Item 1: Financial Statements
AYALA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In
thousands, except share and per share amounts)
| |
March 31 | | |
December 31 | |
| |
2022 | | |
2021 | |
| |
(Unaudited) | | |
| |
CURRENT ASSETS: | |
| | |
| |
Cash and Cash Equivalents | |
$ | 27,050 | | |
$ | 36,982 | |
Short-term Restricted Bank Deposits | |
| 122 | | |
| 122 | |
Trade Receivables | |
| 638 | | |
| - | |
Prepaid Expenses and other Current Assets | |
| 1,492 | | |
| 2,636 | |
Total Current Assets | |
| 29,302 | | |
| 39,740 | |
LONG-TERM ASSETS: | |
| | | |
| | |
Other Assets | |
$ | 255 | | |
$ | 267 | |
Property and Equipment, Net | |
| 1,090 | | |
| 1,120 | |
Total Long-Term Assets | |
| 1,345 | | |
| 1,387 | |
Total Assets | |
$ | 30,647 | | |
$ | 41,127 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY: | |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Trade Payables | |
$ | 2,564 | | |
$ | 3,214 | |
Other Accounts Payables | |
| 2,793 | | |
| 3,258 | |
Total Current Liabilities | |
| 5,357 | | |
| 6,472 | |
LONG TERM LIABILITIES: | |
| | | |
| | |
Long-term Rent Liability | |
| 472 | | |
| 497 | |
Total Long-Term Liabilities | |
$ | 472 | | |
$ | 497 | |
STOCKHOLDERS’ STOCKHOLDERS’ EQUITY: | |
| | | |
| | |
Common Stock of $0.01 par value per share; 200,000,000 shares authorized at December 31, 2021 and March 31, 2022; 14,085,283 and 14,080,383 shares issued at March 31, 2022 and December 31, 2021, respectively; 13,972,778 and 13,956,035 shares outstanding at March 31, 2022 and December 31, 2021, respectively | |
$ | 139 | | |
$ | 139 | |
Additional Paid-in Capital | |
| 145,847 | | |
| 145,160 | |
Accumulated Deficit | |
| (121,168 | ) | |
| (111,141 | ) |
Total Stockholders’ Equity | |
| 24,818 | | |
| 34,158 | |
Total Liabilities and Stockholders’ Equity | |
$ | 30,647 | | |
$ | 41,127 | |
See accompanying notes to unaudited condensed
consolidated financial statements.
AYALA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share & per share
amounts)
| |
For the three months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Revenues from licensing agreement and others | |
$ | 458 | | |
$ | 974 | |
Cost of services | |
| (368 | ) | |
| (974 | ) |
Gross profit | |
| 90 | | |
| — | |
Operating expenses: | |
| | | |
| | |
Research and development | |
| 7,503 | | |
| 6,925 | |
General and administrative | |
| 2,441 | | |
| 2,303 | |
Total operating expenses | |
| 9,944 | | |
| 9,228 | |
Operating loss | |
| (9,854 | ) | |
| (9,228 | ) |
Financial Income (Loss), net | |
| 16 | | |
| (92 | ) |
| |
| | | |
| | |
Loss before income tax | |
| (9,838 | ) | |
| (9,320 | ) |
Taxes on income | |
| (189 | ) | |
| (248 | ) |
Net loss attributable to common stockholders | |
| (10,027 | ) | |
| (9,568 | ) |
Net Loss per share attributable to common stockholders, basic and diluted | |
$ | (0.66 | ) | |
$ | (0.74 | ) |
Weighted average common shares outstanding, basic and diluted | |
| 15,301,065 | | |
| 12,888,340 | |
See accompanying notes to unaudited condensed
consolidated financial statements.
AYALA PHARMACEUTICALS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’
EQUITY
(Unaudited)
(In thousands, except share and per share amounts)
| |
| | |
| | |
Additional | | |
| | |
Total | |
| |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| |
Number | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
Balance as of December 31, 2020 | |
| 12,728,446 | | |
$ | 128 | | |
$ | 109,157 | | |
$ | (70,887 | ) | |
$ | 38,398 | |
Share based compensation | |
| 4,434 | | |
| * | | |
| 852 | | |
| — | | |
| 852 | |
Exercise of stock options | |
| 6,000 | | |
| * | | |
| 30 | | |
| — | | |
| 30 | |
Proceeds from Issuance of common stocks and warrants, | |
| | | |
| | | |
| | | |
| | | |
| | |
net of Issuance Cost of $1,665 | |
| 333,333 | | |
| 3 | | |
| 23,319 | | |
| — | | |
| 23,322 | |
Net Loss | |
| — | | |
| — | | |
| — | | |
| (9,568 | ) | |
| (9,568 | ) |
Balance as of March 31, 2021 | |
| 13,072,213 | | |
$ | 131 | | |
| 133,358 | | |
$ | (80,455 | ) | |
$ | 53,034 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of December 31, 2021 | |
| 13,956,035 | | |
| 139 | | |
| 145,160 | | |
| (111,141 | ) | |
| 34,158 | |
Share based compensation | |
| 11,843 | | |
| - | | |
| 643 | | |
| - | | |
| 643 | |
Proceeds from Issuance of common stocks and warrants, net of Issuance Cost of $3 | |
| 4,900 | | |
| - | | |
| 44 | | |
| - | | |
| 44 | |
Net Loss | |
| - | | |
| - | | |
| - | | |
| (10,027 | ) | |
| (10,027 | ) |
Balance as of March 31, 2022 | |
| 13,972,778 | | |
$ | 139 | | |
$ | 145,847 | | |
$ | (121,168 | ) | |
$ | 24,818 | |
* | Represents an amount lower than $1. |
See accompanying notes to unaudited condensed
financial statements.
AYALA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
| |
Three Months Ended | |
| |
March 31, | | |
March 31 | |
| |
2022 | | |
2021 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net Loss | |
$ | (10,027 | ) | |
$ | (9,568 | ) |
Adjustments to Reconcile Net Loss to Net Cash used in Operating Activities: | |
| | | |
| | |
Shared Based Compensation | |
| 643 | | |
| 852 | |
Depreciation | |
| 30 | | |
| 164 | |
(Increase) decrease in Prepaid Expenses and Other Assets | |
| 1,148 | | |
| (88 | ) |
(Increase) decrease in Trade Receivables | |
| (638 | ) | |
| 512 | |
Decrease in Trade Payable | |
| (650 | ) | |
| (1,012 | ) |
Decrease in other Accounts Payable | |
| (490 | ) | |
| (509 | ) |
Net Cash used in Operating Activities | |
| (9,984 | ) | |
| (9,649 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Net Cash provided by (used in) Investing Activities | |
| — | | |
| — | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from Issuance of Shares, net of Issuance Cost of $3 | |
| 44 | | |
| — | |
Issuance of shares and warrants, Net | |
| - | | |
| 23,612 | |
Exercise of Stock Options | |
| - | | |
| 30 | |
Net Cash provided by Financing Activities | |
| 44 | | |
| 23,642 | |
Increase (decrease) in Cash and Cash Equivalents and Restricted Cash Equivalents | |
| (9,940 | ) | |
| 13,993 | |
Cash and Cash Equivalents and Restricted Cash Equivalents at Beginning of the period | |
| 37,339 | | |
| 42,370 | |
Cash and Cash Equivalents and Restricted Cash Equivalents at End of the period | |
$ | 27,399 | | |
$ | 56,363 | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES | |
| | | |
| | |
Non-cash deferred issuance costs | |
$ | - | | |
$ | 290 | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |
| | | |
| | |
Tax Paid in Cash | |
$ | 64 | | |
$ | 48 | |
Cash Received for Interest | |
$ | 5 | | |
$ | 3 | |
Reconciliation of cash, cash equivalents and restricted bank deposits
| |
March 31, | | |
March 31, | |
| |
2022 | | |
2021 | |
Cash and Cash Equivalents | |
$ | 27,050 | | |
$ | 56,030 | |
Restricted Bank Deposits | |
| 122 | | |
| 117 | |
Restricted Bank Deposits in Other Assets | |
| 227 | | |
| 216 | |
Cash and Cash Equivalents and Restricted Bank Deposits at End of the Period | |
$ | 27,399 | | |
$ | 56,363 | |
See accompanying notes to unaudited condensed
consolidated financial statements
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
General
| a) | Ayala
Pharmaceuticals, Inc. (the “Company”) was incorporated in November 2017. The Company is a clinical stage oncology company
dedicated to developing and commercializing small molecule therapeutics for patients suffering from rare and aggressive cancers, primarily
in genetically defined patient populations. The Company’s current portfolio of product candidates, AL101 and AL102, target the
aberrant activation of the Notch pathway with gamma secretase inhibitors. |
| b) | In
2017, the Company entered into an exclusive worldwide license agreement with respect to AL101 and AL102. See note 4. |
| c) | The
Company’s lead product candidates, AL101 and AL102, have completed preclinical and Phase 1 studies. AL102 is currently being evaluated
in a pivotal Phase 2/3 trial (RINGSIDE) in patients with Desmoids tumors and is being evaluated in a Phase 1 clinical trial in combination
with Novartis’ BMCA targeting agent, WVT078, in Patients with relapsed/refractory Multiple Myeloma. AL101 is currently being evaluated
in a Phase 2 trial (ACCURACY) in patients with recurrent/metastatic adenoid cystic carcinoma (“R/M ACC”) bearing Notch-activating
mutations is ongoing. |
| d) | The
Company has a wholly-owned Israeli subsidiary, Ayala-Oncology Israel Ltd. (the “Subsidiary”), which was incorporated in November
2017. |
Initial Public Offering and Other
Transactions
On May 12, 2020, the Company completed the sale
of shares of its common stock in its IPO. In connection with the IPO, the Company issued and sold 3,940,689 shares of its common
stock, par value $0.01 per share (“Common Stock”) including 274,022 shares associated with the partial exercise
on June 4, 2020 of the underwriters’ option to purchase additional shares, at a price to the public of $15.00 per share, resulting
in net proceeds to the Company of approximately $52.2 million after deducting underwriting discounts and commissions and offering
expenses payable by the Company. All shares issued and sold were registered pursuant to a registration statement on Form S-1 (File No.
333-236942), as amended, declared effective by the U.S. Securities and Exchange Commission (the “Commission”) on May 7, 2020.
In connection with the IPO, the Company effected
a one-for-two reverse stock split of its Common Stock which became effective on May 4, 2020. Upon the closing of the IPO, all of the outstanding
shares of Series A preferred stock and Series B preferred stock automatically converted into an aggregate of 3,715,222 shares
of Common Stock. Subsequent to the closing of the IPO, there were no preferred shares outstanding.
On February 19, 2021, the Company entered into
a Securities Purchase Agreement (the “2021 Purchase Agreement”) with the purchasers named therein (the “Investors”).
Pursuant to the 2021 Purchase Agreement, the company agreed to sell (i) an aggregate of 333,333 shares of our common stock (the “Private
Placement Shares”), par value $0.01 per share, together with warrants to purchase an aggregate of 116,666 shares of its Common Stock
with an exercise price of $18.10 per share (the “Common Warrants”), for an aggregate purchase price of $4,999,995.00 and (ii)
pre-funded warrants to purchase an aggregate of 1,333,333 shares of its Common Stock with an exercise price of $0.01 per share (the “Pre-Funded
Warrants” and collectively with the Common Warrants, the “Private Placement Warrants”), together with an aggregate of
466,666 Common Warrants, for an aggregate purchase price of $19,986,661.67 (collectively, the “Private Placement”). The Private
Placement closed on February 23, 2021.
In June 2021, the Company entered into an Open
Market Sales Agreement, or the Sales Agreement, with Jefferies LLC, or Jefferies, as sales agent, pursuant to which the Company may, from
time to time, issue and sell Common Stock with an aggregate value of up to $200.0 million in “at-the-market” offerings,
under its Registration Statement on Form S-3 (File No. 333-256792) filed with the SEC on June 4, 2021 (the “ATM”). Sales of
Common Stock, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined
in Rule 415(a) of the Securities Act, including sales made directly through The Nasdaq Global Market or on any other existing trading
market for its Common Stock. Pursuant to the Sales Agreement, during the year ended December 31, 2021, the Company sold a total of 827,094 shares
of Common Stock for total gross proceeds of approximately $10.4 million. During the three months ended March 31, 2022, the Company
sold a total of 4,900 shares of Common Stock for total gross proceeds of approximately $47 thousand.
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES (continued):
Going Concern
The Company has incurred recurring losses since inception as a research
and development organization and has an accumulated deficit of $121.2 million as of March 31, 2022. For the three months ended March
31, 2022, the Company used approximately $10.0 million of cash in operations. The Company has relied on its ability to fund its operations
through public and private equity financings. The Company expects operating losses and negative cash flows to continue at significant
levels in the future as it continues its clinical trials. As of March 31, 2022, the Company had approximately $27.4 million in cash
and cash equivalents and restricted bank deposits, which, without additional funding, the Company believes will not be sufficient to meet
its obligations within the next twelve months from the date of issuance of these consolidated financial statements. The Company plans
to continue to fund its operations through public or private debt and equity financings, but there can be no assurances that such financing
will continue to be available to the Company on satisfactory terms, or at all. If the Company is unable to obtain funding, the Company
would be forced to delay, reduce or eliminate its research and development programs, which could adversely affect its business prospects,
or the Company may be unable to continue operations. As such, those factors raise substantial doubt about the Company’s ability
to continue as a going concern.
The condensed consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. Therefore, the condensed consolidated financial statements
for the three months ended March 31, 2022 do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s
ability to continue as a going concern.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)
for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for annual financial
statements. In the opinion of management, all adjustments (of a normal recurring nature) considered necessary for a fair statement of
the results for the interim periods presented have been included. Operating results for the interim period are not necessarily indicative
of the results that may be expected for the full year.
These unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 included in the Company’s
Annual Report on Form 10-K filed for the year ended December 31, 2021 (the “Annual Report”) with the Securities and Exchange
Commission (the “SEC”). The comparative balance sheet at December 31, 2021 has been derived from the audited financial statements
at that date. The Company’s significant accounting policies have not changed materially from those included in Note 2 of the Company’s
audited consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report, unless otherwise
stated.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based
upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements. Actual results
could differ from those estimates.
Net Loss per Share
Basic loss per share is computed by dividing the net loss by the weighted
average number of shares of Common Stock outstanding during the period. Diluted loss per share is computed by dividing the net loss by
the weighted average number of shares of Common Stock outstanding together with the number of additional shares of Common Stock that would
have been outstanding if all potentially dilutive shares of Common Stock had been issued. Diluted net loss per share is the same as basic
net loss per share in periods when the effects of potentially dilutive shares of Common Stock are anti-dilutive.
The calculation of basic and diluted loss per share includes 1,333,333
warrants with an exercise price of $0.01 for the three ended March 31, 2022 and 2021.
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES (continued):
The calculation of diluted loss per share does not include 583,332
Warrants and 1,150,423 options outstanding to purchase common stock with anti-dilutive effect for the three ended March 31, 2022.
The calculation of diluted loss per share does not include 583,332
Warrants and 915,644 options outstanding to purchase common stock as of March 31, 2021.
