Item 1. Financial Statements
INTEC
PHARMA LTD.
UNAUDITED
CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS
AS
OF JUNE 30, 2020
INTEC
PHARMA LTD.
UNAUDITED
CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS
TABLE
OF CONTENTS
INTEC
PHARMA LTD.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
U.S. dollars in thousands
|
|
Assets
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,799
|
|
|
$
|
9,292
|
|
Investment in marketable securities (Note 3)
|
|
|
-
|
|
|
|
770
|
|
Prepaid expenses and other receivables
|
|
|
1,307
|
|
|
|
3,683
|
|
TOTAL CURRENT ASSETS
|
|
|
15,106
|
|
|
|
13,745
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,967
|
|
|
|
2,575
|
|
Operating lease right-of-use assets
|
|
|
993
|
|
|
|
1,243
|
|
Other assets (Note 4a)
|
|
|
3,717
|
|
|
|
3,717
|
|
TOTAL NON-CURRENT ASSETS
|
|
|
6,677
|
|
|
|
7,535
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
21,783
|
|
|
$
|
21,280
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES -
|
|
|
|
|
|
|
|
|
Accounts payable and accruals:
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
382
|
|
|
$
|
3,507
|
|
Other (Note 6)
|
|
|
3,997
|
|
|
|
4,835
|
|
TOTAL CURRENT LIABILITIES
|
|
|
4,379
|
|
|
|
8,342
|
|
LONG-TERM LIABILITIES -
|
|
|
|
|
|
|
|
|
Non-current operating lease liabilities
|
|
|
536
|
|
|
|
799
|
|
Other liabilities
|
|
|
690
|
|
|
|
604
|
|
TOTAL LONG-TERM LIABILITIES
|
|
|
1,226
|
|
|
|
1,403
|
|
TOTAL LIABILITIES
|
|
|
5,605
|
|
|
|
9,745
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENT LIABILITIES (Note
4)
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Ordinary shares, with no par value - authorized: 100,000,000 Ordinary Shares as of June 30, 2020 and December
31, 2019; issued and outstanding: 69,428,032 and 35,892,209 Ordinary Shares as of June 30, 2020 and December 31, 2019, respectively
|
|
|
727
|
|
|
|
727
|
|
Additional paid-in capital
|
|
|
211,691
|
|
|
|
200,231
|
|
Accumulated deficit
|
|
|
(196,240
|
)
|
|
|
(189,423
|
)
|
TOTAL SHAREHOLDERS’ EQUITY
|
|
|
16,178
|
|
|
|
11,535
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
21,783
|
|
|
$
|
21,280
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
INTEC
PHARMA LTD.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three months ended
June 30
|
|
|
Six months ended
June 30
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
U.S. dollars
in thousands
|
|
|
U.S. dollars
in thousands
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESEARCH AND DEVELOPMENT
EXPENSES, net
|
|
$
|
(1,275
|
)
|
|
$
|
(7,860
|
)
|
|
$
|
(3,299
|
)
|
|
$
|
(16,402
|
)
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
(1,630
|
)
|
|
|
(2,144
|
)
|
|
|
(3,345
|
)
|
|
|
(4,334
|
)
|
OPERATING LOSS
|
|
|
(2,905
|
)
|
|
|
(10,004
|
)
|
|
|
(6,644
|
)
|
|
|
(20,736
|
)
|
FINANCIAL INCOME (EXPENSES), net
|
|
|
4
|
|
|
|
33
|
|
|
|
(66
|
)
|
|
|
143
|
|
LOSS BEFORE INCOME TAX
|
|
|
(2,901
|
)
|
|
|
(9,971
|
)
|
|
|
(6,710
|
)
|
|
|
(20,593
|
)
|
INCOME TAX
|
|
|
(46
|
)
|
|
|
(38
|
)
|
|
|
(107
|
)
|
|
|
(72
|
)
|
NET LOSS
|
|
$
|
(2,947
|
)
|
|
$
|
(10,009
|
)
|
|
$
|
(6,817
|
)
|
|
$
|
(20,665
|
)
|
|
|
U.S.
dollars
|
|
LOSS PER SHARE BASIC AND DILUTED
|
|
$
|
(0.05
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.62
|
)
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER ORDINARY SHARE IN THOUSANDS
|
|
|
62,820
|
|
|
|
33,300
|
|
|
|
54,913
|
|
|
|
33,274
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
(Continued)
- 1
INTEC
PHARMA LTD.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
|
|
Ordinary Shares
|
|
|
Additional paid-in capital
|
|
|
Accumulated Deficit
|
|
|
Total
|
|
|
|
Number of shares
|
|
|
Amounts
|
|
|
Amounts
|
|
|
|
|
|
|
U.S. dollars in thousands
|
|
BALANCE AT JANUARY 1, 2019
|
|
|
33,232,988
|
|
|
$
|
727
|
|
|
$
|
194,642
|
|
|
|
(141,824
|
)
|
|
$
|
53,545
|
|
CHANGES IN THE SIX-MONTH PERIOD ENDED JUNE 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options
|
|
|
69,812
|
|
|
|
-
|
|
|
|
268
|
|
|
|
-
|
|
|
|
268
|
|
Share-based compensation (Note 5)
|
|
|
|
|
|
|
-
|
|
|
|
1,961
|
|
|
|
-
|
|
|
|
1,961
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,665
|
)
|
|
|
(20,665
|
)
|
BALANCE AT JUNE 30, 2019
|
|
|
33,302,800
|
|
|
$
|
727
|
|
|
$
|
196,871
|
|
|
$
|
(162,489
|
)
|
|
$
|
35,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 1, 2020
|
|
|
35,892,209
|
|
|
$
|
727
|
|
|
$
|
200,231
|
|
|
$
|
(189,423
|
)
|
|
$
|
11,535
|
|
CHANGES IN THE SIX-MONTH PERIOD ENDED JUNE 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares, net of issuance costs (Note 5a(1))
|
|
|
831,371
|
|
|
|
-
|
|
|
|
421
|
|
|
|
-
|
|
|
|
421
|
|
Issuance of ordinary shares and warrants, net of issuance costs (Note 5a(2))
|
|
|
16,250,000
|
|
|
|
-
|
|
|
|
5,692
|
|
|
|
-
|
|
|
|
5,692
|
|
Issuance of ordinary shares and warrants, net of issuance costs (Note 5a(3))
|
|
|
16,291,952
|
|
|
|
-
|
|
|
|
4,426
|
|
|
|
-
|
|
|
|
4,426
|
|
Exercise of warrants (Note 5a(2))
|
|
|
162,500
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
65
|
|
Share-based compensation (Note 5)
|
|
|
-
|
|
|
|
-
|
|
|
|
856
|
|
|
|
-
|
|
|
|
856
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,817
|
)
|
|
|
(6,817
|
)
|
BALANCE AT JUNE 30, 2020
|
|
|
69,428,032
|
|
|
$
|
727
|
|
|
$
|
211,691
|
|
|
$
|
(196,240
|
)
|
|
$
|
16,178
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
(Continued)
- 2
INTEC
PHARMA LTD.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
|
|
Ordinary Shares
|
|
|
Additional paid-in capital
|
|
|
Accumulated Deficit
|
|
|
Total
|
|
|
|
Number of shares
|
|
|
Amounts
|
|
|
Amounts
|
|
|
|
|
|
|
U.S. dollars in thousands
|
|
BALANCE AT APRIL 1, 2019
|
|
|
33,297,371
|
|
|
$
|
727
|
|
|
$
|
195,842
|
|
|
|
(152,480
|
)
|
|
$
|
44,089
|
|
CHANGES IN THE THREE-MONTH PERIOD ENDED JUNE 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options
|
|
|
5,429
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
11
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,018
|
|
|
|
-
|
|
|
|
1,018
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,009
|
)
|
|
|
(10,009
|
)
|
BALANCE AT JUNE 30, 2019
|
|
|
33,302,800
|
|
|
$
|
727
|
|
|
$
|
196,871
|
|
|
$
|
(162,489
|
)
|
|
$
|
35,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT APRIL 1, 2020
|
|
|
52,973,580
|
|
|
$
|
727
|
|
|
$
|
206,786
|
|
|
$
|
(193,293
|
)
|
|
$
|
14,220
|
|
CHANGES IN THE THREE-MONTH PERIOD ENDED JUNE 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares and warrants, net of issuance costs (Note 5a(3))
|
|
|
16,291,952
|
|
|
|
-
|
|
|
|
4,426
|
|
|
|
-
|
|
|
|
4,426
|
|
Exercise of warrants (Note 5a(2))
|
|
|
162,500
|
|
|
|
-
|
|
|
|
65
|
|
|
|
-
|
|
|
|
65
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
414
