BLRX BioLineRx Ltd

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Exhibit 3

OPERATING AND FINANCIAL REVIEW

You should read the following discussion of our operating and financial condition and prospects in conjunction with the financial statements and the notes thereto included elsewhere in this 6-K, as well as in our Annual Report on Form 20-F filed on March 22, 2023 (the “Annual Report”).

Forward Looking Statements

Various statements in this discussion concerning our future expectations constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include words such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "will," and "would," and describe opinions about future events.  These include statements regarding management's expectations, beliefs and intentions regarding, among other things, the potential benefits of APHEXDA, the timing and execution of the launch of APHEXDA and the plans and objectives of management for future operations and expectations and commercial potential of motixafortide, as well as its potential investigational uses.  These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those listed below as well as those discussed in the Annual Report (particularly those in “Item 3. Key Information – Risk Factors”). Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.

Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:

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.

Overview

General

We are a commercial-stage biopharmaceutical company focused on oncology. Our current development and commercialization pipeline consists of motixafortide (BL-8040), a novel peptide for the treatment of stem-cell mobilization and solid tumors, which on September 8, 2023, was approved by the U.S. Food and Drug Administration, or FDA, for use in combination with filgrastim (G-CSF) to mobilize hematopoietic stem cells to the peripheral blood for collection and subsequent autologous transplantation in patients with multiple myeloma, and AGI-134, an immuno-oncology agent in development for solid tumors. In addition, we have an off-strategy, legacy therapeutic product called BL-5010 for the treatment of skin lesions. We have generated our pipeline by systematically identifying, rigorously validating and in-licensing therapeutic candidates that we believe exhibit a high probability of therapeutic and commercial success. To date, except for motixafortide and BL-5010, none of our therapeutic candidates have been approved for marketing or commercial sale.  Our strategy includes commercializing our therapeutic candidates by way of out-licensing arrangements with biotechnology and pharmaceutical companies and evaluating, on a case-by-case basis, the commercialization of our therapeutic candidates independently. In this regard, we are currently executing on an independent commercialization plan for motixafortide in stem cell mobilization for autologous bone marrow transplantation in multiple myeloma patients.

Motixafortide

Motixafortide is a novel, short peptide that functions as a high-affinity antagonist for CXCR4, which we are developing for the treatment of stem-cell mobilization and solid tumors.

Stem cell mobilization

Solid tumors

ARDS secondary to COVID-19 and other viral infections

Other matters

Out licensing of Motixafortide in Asia

On August 27, 2023, we entered into a License Agreement or the License Agreement, with Hong Seng Technology Limited, or HST, and Guangzhou Gloria Biosciences Co., Ltd., or Gloria and/or with HST, the Licensee, pursuant to which we granted HST an exclusive, royalty-bearing, sublicensable license with respect to the intellectual property rights and know-how associated with motixafortide in order to develop and commercialize motixafortide in Asia (other than Israel and certain other countries), or the Territory, and to engage and authorize Gloria to perform services under the License Agreement in the Territory.

Pursuant to the terms of the License Agreement, the Licensee made a $15 million upfront payment in October 2023, upon the closing of the transaction. The Company is entitled to up to $49 million based on the achievement of certain development and regulatory milestones in China and Japan, and up to $197 million in sales milestones based on defined sales targets of motixafortide in the Territory. Additionally, the Company is eligible to receive tiered, double-digit royalties (ranging from 10-20%), on a country-by-country basis, on aggregate net sales of motixafortide in the Territory until the longer of (i) fifteen years from the date of the first sale of motixafortide by Licensee, (ii) the last to expire valid claim of any licensed patents with respect to motixafortide in such country and (iii) the expiration of motixafortide’s orphan drug status in such country. The royalties payable by Licensee to the Company are to be reduced by 50% following the end of the initial royalty term and to also be reduced upon the occurrence of certain events, including, on a country-by-country basis, the entry of a generic product in such country.

In connection with the License Agreement, on August 27, 2023, we also entered into a securities purchase agreement with HST and Gloria pursuant to which we agreed to sell and issue in a private placement an aggregate of 6,829,137 of our ADSs. Aggregate gross proceeds from the sale were approximately $14.6 million. The private placement closed in October 2023. No warrants were issued in the transaction.

The License Agreement includes various development obligations for the Licensee pursuant to an agreed-upon development plan, including the execution of a registrational study in stem-cell mobilization and the execution of a randomized Phase 2/3 study in first-line pancreatic adenocarcinoma.

