Item 1: Financial Statements
AYALA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
(Unaudited) | | |
| |
CURRENT ASSETS: | |
| | |
| |
Cash and Cash Equivalents | |
$ | 20,059 | | |
$ | 36,982 | |
Short-term Restricted Bank Deposits | |
| 111 | | |
| 122 | |
Trade Receivables | |
| 262 | | |
| - | |
Prepaid Expenses and other Current Assets | |
| 2,322 | | |
| 2,636 | |
Total Current Assets | |
| 22,754 | | |
| 39,740 | |
LONG-TERM ASSETS: | |
| | | |
| | |
Other Assets | |
$ | 231 | | |
$ | 267 | |
Property and Equipment, Net | |
| 1,039 | | |
| 1,120 | |
Total Long-Term Assets | |
| 1,270 | | |
| 1,387 | |
Total Assets | |
$ | 24,024 | | |
$ | 41,127 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY: | |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Trade Payables | |
$ | 3,254 | | |
$ | 3,214 | |
Other Accounts Payables | |
| 2,993 | | |
| 3,258 | |
Total Current Liabilities | |
| 6,247 | | |
| 6,472 | |
LONG TERM LIABILITIES: | |
| | | |
| | |
Long-term Rent Liability | |
| 414 | | |
| 497 | |
Total Long-Term Liabilities | |
$ | 414 | | |
$ | 497 | |
STOCKHOLDERS’ STOCKHOLDERS’ EQUITY: | |
| | | |
| | |
Common Stock of $0.01 par value per share; 200,000,000 shares authorized at December 31, 2021 and June 30, 2022; 14,503,743 and 14,080,383 shares issued at June 30, 2022 and December 31, 2021, respectively; 13,984,622 and 13,956,035 shares outstanding at June 30, 2022 and December 31, 2021, respectively | |
$ | 139 | | |
$ | 139 | |
Additional Paid-in Capital | |
| 146,602 | | |
| 145,160 | |
Accumulated Deficit | |
| (129,378 | ) | |
| (111,141 | ) |
Total Stockholders’ Equity | |
| 17,363 | | |
| 34,158 | |
Total Liabilities and Stockholders’ Equity | |
$ | 24,024 | | |
$ | 41,127 | |
See accompanying notes to unaudited condensed
consolidated financial statements.
AYALA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share & per share
amounts)
| |
For the Three Months Ended June 30, | | |
For the Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Revenues from licensing agreement and others | |
$ | 38 | | |
$ | 761 | | |
$ | 496 | | |
$ | 1,735 | |
Cost of services | |
| (38 | ) | |
| (761 | ) | |
| (406 | ) | |
| (1,735 | ) |
Gross profit | |
| — | | |
| — | | |
| 90 | | |
| — | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 5,580 | | |
| 8,121 | | |
| 13,083 | | |
| 15,046 | |
General and administrative | |
| 2,260 | | |
| 2,536 | | |
| 4,701 | | |
| 4,839 | |
Operating loss | |
| (7,840 | ) | |
| (10,657 | ) | |
| (17,694 | ) | |
| (19,885 | ) |
Financial Income (Loss), net | |
| (156 | ) | |
| (22 | ) | |
| (140 | ) | |
| (114 | ) |
Loss before income tax | |
| (7,996 | ) | |
| (10,679 | ) | |
| (17,834 | ) | |
| (19,999 | ) |
Taxes on income | |
| (214 | ) | |
| (162 | ) | |
| (403 | ) | |
| (410 | ) |
Net loss | |
| (8,210 | ) | |
| (10,841 | ) | |
| (18,237 | ) | |
| (20,409 | ) |
Net Loss per share attributable to common stockholders, basic and diluted | |
$ | (0.54 | ) | |
$ | (0.75 | ) | |
$ | (1.19 | ) | |
$ | (1.46 | ) |
Weighted average common shares outstanding, basic and diluted | |
| 15,312,766 | | |
| 14,417,423 | | |
| 15,306,823 | | |
| 13,954,676 | |
See accompanying notes to unaudited condensed
consolidated financial statements.
AYALA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’
EQUITY
(Unaudited)
(In thousands, except share and per share amounts)
| |
| | |
| | |
Additional | | |
| | |
Total | |
| |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| |
Number | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| |
Balance as of March 31, 2021 | |
| 13,072,213 | | |
| 131 | | |
| 133,358 | | |
| (80,455 | ) | |
| 53,034 | |
Share based compensation | |
| 20,712 | | |
| - | | |
| 567 | | |
| - | | |
| 567 | |
Net Loss | |
| - | | |
| - | | |
| - | | |
| (10,841 | ) | |
| (10,841 | ) |
Balance as of June 30, 2021 | |
| 13,092,925 | | |
$ | 131 | | |
$ | 133,925 | | |
$ | (91,296 | ) | |
$ | 42,760 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of March 31, 2022 | |
| 13,972,778 | | |
| 139 | | |
| 145,847 | | |
| (121,168 | ) | |
| 24,818 | |
Share based compensation | |
| 11,844 | | |
| - | | |
| 755 | | |
| - | | |
| 755 | |
Net Loss | |
| - | | |
| - | | |
| - | | |
| (8,210 | ) | |
| (8,210 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of June 30, 2022 | |
| 13,984,622 | | |
$ | 139 | | |
$ | 146,602 | | |
$ | (129,378 | ) | |
$ | 17,363 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of December 31, 2020 | |
| 12,728,446 | | |
$ | 128 | | |
$ | 109,157 | | |
$ | (70,887 | ) | |
$ | 38,398 | |
Share based compensation | |
| 25,146 | | |
| - | | |
| 1,419 | | |
| - | | |
| 1,419 | |
Exercise of stock options | |
| 6,000 | | |
| - | | |
| 30 | | |
| - | | |
| 30 | |
Proceeds from Issuance of common stocks and warrants, net of Issuance Cost of $1,665 | |
| 333,333 | | |
| 3 | | |
| 23,319 | | |
| - | | |
| 23,322 | |
Net Loss | |
| - | | |
| - | | |
| - | | |
| (20,409 | ) | |
| (20,409 | ) |
Balance as of June 30, 2021 | |
| 13,092,925 | | |
$ | 131 | | |
| 133,925 | | |
$ | (91,296 | ) | |
$ | 42,760 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of December 31, 2021 | |
| 13,956,035 | | |
| 139 | | |
| 145,160 | | |
| (111,141 | ) | |
| 34,158 | |
Share based compensation | |
| 23,687 | | |
| - | | |
| 1,398 | | |
| - | | |
| 1,398 | |
Proceeds from Issuance of common stocks and warrants, net of Issuance Cost of $3 | |
| 4,900 | | |
| - | | |
| 44 | | |
| - | | |
| 44 | |
Net Loss | |
| - | | |
| - | | |
| - | | |
| (18,237 | ) | |
| (18,237 | ) |
Balance as of June 30, 2022 | |
| 13,984,622 | | |
$ | 139 | | |
$ | 146,602 | | |
$ | (129,378 | ) | |
$ | 17,363 | |
|
* |
Represents an amount lower than $1. |
See accompanying notes to unaudited condensed
consolidated financial statements.
