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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the clinical trials to be conducted according to our license agreement with CHA Biotech Co. Ltd.;
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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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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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achieving regulatory approvals, including under accelerated paths;
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receipt of future funding from the Israel Innovation Authority, or IIA;
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our marketing plans, including timing of marketing our first product, PLX-PAD;
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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 expectations regarding our production capacity;
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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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the proposed joint venture, described in the overview below, 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 into such agreements
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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, 2016, or the 2016 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, recovery after surgery for femoral neck fracture, and acute radiation syndrome, or ARS. A pivotal, multinational clinical trial is currently being conducted with our PLX-PAD product candidate in CLI. In addition, pivotal, multinational clinical trials are planned for our PLX-PAD product candidate in femoral neck fractures. The National Institutes of Health's National Institute of Allergy and Infectious Diseases, or NIAID, recently completed a dose selection trial with PLX-R18 in the hematologic component of ARS and a pivotal study is planned under the U.S. Food and Drug Administration, or FDA, animal rule once funding will be secured for this project. Each of these indications is a severe unmet medical need.
PLX cells are derived from a class of placental cells that are harvested from donated placentas 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 FDA's current Good Manufacturing Practice requirements and has been approved by the European, Japanese and Israeli regulatory authorities for production of PLX-PAD for late stage trials and marketing. 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 robust clinical pipeline and our anticipated pivotal trials in order to ultimately bring innovative, potent therapies to patients who need new treatment options. We intend 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. We are pursuing these accelerated pathways for PLX-PAD in CLI and femoral neck fracture. Our second product candidate, PLX R18, is under development in the United States for ARS via the Animal Rule regulatory pathway, which may result in approval without the prior performance of human efficacy trials. We expect to demonstrate a real-world impact and value from our pipeline, technology platform and commercial-scale manufacturing capacity.
In May 2015, we announced that the PLX-PAD cell program in CLI had been selected for the Adaptive Pathways pilot project of the European Medicines Agency, or EMA. During fiscal year 2017, the FDA, the United Kingdom's Medicines & Healthcare Products Regulatory Agency, the Paul Ehrlich Institute and the Austrian Agency for Health and Food Safety, each cleared our application to begin the pivotal Phase III trial of PLX-PAD cells in the treatment of CLI for patients who are unsuitable for revascularization in the United States, the United Kingdom, Germany and Austria. This multinational Phase III trial is being conducted in the United States and Europe.
Our intention is to file a request for marketing authorization in the United States and in Europe following a successful completion of this 250-patient (estimated) trial. An interim efficacy analysis is planned to be conducted based on data from the first 125 patients. If these trials yield positive results, they could lead to early conditional marketing approval in Europe.
In September 18, 2017, we announced that the FDA has granted a fast track designation to our ongoing Phase III study of PLX-PAD cells for the treatment of CLI in patients ineligible for revascularization. The FDA's fast track designation is a process designed to facilitate the development and expedite the review of drug to treat serious conditions and unmet medical needs. With fast track designation, there is an increased possibility for a priority review by the FDA of PLX-PAD cells for the treatment of CLI.
In August 2016, our CLI program in the European Union was awarded a Euro 7,600,000 (approximately $9,000,000) grant. The grant is part of the European Union's Horizon 2020 program. The Phase III study of PLX-PAD in CLI will be a collaborative project carried out by an international consortium led by the Berlin-Brandenburg Center for Regenerative Therapies together with us and with participation of additional third parties. The grant will cover a significant portion of the CLI program costs. An amount of Euro 1,900,000 (approximately $2,200,000) is a direct grant allocated to us for manufacturing and other costs, and we also expect to have direct benefit from cost savings resulting from grant amounts allocated to the other consortium members.
In July 2017, the consortium amended the consortium agreement, pursuant to which the original grant allocation has been amended such that we will receive an additional direct grant of Euro 1,000 (approximately $1,200). The additional direct grant was allocated to us from the total amount of the original grant.
In December 2016, we announced that we signed a binding term sheet with Sosei Corporate Venture Capital Ltd., or Sosei CVC, for the establishment of a new Japanese corporation, or NewCo, for the clinical development and commercialization of our PLX-PAD cell therapy product in Japan for CLI. The parties plan to establish NewCo in Japan, in which we will own 35% of the equity in return for our contribution of a perpetual license to commercialize PLX-PAD for CLI in Japan. All proprietary rights related to PLX-PAD will be exclusively owned by us. Sosei CVC's investment fund, Sosei RMF1, together with additional Japanese investors, will raise and invest approximately $11 million, equivalent to approximately ¥1.3 billion, in return for ownership of 65% of NewCo. The parties have agreed to extend the deadline to enter into a definitive agreement until December 31, 2017. In December 2015, we reached an agreement with Japan's Pharmaceuticals and Medical Devices Agency on the design of the final trial needed to apply for conditional approval of PLX-PAD cells in the treatment of CLI. The approval of the protocol for the 75-patient trial was part of a larger agreement on the development of PLX-PAD via Japan's new accelerated regulatory pathway for regenerative medicine.
