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 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 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 In December 2019, we successfully
enrolled 75% of the patients and, 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 the European adaptive pathway, and in the first half of 2021 with
respect to the United States. In December 2019, we successfully enrolled 50% of patients in our Phase III study in muscle recovery
following surgery for hip fracture and, based on our current patient enrollment progress, we expect to complete the enrollment
for our Phase III study in muscle recovery following surgery for hip fracture during the third quarter of 2020 and efficacy follow
up by the end of the first quarter of 2021. 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 $8,500,000) 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 $8,300,000) grant as part of the European Union’s Horizon 2020 program and to date we have received a portion
of such grant.
Our 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 AND
SIX MONTHS ENDED DECEMBER 31, 2019 COMPARED TO THREE AND SIX MONTHS ENDED DECEMBER 31, 2018.
Revenues
Revenues for both the six
and three month periods ended December 31, 2019 were $23,000, as compared to $54,000 and $50,000, respectively, in the six and
three month periods ended December 31, 2018. All revenues 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 six month
period ended December 31, 2019 decreased by 23% from $13,020,000 for the six month period ended December 31, 2018 to $10,022,000.
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 and other subcontractors related to materials productions,
(3) a decrease in payroll expenses related to a decrease in the average number of employees, (4) a decrease in rent expenses
due to the implementation of Accounting Standards Update No. 2016-02, “Leases,” which resulted in a reduction
of $85,000 (for further information please refer to Note 3 in the accompanying financial statements to this Quarterly Report
on Form 10-Q) and (5) a decrease in travel expenses related to our clinical studies. The decrease was partially offset by
lower participation by the European Union with respect to the Horizon 2020 grants, due to the fact that most of the grant
is utilized in the beginning of the projects.
Research and development expense, net (costs less participation and grants by
the IIA and other parties) for the three month period ended December 31, 2019 decreased by 26% from $6,256,000 for the three
month period ended December 31, 2018 to $4,640,000. The decrease is mainly attributed to: (1) a decrease in materials consumption,
(2) a decrease in payroll expenses related to a decrease in the average number of employees and (3) a decrease in subcontractor
expenses related to a decrease in the initiation of sites for our clinical studies and other subcontractors related to materials
productions.
General and Administrative
Expenses
General and administrative
expenses for the six month period ended December 31, 2019 decreased by 18% from $4,333,000 for the six month period ended December
31, 2018 to $3,563,000. 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 25% reduction of the
annual salary of our Chief Executive Officer, a 25% reduction of the annual compensation of our Executive Chairman and a decrease
in the average number of employees.
General and administrative
expenses for the three month period ended December 31, 2019 decreased by 17% from $2,123,000 for the three month period ended December
31, 2018 to $1,750,000. 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, a decrease in corporate activities expenses and a decrease in payroll
expenses related to a 25% reduction of the annual salary of our Chief Executive Officer, a 25% reduction of the annual compensation
of our Executive Chairman and a decrease in the average number of employees.
Financial Income (Expense),
Net
Financial income (expense),
net, increased from a net financial expense of $168,000 for the six month period ended December 31, 2018 to a net financial income
of $54,000 for the six month period ended December 31, 2019. This increase is mainly attributable to changes in the fair value
of our hedging instruments related to the strength of the U.S. dollar against the New Israel Shekel, or NIS, offset by the implementation
of Accounting Standards Update No. 2016-02, “Leases,” which resulted in an expense of $180,000 (for further information
please refer to Note 3 in the accompanying financial statements to this Quarterly Report on Form 10-Q) and expense from exchange
rates related to the strength of the U.S. dollar against the NIS.
Financial expense, net,
decreased from a net financial expense of $352,000 for the three month period ended December 31, 2018 to a net financial
expense of $2,000 for the three month period ended December 31, 2019. This decrease is mainly attributable to changes in the
fair value of our hedging instruments related to the strength of the U.S. dollar against the NIS offset by the implementation
of Accounting Standards Update No. 2016-02, “Leases,” which resulted in an expense of $78,000 (for further
information please refer to Note 3 in the accompanying financial statements to this Quarterly Report on Form 10-Q) and
expense from exchange rates related to the strength of the U.S. dollar against the NIS.
Net Loss
Net loss for the six and
three month periods ended December 31, 2019 was $13,509,000 and $6,974,000, respectively, as compared to net loss of $17,469,000
and $8,683,000 for the six and three month periods ended December 31, 2018. The changes were mainly due to decreases in research
and development expenses, as described above. Net loss per share for the six and three month periods ended December 31, 2019 was
$0.86 and $0.40, respectively, as compared to $1.52 and $0.75 for the six and three month periods ended December 31, 2018.
For the six and three month
periods ended December 31, 2019 and December 31, 2018, we had weighted average shares of common stock outstanding of 15,665,641,
15,927,749 and 11,472,336, 11,579,093, respectively, which were used in the computations of net loss per share for the six 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 from a public
offering we conducted in April 2019, issuances of shares pursuant to our Open Market Sale AgreementSM, or the Sale Agreement,
issuances of shares to employees and consultants, and shares issued as a result of exercises of options.
Liquidity and Capital Resources
As of December 31, 2019, our total current assets
were $19,227,000 and total current liabilities were $6,991,000. On December 31, 2019, we had a working capital surplus of $12,236,000,
stockholders' equity of $15,910,000 and an accumulated deficit of $264,513,000. 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 December
31, 2019 amounted to $7,300,000 compared to $6,796,000 as of December 31, 2018, and compared to $4,106,000 as of June 30, 2019.
Cash balances changed in the six months ended December 31, 2019 and 2018 for the reasons presented below.
Operating activities used cash of $13,542,000
in the six months ended December 31, 2019, compared to $16,773,000 in the six months ended December 31, 2018. Cash used in operating
activities in the six months ended December 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 $10,660,000
in the six months ended December 31, 2019, compared to cash provided of $12,910,000 for the six months ended December 31, 2018.
The investing activities in the six month period ended December 31, 2019 consisted primarily of the withdrawal of $10,786,000 of
short term deposits, offset by payments of $128,000 related to investment in property and equipment. The investing activities in
the six month period ended December 31, 2018 consisted primarily of the withdrawal of $13,109,000 of short term deposits, offset
by payments of $193,000 related to investment in property and equipment.
Financing activities generated cash of $5,967,000
during the six months ended December 31, 2019, compared to $2,067,000 for the six months ended December 31, 2018. The cash generated
in the six months ended December 31, 2019 from financing activities is related to net proceeds of $5,967,000 from issuing shares
of our common stock under our Sale Agreement. The cash generated in the six months ended December 31, 2018 from financing activities
is related to net proceeds of $1,952,000 from issuing shares of our common stock under our ATM Agreement (as defined below), 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 At
Market Sales Agreement, or 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 December 31, 2019, we sold an aggregate of 1,880,918 shares
of common stock pursuant to the Sale Agreement at an average price of $4.83 per share.
During the six months ended
December 31, 2019, we received cash of approximately $332,000 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 December 31, 2019, total grants obtained from the IIA aggregated to approximately
$27,685,000 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 was used to cover research and development expenses for the period of January 1, 2019 to December
31, 2019.
As of December 31, 2019,
we received total grants of approximately $5,638,000 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 February 6, 2020, 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, 2,806,398 shares
of common stock in a total gross amount of $12,738,048 pursuant to the Sale Agreement, and may be deemed to have sold an additional
$37,261,952 pursuant to the Sale Agreement.
Outlook
We have accumulated a deficit of $264,513,000
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 may increase in the foreseeable future. We expect to generate revenues, from the sale of licenses to use
our technology or products, but in the short and medium terms will unlikely exceed our costs of operations.
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 December 31, 2019, our cash position
(cash and cash equivalents, short-term bank deposits and restricted cash and long-term bank deposits) totaled approximately
$17,060,000 and during January 2020, we raised approximately $3,700,000 under the Sales Agreement. 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 December 31, 2019, together with the funds received under the Sales Agreement during January 2020, will be sufficient
to maintain our operations into the second 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.