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Item 2. Management’s Discussion and Analysis

2019-05-09 compared with 2018-11-08 · 115 added, 147 removed, 60 unchanged (81% of the section changed)

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 financial statements and the related notes and other financial information 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, includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management’s current expectations.

These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed under the caption “Risk Factors” in this Quarterly Report on Form 10-Q.

These and other factors could cause actual results to differ materially from those indicated by the forward-looking statements made in this Quarterly Report on Form 10-Q.

Reverse Merger

On December 19, 2017, Sevion Therapeutics, Inc.

(“Sevion”) acquired Eloxx Pharmaceuticals, Limited (“Eloxx Limited”) pursuant to a merger between the companies (the “Transaction” or “Reverse Merger”).

Upon consummation of the Transaction (the “Closing”), Sevion adopted the business plan of Eloxx Limited and discontinued the pursuit of Sevion’s business plan.

In connection with the Transaction, Sevion acquired all of the outstanding capital stock of Eloxx Limited in exchange for the issuance of an aggregate 20,316,656 shares of Sevion’s common stock, par value $0.01 per share (the “Common Stock”), after giving effect to a 1-for-20 reverse split effected immediately prior to the Transaction.

As a result of the Transaction, Eloxx Limited became a wholly-owned subsidiary of Sevion.

While Sevion was the legal acquirer in the transaction, Eloxx Limited was deemed the accounting acquirer.

Immediately after giving effect to the Transaction, on December 19, 2017, Sevion changed its name to Eloxx Pharmaceuticals, Inc.

(collectively “we”, “our”, “us”, “Eloxx” or the “Company”).

The unaudited consolidated financial statements of the Company, included elsewhere in this Quarterly Report on Form 10-Q, reflect the operations of the acquirer for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of the legal acquirer and a recapitalization at the equity of the accounting acquirer.

The annual consolidated financial statements include the accounts of the Company since the effective date of the reverse capitalization and the accounts of Eloxx Limited since inception.

These and other factors could cause actual results to differ materially from those indicated by the forward-looking statements made in this Report.

Company Overview

We are a clinical-stage biopharmaceutical company developing novel ribonucleic acid (RNA)-modulating drug candidates (designed to be eukaryotic ribosomal selective glycosides) that are formulated to treat rare and ultra-rare premature stop codon diseases.

Premature stop codons are point mutations that disrupt protein synthesis from messenger RNA.

As a consequence, patients with premature stop codon diseases have reduced levels of, or no, critical functional proteins from the mutation bearing allele accounting for some of the most severe phenotypes in these genetic diseases.

These premature stop codons have been identified in over 1,800 rare and ultra-rare diseases.

Read-through therapeutic development is focused on extending mRNA (messenger RNA) half-life and increasing functional protein synthesis by enabling the cytoplasmic ribosome to read-through premature stop codons to produce full-length proteins.

Eloxx’s lead investigational drug product candidate, ELX-02, is a small molecule designed to restore production of full-length functional proteins.

ELX-02 is in the early stages of clinical development focusing on cystic fibrosis and cystinosis.

We are a clinical-stage biopharmaceutical company developing novel ribonucleic acid (RNA)-modulating drug candidates (designed to be eukaryotic ribosomal selective glycosides (ERSG)) that are formulated to treat rare and ultra-rare premature stop codon diseases.

Premature stop codons are point mutations that disrupt the stability of the impacted messenger RNA (mRNA) and the protein synthesis from that mRNA.

As a consequence, patients with premature stop codon diseases have reduced levels of, or no, protein from a gene whose product performs an essential function.

This type of mutation accounts for some of the most severe phenotypes across genetic diseases.

Nonsense mutations have been identified in over 1,800 rare and ultra-rare diseases.

Read-through therapeutic development is focused on increasing mRNA stability and enabling functional protein synthesis.

As opposed to a typical gene therapy approach of targeting a single, unique mutation in a target disease, this small molecule strategy enables targeting an entire class of mutations across the rare disease landscape.

Our small molecule approach has the potential to address a range of different premature stop codons in a single gene since our ERSG are targeted to the ribosomes.

ELX-02, our lead investigational drug product candidate, is a small molecule designed to restore production of full-length functional proteins.

ELX-02, is in the early stages of clinical development for systemic administration for cystic fibrosis and cystinosis.

