|
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
The
following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our
results of operations and financial condition for the periods described. This discussion should be read together with our condensed
consolidated interim financial statements and the notes to the financial statements, which are included in this Quarterly Report
on Form 10-Q. This information should also be read in conjunction with the information contained in our Annual Report on Form
10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 27, 2019, including the
consolidated annual financial statements as of December 31, 2018 and their accompanying notes included therein. We have prepared
our condensed consolidated interim financial statements in accordance with U.S. GAAP.
This
Quarterly Report on Form 10-Q of Intec Pharma Ltd. contains forward-looking statements about our expectations, beliefs and intentions.
Forward-looking statements can be identified by the use of forward-looking words such as “believe”, “expect”,
“intend”, “plan”, “may”, “should”, “could”, “might”, “seek”,
“target”, “will”, “project”, “forecast”, “continue” or “anticipate”
or their negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly
to historical matters. These forward-looking statements are based on assumptions and assessments made in light of management’s
experience and perception of historical trends, current conditions, expected future developments and other factors believed to
be appropriate. Forward-looking statements in Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on
Form 10-Q, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events
or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties,
many of which are outside of our control. Many factors could cause our actual activities or results to differ materially from
the activities and results anticipated in forward-looking statements, including, but not limited to, the following: our limited
operating history and history of operating losses, our ability to continue as a going concern, our ability to obtain additional
financing, our ability to successfully operate our business or execute our business plan, our ability to enter into collaborative,
licensing, and other commercial relationships and on terms commercially reasonable to us, the timing and cost of our clinical
trials, the completion and receiving favorable results in our clinical trials, our ability to obtain and maintain regulatory approval
of our product candidates, our ability to protect and maintain our intellectual property and licensing arrangements, our ability
to develop, manufacture and commercialize our product candidates, the risk of product liability claims, the availability of reimbursement,
and the influence of extensive and costly government regulation, and our ability to remain listed on the Nasdaq Capital Market.
More detailed information about the risks and uncertainties affecting us is contained under the heading "Risk Factors"
included in our most recent Annual Report on Form 10-K filed with the SEC on February 27, 2019, and in other filings that we have
made and may make with the Securities and Exchange Commission in the future.
All
references to “we,” “us,” “our,” “Intec”, “the Company” and “our
Company” in this Quarterly Report on Form 10-Q are to Intec Pharma Ltd. and its U.S. subsidiary Intec Pharma Inc., unless
the context otherwise requires.
Overview
We
are a clinical stage biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology,
which we refer to as the Accordion Pill. Our Accordion Pill is an oral drug delivery system that is designed to improve the efficacy
and safety of existing drugs and drugs in development by utilizing an efficient gastric retention and specific release mechanism.
Our product pipeline currently includes several product candidates in various clinical trial stages. Our leading product candidate,
AP-CD/LD, is being developed for the indication of treatment of Parkinson’s disease symptoms in advanced Parkinson’s
disease patients.
In
July 2019, we announced top-line results from our pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s
disease known as the ACCORDANCE study in which the ACCORDANCE study did not meet its target endpoints. While AP-CD/LD provided
treatment for Parkinson’s disease symptoms, it did not demonstrate statistically superiority over immediate release CD/LD
on the primary endpoint of OFF time reduction under the conditions established in the protocol. Treatment-emergent adverse effects
observed with AP-CD/LD were generally consistent with the known safety profile of CD/LD formulations and no new safety issues
were observed throughout the double-blinded study, during the gastroscopy safety sub-study or the 12-month open-label extension
study. From our review of the data, we have observed a meaningful reduction in OFF time in certain subsets of patients. We have
completed most of the analysis of the full data set and we are currently seeking to partner AP-CD/LD as the basis for the strategy
for AP-CD/LD moving forward.
Previously,
we successfully completed a Phase II clinical trial for AP-CD/LD for the treatment of Parkinson’s disease symptoms in advanced
Parkinson’s disease patients and in February 2019, we announced that AP-CD/LD met the primary endpoint in a pharmacokinetic,
or PK, study comparing the AP-CD/LD 50/500mg dosed three times daily, the most common dose used in our ACCORDANCE study, to 1.5
tablets of CD/LD immediate release (Sinemet™) 25/100 dosed five times per day in Parkinson’s disease patients.
