operations are performed by Generex Pharmaceuticals Inc.; Generex Pharmaceuticals Inc. is the 100% owner of 1097346 Ontario Inc., which was also incorporated in Ontario, Canada. In August 2003, we acquired NuGenerex Immuno-Oncology, Inc., a Delaware corporation formerly named Antigen Express, Inc. (“NGIO”). NGIO is engaged in the research and development of technologies and immunomedicines for the treatment of malignant, infectious, autoimmune and allergic diseases. NGIO also does business under the name NuGenerex Immuno-Oncology. On February 25, 2019 Generex issued a dividend of NGIO common stock to Generex shareholders in the amount of 1 share of NGIO for every 4 shares of Generex common stock. On February 24, 2020 Generex issued a dividend of NGIO common stock to Generex shareholders in the amount of 2 shares of NGIO common stock for every 5 shares of Generex common stock. Generex still maintains majority control of NGIO.
We formed Generex (Bermuda), Inc., which is organized in Bermuda, in January 2001 in connection with a joint venture with Elan International Services, Ltd., a wholly-owned subsidiary of Elan Corporation, plc, (“Elan”) to pursue the application of certain of our and Elan's drug delivery technologies, including our platform technology for the buccal delivery of pharmaceutical products. In December 2004, we and Elan agreed to terminate the joint venture. Under the termination agreement, we retained all of our intellectual property rights and obtained full ownership of Generex (Bermuda), Inc.; Generex (Bermuda), Inc. does not currently conduct any business activities. We have additional subsidiaries incorporated in the U.S. and Canada which are dormant and do not carry on any business activities.
On January 18, 2017, we acquired a majority of the equity interests in Hema Diagnostic Systems, LLC (“HDS”). In December 2018, we acquired the remaining interest in HDS. The company, now a wholly-owned subsidiary of Generex, has been renamed NuGenerex Diagnostics, LLC (NGDx), and is managed by President Harold Haines, PhD.
On October 3, 2018, our wholly owned subsidiary, NuGenerex Distribution Solutions, LLC (“NDS”), entered into an asset purchase agreement (the “Veneto Asset Purchase Agreement”) with Veneto Holdings, L.L.C. (“Veneto”), pursuant to which NDS purchased certain assets of Veneto and its subsidiaries.
Effective October 3, 2018, NDS assigned the Veneto Asset Purchase Agreement to NuGenerex Distribution Solutions 2, LLC. The sole member of NuGenerex Distribution Solutions 2, LLC is NuGenerex Management Services, Inc., a wholly-owned subsidiary of Generex Biotechnology Corporation.
On October 3, 2018, we acquired certain assets from Veneto primarily consisting of the operating assets of (a) system dispensing pharmacies, (b) a central adjudicating pharmacy, (c) a wholesale pharmaceutical purchasing company, and (d) an in-network laboratory.
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On November 1, 2018, we consummated the acquisition of Veneto assets (the “Second Closing Assets”), consisting primarily of Veneto’s management services organization business and other assets. The aggregate price for the First Closing Assets and the Second Closing Assets was $30,000,000. We issued a promissory note in the principal amount of $35,000,000 (the “New Note”) consisting of the $30,000,000 purchase price and a $5,000,000 original issue discount, as the sole consideration payable on the Second Closing Date. On January 15, 2019, the parties entered into an amendment to the Asset Purchase Agreement restructuring payment of the New Note.
On March 28, 2019, the Company entered into an amendment, a “Restructuring Agreement” with Veneto and the equity owners of Veneto to restructure the payment of the New Note that provided, in lieu of any cash payments, the Company delivered on May 23, 2019 11,760,000 shares of our common stock; plus an aggregate 5,500,000 shares of the common stock of our subsidiary, NGIO. The Veneto assets acquired by Generex included management services operations, systems, facilities, and other services. The 8,400,000 Generex Shares were delivered on May 23, 2019 provided by the Friends of Generex Trust, but due to the current and ongoing litigation with the Veneto Members, the NGIO Shares have not been delivered, but such shares were also provided by the Friends of the Generex Trust. The shares provided by the Friends of Generex Trust were already issued and outstanding and did not result in any expense of the Company. Since these shares were transferred by an existing shareholder, the value of the shares provided by the Friends of the Generex Trust was reflected in the financial statements as an addition to contributed (paid-in) capital. The provided by the Friends of Generex Trust were already issued and outstanding and did not result in any expense of the Company. Since these shares were transferred by a shareholder to settle an obligation of the Company, the value of the shares provided by the Friends of the Generex Trust to settle the debt was reflected in the financial statements as an additional to contributed (paid-in) capital (the “Trust Shares”).
On January 7, 2019, we acquired a majority interest in Regentys Corporation for an aggregate of $15,000,000, among which $400,000 was paid in cash and the remainder was paid by the issuance of a promissory note with a fair value of $14,342,414 for a total net purchase price of $14,742,414. The total fair value of the assets acquired totaled $907,883 and goodwill of $13,834,581. Installments payable under the note were tied to specific business development objectives and dates. As of July 31, 2020, an additional $1,168,265 of principal was paid against the note, for a total of $1,568,265 in total payments. Regentys is developing a non-surgical treatment for inflammatory bowel diseases such as ulcerative colitis and Crohn’s disease.
On January 7, 2019, we acquired a majority interest in Olaregen Therapeutix Inc. for an aggregate of $12,000,000, among which $400,000 was paid in cash and the remainder was paid by the issuance of a promissory note with a fair value of $11,472,334 for a total net purchase price of $11,872,663. The total fair value of the assets acquired totaled $2,461,439 and goodwill of $9,411,224. $1,766,800 principal was paid against the note as of July 31, 2020 in addition to the $400,000 initial payment. Olaregen is launching an FDA-510(k) cleared wound care product.
On May 10, 2019, we acquired from a third party the outstanding Series A Preferred Stock in Olaregen in exchange for 4 million shares of the Company’s common stock, plus the issuance of a $2 million promissory note increasing our interest in Olaregen to approximately 62% of Olaregen’s outstanding voting shares, and an additional 900,000 shares. On August 16, 2019 further increased our interest in Olaregen to approximately 76% and on February 14, 2020 acquired the remaining interests in Olaregen and Generex owns 100% of the outstanding shares of Olaregen.
On August 1, 2019, as amended on October 10, 2019, the Company, through its wholly owned subsidiary NDS, closed on Asset Purchase Agreements (the “APAs”) for the purchase of substantially all the operating assets of MediSource Partners, LLC (“MediSource”) and Pantheon Medical – Foot & Ankle, LLC (“Pantheon”). Pantheon Medical is a manufacturer of orthopedic foot & ankle surgery kits that offer physician friendly “all-in-one,” integrated surgical kits that include plates, screws, and tools required for orthopedic surgeons and podiatrists conducting foot and ankle surgeries. Generex will issue 400,000 shares of common stock in exchange for the Pantheon assets, and 560,000 shares of common stock in exchange for the MediSource assets, plus additional amounts paid as an earn-out based upon Pantheon and Medisource exceeding specified EBIDTA earnings. At closing, the Company also entered into an 18-month consulting agreement with NDS (the “Travis Bird Consulting Agreement”). As compensation, Travis Bird was to receive $250,000 of Generex common stock, as well as monthly payments equaling $97,222. The monthly payments were to be paid from any available cash from the operations of Pantheon and MediSource. Any remaining balance of such monthly payments was to consist of common stock. The agreement specified the shares are to be freely tradeable. In addition, Travis Bird will agree to fully assign and exchange any ownership rights in any new technology he develops with the Company, in exchange for a payment of $500,000 in value of common stock for each completed item submitted to the FDA. Travis Bird terminated the Consulting Agreement on July 20, 2020 and Travis Bird is no longer entitled to further commissions from future net sales. For the year ended July 31, 2020, Travis earned $1,404,915 under this agreement and has been paid $773,366, leaving a balance of $631,549.
On August 16, 2019, the Company entered into a Share Exchange Agreement to purchase an additional 900,000 shares of common stock in Olaregen from other shareholders of Olaregen in exchange for 1,905,912 shares of Generex common stock and 476,478 shares of NGIO common stock which increased our interest in Olaregen to approximately 77% of the Olaregen’s outstanding voting shares. In September 2019, the Company converted all of the Series A Preferred Stock of Olaregen into common stock of Olaregen.
On November 22, 2019, effective as of November 15, 2019, the Company entered into a Stock Purchase Agreement for the purchase of 51% of the outstanding capital stock of GH Care, Inc. DBA ALTuCELL, Inc.(“ALTuCELL”). Under the SPA, in exchange for the ALTuCELL Stock, Generex will issue to ALTuCELL 1,600,000 shares of Generex common stock with a down round provision and price floor of $1.25 per share. The Company will also pay $2.5 million in cash of which $112,000 has already been paid. In addition to stock and cash at closing, Generex has agreed to pay up to an aggregate of $3,500,000 to ALTuCell upon ALTuCell’s attainment of certain milestones.
On January 27, 2020, Generex and ALTuCELL executed an Amendment Agreement to the SPA (the “Amendment”). Under the Amendment, closing will occur within 30 days of the full execution of the Amendment, subject to the conditions to closing under the SPA. The parties agreed that Generex will pay the $2.5 million closing payment from certain specifically identified sources. If ALTuCELL chooses to cancel the transaction as a result of delays due to forces beyond the control of Generex, including government regulatory delays or extended reviews by regulators that delay approvals of corporate actions, or by natural disasters or other unforeseen events beyond the control of Generex, ALTuCELL, agrees to return all payments made by Generex. As of July 31, 2020, Generex has advanced $212,000 to ALTuCELL, recorded as a component of other current assets. As of the date of this filing, the acquisition did not close, however, both companies are negotiating the terms of the extension.
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On February 14, 2020, Olaregen exchanged all of its outstanding shares for 5,950,000 shares of Generex common stock and 2,765,000 shares of NGIO common stock. After this transaction, Generex owns 100% of the outstanding shares of Olaregen.
Business Overview
Our management team has embarked upon a complete strategic reorganization and transformation of the entire corporate structure, leveraging our legacy assets which have applied over $400 million dollars in developmental activities over the years, providing the Company with net operating loss (“NOL”) carryforwards from both United States and Canadian sources. As of July 31, 2020, the Company has significant NOL carryforwards that are described in detail in the Notes to our Financial Statements included in this prospectus. We have also formulated an acquisition strategy and identified targets to build a specialized healthcare platform with both scalability and the ability to leverage across the organization in an effort to achieve higher profit margins.
Since the management team has taken over in January 2017, Generex has been reorganized as a strategic, diversified life science holding company that is actively involved in building a modern organizational platform for the financing, development, commercialization, and distribution of promising devices, biologics, therapeutic, and diagnostic products to improve human health and return value to its investors. As the foundation for the reorganization, we are acquiring operating companies that provide multiple and significant revenue streams through delivery of patient-focused healthcare products and services, including specialty pharmacy, orthopedic implants, surgical supplies, biologics, medical devices, and regenerative medicines. These foundational acquisitions service unique market channels that provide end-to-end healthcare solutions in partnerships with patients, physicians, health systems, and payors. The synergistic business models of the combined organization offer cross channel sales opportunities for rapid growth, with significant revenues and profits projected going forward.
Details of the Generex business strategy are provided following the discussion of the Generex historical business and our legacy assets.
Historical Business
Historically, we have been a research and development company focused on the commercialization of Oral-lyn buccal insulin spray for diabetes. Additionally, through our wholly-owned subsidiary NGIO, we have a deep intellectual property portfolio of immunotherapy assets relating to the “Ii-Key” technology that activates the immune response for the treatment of cancer and infectious diseases. We completed a Phase IIb clinical trial of AE37 immunotherapeutic peptide vaccine with the Ii-Key technology in over 300 women with breast cancer on November 15, 2019.
In 2017, we acquired HDS (now NuGenerex Diagnostics) and their diagnostic product portfolio of rapid point-of-care EXPRESS test kits and cassettes for infectious disease testing.
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Recent Developments
Acquisition of Control Stake of ALTuCELL
On November 22, 2019, we entered into a stock purchase agreement with ALTuCELL, Inc (“ALTuCELL”), a clinical-stage development company with a broad intellectual property portfolio focused on cell encapsulation technology for the treatment of diabetes, autoimmune diseases, and inflammatory conditions to purchase 51% of ALTuCELL’s equity in exchange for $2,500,000 in cash, $4,000,000 in the Company’s common stock price at $2.50/share, and an opportunity to earn an additional $3.5 million in milestone payments based on achieving clinical and business development milestones.
On January 27, 2020, we and ALTuCell executed an Amendment Agreement to the stock purchase agreement (the “Amendment”). Under the Amendment, the closing should occur within 30 days of the full execution of the Amendment, subject to the conditions to closing under the stock purchase agreement. The parties agreed that Generex will pay the $2.5 million closing payment from certain specifically identified sources.
If the closing is not completed within 30 days of execution of the Amendment, the stock purchase agreement would lapse unless the parties agree in writing to continue the transaction. Under the Amendment, Generex agreed to fund the ongoing operations of ALTuCELL during the extension period with a payment of $100,000, which was paid, within 2 business days of signing the amendment. If ALTuCELL chooses to cancel the transaction as a result of delays due to forces beyond the control of Generex, including government regulatory delays or extended reviews by regulators that delay approvals of corporate actions, or by natural disasters or other unforeseen events beyond the control of Generex, ALTuCELL agrees to return all payments made by Generex. As of the date of this filing, the acquisition did not close, however, both companies are negotiating the terms of the extension.
COVID-19 Collaboration Agreement
On February 28, 2020, Generex entered into a Collaboration Agreement (the “COVID-19 Collaboration Agreement”) with Beijing Zhonghua Investment Fund Management Co., LTD and Sinotek-Advocates International Industry Development (Shenzhen) Co., Ltd. (an affiliate of China Technology Exchange) (the “CTE Parties”), to develop a COVID-19 vaccine using the Ii-Key Peptide vaccine technology of Generex’s majority owned subsidiary, NuGenerex Immuno-Oncology, Inc. (“NGIO”). Under the COVID-19 Collaboration Agreement, we will make the Ii-Key Peptide vaccine technology available to the CTE Parties. The CTE Parties will provide facilities and personnel for the development of the COVID-19 vaccine under Generex and NGIO technical guidance. The development will include synthesis, analysis and human trials through Phase III, if warranted, in China. The CTE Parties will have exclusive rights to use and commercialize the COVID-19 technology and products in China.
The CTE Parties have agreed to set-aside $1,000,000 for expenses during development and human clinical trials. If development and testing are successful, the parties will enter into further collaboration and technology transfer agreements.
The CTE Parties have not consummated the agreement by failing to provide the $1,000,000 payment.
Other Research and Development Agreements
On March 3, 2020, Generex entered into a Master Services Agreement and Statement of Work Agreement with EpiVax, Inc. (“EpiVax”). The agreement provides for EpiVax to use its proprietary epitope prediction software in the identification, development, and transfer of a potential vaccine for COVID-19 based upon NGIO’s Ii-Key vaccine technology. Generex and NGIO will own the intellectual property generated by EpiVax’s work.
As compensation, Generex will pay the following to EpiVax:
• | Fee for Work Plan Completion: $150,000 | |
• | Technology Access Fee: $150,000 | |
• | Yearly renewal Fee: $25,000 | |
• | A royalty of 20% of payments received for the commercial sale of any product formulation which incorporates NuGenerex Ii-Key technology and EpiVax IP. |
During the fiscal year ended July 31, 2020, the Company incurred $300,000 under this agreement and paid $150,000, leaving a balance of $150,000.
On June 2, 2020, the Company entered into a Laboratory Services Agreement and Statement of Work Agreement with Cellular Technology Limited (“CTL”). The agreement calls for CTL to provide certain laboratory testing and analysis. These services provided by CTL to Generex are part of the development of a potential vaccine for COVID-19 based upon NGIO Ii-Key vaccine technology. NGIO is a majority owned subsidiary of Generex. Generex and NGIO will own the intellectual property generated by CTL’s work.
Pursuant to this agreement, Generex will pay to CTL a fee for work plan completion of $939,478. During the fiscal year ended July 31, 2020, $4,697 has been incurred under this agreement.
Chinese Centre for Disease Control Agreement
On October 30, 2020, Generex signed a Framework Agreement on Cooperative Development of Coronavirus Peptide Vaccine (the “Agreement”) with Beijing Youfeng International Consulting Co., Ltd, Chinese Centre for Disease Control and Prevention National Institute for Viral Disease Control and Prevention (NIVDC) and Beijing Guoxin Haixiang Equity Investment Partnership (Limited Partnership) (collectively referred to as “China Partners”) to jointly develop and industrialize the Generex Ii-Key-SARS-CoV-2 coronavirus peptide vaccine (the “Vaccine”) in the People’s Republic of China (“China”). The Agreement, among other things, consists of the China Partners providing 100% funding for the clinical development, manufacturing and commercial registration of the Vaccine for China and paying Generex fees that shall be negotiated and agreed upon in subsequent agreements.
Private Placement of Common Stock
On August 4, 2020, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Anson Investments Master Fund LP (“Anson Master Fund”), Anson East Master Fund LP (“Anson East Master Fund”) and L1 Capital Global Opportunities Master Fund LP (“L1 Capital Master Fund” and together with Anson Master Fund and Anson East Master Fund, the “Buyers”), pursuant to which we sold and issued to the Buyers an aggregate of 5,102,040 shares of the Company’s common stock, par value $0.001 per share, at an aggregate price of $2,000,000 (the “Private Placement”).
Pursuant to the Securities Purchase Agreement, the Company issued to the Buyers (i) Series A Warrants to purchase 5,102,040 shares of Common Stock in the aggregate (the “Series A Warrants”) with an initial exercise price equal to $0.392 per share (the “Series A/B Exercise Price”), (ii) Series B Warrants to initially purchase 15,306,122 shares of Common Stock in the aggregate (the “Series B Warrants”) with an initial exercise price equal to the Series A/B Exercise Price; (iii) Series C Warrants to initially purchase 10,204,080 shares of Common Stock (the “Series C Warrants”) at an initial exercise price equal to $0.539 per share; and (iv) Series D Warrants to initially purchase zero shares of common stock (which increases on predetermined reset dates if the Company’s stock price falls below the closing date price or a reset price on a previous reset date) with an exercise price of $0.001 per share (the “Series D Warrants” and together with the Series A Warrants, the Series B Warrants and the Series C Warrants, the “Warrants”) at an exercise price equal to $0.001 per share, in each case, subject to adjustment and beneficial ownership limitations set forth therein.
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Discover- Private Financing
On December 9, 2019, we entered into a purchase agreement with Discover Growth Fund LLC (“Discover”), pursuant to which we issued and sold to Discover an original issue discount convertible note (the “Discover Note”) in the principal amount of $2,200,000, for a purchase price of $2,000,000. We also issued to Discover 100,000 shares of common stock. The Discover Note bears interest at the initial rate of 12% per year (subject to adjustment under certain conditions), payable upon repayment, maturity or conversion. The Company may prepay the Discover Note upon 30 trading days’ prior written notice, by paying 120% of the then-outstanding face value of the Discover Note. The Discover Note is convertible into common stock at the option of the holder commencing on the earlier of six months after the issuance date or the effective date of the registration statement which register the resale of the shares issuable upon conversion of the Discover Note.
The number of shares issuable upon such conversion will be equal to the face value being converted divided by the conversion price. The conversion price was initially equal to 95% of the average of the 5 lowest individual daily weighted daily volume weighted average prices of the common stock during the period beginning on the issuance date and ending on the maturity date), less $0.05 per share, subject to adjustment. As a result of the trigger event that occurred under the Discover Note, as discussed below, this 95% amount has been reduced to 80%.
Because the conversion price, as defined under the Discover Note, cannot be determined prior to the maturity date, such conversion price may not be determinable at the time of a conversion by the holder. The number of conversion shares initially issued upon such a conversion will thus be based on an estimated conversion price. In the event the market price of our common stock subsequently falls, resulting in a lower actual conversion price than such estimated conversion price, the holder will be entitled (upon notice to the Company) to additional shares of common stock for any conversion effected under such lower estimated conversion price. This may result in substantial dilution to our stockholders.
The Discover Note is also subject to conversion at the option of the Company, subject to certain conditions.
We may not issue shares upon conversion of the Discover Note to the extent such issuance would result in the holder beneficially owning more than 4.99% of our outstanding common stock.
The Company will have the option, within one trading day of the effectiveness of the registration statement for the resale of the shares issuable upon conversion of the Discover Note being declared effective, to sell to Discover an additional original issue discount note in the principal amount of $275,000, for a purchase price of $250,000.
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The Company was required to file a registration statement for the shares issuable upon conversion of the Discover Note within 30 days of execution of the Discover Note and the Company failed to comply with this requirement in a timely fashion. This failure constitutes a “trigger event” under the Discover Note, as a result of which the conversion price has been reduced, as discussed above, and the interest rate has increased to 22%.
On February 18, 2020, Discover brought a legal action against us in connection with the Discover Note. See “Legal Proceedings.”
Treatment of Legacy Assets
Generex and its subsidiary companies have extensive patent portfolios, with intellectual property for composition of matter, formulation, design, and use in a number of therapeutic areas, across multiple indications. As described, we plan to build our legacy assets with the ultimate goal to spin-out such assets at the appropriate time, which have been incorporated into NuGenerex subsidiary companies in an effort to unlock the potential unrealized value of the intellectual property and commercial opportunities for these development companies in major markets for immuno-oncology, diabetes, and infectious disease testing:
• | NuGenerex Therapeutics: Oral-lyn (Buccal Insulin) and RapidMist Buccal delivery technology. | |
• | NuGenerex Immuno-Oncology: Phase II AE37 + Keytruda in TNBC; Ii-Key, Licensing, Partnerships, investor dividend paid (1:4) for spin-out. | |
• | NuGenerex Diagnostics: NGDx Express II rapid diagnostic tests for infectious disease. |
We believe that these legacy diagnostics, diabetes and cancer assets are may have significant value which is not being recognized due to missteps in the clinical development process by previous management, resulting inability to raise capital necessary to fund further development. We think the products and IP portfolio retain significant value. A recently signed co-development deal with a major pharmaceutical company for AE37 in triple negative breast cancer, and a licensing deal in China for AE37 in prostate cancer illustrate the potential for AE37 immunotherapeutic vaccine. Additionally, Oral-lyn has been reformulated to enter clinical trials for Type II diabetes. The HDS EXPRESS diagnostic technology has been expanded with the new, patent-pending EXPRESS II technology and a new product pipeline. We filled our first international commercial order for 40,000 units of its NGDx -Malaria PF/PV Cassette Test Kit to Imres, BV, a Netherlands-based medical distribution company, and were recently granted a CE Mark Certification under the European Medical Devices Directive (MDD) for its The Express II Syphilis Treponemal Assay, a rapid point-of-care diagnostic assay for the detection of syphilis antibodies in primary and secondary syphilis. As part of the reorganization plan, we placed our legacy assets into separate subsidiaries under the NuGenerex family of companies, including NuGenerex Diagnostics, NGIO, and NuGenerex Therapeutics (Oral-Lyn and RapidMist buccal delivery technology). Our strategy is to spin out NGIO as a separately traded public company, to reignite the Oral-Lyn development program with a reformulated buccal insulin spray, and to build out the diagnostics business, as detailed in the following paragraphs, however there are no assurances that we will be able to accomplish our strategic objectives.
NuGenerex Therapeutics
NuGenerex Therapeutics houses the legacy diabetes assets, Oral-Lyn and RapidMist buccal delivery technology. We believe that our buccal delivery technology is a platform technology that has application to many large molecule drugs and designed to provide a convenient, non-invasive, accurate and cost-effective way to administer such drugs.
Buccal Delivery Technology and Products
Our buccal delivery technology involves the preparation of proprietary formulations in which an active pharmaceutical agent is placed in a solution with a combination of absorption enhancers and other excipients classified “generally recognized as safe” ("GRAS") by the U.S. Food and Drug Administration (“FDA”) when used in accordance with specified quantities and other limitations. The resulting formulations are aerosolized with a pharmaceutical grade chemical propellant and are administered to patients using our proprietary RapidMist™ brand metered dose inhaler. The device is a small, lightweight, hand-held, easy-to-use aerosol applicator comprised of a container for the formulation, a metered dose valve, an actuator and dust cap. Using the device, patients self-administer the formulations by spraying them into the mouth. The device contains multiple applications, the number being dependent, among other things, on the concentration of the formulation. Absorption of the pharmaceutical agent occurs in the buccal cavity, principally through the inner cheek walls. In clinical studies of our flagship oral insulin product Generex Oral-lyn™, insulin absorption in the buccal cavity has been shown to be efficacious and safe.
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Buccal Insulin Product – Generex Oral-Lyn™
Insulin is a hormone that is naturally secreted by the pancreas to regulate the level of glucose, a type of sugar, in the bloodstream. The term “diabetes” refers to a group of disorders that are characterized by the inability of the body to properly regulate blood glucose levels. When glucose is abundant, it is converted into fat and stored for use when food is not available. When glucose is not available from food, these facts are broken down into free fatty acids that stimulate glucose production. Insulin acts by stimulating the use of glucose as fuel and by inhibiting the production of glucose. In a healthy individual, a balance is maintained between insulin secretion and glucose metabolism.
According to the Centers for Disease Control (CDC), there are two major types of diabetes. Type 1 diabetes (juvenile onset diabetes or insulin dependent diabetes) refers to the condition where the pancreas produces little or no insulin. Type 1 diabetes accounts for 5-10 percent of diabetes cases (CDC). It often occurs in children and young adults. Type 1 diabetics must take daily insulin injections, typically three to five times per day, to regulate blood glucose levels. Generex Oral-lyn™ provides a needle-free means of delivering insulin for these patients.
According to the American Diabetes Association, in Type 2 diabetes (adult onset or non-insulin dependent diabetes mellitus), the body does not produce enough insulin, or cannot properly use the insulin produced. Type 2 diabetes is the most common form of the disease and accounts for 90-95 percent of diabetes cases, according to the American Diabetes Association. In addition to insulin therapy, Type 2 diabetics may take oral drugs that stimulate the production of insulin by the pancreas or that help the body to more effectively use insulin. Generex Oral-lyn™ provides a simple means of delivering needed insulin to this major cohort of individuals.
Studies in diabetes have identified a condition closely related to and preceding diabetes, called impaired glucose tolerance (IGT). People with IGT do not usually meet the criteria for the diagnosis of diabetes mellitus. They have normal fasting glucose levels but two hours after a meal their blood glucose level is far above normal. With the increase use of glucose tolerance tests the number of people diagnosed with this pre-diabetic condition is expanding exponentially. Per the 2017 Diabetes Atlas Update, published by the International Diabetes Federation (IDF), approximately 40 million people in the United States and more than 425 million people world-wide suffer from IGT. Generex Oral-lyn™ is an ideal solution to providing meal-time insulin to the millions of IGT sufferers. This therapeutic area is currently being investigated.
There is no known cure for diabetes. The IDF estimates that there are currently approximately 382 million diabetics worldwide per their 2017 Diabetes Atlas Update and is expected to affect over 592 million people by the year 2035. There are estimated to be over 37 million people suffering from diabetes in North America alone and diabetes is the second largest cause of death by disease in North America.
A substantial number of large molecule drugs (i.e., drugs composed of molecules with a high molecular weight and fairly complex and large spatial orientation) have been approved for sale in the United States or are presently undergoing clinical trials as part of the process to obtain such approval, including various proteins, peptides, monoclonal antibodies, hormones and vaccines. Unlike small molecule drugs, which generally can be administered by various methods, large molecule drugs historically have been administered predominately by injection. The principal reasons for this have been the vulnerability of large molecule drugs to digestion and the relatively large size of the molecule itself, which makes absorption into the blood stream through the skin inefficient or ineffective. The RapidMist technology provides a recognized and proven drug delivery system for the delivery of large molecules directly into the blood stream with the attendant advantages.
Oral-lyn History
In May 2005, we received approval from the Ecuadorian Ministry of Public Health for the commercial marketing and sale of Generex Oral-lyn™ for treatment of Type 1 and Type 2 diabetes. We have successfully completed the delivery and installation of a turnkey Generex Oral-lyn™ production operation at the facilities of PharmaBrand in Quito, Ecuador. The first commercial production run of Generex Oral-lyn™ in Ecuador was completed in May 2006. While Ecuador production capability may be sufficient to meet the needs of South America, it is believed to be insufficient for worldwide production for future commercial sales and clinical trials.
On the basis of the test results in Ecuador and other pre-clinical data, we made an Investigational New Drug (“IND”) submission to Health Canada (Canada's equivalent to the FDA) in July 1998, and received permission from the Canadian regulators to proceed with clinical trials in September 1998. We filed an IND application with the FDA in October 1998, and received FDA approval to proceed with human trials in November 1998.
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We began our clinical trial programs in Canada and the United States in January 1999. Between January 1999 and September 2000, we conducted clinical trials of our insulin formulation involving approximately 200 subjects with Type 1 and Type 2 diabetes and healthy volunteers. The study protocols in most trials involved administration of two different doses of our insulin formulation following either a liquid Sustacal meal or a standard meal challenge. The objective of these studies was to evaluate our insulin formulation's efficacy in controlling post-prandial (meal related) glucose levels. These trials demonstrated that our insulin formulation controlled post-prandial hyperglycemia in a manner comparable to injected insulin. In April 2003, a Phase II-B clinical trial protocol was approved in Canada. In September 2006, a Clinical Trial Application relating to our Generex Oral-lyn™ protocol for late-stage trials was approved by Health Canada. The FDA’s review period for the protocol lapsed without objection in July 2007.
In late April 2008, we initiated Phase III clinical trials in North America for Generex Oral-lyn™ with the first subject screening in Texas. Other clinical sites participating in the study were located in the United States (Texas, Maryland, Minnesota and California), Canada (Alberta), European Union (Romania, Poland and Bulgaria), Eastern Europe (Russia and Ukraine),) and Ecuador. Approximately 450 subjects were enrolled in the program at approximately 70 clinical sites around the world. The Phase III protocol called for a six-month trial with a six-month follow-up with the primary objective to compare the efficacy of Generex Oral-lyn™ and the RapidMist™ Diabetes Management System with that of standard regular injectable human insulin therapy as measured by HbA1c, in patients with Type-1 diabetes mellitus. The final subjects completed the trial in August 2011. After appropriate validation, the data from approximately 450 patients was tabulated, reviewed and analyzed. Those results from the Phase III trial along with a comprehensive review and supplemental analyses of approximately 40 prior Oral-lyn clinical studies were compiled and submitted to the FDA in late December 2011 in a comprehensive package including a composite metanalysis of all safety data. We do not currently plan to expend significant resources on additional clinical trials of Oral-lyn™ until after such time that we secure additional financing. However, we have undertaken a formulation enhancement project with the University Health Network at the University of Toronto and the University of Guelph, Ontario to increase the amount of insulin reaching the blood stream. We believe that the preliminary results from an animal study are encouraging,
In the past, we engaged a global clinical research organization to provide many study related site services, including initiation, communication with sites, project management and documentation; a global central lab service company to arrange for the logistics of kits and blood samples shipment and testing; an Internet-based clinical electronic data management company to assist us with global data entry, project management and data storage/processing of the Phase III clinical trial and regulatory processes. In the past, we have contracted with third-party manufacturers to produce sufficient quantities of the RapidMist™ components, the insulin, and the raw material excipients required for the production of clinical trial batches of Generex Oral-lyn™.
Future Plans
We have reformulated the original Oral-Lyn buccal insulin as a new patentable Oral-Lyn 2 that requires only 2 - 3 pre-prandial (before meal) sprays for the treatment of Type II diabetes. The reformulated Oral-lyn 2 was made possible by new techniques in protein chemistry and pharmaceutical formulation science, that with minimal changes in the production process and content of the components, allow the development of a new and improved, concentrated insulin formulation for improved diabetes management.
NuGenerex has engaged the University of Toronto’s Center for Molecular Design and Pre-formulations (CMDP) through the University Health Network with the goal of enhancing the Oral-lyn™ 2 formulation to make it more attractive to patients and prospective commercialization partners by increasing the bioavailability of insulin in the product and reducing the number of sprays required to achieve effective prandial metabolic control for patients with diabetes. Under the supervision of NuGenerex consultant Dr. Lakshmi P. Kotra, B.Pharm. (Hons), Ph.D., of CMDP, preliminary efforts succeeded in increasing the insulin concentration in the product by approximately 400 - 500% as confirmed by a variety of in vitro testing procedures, while preserving the solubility, stability, biologic activity, and potency of the insulin in the formulation.