|
|
|
|
-
|
|
|
|
414
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,947
|
)
|
|
|
(2,947
|
)
|
BALANCE AT JUNE 30, 2020
|
|
|
69,428,032
|
|
|
$
|
727
|
|
|
$
|
211,691
|
|
|
$
|
(196,240
|
)
|
|
$
|
16,178
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
INTEC
PHARMA LTD.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six months ended June 30
|
|
|
|
2020
|
|
|
2019
|
|
|
|
U.S. dollars in thousands
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,817
|
)
|
|
$
|
(20,665
|
)
|
Adjustments required to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
611
|
|
|
|
431
|
|
Exchange differences on cash and cash equivalents
|
|
|
49
|
|
|
|
(19
|
)
|
Change in right of use asset
|
|
|
250
|
|
|
|
351
|
|
Change in lease liabilities
|
|
|
(263
|
)
|
|
|
(243
|
)
|
Gains on marketable securities
|
|
|
(2
|
)
|
|
|
(5
|
)
|
Share-based compensation
|
|
|
856
|
|
|
|
1,961
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease (increase) in prepaid expenses and other receivables
|
|
|
2,376
|
|
|
|
(136
|
)
|
Increase in deferred tax assets
|
|
|
-
|
|
|
|
(148
|
)
|
Increase (decrease) in accounts payable and accruals
|
|
|
(3,963
|
)
|
|
|
583
|
|
Increase in other liabilities
|
|
|
86
|
|
|
|
163
|
|
Net cash used in operating activities
|
|
|
(6,817
|
)
|
|
|
(17,727
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(3
|
)
|
|
|
(151
|
)
|
Investment in other assets
|
|
|
-
|
|
|
|
(1,435
|
)
|
Proceeds from disposal of marketable securities, net
|
|
|
772
|
|
|
|
576
|
|
Net cash provided by (used in) investing activities
|
|
|
769
|
|
|
|
(1,010
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of ordinary shares, net of issuance costs (Note 5a(1))
|
|
|
421
|
|
|
|
-
|
|
Proceeds from issuance of ordinary shares and warrants, net of issuance costs (Note 5a(2))
|
|
|
5,692
|
|
|
|
-
|
|
Proceeds from issuance of ordinary shares and warrants, net of issuance costs (Note 5a(3))
|
|
|
4,426
|
|
|
|
-
|
|
Proceeds from exercise of warrants
|
|
|
65
|
|
|
|
-
|
|
Proceeds from exercise of options
|
|
|
-
|
|
|
|
268
|
|
Net cash provided by financing activities
|
|
|
10,604
|
|
|
|
268
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
4,556
|
|
|
|
(18,469
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
|
|
|
9,292
|
|
|
|
39,246
|
|
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS
|
|
|
(49
|
)
|
|
|
19
|
|
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD
|
|
$
|
13,799
|
|
|
$
|
20,796
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Liability with respect to property and equipment
|
|
$
|
-
|
|
|
$
|
502
|
|
Liability with respect to other assets (see note 4a)
|
|
$
|
-
|
|
|
$
|
1,114
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION -
|
|
|
|
|
|
|
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
50
|
|
Interest received
|
|
$
|
27
|
|
|
$
|
263
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE
1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION:
|
1)
|
Intec
Pharma Ltd. (“Intec”) is engaged in the development of proprietary technology
which enables the gastric retention of certain drugs. The technology is intended to significantly
improve the efficiency of the drugs and substantially reduce their side-effects or the
effective doses.
|
Intec
is a limited liability public company incorporated in Israel.
Intec’s
ordinary shares are traded on the NASDAQ Capital Market (“NASDAQ”).
In
September 2017, Intec incorporated a wholly-owned subsidiary in the United States of America in the State of Delaware - Intec
Pharma Inc. (the “Subsidiary”, together with Intec - “the Company”). The Subsidiary was incorporated mainly
to provide Intec executive and management services, including business development, medical affairs and investor relationship
activities outside of Israel.
|
2)
|
The Company engages in research and development activities and has not yet generated revenues from operations. On July 22, 2019, the Company announced top-line results according to which its Phase III clinical trial for AP-CD/LD did not achieve its primary and secondary endpoints. Accordingly, there is no assurance that the Company’s operations will generate positive cash flows. As of June 30, 2020, the cumulative losses of the Company were approximately $196.2 million. Management expects that the Company will continue to incur losses from its operations, which will result in negative cash flows from operating activities.
|
The Company believes that it
has adequate cash to fund its ongoing activities into the third quarter of 2021. Its ability to execute its operating plan beyond
the third quarter of 2021 is dependent on its ability to obtain additional capital principally through entering into collaborations,
strategic alliances, or license agreements with third parties and/or raising capital from the public and/or private investors
and/or institutional investors. The negative outcome of the Phase III clinical trial that was announced on July 22, 2019
and uncertainty regarding the Company’s development programs is expected to adversely affect its ability to obtain funding
and there is no assurance that it will be successful in obtaining the level of financing needed for its activities. If the Company
is unsuccessful in securing sufficient financing, it may need to curtail or cease operations. In addition, the COVID-19 pandemic
,also known as “coronavirus”, that was reported in Wuhan, China in late 2019 and that has spread globally, has resulted
in significant financial market volatility and uncertainty in recent months. Many countries around the world, including in Israel
and the United States, have implemented significant governmental measures to control the spread of the virus, including temporary
closure of businesses, severe restrictions on travel and the movement of people, and other material limitations on the conduct
of business. The Company has implemented remote working and work place protocols for its employees in accordance with government
requirements. The implementation of measures to prevent the spread of coronavirus have resulted in disruptions to the Company’s
partnering efforts which depend, in part, on attendance at in-person meetings, industry conferences and other events. It is still
too early to assess the full impact of the coronavirus outbreak and the extent to which the coronavirus impacts the Company’s
operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the
duration and severity of the outbreak, and the actions that may be required to contain the coronavirus or treat its impact. As
of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially
impact the Company’s financial condition, liquidity, or results of operations is uncertain.
