Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion
and analysis provides information that we believe to be relevant to an assessment and understanding of our results of operations
and financial condition for the periods described. This discussion should be read together with our condensed consolidated interim
financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q. This
information should also be read in conjunction with the information contained in our Annual Report on Form 10-K for the year ended
December 31, 2019, filed with the Securities and Exchange Commission on March 13, 2020, including the consolidated annual financial
statements as of December 31, 2019 and their accompanying notes included therein. We have prepared our condensed consolidated interim
financial statements in accordance with U.S. GAAP.
This Quarterly Report
on Form 10-Q of Intec Pharma Ltd. contains forward-looking statements about our expectations, beliefs and intentions. Forward-looking
statements can be identified by the use of forward-looking words such as “believe”, “expect”, “intend”,
“plan”, “may”, “should”, “could”, “might”, “seek”, “target”,
“will”, “project”, “forecast”, “continue” or “anticipate” or their
negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly to
historical matters. These forward-looking statements are based on assumptions and assessments made in light of management’s
experience and perception of historical trends, current conditions, expected future developments and other factors believed to
be appropriate. Forward-looking statements in Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on
Form 10-Q, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events
or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many
of which are outside of our control. Many factors could cause our actual activities or results to differ materially from the activities
and results anticipated in forward-looking statements, including, but not limited to, the following: our limited operating history
and history of operating losses, our ability to continue as a going concern, our ability to obtain additional financing, the impact
of the outbreak of coronavirus on our operations, our ability to successfully operate our business or execute our business plan,
the timing and cost of our clinical trials, the completion and receiving favorable results in our clinical trials, our ability
to obtain and maintain regulatory approval of our product candidates, our ability to protect and maintain our intellectual property
and licensing arrangements, our ability to develop, manufacture and commercialize our product candidates, the risk of product liability
claims, the availability of reimbursement, and the influence of extensive and costly government regulation. More detailed information
about the risks and uncertainties affecting us is contained under the heading “Risk Factors” included in our most recent
Annual Report on Form 10-K filed with the SEC on March 13, 2020, and in other filings that we have made and may make with the Securities
and Exchange Commission in the future.
All references to
“we,” “us,” “our,” “Intec”, “the Company” and “our Company”
in this Quarterly Report on Form 10-Q are to Intec Pharma Ltd. and its U.S. subsidiary Intec Pharma Inc., unless the context otherwise
requires.
Overview
We are a clinical
stage biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology,
which we refer to as the Accordion Pill. Our Accordion Pill is an oral drug delivery system that is designed to improve the
efficacy and safety of existing drugs and drugs in development by utilizing an efficient gastric retention, or, GR and
specific release mechanism. Our product pipeline currently includes several product candidates in various stages. Our leading
product candidate, Accordion Pill Carbidopa/Levodopa, or, AP-CD/LD, is being developed for the indication of treatment of
Parkinson’s disease symptoms in advanced Parkinson’s disease patients.
In July 2019, we announced
top-line results from our pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s disease known
as the ACCORDANCE study in which the ACCORDANCE study did not meet its target endpoints. While AP-CD/LD provided treatment for
Parkinson’s disease symptoms, it did not demonstrate statistically superiority over immediate release CD/LD on the primary
endpoint of OFF time reduction under the conditions established in the protocol. Treatment-emergent adverse effects observed with
AP-CD/LD were generally consistent with the known safety profile of CD/LD formulations and no new safety issues were observed throughout
the double-blinded study, during the gastroscopy safety sub-study or the 12-month open-label extension study. From our review of
the data, we have observed a meaningful reduction in OFF time in certain subsets of patients. We have completed the analysis of
the full data set and we are currently seeking to partner AP-CD/LD as the basis for the strategy for AP-CD/LD moving forward.
Previously, we successfully
completed a Phase II clinical trial for AP-CD/LD for the treatment of Parkinson’s disease symptoms in advanced Parkinson’s
disease patients and in February 2019, we announced that AP-CD/LD met the primary endpoint in a pharmacokinetic, or PK study, comparing
the AP-CD/LD 50/500mg dosed three times daily, the most common dose used in our ACCORDANCE study, to 1.5 tablets of CD/LD immediate
release (Sinemet™) 25/100 dosed five times per day in Parkinson’s disease patients.
We have invested in
the commercial scale manufacture of AP-CD/LD, for which we are in partnership with LTS Lohmann Therapie-Systeme AG (LTS) in Andernach,
Germany. In October 2019, we completed the qualification studies for the commercial scale manufacture of the Accordion Pill and
we have initiated the validation and stability studies which are expected to serve as the clinical material for the next Phase
3 clinical trial plan.