AYALA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
| |
Six Months Ended | |
| |
June 30, | | |
June 30, | |
| |
2022 | | |
2021 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net Loss | |
| (18,237 | ) | |
$ | (20,409 | ) |
Adjustments to Reconcile Net Loss to Net Cash used in Operating Activities: | |
| | | |
| | |
Shared Based Compensation | |
$ | 1,398 | | |
$ | 1419 | |
Depreciation | |
| 81 | | |
| 94 | |
(Increase) decrease in Prepaid Expenses and Other Assets | |
| 321 | | |
| (106 | ) |
Increase in Trade Receivables | |
| (262 | ) | |
| (248 | ) |
Increase (decrease) in Trade Payables | |
| 40 | | |
| (1,124 | ) |
Decrease in other Accounts Payable | |
| (348 | ) | |
| (823 | ) |
Net Cash used in Operating Activities | |
| (17,007 | ) | |
| (21,197 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Purchase of Property and Equipment | |
| - | | |
| (3 | ) |
Net Cash provided by (used in) Investing Activities | |
| - | | |
| (3 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from Issuance of Shares, net | |
| 44 | | |
| - | |
Issuance of shares and warrants, Net | |
| - | | |
| 23,553 | |
Exercise of Stock Options | |
| - | | |
| 30 | |
Net Cash provided by Financing Activities | |
| 44 | | |
| 23,583 | |
Increase (Decrease) in Cash and Cash Equivalents and Restricted Bank Deposits | |
| (16,963 | ) | |
| 2,383 | |
Cash and Cash Equivalents and Restricted Bank Deposits at Beginning of the period | |
| 37,339 | | |
| 42,370 | |
Cash and Cash Equivalents and Restricted Bank Deposits at End of the period | |
| 20,376 | | |
$ | 44,753 | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES | |
| | | |
| | |
Non-cash deferred issuance costs | |
$ | - | | |
$ | 231 | |
Amortization of deferred rent liability | |
$ | - | | |
$ | 51 | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |
| | | |
| | |
Cash Received for Interest | |
$ | 16 | | |
$ | 7 | |
Tax Paid in Cash | |
$ | 182 | | |
$ | 80 | |
Reconciliation of cash, cash equivalents and restricted bank deposits | |
| | | |
| | |
| |
June 30, | | |
June 30, | |
| |
2022 | | |
2021 | |
Cash and Cash Equivalents | |
$ | 20,059 | | |
$ | 44,412 | |
Restricted Bank Deposits | |
| 111 | | |
| 119 | |
Restricted Bank Deposits in Other Assets | |
| 206 | | |
| 222 | |
Cash and Cash Equivalents and Restricted Bank Deposits at End of the Period | |
$ | 20,376 | | |
$ | 44,753 | |
See accompanying notes to unaudited condensed
consolidated financial statements
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
General
|
a) |
Ayala Pharmaceuticals, Inc. (the “Company”) was incorporated in November 2017. The Company is a clinical stage oncology company dedicated to developing and commercializing small molecule therapeutics for patients suffering from rare and aggressive cancers, primarily in genetically defined patient populations. The Company’s current portfolio of product candidates, AL101 and AL102, target the aberrant activation of the Notch pathway with gamma secretase inhibitors. |
|
b) |
In 2017, the Company entered into an exclusive worldwide license agreement with respect to AL101 and AL102. See note 4. |
|
c) |
The Company’s lead product candidates, AL101 and AL102, have completed preclinical and Phase 1 studies. AL102 is currently being evaluated in a pivotal Phase 2/3 trial (RINGSIDE) in patients with Desmoids tumors and was evaluated in a Phase 1 clinical trial in combination with Novartis’ BMCA targeting agent, WVT078, in Patients with relapsed/refractory Multiple Myeloma. AL101 is currently being evaluated in a Phase 2 trial (ACCURACY) in patients with recurrent/metastatic adenoid cystic carcinoma (“R/M ACC”) bearing Notch-activating mutations is ongoing. |
|
d) |
The Company has a wholly-owned Israeli subsidiary, Ayala-Oncology Israel Ltd. (the “Subsidiary”), which was incorporated in November 2017. |
Initial Public Offering and Other Transactions
On February
19, 2021, the Company entered into a Securities Purchase Agreement (the “2021 Purchase Agreement”) with the purchasers named
therein (the “Investors”). Pursuant to the 2021 Purchase Agreement, the company agreed to sell (i) an aggregate of 333,333
shares of the Company’s common stock (the “Common
Stock”), par value $0.01 per share (the “Private Placement Shares”),
together with warrants to purchase an aggregate of 116,666 shares of its Common Stock with an exercise price of $18.10 per share
(the “Common Warrants”), for an aggregate purchase price of $4,999,995.00 and (ii) pre-funded warrants to purchase an aggregate
of 1,333,333 shares of its Common Stock with an exercise price of $0.01 per share (the “Pre-Funded Warrants” and collectively
with the Common Warrants, the “Private Placement Warrants”), together with an aggregate of 466,666 Common Warrants, for an
aggregate purchase price of $19,986,661.67 (collectively, the “Private Placement”). The Private Placement closed on February
23, 2021.
In June 2021,
the Company entered into an Open Market Sales Agreement, or the Sales Agreement, with Jefferies LLC, or Jefferies, as sales agent, pursuant
to which the Company may, from time to time, issue and sell Common Stock with an aggregate value of up to $200.0 million in “at-the-market”
offerings (the “ATM”), under its registration
statement on Form S-3 (File No. 333-256792) filed with the SEC on June 4, 2021 (the “ATM Registration
Statement”). Sales of Common Stock, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at
the market offering” as defined in Rule 415(a) of the Securities Act, including sales made directly through The Nasdaq Global Market
or on any other existing trading market for its Common Stock. Pursuant to the Sales Agreement, during the year ended December 31, 2021,
the Company sold a total of 827,094 shares of Common Stock for total gross proceeds of approximately $10.4 million. During the six months
ended June 30, 2022, the Company sold a total of 4,900 shares of Common Stock for total gross proceeds of approximately $44 thousand.
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES (continued):
Going Concern
The Company has incurred recurring losses since inception as a research
and development organization and has an accumulated deficit of $129.4 million as of June 30, 2022. For the six months ended June 30, 2022,
the Company used approximately $17.0 million of cash in operations. The Company has relied on its ability to fund its operations through
public and private equity financings. The Company expects operating losses and negative cash flows to continue at significant levels in
the future as it continues its clinical trials. As of June 30, 2022, the Company had approximately $20.4 million in cash and cash equivalents
and restricted bank deposits, which, without additional funding, the Company believes will not be sufficient to meet its obligations within
the next twelve months from the date of issuance of these consolidated financial statements. The Company plans to continue to fund its
operations through public or private debt and equity financings, but there can be no assurances that such financing will continue to be
available to the Company on satisfactory terms, or at all. If the Company is unable to obtain funding, the Company would be forced to
delay, reduce or eliminate its research and development programs, which could adversely affect its business prospects, or the Company
may be unable to continue operations. As such, those factors raise substantial doubt about the Company’s ability to continue as
a going concern.
The condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Therefore, the condensed consolidated financial statements for the six months
ended June 30, 2022 do not include any adjustments to reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue
as a going concern.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)
for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for annual financial
statements. In the opinion of management, all adjustments (of a normal recurring nature) considered necessary for a fair statement of
the results for the interim periods presented have been included. Operating results for the interim period are not necessarily indicative
of the results that may be expected for the full year.
These unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021, included in the Company’s
Annual Report on Form 10-K filed for the year ended December 31, 2021 (the “Annual Report”) with the Securities and Exchange
Commission (the “SEC”). The Company’s significant accounting policies have not changed materially from those included
in Note 2 of the Company’s audited consolidated financial statements for the year ended December 31, 2021 included in the Company’s
Annual Report, unless otherwise stated.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based
upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements. Actual results
could differ from those estimates.
Net Loss per Share
Basic loss per share is computed by dividing the net loss by the weighted
average number of shares of Common Stock outstanding during the period. Diluted loss per share is computed by dividing the net loss by
the weighted average number of shares of Common Stock outstanding together with the number of additional shares of Common Stock that would
have been outstanding if all potentially dilutive shares of Common Stock had been issued. Diluted net loss per share is the same as basic
net loss per share in periods when the effects of potentially dilutive shares of Common Stock are anti-dilutive.
