Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward - Looking Statements
This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws, and is subject to the safe-harbor created by such Act and laws. Forward-looking statements may include statements regarding our goals, beliefs, strategies, objectives, plans, including product and technology developments, future financial conditions, results or projections or current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms, or other variations thereon or comparable terminology. These statements are merely predictions and therefore inherently subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance levels of activity, or our achievements, or industry results to be materially different from those contemplated by the forward-looking statements. Such forward-looking statements appear in this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and may appear elsewhere in this quarterly report on Form 10-Q and include, but are not limited to, statements regarding the following:
|
·
|
the expected development and potential benefits from our products in treating various medical conditions;
|
|
·
|
the clinical trials to be conducted according to our license agreement with CHA Biotech Co. Ltd.;
|
|
·
|
our plan to execute our strategy independently, using our own personnel, and through relationships with research and clinical institutions or in collaboration with other companies;
|
|
·
|
the prospects of entering into additional license agreements, or other forms of cooperation with other companies and medical institutions;
|
|
·
|
our pre-clinical and clinical trials plans, including timing of initiation, enrollment and conclusion of trials;
|
|
·
|
the expected timing of the release of data from our various studies;
|
|
·
|
achieving regulatory approvals, including under accelerated paths;
|
|
·
|
receipt of future funding from the Israel Innovation Authority, or IIA,
the European Union's Horizon 2020 program as well as grants from other independent third parties;
|
|
·
|
our marketing plans, including timing of marketing our product candidates, PLX-PAD and PLX-R18;
|
|
·
|
developing capabilities for new clinical indications of placenta expanded (PLX) cells and new products;
|
|
·
|
the timing and development of our PLX-Immune product candidate;
|
|
·
|
our estimations regarding the size of the global market for our product candidates;
|
|
·
|
our expectations regarding our production capacity;
|
|
·
|
our expectation to demonstrate a real-world impact and value from our pipeline, technology platform and commercial-scale manufacturing capacity;
|
|
·
|
our expectations regarding our short- and long-term capital requirements;
|
|
·
|
the proposed joint venture to be established with Sosei Corporate Venture Capital Ltd. for the clinical development and commercialization of Pluristem’s PLX-PAD cell therapy product in Japan, the plan to enter into definitive agreements and the timing of entering such agreements;
|
|
·
|
our outlook for the coming months and future periods, including but not limited to our expectations regarding future revenue and expenses; and
|
|
·
|
information with respect to any other plans and strategies for our business.
|
Our business and operations are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report.
In addition, historic results of scientific research, clinical and preclinical trials do not guarantee that the conclusions of future research or trials would not suggest different conclusions. Also, historic results referred to in this periodic report would be interpreted differently in light of additional research, clinical and preclinical trials results.
Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, or the 2018 Annual Report. Readers are also urged to carefully review and consider the various disclosures we have made in that report.
As used in this quarterly report, the terms “we”, “us”, “our”, the “Company” and “Pluristem” mean Pluristem Therapeutics Inc. and our wholly owned subsidiary, Pluristem Ltd., unless otherwise indicated or as otherwise required by the context.
Overview
Pluristem Therapeutics Inc. is a leading developer of placenta-based cell therapy product candidates for the treatment of multiple ischemic, inflammatory and hematologic conditions. Our lead indications are critical limb ischemia, or CLI, muscle recovery following surgery for hip fracture, and acute radiation syndrome, or ARS. Each of these indications is a severe unmet medical need. We were incorporated in Nevada in 2001, and have a wholly owned subsidiary in Israel called Pluristem Ltd. We operate in one segment and our operations are focused on the research, development, clinical trials and manufacturing of cell therapeutics and related technologies.
PLX cells are derived from a class of placental cells that are harvested from donated placenta at the time of full term healthy delivery of a baby. PLX cell products require no tissue matching prior to administration. They are produced using our proprietary three-dimensional expansion technology. Our manufacturing facility complies with the European, Japanese, Israeli, South Korean and U.S. Food and Drug Administration, or FDA’s, current Good Manufacturing Practice requirements and has been approved by the European and Israeli regulators for production of PLX-PAD for late stage trials. In December 2017, after an audit of our facilities, we were granted manufacturer/importer authorization and Good Manufacturing Practice Certification by Israel’s Ministry of Health. If we obtain FDA and other regulatory approvals to market PLX cells, we expect to have in-house production capacity to grow clinical-grade PLX cells in commercial quantities.