In addition, we have
initiated a clinical development program for our Accordion Pill platform with the two primary cannabinoids contained in cannabis
sativa, which we refer to as AP-Cannabinoids. We are formulating and testing CBD and THC for the treatment of various pain indications.
AP-Cannabinoids are designed to extend the absorption phase of CBD and THC, with the goal of more consistent levels for an improved
therapeutic effect, which may address several major drawbacks of current methods of treatment, such as short duration of effect,
delayed onset, variability of exposure, variability of the administered dose and adverse events that correlate with peak levels.
In March 2017, we initiated a Phase I single-center, single-dose, randomized, three-way crossover clinical trial in Israel to compare
the safety, tolerability and PK of AP-THC/CBD with Sativex®, an oral buccal spray containing CBD and THC that is commercially
available outside of the United States. Initial results demonstrated that the Accordion Pill platform is well suited to safely
deliver CBD and THC with significant improvements in exposure compared with Sativex®. In December 2018, we initiated a PK study
of AP-THC and the results of the study demonstrate that the custom designed AP delivery system in the AP-THC PK study did not meet
our expectations. We are continuing to advance the AP-Cannabinoids clinical development program and we are seeking to launch a
PK study with the optimized AP-THC in 2020.
While the ACCORDANCE
results were not what we expected, we continue to believe in the potential of the Accordion Pill platform. In December 2018, we
reported that we successfully developed an Accordion Pill for a Novartis proprietary compound that met the required in
vitro specifications set forth in a feasibility agreement with Novartis. In 2019 we completed the human PK study and its
results demonstrated that the AP met the technical requirements set forth by Novartis. In December 2019, Novartis, following an
internal and revised commercial strategic assessment, advised us that this program no longer meets Novartis’ mid to long-term
strategic goals. Novartis paid us $1.5 million on conclusion of the program. We restructured our clinical manufacturing
planned to support this program in order to reduce costs.
In May 2019, we reported
entering into a research collaboration agreement with Merck for the development of a custom-designed AP for one of Merck’s
proprietary compounds that met the required in vitro specifications. We aim to initiate an in-vivo study in 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.
In late 2019, a
novel strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially the outbreak was largely
concentrated in China, it has now spread to countries across the globe, including in Israel and the United States. Many
countries around the world, including in Israel and the United States, have implemented significant governmental measures to
control the spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement of
people, and other material limitations on the conduct of business. We implemented remote working and work place protocols
for our employees in accordance with government requirements. The implementation of measures to prevent the spread of coronavirus have resulted in disruptions to our partnering efforts which depend, in part, on attendance at in-person meetings,
industry conferences and other events. It is still too early to assess the full impact of the coronavirus outbreak and the
extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and
cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be
required to contain the coronavirus or treat its impact.
Results of Operations
The table below provides
our results of operations for the periods indicated.
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Three months ended
March 31
|
|
|
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2020
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|
|
2019
|
|
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|
(dollars in thousands)
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|
Research and development expenses, net
|
|
$
|
(2,024
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)
|
|
$
|
(8,542
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)
|
General and administrative expenses
|
|
|
(1,715
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)
|
|
|
(2,190
|
)
|
Operating loss
|
|
|
(3,739
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)
|
|
|
(10,732
|
)
|
Financial income (expenses), net
|
|
|
(70
|
)
|
|
|
110
|
|
Loss before income tax
|
|
|
(3,809
|
)
|
|
|
(10,622
|
)
|
Income tax
|
|
|
(61
|
)
|
|
|
(34
|
)
|
Net loss
|
|
$
|
(3,870
|
)
|
|
$
|
(10,656
|
)
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Three Months Ended March 31, 2020 Compared
to Three Months Ended March 31, 2019
Research and Development Expenses,
Net
Our research and development
expenses, net, for the three months ended March 31, 2020 amounted to approximately $2.0 million, a decrease of approximately $6.5
million, or approximately 76%, compared to approximately $8.5 million for the three months ended March 31, 2019. The decrease was
primarily due to our ACCORDANCE study and Open Label Extension study, both of which were completed during 2019, decrease in expenses
related to the scale up activities for the commercial scale manufacturing and a decrease in payroll and related expenses, mostly
due to a reduction in headcount in the three months ended March 31, 2020.
General and Administrative Expenses
Our general and administrative
expenses for the three months ended March 31, 2020 amounted to approximately $1.7 million, a decrease of approximately $500,000,
or approximately 23%, compared to approximately $2.2 million for the three months ended March 31, 2019. The decrease was primarily
related to a decrease in payroll and related expenses, including reduction in headcount, share-based compensation and reduction
in certain expenses related to investor relations activities and professional services.