The calculation of basic and diluted loss per share includes 1,333,333
weighted average warrants with an exercise price of $0.01 for the three and six month ended June 30, 2022 and 2021.
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES (continued):
The calculation of diluted loss per share does not include 583,332
Warrants and 1,159,169 options outstanding to purchase common stock with anti-dilutive effect for the six months ended June 30, 2022.
The calculation of diluted loss per share does not include 583,332
Warrants and 901,067 options outstanding to purchase common stock with anti-dilutive effect for the three and six month ended June 30,
2021.
Newly Issued Accounting Pronouncements
As an “emerging growth company,” the
Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements
applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this
extended transition period under the JOBS Act. The adoption dates discussed below reflects this election.
In February 2016, the FASB issued ASU 2016-02—Leases,
requiring the recognition of lease assets and liabilities on the balance sheet. The standard: (a) clarifies the definition of a lease;
(b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases
on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than 12 months.
The standard is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years
beginning after December 15, 2022. This adoption approach will result in a balance sheet presentation that will not be comparable to
the prior period in the first year of adoption. The adoption of this ASU will result in the recognition of operating lease assets and
liabilities of approximately $4.8 million. The Company is still in the process of finalizing the calculation. The standard is not expected
to have a material impact on the Company's results of operations or cash flows.
In
June 2016, the FASB issued ASU No. 2016-13 (Topic 326), Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial
Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset
measured at amortized cost to be presented at the net amount expected to be collected. The guidance will be effective for the Company
for fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the effect that
ASU 2016-13 will have on its consolidated financial statements.
In December
2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting
for income taxes by removing a variety of exceptions within the framework of ASC 740. These exceptions include the exception to the incremental
approach for intra-period tax allocation in the event of a loss from continuing operations and income or a gain from other items (such
as other comprehensive income), and the exception to using general methodology for the interim period tax accounting for year-to-date
losses that exceed anticipated losses. The guidance will be effective for the Company beginning January 1, 2023, and interim periods
in fiscal years beginning January 1, 2023. Early adoption is permitted. The Company has evaluated
the effect that ASU 2019-12 will have on its condensed consolidated financial statements and related disclosures and
has determined that there is no material impact on the Company’s consolidated
financial statements.
Recently issued and adopted pronouncements
In August 2020,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain
financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s
own equity. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments
and requires the use of the if-converted method. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and interim
periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2020. The Company elected
to early adopt ASU 2020-06 on January 1, 2022. Adoption of the standard did not have
a material impact on the financial statements.
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2—REVENUES
The Company recognizes revenue in accordance with ASC Topic 606, Revenue
from Contracts with Customers, which applies to all contracts with customers. Under Topic 606, an entity recognizes revenue when its customer
obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange
for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic
606, the entity performs the following five steps:
|
(i) |
identify the contract(s) with a customer; |
|
(ii) |
identify the performance obligations in the contract; |
|
(iii) |
determine the transaction price; |
|
(iv) |
allocate the transaction price to the performance obligations in the contract; and |
|
(v) |
recognize revenue when (or as) the entity satisfies a performance obligation. |
At contract inception, once the contract is determined to be within
the scope of Topic 606, the Company assesses the goods or services promised within the contract and determines those that are performance
obligations and assesses whether each promised good or service is distinct.
Customer option to acquire additional goods or services gives rise
to a performance obligation in the contract only if the option provides a material right to the customer that it would not receive without
entering into that contract.
In a contract with multiple performance obligations, the Company must
develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation,
which determines how the transaction price is allocated among the performance obligations.
The Company evaluates each performance obligation to determine if it
can be satisfied at a point in time or over time.
Revenue is recognized when control of the promised goods or services
is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange
for those goods or services.
In December
2018, the Company entered into an evaluation, option and license agreement (the “Novartis Agreement”) with Novartis International
Pharmaceutical Limited (“Novartis”) for which the Company was paid for
its research and development costs.
The Company concluded that there is one distinct performance obligation
under the Novartis Agreement: Research and development services, an obligation which is satisfied over time.
Revenue associated with the research and development services in the
amounts of approximately $0.5 million and $1.7 were recognized in the six months ended June 30, 2022 and 2021, respectively.
The Company concluded that progress towards completion of the research
and development performance obligation related to the Novartis Agreement is best measured in an amount proportional to the expenses relative
to the total estimated expenses. The Company periodically reviews and updates its estimates, when appropriate, which may adjust revenue
recognized for the period. Most of the company's revenues derive from the Novartis Agreement, for which revenues consist of reimbursable
research and development costs. On June 2, 2022, Novartis informed the Company that Novartis does not intend to exercise its option
to obtain an exclusive license for AL102, thereby terminating the agreement.
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3—TAX
The Company has reviewed the tax positions taken, or to be taken,
in its tax returns for all tax years currently open to examination by a taxing authority. As of June 30, 2022 and 2021, the Company has
recorded an uncertain tax position liability exclusive of interest and penalties of $1.2 million and $0.7 million, respectively, which
were classified as other long-term liabilities. As of June 30, 2022 and 2021, the Company accrued interest related to uncertain tax positions
of $63 thousand and $30 thousand, respectively. The interest is recorded as part of financial expenses. These uncertain tax positions
would impact the Company’s effective tax rate, if recognized. A reconciliation of the Company’s unrecognized tax benefits
is below:
|
|
Six months |
|
|
Year |
|
|
|
ended |
|
|
ended |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands) |
|
Uncertain tax position at the beginning of the period |
|
$ |
858 |
|
|
$ |
581 |
|
Additions for uncertain tax position of prior years (foreign exchange and interest) |
|
|
20 |
|
|
|
17 |
|
Additions for tax positions of current period |
|
|
367 |
|
|
|
260 |
|
Uncertain tax position at the end of the period |
|
$ |
1,245 |
|
|
$ |
858 |
|
The Company files U.S. federal, various U.S. state and Israeli income
tax returns. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following
the tax year to which those filings relate. In the United States and Israel, the 2017 and subsequent tax years remain subject to examination
by the applicable taxing authorities as of June 30, 2022.
NOTE 4—COMMITMENTS AND CONTINGENT
Liabilities Lease
In January 2019, the Subsidiary signed a new lease agreement. The term
of the lease is for 63 months and includes an option to extend the lease for an additional 60 months. As part of the agreement, the lessor
also provided the Company with finance in the amount of approximately $0.5 million paid in arrears for of leasehold improvements. The
financing was recorded as a Long-Term Rent Liability. In June 2020, the Company signed a new lease agreement. The term of the lease is
for 30 months. The minimum rental payments under operating leases as of June 30, 2022, are as follows (in thousands):
Year ended December 31, |
|
|
|
2022 |
|
|
205 |
|
2023 |
|
|
409 |
|
2024 |
|
|
145 |
|
|
|
$ |
759 |
|
The Subsidiary obtained a bank guarantee in the amount of approximately
$0.2 million for its new office lease agreement.
Asset Transfer and License Agreement with Bristol-Myers Squibb
Company.
In November 2017, the Company entered into a license agreement, or
the BMS License Agreement, with Bristol-Myers Squibb Company, or BMS, under which BMS granted the Company a worldwide, non-transferable,
exclusive, sublicensable license under certain patent rights and know-how controlled by BMS to research, discover, develop, make, have
made, use, sell, offer to sell, export, import and commercialize AL101 and AL102, or the BMS Licensed Compounds, and products containing
AL101 or AL102, or the BMS Licensed Products, for all uses including the prevention, treatment or control of any human or animal disease,
disorder or condition.
