Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

7. Commitments and Contingencies

 

The Lantibiotic ECC

 

Under the Company’s Lantibiotic ECC with ILH Holdings, Inc. (“ILH”) (the “Lantibiotic ECC”), and subject to certain exceptions, the Company is responsible for, among other things, funding the further anticipated development of lantibiotics toward the goal of commercialization, conducting nonclinical and clinical development of candidate lantibiotics, as well as for other aspects of manufacturing and the commercialization of the product(s). Among other things, ILH is responsible for technology discovery efforts, cell-engineering development, certain aspects of the manufacturing process, and costs of filing, prosecution and maintenance of ILH’s patents.

 

In November of 2017 the Lantibiotic ECC was amended to: (i) consolidate the development milestone payments into one payment of $25,000,000, being due six months after receiving FDA approval of a New Drug Application, (ii) reduce the sublicense revenue percentage we would have had to pay from 50% to 25% of sublicensing revenue, (iii) reduce the royalty rate from 25% of Product Profit to 10% of Net Sales, (iv) revise the form of milestone payments from being share based or cash at the Company’s election to only cash, and (v) commit that Diligent Efforts (as defined in the Lantibiotic ECC) in pursuing the Lantibiotic Program would be deemed satisfied in 2018 provided that at least $1,200,000 was budgeted for the advancement of the Lantibiotic Program.

 

In November of 2017, the Stock Issuance Agreement was also amended. Under the terms of the amendment, the Company has agreed to make certain payments, in cash, to ILH upon our achievement of designated milestones. The milestone events and amounts payable are as follows:

 

  (i) a one-time payment of twenty-five million United States dollars ($25,000,000) within six (6) months of the achievement of the Regulatory Approval Milestone Event meaning receiving approval from the FDA of a New Product Application for an Oragenics Product (or equivalent regulatory action in a foreign jurisdiction);
     
  (ii) a one-time payment of five million United States dollars ($5,000,000) within six (6) months of the achievement of the New Indication Milestone Event meaning receiving approval from the FDA of a Supplemental FDA Application (or an equivalent filing with another equivalent regulatory agency) which Supplemental FDA Application sought approval of an indication for use of the Oragenics Product other than the current regulatory-approved indication; and
     
  (iii) a one-time payment of five million United States dollars ($5,000,000) within six (6) months of the achievement of the New Product Milestone Event meaning receiving approval from the FDA of a New Product Application that is deemed to be a different drug product that the first Oragenics Product that was clinically pursued under the Lantibiotics Program.

 

Pursuant to the terms of the amendment, we will also pay ILH on a quarterly basis 10% of Net Sales derived in that quarter from the sale of products developed from the Lantibiotic ECC, calculated on an Oragenics Product-by-Oragenics Product basis and we will pay ILH on a quarterly basis 25% of revenue obtained in that quarter from a sublicensor in the event of a sublicensing arrangement.

 

On July 21, 2016, the Lantibiotics ECC was amended to revise the definition of Field in view of a provisional patent application filing between ILH and Oragenics and to further clarify Oragenics’ rights under the Lantibiotic ECC to genetically modified Streptococcus mutans that express Lantibiotic(s).

 

None of the Lantibiotic ECC milestones had been achieved as of March 31, 2020.

 

The Oral Mucositis ECC

 

Under the Company’s Exclusive Channel Collaboration Agreement with Precigen, Inc. (“Precigen) (formerly known as Intrexon Corporation) and Intrexon Actobiotics NV, a wholly-owned subsidiary of Precigen, effective January 1, 2018, Precigen assigned its interest in the license agreement to a wholly owned subsidiary, Precigen ActoBio Inc. (formerly known as ActoBio Therapeutics, Inc.)(“Precigen ActoBio”) (the “Oral Mucositis ECC”), and subject to certain exceptions, the Company is responsible for, among other things, funding the further anticipated development of products toward the goal of commercialization, conducting preclinical and clinical development of candidate products, as well as for other aspects of manufacturing and the commercialization of the product(s). Among other things, Precigen ActoBio is responsible for technology discovery efforts, cell-engineering development, and certain aspects of the manufacturing process.

 

In November of 2017 the Company amended the Oral Mucositis ECC to: (i) consolidate the development milestone payments into one payment of $27,500,000 being due within six months after receiving FDA approval of a New Product Application; (ii) reduce the sublicense revenue percentage from 50% to 25% of sublicensing revenue; and (iii) revise the field in which the Company has exclusive rights to its Oral Mucositis product candidate for the treatment of Oral Mucositis to clarify that the Company has an exclusive for the treatment of Oral Mucositis in humans regardless of etiology.