We
have invested in the commercial scale manufacture of AP-CD/LD, for which we are in partnership with LTS Lohmann Therapie-Systeme
AG, or LTS. In December 2018, the large commercial scale production line ("Production Line") was delivered to LTS in
Andernach, Germany and recently we completed the qualification studies for the commercial scale manufacture of the Accordion Pill
and we intend to begin the validation and stability studies in the coming months.
In
addition, we have initiated a clinical development program for our Accordion Pill platform with the two primary cannabinoids contained
in cannabis sativa, which we refer to as AP-Cannabinoids. We are formulating and testing CBD and THC for the treatment of various
pain indications. AP-Cannabinoids are designed to extend the absorption phase of CBD and THC, with the goal of more consistent
levels for an improved therapeutic effect, which may address several major drawbacks of current methods of treatment, such as
short duration of effect, delayed onset, variability of exposure, variability of the administered dose and adverse events that
correlate with peak levels. In March 2017, we initiated a Phase I single-center, single-dose, randomized, three-way crossover
clinical trial in Israel to compare the safety, tolerability and PK of AP-THC/CBD with Sativex®, an oral buccal spray containing
CBD and THC that is commercially available outside of the United States. Initial results demonstrated that the Accordion Pill
platform is well suited to safely deliver CBD and THC with significant improvements in exposure compared with Sativex®. In
December 2018, we initiated a PK study of AP-THC and the results of the study demonstrate that the custom designed AP delivery
system in the AP-THC PK study did not meet our expectations. We are continuing to advance the AP-Cannabinoids clinical development
program and we are seeking to launch a PK study with the optimized AP-THC in 2020.
While
the ACCORDANCE results were not what we expected, we continue to believe in the potential of the Accordion Pill platform. In December
2018, we reported that we successfully developed an Accordion Pill for a Novartis proprietary compound that met the required in
vitro specifications set forth in a feasibility agreement with Novartis. We recently completed the human PK study that
was initiated during the first quarter of 2019 and the study demonstrated that the AP met the technical requirements set forth
by Novartis. Novartis undertook a full commercial assessment of the program, and to date, has not definitively decided whether
they will opt into negotiations for a commercial agreement. As a result, we have determined that will not need the volume of clinical
manufacturing to support that program at this time and plan to restructure those dedicated to the Novartis program in order to
reduce our burn.
In
May 2019, we reported entering into a research collaboration agreement with Merck for the development of a custom-designed AP
for one of Merck’s proprietary compounds and are now initiating the design and construction of this new AP. We aim to have
a final construct completed and in-vitro tested by the middle of 2020.
We
continue to advance discussions with other potential pharmaceutical partners for the development of new custom-designed APs. We
believe the data from our ACCORDANCE trial enhances those discussions as it validates the AP platform and provides long-term safety
data.
Results
of Operations
The
table below provides our results of operations for the periods indicated.
|
|
|
Three months ended
September 30
|
|
|
Nine months ended
September 30
|
|
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
|
|
(dollars in thousands)
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
$
|
(7,809
|
)
|
|
$
|
(8,448
|
)
|
|
$
|
(25,089
|
)
|
|
$
|
(24,850
|
)
|
|
General and administrative expenses
|
|
|
(1,696
|
)
|
|
|
(2,157
|
)
|
|
|
(5,800
|
)
|
|
|
(6,491
|
)
|
|
Impairment of long-lived assets
|
|
|
-
|
|
|
|
(9,759
|
)
|
|
|
-
|
|
|
|
(9,759
|
)
|
|
Operating loss
|
|
|
(9,505
|
)
|
|
|
(20,364
|
)
|
|
|
(30,889
|
)
|
|
|
(41,100
|
)
|
|
Financial income (expenses), net
|
|
|
163
|
|
|
|
14
|
|
|
|
(5
|
)
|
|
|
157
|
|
|
Loss before income tax
|
|
|
(9,342
|
)
|
|
|
(20,350
|
)
|
|
|
(30,894
|
)
|
|
|
(40,943
|
)
|
|
Tax benefit (Income tax)
|
|
|
164
|
|
|
|
(28
|
)
|
|
|
(46
|
)
|
|
|
(100
|
)
|
|
Net loss
|
|
$
|
(9,178
|
)
|
|
$
|
(20,378
|
)
|
|
$
|
(30,940
|
)
|
|
$
|
(41,043
|
)
|
Three
and Nine Months Ended September 30, 2019 Compared to Three and Nine Months Ended September 30, 2018
Research
and Development Expenses, Net
Our
research and development expenses, net, for the three months ended September 30, 2019 amounted to approximately $8.4 million,
an increase of approximately $600,000, or 8%, compared to approximately $7.8 million for the three months ended September 30,
2018. The increase for the three-month period was primarily due to an increase in expenses related to our open label extension
study. This increase was offset by a decrease in expenses related to our ACCORDANCE study and a decrease in expenses related to
the scale up activities for the commercial scale production capabilities for AP-CD/LD at LTS.