Our goal is to make significant progress with our clinical pipeline and our anticipated pivotal trials in order to ultimately bring innovative, potent therapies to patients who need new treatment options. We expect to demonstrate a real-world impact and value from our pipeline, technology platform and commercial-scale manufacturing capacity. Our business model for commercialization and revenue generation includes, but is not limited to, direct sale of our products, partnerships, licensing deals, and joint ventures with pharmaceutical companies.
We aim to shorten the time to commercialization of our product candidates by leveraging unique accelerated regulatory pathways that exist in the United States, Europe and Japan to bring innovative products that address life-threatening diseases to the market efficiently. We believe that these accelerated pathways create substantial opportunities for us and for the cell therapy industry as a whole.
Two pivotal, Phase III multinational clinical trials are currently being conducted with our PLX-PAD product candidate: one in CLI, and the other in muscle recovery following surgery for hip fracture. In April 2019, we successfully enrolled over 50% of patients in our Phase III study in CLI, which allows for an interim analysis of efficacy after a one-year follow-up period under the European Medicines Agency’s, or EMA, Adaptive Pathways pilot project, in which PLX-PAD was selected to participate. Based on our current patient enrollment progress, we expect to complete the follow up of our Phase III study in CLI in the first half of 2020 with respect to Europe, and in the first half of 2021 with respect to the United States.
In addition, based on our current patient enrollment progress, we expect to complete the follow up of our Phase III study in muscle recovery following surgery for hip fracture in the second half of 2020. We expect to release the clinical data shortly after the conclusion of the follow ups.
Our PLX-PAD cell program in CLI had been selected for the Adaptive Pathways pilot project of the EMA, Japan’s Pharmaceuticals and Medical Devices Agency, or PMDA accelerated pathway, the FDA Fast Track Designation and FDA Expanded Access Program, or EAP, in the United States. The CLI program in the European Union was awarded a Euro 7,600,000 (approximately $8,900,000) grant as part of the European Union’s Horizon 2020 program and to date we have received a portion of such grant.
Our PLX-PAD cell program in muscle recovery following surgery for hip fracture was also selected for the Adaptive Pathways pilot project of EMA and was awarded a Euro 7,400,000 (approximately $8,600,000) grant as part of the European Union’s Horizon 2020 program and to date we have received a portion of such grant.
Our second product candidate, PLX-R18, is under development in the United States for ARS via the FDA Animal Rule regulatory pathway, and, based on our assessment, is expected to advance to a pivotal trial, which may also result in approval without the prior performance of human efficacy trials. The National Institutes of Health’s National Institute of Allergy and Infectious Diseases has completed a dose selection trial with our PLX-R18 product candidate in the hematologic component of ARS. Assuming we receive a contract from the U.S. government, we expect to initiate an ARS pivotal trial in the second half of 2019.
PLX-R18 is under development in the United States and Israel for the treatment of incomplete hematopoietic recovery following hematopoietic cell transplantation (“HCT”). In March 2019, we announced that we had fully enrolled the second cohort of six patients in our ongoing Phase I clinical study in HCT, and received data and safety monitoring board approval to continue to the final cohort of the study.
In July 2018, we entered into a strategic collaboration agreement with Thermo Fisher Scientific Inc. with the aim of advancing the fundamental knowledge of cell therapy industrialization and to improve quality control of the end-to-end supply chain. The collaboration will combine Thermo Fisher’s experience in cell therapy development and bio production scale up with our expertise in cell therapy manufacturing, clinical development and quality control.
In September 2018, we announced that the FDA granted Orphan Drug Designation to our PLX cell therapy for the treatment of graft failure and incomplete hematopoietic recovery following hematopoietic cell transplantation.
In October 2018, we announced that the FDA approved cost recovery for our PLX-PAD under an EAP held by World Trials
,
Inc., a privately-held third-party sponsor. In April 2019, we announced the initiation of our FDA approved EAP, with several site initiations in the U.S. Under the terms of the EAP, an initial 100 Rutherford-5 CLI patients who are ineligible for inclusion under our ongoing Phase 3 study protocol, and whose condition is life-threatening, can be enrolled.
In November 2018, we entered into a license agreement with a subsidiary of Chart Industries, Inc., or Chart, regarding our thawing device for cell-based therapies. Pursuant to the terms of the agreement, Chart obtained the exclusive rights to manufacture and market the thawing device in all territories worldwide, excluding Greater China, and we are to receive royalties from sales of the product and supply of an agreed upon number of thawing devices. Royalties shall commence on the date of Chart’s first commercial sale of the thawing device.
In January 2019, we announced a successful one-year follow up of a compassionate use treatment in a Buerger’s disease patient treated with our PLX-PAD cell therapy.