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NuGenerex subsequently entered into a Research Services Agreement with the University of Guelph pursuant to which Dr. Dana Allen, DVM, MSc. and Dr. Ron Johnson, DVM, Ph.D. of the Ontario Veterinary College of the University of Guelph conducted a study of the relative bioavailability of the enhanced formulation in dogs in the University’s Comparative Clinical Research Facility. The University had previously conducted the studies of the original formulation of Generex Oral-lyn™ for proof of concept, safety, and toxicity.
In the new studies, the enhanced NuGenerex Oral-lyn 2 formulation was compared with the original formulation in a blinded, parallel controlled study involving fasted, awake, healthy mature beagle dogs. Each dog received three sprays of either the enhanced formulation or the original formulation. Each dog was observed with assessments of serum insulin and glucose measured over a two-hour period. There were no adverse events observed in any of the animals.
In the dogs given the enhanced Generex Oral-lyn formulation (5X), there was a greater than 20-fold increase in serum insulin at 15 minutes (excluding one dog who had little response at any time point; (with dog included it was greater than 5-fold)) and almost 500% greater absorption of insulin over the two-hour test period compared to dogs given the original formulation (1X). There was a 33% decrease in serum glucose at 30 minutes in dogs treated with the enhanced Generex Oral-lyn™ formulation, compared to a 12% increase in serum glucose in dogs treated with the original formulation.
The results of the dog studies coupled with the positive findings from the in vitro work provide support and confidence to move forward with the remaining clinical and regulatory work necessary to achieve FDA approval of the enhanced NuGenerex Oral-lyn formulation through a 505(b)2 NDA.
The combined results provide evidence that the enhanced NuGenerex Oral-lyn 2 will be able to be used by people with either type 1 or type 2 diabetes mellitus as a safe, simple, fast, flexible, and effective alternative to pre-prandial insulin injections with dosing of only two to four sprays required before meals.
The Oral-lyn Safety Database contains information on 1,496 subjects. Eight hundred sixty-nine (869) subjects were exposed to Oral-lyn, while 627 served as Control subjects and were exposed to commercially available oral antihyperglycemics, injected insulin, or Oral-lyn placebo. There were 695 subjects in pK/pD studies (368, Oral-lyn; 327, Control) and 801 subjects in efficacy trials (501, Oral-lyn; 300, Control).
Two hundred seventy-two (272) Oral-lyn subjects reported at least one adverse event (132 in pK/pD studies; 140 in efficacy studies) while 278 Control subjects reported at least one adverse event (111 in pK/pD studies; 167 in efficacy studies). With respect to adverse events by Maximum Severity there appeared to be no significant differences between Oral-lyn and the Control groups in either the Efficacy or the pK studies.
In summary, there appear to be no indications of any significant unexpected adverse events. The expected events of hypoesthesia oral, throat irritation, dry throat, and cough were for the most part mild and could be consistent with the Oral-lyn therapy especially during the learning phase of administration. There was an indication of overlap of some of these events with multiple event terms in the constellation of upper respiratory tract infection that appeared to be balanced across therapy groups.
Our strategy is to revitalize our diabetes program by advancing the reformulated buccal spray Oral-lyn 2 for the treatment of Type II diabetes, and to integrate Oral-Lyn 2 therapy into our end-to-end solution for disease management through our MSO model.
Beyond Oral-lyn 2 for Type II diabetes, we will advance the RapidMist buccal delivery technology with additional small and large molecule drugs which will benefit from an alternative route of administration.
NuGenerex Immuno-Oncology, Inc.
NuGenerex Immuno-Oncology is developing immunotherapeutic products and vaccines based on our proprietary, patented platform technology, Ii-Key. The Ii-Key is a peptide derived from the major histocompatibility complex (MHC) Class II associated invariant chain (Ii) that regulates the formation, trafficking, and antigen-presenting functions of MHC class II complexes, essential for the activation of T cells in the immune response. T cells recognize antigenic epitopes when they are 'presented' to them by specific molecules, termed (MHC) on the surface of infected or malignant cells. This interaction activates the T cells, stimulating a multicellular cascade of actions that eliminates the diseased cell and protects against future disease recurrence.
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When the Ii-Key peptide is linked to an antigenic epitope, it can bind to MHC Class II molecules, displacing resident antigens from the antigen binding groove, essentially 'hijacking' the MHC class II complex to present the Ii-Key epitope to selectively activate T-Cell Th1 responses, thereby increasing the intensity and duration of the immune response.
The patented NGIO Ii-Key technology uses synthetic peptides that mimic antigenic protein regions from a virus or tumor biomarker that are chemically linked to the 4-amino acid Ii-Key to ensure robust immune system activation. In particular, the Ii-Key ensures potent activation of CD4+ T cells, which in turn facilitates antibody production to ward off infection. This Ii-Key modification can be applied to any protein fragment of any pathogen to increase the potency of immune stimulation.
NGIO has developed a number of Ii-Key Hybrid peptides for the immunotherapeutic targeting of tumor associated antigens (TAAs) in cancer and for vaccines against infectious diseases.
Ii-Key hybrid peptides can also be used to selectively activate Th2 responses and thereby induce tolerance to antigens involved in harmful immune reactions, e.g. autoimmunity, allergy, and transplant rejection.
AE37 – Ii-Key/HER2/neu Hybrid Immunotherapeutic Vaccine
Our most advanced immunotherapy vaccine is AE37, an Ii-Key-Hybrid molecule that contains the HER2/neu antigenic peptide linked to the Ii-Key to enhance immune stimulation against HER2, which is expressed in numerous cancers, including breast, prostate, and bladder cancers. We have completed a Phase I clinical trial of AE37 in breast cancer: A phase Ib safety and immunology study of AE37 and GM-CSF in 16 breast cancer patients who had completed all first-line therapies and who were disease-free at the time of enrollment to the study (Holmes et al. Results of the first phase I clinical trial of the novel Ii-Key hybrid preventive HER-2/neu peptide (AE37) vaccine. J Clin Oncol 2008;26:3426-33). Furthermore, we completed a Phase IIb trial of AE37 in the prevention of cancer recurrence in women who were at high risk of recurrence after undergoing successful primary standard of care breast cancer therapies and were disease free at time of enrollment. The final results of the Phase IIb clinical trial of AE37 +/- GM-CSF vaccine for the prevention of recurrence of breast cancer have been published in the peer-reviewed journal, Breast Cancer Research & Treatment. In the AE37 arm of this trial, the investigators found that patients with advanced stage, HER2 under-expression, and TNBC may benefit from AE37 vaccination, and those with both advanced stage and HER2 under expression have a significant clinical benefit to AE37 vaccination, demonstrating earlier DFS plateau that was maintained for up to the ten years of follow-up.
Based on the results from this trial, NuGenerex has entered into a collaborative agreement with Merck Sharpe & Dohme B.V. (Merck) and the National Surgical Adjuvant Breast and Prostate Program (NSABP) to conduct a Phase II trial to evaluate the safety and efficacy of AE37 in combination with the anti-PD-1 therapy, KEYTRUDA (pembrolizumab) in patients with metastatic triple-negative breast cancer. The trial is scheduled to begin enrolling patients in the second quarter of 2019. As the clinical trial continues, NGIO will be obligated to pay NSABP, pursuant to the Clinical Trial Agreement, additional amounts during each completed phase in the increments and at the times set forth in the agreement up to $2,118,461 upon NASBP achieving certain milestones in four primary phases: Start-Up Activities, Accrual and Treatment Period, Follow-up Period and Primary Endpoint. As of July 31, 2020, we have incurred $591,459 of expenses against this commitment.
In addition to the breast cancer program, NuGenerex has conducted a Phase I clinical trial in prostate cancer, enrolling thirty-two HER-2/neu+, castrate-sensitive, and castrate-resistant prostate cancer patients to demonstrate safety and strong immunological response to AE37. We are advancing AE37 for the treatment of prostate cancer through a licensing and research agreement with Shenzhen BioScien Pharmaceuticals Co., Ltd., for which NuGenerex has received a $700,000 upfront payment which was recognized as revenue during the Company’s fiscal year ended July 31, 2018, with additional future milestone and royalty payments.
In exchange for exclusive rights to AE37 for prostate cancer in China, Shenzhen is financing and conducting the Phase II trials in the European Union and Phase III trials globally under ICH guidelines, with NuGenerex retaining the rights to all clinical data for regulatory submissions and commercialization in the rest of the world outside China.
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Future Plans
NGIO has been established to not only to advance the NuGenerex Immuno-Oncology core technology, but also to expand our portfolio in the field of immunotherapy and personalized medicine through partnerships and acquisitions. As part of our strategy, we are planning to spin-out NuGenerex Immuno-Oncology as a separate, publicly traded entity to unlock the true value of the Ii-Key technology for our stockholders as it creates a pure play in immunotherapy, which will foster investment and collaboration.
NGIO, has 750,000,000 authorized shares of common stock, 400,300,000 of which are outstanding, and prior to the stock dividends completed by Generex, were held by Generex. Generex has completed two stock dividends of such shares. On February 25, 2019, the Company distributed an aggregate of 15,089,271 (approximately 3.8%) of such shares to Generex stockholders. Pursuant to this dividend, our shareholders received 1 share of NGIO for every 4 shares of our stock held by the stockholders. On February 24, 2020, Generex completed a second distribution under which Generex distributed an aggregate of 19,026,262 NGIO shares to Generex shareholders. Under this second dividend, shareholders received 2 shares of NGIO stock for every 5 shares of Generex held by the shareholders. Generex’s current ownership of NGIO stock is 364,003,151 shares (approximately 90.93%). As of July 31, 2020, NGIO reported total assets of $84 consisting of cash. The Company believes that NGIO’s most valuable asset is its internally developed intellectual property. However, the internally developed intellectual property has not met the criteria for capitalization and accordingly, the Company has not recorded any such costs on its balance sheet.
Generex owns 364,003,151 of the aggregate 400,300,000 outstanding NGIO shares, or approximately 90.93% of NGIO’s outstanding shares. Generex may, in the future, sell some of its shares of NGIO, but Generex does not currently anticipate that its ownership level of NGIO will fall below 51%.
Additionally, we are in discussions with multiple academic institutions and biotechnology development companies to acquire products and technologies to augment the NGIO development pipeline and product portfolio.
Since the start of the COVID-19 pandemic, NGIO has been working to develop a peptide vaccine against the new coronavirus SARS-CoV-2 using the company’s proprietary and patented Ii-Key immune system activation technology. We have built our technology to assist third party groups and government agencies in their evaluation of potential vaccines against this pandemic SARS-CoV-2 virus.
Generex is working with our partners at EpiVax who have identified such protein fragments or epitopes to generate Ii-Key-SARS 2 peptide vaccines in collaboration with our peptide manufacturing partners. The peptides and Ii-Key are made from naturally occurring amino acids, ensuring an excellent safety profile for Ii-Key peptide vaccines. If NGIO is successful in obtaining government funding for the Ii-Key-SARS-CoV-2 vaccine program, the company plans to advance vaccine candidates through the clinical development process and BLA approval.
We plan to finalize the public offering and apply for listing to a national stock exchange for NGIO in 2020.
On March 12, 2020, NGIO filed a Form 10 with the Securities and Exchange Commission, which has become effective and NGIO is subject to Exchange Act reporting requirements. In the near future, NGIO intends to file an application to have its common stock listed on the NASDAQ Capital Market.
NuGenerex Diagnostics (formerly Hema Diagnostic Systems LLC)
Our wholly-owned subsidiary, NuGenerex Diagnostics is in the business of developing, manufacturing, and distributing rapid point-of-care in-vitro medical diagnostics for infectious diseases. These are commonly referred as rapid diagnostic tests (“RDTs”). We manufacture and sell RDTs based upon our own proprietary EXPRESS platforms as well as standard “cassette” devices.
Since its founding, NuGenerex Diagnostics has been developing and continues to develop an expanding line of RDTs for infectious disease diagnosis. These include products for human immunodeficiency virus (HIV), tuberculosis, malaria, hepatitis B, hepatitis C, syphilis, and others. These assays are all qualitative in nature and provide a simple positive or negative result directly at the clinical site. They can be used for definitive diagnosis, triage or in combination with other assays depending on which disease is being considered.
Each device incorporates a test strip containing reagent lines (stripes) that have been impregnated with specific antigens or antibodies that detect the target molecules specific to an infectious disease. The test strips are incorporated into our proprietary EXPRESS platforms which are easy-to-use and user-friendly diagnostic devices. There are two EXPRESS platforms; the EXPRESS and the EXPRESS II. The EXPRESS II is an upgraded version of the original EXPRESS and its use involves fewer operator steps, making it of higher clinical utility value. The Express II platform is designed to be used in a broad range of clinical and laboratory medical settings and for direct use by consumers in the home. It is simple to use, with fewer steps of operation than other rapid point-of-care tests. A single drop of blood taken by a simple finger stick is added directly to the device and the assay is activated by placing a pod of buffer solution onto the device. Results can be read in as early as 5 minutes, and no longer than 30 minutes. The accuracy of the Express II Syphilis Treponemal Assay is equal to or better than standard laboratory assays for syphilis antibodies with sensitivities and specificities of over 99%.
We believe that each system delivers its own advantages which enhance the use, application and performance of each diagnostic. This ease of use in the EXPRESS delivery systems is designed to ensure that our RDTs perform efficiently and effectively providing the most accurate and repeatable test results available while, at the same time, minimizing the transference of a potentially infected blood sample. The EXPRESS and cassette diagnostic kits for infectious disease testing are designed for use in resource-poor countries throughout the world, especially in sub-Saharan Africa, where the World Health Organization coordinates population screening for infectious diseases. We recently filled our first international commercial order for 40,000 units of its NGDx -Malaria PF/PV Cassette Test Kit to Imres, BV, a Netherlands-based medical distribution company.
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NuGenerex Diagnostics was recently granted a CE Mark Certification under the European Medical Devices Directive (MDD) for its The Express II Syphilis Treponemal Assay, a rapid point-of-care diagnostic assay for the detection of syphilis antibodies in primary and secondary syphilis. The assay is based upon NuGenerex Diagnostic’s innovative patent pending point-of-care diagnostic platform, the Express II. The accuracy of the Express II Syphilis Treponemal Assay is equal to or better than standard laboratory assays for syphilis antibodies with sensitivities and specificities of over 99%.
With the receipt of the CE Mark Certification for its rapid point-of-care Express II Syphilis Treponemal Assay, we believe NuGenerex Diagnostics is well situated to enter into this growing syphilis testing market and will now pursue marketing efforts in Europe and, in parallel, begin plans for the filing of a 510k application with the United States FDA for marketing clearance in the United States. To this end, NuGenerex Diagnostics is fully qualified as a diagnostic test developer and manufacturer under FDA Good Manufacturing Procedures (GMP) and is certified by the International Standards Organization for the manufacture of medical devices under ISO 13485-2016 regulations.
NuGenerex Diagnostics has just begun a new initiative which revolves around the development of quantitative rapid diagnostic assays. These assays allow laboratory personnel and clinicians to assess the absolute amount of specific target molecules in blood or serum samples as opposed to “yes” or “no” results of qualitative RDTs. The first assay to be developed is a multiplex biomarker test for the diagnosis of sepsis and the potential differentiation of infectious sepsis from systemic immune response syndrome (SIRS).
We maintain an FDA registered facility in Miramar, Florida and are certified under both ISO9001 and ISO13485 for the Design, Development, Production and Distribution of the in-vitro devices. Approval of our HIV rapid test has been issued by the United States Agency for International Development (USAID). Additionally, some of our products qualified for and carry the European Union “CE” Mark, which allows us to enter into CE Member countries subject to individual country requirements. Currently, we have two malaria rapid tests approved under World Health Organization (WHO) guidelines. This process allows expedited approval of rapid tests, reducing the current 24 -30-month process down to approximately 6-9 months. WHO approval is necessary for our products to be used in those countries which rely upon the expertise of the WHO, as well as for non-governmental organizations (“NGO”) funding for the purchase of diagnostic products. NuGenerex Diagnostics had planned to initiate the development of rapid testing for COVID-19, but due to lack of funding has not been able to initiate this development as planned.
We maintain current U.S. Certificates of Exportability that are issued by two FDA divisions-CBER and CDRH. CBER (Center for Biologicals Evaluation and Research) is the FDA regulatory division that oversees infectious disease diagnostic devices, including our HIV, Hepatitis B and Hepatitis C EXPRESS and EXPRESS II kits. The other division, Center for Devices and Radiological Health (CDRH), is responsible for the oversight of other HDS devices which include Tuberculosis, Syphilis, and the remaining product line. Our HDS facility maintains FDA Establishment Registration status and is in accord with GMP (Good Manufacturing Practice) as confirmed by the FDA.
We do not currently have FDA clearance to sell our products in the United States. We intend to submit selected devices to the FDA under a Pre-Market Approval Application (PMA) or through the 510K process. The 510K would require the appropriate regulatory administrative submissions as well as a limited scientific review by the FDA to determine completeness (acceptance and filing reviews); in-depth scientific, regulatory, and Quality System review by appropriate FDA personnel (substantive review); review and recommendation by the appropriate advisory committee (panel review); and final deliberations, documentation, and notification of the FDA decision. The PMA process is more extensive, requiring clinical trials to support the application. We expect to apply to the FDA for clearance of our first RDT (Express II Syphilis Treponemal Assay) for FDA 510K approval in early 2020. We anticipate the FDA process will be completed within 9 months after submission. During this timeline, we will be preparing documentation for additional rapid tests to undergo either the FDA PMA or 510k process.
Future Plans
We plan to use the NuGenerex Diagnostics subsidiary to build a multi-faceted diagnostics business focused on personalized medicine. To that end, we are exploring opportunities in multiplex assays for point-of-care infectious disease testing, pharmacogenomic testing for medication management, and biomarker analysis for personalized cancer treatment, including immunotherapy.
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The “New” Generex & The NuGenerex Family of Subsidiary Companies
Through reorganization and acquisition, we are building the family of NuGenerex subsidiary companies to provide end-to-end solutions for physicians and patients. To that end, our subsidiary NuGenerex Distribution Solutions, LLC (“NDS” or “Nugenerex”) has established a network of physicians, ancillary service providers, and patients through a Management Services Organization (“MSO”). As the MSO network currently consists of orthopedic surgeons and podiatrists, we have acquired and/or have agreements to acquire a number of revenue-generating companies that manufacture, market and distribute surgical and wound healing products. The acquisitions include Olaregen Therapeutix Inc. (“Olaregen”), a regenerative medicine company that has recently launched Excellagen wound conforming gel, which is FDA-cleared for the management of 17 wound healing indications, and Regentys Corporation (“Regentys”), a clinical-stage development company with regenerative medicine technology for the treatment of inflammatory bowel diseases Additionally, NDS will be launching a new software as a service (SaaS) business called DME-IQ that enables orthopedic surgeons to manage in house programs for orthopedic durable medical equipment, including inventory controls, insurance adjudication, and patient billing. We plan to roll out beyond our Arizona Startup of NugenHealth, LLC an RPM and CCM offering to our broader MSO network. Together, under the banner of these subsidiary companies offer a range of products and services to meet the needs of our proprietary distribution channels. Cross selling of products and services will enhance the revenue opportunities for the entire family of NuGenerex subsidiaries. Our management continues to search for value added services we can offer to physician relationships.
Our corporate mission is to provide end-to-end solutions for physicians and patients through geographic expansion of our MSO model, diversification of management services offerings, the establishment of an HMO and the proposed acquisition of an Accountable Care Organization for complex care.
The NuGenerex family of subsidiary companies plans to offer a broad range of products and services to meet the needs of physicians and patients, including:
• | NuGenerex Distribution Solutions: MSO, Ancillary Services, DME-IQ, and Surgical Products. |
• | NuGenerex Regenerative Medicine: Olaregen Therapeutix, Regentys. |
• | NuGenerex Surgical Products: Pantheon Medical and NuGenerex Surgical. |
• | NuGenerex Health: Ancillary health management services for chronic conditions – 65,000 + Patient population with Diabetes; Ophthalmology, Podiatry, Chronic Care Management (CCM). |
Services and Products
NuGenerex Distribution Solutions
We established NuGenerex Distribution Solutions in 2018 as the foundational piece in the transformation of the Company into an integrated healthcare holding company that provides end-to-end solutions for physicians and patients. Part of the NDS model includes a physician-owned MSO which is positioned to procure our new products and services as made available. NDS will also continue to provide inventory selection and management, as well as management services for legal and regulatory compliance, accounting, HR, IT and customer support services through the MSO networks.
We serve as the General Partner of the MSO which is 99% owned by over 50 entities. The entities included orthopedic and podiatric surgery centers with over 100 Physicians in 5 states and this MSO structure creates the foundation of our future alternative distribution channel with an open sales channel for products and services. The company plans to expand its geographic footprint nationally where appropriate.
NDS’s corporate mission benefits the medical community by providing cost effective ancillary services that ultimately deliver better outcomes and enhance the doctor-patient relationship. NDS will make available numerous best of class products and services using a patient centric approach that enables ancillary service providers, physicians, and patients to better coordinate healthcare services from diagnosis through treatment and follow-up.
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NDS Expansion
The NuGenerex MSO network has operated in five states and is configuring a roll out which will be compliant and reduce healthcare costs through better outcomes. Those organizations which invest in our new MSO model will be aligned solely with our shareholders and will receive discount codes to procure our products such as Excellagen.
DME-IQ
NDS is planning a launch DME-IQ, a novel software as a service (SaaS) solution for physicians to manage in-office distribution of durable medical equipment (DME). DME-IQ supports the development and management of compliant and profitable in-office DME programs. DME-IQ focuses on several key areas which include negotiating on behalf of the physicians with key vendors to decrease the COGS (Cost of Goods Sold), increasing insurance collections by providing oversight of the coding during the billing process, providing the necessary personnel to manage the appeals processes, and ensuring compliance with state and federal regulations.
DME-IQ will automate and provide the orthopedic practices with a proprietary, tablet-based software package that immediately verifies patient benefits and eligibility. This unique system manages DME inventory, collects patient copays and deductibles, and links patient information with the DME products and necessary patient forms all in one easy to use platform.
The DME Market
The US market for DME is large and growing, a result of several factors including the rising prevalence of chronic diseases requiring long-term care, the rapidly growing geriatric population, and the trend toward home healthcare services. Chronic disorders such as diabetes, diabetic foot & pressure ulcers, chronic pain, and cancer that require long-term patient care and postoperative recovery are driving demand for DME. According to a 2018 market report by Grand View Research, Inc., the US DME market is expected to reach $70.8 billion by 2025, growing at a 6.0% CAGR during the forecast period.
DME-IQ tracks and maintains DME inventory to ensure an adequate supply and product mix for orthopedic patient populations, and the system facilitates insurance claim submissions and adjudication to help achieve optimal reimbursements. With the DME-IQ system, the practice gains control of their DME program from an operations and financial perspective, while patients gain access to a wider variety of DME products that are custom fitted for their needs.
The explosion of high deductible insurance plans has resulted in a dramatic increase of patient out-of-pocket payments for care, and the subsequent requirement that physicians spend more time as collection agents rather than doctors. DME-IQ provides practice workflow solutions for DME with custom, tablet-based software that removes the administrative burden from the practice, facilitating patient eligibility review, collection of patient co-pay and deductibles, centralized insurance adjudication, DME product procurement, and other support services that allow physician practices to increase revenue and service quality. The launch of DME-IQ advances the mission of NDS to provide physicians with end-to-end solutions for patient centric care.”
NuGenerex Regenerative Medicine
Olaregen Therapeutix, Inc. Our majority-owned subsidiary, Olaregen Therapeutix, Inc. is a regenerative medicine company focused on the development, manufacturing and commercialization of products that fill unmet needs in the current wound care market. We aim to provide advanced healing solutions that substantially improve medical outcomes while lowering the overall cost of care. Olaregen’s first product, Excellagen® (wound conforming matrix) is a topically applied product for dermal wounds and other indications. Excellagen is a FDA 510(k) cleared device for of a broad array of dermal wounds, including partial and full thickness wounds, pressure ulcers, venous ulcers, diabetic ulcers, chronic vascular ulcers, tunneled/undermined wounds, surgical wounds (donor sites/ grafts, post-Mohs surgery, post-laser surgery, podiatric, wound dehiscence), trauma wounds (abrasions, lacerations, second-degree burns and skin tears) and draining wounds, enabling Olaregen to market Excellagen in multiple vertical markets.
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The Wound Care Market
The total global wound care industry is expected to reach $22.01 billion by 2022, according to Markets and Markets; the bioactive wound care market (i.e. skin substitute) is valued at $7.8 billion; there are 6.5 million patients in the U.S. with chronic wounds (NIH estimate) in the U.S.
Olaregen Highlights
• | Received FDA 510(k) clearance on October 3, 2013, for 17 indications; | |
• | Obtained intellectual properties and global rights of Excellagen® except China, Russia and CIS. | |
• | Received patent on October 10, 2017; | |
• | Has a unique Healthcare Common Procedure Coding System (HCPCS) Code - Q4149 | |
• | Clinical data show significant tissue growth and positive wound closure (PDGF) | |
• | Ease of use – No grafting | |
• | Low cost provider with high profit margins; | |
• | Low execution risk (seasoned management team with product launch experience); | |
• | No development risk (over $20 million invested and completed); | |
• | No regulatory risk (FDA cleared). |
Excellagen is an advanced, wound care management platform:
• | Formulated fibrillar Type I bovine collagen (2.6%) | |
• | High molecular weight | |
• | Viscosity optimized for dripless wound coverage | |
• | Flowable with no staples or sutures required | |
• | Pre-filled, ready to use syringes | |
• | One syringe covers up to 5.0 cm2 wound | |
• | Refrigerated storage only with no thawing or mixing | |
• | Treatment at only one-week intervals | |
• | Activates human platelets | |
• | Triggers the release of Platelet-Derived Growth Factor (PDGF) | |
• | Accelerates granulation tissue growth in “non-healing wounds” |
Additionally, Excellagen can serve as an Enabling Delivery Platform for pluripotent stem cells, antimicrobial agents, small molecule drugs, DNA-Based Biologics, conditioned cell media and peptides. Olaregen's initial focus will be in advanced wound care including diabetic foot ulcers (DFU), venous leg ulcers and pressure ulcers. Future products focusing on innovative therapies in bone and joint regeneration comprise the current pipeline.
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Excellagen History
Olaregen Therapeutix Inc. acquired the intellectual properties and global rights of Excellagen except in China, Russia and CIS, from Taxus Cardium, Inc., and its wholly owned subsidiaries Activation Therapeutics, Inc. and Gene Biotherapeutics, Inc.
In August 2018, Olaregen acquired the IP for total consideration is $4,200,000, broken down as follows: 1) $650,000 upfront payment, 2) $200,000 sales credit for collagen solution, and 3) $3,350,000 payable at 10% of net sales, which is defined as total sales less allowances, including hub fees, sales concessions, co-promote fees, cost of goods sold and other charges.
Regentys Corporation
Our majority-owned subsidiary, Regentys Corporation is a regenerative medicine company developing a tissue engineered therapy for the treatment of ulcerative colitis.
Overview
In January 2019, we acquired a majority interest in Regentys Corporation, a Florida corporation, a development-stage regenerative medicine company. Since its formation in May 2013 as Asana Medical Inc., Regentys has been developing a first-in-class tissue engineered therapies for the treatment of ulcerative colitis and other inflammatory bowel diseases.
Ulcerative Colitis
According to an article that was published in The Lancet on December 23, 2018 named worldwide incidence and prevalence of inflammatory bowel disease in the 21st century: a systematic review of population-based studies. (2018 Dec 23;390(10114):2769-2778), ulcerative colitis (or UC) affects an estimated 3.2 million patients in Europe, the United States and Japan. It is a chronic, inflammatory disease that causes sores or ulcers in the lining of the large intestine (the colon). Immunological in nature, UC is thought to be facilitated by a variety of hereditary, genetic and environmental factors and it is increasingly being diagnosed in more urbanized areas. Symptoms, including urgency, bleeding, and diarrhea, that substantially affect quality of life.
Regentys™ Extracellular Matrix Hydrogel (“ECMH”)
Regentys’ initial product, ECMH™ Rectal Solution, is a first-in-class, non-pharmacologic, non-surgical treatment option for millions of patients suffering from mild to moderate ulcerative colitis. Its product candidate is a powder that is reconstituted with saline and delivered as a liquid via enema. As ECMH reaches body temperature, it gels and coats the mucosal lining of the GI tract.
The core technology is derived from ECM, a safe and effective FDA-approved base now extensively used for surgical applications and wound treatment. ECMH acts as a bio-scaffold, separating the damaged tissue from waste flow, covering ulcerations to limit the inflammatory response, and facilitating a healing environment using endogenous (the body’s own) stem cells.
Pre-Clinical Results
Published pre-clinical results in the Journal of Crohn’s and Colitis highlight Regentys technology. Animal data show the ECMH therapy can both alleviate clinical symptoms and facilitate healing in UC patients. Previous pre-clinical ECM animal data for approved products has been shown to have a high correlation with human data.
Competition
Currently four biologics are FDA-approved, including top-selling antibody medicines Humira® (adalimumab), Simponi® (golimumab), Remicade® (infliximab) and Entyvio® (vedolizumab), all of which act to suppress the pro-inflammatory protein, TNF-a (Tumor Necrosis Factor Alpha), a leading cause of the proliferation of ulcerative colitis and other forms of IBD. However, even with these options, more than half of all UC patients do not achieve long-term remission. Moreover, 20-30% of non-responsive patients will undergo colon removal surgery in an attempt to remediate the disease.
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Regentys Advantages
We expect our product to offer a true alternative to patients non-responsive to first line therapies such as 5-ASA. Unresponsive patients will then need to choose among therapies that alter the body’s immune system or pose long term health risks or perhaps both. Regentys’ technology is expected to enable targeted tissue healing but pose none of the health risks of more expensive market-leading biologics that generally suppress the immune system. We expect to provide our therapy at a cost less than other therapies.
Market
In 2023, when we expect to receive approval, the projected drug costs for UC alone are expected to exceed $7.5B globally according to a 2017 report by Allied Market Research; including other inflammatory bowel disease indications, the global market is expected to be double the UC market. Based upon the nature of IBD, and the characteristics of Regentys’ technology, management believes variations of Regentys’ core technology will also be effective in treating IBD diseases such as Crohn’s, rectal mucositis, proctitis and anal fissures.
Intellectual Property
Regentys in-licensed patents and co-developed its technology platform with the University of Pittsburgh. It now holds patent rights in US and foreign jurisdictions, and has other global filings pending; as well, it has patent applications pending for similar indications predicated on its existing technology in other major global markets.
Regulatory Path
The FDA has affirmed our approach to file a 510(k) de novo application on its ECM hydrogel. We have developed a protocol and have engaged a clinical research organization to manage the conduct of its first-in-human clinical trials expected to start in Q2/Q3 2021 in Australia. Additionally, we have engaged consultants to assist in managing the trials and regulatory approval process in Australia, the US and Europe, jurisdictions in which we initially expect to undertake clinical trials and, among other markets, where it will first seek governmental approval to promote and sell medical devices.
Product Development
Since 2013, we have maintained a research and development agreement with the University of Pittsburgh supplemented with personnel from the affiliated McGowan Institute of Regenerative Medicine. In February 2018, Regentys entered into a development agreement with (and has received a co-investment by) Cook Biotech, Inc., a global leader in ECM manufacturing technology (CookBio). Product batches now on hand are expected to be sufficient for additional development and testing. A larger clinical batch with finalized specifications will be generated in the coming months for use in clinical trials. There are alternate providers of development services who can assist with product development activities. Notwithstanding these options, management believes that because of the nature of ongoing development activities, and the reliance upon certain bench and manufacturing processes and ECM product expertise and technology, any interruption in the development relationship with CookBio would subject the Company to substantial expenditures of time and cost to duplicate the product.
Manufacturing
Regentys has an exclusive manufacturing agreement with CookBio for the production of biomaterial and use of its proprietary technology conditioned upon the completion of final product development work. Management has negotiated an agreement with a third-party manufacturer for product components and kitting. We believe that there are alternate sources of these manufacturing and supply services. However, because of the nature of regulation in the medical device industry, and the reliance upon the collection, reporting and management of medical device manufacturing data, a change of manufacturer would substantially impact the time and cost required for clinical product production and regulatory compliance.