Under the BMS License Agreement, the Company is obligated to use commercially
reasonable efforts to develop at least one BMS Licensed Product. The Company has sole responsibility for, and bear the cost of, conducting
research and development and preparing all regulatory filings and related submissions with respect to the BMS Licensed Compounds and/or
BMS Licensed Products. BMS has assigned and transferred all INDs for the BMS Licensed Compounds to the Company. The Company is also required
to use commercially reasonable efforts to obtain regulatory approvals in certain major market countries for at least one BMS Licensed
Product, as well as to effect the first commercial sale of and commercialize each BMS Licensed Product after obtaining such regulatory
approval. The Company has sole responsibility for, and bear the cost of, commercializing BMS Licensed Products. For a limited period of
time, the Company may not, engage directly or indirectly in the clinical development or commercialization of a Notch inhibitor molecule
that is not a BMS Licensed Compound.
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4—COMMITMENTS AND CONTINGENT (continued):
The Company is required to pay BMS payments upon the achievement of
certain development or regulatory milestone events of up to $95 million in the aggregate with respect to the first BMS Licensed Compound
to achieve each such event and up to $47 million in the aggregate with respect to each additional BMS Licensed Compound to achieve each
such event. The Company is also obligated to pay BMS payments of up to $50 million in the aggregate for each BMS Licensed Product that
achieves certain sales-based milestone events and tiered royalties on net sales of each BMS Licensed Product by the Company or its affiliates
or sublicensees at rates ranging from a high single-digit to low teen percentage, depending on the total annual worldwide net sales of
each such Licensed Product. If the Company sublicenses or assigns any rights to the licensed patents, the BMS Licensed Compounds and/or
the BMS Licensed Products, the Company is required to share with BMS a portion of all consideration received from such sublicense or assignment,
ranging from a mid-teen to mid-double-digit percentage, depending on the development stage of the most advanced BMS Licensed Compound
or BMS Licensed Product that is subject to the applicable sublicense or assignment, but such portion may be reduced based on the milestone
or royalty payments that are payable by the Company to BMS under the BMS License Agreement.
The Company accounted for the acquisition of the rights granted by
BMS as an asset acquisition because it did not meet the definition of a business. The Company recorded the total consideration transferred
and value of shares issued to BMS as research and development expense in the consolidated statement of operations as incurred since the
acquired the rights granted by BMS represented in-process research and development and had no alternative future use.
The Company accounts for contingent consideration payable upon achievement
of sales milestones in such asset acquisitions when the underlying contingency is resolved.
The BMS License Agreement remains in effect, on a country-by-country
and BMS Licensed Product-by-BMS Licensed Product basis, until the expiration of royalty obligations with respect to a given BMS Licensed
Product in the applicable country. Royalties are paid on a country-by-country and BMS Licensed Product-by-BMS Licensed Product basis from
the first commercial sale of a particular BMS Licensed Product in a country until the latest of 10 years after the first commercial sale
of such BMS Licensed Product in such country, (b) when such BMS Licensed Product is no longer covered by a valid claim in the licensed
patent rights in such country, or (c) the expiration of any regulatory or marketing exclusivity for such BMS Licensed Product in such
country. Any inventions, and related patent rights, invented solely by either party pursuant to activities conducted under the BMS License
Agreement shall be solely owned by such party, and any inventions, and related patent rights, conceived of jointly by the Company and
BMS pursuant to activities conducted under the BMS License Agreement shall be jointly owned by the Company and BMS, with BMS’s rights
thereto included in the Company’s exclusive license. The Company has the first right—with reasonable consultation with, or
participation by, BMS—to prepare, prosecute, maintain and enforce the licensed patents, at the Company’s expense.
BMS has the right to terminate the BMS License Agreement in its entirety
upon written notice to the Company (a) for insolvency-related events involving the Company, (b) for the Company’s material breach
of the BMS License Agreement if such breach remains uncured for a defined period of time, for the Company’s failure to fulfill its
obligations to develop or commercialize the BMS Licensed Compounds and/or BMS Licensed Products not remedied within a defined period of
time following written notice by BMS, or (d) if the Company or its affiliates commence any action challenging the validity, scope, enforceability
or patentability of any of the licensed patent rights. The Company has the right to terminate the BMS License Agreement (a) for convenience
upon prior written notice to BMS, the length of notice dependent on whether a BMS Licensed Project has received regulatory approval, (b)
upon immediate written notice to BMS for insolvency-related events involving BMS, (c) for BMS’s material breach of the BMS License
Agreement if such breach remains uncured for a defined period of time, or (d) on a BMS Licensed Compound-by-BMS Licensed Compound and/or
BMS Licensed Product-by-BMS Licensed Product basis upon immediate written notice to BMS if the Company reasonably determine that there
are unexpected safety and public health issues relating to the applicable BMS Licensed Compounds and/or BMS Licensed Products.
Upon termination of the BMS License Agreement in its entirety by the
Company for convenience or by BMS, the Company grants an exclusive, non-transferable, sublicensable, worldwide license to BMS under certain
of its patent rights that are necessary to develop, manufacture or commercialize BMS Licensed Compounds or BMS Licensed Products. In exchange
for such license, BMS must pay the Company a low single-digit percentage royalty on net sales of the BMS Licensed Compounds and/or BMS
Licensed Products by it or its affiliates, licensees or sublicensees, provided that the termination occurred after a specified developmental
milestone for such BMS Licensed Compounds and/ or BMS Licensed Products.
Option and License Agreement with Novartis International Pharmaceutical
Ltd.
In December 2018, the Company entered into an evaluation, option and
license agreement, or the Novartis Option Agreement, with Novartis, pursuant to which Novartis agreed to conduct certain studies to evaluate
AL102 in combination with its B-cell maturation antigen, or BCMA, therapies in multiple myeloma, and the Company agreed to supply AL102
for such studies. All supply and development costs associated with such evaluation studies were fully borne by Novartis.
AYALA PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4—COMMITMENTS AND CONTINGENT (continued):
Under the Novartis Option Agreement, the Company granted Novartis
an exclusive option to obtain an exclusive (including as to the Company and its affiliates), sublicensable (subject to certain terms
and conditions), worldwide license and sublicense (as applicable) under certain patent rights and know-how controlled by the Company
(including applicable patent rights and know-how that are licensed from BMS pursuant to the BMS License Agreement) to research, develop,
manufacture (subject to the Company’s non-exclusive right to manufacture and supply AL102 or the Novartis Licensed Product for
Novartis) and commercialize AL102 or any pharmaceutical product containing AL102 as the sole active ingredient, or the Novartis Licensed
Product, for the diagnosis, prophylaxis, treatment, or prevention of multiple myeloma in humans. The Company also granted Novartis the
right of first negotiation for the license rights to conduct development or commercialization activities with respect to the use of AL102
for indications other than multiple myeloma. Additionally, from the exercise by Novartis of its option until the termination of the Novartis
Option Agreement, the Company was not able to, either itself or through its affiliates or any other third parties, directly or indirectly
research, develop or commercialize certain BCMA-related compounds for the treatment of multiple myeloma.
According to the agreement, Novartis was obligated to pay the Company
a low eight figure option exercise fee in order to exercise its option and activate its license, upon which the Company would have been
eligible to receive development, regulatory and commercial milestone payments of up to $245 million in the aggregate and tiered royalties
on net sales of Novartis Licensed Products by Novartis or its affiliates or sublicensees at rates ranging from a mid-single-digit to
low double-digit percentage, depending on the total annual worldwide net sales of Novartis Licensed Products. Royalties were to be paid
on a country-by-country and Novartis Licensed Product-by-Novartis Licensed Product basis from the first commercial sale of a particular
Novartis Licensed Product in a country until the latest of (a) 10 years after the first commercial sale of such Novartis Licensed Product
in such country, (b) when such Novartis Licensed Product is no longer covered by a valid claim in the licensed patent rights in such
country, or (c) the expiration of any regulatory or marketing exclusivity for such Novartis Licensed Product in such country. Contemporaneously
with the Novartis Option Agreement, the Company entered into a stock purchase agreement and associated investment agreements, or the
SPA, with Novartis’ affiliate, Novartis Institutes for BioMedical Research, Inc., or NIBRI, pursuant to which NIBRI acquired a
$10 million equity stake in the Company.
