HLSQ 10-Q
Tessera Defense & Homeland Security Inc. (HLSQ)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarter ended
For the transition period from to
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including
area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Units, each consisting of one share of common stock, $0.0001 par value, and one Warrant entitling the holder to receive one-half share of common stock | PHGE.U | NYSE American | ||
| Warrants, each exercisable for one-half of a share of common stock, $0.0001 par value, at an exercise price of $11.50 per share | PHGE.WS | NYSE American |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 4, 2022,
BIOMX INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This quarterly report on Form 10-Q, or the Quarterly Report, includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and other securities laws. The statements contained herein that are not purely historical, are forward-looking statements. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “will” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. For example, we are making forward-looking statements when we discuss operations, cash flows, financial position, business strategy and plans, market size, our clinical and pre-clinical development program, including recruitment, timing and milestones thereof as well as the design thereof, including acceptance of regulatory agencies of such design, the potential opportunities for and benefits of the BacteriOphage Lead to Treatment, or BOLT, platform, the potential of our product candidates, the potential effect of the coronavirus disease 2019, or COVID-19, on our business and levels of expenses, the sufficiency of financial resources and financial needs and impacts of changes in our management and the corporate restructuring we announced on May 24, 2022 on our business. However, you should understand that these statements are not guarantees of performance or results, and there are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from those expressed in the forward-looking statements, including, among others:
| ● | the ability to generate revenues, and raise sufficient financing to meet working capital requirements; |
| ● | the unpredictable timing and cost associated with our approach to developing product candidates using phage technology; |
| ● | political and economic instability, including, without limitation, due to natural disasters or other catastrophic events, such as the Russian invasion of Ukraine and world sanctions on Russia, Belarus, and related parties, terrorist attacks, hurricanes, fire, floods, pollution and earthquakes; |
| ● | the continued impact of COVID-19, general economic conditions, our current low stock price and other factors on our operations, the continuity of our business, including our preclinical and clinical trials, and our ability to raise additional capital; |
| ● | obtaining U.S. Food and Drug Administration, or FDA, acceptance of any non-U.S. clinical trials of product candidates; |
| ● | our ability to enroll patients in clinical trials and achieve anticipated development milestones when expected; |
| ● | the ability to pursue and effectively develop new product opportunities and acquisitions and to obtain value from such product opportunities and acquisitions; |
| ● | penalties and market withdrawal associated with any unanticipated problems with product candidates and failure to comply with labeling and other restrictions; |
| ● | expenses associated with compliance with ongoing regulatory obligations and successful continuing regulatory review; |
| ● | market acceptance of our product candidates and ability to identify or discover additional product candidates; |
| ● | our ability to obtain high titers for specific phage cocktails necessary for preclinical and clinical testing; |
| ● | the availability of specialty raw materials and global supply chain challenges; |
| ● | the ability of our product candidates to demonstrate requisite, safety and efficacy for drug products, or safety, purity and potency for biologics without causing adverse effects; |
| ● | the success of expected future advanced clinical trials of our product candidates; |
| ● | our ability to obtain required regulatory approvals; |
| ● | delays in developing manufacturing processes for our product candidates; |
ii
| ● | competition from similar technologies, products that are more effective, safer or more affordable than our product candidates or products that obtain marketing approval before our product candidates; |
| ● | the impact of unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives on our ability to sell product candidates or therapies profitably; |
| ● | protection of our intellectual property rights and compliance with the terms and conditions of current and future licenses with third parties; |
| ● | infringement on the intellectual property rights of third parties and claims for remuneration or royalties for assigned service invention rights; |
| ● | our ability to acquire, in-license or use proprietary rights held by third parties necessary to our product candidates or future development candidates; |
| ● | ethical, legal and social concerns about synthetic biology and genetic engineering that may adversely affect market acceptance of our product candidates; |
| ● | reliance on third-party collaborators; |
| ● | our ability to attract and retain key employees or to enforce the terms of noncompetition agreements with employees; |
| ● | the failure to comply with applicable laws and regulations other than drug manufacturing compliance; |
| ● | potential security breaches, including cybersecurity incidents; |
| ● | receipt of the second and/or third tranches under the Term Loan Facility, as such term is defined below, or the second tranche under our agreement with the Cystic Fibrosis Foundation; |
| ● | political, economic and military instability in the State of Israel; and |
| ● | other factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, or the 2021 Annual Report. |
For a detailed discussion of these and other risks, uncertainties and factors, see Part I, Item 1A “Risk Factors” of our 2021 Annual Report and in Part II, Item 1A of this Quarterly Report. All forward-looking statements contained in this Quarterly Report speak only as of the date hereof. Except as required by law, we are under no duty to (and expressly disclaim any such obligation to) update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report. Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, and should be viewed only as historical data.
iii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
1
BIOMX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(USD in thousands, except share and per share data)
(unaudited)
| As of | ||||||||||
| Note | September 30, 2022 | December 31, 2021 | ||||||||
| ASSETS | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | ||||||||||
| Restricted cash | ||||||||||
| Short-term deposits | ||||||||||
| Other current assets | ||||||||||
| Total current assets | ||||||||||
| Property and equipment, net | ||||||||||
| Intangible assets, net | ||||||||||
| Operating lease right-of-use assets | ||||||||||
| Total non-current assets | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-1
BIOMX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(USD in thousands, except share and per share data)
(unaudited)
| As of | ||||||||||||
| Note | September 30, 2022 | December 31, 2021 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Current liabilities | ||||||||||||
| Trade accounts payable | ||||||||||||
| Other accounts payable | ||||||||||||
| Contract liability | - | |||||||||||
| Current portion of operating lease liabilities | ||||||||||||
| Current portion of long-term debt | 4 | - | ||||||||||
| Total current liabilities | ||||||||||||
| Non-current liabilities | ||||||||||||
| Contract liability | - | |||||||||||
| Long-term debt, net of current portion | 4 | |||||||||||
| Operating lease liabilities, net of current portion | ||||||||||||
| Other liabilities | ||||||||||||
| Total non-current liabilities | ||||||||||||
| Commitments and Contingencies | 3 | |||||||||||
| Stockholders’ equity | 5 | |||||||||||
| Preferred Stock, $ | ||||||||||||
| Common Stock, $ | ||||||||||||
| Additional paid in capital | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Total stockholders’ equity | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
BIOMX INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(USD in thousands, except share and per share data)
(unaudited)
| Three Months
Ended September 30, | Nine Months
Ended September 30, | |||||||||||||||||
| Note | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Research and development (“R&D”) expenses, net | ||||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||
| Operating loss | ||||||||||||||||||
| Other income | ( | ) | - | ( | ) | - | ||||||||||||
| Interest expenses | ||||||||||||||||||
| Financial expenses (income), net | ( | ) | ( | ) | ( | ) | ||||||||||||
| Loss before tax | ||||||||||||||||||
| Tax expenses | ||||||||||||||||||
| Net loss | ||||||||||||||||||
| 6 | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
BIOMX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(USD in thousands, except share and per share data)
(unaudited)
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of January 1, 2022 | ( | ) | ||||||||||||||||||
| Issuance of Common Stock under Open Market Sales Agreement, net of $ | ||||||||||||||||||||
| Stock-based compensation expenses | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2022 | ( | ) | ||||||||||||||||||
| Stock-based compensation expenses | - | |||||||||||||||||||
| Proceeds on account of shares | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2022 | ( | ) | ||||||||||||||||||
| Stock-based compensation expenses | - | - | - | |||||||||||||||||
| Issuance of Common Stock under Open Market Sales Agreement net of $ | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Balance as of September 30, 2022 | ( | ) | ||||||||||||||||||
| (*) | Less than $1. |
| (**) | See Note 5A. |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
BIOMX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(USD in thousands, except share and per share data)
(unaudited)
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of January 1, 2021 | ( | ) | ||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||
| Exercise of warrant | ||||||||||||||||||||
| Issuance of Common Stock under Open Market Sales Agreement, net of $ | ||||||||||||||||||||
| Stock-based compensation expenses | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2021 | ( | ) | ||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||
| Issuance of Common Stock under Open Market Sales Agreement, net of $ | ||||||||||||||||||||
| Stock-based compensation expenses | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2021 | ( | ) | ||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||
| Issuance of Common Stock under Open Market Sales Agreement, net of $ | ||||||||||||||||||||
| Issuance of Common Stock under securities purchase agreement (“SPA”), net of $ | ||||||||||||||||||||
| Stock-based compensation expenses | - | - | ||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Balance as of September 30, 2021 | ( | ) | ||||||||||||||||||
| (*) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5
BIOMX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(USD in thousands, except share and per share data)
(unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS – OPERATING ACTIVITIES | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments required to reconcile cash flows used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Amortization of debt issuance costs | ||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | ( | ) | ||||||
| Changes in other liabilities | ( | ) | ( | ) | ||||
| Capital loss, net | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Other current assets | ||||||||
| Trade accounts payable | ( | ) | ( | ) | ||||
| Other accounts payable | ( | ) | ||||||
| Net change in operating leases | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS – INVESTING ACTIVITIES | ||||||||
| Investment in short-term deposits | ( | ) | ||||||
| Proceeds from short-term deposits | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property and equipment | ||||||||
| Net cash provided (used in) by investing activities | ( | ) | ||||||
| CASH FLOWS – FINANCING ACTIVITIES | ||||||||
| Issuance of Common Stock under Open Market Sales Agreement, net of issuance costs | ||||||||
| Issuance of Common Stock under SPA, net of issuance costs | ||||||||
| Proceeds from long-term debt, net of issuance costs | ||||||||
| Proceeds on account of shares | ||||||||
| Exercise of stock options | ||||||||
| Net cash provided by financing activities | ||||||||
| Increase (decrease) in cash and cash equivalents and restricted cash | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | ( | ) | ||||||
| Cash and cash equivalents and restricted cash at the beginning of the period | ||||||||
| Cash and cash equivalents and restricted cash at the end of the period | ||||||||
| Reconciliation of amounts on consolidated balance sheets | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Total cash and cash equivalents and restricted cash | ||||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest | ||||||||
| Taxes paid | ||||||||
| Property and equipment purchases included in accounts payable and accrued expenses | ||||||||
| Recognition of operating lease right-of-use and liabilities | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-6
BIOMX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(USD and NIS in thousands, except share and per share data)
(unaudited)
NOTE 1 – GENERAL
| General information |
BiomX Inc., (individually, and together with its subsidiaries, BiomX Ltd. and RondinX Ltd., the “Company” or “BiomX”) was incorporated as a blank check company on November 1, 2017, under the laws of the state of Delaware, for the purpose of entering into a merger, stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities.
On July 16, 2019, the Company entered into a merger agreement with BiomX Ltd. (“BiomX Israel”), a company incorporated under the laws of Israel, CHAC Merger Sub Ltd. (“Merger Sub”) and Shareholder Representative Services LLC, as amended on October 11, 2019, pursuant to which, among other things, BiomX Israel merged with Merger Sub, with BiomX Israel being the surviving entity in accordance with the Israeli Companies Law, 5759-1999, as a wholly owned direct subsidiary of BiomX Inc.
On October 28, 2019, the Company consummated
the acquisition of
The Company’s shares of Common Stock, units, and warrants are traded on the NYSE American under the symbols PHGE, PHGE.U, and PHGE.WS, respectively.
On February 6, 2020, the Company’s Common Stock also began trading on the Tel-Aviv Stock Exchange. On July 6, 2022, the Company announced a voluntary delisting of its shares of Common Stock from the Tel-Aviv Stock Exchange which became effective on October 6, 2022.
BiomX is developing both natural and engineered phage cocktails designed to target and destroy harmful bacteria in chronic diseases. BiomX discovers and validates proprietary bacterial targets and customizes phage compositions against these targets. The Company’s headquarters are located in Ness Ziona, Israel.
To date, the Company has not generated revenue from its operations. Based on the Company’s current cash and commitments, management believes that the Company’s current cash and cash equivalents are sufficient to fund its operations for more than 12 months from the date of issuance of these condensed consolidated financial statements and sufficient to fund its operations necessary to continue development activities.
Consistent with its continuing research and development activities, the Company expects to continue to incur additional losses for the foreseeable future. The Company plans to continue to fund its current operations, as well as other development activities relating to additional product candidates, through future issuances of debt and/or equity securities, loans and possibly additional grants from the Israel Innovation Authority (“IIA”) and other government institutions. The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number of factors including, but not limited to, the market demand for the Company’s Common Stock, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to it. If the Company is unable to raise capital when needed or on attractive terms, it may be forced to delay or reduce its research and development programs. If there are further increases in operating costs for facilities expansion, research and development and clinical activity, the Company will need to use mitigating actions such as to seek additional financing or postpone expenses that are not based on firm commitments. On May 24, 2022, the Company announced a corporate restructuring (the “Corporate Restructuring”), intended to extend the Company’s capital resources, while prioritizing the Company’s ongoing cystic fibrosis program and delaying the Company’s atopic dermatitis program. See note 7 for further information.
F-7
BIOMX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(USD and NIS in thousands, except share and per share data)
(unaudited)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
| A. | Unaudited Condensed Financial Statements |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for condensed financial information. They do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair statement have been included (consisting only of normal recurring adjustments except as otherwise discussed).
The financial information contained in this report should be read in conjunction with the annual financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, that the Company filed with the U.S. Securities and Exchange Committee (the “SEC”) on March 30, 2022. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2021, but not all disclosures required by GAAP are included.
| B. | Principles of Consolidation |
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated upon consolidation.
| C. | Use of Estimates in the Preparation of Financial Statements |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the financial statements and the amounts of expenses during the reported years. Actual results could differ from those estimates.
The full extent to which the COVID-19 pandemic may directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets. In November 2022, the Company updated its guidance on the timing of certain clinical milestones resulting from challenges it continues to face in clinical trial enrollment resulting from the COVID-19 pandemic. The Company examined the impact of COVID-19 on its financial statements, and although there is currently no major impact, there may be changes to those estimates in future periods. Actual results may differ from these estimates.
| D. | Recent Accounting Standards |
In May 2021, the Financial Accountings Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU 2021-04”). The guidance became effective for the Company on January 1, 2022. The Company adopted the guidance on January 1, 2022, and has concluded the adoption did not have a material impact on its unaudited condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses,” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU No. 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company does not expect that the adoption of this standard will have a significant impact on its condensed consolidated financial statements and related disclosures.
F-8
BIOMX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(USD and NIS in thousands, except share and per share data)
(unaudited)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| D. | Recent Accounting Standards (Cont.) |
In August 2020, the FASB issued ASU 2020-06, “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.” The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The amendments in ASU 2020-06 are effective for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Effective January 1, 2022, the Company early adopted ASU 2020-06 using the modified retrospective approach which resulted in no effect.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832),” which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The Company expects that this guidance will not have a significant impact on the Company’s consolidated financial statements.
| E. | Fair Value of Financial Instruments |
The Company accounts for financial instruments in accordance with ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 – Quoted prices in non-active markets or in active markets for similar assets or liabilities, observable inputs other than quoted prices, and inputs that are not directly observable but are corroborated by observable market data.
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
There were no changes in the fair value hierarchy levelling during the nine months ended September 30, 2022 and year ended December 31, 2021.
F-9
BIOMX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(USD and NIS in thousands, except share and per share data)
(unaudited)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| E. | Fair Value of Financial Instruments (Cont.) |
The following table summarizes the fair value of the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis, by level within the fair value hierarchy:
| September 30, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market funds | ||||||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration | ||||||||||||||||
| Foreign exchange contracts payable | ||||||||||||||||
| December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market funds | ||||||||||||||||
| Foreign exchange contracts receivable | ||||||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration | ||||||||||||||||
Financial instruments with carrying values approximating fair value include cash and cash equivalents, restricted cash, short-term deposits, other current assets, trade accounts payable and other accounts payable, due to their short-term nature.
The Company determined the fair value
of the liabilities for the contingent consideration based on a probability discounted cash flow analysis. This fair value measurement
is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy.
The fair value of the contingent consideration is based on several factors, such as: the attainment of future clinical, developmental,
regulatory, commercial and strategic milestones relating to product candidates for treatment of primary sclerosing cholangitis. The discount
rate applied ranged from
The Company uses foreign exchange contracts
(mainly option and forward contracts) to hedge cash flows from currency exposure. These foreign exchange contracts are not designated
as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, the Company recognizes gains or
losses that offset the revaluation of the cash flows also recorded under financial expenses (income), net in the condensed consolidated
statements of operations. As of September 30, 2022, the Company had outstanding foreign exchange contracts for the exchange of USD to
NIS in the amount of approximately $
F-10
BIOMX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(USD and NIS in thousands, except share and per share data)
(unaudited)
NOTE 3 – COMMITMENTS AND CONTINGENCIES
| In August 2021, the IIA approved an application that supports upgrading the Company’s manufacturing capabilities for an aggregate budget of NIS | ||
| In March 2022, the IIA approved an application for a total budget of NIS | ||
| According to the agreement with the IIA, excluding the August 2021 program, BiomX Israel will pay royalties of | ||
| Through September 30, 2022, total grants approved from the IIA aggregated to approximately $ | ||
| The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021. Even though the IIA has not declared the alternative benchmark rate to replace LIBOR, the Company does not expect it will have a significant impact on its financial statements. | ||
| B. | On June 23, 2022 (“Effective Date”), BiomX Israel entered into a new research collaboration agreement with Boehringer Ingelheim International GmbH (“BI”) for a collaboration to identify biomarkers for inflammatory bowel disease (“IBD”). Under the agreement, BiomX Israel is eligible to receive fees totaling $ | |
| C. | On May 24, 2022, the Company notified the Massachusetts Institute of Technology of the termination of the Patent License Agreement between the parties which became effective on August 22, 2022. | |
| D. | In October 2019, BiomX Israel entered into a loan agreement in the amount of $ | |
F-11
BIOMX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(USD and NIS in thousands, except share and per share data)
(unaudited)
NOTE 4 – LONG-TERM DEBT
On August 16, 2021, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”), with respect to a venture debt facility. Under the Loan Agreement, Hercules provided the Company with access to a term loan with an aggregate principal amount of up to $30,000 (the “Term Loan Facility”), available in three tranches, subject to certain terms and conditions. The first tranche of $15,000 was advanced to the Company on the date the Loan Agreement was executed. Upon the occurrence of specified milestones and continuing through December 31, 2022, a loan in the aggregate principal amount of up to $10,000, or the second tranche, and upon the occurrence of specified milestones and continuing through September 30, 2023, a loan in the aggregate principal amount of up to $5,000, or the third tranche, may become available. The Company is required to make interest only payments through March 1, 2023, or extended to September 1, 2023 upon satisfaction of certain milestones, and is required to then repay the principal balance and interest in equal monthly installments through September 1, 2025.
As of September 30, 2022, the milestones for the remaining tranches and for the extension of the period of interest only payments to September 1, 2023, have not yet been reached.
The Company may prepay advances under the Loan Agreement, in whole or in part, at any time subject to a prepayment charge equal to: (a) 3.0 % of amounts prepaid, if such prepayment occurs during the first 12 months following the Closing Date; (b) 2.0% after 12 months but prior to 24 months; (c) 1.0% after 24 months but prior to 36 months, and (d) no charge after 36 months. Upon prepayment or repayment of all or any of the term loans under the Term Loan Facility, the Company is required to pay an end of term charge (“End of Term Charge”) equal to 6.55% of the total aggregate amount of the term loans being prepaid or repaid.
As of September 30, 2022, the carrying
value of the term loan consists of $
Interest expense relating to the term
loan, which is included in interest expense in the condensed consolidated statements of operations was $
Under the terms of the Loan Agreement,
the Company granted first priority liens and security interests in substantially all of the Company’s intellectual property as
collateral for the obligations thereunder. The Company also granted Hercules the right, at their discretion, to participate in any closing
of any single subsequent broadly marketed financing as defined up to a maximum aggregate amount of $
Future principal payments for the long-term debt are as follows:
| September 30, 2022 | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| Total principal payments | ||||
| Unamortized discount and debt issuance costs | ( | ) | ||
| Total future principal payments | $ | |||
| Current portion of long-term debt | ( | ) | ||
| Long-term debt, net | $ | |||
F-12
BIOMX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(USD and NIS in thousands, except share and per share data)
(unaudited)
NOTE 5 – STOCKHOLDERS’ EQUITY
| A. | Share Capital: |
Authorized shares of common stock
On August 24, 2022, the Company’s
stockholders approved increasing the number of authorized shares of Common Stock from
At-the-market Sales Agreement:
In December 2020, pursuant to a registration statement on Form S-3 declared effective by the Securities and Exchange Commission on December 11, 2020, the Company entered into an Open Market Sales Agreement (“ATM Agreement”) with Jefferies LLC. (“Jefferies”), which provides that, upon the terms and subject to the conditions and limitations in the ATM Agreement, the Company may elect, from time to time, to offer and sell shares of Common Stock with an aggregate offering price of up to $50,000, with Jefferies acting as a sales agent. During the nine months ended September 30, 2022, the Company sold 229,044 shares of Common Stock under the ATM Agreement, at an average price of $1.19 per share, raising aggregate net proceeds of approximately $273, after deducting an aggregate commission of $8.
Maruho Agreement:
In October 2021, the Company entered
into a Stock Purchase Agreement with a subsidiary of Maruho Co. Ltd., (“Maruho”), a leading dermatology-focused pharmaceutical
company in Japan, pursuant to which the Company issued to Maruho
CFF Agreement:
In December 2021,
F-13
BIOMX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(USD and NIS in thousands, except share and per share data)
(unaudited)
NOTE 5 – STOCKHOLDERS’ EQUITY (Cont.)
| A. | Share Capital: (Cont.) |
Preferred Stock:
The Company is authorized to issue
Warrants:
As of September 30, 2022, the Company had the following outstanding warrants to purchase Common Stock issued to stockholders:
| Warrant | Issuance Date | Expiration Date | Exercise Price Per Share | Number of Shares of Common Stock Underlying Warrants | ||||||||
| Private Placement Warrants | ||||||||||||
| Public Warrants | ||||||||||||
| 2021 Registered Direct Offering Warrants | ||||||||||||
| B. | Stock-based Compensation: |
On August 22, 2022, the Board of Directors approved the grant
of
On September 30, 2022, the Board of Directors
approved the grant of
F-14
BIOMX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(USD and NIS in thousands, except share and per share data)
(unaudited)
NOTE 5 – STOCKHOLDERS’ EQUITY (Cont.)
| B. | Stock-based Compensation: (Cont.) |
The fair value of each option was estimated as of the date of grant or reporting period using the Black-Scholes option-pricing model, using the following assumptions:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Underlying value of Common Stock ($) | ||||||||
| Exercise price ($) | ||||||||
| Expected volatility (%) | ||||||||
| Expected terms of the option (years) | ||||||||
| Risk-free interest rate (%) | ||||||||
The cost of the benefit embodied in the
options granted during the nine and three months ended September 30, 2022, based on their fair value as of at the grant date, is estimated
to be approximately $
| (1) | A summary of options granted to purchase the Company’s Common Stock under the Company’s share option plans is as follows: |
| For the Nine Months Ended September 30, 2022 | ||||||||||||
| Number of Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | ||||||||||
| Outstanding at the beginning of period | ||||||||||||
| Granted | ||||||||||||
| Forfeited | ( | ) | ||||||||||
| Exercised | ||||||||||||
| Outstanding at the end of period | ||||||||||||
| Exercisable at the end of period | ||||||||||||
| Weighted average remaining contractual life of outstanding options – years as of September 30, 2022 | ||||||||||||
F-15
BIOMX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(USD and NIS in thousands, except share and per share data)
(unaudited)
NOTE 5 – STOCKHOLDERS’ EQUITY (Cont.)
| B. | Stock-based Compensation: (Cont.) |
Warrants:
As of September 30, 2022, the Company had the following outstanding compensation related warrants to purchase Common Stock:
| Warrant | Issuance Date | Expiration Date | Exercise Price Per Share | Number of Shares of Common Stock Underlying Warrants | ||||||||||
| Private Warrants issued to scientific founders (see below) | ||||||||||||||
In November 2017, BiomX Israel issued
| (2) | The following table sets forth the total stock-based payment expenses resulting from options granted, included in the statements of operations: |
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Research and development expenses, net | ||||||||||||||||
| General and administrative | ||||||||||||||||
NOTE 6 – BASIC AND DILUTED LOSS PER SHARE
Basic loss per share is computed on the
basis of the net loss for the period divided by the weighted average number of shares of Common Stock outstanding during the period.
Diluted loss per share is based upon the weighted average number of shares of Common Stock and of potential shares of Common Stock outstanding
when dilutive. Potential shares of Common Stock equivalents include outstanding stock options and warrants, which are included under
the treasury stock method when dilutive. The calculation of diluted loss per share for the nine months ended September 30, 2022 does
not include
F-16
BIOMX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(USD and NIS in thousands, except share and per share data)
(unaudited)
NOTE 7 – CORPORATE RESTRUCTURING
On May 24, 2022, the Company announced a Corporate
Restructuring, intended to extend the Company’s capital resources, while prioritizing the Company’s ongoing cystic fibrosis
program and delaying the Company’s atopic dermatitis program.
NOTE 8 – LEASES
In August 2022, BiomX Israel entered into a sublease agreement
for a portion of its office space in Ness Ziona, Israel. The agreement is for a period of
F-17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this Quarterly Report to “the Company”, “BiomX”, “we”, “us” or “our”, mean BiomX Inc. and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
General
We are a clinical company developing products using both natural and engineered phage technologies designed to target and destroy harmful bacteria in the treatment of chronic diseases. Bacteriophage or phage are viruses that target bacteria and are considered inert to mammalian cells. By developing proprietary combinations of naturally occurring phage and by creating novel phage using synthetic biology, we develop phage-based therapies intended to address large-market and orphan diseases.
Since inception in 2015, we have devoted substantially all our resources to organizing and staffing the company, raising capital, acquiring rights to or discovering product candidates, developing our technology platforms, securing related intellectual property rights, and conducting discovery, research and development activities for our product candidates. We do not have any products approved for sale, our products are still in the preclinical and clinical development stages, and we have not generated any revenue from product sales. As we move our product candidates from preclinical to clinical stage and continue with clinical trials, we expect our expenses to increase.
Our phage-based product candidates are developed utilizing our proprietary research and development platform named BOLT. The BOLT platform is unique, employing cutting edge methodologies and capabilities across disciplines including computational biology, microbiology, synthetic engineering of phage and their production bacterial hosts, bioanalytical assay development, manufacturing and formulation, to allow agile and efficient development of natural or engineered phage combinations, or cocktails.
BOLT is designed to allow rapid phage cocktails. The BOLT cocktail targets a broad patient population and may be comprised of naturally-occurring or synthetically engineered phage. The cocktail contains phage with complementary features and is further optimized for multiple characteristics such as broad target host range, ability to prevent resistance, biofilm penetration, stability and ease of manufacturing. Development of the optimized phage cocktail is anticipated to require 1-2 years.
On November 15, 2021, we announced that we plan to focus on Cystic Fibrosis, or CF, and Atopic Dermatitis, or AD, programs in 2022 and to temporarily pause the development efforts in Inflammatory Bowel Disease, or IBD, and Colorectal Cancer, or CRC, for approximately one year, as neither program was expected to yield proof-of-concept data in patients over the next twelve months. As of today, we cannot provide any guidance on resuming activities in these programs.
On May 24, 2022, we announced a corporate restructuring, or the Corporate Restructuring, whereby we plan to prioritize the CF program and delay the AD program. The Corporate Restructuring is intended to extend the Company’s capital resources until at least the middle of 2024 and included the laying off of approximately 42% of our employees.
Clinical and Pre-Clinical Developments
Cystic Fibrosis
On March 31, 2021, we announced the selection of the phage cocktail for BX004, our therapeutic phage product candidate under development for chronic respiratory infections caused by Pseudomonas aeruginosa, or P. aeruginosa, a main contributor to morbidity and mortality in patients with CF. In September 2021, BX004 was cleared by the FDA to initiate the Phase 1b/2a trial in CF patients with chronic respiratory infections caused by P. aeruginosa. Based on recommendations from the Cystic Fibrosis Therapeutic Development Network, we updated our Phase 2 proof-of-concept study design and timelines to a Phase 1b/2a trial in CF patients with chronic respiratory infections caused by P. aeruginosa. On June 27, 2022, we announced the dosing of the first two patients in the Phase 1b/2a. The Phase 1b/2a trial will be comprised of two parts. Part 1 will evaluate the safety, pharmacokinetics and microbiologic/clinical activity of BX004 in eight CF patients in a single ascending dose and multiple ascending dose design. Due to further delays resulting from the impact of the COVID-19 pandemic, results from Part 1 are now expected in the first quarter of 2023. Part 2 of the Phase 1b/2a trial will evaluate the safety and efficacy of BX004 in 24 CF patients randomized to a treatment or placebo cohort in a 2:1 ratio. Results from Part 2 are now expected by the third quarter of 2023.
2
Atopic Dermatitis
On March 31, 2021, we announced the selection of the phage cocktail for BX005, our topical phage product candidate targeting Staphylococcus aureus, or S. aureus, a bacterium associated with the development and exacerbation of inflammation in atopic dermatitis. By reducing S. aureus burden, BX005 is designed to shift the skin microbiome composition to its “pre-flare” state to potentially result in clinical improvement. On April 8, 2022, the FDA approved the Company’s IND application for BX005. We are working on evaluating timelines for a clinical trial, in coordination with Maruho.
Inflammatory Bowel Disease and Primary Sclerosing Cholangitis
On November 12, 2020, we announced consolidation of our IBD and PSC programs into a single broad host range product candidate, named BX003, under development for both indications. Prior to November 2020, we had two separate phage product candidates for IBD and for PSC, with our IBD product candidate named BX002 and PSC product candidate named BX003. After the consolidation, the current BX003 product candidate is now under development to treat both IBD and PSC, targeting bacterial strains of Klebsiella pneumoniae, or K. pneumoniae, a potential pathogen implicated in both diseases. Prior to the consolidation, our Phase 1a clinical study was conducted only on BX002, and any future clinical studies, to the extent conducted will be on BX003 for both IBD and PSC.
On February 2, 2021, we announced positive results of a randomized, single-blind, multiple-dose, placebo-controlled Phase 1a pharmacokinetic study of BX002, our product candidate for IBD and PSC, conducted under an investigational new drug, or IND, application submitted to the FDA. The study evaluated the safety and tolerability of orally administered BX002 in 18 healthy volunteers. Subjects were randomized to receive orally either BX002 or placebo, twice daily for three days. Subjects were monitored for safety for seven days in a clinical unit, with follow-up monitoring for safety assessments conducted at 14 and 28 days after completion of dosing. BX002 was demonstrated to be safe and well-tolerated, with no serious adverse events and no adverse events leading to discontinuation. In addition, the study met its objective of delivering high concentrations of viable phage to the gastrointestinal tract of approximately 1010 PFU, or plaque forming units. This equals approximately 1,000 times more viable phage compared to the bacterial burden of K. pneumoniae in IBD and PSC patients as measured in stool.
On November 15, 2021, we announced that we are pausing the development efforts of BX003. We are currently prioritizing resources toward our CF and AD programs, and we cannot provide any guidance on resuming the development of BX003.
Colorectal Cancer
For our CRC program, we are exploring phage mediated delivery of therapeutic payloads to Fusobacterium nucleatum bacteria residing in the tumors of patients with colorectal cancer. On November 15, 2021, we announced that we are pausing our CRC program. We are currently prioritizing resources toward our CF and AD programs, and we cannot provide any guidance on resuming the CRC program.
For more information regarding our product candidates, see Part I, Item 1 “Business” of our 2021 Annual Report.
COVID-19
In response to the pandemic, we have implemented the mandatory as well as recommended measures to safeguard the health and safety of our employees and clinical trial participants, and the continuity of our business operations. These measures currently include a work from home policy for all employees who are able to perform their duties remotely, and we expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees, clinical trial participants and others in light of COVID-19. As of November 4, 2022, COVID-19 has not had a material impact on our results of operations. However, uncertainty remains as to the potential impact of COVID-19 on our future research and development activities and the potential for a material impact on the Company increases the longer the virus impacts certain aspects of economic activity around the world. The full extent to which COVID-19 will directly or indirectly impact our business, results of operations and financial condition, including our ability to fulfill our clinical trial enrollment needs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets, the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact on financial markets and the global economy, the effectiveness of vaccines and vaccine distribution efforts and the effectiveness of other actions taken in the United States and other countries to contain and treat the disease. In November 2022, we updated our guidance on the timing of certain clinical milestones resulting from challenges we continue to face in clinical trial enrollment resulting from the impact of the COVID-19 pandemic. It is not currently possible to predict how long the pandemic will last, what the long-term global effects will be, or the time that it will take for economic activity to return to pre-pandemic levels, and we do not yet know the full impact on our business and operations. We will continue to monitor COVID-19 closely and follow health and safety guidelines as they evolve.
3
Consolidated Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
The following table summarizes our consolidated results of operations for the three months ended September 30, 2022 and 2021:
| Three Months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| USD in thousands | ||||||||
| Research and development (“R&D”) expenses, net | 3,536 | 6,608 | ||||||
| Amortization of intangible assets | 380 | 380 | ||||||
| General and administrative expenses | 2,633 | 2,845 | ||||||
| Operating loss | 6,549 | 2,833 | ||||||
| Other income | (52 | ) | ||||||
| Interest expenses | 555 | 172 | ||||||
| Financial expense (income), net | (280 | ) | 16 | |||||
| Loss before tax | 6,772 | 10,021 | ||||||
| Tax expenses | 8 | 10 | ||||||
| Net loss | 6,780 | 10,031 | ||||||
| Basic and diluted loss per share of Common Stock | 0.23 | 0.37 | ||||||
| Weighted average number of shares of Common Stock outstanding, basic and diluted | 29,907,812 | 27,077,903 | ||||||
R&D expenses, net (net of grants received from the Israel Innovation Authority, or the IIA, and considerations from research collaborations) were $3.5 million for the three months ended September 30, 2022, compared to $6.6 million for the three months ended September 30, 2021. The decrease of $3.1 million, or 47%, is primarily due to the following:
| ● | a decrease in salaries and related expenses and stock-based compensation expenses due to a reduction in workforce, as a result of the Corporate Restructuring; |
| ● | pausing the development of BX003, the product candidate for the treatment of IBD and PSC; |
| ● | pausing the development of our CRC product candidate; and |
| ● | the discontinuation of the development of the product candidate for the treatment of acne, BX001. |
These were partially offset by a decrease in IIA grants. We recorded $0.2 million and $0.6 million of IIA grants during the three months ended September 30, 2022 and September 30, 2021, respectively.
General and administrative expenses were $2.6 million for the three months ended September 30, 2022, compared to $2.8 million for the three months ended September 30, 2021. The decrease of $0.2 million, or 7% is primarily due to a decrease in salaries and related expenses and stock-based compensation expenses due to a reduction in workforce, as part of the Corporate Restructuring.
Other income was $52,000 for the three months ended September 30, 2022. The Company had no other income for the three months ended September 30, 2021. The increase of $52,000, or 100%, is due to a sublease agreement for a portion of our office space in Ness Ziona, Israel entered into in August 2022.
Interest expenses were $0.6 million for the three months ended September 30, 2022 compared to $0.2 million for the three months ended September 30, 2021. The increase of $0.4 million, is due to interest payments incurred under our loan from Hercules Capital, Inc., or the Hercules Loan, entered into in August 2021.
Financial income, net was $0.3 million for the three months ended September 30, 2022, compared to financial expense, net of $0.02 million for the three months ended September 30, 2021. The increase in financial income, net of $0.3 million is primarily due to the rising interest rates which resulted in higher interest income and due to appreciation of the U.S. dollar against the NIS.
Basic and diluted loss per share of Common Stock was $0.23 for the three months ended September 30, 2022, compared to $0.37 for the three months ended September 30, 2021. The decrease in diluted loss per share of $0.14, or 38%, is primarily due to a decrease in our operating loss and due to the increase in outstanding shares as part of a registered direct offering completed in July 2021 and other issuances of our Common Stock.
4
Comparison of the Nine Months Ended September 30, 2022 and 2022
The following table summarizes our consolidated results of operations for the nine months ended September 30, 2022 and 2021:
| Nine Months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| USD in thousands | ||||||||
| R&D expenses, net | 13,049 | 16,102 | ||||||
| Amortization of intangible assets | 1,139 | 1,139 | ||||||
| General and administrative expenses | 7,471 | 8,436 | ||||||
| Operating loss | 21,659 | 25,677 | ||||||
| Other income | (52 | ) | ||||||
| Interest expenses | 1,504 | 172 | ||||||
| Financial income, net | (706 | ) | (96 | ) | ||||
| Loss before tax | 22,405 | 25,753 | ||||||
| Tax expenses | 26 | 16 | ||||||
| Net loss | 22,431 | 25,769 | ||||||
| Basic and diluted loss per share of Common Stock | 0.75 | 1.03 | ||||||
| Weighted average number of shares of Common Stock outstanding, basic and diluted | 29,812,542 | 25,120,037 | ||||||
R&D expenses, net (net of grants received from the IIA, and considerations from research collaborations) were $13.0 million for the nine months ended September 30, 2022 compared to $16.1 million for the nine months ended September 30, 2021. The decrease of $3.1 million, or 19%, is primarily due to the following:
| ● | a decrease in salaries and related expenses and stock-based compensation expenses due to a reduction in workforce, as a result of the Corporate Restructuring; |
| ● | pausing the development of BX003, the product candidate for the treatment of IBD and PSC; |
| ● | pausing the development of our CRC product candidate; and |
| ● | the discontinuation of the development of the product candidate for the treatment of acne, BX001. |
These were partially offset by a decrease in IIA grants. We recorded $0.9 million and $3.3 million of IIA grants during the nine months ended September 30, 2022 and September 30, 2021, respectively.
General and administrative expenses were $7.5 million for the nine months ended September 30, 2022, compared to $8.4 million for the nine months ended September 30, 2021. The decrease of $0.9 million, or 11%, is primarily due to a decrease in salaries and related expenses and stock-based compensation expenses due to a reduction in the workforce, as part of the Corporate Restructuring. In addition, the decrease is due to 2021 expenses from moving into new premises.
Other income was $52,000 for the nine months ended September 30, 2022. The Company had no other income for the nine months ended September 30, 2021. The increase of $52,000, or 100%, is due to a sublease agreement for a portion of our office space in Ness Ziona, Israel entered into in August 2022.
Interest expenses were $1.5 million for the nine months ended September 30, 2022. compared to $0.2 million for the nine months ended September 30, 2021. The increase of $1.3 million, is due to interest payments incurred under the Hercules Loan entered into in August 2021.
Financial income, net was $0.7 million for the nine months ended September 30, 2022, compared to $0.1 million for the nine months ended September 30, 2021. The increase in financial income, net of $0.6 million, or 600%, is primarily due to appreciation of the U.S. dollar against the NIS and due to the rising interest rates, which resulted in higher interest income.
Basic and diluted loss per share of Common Stock was $0.75 for the nine months ended September 30, 2022, compared to $1.03 for the nine months ended September 30, 2021. The decrease in diluted loss per share of $0.28, or 27%, is primarily due to a decrease in our operating loss and due to the increase in outstanding shares as part of a registered direct offering completed in July 2021 and other issuances of our Common Stock.
5
Liquidity and Capital Resources
We believe our cash and cash equivalents and short-term deposits on hand will be sufficient to meet our working capital and capital expenditure requirements until at least the middle of 2024. We have revised our operating plans in order to reduce expenses including the Corporate Restructuring, which significantly reduced our expenses related to employees, and, subleasing a portion of our office space in Ness Ziona, Israel. We currently plan to continue to focus primarily on BX004, our product candidate for CF and continue our efforts to advance the development plan of BX005, our product candidate for AD. In the future we will likely require or desire additional funds to support our operating expenses, capital requirements, resumption of our development plans for BX003 or our development plan in CRC or for other purposes. Accordingly, we are exploring and expect to further explore, raising such additional funds through public or private equity such as the potential second tranche in the Securities Purchase Agreement with the Cystic Fibrosis Foundation, or the CFF Agreement, or debt financings, loans such as the Hercules Loan, governmental or other grants or collaborative agreements or from other sources, as well as under the ATM Agreement discussed below. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. If there are increases in operating costs for facilities expansion, research and development and clinical activity, we will need to use mitigating actions such as to seek additional financing or postpone expenses that are not based on firm commitments. If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected.
Cash Flows
The following table summarizes our sources and uses of cash for the nine months ended September 30, 2022 and 2021:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| USD in thousands | ||||||||
| Net cash used in operating activities | (21,924 | ) | (18,483 | ) | ||||
| Net cash provided by (used in) investing activities | (3,575 | ) | 16,276 | |||||
| Net cash provided by financing activities | 292 | 33,300 | ||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | 139 | (2 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | (25,207 | ) | 31,091 | |||||
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2022 was $21.9 million primarily due to a net loss of $22.4 million, mostly due to our R&D and general and administrative expenses, and due to changes in our operating assets and liabilities of $2.8 million, offset by non-cash charges of $3.3 million. Non-cash charges for the nine months ended September 30, 2022 consisted primarily of depreciation and amortization expenses of $1.9 million and stock-based compensation expenses in the amount of $1.2 million. Net changes in our operating assets and liabilities consisted primarily of a decrease in trade accounts payable of $1.0 million, other accounts payable in the amount of $3.4 million and a net change in operating leases in the amount of $0.9 million, partially offset by an increase in other current assets in the amount of $2.5 million.
Net cash used in operating activities for the nine months ended September 30, 2021 was $18.5 million primarily due to a net loss of $25.8 million, mostly due to our R&D and general and administrative expenses, offset by non-cash charges of $4.1 million and changes in our operating assets and liabilities of $3.1 million. Non-cash charges for the nine months ended September 30, 2021 consisted primarily of depreciation and amortization expenses of $1.7 million and stock-based compensation expenses in the amount of $2.7 million, offset by changes in contingent consideration of $0.3 million. Net changes in our operating assets and liabilities consisted primarily due to change in other current assets in the amount of $2.1 million and in other account payables in the amount of $1.8 million, partially offset by a decrease in accounts payable of $0.5 million and a decrease in net change in operating leases of $0.2 million.
Investing Activities
During the nine months ended September 30, 2022, net cash provided by investing activities was $3.6 million, as a result of the net change in investment in short-term deposits of $3.5 million.
During the nine months ended September 30, 2021, net cash provided by investing activities was $16.3 million, primarily as a result of liquidation of short-term deposits of $19.9 million, partially offset by purchases of property and equipment of $3.6 million which consisted primarily of leasehold improvements and lab equipment as part of construction work on our then new in-house manufacturing facility, laboratories and offices.
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We have invested, and plan to continue to invest, our existing cash in short-term investments in accordance with our investment policy. These investments may include money market funds and investment securities consisting of U.S. Treasury notes, and high quality, marketable debt instruments of corporations and government sponsored enterprises. We use foreign exchange contracts (mainly option and forward contracts) to hedge balance sheet items from currency exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, we record gains or losses that offset the revaluation of the balance sheet items under financial income, net in our condensed consolidated statements of operations. As of September 30, 2022, we had outstanding foreign exchange contracts for the exchange of USD to NIS in the amount of approximately $2.5 million with a fair value of $0.07 million. As of September 30, 2021, we had outstanding foreign exchange contracts in the amount of approximately $2.8 million with a fair value of $0.02 million.
Financing Activities
During the nine months ended September 30, 2022, net cash provided by financing activities was $0.3 million, mainly due to issuances of Common Stock pursuant to the Open Market Sales Agreement referred to below.
During the nine months ended September 30, 2021, net cash provided by financing activities was $33.3 million, from borrowing under a loan and security agreement, from the issuance of Common Stock in a registered direct offering and from the issuance of Common Stock pursuant to the Open Market Sales Agreement referred to below.
In December 2020, pursuant to a registration statement on Form S-3 declared effective by the Securities and Exchange Commission on December 11, 2020, we entered into an Open Market Sales Agreement, or the ATM Agreement, with Jefferies LLC, or Jefferies, which provides that, upon the terms and subject to the conditions and limitations in the ATM Agreement, we may elect, from time to time, to offer and sell shares of Common Stock having an aggregate offering price of up to $50,000,000 through Jefferies acting as sales agent. We are not obligated to make any sales of Common Stock under the ATM Agreement. From January 1, 2022 through September 30, 2022, we issued an aggregate of 229,044 shares of Common Stock under the ATM Agreement for aggregate gross proceeds of $0.28 million. We did not issue any shares of Common Stock pursuant to the ATM Agreement from October 1, 2022 through November 4, 2022. We may continue to sell shares under the ATM Agreement and otherwise to use our effective shelf registration statement to raise additional funds from time to time.
Under the Loan Agreement, we have a Term Loan Facility, available in three tranches, subject to certain terms and conditions. The first tranche of $15.0 million was advanced to us on the date the Loan Agreement was executed. Upon the occurrence of specified milestones and continuing through December 31, 2022, a loan in the aggregate principal amount of up to $10.0 million, or the second tranche, and upon the occurrence of specified milestones and continuing through September 30, 2023, a loan in the aggregate principal amount of up to $5.0 million, or the third tranche, may become available. We are required to make interest only payments through March 1, 2023, or extended to September 1, 2023 upon satisfaction of certain milestones, and is required to then repay the principal balance and interest in equal monthly installments through September 1, 2025. As of September 30, 2022, the milestones for the remaining tranches and for the extension of the period of interest payment to September 1, 2023, have not yet been reached. Interest on the Hercules Loan accrues at a per annum rate equal to the greater of (i) the Prime Rate as reported in The Wall Street Journal plus 5.70% and (ii) 8.95%. On September 30, 2022, the Prime Rate was 6.25%. On September 30, 2022, the effective interest rate was 15.86%.
Under the terms of the Loan Agreement, we granted first priority liens and security interests in substantially all of our intellectual property as collateral for the obligations thereunder. We also granted Hercules the right, at their discretion, to participate in any closing of any single subsequent broadly marketed financing as defined up to a maximum aggregate amount of $2.0 million under the terms as afforded to other investors in such financing. The Loan Agreement also contains representations and warranties by the Company and Hercules, indemnification provisions in favor of Hercules and customary affirmative and negative covenants, including a liquidity covenant beginning October 1, 2022, requiring us to maintain a minimum aggregate compensating cash balance of $5.0 million, and events of default. In the event of default by the Company under the Loan Agreement, the Company may be required to repay all amounts then outstanding under the Loan Agreement. As of September 30, 2022, we believe we were in compliance with all covenants under the Loan Agreement.
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Outlook
We have accumulated a deficit of $131 million since our inception. To date, we have not generated revenue from our operations and we do not expect to generate any significant revenues from sales of products in the next twelve months. Our cash needs may increase in the foreseeable future. We expect to generate revenues, from the sale of licenses to use our technology or products, but in the short and medium terms any amounts generated are unlikely to exceed our costs of operations. According to our estimates and based on our current operating plans, our liquidity resources as of September 30, 2022, which consisted primarily of cash, cash equivalents, short-term deposits and restricted cash of approximately $41.5 million will be sufficient to fund our operations until at least the middle of 2024.
Consistent with our continuous R&D activities, we expect to continue to incur additional losses in the foreseeable future. To the extent we require funds above our existing liquidity resources in the medium and long term, we plan to fund our operations, as well as other development activities relating to additional product candidates, through future issuances of public or private equity, including under the CFF Agreement, or under our ATM Agreement, or debt securities, loans, including the Hercules Loan and possibly additional grants from the IIA or other government or non-profit institutions. Our ability to raise additional capital in the equity and debt markets is dependent on a number of factors including, but not limited to, the market demand for our securities, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that we would be able to raise such additional capital at a price or on terms that are favorable to us.
We entered into forward and option contracts to hedge against the risk of overall changes in future cash flow for payments of salaries and related expenses, as well as other expenses denominated in NIS, for a period of less than one year.
As of September 30, 2022 and September 30, 2021, we had outstanding foreign exchange contracts for the exchange of USD to NIS in the amounts of approximately $2.5 million and $2.8 million, respectively.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to make disclosures under this Item.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation, as of the end of the period covered by this Quarterly Report, of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2022.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting, as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition or future results.
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 30, 2022, as amended, except as noted below.
Risks related to the Hercules Loan Agreement
Rising interest rates may adversely increase interest rates on our outstanding indebtedness to Hercules
On August 16, 2021, we entered into the Loan Agreement, with Hercules, providing for a term loan in an aggregate principal amount of up to $30.0 million, subject to funding in three tranches and subject to certain terms and conditions, or the Term Loan. We received the first tranche of $15.0 million promptly after signing the Loan Agreement. Two additional tranches in the amounts of $10 million and $5 million may become available to us to borrow upon the occurrence of certain milestone events.
Interest on the Term Loan accrues at a per annum rate equal to the greater of (i) the Prime Rate as reported in The Wall Street Journal plus 5.70% and (ii) 8.95%. On September 30, 2022, the Prime Rate was 6.25%, which reflects an increase of 3% from the Prime Rate on September 30, 2021, which was 3.25%. Accordingly, the interest rate on the Term Loan increased from 8.95% to 11.95%, which results in an additional payment of interest.
The rising interest rates caused due to global inflation, and the dependency of the interest paid on the Term Loan on the Prime Rate, result in an increase in the repayment of the Term Loan, and may adversely decrease our cash reserve, affect our ability to finance research and development activities and affect our ability to repay the loan or qualify for the additional tranches of the Term Loan.
If we default under the Loan Agreement, Hercules may accelerate all of our repayment obligations and take control of our pledged assets, potentially requiring us to renegotiate our agreement on terms less favorable to us or to immediately cease operations. Further, if we are liquidated, the lenders’ right to repayment would be senior to the rights of the holders of our Common Stock to receive any proceeds from the liquidation. Any declaration by Hercules of an event of default could significantly harm our business and prospects and could cause the price of our Common Stock to decline. If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.
Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BIOMX INC. | ||
| Date: November 9, 2022 | By: | /s/ Jonathan Solomon |
| Name: | Jonathan Solomon | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November 9, 2022 | By: | /s/ Marina Wolfson |
| Name: | Marina Wolfson | |
| Title: | Chief Financial Officer | |
(Principal Financial Officer and Principal Accounting Officer) | ||
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