ELX-02 is an investigational drug that has not been approved by any global regulatory body.

Eloxx’s preclinical candidate pool consists of a library of novel drug candidates designed to be eukaryotic ribosomal selective glycosides identified based on read-through potential.

Eloxx recently announced a new program focused on rare ocular genetic disorders.

Eloxx is headquartered in Waltham, MA, with R&D operations in Rehovot, Israel.

Our research and development strategy is to target rare or ultra-rare diseases where a high unmet medical need, nonsense mutation bearing, patient population has been identified, there are established preclinical read-through or personalized medicine models that are predictive of clinical activity, and a definable path for Orphan Drug development, regulatory approval, patient access and commercialization.

In addition, we recently announced a new program studying intravitreal administration of ERSG compounds for rare inherited retinal disorders with a focus on Usher Syndrome.

Our preclinical candidate pool consists of a library of novel ERSG drug candidates identified based on read-through potential and cytoplasmic ribosomal selectivity.

From the outset, our research and development strategy targets rare or ultra-rare diseases where:

a high unmet medical need exists, an identified nonsense mutation-bearing patient population is established, preclinical read-through can be established in predictive personalized medicine models, and a defined path through Orphan Drug development, regulatory approval, patient access and commercialization is identifiable.

We believe patient advocacy to be an important element of patient focused drug development and seek opportunities to collaborate with patient advocacy groups throughout the discovery and development process.

Our current clinical focus for our lead investigational drug product candidate, ELX-02, is on cystic fibrosis and cystinosis.

We have initiated a new program focused on rare inherited retinal disease and are conducting IND enabling studies for several compounds from our library.

We will identify an additional molecule later this year to advance into clinical development.

Eloxx has entered into a multiyear partnership with the Foundation Fighting Blindness (FFB) to

support our inherited retinal degenerative disease registry and educational programs.

FFB will provide ELX-02 with ongoing R&D consultation and support .

We believe this partnership has the potential to accelerate Eloxx’s development programs and support patients with ocular disease and a high unmet medical need.

We intend to be the global leader in the application of the science of translational read-through and the associated pathway of nonsense mediated messenger ribonucleic acid (“mRNA”) decay.

We believe that expanding our expertise across these basic science areas of mRNA regulation, ribosomal function, and protein translation forms a solid foundation to support our discovery and development activities.

Our ERSG compounds modulate the activity of the ribosome, a complex of RNAs and proteins, and therefore, a ribonucleoprotein, responsible for protein production, a process also known as translation.

These novel small molecule compounds are designed to allow the ribosome to read-through a nonsense mutation in mRNA (which is transcribed from the DNA sequence), to restore the translation process to produce full length, functional proteins and increase the amount of mRNA that would otherwise be degraded as part of a cellular process called nonsense mediated mRNA decay.

As our ERSG compounds target the general mechanism for protein production in the cell, we believe they have the potential to treat hundreds of genetic diseases where nonsense mutations have impaired gene function.

Our subcutaneously injected small molecules have the potential to be self-administered and to be active at most tissue locations across the body.

Our current clinical focus for our lead investigational drug product candidate, ELX-02 is Cystic Fibrosis where we expect to complete our MAD study in the first half of 2019 and report top line results from our Phase 2 clinical trial in the second half of 2019.

We have participated in the North American Cystic Fibrosis Foundation (CFF) CFTR Translational Read-through Workshop and are engaged with CFF on extending our Cystic Fibrosis clinical studies to the United States.

Eloxx presented positive new data for its lead investigational drug, ELX-02, at the European Cystic Fibrosis Society (ECFS) Basic Science Conference.

In 2018, the European Cystic Fibrosis Society Clinical Trial Network assigned a “high priority” rating to our Phase 2 program.

We have recently initiated a new program studying inherited retinal disease and are conducting IND enabling studies for several ERSG compounds from our library.

Eloxx presented at the Sixth Annual Retinal Cell and Gene Therapy Innovation Summit and the Association for Research in Vision and Ophthalmology 2019 Annual Meeting.

We entered into a multiyear partnership with the Foundation Fighting Blindness (FFB) to support the inherited retinal degenerative disease registry and educational programs.

We presented as part of the FFB “Investing in Cures” 2019 meeting and believe that the ongoing R&D consultation and support provided by the FFB will accelerate our development programs that seek to support patients with ocular disease and high unmet medical need.

We intend to be t he global leader in the application of the science of translational read-through and the associated pathway of nonsense mediated decay (NMD).

We believe that expanding our expertise across these basic science areas of mRNA regulation, ribosomal function, a nd protein translation forms a solid foundation to support our discovery and development activities.

Our ERSG compounds modulate the activity of the ribosome, a complex of RNAs and proteins, and therefore, a ribonucleoprotein, responsible for protein produ ction, a process also known as translation.

These novel small molecule ERSG compounds are designed to allow the ribosome to read-through a nonsense mutation in mRNA (which is transcribed from the DNA sequence), to restore the translation process to produce full - length, functional proteins and increase the amount of mRNA that would otherwise be degraded as part of a phenomenon called nonsense mediated mRNA decay.

As our ERSG compounds target the general mechanism for protein production in the cell, we believ e they have the potential to treat hundreds of genetic diseases where nonsense mutations have impaired gene function.

Since nonsense mutations may occur at different positions within a given gene, a potential advantage of the small molecule ERSG approach i s being able to use one molecule to address a range of mutations within a given disease state.

Our subcutaneously injected ERSG molecules have the potential to be self-administered for systemic disease and to be active at most tissue locations across the b ody.

We believe that our library of related novel small molecules holds the potential to be disease-modifying therapies that may change the course of hundreds of genetic diseases and improve the lives of patients.

Our early preclinical data in in vitro and in vivo models of nonsense mutations suggests that drug product candidates from our read-through compound library may have potential beneficial effects for the following diseases:

cystic fibrosis, cystinosis, mucopolysaccharidosis type 1, Duchenne muscular dystrophy, Rett syndrome and a variety of rare ocular genetic diseases.

We have demonstrated the potential for beneficial effects in multiple organs such as the brain, kidney, muscles, eye and others.

Our early preclinical data in animal models of nonsense mutations suggests that drug product candidates from our read-through compound library may have potential beneficial effects for each of the following diseases:

cystic fibrosis, cystinosis, a variety of inherited retinal diseases (including Usher Syndrome), primary ciliary diskinesia, polycystic kidney disease, mucopolysaccharidosis type 1, Duchenne muscular dystrophy and Rett syndrome, and have demonstrated the potential for beneficial effects in multiple organs such as the brain, eye, kidney, muscles and others.

Of the novel compounds in the ERSG Library, approximately 30 compounds have been selected, based on read-through activity, for continued preclinical research and we anticipate additional compounds advancing toward IND filings.

Currently our lead program, ELX-02, is focused on development for cystic fibrosis and cystinosis patients with diagnosed nonsense mutations.

Our pre-clinical trial application (“CTA”) has been approved by the Federal Agency for Medicines and Health Products (the "FAMHP") in Brussels and our IND submitted to the U.S.

Food and Drug Administration (the “FDA”) is now open.

We expect to initiate Phase 2 studies in cystic fibrosis and cystinosis following completion of our ongoing Phase 1 multiple ascending dose (“MAD”) study and report top line results in 2019.

As part of our clinical program for ELX-02, we have completed a Phase 1 single ascending dose (“SAD”) study in a total of 60 healthy volunteers at sites in Israel (ClinicalTrials.gov Identifier:

Our clinical trial application (“CTA”) has been approved by the Federal Agency for Medicines and Health Products (the “FAMHP”) in Brussels and our IND submitted to the U.S.

Food and Drug Administration (the “FDA”) is open.

Our Phase 2 program has been given a “high priority” ranking by the European Cystic Fibrosis Society Clinical Trial Network.

We expect to initiate Phase 2 studies in cystic fibrosis and cystinosis following completion of our ongoing Phase 1b MAD study in the first half and to report top line Phase 2 data in the second half of 2019.

In 2018, we entered into a collaboration with Dr.

Paul Goodyear at McGill University as part of the Genome Canada Genomic Applications Partnership Program (GAAP), to conduct clinical trials of ELX-02 for the treatment of cystinosis.

During 2018, Eloxx submitted an IND to the FDA for the conduct of Phase 2 studies in cystinosis and the IND is now open.

The Phase 2 program as discussed with the FDA will enroll no more than 6 patients to evaluate multiple doses of ELX-02 for the primary endpoint of safety and exploratory endpoints that will include white blood cell cystine levels.

In support of the cystinosis program where many patients have impaired renal function, we initiated a renal impairment safety study.

We are pleased that the cohorts of subjects with mild and moderate renal impairment have been successfully completed.

To date, the pharmacokinetic results were as expected with no adverse events.

As part of our clinical program, we have completed a Phase 1 SAD study in a total of 60 healthy volunteers at sites in Israel (ClinicalTrials.gov Identifier:

NCT02807961) and Belgium (ClinicalTrials.gov Identifier:

NCT03292302).

The results of the SAD study have been submitted for publication.

Currently ongoing is the Phase 1 multiple ascending dose (“MAD”) study in Belgium (ClinicalTrials.gov Identifier:

The results of the SAD study were published in the Journal of Clinical Pharmacology in January 2019.

Our MAD study is being conducted in Belgium (ClinicalTrials.gov Identifier:

NCT03309605).

We have completed the first four cohorts of the MAD study and have initiated the fifth cohort.

We have initiated a new program focused on rare ocular genetic disorders and is conducting pre-IND enabling studies for several compounds from our library and will identify an additional molecule later this year to take into clinical development.

We have initiated the 7 th and final cohort of the MAD study in the U.S.

and expect to complete the study in the first half of this year.

In 2018, we initiated a new program studying inherited retinal disorders with a focus on Usher Syndrome by conducting pre-IND enabling studies on several compounds from our library.

We expect to advance one or more compounds into development for intravitreal administration.

We believe there is a significant unmet medical need in the treatment of cystic fibrosis patients carrying nonsense mutations on one or both alleles of the Cystic Fibrosis Transmembrane Conductance Regulator (“CFTR”) gene.

Cystic fibrosis is the most prevalent genetic disease in the western world and there are no currently approved therapies that target the impairment associated with Class 1 CFTR mutations.

Similarly, in cystinosis, we believe there is also a high unmet medical need as there are no currently approved therapeutics that target the nonsense mutation mediated impairment of cystinosin.

Cystinosin is the cystine-selective transport channel in the lysosomal membrane that is attributed as the cause for the accumulation of cystine in this disease state.

Given the high proportion of pediatric patients in each of these rare orphan diseases, we intend to apply for relevant Orphan Drug incentives in the US and Europe, including the Rare Pediatric Disease Priority Review Voucher in the U.S.

The European Medicines Agency (the “EMA”) has granted ELX-02 an orphan drug designation for the treatment of cystic fibrosis and mucopolysaccharidosis type I (“MPS I”).

The FDA has granted orphan drug designation to ELX-02 for the treatment of cystinosis, MPS I, and for the treatment of Rett Syndrome.

We hold worldwide development and commercialization rights to ELX-02 and novel compounds in our read-through library, for all indications, in all territories, under a license from the Technion Research and Development Foundation Ltd.

Professor Timor Baasov, the inventor of our compounds, has served as our senior consultant since our inception.

On April 30, 2018 the Company completed an underwritten public offering of 5,899,500 shares of common stock of the Company at the public offering price of $9.75 per share.

The Company received net proceeds of approximately

6 million after deducting underwriting discounts and commissions and estimated offering expenses.

As of September 30, 2018, we had cash and cash equivalents of $ 55.3 million .

We expect that our current cash and cash equivalents will be sufficient to fund our current operations to 2020.

We believe that nonsense mutations may impact a similar proportion of patients diagnosed with cystinosis.

There are no currently approved therapeutics that target the nonsense mutation mediated impairment of cystinosin, the cystine-selective transport channel in the lysosomal membrane that is attributed as the cause for the accumulation of cystine in this disease state.

Given the high proportion of pediatric patients in each of these rare orphan diseases we intend to apply for relevant Orphan Drug incentives in the U.S.

and Europe, including the Rare Pediatric Disease Priority Review Voucher in the U.S.

Currently, the European Medicines Agency (the “EMA”) has designated ELX-02 as an orphan medicine for the treatment of cystic fibrosis and mucopolysaccharidosis type I (“MPS I”), and the FDA has granted orphan drug designation to ELX-02 for the t reatment of cystinosis, MPS I, and Rett Syndrome.

We hold worldwide development and commercialization rights to ELX-02 and other novel compounds in our read-through library, for all indications, in all territories, under a license from the Technion Research and Development Foundation Ltd.

