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:
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the expected development and potential benefits from our products in treating various medical conditions;
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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;
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our entering into certain contracts with third parties;
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the prospects of entering into additional license agreements, or other forms of cooperation with
other companies and medical institutions;
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our pre-clinical and clinical trials plans, including timing of initiation, enrollment and conclusion
of trials;
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the expected timing of the release of data from our various studies;
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achieving regulatory approvals, including under accelerated paths;
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receipt of future funding from the Israel Innovation Authority, or IIA, the European Union's Horizon
2020 program, the Biomedical Advanced Research and Development Authority, or BARDA, as well as grants from other independent third
parties;
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our marketing plans, including timing of marketing our product candidates, PLX-PAD and PLX-R18,
and the filing of any requests for marketing authorization;
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developing capabilities for new clinical indications of placenta expanded (PLX) cells and new products;
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our estimations regarding the size of the global market for our product candidates;
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our expectation to demonstrate a real-world impact and value from our pipeline, technology platform
and commercial-scale manufacturing capacity;
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our expectations regarding our short- and long-term capital requirements;
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our outlook for the coming months and future periods, including but not limited to our expectations
regarding future revenue and expenses; and
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information with respect to any other plans and strategies for our business.
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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, 2019, or the 2019 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 clinical 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 other territories 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.
We have determined
to invest our resources primarily on the PLX-PAD Phase III clinical trials relating to CLI and muscle recovery following surgery
for hip fracture, and focus on finalizing the clinical trials in the United States, Europe and Israel while we prepare for the
marketing phase, with the initiation of such marketing phase subject to regulatory approval, in these territories.
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, or the Adaptive Pathways 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 efficacy 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 trial results shortly after the conclusion of the
follow ups.
Our PLX-PAD cell program
in CLI had been selected for the EMA’s Adaptive Pathways Project, 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 $8,300,000) 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 EMA’s Adaptive Pathways Project and was awarded
a Euro 7,400,000 (approximately $8,100,000) 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. We have submitted a proposal to BARDA to fund an
additional non-human primates study, which is strategically designed to demonstrate the superiority of PLX-R18 versus current standards,
with the goal of executing a full contract once the study is completed.
PLX-R18 is also under
development in the United States and Israel for the treatment of incomplete hematopoietic recovery following hematopoietic cell
transplantation, or HCT. In March 2019, we announced that we had fully enrolled the second cohort of six patients in our ongoing
Phase I clinical trial in HCT, and received data and safety monitoring board approval to continue to the final cohort of the trial.
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 HCT.
RESULTS OF OPERATIONS – THREE
MONTHS ENDED SEPTEMBER 30, 2019 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2018.
Revenues
Revenues for the three
month period ended September 30, 2018 were $4,000 as compared to no revenues generated in the three month period ended September
30, 2019. All revenues in the three month period ended September 30, 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 Horizon 2020 and IIA) for the three month period ended
September 30, 2019 decreased by 19% from $6,764,000 for the three month period ended September 30, 2018 to $5,382,000. The
decrease is mainly attributed to: (1) a decrease in materials consumption, (2) a decrease in subcontractor expenses related
to a decrease in the initiation of sites for our clinical studies, (3) a decrease in payroll expenses related to a decrease
in the average number of employees, and (4) a decrease in stock-based compensation expenses related to vesting schedules. The
decrease was partially offset by lower participation by the European Union with respect to the Horizon 2020 grants.
General and Administrative
Expenses
General and
administrative expenses for the three month period ended September 30, 2019 decreased by 18% from $2,210,000 for the three
month period ended September 30, 2018 to $1,813,000. 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 payroll
expenses related to a reduction of the annual salary of our Chief Executive Officer, by 25%, the reduction of the
annual compensation of our Executive Chairman, by 25% and a decrease in the average number of
employees.
Financial Income, Net
Financial income,
net, decreased from a net financial income of $184,000 for the three month period ended September 30, 2018 to a net financial
income of $56,000 for the three month period ended September 30, 2019. This decrease is mainly attributable to the
implementation of accounting standards update No. 2016-02 - “Leases,” which resulted in an expense of $103,000
(for further information please refer to Note 3 in the accompanying financial statements to this Quarterly Report on Form
10-Q), increased expense from exchange rates related to the strength of the U.S. dollar against the NIS and offset by
an increase in interest on deposits due to our investments in short-term deposits.