In January 2019, we announced the receipt of a joint grant awarded by the Israeli Ministry of Defense and the IIA for the pre-clinical development of our PLX cells for the treatment of burn injuries. We are currently in discussions with the Israeli Ministry of Defense to define the structure of the collaboration.
In February 2019, we announced that the large-scale research initiative, RESTORE, of which we are a member, was nominated to be one of two finalists competing to be awarded up to €1 billion over the next 10 years by the European Commission for the development and advancement of transformative therapeutics.
In February 2019, we entered into a collaboration with NASA’s Ames Research Center to evaluate the potential of our PLX cell therapies in preventing and treating medical conditions caused during space missions.
In May 2019, we filed a U.S. provisional patent application titled “Methods and Compositions for Producing Cannabinoids,” which covers the use of our state-of-the-art, proprietary 3-D cell culturing technology for the potential manufacturing of cannabinoid-producing cells.
RESULTS OF OPERATIONS – NINE AND THREE MONTHS ENDED MARCH 31, 2019 COMPARED TO NINE AND THREE MONTHS ENDED MARCH 31, 2018.
Revenues
Revenues for the nine month period ended March 31, 2019 were $53,500 as compared to $50,000 in the nine month period ended March 31, 2018. We did not receive any revenues for the three month period ended March 31, 2019. All revenues in the nine month periods ended March 31, 2019 and 2018 were related to the sale of our PLX cells for research use.
Research and Development Expenses, Net
Research and development expense, net (costs less participation and grants by the IIA and other parties) for the nine month period ended March 31, 2019 increased by 25% from $16,697,000 for the nine month period ended March 31, 2018 to $20,847,000. The increase is mainly attributed to:
(1)
an increase in subcontractor expenses related to some of our clinical studies, (2) an increase in materials consumption, (3) a decrease in IIA participation (approximately $900,000 was approved in calendar year 2018 compared to approximately $500,000 that was approved in calendar year 2019), and (4) an increase in stock-based compensation expenses due to the amount of restricted stock units and options granted. The increase was partially offset by a higher participation by the European Union with respect to the Horizon 2020 grants.
Research and development expense, net (costs less participation and grants by the IIA and other parties) for the three months ended March 31, 2019 increased by 23% from $6,382,000 for the three months ended March 31, 2018 to $7,827,000. The increase is mainly attributed to: (1) an increase in materials consumption, (2) a decrease in IIA participation (approximately $900,000 was approved in calendar year 2018 compared to approximately $500,000 that was approved in calendar year 2019), and (3) a lower participation by the European Union with respect to the Horizon 2020 grants. The increase was partially offset by
a decrease in payroll expenses related to a decrease in the average number of employees.
General and Administrative Expenses
General and administrative expenses for the nine month period ended March 31, 2019 decreased by 18% from $8,349,000 for the nine month period ended March 31, 2018 to $6,806,000. This decrease is attributed to a decrease in stock-based compensation expenses related to the amount of restricted stock units granted and their vesting schedules, and a decrease in corporate activities expenses.
General and administrative expenses for the three months ended March 31, 2019 decreased by 7% from $2,666,000 for the three months ended March 31, 2018 to $2,473,000. This decrease is attributed to a decrease in stock-based compensation expenses related to the amount of restricted stock units granted and their vesting schedules. The decrease was partially offset by an increase in corporate activities expenses.
Financial Income, Net
Financial income, net, decreased from a net financial income of $7,810,000 for the nine month period ended March 31, 2018 to a net financial income of $54,000 for the nine month period ended March 31, 2019. This decrease is mainly
due to the sale of our investments in marketable securities which occurred in the nine months ended March 31, 2018.
Financial income, net, decreased from a net financial income of $7,517,000 for the three months ended March 31, 2018 to a net financial income of $222,000 for the three months ended March 31, 2019. This decrease is mainly
due to the sale of our investments in marketable securities which occurred in the three months ended March 31, 2018. The decrease was partially offset by changes in the fair value of our hedging instruments related to the strength of the U.S. dollar against the NIS.
Net Loss
Net loss for the nine and three month periods ended March 31, 2019 was $27,547,000 and $10,078,000, respectively, as compared to net loss of $17,145,000 and $1,531,000 for the nine and three month periods ended March 31, 2018, respectively. The changes were mainly due to a decrease in financial income and an increase in research and development expenses, as described above. Net loss per share for the nine and three month periods ended March 31, 2019 was $0.24 and $0.09, respectively, as compared to $0.16 and $0.01 for the nine and three month periods ended March 31, 2018.
For the nine and three month periods ended March 31, 2019 and March 31, 2018, we had weighted average shares of common stock outstanding of 115,542,598, 117,225,522 and 104,107,748, 110,044,458, respectively, which were used in the computations of net loss per share for the nine and three month periods.