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Financing
In January 2019, Regentys was acquired by Generex for an aggregate purchase price of $15,000,000, with $400,000 paid in upfront cash up-front and a promissory note of $14,600,000. Installments payable under the note were tied to specific business development objectives and dates. As October 3, 2019, an additional $850,000 was paid for a total of $1,250,000 against the note. Regentys entered into an accommodation agreement dated March 14, 2019 with Generex to provide longer time to pay. On November 25, 2019, the payment due date for the first three installments was extended to December 30, 2019 and extended on January 10, 2020 further to January 31, 2020. A Fourth Payment of $5,000,000 was due on or about February 1, 2020 (which has not been paid) and the final payment of $1,150,000 payable on or about February 1, 2021. Interest has been accruing at 4% per annum with a balance of $858,159, of which $375,389 is included in noncontrolling interest on the balance sheet as of July 31, 2020. The last payments of $115,000 and $120,000 were made on October 21, 2020 and October 30, 2020, respectively.
Operations
Currently, Regentys employs four full-time contract employee and several part-time consultants. We supplement our business operations by engaging external legal (intellectual property, corporate and health care), accounting and tax professionals. We also have contracted with information services, regulatory and clinical trial companies who make available professionals to manage the information services, regulatory, clinical, and compliance aspects of the business. Upon payment of the interim note, Regentys will formally add two contract employees, additional administrative staff and a third-party provider to assist with employee payroll and benefits as well as undertake clinical trial activities suing external support.
NuGenerex Surgical Products
Pantheon Medical and MediSource Partners
Pantheon Medical (“Pantheon”) is a manufacturer of orthopedic foot & ankle surgery kits that offer physician friendly “all-in-one,” integrated surgical kits that include plates, screws, and tools required for orthopedic surgeons and podiatrists conducting foot and ankle surgeries.
MediSource Partners, LLC (“MediSource Partners”) is a 10-year old private company that is an FDA registered distributor of surgical, medical, and biologic supplies, with over 25 vendor contracts for nationwide distribution of implants and devices for spine, hips, knees, foot, ankle, hand, and wrist surgeries. Additional product lines include biologics (blood, bone, tissue, stem cells), durable medical equipment, and soft goods. We maintain partnerships and contracts with hospital systems for ordering, billing and inventory management.
The asset acquisitions of Pantheon and MediSource Partners were finalized on August 1, 2019. NuGenerex Surgical (aka MediSource) has contracts with over 25 vendors (including Pantheon Medical) for distribution of:
• | Implants and devices. | |
• | Biologics (blood, bone, tissue, and stem cells). | |
• | Durable medical equipment. | |
• | Soft Goods. | |
• | Kits to process bone marrow aspirates and platelet rich plasma biologics. |
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Historical Background
MediSource Partners was founded in 2009 and designed to be unique amongst its competitors by operating as a service-focused, “one stop shop” for the healthcare professionals it serves. With over 25,000 products in its catalogue, including thirteen (13) lines dedicated to spine, MediSource prides itself on its ability to service everything from small private practices across several disciplines, to entire hospital systems. The large and broad-based inventory allows our client physicians to “customize” their operating environment by selecting and implementing the hardware, biologics, soft goods and ancillary tools they feel most confident in and comfortable with. In addition, the “one stop shop” model reduces the burden placed on support staff tasked with managing multiple reps from multiple vendors and shortens the distribution chain to reduce costs and potential redundancies. The success of this model is demonstrated in MediSource’s ability to offer this client-focused, low-impact service at a pricing matrix often below even standard GPO pricing, thus increasing client profitability and productivity.
Pantheon Medical was founded in 2014 to build a manufacturing company with proprietary product lines that offer convenience and cost effectiveness to physicians. Pantheon is contracted with MediSource Partners for nationwide distribution of its proprietary “All-in-One” Foot & Ankle Surgery Kit.
Product Development
Pantheon Medical is developing proprietary surgical systems to expand the product line. Over the next three years Pantheon will be developing three new product lines for submission to the FDA for 510K clearance, including Cannulated Screws, a Hammertoe System and Surgical Staples. Additionally, MediSource Partners will distribute a line of regenerative medicine products under development by an affiliated organization licensed for the production of biologics, including umbilical cord blood and Wharton’s Jelly (rich sources of stem cells), mesenchymal stem cells, and human placental derived tissue factors, primarily exosomes.
The acquisitions of Pantheon and MediSource Partners expands the commercial product portfolio of Generex into the surgical field, adding revenues and profits with their current product line and significant upside opportunities for new FDA-approved product introductions over the next several years. The MSO partners in NuGenerex Distribution Solutions, many of whom are orthopedic surgeons and podiatrists, will immediately benefit from Pantheon’s foot & ankle surgery kit.
NuGenerex Health, LLC
In addition to our efforts in orthopedic medicine, we are currently in the process of setting up NuGenerex Health MSO to provide ancillary health services in partnership with Arizona Endocrinology Center and Paradise Valley Family Medicine, two major physician practices that care for a population of ~65,000 patients, approximately 25,000 of whom are insulin dependent diabetics with chronic care needs. With an initial focus on the management of complex diabetes patients, NuGenerex Health will offer ophthalmology, podiatry, chronic care management (CCM) services to provide patients with integrated, concierge care to improve outcomes and reduce costs. NuGenerex Health will employ ophthalmologists, podiatrists, and medical staff to provide ancillary health services for chronic care diabetes patients in support of the endocrinology and family medicine practices. By bringing the specialty ancillary care directly to the patients who regularly visit the clinic, we anticipate that NuGenerex Health will provide an integrated, collaborative care model to not only enhance patient wellbeing, but also to comply with CMS guidelines for diabetes and chronic care management that can lead to 5-star ratings and increased reimbursements.
On September 24, 2020, NuGenHealth, LLC, a subsidiary of Generex Biotechnology Corporation, signed a services agreement with Paradise Valley Family Medicine, P.C. an Arizona professional corporation (“PVFM”) to provide a software and services solution for patient engagement, Remote Patient Monitoring (RPM) and Chronic Care Management (CCM) services that are recommended and reimbursed by the Centers of Medicare and Medicaid Services (CMS).
Under the terms of the Agreement, NuGenerex Health will implement the company’s software system and connected metabolic monitoring devices, and will provide RPM and CCM services to Medicare patients with chronic medical conditions who are under the care of PVFM physicians. PVFM will bill CMS for the RPM and CCM services, and will pay software and service fees to NuGenerex Health.
Ophthalmology
Regular eye exams for persons diagnosed with diabetes mellitus are important for detecting potentially treatable vision loss. Monitoring, surveillance, and evaluation of visual health are widely recognized as prerequisites for effective, accessible, and high-quality individual and population-based health services.
Medicare Part B (Medical Insurance) covers preventive and diagnostic eye exams as part of a comprehensive diabetes care plan, with reimbursements averaging $215 per patient for standard eye exam with accompanying tests for glaucoma and macular degeneration.
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Podiatry
According to an article that was published in Therapeutics Advances Endocrinology & Metabolism, Financial burden of diabetic foot ulcers to world: a progressive topic to discuss always(2018 Jan; 9(1): 29–31.), as diabetic foot ulcers (DFUs) are the leading cause of non-traumatic lower extremity amputation costing an estimated $13 billion annually, CMS promotes preventive and diagnostic foot exams by a podiatrist, with reimbursement rates averaging $175 for a new patient evaluation, and $150 for follow up. Under the CMS guidelines, patients are eligible for diabetic foot exams every six months.
Chronic Care Management (CCM)
According to the CDC an estimated 117 million adults have one or more chronic health conditions, and 2/3 of Medicare patients have 2 or more chronic conditions. The Centers for Medicare & Medicaid Services (CMS) made benefit payments of $583 billion in 2018, with chronic care patients accounting for 99% of expenditures. Recognizing chronic care management (CCM) as a critical component of health care, CMS has established reimbursement codes to promote adoption in the marketplace, including significant improvements in 2017 that increased payment amounts and introduced new billing codes. NuGenerex Health is designed to provide comprehensive ancillary services to fill the current gaps in care that lead to significant morbidity and astronomical costs of diabetes.
Once the model is established for the diabetes population in Arizona, NuGenerex Health plans to expand to other states.
NuGenerex Health HMO
We are in the process of building the final link in our corporate mission to provide physicians, hospitals, and all healthcare providers with an end-to-end solution for patient centric care from rapid diagnosis through delivery of personalized therapies, streamlining care processes, minimizing expenses, and delivering transparency for payers.
Generex intends to establish NuGenerex Health a multi-specialty Management Services Organization (MSO) that will serve as in-network providers for a health maintenance organization (HMO) that provides healthcare services and disease management solutions for patients living with chronic medical conditions. NuGenerex Health will serve patients with Chronic Special Needs Plans (C-SNP) and Dual-Eligible Special Needs Plans under Medicare Advantage and Medicare Part B and Part D. In doing this, Generex intends to partner with an experienced HMO developer. Following the roadmap established by this partner in building some of the most successful HMO companies in recent history, NuGenerex plans to generate significant membership growth by developing patient centric engagement programs and building on our strong provider relationships. The HMO infrastructure will be managed by an industry-leading back office management company, which has provided back-end services for HMOs since 2009.
Contemplated Product Positioning and Plan Design
Medicare Advantage Prescription Drug Plan (MAPD) HMO for individuals who have both Medicare Part A and Part B. This plan caters to individuals that prefer an all-inclusive product that covers Part C, Part D, and additional supplemental benefits at a low plan premium amount.
Chronic Special Needs Plan (CSNP) HMO for individuals in addition to having Medicare Part A and Part B are faced with the burden of living with diabetes or a cardiovascular disorder. This plan is offered to individuals that prefer an all-inclusive product that covers Part C, Part D, and additional supplemental benefits at a low plan premium amount.
Dual Eligible Special Needs Plan (DSNP) HMO for individuals that have both Medicare Part A and Part B and medical assistance through their state of residence. This plan is offered to individuals that prefer an all-inclusive product that covers Part C, Part D, and additional supplemental benefits with no monthly plan premium.
NuGenerex Health D-SNP HMO Full will cover all Medicare-covered benefits at zero cost-sharing. In addition to the base supplemental products, the plan also offers routine foot care, and transportation.
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Government Regulation
Regulatory Considerations for Generex
Our research and development activities and the manufacturing and marketing of our medical device, biologic, and pharmaceutical products are subject to extensive regulation by the FDA in the United States, Health Canada in Canada, the EMEA in Europe, and comparable designated regulatory authorities in other countries. Among other things, extensive regulations require us to satisfy numerous conditions before we can bring products to market. While these regulations apply to all competitors in our industry, having a technology that is unique and novel extends the requisite review period by the various divisions within the FDA and other regulators. Also, other companies in our industry are not limited primarily to products that still need to be approved by government regulators, as we are now.
If we do no obtain and maintain requisite regulatory approvals, our business will be substantially harmed. In many cases, we expect that extant and prospective development partners will participate in the regulatory approval process. The following discussion summarizes the principal features of food and drug regulation in the United States and other countries as they affect our business.
United States
All aspects of our research, development and foreseeable commercial activities relating to medical device, biologic, and pharmaceutical products are subject to extensive regulation by the FDA and other regulatory authorities in the United States. United States federal and state statutes and regulations govern, among other things, the testing, manufacturing, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of pharmaceutical products. The regulatory approval process, including clinical trials, usually takes several years and requires the expenditure of substantial resources. If regulatory approval of a product is granted, the approval may include significant limitations on the uses for which the product may be marketed.
The steps required before a medical device, biologic or pharmaceutical product may be marketed in the United States include:
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Quality and pre-clinical tests and studies include: laboratory evaluation of Drug Substance and Drug Product chemistry, formulation/manufacturing, and stability profiling, as well as a large number of animal studies to assess the potential safety and efficacy of each product. The results of the quality and pre-clinical tests/studies, in addition to any non-clinical pharmacology, are submitted to the FDA along with the initial clinical study protocol (see descriptive of process below) as part of the initial IND and are reviewed by the FDA before the commencement of human clinical trials. Unless the FDA objects to it, the IND becomes effective 30 days following its receipt by the FDA. The FDA reviews all protocols, protocol amendments, adverse event reports, study reports, and annual reports in connection with a new pharmacological product.
The IND for our oral insulin formulation became effective in November 1998. Amendments are also subsequently filed as new Clinical Studies and their corresponding Study Protocols are proposed. In July 2007, we received a no objection clearance to initiate our Phase III study protocol for our oral insulin product.
The Physician’s Investigational New Drug Application for the Phase 1 and Phase II trial of AE37, NGIO’s synthetic peptide vaccine designed to stimulate a potent and specific immune response against tumors expressing the HER-2/neu oncogene, in patients with stage II HER-2/neu positive breast cancer became effective in March 2006.
The Investigational New Drug Application for the Phase II trial of AE37 in combination with pembrolizumab (Merck’s Keytruda) for treatment of triple negative breast cancer became effective in December 2018, and the trial has begun enrolling patients.
Clinical trials involve the administration of a new drug to humans under the supervision of qualified investigators. The protocols for the trials must be submitted to the FDA as part of the IND. Also, each clinical trial must be approved and conducted under the auspices of an IRB, which considers, among other things, ethical factors, the safety of human subjects, and the possible liability of the institution conducting the clinical trials.
Clinical trials are typically conducted in three sequential phases (Phase I, Phase II, and Phase III), but the phases may overlap. Phase I clinical trials test the drug on healthy human subjects for safety and other aspects, but usually not effectiveness. Phase II clinical trials are conducted in a limited patient population to gather evidence about the efficacy of the drug for specific purposes, to determine dosage tolerance and optimal dosages, and to identify possible adverse effects and safety risks. When a compound has shown evidence of efficacy and acceptable safety in Phase II evaluations, Phase III clinical trials are undertaken to evaluate and confirm clinical efficacy and to test for safety in an expanded patient population at clinical trial sites in different geographical locations. The FDA and other regulatory authorities require that the safety and efficacy of therapeutic product candidates be supported through at least two adequate and well-controlled Phase III clinical trials (known as “Pivotal Trials”). The successful completion of Phase III clinical trials is a mandatory step in the approval process for the manufacturing, marketing, and sale of products.
In the United States, the results of quality, pre-clinical studies and clinical trials, if successful, are submitted to the FDA in an NDA to seek approval to market and commercialize the drug product for a specified use. The NDA is far more specific than the IND and must also include proposed labeling and detailed technical sections based on the data collected. The FDA is governed by the Prescription Drug User Fee Act regarding response time to the application, which is generally 12 months (and shorter for a priority application). It may deny a NDA if it believes that applicable regulatory criteria are not satisfied. The FDA also may require additional clarifications on the existing application or even additional testing for safety and efficacy of the drug. We cannot be sure that any of our proposed products will receive FDA approval. The multi-tiered approval process means that our products could fail to advance to subsequent steps without the requisite data, studies, and FDA approval along the way. Even if approved by the FDA, our products and the facilities used to manufacture our products will remain subject to review and periodic inspection by the FDA.
To supply drug products for use in the United States, foreign and domestic manufacturing facilities must be registered with, and be approved by, the FDA. Manufacturing facilities must also comply with the FDA's cGMPs, and such facilities are subject to periodic inspection by the FDA. Products manufactured outside the United States are inspected by regulatory authorities in those countries under agreements with the FDA. To comply with cGMPs, manufacturers must expend substantial funds, time and effort in the area of production and quality control. The FDA stringently applies its regulatory standards for manufacturing. Discovery of previously unknown problems with respect to a product, manufacturer or facility may result in consequences with commercial significance. These include restrictions on the product, manufacturer or facility, suspensions of regulatory approvals, operating restrictions, delays in obtaining new product approvals, withdrawals of the product from the market, product recalls, fines, injunctions and criminal prosecution.
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One final hurdle that is closely associated with the cGMP inspections is the pre-approval inspection that the FDA carries out prior to the issuance of a marketing license. FDA inspectors combine cGMP compliance with a review of research and development documents that were used in the formal NDA. A close inspection of historic data is reviewed to confirm data and to demonstrate that a company has carried out the activities as presented in the NDA. This is generally a long inspection and requires a team of individuals from the Company to “host” the FDA inspector(s).
Foreign Countries
Before we are permitted to market any of our products outside of the United States, those products will be subject to regulatory approval by foreign government agencies similar to the FDA. These requirements vary widely from country to country. Generally, however, no action can be taken to market any drug product in a country until an appropriate application has been submitted by a sponsor and approved by the regulatory authorities in that country. Again, similar to the FDA, each country will mandate a specific financial consideration for the Marketing Application dossiers being submitted. Although an important consideration, FDA approval does not assure approval by other regulatory authorities. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. We have received a number of foreign regulatory approval for the first generation Oral-lyn buccal insulin and over-the-counter products in the past, however, Oral-Lyn was never launched, and we are not manufacturing, marketing, nor distributing products in these regions based upon these approvals.
In May 2019, NuGenerex Diagnostics filled an international order for 40,000 units of its malarial diagnostic product, The NGDx -Malaria PF/PV Cassette Test Kit to Imres, BV, a Netherlands-based medical distribution company. The kits were part of a World Health Organization contract. That contract is fulfilled, and the contract has expired.
We have relocated our headquarters from Canada to the United States, but we maintain our Canadian entity, Generex Pharmaceuticals, Inc. This entity contains all the intellectual property for the entire history of our Oral-Lyn diabetic products and patents for buccal delivery. There are no live operations in Canada, but we continue with an office. Also, temporarily, our Banking Operations are housed at the Royal Bank of Canada (RBC) and will be replaced by a USA based public company treasury platform with JP Morgan Chase.
We have a few international initiatives that we continue to pursue in regard to development of new drugs, however, no international clinical trials are currently being conducted. Moving forward, we will pursue international development of promising drug candidates, with the goal of out-licensing those products to local companies or to international pharmaceutical companies for marketing and distribution in those countries, particularly in the European Union and Japan represent major markets for pharmaceutical and diagnostic products. To that end, we are in frequent contact with international countries with interests in licensing agreements with us on some of our products. Currently we have a licensing agreement with Shen Zhen BioScien for the rights to our cancer vaccine AE37 for the treatment of prostate cancer in China.
NGDx Regulatory Considerations
The manufacturing and marketing of our existing and proposed diagnostic products are regulated by the FDA and comparable regulatory bodies in other countries. Our products are also regulated by, subject to approval by, or must meet standards set by, certain non-governmental organizations involved in the purchase and distribution of products like ours. These regulations and standards govern almost all aspects of development, production and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing and record keeping.
Commercialization of medical devices in the European Union requires meeting the regulatory guidelines of the European Medical Devices Directive (MDD) and fulfillment of those requirements allows a device to carry the “CE-Mark” as verification of its diagnostic authenticity.
FDA-regulated products require some form of action by that agency before they can be marketed in the United States, and, after approval or clearance, we must continue to comply with other FDA requirements applicable to marketed products, e.g. Quality Systems (for medical devices). Failure to comply with the FDA’s requirements can lead to significant penalties, both before and after approval or clearance.
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There are two review procedures by which medical devices can receive FDA clearance or approval. Some products may qualify for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act, in which the manufacturer provides a pre-market notification that it intends to begin marketing the product, and shows that the product is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and is as safe and effective as a legally marketed device and does not raise different questions of safety and effectiveness). In some cases, the submission must include data from human clinical studies. Marketing may commence when the FDA issues a clearance letter finding such substantial equivalence.
If the medical device does not qualify for the 510(k) procedure (either because it is not substantially equivalent to a legally marketed device or because it is required by statute and the FDA’s implementing regulations have an approved application), the FDA must approve a Pre-Marketing Application (“PMA") before marketing can begin. PMA’s must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA application is typically a complex submission, including the results of non-clinical and clinical studies. Preparing a PMA application is a much more expensive, detailed and time-consuming process as compared with a 510(K) pre-market notification.
In addition, the FDA regulates the export of medical devices that have not been cleared for marketing in the United States. The Federal Food, Drug and Cosmetic Act contains general requirements for any medical device that may not be sold in the United States and is intended for export. Specifically, a medical device intended for export is not deemed to be adulterated or misbranded if the product: (1) complies with the specifications of the foreign purchaser; (2) is not in conflict with the laws of the country to which it is intended for export; (3) is prominently labeled on the outside of the shipping package that it is intended for export; and (4) is not sold or offered for sale in the United States. However, the Federal Food, Drug and Cosmetic Act does permit the export of devices to any country in the world, if the device complies with the laws of the importing country and has valid marketing authorization in one of several " listed " countries under the theory that these listed countries have sophisticated mechanisms for the review of medical devices for safety and effectiveness.
We are also subject to regulations in foreign countries governing products, human clinical trials and marketing, and may need to obtain approval or evaluations by international public health agencies, such as the World Health Organization, in order to sell diagnostic products in certain countries. Approval processes vary from country to country, and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for United States governmental approvals. On the other hand, the fact that our HIV diagnostic tests are of value in the AIDS epidemic may lead to some government process being expedited. The extent of potentially adverse governmental regulation affecting NGDx that might arise from future legislative or administrative action cannot be predicted.
Our products may rely on international regulatory approvals for sale into markets outside of the USA, and, domestically, our devices would require FDA clearance and in some cases, WHO Listings.
We intend to focus on both the domestic and international regulatory approvals.
Domestically, we intend to submit our devices to the FDA under a PMA or through the 510K process. The 510K would require the appropriate regulatory administrative submissions as well as a limited scientific review by the FDA to determine completeness (acceptance and filing reviews); in-depth scientific, regulatory, and Quality System review by appropriate FDA personnel (substantive review); review and recommendation by the appropriate advisory committee (panel review); and final deliberations, documentation, and notification of the FDA decision. The PMA process is more extensive, requiring clinical trials to support the application. We expect to apply to FDA for approval of our first RDT to be submitted to the FDA for 510K approval within the next 3 months. We anticipate the FDA process will be completed within 12-18 months after submission.
Internationally, we intend on submitting our EXPRESS devices and cassettes to the WHO procurement listing process which requires a full regulatory and quality documentation dossier, produced and compiled by us. WHO process requires laboratory testing and evaluation and then may require clinical trials for public deployment and documentation throughout the whole process.
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Once the WHO process is complete and documented, there is a submission into the Global Fund, which is a partnership between governments, civil society, the private sector and people affected by infectious diseases specifically HIV/AIDs, tuberculosis, and malaria.
The Global Fund raises and invests nearly $4 billion a year to support programs run by local experts in countries that are most in need.
We intend to submit selected cassettes and EXPRESS RTDs to the FDA, WHO and the Global Fund for regulatory review.
Currently, both our cassette malaria pF and malaria pF/pV have been listed under the WHO procurement process.
Regulatory considerations for the NuGenerex Family of Companies
Our business is subject to highly complex United States federal and state regulations that may impact our ability to fully implement our strategic plans and initiatives. We are required to obtain and hold licenses and permits and to comply with the regulatory requirements of various governmental agencies. If we fail to comply with such regulatory requirements or if allegations are made that we fail to comply with such regulations, the economic viability of our Company may be adversely affected.
FDA Regulations
The manufacturers and suppliers of the products we market are subject to extensive regulation by the FDA, other federal governmental agencies, and state authorities. These laws and regulations govern the approval of, clearance of, or license to commercialize medical devices (such as Orthopedic Implants), biologics, and drugs. This includes compliance with the standards and requirements related to the design, testing, manufacture, labeling, promotion, and sales of the products, record keeping requirements, tracking of devices, reporting of potential product defects and adverse events, conduct of corrections, and recalls and other matters. As a distributor, marketer, and now, an FDA-registered medical device specification developer and repackager/relabeler of such FDA-regulated products, we are subject to independent requirements to register and list certain products. We may be required to obtain state licensure or certifications and we may be subject to inspections, in addition to complying with requirements that apply to the manufacturers of the products we market. Failure to comply with those applicable requirements could result in a wide variety of enforcement actions, ranging from warning letters to more severe sanctions such as fines, civil penalties, operating restrictions, injunctions, and criminal prosecutions. To support our biologics product lines, we are a registered establishment with the FDA for the storage and distribution of human cells, tissues, and cellular and tissue-based products (HCT/Ps).
Healthcare Laws and Regulations
We are required to comply with federal and state healthcare laws and regulations. Such healthcare fraud and abuse laws apply to the relationships that we and our distributors have with healthcare professionals and entities, such as physicians and hospitals. U.S. federal health care laws including laws related to false claims, health care fraud and abuse, physician self-referrals, and anti-kickbacks apply when we or are customers submit claims for items or services that are reimbursed under federally-funded health care programs (such as Medicare or Medicaid). In comparable fashion, state health care laws of a similar nature apply to state-funded health care programs and may also apply with private third-party payors. The requirements of these laws are complex and subject to varying interpretations. If we fail to comply with these laws, we could be subject to federal or state government investigations, substantial fines, exclusion from future participation in government healthcare programs, and civil or criminal sanctions. Such sanctions and damages could adversely affect the economic viability of our Company.
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We instituted a company-wide compliance program for all employees, vendors, and contractors. During 2018, we hired a compliance officer who is responsible for developing compliance programs, reviewing our policies, overseeing adherence to those policies, and advising management on possible risks. Our policies related to this realm include general ethical business practices as well as specific operating policies and training to ensure compliance with relevant and applicable healthcare laws and regulations that include the laws referenced above in addition to other applicable laws, such as Health Insurance Portability and Accountability Act of 1996, as amended and the Physician Payments Sunshine Act.
NuGenerex Distribution Solutions and MSO Regulatory Considerations
NuGenerex Distribution Solutions operates under strict federal and state guidelines across several of the product and service lines offered by us. In particular, the NuGenerex MSO is regulated at the state level, where the physician-owned management services organization (MSO) has been deemed by our healthcare attorneys to be legally compliant in 27 states. The NuGenerex MSO operates in compliance with all laws and regulations as detailed below:
We believe that the following statements support an assertion that our ownership structure and the proposed arrangement as a whole is structured to comply with some of the recommendations set forth by the OIG in the Bulletin, the Special Fraud Alert and other guidance:
• | Each investor will have made a financial investment in a bona fide business venture organized for the primary purpose of performing certain contracted services for the benefit of a Contracted Ancillary Provider; | |
• | If an investor receives any distributions, such distributions will be made solely on the basis of such investor’s proportionate ownership of the Company, and not on the basis of referrals by any individual or class of investors or the revenues generated by referrals from such investor; | |
• | Subscriptions for ownership of the Company will not be accepted or rejected on the basis of expected volume of referrals or amount of business otherwise generated for the Company or indirectly a Contracted Ancillary Provider by the subscriber; and | |
• | There is no requirement that an investor make referrals to, or otherwise generate business for, a Contracted Ancillary Provider, NuGenerex or the Company as a condition of participation in the Company. |
Some of the most applicable health care related laws, rules, and regulations to the company are, including but not limited to, the following:
Stark Laws
The types of financial arrangements between a physician and an entity that trigger the self-referral prohibitions of the Stark Law are broad and include direct and indirect ownership and investment interests and direct and indirect compensation arrangements. We do not believe that the Stark Law will be applicable to us or any Physician Member because neither we nor any Physician Member intends to make any referral to a Contracted Ancillary Provider (as hereinafter defined) for the furnishing of any ancillary healthcare services for which payment may be made under the Medicare or Medicaid programs.
We do not believe the Subcontracted Services Agreement creates a direct financial relationship between the Physician Members (or their professional organizations) and a Contracted Ancillary Provider because (i) the Vendor Services Agreement is between NuGenerex on the one hand, and a Contracted Ancillary Provider on the other and (ii) the Subcontracted Services Agreement is between us on the one hand and NuGenerex on the other. Further, we believe that the Subcontracted Services Agreement, as structured, complies with the Stark Law exception for personal services should any enforcement authorities or agencies take the position that the Physician Members have a direct financial relationship with a Contracted Ancillary Provider. Further, we believe the arrangements meet the Stark Law exception for personal services.
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The Anti-Kickback Statue
The federal anti-kickback statute (the “Anti-Kickback Statute”) makes it a felony to knowingly and willfully offer, pay, solicit or receive any remuneration, directly or indirectly, to induce, or in exchange for, referrals of business reimbursed under federal health care programs, including Medicare and Medicaid.
We do not believe that the Anti-Kickback Statute will be applicable to us or any Physician Member because neither we nor any Physician Member intends to make any referral of business to a Contracted Ancillary Provider reimbursed under any federal healthcare programs, including Medicare and Medicaid.
False Claims Act
The False Claims Act is a civil statute used as a primary tool for recovering monies from health care entities who have committed fraud against the federal government.
We do not intend to receive any compensation that is related to the referral of patients covered by any federal healthcare program, including Medicare and Medicaid. We also plan to take precautions to avoid any activity that could be considered civil or criminal false claims.
Civil Monetary Penalty Statute
The Civil Monetary Penalty Statute prohibits a health care provider from knowingly making a payment, directly or indirectly, to a physician as an inducement to reduce or limit services to Medicare or Medicaid patients under the physician’s direct care. We do not believe that the Civil Monetary Penalty Statute will be applicable to us or any Physician Member because neither we nor any Physician Member intends to make any referral of business to a Contracted Ancillary Provider reimbursed under the Medicare or Medicaid programs.
NuGenerex Distribution Solutions Other Regulatory Considerations
Texas Patient Non-Solicitation Act
The Texas Patient Non-Solicitation Act prohibits anyone from intentionally or knowingly offering to pay or agreeing to accept any remuneration (directly or indirectly, overtly or covertly, or in cash or in kind) to or from anyone else for securing or soliciting patients for or from a person licensed, certified or registered by a Texas healthcare regulatory agency. Unlike the Stark Law and the Anti-Kickback Statute, which only apply to payments by federal government programs, the Texas Patient Non-Solicitation Act applies to all payers, including private insurance companies. As a means of balancing this broad application, however, the Texas Patient Non-Solicitation Act provides that compliance with the Anti-Kickback Statute constitutes compliance with the Texas Patient Non-Solicitation Act.
Because the Texas statute provides that compliance with the Anti-Kickback Statute constitutes compliance with the Texas Patient Non-Solicitation Act, the analysis of the Company under the Texas Patient Non-Solicitation Act is essentially the same as the analysis under the Anti-Kickback Statute.
Texas Fee Splitting
The Texas Medical Practice Act prohibits fee-splitting and other unethical conduct. Any physician who is found to have violated the Texas Medical Practice Act may be subject to criminal sanctions or loss of such physician’s license to practice medicine. Prospective physician investors are advised to consult their personal counsel regarding the potential impact of this statute on their individual circumstances.
Texas Commercial Bribery Statute
The Texas Commercial Bribery Statute makes it a criminal violation for anyone, including a physician, acting without the consent of their patient, to accept any benefit from another person or entity to influence such physician’s conduct toward the patient. A violation of the commercial bribery law could result in a physician’s loss of license to practice medicine in Texas.
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The risk of violation of both the commercial bribery and the non-solicitation of patient’s statutes will be significantly reduced if the patient of a Physician Member, prior to receiving services from a Contracted Ancillary Provider, is informed of the Physician Member’s ownership in the Company and its indirect financial relationship with a Contracted Ancillary Provider.
Marketing and Distribution
Generex Historical Business Marketing & Distribution
Historically, we had marketing agreements with international distribution companies for distribution of Oral-Lyn in approved territories. Those agreements are no longer in effect.
Currently, as clinical stage development companies, neither NGIO nor NuGenerex Therapeutics (Oral-Lyn and RapidMist buccal delivery system) markets or distributes any products.
NGDx Marketing & Distribution
Sales of the NuGenerex Diagnostics EXPRESS line of diagnostic kits for infectious diseases is dependent on regulatory approvals issued by such agencies as the WHO, FDA and registration with the Global Fund. These approvals are a key element in the sales and marketing effort on an international basis. We will work with these organizations as well as governmental agencies in target countries and commercial companies.
WHO-Listed
Following the successful fulfillment of previous Partnership for Supply Chain Management (“PFSCM”) and WHO shipments, NGDx continues to participate in requests for proposals from PFSCM for our currently WHO-approved NGDx Malaria test. All of the NGDx Malaria RDT’s are on the WHO procurement list.
We will also participate in the newly designed and recently announced WHO Pre-Qualification Program for Malaria RDTs. We intend to present the new Malaria EXPRESS II devices for Pf, Pf/Pv and Pf/Pan for this Pre-Qualification Program.
NGDx EXPRESS II - Syphilis
In January 2019, NGDx received CE Marking Certification for its rapid point-of-care Express II Syphilis Treponemal Assay from the European Union. We are currently seeking development and distribution partners in international markets for the NGDx product portfolio as we plan for U.S. clinical development of our Express II rapid diagnostic technology for infectious diseases and sepsis.
Olaregen Marketing & Distribution
Olaregen has established a team of internal sales and marketing professionals who oversee the marketing, sales & distribution for Excellagen. Currently the product may be sold immediately in the United States. Olaregen plans to focus its efforts on selling to specialized ambulatory wound care centers, surgeons, dermatologists, and in phase II nursing homes. In these institutions the reimbursement rates are nearly double those at hospitals for the same medical procedures. This is an important market since approximately ~80-90% of patients that qualify for using Excellagen are treated in these health care centers. Excellagen can be used for nearly all wound indications but management plans to focus on those that are treated outside of a hospital setting including Diabetic, Venous and Arterial ulcers initially as well as Post Moth’s surgery, Operating Rooms (“OR”) and Ambulatory Care Surgeries with all these indications being extremely prevalent, most significantly amongst the elderly.
In September 2019, Olaregen entered into a national sales and distribution agreement with AvKare Inc. to become the sales and distribution partner for Excellagen’s Wound Conforming Matrix in all Veterans Affairs (VA) hospitals along with other government medical facilities throughout the United States. AvKare is one of the largest SDVOSB distributors in the U.S. with a direct selling organization calling on more than 170 VA hospitals as well as Department of Defense healthcare facilities. Under the agreement, AvKare will continue to distribute Excellagen to the VA in 0.5 ml, 0.8 ml, and 3.0 ml size.
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Olaregen is signing intra-company agreements with partner companies in the NuGenerex family of companies for distribution of Excellagen through both our proprietary market channels, and through our national distribution footprint.
Manufacturing
Generex Historical Business
NuGenerex Immuno-Oncology Manufacturing
NuGenerex Immuno-Oncology manufactures AE37 immunotherapeutic vaccine, a nineteen amino-acid peptide referred to as AE37 (Ii-Key/HER2 776-790 hybrid) under contract with PolyPeptide Laboratories, San Diego, CA. The suspended substance (lypophilized peptide suspended in sterile, normal saline) is formulated into 2 mL glass vials containing 500 micrograms of peptide in 0.5 mL of 0.45% saline. All manufacturing of AE37 is conducted under FDA cGMP compliance.
We have produced, packaged and shipped AE37 for the upcoming clinical trial of AE37 in combination with pembrolizumab (Merck’s Keytruda) for the treatment of triple negative breast cancer.
The Company will require additional manufacturing for future trials with AE37 or any other Ii-Key hybrid immunotherapeutic peptide for the treatment of cancer, and plans to use PolyPeptide Laboratories for future production work. In the event that PolyPeptide Laboratories is unable to meet the manufacturing requirements of NuGenerex Immuno-Oncology, there are multiple contract manufacturers that can provide cGMP peptide synthesis, purification, and packaging services.
NGDx Manufacturing
NGDx manufactures its RTD devices in our Miramar, Florida facility. Based on order size, delivery requirements and current orders in process, the Miramar facility can manufacture up to 1 million RTD devices, all of which are currently hand assembled. We have long-standing relationships with subcontractors to handle additional production requirements.
Cassette production is conducted through subcontractors in India and China. Each site operates under cGMP as well as being compliant with ISO 9001 and ISO13485. All NGDx cassettes are included in our U.S. Certificate of Exportability and European Union CE Mark registrations. All of our cassette malaria tests are approved by the WHO.
We have established Quality and Assembly Agreements, as well as confidentiality agreements with our subcontractors. All are subject to our inspection at a moment’s notice.
The quality of final assembly of each of our products is maintained under the strict guidelines of our internal Quality System, which forms the basis for our ISO13485 rating.
Full quality oversight is mandatory and final batch release testing is conducted on each lot of products assembled prior to shipment release.
With full automation, we anticipate producing up to 10 million EXPRESS devices annually. Expanded production would allow for additional expansion beyond this volume. Additionally, we anticipate that subcontractors would provide approximately 60 million cassette tests per year.
Olaregen Manufacturing
Olaregen contracts with a third party specialty manufacturer in the United Kingdom to manufacture Excellagen. Excellagen is an aseptically manufactured, flowable dermal matrix consisting of a stabilized formulation of renatured atelopeptide bovine fibrillar tropocollagen supplied in prefilled, ready to use syringes. Excellagen is manufactured according to cGMP and requires controlled temperature storage (2-8°C) to maintain structural integrity and bioactivity.
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During manufacture, the collagen component of Excellagen is purified using a specialized, validated aseptic process that effectively inactivates potential contaminating viruses, eliminates impurities, and removes denatured molecules and collagen fragments. Excellagen consists almost exclusively of high molecular weight, intact, fibrillar collagen and is formulated at a concentration of 2.6% (26 mg/mL) in a physiologic buffer with protein stabilizing agents.
Regentys Manufacturing
Regentys has contracted with Cook Biotech Incorporated (“CBI”), West Layette, IN on the development and manufacture of the Regentys ECMH™ (Extracellular Matrix Hydrogel) Rectal Solution, an extracellular matrix hydrogel derived from small intestinal submucosa (SIS) of pigs. All manufacturing is conducted according to FDA cGMP standards.
Pantheon Medical Manufacturing
Pantheon manufactures foot & ankle surgical kits, including plates and screws under contract with a third-party contract manufacturer. The FDA has granted 510(k) clearance (“510(k) Approval”) to the Pantheon plates and screws, authorizing Pantheon to commercially distribute the foot & ankle surgical kit. The 510(k) Approval process, also known as pre-market notification, requires demonstrating that the new medical device is substantially equivalent to a legally U.S. marketed medical device. Once a device receives a 510(k) Approval, maintaining that status is based on compliance with annual requirements set by the FDA. All manufacturing is conducted under FDA GMP compliance.
Raw Material Supplies
Generex Historical Business Raw Materials
The excipients used in our formulation are available from numerous sources in sufficient quantities for clinical purposes, and we believe that they will be available in sufficient quantities for commercial purposes when required, although we have not yet attempted to secure a guaranteed commercial supply of any such products. Components suitable for our RapidMist™ brand metered dose inhaler are available from a limited number of potential suppliers, as is the chemical propellant used in the device. The components which now comprise the device are expected to be used in the commercial version of our insulin product in countries where the product has been approved. We do not currently have supply arrangements for commercial quantities with manufacturers for the components and the propellant that we presently use in our RapidMist™ brand metered dose. Reputable and reliable suppliers for these components exist and we believe that we can enter into arrangements for commercial supply with these suppliers when we are ready to commence commercial production.
Insulin is available worldwide from multiple sources. We do not currently have any agreements for the long-term supply of insulin, but we expect that we will be readily able to negotiate such an agreement before further clinical trials or commercial sales commence.
AE37 and other Ii-Key hybrid immunotherapeutic peptides are produced via standard peptide synthesis and purification methods requiring readily available amino acids and standard chemicals.
NGDx Diagnostics Raw Materials
A number of our components and critical raw materials are provided by third-party suppliers. Some of our supplies, including antigens and antibodies, may be available from only one or a limited number of sources. This may impact our ability to manufacture or sell product if our suppliers cannot or will not deliver those materials in a timely fashion, or at all, due to an interruption in their supply, quality or technical issues, or any other reason. The absence of any one or more of these supplies could prevent us from being able to commercially produce and market the affected product or products.
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Olaregen Raw Materials
Excellagen collagen is derived from bovine hides that are sourced from animals continuously reared and slaughtered in Australia, a country recognized by the World Organization for Animal Health as having a negligible BSE risk. The cattle are declared fit for human consumption by Australian Quarantine and Inspection Service, and the starting material is EDQM certified. As of 2010, the World Health Organization (WHO) categorizes skin as a “lower-infectivity tissue” (Category IB). Bovine spongiform encephalopathy (also known as mad cow disease) has never been detected in cattle in Australia. Each lot of Excellagen undergoes rigorous release testing according to validated test methods and product specifications, including sterility.
Regentys Raw Materials
Extracellular matrix hydrogel is derived from porcine small intestinal submucosa which is primarily Types I, III, IV and VI collagen. The natural composition of SIS also includes fibronectin and laminin. The general function of these extracellular matrix (ECM) components are well-established. Porcine intestines are sourced from domestic animals in compliance with ISO 22442.
Intellectual Property
Generex Historical Business
Oral-Lyn & RapidMist
We hold a number of patents in the United States and foreign countries covering our buccal and other delivery technologies. We also have developed brand names and trademarks for products in appropriate areas. We consider the overall protection of our patent, trademark and other intellectual property rights to be of material value and acts to protect these rights from infringement. Our patent
Patents are a key determinant of market exclusivity for most branded pharmaceutical products. Protection for individual products or technologies extends for varying periods, in accordance with the expiration dates of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent, its scope of coverage and the availability of meaningful legal remedies in the country.
We currently have three issued U.S. patents and one pending U.S. patent application pertaining to various aspects of drug delivery technology, including oral administration of macromolecular formulations (such as insulin). We also currently hold international patents covering our drug delivery technology in jurisdictions other than the U.S., including Canada, Brazil, Argentina, Israel, Australia and Europe. The expiration dates of the U.S. issued patents range from 2020 to 2022, and the international patents are enforceable to 2028. We plan to submit new patent applications for the reformulated Oral-Lyn II for Type II diabetes upon funding.
We possess the worldwide manufacturing and marketing rights to our oral insulin product.
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NGIO Intellectual Property Portfolio
Platform Patents
The foundational “Platform Patents” for Ii-Key technology focus on methods of increasing the antigen-specific activation of CD4+ T cells. This cell type is a critical component of the immune system, involved both in the recognition of new pathogenic agents as well as in autoimmune syndromes. The first technology platform (Ii-Key hybrid) relates to a means for increasing the vaccine potency of virtually any protein and while the second (Ii-suppression) relates to generation of an effective cell-based vaccine (REH-2017-01, REH-2017-02).
Oncology Patents
This group of patents relate more specifically to the use of the platform technologies for generating anti-cancer vaccines. We have generated Ii-Key hybrid compounds specifically for patients with breast, prostate, bladder, melanoma and HPV-related cancers (AEX-2001, AEX-2006, AEX-2007).
We hold five U.S. patents and one patent in Japan. The U.S. patent numbers are 7,935,350 (expiring on November 3, 2022), 8,748,130 (expiring on December 10, 2025), 8889143 (expiring on May 18, 2026), 928945 (expiring on September 22, 2027), 8,815,249 (expiring on February 26, 2026). The Japan patent number is 5707326 (expiring on September 1, 2029). These patents cover:
• | Compositions and Methods Related to Ii Technology | |
• | Ii hybrid peptides used for the enhancement of antigen presentation | |
• | Constructs for the expression of Ii-Key/antigen epitope fusion peptides | |
• | Hybrid Ii-Key/antigen epitope fusion peptides | |
• | Methods for inhibiting Ii expression |
We also have U.S. patents on the Ii-Key technology have expired, we are in discussions with third parties to extend the patent coverage of the Ii-Key technology for cancer immunotherapy. The expiration dates of the immune-oncology applications of the Ii-Key hybrid technologies extend to 2031. The company is exploring the development of new immunotherapeutic peptide vaccines against additional tumor antigens, and plans to use computer algorithms to identify epitopes of tumor antigens that can be linked to the Ii-Key to develop new IP and products based on the Ii-Key platform technology.
Our long-term success will substantially depend upon our ability to obtain patent protection for our technology and our ability to protect our technology from infringement, misappropriation, discovery and duplication. We cannot be sure that any of our pending patent applications will be granted, or that any patents which we own or obtain in the future will fully protect our position. Our patent rights and the patent rights of biotechnology and pharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. We believe that our existing technology and the patents which we hold or for which we have applied do not infringe anyone else's patent rights. We believe our patent rights will provide meaningful protection against others duplicating our proprietary technologies. We cannot be sure of this, however, because of the complexity of the legal and scientific issues that could arise in litigation over these issues.
We also rely on trade secrets and other unpatented proprietary information. We seek to protect this information, in part, by confidentiality agreements with our employees, consultants, advisors, and collaborators.
NGDx Intellectual Property
NGDx holds a U.S. Patent for its sample delivery system which expires in 2026, US Patent # 7,749,771, titled “Device and methods for detecting analyte in a sample.” This is the basis for our EXPRESS system platform.
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In June, 2018, we filed for patent protection for the Express II format with the US Patent and Trade Mark Office.
We believe NGDx’s long-term success will substantially depend upon our ability to obtain patent protection for our technology and our ability to protect our technology from infringement, misappropriation, discovery and duplication. We cannot be sure that any future patents will be granted, or that any patents which we now own or obtain in the future will fully protect our position. Our patent rights and the patent rights of medical device companies in general, are uncertain and con include complex legal and factual issues. We believe that our existing technology and the patents which we hold or for which we have applied do not infringe anyone else's patent rights. We believe our patent rights will provide meaningful protection against others duplicating our proprietary technologies. We cannot be sure of this, however, because of the complexity of the legal and scientific issues that could arise in litigation over these issues.
Olaregen Intellectual Property
Olaregen has the exclusive license to Excellagen in all regions of the world except Russia, China, and the CIS countries (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan).
The U.S. patent on Excellagen has been issued as of October 10, 2017 and now has 17 years of additional exclusivity.
Regentys Intellectual Property
Regentys has licensed the exclusive, world-wide intellectual property rights for Regentys ECMH from the University of Pittsburgh in exchange for future royalties. The intellectual property subject to the license is entitled “Extracellular Matrix Derived Gels” and “Methods for Preparation of A Terminally Sterilized Hydrogel Derived From Extracellular Matrix” developed by Stephen Badylak et.al. of University faculty.
Additionally, Regentys and the University of Pittsburgh are co-owners by assignment of certain intellectual property rights pertaining to “Method and Composition for Treating Inflammatory Bowel Disease Without Colectomy” developed by Stephen Badylak and Timothy Keane of University and by Marc Ramer of the Regentys.
We continue to develop intellectual property for our current and future products.
NuGenerex Surgical Supply Subsidiaries Intellectual Property
We pursue strategic alliances and partnerships through intellectual property license agreements, and secure key purchase agreements from suppliers to build upon our portfolio of IP.
We also maintain stocking distribution agreements, which provide exclusive distribution rights in certain geographic areas and use of associated trademarks, service marks, and tradenames for the sale and promotion of the products we offer, which generally have durations of one (1) to three (3) years, subject to renewal terms. Furthermore, we require leased employees, independent contractors, consultants, and advisors to execute agreements, with varying terms of one to three years, which assign to us the IP existing and generated from their work. We believe our IP and exclusive distribution agreements provide us with important competitive advantages by (i) increasing our brand awareness and the brand awareness of the products we distribute; and (ii) ensuring that we use the latest design and manufacturing technology for our products that are perceived to be important to our customers.
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Seasonality
Our products and services are not subject to seasonality.
Competition
Generex Historical Business Competition
We expect that products based upon our buccal delivery technology and any other products that we may develop will compete directly with products developed by other pharmaceutical and biotechnology companies, universities, government agencies and public and private research organizations.
Products developed by our competitors may use a different active pharmaceutical agent or treatment to treat the same medical condition or indication as our product or may provide for the delivery of substantially the same active pharmaceutical ingredient as our products using different methods of administration. For example, a number of pharmaceutical and biotechnology companies are engaged in various stages of research, development and testing of alternatives to insulin therapy for the treatment of diabetes, as well as new methods of delivering insulin. These methods, including nasal, transdermal, needle-free (high pressure) injection and pulmonary, may ultimately successfully deliver insulin to diabetic patients. Some biotechnology companies also have developed different technologies to enhance the presentation of peptide antigens. Some of our competitors and potential competitors have substantially greater scientific research and product development capabilities, as well as financial, marketing and human resources, than we do.
Where the same or substantially the same active ingredient is available using alternative delivery means or the same or substantially the same result is achievable with a different treatment or technology, we expect that competition among products will be based, among other things, on product safety, efficacy, ease of use, availability, price, marketing and distribution. When different active pharmaceutical ingredients are involved, these same competitive factors will apply to both the active agent and the delivery method.
We consider other drug delivery and biotechnology companies to be direct competitors for the cooperation and support of major drug and biotechnology companies that own or market proprietary pharmaceutical compounds and technologies, as well as for the ultimate patient market. Of primary concern to us are the competitor companies that are known to be developing delivery systems for insulin and other pharmaceutical agents that we have identified as product candidates and technologies to enhance the presentation of peptide antigens.
Large pharmaceutical companies, such as Merck & Co., Inc., GlaxoSmithKline PLC, Novartis, Inc., MedImmune Inc. (a subsidiary of Astra-Zeneca, Inc.) and others, also compete in the oncology, immunomedicine, and vaccine markets. These companies have greater experience and expertise in securing government contracts and grants to support research and development efforts, conducting testing and clinical trials, obtaining regulatory approvals to market products, as well as manufacturing and marketing approved products. As such, they are also considered significant competitors in these fields of pharmaceutical products and therapies. There are also many smaller companies which are pursuing similar technologies in these fields and are considered to be our competitors.
There are also a number of companies developing alternative means of delivering insulin in the form of oral pills, transdermal patches, and intranasal methods, which are at early stages of development. In addition to other delivery systems for insulin, there are numerous products, such as sulfonylureas (Amaryl®and Glynase®), biguanides (branded and generic metformin products), thiazolidinediones (Avandia®and Actos®), glucagon-like peptide 1 (Byetta®and Victoza®), and dipeptidyl peptidase IV inhibitors (Januvia® and Onglyza™), which have been approved for use in the treatment of Type 2 diabetics in substitution of, or in addition to, insulin therapy. These products may also be considered to compete with insulin products.
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In addition, there are a number of companies that are pursuing cancer treatments using immunotherapy technologies which have products in various clinical trial stages. Some of these companies are Argos Therapeutics Inc., Celldex Therapeutics Inc., Northwest Therapeutics Inc., Immatics Biotechnology GmbH, Immunocellular Therapeutics Ltd., TVAX Biomedical Inc., and Newlink Genetics Corporation. These companies can also be considered to be competitors.
NGDx Competition
The diagnostics industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors are substantially larger and have greater financial, research, manufacturing and marketing resources. Industry competition in general is based on the following:
• | Scientific and technological capability; | |
• | Proprietary know-how and intellectual protection; | |
• | The ability to develop and market products and processes; | |
• | The ability to obtain FDA or other regulatory clearances; | |
• | The ability to manufacture products that meet applicable governmental and NGO requirements; | |
• | The ability to manufacture products cost-effectively; | |
• | Access to adequate capital; and | |
• | The ability to find and retain qualified personnel. |
We believe our scientific and technological capabilities, as well as our proprietary technology and know-how relating to our rapid tests, particularly for the development and manufacture of tests for the detection of antibodies to infectious diseases are, indeed, very strong and will allow us to compete in this market.
Main Competitors
In the diagnostic space, Alere Inc., which was acquired by Abbott Laboratories in 2017, is our main competitor and one of the major players in RTDs for infectious diseases. Standard Diagnostics is a strong competitor on an international basis, incorporating a cassette design into each of their products. Our competitors also include Chembio Diagnostic Systems Inc., a publicly traded diagnostic company that develops, manufactures and commercializes diagnostic solutions. There are a number of point-of-care strip manufacturers in China that serve the market in that country. As of yet, most of these companies have not made a significant impact on the overall global market but could be considered as a future source of competition. As infectious diseases are epidemic and in the minds of the public, there will be more competitors coming into the market place. However, competition will be based upon the implementation of a cassette or a “dipstick” format.
Competitive Advantage
We believe our unique and simple EXPRESS product design delivers significant advantages over our competition.
Due to the potential infectious character of the whole blood test sample, our EXPRESS series of RDTs are designed to perform and deliver test results while sealed within the EXPRESS housing, carefully controlling the potentially infectious test sample. This design helps to increase our ability to control the possibility of cross-contamination. Most of our competitors’ products, while inexpensive, are not as user-friendly, require substantially more training, and have greater risk of cross- contamination. And, the simplicity of use of our EXPRESS platforms fits directly into the necessities of World Health Organization Rapid Disease Testing Algorithms and individual country disease reduction goals and priorities.
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Our products are more intuitive and self-explanatory than our competitors’, making it easier and safer to use. Our products require less training and education. Each EXPRESS is configured to operate in the same way regardless of the type of disease being tested.
With ease of use, simple design, and faster results, our products allow for more tests administered at the patient point of care level.
We will compete on the basis of these advantages. Most of our competitors’ products, while inexpensive, are not as user-friendly, require substantially more training, and have greater risk of cross- contamination.
NuGenerex Immuno-Oncology Competition
The cancer immunotherapy space is crowded as the scientific mechanisms of cancer and immunity become better understood. According to the Cancer Research Institute, there are 3,394 immuno-oncology therapies in the current global development pipeline, with 1,287 of them in clinical studies. The major pharmaceutical companies, including Novartis, Bristol-Myers Squibb, Merck, Sanofi, and Pfizer, among others have significant research and development efforts in the immune-oncology field.
Neon Therapeutics is a leading immune-oncology biotechnology company. TapImmune and Marker Therapeutics recently merged to advance innovative neoantigen and immunotherapy products.
NuGenerex Surgical Products Competition
As a national distributor, we primarily compete with other distributors, as well as large, vertically-integrated medical device manufacturers that enjoy well-established distribution channels, national sales networks, direct sales models, and participation in large group purchasing organizations contracted with major hospitals and surgery centers.
We believe that our status as the manufacturer and distributor of FDA-approved Maxim X-Treme System, sets us apart from other distributors and gives us a competitive advantage against distributors who are not able to manufacture their own products.
Generally, we view Stryker Corporation, Smith & Nephew, and Orthofix International, N.V., as examples of our vertically-integrated competitors. We believe those competitors, and companies like them, only distribute products they manufacture and have significant costs related to research and development and organizational support. Conversely, we sell a broad portfolio of specialized third-party manufacturers’ products and have no costs related to research and development for such third-party products, nor do we have similar costs for organizational support since we are not vertically-integrated. Thus, we believe our competitive advantage lies primarily with our single-source fulfillment sales model, allowing us to offer a broader assortment of several manufacturers’ products. Furthermore, as a manufacturer for some medical devices, we do not have significant costs associated with research and development or organizational support. Thus, we generally see immediate increases in revenues because of the increased gross margins afforded by the lower costs associated with being a manufacturer. Accordingly, the compensation packages we offer to our employed sales team have higher-earning potentials than the compensation packages our competitors offer, allowing us to attract and retain talented and experienced employees.
We contract primarily with small- and medium-sized manufacturers of Orthopedic Implants that are subject to FDA compliance and approval standards. These manufacturers are highly innovative and cost effective because of their streamlined sales infrastructures. Because of our organizational structure, large distribution footprint, and our sales model, we tend to align well with our specialized suppliers’ competitive strategies, which we believe results in more partnerships with such suppliers than our competitors, because we can purchase large quantities of their product as a wholesale customer.
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We believe the competition in our industry is primarily caused by continued mergers and acquisitions of smaller distributors by larger, vertically-integrated companies that produce, market and distribute medical devices, Orthopedic Implants, and Biologics. Our vertically-integrated competitors benefit from their ability to control costs for the devices they manufacture and distribute. Moreover, the market in which we operate is sensitive to changes in third-party and government reimbursements and, to a lesser degree, competitive discount pricing. We believe that our industry will continue to see increased mergers and acquisitions because the market is significantly fragmented with numerous medical device distributors and specialized suppliers offering similar product portfolios throughout the United States.
Environmental Compliance
Our research and development activities have involved the controlled use of hazardous materials and chemicals. We believe that our procedures for handling and disposing of these materials comply with all applicable government regulations. However, we cannot eliminate the risk of accidental contamination or injury from these materials. If an accident occurs, we could be held liable for damages, and these damages could severely impact our financial condition. We are also subject to many environmental, health and workplace safety laws and regulations, particularly those governing laboratory procedures, exposure to blood-borne pathogens, and the handling of hazardous biological materials. Violations and the cost of compliance with these laws and regulations could adversely affect us. However, we do not believe that compliance with applicable environmental laws will have a material effect on us in the foreseeable future.
Research and Development Expenditures
NGDx Research & Development Expenditures
A substantial portion of our activities to date have been in research and development. Generex expended $365,521 in the fiscal year ended July 31, 2020 and $597,855 in the fiscal year ended July 31, 2019 on research and development related to its buccal delivery products and NGIO’s immunotherapy products as well as EXPRESS II and testing of existing products for stability and accuracy and development of new test parameters.
NuGenerex Immuno-Oncology Research & Development Expenditures
On November 20, 2018, the Company entered into a clinical trial agreement with NSABP Foundation, Inc. (“NSABP”) under which NSABP will conduct clinical research using the Company’s AE37 peptide immunotherapeutic vaccine in combination with pembrolizumab (Ketruda®) for the treatment of metastatic triple negative breast cancer. The Company has agreed to pay NSABP an amount not to exceed $2,118,461 based on NSABP achieving various milestones. The Company recognized $272,063 and $340,000 as research and development related to the clinical trial agreement with NSABP in the years ended July 31, 2020 and 2019, respectively.
We will continue to require substantial funds to continue research and development, including preclinical studies and clinical trials of our product candidates, further clinical trials for AE37 and to commence sales and marketing efforts if the FDA or other regulatory approvals are obtained. Currently, the Phase II clinical study using AE37 in combination with pembrolizumab (Keytruda ®) for treatment of metastatic triple negative breast cancer is our only ongoing research and development project.
Employees
The Generex management team has been working without contracts or employment agreements since taking over the Company in January 2017. Upon financing, we expect to engage the management team as employees with terms to be determined by the Compensation Committee of the Generex Board of Directors. In fiscal year 2020, the compensation committee approved salaries for some officers and board members.
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The historical Generex businesses have no employees. Other than our officers, we have no employees in Generex Biotechnology Corporation Dr. Eric von Hofe is the President of NuGenerex Immuno-Oncology, overseeing the development of AE37; we have hired a consultant to help manage the AE37 clinical development program. Dr. James Anderson, a Generex Director oversees the Oral-Lyn development program, and has outsourced development activities to third-party academic researchers for Ora-Lyn II reformulation.
NuGenerex Distribution Solutions Employees
NDS has retained a staff of four departmental leaders to kick off the restart of our MSO including HR, IT, Legal, and Sales.
NDS intends to restart its MSO and launch sales initiatives of its new products and services. We will continue to augment our staff with third-party contractors to expand our portfolio of ancillary services with a large focus on sales in targeted key markets.
NuGenerex Diagnostics Employees
We had one officer who is engaged as an independent contractor. We engage consultants from time to time to assist with financial recordkeeping and other tasks. As of July 31, 2020, NGDx had two full time employees, of which one is in sales and one is in professional or administrative activities.
We use non-employee consultants to assist us in formulating research and development strategy, in preparing regulatory submissions, and in developing protocols for clinical trials. We also use non-employee consultants to assist us in business development.
Olaregen Employees
Olaregen employs a staff of 2 full-time employees and 3 independent contractors as executives and administrative personnel, including the CEO, COO, Medical Director, and Vice Presidents of Sales and Business Development. Additionally, the company contracts with distributors and contract sales forces in target market sectors.
Following the commercial launch of Excellagen in April 2019, the company plans to manage growth through a combination of hiring operations, finance & accounting, marketing, and sales professionals, with support staff on an as needed basis. We will continue to augment our staff with third-party contractors for manufacturing, distribution, and sales in target markets.
Regentys Employees
Regentys employs a staff of 4 full-time executives and administrative personnel, including the CEO, COO and Vice President of finance.
Medisource Employees
Medisource employed a staff of 4 full-time president, executives and administrative personnel, including the CFO Manufacturing and Sales. After July 20, 2020, due to disagreements with former ownership, there are no employees at MediSource.
Item 1A. Risk Factors.
Risks Related to Our Financial Condition
We will be required to raise additional funds to finance our operations and remain a going concern; we may not be able to do so when necessary, and/or the terms of any financings may not be advantageous to us.
Our operations to date have consumed substantial amounts of cash and we have sustained negative cash flows from our operations for the last several years. We will require future additional capital infusions including public or private financing, strategic partnerships or other arrangements with organizations that have capabilities and/or products that are complementary to our own capabilities and/or products, in order to continue the development of our product candidates. However, there can be no assurances that we will complete any financings, strategic alliances or collaborative development agreements, and the terms of such arrangements may not be advantageous to us. Any additional equity financing will be dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants. If we raise funds through collaborative or licensing arrangements, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize. Our failure to raise capital when needed could materially harm our business, financial condition and results of operations.
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We have a history of losses and will incur additional losses.
Historically, we have been a clinical development company with a limited line of commercial products in international markets. In 2019, we launched our first commercial product Excellagen, which we expect to generate ongoing revenues going forward. While we have begun to generate revenues, we are still operating at a loss, and there is no guarantee that we will be able to grow the revenues enough to offset our costs to realize profitability.
To date, we have not been profitable and our accumulated net loss available to shareholders was $452,290,097 at July 31, 2020. Our losses have resulted principally from costs incurred in research and development, including clinical trials, and from general and administrative costs associated with our operations. In order to commercialize our historical assets and our recently acquired product pipeline, we will need to conduct substantial additional research, development and clinical trials. We will also need to receive necessary regulatory clearances both in the United States and foreign countries and obtain meaningful patent protection for and establish freedom to commercialize each of our product candidates. We must also complete further clinical trials and seek regulatory approvals for any new product candidates we discover, in-license, or acquire. We cannot be sure that we will obtain required regulatory approvals, or successfully research, develop, commercialize, manufacture and market any other product candidates. We expect that these activities, together with future general and administrative activities, will result in significant expenses for the foreseeable future. We may never achieve profitability.
Our disclosure controls and procedures and internal controls over financial reporting may not be effective in future periods as a result of existing or newly identified material weaknesses in internal controls.
Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our reputation and operating results could be harmed. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to furnish a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of such control. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be adversely impacted, we could fail to meet our reporting obligations, and our business and stock price could be adversely affected.
As of July 31, 2020, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and concluded that, subject to the inherent limitations, our disclosure controls and procedures were not effective due to the existence of several significant deficiencies culminating in material weaknesses in our internal control over financial reporting because of inadequate segregation of duties over authorization, review and recording of transactions, lack of a centralized accounting system, as well as the financial reporting of such transactions.
To address these internal control deficiencies, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
We have been working and are currently working to remediate the material weaknesses described above, including assessing the need for additional remediation steps and implementing additional measures to remediate the underlying causes that gave rise to the material weaknesses by (i) adding additional personnel in the future when working capital permits; (ii) implementing a new centralized accounting system to provide cohesion across the enterprise and standardize the close process across all subsidiaries; (iii) working with our independent registered public accounting firm to refine our internal procedures; and (iv) performing a complete review of its internal controls during 2020.
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We believe we have taken appropriate and reasonable steps to make the necessary improvements to remediate these internal control deficiencies, however we cannot be certain that our remediation efforts will ensure that our management designs, implements and maintains adequate controls over our financial processes and reporting in the future or that the changes made will be sufficient to address and eliminate the material weaknesses previously identified. Our inability to remedy any additional deficiencies or material weaknesses that may be identified in the future could, among other things, have a material adverse effect on our business, results of operations and financial condition, as well as impair our ability to meet our quarterly, annual and other reporting requirements under the Securities Exchange Act of 1934 in a timely manner, and require us to incur additional costs or to divert management resources.
As of July 31, 2015, the Company became eligible to report as a smaller reporting company. As a smaller reporting company under the SEC rules and regulations, we are currently not subject to the requirements of independent auditor attestation of management’s assessment of our internal controls over financial reporting set forth in Section 404(b) of the Sarbanes Oxley Act of 2002 because the Dodd Frank Wall Street Reform and Consumer Protection Act signed into law on July 21, 2010 permanently exempted companies that are not “accelerated filers” or “large accelerated filers” under the SEC rules from Section 404(b) requirements; therefore, this Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
Our research and development and commercialization efforts may depend on entering into agreements with corporate collaborators.
Because we have limited resources, we or our subsidiaries have sought to enter into collaboration agreements with other pharmaceutical companies that will assist us in developing, testing, obtaining governmental approval for and commercializing products. We may be unable to achieve commercialization of any of our products until we obtain a large pharmaceutical partner to assist us in such commercialization efforts. To date, we have entered into a collaborative development program with Merck to evaluate our immunotherapeutic peptide vaccine AE37 in combination with Merck’s Keytruda for the treatment of triple negative breast cancer in a phase II clinical trial, however, this collaboration only involves the donation of Keytruda for the clinical trial, and any future financial commitment from Merck for a co-development deal is dependent on the successful completion of the trial. There is no guarantee that the results of the trial will be positive, or that Merck will continue the collaboration with financial support.