Our
research and development expenses, net, for the nine months ended September 30, 2019 amounted to approximately $24.9 million,
a decrease of approximately $200,000, or 1%, compared to approximately $25.1 million for the nine months ended September 30, 2018.
The decrease for the nine-month period was primarily due to a decrease in expenses related to our ACCORDANCE study. This decrease
was offset by an increase in expenses related to the scale up activities for the commercial scale production capabilities for
AP-CD/LD at LTS and a decrease in expenses related to our open label extension study.
We
expect to continue to incur research and development expenses as we wind down the ACCORDANCE study [and its open-label extension
study] and as we further advance the development of our other programs, subject to the availability of additional funding. However,
due to the conclusion of the ACCORDANCE study [and its open-label extension], we expect our overall research and development expense
to decrease substantially. To the extent our discussions with a potential partner result in a path toward further development
of AP-CD/LD, our expenses, cash needs and operating losses may further increase.
General
and Administrative Expenses
Our
general and administrative expenses for the three months ended September 30, 2019 amounted to approximately $2.2 million, an increase
of approximately $500,000, or 29%, compared to approximately $1.7 million for the three months ended September 30, 2018. Our general
and administrative expenses for the nine months ended September 30, 2019 amounted to approximately $6.5 million, an increase of
approximately $700,000, or 12%, compared to approximately $5.8 million for the nine months ended September 30, 2018. The increase
for the three and nine-month periods was primarily related to the increase in payroll and related expenses mainly due to salary
raises and increase in insurance expenses. This increase was offset by a decrease in professional services.
Impairment
of Long-Lived Assets
For the three and nine months ended September 30, 2019, we recorded an impairment charge of approximately
$9.8 million of our Production Line and Equipment, net, from the liability described in note 4b(2) to the condensed consolidated
financial statements, together "AP-CD/LD Assets, net", which represents the excess carrying value compared to the fair
value of the AP-CD/LD Assets, net. For more information, see note 4b(3) in our condensed consolidated financial statements for
the nine months ended September 30, 2019.
Operating
Loss
As
a result of the foregoing, for the three months ended September 30, 2019 our operating loss was approximately $20.4 million, an
increase of approximately $10.9 million or 115%, compared to our operating loss for the three months ended September 30, 2018
of approximately $9.5 million. For the nine months ended September 30, 2019 our operating loss was approximately $41.1 million,
an increase of approximately $10.2 million, or 33%, compared to our operating loss for the nine months ended September 30, 2018
of approximately $30.9 million. The changes in the three and nine-month periods were mainly due to the impairment of our long-lived
assets, changes in research and development expenses and general and administrative expenses, as detailed above.
Financial
Income (expenses), Net
For
the three months ended September 30, 2019, we had financial income from interest on cash and cash equivalents in the amount of
approximately $44,000 offset by financial expenses from foreign currency exchange expenses in the amount of approximately $28,000
and bank fees. For the three months ended September 30, 2018, we had financial income from interest on cash equivalents in the
amount of approximately $254,000 and financial income from change in fair value of marketable securities in the amount of approximately
$13,000 offset by financial expenses from foreign currency exchange expenses in the amount of approximately $99,000, and bank
fees.
For
the nine months ended September 30, 2019, we had financial income from interest on cash and cash equivalents in the amount of
approximately $326,000 offset by financial expenses from foreign currency exchange expenses in the amount of approximately $156,000
and bank fees. For the nine months ended September 30, 2018, we had financial expenses from foreign currency exchange expenses
in the amount of approximately $488,000, financial expenses from change in fair value of marketable securities in the amount of
approximately $141,000 and bank fees offset by financial income from interest on cash equivalents in the amount of approximately
$641,000.