In July 2016, we announced our intent to conduct a Phase III trial assessing our PLX-PAD cells in recovery following surgery for femoral neck fracture in the United States and Europe. In addition, the EMA, confirmed that this indication would also be eligible for the Adaptive Pathways project.
In September 2017, our Phase III study of PLX-PAD cells to support recovery following surgery for femoral neck fracture was awarded a Euro 7,400,000 (approximately $8,700,000) grant. The grant is part of the European Union's Horizon 2020 program. The Phase III study of PLX-PAD to support recovery following surgery for femoral neck fractures will be a collaborative project carried out by an international consortium led by Charite Universitätsmedizin Berlin, together with us, and with participation of additional third parties. The grant will cover a significant portion of the project costs. An amount of Euro 2,400,000 (approximately $2,800,000) is a direct grant allocated to us for manufacturing and other costs, and we also expect to have a direct benefit from cost savings resulting from grant amounts allocated to the other consortium members.
In May 2017, we announced promising results of our non-human primates, or NHPs, pilot study for PLX-R18 as a treatment for ARS. The study, conducted and funded by the NIAID, was designed to assess the safety and efficacy of PLX-R18 following intramuscular injection into irradiated and non-irradiated NHPs. Efficacy measures included survival as well as level of bone marrow function, which is affected by exposure to high levels of radiation as may occur in a nuclear accident or attack. These data will help support a pivotal study designed to meet the requirements for a Biologics License Application submission under the FDA's Animal Rule regulatory pathway.
In December 2015, we also signed a Memorandum of Understanding for a collaboration with Fukushima Medical University, Fukushima Global Medical Science Center. The purpose of the collaboration is to develop our PLX-R18 cells for the treatment of ARS, and for morbidities following radiotherapy in cancer patients. In August 2017, we announced that a pilot study of our PLX-R18 cell therapy will be initiated by the U.S. Department of Defense's Armed Forces Radiobiology Research Institute, part of the Uniformed Services University of Health Sciences. The study will examine the effectiveness of PLX-R18 as a treatment for ARS prior to, and within the first 24 hours of exposure to radiation.
In October 2017, we announced that the FDA has granted the company an orphan drug designation for its PLX-R18 cell therapy for the prevention and treatment of ARS.
In January 2017, we announced that we had completed enrollment of all 172 patients in the randomized, double blind, placebo controlled, multinational Phase II intermittent claudication (IC) clinical trial. We anticipate data readout in first half of 2018.
PLX R18 is also under development in a Phase I trial in the United States for incomplete hematopoietic recovery following hematopoietic cell transplantation (HCT).The FDA cleared our Investigational New Drug application to begin a Phase I trial of PLX-R18 cells to treat incomplete hematopoietic recovery following HCT. We initiated the trial in fiscal year 2017.
In October 2017, we announced that we received approval from the Israel Ministry of Health to initiate a Phase I trial studying our PLX-R18 cell therapy as a treatment for insufficient hematopoietic recovery following HCT.
In October 2017, the nTRACK, a collaborative project carried out by an international consortium led by LEITAT, was awarded a Euro 6,800 (approximately $8,000) non-royalty bearing grant. An amount of Euro 500 (approximately $600) is a direct grant allocated to us. We also expects to benefit from cost savings resulting from grant amounts allocated to the other consortium members. Final approval of the grant is subject to the finalization of the consortium and Horizon 2020 grant agreements.
In September 2017, we signed an agreement with Tel Aviv Sourasky Medical Center (Ichilov Hospital) to conduct a Phase I/II trial of PLX-PAD cell therapy for the treatment of Steroid-Refractory Chronic Graft-Versus-Host-Disease.
RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2016.
Research and Development Expenses, Net
Research and development expense, net (costs less participation and grants by the IIA and other parties) for the three months ended September 30, 2017 decreased by 6% from $4,998,000 for the three months ended September 30, 2016 to $4,677,000. This decrease is attributed to
a decrease in subcontractors' expenses due to the completion of patient enrollment in the IC clinical trial, a decrease in pre-clinical activities and a decrease in materials consumption. In addition, we recognized participation of $168,000 of the European Union with respect to the Horizon 2020 grant, which commenced in calendar year 2017. The decrease was offset by lower participation of the IIA in the three months ended September 30, 2017 compared to the three months ended September 30, 2016 ($3,300,000 was approved in calendar year 2016 compared to $1,500,000 that was approved in calendar year 2017) and an increase in payroll expenses mainly due to differences in exchange rates.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2017 increased by 77% from $1,564,000 for the three months ended September 30, 2016 to $2,763,000, mainly due to an increase in stock-based compensation expenses related to the amount of restricted stock units granted, an increase in payroll expenses due to
differences in exchange rates as well as an increase in the number of employees, and an increase in corporate activities expenses.
