TIDMMEDG TIDMMEDU
RNS Number : 2117M
Medgenics Inc
12 August 2011
Medgenics Reports Second Quarter Financial Results
MISGAV, Israel and SAN FRANCISCO, (August 12, 2011) - Medgenics,
Inc. (NYSE Amex: MDGN and AIM: MEDU, MEDG) (the "Company"), the
developer of a novel technology for the sustained production and
delivery of therapeutic proteins in patients using their own
tissue, today reported financial results for the three and six
months ended June 30, 2011 and the filing with the U.S. Securities
and Exchange Commission ("SEC") of the Company's Quarterly Report
on Form 10-Q. The Form 10-Q includes unaudited interim consolidated
financial statements containing the information highlighted below,
as well as additional information regarding the Company. The Form
10-Q is available at www.sec.govor www.medgenics.com.
Second Quarter Financial Results
The Company's net research and development expense for the
second quarter of 2011 was $1.04 million, compared with $0.40
million for the second quarter of 2010. This increase is due to
costs associated with the ongoing Phase I/II clinical trial with
EPODURE, preparation of INFRADURE for a Phase I/II clinical trial,
further development of HEMODURE to produce Factor VIII and
decreases in participations in R&D costs by third parties,
partially offset by increases to participations in R&D costs
from the Israeli Office of the Chief Scientist.
General and administrative expense for the second quarter of
2011 increased to $1.05 million from $0.44 million for second
quarter of 2010, due primarily to higher professional fees.
The net loss for the second quarter of 2011 was $2.32 million or
$0.26 per share, compared with a net loss of $1.95 million or $0.47
per share for the second quarter of 2010.
Six Month Financial Results
For the six months ended June 30, 2011 net research and
development expense increased to $2.22 million from $0.70 million
for the comparable prior year period due to ongoing clinical
development of the Biopump(TM) platform, partially offset by
increases to participations in R&D costs from the Israeli
Office of the Chief Scientist. General and administrative expense
for the first six months of 2011 was $1.83 million compared with
$1.11 million for the first six months of 2010, with the increase
due primarily to higher professional fees. The Company's net loss
for the first six months of 2011 was $2.66 million or $0.37 per
share, compared with a net income of $0.35 million or $0.09 per
share for the same period of 2010.
Medgenics ended the second quarter of 2011 with $10.12 million
in cash and cash equivalents, compared with $2.86 million as of
December 31, 2010. In April 2011, the Company raised $13.2 million
of gross proceeds (approximately $10.4 million, net) in its U.S.
Initial Public Offering ("IPO").
Commenting on the second quarter, Andrew L. Pearlman, Ph.D.,
President and Chief Executive Officer of Medgenics, said, "We were
heartened by the positive investment community respeonse as we
successfully completed our IPO in the U.S., raising approximately
$10.4 million (net) in equity capital. These funds will support the
ongoing development of our proprietary Biopump(TM) technology
platform for the sustained manufacture and delivery of therapeutic
proteins in patients using their own dermis tissue."
About Medgenics
Medgenics is developing and commercializing Biopump, a
proprietary tissue-based platform technology for the sustained
production and delivery of therapeutic proteins using the patient's
own skin biopsy for the treatment of a range of chronic diseases
including anemia, hepatitis C and hemophilia. Medgenics believes
this approach has multiple benefits compared with current
treatments, which include regular and costly injections of
therapeutic proteins.
Medgenics has three long-acting protein therapy products in
development based on this technology:
-- EPODURE (now completing a Phase I/II dose-ranging trial) to
produce and deliver erythropoietin for many months from a single
administration, has demonstrated elevation and stabilization of
hemoglobin levels in anemic patients for 6 to more than 24
months;
-- INFRADURE (to commence a Phase I/II trial in Israel in 2011)
to produce a sustained therapeutic dose of interferon-alpha for use
in the treatment of hepatitis C;
-- HEMODURE is a sustained Factor VIII therapy for the
prophylactic treatment of hemophilia, now in development.
Medgenics intends to develop its innovative products and bring
them to market via strategic partnerships with major pharmaceutical
and/or medical device companies. Since October 2009, HEMODURE has
been the focus of cooperation between Medgenics and a major
healthcare company, a market leader in hemophilia.
In addition to treatments for anemia, hepatitis C and
hemophilia, Medgenics plans to develop and/or out-license a
pipeline of future Biopump products targeting the large and rapidly
growing global protein therapy market, which is forecast to reach
$132 billion in 2013. Other potential applications for Biopumps
include multiple sclerosis, arthritis, pediatric growth hormone
deficiency, obesity and diabetes.
Forward-looking Statements
This release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, Section 21E
of the Securities Exchange Act of 1934 and as that term is defined
in the Private Securities Litigation Reform Act of 1995, which
include all statements other than statements of historical fact,
including (without limitation) those regarding the Company's
financial position, its development and business strategy, its
product candidates and the plans and objectives of management for
future operations. The Company intends that such forward-looking
statements be subject to the safe harbors created by such laws.
Forward-looking statements are sometimes identified by their use of
the terms and phrases such as "estimate," "project," "intend,"
"forecast," "anticipate," "plan," "planning, "expect," "believe,"
"will, " "will likely," "should," "could," "would," "may" or the
negative of such terms and other comparable terminology. All such
forward-looking statements are based on current expectations and
are subject to risks and uncertainties. Should any of these risks
or uncertainties materialize, or should any of the Company's
assumptions prove incorrect, actual results may differ materially
from those included within these forward-looking statements.
Accordingly, no undue reliance should be placed on these
forward-looking statements, which speak only as of the date made.
The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Company's
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statements are based.
As a result of these factors, the events described in the
forward-looking statements contained in this release may not
occur.
For further information, contact:
Medgenics, Inc. Phone: +972 4 902 8900
Dr. Andrew L. Pearlman Phone: 212-838-3777
Lippert/Heilshorn & Associates,
Inc.
Anne Marie Fields
afields@lhai.com
De Facto Financial Phone: +44 207 556 1064
Mike Wort
Anna Dunphy
Religare Capital Markets (Nomad) Phone: +44 207 444 0800
James Pinner
Derek Crowhurst
SVS Securities plc (Joint Broker) Phone: +44 207 638 5600
Alex Mattey
Ian Callaway
Nomura Code Securities (Joint Broker) Phone: +44 207 776 1219
Jonathan Senior
MEDGENICS, INC. AND ITS SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
----------------------------
U.S. dollars in thousands
December
June 30. 31,
2011 2010 2010
--------- -------- ---------
(Unaudited)
------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,116 $ 1,363 $ 2,859
Accounts
receivable
and
prepaid
expenses 1,026 321 983
--------- -------- ---------
Total current assets 11,142 1,684 3,842
--------- -------- ---------
LONG-TERM ASSETS:
Restricted lease deposits 49 32 46
Severance pay fund 353 247 318
--------- -------- ---------
Total long-term assets 402 279 364
--------- -------- ---------
PROPERTY AND EQUIPMENT, NET 378 253 243
--------- -------- ---------
DEFERRED ISSUANCE EXPENSES - - 672
--------- -------- ---------
Total assets $ 11,922 $ 2,216 $ 5,121
========= ======== =========
December
June 30, 31,
-------------------
2011 2010 (*) 2010
-------- --------- ---------
(Unaudited)
-------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Trade payables $ 869 $ 824 $ 743
Advance payment - 678 -
Other accounts payable and accrued
expenses 1,272 1,198 1,235
Convertible debentures - - 5,460
-------- --------- ---------
Total current liabilities 2,141 2,700 7,438
-------- --------- ---------
LONG-TERM LIABILITIES:
Accrued severance pay 1,146 995 1,087
Convertible debentures - 992 -
Liability in respect of warrants 1,321 2,430 3,670
-------- --------- ---------
Total long-term liabilities 2,467 4,417 4,757
-------- --------- ---------
Total liabilities 4,608 7,117 12,195
-------- --------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - $0.0001 par value;
100,000,000 shares authorized; 9,638,948,
4,420,611
and 5,295,531 shares issued and outstanding
at
June 30, 2011 and 2010 and December
31, 2010,
respectively 1 1 1
Additional paid-in capital 51,383 32,006 34,334
Deficit accumulated during the development
stage (44,070) (36,908) (41,409)
-------- --------- ---------
Total stockholders' equity (deficit) 7,314 (4,901) (7,074)
-------- --------- ---------
Total liabilities and stockholders'
equity (deficit) $ 11,922 $ 2,216 $ 5,121
======== ========= =========
(*) Restated see Note 4
The accompanying notes are an integral part of the interim
consolidated financial statements.
MEDGENICS, INC. AND ITS SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)
Period from
January 27,
2000
(inception)
Six months ended Three months ended through June
June 30, June 30, 30,
-------------------- --------------------
2011 2010 (*) 2011 2010 2011
--------- --------- --------- --------- ---------------
Unaudited
-----------------------------------------------------------
Research and
development
expenses $ 2,718 $ 1,366 $ 1,544 $ 811 $ 27,173
Less -
Participation
by the Office
of the Chief
Scientist (503) (238) (503) (147) (4,936)
U.S. Government
grant - - - - (244)
Participation by
third party - (432) - (265) (992)
--------- --------- --------- --------- ---------------
Research and
development
expenses, net 2,215 696 1,041 399 21,001
General and
administrative
expenses 1,832 1,111 1,052 441 23,306
Other income:
Excess amount
of
participation
in research
and
development
from third
party - (1,292) - (688) (2,904)
--------- --------- --------- --------- ---------------
Operating loss (4,047) (515) (2,093) (152) (41,403)
Financial
expenses (133) (106) (232) (1,830) (3,318)
Financial income 1,521 975 4 31 297
--------- --------- --------- --------- ---------------
Income (loss)
before taxes on
income (2,659) 354 (2,321) (1,951) (44,424)
Taxes on income 2 - 2 - 75
--------- --------- --------- --------- ---------------
Net income (loss) $ (2,661) $ 354 $ (2,323) $ (1,951) $ (44,499)
========= ========= ========= ========= ===============
Basic earnings
(loss) per
share $ (0.369) $ 0.091 $ (0.257) $ (0.472)
========= ========= ========= =========
Diluted earnings
per share $ (0.369) $ 0.041 $ (0.257) $ (0.472)
========= ========= ========= =========
Weighted
average
number of
shares of
Common stock
used in
computing
basic
earnings/loss
per share 7,212,074 3,884,541 9,033,672 4,133,859
========= ========= ========= =========
Weighted
average
number of
shares of
Common stock
used in
computing
diluted
earnings per
share 7,212,074 8,641,369 9,033,672 4,133,859
========= ========= ========= =========
(*) Restated see Note 4
The accompanying notes are an integral part of the interim
consolidated financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
U.S. dollars in thousands (except share data)
Receipts Deficit
on accumulated
Additional account during the Total
paid-in of development stockholders'
Common stock capital shares stage deficit
------------------- ----------- --------- ------------ --------------
Shares Amount
---------- -------
Balance as of
January 1,
2010 3,490,512 $ 1 $ 29,523 $ 25 $ (37,262) $ (7,713)
Exercise of
warrants 6,721 (*) 65 (25) - 40
Stock based
compensation
related to
options
granted to
consultants
and
employees - - 200 - - 200
Issuance of
Common stock
in February
2010 at
$4.38 per
share to
consultants 32,142 (*) 141 - - 141
Issuance of
Common stock
in March
2010, net at
$2.63 (GBP
1.75) per
share 407,800 (*) 943 - - 943
Issuance of
Common stock
in May 2010,
net at $2.52
(GBP 1.75)
per share 477,934 (*) 1,115 - - 1,115
Issuance of
Common stock
in May 2010
at $3.43
(GBP 2.28)
per share 5,502 (*) 19 - - 19
Net income
(**) - - - - 354 354
---------- ------- ----------- --------- ------------ --------------
Balance as of
June 30,
2010
(unaudited)
(**) 4,420,611 $ 1 $ 32,006 $ - $ (36,908) $ (4,901)
========== ======= =========== ========= ============ ==============
(*) Represents an amount lower than $1.
(**) Restated see Note 4
Deficit
accumulated
Additional during the Total
paid-in development stockholders'
Common stock capital stage deficit
------------------- ----------- ------------ --------------
Shares Amount
---------- -------
Balance as of
January 1,
2011 5,295,531 $ 1 $ 34,334 $ (41,409) $ (7,074)
Issuance of
Common stock
and
warrants,
net 2,624,100 (*) 10,389 - 10,389
Issuance of
Common stock
upon
conversion
of
debentures 1,407,898 (*) 5,577 - 5,577
Exercise of
options and
warrants 311,419 (*) 872 - 872
Stock based
compensation
related to
options and
warrants
granted to
consultants
and
employees - - 211 - 211
Loss - - - (2,661) (2,661)
---------- ------- ----------- ------------ --------------
Balance as of
June 30,
2011
(unaudited) 9,638,948 $ 1 $ 51,383 $ (44,070) $ 7,314
========== ======= =========== ============ ==============
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the interim
consolidated financial statements.
Period from
January 27,
2000 (inception)
Six months ended through
June 30, June 30,
-------------------
2011 2010 (*) 2011
--------- -------- -----------------
Unaudited
---------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Income (loss) $ (2,661) $ 354 $ (44,499)
Adjustments to reconcile loss to
net cash used in operating
activities:
Depreciation 36 59 1,018
Loss from disposal of property
and equipment - - 330
Issuance of shares as
consideration for providing
security for letter of credit - - 16
Stock based compensation related
to options and warrants granted
to employees and consultants 211 200 6,978
Interest and amortization of
beneficial conversion feature of
convertible note - - 759
Change in fair value of
convertible debentures and
warrants (1,479) (924) 2,099
Accrued severance pay, net 24 18 794
Exchange differences on a
restricted lease deposit (1) 3 (2)
Exchange differences on a long
term loan - - 3
Increase (decrease) in trade
payables 126 (123) 869
Decrease (increase) in accounts
receivable, prepaid expenses and
deferred issuance expenses 629 (309) (1,026)
Increase (decrease) in other
accounts payable, accrued
expenses and advance payment 118 (456) 1,900
Net cash used in operating
activities (2,997) (1,178) (30,761)
--------- -------- -----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (171) (10) (1,901)
Proceeds from disposal of
property and equipment - - 173
Decrease (increase) in restricted
lease deposit and prepaid lease
payments (2) 4 (47)
--------- -------- -----------------
Net cash used in investing
activities $ (173) $ (6) $ (1,775)
--------- -------- -----------------
(*) Restated see Note 4
The accompanying notes are an integral part of the interim
consolidated financial statements.
MEDGENICS, INC. AND ITS SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------
U.S. dollars in thousands
Period from
January 27,
2000 (inception)
Six months ended through
June 30, June 30,
------------------
2011 2010 (*) 2011
-------- -------- -----------------
Unaudited
--------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of shares
and warrants, net $ 10,389 $ 2,077 $ 34,501
Proceeds from exercise of options
and warrants, net 38 - 986
Repayment of a long-term loan - - (73)
Proceeds from long term loan - - 70
Issuance of a convertible
debenture and warrants - - 7,168
Net cash provided by financing
activities 10,427 2,077 42,652
-------- -------- -----------------
Increase in cash and cash
equivalents 7,257 893 10,116
Balance of cash and cash
equivalents at the beginning of
the period 2,859 470 -
-------- -------- -----------------
Balance of cash and cash
equivalents at the end of the
period $ 10,116 $ 1,363 $ 10,116
======== ======== =================
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 49 $ 91 $ 242
======== ======== =================
Taxes $ - $ 11 $ 97
======== ======== =================
Supplemental disclosure of
non-cash flow information:
Issuance expenses paid with shares $ - $ - $ 310
======== ======== =================
Issuance of Common stock upon
conversion of convertible
debentures $ 5,577 $ - $ 8,422
======== ======== =================
Issuance of Common stock and
warrants to consultants as
settlement of debt $ - $ 141 $ 547
======== ======== =================
Classification of liability in
respect of warrants into equity
due to exercise of warrants $ 834 $ - $ 834
======== ======== =================
(*) Restated see Note 4
The accompanying notes are an integral part of the interim
consolidated financial statements.