 

Pursuant to the terms of the Oral Mucositis ECC, as amended, we are obligated to pay Precigen ActoBio on a quarterly basis 12% of the net sales derived from the sale of products developed from the exclusive channel collaboration. We are also obligated to pay Precigen ActoBio on a quarterly basis, 25% of revenue obtained in that quarter from a sublicensor in the event of a sublicensing arrangement.

 

In November of 2017, the Stock Issuance Agreement and Oral Mucositis ECC were amended. Under the terms of the amendment, the Company has agreed to make certain payments to Precigen ActoBio upon our achievement of designated milestones in the form of shares of our Common Stock (based upon the fair market value of the shares otherwise required to be issued) unless the issuance of such shares would reasonably likely cause Precigen ActoBio to consolidate our financial statements with Precigen ActoBio’s financial statements, or at our option make a cash payment to Precigen ActoBio. The milestone events and amounts payable are as follows:

 

  (i) a one-time payment of twenty-seven million five hundred thousand United States dollars ($27,500,000) within six (6) months of the achievement of the Regulatory Approval Milestone Event meaning receiving approval from the FDA of a New Product Application for an Oragenics Product (or equivalent regulatory action in a foreign jurisdiction);
     
  (ii) a one-time payment of five million United States dollars ($5,000,000) within six (6) months of the achievement of the New Indication Milestone Event meaning receiving approval from the FDA of a Supplemental FDA Application (or an equivalent filing with another equivalent regulatory agency) which Supplemental FDA Application sought approval of an indication for use of the Oragenics Product other than the current regulatory-approved indication; and
     
  (iii) a one-time payment of five million United States dollars ($5,000,000) within six (6) months of the achievement of the New Product Milestone Event meaning receiving approval from the FDA of a New Product Application that is deemed to be a different drug product that the first Oragenics Product that was clinically pursued under the Program.

 

None of the Oral Mucositis ECC milestones had been achieved as of March 31, 2020.

 

The Oral Mucositis ECC provides that in the event (i) Oragenics is required to make a milestone payment in cash as an issuance of shares would cause Precigen ActoBio to consolidate the Company’s financial statements with Precigen ActoBio’s financial statements, and (ii) Oragenics reasonably concludes that a cash milestone payment would have an adverse effect on its working capital needs over the next twelve (12) months, then such cash payment shall be in the form of an interest bearing promissory note with a maturity date of less than twelve (12) months and include other conventional market terms that would not be expected to unreasonably have an adverse effect on Oragenics working capital needs over such twelve (12) month period.

 

Leases

 

The Company’s Alachua facility is being leased from a real estate developer for a term of five years beginning in December 2019. Under the amended lease agreement, the rental payments range from $12,870 per month to $13,338 per month. The lease may be terminated prior to its stated expiration date upon the payment of nine-months rent.

 

In November of 2016, the Company entered into an amendment for the leased office space for corporate personnel located in Tampa, FL. The amended lease is for approximately 2,207 square feet. The lease period for the office space is for thirty-six months commencing on March 1, 2017. Lease payments range from $4,138 per month to $4,392 per month inclusive of insurance, taxes and utilities. The lease expired on February 29, 2020. In November of 2019, the Company entered into an amendment for the Tampa facility for a term of three years beginning in March of 2020. Under the amended lease agreement, the rental payments range from $4,524 per month to $4,800 per month.

 

Supplemental balance sheet information related to leases is as follows:

 

    March 31, 2020  
Operating lease right-of-use assets   $ 781,674  
         
Operating lease liabilities - Short term     167,864  
Operating lease liabilities - Long term     627,723  
Total operating lease liabilities   $ 795,587  
         
Weighted Average Remaining Lease Term In Years        
 Operating leases     4.21  
         
Weighted Average Discount Rate        
 Operating leases     5.70 %

 

Maturities of operating lease liabilities are as follows:

 

Year ended December 31:      
2020   $ 156,549  
2021     210,561  
2022     217,379  
2023     169,657  
2024     146,718  
Total     900,864  
Less: Imputed interest     (105,277 )
Present value of lease liabilities   $ 795,587  

 

The cost component of operating leases is as follows:

 

   

For the Three Months

Ended March 31, 2020

 
Operating lease cost     55,198  
Short-term lease cost     274  
Total lease cost   $ 55,472  

 

Supplemental cash flow information related to operating leases is as follows:

 

   

For the Three Months

Ended March 31, 2020

 
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows from operating leases   $ 56,429