Operating Loss
Because of the foregoing,
for the three months ended March 31, 2020 our operating loss was approximately $3.7 million, a decrease of approximately $7.0 million,
or approximately 65%, compared to our operating loss for the three months ended March 31, 2019 of approximately $10.7 million.
The decrease was mainly due to a decrease in research and development expenses, net and general and administrative expenses, as
detailed above.
Financial Income (expenses), Net
For the three months
ended March 31, 2020, we had financial expenses from foreign currency exchange expenses in the amount of approximately $79,000
and bank fees, offset by financial income from interest on cash and cash equivalents in the amount of approximately $10,000 and
financial income from change in fair value of marketable securities in the amount of approximately $2,000.
For the three months
ended March 31, 2019, we had financial income from interest on cash and cash equivalents in the amount of approximately $190,000,
offset by financial expenses from foreign currency exchange expenses in the amount of approximately $75,000 and bank fees.
Income tax
For the three months
ended March 31, 2020 and 2019, we have not generated taxable income in Israel. However, for the three months ended March 31, 2020
and 2019, we incurred tax expenses in our U.S. subsidiary in the amount of approximately $61,000 and approximately $34,000, respectively.
Net Loss
Because of the foregoing,
for the three months ended March 31, 2020, our net loss was approximately $3.9 million, a decrease of approximately $6.8 million,
or approximately 64%, compared to our net loss for the three months ended March 31, 2019 of approximately $10.7 million. The decrease
was mainly due to a decrease in research and development expenses, net and general and administrative expenses, as detailed above.
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 March 31, 2020,
we had cash and cash equivalents of approximately $10.9 million. As of December 31, 2019, we had cash and cash equivalents and
marketable securities of approximately $10.1 million. In February 2020, we completed an underwritten public offering, pursuant
to which we issued 15,280,000 ordinary shares, pre-funded warrants to purchase 970,000 ordinary shares and warrants to purchase
16,250,000 ordinary shares. Each pre-funded warrant was exercisable at an exercise price of $0.0001 per share. All the pre-funded
warrants were exercised following the closing of the offering. Each ordinary share and warrant or pre-funded warrant and warrant
were sold together at a combined price of $0.40. Each warrant is exercisable at an exercise price of $0.40 per share and has a
term of five years from the date of issuance. The total net proceeds were approximately $5.7 million, after deducting underwriting
discounts, commissions and other offering expenses in the amount of approximately $800,000.
Net cash used in operating
activities was approximately $5.1 million for the three months ended March 31, 2020 compared with net cash used in operating activities
of approximately $7.3 million for the three months ended March 31, 2019. This decrease resulted primarily from a decrease in our
research and development activities in the amount of approximately $6.5 million, offset by changes in operating asset and liability
items of approximately $4.3 million.
We had positive cash
flow from investing activities of approximately $769,000 for the three months ended March 31, 2020 compared to negative cash flow
from investing activities of approximately $640,000 for the three months ended March 31, 2019. This change resulted primarily from
an investment in the establishment of the commercial scale manufacturing in the amount of approximately $1.2 million in the three
months ended March 31, 2019 and an increase in proceeds from the disposal of marketable securities in the amount of approximately
$200,000.
Net cash provided by
financing activities for the three months ended March 31, 2020 was approximately $6.1 million, which was provided by the proceeds
from our underwritten public offering in February 2020 that resulted in net proceeds of approximately $5.7 million and by the funds
received from the sale of our ordinary shares under our “at-the-market” equity offering program that resulted in net
proceeds of approximately $421,000. Net cash provided by financing activities for the three months ended March 31, 2019 was approximately
$161,000, which was provided by the proceeds from the exercise of options by employees.
At-the-Market
Equity Offering Program
Pursuant to that certain
Sales Agreement, dated March 1, 2019, or the Sales Agreement, by and between us and Cowen and Company, LLC, we may elect from time
to time, to offer and sell ordinary shares through an “at the market offering” as defined in Rule 415(a)(4), or the
ATM Offering, promulgated under the Securities Act having an aggregate offering price of up to $75,000,000. Under a prospectus
supplement dated March 28, 2019, we sold an aggregate of 2,775,883 ordinary shares for gross proceeds of $2.6 million. On March
13, 2020, we updated the aggregate amount that may be issued and sold under the ATM Offering and filed a prospectus supplement
pursuant to which we may offer and sell, from time to time, ordinary shares having an aggregate offering price of up to $9.8 million.