MEDGENICS, INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------
U.S. dollars in thousands
NOTE 1:- GENERAL
a. Medgenics, Inc. (the "Company") was incorporated in January
2000 in Delaware. The Company has a wholly-owned subsidiary,
Medgenics Medical Israel Ltd. (formerly Biogenics Ltd.) (the
"Subsidiary"), which was incorporated in Israel in March 2000. The
Company and the Subsidiary are engaged in the research and
development of products in the field of biotechnology and
associated medical equipment and are thus considered development
stage companies as defined in Accounting Standards Codification
("ASC") topic number 915, "Development Stage Entities" ("ASC 915")
(originally issued as "FAS 7").
On December 4, 2007 the Company's Common stock was admitted for
trading on the AIM market of the London Stock Exchange.
On April 13, 2011, (the "closing date") the Company completed an
Initial Public Offering of its Common stock on the NYSE Amex (the
"IPO"), raising $10,389 in net proceeds (see Note 3(b)6). On the
closing date of the IPO, $570 of 2009 Debentures and $4,000 of 2010
Debentures were automatically converted into Common stock (see Note
3(b)7).
According to ASC 815-15, prior to the consummation of the
Company's IPO, the Company classified the $570 in principal value
of convertible debentures issued in 2009 (the "2009 Debentures")
and the $4,000 in principal value of convertible debentures issued
in 2010 (the "2010 Debentures") as a liability and measured the
2009 Debentures and 2010 Debentures entirely at fair value at each
reporting date. On the closing date of the IPO and upon the
automatic conversion of the 2009 Debentures and 2010 Debentures
into Common stock, the Company classified this liability as
additional paid in capital.
In addition, the exercise price of certain warrants which were
initially issued with round-down protection mechanisms was adjusted
based upon the public offering price of the shares of Common stock
sold in the IPO.
b. The Company and the Subsidiary are in the development stage.
As reflected in the accompanying financial statements, the Company
incurred a loss during the six month period ended June 30, 2011 of
$2,661 and, had a stockholders' equity and working capital balance
of $7,314 and $9,001, respectively, as of June 30, 2011. The
Company and the Subsidiary have not yet generated revenues from
product sales. The Company has begun generating income from
partnering on development programs and expects to continue to
expand its partnering activity. Management's plans also include
seeking additional investments and commercial agreements to
continue the operations of the Company and the Subsidiary.
However, there is no assurance that the Company will be
successful in its efforts to raise the necessary capital and/or
reach such commercial agreements to continue its planned research
and development activities. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any
adjustments with respect to the carrying amounts of assets and
liabilities and their classification that might result from the
outcome of this uncertainty.
c. Pursuant to an agreement entered into on February 11, 2011
(effective as of January 31, 2011), the Regents of the University
of Michigan ("Michigan") have granted an exclusive worldwide
license for patent rights relating to certain uses of variants of
clotting Factor VIII. The License Agreement covers a portfolio of 2
issued and 3 pending patents. In consideration the Company agreed
to pay Michigan the following amounts:
I. an initial license fee of $25;
II. an annual license fee in arrears of $10 rising to $50
following the grant by the Company of a sublicense or (if sooner)
from the 6th anniversary of the effective date of the Licence
Agreement;
III. staged milestone payments of $750 (in aggregate), of which
$400 will be recoupable against royalties;
IV.royalties at an initial rate of 5% of net sales, reducing by
a percentage point at predetermined thresholds to 2% upon
cumulative net sales exceeding $50,000;
V. sublicense fees at an initial rate of 6% of sublicensing
revenues, reducing by a percentage point at predetermined
thresholds to 4%. upon cumulative sublicensing revenues exceeding
$50,000; and
VI. patent maintenance costs.
The exclusive worldwide license is expected to expire in 2026
upon the expiration of the last to expire of the patent rights
licensed.
d. On October 22, 2009 ("Effective Date") the Company signed a
preclinical development and option agreement which was amended in
December 2009 (the "Agreement"), with a major international
healthcare company (the "Healthcare company") that is a market
leader in the field of hemophilia. The Agreement included funding
for preclinical development of the Company's Biopump protein
technology to produce and deliver the clotting protein Factor VIII
("FVIII") for the sustained treatment of hemophilia.
Under the terms of the Agreement, the Company was entitled to
receive up to $4,100 to work exclusively with the Healthcare
company for one year ended October 22, 2010 ("Standstill period")
to develop a Biopump to test the feasibility of continuous
production and delivery of this clotting protein.
The Company recognized income in its Statements of Operations
based on hours incurred assigned to the project. The excess of the
recognized amount received from the Healthcare company over the
amount of research and development expenses incurred during the
period for the Agreement is recognized as other income within
operating income.
If the two parties choose not to proceed to a full commercial
agreement, the Company will receive all rights to the jointly
developed intellectual property and will pay royalties to the
Healthcare company at the rates between 5% and 10% of any future
income arising from such intellectual property up to a maximum of
ten times the total funds paid by the Healthcare company to the
Company.
The Company estimated the value of the option to negotiate a
future definitive agreement for the continuation of the development
or for a sale, license or other transfer of the FVIII Biopump
technology as immaterial.
Through December 31, 2010, payments totaling $3,590 were
received from the Healthcare company. Additional amount of $306 was
received in February 2011.
As of October 22, 2010, the Company and the Healthcare company
agreed to a 6-month extension of the Agreement. During the
extension period, the Company assumed the funding responsibilities.
During the original term of the agreement and the extension period,
the Healthcare company had the exclusive option to negotiate a
definitive agreement regarding a transaction related to the FVIII
Biopump technology taking into account the relative contributions
of the parties, upon payment to the Company of a $2,500 option fee.
In July 2011, the Company and the Healthcare company agreed on an
additional extension of the Agreement. Under the extension,
confirmatory studies will be conducted implanting Factor VIII
Biopumps in mice. The Healthcare company will bear the costs of
these studies. During the extended agreement, which will expire no
later than September 30, 2011, the Healthcare company has the
opportunity to exercise the aforementioned option to negotiate
exclusively with the Company regarding a definitive agreement.
e. In June 2011, Medgenics Medical Israel Ltd. (the
"Subsidiary") received approval for an additional Research and
Development program from the Office of the Chief Scientist in
Israel ("OCS") for the period March through August 2011. The
approval allows for a grant of up to approximately $900 based on
research and development expenses, not funded by others, of up to
$1,500. NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited interim financial statements of
Medgenics, Inc., a development stage company, have been prepared in
accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and
Exchange Commission and should be read in conjunction with the
audited financial statements and notes thereto contained in
Medgenics's Registration Statement (File No: 333-170425). In the
opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the interim
periods presented have been reflected herein. The results of
operations for interim periods are not necessarily indicative of
the results to be expected for the full year. Notes to the
financial statements that would substantially duplicate the
disclosure contained in the audited financial statements for the
most recent fiscal year as reported in the Registration Statement
(File No: 333-170425) have been omitted.
Recently Announced Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update
2011-04, "Fair Value Measurement" (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S. GAAP and IFRSs. This guidance amends the disclosure
requirements related to recurring and nonrecurring fair value
measurements and includes the following provisions: application of
the concepts of highest and best use and valuation premise,
introduction of an option to measure groups of offsetting assets
and liabilities on a net basis, incorporation of certain premiums
and discounts in fair value measurements, and the measurement of
fair value of certain instruments classified in stockholders'
equity. In addition, the amended guidance includes several new fair
value disclosure requirements, including, among other things,
information about valuation techniques and unobservable inputs used
in Level 3 fair value measurements and a narrative description of
Level 3 measurements' sensitivity to changes in unobservable
inputs. The guidance becomes effective for the reporting period
beginning January 1, 2012. The Company expects that adoption of
this new guidance will not have a material impact on the Company's
financial statements.
In June 2011, the FASB issued Accounting Standards Update
2011-05, "Comprehensive Income" (topic 220): Presentation of
Comprehensive Income. This amended guidance eliminates the option
for reporting entities to present components of other comprehensive
income in the statement of stockholders' equity. Instead, this
amended guidance now requires reporting entities to present all
non-owner changes in stockholders' equity either as a single
continuous statement of comprehensive income or as two separate but
consecutive statements. The guidance will become effective for the
reporting period beginning January 1, 2012. The Company expects
that adoption of this new guidance will not have a material impact
on the Company's financial statements.
NOTE 3:- STOCKHOLDERS' EQUITY
a. Reverse split:
In February 2011, the Company's Board of Directors approved a
one (1) for thirty five (35) reverse split of the Company's Common
stock and the number of authorized shares of the Company's Common
stock was reduced from 500,000,000 to 100,000,000, effective
February 14, 2011. Upon the effectiveness of the reverse stock
split, thirty five shares of Common stock of $0.0001 par value were
converted and reclassified as one share of Common stock of $0.0001
par value. Accordingly, all references to number of shares, Common
stock and per share data in the accompanying financial statements
have been adjusted to reflect the stock split on a retroactive
basis. Fractional shares created as a result of the stock split
paid in cash based on the then current market price. As a result of
the rounding down effect, 166 shares of Common stock have been
eliminated.
b. Issuance of shares, options and warrants to investors
1. In January 2011, an investor exercised warrants to purchase
19,558 shares of Common stock at an exercise price of $2.49 per
share using the cashless exercise mechanism. Using this cashless
exercise method, the investor was issued 12,298 shares. In
addition, an investor exercised warrants to purchase 3,026 shares
of Common stock at an exercise price of $2.49 per share, or an
aggregate exercise price of $8.
2. In February 2011, three investors each exercised warrants to
purchase 40,338 shares of Common stock at an exercise price of
$2.49 per share using the cashless exercise mechanism. Using this
cashless exercise method, the investors were each issued 25,534
shares.
3. In March 2011, two investors exercised warrants to purchase a
total of 496 shares of Common stock at an exercise price of $0.002
per share. The cash consideration received was immaterial. In
addition, an investor exercised warrants to purchase 12,224 shares
of Common stock at an exercise price of $2.49 per share, or an
aggregate exercise price of $30. Also in March 2011, eight
investors exercised warrants to purchase a total of 162,765 shares
of Common stock at the exercise price of $2.49 per share using the
cashless exercise mechanism. Using this cashless exercise method,
the investors were issued a total of 80,765 shares of Common
stock.
4. In March 2011, unexercised warrants held by eight investors
to purchase a total of 270,992 shares of Common stock expired. The
aggregate value of these warrants, $636, was recorded to finance
income.
5. In April 2011, an investor exercised warrants to purchase
7,334 shares of Common stock at the exercise price of $2.49 per
share using the cashless exercise mechanism. Using this cashless
exercise method, the investor was issued 3,060 shares of Common
stock.
6. On April 13, 2011 the Company completed the IPO of its Common
stock on the NYSE Amex. The Company issued 2,624,100 shares of
Common stock, including 164,100 shares pursuant to the exercise of
the underwriters' over-allotment option, at a price of $4.54 per
share and redeemable Common Stock purchase warrants to purchase
2,829,000 shares, including 369,000 warrants pursuant to the
exercise of the underwriters' over-allotment option, at a price of
$0.46 per warrant for total gross proceeds of $13,215 or
approximately $10,389 in net proceeds after deducting underwriting
discounts and commissions of $1,454 and other offering costs of
approximately $1,372.
7. On the closing date of the IPO (April 13, 2011) $570 of 2009
Debentures were automatically converted at a conversion price of
$2.724 per share of Common stock into an aggregate 209,656 shares
of Common stock. In addition the Company issued 5-year warrants to
purchase 84,693 shares of Common stock (of which warrants to
purchase 11,310 shares of Common stock were granted to placement
agents) at an initial exercise price of $4.99 per share in
connection with the conversion of the 2009 Debentures; and $4,000
of 2010 Debentures were automatically converted at a conversion
price of $3.405 per share of Common stock into an aggregate
1,198,242 shares of Common stock.
c. Issuance of shares, stock options, warrants and restricted
shares to employees and directors
1. In January 2011, the Company granted options to purchase
12,857 shares of Common stock under its 2006 Stock Incentive Plan,
as amended (the "Stock Incentive Plan") at an exercise price of
$6.55 per share to each of four of the Company's non-executive
directors. Such options have a 10-year term and vest in equal
installments over three years.
2. In May 2011, a director of the Company exercised warrants to
purchase 60,507 shares of Common stock at an exercise price of
$2.49 per share using the cashless exercise mechanism. The director
was issued 18,269 shares as a result of the warrant exercise.
3. In May and June 2011, unexercised options held by two
employees to purchase a total of 34,135 shares of Common stock
expired.
4. In May 2011, three employees exercised options to purchase a
total of 67,231 shares of Common stock at an exercise price of
$2.49 per share using the cashless exercise method. The employees
were issued a total of 25,159 shares as a result of the option
exercises.
5. Subsequent to the balance sheet date, in July 2011, the
Company granted an employee 40,000 options exercisable at a price
of $3.64 per share. The options have a 10-year term and vest in
four equal annual tranches of 10,000 each. The options were granted
under the Stock Incentive Plan.
6. In December 2010, the Company granted the Executive Chairman
of the Board of the Company 57,142 shares of restricted Common
stock in compensation for his services in his new role as the
Executive Chairman of the Board of the Company. These shares of
Common stock are restricted in that they may not be disposed of and
are not entitled to dividends. These restrictions will be removed
in relation to 14,285 shares of Common stock on each of October 18,
2012 and October 18, 2013 and the final 28,572 shares of Common
stock on October 18, 2014. The value of these restricted shares of
Common stock, $285, was based on the fair value at the grant date
and will be recognized as an expense using the straight line
method. The Company recorded expenses in the amount of $37 for the
period of six months ended June 30, 2011.
A summary of the Company's activity for restricted shares
granted to employees and directors is as follows:
Restricted shares Outstanding Exercisable
----------------------------- ------------ ------------
Number of restricted shares 57,142 -
as of December 31, 2010
and June 30, 2011
============ ============
7. A summary of the Company's activity for options and warrants
granted to employees and directors is as follows:
Six months ended June 30, 2011
----------------------------------------------------------
Weighted
Number Weighted average
of average remaining Aggregate
options exercise contractual intrinsic
and warrants price terms (years) value price
-------------- ---------- --------------- -------------
Outstanding at
January 1, 2011 1,878,141 $ 4.13
Granted 51,428 6.55
Expired 34,135 3.01
Exercised 67,231 2.49
Outstanding at
June 30, 2011 1,828,203 $ 4.29 4.54 $ 1,825
============== ========== =============== =============
Exercisable at
June 30, 2011 1,503,767 $ 3.57 3.80 $ 1,825
============== ========== =============== =============
Vested and
expected to vest
at June 30,
2011 1,807,313 $ 4.25 4.50 $ 1,825
============== ========== =============== =============
As of June 30, 2011, there was $559 of total unrecognized
compensation cost related to non-vested share-based compensation
arrangements granted to employees. That cost is expected to be
recognized over a weighted-average period of 2.2 years.
The aggregate intrinsic value represents the total intrinsic
value (the difference between the Company's Common stock fair value
as of June 30, 2011 and the exercise price, multiplied by the
number of in-the-money options) that would have been received by
the option holders had all option holders exercised their options
on June 30, 2011.
Calculation of aggregate intrinsic value is based on the closing
price of the Company's Common stock as of June 30, 2011 ($4.10 per
share) as reported on the close of trading on the NYSE Amex.
d. Issuance of shares, stock options and warrants to
consultants
1. In September 2010, the Company issued warrants to purchase
46,071 shares of Common stock in settlement of fees in relation to
the 2010 Debentures issued in 2010. These warrants were cancelled
in March 2011.
In January 2011, a consultant exercised warrants to purchase
2,250 shares of Common stock at an exercise price of $2.49 per
share using the cashless exercise mechanism. Using this cashless
exercise method, the consultant was issued 1,428 shares.
2. In March 2011, a consultant exercised warrants to purchase
34,288 shares of Common stock at an exercise price of $0.02 per
share using the cashless exercise mechanism. Using this cashless
exercise method, the consultant was issued 34,111 shares. In
addition, a consultant exercised warrants to purchase 32,038 shares
of Common stock at an exercise price of $2.49 per share using the
cashless exercise mechanism. Using this cashless exercise method,
the consultant was issued 13,400 shares.
3. In March 2011, the Company granted options to purchase 19,068
shares of Common stock under the Stock Incentive Plan at an
exercise price of $6.65 per share to each of two new members of the
Company's Strategic Advisory Board. Such options have a 10 year
term and vest in equal installments over three years. The fair
value of these options at the grant date was $2.51 per option.
4. In March 2011, unexercised warrants held by a consultant to
purchase 15,234 shares of Common stock expired.
5. In April 2011, the Company granted warrants to purchase
11,310 shares of Common stock at an exercise price of $4.99 per
share to placement agents in settlement of fees in relation to the
Debentures issued in 2009.
6. In April 2011, unexercised options held by a consultant to
purchase 3,056 shares of Common stock expired.
7. In June 2011, unexercised options held by a consultant to
purchase 12,224 shares of Common stock expired.
8. In May and June 2011, three consultants exercised warrants to
purchase a total of 85,383 shares of Common stock at an exercise
price of $2.49 per share using the cashless exercise method. The
consultants were issued a total of 30,553 shares.
9. Subsequent to the balance sheet date, in July 2011, the
Company issued warrants to purchase 50,000 shares of Common stock
at an exercise price of $4.02 to a consultant in compensation for
financial advisory services.
10. Subsequent to the balance sheet date, in August 2011, the
Company issued warrants to purchase 150,000 shares of Common stock
at an exercise price of $4.80 to a consultant in compensation for
financial advisory services.
11. A summary of the Company's activity for warrants and options
granted to consultants under the Stock Incentive Plan is as
follows:
Six months ended June 30, 2011
----------------------------------------------------------
Weighted
Number Weighted average
of average remaining Aggregate
options exercise contractual intrinsic
and warrants price terms (years) value price
-------------- ---------- --------------- -------------
Outstanding at
January 1, 2011 558,292 $ 5.04
Granted 49,446 6.27
Exercised 153,959 1.94
Cancelled or
expired 76,585 6.41
-------------- ----------
Outstanding at
June 30, 2011 377,194 $ 5.90 3.41 $ 18
============== ========== =============== =============
Exercisable at
June 30, 2011 280,074 $ 5.53 1.87 $ 18
============== ========== =============== =============
The weighted-average grant-date fair value of warrants and
options granted to consultants during the three months period ended
June 30, 2011 was $0.46. As of June 30, 2011, there was $250 of
total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted to consultants under
the Company's stock option plan. That cost is expected to be
recognized over a weighted-average period of 2.2 years.
Calculation of aggregate intrinsic value is based on the closing
price of the Company's stock as of June 30, 2011 ($4.10 per share)
as reported on the close of trading on NYSE Amex.
e. Compensation expenses
Compensation expense related to warrants and options granted to
employees, directors and consultants was recorded in the Statement
of Operations in the following line items:
Six months ended Three months ended
June 30, June 30,
------------------- ---------------------
2011 2010 2011 2010
--------- -------- ---------- ---------
Research and development
expenses $ 55 $ 59 $ 25 $ 40
General and administrative
expenses 156 141 98 69
--------- -------- ---------- ---------
$ 211 $ 200 $ 123 $ 109
--------- -------- ========== =========
f. Summary of options and warrants:
A summary of all the options and warrants outstanding as of June
30, 2011 is presented in the following table:
As of June 30, 2011
------------------------------------------------------------
Weighted
Average
Remaining
Exercise Options Options Contractual
Options / Price and Warrants and Warrants Terms (in
Warrants per Share Outstanding Exercisable years)
---------------- ----------- -------------- -------------- ---------------
Options:
Granted to
Employees and
Directors $2.49 228,507 228,507 3.8
$4.10 42,783 32,087 1.2
$5.60 49,536 37,152 2.0
$6.55 51,428 - 9.5
$7.35 332,046 300,831 1.4
$8.19 218,713 - 9.2
-------------- --------------
923,013 598,577
-------------- --------------
Granted to
Consultants $4.20 19,354 6,451 3.4
$5.60 19,354 19,354 2.3
$6.65 38,136 - 9.5
$7.35 53,176 45,230 1.4
$8.19 38,136 - 9.2
-------------- --------------
168,156 71,035
-------------- --------------
Total Options 1,091,169 669,612
-------------- --------------
Warrants:
Granted to
Employees and
Directors $2.49 905,190 905,190 4.8
-------------- --------------
Granted to
Consultants $3.19 11,370 11,370 4.2
$3.85 29,725 29,725 0.3
$4.99 11,310 11,310 4.8
$5.34 16,976 16,976 1.4
$5.37 37,508 37,508 1.2
$5.65 102,149 102,149 2.1
-------------- --------------
209,038 209,038
-------------- --------------
Granted to
Investors $0.0002 35,922 35,922 4.8
$3.85 534,755 534,755 0.3
$4.54 428,571 428,571
$4.99 73,383 73,383 4.8
$5.37 166,132 166,132 1.2
$5.65 50,721 50,721 1.4
$6.00 2,829,000 2,829,000 4.8
$8.75 34,804 34,804 0.6
-------------- --------------
4,153,288 4,153,288
-------------- --------------
Total Warrants 5,267,516 5,267,516
-------------- --------------
Total Options
and Warrants 6,358,685 5,937,128
============== ==============
NOTE 4:- RESTATEMENT
In 2010, the Company noted that in connection with certain
warrants (the "Warrants") issued to investors through the years
2006 and 2007 in the event of equity issuance below exercise price
of the Warrants the investors shall be extended full-ratchet
anti-dilution protection on the exercise price of the Warrants.
According to ASC 815-40-15 "Derivatives and Hedging", such Warrants
should be classified as a liability and measured at fair value,
with changes in fair value recognized in earnings. ASC 815-40-15
became effective on January 1, 2009. Therefore, the cumulative
effect of the change in accounting principle should have been
recognized as an adjustment to the opening balance of the
appropriate component of equity. The cumulative-effect adjustment
is the difference between the amounts recognized in the statement
of financial position before initial application of this guidance
and the amounts recognized in the statement of financial position
at initial application of this guidance. The fair value of the
Warrants at December 31, 2009 and June 30, 2010 amounted to $3,373
and $2,430, respectively.
Based on these facts, the Company has restated the June 30, 2010
consolidated balance sheet and the related statement of operations,
changes in stockholders' deficit and cash flows for the period then
ended within these financial statements, as follows:
June 30, 2010 June 30, 2010
as reported Adjustment restated
------------- ---------- -------------
Consolidated Balance Sheet:
Liability in respect of warrants $ - $ 2,430 $ 2,430
Total long-term liabilities $ 1,987 $ 2,430 $ 4,417
Total liabilities $ 4,687 $ 2,430 $ 7,117
Additional paid-in capital $ 32,840 $ (834) $ 32,006
Deficit Accumulated $ (35,312) $ (1,596) $ (36,908)
Total stockholders' deficit $ (2,471) $ (2,430) $ (4,901)
Six months Six months
ended June ended June
30, 2010 30, 2010
as reported Adjustment restated
------------ ---------- -----------
Consolidated Statement of
Operations:
Financial income $ 71 $ 904 $ 975
Income (loss) before taxes
on income $ (550) $ 904 $ 354
Net income (loss) $ (550) $ 904 $ 354
Net income (loss) attributable
to Common stockholders $ (550) $ 904 $ 354
Basic earnings (loss) per
Common share $ (0.14) $ 0.231 $ 0.091
Diluted earnings (loss) per
Common share $ (0.14) $ 0.181 $ 0.041
* * * * * * * * * * * * * *
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
We are an autologous protein-therapeutics medical technology
company, having developed our Biopump Platform Technology to
provide sustained protein therapy to potentially treat a range of
chronic diseases and conditions.
Since our inception on January 27, 2000, we have focused our
efforts on research and development and clinical trials and have
received no revenue from product sales. We have funded our
operations principally through equity and debt financings,
participation from the Office of the Chief Scientist ("OCS") in
Israel and a collaborative agreement. Our operations to date have
been primarily limited to organizing and staffing our company,
developing the Biopump Platform Technology and its applications,
developing and initiating clinical trials for our product
candidates, and improving and maintaining our patent portfolio.
We have generated significant losses to date, and we expect to
continue to generate losses as we progress towards the
commercialization of our product candidates. We have incurred net
losses of approximately $2.66 million and $44.50 million for the
six month period ended June 30, 2011 and for the period from
inception through June 30, 2011, respectively. As of June 30, 2011,
we had stockholders' equity of approximately $7.31 million. We are
unable to predict the extent of any future losses or when we will
become profitable, if at all.
Although we have not yet generated revenues from product sales,
we have begun generating income from partnering on development
programs and we expect to continue to expand our partnering
activity.
In October 2009, we signed a preclinical development and option
agreement with a major international healthcare company that is a
market leader in the field of hemophilia, representing our first
collaboration agreement for the Biopump Platform Technology.
Pursuant to this agreement, the healthcare company provided funding
for preclinical development of our Biopump Platform Technology to
produce and deliver the clotting protein Factor VIII for the
sustained treatment of hemophilia. Under the terms of the
collaboration agreement, we received $3.90 million. On October 22,
2010 the agreement expired. We and the healthcare company
subsequently agreed on a 6-month extension of the agreement. During
the extension period, the Company assumed the funding
responsibilities and the healthcare company had the exclusive
option, with an exercise price of $2.50 million, to negotiate a
definitive agreement regarding a transaction related to the Factor
VIII Biopump technology taking into account the relative
contributions of the parties. In July 2011, the Company and the
healthcare company agreed on an additional extension of the
agreement. Under the extension, confirmatory studies will be
conducted implanting Factor VIII Biopumps in mice. The healthcare
company will bear the costs of these studies. During the extended
agreement which will expire no later than September 30, 2011, the
healthcare company has the opportunity to exercise the
aforementioned option.
United States Initial Public Offering ("IPO"):
On April 13, 2011 we completed the IPO of our Common stock and
redeemable Common stock purchase warrants both listed on the NYSE
Amex. We issued 2,624,100 shares of Common stock, including 164,100
shares pursuant to the exercise of the underwriters' over-allotment
option, at a price of $4.54 per share and redeemable Common Stock
purchase warrants to purchase 2,829,000 shares including 369,000
warrants pursuant to the exercise of the underwriters'
over-allotment option, at a price of $ 0.46 per warrant for total
gross proceeds of $13.21 million or approximately $10.39 million in
net proceeds after deducting underwriting discounts and commissions
of $1.45 million and other offering costs of approximately $1.37
million.
On the closing date of the IPO (April 13, 2011), $0.57 million
of 2009 Debentures were automatically converted at a conversion
price of $2.724 per share of Common stock into an aggregate 209,656
shares of Common stock. In addition we issued 5-year warrants to
purchase 84,693 shares of Common stock at an initial exercise price
of $4.99 per share in connection with the conversion of the 2009
Debentures; and $4.00 million of 2010 Debentures were automatically
converted at a conversion price of $3.405 per share of Common stock
into an aggregate 1,198,242 shares of Common stock.
In connection with the Company's IPO, the exercise price of
certain warrants and options which were initially issued with
round-down protection mechanism were adjusted based upon the share
value as determined in the IPO.
Financial Operations Overview
Research and Development Expense
Research and development expense from inception through June 30,
2011 consists of: (i) internal costs associated with our
development activities; (ii) payments we make to third party
contract research organizations, contract manufacturers,
investigative sites, and consultants; (iii) technology and
intellectual property license costs; (iv) manufacturing development
costs; (v) personnel related expenses, including salaries,
benefits, travel, and related costs for the personnel involved in
product development; (vi) activities related to regulatory filings
and the advancement of our product candidates through preclinical
studies and clinical trials; and (vii) facilities and other
allocated expenses, which include direct and allocated expenses for
rent, facility maintenance, as well as laboratory and other
supplies. All research and development costs are expensed as
incurred.
Conducting a significant amount of development is central to our
business model. Through June 30, 2011, we incurred approximately
$27.17million in gross research and development expenses since our
inception on January 27, 2000. Product candidates in later-stage
clinical development generally have higher development costs than
those in earlier stages of development, primarily due to the
significantly increased size and duration of the clinical trials.
We plan to increase our research and development expenses for the
foreseeable future in order to complete development of our two most
advanced product candidates, the EPODURE Biopump and the INFRADURE
Biopump, and our earlier-stage research and development
projects.
The process of conducting pre-clinical studies and clinical
trials necessary to obtain regulatory approval is costly and time
consuming. The probability of success for each product candidate
and clinical trial may be affected by a variety of factors,
including, among others, the quality of the product candidate's
early clinical data, investment in the program, competition,
manufacturing capabilities and commercial viability. As a result of
these uncertainties, together with the uncertainty associated with
clinical trial enrollments and the risks inherent in the
development process, we are unable to determine the duration and
completion costs of current or future clinical stages of our
product candidates or when, or to what extent, we will generate
revenues from the commercialization and sale of any of our product
candidates. Development timelines, probability of success and
development costs vary widely. We are currently focused on
developing our most advanced product candidates, the EPODURE
Biopump, the INFRADURE Biopump and the HEMODURE Biopump.
Research and development expenses are shown net of participation
by third parties. The excess of the recognized amount received from
the healthcare company over the amount of research and development
expenses incurred during the relevant period for the project
related to the collaboration agreement was recognized as other
income within operating income.
General and Administrative Expense
General and administrative expense consists primarily of
salaries and other related costs, including stock-based
compensation expense, for persons serving in our executive, finance
and accounting functions. Other general and administrative expense
includes facility-related costs not otherwise included in research
and development expense, costs associated with industry and trade
shows, and professional fees for legal services and accounting
services. We expect that our general and administrative expenses
will increase as we add personnel and become subject to the
reporting obligations applicable to public companies in the United
States. Since our inception on January 27, 2000 through June 30,
2011, we spent $23.31 million on general and administrative
expense.
Other Income
We have not generated any product revenue since our inception,
but, since the signing of our first collaboration agreement on
October 22, 2009, have received $3.90 million through June 30, 2011
of which $2.90 million has been recognized as other income. This
amount represents the excess of payments received over the direct
R&D costs related to the project under the collaborative
agreement.
Financial income and expense
Financial expense consists primarily of convertible debentures
valuations as well as warrant valuations, interest and amortization
of beneficial conversion feature of convertible note, and interest
incurred on debentures.
Financial income consists primarily of interest-earned on our
cash and cash equivalents and marketable securities.
Results of Operations for the periods of Six Months Ended June
30, 2011 and 2010
Research and Development Expenses, net
Gross research and development expenses for the six months ended
June 30, 2011 were $2.72 million, increasing from $1.37 million for
the same period in 2010 due to license fees paid, as well as an
increase in purchases of materials, an increase in the use of
sub-contractors in connection with our phase I/II EPODURE clinical
trial in 2011, increased expenses in developing our Factor VIII
Biopump, and preparations for the trial of INFRADURE, including the
production of a GMP vector.
Research and development expenses, net for the six months ended
June 30, 2011 were $2.22 million, increasing from $0.70 million for
the same period in 2010. In addition to the increase in the gross
R&D expenses, as detailed above, $0.50 millionparticipation
from the OCS was recorded during this period, compared with $0.67
million received from the OCS and a third party in the comparative
period in 2010.
General and Administrative Expenses
General and administrative expenses for the six months ended
June 30, 2011 were $1.83 million, increasing from $1.11 million for
the same period in 2010 primarily due an increase in professional
fees.
Other Income
Other income for the six months ended June 30, 2011 was zero as
compared with $1.29 million for the same period in 2010. The income
in 2010 was recognized in connection with our first collaboration
agreement signed in October 2009. As explained above, the excess of
the recognized amount received from the pharmaceutical company over
the amount of research and development expenses incurred during the
period for that agreement was reflected as other income.
Financial Income and Expenses
Financial expenses for the six months ended June 30, 2011 were
$0.13 million, increasing slightly from $0.11 million for the same
period in 2010. This increase of $0.02 million was mainly due the
change in valuation of the convertible debentures which is included
in financial expenses in the six months ended June 30, 2011 while
the change in the valuation of the convertible debentures was
included in financial income during the first half of 2010.
Financial income for the six months ended June 30, 2011 was
$1.52 million, increasing from $0.98 million for the same period in
2010. The increase of $0.54 million was primarily due to the change
in valuation of the warrant liability.
Results of Operations for the periods of Three Months Ended June
30, 2011 and 2010
Research and Development Expenses, net
Gross research and development expenses for the three months
ended June 30, 2011 were $1.54 million, increasing from $0.81
million for the same period in 2010 due to license fees paid, as
well as an increase in purchases of materials, an increase in the
use of sub-contractors in connection with our phase I/II EPODURE
clinical trial in 2011, increased expenses in developing our Factor
VIII Biopump, and preparations for the trial of INFRADURE,
including the production of a GMP vector.
Research and development expenses, net for the three months
ended June 30, 2011 were $1.04 million, increasing from $0.40
million for the same period in 2010. In addition to the increase in
the gross R&D expenses, as detailed above, $0.50 million
participation from the OCS was recorded during this period,
compared with $0.41 received from the OCS and a third party in the
comparative period in 2010.
General and Administrative Expenses
General and administrative expenses for the three months ended
June 30, 2011 were $1.05 million, increasing from $0.44 million for
the same period in 2010 primarily due an increase in professional
fees.
Other Income
Other income for the three months ended June 30, 2011 was zero
as compared with $0.69 million for the same period in 2010. The
income in 2010 was recognized in connection with our first
collaboration agreement signed in October 2009. As explained above,
the excess of the recognized amount received from the
pharmaceutical company over the amount of research and development
expenses incurred during the period for that agreement was
reflected as other income.
Financial Income and Expenses
Financial expenses for the three months ended June 30, 2011 were
$0.23 million, decreasing from $1.83 million for the same period in
2010. This decrease of $1.60 million was mainly due to the change
in valuation of the warrant liability and the convertible
debentures.
Financial income for the three months ended June 30, 2011 was
less than $0.01 million, decreasing from $0.03 million for the same
period in 2010. The decrease of $0.03 million was primarily due to
the change in foreign currency exchange rates.
Liquidity and Capital Resources
Sources of Liquidity
We have financed our operations primarily through a combination
of equity, debt issues and grants from the OCS and other third
parties.
We recorded $4.9 million from inception through June 30, 2011
from the OCS in development grants of which $0.1 million was
received during the six months ended June 30, 2011.
In the six months ended June 30, 2011, options and warrants were
exercised in consideration of $0.04 million and 311,419 shares of
common stock were issued.
On April 13, 2011 we completed our IPO in the United States of
our Common stock and redeemable Common stock-purchase warrants
which are both listed on the NYSE Amex. The Company issued
2,624,100 shares of Common stock, including 164,100 shares pursuant
to the exercise of the underwriters' over-allotment option, at a
price of $4.54 per share and redeemable Common stock purchase
warrants to purchase 2,829,000 shares including 369,000 warrants
pursuant to the exercise of the underwriters' over-allotment
option, at a price of $0.46 per warrant for total gross proceeds of
$13.21 million or approximately $10.39 million in net proceeds
after deducting underwriting discounts and commissions of $1.45
million and other offering costs of approximately $1.37
million.
On the closing date of the IPO (April 13, 2011) $0.57 million of
2009 Debentures were automatically converted at a conversion price
of $2.724 per share of common stock into an aggregate amount of
209,656 shares. In addition, the Company issued 5-year warrants to
purchase 84,693 shares at an initial exercise price of $4.99 per
share in connection with the conversion of the 2009 Debentures; and
$4.00 million of 2010 Debentures were automatically converted at a
conversion price of $3.405 per share into an aggregate amount of
1,198,242 shares.
Cash Flows
We had cash and cash equivalents of $10.12 million at June 30,
2011, $1.36 million at June 30, 2010 and $2.86 million at December
31, 2010. The increase in our cash balance during the first six
months of 2011 was primarily the result of the IPO during the
period.
The increase in our cash balance during the first six months of
2010 was primarily the result of the proceeds from the issuance of
shares of common stock during that period.
Net cash used in operating activities of $3.00 million for the
six months ended at June 30, 2011 primarily reflected our cash
expenses for our operations. Net cash used in operating activities
of $1.18 million for the six months ended June 30, 2010 primarily
reflected our cash expenses for our operations in addition to
increases in prepaid expenses and deferred issuance expenses and
decreases in accounts payable and accrued expenses.
Our cash used in investing activities relates mainly to our
purchases of property and equipment.
Net cash provided by financing activities was $10.43 million and
$2.08 million for the six months ended June 30, 2011 and 2010,
respectively.
Our cash flows from financing activities during the six months
ended June 30, 2011 are primarily the result of the IPO from which
the net proceeds were $10.39 million.
Our cash flows from financing activities during the six months
ended June 30, 2010 were primarily net cash proceeds from the
issuance of shares of $2.08 million.
Funding Requirements
We expect to enter into licensing or other commercialization
agreements for all or parts of applications of our Biopump Platform
Technology to fund our continuing operations. If we are unable to
enter into such agreements on terms acceptable to us, we will
continue to incur losses from operations for the foreseeable
future. We expect to incur increasing research and development
expenses, including expenses related to the hiring of personnel and
additional clinical trials, as we further develop the EPODURE
Biopump, the INFRADURE Biopump and the HEMODURE Biopump. We expect
that our general and administrative expenses will also increase as
we expand our finance and administrative staff, add infrastructure,
and incur additional costs related to being a public company in the
United States, including investor relations programs, and increased
professional fees. Our future capital requirements will depend on a
number of factors, including the timing and outcome of clinical
trials and regulatory approvals, the costs involved in preparing,
filing, prosecuting, maintaining, defending, and enforcing patent
claims and other intellectual property rights, the acquisition of
licenses to new products or compounds, the status of competitive
products, the availability of financing, and our success in
developing markets for our product candidates.
Without taking into account any revenue we may receive as a
result of licensing or other commercialization agreements we are
pursuing, we believe that the net proceeds we received from our
initial public offering will be sufficient to enable us to fund our
operating expenses and capital expenditure requirements through the
first quarter of 2012. We have based this estimate on assumptions
that may prove to be wrong and we could use our available resources
sooner than we currently expect. Because of the numerous risks and
uncertainties associated with the development and commercialization
of our product candidates, we are unable to estimate the amounts of
increased capital outlays and operating expenditures associated
with our current and anticipated clinical trials.
We do not anticipate that we will generate revenue from the sale
of products for at least five years; however, we do intend to seek
licensing or other commercialization agreements similar to our
agreement relating to the development of a Biopump producing Factor
VIII. We anticipate that the funds received as a result of such
agreements may be sufficient to fund our operations in the future.
In the absence of additional funding or adequate funding from
commercialization agreements, we expect our continuing operating
losses to result in increases in our cash used in operations over
the next several quarters and years.
Absent significant corporate collaboration and licensing
arrangements, we will need to finance our future cash needs through
public or private equity offerings, or debt financings. We do not
currently have any commitments for future external funding. We may
need to raise additional funds more quickly if one or more of our
assumptions prove to be incorrect or if we choose to expand our
product development efforts more rapidly than we presently
anticipate, and we may decide to raise additional funds even before
we need them if the conditions for raising capital are favorable.
We may seek to sell additional equity or debt securities or obtain
a bank credit facility. The sale of additional equity or debt
securities, if convertible, could result in dilution to our
stockholders. The incurrence of indebtedness would result in
increased fixed obligations and could also result in covenants that
would restrict our operations.
These conditions raise doubt about our ability to continue as a
going concern. Our plans include seeking additional investments and
commercial agreements to continue our operations. However, there is
no assurance that we will be successful in our efforts to raise the
necessary capital and/or reach such commercial agreements to
continue our planned research and development activities.
Principal Uncertainties Related to Potential Future Milestone
Payments
We have acquired the exclusive worldwide right to make
commercial use of certain patents in connection with the
development and commercialization of our product candidate to
produce clotting Factor VIII through a license granted by the
Regents of the University of Michigan (Michigan). The Michigan
license agreement contains milestone payments, license fees,
milestone payments, royalties and sub-license fees as follows:
-- an initial license fee of $25,000;
-- an annual license fee in arrears of $10,000 rising to $50,000
following the grant by the Company of a sublicense or (if sooner)
from the 6th anniversary of the effective date of the Licence
Agreement;
-- staged milestone payments of $750,000 (in aggregate), of
which $400,000 will be recoupable against royalties;
-- royalties at an initial rate of 5% of net sales, reducing by
a percentage point at predetermined thresholds to 2% upon
cumulative net sales exceeding $50,000,000;
-- Sublicense fees at an initial rate of 6% of sublicensing
revenues, reducing by a percentage point at predetermined
thresholds to 4%. upon cumulative sublicensing revenues exceeding
$50,000,000; and
-- Patent maintenance costs.
The exclusive worldwide license is expected to expire in 2026
upon the expiration of the last to expire of the patent rights
licensed. As of the balance sheet date, we have paid the initial
license fee and patent maintenance costs. No royalties or
sub-license fees have yet accrued. Additionally, we cannot estimate
when we will begin selling any products that would require us to
make any such royalty payments. Whether we will be obligated to
make royalty payments in the future is subject to the success of
our product development efforts and, accordingly, is inherently
uncertain.
Critical Accounting Policies
Our management's discussion and analysis of our financial
condition and results of operations is based on our financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities
and expenses. On an ongoing basis, we evaluate these estimates and
judgments, including those described below. We base our estimates
on our historical experience and on various other assumptions that
we believe to be reasonable under the circumstances. These
estimates and assumptions form the basis for making judgments about
the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results and experiences may
differ materially from these estimates.
The following accounting policies are the most critical to aid
you in fully understanding and evaluating our reported financial
results and affect the more significant judgments and estimates
that we use in the preparation of our financial statements.
Convertible Debentures
We irrevocably elected to initially and subsequently measure the
convertible debentures issued in 2009 and 2010 entirely at fair
value, in accordance with ASC 825-10. As a result, we will not
separate the embedded derivative instrument from the host contract
and account for it as a derivative instrument. The convertible
debentures are subject to remeasurement at each balance sheet date,
and any change in fair value is recognized as a component of
financial income (expense), net in the statements of operations. We
estimate the fair value of these convertible debentures at the
respective balance sheet dates using the Binomial option pricing
model. We use a number of assumptions to estimate the fair value,
including the remaining contractual terms of the convertible
debentures, risk-free interest rates, expected dividend yield and
expected volatility of the price of the underlying common stock.
These assumptions could differ significantly in the future.
During the first six months ended June 30, 2011, we recorded
financial income of $0.04 million to reflect the decrease in the
fair value of the convertible debentures as opposed to $0.02
million recorded as income during the six month period ended June
30, 2010.
Liability in Respect of Warrants
In 2010 we issued warrants with an exercise price denominated in
British Pounds Sterling which differs from the functional currency
we use. In addition, the exercise price of such warrants is subject
to downward adjustment. In addition, in 2006 and 2007, we issued
warrants that included price protection in the event of sales of
securities below the then current exercise price. In accordance
with ASC 815-40-15-7I, we classified these warrants as a liability
at their fair value. The warrants liability will be remeasured at
each reporting period until exercised or expired. The decrease in
the fair value of the warrants during the six months ended June 30,
2011 and 2010 of $1.50 million and $0.90 million respectively are
reported in the Statements of Operations as financial income.
We estimate the fair value of these warrants at the respective
balance sheet dates using the Binomial option pricing model. We use
a number of assumptions to estimate the fair value, including the
remaining contractual terms of the warrants, risk-free interest
rates, expected dividend yield and expected volatility of the price
of the underlying common stock. These assumptions could differ
significantly in the future, thus resulting in variability of the
fair value which would impact the results of operations in the
future.
Stock-Based Compensation
We account for stock options according to the Financial
Accounting Standards Board Accounting Standards Codification No.
718 (ASC 718) "Compensation - Stock Compensation." Under ASC 718,
share-based compensation cost is measured at grant date, based on
the estimated fair value of the award, and is recognized as an
expense over the employee's requisite service period on a
straight-line basis.
We account for stock options granted to non-employees on a fair
value basis using an option pricing method in accordance with ASC
718. The initial non-cash charge to operations for non-employee
options with vesting are revalued at the end of each reporting
period based upon the change in the fair value of the options and
amortized to consulting expense over the related vesting
period.
For the purpose of valuing options and warrants granted to our
employees, non-employees and directors and officers during the six
months ended June 30, 2011 and 2010, we used the Binomial options
pricing model. To determine the risk-free interest rate, we
utilized the U.S. Treasury yield curve in effect at the time of
grant with a term consistent with the expected term of our awards.
We estimated the expected life of the options granted based on
anticipated exercises in the future periods assuming the success of
our business model as currently forecast. The expected dividend
yield reflects our current and expected future policy for dividends
on its common stock. The expected stock price volatility for our
stock options was calculated by examining historical volatilities
for publicly traded industry peers as we do not have sufficient
trading history for our common stock. We will continue to analyze
the expected stock price volatility and expected term assumptions
as more historical data for our common stock becomes available.
Given the senior nature of the roles of our employees, directors
and officers, we currently estimate that we will experience no
forfeitures for those options currently outstanding.
Off-Balance Sheet Arrangements
Pursuant to our license agreement with Yissum Research
Development Company of the Hebrew University ("Yissum"), Yissum
granted us a license of certain patents for commercial development,
production, sub-license and marketing of products to be based on
its know-how and research results. In consideration, we agreed to
pay Yissum the following amounts, provided, however, that the total
aggregate payment of royalties and sub-license fees by us to Yissum
shall not exceed $10 million:
-- Non-refundable license fee of $0.4 million to be paid in
three installments, as follows:
-- $0.05 million when the accrued investments in us by any third
party after May 23, 2005 equal at least $3 million (paid in
2007);
-- $0.15 million when the accrued investments in us by any third
party after May 23, 2005 equal at least $12 million (paid in second
quarter of 2010); and
-- $0.2 million when the accrued investments in us by any third
party after May 23, 2005 equal at least $18 million (paid in April
2011).
-- Royalties at a rate of 5% of net sales of product
incorporating the licensed technology; and
-- Sub-license fees at a rate of 9% of sublicense considerations
received by us.
In 2007, we signed an agreement with Baylor College of Medicine
(BCM) whereby BCM granted us a non-exclusive worldwide license to
use, market, sell, lease and import certain technology (BCM
technology), by way of any product process or service that
incorporates, utilizes or is made with the use of the BCM
technology. In consideration we agreed to pay BCM the following
amounts:
-- a one time, non-refundable license fee of $25,000 which was
paid in 2007;
-- an annual non-refundable maintenance fee of $20,000;
-- a one-time milestone payment of $75,000 upon FDA clearance or
equivalent of clearance for therapeutic use. As of the balance
sheet date, we have not achieved FDA clearance; and
-- an installment of $25,000 upon our executing any sub-licenses
in respect of the BCM technology.
All payments to BCM are recorded as research and development
expenses. The license agreement shall expire (unless terminated
earlier for default or by us at our discretion) on the first day
following the tenth anniversary of our first commercial sale of
licensed products. After termination, we will have a perpetual,
royalty free license to the BCM technology.
Under agreements with the OCS in Israel regarding research and
development projects, our Israeli subsidiary is committed to pay
royalties to the OCS at rates between 3.5% and 5% of the income
resulting from this research and development, at an amount not to
exceed the amount of the grants received by our subsidiary as
participation in the research and development program, plus
interest at LIBOR. The obligation to pay these royalties is
contingent on actual income and in the absence of such income no
payment is required. As of June 30, 2011, the aggregate contingent
liability amounted to approximately $4.9 million.
Pursuant to an agreement we entered into on February 11, 2011
(effective as of January 31, 2011), the Regents of the University
of Michigan (Michigan) have granted an exclusive worldwide license
for patent rights relating to certain uses of variants of clotting
Factor VIII. The License Agreement covers a portfolio of 2 issued
and 3 pending patents. In consideration we agreed to pay Michigan
the following amounts:
-- an initial license fee of $25,000;
-- an annual license fee in arrears of $10,000 rising to $50,000
following the grant by us of a sublicense or (if sooner) from the
6th anniversary of the effective date of the licence agreement;
-- staged milestone payments of $750,000 (in aggregate), of
which $400,000 will be recoupable against royalties;
-- royalties at an initial rate of 5% of net sales, reducing by
a percentage point at predetermined thresholds to 2% upon
cumulative net sales exceeding $50,000,000;
-- sublicense fees at an initial rate of 6% of sublicensing
revenues, reducing by a percentage point at predetermined
thresholds to 4%. upon cumulative sublicensing revenues exceeding
$50,000,000; and
-- patent maintenance costs.
The exclusive worldwide license is expected to expire in 2026
upon the expiration of the last to expire of the patent rights
licensed.
Subsequent Events
In July 2011, the Company granted an employee 40,000 options
exercisable at a price of $3.64 per share. The options have a
10-year term and vest in four equal annual tranches of 10,000 each.
The options were granted under the Stock Incentive Plan.
In July 2011, the Company issued warrants to purchase 50,000
shares of Common stock at an exercise price of $4.02 to a
consultant in compensation for advisory services.
In August 2011, the Company issued warrants to purchase 150,000
shares of Common stock at an exercise price of $4.80 to a
consultant in compensation for advisory services.
# # #
This information is provided by RNS
The company news service from the London Stock Exchange
END
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