Newly Issued Accounting Pronouncements
As an “emerging growth company,” the
Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements
applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this
extended transition period under the JOBS Act. The adoption dates discussed below reflects this election.
In February 2016, the FASB issued ASU 2016-02—Leases, requiring
the recognition of lease assets and liabilities on the balance sheet. The standard:
(a) clarifies the definition of a lease; (b) requires a dual approach
to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a
lease liability with a corresponding right-of-use asset for leases with a lease-term of more than 12 months. The standard is effective
for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15,
2022. The Company is currently evaluating the impact of adopting this new guidance on its financial statements.
In June 2016, the FASB issued ASU No. 2016-13 (Topic 326), Financial
Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment
model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected
to be collected. The guidance will be effective for the Company for fiscal years beginning after December 15, 2022. Early adoption is
permitted. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic
740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing a variety of exceptions
within the framework of ASC 740. These exceptions include the exception to the incremental approach for intra-period tax allocation in
the event of a loss from continuing operations and income or a gain from other items (such as other comprehensive income), and the exception
to using general methodology for the interim period tax accounting for year-to-date losses that exceed anticipated losses. The guidance
will be effective for the Company beginning January 1, 2022, and interim periods in fiscal years beginning January 1, 2023. Early adoption
is permitted. The Company is currently evaluating the effect that ASU 2019-12 will have on its condensed consolidated financial statements
and related disclosures.
Recently issued and adopted pronouncements
In August
2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-06, Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the
accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and
contracts on an entity’s own equity. This guidance also eliminates the treasury stock method to calculate diluted earnings per
share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 is effective for
fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted for
fiscal years beginning after December 15, 2020. The Company elected to early adopt ASU 2020-06 on January 1, 2022. Currently this
ASU has no impact on our consolidated financial statements.
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2—REVENUES
The Company recognizes revenue in accordance with ASC Topic
606, Revenue from Contracts with Customers, which applies to all contracts with customers. Under Topic 606, an entity recognizes revenue
when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects
to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within
the scope of Topic 606, the entity performs the following five steps:
| (i) | identify the contract(s) with a customer; |
| (ii) | identify the performance obligations in the contract; |
| (iii) | determine the transaction price; |
| (iv) | allocate the transaction price to the performance obligations
in the contract; and |
| (v) | recognize revenue when (or as) the entity satisfies a performance
obligation. |
At contract inception, once the contract is determined to be
within the scope of Topic 606, the Company assesses the goods or services promised within the contract and determines those that are performance
obligations and assesses whether each promised good or service is distinct.
Customer option to acquire additional goods or services gives
rise to a performance obligation in the contract only if the option provides a material right to the customer that it would not receive
without entering into that contract.
In a contract with multiple performance obligations, the Company
must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance
obligation, which determines how the transaction price is allocated among the performance obligations.
The Company evaluates each performance obligation to determine if it
can be satisfied at a point in time or over time.
Revenue is recognized when control of the promised goods or
services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to receive in
exchange for those goods or services.
In December 2018, the Company entered into an evaluation,
option and license agreement (the “Novartis Agreement”) with Novartis International Pharmaceutical Limited (“Novartis”)
for which the Company is paid for its research and development costs.
The Company concluded that there is one distinct performance obligation
under the Novartis Agreement: Research and development services, an obligation which is satisfied over time.
Revenue associated with the research and development services
in the amounts of approximately $0.5 million and $1.0 were recognized in the three months ended March 31, 2022 and 2021, respectively.
The Company concluded that progress towards completion of
the research and development performance obligation related to the Novartis Agreement is best measured in an amount proportional to the
expenses relative to the total estimated expenses. The Company periodically reviews and updates its estimates, when appropriate, which
may adjust revenue recognized for the period. Most of the company's revenues derive from the Novartis Agreement, for which revenues consist
of reimbursable research and development costs.
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3—TAX
The
Company has reviewed the tax positions taken, or to be taken, in its tax returns for all tax years currently open to examination by
a taxing authority. As of March 31, 2022 and 2021, the Company has recorded an uncertain tax position liability exclusive of
interest and penalties of $1 million and $0.7 million, respectively, which were classified as other long-term liabilities. As of
March 31, 2022 and 2021, the Company accrued interest related to uncertain tax positions of $51 thousand and $30 thousand,
respectively. The interest is recorded as part of financial
expenses. These uncertain tax positions would impact the Company’s effective tax rate, if recognized. A reconciliation of the
Company’s unrecognized tax benefits is below:
| |
Three
months | | |
Year | |
| |
ended | | |
ended | |
| |
March
31, | | |
December
31, | |
| |
2022 | | |
2021 | |
| |
(in
thousands) | |
Uncertain tax
position at the beginning of the period | |
$ | 858 | | |
$ | 581 | |
Additions for uncertain tax
position of prior years (foreign exchange and interest) | |
| 6 | | |
| 17 | |
Additions
for tax positions of current period | |
| 92 | | |
| 260 | |
Uncertain
tax position at the end of the period | |
$ | 956 | | |
$ | 858 | |
The Company files U.S. federal, various
U.S. state and Israeli income tax returns. The associated tax filings remain subject to examination by applicable tax authorities for
a certain length of time following the tax year to which those filings relate. In the United States and Israel, the 2017 and subsequent
tax years remain subject to examination by the applicable taxing authorities as of March 31, 2022.
NOTE 4—COMMITMENTS AND CONTINGENT
Liabilities Lease
In January 2019, the Subsidiary signed a new lease
agreement. The term of the lease is for 63 months and includes an option to extend the lease for an additional 60 months. As part of
the agreement, the lessor also provided the Company with finance in in the amount of approximately $0.5 million paid in arrears for
of leasehold improvements. The financing was recorded as a Long-Term Rent Liability. In June 2020, the Company signed a new lease
agreement. The term of the lease is for 30 months. The minimum rental payments under operating leases as of March 31, 2022, are as
follows (in thousands):
Year ended December 31, | |
| |
2022 | |
| 306 | |
2023 | |
| 409 | |
2024 | |
| 145 | |
| |
$ | 860 | |
The Subsidiary obtained a bank guarantee in the amount of approximately
$0.2 million for its new office lease agreement.
Asset Transfer and License Agreement with Bristol-Myers Squibb
Company.
In November 2017, the Company entered into a license agreement,
or the BMS License Agreement, with Bristol-Myers Squibb Company, or BMS, under which BMS granted the Company a worldwide, non-transferable,
exclusive, sublicensable license under certain patent rights and know-how controlled by BMS to research, discover, develop, make, have
made, use, sell, offer to sell, export, import and commercialize AL101 and AL102, or the BMS Licensed Compounds, and products containing
AL101 or AL102, or the BMS Licensed Products, for all uses including the prevention, treatment or control of any human or animal disease,
disorder or condition.
Under the BMS License Agreement, the Company is obligated to
use commercially reasonable efforts to develop at least one BMS Licensed Product. The Company has sole responsibility for, and bear the
cost of, conducting research and development and preparing all regulatory filings and related submissions with respect to the BMS Licensed
Compounds and/or BMS Licensed Products. BMS has assigned and transferred all INDs for the BMS Licensed Compounds to the Company. The Company
is also required to use commercially reasonable efforts to obtain regulatory approvals in certain major market countries for at least
one BMS Licensed Product, as well as to effect the first commercial sale of and commercialize each BMS Licensed Product after obtaining
such regulatory approval. The Company has sole responsibility for, and bear the cost of, commercializing BMS Licensed Products. For a
limited period of time, the Company may not, engage directly or indirectly in the clinical development or commercialization of a Notch
inhibitor molecule that is not a BMS Licensed Compound.
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4—COMMITMENTS AND CONTINGENT (continued):
The Company is required to pay BMS payments upon the achievement
of certain development or regulatory milestone events of up to $95 million in the aggregate with respect to the first BMS Licensed Compound
to achieve each such event and up to $47 million in the aggregate with respect to each additional BMS Licensed Compound to achieve each
such event. The Company is also obligated to pay BMS payments of up to $50 million in the aggregate for each BMS Licensed Product that
achieves certain sales-based milestone events and tiered royalties on net sales of each BMS Licensed Product by the Company or its affiliates
or sublicensees at rates ranging from a high single-digit to low teen percentage, depending on the total annual worldwide net sales of
each such Licensed Product. If the Company sublicenses or assigns any rights to the licensed patents, the BMS Licensed Compounds and/or
the BMS Licensed Products, the Company is required to share with BMS a portion of all consideration received from such sublicense or assignment,
ranging from a mid-teen to mid-double-digit percentage, depending on the development stage of the most advanced BMS Licensed Compound
or BMS Licensed Product that is subject to the applicable sublicense or assignment, but such portion may be reduced based on the milestone
or royalty payments that are payable by the Company to BMS under the BMS License Agreement.
The Company accounted for the acquisition of the rights granted
by BMS as an asset acquisition because it did not meet the definition of a business. The Company recorded the total consideration transferred
and value of shares issued to BMS as research and development expense in the consolidated statement of operations as incurred since the
acquired the rights granted by BMS represented in-process research and development and had no alternative future use.
The Company accounts for contingent consideration payable
upon achievement of sales milestones in such asset acquisitions when the underlying contingency is resolved.
The BMS License Agreement remains in effect, on a country-by-country
and BMS Licensed Product-by-BMS Licensed Product basis, until the expiration of royalty obligations with respect to a given BMS Licensed
Product in the applicable country. Royalties are paid on a country-by-country and BMS Licensed Product-by-BMS Licensed Product basis from
the first commercial sale of a particular BMS Licensed Product in a country until the latest of 10 years after the first commercial sale
of such BMS Licensed Product in such country, (b) when such BMS Licensed Product is no longer covered by a valid claim in the licensed
patent rights in such country, or (c) the expiration of any regulatory or marketing exclusivity for such BMS Licensed Product in such
country. Any inventions, and related patent rights, invented solely by either party pursuant to activities conducted under the BMS License
Agreement shall be solely owned by such party, and any inventions, and related patent rights, conceived of jointly by the Company and
BMS pursuant to activities conducted under the BMS License Agreement shall be jointly owned by the Company and BMS, with BMS’s rights
thereto included in the Company’s exclusive license. The Company has the first right—with reasonable consultation with, or
participation by, BMS—to prepare, prosecute, maintain and enforce the licensed patents, at the Company’s expense.
BMS has the right to terminate the BMS License Agreement in its entirety
upon written notice to the Company (a) for insolvency-related events involving the Company, (b) for the Company’s material breach
of the BMS License Agreement if such breach remains uncured for a defined period of time, for the Company’s failure to fulfill its
obligations to develop or commercialize the BMS Licensed Compounds and/or BMS Licensed Products not remedied within a defined period of
time following written notice by BMS, or (d) if the Company or its affiliates commence any action challenging the validity, scope, enforceability
or patentability of any of the licensed patent rights. The Company has the right to terminate the BMS License Agreement (a) for convenience
upon prior written notice to BMS, the length of notice dependent on whether a BMS Licensed Project has received regulatory approval, (b)
upon immediate written notice to BMS for insolvency-related events involving BMS, (c) for BMS’s material breach of the BMS License
Agreement if such breach remains uncured for a defined period of time, or (d) on a BMS Licensed Compound-by-BMS Licensed Compound and/or
BMS Licensed Product-by-BMS Licensed Product basis upon immediate written notice to BMS if the Company reasonably determine that there
are unexpected safety and public health issues relating to the applicable BMS Licensed Compounds and/or BMS Licensed Products.
Upon termination of the BMS License Agreement in its entirety
by the Company for convenience or by BMS, the Company grants an exclusive, non-transferable, sublicensable, worldwide license to BMS under
certain of its patent rights that are necessary to develop, manufacture or commercialize BMS Licensed Compounds or BMS Licensed Products.
In exchange for such license, BMS must pay the Company a low single-digit percentage royalty on net sales of the BMS Licensed Compounds
and/or BMS Licensed Products by it or its affiliates, licensees or sublicensees, provided that the termination occurred after a specified
developmental milestone for such BMS Licensed Compounds and/ or BMS Licensed Products.
Option and License Agreement with Novartis International Pharmaceutical
Ltd.
In December 2018, the Company entered into an evaluation, option
and license agreement, or the Novartis Option Agreement, with Novartis International Pharmaceutical Limited, or Novartis, pursuant to
which Novartis agreed to conduct certain studies to evaluate AL102 in combination with its B-cell maturation antigen, or BCMA, therapies
in multiple myeloma, and the Company agreed to supply AL102 for such studies. All supply and development costs associated with such evaluation
studies are fully borne by Novartis.
AYALA PHARMACEUTICALS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4—COMMITMENTS AND CONTINGENT (continued):
Under the Novartis Option Agreement, the Company granted Novartis
an exclusive option to obtain an exclusive (including as to the Company and its affiliates), sublicensable (subject to certain terms and
conditions), worldwide license and sublicense (as applicable) under certain patent rights and know-how controlled by the Company (including
applicable patent rights and know-how that are licensed from BMS pursuant to the BMS License Agreement) to research, develop, manufacture
(subject to the Company’s non-exclusive right to manufacture and supply AL102 or the Novartis Licensed Product for Novartis) and
commercialize AL102 or any pharmaceutical product containing AL102 as the sole active ingredient, or the Novartis Licensed Product, for
the diagnosis, prophylaxis, treatment, or prevention of multiple myeloma in humans. The Company also granted Novartis the right of first
negotiation for the license rights to conduct development or commercialization activities with respect to the use of AL102 for indications
other than multiple myeloma. Additionally, from the exercise by Novartis of its option until the termination of the Novartis Option Agreement,
the Company may not, either itself or through its affiliates or any other third parties, directly or indirectly research, develop or commercialize
certain BCMA-related compounds for the treatment of multiple myeloma.
According to the agreement, Novartis shall pay the Company a low eight
figure option exercise fee in order to exercise its option and activate its license, upon which the Company will be eligible to receive
development, regulatory and commercial milestone payments of up to $245 million in the aggregate and tiered royalties on net sales of
Novartis Licensed Products by Novartis or its affiliates or sublicensees at rates ranging from a mid-single-digit to low double-digit
percentage, depending on the total annual worldwide net sales of Novartis Licensed Products. Royalties will be paid on a country-by-country
and Novartis Licensed Product-by-Novartis Licensed Product basis from the first commercial sale of a particular Novartis Licensed Product
in a country until the latest of (a) 10 years after the first commercial sale of such Novartis Licensed Product in such country, (b) when
such Novartis Licensed Product is no longer covered by a valid claim in the licensed patent rights in such country, or (c) the expiration
of any regulatory or marketing exclusivity for such Novartis Licensed Product in such country. Contemporaneously with the Novartis Option
Agreement, the Company entered into a stock purchase agreement and associated investment agreements, or the SPA, with Novartis’
affiliate, Novartis Institutes for BioMedical Research, Inc., or NIBRI, pursuant to which NIBRI acquired a $10 million equity stake in
the Company.
Novartis shall own any inventions, and related patent rights,
invented solely by it or jointly with the Company in connection with activities conducted pursuant to the Novartis Option Agreement. The
Company will maintain first right to prosecute and maintain any patents licensed to Novartis, both before and after its exercise of its
option. The Company maintain the first right to defend and enforce its patents prior to Novartis’s exercise of its option, upon
which Novartis gains such right with respect to patents included in the license.
The option granted to Novartis will remain in effect until
the earlier of (a) 60 days following the last visit of the last subject in the evaluation studies, the termination of the Novartis Option
Agreement, or (c) 36 months following the delivery by the Company to Novartis of sufficient amounts of clinical evaluation materials to
conduct the anticipated clinical studies. The Novartis Option Agreement remains in effect until such time as no Novartis Licensed Product
is being developed or commercialized by Novartis, its affiliates, or sublicensees (including distributors or commercial partners), unless
terminated earlier. The Company has the right to terminate the Novartis Option Agreement (a) for Novartis’s material breach if such
breach remains uncured for 60 days (such cure period shall be extended for an additional period during which Novartis is making good faith
efforts to cure such breach) or (b) for Novartis’s failure to use commercially reasonable efforts to develop or commercialize AL102
and/or the Novartis Licensed Product not remedied within four months following written notice to Novartis. Novartis has the right to terminate
the Novartis Option Agreement (a) in its entirety or on a country-by-country basis for convenience, upon 60 days written notice to us,
(b) for Company’s material breach if such breach remains uncured for 60 days (such cure period shall be extended for an additional
period during which Novartis is making good faith efforts to cure such breach) or (c) upon immediate written notice to the Company for
insolvency-related events involving the Company.
NOTE
5—SUBSEQUENT EVENTS
On May 16, 2022, the board of directors granted 427,160 shares of restricted
stock to certain officer of the of the Company and its employees. The shares will vest (subject to continued service through the applicable
vesting date) in 12 substantially equal installments occurring on completion of each successive three full months of service to the Company
after the date of grant, so that all of the shares of restricted stock will be vested on the third anniversary of the grant date.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
You should read the following discussion and analysis of our
financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related
notes included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set
forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and
related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those
factors set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021
(the “Annual Report”), our actual results could differ materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.
Overview
We are a clinical-stage oncology company focused on developing
and commercializing small molecule therapeutics for patients suffering from rare and aggressive cancers, primarily in genetically defined
patient populations. Our differentiated development approach is predicated on identifying and addressing tumorigenic drivers of cancer,
through a combination of our bioinformatics platform and next-generation sequencing to deliver targeted therapies to underserved patient
populations. Our current portfolio of product candidates, AL101 and AL102, targets the aberrant activation of the Notch pathway using
gamma secretase inhibitors. Gamma secretase is the enzyme responsible for Notch activation and, when inhibited, turns off the Notch pathway
activation. Aberrant activation of the Notch pathway has long been implicated in multiple solid tumor and hematological cancers and has
often been associated with more aggressive cancers. In cancers, Notch is known to serve as a critical facilitator in processes such as
cellular proliferation, survival, migration, invasion, drug resistance and metastatic spread, all of which contribute to a poorer patient
prognosis. AL101 and AL102 are designed to address the underlying key drivers of tumor growth, and our initial Phase 2 clinical data of
AL101 suggest that our approach may address shortcomings of existing treatment options. We believe that our novel product candidates,
if approved, have the potential to transform treatment outcomes for patients suffering from rare and aggressive cancers.
Our product candidates, AL101 and AL102, are being developed
as potent, selective, small molecule gamma secretase inhibitors, or GSIs. We obtained an exclusive, worldwide license to develop and commercialize
AL101 and AL102 from Bristol-Myers Squibb Company, or BMS, in November 2017. BMS evaluated AL101 in three Phase 1 studies involving more
than 200 total subjects and AL102 in a single Phase 1 study involving 36 subjects with various cancers who had not been prospectively
characterized for Notch activation, and to whom we refer to as unselected subjects. While these Phase 1 studies did not report statistically
significant overall results, clinical activity was observed across these studies in cancers in which Notch has been implicated as a tumorigenic
driver.
We are currently evaluating AL102, our oral GSI for the treatment
of desmoid tumors, in a Phase 2/3 pivotal study. Initial interim data read-out from Part A and dose selection is expected around mid-2022
with Part B of the study to commence immediately thereafter. Part B of the study will be a double-blind placebo-controlled study enrolling
up to 156 patients with progressive disease, randomized between AL102 or placebo. The study’s primary endpoint will be progression
free survival, or PFS with secondary endpoints including ORR, duration of response, or DOR and patient reported QOL measures.
In addition, we are collaborating with Novartis International
Pharmaceutical Limited, or Novartis, to develop AL102 for the treatment of multiple myeloma, or MM, in combination with Novartis’
B-cell maturation antigen, or BCMA, targeting therapies. The first patient was dosed with AL102 in combination with Novartis’ BCMA
targeting agent in April 2021.
We are currently evaluating AL101 as a monotherapy in an open-label
Phase 2 clinical trial for the treatment of recurrent/metastatic adenoid cystic carcinoma, or R/M ACC, for patients bearing Notch-activating
mutations. We refer to this trial as the ACCURACY trial. We use next-generation sequencing, or NGS, to identify patients with Notch-activating
mutations, an approach that we believe will enable us to target the patient population with cancers that we believe are most likely to
respond to and benefit from AL101 treatment. We chose to initially target R/M ACC based on our differentiated approach, which is comprised
of: data generated in a Phase 1 study of AL101 in unselected, heavily pretreated subjects conducted by BMS, our own data generated in
patient-derived xenograft models, our bioinformatics platform and our expertise in the Notch pathway.
We are currently conducting our ongoing Phase 2 ACCURACY trial for
the treatment of recurrent/metastatic adenoid cystic carcinoma, or R/M ACC, in subjects with progressive disease and Notch-activating
mutations. If approved, we believe that AL101 has the potential to be the first therapy approved by the FDA for patients with R/M ACC
and address the unmet medical need of these patients. AL101 was granted Orphan Drug Designation in May 2019 for the treatment of adenoid
cystic carcinoma, or ACC, and fast track designation in February 2020 for the treatment of R/M ACC. In the second quarter of 2020, we
commenced dosing of patients in our ACCURACY trial for the treatment of R/M ACC with Notch-activating mutations at the higher dose of
6mg. We reported initial data from this trial in 2021 and plan to report additional data in mid 2022.
We are also developing AL102 for the treatment of T-ALL, an
aggressive, rare form of T-cell specific leukemia. Based on findings from our Phase 1 study of AL101 and supporting data from our preclinical
studies, we intend to commence a Phase 2 clinical trial of AL102 for the treatment of R/R T-ALL in the second half of 2022, subject to
the impact of COVID-19 on our business.
As part of our efforts to focus our resources on the more advanced
programs and studies including the RINGSIDE study in desmoid tumors and the ACCURACY study for ACC, we elected to discontinue the TENACITY
trial, which was evaluating AL101 as a monotherapy in an open-label Phase 2 clinical trial for the treatment of patients with Notch-activated
R/M TNBC.
We were incorporated as a Delaware corporation on November
14, 2017, and our headquarters is located in Rehovot, Israel. Our operations to date have been limited to organizing and staffing our
company, business planning, raising capital and conducting research and development activities for our product candidates. To date, we
have funded our operations primarily through the sales of common stock and convertible preferred stock.
We have incurred significant net operating losses in every
year since our inception and expect to continue to incur significant expenses and increasing operating losses for the foreseeable future.