Net Loss
Net loss for the three
month period ended September 30, 2019 was $7,139,000 as compared to net loss of $8,786,000 for the three month period ended September
30, 2018. The decrease is mainly due to a decrease in research and development expenses, as described above. Net loss per share
for the three month period ended September 30, 2019 was $0.46, as compared to $0.77 for the three month period ended September
30, 2018.
For the three month period
ended September 30, 2019 and September 30, 2018, we had weighted average shares of common stock outstanding of 15,405,026, and
11,365,826, respectively, which were used in the computations of net loss per share for the three month period.
The increase in weighted
average common shares outstanding reflects the issuance of additional shares mainly related to the issuances of shares from a public
offering we conducted in April 2019, 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 AgreementSM, or the Sale Agreement, and shares
issued as a result of exercises of options.
Liquidity and Capital
Resources
As of September 30,
2019, our total current assets were $21,471,000 and total current liabilities were $7,843,000. On September 30, 2019, we had a
working capital surplus of $13,628,000, stockholders' equity of $17,527,000 and an accumulated deficit of $258,143,000. 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 September 30, 2019 amounted to $3,715,000 compared to $8,433,000 as of September 30, 2018, and compared to $4,106,000 as
of June 30, 2019. Cash balances changed in the three months ended September 30, 2019 and 2018 for the reasons presented below.
Operating activities
used cash of $7,241,000 in the three months ended September 30, 2019, compared to $8,510,000 in the three months ended September
30, 2018. Cash used in operating activities in the three months ended September 30, 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 $4,748,000 in the three months ended September 30, 2019, compared to cash provided of $7,624,000 for the three
months ended September 30, 2018. The investing activities in the three month period ended September 30, 2019 consisted primarily
of the withdrawal of $4,802,000 of short term deposits, offset by payments of $54,000 related to investment in property and equipment.
The investing activities in the three month period ended September 30, 2018 consisted primarily of the withdrawal of $7,801,000
of short term deposits, offset by payments of $177,000 related to investment in property and equipment.
Financing activities
generated cash of $1,981,000 during the three months ended September 30, 2019, compared to $588,000 for the three months ended
September 30, 2018. The cash generated in the three months ended September 30, 2019 from financing activities is related to net
proceeds of $1,981,000 from issuing shares of our common stock under our Sale Agreement. The cash generated in the three months
ended September 30, 2018 from financing activities is related to net proceeds of $473,000 from issuing shares of our common stock
under our ATM 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.
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 530,541 shares of common stock pursuant to the ATM Agreement at an average price of $13.68 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 September 30, 2019, we sold an aggregate
of 676,700 shares of common stock pursuant to the Sale Agreement at an average price of $6.63 per share.
During the three months
ended September 30, 2019, we received cash of approximately $214,000 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 September 30, 2019, total grants obtained from the IIA aggregated to
approximately $27,568,000 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 September 30,
2019, we received total grants of approximately $4,636,000 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 2019 Annual Report on form 10-K for the fiscal year ended June 30, 2019.
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 November 7, 2019, we have sold
3,900,000 shares of our common stock and warrants to purchase up to 2,857,143 shares of common stock in a total gross amount of
$36,051,000 in offerings we closed in October 2017 and April 2019, 530,541 shares of common stock in a total gross amount of $7,258,542
pursuant to the ATM Agreement, 861,700 shares of common stock in a total gross amount of $5,144,233 pursuant to the Sale Agreement,
and may be deemed to have sold an additional $44,855,767 pursuant to the Sale Agreement.
Outlook
We have accumulated
a deficit of $258,143,000 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 September 30,
2019, our cash position (cash and cash equivalents, short-term bank deposits and restricted cash and long-term bank deposits) totaled
approximately $19,523,000. 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 September 30, 2019, will be sufficient to maintain our operations into the beginning of the
first quarter of fiscal year 2021. 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.