Additionally, we have out-licensed AE37 for the immunotherapeutic treatment of prostate cancer to Shenzhen Bioscien (“Shenzhen”), a Chinese biopharmaceutical company that has agreed to fund the development of AE37 for prostate cancer through a clinical development program conducted under ICH guidelines that would allow global registration of the AE37 product in the prostate cancer indication. The development deal includes upfront and milestone payments to Generex, together with a double-digit royalty on sales of AE37 in China in exchange for the rights to AE37 for prostate cancer treatment in China, with the ex-China global rights remaining with us. Though Shenzhen has made an upfront payment of $700,000 to us, there is no guarantee that they will continue to fulfill their contractual obligations to advance the clinical development of AE37 for prostate cancer. Further, there is no guarantee that AE37 will prove to be safe and efficacious for the treatment of prostate cancer, or that the product will be approved by regulatory authorities.
Moving forward, we will need to expand current collaborations and develop new collaborations to advance new products that Generex and its subsidiaries may wish to commercialize. We will continue to seek research collaborations, co-development and marketing agreements, and licensing deals for its products in development, however, there is no guarantee that we will be successful in our efforts.
Any collaborator with whom we may enter into such collaboration agreements may not support fully our research and commercial interests since our program may compete for time, attention and resources with such collaborator's internal programs. Therefore, these collaborators may not commit sufficient resources to our program to move it forward effectively, or that the program will advance as rapidly as it might if we had retained complete control of all research, development, regulatory and commercialization decisions.
Risks Related to Our Business
We have reorganized our business model to transform us from a research & development biotechnology company to an integrated life science and healthcare holding company that generates revenues through its subsidiary companies. There is no guarantee that this business transformation will be successful.
Since our management team took control in January 2017, we have focused our efforts on making strategic acquisitions that will form the foundation for building an end-to-end business model for the delivery of products and services through proprietary market channels to physicians and patients. The initial step in the process was the acquisition of the Veneto group of assets that provided an operating MSO with revenues, a network of physician partners (primarily orthopedic surgeons and podiatrists), contracts with ancillary health services companies, including pharmacies and laboratories, and infrastructure, personnel, and IT systems that are scalable to meet the demands of growth. With the goal of adding new products and services that can be utilized by the MSO physicians in our proprietary network, we have acquired, and are in the process of acquiring revenue-generating companies in the fields of wound care, surgical supplies, orthopedic implants, artificial joints, biologics, medical devices, and regenerative medicine products. There are a number of risks associated with this end-to-end healthcare model, and there is no guarantee that the model will deliver the expected revenues and profits going forward.
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As we evolve from being a company that was primarily involved in clinical development to a company that is also involved in commercialization of novel products, including manufacturing, distribution, and utilization, we may encounter difficulties in expanding our operations successfully.
We have been reorganized as a life science and healthcare holding company, with wholly-owned and majority-owned subsidiaries that operate independently. Our operating subsidiaries are led by management teams who are responsible for operating the businesses and achieving corporate revenue and profit targets. Our corporate strategy is to unite the subsidiary companies, together with the NuGenerex family of companies, through shared client access, cross-selling opportunities, share services, and joint development programs. If the subsidiary companies do not work together to build the organization as envisioned, we may not realize the revenue and profit expectations that are based on the synergies among our subsidiaries to drive intra-company sales.
As we pursue our plans to reorganize the historical Generex clinical stage assets into separate operating subsidiaries that can more effectively advance the clinical development and commercial value of our product pipeline, we may encounter difficulties in obtaining the financing necessary to support our clinical development programs.
Through the corporate restructuring, we have formed three subsidiaries to house the historical Generex assets, including NGIO, NuGenerex Diagnostics (NGDx), and NuGenerex Therapeutics (housing the Oral-Lyn oral insulin product and the RapidMist buccal delivery technology). Each of these subsidiaries require significant funds and commercialization partners to advance their products and technologies through the clinical development and regulatory processes necessary to achieve product commercialization. We may not be able to obtain the necessary funds or find corporate partners to commercialize our historical assets, which will negatively affect the value of these assets.
We may not be able to unlock the intrinsic value of our historical development pipeline, because we may encounter difficulties in financing and operating our commercial development programs successfully.
As we advance our product candidates through clinical trials, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities, and may need to further contract with third parties to provide these capabilities. As our operations expand, we likely will need to manage additional relationships with such third parties, as well as additional collaborators, distributors, marketers, and suppliers.
Maintaining third party relationships for these purposes will impose significant added responsibilities on members of our management and other personnel. We must be able to: manage our development efforts effectively; recruit and train sales and marketing personnel; manage our participation in the clinical trials in which our product candidates are involved effectively; and improve our managerial, development, operational and finance systems, all of which may impose a strain on our administrative and operational infrastructure.
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If we enter into arrangements with third parties to perform sales, marketing, or distribution services, any product revenues that we receive, or the profitability of these product revenues to us, are likely to be lower than if we were to market and sell any products that we develop without the involvement of these third parties. In addition, we may not be successful in entering into arrangements with third parties to sell and market our products or in doing so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our products.
Future business combinations or acquisitions may be difficult to integrate, which could cause us to shift our attention away from our primary business and its operations.
We may pursue future business combinations with other companies or strategic acquisitions of complementary businesses, product lines, or technologies. There can be no assurance that such acquisitions will be available at all, nor on terms acceptable to us. These transactions may require additional capital, which may increase our indebtedness or outstanding shares, resulting in a dilution to our stockholders or a reduction in working capital. The inability to obtain such future capital may inhibit our growth and operating results. Integration of acquisitions or additional products can be costly, time-consuming, and complicated which could significantly impact operating results. Furthermore, the integration of any acquisition may disproportionally divert our executive team’s time and resources from our primary business and its operations. We may sell some or all of our product lines to other companies or we may agree to merge with another company. There can be no assurance that future transactions will ultimately benefit us. If we face difficulty integrating future acquisitions or if our executive team’s attention is diverted, our future results of operations may negatively impact our business, results of operations, and financial condition.
In certain acquisitions, we may recognize non-cash gains or losses on changes in fair value of contingent consideration. We include contingent consideration based on future financial performance as a portion of the purchase price of certain acquisitions. To the extent that an acquired operation underperforms relative to anticipated earnings levels, we are able to set-off certain levels of future unpaid purchase price for such acquired operations. This will result in the recognition of a non-cash gain on the change in fair value of contingent consideration. In the alternative, to the extent an acquired operation outperforms anticipated earnings levels, we will recognize a non-cash expense on the change in fair value of contingent consideration. These non-cash gains and expenses may have a material impact on our financial results, and the impact could be opposite to the underlying results of the acquired operation.
The MSO acquired in the Veneto transaction may not continue to participate in the business following the acquisition.
The MSO acquired from Veneto is named Rapport Services, LLC (“Rapport”), which is a physician-owned limited liability company (or LLC) requiring an at-risk equity investment from physicians or physician groups that wish to participate in the network. The Rapport physician investors own 99% of Rapport, and Generex (through its wholly-owned subsidiary NuGenerex Distribution Solutions II) owns 1% and serves as the managing director of the LLC. The MSO was built through relationships between physicians and the previous Veneto administration. There is no guarantee that the current network of physician partners will remain with Rapport. There is no guarantee that the physicians will continue to utilize the ancillary healthcare services that Rapport provides the MSO through contractual relationships with pharmacies, labs, or other providers of ancillary services.
Regulatory actions may affect our ability to operate.
Our MSO and pharmaceutical distribution businesses operate in fields that are very highly regulated by both the federal government and state pharmacy licensing agencies. Adverse decisions by the DEA or state pharmacy regulators could materially and adversely affect our ability to maintain and grow our distributions business. The MSOs we manage are primarily owned by physicians and serve pharmacy and other healthcare organizations. We believe that our MSO business is structured to comply with laws and regulations governing economic relationships between physicians and other health care providers, such as fraud and abuse laws. If regulators or courts determine our activities did not comply, we may be required to restructure our business in a manner that would reduce or eliminate its profitability.
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The MSO model may not be profitable without the right product mix and reimbursements from payors.
The Rapport MSO operates as a limited liability company, and therefore distributes profits to the members based upon their equity interest. Profitability is determined based the revenues generated by reimbursements, the cost of goods sold, and the cost of services. The success of the MSO model is predicated on several factors, including: 1) the ability to obtain competitive and specialty pricing from ancillary providers of pharmaceuticals, medical devices, surgical supplies, and biologics used by the physicians in the MSO for the optimal care of their patients; 2) the reimbursements for pharmaceuticals, medical devices, surgical supplies, and biologics that are established and paid by third-party payors, including insurance companies, pharmacy benefits managers (or PBMs), distributors, and employers; 3) the cost for delivering ancillary services, including personnel, facilities, licenses, insurances, and administrative expenses, among others, and 4) the ability to grow the business with new partners, clients, products and services that provide new and increased revenue streams. We may not obtain pricing for goods and services that provide enough margin to maintain profitability. Reimbursements from third-party payors for pharmaceuticals, medical devices, surgical supplies, and biologics are under cost pressure, and subject to change on a quarterly basis, with the threat of reduced reimbursements an ongoing concern. We may not be able to maintain the flexibility required or have the financing to support the appropriate level of personnel, lease the correct number and type of facilities, secure the requisite licenses, and grow the business as projected due to the variability of business cycles, the uncertainty in cost of goods and services, and the ongoing threat of declining reimbursements.
Based on the opinion of counsel, we believe that the Rapport MSO model is currently legal in 22 states, however, state laws and regulations often change.
To our knowledge, Rapport, a physician-owned limited liability company is operated in full compliance with all state and federal regulations. Although we have obtained third-party legal guidance, there is no guarantee that the legal guidance is correct, nor that the Rapport model is in full compliance with all regulations, nor that regulations will change rendering the model noncompliant.
The regulations pertaining to the physician-owned MSO model may change such that the Rapport model is no longer compliant with state laws, requiring changes to the MSO model.
Changes to federal and state regulations may have significant adverse effect on the business. If the regulations change such that the Rapport MSO model is no longer allowed, we will need to change our business model to maintain compliance. Despite the fact that we are currently planning to institute additional service models under the NuGenerex subsidiary, there is no guarantee that we will be able to maintain a profitable business that is in compliance with laws and regulations.
The assets acquired in the MediSource and Pantheon transaction and the related operations may not continue to operate in the future.
On July 20, 2020, Travis Bird terminated his consulting agreement with the Company and Travis Bird caused the operations of MediSource and Pantheon to curtail. As of this filing, no resolution and/or settlement has been reached and there is no guarantee that these operations will resume. This event has led to the full impairment of goodwill and intangibles of MediSource and Pantheon for the fiscal year ended July 31, 2020.
If the statutes and regulations in our industry change, our business could be adversely affected.
The U.S. healthcare industry has undergone significant changes designed to improve patient safety, improve clinical outcomes, and increase access to medical care. These changes include enactments and repeals of various healthcare related laws and regulation. Our operations and economic viability may be adversely affected by the changes in such regulations, including: (i) federal and state fraud and abuse laws; (ii) federal and state anti-kickback statutes; (iii) federal and state false claims laws; (iv) federal and state self-referral laws; (v) state restrictions on fee splitting; (vi) laws regarding the privacy and confidentiality of patient information; and (vii) other laws and government regulations.
If there are changes in laws, regulations, or administrative or judicial interpretations, we may have to change our business practices, or our existing business practices could be challenged as unlawful, which could have a material adverse effect on our business, financial condition, and results of operations.
We are expanding our product and service offerings to offset risk associated with the cost of goods and regulatory concerns, however, there is no guarantee that the new products and services will be successful in the marketplace.
We formed DMEiq, LLC (“DME-IQ”), a tablet-based software and service business designed to help orthopedic practices manage and operate an in-house program for orthopedic durable medical equipment (or DME). While we are beginning to generate revenues with the first implementation of DME-IQ, the return on investment for us is still to be proven. The sales cycle for contracting with new orthopedic practices to implement the DME-IQ program is long, and requires multiple meetings, financial and practice analysis, and legal/regulatory review. There is no guarantee that we will be able to achieve our sales goals.
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We are in the process of acquiring manufacturers and suppliers of orthopedic implants, surgical supplies and tools, and biologics that can be utilized by the MSO network. There is no guarantee that these acquisitions will be completed, or if completed, that the products will be chosen by the MSO physicians in the surgical and medical practices.
Our subsidiary Olaregen is offering our newly launched product for wound management, Excellagen to the MSO network of orthopedic surgeons and podiatrists. There is no guarantee that we will get Excellagen on hospital and insurance formularies for reimbursement. Therefore, there is a risk that the product may not be utilized as expected.
We may encounter difficulties in managing our growth, and the nature of our business and rapid changes in the healthcare industry makes it difficult to reliably predict future growth and operating results.
We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentially rapid and substantial growth, which could result in an increase in the level of responsibility for management personnel and strain on our human and capital resources. To manage growth effectively, we will be required, among other things, to continue to implement and improve our operating and financial systems, procedures and controls and to expand, train and manage our employee base. If we are unable to implement and scale improvements to our existing systems and controls in an efficient and timely manner or if we encounter deficiencies, we will not be able to successfully execute our business plans.
Failure to attract and retain sufficient numbers of qualified personnel could also impede our growth.
If we are unable to manage our growth effectively, it will have a material adverse effect on our business, results of operations and financial condition. The evolving nature of our business and rapid changes in the healthcare industry make it difficult to anticipate the nature and amount of medical reimbursements, third-party private payments, and participation in certain government programs and thus to reliably predict our future growth and operating results. Our growth strategy may incur significant costs, which could adversely affect our financial condition. Our growth by strategic transactions strategy involves significant costs, including financial advisory, legal and accounting fees, and may include additional costs for items such as fairness opinions and severance payments. These costs could put a strain on our cash flows, which in turn could adversely affect our overall financial condition.
We are regulated by federal Anti-Kickback Statutes
The federal Anti-Kickback Statute is a provision of the Social Security Act of 1972 that prohibits as a felony offense the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, (1) the referral of a patient for items or services for which payment may be made in whole or part under Medicare, Medicaid, or other federal healthcare programs, (2) the furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid, or other federal healthcare programs or (3) the purchase, lease, or order or arranging or recommending the purchasing, leasing or ordering of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The Patient Protection and Affordable Care Act (“ACA”) amended section 1128B of the Social Security Act to make it clear that a person need not have actual knowledge of the statute, or specific intent to violate the statute, as a predicate for a violation. The OIG, which has the authority to impose administrative sanctions for violation of the statute, has adopted as its standard for review a judicial interpretation which concludes that the statute prohibits any arrangement where even one purpose of the remuneration is to induce or reward referrals. A violation of the Anti-Kickback Statute is a felony punishable by imprisonment, criminal fines of up to $25,000, civil fines of up to $50,000 per violation, and three times the amount of the unlawful remuneration. A violation also can result in exclusion from Medicare, Medicaid or other federal healthcare programs. In addition, pursuant to the changes of the Affordable Care Act (“ACA”), a claim that includes items or services resulting from a violation of the Anti-Kickback Statute is a false claim for purposes of the False Claims Act.
We cannot assure that the applicable regulatory authorities will not determine that some of our arrangements with physicians violate the federal Anti-Kickback Statute or other applicable laws. An adverse determination could subject us to different liabilities, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other health care programs, any of which could have a material adverse effect on our business, financial condition or results of operations.
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We are regulated by federal Stark Laws
The federal Stark Law, 42 U.S.C. 1395nn, also known as the physician self-referral law, generally prohibits a physician from referring Medicare and Medicaid patients to an entity (including hospitals) providing ‘‘designated health services,’’ if the physician or a member of the physician’s immediate family has a ‘‘financial relationship’’ with the entity, unless a specific exception applies. Designated health services include, among other services, inpatient hospital services, outpatient prescription drug services, clinical laboratory services, certain imaging services (e.g., MRI, CT, ultrasound), and other services that our affiliated physicians may order for their patients. The prohibition applies regardless of the reasons for the financial relationship and the referral; and therefore, unlike the federal Anti-Kickback Statute, intent to violate the law is not required. Like the Anti-Kickback Statute, the Stark Law contains statutory and regulatory exceptions intended to protect certain types of transactions and arrangements. Unlike safe harbors under the Anti-Kickback Statute with which compliance is voluntary, an arrangement must comply with every requirement of a Stark Law exception or the arrangement is in violation of the Stark Law.
Because the Stark Law and implementing regulations continue to evolve and are detailed and complex, while we attempt to structure its relationships to meet an exception to the Stark Law, there can be no assurance that the arrangements entered into by us with affiliated physicians and facilities will be found to be in compliance with the Stark Law, as it ultimately may be implemented or interpreted. The penalties for violating the Stark Law can include the denial of payment for services ordered in violation of the statute, mandatory refunds of any sums paid for such services, and civil penalties of up to $15,000 for each violation, double damages, and possible exclusion from future participation in the governmental healthcare programs. A person who engages in a scheme to circumvent the Stark Law’s prohibitions may be fined up to $100,000 for each applicable arrangement or scheme.
Some states have enacted statutes and regulations against self-referral arrangements similar to the federal Stark Law, but which may be applicable to the referral of patients regardless of their payor source and which may apply to different types of services. These state laws may contain statutory and regulatory exceptions that are different from those of the federal law and that may vary from state to state. An adverse determination under these state laws and/or the federal Stark Law could subject us to different liabilities, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other health care programs, any of which could have a material adverse effect on our business, financial condition or results of operations.
We must comply with Health Information Privacy and Security Standards
The privacy regulations Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended, contain detailed requirements concerning the use and disclosure of individually identifiable patient health information (“PHI”) by entities like our MSOs and affiliated IPAs and medical groups. HIPAA covered entities must implement certain administrative, physical, and technical security standards to protect the integrity, confidentiality and availability of certain electronic health information received, maintained, or transmitted. HIPAA also implemented standard transaction code sets and standard identifiers that covered entities must use when submitting or receiving certain electronic healthcare transactions, including billing and claim collection activities. Violations of the HIPAA privacy and security rules may result in civil and criminal penalties, including a tiered system of civil money penalties that range from $100 to $50,000 per violation, with a cap of $1.5 million per year for identical violations. A HIPAA covered entity must also promptly notify affected individuals where a breach affects more than 500 individuals and report breaches affecting fewer than 500 individuals annually. State attorneys general may bring civil actions on behalf of state residents for violations of the HIPAA privacy and security rules, obtain damages on behalf of state residents, and enjoin further violations.
Many states also have laws that protect the privacy and security of confidential, personal information, which may be similar to or even more stringent than HIPAA. Some of these state laws may impose fines and penalties on violators and may afford private rights of action to individuals who believe their personal information has been misused. We expect increased federal and state privacy and security enforcement efforts.
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A cyber security incident could cause a violation of HIPAA, breach of customer and patient privacy, or other negative impacts.
We rely extensively on our information technology (or IT) systems to manage scheduling and financial data, communicate with customers and their patients, vendors, and other third parties, and summarize and analyze operating results. In addition, we have made significant investments in technology, including the engagement of a third-party IT provider. A cyber-attack that bypasses our IT security systems could cause an IT security breach, a loss of protected health information, or other data subject to privacy laws, a loss of proprietary business information, or a material disruption of our IT business systems. This in turn could have a material adverse impact on our business and result of operations. In addition, our future results of operations, as well as our reputation, could be adversely impacted by theft, destruction, loss, or misappropriation of public health information, other confidential data, or proprietary business information.
Computer malware, viruses, and hacking and phishing attacks by third parties have become more prevalent in our industry, have occurred on our systems in the past, and may occur on our systems in the future. Because techniques used to obtain unauthorized access to or sabotage systems change frequently and generally are not recognized until successfully launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. As cyber-security threats develop and grow, it may be necessary to make significant further investments to protect data and infrastructure. If an actual or perceived breach of our security occurs, (i) we could suffer severe reputational damage adversely affecting customer or investor confidence, (ii) the market perception of the effectiveness of our security measures could be harmed, (iii) we could lose potential sales and existing customers, our ability to deliver our services or operate our business may be impaired, (iv) we may be subject to litigation or regulatory investigations or orders, and (v) we may incur significant liabilities. Our insurance coverage may not be adequate to cover the potentially significant losses that may result from security breaches. We are currently reviewing our needs for cybersecurity policy as we fund and plan to commercialize our products and relaunch our MSO.
We must comply with Environmental and Occupational Safety and Health Administration Regulations
We are subject to federal, state and local regulations governing the storage, use and disposal of waste materials and products. Although we believe that our safety procedures for storing, handling and disposing of these materials and products comply with the standards prescribed by law and regulation, we cannot eliminate the risk of accidental contamination or injury from those hazardous materials. In the event of an accident, we could be held liable for any damages that result and any liability could exceed the limits or fall outside the coverage of our insurance coverage, which we may not be able to maintain on acceptable terms, or at all. We could incur significant costs and attention of our management could be diverted to comply with current or future environmental laws and regulations. Federal regulations promulgated by the Occupational Safety and Health Administration impose additional requirements on us, including those protecting employees from exposure to elements such as blood-borne pathogens. We cannot predict the frequency of compliance, monitoring, or enforcement actions to which we may be subject as those regulations are being implemented, which could adversely affect our operations.
We must comply with a range of other Federal and State Healthcare Laws.
We are also subject to other federal and state healthcare laws that could have a material adverse effect on our business, financial condition or results of operations. The Health Care Fraud Statute prohibits any person from knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, which can be either a government or private payor plan. Violation of this statute, even in the absence of actual knowledge of or specific intent to violate the statute, may be charged as a felony offense and may result in fines, imprisonment, or both. The Health Care False Statement Statute prohibits, in any matter involving a federal health care program, anyone from knowingly and willfully falsifying, concealing or covering up, by any trick, scheme or device, a material fact, or making any materially false, fictitious or fraudulent statement or representation, or making or using any materially false writing or document knowing that it contains a materially false or fraudulent statement. A violation of this statute may be charged as a felony offense and may result in fines, imprisonment or both. Under the Civil Monetary Penalties Law of the Social Security Act, a person (including an organization) is prohibited from knowingly presenting or causing to be presented to any United States officer, employee, agent, or department, or any state agency, a claim for payment for medical or other items or services where the person knows or should know (a) the items or services were not provided as described in the coding of the claim, (b) the claim is a false or fraudulent claim, (c) the claim is for a service furnished by an unlicensed physician, (d) the claim is for medical or other items or service furnished by a person or an entity that is in a period of exclusion from the program, or (e) the items or services are medically unnecessary items or services. Violations of the law may result in penalties of up to $10,000 per claim, treble damages, and exclusion from federal healthcare programs.
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In addition, the office of inspector general (“OIG”) may impose civil monetary penalties against any physician who knowingly accepts payment from a hospital (as well as against the hospital making the payment) as an inducement to reduce or limit medically necessary services provided to Medicare or Medicaid program beneficiaries. Further, except as permitted under the Civil Monetary Penalties Law, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider of Medicare or Medicaid payable items or services may be liable for civil money penalties of up to $10,000 for each wrongful act.
In addition to the state laws previously described, we may also be subject to other state fraud and abuse statutes and regulations if we expand our operations nationally. Many states have adopted a form of anti-kickback law, self-referral prohibition, and false claims and insurance fraud prohibition. The scope of these laws and the interpretations of them vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. Generally, state laws reach to all healthcare services and not just those covered under a governmental healthcare program. A determination of liability under any of these laws could result in fines and penalties and restrictions on our ability to operate in these states. We cannot assure that our arrangements or business practices will not be subject to government scrutiny or be found to violate applicable fraud and abuse laws.
Changes in healthcare laws could create an uncertain environment and materially impact us.
We cannot predict the effect that the ACA (also known as Obamacare) and its implementation, amendment, or repeal and replacement, may have on our business, results of operations or financial condition. Any changes in healthcare laws or regulations that reduce, curtail or eliminate payments, government-subsidized programs, government-sponsored programs, and/or the expansion of Medicare or Medicaid, among other actions, could have a material adverse effect on our business, results of operations and financial condition. For example, the ACA dramatically changed how healthcare services are covered, delivered, and reimbursed. The ACA requires insurers to accept all applicants, regardless of pre-existing conditions, cover an extensive list of conditions and treatments, and charge the same rates, regardless of pre-existing condition or gender.
The ACA and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Acts”) also mandated changes specific to home health and hospice benefits under Medicare. In 2012, the U.S. Supreme Court upheld the constitutionality of the ACA, including the “individual mandate” provisions of the ACA that generally require all individuals to obtain healthcare insurance or pay a penalty. However, the U.S. Supreme Court also held that the provision of the ACA that authorized the Secretary of the U.S. Department of Health and Human Services (“HHS”) to penalize states that choose not to participate in the expansion of the Medicaid program by removing all of its existing Medicaid funding was unconstitutional. In response to the ruling, a number of state governors opposed its state’s participation in the expanded Medicaid program, which resulted in the ACA not providing coverage to some low-income persons in those states. In addition, several bills have been, and are continuing to be, introduced in U.S. Congress to amend all or significant provisions of the ACA, or repeal and replace the ACA with another law. In December 2017, the individual mandate was repealed via the Tax Cuts and Jobs Act of 2017. Afterwards, legal and political challenges as to the constitutionality of the remaining provisions of the ACA resumed.
Our operations are subject to the nation’s healthcare laws, as amended, repealed, or replaced from time to time.
The net effect of the ACA on our business is subject to numerous variables, including the law’s complexity, lack of complete implementing regulations and interpretive guidance, gradual and potentially delayed implementation or possible amendment, as well as the uncertainty as to the extent to which states will choose to participate in the expanded Medicaid program. The continued implementation of provisions of the ACA, the adoption of new regulations thereunder and ongoing challenges thereto, also added uncertainty about the current state of U.S. healthcare laws and could negatively impact our business, results of operations and financial condition. Healthcare providers could be subject to federal and state investigations and payor audits.
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Due to our and our affiliates’ participation in government and private healthcare programs, we are from time to time involved in inquiries, reviews, audits, and investigations by governmental agencies and private payors of our business practices, including assessments of our compliance with coding, billing and documentation requirements. Federal and state government agencies have active civil and criminal enforcement efforts against healthcare companies, and their executives and managers. The Deficit Reduction Act, which provides a financial incentive to states to enact their own false claims acts, and similar laws encourage investigations against healthcare companies by different agencies. These investigations could also be initiated by private whistleblowers.
Responding to audit and investigative activities are costly and disruptive to our business operations, even when the allegations are without merit. If we are subject to an audit or investigation, a finding could be made that we or our affiliates erroneously billed or were incorrectly reimbursed, and we may be required to repay such agencies or payors, may be subjected to pre-payment reviews, which can be time-consuming and result in non-payment or delayed payments for the services we or our affiliates provide, and may be subject to financial sanctions or required to modify our operations.
Product pricing is subject to regulatory control.
Routinely, the pricing and profitability of the products we sell are subject to control by third-party payors. The continuing efforts of governmental and other third-party payors to contain or reduce the cost of healthcare through various means may adversely affect our ability to successfully commercialize our products. We anticipate that there will continue to be federal and state proposals to implement similar governmental control, although it is unclear which proposals will ultimately become law, if any. Direct or indirect changes in prices, including any mandated pricing, could impact our revenues, profitability, and financial performance.
Our revenues will depend on our customers’ continued receipt of adequate reimbursement from private insurers and government sponsored healthcare programs.
Political, economic, and regulatory influences continue to change the healthcare industry in the United States. The ability of hospitals to pay fees for our products partially depends on the extent to which reimbursement for the costs of such materials and related treatments will continue to be available from private health coverage insurers and other similar organizations. We may have difficulty gaining market acceptance for the products we sell if third-party payors do not provide adequate coverage and reimbursement to hospitals.
Major third-party payors of hospitals, such as private healthcare insurers, periodically revise their payment methodologies based, in part, upon changes in government sponsored healthcare programs. We cannot predict these periodic revisions with certainty, and such revisions may result in stricter standards for reimbursement of hospital charges for certain specified products, potentially adversely impacting our business, results of operations, and financial conditions.
The FDA regulates the manufacturers and suppliers of the products that we sell, market, manufacture, and distribute, and regulatory compliance is costly and could contribute to delays in the availability of our products.
Under FDA regulations, we are subject to the same FDA regulation as the manufacturers and suppliers to whom we distribute. These regulations govern (i) the manufacturing and processing of cellular and tissue products; (ii) the introduction of new medical devices; (iii) the observance of certain standards with respect to the design, manufacturing, testing, labeling, promotion, and sales of the devices; (iv) the maintenance of certain records; (v) the ability to track devices; (vi) the reporting of potential product defects; (vii) the importing and exporting of devices; and (viii) various other matters. Furthermore, manufacturers that create the products we market face an increasing amount of scrutiny and compliance costs as more states implement regulations governing medical devices and Biologics. In addition, we are subject to ongoing compliance concerning our 510(k) Approvals, as well as potential on-site inspections by the FDA. Being found in violation and failing to correct an FDA compliance issue could potentially result in product recall, product seizure, or the de-listing of our products with 510(k) Approval. These types of FDA regulations could affect many of the products we market, impacting our revenues and profitability, results of operations, and working capital.
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Future regulatory action remains uncertain.
We operate in a highly-regulated and evolving environment with rigorous regulatory enforcement. Any legal or regulatory action could be time-consuming and costly. If we or the manufacturers or distributors that supply our products fail to comply with all applicable laws, standards, and regulations, action by the FDA or other regulatory agencies could result in significant restrictions, including restrictions on the marketing or use of the products we sell or the withdrawal of the products we sell from the market. Any such restrictions or withdrawals could materially affect our reputation, business and operations.
U.S. federal and state governmental regulation could restrict our ability to sell our products.
Our business is subject to highly complex and evolving regulatory and licensing requirements that are subject to uncertainty, rapid change, differing interpretations, and rigorous regulatory enforcement. Failure to comply with such regulatory requirements may result in civil or criminal penalties, including the loss of licenses or the exclusion from future participation in government healthcare programs. There can be no assurance that federal or state regulatory or enforcement authorities will not investigate or challenge our current or future activities under these laws. Any state or federal regulatory or enforcement review of us, regardless of the outcome, would be costly and time consuming. Additionally, we cannot predict the impact of any changes in these laws, whether these changes are retroactive or will affect our Company on a going-forward basis only. Any investigation or challenge could have a material adverse effect on our reputation, business, financial condition, and results of operations.
The FDA and similar state authorities require us to list and register certain products, because we are a distributor, marketer, specification developer and repackager/relabeler and manufacturer for FDA-regulated products.
If we are successful in executing our business plan, we will be a distributor, marketer, and specification developer and repackager/relabeler of FDA-regulated products, and as such we may be subject to independent requirements to register and list certain products. We may be required to obtain state licensure or certifications and may be subject to inspections, in addition to complying with derivative requirements applicable to the manufacturers of the products we market. Failure to comply with such applicable requirements could result in a wide variety of enforcement actions, ranging from warning letters to more severe sanctions, such as significant costly fines and civil penalties, operating restrictions, injunctions, and criminal prosecutions, all of which could adversely impact our business.
Our product candidates will remain subject to ongoing regulatory review even after they receive marketing approval, and if we fail to comply with continuing regulations, we could lose these approvals and the sale of any of our approved commercial products could be suspended.
Even as we receive regulatory approval to market a particular product candidate, the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, and record keeping related to the product will remain subject to extensive regulatory requirements. If we fail to comply with the regulatory requirements of the FDA and other applicable domestic and foreign regulatory authorities or discover any previously unknown problems with any approved product, manufacturer, or manufacturing process, we could be subject to administrative or judicially imposed sanctions, including:
• | restrictions on the products, manufacturers, or manufacturing processes; | ||
• | warning letters; | ||
• | civil or criminal penalties; | ||
• | fines; | ||
• | injunctions; | ||
• | product seizures or detentions; | ||
• | pressure to initiate voluntary product recalls; | ||
• | suspension or withdrawal of regulatory approvals; and | ||
• | refusal to approve pending applications for marketing approval of new products or supplements to approved applications. |
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If physicians and patients do not accept our current and future products or if the market for indications for which any product candidate is approved is smaller than expected, we may be unable to generate significant revenue, if any.
Even when any of our product candidates obtain regulatory approval, they may not gain market acceptance among physicians, patients, and third-party payers. Physicians may decide not to recommend our treatments for a variety of reasons including:
• | timing of market introduction of competitive products; | ||
• | demonstration of clinical safety and efficacy compared to other products; | ||
• | cost-effectiveness; | ||
• | limited or no coverage by third-party payers; | ||
• | convenience and ease of administration; | ||
• | prevalence and severity of adverse side effects; | ||
• | restrictions in the label of the drug; | ||
• | other potential advantages of alternative treatment methods; and | ||
• | ineffective marketing and distribution support of its products. |
If any of our product candidates are approved, but fail to achieve market acceptance or such market is smaller than anticipated, we may not be able to generate significant revenue and our business would suffer.
Intellectual property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling certain of our products.
The medical device and pharmaceutical industries are characterized by extensive intellectual property litigation and, from time to time, we may become the subject of claims of infringement or misappropriation. Regardless of outcome, such claims are expensive to defend and divert management and operating personnel from other business issues. A successful claim or claims of patent or other intellectual property infringement against us could result in payment of significant monetary damages and/or royalty payments or negatively impact our ability to sell current or future products in the affected category.
We depend extensively on our patents and proprietary technology and the patents and proprietary technology we license from others, and we must protect those assets in order to preserve our business.
Although we expect to seek patent protection for any compounds, devices, biologics, systems, and processes we discover and/or for any specific use we discover for new or previously known compounds, devices, biologics, systems, or processes, any or all of which may not be subject to effective patent protection. In addition, our issued patents may be declared invalid or our competitors may find ways to avoid the claims in the patents.
Our success will depend, in part, on our ability to obtain patents, protect our trade secrets and operate without infringing on the proprietary rights of others. We are the exclusive licensee, sole assignee or co-assignee of numerous granted United States patents, pending United States patent applications and international patents. The patent position of pharmaceutical and biotechnology firms like us are generally highly uncertain and involves complex legal and factual questions, resulting in both an apparent inconsistency regarding the breadth of claims allowed in United States patents and general uncertainty as to their legal interpretation and enforceability. Accordingly, patent applications assigned or exclusively licensed to us may not result in patents being issued, any issued patents assigned or exclusively licensed to us may not provide us with competitive protection or may be challenged by others, and the current or future granted patents of others may have an adverse effect on our ability to do business and achieve profitability.
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Moreover, because some of the basic research relating to one or more of our patent applications and/or patents were performed at various universities and/or funded by grants, one or more universities, employees of such universities and/or grantors could assert that they have certain rights in such research and any resulting products. Further, others may independently develop similar products, may duplicate our products, or may design around our patent rights. In addition, as a result of the assertion of rights by a third-party or otherwise, we may be required to obtain licenses to patents or other proprietary rights of others in or outside of the United States. Any licenses required under any such patents or proprietary rights may not be made available on terms acceptable to us, if at all. If we do not obtain such licenses, we could encounter delays in product market introductions during our attempts to design around such patents or could find that the development, manufacture or sale of products requiring such licenses is foreclosed. In addition, we could incur substantial costs in defending suits brought against us or in connection with patents to which we hold licenses or in bringing suit to protect our own patents against infringement.
We depend on license agreements with third-parties for certain intellectual property rights relating to our products and product candidates. In general, our license agreements require us to make payments and satisfy performance obligations in order to keep these agreements in effect and retain our rights under them. These payment obligations can include upfront fees, maintenance fees, milestones, royalties, patent prosecution expenses, and other fees. These performance obligations typically include diligence obligations. If we fail to pay, be diligent or otherwise perform as required under our license agreements, we could lose the rights under the patents and other intellectual property rights covered by these agreements. If disputes arise under any of our in-licenses, we could lose our rights under these agreements. Any such dispute may not be resolvable on favorable terms, or at all. Whether or not any disputes of this kind are favorably resolved, our management’s time and attention and our other resources could be consumed by the need to attend to these disputes and our business could be harmed by the emergence of such a dispute.
If we lose our rights under these agreements, we might not be able to develop any related product candidates further, or following regulatory approval, if any, we might be prohibited from marketing or commercializing these product candidates. In particular, patents previously licensed to us might, after termination of an agreement, be used to stop us from conducting these activities.
Due to legal and factual uncertainties regarding the scope and protection afforded by patents and other proprietary rights, we may not have meaningful protection from competition.
Our long-term success will substantially depend upon our ability to protect our proprietary technologies from infringement, misappropriation, discovery and duplication, and avoid infringing the proprietary rights of others. Our patent rights and the patent rights of biotechnology and pharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. Because of this, our pending patent applications may not be granted. These uncertainties also mean that any patents that we own or will obtain in the future could be subject to challenge, and even if not challenged, may not provide us with meaningful protection from competition. Due to our financial uncertainties, we may not possess the financial resources necessary to enforce our patents. Patents already issued to us or our pending applications may become subject to dispute, and any dispute could be resolved against us.
Because a substantial number of patents have been issued in the field of alternative drug delivery and because patent positions can be highly uncertain and frequently involve complex legal and factual questions, the breadth of claims obtained in any application or the enforceability of our patents cannot be predicted. Consequently, we do not know whether any of our pending or future patent applications will result in the issuance of patents or, to the extent patents have been issued or will be issued, whether these patents will be subject to further proceedings limiting their scope, will provide significant proprietary protection or competitive advantage, or will be circumvented or invalidated. Several of our currently issued patents have expired or will expire in the next twelve months.
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Also, because of these legal and factual uncertainties, and because pending patent applications are held in secrecy for varying periods in the United States and other countries, even after reasonable investigation, we may not know with certainty whether any products that we (or a licensee) may develop will infringe upon any patent or other intellectual property right of a third party. For example, we are aware of certain patents owned by third parties that such parties could attempt to use in the future in efforts to affect our freedom to practice some of the patents that we own or have applied for. Based upon the science and scope of these third-party patents, we believe that the patents that we own or have applied for do not infringe any such third-party patents; however, we cannot know for certain whether we could successfully defend our position, if challenged. We may incur substantial costs if we are required to defend our intellectual property in patent suits brought by third parties. These legal actions could seek damages and seek to enjoin testing, manufacturing and marketing of the accused product or process. In addition to potential liability for significant damages, we could be required to obtain a license to continue to manufacture or market the accused product or process.
We may not be able to compete with treatments now being marketed and developed, or which may be developed and marketed in the future by other companies.
Our products will compete with existing and new therapies and treatments. We are aware of a number of companies currently seeking to develop alternative means of delivering insulin, as well as new drugs intended to replace insulin therapy at least in part. We are also aware of a number of companies currently seeking to develop alternative means of enhancing and suppressing peptides. In the longer term, we also face competition from companies that seek to develop cures for diabetes and other malignant, infectious, autoimmune and allergic diseases through techniques for correcting the genetic deficiencies that underlie some of these diseases.
Numerous pharmaceutical, biotechnology and drug delivery companies, hospitals, research organizations, individual scientists, and nonprofit organizations are engaged in the development of alternatives to our technologies. Some of these companies have greater research and development capabilities, experience, manufacturing, marketing, financial, and managerial resources than we do. Collaborations or mergers between large pharmaceutical or biotechnology companies with competing drug delivery technologies could enhance our competitors’ financial, marketing, and other resources. Developments by other drug delivery companies could make our products or technologies uncompetitive or obsolete. Accordingly, our competitors may succeed in developing competing technologies, obtaining FDA approval for products or gaining market acceptance more rapidly than we can.
Some of our most significant competitors, Pfizer, Eli Lilly, and Novo Nordisk, have discontinued development and/or sale of their inhalable forms of insulin. Unlike inhaled insulin formulations, Generex Oral-lyn™ is a buccally absorbed formulation with no residual pulmonary deposition.
Our industry is highly competitive, and our product candidates may become obsolete.
The healthcare industry is highly competitive and fragmented. We compete with other health care management companies for customers across all of our services, including MSOs and healthcare providers, such as local, regional, and national networks of physicians, medical groups and hospitals, many of which are substantially larger than us and have significantly greater financial and other resources, including personnel, than what we have.
We are engaged in a rapidly evolving field. Competition from other pharmaceutical companies, biotechnology companies, and research and academic institutions is intense and likely to increase. Many of those companies and institutions have substantially greater financial, technical, and human resources than we do. Those companies and institutions also have substantially greater experience in developing products, conducting clinical trials, obtaining regulatory approval and in manufacturing and marketing pharmaceutical products. Our competitors may succeed in obtaining regulatory approval for their products more rapidly than we do. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products. We are aware of potential competitors developing products similar to our sarcoma vaccine, ovarian cancer vaccine and pancreatic cancer antibodies product candidates. Our competitors may succeed in developing products that are more effective and/or cost competitive than those we are developing, or that would render our product candidates less competitive or even obsolete. In addition, one or more of our competitors may achieve product commercialization or patent protection earlier than we do, which could materially adversely affect our business.
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Due in part to our limited financial resources, we may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable indications or therapeutic areas for our product candidates or those that are in-licensed, and/or we may be unable to pursue the clinical trials that we would like to pursue.
We have limited technical, managerial, and financial resources to determine the indications on which we should focus the development efforts related to our product candidates. Due to our limited available financial resources, we may have curtailed clinical development programs and activities that might otherwise have led to more rapid progress of our product candidates through the regulatory and development processes.
We may make incorrect determinations with regard to the indications and clinical trials on which to focus the available resources that we do have. Furthermore, we cannot assure you that we will be able to retain adequate staffing levels to run our operations and/or to accomplish all of the objectives that we otherwise would seek to accomplish. Our decisions to allocate our research, management, and financial resources toward particular indications or therapeutic areas for our product candidates may not lead to the development of viable commercial products and may divert resources from better opportunities. Similarly, our decisions to delay or terminate drug development programs may also cause us to miss valuable opportunities.
If the third parties on which we rely for the conduct of our clinical trials and results do not perform our clinical trial activities in accordance with good clinical practices and related regulatory requirements, we may be unable to obtain regulatory approval for or commercialize our product candidates.
We use independent clinical investigators and other third-party service providers to conduct and/or oversee the clinical trials of our product candidates, and expect to continue to do so for the foreseeable future. We rely heavily on these parties for successful execution of our clinical trials. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with the FDA’s requirements and our general investigational plan and protocol.
The FDA requires us and our clinical investigators to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate, and that the trial participants are adequately protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Third parties may not complete activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or the respective trial plans and protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval, and commercialization of our product candidates or result in enforcement action against us.
Risks Related to Manufacturing & Distribution
We have limited manufacturing capacity and have relied on, and expect to continue to rely on, third-party contract manufacturers to produce our products and clinical development candidates.
We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our products and candidates, and we currently lack the resources and the capabilities to build our own manufacturing facilities. As a result, we currently rely, and expect to rely for the foreseeable future, on third-party contract manufacturers to supply our products and clinical trial supplies. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured our product candidates or products ourselves, including:
• | reliance on third-parties for manufacturing process development, regulatory compliance and quality assurance; |
• | limitations on supply availability resulting from capacity and scheduling constraints of third-parties; |
• | the possible breach of manufacturing agreements by third-parties because of factors beyond our control; and |
• | the possible termination or non-renewal of the manufacturing agreements by the third-party, at a time that is costly or inconvenient to us. |
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If we do not maintain our key manufacturing relationships, we may fail to find replacement manufacturers or develop our own manufacturing capabilities, which could delay or impair our ability to obtain regulatory approval for our products and substantially increases our costs or deplete profit margins, if any. If we do find replacement manufacturers, we may not be able to enter into agreements with them on terms and conditions favorable to us, and there could be a substantial delay before new facilities could be qualified and registered with the FDA and other foreign regulatory authorities.
The FDA and other foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators also inspect these facilities to confirm compliance with current FDA Good Manufacturing Procedures (“cGMP”). Contract manufacturers may face manufacturing or quality control problems, leading to drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA, EMA, and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products following approval.
Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop our product candidates and commercialize any products that receive regulatory approval on a timely basis.
Interruption of manufacturing operations could adversely affect our business.
Our suppliers have manufacturing facilities for certain product lines that may be concentrated in one (1) or more plants. Damage to these facilities or issues in our manufacturing arising from a failure to follow specific internal protocols and procedures, compliance concerns relating to quality systems regulations, equipment breakdown or malfunction, among other factors, could adversely affect the availability of our products. In the event of an interruption in manufacturing of certain products, we may be unable to quickly shift to alternate means of production to meet customer demand. In the event of a significant interruption, we may experience lengthy delays in resuming production of affected products due to the need for regulatory approvals. We may experience loss of market share, additional expense, or harm to our reputation.
Additionally, we contract with a limited number of suppliers for the raw materials that we use to produce certain products. While we have not experienced a shortage of raw materials in the past and believe that it is unlikely that there will be one in the future, if there were a shortage of raw materials, it could either increase the cost of production or prevent us from being able to produce some of our products, which could adversely affect future results of our operations and financial condition.
We may be adversely affected by product liability claims, unfavorable court decisions or legal settlements.
We are exposed to potential product liability risks inherent in the design, manufacturing, and marketing of pharmaceuticals and medical devices, many of which are administered to or implanted in the human body for long periods of time or indefinitely. These matters are subject to many uncertainties and outcomes are not predictable. In addition, we may incur significant legal expenses regardless of whether we are found to be liable.
While we maintain product liability insurance, there can be no assurance that such coverage is sufficient to cover all product liabilities that we may incur. We are not currently subject to any product liability proceedings, and we have no reserves for product liability disbursements. However, we may incur material liabilities relating to product liability claims in the future, including product liability claims arising out of the usage and delivery of our products. Should we incur product-related liabilities exceeding our insurance coverage, we would be required to use available cash or raise additional cash to cover such liabilities.
If government programs and insurance companies do not agree to pay for or reimburse patients for our pharmaceutical products, our success will be impacted.
Sales of our oral insulin formulation in Ecuador, Lebanon, Algeria and India and our other potential pharmaceutical products in other markets will depend in part on the availability of reimbursement by third-party payers, such as government health administration authorities, private health insurers and other organizations. Third-party payers often challenge the price and cost-effectiveness of medical products and services. Governmental approval of health care products does not guarantee that these third-party payers will pay for the products. Even if third-party payers do accept our product, the amounts they pay may not be adequate to enable us to realize a profit. Legislation and regulations affecting the pricing of pharmaceuticals may change before our products are approved for marketing, and any such changes could further limit reimbursement.
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Because we may not be able to obtain or maintain the necessary regulatory approvals for some of our products, we may not generate revenues in the amounts we expect, or in the amounts necessary to continue our business. Our existing products as well as our manufacturing facility must meet quality standards and are subject to inspection by a number of domestic regulatory and other governmental and non-governmental agencies.
All of our proposed and existing products are subject to regulation in the U.S. by the FDA, the U.S. Department of Agriculture (“USDA”) and/or other domestic and international governmental, public health agencies, regulatory bodies or non-governmental organizations. In particular, we are subject to strict governmental controls on the development, manufacturing, labeling, distribution, and marketing of our products. The process of obtaining required approvals or clearances varies according to the nature of, and uses for, a specific product. These processes can involve lengthy and detailed laboratory testing, human or animal clinical trials, sampling activities, and other costly, time-consuming procedures. The submission of an application to a regulatory authority does not guarantee that the authority will grant an approval or clearance for that product. Each authority may impose its own requirements and can delay or refuse to grant approval or clearance, even though a product has been approved in another country.
The time required to obtain approval or clearance varies depending on the nature of the application and may result in the passage of a significant period of time from the date of submission of the application. Delays in the approval or clearance processes increase the risk that we will not succeed in introducing or selling the subject products, and we may determine to devote our resources to different products.
Changes in government regulations could increase our costs and could require us to undergo additional trials or procedures, or could make it impractical or impossible for us to market our products for certain uses, in certain markets, or at all.
Changes in government regulations may adversely affect our financial condition and results of operations because we may have to incur additional expenses if we are required to change or implement new testing, manufacturing and control procedures. If we are required to devote resources to develop such new procedures, we may not have sufficient resources to devote to research and development, marketing, or other activities that are critical to our business.
We can manufacture and sell our products only if we comply with regulations and quality standards established by government agencies such as the FDA and the USDA, as well as non-governmental organizations such as the International Organization for Standardization (“ISO”) and WHO. We have implemented a quality control system that is intended to comply with applicable regulations. Although FDA approval is not required for the export of our products, there are export regulations promulgated by the FDA that specifically relate to the export of our products that require compliance with FDA quality system regulation and that also require meeting certain documentary requirements regarding the approval of the product in export markets. Although we believe that we meet the regulatory standards required for the export of our products, these regulations could change in a manner that could adversely impact our ability to export our products.
We may not have sufficient resources to effectively introduce and market our products, which could materially harm our operating results.
Introducing and achieving market acceptance for our products will require substantial marketing efforts and will require us and/or our contract partners, sales agents, and/or distributors to make significant expenditures of time and money. In some instances, we will be significantly or totally reliant on the marketing efforts and expenditures of our contract partners, sales agents, and/or distributors. If they do not have or commit the expertise and resources to effectively market the products that we manufacture, our operating results will be materially harmed.
In addition to the market success of our products, the success of our business depends on our ability to raise additional capital through the sale of debt or equity or through borrowing, and we may not be able to raise capital or borrow funds on attractive terms and/or in amounts necessary to continue our business, or at all.
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General Risks
The COVID-19 coronavirus could adversely impact our business, including our clinical trials.
In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, the COVID-19 coronavirus has spread to over 150 countries and every state in the United States. On January 30, 2020, the World Health Organization declared the outbreak of coronavirus a “Public Health Emergency of International Concern.” On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency.
The spread of the virus in many countries continues to adversely impact global economic activity and has contributed to significant volatility and negative pressure in financial markets and supply chains. The pandemic has had, and could have a significantly greater, material adverse effect on the U.S. economy where we conduct a majority of our business. The pandemic has resulted, and may continue to result for an extended period, in significant disruption of global financial markets, which may reduce our ability to access capital in the future, which could negatively affect our liquidity.
Operations related to the sale and use of medical devices and supplies utilized in surgical procedures may experience a delay in implementation and expansion the Company’s MSO (as defined under “—Historical Business-- The “New” Generex & The NuGenerex Family of Subsidiary Companies”) due to the pandemic, including delays and cancellations of elective procedures. The COVID-19 pandemic may also impact our workforce, supply chains or distribution networks or otherwise impact our ability to restock our medical device and supply inventories and depending upon the severity of the COVID-19 coronavirus’ continued spread in the United States and other countries, we may experience disruptions that could severely impact our business and clinical trials, including:
• | limitation of company operations, including work from home policies and office closures; |
• | one or more key officers and/or employees could be personally affected by the virus; |
• | delays or difficulties in receiving deliveries of critical experimental materials; |
• | delays or difficulties in enrolling patients in our clinical trials; |
• | delays or difficulties in scheduling of surgical procedures that utilize medical devices and supplies; |
• | delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; |
• | interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines; |
• | diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials; |
• | interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others; and |
• | limitations in employee resources that would otherwise be focused on our business, including the conduct of our clinical trials, such as because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people. |
The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 coronavirus may impact our business and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
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General economic conditions may adversely affect demand for our products and services.
Poor or deteriorating economic conditions in the U.S. could adversely affect the demand for healthcare services and consequently, the demand for our products and services. Poor economic conditions also could lead our suppliers to offer less favorable terms of purchase, which would negatively affect our cash flows and profitability. These and other possible consequences of financial and economic decline could have material adverse effect on our business, results of operations, and financial condition.
We operate our business in regions subject to natural disasters and other catastrophic events, and any disruption to our business resulting from natural disasters would adversely affect our revenue and results of operations.
We operate our business in regions subject to severe weather and natural disasters, including hurricanes, floods, fires, earthquakes, and other catastrophic events. Any natural disaster could adversely affect our ability to conduct business and provide products and services to our customers, and the insurance we maintain may not be adequate to cover our losses resulting from any business interruption resulting from a natural disaster or other catastrophic event.
Although we have an ethics and anti-corruption policy in place, and have no knowledge or reason to know of any practices by our employees, agents, or distributors that could be construed as in violation of such policies, our business includes sales of products to countries where there is or may be widespread corruption.
We have a policy in place prohibiting employees, distributors and agents from engaging in corrupt business practices, including activities prohibited by the United States Foreign Corrupt Practices Act. Nevertheless, because we work through independent sales agents and distributors outside the United States, we do not have control over the day-to-day activities of such independent agents and distributors. In addition, in the donor-funded markets in Africa where we may sell our products, there is significant oversight from the President’s Emergency Plan for AIDS Relief, or PEPFAR, the Global Fund, and advisory committees comprised of technical experts concerning the development and establishment of national testing protocols. This is a process that includes an overall assessment of a product which includes extensive product performance evaluations including five active collaborations and manufacturer’s quality systems, as well as price and delivery.
We depend heavily on our executive officers, directors, and principal consultants and the loss of their services would materially harm our business.
We believe that our success depends, and will likely continue to depend, upon our ability to retain the services of our current executive officers, directors, principal consultants and others. In addition, we have established relationships with universities, hospitals and research institutions, which have historically provided, and continue to provide, us with access to research laboratories, clinical trials, facilities and patients. The loss of the services of any of these individuals or institutions would have a material adverse effect on our business.
Risks Related to Ownership of Shares of Our Series A Preferred Stock
The Series A Preferred Stock ranks junior to all of our indebtedness and other liabilities.
In the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay obligations on the Series A Preferred Stock only after all of our indebtedness and other liabilities have been paid. The rights of holders of the Series A Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our current and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Series A Preferred Stock. Also, the Series A Preferred Stock effectively ranks junior to all existing and future indebtedness and to the indebtedness and other liabilities of our existing subsidiaries and any future subsidiaries. Our existing subsidiaries are, and future subsidiaries would be, separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series A Preferred Stock.
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We have incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Series A Preferred Stock. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due on any or all of the Series A Preferred Stock then outstanding.
Our existing or future creditors and holders of our securities will not have any rights to the amounts in the Sinking Fund.
We must adhere to prescribed legal requirements and after the amount in the Sinking Fund has been reduced to zero, we must also have sufficient cash in order to be able to pay dividends on the Preferred Stock.
The Sinking Fund will be available to pay dividends on the shares Series A Preferred Stock for the first 36 Dividend Payment Dates after the issuance of such shares in accordance with Section 171 of the Delaware General Corporation Law. After the amounts in the Sinking Fund Reserve has been reduced to zero and in accordance with Section 170 of the Delaware General Corporation Law, we may only declare and pay cash dividends on the Series A Preferred Stock if we have either net profits during the fiscal year in which the dividend is declared and/or the preceding fiscal year, or a “surplus”, meaning the excess, if any, of our net assets (total assets less total liabilities) over our capital. We can provide no assurance that we will satisfy such requirements in any given year after the amounts in the Sinking Fund Reserve have been reduced to zero. Further, even if we have the legal ability to declare a dividend after amounts in the Sinking Fund Reserve have been reduced to zero, we may not have sufficient cash to pay dividends on the Series A Preferred Stock. Our ability to pay dividends may be impaired if any of the risks described in this prospectus actually occur. Also, payment of our dividends after amounts in the Sinking Fund Reserve have been reduced to zero depend upon our financial condition and other factors as our board of directors may deem relevant from time to time. We cannot assure you that our businesses will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay dividends on the Series A Preferred Stock.
If Nasdaq delists the Series A Preferred Stock, investors’ ability to make trades in the Series A Preferred Stock could be limited.
We have applied to have our Series A Preferred Stock listed on the Nasdaq Capital Market under the symbol “GNBTP.” We cannot assure you that the Series A Preferred Stock will be approved for listing by the Nasdaq Capital Market. In order to list the Series A Preferred Stock on the Nasdaq Capital Market and continue to be listed, we must meet and maintain certain financial, distribution, and share price levels. Generally, this means having a minimum number of publicly held shares of Series A Preferred Stock (generally 1,000,000 shares), a minimum market value (generally $15,000,000) and a minimum number of holders (generally 300 public holders). If we are also unable to meet the listing standards for the Nasdaq Capital Market, we may apply to have our Series A Preferred Stock quoted by OTC Markets. If we are unable to maintain listing for the Series A Preferred Stock, the ability to transfer or sell shares of the Series A Preferred Stock will be limited and the market value of the Series A Preferred Stock will likely be materially adversely affected. Moreover, since the Series A Preferred Stock has no stated maturity date, investors may be forced to hold shares of the Series A Preferred Stock indefinitely while receiving stated dividends thereon when, as and if authorized by our board of directors and paid by us with no assurance as to ever receiving the liquidation value thereof.
The market for our Series A Preferred Stock may not provide investors with adequate liquidity.
Liquidity of the market for the Series A Preferred Stock depends on a number of factors, including prevailing interest rates, our financial condition and operating results, the number of holders of the Series A Preferred Stock, the market for similar securities and the interest of securities dealers in making a market in the Series A Preferred Stock. We cannot predict the extent to which investor interest in our Company will maintain a trading market in our Series A Preferred Stock, or how liquid that market will be. If an active market is not maintained, investors may have difficulty selling shares of our Series A Preferred Stock.
We are generally restricted from issuing shares of other series of preferred stock that rank senior the Series A Preferred Stock as to dividend rights, rights upon liquidation or voting rights, but may do so with the requisite consent of the holders of the Series A Preferred Stock; and, further, no such consent is required for the issuance of additional series of preferred stock ranking pari passu with the Series A Preferred Stock.
We are allowed to issue shares of other series of preferred stock that rank above the Series A Preferred Stock as to dividend payments and rights upon our liquidation, dissolution or winding up of our affairs, only with the approval of the holders of at least 66.67% of the outstanding Series A Preferred Stock; however, we are allowed to issue additional shares of Series A Preferred Stock and/or additional series of preferred stock that would rank equally to the Series A Preferred Stock as to dividend payments and rights upon our liquidation or winding up of our affairs without first obtaining the approval of the holders of our Series A Preferred Stock. The issuance of additional shares of Series A Preferred Stock and/or additional series of preferred stock could have the effect of reducing the amounts available to the Series A Preferred Stock upon our liquidation or dissolution or the winding up of our affairs. It also may reduce dividend payments on the Series A Preferred Stock if we do not have sufficient funds to pay dividends on all Series A Preferred Stock outstanding and other classes or series of stock with equal or senior priority with respect to dividends. Future issuances and sales of senior or pari passu preferred stock, or the perception that such issuances and sales could occur, may cause prevailing market prices for the Series A Preferred Stock and our common stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.
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Holders of additional Series A Preferred Stock and/or an additional series of preferred stock will not have any rights to the amounts in the Sinking Fund.
Market interest rates may materially and adversely affect the value of the Series A Preferred Stock.
One of the factors that will influence the price of the Series A Preferred Stock is the dividend yield on the Series A Preferred Stock (as a percentage of the market price of the Series A Preferred Stock) relative to market interest rates. Continued increase in market interest rates may lead prospective purchasers of the Series A Preferred Stock to expect a higher dividend yield (and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for dividend payments). Thus, higher market interest rates could cause the market price of the Series A Preferred Stock to materially decrease.
Holders of the Series A Preferred Stock may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.”
Distributions paid to corporate U.S. holders of the Series A Preferred Stock may be eligible for the dividends-received deduction, and distributions paid to non-corporate U.S. holders of the Series A Preferred Stock may be subject to tax at the preferential tax rates applicable to “qualified dividend income,” only if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Additionally, we may not have sufficient current earnings and profits during future fiscal years for the distributions on the Series A Preferred Stock to qualify as dividends for U.S. federal income tax purposes. If the distributions fail to qualify as dividends, U.S. holders would be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.” If any distributions on the Series A Preferred Stock with respect to any fiscal year are not eligible for the dividends-received deduction or preferential tax rates applicable to “qualified dividend income” because of insufficient current or accumulated earnings and profits, it is possible that the market value of the Series A Preferred Stock might decline.
Our revenues, operating results and cash flows may fluctuate in future periods and we may fail to meet investor expectations, which may cause the price of our Series A Preferred Stock to decline.
Variations in our quarterly and year-end operating results are difficult to predict and our income and cash flows may fluctuate significantly from period to period, which may impact our board of directors’ willingness or legal ability to declare a monthly dividend after amounts in the Sinking Fund Reserve have been reduced to zero. If our operating results fall below the expectations of investors or securities analysts, the price of our Series A Preferred Stock could decline substantially. Specific factors that may cause fluctuations in our operating results include:
• | demand and pricing for our products and services; | |
• | introduction of competing products; | |
• | our operating expenses which fluctuate due to growth of our business; | |
• | timing and popularity of new video content offerings and changes in viewing habits or the emergence of new content distribution platforms; and | |
• | variable sales cycle and implementation periods for content and services. |
The market price of the Series A Preferred Stock could be substantially affected by various factors.
The market price of the Series A Preferred Stock could be subject to wide fluctuations in response to numerous factors. The price of the Series A Preferred Stock that will prevail in the market after this offering may be higher or lower than the offering price depending on many factors, some of which are beyond our control and may not be directly related to our operating performance.
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These factors include, but are not limited to, the following:
• | prevailing interest rates, increases in which may have an adverse effect on the market price of the Series A Preferred Stock; | |
• | trading prices of similar securities; | |
• | our history of timely dividend payments; | |
• | the annual yield from dividends on the Series A Preferred Stock as compared to yields on other financial instruments; | |
• | general economic and financial market conditions; | |
• | government action or regulation; | |
• | the financial condition, performance and prospects of us and our competitors; | |
• | changes in financial estimates or recommendations by securities analysts with respect to us or our competitors in our industry; | |
• | our issuance of additional preferred equity or debt securities; and | |
• | actual or anticipated variations in quarterly operating results of us and our competitors. |
As a result of these and other factors, investors who purchase the Series A Preferred Stock in this offering may experience a decrease, which could be substantial and rapid, in the market price of the Series A Preferred Stock, including decreases unrelated to our operating performance or prospects.
We may redeem the Series A Preferred Stock.
On or after September 15, 2023, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time. Also, upon the occurrence of a Change of Control prior to September 15, 2023, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control occurred. We may have an incentive to redeem the Series A Preferred Stock voluntarily if market conditions allow us to issue other preferred stock or debt securities at a rate that is lower than the dividend rate on the Series A Preferred Stock. If we redeem the Series A Preferred Stock, then from and after the redemption date, dividends will cease to accrue on shares of Series A Preferred Stock, the shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights as a holder of those shares will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption.
A holder of Series A Preferred Stock has extremely limited voting rights.
The voting rights for a holder of Series A Preferred Stock are limited. Our shares of common stock are the only class of our securities that carry full voting rights.
Voting rights for holders of the Series A Preferred Stock exist primarily with respect to the ability to elect, voting together with the holders of any other series of our preferred stock having similar voting rights, two additional directors to our board of directors, subject to limitations described in the section of this prospectus entitled “Description of the Securities--Series A Preferred Stock—Voting Rights,” in the event that eighteen monthly dividends (whether or not consecutive) payable on the Series A Preferred Stock are in arrears, and with respect to voting on amendments to our certificate of incorporation, including the certificate of designations relating to the Series A Preferred Stock, that materially and adversely affect the rights of the holders of Series A Preferred Stock or authorize, increase or create additional classes or series of our capital stock that are senior to the Series A Preferred Stock. Other than the limited circumstances described in the prospectus and except to the extent required by law, holders of Series A Preferred Stock do not have any voting rights. Please see the section of this prospectus entitled “Description of the Securities--Series A Preferred Stock—Voting Rights.”
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The Series A Preferred Stock is not convertible into common stock, including in the event of a Change of Control, and investors will not realize a corresponding upside if the price of the common stock increases.
The Series A Preferred Stock is not convertible into shares of common stock and earns dividends at a fixed rate. Accordingly, an increase in market price of our common stock will not necessarily result in an increase in the market price of our Series A Preferred Stock. The market value of the Series A Preferred Stock may depend more on dividend and interest rates for other preferred stock, commercial paper and other investment alternatives and our actual and perceived ability to pay dividends on, and in the event of dissolution satisfy the liquidation preference with respect to, the Series A Preferred Stock.
We will have broad discretion in using the proceeds of this offering, other than proceeds deposited into the Sinking Fund Reserve, and we may not effectively spend the proceeds.