Our net losses may fluctuate significantly from quarter to quarter and year to year and could be substantial. Our net losses were approximately
$10.0 million and $9.6 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, we had an accumulated
deficit of $121.2 million. We anticipate that our expenses will increase significantly as we:
| ● | advance our development of AL101 for the treatment of R/M
ACC; |
| | |
| ● | advance our Phase 2/3 RINGSIDE pivotal trial of AL102 for
the treatment of desmoid tumors, or obtain and conduct clinical trials for any other product candidates; |
| ● | assuming successful completion of our Phase 2 ACCURACY trial
of AL101 for the treatment of R/M ACC, may be required by the FDA to complete Phase 3 clinical trials to support submission of a New
Drug Application, or NDA, of AL101 for the treatment of R/M ACC; |
| ● | establish a sales, marketing and distribution infrastructure
to commercialize AL101 and/or AL102, if approved, and for any other product candidates for which we may obtain marketing approval; |
| ● | collaborate with leading diagnostic companies to develop
diagnostic tests for identifying patients with Notch-activating mutations; |
| ● | maintain, expand, protect and enforce our intellectual property
portfolio; |
| ● | hire additional staff, including clinical, scientific, technical,
regulatory operational, financial, commercial and other personnel, to execute our business plan; and |
| ● | add clinical, scientific, operational, financial and management
information systems and personnel to support our product development and potential future commercialization efforts, and to enable us
to operate as a public company. |
We do not expect to generate revenue from product sales unless
and until we successfully complete clinical development and obtain regulatory approval for a product candidate. Additionally, we currently
use contract research organizations, or CROs, to carry out our clinical development activities. Furthermore, we incur additional costs
associated with operating as a public company. As a result, we will need substantial additional funding to support our continuing operations,
pursue our growth strategy and continue as a going concern. Until such time as we can generate significant revenue from product sales,
if ever, we expect to fund our operations through public or equity offerings or debt financings, marketing and distribution arrangements
and other collaborations, strategic alliances and licensing arrangements or other sources. We may, however, be unable to raise additional
funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such
other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current or
any future product candidates.
Because of the numerous risks and uncertainties associated
with therapeutics product development, we are unable to predict accurately the timing or amount of increased expenses or when or if we
will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable.
If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations
at planned levels and be forced to reduce or terminate our operations.
As of March 31, 2022, we had cash and cash equivalents and
restricted bank deposits of approximately $27.4 million. Due to the uncertainty in securing additional funding, and the insufficient amount
of cash and cash equivalent resources at December 31, 2021, we have concluded that substantial doubt exists with respect to our ability
to continue as a going concern within one year after the date of the filing of this Quarterly Report on Form 10-Q. See “—Liquidity
and Capital Resources.” Substantial doubt about our ability to continue as a going concern may materially and adversely affect the
price per share of our common stock, and it may be more difficult for us to obtain financing. If potential collaborators decline to do
business with us or potential investors decline to participate in any future financings due to such concerns, our ability to increase
our cash position may be limited. We will need to generate significant revenues to achieve profitability, and we may never do so. Because
of the numerous risks and uncertainties associated with the development of our current and any future product candidates, the development
of our platform and technology and because the extent to which we may enter into collaborations with third parties for development of
any of our product candidates is unknown, we are unable to estimate the amounts of increased capital outlays and operating expenses required
for completing the research and development of our product candidates.
If we raise additional funds through marketing and distribution
arrangements and other collaborations, strategic alliances and licensing arrangements with third parties, we may be required to relinquish
valuable rights to our technologies, intellectual property, future revenue streams or product candidates or grant licenses on terms that
may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required
to delay, limit, reduce or terminate product candidate development programs or future commercialization efforts, grant rights to develop
and market product candidates that we would otherwise prefer to develop and market ourselves or discontinue operations.
Bristol-Myers Squibb License Agreements
In November 2017, we entered into an exclusive worldwide license
agreement with Bristol-Myers Squibb Company, or BMS, for AL101 and AL102, each a small molecule gamma secretase inhibitor in development
for the treatment of cancers. Under the terms of the license agreement, we have licensed the exclusive worldwide development and commercialization
rights for AL101 (previously known as BMS-906024) and AL102 (previously known as BMS-986115).
We are responsible for all future development and commercialization
of AL101 and AL102. In consideration for the rights granted under the agreement, we paid BMS a payment of $6 million and issued to BMS
1,125,929 shares of Series A preferred stock valued at approximately $7.3 million, which converted to 562,964 shares of common stock in
connection with our initial public offering, or IPO. We are obligated to pay BMS up to approximately $142 million in the aggregate upon
the achievement of certain clinical development or regulatory milestones and up to $50 million in the aggregate upon the achievement of
certain commercial milestones by each product containing the licensed BMS compounds. In addition, we are obligated to pay BMS tiered royalties
ranging from a high single-digit to a low teen percentage on worldwide net sales of all products containing the licensed BMS compounds.
BMS has the right to terminate the BMS License Agreement in
its entirety upon written notice to us (a) for insolvency-related events involving us, (b) for our material breach of the BMS License
Agreement if such breach remains uncured for a defined period of time, (c) for our failure to fulfill our obligations to develop or commercialize
the BMS Licensed Compounds and/or BMS Licensed Products not remedied within a defined period of time following written notice by BMS,
or (d) if we or our affiliates commence any action challenging the validity, scope, enforceability or patentability of any of the licensed
patent rights. We have the right to terminate the BMS License Agreement (a) for convenience upon prior written notice to BMS, the length
of notice dependent on whether a BMS Licensed Product has received regulatory approval, (b) upon immediate written notice to BMS for insolvency-related
events involving BMS, (c) for BMS’s material breach of the BMS License Agreement if such breach remains uncured for a defined period
of time, or (d) on a BMS Licensed Compound-by-BMS Licensed Compound and/or BMS Licensed Product-by-BMS Licensed Product basis upon immediate
written notice to BMS if we reasonably determine that there are unexpected safety and public health issues relating to the applicable
BMS Licensed Compounds and/or BMS Licensed Products. Upon termination of the BMS License Agreement in its entirety by us for convenience
or by BMS, we grant an exclusive, non-transferable, sublicensable, worldwide license to BMS under certain of our patent rights that are
necessary to develop, manufacture or commercialize BMS Licensed Compounds or BMS Licensed Products. In exchange for such license, BMS
must pay us a low single-digit percentage royalty on net sales of the BMS Licensed Compounds and/or BMS Licensed Products by it or its
affiliates, licensees or sublicensees, provided that the termination occurred after a specified developmental milestone for such BMS Licensed
Compounds and/or BMS Licensed Products.
Novartis License Agreements
In December 2018, we entered into an
evaluation, option and license agreement, or the Novartis Agreement, with Novartis International Pharmaceutical Limited, or Novartis,
pursuant to which we granted Novartis an exclusive option to obtain an exclusive license to research, develop, commercialize and manufacture
AL102 for the treatment of multiple myeloma.
We will continue to supply Novartis quantities of AL102, products
containing AL102 and certain other materials for purposes of conducting evaluation studies not comprising human clinical trials during
the option period, together with our know-how as may reasonably be necessary in order for Novartis to conduct such evaluation studies.
Novartis has agreed to reimburse us for all such expenses.
At any time during the option term, Novartis may exercise its option
by payment of a low eight figure option exercise fee. If Novartis exercises its option, it will be obligated to pay us up to an additional
$245 million upon the achievement of certain clinical development and commercial milestones. In addition, Novartis is obligated to pay
us tiered royalties at percentages ranging from a mid-single digit to a low double-digit percentage on worldwide net sales of products
licensed under the agreement.
The option we granted to Novartis will remain in effect until
the earlier of (a) 60 days following the last visit of the last subject in the evaluation studies, (b) the termination of the Novartis
Agreement, or (c) 36 months following the delivery by us to Novartis of sufficient amounts of clinical evaluation materials to conduct
the anticipated clinical studies. The Novartis Agreement remains in effect until such time as no Novartis Licensed Product is being developed
or commercialized by Novartis, its affiliates, or sublicensees (including distributors or commercial partners), unless terminated earlier.
We have the right to terminate the Novartis Agreement (a) for Novartis’s material breach if such breach remains uncured for 60 days
(such cure period shall be extended for an additional period during which Novartis is making good faith efforts to cure such breach) or
(b) for Novartis’s failure to use commercially reasonable efforts to develop or commercialize AL102 and/or the Novartis Licensed
Product not remedied within four months following written notice to Novartis. Novartis has the right to terminate the Novartis Agreement
(a) in its entirety or on a country-by-country basis for convenience, upon 60 days’ written notice to us, (b) for our material breach
if such breach remains uncured for 60 days (such cure period shall be extended for an additional period during which we are making good
faith efforts to cure such breach) or (c) upon immediate written notice to us for insolvency-related events involving us.
Financial Overview
Except as described below, there have been no material changes
from the disclosure provided under the caption “Components of Results of Operations” in our Annual Report on Form 10-K for
the year ended December 31, 2021.
Results of Operations
Comparison of the three months ended March 31, 2022, and 2021
The following table summarizes our results of operations for the three
months ended March 31, 2022 and 2021
| |
For the Three Months Ended | | |
| |
| |
March 30, | | |
| |
| |
2022 | | |
2021 | | |
| |
| |
(in thousands except share and per share data) | | |
Change | |
Revenues from licensing agreement and others | |
$ | 458 | | |
$ | 974 | | |
| (516 | ) |
Cost of services | |
| (368 | ) | |
| (974 | ) | |
| (606 | ) |
Gross profit | |
| 90 | | |
| — | | |
| — | |
Operating expenses: | |
| | | |
| | | |
| | |
Research and development | |
| 7,503 | | |
| 6,925 | | |
| 578 | |
General and administrative | |
| 2,441 | | |
| 2,303 | | |
| 138 | |
| |
| | | |
| | | |
| | |
Operating loss | |
| (9,944 | ) | |
| (9,228 | ) | |
| 716 | |
Financial Income (loss), net | |
| 16 | | |
| (92 | ) | |
| 108 | |
| |
| | | |
| | | |
| | |
Loss before income tax | |
| (9,838 | ) | |
| (9,320 | ) | |
| 518 | |
Taxes on income | |
| (189 | ) | |
| (248 | ) | |
| (59 | ) |
| |
| | | |
| | | |
| | |
Net loss attributable to common stockholders | |
| (10,027 | ) | |
| (9,568 | ) | |
| 459 | |
Net Loss per share attributable to common stockholders, basic and diluted | |
$ | (0.66 | ) | |
$ | (0.74 | ) | |
| | |
Weighted average common shares outstanding, basic and diluted | |
| 15,301,065 | | |
| 12,888,340 | | |
| | |
Revenue
To date, we have not generated any revenue
from product sales and we do not expect to generate any revenue from the sale of products in the foreseeable future. If our development
efforts for our product candidates are successful and result in regulatory approval and successful commercialization efforts, we may generate
revenue from product sales in the future. We cannot predict if, when, or to what extent we will generate revenue from the commercialization
and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.
For the three months ended of March, 2022
and 2021, we recognized approximately $0.5 million and $1.0 million in revenue, respectively, as a result of the Novartis Agreement. Refer
to Note 2 to our unaudited condensed consolidated financial statements for information regarding our recognition of revenue under the
Novartis Agreement.
Research and Development
Research and development expenses consist primarily of costs
incurred for our research activities, including the development of and pursuit of regulatory approval of our lead product candidates,
AL101 and AL102, which include:
| ● | employee-related expenses, including salaries, benefits and
stock-based compensation expense for personnel engaged in research and development functions; |
| ● | expenses incurred in connection with the preclinical and
clinical development of our product candidates, including under agreements with CROs, investigative sites and consultants; |
| ● | costs of manufacturing our product candidates for use in
our preclinical studies and clinical trials, as well as manufacturers that provide components of our product candidates for use in our
preclinical and current and potential future clinical trials; |
| ● | costs associated with our bioinformatics platform; |
| ● | consulting and professional fees related to research and
development activities; |
| ● | costs related to compliance with clinical regulatory requirements;
and |
| ● | Facility costs and other allocated expenses, which include
expenses for rent and maintenance of our facility, utilities, depreciation and other supplies. |
We expense research and development costs as incurred. Our
external research and development expenses consist primarily of costs such as fees paid to consultants, contractors and CROs in connection
with our preclinical and clinical development activities. We typically use our employee and infrastructure resources across our development
programs and we do not allocate personnel costs and other internal costs to specific product candidates or development programs with the
exception of the costs to manufacture our product candidates.
| |
| | |
Three Months Ended | | |
| |
| |
March 31, | |
| |
2022 | | |
2021 | | |
$ Change | | |
% Change | |
| |
($ in thousands) | | |
| | |
| |
Research and Development | |
$ | 7,503 | | |
$ | 6,925 | | |
$ | 578 | | |
| 8 | |
Research and development expenses were 7.5 million for the
three months ended March 31, 2022 compared to $6.9 million for the three months ended March 31, 2021, an increase of $0.6 million. This
increase was primarily driven by additional costs in connection with the advancement of the Phase 2/3 RINGSIDE pivotal study for desmoids
tumors.
The following table summarizes our research and development
expenses by product candidate or development program for the three March 31, 2022 and 2021:
| |
Three Months Ended | |
| |
March 31 | | |
March 31, | |
| |
2022 | | |
2021 | |
Program-Specific Costs: | |
| | |
| |
AL 101 | |
| | |
| |
ACC | |
| 962 | | |
| 4,256 | |
TNBC (1) | |
| 1,334 | | |
| 1,427 | |
General Expenses | |
| 702 | | |
| 539 | |
AL 102 | |
| | | |
| | |
General Expenses | |
| 119 | | |
| 15 | |
Desmoid | |
| 4,386 | | |
| 688 | |
Total Research and Development Expenses | |
$ | 7,503 | | |
$ | 6,925 | |
We expect our research and development expenses to increase
for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates,
including investments in manufacturing, as our programs advance into later stages of development and as we conduct additional clinical
trials.
General and Administrative Expenses | |
| | |
Three Months Ended | | |
| |
| |
March 31, | |
| |
2022 | | |
2021 | | |
$ Change | | |
% Change | |
| |
($ in thousands) | | |
| | |
| |
General and Administrative | |
$ | 2,441 | | |
$ | 2,303 | | |
$ | 138 | | |
| 6 | |
General and administrative expenses were $2.4 million for the
three months ended March 31, 2022, compared to $2.3 million for the three months ended March 31, 2021, an increase of $138 thousand.
Financial Loss, net
Financial income, net was $16 thousand for the three months
ended March 31, 2022 compared to the financial loss, net of $92 thousand for the three months ended March 31, 2021.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not generated any revenue from product
sales and have incurred significant operating losses and negative cash flows from our operations. Our net losses were approximately $10.0
million and $9.6 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, we had an accumulated
deficit of $121.2 million.
On May 12, 2020, we completed the sale of shares
of our common stock in our IPO. In connection with the IPO, we issued and sold 3,940,689 shares of common stock, including 274,022 shares
associated with the partial exercise on June 4, 2020 of the underwriters’ option to purchase additional shares, at a price to the
public of $15.00 per share, resulting in net proceeds to us of approximately $52.2 million after deducting underwriting discounts and
commissions and estimated offering expenses payable by us. All shares issued and sold were registered pursuant to the Registration Statement.
On February 19, 2021, we entered into a Securities
Purchase Agreement (the “2021 Purchase Agreement”) with the purchasers named therein (the “Investors”). Pursuant
to the 2021 Purchase Agreement, we agreed to sell (i) an aggregate of 333,333 shares of our common stock (the “Private Placement
Shares”), par value $0.01 per share, together with warrants to purchase an aggregate of 116,666 shares of our common stock with
an exercise price of $18.10 per share (the “Common Warrants”), for an aggregate purchase price of $4,999,995.00 and (ii)
pre-funded warrants to purchase an aggregate of 1,333,333 shares of our common stock with an exercise price of $0.01 per share (the “Pre-Funded
Warrants” and collectively with the Common Warrants, the “Private Placement Warrants”), together with an aggregate
of 466,666 Common Warrants, for an aggregate purchase price of $19,986,661.67 (collectively, the “Private Placement”). The
Private Placement closed on February 23, 2021.
In June 2021, we entered into an Open Market Sales
Agreement, or the Sales Agreement, with Jefferies LLC, or Jefferies, as sales agent, pursuant to which we may, from time to time, issue
and sell common stock with an aggregate value of up to $200.0 million in “at-the-market” offerings, under our Registration
Statement on Form S-3 (File No. 333-256792) filed with the SEC on June 4, 2021 (the “ATM”). Sales of common stock, if any,
pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined in Rule 415(a)
of the Securities Act, including sales made directly through The Nasdaq Global Market or on any other existing trading market for our
common stock. Pursuant to the Sales Agreement, during the year ended December 31, 2021, we sold a total of 827,094 shares of common stock
for total gross proceeds of approximately $10.4 million
The exercise price and the number of shares of common stock issuable
upon exercise of each Private Placement Warrant are subject to adjustment in the event of certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock. In addition, in certain circumstances,
upon a fundamental transaction, a holder of Common Warrants will be entitled to receive, upon exercise of the Common Warrants, the kind
and amount of securities, cash or other property that such holder would have received had they exercised the Private Placement Warrants
immediately prior to the fundamental transaction. The Pre-Funded Warrants will be automatically exercised on cashless basis upon the
occurrence of a fundamental transaction. Each Common Warrant is exercisable from the date of issuance and has a term of three years and
each Pre-Funded Warrant is exercisable from the date of issuance and has a term of ten years. Pursuant to the 2021 Purchase Agreement,
we registered the Private Placement Shares and Private Placement Warrants for resale by the Investors on a registration statement on
Form S-3.
As of March 31, 2022, we had cash and cash equivalents and restricted
bank deposits of approximately $27.4 million.
Cash Flows
The following table summarizes our cash flow for the three months
ended March 31, 2022 and 2021:
| |
Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
| |
($ in thousands) | |
Cash Flows provided by (used in): | |
| | |
| |
Operating Activities | |
| (9,984 | ) | |
| (9,649 | ) |
Investing Activities | |
| - | | |
| - | |
Financing Activities | |
| 44 | | |
| 23,642 | |
Net increase (decrease) in cash and cash equivalents and short-term restricted bank deposits | |
| (9,940 | ) | |
| 13,993 | |
Operating Activities
Net cash used in operating activities during the three months ended
March 31, 2022 of approximately $10.0 million was primarily attributable to our net loss of $10.0 million, which was further increased
due to decrease in prepaid expenses of $1.1 million and decrease of $0.7 million in trade payables and partially offset by stock- based
compensation of $0.6 million.
Net cash used in operating activities during the three months ended
March 31, 2021, of $9.6 million was primarily attributable to our net loss of $9.6 million, adjusted for non-cash expenses of $1.0 million,
which includes stock-based compensation of $0.9 million and a net decrease in working capital of $1.0 million.
Investing Activities
We did not have any cash provided by investing activities during the
three months ended March 31, 2022 or March 31, 2021.
Financing Activities
Net cash provided by financing activities during the three months
ended March 31, 2022 of $44 thousand was attributable to the Private Placement, net of issuance costs, and sales pursuant to the ATM.
Net cash provided by financing activities during the three months
ended March 31, 2021 of $23.6 million was primarily attributable to the Private Placement, net of issuance costs.
Funding Requirements
We expect our expenses to increase in connection with our ongoing
activities, particularly as we continue the research and development for, initiate later-stage clinical trials for, and seek marketing
approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur
significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, we incur additional
costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection
with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce
or eliminate our research and development programs or future commercialization efforts.
As of March 31, 2022, we had cash and cash equivalents
and restricted cash equivalents of $27.4 million. We evaluated whether there are conditions and events, considered in the aggregate,
that raise substantial doubt about our ability to continue as a going concern within one year after the date that the audited consolidated
financial statements are issued. Due to the uncertainty in securing additional funding, and the insufficient amount of cash and cash
equivalent resources at March 31, 2022, we have concluded that substantial doubt exists with respect to our ability to continue as a
going concern within one year after the date of the filing of this Report on Form 10-Q. Our future capital requirements will depend on
many factors, including:
| ● | the costs of conducting future clinical trials of AL101 and
AL102; |
| ● | the cost of manufacturing additional material for future clinical
trials of AL101 and AL102; |
| ● | the scope, progress, results and costs of discovery, preclinical
development, laboratory testing and clinical trials for other potential product candidates
we may develop or acquire, if any; |
| ● | the costs, timing and outcome of regulatory review of our product
candidates; |
| ● | the achievement of milestones or occurrence of other developments
that trigger payments under any current or future license, collaboration or other agreements; |
| ● | the costs and timing of future commercialization activities,
including product sales, marketing, manufacturing and distribution, for any of our product
candidates for which we receive marketing approval; |
| ● | the amount of revenue, if any, received from commercial sales
of our product candidates, should any of our product candidates receive marketing approval; |
| ● | the costs of preparing, filing and prosecuting patent applications,
obtaining, maintaining, protecting and enforcing our intellectual property rights and defending
intellectual property-related claims; |
| ● | the severity, duration and impact of the COVID-19 pandemic,
which may adversely impact our business and clinical trials; |
| ● | our headcount growth and associated costs as we expand our business
operations and our research and development activities; and |
| ● | the costs of operating as a public company. |
Conducting preclinical testing and clinical trials is a time-consuming,
expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain
marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our
commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years,
if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional
financing may not be available to us on acceptable terms, or at all.
Until such time, if ever, as we can generate substantial product revenues,
we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and
licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, your ownership interests may be diluted, and the terms of these securities may include
liquidation or other preferences that could adversely affect your rights as a common stockholder. Any debt financing, if available, may
involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt,
making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.
If we raise funds through collaborations, strategic alliances or licensing
arrangements with third parties, such as the Novartis Agreement, we may have to relinquish valuable rights to our technologies, intellectual
property, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favourable to
us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce
or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that
we would otherwise prefer to develop and market ourselves.
Contractual Obligations
There have been no material changes to our contractual obligations
from those described in our Annual Report on Form 10-K for the year ended December 31, 2021.
Critical Accounting Policies
Our management’s discussion and analysis of financial condition
and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent
assets and liabilities in our consolidated financial statements during the reporting periods. These items are monitored and analyzed
by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates
on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results
may differ materially from these estimates under different assumptions or conditions.
There have been no significant changes in our critical accounting
policies as discussed in our Form 10-K, except as described in Note 1 to the unaudited condensed consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-Q.
Emerging Growth Company Status
The Jumpstart Our Business Start-ups Act of 2012, or the JOBS Act,
permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or
revised accounting standards applicable to public companies. We have elected to use this extended transition period under the JOBS Act.
As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the
effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials
to those of other public companies more difficult.
We will remain an emerging growth company until the earliest to occur
of: (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, or December 31, 2025, (b) in
which we have total annual gross revenues of $1.07 billion or more, or (c) in which we are deemed to be a large accelerated filer under
the rules of the SEC, which means the market value of our outstanding common stock held by non-affiliates exceeds $700 million as of
last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion
in nonconvertible debt during the previous three years.