From March 13, 2020 to May 4, 2020, we did not issue or sell any of our ordinary shares under the ATM Offering. On May 4, 2020,
we terminated the prospectus supplement dated March 13, 2020, but the Sales Agreement remains in full force and effect.
Aspire Capital
Financing Arrangement
On December 2, 2019,
we entered into a purchase agreement, or the Purchase Agreement, with Aspire Capital Fund LLC, or Aspire Capital, pursuant to which
provides that, upon the terms and conditions set forth therein, Aspire Capital is committed to purchase up to an aggregate of $10.0
million of our ordinary shares over the 30-month term of the Purchase Agreement. Concurrently with entering into the Purchase Agreement,
we also entered into a registration rights agreement with Aspire Capital, or the Registration Rights Agreement, in which we agreed
to file with the SEC one or more registration statements, as necessary, and to the extent permissible and subject to certain exceptions,
to register for sale under the Securities Act for the sale of our ordinary shares that have been and may be issued to Aspire Capital
under the Purchase Agreement.
We filed with the SEC
a prospectus supplement to our effective shelf registration statement on Form S-3 (File No. 333-230016) registering all of the
ordinary shares that may be offered to Aspire Capital from time to time. Under the Purchase Agreement, on any trading day selected
by us, we have the right, in our sole discretion, to present Aspire Capital with a purchase notice, each, a Purchase Notice, directing
Aspire Capital (as principal) to purchase up to 200,000 of our ordinary shares in an amount no greater than $500,000 per business
day, up to $10.0 million of our ordinary shares in the aggregate at a per share price, or the Purchase Price, equal to the lesser
of:
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the lowest sale price of our ordinary shares on the
purchase date; or
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the arithmetic average of the three (3) lowest closing
sale prices for our ordinary shares during the ten (10) consecutive trading days ending on the trading day immediately preceding
the purchase date.
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We and Aspire Capital
also may mutually agree to increase the dollar amount to greater than $500,000 and the number of ordinary shares that may be sold
to as much as an additional 2,000,000 ordinary shares per business day, respectively.
In addition, on any
date on which we submit a Purchase Notice to Aspire Capital in an amount equal to at least 200,000 ordinary shares, we also have
the right, in our sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice, each, a VWAP
Purchase Notice, directing Aspire Capital to purchase an amount of ordinary shares equal to up to 30% of the aggregate of our ordinary
shares traded on our principal market on the next trading day, or the VWAP Purchase Date, subject to a maximum number of 250,000
ordinary shares. The purchase price per share pursuant to such VWAP Purchase Notice is generally 97% of the volume-weighted average
price for our ordinary shares traded on our principal market on the VWAP Purchase Date.
The Purchase Price
will be adjusted for any reorganization, recapitalization, non-cash dividend, share split, or other similar transaction occurring
during the period(s) used to compute the Purchase Price. We may deliver multiple Purchase Notices and VWAP Purchase Notices to
Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.
As a result of certain
lock-up provisions in our recent registered direct offering, we may not effect any sales under the Purchase Agreement until after
August 4, 2020 unless we receive prior written approval from the purchasers in the registered direct offering. The Purchase Agreement
provides that we and Aspire Capital shall not effect any sales under the Purchase Agreement on any purchase date where the closing
sale price of our ordinary shares is less than $0.25. There are no trading volume requirements or restrictions under the Purchase
Agreement, and we will control the timing and amount of sales of our ordinary shares to Aspire Capital. Aspire Capital has no right
to require any sales by us, but is obligated to make purchases from us as directed by us in accordance with the Purchase Agreement.
There are no limitations on use of proceeds, financial or business covenants, restrictions on future funding, rights of first refusal,
participation rights, penalties or liquidated damages in the Purchase Agreement. In consideration for entering into the Purchase
Agreement, concurrently with the execution of the Purchase Agreement, we issued to Aspire Capital the Commitment Shares. The Purchase
Agreement may be terminated by us at any time, at its discretion, without any cost to us. Aspire Capital has agreed that neither
we nor any of our agents, representatives and affiliates shall engage in any direct or indirect short-selling or hedging of our
ordinary shares during any time prior to the termination of the Purchase Agreement. Any proceeds from us received under the Purchase
Agreement are expected to be used to fund our research and development activities, for working capital and for general corporate
purposes.
The Purchase Agreement
provides that the number of ordinary shares that may be sold pursuant to the Purchase Agreement will be limited to 7,002,394 ordinary
shares, or the Exchange Cap, which represents 19.99% of our outstanding ordinary shares on December 2, 2019, unless shareholder
approval or an exception pursuant to the rules of the Nasdaq Capital Market is obtained to issue more than 19.99%. This limitation
will not apply if, at any time the Exchange Cap is reached and at all times thereafter, the average price paid for all ordinary
shares issued under the Purchase Agreement is equal to or greater than $0.48978, which is the price equal to the closing sale price
of our ordinary shares immediately preceding the execution of the Purchase Agreement. We are not required or permitted to issue
any ordinary shares under the Purchase Agreement if such issuance would breach its obligations under the rules or regulations of
the Nasdaq Capital Market or other applicable law (including, without limitation, the Israeli Companies Law – 1999, as amended,
or the Israeli Companies Law). We may, in our sole discretion, determine whether to obtain shareholder approval to issue more than
19.99% of our outstanding ordinary shares hereunder if such issuance would require shareholder approval under the rules or regulations
of the Nasdaq Capital Market or the Israeli Companies Law.
Current Outlook
We believe that
further fund raising will be required in order to complete the research and development of all of our product candidates,
including the manufacturing activities of the AP-CD/LD. As a result, there is substantial doubt about our ability to continue
as a going concern in the foreseeable future. We expect to satisfy our future cash needs through license agreements with
third parties and capital raising from the public, private investors and institutional investors, such as through the public
offering that we completed in February 2020 raising a total of $5.7 million, net, and the registered direct offering and
concurrent private placement that we completed in May 2020 raising a total of approximately $4.5 million, net. We may also
engage with a partner in order to share the costs associated with the development and manufacturing of our product
candidates. We are closely monitoring ongoing developments in connection with the coronavirus pandemic, which has resulted in
disruptions to our partnering efforts and may negatively impact our commercial prospects and our ability to raise capital. In
addition, any additional equity financing will likely require us to increase our authorized share capital, which is subject
to shareholder approval, and, to the extent we draw down on the Aspire Capital facility, we will be required to have a share
price of at least $0.25. There is no assurance that we will be able to obtain shareholder approval or that our share price
will be at a price that allows us to draw down on the Aspire Capital facility. For more information, see note 1(a)(2) in our
condensed consolidated financial statements for the three months ended March 31, 2020.
Developing drugs, conducting
clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will need to
raise substantial additional funds to achieve our strategic objectives. We will require significant additional financing in the
future to fund our operations, including if and when we progress into additional clinical trials of our product candidates, obtain
regulatory approval for one or more of our product candidates, obtain commercial manufacturing capabilities and commercialize one
or more of our product candidates. Our future capital requirements will depend on many factors, including, but not limited to:
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the progress and costs of our clinical trials and
other research and development activities;
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the scope, prioritization and number of our clinical
trials and other research and development programs;
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the amount of revenues and contributions we receive
under future licensing, collaboration, development and commercialization arrangements with respect to our product candidates;
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the impact of the coronavirus outbreak;
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the costs of the development and expansion of our operational
infrastructure;
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the costs and timing of obtaining regulatory approval for
one or more of our product candidates;
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the ability of us, or our collaborators, to achieve development milestones, marketing approval
and other events or developments under our potential future licensing agreements;
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the costs of filing, prosecuting, enforcing and defending
patent claims and other intellectual property rights;
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the costs and timing of securing manufacturing arrangements
for clinical or commercial production;
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the costs of contracting with third parties to provide sales and marketing capabilities for us
or establishing such capabilities ourselves;
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the costs of acquiring or undertaking development and commercialization efforts for any future
products, product candidates or technology;
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the magnitude of our general and administrative expenses;
and
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any cost that we may incur under future in- and out-licensing arrangements relating to one or more
of our product candidates.
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Until we can generate
significant recurring revenues, we expect to satisfy our future cash needs through capital raising or by out-licensing applications
of one or more of our product candidates. We cannot be certain that additional funding will be available to us on acceptable terms,
if at all. If funds are not available, we may be required to delay, reduce the scope of or eliminate research or development plans
for, or commercialization efforts with respect to, one or more of our product candidates and make necessary change to our operations
to reduce the level of our expenditures in line with available resources.
Off-Balance Sheet Arrangements
We have no off-balance
sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
are material to investors.
Critical Accounting Policies
This discussion and
analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates
that affect the reported amounts of our assets, liabilities and expenses. Significant accounting policies employed by us, including
the use of estimates, are presented in the notes to the consolidated financial statements included elsewhere in 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, 2019. There have
been no material changes to those policies during the three months ended March 31, 2020.
Recently Issued
Accounting Pronouncements
None.