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE
1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued):
Furthermore, the estimation
process required to prepare the Company’s consolidated financial statements required assumptions to be made about future
event and conditions and the impact of COVID-19 in the Company’s financial results, and while Company’s management
believe such assumptions are reasonable, they are inherently subjective and uncertain. The Company’s actual results could
differ materially from those estimates. As a result of these uncertainties, there is substantial doubt about the Company’s
ability to continue as a going concern within one year after the issuance date of these financial statements.
These
financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments
that might result from the outcome of this uncertainty.
|
3)
|
On March 1, 2019, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”). During January 2020, the Company sold 831,371 ordinary shares under the Sales Agreement raising a total of approximately $421 thousand (net of issuance expenses of $15 thousand). For more details see note 5a(1).
|
On
February 3, 2020, the Company completed an underwritten public offering and raised a total of approximately $5.7 million (net
of underwriting discounts, commissions and other offering expenses in the amount of approximately $800 thousand). For more details
see note 5a(2).
In
addition, on May 6, 2020, the Company completed a registered direct offering and concurrent private placement raising a total
of approximately $4.5 million (net of placement agent and other offering expenses in the amount of approximately $500 thousand).
For more details see note 5a(3).
|
4)
|
On September 3, 2019, the Company was notified by NASDAQ that it was not in compliance with the minimum bid price requirements for continued listing on the NASDAQ. The notification provided that the Company had 180 calendar days, or until March 2, 2020, to regain compliance. On March 3, 2020, the Company was notified that it is eligible for an additional 180 calendar day period, or until August 31, 2020, to regain compliance. As a result of tolling of compliance periods by NASDAQ, on April 17, 2020, the Company was notified that the term to regain compliance was extended until November 13, 2020. To regain compliance, the bid price of the Company’s ordinary shares must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. Accordingly, on July 15, 2020, the Company’s shareholders approved amendments to the Company’s articles of association to effect a reverse share split of its ordinary shares at a ratio with the range from 1-for-5 to 1-for-25, to be effective at the ratio and on a date to be determined by the board of directors in its sole discretion provided the reverse split is effected no later than July 15, 2021. Failure to meet these requirements could result in a delisting of the Company’s ordinary shares which could negatively impact the Company’s ability to raise capital.
|
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued):
The
unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America (“US GAAP”) and S-X Article 10 for interim financial
statements. Accordingly, they do not contain all information and notes required by US GAAP for annual financial statements. In
the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which
include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as
of June 30, 2020, the consolidated results of operations, changes in equity for the three and six-month periods ended June 30,
2020 and 2019 and cash flows for the six-month periods ended June 30, 2020 and 2019.
These
unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company’s annual financial statements for the year ended December 31, 2019,
as filed in the 10-K on March 13, 2020. The condensed balance sheet data as of December 31, 2019 included in these unaudited
condensed consolidated financial statements was derived from the audited financial statements for the year ended December 31,
2019 but does not include all disclosures required by US GAAP for annual financial statements.
The
results for the six-month period ended June 30, 2020 are not necessarily indicative of the results expected for the year ending
December 31, 2020.
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES:
|
a.
|
Principles of consolidation
|
The
consolidated financial statements include the accounts of Intec and its Subsidiary. Intercompany balances and transactions have
been eliminated upon consolidation.
|
b.
|
Fair value measurement
|
Fair
value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in
an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability
in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs
used to measure fair value into three broad levels, which are described as follows:
Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair
value hierarchy gives the highest priority to Level 1 inputs.
Level
2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level
3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest
priority to Level 3 inputs.
In
determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the
use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
Loss
per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of
ordinary shares outstanding during the period. Diluted loss per share is based upon the weighted average number of ordinary shares
and of ordinary shares equivalents outstanding when dilutive. Ordinary share equivalents include outstanding stock options
and warrants which are included under the treasury stock method when dilutive.
The
following share options and warrants were excluded from the calculation of diluted loss per ordinary share because their effect
would have been anti-dilutive for the periods presented (share data):
|
|
|
Three months ended
June 30
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Outstanding stock options
|
|
|
4,657,554
|
|
|
|
4,401,151
|
|
|
|
4,333,363
|
|
|
|
4,296,573
|
|
|
Warrants
|
|
|
21,128,749
|
|
|
|
-
|
|
|
|
15,740,145
|
|
|
|
-
|
|
|
d.
|
Research and development expenses, net
|
Research
and development expenses, net for the six-month period ended June 30, 2019, include participation in research and development
expenses in the amount of approximately $815 thousand. For the six-month period ended June 30, 2020, the Company had no participation
in research and development expenses.
NOTE
3 - MARKETABLE SECURITIES
The
Company’s marketable securities included bonds issued by the State of Israel and corporate bonds with a minimum of A rating
by global rating agencies. These assets are recorded as fair value with changes recorded in the statement of operations as “financial
income (expenses), net”, as the Company chose to apply the fair value option. These assets are categorized as Level 1.
As
of June 30, 2020, the Company had no marketable securities. As of December 31, 2019, the amount of the marketable securities is
approximately $770 thousand.
The
gain, net from changes in marketable securities for the six-month periods ended June 30, 2020 and 2019 amounted to approximately
$2 thousand and $5 thousand, respectively.
NOTE
4 - COMMITMENTS AND CONTINGENT LIABILITIES:
|
a.
|
LTS
Process Development Agreement
|
In
December 2018, the Company entered into a Process Development Agreement for Manufacturing Services with Lohmann Therapie-Systeme
AG (“LTS”) for the manufacture of AP-CD/LD (the “Agreement”). Under the Agreement, the Company will bear
the costs incurred by LTS to acquire the production equipment for AP-CD/LD (“Equipment”) which amounted to approximately
€6.8 million (approximately $7.8 million), and this amount will later be reimbursed to the Company by LTS in the form of
a reduction in the purchase price of the AP-CD/LD product. As of December 31, 2019, the Company paid in full all the consideration
and has recognized the Equipment as non-current other assets.
In
2019, the Company performed an impairment assessment on certain of its long-lived assets which resulted an impairment charge of
the Equipment in the amount of approximately $4.1 million. As of December 31, 2019, the fair value of the Equipment was approximately
$3.7 million.
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE 4 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):
The
Agreement also contains several termination rights which are expected to be included in a definitive manufacturing and supply
agreement. As of June 30, 2020, the Company has a liability in the amount of €2.0 million (approximately $2.2 million)
for LTS’s facility upgrading costs. This liability will be paid to LTS only if the Company decides not to continue with
the project or commercialization of AP-CD/LD.
In
December, 2019, two former directors and officers (the “plaintiffs”) filed a statement of claim with the Jerusalem
District Labor Court alleging breach of contract related to a purported vesting of certain options issued to the plaintiffs pursuant
to the execution of the LTS Agreement and further alleging payments due for unredeemed vacation days.
The
plaintiffs are seeking pecuniary damages of NIS 2.4 million (approximately $700 thousand) plus interest and linkage to the Israeli
CPI. In addition, the plaintiffs have filed motions to obtain liens on the Company’s assets to secure any future recovery.
That motion was withdrawn pursuant to the court’s recommendation at the conclusion of a hearing held on February 9, 2020.
The
Company records a provision in its financial statements to the extent that it concludes that a contingent liability is probable,
and the amount thereof is estimable.
The
Company together with its legal advisors believe that it has good defense arguments to the claims against it and filed a statement
of defense to the complaint on March 8, 2020 in which it rejected all of the plaintiffs’ claims. Accordingly, management
assessed the likelihood of damages and concluded that no provisions are needed to be recorded within the financial statements
regarding the matter disclosed in this note.
NOTE
5 - SHARE CAPITAL:
|
a.
|
Changes
in share capital
|
|
1)
|
On
March 1, 2019, the Company entered into a Sales Agreement with Cowen which provides that,
upon the terms and subject to the conditions and limitations in the Sales Agreement,
the Company may elect from time to time, to offer and sell ordinary shares through an
“at-the-market” equity offering program through Cowen acting as sales agent.
The issuance and sale of ordinary shares by the Company under the offering program is
being made pursuant to the Company’s effective “shelf” registration
statement on Form S-3 filed with the SEC on March 1, 2019 and declared effective on March
28, 2019, as amended by a prospectus supplement filed on March 13, 2020. On May 4, 2020,
the Company terminated the prospectus supplement, but the sales agreement remains in
full force and effect.
|
During January 2020, the
Company sold 831,371 ordinary shares under the Sales Agreement at an average price of $0.525 per share for aggregate net proceeds
of approximately $421 thousand, net of issuance expenses of approximately $15 thousand.
|
2)
|
On February 3, 2020, the Company completed an underwritten
public offering, pursuant to which the Company issued 15,280,000 ordinary shares, pre-funded warrants to purchase 970,000 ordinary
shares and warrants to purchase 16,250,000 ordinary shares. Each pre-funded warrant was exercisable at an exercise price of $0.0001
per share. All the pre-funded warrants were exercised following the closing of the offering. Each ordinary share and warrant or
pre-funded warrant and warrant were sold together at a combined price of $0.40. Each warrant shall be exercisable at an
exercise price of $0.40 per share and has a term of five years from the date of issuance.
|
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE 5 - SHARE CAPITAL (continued):
|
|
The Company has also concluded that the warrants are classified
as equity, since they meet all criteria for equity classification. The total net proceeds were approximately $5.7 million, after
deducting underwriting discounts, commissions and other offering expenses in the amount of $800 thousand. In June 2020, warrants
to purchase 162,500 ordinary shares were exercised for consideration of $65 thousand. As of June 30, 2020, warrants to purchase
16,087,500 ordinary shares remained outstanding. In July 2020, warrants to purchase 730,000 ordinary shares were exercised for
consideration of $292 thousand.
|
|
3)
|
On May 6, 2020, the Company completed a registered direct offering,
pursuant to which the Company sold and issued to certain institutional investors 16,291,952 ordinary shares at a purchase price
per share of $0.3069. In addition, in a concurrent private placement, the Company also sold and issued to the purchasers in the
offering unregistered warrants to purchase 8,145,976 ordinary shares. Each warrant shall be exercisable at an exercise price of
$0.245 per share and has a term of five and one-half years from the date of issuance. The Company has also concluded that the warrants
are classified as equity, since it meets all criteria for equity classification. The total net proceeds were approximately $4.5
million, after deducting placement agent and other offering expenses in the amount of approximately $500 thousand. As of June 30,
2020, no warrants were exercised. In July 2020, warrants to purchase 1,681,460 ordinary shares were exercised for consideration
of approximately $412 thousand.
|
|
b.
|
Share-based
compensation:
|
|
1)
|
In January 2016, the Company's board of directors approved a new option plan (the "2015 Plan").
Originally, the maximum number of ordinary shares reserved for issuance under the 2015 Plan was 700,000 ordinary shares for
grants to directors, employees and consultants. In July 2016, an increase of 700,000 ordinary shares was approved by the board
of directors.
|
In December 2017, June 2018
and December 2019, an increase of 2,100,000, 1,000,000 and 1,000,000 ordinary shares, respectively, was approved by the Company’s
shareholders at a general meeting of shareholders. In July 2020, the Company’s shareholders approved a further increase (see
note 7a).
As of June 30, 2020, 1,069,764 shares remain
available for grant under the Plan.
In
the six months ended June 30, 2020 and 2019, the Company granted options as follows:
|
|
|
Six months ended June 30, 2020
|
|
|
|
|
Number of options granted
|
|
|
Exercise price
|
|
|
Vesting period
|
|
|
Expiration
|
|
|
Employees
|
|
|
645,000
|
|
|
$
|
0.4287
|
|
|
3 years
|
|
|
7 years
|
|
|
|
|
Six months ended June 30, 2019
|
|
|
|
|
Number of options granted
|
|
|
Exercise price range
|
|
|
Vesting period range
|
|
|
Expiration
|
|
|
Employees*
|
|
|
1,065,000
|
|
|
|
$7.63-$7.64
|
|
|
3 years
|
|
|
7 years
|
|
|
Directors
|
|
|
120,000
|
|
|
$
|
4.86
|
|
|
3 years
|
|
|
7 years
|
|
* On August 22, 2019, the Company
reduced the exercise price of these options to $0.44.
The
fair value of options granted to employees and directors during the six months ended June 30, 2020, and 2019 was $127 thousand
and $4.0 million, respectively.
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE 5 - SHARE CAPITAL (continued):
The
fair value of options granted to employees and directors on the date of grant was computed using the Black-Scholes model. The
underlying data used for computing the fair value of the options are as follows:
|
|
|
Six months ended June 30
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Value of ordinary share
|
|
$
|
0.28
|
|
|
|
$4.34-$7.46
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected volatility
|
|
|
102.58
|
%
|
|
|
53.32%-54.55
|
%
|
|
Risk-free interest rate
|
|
|
1.42
|
%
|
|
|
1.76%-2.57
|
%
|
|
Expected term
|
|
|
5 years
|
|
|
|
5 years
|
|
|
2)
|
The
following table illustrates the effect of share-based compensation on the statements
of operations:
|
|
|
|
Three months ended June 30
|
|
|
Six months ended
June 30
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
U.S. dollars in thousands
|
|
|
U.S. dollars in thousands
|
|
|
Research and development expenses, net
|
|
$
|
175
|
|
|
$
|
597
|
|
|
$
|
359
|
|
|
$
|
1,167
|
|
|
General and administrative expenses
|
|
|
239
|
|
|
|
421
|
|
|
|
497
|
|
|
|
794
|
|
|
|
|
$
|
414
|
|
|
$
|
1,018
|
|
|
$
|
856
|
|
|
$
|
1,961
|
|
NOTE
6 - ACCOUNTS PAYBLE AND ACCRUALS - OTHER:
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
U.S. dollars in thousands
|
|
|
Expenses payable
|
|
$
|
2,773
|
|
|
$
|
2,838
|
|
|
Salary and related expenses, including social security and other taxes
|
|
|
459
|
|
|
|
1,277
|
|
|
Current operating lease liabilities
|
|
|
532
|
|
|
|
544
|
|
|
Accrual for vacation days and recreation pay for employees
|
|
|
211
|
|
|
|
154
|
|
|
Other
|
|
|
22
|
|
|
|
22
|
|
|
|
|
$
|
3,997
|
|
|
$
|
4,835
|
|
NOTE
7 - EVENTS SUBSEQUENT TO JUNE 30, 2020
|
a.
|
Following the annual meeting of the Company’s shareholders on July 15, 2020, (i) the Company granted 300,000 options to purchase ordinary shares to the Company’s Chief Executive Officer, at a per share exercise price of $0.3075. The options will vest over a three -year period, with one-third of the options vesting at the end of the first anniversary of the date of grant, and the remaining options vesting in eight equal quarterly installments following the first anniversary of the grant date. The options will expire seven years after the date of grant. The value of the benefit in respect of the said options, as calculated on the grant date, is approximately $73 thousand; (ii) the Company granted an aggregate of 200,000 options to purchase ordinary shares to its non-employee directors, at a per share exercise price of $0.3075. The options will vest over a three-year period, with one-third of the options vesting at the end of the first anniversary of the date of grant, and the remaining options vesting in eight equal quarterly installments following the first anniversary of the grant date. The options will expire seven years after the date of grant. The value of the benefit in respect of the said options, as calculated on the grant date, is approximately $48 thousand; (iii) the Company increased its authorized share capital from 100,000,000 ordinary shares to 350,000,000 ordinary shares; and (iv) the Company increased the number of ordinary shares reserved under the 2015 Plan by 3,500,000 to 9,000,000.
|
|
b.
|
In July 2020, warrants to purchase 2,411,460 ordinary shares were
exercised for consideration of approximately $704 thousand.
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our
results of operations and financial condition for the periods described. This discussion should be read together with our condensed
consolidated interim financial statements and the notes to the financial statements, which are included in this Quarterly Report
on Form 10-Q. This information should also be read in conjunction with the information contained in our Annual Report on Form
10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 13, 2020, including the
consolidated annual financial statements as of December 31, 2019 and their accompanying notes included therein. We have prepared
our condensed consolidated interim financial statements in accordance with U.S. GAAP.
This
Quarterly Report on Form 10-Q of Intec Pharma Ltd. contains forward-looking statements about our expectations, beliefs and intentions.
Forward-looking statements can be identified by the use of forward-looking words such as “believe”, “expect”,
“intend”, “plan”, “may”, “should”, “could”, “might”, “seek”,
“target”, “will”, “project”, “forecast”, “continue” or “anticipate”
or their negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly
to historical matters. These forward-looking statements are based on assumptions and assessments made in light of management’s
experience and perception of historical trends, current conditions, expected future developments and other factors believed to
be appropriate. Forward-looking statements in Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on
Form 10-Q, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events
or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties,
many of which are outside of our control. Many factors could cause our actual activities or results to differ materially from
the activities and results anticipated in forward-looking statements, including, but not limited to, the following: our limited
operating history and history of operating losses, our ability to continue as a going concern, our ability to obtain additional
financing, the impact of the outbreak of coronavirus on our operations, our ability to successfully operate our business or execute
our business plan, the timing and cost of our clinical trials, the completion and receiving favorable results in our clinical
trials, our ability to obtain and maintain regulatory approval of our product candidates, our ability to protect and maintain
our intellectual property and licensing arrangements, our ability to develop, manufacture and commercialize our product candidates,
the risk of product liability claims, the availability of reimbursement, and the influence of extensive and costly government
regulation. More detailed information about the risks and uncertainties affecting us is contained under the heading “Risk
Factors” included in our most recent Annual Report on Form 10-K filed with the SEC on March 13, 2020, and in other filings
that we have made and may make with the Securities and Exchange Commission in the future.
All
references to “we,” “us,” “our,” “Intec”, “the Company” and “our
Company” in this Quarterly Report on Form 10-Q are to Intec Pharma Ltd. and its U.S. subsidiary Intec Pharma Inc., unless
the context otherwise requires.
Overview
We
are a clinical stage biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology,
which we refer to as the Accordion Pill. Our Accordion Pill is an oral drug delivery system that is designed to improve the efficacy
and safety of existing drugs and drugs in development by utilizing an efficient gastric retention, or, GR and specific release
mechanism. Our product pipeline currently includes several product candidates in various stages. Our leading product candidate,
Accordion Pill Carbidopa/Levodopa, or, AP-CD/LD, is being developed for the indication of treatment of Parkinson’s disease
symptoms in advanced Parkinson’s disease patients.
In
July 2019, we announced top-line results from our pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s
disease known as the ACCORDANCE study in which the ACCORDANCE study did not meet its target endpoints. While AP-CD/LD provided
treatment for Parkinson’s disease symptoms, it did not demonstrate statistically superiority over immediate release CD/LD
on the primary endpoint of OFF time reduction under the conditions established in the protocol. Treatment-emergent adverse effects
observed with AP-CD/LD were generally consistent with the known safety profile of CD/LD formulations and no new safety issues
were observed throughout the double-blinded study, during the gastroscopy safety sub-study or the 12-month open-label extension
study. From our review of the data, we have observed a meaningful reduction in OFF time in certain subsets of patients. We have
completed the analysis of the full data set and we are currently seeking to partner AP-CD/LD as the basis for the strategy for
AP-CD/LD moving forward.
Previously,
we successfully completed a Phase II clinical trial for AP-CD/LD for the treatment of Parkinson’s disease symptoms in advanced
Parkinson’s disease patients and in February 2019, we announced that AP-CD/LD met the primary endpoint in a pharmacokinetic,
or PK study, comparing the AP-CD/LD 50/500mg dosed three times daily, the most common dose used in our ACCORDANCE study, to 1.5
tablets of CD/LD immediate release (Sinemet™) 25/100 dosed five times per day in Parkinson’s disease patients.
We
have invested in the commercial scale manufacture of AP-CD/LD, for which we are in partnership with LTS Lohmann Therapie-Systeme
AG (LTS) in Andernach, Germany. In October 2019, we completed the qualification studies for the commercial scale manufacture of
the Accordion Pill and we have initiated the validation and stability studies of certain batches which are expected to serve as
the clinical material for the next Phase 3 clinical trial plan. We have suspended further validation and stability studies and
we intend to initiate the validation and stability studies of the remaining batches upon partnering the AP-CD/LD program.
In
addition, we have initiated a clinical development program for our Accordion Pill platform with the two primary cannabinoids contained
in cannabis sativa, which we refer to as AP-Cannabinoids. We are formulating and testing CBD and THC for the treatment of various
pain indications. AP-Cannabinoids are designed to extend the absorption phase of CBD and THC, with the goal of more consistent
levels for an improved therapeutic effect, which may address several major drawbacks of current methods of treatment, such as
short duration of effect, delayed onset, variability of exposure, variability of the administered dose and adverse events that
correlate with peak levels. In March 2017, we initiated a Phase I single-center, single-dose, randomized, three-way crossover
clinical trial in Israel to compare the safety, tolerability and PK of AP-THC/CBD with Sativex®, an oral buccal spray containing
CBD and THC that is commercially available outside of the United States. Initial results demonstrated that the Accordion Pill
platform is well suited to safely deliver CBD and THC with significant improvements in exposure compared with Sativex®. In
December 2018, we initiated a PK study of AP-THC and the results of the study demonstrate that the custom designed AP delivery
system in the AP-THC PK study did not meet our expectations. We are continuing to advance the AP-Cannabinoids clinical development
program and we are seeking to launch a PK study with the optimized AP-THC in 2020.
While
the ACCORDANCE results were not what we expected, we continue to believe in the potential of the Accordion Pill platform. In December
2018, we reported that we successfully developed an Accordion Pill for a Novartis proprietary compound that met the required in
vitro specifications set forth in a feasibility agreement with Novartis. In 2019 we completed the human PK study and its results
demonstrated that the AP met the technical requirements set forth by Novartis. In December 2019, Novartis, following an internal
and revised commercial strategic assessment, advised us that this program no longer meets Novartis’ mid to long-term strategic
goals. Novartis paid us $1.5 million on conclusion of the program. We restructured our clinical manufacturing planned to support
this program in order to reduce costs.
In
May 2019, we reported entering into a research collaboration agreement with Merck for the development of a custom-designed AP
for one of Merck’s proprietary compounds. We met the required in vitro specifications for that compound but do not anticipate
an in-vivo study in 2020. We continue discussions with Merck regarding further development collaboration with the Accordion Pill.
We
continue to advance discussions with other potential pharmaceutical partners for the development of new custom-designed APs. We
believe the data from our ACCORDANCE trial enhances those discussions as it validates the AP platform and provides long-term safety
data.
In
late 2019, a novel strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially the outbreak was
largely concentrated in China, it has now spread to countries across the globe, including in Israel and the United States. Many
countries around the world, including in Israel and the United States, have implemented significant governmental measures to control
the spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement of people,
and other material limitations on the conduct of business. We implemented remote working and work place protocols for our employees
in accordance with government requirements. The implementation of measures to prevent the spread of coronavirus have resulted
in disruptions to our partnering efforts which depend, in part, on attendance at in-person meetings, industry conferences and
other events. It is still too early to assess the full impact of the coronavirus outbreak and the extent to which the coronavirus
impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence,
including the duration and severity of the outbreak, and the actions that may be required to contain the coronavirus or treat
its impact.
Results
of Operations
The
table below provides our results of operations for the periods indicated.
|
|
|
Three months ended
June 30
|
|
|
Six months ended
June 30
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
$
|
(1,275
|
)
|
|
$
|
(7,860
|
)
|
|
$
|
(3,299
|
)
|
|
$
|
(16,402
|
)
|
|
General and administrative expenses
|
|
|
(1,630
|
)
|
|
|
(2,144
|
)
|
|
|
(3,345
|
)
|
|
|
(4,334
|
)
|
|
Operating loss
|
|
|
(2,905
|
)
|
|
|
(10,004
|
)
|
|
|
(6,644
|
)
|
|
|
(20,736
|
)
|
|
Financial income (expenses), net
|
|
|
4
|
|
|
|
33
|
|
|
|
(66
|
)
|
|
|
143
|
|
|
Loss before income tax
|
|
|
(2,901
|
)
|
|
|
(9,971
|
)
|
|
|
(6,710
|
)
|
|
|
(20,593
|
)
|
|
Income tax
|
|
|
(46
|
)
|
|
|
(38
|
)
|
|
|
(107
|
)
|
|
|
(72
|
)
|
|
Net loss
|
|
$
|
(2,947
|
)
|
|
$
|
(10,009
|
)
|
|
$
|
(6,817
|
)
|
|
$
|
(20,665
|
)
|
Three
and Six Months Ended June 30, 2020 Compared to Three and Six Months Ended June 30, 2019
Research
and Development Expenses, Net
Our
research and development expenses, net, for the three months ended June 30, 2020 amounted to approximately $1.3 million, a decrease
of approximately $6.6 million, or 84%, compared to approximately $7.9 million for the three months ended June 30, 2019. Our research
and development expenses, net, for the six months ended June 30, 2020 amounted to approximately $3.3 million, a decrease of approximately
$13.1 million, or 80%, compared to approximately $16.4 million for the six months ended June 30, 2019. The decrease for the three
and six-month periods was primarily due to the completion of our ACCORDANCE study and Open Label Extension study during 2019,
decrease in expenses related to the scale up activities for the commercial scale manufacturing, decrease in payroll and related
expenses, mostly due to a reduction in headcount, and share-based compensation.
General
and Administrative Expenses
Our
general and administrative expenses for the three months ended June 30, 2020 amounted to approximately $1.6 million, a decrease
of approximately $500,000, or 24%, compared to approximately $2.1 million for the three months ended June 30, 2019. Our general
and administrative expenses for the six months ended June 30, 2020 amounted to approximately $3.3 million, a decrease of approximately
$1.0 million, or 23%, compared to approximately $4.3 million for the six months ended June 30, 2019. The decrease for the three
and six-month periods was primarily related to a decrease in payroll and related expenses, including reduction in headcount, share-based
compensation and reduction in associated expenses.
Operating
Loss
As
a result of the foregoing, for the three months ended June 30, 2020 our operating loss was approximately $2.9 million, a decrease
of approximately $7.1 million, or 71%, compared to our operating loss for the three months ended June 30, 2019 of approximately
$10 million. For the six months ended June 30, 2020 our operating loss was approximately $6.6 million, a decrease of approximately
$14.1 million, or 68%, compared to our operating loss for the six months ended June 30, 2019 of approximately $20.7 million. The
decrease for the three and six-month periods was due to a decrease in research and development expenses, net and general and administrative
expenses, as detailed above.
Financial
Income (expenses), Net
For
the three months ended June 30, 2020, we had financial income from interest on cash and cash equivalents in the amount of approximately
$17,000, offset by financial expenses from foreign currency exchange expenses in the amount of approximately $13,000 and bank
fees. For the three months ended June 30, 2019, we had financial income from interest on cash and cash equivalents in the amount
of approximately $92,000, offset by financial expenses from foreign currency exchange expenses in the amount of approximately
$54,000 and bank fees.
For
the six months ended June 30, 2020, we had financial expenses from foreign currency exchange expenses in the amount of
approximately $89,000 and bank fees, offset by financial income from interest on cash and cash equivalents in the amount of
approximately $27,000 and financial income from change in fair value of marketable securities in the amount of approximately
$2,000. For the six months ended June 30, 2019, we had financial income from interest on cash and cash equivalents in the
amount of approximately $282,000 offset by financial expenses from foreign currency exchange expenses in the amount of
approximately $128,000 and bank fees.
Income
tax
For
the three and six months ended June 30, 2020 and 2019, we have not generated taxable income in Israel. However, for the three
months ended June 30, 2020 and 2019, we incurred tax expenses in our U.S. subsidiary in the amount of $46,000 and $38,000, respectively,
and for the six months ended June 30, 2020 and 2019 we incurred tax expenses in our U.S. subsidiary in the amount of $107,000
and $72,000, respectively.
Net
Loss
Based
on the foregoing, for the three months ended June 30, 2020 our net loss was approximately $2.9 million, a decrease of approximately
$7.1 million, or 71%, compared to net loss for the three months ended June 30, 2019 of approximately $10.0 million. For the six
months ended June 30, 2020 our net loss was approximately $6.8 million, a decrease of approximately $13.9 million, or 67%, compared
to our net loss for the six months ended June 30, 2019 of approximately $20.7 million. The decrease for the three and six-month
periods was mainly due to a decrease in research and development expenses, net, and general and administrative expenses, as detailed
above.
Liquidity and Resources
Since our inception,
we have funded our operations primarily through public and private offerings (in Israel and in the U.S.) of our equity securities,
grants from the IIA and other grants from organizations such as the Michael J. Fox Foundation, and payments received under the
feasibility and related agreements we have entered into with multinational pharmaceutical companies, pursuant to which we are entitled
to full coverage of our development costs with regard to the projects specified in those agreements.
As of June 30, 2020,
we had cash and cash equivalents of approximately $13.8 million. As of December 31, 2019, we had cash and cash equivalents and
marketable securities of approximately $10.1 million. In February 2020, we completed an underwritten public offering, pursuant
to which we issued 15,280,000 ordinary shares, pre-funded warrants to purchase 970,000 ordinary shares and warrants to purchase
16,250,000 ordinary shares. Each pre-funded warrant was exercisable at an exercise price of $0.0001 per share. All the pre-funded
warrants were exercised following the closing of the offering. Each ordinary share and warrant or pre-funded warrant and warrant
were sold together at a combined price of $0.40. Each warrant is exercisable at an exercise price of $0.40 per share and has a
term of five years from the date of issuance. The total net proceeds were approximately $5.7 million, after deducting underwriting
discounts, commissions and other offering expenses in the amount of approximately $800,000. In addition, in May 2020, we completed
a registered direct offering with certain institutional investors pursuant to which we sold 16,291,952 ordinary shares and in a
concurrent private placement, we issued to the investors in the offering warrants to purchase up to 8,145,976 ordinary shares.
The warrants are immediately exercisable and expire five and one-half years from issuance at an exercise price of $0.245 per share,
subject to adjustment as set forth therein. The total net proceeds were approximately $4.5 million, after deducting placement agent
and other offering expenses in the amount of approximately $500,000.
Net cash used in operating
activities was approximately $6.8 million for the six months ended June 30, 2020 compared with net cash used in operating activities
of approximately $17.7 million for the six months ended June 30, 2019. This decrease resulted primarily from a decrease in our
research and development activities in the amount of approximately $13.1 million, offset by changes in operating asset and liability
items of approximately $2.0 million.
We had positive cash
flow from investing activities of approximately $769,000 for the six months ended June 30, 2020 compared to negative cash flow
from investing activities of approximately $1.0 million for the six months ended June 30, 2019. This change resulted primarily
from an investment in the establishment of the commercial scale manufacturing in the amount of approximately $1.4 million in the
six months ended June 30, 2019 and an increase in proceeds from the disposal of marketable securities in the amount of approximately
$200,000.
Net cash provided by
financing activities for the six months ended June 30, 2020 was approximately $10.6 million, which was provided primarily by the
proceeds from our registered direct in May 2020 that resulted in net proceeds of approximately $4.5 million, proceeds from our
underwritten public offering in February 2020 that resulted in net proceeds of approximately $5.7 million and by the funds received
from the sale of our ordinary shares under our “at-the-market” equity offering program that resulted in net proceeds
of approximately $421,000. Net cash provided by financing activities for the six months ended June 30, 2019 was approximately $268,000,
which was provided by the proceeds from the exercise of options by employees.
At-the-Market
Equity Offering Program
Pursuant to that certain
Sales Agreement, dated March 1, 2019, or the Sales Agreement, by and between us and Cowen and Company, LLC, we may elect from time
to time, to offer and sell ordinary shares through an “at the market offering” as defined in Rule 415(a)(4), or the
ATM Offering, promulgated under the Securities Act having an aggregate offering price of up to $75,000,000. Under a prospectus
supplement dated March 28, 2019, we sold an aggregate of 2,775,883 ordinary shares for gross proceeds of $2.6 million. On March
13, 2020, we updated the aggregate amount that may be issued and sold under the ATM Offering and filed a prospectus supplement
pursuant to which we may offer and sell, from time to time, ordinary shares having an aggregate offering price of up to $9.8 million.
From March 13, 2020 to May 4, 2020, we did not issue or sell any of our ordinary shares under the ATM Offering. On May 4, 2020,
we terminated the prospectus supplement dated March 13, 2020, but the Sales Agreement remains in full force and effect.
Aspire Capital
Financing Arrangement
On December 2, 2019,
we entered into a purchase agreement, or the Purchase Agreement, with Aspire Capital Fund LLC, or Aspire Capital, pursuant to which
provides that, upon the terms and conditions set forth therein, Aspire Capital is committed to purchase up to an aggregate of $10.0
million of our ordinary shares over the 30-month term of the Purchase Agreement. Concurrently with entering into the Purchase Agreement,
we also entered into a registration rights agreement with Aspire Capital, or the Registration Rights Agreement, in which we agreed
to file with the SEC one or more registration statements, as necessary, and to the extent permissible and subject to certain exceptions,
to register for sale under the Securities Act for the sale of our ordinary shares that have been and may be issued to Aspire Capital
under the Purchase Agreement.
We filed with the SEC
a prospectus supplement to our effective shelf registration statement on Form S-3 (File No. 333-230016) registering all of the
ordinary shares that may be offered to Aspire Capital from time to time. Under the Purchase Agreement, on any trading day selected
by us, we have the right, in our sole discretion, to present Aspire Capital with a purchase notice, each, a Purchase Notice, directing
Aspire Capital (as principal) to purchase up to 200,000 of our ordinary shares in an amount no greater than $500,000 per business
day, up to $10.0 million of our ordinary shares in the aggregate at a per share price, or the Purchase Price, equal to the lesser
of:
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●
|
the lowest sale price of our ordinary shares on the purchase date; or
|
|
●
|
the arithmetic average of the three
(3) lowest closing sale prices for our ordinary shares during the ten (10) consecutive trading days ending on the trading day
immediately preceding the purchase date.
|
We and Aspire Capital
also may mutually agree to increase the dollar amount to greater than $500,000 and the number of ordinary shares that may be sold
to as much as an additional 2,000,000 ordinary shares per business day, respectively.
In addition, on any
date on which we submit a Purchase Notice to Aspire Capital in an amount equal to at least 200,000 ordinary shares, we also have
the right, in our sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice, each, a VWAP
Purchase Notice, directing Aspire Capital to purchase an amount of ordinary shares equal to up to 30% of the aggregate of our ordinary
shares traded on our principal market on the next trading day, or the VWAP Purchase Date, subject to a maximum number of 250,000
ordinary shares. The purchase price per share pursuant to such VWAP Purchase Notice is generally 97% of the volume-weighted average
price for our ordinary shares traded on our principal market on the VWAP Purchase Date.
The Purchase Price
will be adjusted for any reorganization, recapitalization, non-cash dividend, share split, or other similar transaction occurring
during the period(s) used to compute the Purchase Price. We may deliver multiple Purchase Notices and VWAP Purchase Notices to
Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.
As a result of certain
lock-up provisions in our recent registered direct offering, we could not effect any sales under the Purchase Agreement until
after August 4, 2020 unless we receive prior written approval from the purchasers in the registered direct offering. The Purchase
Agreement provides that we and Aspire Capital shall not effect any sales under the Purchase Agreement on any purchase date where
the closing sale price of our ordinary shares is less than $0.25. There are no trading volume requirements or restrictions under
the Purchase Agreement, and we will control the timing and amount of sales of our ordinary shares to Aspire Capital. Aspire Capital
has no right to require any sales by us, but is obligated to make purchases from us as directed by us in accordance with the Purchase
Agreement. There are no limitations on use of proceeds, financial or business covenants, restrictions on future funding, rights
of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. In consideration for entering
into the Purchase Agreement, concurrently with the execution of the Purchase Agreement, we issued to Aspire Capital the Commitment
Shares. The Purchase Agreement may be terminated by us at any time, at its discretion, without any cost to us. Aspire Capital
has agreed that neither we nor any of our agents, representatives and affiliates shall engage in any direct or indirect short-selling
or hedging of our ordinary shares during any time prior to the termination of the Purchase Agreement. Any proceeds from us received
under the Purchase Agreement are expected to be used to fund our research and development activities, for working capital and
for general corporate purposes.
The Purchase Agreement
provides that the number of ordinary shares that may be sold pursuant to the Purchase Agreement will be limited to 7,002,394 ordinary
shares, or the Exchange Cap, which represents 19.99% of our outstanding ordinary shares on December 2, 2019, unless shareholder
approval or an exception pursuant to the rules of the Nasdaq Capital Market is obtained to issue more than 19.99%. This limitation
will not apply if, at any time the Exchange Cap is reached and at all times thereafter, the average price paid for all ordinary
shares issued under the Purchase Agreement is equal to or greater than $0.48978, which is the price equal to the closing sale price
of our ordinary shares immediately preceding the execution of the Purchase Agreement. We are not required or permitted to issue
any ordinary shares under the Purchase Agreement if such issuance would breach its obligations under the rules or regulations of
the Nasdaq Capital Market or other applicable law (including, without limitation, the Israeli Companies Law – 1999, as amended,
or the Israeli Companies Law). We may, in our sole discretion, determine whether to obtain shareholder approval to issue more than
19.99% of our outstanding ordinary shares hereunder if such issuance would require shareholder approval under the rules or regulations
of the Nasdaq Capital Market or the Israeli Companies Law.
Current Outlook
We believe that further
fund raising will be required in order to complete the research and development of all of our product candidates, including the
manufacturing activities of the AP-CD/LD. We believe that we have adequate cash to fund our ongoing activities into the third quarter
of 2021. Our ability to execute our operating plan beyond the third quarter of 2021 is dependent on our ability to obtain additional
capital principally through license agreements with third parties and capital raising from the public, private investors and institutional
investors, such as through the public offering that we completed in February 2020 raising a total of $5.7 million, net, and the
registered direct offering and concurrent private placement that we completed in May 2020 raising a total of approximately $4.5
million, net. We may also engage with a partner in order to share the costs associated with the development and manufacturing of
our product candidates. We are closely monitoring ongoing developments in connection with the coronavirus pandemic, which has resulted
in disruptions to our partnering efforts and may negatively impact our commercial prospects and our ability to raise capital. As
of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially
impact our financial condition, liquidity, or results of operations is uncertain. Furthermore, the estimation process required
to prepare our consolidated financial statements required assumptions to be made about future event and conditions and the impact
of COVID-19 in our financial results, and while we believe such assumptions are reasonable, they are inherently subjective and
uncertain. Our actual results could differ materially from those estimates. As a result, there is substantial doubt about our ability
to continue as a going concern within one year after the date our consolidated financial statements are issued. For more information,
see note 1(a)(2) in our condensed consolidated financial statements for the six months ended June 30, 2020.
Developing drugs, conducting
clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will need to
raise substantial additional funds to achieve our strategic objectives. We will require significant additional financing in the
future to fund our operations, including if and when we progress into additional clinical trials of our product candidates, obtain
regulatory approval for one or more of our product candidates, obtain commercial manufacturing capabilities and commercialize one
or more of our product candidates. Our future capital requirements will depend on many factors, including, but not limited to:
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the progress and costs of our clinical trials and other research and development activities;
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|
●
|
the scope, prioritization and number of our clinical trials and other research and development programs;
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|
●
|
the amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect to our product candidates;
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|
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|
the impact of the coronavirus outbreak;
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|
the costs of the development and expansion of our operational infrastructure;
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|
the costs and timing of obtaining regulatory approval for one or more of our product candidates;
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the ability of us, or our collaborators, to achieve development milestones, marketing approval and other events or developments under our potential future licensing agreements;
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the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
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the costs and timing of securing manufacturing arrangements for clinical or commercial production;
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the costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves;
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the costs of acquiring or undertaking development and commercialization efforts for any future products, product candidates or technology;
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the magnitude of our general and administrative expenses;
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market conditions; and
|
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|
any cost that we may incur under future in- and out-licensing arrangements relating to one or more of our product candidates.
|
Until we can generate
significant recurring revenues, we expect to satisfy our future cash needs through capital raising or by out-licensing applications
of one or more of our product candidates. We cannot be certain that additional funding will be available to us on acceptable terms,
if at all. If funds are not available, we may be required to delay, reduce the scope of or eliminate research or development plans
for, or commercialization efforts with respect to, one or more of our product candidates and make necessary change to our operations
to reduce the level of our expenditures in line with available resources.
Off-Balance Sheet Arrangements
We have no off-balance
sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
are material to investors.
Critical Accounting Policies
This discussion and
analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates
that affect the reported amounts of our assets, liabilities and expenses. Significant accounting policies employed by us, including
the use of estimates, are presented in the notes to the consolidated financial statements included elsewhere in our Annual Report
on Form 10-K for the year ended December 31, 2019. We periodically evaluate our estimates, which are based on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances. Critical accounting policies are those
that are most important to the portrayal of our financial condition and results of operations and require our subjective or complex
judgments, resulting in the need to make estimates about the effect of matters that are inherently uncertain. If actual performance
should differ from historical experience or if the underlying assumptions were to change, our financial condition and results of
operations may be materially impacted.
Our critical accounting
policies and estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. There have
been no material changes to those policies during the six months ended June 30, 2020.
Recently Issued
Accounting Pronouncements
None.