Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
The
following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our
results of operations and financial condition for the periods described. This discussion should be read together with our condensed
consolidated interim financial statements and the notes to the financial statements, which are included in this Quarterly Report
on Form 10-Q. This information should also be read in conjunction with the information contained in our Annual Report on Form
10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 27, 2019, including the
consolidated annual financial statements as of December 31, 2018 and their accompanying notes included therein. We have prepared
our condensed consolidated interim financial statements in accordance with U.S. GAAP.
This
Quarterly Report on Form 10-Q of Intec Pharma Ltd. contains forward-looking statements about our expectations, beliefs and intentions.
Forward-looking statements can be identified by the use of forward-looking words such as “believe”, “expect”,
“intend”, “plan”, “may”, “should”, “could”, “might”, “seek”,
“target”, “will”, “project”, “forecast”, “continue” or “anticipate”
or their negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly
to historical matters. These forward-looking statements are based on assumptions and assessments made in light of management’s
experience and perception of historical trends, current conditions, expected future developments and other factors believed to
be appropriate. Forward-looking statements in Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on
Form 10-Q, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events
or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties,
many of which are outside of our control. Many factors could cause our actual activities or results to differ materially from
the activities and results anticipated in forward-looking statements, including, but not limited to, the following: our limited
operating history and history of operating losses, our ability to continue as a going concern, our ability to obtain additional
financing, our ability to successfully operate our business or execute our business plan, the timing and cost of our clinical
trials, the completion and receiving favorable results in our clinical trials, our ability to obtain and maintain regulatory approval
of our product candidates, our ability to protect and maintain our intellectual property and licensing arrangements, our ability
to develop, manufacture and commercialize our product candidates, the risk of product liability claims, the availability of reimbursement,
and the influence of extensive and costly government regulation. More detailed information about the risks and uncertainties affecting
us is contained under the heading "Risk Factors" included in our most recent Annual Report on Form 10-K filed with the
SEC on February 27, 2019, and in other filings that we have made and may make with the Securities and Exchange Commission in the
future.
All
references to “we,” “us,” “our,” “Intec”, “the Company” and “our
Company” in this Quarterly Report on Form 10-Q are to Intec Pharma Ltd. and its U.S. subsidiary Intec Pharma Inc., unless
the context otherwise requires.
Overview
We
are a clinical stage biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology,
which we refer to as the Accordion Pill. Our Accordion Pill is an oral drug delivery system that is designed to improve the efficacy
and safety of existing drugs and drugs in development by utilizing an efficient gastric retention and specific release mechanism.
Our product pipeline currently includes several product candidates in various clinical trial stages. Our leading product candidate,
AP-CD/LD, is being developed for the indication of treatment of Parkinson’s disease symptoms in advanced Parkinson’s
disease patients.
In
July 2019, we announced top-line results from our pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s
disease known as the ACCORDANCE study in which the ACCORDANCE study did not meet its target endpoints. While AP-CD/LD provided
treatment for Parkinson’s disease symptoms, it did not demonstrate statistically superiority over immediate release CD/LD
on the primary endpoint of OFF time reduction under the conditions established in the protocol. Treatment-emergent adverse effects
observed with AP-CD/LD were generally consistent with the known safety profile of CD/LD formulations and no new safety issues
were observed throughout the double-blinded study, during the gastroscopy safety sub-study or the 12-month open-label extension
study. From our on-going preliminary review of the data, we have observed a meaningful reduction in OFF time in certain subsets
of patients. We are in the process of analyzing the full data set and expect to complete this process during the third quarter
of 2019 and expect that such findings will help inform our strategy for AP-CD/LD moving forward.
Previously,
we successfully completed a Phase II clinical trial for AP-CD/LD for the treatment of Parkinson’s disease symptoms in advanced
Parkinson’s disease patients and in February 2019, we announced that AP-CD/LD met the primary endpoint in a pharmacokinetic,
or PK, study comparing the AP-CD/LD 50/500mg dosed three times daily, the most common dose used in our on-going ACCORDANCE study,
to 1.5 tablets of CD/LD immediate release (Sinemet™) 25/100 dosed five times per day in Parkinson’s disease patients.
We
have invested in the commercial scale manufacture of AP-CD/LD, for which we are in partnership with LTS Lohmann Therapie-Systeme
AG, or LTS. In December 2018, the large commercial scale production line was delivered to LTS in Andernach, Germany and recently
we completed the qualification studies for the commercial scale manufacture of the Accordion Pill.