Income
tax
For
the three and nine months ended September 30, 2019 and 2018, we have not generated taxable income in Israel. However, for the
three months ended September 30, 2019 we incurred tax expenses in our U.S. subsidiary in the amount of $28,000 and for the three
months ended September 30, 2018 we incurred tax income in our U.S. subsidiary in the amount of $164,000. For the nine months ended
September 30, 2019 and 2018, we incurred tax expenses in our U.S. subsidiary in the amount of $100,000 and $46,000, respectively.
Net
Loss
Based
on the foregoing, for the three months ended September 30, 2019 our net loss was approximately $20.4 million, an increase of approximately
$11.2 million, or 122%, compared to net loss for the three months ended September 30, 2018 of approximately $9.2 million while
for the nine months ended September 30, 2019 our net loss was approximately $41.0 million, an increase of approximately $10.1 million,
or 33%, compared to our net loss for the nine months ended September 30, 2018 of approximately $30.9 million.
Liquidity
and Capital Resources
Since
our inception, we have funded our operations primarily through public and private offerings (in Israel and in the U.S.) of our
equity securities, grants from the IIA and other grants from organizations such as the Michael J. Fox Foundation, and payments
received under the feasibility and related agreements we have entered into with multinational pharmaceutical companies, pursuant
to which we are entitled to full coverage of our development costs with regard to the projects specified in those agreements.
As
of September 30, 2019, we had cash and cash equivalents and marketable securities of approximately $15.7 million. As of December
31, 2018, we had cash and cash equivalents and marketable securities of approximately $40.6 million.
Net
cash used in operating activities was approximately $23.9 million for the nine months ended September 30, 2019 compared with net
cash used in operating activities of approximately $30.9 million for the nine months ended September 30, 2018. This decrease resulted
from changes in operating assets and liabilities items of approximately $6.5 million and a decrease in the net loss for the period
in the amount of $500,000.
We
had negative cash flow from investing activities of approximately $2.5 million for the nine months ended September 30, 2019 compared
to negative cash flow from investing activities of approximately $5.1 million for the nine months ended September 30, 2018. This
decrease resulted from a decrease in purchase of property and equipment in the amount of approximately $1.8 million, an increase
in proceeds from the disposal of marketable securities in the amount of approximately $576,000 and a decrease of approximately
$135,000 in investment in other assets related to the establishment of the commercial scale production capabilities for AP-CD/LD
at LTS.
Net
cash provided by financing activities for the nine months ended September 30, 2019 was approximately $2.2 million, which was provided
by funds received from the sale of our ordinary shares under our “at-the-market” equity offering program and proceeds
from the exercise of options by employees. Net cash provided by financing activities for the nine months ended September 30, 2018
was approximately $35.0 million which was mainly provided by funds received from our April 2018 public offering of ordinary shares.
Current
Outlook
In
July 2019, we announced that our Phase III clinical trial for AP-CD/LD did not meet its target endpoints. We have completed most
of the analysis of the full data set and we are currently seeking to partner AP-CD/LD as the basis for the strategy for AP-CD/LD
moving forward. There is no assurance that we will be successful in entering into a transaction with a partner or that if entered
into any such transaction will be on terms favorable to us. We expect that our ongoing activities will result in continuing operating
losses for the foreseeable future. We believe that we have adequate cash to fund our ongoing activities into the second quarter
of 2020. Our ability to execute our operating plan beyond the second quarter of 2020 is dependent on our ability to obtain additional
capital principally through entering into a collaborations, strategic alliances, or license agreements with a third party and/or
raising capital from the public and/or private investors and/or institutional investors. The negative outcome of the Phase III
clinical trial that was announced on July 22, 2019 and uncertainty regarding our development programs is expected to adversely
affect our ability to obtain funding and there is no assurance that we will be successful in obtaining the level of financing
needed for our activities. We have taken measures to reduce our costs, including reducing headcount, and are continuingly evaluating
additional measures to reduce costs to preserve existing capital. If we are unsuccessful in securing sufficient financing, we
may need to scale back our administrative and clinical development activities and may be required to cease our operations entirely.
As a result, there is substantial doubt about our ability to continue as a going concern. For more information, see note 1a(2)
in our condensed consolidated financial statements for the nine months ended September 30, 2019.