The increase in weighted average common shares outstanding reflects the issuance of additional shares mainly related to the issuances of shares to employees and consultants, issuances of shares pursuant to our At Market Issuance Sales Agreement, or the ATM Agreement, and our Open Market Sale Agreement
SM
, or the Sale Agreement, and shares issued as a result of exercises of options.
Liquidity and Capital Resources
As of March 31, 2019, our total current assets were $13,196,000 and total current liabilities were $8,247,000. On March 31, 2019, we had a working capital surplus of $4
,
949,000, stockholders' equity of $8,627,000 and an accumulated deficit of $243,244,000. We finance our operations, and plan to continue doing so, from our existing cash, issuances of our securities and funds from grants from the IIA, European Union’s Horizon 2020 program, Israel’s Ministry of Economy, and other non-dilutive sources.
Our cash and cash equivalents as of March 31, 2019 amounted to $9
,
535,000 compared to $5
,
940,000 as of March 31, 2018, and compared to $8,821,000 as of June 30, 2018. Cash balances changed in the nine months ended March 31, 2019 and 2018 for the reasons presented below.
Operating activities used cash of $22,780,000 in the nine months ended March 31, 2019, compared to $15,594,000 in the nine months ended March 31, 2018. Cash used in operating activities in the nine months ended March 31, 2019 and 2018 consisted primarily of payments of salaries to our employees and payments of fees to our consultants, suppliers, subcontractors, and professional services providers, including the costs of clinical studies, offset by grants from the IIA, Horizon 2020, Israel’s Ministry of Economy and other research grants.
Investing activities provided cash of $19,685,000 in the nine months ended March 31, 2019, compared to cash provided of $204,000
for the nine months ended March 31, 2018. The investing activities in the nine month period ended March 31, 2019 consisted primarily of the withdrawal of $19,908,000 of short term deposits, offset by
payments of $217,000 related to investment in property and equipment and investment in long-term bank deposits of $6,000.
The
investing activities in the nine months ended March 31, 2018 consisted primarily of $20,321,000 related to investment in short term deposits, investment of $1,146,000 in marketable securities and payments of $219,000 related to investment in property and equipment, offset by cash provided from the sale and redemption of marketable securities of $21,890,000.
Financing activities generated cash of $3,825,000 during the nine months ended March 31, 2019, compared to $17,314,000 for the nine months ended March 31, 2018. The cash generated in the nine months ended March 31, 2019 from financing activities is related to net proceeds of $3,710,000 from issuing shares of our common stock under our ATM Agreement and the Sale Agreement, proceeds of $107,000 related to a grant received from the Israel-United States Binational Industrial Research and Development Foundation and net proceeds of $8,000 from the exercise of options. The cash generated in the nine months ended March 31, 2018 from financing activities is related to net proceeds of $13,646,000 from issuing shares of our common stock in a public offering we conducted in October 2017, net proceeds of $2,412,000 from issuing shares of our common stock under our ATM Agreement, net proceeds of $1,168,000 from issuing shares of our common stock from the exercise of warrants and options and proceeds of $88,000 related to a grant received from the Israel-United States Binational Industrial Research and Development Foundation.
In July 2017, we entered into the ATM Agreement with FBR Capital Markets & Co., MLV & Co. LLC and Oppenheimer & Co. Inc., each an Agent, which provides that, upon the terms and subject to the conditions and limitations set forth in the ATM Agreement, we could elect, from time to time, to issue and sell shares of common stock having an aggregate offering price of up to $80,000,000 through any of the Agents. We were not obligated to make any sales of common stock under the ATM Agreement. From July 2017 through February 4, 2019, we sold an aggregate of 5,305,408 shares of common stock pursuant to the ATM Agreement at an average price of $1.37 per share. On February 4, 2019, we notified the Agents of the termination of the ATM Agreement.
On February 6, 2019, we entered into the Sale Agreement, with Jefferies LLC, as agent, or Jefferies, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $50,000,000 from time to time through Jefferies. We are not obligated to make any sales of common stock under the Sale Agreement. From February 6, 2019 through March 31, 2019, we sold an aggregate of 2,018,000 shares of common stock pursuant to the Sale Agreement at an average price of $0.97 per share.
During the nine months ended March 31, 2019, we received cash of approximately $292,000 from the IIA towards our research and development expenses. According to the IIA grant terms, we are required to pay royalties at a rate of 3% on sales of products and services derived from technology developed using this and other IIA grants until 100% of the dollar-linked grants amount plus interest are repaid. In the absence of such sales, no payment is required. Through March 31, 2019, total grants obtained from the IIA aggregated to approximately $27,096,000 and total royalties paid and accrued amounted to $170,000.
The IIA has supported our activity in the past fourteen years. Our previous program, for the thirteen year, was approved by the IIA in 2018 and relates to a grant of approximately $900,000. The grant was used to cover research and development expenses for the period of January 1, 2018 to December 31, 2018.
Our most recent program, for the fourteenth year, was approved by the IIA in 2019 and relates to a grant of approximately $500,000. The grant will be used to cover research and development expenses for the period of January 1, 2019 to December 31, 2019.
As of March 31, 2019, we received total grants of approximately $4,604,000 in cash from the European Union research and development consortiums pursuant to the Horizon 2020 program.
The currency of our financial portfolio is mainly in U.S. dollars and we use options contracts in order to hedge our exposures to currencies other than the U.S. dollar. For more information, please see Item 7A. - “Quantitative and Qualitative Disclosures about Market Risk” in the 2018 Annual Report on form 10-K for the fiscal year ended June 30, 2018.
We have an effective Form S-3 registration statement, filed under the Securities Act of 1933, as amended, or the Securities Act, with the Securities and Exchange Commission, or the SEC, using a “shelf” registration process. Under this shelf registration process, we may, from time to time, sell common stock, preferred stock and warrants to purchase common stock, and units of two or more of such securities in one or more offerings up to a total dollar amount of $200,000,000. As of May 6, 2019, we have sold 39,000,000 shares of our common stock and warrants to purchase up to 28,571,429 shares of common stock in a total gross amount of $36,051,000 in offerings we closed in October 2017 and April 2019, 5,305,408 shares of common stock in a total gross amount of
$7,258,542 pursuant to the ATM Agreement, 2,018,000 shares of common stock in a total gross amount of $1,967,060 pursuant to the Sale Agreement, and may be deemed to have sold an additional $48,032,940 pursuant to the Sale Agreement.
On April 8, 2019, we sold, pursuant to an underwriting agreement relating to a firm commitment public offering, or the Public Offering, an aggregate of 28,571,429 shares of common stock and warrants to purchase 28,571,429 shares of common stock, inclusive of the underwriter’s over-allotment option which was exercised in full, for aggregate gross proceeds of $20,000,000. The warrants issued in the Public Offering are exercisable for a period of five years from issuance and have an exercise price of $0.70 per share. In addition, on April 8, 2019, we sold, pursuant to a subscription agreement with a certain investor in a registered direct offering, or the Registered Direct Offering, 1,428,571 shares of common stock, for aggregate gross proceeds of $1,000,000. The net proceeds from the Public offering and the Registered Direct Offering, after deducting underwriting commissions and discounts, and other offering expenses, were $19,467,000.
Outlook
We have accumulated a deficit of $243,244,000 since our inception in May 2001. We do not expect to generate any significant revenues from sales of products in the next twelve months. Our cash needs will increase in the foreseeable future. We expect to generate revenues, which in the short and medium terms will unlikely exceed our costs of operations, from the sale of licenses to use our technology or products.
We will be required to obtain additional liquidity resources in order to support the commercialization of our products and maintain our research and development and clinical trials activities.
We are continually looking for sources of funding, including non-diluting sources such as the IIA grants, the European Union grant and other research grants,
collaboration with other companies and sales of our common stock.
As of March 31, 2019, our cash position (cash and cash equivalents and short-term bank deposits) totaled approximately $10,537,000. On April 8, 2019, we closed the Public Offering and Registered Direct Offering, for aggregate net proceeds of $19,467,000. We are addressing our liquidity issues by implementing initiatives to allow the continuation of our activities. Our current operating plan includes various assumptions concerning the level and timing of cash outflows for operating activities and capital expenditures. Our ability to successfully carry out our business plan, which includes a cost-reduction plan should we be unable to raise sufficient additional capital, is primarily dependent upon our ability to (1) obtain sufficient additional capital, (2) enter into license agreements to use or commercialize our products and (3) receive other sources of funding, including non-diluting sources such as the IIA grants, the Horizon 2020 grant and other grants. There are no assurances, however, that we will be successful in obtaining an adequate level of financing needed for the long-term development and commercialization of our products.
According to management’s estimates, liquidity resources as of March 31, 2019,
together with the funds received from the Public Offering and Registered Direct Offering we closed on April 8, 2019, will be sufficient to maintain our operations into the beginning of the fourth quarter of fiscal year 2020. Our inability to raise funds to carry out our business plan will have a severe negative impact on our ability to remain a viable company.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements.