Quarterly report pursuant to Section 13 or 15(d)

9. COMMITMENTS AND CONTINGENCIES

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9. COMMITMENTS AND CONTINGENCIES
3 Months Ended
Jul. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

The Company acquires assets still in development and enters into research and development arrangements with third parties that often require milestone and royalty payments to the third party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required, contingent upon the successful achievement of an important point in the development life-cycle of the pharmaceutical product (e.g., approval of the product for marketing by a regulatory agency). If required by the license agreements, the Company may have to make royalty payments based upon a percentage of the sales of the pharmaceutical products in the event that regulatory approval for marketing is obtained.

 

Office Lease

 

The Company formerly leased office space at 12510 Prosperity Drive, Suite 310, Silver Spring, Maryland 20904. The term of the lease expired on July 31, 2016 and was extended to August 31, 2016 at the same amount. Rent expense for the three months ending July 31, 2016 and 2015 were $13,852 and $15,010, respectively.

 

The Company entered into a new office lease agreement effective on September 1, 2016. The term of the lease is twelve months. The leased premises are located at 23046 Avenida de la Carlota, Suite 600, Laguna Hills, California 92653.

 

The following table summarizes the Company’s aggregate rent expense through July 31, 2017.

 

Period ending, July 31,   Amount  
       
2017   $ 21,167  
2018     12,007  
    $ 33,174  

 

License Agreements

 

The Third Addendum

 

The Third Addendum requires the Company to make future royalty and milestone payments as follows:

 

  · Two percent royalty on all gross sales received by the Company or its affiliates;

 

  · Ten percent royalty on gross revenues received by the Company or its affiliates from any sublicense or right to use the patents or the licenses granted by the Company or its affiliates;

 

  · Milestone payments of $100,000 due 30 days after enrollment of the first human patient in the first clinical trial for each product; $300,000 due 30 days after enrollment of the first human patient in the first Phase 3 clinical trial for each product; and $800,000 due 60 days after having a marketing application approved by the applicable regulatory authority for each product; and

 

  · Milestone payments of $50,000 due 30 days after enrollment of the first veterinary patient in the first trial for each product and $300,000 due 60 days after having a marketing application approved by the applicable regulatory authority for each veterinary product.

 

In addition, the parties to the Third Addendum entered into a Manufacturing Framework Agreement pursuant to which the Company is required to pay a fee for producing the final encapsulated cell product of $647 per vial of 300 capsules after production with a minimum purchased batch size of 400 vials of any Cell-in-a-Box® product. The fees under the Manufacturing Framework Agreement are subject to annual increases according to the annual inflation rate in the country in which the encapsulated cell products are manufactured.

 

Diabetes Licensing Agreement

 

The Diabetes Licensing Agreement requires the Company to pay a fee for producing the final encapsulated cell product of $633.14 per vial of 300 capsules after production with a minimum purchased batch size of 400 vials of any Cell-in-a-Box® product, subject to adjustment for inflation in accordance with the terms of the Diabetes Licensing Agreement.

 

The Diabetes Licensing Agreement requires the Company to make future royalty and milestone payments as follows: (i) ten percent royalty of the gross sale of all products the Company sells; (ii) twenty percent royalty of the amount actually received by the Company from sub-licensees on sub-licensees’ gross sales; (iii) milestone payments of $100,000 within 30 days of beginning the first pre-clinical experiments using the encapsulated cells; (iv) $500,000 within 30 days after enrollment of the first human patient in the first clinical trial; (v) $800,000 within 30 days after enrollment of the first human patient in the first Phase 3 clinical trial; and (vi) $1,000,000 due 60 days after having a marketing application approved by the applicable regulatory authority for each product.

 

Melligen Cell License Agreement

 

The Melligen Cell License Agreement does not require any “up-front” payment to UTS. The Company is required to pay to UTS a patent administration fee amounting to 15% on all amounts paid by UTS to prosecute and maintain patents related to the licensed property.

 

The Melligen Cell License Agreement requires that the Company pay royalty payments to UTS of (i) six percent gross exploitation revenue on product sales; and (ii) twenty-five percent of gross revenues if the product is sub-licensed by the Company. In addition, the Company is required to pay milestone payments of: (iii) AU$ 50,000 at the successful conclusion of clinical studies; (iv) AU$ 100,000 at the successful conclusion of Phase 1 clinical trials; (v) AU$ 450,000 at the successful conclusion of Phase 2 clinical trials; and (vi) AU$ 3,000,000 at the conclusion of Phase 3 clinical trials.

 

Cannabis Licensing Agreement

 

Under the Cannabis Licensing Agreement, the Company is required to pay Austrianova an Upfront Payment of $2,000,000. The Company has the right to make periodic monthly partial payments of the Upfront Payment in amounts to be agreed upon between the parties prior to each such payment being made. Under the Cannabis Licensing Agreement, as amended, the Upfront Payments must be paid in full by no later than June 30, 2016. As of July 31, 2016, the Company has paid Austrianova $2.0 million of the Upfront Payment (see Note 4).

 

The Cannabis Licensing Agreement requires the Company to pay Austrianova, pursuant to a manufacturing agreement between the parties, a one-time manufacturing setup fee in the amount of $800,000, of which 50% is required to be paid on the signing of a manufacturing agreement for a product and 50% is required to be paid three months later. As of July 31, 2016, the manufacturing agreement remains unsigned. In addition, the Cannabis Licensing Agreement requires the Company to pay a fee for producing the final encapsulated cell product of $800 per vial of 300 capsules after production with a minimum purchased batch size of 400 vials of any Cell-in-a-Box® product, subject to adjustment for inflation in accordance with the terms of the Cannabis Licensing Agreement.

 

The Cannabis Licensing Agreement requires the Company to make future royalty and milestone payments as follows: (i) ten percent royalty of the gross sale of all products sold by the Company; (ii) twenty percent royalty of the amount actually received by the Company from sub-licensees on sub-licensees’ gross sales value; (iii) a milestone payment of $100,000 within 30 days of beginning the first pre-clinical experiments using the encapsulated cells; (iv) a milestone payment of $500,000 within 30 days after enrollment of the first human patient in the first clinical trial; (v) a milestone payment of $800,000 within 30 days after enrollment of the first human patient in the first Phase 3 clinical trial; and (vi) a milestone payment of $1,000,000 due 90 days after having a marketing application approved by the applicable regulatory authority for each product.

 

Consulting Agreement with ViruSure

 

The Company has engaged ViruSure, a professional cell growing and adventitious agent testing company that has had extensive experience with the CYP2B1-expressing cells that will be needed for the Company’s pancreatic cancer treatment. The Company did so in order to recover them from frozen stocks of similar cells and regenerate new stocks for use by the Company in its preclinical studies and clinical trials. ViruSure is in the process of cloning new cells from a selected clone. Those clones will be grown to populate a Master Cell Band and a Working Cell Bank for the Company’s future clinical trials. There are approximately $171,000 in future milestone payments relating to testing to be completed.

 

Compensation Agreements

 

The Company entered into executive compensation agreements with its two executive officers and an employment agreement with one of its employees in March 2015, each of which was amended in December 2015. Each agreement has a term of two years. The Company also entered into a compensation agreement with a Board member in April 2015 which continues in effect until the member is no longer on the Board.