Novartis owned any inventions, and related patent rights, invented
solely by it or jointly with the Company in connection with activities conducted pursuant to the Novartis Option Agreement. The Company
maintained first right to prosecute and maintain any patents licensed to Novartis, both before and after its exercise of its option.
The Company maintained the first right to defend and enforce its patents prior to Novartis’s exercise of its option, upon which
Novartis gains such right with respect to patents included in the license.
On June 2, 2022, Novartis informed the Company that Novartis does
not intend to exercise its option to obtain an exclusive license for AL102, thereby terminating the agreement.
NOTE 5—SUBSEQUENT EVENTS
Pursuant to the Sales Agreement, in August 2022, the Company sold a
total of 263,875 shares of common stock for total gross proceeds of approximately $419 thousand, or $406 thousand net
of issuance costs.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
You should read the following discussion and analysis of our financial
condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes included
elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere
in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing,
includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth
in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Annual
Report”), our actual results could differ materially from the results described in or implied by the forward-looking statements
contained in the following discussion and analysis.
Overview
We are a clinical-stage oncology company focused on developing and
commercializing small molecule therapeutics for patients suffering from rare and aggressive cancers, primarily in genetically defined
patient populations. Our differentiated development approach is predicated on identifying and addressing tumorigenic drivers of cancer,
through a combination of our bioinformatics platform and next-generation sequencing to deliver targeted therapies to underserved patient
populations. Our current portfolio of product candidates, AL101 and AL102, targets the aberrant activation of the Notch pathway using
gamma secretase inhibitors. Gamma secretase is the enzyme responsible for Notch activation and, when inhibited, turns off the Notch pathway
activation. Aberrant activation of the Notch pathway has long been implicated in multiple solid tumor and hematological cancers and has
often been associated with more aggressive cancers. In cancers, Notch is known to serve as a critical facilitator in processes such as
cellular proliferation, survival, migration, invasion, drug resistance and metastatic spread, all of which contribute to a poorer patient
prognosis. AL101 and AL102 are designed to address the underlying key drivers of tumor growth, and our initial Phase 2 clinical data of
AL101 suggest that our approach may address shortcomings of existing treatment options. We believe that our novel product candidates,
if approved, have the potential to transform treatment outcomes for patients suffering from rare and aggressive cancers.
Our product candidates, AL101 and AL102, are being developed as potent,
selective, small molecule gamma secretase inhibitors, or GSIs. We obtained an exclusive, worldwide license to develop and commercialize
AL101 and AL102 from Bristol-Myers Squibb Company, or BMS, in November 2017. BMS evaluated AL101 in three Phase 1 studies involving more
than 200 total subjects and AL102 in a single Phase 1 study involving 36 subjects with various cancers who had not been prospectively
characterized for Notch activation, and to whom we refer to as unselected subjects. While these Phase 1 studies did not report statistically
significant overall results, clinical activity was observed across these studies in cancers in which Notch has been implicated as a tumorigenic
driver.
We are currently evaluating AL102, our oral GSI for the treatment
of desmoid tumors, in our RINGSIDE Phase 2/3 pivotal study. In February 2022, Part A completed enrollment of 42 patients with progressive
desmoid tumors in three study arms across three doses of AL102. We reported initial interim data from Part A in July 2022 with additional
data expected to be released at a medical conference. in the third quarter of 2022. Part B of the study will be a double-blind placebo-controlled
study enrolling up to 156 patients with progressive disease, randomized between AL102 or placebo. The study’s primary endpoint
will be progression free survival, or PFS with secondary endpoints including ORR, duration of response, or DOR and patient reported QOL
measures.
In addition, we collaborated with Novartis International Pharmaceutical
Limited, or Novartis, to develop AL102 for the treatment of multiple myeloma, or MM, in combination with Novartis’ B-cell maturation
antigen, or BCMA, targeting therapies. On June 2, 2022, Novartis informed the Company that Novartis does not intend to exercise its
option to obtain an exclusive license for AL102, thereby terminating the agreement.
We are currently concluding a Phase 2 ACCURACY trial for the treatment
of recurrent/metastatic adenoid cystic carcinoma, or R/M ACC, in subjects with progressive disease and Notch-activating mutations. We
refer to this trial as the ACCURACY trial. We use next-generation sequencing, or NGS, to identify patients with Notch-activating mutations,
an approach that we believe will enable us to target the patient population with cancers that we believe are most likely to respond to
and benefit from AL101 treatment. We chose to initially target R/M ACC based on our differentiated approach, which is comprised of: data
generated in a Phase 1 study of AL101 in unselected, heavily pretreated subjects conducted by BMS, our own data generated in patient-derived
xenograft models, our bioinformatics platform and our expertise in the Notch pathway.
If approved, we believe that AL101 has the potential to be the first
therapy approved by the FDA for patients with R/M ACC and address the unmet medical need of these patients. AL101 was granted Orphan
Drug Designation in May 2019 for the treatment of adenoid cystic carcinoma, or ACC, and fast track designation in February 2020 for the
treatment of R/M ACC. We reported interim data regarding the most recent safety efficacy, pharmacokinetics, and pharmacodynamics data
from Phase 2 of the ACCURACY trial in June 2022.
We are also developing AL102 for the treatment of T-ALL, an aggressive,
rare form of T-cell specific leukemia. Based on findings from our Phase 1 study of AL101 and supporting data from our preclinical studies,
we intend to commence a Phase 2 clinical trial of AL102 for the treatment of R/R T-ALL around year end of 2022, subject to the impact
of COVID-19 on our business.
As part of our efforts to focus our resources on the more advanced
programs and studies including the RINGSIDE study in desmoid tumors and the ACCURACY study for ACC, we elected to discontinue the TENACITY
trial, which was evaluating AL101 as a monotherapy in an open-label Phase 2 clinical trial for the treatment of patients with Notch-activated
R/M TNBC.
We were incorporated as a Delaware corporation on November 14, 2017,
and our headquarters is located in Rehovot, Israel. Our operations to date have been limited to organizing and staffing our company, business
planning, raising capital and conducting research and development activities for our product candidates. To date, we have funded our operations
primarily through the sales of common stock and convertible preferred stock.
We have incurred significant net operating losses in every year since
our inception and expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Our net
losses may fluctuate significantly from quarter to quarter and year to year and could be substantial. Our net losses were approximately
$8.1 million and $18.2 million for the three and six months ended June 30, 2022, respectively. As six months ended June 30, 2022, we had
an accumulated deficit of $129.4 million. We anticipate that our expenses will increase as we:
|
● |
advance our development of AL101 for the treatment of R/M ACC; |
|
● |
advance our Phase 2/3 RINGSIDE pivotal trial of AL102 for the treatment of desmoid tumors, or obtain and conduct clinical trials for any other product candidates; |
|
● |
assuming successful completion of our Phase 2 ACCURACY trial of AL101 for the treatment of R/M ACC, may be required by the FDA to complete Phase 3 clinical trials to support submission of a New Drug Application, or NDA, of AL101 for the treatment of R/M ACC; |
|
● |
establish a sales, marketing and distribution infrastructure to commercialize AL101 and/or AL102, if approved, and for any other product candidates for which we may obtain marketing approval; |
|
● |
maintain, expand, protect and enforce our intellectual property portfolio; |
|
● |
hire additional staff, including clinical, scientific, technical, regulatory operational, financial, commercial and other personnel, to execute our business plan; and |
|
● |
add clinical, scientific, operational, financial and management information systems and personnel to support our product development and potential future commercialization efforts, and to enable us to operate as a public company. |
We do not expect to generate revenue from product sales unless and
until we successfully complete clinical development and obtain regulatory approval for a product candidate. Additionally, we currently
use contract research organizations, or CROs, to carry out our clinical development activities. Furthermore, we incur additional costs
associated with operating as a public company. As a result, we will need substantial additional funding to support our continuing operations,
pursue our growth strategy and continue as a going concern. Until such time as we can generate significant revenue from product sales,
if ever, we expect to fund our operations through public or equity offerings or debt financings, marketing and distribution arrangements
and other collaborations, strategic alliances and licensing arrangements or other sources. We may, however, be unable to raise additional
funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such
other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current or
any future product candidates.
Because of the numerous risks and uncertainties associated with therapeutics
product development, we are unable to predict accurately the timing or amount of increased expenses or when or if we will be able to achieve
or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become
profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels
and be forced to reduce or terminate our operations.
As of June 30, 2022, we had cash and cash equivalents of approximately
$20.1 million. Due to the uncertainty in securing additional funding, and the insufficient amount of cash and cash equivalent resources
at December 31, 2021, we have concluded that substantial doubt exists with respect to our ability to continue as a going concern within
one year after the date of the filing of this Quarterly Report on Form 10-Q. See “— Liquidity and Capital Resources.”
Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common
stock, and it may be more difficult for us to obtain financing. If potential collaborators decline to do business with us or potential
investors decline to participate in any future financings due to such concerns, our ability to increase our cash position may be limited.
We will need to generate significant revenues to achieve profitability, and we may never do so. Because of the numerous risks and uncertainties
associated with the development of our current and any future product candidates, the development of our platform and technology and because
the extent to which we may enter into collaborations with third parties for development of any of our product candidates is unknown, we
are unable to estimate the amounts of increased capital outlays and operating expenses required for completing the research and development
of our product candidates.
If we raise additional funds through marketing and distribution arrangements
and other collaborations, strategic alliances and licensing arrangements with third parties, we may be required to relinquish valuable
rights to our technologies, intellectual property, 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 through equity or debt financings when needed, we may be required to delay,
limit, reduce or terminate product candidate development programs or future commercialization efforts, grant rights to develop and market
product candidates that we would otherwise prefer to develop and market ourselves or discontinue operations.
Bristol-Myers Squibb License Agreements
In November 2017, we entered into an exclusive worldwide license agreement
with Bristol-Myers Squibb Company, or BMS, for AL101 and AL102, each a small molecule gamma secretase inhibitor in development for the
treatment of cancers. Under the terms of the license agreement, we have licensed the exclusive worldwide development and commercialization
rights for AL101 (previously known as BMS-906024) and AL102 (previously known as BMS-986115).
We are responsible for all future development and commercialization
of AL101 and AL102. In consideration for the rights granted under the agreement, we paid BMS a payment of $6 million and issued to BMS
1,125,929 shares of Series A preferred stock valued at approximately $7.3 million, which converted to 562,964 shares of common stock in
connection with our initial public offering, or IPO. We are obligated to pay BMS up to approximately $142 million in the aggregate upon
the achievement of certain clinical development or regulatory milestones and up to $50 million in the aggregate upon the achievement of
certain commercial milestones by each product containing the licensed BMS compounds. In addition, we are obligated to pay BMS tiered royalties
ranging from a high single-digit to a low teen percentage on worldwide net sales of all products containing the licensed BMS compounds.
BMS has the right to terminate the BMS License Agreement in its entirety
upon written notice to us (a) for insolvency-related events involving us, (b) for our material breach of the BMS License Agreement if
such breach remains uncured for a defined period of time, (c) for our failure to fulfill our obligations to develop or commercialize the
BMS Licensed Compounds and/or BMS Licensed Products not remedied within a defined period of time following written notice by BMS, or (d)
if we or our affiliates commence any action challenging the validity, scope, enforceability or patentability of any of the licensed patent
rights. We have the right to terminate the BMS License Agreement (a) for convenience upon prior written notice to BMS, the length of notice
dependent on whether a BMS Licensed Product has received regulatory approval, (b) upon immediate written notice to BMS for insolvency-related
events involving BMS, (c) for BMS’s material breach of the BMS License Agreement if such breach remains uncured for a defined period
of time, or (d) on a BMS Licensed Compound-by-BMS Licensed Compound and/or BMS Licensed Product-by-BMS Licensed Product basis upon immediate
written notice to BMS if we reasonably determine that there are unexpected safety and public health issues relating to the applicable
BMS Licensed Compounds and/or BMS Licensed Products. Upon termination of the BMS License Agreement in its entirety by us for convenience
or by BMS, we grant an exclusive, non-transferable, sublicensable, worldwide license to BMS under certain of our patent rights that are
necessary to develop, manufacture or commercialize BMS Licensed Compounds or BMS Licensed Products. In exchange for such license, BMS
must pay us a low single-digit percentage royalty on net sales of the BMS Licensed Compounds and/or BMS Licensed Products by it or its
affiliates, licensees or sublicensees, provided that the termination occurred after a specified developmental milestone for such BMS Licensed
Compounds and/or BMS Licensed Products.
Novartis License Agreements
In December 2018, we entered into an evaluation,
option and license agreement, or the Novartis Agreement, with Novartis International Pharmaceutical Limited, or Novartis, pursuant to
which we granted Novartis an exclusive option to obtain an exclusive license to research, develop, commercialize and manufacture AL102
for the treatment of multiple myeloma.
We supplied Novartis quantities of AL102, products containing AL102
and certain other materials for purposes of conducting evaluation studies not comprising human clinical trials during the option period,
together with our know-how as may have been reasonably be necessary in order for Novartis to conduct such evaluation studies. Novartis
agreed to reimburse us for all such expenses.
At any time during the option term, Novartis may have exercised its
option by payment of a low eight figure option exercise fee. If Novartis exercised its option, it would have been obligated to pay us
up to an additional $245 million upon the achievement of certain clinical development and commercial milestones. In addition, Novartis
was obligated to pay us tiered royalties at percentages ranging from a mid-single digit to a low double-digit percentage on worldwide
net sales of products licensed under the agreement.
On June 2, 2022, Novartis informed
the Company that Novartis does not intend to exercise its option to obtain an exclusive license for AL102, thereby terminating the agreement.
Financial Overview
Except as described below, there have been no material changes from
the disclosure provided under the caption “Components of Results of Operations” in our Annual Report on Form 10-K for the
year ended December 31, 2021.
Results of Operations
Comparison of the three and six months ended June 30, 2022, and
2021
The following table summarizes our results of operations for the three
and six months ended June 30, 2022 and 2021
| |
For the Three Months Ended | | |
For the Six Months Ended | |
| |
June 30, | | |
June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
($ in thousands, except share and per share amounts) | |
| |
(Unaudited) | |
Revenues from licensing agreement | |
$ | 38 | | |
$ | 761 | | |
$ | 496 | | |
$ | 1,735 | |
Cost of services | |
| (38 | ) | |
| (761 | ) | |
| (406 | ) | |
| (1,735 | ) |
Gross profit | |
| — | | |
| — | | |
| 90 | | |
| — | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 5,580 | | |
| 8,121 | | |
| 13,083 | | |
| 15,046 | |
General and administrative | |
| 2,260 | | |
| 2,536 | | |
| 4,701 | | |
| 4,839 | |
Operating loss | |
| (7,840 | ) | |
| (10,657 | ) | |
| (17,694 | ) | |
| (19,885 | ) |
Financial Income (Loss), net | |
| (156 | ) | |
| (22 | ) | |
| (140 | ) | |
| (114 | ) |
Loss before income tax | |
| (7,996 | ) | |
| (10,679 | ) | |
| (17,834 | ) | |
| (19,999 | ) |
Taxes on income | |
| (214 | ) | |
| (162 | ) | |
| (403 | ) | |
| (410 | ) |
Net loss | |
| (8,210 | ) | |
| (10,841 | ) | |
| (18,237 | ) | |
| (20,409 | ) |
Net Loss per share attributable to common stockholders, basic and diluted | |
$ | (0.54 | ) | |
$ | (0.75 | ) | |
$ | (1.19 | ) | |
$ | (1.46 | ) |
Weighted average common shares outstanding, basic and diluted | |
| 15,312,766 | | |
| 14,417,423 | | |
| 15,306,823 | | |
| 13,954,676 | |
Revenue
To date, we have not generated any revenue from product sales and we
do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product
candidates are successful and result in regulatory approval and successful commercialization efforts, we may generate revenue from product
sales in the future. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our
product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.
For the three months ended June 30, 2022 and 2021, we recognized approximately
$38 thousand and $0.8 million in revenue, respectively. For the six months
ended of June 30, 2022 and 2021, we recognized approximately $0.5 million and $1.7 million in revenue, respectively, mainly as a result
of the Novartis Agreement. Refer to Note 2 to our unaudited condensed consolidated financial statements for information regarding our
recognition of revenue under the Novartis Agreement.
Research and Development
Research and development expenses consist primarily of costs incurred
for our research activities, including the development of and pursuit of regulatory approval of our lead product candidates, AL101 and
AL102, which include:
|
● |
employee-related expenses, including salaries, benefits and stock-based compensation expense for personnel engaged in research and development functions; |
|
● |
expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with CROs, investigative sites and consultants; |
|
● |
costs of manufacturing our product candidates for use in our preclinical studies and clinical trials, as well as manufacturers that provide components of our product candidates for use in our preclinical and current and potential future clinical trials; |
|
● |
costs associated with our bioinformatics platform; |
|
● |
consulting and professional fees related to research and development activities; |
|
● |
costs related to compliance with clinical regulatory requirements; and |
|
● |
Facility costs and other allocated expenses, which include expenses for rent and maintenance of our facility, utilities, depreciation and other supplies. |
We expense research and development costs as incurred. Our external
research and development expenses consist primarily of costs such as fees paid to consultants, contractors and CROs in connection with
our preclinical and clinical development activities. We typically use our employee and infrastructure resources across our development
programs and we do not allocate personnel costs and other internal costs to specific product candidates or development programs with the
exception of the costs to manufacture our product candidates.
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
| | |
| | |
$ | | |
% | | |
| | |
| | |
$ | | |
% | |
| |
2022 | | |
2021 | | |
Change | | |
Change | | |
2022 | | |
2021 | | |
Change | | |
Change | |
| |
| | |
| | |
| | |
($ in thousands) | | |
| | |
| | |
| |
| |
| | |
| | |
| | |
(Unaudited) | | |
| | |
| | |
| |
Research and Development | |
| 5,580 | | |
| 8,121 | | |
| (2,541 | ) | |
| (31 | )% | |
| 13,083 | | |
| 15,046 | | |
| (1,963 | ) | |
| (13 | )% |
Research and development expenses were approximately $5.6 million for
the three months ended June 30, 2022, compared to approximately $8.1 million for the three months ended June 30, 2021, a decrease of approximately
$2.5 million. The decrease was due to winding down of the ACCURACY trial. Research and development expenses were approximately $13.1 million
for the six months ended June 30, 2022 compared to approximately $15.0 million for the six months ended June 30, 2021, a decrease of approximately
$2.0 million. The decrease was due to the termination of the TENACITY trial and winding down of the ACCURACY trial.
The following table summarizes our research and development expenses
by product candidate or development program for the three and six months ended June 30, 2022 and 2021:
| |
Three Months Ended | | |
Six Months Ended | |
| |
June 30, | | |
June 30, | | |
June 30, | | |
June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
($ in thousands) | |
| |
(Unaudited) | |
Program-Specific Costs: | |
| | |
| | |
| | |
| |
AL 101 | |
| - | | |
| - | | |
| - | | |
| - | |
ACC | |
| 801 | | |
| 3,680 | | |
| 1,763 | | |
| 7,936 | |
TNBC(1) | |
| 1,200 | | |
| 2,533 | | |
| 2,534 | | |
| 3,960 | |
General Expenses | |
| 474 | | |
| 263 | | |
| 1,176 | | |
| 803 | |
AL 102 | |
| | | |
| | | |
| | | |
| | |
General Expenses | |
| 61 | | |
| 10 | | |
| 180 | | |
| 24 | |
Desmoid | |
| 3,044 | | |
| 1,635 | | |
| 7,430 | | |
| 2,323 | |
| |
| | | |
| | | |
| | | |
| | |
Total Research and Development Expenses | |
$ | 5,580 | | |
$ | 8,121 | | |
$ | 13,083 | | |
$ | 15,046 | |
| (1) | As part of our efforts to focus our resources on the more
advanced programs and studies including the RINGSIDE study in desmoid tumors and the ACCURACY study for ACC, we elected to discontinue
the TENACITY trial, which was evaluating AL101 as a monotherapy in an open-label Phase 2 clinical trial for the treatment of patients
with Notch-activated R/M TNBC. |
We expect our research and development expenses to increase for the
foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including
investments in manufacturing, as our programs advance into later stages of development and as we conduct additional clinical trials.
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended June
30, |
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
General and Administrative |
|
|
2,260 |
|
|
|
2,536 |
|
|
|
(276 |
) |
|
|
(11 |
)% |
|
|
4,701 |
|
|
|
4,839 |
|
|
|
(138 |
) |
|
|
(3 |
)% |
General and administrative expenses were $2.3 million for the three
months ended June 30, 2022 compared to $2.5 million for the three months ended June 30, 2021, a decrease of $0.3 million. General and
administrative expenses were $4.7 million for the six months ended June 30, 2022 compared to $4.8 million for the six months ended June
30, 2021, a decrease of $0.1 million.
Financial Loss, net
Financial loss, net was $156 thousand for the three months ended June
30, 2022 compared to the financial income, net of $22 thousand for the three months ended June 30, 2021. Financial loss, net was $140
thousand for the six months ended June 30, 2022 compared to the financial income, net of $114 thousand for the same period in 2021.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not generated any revenue from product
sales and have incurred significant operating losses and negative cash flows from our operations. Our net losses were approximately $8.2
million and $ 18.2 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2022, we had an accumulated
deficit of $129.4 million.
On May 12, 2020,
we completed the sale of shares of our common stock in our IPO. In connection with the IPO, we issued and sold 3,940,689 shares of common
stock, including 274,022 shares associated with the partial exercise on June 4, 2020 of the underwriters’ option to purchase additional
shares, at a price to the public of $15.00 per share, resulting in net proceeds to us of approximately $52.2 million after deducting
underwriting discounts and commissions and estimated offering expenses payable by us. All shares issued and sold were registered pursuant
to a registration statement on Form S-1 (File No. 333-236942), as amended, declared effective by the SEC, on May 7, 2020 (the “IPO
Registration Statement”).
On February
19, 2021, we entered into a Securities Purchase Agreement (the “2021 Purchase Agreement”) with the purchasers named therein
(the “Investors”). Pursuant to the 2021 Purchase Agreement, we agreed to sell (i) an aggregate of 333,333 shares of our common
stock (the “Private Placement Shares”), par value $0.01 per share, together with warrants to purchase an aggregate of 116,666
shares of our common stock with an exercise price of $18.10 per share (the “Common Warrants”), for an aggregate purchase
price of $4,999,995.00 and (ii) pre-funded warrants to purchase an aggregate of 1,333,333 shares of our common stock with an exercise
price of $0.01 per share (the “Pre-Funded Warrants” and collectively with the Common Warrants, the “Private Placement
Warrants”), together with an aggregate of 466,666 Common Warrants, for an aggregate purchase price of $19,986,661.67 (collectively,
the “Private Placement”). The Private Placement closed on February 23, 2021.