Financial Income, Net
Financial income, net, decreased from a net financial income of $238,000 for the three months ended September 30, 2016 to a net financial income of $55,000 for the three months ended September 30, 2017. This decrease is mainly attributable to an expense of $850,000 related to our marketable securities resulting from other-than-temporary impairment loss recognized in the three months ended September 30, 2017, increased expense related to the changes in the fair market value of our hedging instruments, which is related to the strength of the U.S. dollar against the NIS, and increased expense from exchange rates since through the three months ended September, 2017, there was an increase of 1% in the value of the U.S. dollar against the NIS, compared to a decrease of 2% in the value of the U.S. dollar against the NIS through the three months ended September 30, 2016. This decrease was partially offset by increased income related to the sale of our marketable securities.
Net Loss
Net loss for the three month period ended September 30, 2017 was $7,385,000, as compared to net loss of $6,324,000 for the three month period ended September 30, 2016, the change was mainly due to the increase in general and administrative expenses, as described above. Net loss per share for each of the three month periods ended September 30, 2017 and September 30, 2016, was $0.08.
For the three month periods ended September 30, 2017 and September 30, 2016, we had weighted average shares of common stock outstanding of 97,321,866 and
80,674,961, respectively, which were used in the computations of net loss per share for the three-month periods.
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 January 2017, issuances of shares to employees and consultants, issuances of shares pursuant to our At Market Issuance Sales Agreement, or the ATM Agreement, and shares issued as a result of exercises of options and warrants.
Liquidity and Capital Resources
As of September 30, 2017, our total current assets were $22,841,000 and total current liabilities were $4,771,000. On September 30, 2017, we had a working capital surplus of $18
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070,000, stockholders' equity of $24,364,000 and an accumulated deficit of $196,956,000. We finance our operations, and plan to continue doing so, from our existing cash, issuances of our securities, sales of the marketable securities we hold and funds from grants from the IIA, Israel's Ministry of Economy, European Union and other research grants.
Our cash and cash equivalents as of September 30, 2017 amounted to $12
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294,000 compared to $6,098,000 as of September 30, 2016, and compared to $4,707,000 as of June 30, 2017. Cash balances changed in the three months ended September 30, 2017 and 2016 for the reasons presented below.
Operating activities used cash of $5,190,000 in the three months ended September 30, 2017, compared to $3,923,000 in the three months ended September 30, 2016. Cash used in operating activities in the three months ended September 30, 2017 and 2016 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 and Israel's Ministry of Economy.
Investing activities provided cash of $11,727,000 in the three months ended September 30, 2017, compared to $3,794,000 for the three months ended September 30, 2016. The investing activities in the three months ended September 30, 2017 consisted primarily of $9,019,000 provided from the sale and redemption of marketable securities, and the withdrawal of $4,002,000 of short term deposits, offset by investment of $1,146,000 in marketable securities and payments of $148,000 related to investment in property and equipment. The investing activities in the three months ended September 30, 2016 consisted primarily of the withdrawal of $1,834,000 of short term deposits and $2,787,000 provided from the sale and redemption of marketable securities, offset by investment of $686,000 in marketable securities and payments of $145,000 related to investment in property and equipment.
Financing activities generated cash of $1,050,000 during the three months ended September 30, 2017, compared to $4,000 for the three months ended September 30, 2016. The cash generated in the three months ended September 30, 2017 from financing activities is related to net proceeds of $1,026,000 from issuing shares of our common stock under our ATM Agreement and from the exercise of warrants. The cash generated in the three months ended September 30, 2016 from financing activities was related to exercises of options by employees.
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 may elect, from time to time, to issue and sell shares of common stock having an aggregate offering price of up to $80 million through any of the Agents. We are not obligated to make any sales of common stock under the ATM Agreement. During the three month period ended September 30, 2017, we sold 834,040 shares of common stock pursuant to the ATM Agreement at an average price of $1.33 per share.
During the three months ended September 30, 2017, we received cash of approximately $1,349,000 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% - 4% 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, 2017, total grants obtained from the IIA aggregated to approximately $28,818,000 and total royalties paid amounted to $166,000.
The IIA has supported our activity in the past twelve years. Our last program, for the twelfth year, was approved by the IIA in 2017 and relates to an approximately $1,500,000 grant. The grant will be used to cover research and development expenses for the period January 1, 2017 to December 31, 2017.
Through September 30, 2017, we received total grants of approximately $965,000 in cash from the European Union research and development consortium under 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 our 2016 Annual Report.
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 2, 2017, we have been deemed to have sold $80,000,000 pursuant to our existing shelf, which is allocated for our ATM Agreement. In addition, on October 31, 2017, we completed a public offering in Israel, pursuant to our existing shelf in the United States and a shelf registration statement filed in Israel, pursuant to which we raised aggregate gross proceeds of $15,051,000 through the sale of 9,000,000 shares of our common stock at a purchase price of $1.67 per share. The net proceeds, after deducting fees and estimated expenses were $13,674,000.
Outlook
We have accumulated a deficit of $196,956,000 since our inception in May 2001. We do not expect to generate any 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, sales of our common stock or sales of the marketable securities we hold.
As of September 30, 2017, our cash position (cash and cash equivalents, short-term bank deposits and marketable securities) totaled approximately $20,746,000. 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) entering 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, 2017, together with the funds received from the public offering we closed on October 31, 2017, will be sufficient to maintain our operations into the third quarter of fiscal year 2019. 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.