In
addition, we have initiated a clinical development program for our Accordion Pill platform with the two primary cannabinoids contained
in cannabis sativa, which we refer to as AP-Cannabinoids. We are formulating and testing CBD and THC for the treatment of various
pain indications. AP-Cannabinoids are designed to extend the absorption phase of CBD and THC, with the goal of more consistent
levels for an improved therapeutic effect, which may address several major drawbacks of current methods of treatment, such as
short duration of effect, delayed onset, variability of exposure, variability of the administered dose and adverse events that
correlate with peak levels. In March 2017, we initiated a Phase I single-center, single-dose, randomized, three-way crossover
clinical trial in Israel to compare the safety, tolerability and PK of AP-THC/CBD with Sativex®, an oral buccal spray containing
CBD and THC that is commercially available outside of the United States. Initial results demonstrated that the Accordion Pill
platform is well suited to safely deliver CBD and THC with significant improvements in exposure compared with Sativex®. In
December 2018, we initiated a PK study of AP-THC and the results of the study demonstrate that the custom designed AP delivery
system in the AP-THC PK study did not meet our expectations. We are continuing to advance the AP-Cannabinoids clinical development
program and we expect to provide new timelines before the end of the year.
While
the ACCORDANCE results were not what we expected, we continue to believe in the potential of the Accordion Pill platform. In December
2018, we reported that we successfully developed an Accordion Pill for a Novartis proprietary compound that met the required
in
vitro
specifications set forth in a feasibility agreement with Novartis. We recently completed the human PK study that was
initiated during the first quarter of 2019 and we are seeking to advance this program into potential partnership discussions with
Novartis.
In
May 2019, we reported entering into a research collaboration agreement with Merck for the development of a custom-designed AP
for one of Merck’s proprietary compounds and are now initiating the design and construction of this new AP.
Results
of Operations
The
table below provides our results of operations for the periods indicated.
|
|
Three months ended
June 30
|
|
|
Six months ended
June 30
|
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
|
(dollars in thousands)
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
$
|
(7,860
|
)
|
|
$
|
(8,400
|
)
|
|
$
|
(16,402
|
)
|
|
$
|
(17,280
|
)
|
General and administrative expenses
|
|
|
(2,144
|
)
|
|
|
(2,194
|
)
|
|
|
(4,334
|
)
|
|
|
(4,104
|
)
|
Operating loss
|
|
|
(10,004
|
)
|
|
|
(10,594
|
)
|
|
|
(20,736
|
)
|
|
|
(21,384
|
)
|
Financial income (expenses), net
|
|
|
33
|
|
|
|
(292
|
)
|
|
|
143
|
|
|
|
(168
|
)
|
Loss before income tax
|
|
|
(9,971
|
)
|
|
|
(10,886
|
)
|
|
|
(20,593
|
)
|
|
|
(21,552
|
)
|
Income tax
|
|
|
(38
|
)
|
|
|
(147
|
)
|
|
|
(72
|
)
|
|
|
(210
|
)
|
Net loss
|
|
$
|
(10,009
|
)
|
|
$
|
(11,033
|
)
|
|
$
|
(20,665
|
)
|
|
$
|
(21,762
|
)
|
Three
and Six Months Ended June 30, 2019 Compared to Three and Six Months Ended June 30, 2018
Research
and Development Expenses, Net
Our
research and development expenses, net, for the three months ended June 30, 2019 amounted to approximately $7.9 million, a decrease
of approximately $500,000, or 6%, compared to approximately $8.4 million for the three months ended June 30, 2018. Our research
and development expenses, net, for the six months ended June 30, 2019 amounted to approximately $16.4 million, a decrease of approximately
$900,000, or 5%, compared to approximately $17.3 million for the six months ended June 30, 2018. The decrease for the three and
six-month periods was primarily due to a decrease in expenses related to our ACCORDANCE study and open label extension study.
This decrease was offset by an increase in expenses related to the scale up activities for the commercial scale production capabilities
for AP-CD/LD at LTS.
General
and Administrative Expenses
Our
general and administrative expenses for the three months ended June 30, 2019 amounted to approximately $2.1 million, a decrease
of approximately $100,000, or 5%, compared to approximately $2.2 million for the three months ended June 30, 2018. Our general
and administrative expenses for the six months ended June 30, 2019 amounted to approximately $4.3 million, an increase of approximately
$200,000, or 5%, compared to approximately $4.1 million for the six months ended June 30, 2018. The increase in the six-month
period was primarily related to the increase in payroll and related expenses mainly due to an increase in headcount and salary
raises and insurance expenses. This increase was offset by a decrease in professional services.
Operating
Loss
As
a result of the foregoing, for the three months ended June 30, 2019 our operating loss was approximately $10.0 million, a decrease
of approximately $600,000, or 6%, compared to our operating loss for the three months ended June 30, 2018 of approximately $10.6
million. For the six months ended June 30, 2019 our operating loss was approximately $20.7 million, a decrease of approximately
$700,000, or 3%, compared to our operating loss for the six months ended June 30, 2018 of approximately $21.4 million. The changes
in the three and six-month periods were mainly due to changes in research and development expenses and general and administrative
expenses, as detailed above.
Financial
Income (expenses), Net
For
the three months ended June 30, 2019, we had financial income from interest on cash and cash equivalents in the amount of approximately
$92,000, offset by financial expenses from foreign currency exchange expenses in the amount of approximately $54,000 and bank
fees. For the three months ended June 30, 2018, we had financial expenses from foreign currency exchange expenses in the amount
of approximately $446,000, financial expenses from change in fair value of marketable securities in the amount of approximately
$79,000 and bank fees offset by financial income from interest on cash equivalents in the amount of approximately $241,000.
For
the six months ended June 30, 2019, we had financial income from interest on cash and cash equivalents in the amount of approximately
$282,000 offset by financial expenses from foreign currency exchange expenses in the amount of approximately $128,000 and bank
fees. For the six months ended June 30, 2018, we had financial expenses from foreign currency exchange expenses in the amount
of approximately $389,000, financial expenses from change in fair value of marketable securities in the amount of approximately
$154,000 and bank fees offset by financial income from interest on cash equivalents in the amount of approximately $387,000.
Income
tax
For
the three and six months ended June 30, 2019 and 2018, we have not generated taxable income in Israel. However, for the three
months ended June 30, 2019 and 2018, we incurred tax expenses in our U.S. subsidiary in the amount of $38,000 and $147,000, respectively,
and for the six months ended June 30, 2019 and 2018 we incurred tax expenses in our U.S. subsidiary in the amount of $72,000 and
$210,000, respectively.
Net
Loss
Based
on the foregoing, for the three months ended June 30, 2019 our net loss was approximately $10.0 million, a decrease of approximately
$1.0 million, or 9%, compared to net loss for the three months ended June 30, 2018 of approximately $11.0 million while for the
six months ended June 30, 2019 our net loss was approximately $20.7 million, a decrease of approximately $1.1 million, or 5%,
compared to our net loss for the six months ended June 30, 2018 of approximately $21.8 million.
Liquidity
and Capital Resources
Since
our inception, we have funded our operations primarily through public and private offerings (in Israel and in the U.S.) of our
equity securities, grants from the IIA and other grants from organizations such as the Michael J. Fox Foundation, and payments
received under the feasibility and related agreements we have entered into with multinational pharmaceutical companies, pursuant
to which we are entitled to full coverage of our development costs with regard to the projects specified in those agreements.
As
of June 30, 2019, we had cash and cash equivalents and marketable securities of approximately $21.6 million. As of December 31,
2018, we had cash and cash equivalents and marketable securities of approximately $40.6 million.
Net
cash used in operating activities was approximately $17.7 million for the six months ended June 30, 2019 compared with net cash
used in operating activities of approximately $19.9 million for the six months ended June 30, 2018. This decrease resulted primarily
from the decrease in the net loss for the period in the amount of $1.1 million and from changes in operating assets and liabilities
items of approximately $300,000.
We
had negative cash flow from investing activities of approximately $1.0 million for the six months ended June 30, 2019 compared
to negative cash flow from investing activities of approximately $4.3 million for the six months ended June 30, 2018. This decrease
resulted primarily from a decrease in purchase of property and equipment in the amount of approximately $2.5 million, an increase
in proceeds from the disposal of marketable securities in the amount of approximately $576,000 and a decrease of approximately
$261,000 in investment in other assets related to the establishment of the commercial scale production capabilities for AP-CD/LD
at LTS. For more information, see note 4(c) in our condensed consolidated financial statements for the six months ended June 30,
2019.
Net
cash provided by financing activities for the six months ended June 30, 2019 was approximately $268,000, which was provided by
the proceeds from the exercise of options by employees. Net cash provided by financing activities for the six months ended June
30, 2018 was approximately $35.0 million which was mainly provided by funds received from our April 2018 public offering of ordinary
shares.
Current
Outlook
In
July 2019, we announced that our Phase III clinical trial for AP-CD/LD did not meet its target endpoints. We have begun to
analyze the full data set of the Phase III clinical trial and expect to complete this process in the third quarter of 2019.
We expect that such findings will help inform our strategy for AP-CD/LD moving forward. We expect that these activities,
together with general and administrative costs, will result in continuing operating losses for the foreseeable future. We
believe that we have adequate cash to fund these ongoing activities into early in the first quarter of 2020. Our ability to
execute our operating plan beyond early in the first quarter of 2020 is dependent on our ability to obtain additional capital
during 2019 principally through entering into a license agreement with Novartis or another third party and/or raising capital
from the public and/or private investors and/or institutional investors. The negative outcome of the Phase III clinical trial
and uncertainty regarding our development programs is expected to adversely affect our ability to obtain funding and there is
no assurance that we will be successful in obtaining the level of financing needed for our activities. As the analysis of the
full data set of the Phase III clinical trial proceeds, we are evaluating measures to reduce our costs to preserve existing
capital and may incur impairment charges on our long-lived assets in the third quarter of 2019 which could have a material
adverse effect on our future results of operations. If we are unsuccessful in securing sufficient financing, we may need to
scale back our administrative and clinical development activities and may be required to cease our operations entirely. As a
result, there is substantial doubt about our ability to continue as a going concern. For more information, see note 1a(2) and
(3) in our condensed consolidated financial statements for the six months ended June 30, 2019.
On
March 1, 2019, we entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”), pursuant to which we may sell
from time to time, at our option, up to $75.0 million of our ordinary shares through an “at-the-market” equity offering
program under which Cowen will act as sales agent. The issuance and sale of ordinary shares by us under the program will be made
pursuant to our effective “shelf” registration statement on Form S-3 (Registration Statement No. 333-230016) filed
with the SEC on March 1, 2019, and declared effective on March 28, 2019. No ordinary shares have been sold under the program.
Developing
drugs, conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and
we will need to raise substantial additional funds to achieve our strategic objectives. We will require significant additional
financing in the future to fund our operations, including if and when we progress into additional clinical trials of our product
candidates, obtain regulatory approval for one or more of our product candidates, obtain commercial manufacturing capabilities
and commercialize one or more of our product candidates. Our future capital requirements will depend on many factors, including,
but not limited to:
|
●
|
the
progress and costs of our clinical trials and other research and development activities;
|
|
●
|
the
scope, prioritization and number of our clinical trials and other research and development programs;
|
|
●
|
the
amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements
with respect to our product candidates;
|
|
●
|
the
costs of the development and expansion of our operational infrastructure;
|
|
●
|
the
costs and timing of obtaining regulatory approval for one or more of our product candidates;
|
|
●
|
the
ability of us, or our collaborators, to achieve development milestones, marketing approval and other events or developments
under our potential future licensing agreements;
|
|
●
|
the
costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
|
|
●
|
the
costs and timing of securing manufacturing arrangements for clinical or commercial production;
|
|
●
|
the
costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities
ourselves;
|
|
●
|
the
costs of acquiring or undertaking development and commercialization efforts for any future products, product candidates or
technology;
|
|
●
|
the
magnitude of our general and administrative expenses; and
|
|
●
|
any
cost that we may incur under future in- and out-licensing arrangements relating to one or more of our product candidates.
|
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
Critical
Accounting Policies
This
discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us
to make estimates that affect the reported amounts of our assets, liabilities and expenses. Significant accounting policies employed
by us, including the use of estimates, are presented in the notes to the consolidated financial statements included elsewhere
in this Annual Report. We periodically evaluate our estimates, which are based on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Critical accounting policies are those that are most important to the
portrayal of our financial condition and results of operations and require our subjective or complex judgments, resulting in the
need to make estimates about the effect of matters that are inherently uncertain. If actual performance should differ from historical
experience or if the underlying assumptions were to change, our financial condition and results of operations may be materially
impacted.
Our
critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018. With
the exception of the change for the accounting of leases as a result of the adoption of ASC Topic 842 on January 1, 2019 there
have been no material changes to those policies during the six months ended June 30, 2019.
Recently
Issued Accounting Pronouncements
See
Note 2, Significant Accounting Policies, to the condensed consolidated financial statements included in “Item 1- Condensed
Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.