In June 2021, we entered into an Open Market Sales Agreement, or the
Sales Agreement, with Jefferies LLC, or Jefferies, as sales agent, pursuant to which we may, from time to time, issue and sell common
stock with an aggregate value of up to $200.0 million in “at-the-market” offerings (the “ATM”), under our registration
statement on Form S-3 (File No. 333-256792) filed with the SEC on June 4, 2021 (the “ATM Registration Statement”). Sales of
common stock, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined
in Rule 415(a) of the Securities Act, including sales made directly through The Nasdaq Global Market or on any other existing trading
market for our common stock. Pursuant to the Sales Agreement, during the year ended December 31, 2021, we sold a total of 827,094 shares
of common stock for total gross proceeds of approximately $10.4 million. We did not sell any shares of common stock under the Sales Agreement
in the six months ended June 30, 2022. Subsequent to June 30, 2022, we sold a total of 263,875 shares of common stock for total gross
proceeds of approximately $419 thousand.
The exercise
price and the number of shares of common stock issuable upon exercise of each Private Placement Warrant are subject to adjustment in
the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting
the common stock. In addition, in certain circumstances, upon a fundamental transaction, a holder of Common Warrants will be entitled
to receive, upon exercise of the Common Warrants, the kind and amount of securities, cash or other property that such holder would have
received had they exercised the Private Placement Warrants immediately prior to the fundamental transaction. The Pre-Funded Warrants
will be automatically exercised on cashless basis upon the occurrence of a fundamental transaction. Each Common Warrant is exercisable
from the date of issuance and has a term of three years and each Pre-Funded Warrant is exercisable from the date of issuance and has
a term of ten years. Pursuant to the 2021 Purchase Agreement, we registered the Private Placement Shares and Private Placement Warrants
for resale by the Investors on a registration statement on Form S-3 (the “Private Placement
Registration Statement”).
As of June 30,
2022, we had cash and cash equivalents and restricted bank deposits of approximately $20.4 million.
Cash Flows
The following table summarizes our cash flow for the six months ended
June 30, 2022 and 2021:
| |
Six Months Ended | |
| |
June 30, | |
| |
2022 | | |
2021 | |
| |
($ in thousands) | |
| |
(Unaudited) | |
Cash Flows provided by (used in): | |
| | |
| |
Operating Activities | |
| (17,007 | ) | |
| (21,197 | ) |
Investing Activities | |
| - | | |
| (3 | ) |
Financing Activities | |
| 44 | | |
| 23,583 | |
Net increase (decrease) in cash and cash equivalents and short-term restricted bank deposits | |
| (16,963 | ) | |
| 2,383 | |
Operating Activities
Net cash used in operating activities
during the six months ended June 30, 2022 of approximately $17.0 million was primarily attributable to our net loss of $18.2 million,
which was partially offset by stock- based compensation of $1.4 million.
Net cash used in operating activities during the six months ended June
30, 2021 of $21.2 million was primarily attributable to our net loss of $20.4 million, adjusted for non-cash expenses of $0.8 million.
Investing Activities
We did not have any cash provided by investing activities during the
six months ended June 30, 2022. Net cash used by investing activities of $3 thousand during the six months ended June 30, 2021 was primarily
attributable to the purchase of property and equipment.
Financing Activities
Net cash provided by financing activities during the six months
ended June 30, 2022 of $44 thousand was attributable to sales pursuant to the ATM.
Net cash provided by financing activities during the six months
ended June 30, 2021 of $ 23.6 million was primarily attributable to the Private Placement, net of issuance costs.
Funding Requirements
We expect our expenses to increase in connection with our ongoing
activities, particularly as we continue the research and development for, initiate later-stage clinical trials for, and seek marketing
approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur
significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, we incur additional
costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection
with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce
or eliminate our research and development programs or future commercialization efforts.
As of June 30, 2022, we had cash and cash equivalents and restricted
bank deposits equivalents of $20.4 million. We evaluated whether there are conditions and events, considered in the aggregate, that raise
substantial doubt about our ability to continue as a going concern within one year after the date that the audited consolidated financial
statements are issued. Due to the uncertainty in securing additional funding, and the insufficient amount of cash and cash equivalent
resources at June 30, 2022, we have concluded that substantial doubt exists with respect to our ability to continue as a going concern
within one year after the date of the filing of this Report on Form 10-Q. Our future capital requirements will depend on many factors,
including:
|
● |
the costs of conducting future clinical trials of AL101 and AL102; |
|
● |
the cost of manufacturing additional material for future clinical trials of AL101 and AL102; |
|
● |
the scope, progress, results and costs of discovery, preclinical development, laboratory testing and clinical trials for other potential product candidates we may develop or acquire, if any; |
|
● |
the costs, timing and outcome of regulatory review of our product candidates; |
|
● |
the achievement of milestones or occurrence of other developments that trigger payments under any current or future license, collaboration or other agreements; |
|
● |
the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval; |
|
● |
the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; |
|
● |
the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, protecting and enforcing our intellectual property rights and defending intellectual property-related claims; |
|
● |
the severity, duration and impact of the COVID-19 pandemic, which may adversely impact our business and clinical trials; |
|
● |
our headcount growth and associated costs as we expand our business operations and our research and development activities; and |
|
● |
the costs of operating as a public company. |
Conducting preclinical testing and clinical trials is a time-consuming,
expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain
marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our
commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years,
if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional
financing may not be available to us on acceptable terms, or at all.
Until such time, if ever, as we can generate substantial product
revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances
and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, your ownership interests may be diluted, and the terms of these securities may include
liquidation or other preferences that could adversely affect your rights as a common stockholder. Any debt financing, if available, may
involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt,
making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.
If we raise funds through collaborations, strategic alliances
or licensing arrangements with third parties, such as our former agreement with Novartis, we may have to relinquish valuable rights to
our technologies, intellectual property, future revenue streams, research programs or product candidates or to grant licenses on terms
that may not be favourable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be
required to delay, limit, reduce or terminate our product 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 June 2, 2022, Novartis informed the Company that Novartis does not intend to exercise its option to obtain an exclusive license for
AL102, thereby terminating the agreement.
Contractual Obligations
There have been no material changes to our contractual obligations
from those described in our Annual Report on Form 10-K for the year ended December 31, 2021.
Critical Accounting Policies
Our management’s discussion and analysis of financial
condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of
contingent assets and liabilities in our consolidated financial statements during the reporting periods. These items are monitored and
analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our
estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may
differ materially from these estimates under different assumptions or conditions.
There have been no significant changes in our critical accounting
policies as discussed in our Form 10-K, except as described in Note 1 to the unaudited condensed consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-Q.
Emerging Growth Company Status
The Jumpstart Our Business Start-ups Act of 2012, or the JOBS Act,
permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised
accounting standards applicable to public companies. We have elected to use this extended transition period under the JOBS Act. As a result,
our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates
for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those
of other public companies more difficult.
We will remain an emerging growth company until the earliest
to occur of: (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, or December 31, 2025,
(b) in which we have total annual gross revenues of $1.07 billion or more, or (c) in which we are deemed to be a large accelerated filer
under the rules of the SEC, which means the market value of our outstanding common stock held by non-affiliates exceeds $700 million as
of last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion
in nonconvertible debt during the previous three years.