On
March 1, 2019, we entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”), pursuant to which we may sell
from time to time, at our option, up to $75.0 million of our ordinary shares through an “at-the-market” equity offering
program under which Cowen will act as sales agent. The issuance and sale of ordinary shares by us under the program will be made
pursuant to our effective “shelf” registration statement on Form S-3 (Registration Statement No. 333-230016) filed
with the SEC on March 1, 2019, and declared effective on March 28, 2019. During the nine months ended September 30, 2019, we sold
an aggregate of 1,716,679 of ordinary shares at an average price of $1.21 per ordinary share for net proceeds of approximately
$2.0 million under the offering program.
Developing
drugs, conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and
we will need to raise substantial additional funds to achieve our strategic objectives. We will require significant additional
financing in the future to fund our operations, including if and when we progress into additional clinical trials of our product
candidates, obtain regulatory approval for one or more of our product candidates, obtain commercial manufacturing capabilities
and commercialize one or more of our product candidates. Our future capital requirements will depend on many factors, including,
but not limited to:
|
|
●
|
the
progress and costs of our clinical trials and other research and development activities;
|
|
|
●
|
the
scope, prioritization and number of our clinical trials and other research and development programs;
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|
|
●
|
the
amount of revenues and contributions we receive under future licensing, collaboration,
development and commercialization arrangements with respect to our product candidates;
|
|
|
●
|
the
costs of the development and expansion of our operational infrastructure;
|
|
|
●
|
the
costs and timing of obtaining regulatory approval for one or more of our product candidates;
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|
|
●
|
the
ability of us, or our collaborators, to achieve development milestones, marketing approval
and other events or developments under our potential future licensing agreements;
|
|
|
●
|
the
costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
|
|
|
●
|
the
costs and timing of securing manufacturing arrangements for clinical or commercial production;
|
|
|
●
|
the
costs of contracting with third parties to provide sales and marketing capabilities for
us or establishing such capabilities ourselves;
|
|
|
●
|
the
costs of acquiring or undertaking development and commercialization efforts for any future
products, product candidates or technology;
|
|
|
●
|
the
magnitude of our general and administrative expenses; and
|
|
|
●
|
any
cost that we may incur under future in- and out-licensing arrangements relating to one
or more of our product candidates.
|
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
Critical
Accounting Policies
This
discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us
to make estimates that affect the reported amounts of our assets, liabilities and expenses. Significant accounting policies employed
by us, including the use of estimates, are presented in the notes to the consolidated financial statements included elsewhere
in this Annual Report. We periodically evaluate our estimates, which are based on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Critical accounting policies are those that are most important to the
portrayal of our financial condition and results of operations and require our subjective or complex judgments, resulting in the
need to make estimates about the effect of matters that are inherently uncertain. If actual performance should differ from historical
experience or if the underlying assumptions were to change, our financial condition and results of operations may be materially
impacted.
Our critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the
year ended December 31, 2018. With the exception of the change for the accounting of leases as a result of the adoption
of ASC Topic 842 on January 1, 2019 and the evaluation of long-lived assets for impairment, as further described below, which requires
the use of estimates and judgment, there have been no material changes to those policies during the nine months ended September
30, 2019.
Long-Lived
Assets
We
evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. Estimates of future cash flows and timing of events for evaluating long-lived assets
for impairment are based upon management’s assumptions and market conditions. If any of our long-lived assets are considered
to be impaired, the amount of impairment to be recognized is the excess of the carrying amount of the assets over its fair value.
As of September 30, 2019, we incurred an asset impairment of approximately $9.8 million as a result
of the top-line results from our pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s which
did not meet its target endpoints. The impairment charge was the result of both internal and external factors and the fair value
was determined using the discounted cash flow method (level 3) which utilized significant estimates and assumptions surrounding
the amount and timing of the projected net cash flows, which includes the probability of out-licensing the AP-CD/LD program to
a third-party, the probability of obtaining FDA approval, the expected impact of competition, the discount rate, which seeks to
reflect the various risks inherent in the projected cash flows and the tax rate.
We
believe the assumptions used in our impairment assessment are reasonable, any changes in the actual market conditions versus the
assumptions used in the model could result in a change in estimated future cash flows, which may result in an additional impairment
charge on AP-CD/LD Assets, net, in the future.
Recently
Issued Accounting Pronouncements
See
Note 2, Significant Accounting Policies, to the condensed consolidated financial statements included in “Item 1- Condensed
Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.