Research and Development, Patents and License Expenses
Research and development expenses consist primarily of costs incurred for our research activities, which include, among other things:
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employee-related expenses, including salaries, benefits and stock-based compensation expense;
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fees paid to consultants for services directly related to our drug development and regulatory effort;
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expenses incurred under contract manufacturing organizations, as well as contract manufacturing organizations and consultants that conduct preclinical studies and
clinical trials;
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costs associated with development activities;
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costs associated with technology and intellectual property licenses; and
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milestone payments and other costs under licensing agreements.
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Costs incurred in connection with research and development activities are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized
based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors.
Research and development activities are and will continue to be central to our business model. We expect our research and development expenses to increase for the foreseeable
future as we advance our current and future drug candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. It
is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct. The duration, costs and timing of clinical trial programs and development of our current and future drug candidates will
depend on a variety of factors that include, but are not limited to, the following:
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number of clinical trials required for approval and any requirement for extension trials;
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number of patients that participate in the clinical trials;
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number of sites included in the clinical trials;
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countries in which the clinical trial is conducted;
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length of time required to enroll eligible patients;
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potential additional safety monitoring or other studies requested by regulatory agencies; and
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efficacy and safety profile of the drug candidate.
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In addition, the probability of success for any of our current or future drug candidates will depend on numerous factors, including competition, manufacturing capability and
commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate, as well as an assessment of each drug candidate’s commercial potential.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and share-based compensation. Other general and administrative
expenses include directors’ and officers’ liability insurance premiums, costs associated with being a publicly traded company, fees associated with investor relations, professional fees for consultants, tax and legal services and facility-related
costs.
We expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs. In addition, if our current or
future drug candidates are approved for sale, we expect that we would incur expenses associated with building our commercial and distribution infrastructure.
Financial Income, Net
Financial income, net, primarily consists from interest received from deposits, bank management fees and commissions and exchange rate differences expenses.
Results of Operations
The table below provides our results of operations for the nine months ended September 30, 2023 and 2022.
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Nine Months Ended
September 30,
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2023
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2022
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(US$ thousands)
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Statements of comprehensive loss data:
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Research and development
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(3,289
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)
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(2,473
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General and administrative
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(2,731
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)
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(3,140
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Total operating loss
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(6,020
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)
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(5,613
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Financial income (expenses), net
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1,567
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(13
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Net loss
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(4,453
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)
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(5,626
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)
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Research and development expenses. Research and development expenses were $3.3 million for the nine months ended September 30, 2023,
compared to $2.5 million for the nine months ended September 30, 2022, an increase of $0.8 million. The increase was primarily due to an increase in payments for clinical trials costs and manufacturing costs that was offset with a decrease in
consultant expenses.
General and
administrative expenses. General and administrative expenses were $2.7 million for the nine months ended September 30, 2023, compared to $3.1 million for the nine months ended September 30, 2022, a decrease of 0.4 million. The decrease
was mainly in insurance costs and certain professional services costs.
Financial income, net. Financial income, net was $1.6 million for the nine months ended September 30, 2023, compared to financial expenses of $13,000, net
for the nine months ended September 30, 2022. The increase of financial income was primarily due to the change in valuation of warrants that were issued in July 2023 and recorded as a liability in the condensed financial statements of $1.6
million and receipt of interest from deposits.
Net loss. As a result of the foregoing, we incurred a net loss of $4.5 million for the nine months ended September 30, 2023, compared to
a net loss of $5.6 million for the nine months ended September 30, 2022, a decrease of $1.1 million. The decrease was primarily due to an increase in financial income that was offset by payments for clinical trials costs and manufacturing costs.
Liquidity and Capital Resources
Substantial Doubt About Ability to Continue as a Going Concern
Since our inception, we have devoted substantially all of our efforts to research and development, clinical trials, and capital raising activities. We
are still in our development and clinical trial stage and have not yet generated revenues. Developing drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve
our strategic objectives.
We have incurred and expect to continue incurring losses, and negative cash flows from operations until our product, PRF-110, reaches commercial profitability. As a result of these expected
losses and negative cash flows from operations, along with our current cash position and the resources required to re-initiate the second part of our Phase 3 clinical trial of PRF-110, which happened in the third quarter of 2023, we believe we
only have sufficient resources to fund operations through the end of the third quarter of 2024. As a result, we will be required to raise additional capital in the future to complete our clinical trial. Therefore, there is substantial doubt
about our ability to continue as a going concern.
For the nine months ended September 30, 2023, and 2022, we incurred losses of $4.5 million and $5.6 million, respectively, and had negative operating cash outflows of $5.1 million, and $3.6
million, respectively.
To date, we have funded our operations primarily through proceeds from our initial public offering and public and private offerings. As of September 30, 2023, we had an
accumulated deficit of approximately $37.0 million, cash and cash equivalents (including deposits and restricted cash) of approximately $8.6 million and a positive working capital of approximately $9.7 million.
Management's plans include continued commercialization of our products and raising capital through the sale of additional equity securities, debt or capital inflows from
strategic partnerships. There are no assurances, however, that we will successfully obtain the level of financing needed for our operations. If we are unsuccessful in commercializing our products or raising capital, we may need to reduce
activities, curtail or cease operations.
Developing drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. We expect to
continue incurring losses, and negative cash flows from operations until our product, PRF-110, reaches commercial profitability. As a result of the initiation of our Phase III clinical trial in March 2023, along with our current cash position, we
believe we will not have sufficient resources to fund operations until the end of our Phase 3 study.
These factors raise substantial doubt on the Company’s ability to continue to operate as a going concern. The financial statements have been prepared assuming that the Company
will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Our estimate as to how long we expect our funds to support our operations is based on assumptions that may prove to be wrong, and we could exhaust our available capital resources
sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than
planned. Our future capital requirements will depend on many factors, including:
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the costs, timing and outcome of regulatory review of PRF-110;
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the scope, progress, results and costs of our current and future clinical trials of PRF-110 for our current targeted uses;
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the extent to which we acquire or invest in businesses, products and technologies, including entering into or maintaining licensing or collaboration arrangements for PRF-110 on
favorable terms, although we currently have no commitments or agreements to complete any such transactions;
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the costs and timing of future commercialization activities, including drug sales, marketing, manufacturing and distribution, for any of our product candidates for which
we receive marketing approval, to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time;
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the amount of revenue, if any, received from commercial sales of PRF-110, should it receive marketing approval;
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the costs of preparing, filing and prosecuting patent applications, maintaining, defending and enforcing our intellectual property rights and defending
intellectual property-related claims;
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our ability to establish strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the
timing and amount of any future milestone, royalty or other payments due under any such agreement;
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our headcount growth and associated costs as we expand our business operations and our research and development activities;
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the costs of operating as a public company;
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maintaining minimum shareholders’ equity requirements under the Nasdaq
rules; and
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the impact of the COVID-19 pandemic, the Russian invasion of
Ukraine and war between Israel and Hamas, which may exacerbate the magnitude of the factors
discussed above.
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We expect our expenses to increase in connection with our planned operations. Until such time, if ever, as we can generate substantial revenues, we expect to finance our cash
needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and/or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your
ownership interest may be diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a shareholder. In addition, debt financing, if available,
would result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming
shares or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of
their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our
technology, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, reduce and/or eliminate our product candidate
development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
On July 14, 2023, we sold to a certain institutional investor an aggregate of 117,930 ordinary shares in a registered direct offering at a purchase price of $9.00 per share and
pre-funded warrants to purchase up to 183,300 ordinary shares at a purchase price of $8.999, resulting in gross proceeds of approximately $2.7 million. In addition, we issued to the investor unregistered warrants to purchase up to an aggregate of
301,230 ordinary shares in a concurrent private placement.
On July 18, 2023, we sold to a certain institutional investor an aggregate of 145,000 ordinary shares in a registered direct offering at a purchase price of $9.00 per share and
pre-funded warrants to purchase up to 21,666 ordinary shares at a purchase price of $8.999, resulting in gross proceeds of approximately $1.5 million. In addition, we issued to the investor unregistered warrants to purchase up to an aggregate of
166,666 ordinary shares in a concurrent private placement.
Cash Flows
The following table sets forth the major components of our statements of cash flows for the periods presented (U.S. dollars in thousands):
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Nine months
Ended
September 30,
2023
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Nine months
Ended
September 30,
2022
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Net cash used in operating activities
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$
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(5,127
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$
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(3,591
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Net cash provided by (used in) investing activities
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4,992
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(6,034
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Net cash provided by financing activities
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3,594
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-
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Effect of Exchange rate changes on cash, cash equivalents and restricted cash
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(5
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-
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Increase (decrease) in cash and cash equivalents and restricted cash
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3,454
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(9,625
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Cash and cash equivalents and restricted cash, at the beginning of period
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4,106
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16,571
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Cash and cash equivalents and restricted cash, at the end of period
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$
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7,560
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$
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6,949
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Net cash used in operating activities
For the nine months ended September 30, 2023, and 2022, net cash used in operating activities was $5.1 million and $3.6 million, respectively. The increase was mainly due to an increase of payments
for clinical trials and manufacturing and change in warrant liability valuation.
Net cash used in investing activities
For the nine months ended September 30, 2023, net cash provided by investing activities was $5.0 million, compared to net cash used of $6.0 million in the nine months ended September 2022. The
change was due to proceeds from investments in short term deposits in 2023.
Net cash provided by financing activities
For the nine months ended September 30, 2023, net cash provided by financing activities was $3.6 million, compared to an amount of none in the nine months ended September 2022. The increase was due
to proceeds from issuance of shares and warrants in July 2023.
Research and Development, Patents and Licenses.
Costs incurred in connection with research and development activities are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized
based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors.
Research and development activities are and will continue to be central to our business model. We expect our research and development expenses to increase for the foreseeable
future as we advance our current and future drug candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. It
is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct. The duration, costs and timing of clinical trial programs and development of our current and future drug candidates will
depend on a variety of factors that include, but are not limited to, the following:
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number of clinical trials required for approval and any requirement for extension trials;
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number of patients that participate in the clinical trials;
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number of sites included in the clinical trials;
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countries in which the clinical trial is conducted;
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length of time required to enroll eligible patients;
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potential additional safety monitoring or other studies requested by
regulatory agencies; and
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efficacy and safety profile of the drug candidate.
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In addition, the probability of success for any of our current or future drug candidates will depend on numerous factors, including competition, manufacturing capability and
commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate, as well as an assessment of each drug candidate’s commercial potential.
Trend Information.
We are a development stage company and it is not possible for us to predict with any degree of accuracy the outcome of our research, development or commercialization efforts. As
such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenues, income from continuing
operations, profitability, liquidity or capital resources, or that would cause financial information to not necessarily be indicative of future operating results or financial condition. However, to the extent possible, certain trends,
uncertainties, demands, commitments and events are identified in the preceding subsections.
Off-Balance Sheet Arrangements.
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and
regulations of the Securities and Exchange Commission ( the “SEC”).
Critical Accounting Policies and Judgments and Estimates
Our statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). Some of the accounting methods
and policies used in preparing our financial statements under GAAP are based on complex and subjective assessments by our management or on estimates based on past experience and assumptions deemed realistic and reasonable based on the
circumstances concerned. The actual value of our assets, liabilities and shareholders’ equity and of our accumulated deficit could differ from the value derived from these estimates if conditions change and these changes have an impact on the
assumptions adopted. See Note 2 to the accompanying financial statements and the section titled “Critical Accounting Estimates” in our most recent Annual Report on Form 20-F.
Reverse Split
On June 8, 2023, we effected a reverse share split of our ordinary shares at the ratio of 1-for-10, such that each ten (10) ordinary shares, par value NIS 0.03 per share, were
consolidated into one (1) ordinary share, par value NIS 0.30. July 3, 2023 was the first date when our ordinary shares began trading on the Nasdaq Stock Market LLC after implementation of the reverse split.
Risk Factors
Except as set forth below, there are no material changes to the risk factors previously disclosed in our Annual Report on Form 20-F for the year ended December 31, 2022.
Security, political and economic instability in the Middle East may harm our business.
Our executive office is located in Tel Aviv, Israel. In addition, certain of our key employees, officers and directors are residents of Israel. Accordingly, political, economic
and military conditions in the Middle East may affect our business directly. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries and terrorist organizations
active in the region, including Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon).
In particular, in October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets.
Hamas also launched extensive rocket attacks on the Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in thousands of deaths and
injuries, and Hamas additionally kidnapped many Israeli civilians and soldiers. Following the attack, Israel’s security cabinet declared war against Hamas and commenced a military campaign against Hamas and these terrorist organizations in parallel
continued rocket and terror attacks. We cannot currently predict the intensity or duration of Israel’s war against Hamas.
Additionally, political uprisings, social unrest and violence in various countries in the Middle East, including Israel’s neighbor Syria, have affected the political stability of
those countries. This instability may lead to deterioration of the political relationships that exist between Israel and certain countries and have raised concerns regarding security in the region and the potential for armed conflict. In addition,
Iran has threatened to attack Israel. Iran is also believed to have a strong influence among the Syrian government, Hamas and Hezbollah. These situations may potentially escalate in the future into more violent events which may affect Israel and
us. These situations, including conflicts which involved missile strikes against civilian targets in various parts of Israel have in the past negatively affected business conditions in Israel.
Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could have a material adverse effect on our business.
The political and security situation in Israel may result in parties with whom we have contracts claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions. These or other Israeli
political or economic factors could harm our operations and product development. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could adversely affect our operations and
could make it more difficult for us to raise capital. We could experience disruptions if acts associated with such conflicts result in any serious damage to our facilities. Furthermore, several countries, as well as certain companies and
organizations, continue to restrict business with Israel and Israeli companies, which could have an adverse effect on our business and financial condition. Our business interruption insurance may not adequately compensate us for losses, if at all,
that may occur as a result of an event associated with a security situation in the Middle East, and any losses or damages incurred by us could have a material adverse effect on our business.