2. Business Operations

Business

The Company is engaged in research and development activities with respect to anti-cancer treatments and other common non-malignant diseases. The Company’s activities are subject to significant risks and uncertainties, including the need for additional capital, as described below. The Company has not yet commenced any revenue-generating operations, does not have any cash flows from operations, and is dependent on debt and equity funding to finance its operations.

The Company’s common stock is traded on the OTCQB operated by the OTC Markets under the symbol “LIXT”.

Operating Plans

The Company’s primary focus is developing new treatments for human cancers for which better therapies are urgently needed. The scope of potential applications of the Company’s products has expanded to other common non-malignant diseases, including vascular diseases (heart attacks and stroke, diabetes, and genetic diseases, such as Gaucher’s disease) in which errors in normal cellular processing lead to loss of functions important to normal cell function. This has occurred because the targets selected by the Company have multiple functions in the cell, which when altered result in different disorders that may benefit by treatment from the Company’s products.

The Company’s drug discovery process is based on discerning clues to potential new targets for disease treatments reported in the increasingly large body of literature identifying the molecular variants which characterize human cancers and other non-cancer disorders. The Company designs drugs for which there are existing data suggesting that they may affect the altered pathways of the cancer cell and may be given safely to humans. The Company seeks to rapidly arrive at patentable structures through analysis of the literature rather than screening of thousands of structures for activity against a particular biochemical pathway.

This approach has led to the development of two classes of drugs for the treatment of cancer: protein phosphatase inhibitors (PTase-i), designated by the Company as the LB-100 series of compounds, and histone deacetylase inhibitors (HDACi), designated by the Company as the LB-200 series of compounds. Compounds of both types also have potential use in the prevention and treatment of neurodegenerative diseases. The LB-100 series consists of novel structures, which have the potential to be first in their class, and may be useful in the treatment of not only several types of cancer but also vascular and metabolic diseases. The LB-200 series contains compounds which have the potential to be the most effective in its class and may be useful for the treatment of chronic hereditary diseases, such as Gaucher’s disease, in addition to cancer and neurodegenerative diseases.

On August 16, 2011, the United States Patent and Trademark Office (the “PTO”) awarded a patent to the Company for its lead compound, LB-100, as well as for a number of structurally related compounds. On November 15, 2011, the PTO awarded a patent to the Company for a lead compound in the LB-200 series and a compound in the LB-100 series as neuroprotective agents for the prevention and treatment of neurodegenerative diseases. On March 27, 2012, the PTO awarded a patent to the Company for its lead compound LB-201, as well as for a number of structurally related compounds. Patent applications on these compounds and their use are pending world-wide.

The Company’s primary objective has been to bring one lead compound of the LB-100 series to clinical trial. In 2012, the Company completed the pre-clinical studies required to prepare an Investigational New Drug (“IND”) application to the United States Food and Drug Administration (“FDA”) to conduct a Phase 1 clinical trial of LB-100, and engaged Theradex Systems, Inc. (“Theradex”), an international contract research organization (“CRO”) that provides professional services for the clinical research and development of pharmaceutical compounds, to be responsible for the clinical development of the Company’s lead compound, LB-100, and to prepare an IND application for filing with the FDA.

The Company filed an IND application with the FDA on April 30, 2012, and on July 24, 2012, the FDA notified the Company that it would allow initiation of a Phase 1 clinical trial of LB-100. The purpose of the clinical trial is to demonstrate that LB-100 can be administered safely to human beings at a dose and at a frequency that achieves the desired pharmacologic effect; in this case, inhibition of a specific enzyme, without being associated with toxicities considered unacceptable.

The Phase 1 clinical trial of LB-100 is being conducted in two parts. In Part 1, the maximum tolerable dose of LB-100 to be administered alone in a subsequent Phase 2 clinical trial is being determined In Part 2, the maximum tolerable dose of LB-100, in combination with the standard cytotoxic drug docetaxel, which is a well-established anti-mitotic chemotherapy medication approved by the FDA for the treatment of various cancers, is being determined. Part 1 of the current clinical trial is anticipated to be completed by September 30, 2015 and Part 2 of the current clinical trial is anticipated to be completed by September 30, 2016.

The Phase 1 clinical trial of LB-100 began in April 2013 with the entry of patients into the clinical trial (NCTO 1837667 at www.clinicaltrials.gov) and was initiated at the City of Hope National Medical Center in Duarte, California, and was extended in December 2013 to include the Mayo Clinic in Rochester, Minnesota, both of which are Comprehensive Cancer Centers designated by the National Cancer Institute. As the accrual of patients was slower than anticipated, in October 2014 the Company entered into a Clinical Research Agreement (“CRA”) with US Oncology Research, LLC, a large community-based research network based in Texas, to increase the rate of entry of patients into the ongoing clinical trial by adding four more active clinical oncologic research sites.

The Company revises its estimate of the time and cost of the Phase 1 clinical trial of LB-100 as the clinical trial is modified and as additional information becomes available. The Company originally estimated that the Phase 1 clinical trial of LB-100 would be completed during the quarter ending June 30, 2015 at a total cost of approximately $2,038,000. The Company currently estimates that the first part of the clinical trial will be completed by September 30, 2015, and the second part of the clinical trial will be completed by September 30, 2016, at a total cost of approximately $2,615,000. The Company extended its estimate of the time to completion of the first part of the clinical trial because it appears that patients may tolerate higher doses of LB-100 than originally expected, thus requiring more dose escalation steps to determine the maximum tolerable dose (“MTD”) of LB-100 given alone.

The costs of the Phase 1 clinical trial of LB-100 are being paid to or through Theradex, the CRO responsible for the clinical development of LB-100. Total costs charged to operations through June 30, 2015 for services paid to or through Theradex pursuant to this arrangement, which were first incurred in 2013, total $1,202,536, of which $150,107 and $93,581 were incurred during the three months ended June 30, 2015 and 2014, respectively, and $500,708 and $173,233 were incurred during the six months ended June 30, 2015 and 2014, respectively. The final cost of the clinical trial is variable, depending upon the number of patients needed to be medically screened to determine if they meet the criteria for entry into the clinical trial and ultimately upon the total number of patients entered into the clinical trial to establish the proper doses of the drug for a Phase 2 clinical trial.

After completion of the Phase 1 clinical trial of LB-100, the Company anticipates that the next steps in its clinical development program would be to determine the anti-cancer activity of LB-100 as a single agent against a specific hematological cancer in a Phase 1b/2 clinical trial, and in combination with docetaxel against a specific solid tumor in a Phase 2 clinical trial for which single agent docetaxel is indicated. 

Going Concern

The Company’s condensed consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has not generated any revenues from operations to date, and does not expect to do so in the foreseeable future. The Company has experienced recurring operating losses and negative operating cash flows since inception, and has financed its working capital requirements during this period primarily through the recurring sale of its equity securities and the exercise of outstanding warrants. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern, and the Company’s independent registered public accounting firm, in their report on the Company’s consolidated financial statements for the year ended December 31, 2014, has expressed substantial doubt about the Company’s ability to continue as a going concern.

The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. The Company’s condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

At June 30, 2015, the Company had not yet commenced any revenue-generating operations. All activity through June 30, 2015 has been related to the Company’s capital raising efforts and research and development activities. As such, the Company has yet to generate any cash flows from operations, and is dependent on debt and equity funding from both related and unrelated parties to finance its operations.

Because the Company is currently engaged in research at an early stage, it will likely take a significant amount of time to develop any product or intellectual property capable of generating revenues. As such, the Company’s business is unlikely to generate any sustainable revenues in the next several years, and may never do so. Even if the Company is able to generate revenues in the future through licensing its technologies or through product sales, there can be no assurance that the Company will be able to achieve positive earnings and cash flows from operations.

At June 30, 2015, the Company had cash and money market funds aggregating $1,250,579. As a result of the Company receiving $1,750,000 from the sale of preferred shares in March 2015 (see Note 4), as well as the $315,000 from the exercise of warrants in April 2015 (see Note 4), the Company believes that it has sufficient funds to complete the ongoing Phase 1 clinical trial of its lead anti-cancer compound LB-100 and to fund its ongoing operating expenses, including maintaining its patent portfolio, through June 30, 2016.

The amount and timing of future cash requirements will depend on the pace of the Company’s clinical programs, in particular the completion of the Phase 1 clinical trial of LB-100. The Company expects that it will need to raise additional capital no later than mid-2016, likely in the form of equity, to fund operations, including the continuing costs of its clinical trial program and to maintain its patent portfolio. However, academic investigators have recently published pre-clinical data suggesting that LB-100 alone and/or in combination with standard treatments may be useful in the treatment of two different hematologic cancers. As the single agent dose of LB-100 is expected to be determined by September 30, 2015, the Company may consider raising additional funds during 2015 for the conduct of a Phase 1b/2 clinical trial of LB-100 in a hematologic malignancy before the Company completes Part 2 of the current Phase 1 clinical trial.

Market conditions present uncertainty as to the Company’s ability to secure additional funds. There can be no assurances that the Company will be able to secure additional financing on acceptable terms, or at all, as and when necessary to continue to conduct operations. If cash resources are insufficient to satisfy the Company’s ongoing cash requirements, the Company would be required to scale back or discontinue its technology and product development programs and/or clinical trials, or obtain funds, if available (although there can be no certainty), through strategic alliances that may require the Company to relinquish rights to certain of its products, or to discontinue its operations entirely.