We will use the net proceeds of this offering less amounts deposited into the Sinking Fund Reserve for working capital and general corporate purposes to support our growth and may, in our discretion, use a portion of the net proceeds for dividends on our outstanding securities and the repurchase of outstanding common stock in open market transactions in compliance with Rule 10b-18 and private transactions. We have not allocated any specific portion of the net proceeds to any particular purpose, and our management will have the discretion to allocate the proceeds as it determines. We will have significant flexibility and broad discretion in applying the net proceeds of this offering, and we may not apply these proceeds effectively. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds, and you will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.
Provisions of our Restated Certificate of Incorporation could delay or prevent the acquisition or sale of our business.
Our Restated Certificate of Incorporation permits our Board of Directors to designate new series of preferred stock and issue those shares without any vote or action by our stockholders. Such newly authorized and issued shares of preferred stock could contain terms that grant special voting rights to the holders of such shares that make it more difficult to obtain stockholder approval for an acquisition of our business or increase the cost of any such acquisition.
Item 1B. Unresolved Staff Comments.
There are no current unresolved staff comments.
Item 2. Properties.
We employ executives, employees and consultants who work in various locations in and outside of Florida. Our office in Miami Lakes, Florida serves as the headquarters for us. This space is sufficient to accommodate the expected number of employees working in the metro Miami area. The existing lease provides substantial flexibility in the event we require additional space. Technology affords us the luxury of collaboration among staff from varying locations.
NGDx’s corporate offices, product development facilities, regulatory affairs offices, and laboratory and assembly facilities are contained in a 5,627 square foot facility in Miramar, Florida. The facility’s lease expired July 31, 2020 with a current monthly base rent of $7,325 including taxes and expenses. The Company is currently renegotiating a lease extension. Our facility is an FDA Registered Facility. Based on order size, delivery requirements and current orders in process, our Miramar facility can handle up to one million RTD devices, all of which are currently hand assembled. We have relationships with subcontractors to handle additional production requirements.
We do not expect to need manufacturing capabilities related to our insulin or immunotherapy products, as it is likely that we will contract out the manufacturing of product requirements for any future clinical trials and commercial sales.
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Item 3. Legal Proceedings.
In December 2011, a vendor of the Company commenced an action against the Company and its subsidiary, Generex Pharmaceuticals, Inc., in the Ontario Superior Court of Justice claiming damages for unpaid invoices including interest in the amount of $429,000, in addition to costs and further interest. The Company responded to this statement of claim and also asserted a counterclaim in the proceeding for $200,000 arising from the vendor’s breach of contract and detinue, together with interest and costs. On November 16, 2012, the parties agreed to settle this action and the Company has agreed to pay the plaintiff $125,000, following the spinout of its subsidiary NGIO, from the proceeds of any public or private financing related to NGIO subsequent to such spinout. Each party agreed to execute mutual releases to the claim and counterclaim to be held in trust by each party’s counsel until payment of the settlement amount. Following payment to the plaintiff, the parties agree that a Consent Dismissal Order without costs will be filed with the court. If the Company fails to make the payment following completion of any post-spinout financing related to NGIO or any other subsidiaries, the Plaintiffs may take out a judgment in the amount of the claim plus interest of 3% per annum and costs fixed at $25,000. This has been accrued in the consolidated financial statements for the year ended July 31, 2020.
On August 22, 2017, Generex received a letter from counsel for Three Brothers Trading LLC, d/b/a Alternative Execution Group (“AEXG”), claiming breach of a Memorandum of Understanding (“MOU”) between Generex and AEXG. The MOU related to AEXG referring potential financing candidate to Generex. The letter from AEXG counsel claimed that Generex’s acceptance of $3,000,000 in financing from Pharma Trials, LLC, in March 2017, violated the provisions of the MOU prohibiting Generex from seeking other financing, with certain exceptions, for a period of 60 days after execution of the MOU. AEXG has demanded at least $210,000 in cash and 84,000 warrants for Generex stock convertible at $2.50 per share, for attorney’s fees and costs. AEXG filed a demand for arbitration and on September 25, 2018 an arbitration hearing was held with an arbitrator from the American Arbitration Association’s International Centre for Dispute Resolution. On December 3, 2018, an arbitrator awarded AEXG an aggregate of $315,695 in damages, costs and fees as well as warrants exercisable for 84,000 shares of Generex Common Stock at an exercise price of $2.50 per share. AEXG filed a petition to confirm the arbitrator’s award in the United States District Court for the Southern District of New York. The petition includes a demand of $3,300,360 as the value of the warrants. The arbitrator did not award the specific amount of $3.5 million, but only liquidated damages in the amount of $210,000 and the value of 84,000 warrants “as of today” (the date of the award) plus attorney’s fees, certain costs, prejudgment and post-judgment interest (which continues to run on a daily basis) and arbitration fees. Generex has responded that the value of the warrants on the date of the award is $0 or some figure far less than the value calculated by AEXG. The petition to confirm the arbitrator’s award and Generex’s opposition were remanded by the Court to the arbitrator and returned for clarification. The arbitrator stated that he was unable to add any clarification, as he did not take evidence on the issue of warrant valuation. AEXG filed a petition to confirm that part of the arbitrator’s award that awarded AEXG $210,000 in liquidated damages plus post award prejudgment interest. On April 24, 2020 legal fees in the amount of $93,304 plus costs of $12,393. The Court remanded part of the arbitrator’s award for a determination as to the economic value of 84,000 warrants with an exercise price of $2.50 per share. On September 18, 2020, a judgement was entered in favor of AEXG in the amount of $319,009, plus prejudgment interest in the sum of $65,762, for a total of $384,771. The Company continues to vigorously defend this matter.
On June 28, 2018, the Company was named in respect of a claim by Burrard Pharmaceutical Enterprises Ltd. and Moa’yeri Kayhan for unspecified damages and other remedies issued by the Supreme Court of British Columbia. The claim is made in connection with one advanced against Burrard and Kayhan by Middle East Pharmaceutical Factory L.L.C., a foreign corporation, for fraudulent or negligent misrepresentation. Middle East alleges that it was misled by Burrard and Kayhan into believing that Burrard had rights to distribute Generex product in the Middle East. Burrard and Kayhan allege that they did have rights in that regard, which the Company denies. The matter remains at the pleadings stage and we are investigating the facts.
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On October 26, 2018, Generex entered into a securities purchase agreement with Alpha Capital Anstalt (“Alpha”) pursuant to which a note due on October 26, 2019 was called for repayment in the principal amount of $682,000. The purchase price of the note was $550,000. The remaining $122,000 of principal amount represents original issue discount. On January 25, 2018, Generex received a letter from Alpha’s counsel stating that the note was in default because Generex’s common stock was not listed on NASDAQ within 90 days after the issuance of the note. The letter demanded repayment in full. On February 12, 2019, the Alpha filed a Motion for Summary Judgment in lieu of complaint in the Supreme Court of New York, demanding the aggregate principal amount, default interest and costs. Alpha’s motion for summary judgment was denied, and that that denial was upheld in the Appellate Division, Second Department. The Company is vigorously defending this matter and the parties are engaged in discovery.
On March 21, 2019 Compass Bank filed suit against NuGenerex Distributions Solutions 2, L.L.C. in the District Court of Dallas County, Texas requesting damages of $3,413,000. In connection with the closing of the Veneto acquisition, Compass Bank had a lien on certain assets that were supposed to be transferred into the ownership of NuGenerex, a subsidiary of Generex. Those assets were never transferred due to regulatory impositions. Generex had listed Compass Bank as an intended third party beneficiary to the transaction in relation to the assets liened and Veneto ceased payments upon the loan which the lien generated from. Compass bank filed suit against 6 parties involved in the transaction to collect on the loan, including NuGenerex. NuGenerex’s position is the contract was frustrated by the fact that the assets that were liened were never transferred by Veneto to NuGenerex, NuGenerex did not receive any benefit from the agreement, and thus NuGenerex is not responsible to Compass Bank for repayment of a loan on assets not transferred. Generex intends to implead Brooks Houghton for indemnification who was retained to perform due diligence on the transaction.
In May 2019 Brooks Houghton threatened litigation by way of a FINRA Dispute Resolution, which was later filed against the Company. Brooks Houghton, who the managing representative is Mr. Centonfanti a prior board member, was under contract to perform due diligence on the Veneto transaction, as well as other unrelated items. The Veneto transaction closed three times, each time with a reduction in price due to material negative circumstances. Brook Houghton, who was under contract to perform due diligence, claims their fee should be paid on the initial closing price not the ultimate resolution of the matter. The company offered to compensate Brooks Houghton pursuant to agreement, 3% on the most recent closing price for Veneto for which Brooks Houghton may have performed some level of work on, payable in kind, and Brooks Houghton declined the offer. Brooks Houghton is claiming $450,000 for the first closing of Veneto, $714,000 for the second closing of Veneto, $882,353 for the Regentys acquisition, and $705,882 for Olaregen. The matter is set for a final hearing to commence on August 25, 2020. The Company has served its initial discovery in this matter. At this early stage, it is premature to express an opinion about possible outcome. The Company has accrued for the full $2,752,235 balance.
On September 9, 2019 Generex and its subsidiary NuGenerex Distribution Solutions, LLC, and NuGenerex Distributions Solutions 2, LLC (jointly “NDS”) filed a litigation against Veneto, and the constituent entities, for fraud, breach of contract, and a motion for a temporary restraining order restraining the shares contemplated in the Asset Purchase Agreement (“APA”) (supra) for hiding their involvement in a massive healthcare fraud scheme, which is currently being prosecuted civilly by the federal government and filing to transfer assets specified in the APA. . Our motion for a temporary restraining order on transfer of shares we issued in connection with the acquisition of Veneto assets was denied by the Court of Chancery. Generex has continued to pursue claims against Veneto and its principals in a separate arbitration. In a related action, our transfer agent for our common stock was sued for failure to process a transfer of the shares issued pursuant to the APA. This suit was brought in the United States District Court for the Eastern District of New York. Generex was not named in the suit, but our transfer agent notified us of our obligation to indemnify them pursuant to our agreement with the transfer agent. The action against the transfer agent was dismissed with prejudice and on consent on November 25, 2019.
On December 2, 2019 the Company was named as a respondent in an arbitration brought by KSKZ Management, LLC before the American Arbitration Association in Texas. The Claimant alleges that the Company breached a consulting agreement that purportedly obligated the Company to pay claimant a monthly consulting fee for three years. Kevin Kuykendall is the manager and a member of Claimant. Claimant is seeking approximately $3,450,000 in unpaid consulting fees allegedly due. The Company is vigorously defending itself and has filed counter-claims against Claimant.
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On February 18, 2020 the Company was named as a defendant in an action brought by Discover Growth Fund, LLC in the United States District Court for the District of Delaware. The plaintiff alleges that the Company breached a Purchase Agreement and Promissory Note and seeks $2,475,000 in damages. The plaintiff also filed a confession of judgment in support of its claim. On May 4, 2020 the District Court entered judgment against the Company in the amount of $2,200,000. Counsel for Generex and Discover have engaged in settlement discussions. In addition, on August 20, 2020 the Company was named as a defendant in an action brought by Discover Growth Fund, LLC in the Court of Chancery of the State of Delaware. The complaint alleges that the Company breached a Purchase Agreement, Promissory Note and Transfer Agent Instructions and seeks to compel the Company to honor notices of conversion from Discover Growth Fund, LLC and issue it shares pursuant to the Purchase Agreement and Promissory Note. Discover has since dropped the Delaware case without prejudice.
On May 6, 2020, the Company was named as a defendant in an action brought by Iliad Research and Trading LP in Salt Lake City, Utah. The plaintiff alleged that the Company breached a Securities Purchase Agreement and Convertible Promissory Note. Arbitration commenced on this matter on or about July 1, 2020 and was settled on July 31, 2020. In settlement of the matter (including any amounts outstanding under the Convertible Promissory Note), the Company has issued Iliad 3,499,415 shares of the Company’s common stock. The arbitration was dismissed on August 14, 2020.
On October 2, 2020, the Company and its subsidiary, NuGenerex Distribution Solutions, LLC, was named as a defendant in an action brought by AVEM Medical, LLC, formerly known as Medisource Partners, LLC and Pantheon Medical – Foot & Ankle, LLC in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, Civil Division. The complaint alleges that the Company breached an Asset Purchase Agreement. The Company intends to defend the case vigorously (see Note 2 – Goodwill, Impairment or Disposal of Long-Lived Assets and Intangibles).
Item 4. Mine Safety Disclosures.
This item is not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is quoted on the OTCQB, a tiered marketplace of the OTC Markets Group. The table below sets forth prices for our common stock for each fiscal quarter in the two years ended July 31, 2020, and July 31, 2019. The prices below reflect the high and low bid information. The over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.
Low | High | |||||||
Fiscal 2020 | ||||||||
Fourth Quarter | $ | 0.06 | $ | 0.40 | ||||
Third Quarter | $ | 0.27 | $ | 2.21 | ||||
Second Quarter | $ | 0.77 | $ | 1.73 | ||||
First Quarter | $ | 0.63 | $ | 2.34 | ||||
Fiscal 2019 | ||||||||
Fourth Quarter | $ | 1.07 | $ | 2.06 | ||||
Third Quarter | $ | 0.36 | $ | 1.10 | ||||
Second Quarter | $ | 0.40 | $ | 1.65 | ||||
First Quarter | $ | 0.41 | $ | 0.85 |
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Holders
As of November 5, 2020, Generex had 122 holders of record.
Dividends
We have not paid cash dividends on our common stock in the past and have no present intention of paying cash dividends on our common stock in the foreseeable future. We have issued stock dividends and a dividend of shares of our subsidiary, NGIO.
Equity Compensation Plan Information
The following table provides certain information with respect to all of the Company’s equity compensation plans in effect as of July 31, 2020.
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 8,863,195 | $ | 0.93 | 233,971,805 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 8,863,195 | $ | 0.93 | 233,971,805 |
Recent sales of unregistered securities
On November 30, 2018, Messrs. Joseph Moscato and Lawrence Salvo converted all shares of our Series I Preferred Stock owned by them. Mr. Moscato received 3,746,807 shares of common stock upon conversion. Mr. Salvo received 3,836,754 shares of common stock upon conversion.
On December 1, 2018, after payment of the dividend, B-H Sanford, LLC, converted all shares of the Company’s Series H Preferred Stock owned by it into 28,828,953 shares of common stock.
On December 1, 2018, we issued to Stephen L. Berkman, previous owner of NGDx and debt holder, a warrant exercisable for 15,000,000 (21,000,000 post Stock Split) shares of common stock. The warrants were exercisable until December 1, 2019 at an exercise price of $2.50 ($1.79 post Stock Split) per shares and expired prior to being exercised. The warrant was issued pursuant to the January 18, 2017 acquisition agreement among the Company, NGDx, Stephen L. Berkman and the other equity owners of NGDx.
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Also, on December 1, 2018, we and Mr. Berkman entered into an agreement, assignment and release, pursuant to which Mr. Berkman transferred the remaining NGDx equity interests to us, waiving and releasing any conditions to such transfer. As of October 31, 2018, the Company was indebted to Mr. Berkman for advances made in the amount of $624,403.64, and NGDx was indebted to Mr. Berkman for loans made to NGDx prior to January 18, 2017, in the amount of $13,431,705.66. In addition to the assignment of the NGDx interests, Mr. Berkman released these debts in exchange for shares of our common stock valued at the aggregate of such amount using the closing price for the common stock on November 30, 2018. The closing price was $18.99, resulting in 32,881 shares issuable to Mr. Berkman.
On January 24, 2019, we entered into securities purchase agreements with three investors, pursuant to which we sold convertible notes bearing interest at 10% per year in the aggregate principal amount of $2,110,000. The purchase price of the notes was $2,010,000 and the remaining $100,000 of principal amount represents original issue discount. Pursuant to the securities purchase agreements, we also sold warrants to purchase up to an aggregate 120,570 shares of common stock to the investors. Subject to certain ownership limitations, the notes will be convertible at the option of the holder at any time into shares common stock at an effective conversion price equal to the lesser of:
• | A price determined as of the date of closing; and |
• | 70% of the lowest volume weighted average trading price of the common stock on the ten days prior to conversion. |
On February 4, 2019, we closed under a securities purchase agreement with an investor pursuant to which we agreed to sell and sold a convertible note bearing interest at 10% per year in the principal amount of $750,000. The purchase price of the note was $712,500 and the remaining $37,500 of principal amount represents original issue discount. Pursuant to the securities purchase agreement, we also sold to the investor warrants to purchase up to an aggregate 45,000 shares of common stock. Subject to certain ownership limitations, the note will be convertible at the option of the holder at any time into shares of our common stock at an effective conversion price equal to the lesser of:
• | Average price for the ten days prior to closing; and |
• | 70% of the lowest volume weighted average trading price of the common stock on the ten days prior to conversion. |
On February 15, 2019, we entered into, and on February 22, 2019, closed a securities purchase agreement with an investor pursuant to which we sold a convertible note bearing interest at 10% per year in the principal amount of $750,000. The purchase price of the note was $712,500 and the remaining $37,500 of principal amount represents original issue discount. Pursuant to the securities purchase agreement, we also sold warrants to purchase up to an aggregate 57,143 shares of common stock to the investor. Subject to certain ownership limitations, the note will be convertible at the option of the holder at any time into shares of common stock at an effective conversion price equal to the lesser of
• | $2.50 per share; and |
• | 70% of the lowest volume weighted average trading price of the common stock on the ten days prior to the date a notice of conversion is received. |
As discussed under the section of “Corporate History”, we consummated the acquisition of certain assets of Veneto in 2018 in two closings. The aggregate price for these assets was $30,000,000. We issued a note in the principal amount of $35,000,000. In addition, we agreed to assume approximately $3.4 million in outstanding institutional debt of Veneto subsidiaries, but will have use of Veneto cash which would otherwise have been applied to paying down the debt. On March 28, 2019, we entered into an amendment agreement with Veneto and the equity owners of Veneto to restructure the payment of the obligation that in satisfaction of all obligations we would cause to be delivered 8,400,000 shares of our common stock on or before April 22, 2019; plus an aggregate 5,500,000 shares of the Company’s subsidiary, common stock of NGIO, Inc. We and the Veneto Members further agreed to certain downside protection between $2.50 per share and $1.50 per share subject to terms and conditions contained in the agreement. The 8,400,000 Generex Shares were delivered on May 23, 2019 provided by the Friends of Generex Trust, but due to the current and ongoing litigation with the Veneto Members, the NGIO Shares have not been delivered. The provided by the Friends of Generex Trust were already issued and outstanding and did not result in any expense of the Company. Since these shares were transferred by a shareholder to settle an obligation of the Company, the value of the shares provided by the Friends of the Generex Trust to settle the debt was reflected in the financial statements as an additional to contributed (paid-in) capital (the “Trust Shares”).
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On April 8, 2019, we closed under a securities purchase agreement with an investor pursuant to which we sold a convertible note bearing interest at 10% per year in the principal amount of $530,000. The purchase price of the note was $505,500 and the remaining $25,000 of principal amount represents original issue discount. Pursuant to the securities purchase agreement, we also sold to the investor warrants to purchase up to an aggregate 92,842 shares of common stock. Subject to certain ownership limitations, the note will be convertible at the option of the holder at any time into shares of our common stock at a conversion price equal to the lesser of
• | A price determined as of the date of closing; and |
• | 70% of the lowest volume weighted average trading price of the common stock on the ten days prior to (and including) the date a notice of conversion is received. |
On April 23, 2019, we closed under a securities purchase agreement with an investor pursuant to which we sold a convertible note bearing interest at 10% per year in the principal amount of $530,000. The purchase price of the note was $505,500 and the remaining $25,000 of principal amount represents original issue discount. Pursuant to the securities purchase agreement, we also sold to the investor warrants to purchase up to an aggregate 84,126 shares of common stock. Subject to certain ownership limitations, the note will be convertible at the option of the holder at any time into shares of our common stock at an effective conversion price equal to the lesser of
• | A price determined as of the date of closing; and | |
• | 70% of the lowest volume weighted average trading price of the common stock on the ten days prior to (and including) the date a notice of conversion is received. |
On July 8, 2019, we issued 288,256 shares of common stock upon conversion of $280,000 of principal and $12,581 of interest of a note.
On July 15, 2019, we entered into a business development service agreement and issued 120,000 shares of common stock for services.
On July 16, 2019, we issued 1,569,880 shares of common stock for the settlement of $3,150,972 of accounts payable and other accrued obligations.
On July 19, 2019, we issued 791,000 shares of common stock upon conversion of $796,628 of principal and $57,127.97 of interest of a note, plus $750 of conversion fees.
On July 19, 2019, we issued 39,390 shares of common stock upon conversion of $50,000 of principal and $2,514 of interest of a note.
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On August 1, 2019, we closed an asset purchase agreement for the acquisition of Pantheon Medical – Foot & Ankle, LLC through a stock purchase agreement in exchange for 400,000 shares of common stock, plus contingent consideration up to $500,000 based upon a future performance and a consulting agreement for $2,000,000; $250,000 payable in shares of common stock; and $1,750,000 payable in 18 equal installments of $97,222 per month payable in cash as is available from the operations of newly acquired subsidiaries Pantheon and MediSource, or shares of common stock issued monthly that included $250,000 worth of common stock.
On August 1, 2019, we closed an asset purchase agreement for the acquisition of MediSource Partners, LLC through a stock purchase agreement in exchange for 560,000 shares of common stock, plus contingent consideration up to $700,000 on the first anniversary of the acquisition based upon a future performance and a consulting agreement with the CEO that included $250,000 worth of common stock, plus an 18-month contract for $97,222 payable in cash or common stock.
On August 5, 2019, we issued 35,249 shares of common stock upon conversion of $45,000 of principal and $2,338 of interest of a note.
On August 7, 2019, we issued 338,261 shares of common stock upon conversion of $253,371 of principal and $1,666 of interest, $109,632 of default penalties of a note, and $750 of conversion fees.
On August 8, 2019, we entered into securities purchase agreement, pursuant to which we sold convertible notes bearing interest at 10% per year in the aggregate principal amount of $1,150,000. The purchase price of the notes was $1,000,000 and the remaining $150,000 of principal amount represents original issue discount.
On August 8, 2019, we issued 537,600 shares of common stock upon conversion of $649,851 of principal of a note.
On August 12, 2019, we issued 42,932 shares of common stock upon conversion of $45,000 of principal and $2,500 of interest of a note.
On August 14, 2019, we entered into a securities purchase agreement with an investor pursuant to which we sold a convertible note bearing interest at 10% per year in the principal amount of $1,100,000. Pursuant to the securities purchase agreement, we also sold to the investor warrants to purchase up to an aggregate 62,857 shares of common stock with the fair value of the warrants as of the date of issuance in excess of the note resulting in full discount of the note.
On August 15, 2019, we entered an agreement to pay an investor $900,000 for the prepayment of $666,667 owed under a note. Pursuant to the agreement, we issued 322,491 shares of common stock upon conversion of $350,000 owed under the note based upon a conversion price of $1.51942 per share.
On August 16, 2019, we issued 1,905,912 shares of common stock pursuant to a share exchange agreement to purchase an additional 900,000 shares in Olaregen Therapeutix Inc. from Olaregen Therapeutix LLC representing increasing Generex’s ownership from approximately 62% to 76%.
On August 19, 2019, we issued 64,554 shares of common stock upon conversion of $60,000 of principal and $3,450 of interest of a note.
On August 21, 2019, we issued 132,122 shares of common stock upon conversion of $100,000 of principal and $5,699 of interest of a note.
On August 29, 2019, we entered into a securities purchase agreement with an investor pursuant to which we sold a convertible note bearing interest at 9% per year in the principal amount of $250,000.
On September 1, 2019, we retained a consultant to provide consulting services for a flat fee of $2,000,000 payable in cash or shares of common stock at our election.
On September 9, 2019, we issued 30,000 shares of common stock for the settlement of $53,107 of accounts payable for past services and other accrued obligations.
On September 10, 2019, we issued 106,032 shares of common stock upon conversion of convertible debt of $100,000 in principal and $6,361 in accrued interest.
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On September 12, 2019, 20,375,000 shares of common stock held in trust for the benefit of the Company were cancelled by the Company.
On September 13, 2019, we entered into a convertible note and securities purchase agreement with an investor in the principal amount of $872,000. The note accrues at 9.5% per annum and has a maturity date of September 12, 2020 and is convertible into common voting shares at a variable rate determined in the instrument.
On September 17, 2019, we issued 133,182 shares of common stock upon conversion of convertible debt of $130,000 in principal and $8,522 in accrued interest.
On September 18, 2019, we issued 158,117 shares of common stock upon conversion of convertible debt of $150,000 in principal and $9,699 in accrued interest.
On November 12, 2019, the Company converted $80,000 of principal and $4,778 of interest into 161,482 shares of common stock.
On November 14, 2019, the Company converted $50,000 of principal and $2,712 of interest into 112,154 shares of common stock.
On November 18, 2019, the Company entered into a Securities Purchase Agreement with three investors pursuant to which the Company agreed to sell and sold a convertible note bearing interest at 10% per annum in the principal amount of $275,000 and issued 63,000 shares of common stock in the aggregate for the commitment. Subject to certain ownership limitations, the note will be convertible at the option of the holder at any time into shares of our common stock at a conversion price equal to the lesser of
• | A price determined as of the date of closing; and |
• | 80% of the lowest volume weighted average trading price of the common stock on the twenty days prior to (and including) the date a notice of conversion is received. |
On November 21, 2019, the Company converted $80,000 of principal and $4,493 of interest into 188,811 shares of common stock.
On November 21, 2019, the Company converted $100,000 of principal and $6,219 of interest into 237,360 shares of common stock.
On November 27, 2019, we converted $100,000 of principal and $6,384 of interest into 283,689 shares of common stock.
On November 27, 2019, we converted $125,000 of principal and $7,226 of interest into 352,603 shares of common stock.
On November 29, 2019, we converted $50,000 of principal into 110,900 shares of common stock.
On December 5, 2019, we converted $70,000 of principal and $4,621 of interest into 252,955 shares of common stock.
On December 5, 2019, we converted $75,000 of principal and $4,500 of interest into 269,492 shares of common stock.
On December 6, 2019, the Company entered into an Equity Purchase Agreement with an investor to purchase up to $40,00,000 of the Company’s stock at 92% of the market price for the period of five (5) consecutive trading days immediately subject to a put notice on such date on which the purchase price is calculated in accordance with the terms and conditions of the agreement and we issued 1,719,901 shares of common stock upon signing.
On December 9, 2019, we closed under a securities purchase agreement with an investor pursuant to which we sold a convertible note bearing interest at 12% per year in the principal amount of $2,200,000. The purchase price of the note was $2,000,000 and the remaining $200,000 of principal amount represents original issue discount and issued 140,000 shares of common stock for the commitment. Subject to certain ownership limitations, the note will be convertible at the option of the holder at any time into shares of our common stock at a conversion price equal to 95% of the Market Price, the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock less $0.05/share.
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On December 13, 2019, we issued 32,610 shares of common stock pursuant to a satisfaction and release agreement.
On December 12, 2019, we converted $70,000 of principal and $4,756 of interest into 253,410 shares of common stock.
On December 12, 2019, we converted $50,000 of principal and $3,096 of interest into 179,985 shares of common stock.
On December 17, 2019, we converted $75,000 of principal and $4,447 of interest into 270,327 shares of common stock.
On December 18, 2019, we converted $50,000 of principal and $4,556 of interest into 179,253 shares of common stock.
On December 30, 2019, we converted $75,000 of principal and $5,014 of interest into 320,055 shares of common stock.
On December 31, 2019, we entered into a business development service agreement and issued 560,000 shares of common stock for services.
On January 6, 2020, we converted $50,000 of principal and $4,819 of interest into 204,207 shares of common stock.
On January 14, 2020, we closed under a securities purchase agreement with an investor pursuant to which we sold a convertible note bearing interest at 4% per year in the principal amount of $275,000. The purchase price of the note was $262,500 and the remaining $12,500 of principal amount represents original issue discount and issued 105,000 shares of common stock for the commitment. Subject to certain ownership limitations, the note will be convertible at the option of the holder at any time into shares of our common stock at a conversion price equal to the lesser of
• | A price determined as of the date of closing; and | |
• | 80% of the lowest volume weighted average trading price of the common stock on the twenty days prior to (and including) the date a notice of conversion is received. |
On February 3, 2020, we converted $74,572 of principal into 253,400 shares of common stock.
On February 9, 2020, we converted $100,464 of principal into 364,000 shares of common stock.
On February 10, 2020, we closed a financial transaction under a securities purchase agreement with an investor pursuant to which we sold a convertible note bearing interest at 12% per year in the principal amount of $305,000. The purchase price of the note was $270,000, a $5,000 closing fee and the remaining $30,000 of principal amount represents original issue discount and issued 35,000 shares of common stock for the commitment. Subject to certain ownership limitations, the note will be convertible at the option of the holder at any time into shares of our common stock at the lowest closing price on the date of closing.
On February 13, 2020, we converted $330,881 of principal and $54,849 of interest and $750 of conversion fees totaling $386,480 into 1,400,000 shares of common stock.
On February 13, 2020, we converted $53,264 of principal and $13,793 of interest into 173,507 shares of common stock.
On February 19, 2020, we converted $168,300 of principal and $6,797 of interest into 634,936 shares of common stock.
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On February 28, 2020, we closed a financial transaction under a securities purchase agreement with three investors pursuant to which we sold a series of convertible notes bearing interest at 9.5% per year in the principal amount in the aggregate of $281,600. The purchase price of the notes in the aggregate were $256,600 and the remaining $25,600 of principal amount in the aggregate represents original issue discount. Subject to certain ownership limitations, the note will be convertible at the option of the holder at any time into shares of our common stock the note will be convertible at the option of the holder at any time into shares of our common stock at a conversion price equal to the lesser of
• | A price determined as of the date of closing; and |
• | 80% of the lowest volume weighted average trading price of the common stock on the ten days prior to (and including) the date a notice of conversion is received. |
On March 4, 2020, we issued 570,739 shares of common stock to the investors who collectively converted an aggregate amount of $171,826 of principal of the convertible notes dated February 28, 2020.
On March 23, 2020, we converted $100,000 of principal into 245,098 shares of common stock.
On March 31, 2020, we converted $239,346 of principal and $9,904 of interest and $750 of conversion fees totaling $250,000 into 609,519 shares of common stock.
On April 9, 2020, the Company entered into a promissory note with a lender bearing interest at 10% per annum in the principal amount of $50,000 and issued 10,000 shares of common stock in the aggregate for the commitment.
On April 20, 2020, we converted $78,573 of principal and $12,599 of interest into 271,541 shares of common stock.
On April 21, 2020, we converted $164,082 of principal and $3,048 of interest and $750 of conversion fees totaling $167,880 into 500,000 shares of common stock.
On May 4, 2020, the Company entered into a promissory note with a lender bearing interest at 10% per annum in the principal amount of $100,000 and issued 20,000 shares of common stock in the aggregate for the commitment and issued an option agreement to purchase up to 20,000 shares of the Company’s stock at $0.43/share expiring on May 4, 2022.
On May 6, 2020, we converted $98,163 of principal, $750 of fees and $1,503 of interest into 300,000 shares of common stock.
On May 21, 2020, we converted $55,000 of principal, $750 of fees and $4,583 of interest into 177,300 shares of common stock.
On May 26, 2020, the Company entered into a legal services agreement providing for a portion of legal fees payable in $50,000 cash and 120,000 shares of common stock.
On June 25, 2020, we closed a financial transaction under a securities purchase agreement with an investor pursuant to which we sold a convertible note bearing interest at 12% per year in the principal amount of $150,000. The purchase price of the note was $150,000. Subject to certain ownership limitations, the note will be convertible at the option of the holder at any time into shares of our common stock at 80% of the lowest closing price the ten (10) consecutive trading day period immediately preceding the date of the respective conversion
On July 7, 2020, we converted $173,010 of principal, $750 of fees and $4,544 of interest into 400,000 shares of common stock.
On July 16, 2020, we converted $135,000 of principal and $2,693 of interest into 372,444 shares of common stock.
On July 20, 2020, we converted $30,000 of principal and $750 of fees into 70,462 shares of common stock.
On July 21, 2020, we converted $37,000 of principal and $1,371 of interest into 87,845 shares of common stock.
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On July 23, 2020, we converted $40,296 of principal, $750 in fees and $414 of interest into 90,477 shares of common stock.
On July 24, 2020, we converted $140,000 of principal and $2,915 of interest into 386,570 shares of common stock.
On July 27, 2020, we converted $30,000 of principal and $750 of fees into 73,564 shares of common stock.