AGI-134

AGI-134, a clinical therapeutic candidate in-licensed by our subsidiary, Agalimmune Ltd., is a synthetic alpha-Gal glycolipid immunotherapy in development for solid tumors. AGI-134 harnesses the body’s pre-existing, highly abundant, anti-alpha-Gal antibodies to induce a hyper-acute, systemic, specific anti-tumor response to the patient’s own tumor neo-antigens. This response is designed to not only kill the tumor cells at the site of injection, but also to bring about a durable, follow-on, anti-metastatic immune response. In August 2018, we initiated a Phase 1/2a clinical study for AGI-134 that is primarily designed to evaluate the safety and tolerability of AGI-134 in unresectable metastatic solid tumors. The multi-center, open-label study was carried out in the United Kingdom, Spain and Israel. Initial safety results from the first part of the study were announced at the beginning of September 2019; at the end of the same month, the second part of the study commenced. Due to clinical operating issues associated with the COVID-19 pandemic, in April 2020, enrollment to the clinical trial was temporarily suspended. In August 2020, we renewed study enrollment, and in January 2022, we completed enrollment. In December 2022, we announced results from the study. The study met its primary endpoint of AGI-134’s safety and tolerability. Generations of an immune response and markers of clinical efficacy were assessed as secondary endpoints. Most patients analyzed showed an increase in alpha-Gal antibodies, indicating increased overall immune activity. Additionally, increases in antigen presenting cells (APCs) were observed in most tissue samples analyzed, and T cell and macrophage tumor infiltration was seen in approximately one-third of evaluable patients’ injected tumors, and in approximately half of evaluable patients’ un- injected lesions. Radiological assessments found that 29 percent of patients in the trial achieved a best overall response of stable disease. We plan, in consultation with our scientific advisory board, to determine the next steps for the program during 2024.

Scientific Advisory Board

In December 2021, we established a Scientific Advisory Board (SAB) to provide insight and guidance on our activities in the field of immuno-oncology. The SAB is comprised of recognized leaders in cancer immunology, intra-tumoral injections and clinical development.

Listed in alphabetical order, the founding SAB members are: Ronald Levy, MD, the Robert K. and Helen K. Summy Professor and Director of the Lymphoma Program at Stanford University School of Medicine, Palo Alto, CA; Aurélien Marabelle, MD, PhD, Clinical Director, Cancer Immunotherapy Program, Gustave Roussy, Paris, France and Director, Translational Research Laboratory in Immunotherapy, INSERM, Paris, France; Ignacio Melero MD, PhD, Professor of Immunology at the Academic Hospital of Navarra, Spain and at the Center for Applied Medical Research (CIMA) of the University of Navarra, Spain; Jon Wigginton, MD, Chair of the SAB and Senior Advisor at Cullinan Oncology, former Chief Medical Officer of MacroGenics, and former Therapeutic Area Head, Immuno-Oncology, Early Clinical Research at Bristol-Myers Squibb; and Leisha Emens, MD, PhD, Professor of Medicine, Director of Translational Immunotherapy for the Women's Cancer Research Center Co-Leader, Hillman Cancer Immunology/Immunotherapy Program at the UPMC Hillman Cancer Center, Pittsburgh, PA.

BL-5010

Our commercialized, legacy therapeutic product, BL-5010, is a customized, proprietary pen-like applicator containing a novel, acidic, aqueous solution for the non-surgical removal of skin lesions. In December 2014, we entered into an exclusive out-licensing arrangement with Perrigo Company plc, or Perrigo, for the rights to BL-5010 for over-the-counter, or OTC, indications in Europe, Australia and additional selected countries. In March 2016, Perrigo received CE Mark approval for BL-5010 as a novel OTC treatment for the non-surgical removal of warts. The commercial launch of products for treatment of this first OTC indication (warts/verrucas) commenced in Europe in the second quarter of 2016. Since then, Perrigo has invested in improving the product and during 2019 launched an improved version of the product in several European countries. In March 2020, we agreed that Perrigo could relinquish its license rights for certain countries that had been included in its territory according to the original license agreement, and was also no longer obligated to develop, obtain regulatory approval for, and commercialize products for a second OTC indication. In turn, in March 2020, we agreed with our licensor of the rights to BL-5010, Innovative Pharmaceutical Concepts (IPC) Inc., or IPC, to return to IPC those license rights no longer out-licensed to Perrigo as a result of the agreement described in the preceding sentence, in consideration of the payment to us of royalties or fees on sublicense receipts.

Funding

We have funded our operations primarily through the sale of equity securities (both in public and private offerings), funding received from the Israel Innovation Authority, or IIA, payments received under out-licensing arrangements, and interest earned on investments. We expect to continue to fund our operations over the next several years through our existing cash resources, the commercialization of our lead therapeutic candidate, motixafortide, potential future milestone and royalty payments that we may receive from our existing out-licensing agreement, potential future upfront, milestone or royalty payments that we may receive from out-licensing transactions for our other therapeutic candidates, potential revenues that we may receive from the direct commercialization of our other therapeutic candidates, interest earned on our investments, and additional capital to be raised through public or private equity offerings or debt financings. As of September 30, 2023, we held $26.0 million of cash, cash equivalents and short-term bank deposits. This amount does not include $29.6 million in total funding from the exclusive license in Asia and securities purchase agreement with Gloria, which closed in October 2023. See “Out licensing of Motixafortide in Asia” above for additional information.

Revenues

Our revenues to date have been generated primarily from milestone payments under previously existing out-licensing agreements.

We expect our revenues, if any, for the next several years to be derived primarily from the independent commercialization of motixafortide in stem cell mobilization in the US, as well as payments from any out- licensing agreements, including the out-licensing agreement with Gloria mentioned above, and other potential collaboration arrangements, including future royalties on product sales.

Cost of Revenues

Our cost of revenues to date have consisted of sub-license payments to the licensors in respect of upfront and milestone payments associated with out-licensing agreements.

We expect our cost of revenues, if any, for the next several years to be derived primarily from the cost of goods sold related to the independent commercialization of motixafortide in stem cell mobilization in the US, royalties payable to the licensors stemming from direct product sales related to the independent commercialization as set forth above, as well as from sub-license payments to the licensors in respect of out-licensing agreements and other potential collaboration arrangements, including future royalties on product sales from such out-licensing agreements.

Research and Development

Our research and development expenses consist primarily of salaries and related personnel expenses, fees paid to external service providers, up-front and milestone payments under our license agreements, patent-related legal fees, costs of preclinical studies and clinical trials, drug and laboratory supplies and costs for facilities and equipment. We primarily use external service providers to manufacture our product candidates for clinical trials and for the majority of our preclinical and clinical development work. We charge all research and development expenses to operations as they are incurred. We expect our research and development expenses to remain one of our primary expenses in the near future as we continue to develop our therapeutic candidates.

The following table identifies our current major research and development projects:

*These studies are investigator-initiated studies; therefore, the timelines are ultimately controlled by the independent investigators and are subject to change.

The table above does not include a registrational study in stem-cell mobilization, as well as a randomized Phase 2/3 study in first-line pancreatic adenocarcinoma, both of which the Licensee has committed to execute pursuant to the exclusive License Agreement in Asia for motixafortide, which we entered into on August 27, 2023.

We expect that a large percentage of our research and development expenses in the future will be incurred in support of our current and future preclinical and clinical development projects. Due to the inherently unpredictable nature of preclinical and clinical development processes, we are unable to estimate with any certainty the costs we will incur in the continued development of the therapeutic candidates in our pipeline for commercialization. Clinical development timelines, the probability of success and development costs can differ materially from expectations. We expect to continue to test our product candidates in preclinical studies for toxicology, safety and efficacy, and to conduct additional clinical trials for each product candidate. If we are not able to enter into an out-licensing arrangement with respect to any therapeutic candidate prior to the commencement of later stage clinical trials, we may fund the trials for the therapeutic candidate ourselves.

While we are currently focused on advancing each of our product development projects, as well as the U.S. commercialization of motixafortide, our future research and development expenses will depend on the clinical success of each therapeutic candidate, as well as ongoing assessments of each therapeutic candidate’s commercial potential. In addition, we cannot forecast with any degree of certainty which therapeutic candidates may be subject to future out-licensing arrangements, when such out-licensing arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain therapeutic candidates or projects in order to focus our resources on more promising therapeutic candidates or projects. Completion of clinical trials by us or our licensees may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a therapeutic candidate.

The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

The lengthy process of completing clinical trials and seeking regulatory approval for our product candidates requires expenditure of substantial resources. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Due to the factors set forth above, we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of compensation for employees in commercialization, marketing and business development functions. Other significant costs include marketing and communication materials, market access activities, professional fees for outside market research and consulting, and legal services related to compliance and to potential business development transactions.

We expect our sales and marketing expenses to become our most significant cost as we advance our U.S. commercialization plan for motixafortide in stem cell mobilization for autologous bone marrow transplantation for multiple myeloma patients.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for employees in executive and operational functions, including accounting, finance, legal, compliance, investor relations, information technology and human resources. Other significant general and administration costs include facilities costs, professional fees for outside accounting and legal services, travel costs, insurance premiums and depreciation.

Non-Operating Expense and Income

Non-operating expense and income includes fair-value adjustments of liabilities on account of the warrants issued in equity financings we carried out in February 2019, May-June 2020 and September 2022. These fair-value adjustments are highly influenced by our share price at each period end (revaluation date). Non-operating expense and income also includes issuance expenses of an “at-the-market” offering agreement, or ATM Agreement, between us and H.C. Wainwright & Co., LLC, or HCW, entered into in September 2021, and the pro-rata share of issuance expenses from the placements related to the warrants. Sales-based royalties from the license agreement with Perrigo have also been included as part of non-operating income, as the out-licensed product is not an integral part of our strategy, and the amounts are not material.

Financial Expense and Income

Financial expense and income consist of interest earned on our cash, cash equivalents and short-term bank deposits; interest expense related to our loans from Kreos Capital; bank fees and other transactional costs. In addition, it may also include gains/losses on foreign exchange hedging transactions, which we carry out from time to time to protect against a portion of our NIS-denominated expenses (primarily compensation) in relation to the dollar.

Critical Accounting Policies and Estimates

We describe our significant accounting policies more fully in Note 2 to our consolidated financial statements for the year ended December 31, 2022.

The discussion and analysis of our financial condition and results of operations is based on our financial statements, which we prepare in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. The preparation of these financial statements requires us to make estimates using assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates, including those described in greater detail below. We base our estimates on historical experience and on various assumptions that we believe are reasonable under the circumstances, the results of which impact the carrying value of our assets and liabilities that are not readily apparent from other sources. Actual results will differ from these estimates and such differences may be significant.

Results of Operations

Revenues

We did not record any revenues during each of the three-month and nine-month periods ended September 30, 2023 and 2022.

Cost of revenues

We did not record any cost of revenues during each of the three-month and nine-month periods ended September 30, 2023 and 2022.

Operating Results Comparison between Periods

Research and development expenses

Research and development expenses for the three months ended September 30, 2023 were $2.7 million, a decrease of $1.6 million, or 37.6%, compared to $4.3 million for the three months ended September 30, 2022. The decrease resulted primarily from lower expenses related to NDA supporting activities related to motixafortide as well as lower expenses associated with the completed AGI-134 clinical trial.

Research and development expenses for the nine months ended September 30, 2023 were $9.4 million, a decrease of $4.8 million, or 33.7%, compared to $14.2 million for the nine months ended September 30, 2022. The reason for the decrease is similar to the aforementioned decrease in the three-month period.

Sales and marketing expenses

 Comparison of three-month periods ending September 30, 2023 and 2022

Sales and marketing expenses for the three months ended September 30, 2023 were $8.1 million, an increase of $6.8 million, or 517.4% compared to $1.3 million for the three months ended September 30, 2022. The increase resulted primarily from the ramp-up of pre-commercialization activities related to motixafortide.

Sales and marketing expenses for the nine months ended September 30, 2023 were $17.6 million, an increase of $14.5 million, or 465.8% compared to $3.1 million for the nine months ended September 30, 2022. The reason for the increase is similar to the aforementioned decrease in the three-month period.

General and administrative expenses

General and administrative expenses for the three months ended September 30, 2023 were $1.5 million, an increase of $0.1 million, or 7.7% compared to $1.4 million for the three months ended September 30, 2022. The increase resulted primarily from small increases in a number of G&A expenses.

General and administrative expenses for the nine months ended September 30, 2023 were $4.1 million, an increase of $0.7 million, or 19.0% compared to $3.4 million for the nine months ended September 30, 2022. The increase resulted primarily from an increase in professional services and legal expenses, as well as an increase in share-based compensation.

Non-operating income (expenses), net

Non-operating expenses for the three and nine months ended September 30, 2023 primarily relates to non-cash fair-value adjustments of warrant liabilities on our balance sheet. Non-operating income for the three and nine months ended September 30, 2022 primarily relates to non-cash fair-value adjustments of warrant liabilities on our balance sheet, offset by warrant offering expenses.

Financial income (expenses), net

We recognized net financial expenses of $0.5 million for the three months ended September 30, 2023, compared to net financial expenses of $0.2 million for the three months ended September 30, 2022. Net financial expenses for both periods primarily relate to interest paid on loans and losses recorded on foreign currency (primarily NIS) cash balances due to the strengthening of the US dollar during the period, offset by investment income earned on our bank deposits.

 Comparison of nine-month periods ending September 30, 2023 and 2022

We recognized net financial expenses of $1.8 million for the nine months ended September 30, 2023, compared to net financial expenses of $0.6 million for the nine months ended September 30, 2022. The composition of the expenses is similar to the aforementioned composition detailed in the three-month period.

Liquidity and Capital Resources

Since our inception, we have funded our operations primarily through public and private offerings of our equity securities, payments received under our strategic licensing and collaboration arrangements, interest earned on investments and funding from the IIA. As of September 30, 2023, we held $26.0 million of cash, cash equivalents and short-term bank deposits. This amount does not take into account $29.6 million of aggregate gross proceeds received in October 2023, upon the closing of an exclusive license agreement and share purchase agreement. See “Out licensing of Motixafortide in Asia” above for additional information. We have invested substantially all our available cash funds in short-term bank deposits.

In September 2022, we entered into a loan agreement, or the Loan Agreement, with Kreos Capital VII Aggregator SCS, or Kreos Capital. Under the Loan Agreement, Kreos Capital will provide the Company with access to term loans in an aggregate principal amount of up to $40 million in three tranches as follows: (a) a loan in the aggregate principal amount of up to $10 million, available for drawdown upon closing of the Loan Agreement and until April 1, 2023, (b) a loan in the aggregate principal amount of up to $20 million, available for drawdown upon achievement of certain milestones and until April 1, 2024, and (c) a loan in the aggregate principal amount of up to $10 million, available for drawdown upon achievement of certain milestones and until October 1, 2024. We drew down the initial tranche of $10 million following execution of the agreement in September 2022. 

In September 2022, we entered into definitive agreements with certain institutional investors providing for the issuance and sale in a registered direct offering of 13,636,365 of our ADSs and warrants to purchase up to an aggregate of 13,636,365 ADSs at a combined purchase price of $1.10 per ADS and associated investor warrant, for aggregate gross proceeds of approximately $15 million. The transaction closed in September 2022.

In September 2021, we entered into the ATM Agreement with HCW pursuant to which we may offer and sell, at our option, up to $25.0 million of our ADSs through an at-the-market equity program under which HCW agreed to act as sales agent. As of the issuance date of this report, we have sold 1,890,325 of our ADSs for total gross proceeds of approximately $3.8 million under the ATM program.

Net cash used in operating activities was $27.6 million for the nine months ended September 30, 2023, compared with net cash used in operating activities of $20.6 million for the nine months ended September 30, 2022. The $7.0 million increase in net cash used in operating activities was primarily the result of an increase in sales and marketing expenses.

Net cash provided by investing activities was $21.8 million for the nine months ended September 30, 2023, compared to net cash provided by investing activities of $0.1 million for the nine months ended September 30, 2022. The changes in cash flows from investing activities relate primarily to investments in, and maturities of, short-term bank deposits.

Net cash provided by financing activities was $3.3 million for the nine months ended September 30, 2023, compared to net cash provided by financing activities of $21.1 million for the nine months ended September 30, 2022. The cash flows in 2023 primarily reflect warrant exercises and net proceeds from the ATM facility, offset by repayments of the loan from Kreos Capital and the repayments of lease liabilities. The cash flows in 2022 primarily reflect the underwritten public offering of our ADSs in September 2022 and the net proceeds of a loan from Kreos Capital, offset by repayments of a previous loan from Kreos Capital.

We have incurred accumulated losses in the amount of $377 million through September 30, 2023, and we expect to continue incurring losses and negative cash flows from operations until our product or products reach commercial profitability. Management monitors rolling forecasts of our liquidity reserves on the basis of anticipated cash flows and maintains liquidity balances at levels that are sufficient to meet its needs. The execution of an independent commercialization plan for motixafortide in the United States implies an increased level of expenses prior to and following launch of the product. Therefore, our cash flow projections are subject to various risks and uncertainties concerning their fulfilment, and these factors and the risk inherent in our operations may cast significant doubt on our ability to continue as a going concern. Our independent registered public accounting firm included a “going concern” explanatory paragraph in its report on our financial statements for the year ended December 31, 2022.

Developing drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. Although we believe our existing cash (including the consideration from the license agreement and the securities purchase agreement of $29.6 million) and other resources will be sufficient to fund our current projected cash requirements into 2025, we will require additional financing in the future to fund our operations. Additional financing may not be available on acceptable terms, if at all. We expect to also continue to seek to finance our operations through other sources, including commercialization in the United States for motixafortide, our lead therapeutic candidate, out-licensing arrangements for the development and commercialization of our therapeutic candidates or other partnerships or joint ventures, as well as grants from government agencies and foundations. Our future capital requirements will depend on many factors, including: