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, as well as grants from other independent third parties;
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the
receipt of funds pursuant to our finance agreement, or the Finance Agreement, with the
European Investment Bank, or the EIB, and whether we will achieve the milestones necessary
to receive funds thereunder;
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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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the
progress of our multinational regulated clinical trial program for the potential use
of PLX cells in the treatment of patients suffering from complications associated with
the COVID-19 pandemic;
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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, including the use of our serum-free formulation;
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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;
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information
with respect to any other plans and strategies for our business; and
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our
expectation regarding the impact of the COVID-19 pandemic, including on our clinical
trials and operations.
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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, 2020, or the 2020 Annual Report, as well as Item 1A of
this Quarterly 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 subsidiaries, Pluristem Ltd. and Pluristem GmbH,
unless otherwise indicated or as otherwise required by the context.
Overview
We
are a leading developer of placenta-based cell therapy product candidates for the treatment of multiple ischemic, inflammatory
and hematologic conditions. Our operations are focused on the research, development, manufacturing, conducting clinical trials
and business development of cell therapeutics and related technologies.
We
are currently enrolling patients in two Phase III studies: one for critical limb ischemia, or CLI, and another for muscle recovery
following surgery for hip fracture. In addition, we are focusing on other indications such as acute radiation syndrome, or ARS,
incomplete recovery following bone marrow transplantation, Steroid-Refractory Chronic Graft Versus Host Disease, or cGvHD, and
intermittent claudication. We received clearance from the U.S. Food and Drug Administration, or the FDA, and the German health
regulatory agency, the Paul Ehrlich Institute, or the PEI, to conduct a Phase II trial evaluating PLX cells for the treatment
of severe cases of the COVID-19 coronavirus, or COVID-19, complicated by Acute Respiratory Distress Syndrome, or ARDS. We expect
to complete enrollment of the U.S. Phase II study in the first quarter of calendar year 2021. We also received approval from the
Israeli Ministry of Health to commence patient enrollment in Israel for our COVID-19 Phase II clinical trial, under the protocol
that was approved by the PEI. We have treated several patients in Israel and in the United States suffering from severe ARDS associated
with COVID-19 under a compassionate use program. In addition, the FDA has cleared our Expanded Access Program, or EAP, for the
use of our PLX-PAD cells to treat up to 100 patients suffering from ARDS caused by COVID-19 outside of our ongoing Phase II COVID-19
trial in the U.S. We believe that 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 placenta at the time of full term healthy delivery
of a baby. PLX cell products require no tissue or blood 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 the FDA’s current Good Manufacturing Practice, or cGMP, requirements and has been inspected and approved by the European
and Israeli regulators for production of PLX-PAD for late stage trials. We have also granted manufacturer/importer authorization
and cGMP 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 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
were incorporated in Nevada in 2001, and we have a wholly owned subsidiary in Israel called Pluristem Ltd. and a wholly owned
subsidiary in Germany called Pluristem GmbH.
RESULTS
OF OPERATIONS – THREE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2019.
Revenues
We
had no revenues during the three month periods ended September 30, 2020 and September 30, 2019.
Research
and Development Expenses, Net
Research
and development expense, net (costs less participation and grants by the IIA and other parties) for the three month period ended
September 30, 2020 increased by 10% from $5,382,000 for the three month period ended September 30, 2019 to $5,938,000. The increase
consisted primarily of (1) an increase in subcontractor expenses mainly related to our Phase II trial for the treatment of severe
cases of the COVID-19 complicated by ARDS, (2) an increase in materials consumption, which were in line with our production plan,
(3) an increase in payroll expenses and (4) lower participation by the European Union with respect to the European Union’s
Horizon 2020 grants, which was primarily utilized in the first years of the projects.
General
and Administrative Expenses
General
and administrative expenses for the three month period ended September 30, 2020 increased by 54% from $1,813,000 for the three
month period ended September 30, 2019 to $2,799,000. The increase consisted primarily of (1) an increase in payroll expenses related
to the entitlement of Mr. Aberman, our Executive Chairman, to certain adjustment fees pursuant to his amended consulting agreement,
(2) an increase in stock-based compensation expenses related to a grant award approved by our Board in September 2020 and (3)
an increase in legal activities related to the formation of our German subsidiary, Pluristem GmBH, and legal activities related
to the EIB Finance Agreement.
Financial
Income (Expense), Net
Financial
income, net, increased from a net financial income of $56,000 for the three month period ended September 30, 2019 to a net financial
income of $248,000 for the three month period ended September 30, 2020. This increase is mainly attributable to income due to
exchange rates related to the strength of the U.S. dollar against the NIS.
Net
Loss
Net
loss for the three month period ended September 30, 2020 was $8,489,000 as compared to net loss of $7,139,000 for the three month
period ended September 30, 2019. The increase was mainly due to increases in research and development expenses and general and
administrative expenses, as described above. Net loss per share for the three month period ended September 30, 2020 was $0.33
as compared to $0.46 for the three month period ended September 30, 2019.
For
the three month period ended September 30, 2020 and September 30, 2019, we had weighted average shares of common stock outstanding
of 25,535,593 and 15,405,026, 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 to employees and consultants, issuances of shares pursuant to our Open Market Sale AgreementSM, or the Sales
Agreement, we executed with Jefferies LLC, or Jefferies, on February 6, 2019, issuances of shares pursuant to a securities purchase
agreement with two institutional investors in May 2020, and shares issued as a result of exercises of warrants and options.
Liquidity
and Capital Resources
As
of September 30, 2020, our total current assets were $42,691,000 and total current liabilities were $8,345,000. On September 30,
2020, we had a working capital surplus of $34,346,000, stockholders’ equity of $48,948,000 and an accumulated deficit of $288,645,000.
We finance our operations, and plan to continue doing so, from our existing cash, issuances of our securities, use of the funds
that we may receive pursuant to the Finance Agreement with the EIB once we meet the applicable milestones, and other non-dilutive
grants such as grants from the IIA, European Union’s Horizon 2020 program and Israel’s Ministry of Economy.
Our
cash and cash equivalents as of September 30, 2020 amounted to $6,625,000, compared to $3,715,000 as of September 30, 2019, and
compared to $8,270,000 as of June 30, 2020. Cash balances changed in the three months ended September 30, 2020 and 2019 for the
reasons presented below.
Operating
activities used cash of $6,141,000 in the three months ended September 30, 2020, compared to $7,241,000 in the three months ended
September 30, 2019. Cash used in operating activities in the three months ended September 30, 2020 and 2019 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, partially offset by grants from the IIA, the European Union’s
Horizon 2020 program, Israel’s Ministry of Economy and other research grants.
Investing
activities provided cash of $4,199,000 in the three months ended September 30, 2020, compared to cash provided of $4,748,000 for
the three months ended September 30, 2019. The investing activities in the three month period ended September 30, 2020 consisted
primarily of the withdrawal of $3,754,000 of short term deposits, withdrawal of $522,000 of long term deposits, partially offset
by payments of $77,000 related to investment in property and equipment. 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.
Financing
activities generated cash of $300,000 during the three months ended September 30, 2020, compared to $1,981,000 for the three months
ended September 30, 2019. The cash generated in the three months ended September 30, 2020 from financing activities is related
to net proceeds of $300,000 from issuing shares of our common stock from the exercise of warrants. 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 Sales Agreement.
In
April 2020, we and our subsidiaries, Pluristem Ltd. and Pluristem GmbH, executed the Finance Agreement with the EIB for funding
of up to €50 million in the aggregate, payable in three tranches. The proceeds from the Finance Agreement are intended to
support our research and development in the EU to further advance our regenerative cell therapy platform, and to bring the products
in our pipeline to market, with a special focus on clinical development of PLX cells as a treatment for complications associated
with COVID-19. The proceeds from the Finance Agreement are expected to be deployed in three tranches, subject to the achievement
of certain clinical, regulatory and scaling up milestones with the first tranche consisting of €20 million. To date, we have
not yet received the first tranche of funds from the EIB.
On
February 6, 2019, we entered into the Sales Agreement with Jefferies pursuant to which we were entitled to 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 were not obligated
to make any sales of common stock under the Sales Agreement. From February 6, 2019 through June 30, 2020, we sold an aggregate
of 8,297,750 shares of common stock pursuant to the Sales Agreement for aggregate gross proceeds of $49,140,965. On June 30, 2020,
our shelf registration on Form S-3 declared effective by the SEC on June 23, 2017 expired, and as a result thereof, the Sales
Agreement was terminated. On July 16, 2020, we entered into a new Open Market Sales AgreementSM, or the 2020 Sales
Agreement, with Jefferies, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price
of up to $75,000,000 from time to time through Jefferies. As of September 30, 2020, we did not conduct any sales under the 2020
Sales Agreement. Upon entering into the 2020 Sales Agreement, we filed a new shelf registration statement on Form S-3, which was
declared effective by the SEC on July 23, 2020.
On May 5, 2020, we entered into securities purchase agreements with two institutional
investors pursuant to which we sold, in a registered direct public offering, 1,587,302 shares of common stock for net proceeds
of approximately $15,000,000.
During
the three months ended September 30, 2020, warrants were exercised by investors at an exercise price of $7.00 per share, resulting
in the issuance of 42,857 shares of common stock for net proceeds of approximately $300,000.
During
the three months ended September 30, 2020, we received cash of approximately $58,000 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, 2020, total grants obtained from the IIA
aggregated to approximately $27,743,000 and total royalties paid and accrued amounted to $169,000.
The
IIA has supported our activity in the past fourteen years. 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.
In
May 2020, we were selected as a member of the CRISPR-IL consortium, a group funded by the IIA. CRISPR-IL brings together the leading
experts in life science and computer science from academia, medicine, and industry, to develop AI based end-to-end genome-editing
solutions. CRISPR-IL is funded by the IIA with a total budget of approximately $10,000,000 of which, an amount of approximately
$480,000 is a direct grant allocated to us, for a period of 18 months, with a potential for extension of an additional 18 months
and additional budget from the IIA. CRISPR-IL participants include leading companies, and medical and academic institutions. As
of September 30, 2020, we received total grants of approximately $348,000 in cash from the IIA pursuant to the CRISPR-IL consortium
program.
As
of September 30, 2020, we received total grants of approximately $5,973,000 in cash from the European Union research and development
consortiums pursuant to the European Union’s 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 2020 Annual Report on form 10-K for the fiscal year ended June 30, 2020.
We
have an effective Form S-3 registration statement (file no. 333-239890), 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 $250,000,000.
As of November 5, 2020, other than the $75 million we are eligible to sell pursuant to the 2020 Sales Agreement, no common stock,
preferred stock and warrants to purchase common stock were sold.
Outlook
We
have accumulated a deficit of $288,645,000 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
may 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 EIB Financing, the IIA grants, the
European Union grant and other research grants, collaboration with other companies and sales of our common stock.
We
believe that we have sufficient cash to fund our operations for at least the next 12 months.
Off
Balance Sheet Arrangements
We
have no off balance sheet arrangements.