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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of Operations
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The following discussion
and analysis provides information that we believe to be relevant to an assessment and understanding of our results of operations
and financial condition for the periods described. This discussion should be read together with our condensed consolidated interim
financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q. This
information should also be read in conjunction with the information contained in our Annual Report on Form 10-K for the year ended
December 31, 2018, filed with the Securities and Exchange Commission on February 27, 2019, including the consolidated annual financial
statements as of December 31, 2018 and their accompanying notes included therein. We have prepared our condensed consolidated interim
financial statements in accordance with U.S. GAAP.
This Quarterly Report
on Form 10-Q of Intec Pharma Ltd. contains forward-looking statements about our expectations, beliefs and intentions. Forward-looking
statements can be identified by the use of forward-looking words such as “believe”, “expect”, “intend”,
“plan”, “may”, “should”, “could”, “might”, “seek”, “target”,
“will”, “project”, “forecast”, “continue” or “anticipate” or their
negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly to
historical matters. These forward-looking statements are based on assumptions and assessments made in light of management’s
experience and perception of historical trends, current conditions, expected future developments and other factors believed to
be appropriate. Forward-looking statements in Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on
Form 10-Q, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events
or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many
of which are outside of our control. Many factors could cause our actual activities or results to differ materially from the activities
and results anticipated in forward-looking statements, including, but not limited to, the following: our limited operating history
and history of operating losses, our ability to continue as a going concern, our ability to obtain additional financing, our ability
to successfully operate our business or execute our business plan, 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 February
27, 2019, and in other filings that we have made and may make with the Securities and Exchange Commission in the future.
All references to
“we,” “us,” “our,” “Intec”, “the Company” and “our Company”
in this Quarterly Report on Form 10-Q are to Intec Pharma Ltd. and its U.S. subsidiary Intec Pharma Inc., unless the context otherwise
requires.
Overview
We are a clinical
stage biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology,
which we refer to as the Accordion Pill. Our Accordion Pill is an oral drug delivery system that is designed to improve the
efficacy and safety of existing drugs and drugs in development by utilizing an efficient gastric retention and specific
release mechanism. Our product pipeline currently includes several product candidates in various clinical trial stages. Our
leading product candidate, AP-CD/LD, is being developed for the indication of treatment of Parkinson’s disease symptoms
in advanced Parkinson’s disease patients. We have 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 have agreed with the U.S.
Food and Drug Administration, or FDA, on the remaining clinical development program for AP-CD/LD for the treatment
of Parkinson’s disease symptoms in advanced Parkinson’s disease patients, including the main principles of
the single required pivotal Phase III clinical trial in advanced Parkinson’s disease patients.
We are currently conducting
a pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s disease known as the ACCORDANCE study.
In April 2019, we announced that the last patient has completed the final visit in the ACCORDANCE study and we currently expect
to release top-line results in the July/August 2019 timeframe. In our correspondence with the FDA, the FDA previously agreed that
an acceptable regulatory pathway for AP-CD/LD would be to submit a new drug application, or NDA, pursuant to Section 505(b)(2)
of the Federal Food, Drug, and Cosmetic Act, or FDCA which is a streamlined approval pathway that may accelerate the time to commercialize
and decrease the costs of FDA approval for AP–CD/LD, as compared to those typically associated with an NCE.
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 on-going ACCORDANCE study, to 1.5 tablets of CD/LD immediate release (Sinemet™)
25/100 dosed five times per day in Parkinson’s disease patients.
We have invested in
the commercial scale manufacture of AP-CD/LD, for which we are in partnership with LTS Lohmann Therapie-Systeme AG, or LTS. In
December 2018, the large commercial scale production line was delivered to LTS in Andernach, Germany. We are in the process of
installing and connecting all the ancillary equipment and expect to begin the validation, bioequivalency and stability studies
needed for approval of our commercial production processes in the coming months. After preliminary discussions with the FDA in
anticipation of filing for marketing approval of AP-CD/LD, we remain confident we are on track to submit a NDA for approval of
AP-CD/LD in mid- to late-2020, assuming positive topline data.
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 expect to provide
new timelines before the end of the year.
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 and during the first quarter of 2019 we initiated the human PK study. We believe
continued success with this program further validates the platform, confirms our technical abilities to build custom APs and paves
the way for additional collaborative agreements.
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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2019
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2018
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(dollars in thousands)
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Research and development expenses, net
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$
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(8,542)
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$
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(8,880)
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General and administrative expenses
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(2,190)
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(1,910)
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Operating loss
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(10,732)
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(10,790)
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Financial income, net
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110
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124
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Loss before income tax
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(10,622)
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(10,666)
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Income tax
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(34)
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(63)
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Net loss
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$
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(10,656)
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$
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(10,729)
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Three Months Ended March 31, 2019 Compared
to Three Months Ended March 31, 2018
Research and Development Expenses,
Net
Our research and development
expenses, net, for the three months ended March 31, 2019 amounted to approximately $8.5 million, a decrease of approximately $400,000,
or 4%, compared to approximately $8.9 million for the three months ended March 31, 2018. The decrease was primarily due to a decrease
in expenses related to our ACCORDANCE study and open label extension study. This decrease was offset by an increase in expenses
related to the scale up activities for the commercial scale production capabilities for AP-CD/LD at LTS.
General and Administrative Expenses
Our general and administrative
expenses for the three months ended March 31, 2019 amounted to approximately $2.2 million, an increase of approximately $300,000,
or 16%, compared to approximately $1.9 million for the three months ended March 31, 2018. The increase was primarily related to
the increase in payroll and related expenses mainly due to an increase in headcount and salary raises and insurance expenses. This
increase was offset by a decrease in professional services.
Operating Loss
As a result of the
foregoing, for the three months ended March 31, 2019 our operating loss was approximately $10.7 million, a decrease of approximately
$100,000, or 1%, compared to our operating loss for the three months ended March 31, 2018 of approximately $10.8 million. The decrease
was mainly due to a decrease in research and development expenses, offset by an increase in general and administrative expenses,
as detailed above.
Financial Income, Net
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. For
the three months ended March 31, 2018, we had financial income from interest on cash equivalents in the amount of approximately
$146,000 and foreign currency exchange income in the amount of approximately $57,000 offset by financial expenses from change in
fair value of marketable securities in the amount of approximately $73,000 and bank fees.
Income tax
For the three months
ended March 31, 2019 and 2018, we have not generated taxable income in Israel. However, for the three months ended March 31, 2019
and 2018 we incurred tax expenses in our U.S. subsidiary in the amount of approximately $34,000 and $63,000, respectively.
Net Loss
Based on the foregoing,
net loss for the three months ended March 31, 2019 and 2018 was approximately $10.7 million.
Liquidity and Capital Resources
Since our inception,
we have funded our operations primarily through public and private offerings (in Israel and in the U.S.) of our equity securities,
grants from the IIA and other grants from organizations such as the Michael J. Fox Foundation, and payments received under the
feasibility and related agreements we have entered into with multinational pharmaceutical companies, pursuant to which we are entitled
to full coverage of our development costs with regard to the projects specified in those agreements.
As of March 31, 2019,
we had cash and cash equivalents and marketable securities of approximately $32.3 million. As of December 31, 2018, we had cash
and cash equivalents and marketable securities of approximately $40.6 million.
Net cash used in operating
activities was approximately $7.3 million for the three months ended March 31, 2019 compared with net cash used in operating activities
of approximately $10.3 million for the three months ended March 31, 2018. This decrease resulted primarily from changes in operating
asset and liability items of approximately $2.6 million and decrease in expenses paid in cash in the current quarter compared to
the three months ended March 31, 2018.
We had negative cash
flow from investing activities of approximately $640,000 for the three months ended March 31, 2019 compared to negative cash flow
from investing activities of approximately $2.0 million for the three months ended March 31, 2018. This decrease resulted primarily
from a decrease in purchase of property and equipment in the amount of approximately $2.0 million and proceeds from the disposal
of marketable securities in the amount of approximately $500,000. This was offset by an approximate $1.2 million investment in
other assets related to the establishment of the commercial scale production capabilities for AP-CD/LD at LTS. For more information,
see note 4(c) in our condensed consolidated financial statements for the three months ended March 31, 2019.
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. In the three months ended March 31, 2018 we had no financing activities.
Current Outlook
We estimate that our
current cash resources will allow us to complete our Phase III clinical trial for AP-CD/LD. We believe however, 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 within one
year after the date our accompanying consolidated financial statements are issued. We expect to satisfy our future cash needs through
submissions of applications for grants from private funds, license agreements with third parties and capital raising from the public,
private investors and institutional investors, such as through the public offering of ordinary shares that we completed in April
2018. We may also engage with a partner in order to share the costs associated with the development and manufacturing of our product
candidates. For more information, see note 1a(2) in our condensed consolidated financial statements for the three months ended
March 31, 2019.
On March 1, 2019, we
entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”), pursuant to which we may sell from time to time,
at our option, up to $75.0 million of our ordinary shares through an “at-the-market” equity offering program under
which Cowen will act as sales agent. The issuance and sale of ordinary shares by us under the program will be made pursuant to
our effective “shelf” registration statement on Form S-3 (Registration Statement No. 333-230016) filed with the SEC
on March 1, 2019, and declared effective on March 28, 2019. No ordinary shares have been sold under the program.
Developing drugs, conducting
clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will need to
raise substantial additional funds to achieve our strategic objectives. We will require significant additional financing in the
future to fund our operations, including if and when we progress into additional clinical trials of our product candidates, obtain
regulatory approval for one or more of our product candidates, obtain commercial manufacturing capabilities and commercialize one
or more of our product candidates. Our future capital requirements will depend on many factors, including, but not limited to:
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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
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, 2018. With the exception
of the change for the accounting of leases as a result of the adoption of ASC Topic 842 on January 1, 2019 there have been no material
changes to those policies during the three months ended March 31, 2019.
Recently Issued
Accounting Pronouncements
See Note 2, Significant
Accounting Policies, to the condensed consolidated financial statements included in “Item 1- Condensed Consolidated Financial
Statements” of this Quarterly Report on Form 10-Q.