On July 28, 2020, we converted $91,667 of principal, $750 in fees and $6,279 of interest into 263,113 shares of common stock.
On July 30, 2020, we converted $772,500 of principal, $99,300 in fees, $428,629 in penalties and $159,607 of interest into 3,499,415 shares of common stock.
All of the following are subsequent to July 31, 2020:
On August 7, 2020, we converted $54,222 of principal, $750 in fees, $87,274 in penalties and $250 of interest into 400,000 shares of common stock.
On August 11, 2020, we converted $46,746 in penalties into 140,496 shares of common stock.
On August 18, 2020, we converted $25,000 of principal into 76,219 shares of common stock.
On August 21, 2020, we converted $31,667 of principal, $750 in fees and $6,162 of interest into 120,558 shares of common stock.
On August 25, 2020, we converted $25,000 of principal into 76,200 shares of common stock.
On August 31, 2020, we converted $35,000 of principal into 134,615 shares of common stock.
On September 9, 2020, we converted $93,867 of principal and $5,809 of interest into 408,504 shares of common stock.
On September 10, 2020, we converted $40,000 of principal into 163,934 shares of common stock.
On September 15, 2020, we converted $70,800 of principal into 300,000 shares of common stock.
On September 16, 2020, we converted $18,000 of principal and $750 of fees into 86,805 shares of common stock.
On September 18, 2020, we converted $50,000 of principal into 265,957 shares of common stock.
On September 22, 2020, we converted $30,000 of principal into 164,473 shares of common stock.
On September 25, 2020, we converted $30,000 of principal into 210,674 shares of common stock.
On September 25, 2020, we converted $15,867 of principal and $750 of fees into 116,690 shares of common stock.
On September 25, 2020, we converted $60,000 of principal and $750 of fees into 421,348 shares of common stock.
On September 29, 2020, we converted $30,000 of principal into 210,674 shares of common stock.
On September 29, 2020, we converted $64,080 of principal into 450,000 shares of common stock.
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On October 5, 2020, we converted $50,000 of principal into 351,123 shares of common stock.
On October 5, 2020, we converted $4,500 of interest and $32,000 of penalties into 256,320 shares of common stock.
On October 6, 2020, we converted $35,000 of principal and $750 of fees into 251,053 shares of common stock.
On October 7, 2020, we converted $40,000 of principal and $22,000 of interest into 435,393 shares of common stock.
On October 7, 2020, we converted $15,120 of principal and $74,877 of interest into 632,000 shares of common stock.
On October 13, 2020, we converted $25,000 of principal and $5,704 of interest into 187,219 shares of common stock.
The securities discussed under this Item 15 were issued in reliance on the exemption from registration provided in Section 4(a)(2) of the Securities Act for transactions not involving a public offering.
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Purchases of equity securities by the issuer and affiliated purchasers.
Neither Generex nor any of its affiliates made any material purchases of the stock during the fiscal 2020.
Item 6. Selected Financial Data.
Generex is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis by management provides information with respect to our financial condition and results of operations for the fiscal years ended July 31, 2020 and 2019.
We engaged in certain acquisition transactions during the following periods:
Fiscal Year Ended July 31, 2019
• | Effective October 3, 2018, we purchased certain assets of Veneto Holdings, L.L.C. (“Veneto”), and its subsidiaries (the “First Closing Assets”). We acquired additional assets of Veneto effective November 1, 2018 (the “Second Closing Assets” and together with the First Closing Assets, the “Acquired Veneto Assets.”). The transaction was subsequently renegotiated, culminating in a Third Closing on March 28, 2019, but that did not affect our interest in the assets, or production thereof, and only effected the transaction price. Subsequent to the Third Closing, we entered into litigation with Veneto and their constituent parties which may affect the future of those assets but does not currently affect the accounting for the Acquired Veneto Assets. Our balance sheet at July 31, 2020 includes our interest in the Acquired Veneto Assets and the obligations issued in connection with the purchase of the Acquired Veneto Assets. Our interest in the results of operations of the First Closing Assets since October 3, 2018 and the Second Closing Assets since November 1, 2018 is included in our Consolidated Statement of Operations and Comprehensive Loss for the year ended July 31, 2020. We are currently in litigation with Veneto and its affiliates regarding the assets and business transferred. Many of the contractual arrangement we assumed from Veneto have been terminated, and we have had to rebuild the business relationships and the structure of the contractual relationships we took over from Veneto. |
• | Effective January 7, 2019, we purchased a majority interest in the capital stock of Regentys Corporation. (“Regentys”). Our balance sheet at July 31, 2020 includes our interest in Regentys and our interest in the results of operations of Regentys for the periods ended July 31, 2020 is included in our Consolidated Statement of Operations and Comprehensive Loss for the year ended July 31, 2020. |
• | Effective January 7, 2019, we purchased a majority interest in the capital stock of Olaregen Therapeutix Inc. (“Olaregen”). Our balance sheet at July 31, 2020 includes our interest in Olaregen and our interest in the results of operations of Olaregen for the period ended July 31, 2020 is included in our Consolidated Statement of Operations and Comprehensive Loss for the year ended July 31, 2020.
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Fiscal Years Ended July 31, 2020
• | Effective August 1, 2019 we purchased the assets of Pantheon and MediSource Partners. | |
• | On August 16, 2019, the Company entered into a Share Exchange Agreement to purchase an additional 900,000 shares in Olaregen Therapeutix Inc. from Olaregen Therapeutix LLC representing increasing Generex’s ownership from approximately 62% to 76%. On February 14, 2020, Olaregen exchanged all of its outstanding shares for 5,950,000 shares of Generex common stock and 2,765,000 shares of NGIO in. After this transaction, Generex owns 100% of the outstanding shares of Olaregen. | |
• | On September 6, 2019, Generex signed a binding Letter of Intent with ALTuCELL, Inc (“ALTuCELL”), a clinical-stage development company with a broad intellectual property portfolio focused on cell encapsulation technology for the treatment of diabetes, autoimmune diseases, and inflammatory conditions to purchase 51% of ALTuCELL’s equity in exchange for $2,000,000 in cash, $8,000,000 in the Company’s common stock price at $2.50/share, and commitment to fund $5,000,000 towards ALTuCELL’s development costs pursuant to a mutually agreed upon clinical development plan based upon a valuation of ALTuCELL equal to $29,500,000 On September 20, 2019, Generex paid ALTuCELL a preliminary payment of $50,000 to bind the agreement. | |
• | On January 27, 2020, Generex and ALTuCELL executed an Amendment Agreement to the SPA (the “Amendment”). Under the Amendment, closing will occur within 30 days of the full execution of the Amendment, subject to the conditions to closing under the SPA. The parties agreed that Generex will pay the $2.5 million closing payment from certain specifically identified sources. If ALTuCELL chooses to cancel the transaction as a result of delays due to forces beyond the control of Generex, including government regulatory delays or extended reviews by regulators that delay approvals of corporate actions, or by natural disasters or other unforeseen events beyond the control of Generex, ALTuCELL, agrees to return all payments made by Generex. As of July 31, 2020, Generex has advanced $212,000 to ALTuCELL, recorded as a component of other current assets. As of the date of this filing, the acquisition did not close, however, both companies are negotiating the terms of the extension. |
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Executive Summary
Preliminary Note
On December 1, 2018, we acquired the remaining equity of HDS, and HDS became a wholly owned subsidiary; we have renamed HDS as NuGenerex Diagnostics (NGDx). We intend to focus resources on the commercialization of new products under development at our subsidiaries, NGDx, Regentys, Olaregen, and NGIO, as well as additional acquisition targets, including ALTuCELL. We also intend to focus on re-establishing and expanding the MSO business foundation. We will only restart the historical research and development efforts to develop Oral-Lyn for the treatment of diabetes if we receive substantial financing for that purpose.
On October 3, 2018, we acquired the First Closing Assets from Veneto, primarily consisting of the operating assets of (a) system dispensing pharmacies, (b) a central adjudicating pharmacy, (c) a wholesale pharmaceutical purchasing company, and (d) an in-network laboratory.
On November 1, 2018 we consummated the acquisition of the Second Closing Assets, consisting primarily of Veneto’s management services organization business and two additional ancillary services. The aggregate price for the First Closing Assets and the Second Closing Assets was $30,000,000. We issued a promissory note in the principal amount of $35,000,000 consisting of the $30,000,000 purchase price and a $5,000,000 original issue discount, as the sole consideration payable on the Second Closing Date. In addition, we agreed to assume approximately $3.8 million in outstanding institutional debt of Veneto subsidiaries, but will have use of Veneto cash and the collateral of the underlying assets outlined in the note, which would otherwise have been applied to paying down the debt, or securing by the assets.
On January 15, 2019, we entered into an Amendment Agreement with Veneto and the equity owners of Veneto entered into restructuring payment of the note as follows:
• | Payment of $15,750,000 by delivery of Generex common stock, initially valued at $2.50 per share. |
• | If, on the first to occur of (i) the ninetieth (90th) day after closing under the Amendment and (ii) the effective date of a registration statement filed with the SEC including the Generex shares pursuant to the amendment, the average volume weighted average price (“VWAP”) of Generex common stock for the preceding five (5) trading days is less than $2.50 share, Generex will deliver additional Generex Shares such that the aggregate number of shares delivered under this agreement equals $15,750,000 ÷ such average VWAP. |
• | The remainder of the principal and interest under the Note were to be payable on April 15, 2019; provided that on that maturity date, Veneto shall have the option of (i) payment of principal and interest in cash and (ii) payment of principal and interest by Generex’s delivery of Generex Shares valued at $2.50 per share. |
• | All Generex shares issued pursuant to the amendment will be delivered pro rata to the six equity owners of Veneto as distributions from Veneto. |
On March 28, 2019 we entered into an amendment, the Restructuring Agreement with Veneto with respect to the payment terms of the January 15, 2019 promissory note. The parties agreed to restructure the terms as follows:
• | In lieu of any payments under the agreement or the note, we will deliver shares of its common stock and the common stock of its subsidiary, NGIO; |
• | All shares of our common stock delivered pursuant to the foregoing sentence will be outstanding shares held by existing shareholders; |
• | 8.4 million of our shares have been placed in escrow as of May 6, 2019, and delivered to the transfer agent on May 9, 2019 for transfer; |
• | 5.5 million of NGIO’s common stock; and |
• | Limited “downside protection” to ensure the value of our common stock to be delivered. |
On January 7, 2019, we acquired a majority interest in Regentys Corporation (“Regentys”) for an aggregate of $15,000,000, among which $400,000 was paid in cash and the remainder was paid by the issuance of a promissory note in the amount to $14,600,000. Installments payable under the note were tied to specific business development objectives and dates. As of July 31, 2020, the Company has made a total of $1,168,265 in principal payments. The promissory note the Company has a principal balance due as of July 31, 2020 of $12,281,735, plus interest, and the final payment of $1,150,000, plus any accrued interest is due on or about February 1, 2021. We did not make the required payments on January 31, 2019 and February 1, 2020. Regentys is developing a non-surgical treatment for inflammatory bowel diseases such as ulcerative colitis and Crohn’s disease. Since the acquisition, Regentys has advanced the regulatory and clinical components to commence the pilot studies with the completion of the product development. However, delays in funding have slowed the final product development steps. The impact in delays caused by Coronavirus have not been fully determined.
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On January 7, 2019, we acquired a majority interest in Olaregen for an aggregate of $12,000,000. $400,000 was paid in cash and the remainder was paid by the issuance of a promissory note. As of July 31, 2020, an aggregate of $1,766,800 has been paid in addition to the $400,000 initial payment. The promissory note has a principal balance due, of $9,886,200 as of July 31, 2020. We have not made this payment and there is no accrued interest.
On May 10, 2019, we acquired from a third party the outstanding Series A Preferred Stock in Olaregen in exchange for 4 million shares of the Company’s common stock, plus the issuance of a $2 million promissory note increasing our interest in Olaregen to approximately 62% of the Olaregen’s outstanding voting shares.
On August 1, 2019, the Company, through its wholly owned subsidiary NDS, closed on Asset Purchase Agreements (the “APAs”) for the purchase of substantially all the operating assets of MediSource Partners, LLC (“MediSource”) and Pantheon Medical - Foot & Ankle, LLC (“Pantheon”).
On August 16, 2019, the Company entered into a Share Exchange Agreement to purchase an additional 900,000 shares of common stock in Olaregen from other shareholders of Olaregen in exchange for 1,905,912 shares of Generex common stock and 476,478 shares of NGIO common stock which increased our interest in Olaregen to approximately 77% of the Olaregen’s outstanding voting shares.
On February 14, 2020, the remaining stockholders of Olaregen exchanged all of its outstanding shares for 5,950,000 shares of Generex common stock and 2,765,000 shares of NGIO. After this transaction and as of July 31, 2020, Generex owns 100% of the outstanding shares of Olaregen.
Accounting for Research and Development Projects
Our major research and development projects are the refinement of our platform buccal delivery technology, our buccal insulin project (Generex Oral-lyn™) and NGIO’s peptide immunotherapeutic vaccines.
We did not expend any material resources on our buccal insulin (Generex Oral-lyn™) or other oral delivery products in the years ended July 31, 2020 and 2019 due to lack of funds. The completion of further late-stage trials in Canada and the United States may require significantly greater funds than we currently have on hand.
During the years ended July 31, 2020 and 2019, NGIO expensed $272,063 and $340,000, respectively, to NSABP for clinical trials for additional research and development relating to NGIO’s peptide immune therapeutic vaccines and related technologies. One NGIO vaccine is currently in Phase II clinical trials in the United States involving patients with HER-2/neu positive breast cancer, and we have completed a Phase I clinical trial for an NGIO vaccine for H5N1 avian influenza which was conducted at the Lebanese-Canadian Hospital in Beirut. NGIO’s prostate cancer vaccine based on AE37 has been tested in a completed (August 2009) Phase I clinical trial in Greece.
Because of various uncertainties, we cannot predict the timing of completion and commercialization of our buccal insulin or NGIO’s peptide immunotherapeutic vaccines or related technologies. These uncertainties include the success of current studies net operating losses attributed to NGDx, our ability to obtain the required financing and the time required to obtain regulatory approval even if our research and development efforts are completed and successful, our ability to enter into collaborative marketing and distribution agreements with third-parties, and the success of such marketing and distribution arrangements. For the same reasons, we cannot predict when any products may begin to produce net cash inflows.
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The following table summarizes our research and development projects in development and the next milestone in its development and estimated costs to achieve such milestone:
List of Projects
Company (Subsidiary) | R&D Project | Current Milestone Target | Estimated (Contractual**) Milestone Dates | Estimated Milestone Costs | ||||||
NGIO | AE37 Cancer Vaccine | Phase II Clinical Trial | Jan. 2021 | 1,000,000 | ||||||
NGIO | COVID-19 Vaccine | Development of Human Trials | Jan. 2021 | 1,000,000 | ||||||
Regentys | ECM | First In-Human Clinical Trial in Australia | June 2021 | 2,000,000 | ||||||
NGDx | Express I & II | FDA 510K Approval | Feb. 2021 | 750,000 | ||||||
TOTAL | 4,750,000 |
The following is a summary of our research and development costs for the years ending July 31, 2020 and 2019:
Year Ending July 31, | ||||||||
R&D Project | 2020 | 2019 | ||||||
AE37 Cancer Vaccine | $ | 397,320 | $ | 381,000 | ||||
COVID-19 Vaccine | 468,174 | — | ||||||
ECM | 852,390 | 769,997 | ||||||
Express I & II | 365,521 | 597,855 | ||||||
Excellagen* | 15,760 | — | ||||||
Excellasome®** | 7,200 | — | ||||||
$ | 2,106,364 | $ | 1,748,882 |
*Product in active commercialization
**No longer an active research and development project
Critical Accounting Policies
We have adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to our inability to demonstrate we have sufficient authorized shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of authorized but unissued shares, and all future instruments being classified as a derivative liability, with the exception of instruments related to share-based compensation issued to employees or directors.
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. It 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Going Concern. As shown in the accompanying consolidated financial statements and the audited financial statements for the fiscal years ending July 31, 2020 and 2019, we have not been profitable and have reported recurring losses from operations. These factors raise substantial doubt about our ability to continue to operate in the normal course of business. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
Goodwill and Intangible Assets – The Company follows Financial Accounting Standard Board’s (FASB) Codification Topic 350-10 (“ASC 350-10”), “Intangibles – Goodwill and Other.” According to this statement, goodwill and intangible assets with indefinite lives are no longer subject to amortization, but rather an annual assessment of impairment by applying a fair-value based test. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values as appropriate. Under ASC 350-10, the carrying value of assets are calculated at the lowest level for which there are identifiable cash flows.
Impairment of Long-Lived Assets. In accordance with the Financial Accounting Standards Board (“FASB”) Accounts Standard Codification (ASC) ASC 360-10, “Property, Plant and Equipment,” Management reviews for impairment whenever events or changes in circumstances indicate that the carrying amount of property and equipment may not be recoverable under the provisions of accounting for the impairment of long-lived assets. If it is determined that an impairment loss has occurred based upon expected future cash flows, the loss is recognized in the Consolidated Statement of Operations.
Share-based compensation. Management determines value of stock-based compensation to employees in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, Compensation – Stock Compensation. Management determines value of stock-based compensation to non-employees and consultants in accordance with and ASC 505, Equity-Based Payments to Non-Employees.
Derivative warrant liability. FASB ASC 815, Derivatives and Hedging, requires all derivatives to be recorded on the consolidated balance sheet at fair value. As a result, certain derivative warrant liabilities (namely those with a price protection feature) are separately valued and accounted for on our balance sheet, with any changes in fair value recorded in earnings. On our consolidated balance sheets as of July 31, 2020 and 2019, we used the binomial lattice model to estimate the fair value of these warrants. Key assumptions of the binomial lattice option-pricing model include the market price of our stock, the exercise price of the warrants, applicable volatility rates, risk-free interest rates, expected dividends and the instrument’s remaining term. These assumptions require significant management judgment. In addition, changes in any of these variables during a period can result in material changes in the fair value (and resultant gains or losses) of this derivative instrument.
As reported above, the Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares.
On January 24, 2019, the company entered into a note payable with an unrelated party at a percentage discount (variable) exercise price which causes the number to be converted into a number of common shares that “approach infinity”, as the underlying stock price could approach zero. Accordingly, all convertible instruments issued after January 24, 2019 are considered derivatives according to the Company’s sequencing policy.
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Results of Operations
Year ended July 31, 2020 Compared to Year ended July 31, 2019
Revenue in years ended July 31, 2020 and 2019 was $2,661,396 and $6,203,761, respectively. The decrease is due to the ceasing of NDS2 operations which generated $6,098,329 of revenue in the prior year, partially offset by increase in revenues from MediSource Pantheon and Olaregen of $2,193,006 and $450,288, respectively.
Research and development expenses increased to $2,106,364 for the year ending July 31, 2020 compared to $1,748,882 in the prior fiscal year. The difference is primarily due to the $372,647 of expenses incurred by NGIO.
The bad debt expense was $14,146 for the year ending July 31, 2020 compared to $3,252,439 in the prior fiscal year. The change was due to the impairment of accounts receivables and notes receivables derived from Veneto Holdings, LLC, which was written down in the 2019 fiscal year.
General and administrative expenses decreased to $17,898,239 for the year ending July 31, 2020 compared to $21,409,428 to the prior fiscal year. The difference is primarily due to the ceasing of NDS2 operations which generated $5,191,311 less expenses in 2020, partially offset by the increase in expenses generated from MediSource Pantheon, which was acquired during the year ended July 31, 2020.
Our operating loss for the year ended July 31, 2020 decreased by $6,408,231 to $17,937,210 compared to $24,345,441 in the prior fiscal year. The decrease in operating loss resulted from the factors described above.
Other income (expense) for the year end July 31, 2020 was a loss of approximately $16.7 million. Interest expense in the current fiscal year was $7,103,680 compared to $7,087,502 in the previous fiscal year. The expense is primarily due to interest on notes payable and amortization of debt discount.
Change in fair value of derivative liability in the current fiscal year was a loss of $5,003,433 compared to a gain of $2,125,449 in the previous fiscal year. The gain and loss are primarily due to fluctuations in the Company’s stock price that are utilized in valuation models.
Gain on write off of contingent consideration was $883,712 for the year ending July 31, 2020 compared to $0 in the prior fiscal year. The gain is due to the termination of the Travis Bird Consulting Agreement, which subsequently relieved the Company of the valuation of future earn out bonus.
Loss from the impairment of goodwill in the current fiscal year was $4,411,784 compared to $0 in the previous fiscal year. The loss was due to impairment of Veneto and MediSource Pantheon’s goodwill of $3,808,231 and $603,553, respectively. Loss from the impairment of intangibles in the current fiscal year was $937,953 compared to $287,587 in the previous fiscal year. The loss is due to impairment of MediSource Pantheon’s intangibles of $937,953 (see Note 2 – Goodwill, Impairment or Disposal of Long-Lived Assets and Intangibles).
We had net losses for the years ended July 31, 2020 and 2019 in the amount $34,232,093 and $11,006,794, respectively. The increase of $23,225,299 in net loss is a combined result of the factors described above.
Financial Condition, Liquidity and Resources
Sources of Liquidity
To date we have financed our development stage activities primarily through private placements of our common stock, securities convertible into our common stock, and investor loans. We will require additional funds to support our working capital requirements and any development or other activities. NGDx will require additional funds to support its working capital requirements and any development or other activities or will need to curtail its research and development and other planned activities or suspend operations. NGDx will no longer be able to rely on its former primary owner for necessary financing. Going forward, NGDx will rely on Generex financing activities to fund NGDx operations, development, and other activities.
As of November 4, 2020, the Company’s cash position is not sufficient for twelve months of operations.
While we have financed our development stage activities to date primarily through issuance of convertible notes, and raised approximately $6.6 million during the year ended July 31, 2020, our cash balances have been low throughout fiscal years 2019 and 2020.
On August 4, 2020, we entered into a securities purchase agreement with certain institutional buyers pursuant to which we sold and issued such buyers an aggregate of 5,102,040 shares of the Company’s common stock, at an aggregate price of $2,000,000.
The Company also issued the buyers (i) Series A Warrants to initially purchase 5,102,040 shares of Common Stock in the aggregate with an initial exercise price equal to $0.392 per share, (ii) Series B Warrants to initially purchase 15,306,122 shares of Common Stock in the aggregate with an initial exercise price of $0.392 per share; (iii) Series C Warrants to initially purchase 10,204,080 shares of Common Stock in the aggregate at an initial exercise price equal to $0.539 per share; and (iv) Series D Warrants to initially purchase zero shares Common at an exercise price equal to $0.001 per share, in each case, subject to adjustments and beneficial ownership limitations set forth therein.
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Management may seek to meet all or some of our operating cash flow requirements through financing activities, such as private placement of our common stock, preferred stock offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities.
In addition, management is actively pursuing financial and strategic alternatives, including strategic investments and divestitures, industry collaboration activities, and potential strategic partners. Management has sold non-essential real estate assets which are classified as Assets Held for Investment to augment the company’s cash position and reduce its long-term debt.
We will continue to require substantial funds to continue research and development, including preclinical studies and clinical trials of our product candidates, further clinical trials for Oral-lyn™ and to commence sales and marketing efforts if the FDA or other regulatory approvals are obtained.
Management may seek to meet all or some of our operating cash flow requirements through financing activities, such as private placement of our common stock, preferred stock offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities.
In addition, management is actively pursuing financial and strategic alternatives, including strategic investments and divestitures, industry collaboration activities, and potential strategic partners. Management has sold non-essential real estate assets which are classified as Assets Held for Investment to augment the company’s cash position and reduce its long-term debt.
We will continue to require substantial funds to continue research and development, including preclinical studies and clinical trials of our product candidates, further clinical trials for Oral-lyn™ and to commence sales and marketing efforts if the FDA or other regulatory approvals are obtained.
Financings
The following is a summary of the financing activities that we have completed during the year ended July 31, 2020.
Convertible Note Transactions
Financing – August 8, 2019
On August 8, 2019, borrowed $1,000,000 from an investor with a $150,000 original issue discount. The note accrues at 9% per annum and has a maturity date of August 7, 2020.
Financing – August 14, 2019
On August 14, 2019, we entered into a convertible note and securities purchase agreement with an investor in the principal amount of $1,100,000. The note accrues at 10% per annum and has a maturity date of August 14, 2020 and is convertible into common voting shares at a variable rate determined in the instrument.
Financing – August 29, 2019
On August 29, 2019, we entered into a convertible note and securities purchase agreement with an investor in the principal amount of $250,000. The note accrues at 9% per annum and has a maturity date of August 28, 2020 and is convertible into common voting shares at a variable rate determined in the instrument.
Financing – September 13, 2019
On September 13, 2019, we entered into a convertible note and securities purchase agreement with an investor in the principal amount of $872,000. The note accrues at 9.5% per annum and has a maturity date of September 12, 2020 and is convertible into common voting shares at a variable rate determined in the instrument.
Financing – November 18, 2019
On November 18, 2019, we entered into a convertible note and securities purchase agreement with three investors in the principal amount of $275,000. The note accrues at 10% per annum and has a maturity date of November 18, 2020 and is convertible into common voting shares at a variable rate determined in the instrument.
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Financing – December 5, 2019
On December 5, 2019, we entered into a convertible note and securities purchase agreement with an investor in the principal amount of $2,200,000. The note is in default and accrues at 22 % per annum and has a maturity date of June 5, 2021 and is convertible into common voting shares at a variable rate determined in the instrument.
Financing – January 14, 2020
On January 14, 2020, we entered into a convertible note and securities purchase agreement with an investor in the principal amount of $275,000. The note accrues at 4% per annum and has a maturity date of January 14, 2021 and is convertible into common voting shares at a variable rate determined in the instrument.
Financing – February 10, 2020
On February 10, 2020, we entered into a convertible note and securities purchase agreement with an investor in the principal amount of $305,000. The note accrues at 12% per annum and has a maturity date of February 10, 2021 and is convertible into common voting shares at a variable rate determined in the instrument.
Financing – February 28, 2020
On February 28, 2020, we entered into convertible notes and securities purchase agreements with three investors in the principal amount of $281,600. The notes accrue, at 9.5% per annum, have a maturity date of February 28, 2021 and are convertible into common voting shares at a variable rate determined in the instruments.
Financing – April 9, 2020
On April 9, 2019, the Company entered into a promissory note with a lender, bearing interest at 10% per annum in the principal amount of $50,000 and issued 10,000 shares of common stock in the aggregate for the commitment.
Financing – May 4, 2020
On May 4, 2020, the Company entered into a promissory note with a lender bearing interest at 10% per annum in the principal amount of $100,000 and issued 20,000 shares of common stock in the aggregate for the commitment and issued an option agreement to purchase up to 20,000 shares of the Company’s common stock at $0.34/share expiring on May 4, 2022.
Financing – June 25, 2020
On June 25, 2020, we entered into a convertible note and a securities purchase agreement with an investor in the principal amount of $150,000. The purchase price of the note was $150,000. The note accrues interest at 12% per annum, has a maturity date of June 25, 2021 and is convertible into common voting shares at a variable rate determined in the instrument.
Financing of Subsidiary– July 14, 2020
On July 14, 2020, NGIO entered into a purchase agreement with an investor Oasis Capital, LLC (“Oasis”) pursuant to which Oasis has agreed to purchase from the Company up to $50,000,000 of common stock at 92% of the market price for the period of five (5) consecutive trading days immediately subject to a put notice on such date on which the purchase price is calculated in accordance with the terms and conditions of the agreement (subject to certain limitations) from time to time over a 36-month period. NGIO also issued to Oasis 300,000 shares of its common stock under the Oasis Capital Agreement as a commitment fee in connection with a registration statement. This transfer has been accounted through common stock and additional paid in capital which has no net effect on equity.
The following is subsequent to July 31, 2020:
Financing – August 4, 2020
On August 4, 2020, we entered into a securities purchase agreement with certain institutional buyers pursuant to which we sold and issued such buyers an aggregate of 5,102,040 shares of the Company’s common stock, at an aggregate price of $2,000,000.
The Company also issued the buyers (i) Series A Warrants to initially purchase 5,102,040 shares of Common Stock in the aggregate with an initial exercise price equal to $0.392 per share, (ii) Series B Warrants to initially purchase 15,306,122 shares of Common Stock in the aggregate with an initial exercise price of $0.392 per share; (iii) Series C Warrants to initially purchase 7,421,150 shares of Common Stock in the aggregate at an initial exercise price equal to $0.539 per share; and (iv) Series D Warrants to initially purchase zero shares Common at an exercise price equal to $0.001 per share, in each case, subject to adjustments and beneficial ownership limitations set forth therein.
Between September 22, 2020 and October 2, 2020, pursuant to Securities Purchase Agreement, the Buyers exercised warrants to purchase 9,142,973 shares of common stock at an exercise price of $0.001 per share.
Between September 24, 2020 and October 19, 2020, the Company exercised put options pursuant to an Equity Purchase Agreement with an investor for an aggregate of 2,100,000 shares of Generex common stock for $356,710 of net proceeds.
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Cash Flows for the Year ended July 31, 2020
For the year ended July 31, 2020, we used $6.1 million in cash to fund our operating activities. The use for operating activities included a net loss of $34.2 million. Changes to working capital included an increase of $9.5 million related to accounts payable and accrued expenses.
The use of cash was offset by non-cash expenses of $1 million related to depreciation and amortization, $2.1 million related to stock compensation, $4.4 million of amortization of debt discount and a $5.1 million change in fair value of downside protection, $5.3 million of impairment of goodwill and intagibles , partially offset by $0.9 million from gain on write off of contingent consideration.
In the year ended July 31, 2020, we had net cash provided by investing activities of $0.05 million primarily relating to cash received in the acquisition of MediSource Pantheon.
We had cash provided by financing activities in the year ended July 31, 2020 of $5.8 million, most of which was from proceeds from investors of $6.6 million partially offset by payments on notes payable of $0.9 million.
Our net working capital deficiency on July 31, 2020 increased to $40.1 million from $28 million at July 31, 2019, which was attributed primarily to an increase in accounts payable and accrued expenses.
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Funding Requirements and Commitments
In addition to our commitments under the financings described above, we have the following obligations:
Veneto Acquisition Related Debt
On November 1, 2018, in connection with the completion of the acquisition of the pharmacy, management service organization and other assets of Veneto, our subsidiary, NuGenerex Distribution Solutions 2, LLC (“NuGenerex”), issued Veneto a promissory note in the principal amount of $35,000,000. The note calls for payment in full on or before January 15, 2019 with interest at an annual rate of 12% on the $30,000,000 portion of the New Note representing the purchase price of the Assets. The note is guaranteed by Generex and Joseph Moscato and secured by a first priority security interest in all of Generex’s assets. Mr. Moscato’s guaranty is limited to the principal amount of $15,000,000.
On January 15, 2019, we entered into an Amendment Agreement (the “Amendment”) with Veneto and the equity owners of Veneto entered into restructuring payment of the note as follows:
• | Payment of $15,750,000 by delivery of Generex common stock, initially valued at $2.50 per share. |
• | If, on the first to occur of (i) the ninetieth (90th) day after closing under the Amendment and (ii) the effective date of a registration statement filed with the SEC including the Generex shares pursuant to the Amendment, the average volume weighted average price (“VWAP”) of Generex common stock for the preceding five (5) trading days is less than $2.50 share, Generex will deliver additional Generex Shares such that the aggregate number of shares delivered under this Agreement equals $15,750,000 ÷ such average VWAP. |
• | The remainder of the principal and interest under the note shall be payable on April 15, 2019; provided that on that maturity date, Veneto shall have the option of (i) payment of principal and interest in cash and (ii) payment of principal and interest by Generex’ delivery of Generex Shares valued at $2.50 per share. |
• | All Generex shares issued pursuant to the Amendment will be delivered pro rata to the nine equity owners of Veneto as distributions from Veneto. |
As of the date hereof, we had delivered the shares of Generex Common Stock to the transfer agent for distribution to the Veneto equity owners.
On March 28, 2019, we entered into an amendment Restructuring Agreement with Veneto with respect to the payment terms of the January 15, 2019 promissory note. The parties agreed to restructure the terms as follows:
• | In lieu of any payments under the agreement or the note, we will deliver shares of its common stock and the common stock of its subsidiary, NGIO; |
• | All shares of our common stock delivered pursuant to the foregoing sentence will be outstanding shares held by existing shareholders; |