Professor Timor Baasov, the inventor of our compounds, has served as our senior consultant since our incorporation.

We believe that our cash, cash equivalents and marketable securities of $53.5 million at March 31, 2019 will enable us to meet the anticipated cash needs required to reach top line Phase 2 data in cystic fibrosis and cystinosis in 2019 and maintain our current and planned operations into the second quarter of 2020.

Since our inception, we have incurred significant operating losses.

Our net losses were $33.2 million and $10.6 million for each of the nine months ended September 30, 2018 and 2017, respectively.

As of September 30, 2018, we had an accumulated deficit of $72.1 million.

As of March 31, 2019, we had an accumulated deficit of $98.1 million.

To date, we have financed our operations primarily through equity capital investments, and to a lesser extent, from loans and grants from the Israeli Innovation Authority of the Ministry of Economy and Industry, or the IIA.

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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 assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements, as well as the reported revenues and expenses 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.

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Actual results may differ materially from these estimates under different assumptions or conditions.

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our financial statements presented in this Quarterly Report on Form 10-Q are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K.

There have been no material changes to our critical accounting policies through September 30, 2018, from those discussed in our Annual Report on Form 10-K filed with the SEC on March 16, 2018.

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our financial statements presented in this Report are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K .

There have been no material changes to our critical accounting p o licies through March 31, 2019 , from those discussed in our Annual Report on Form 1 0-K filed with the SEC on March 1 4 , 201 9 .

Results of Operations

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Operating expenses:

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Other (income) expense, net

Research and development expenses.

Research and development expenses were $5.4 million for the three months ended September 30, 2018 compared to $3.3 million for the period ended September 30, 2017, an increase of $2.1 million.

The increase in research and development expenses was primarily related to fees incurred to subcontractors, consultants and advisors in connection with research and development of ELX-02 of $1.6 million.

Additionally, salaries and other personnel and occupancy related costs increased by $0.5 million.

Research and development expenses were $14.0 million for the nine months ended September 30, 2018, compared to $8.2 million for the period ended September 30, 2017, an increase of $5.8 million.

Additionally, salaries and other personnel and occupancy related costs increased by $1.3 million.

Research and development expense

Research and development expenses were $6.0 million for the three months ended March 31, 2019 compared to $4.4 million for the same period ended March 31, 2018, an increase of $1.6 million.

Research and development expenses increased $0.7 million primarily related to fees incurred for subcontractors, consultants and advisors in connection with ongoing clinical trials and research and development activities and $0.9 million due to an increase in headcount and related salaries, stock-based compensation, and other personnel related costs.

General and administrative expenses

General and administrative expenses were $5.9 million for the three months ended September 30, 2018, compared to $0.7 million for the period ended September 30, 2017, an increase of $5.2 million.

The increase in general and administrative expenses was primarily due to an increase in headcount and related salaries, stock-based compensation, and other personnel related costs of $3.6 million, and professional service fees and other fees of $1.6 million.

General and administrative expenses were $18.9 million for the nine months ended September 30, 2018, compared to $1.6 million for the period ended September 30, 2017, an increase of $17.3 million.

The increase in general and administrative expenses was primarily due to stock-based compensation to a director of $5.0 million, an increase in headcount and related salaries, stock-based compensation, and other personnel related costs of $6.3 million, and professional service fees and other fees of $6.0 million.

General and administrative expenses were $6.0 million for the three months ended March 31, 2019, compared to $3.4 million for the same period ended March 31, 2018, an increase of $2.6 million.

The increase in general and administrative expenses was primarily due to an increase in headcount and related salaries, stock-based compensation, and other personnel related costs of $2.8 million, offset by infrastructure-related costs of $0.2 million, including legal, accounting and other professional fees following the reverse merger.

Reverse merger related expenses

We recorded professional service fees of $0.6 million for the nine months ended September 30, 2018 related to the reverse merger we completed on December 19, 2017.

No professional service fees were recorded during the three months ended September 30, 2018.

Other (income) expense, net.

We recorded $0.2 million in other income, net of expense for the three months ended September 30, 2018, compared to $40,000 in other expense, net of income for the period ended September 30, 2017.

The increase of $0.2 million was due to an increase in interest income.

We recorded $ 0.

3 million in other income , net of e xpense for the nine months ended September 30, 2018 , compared to $0.

8 million in other expense, net of income for the period e nded September 30, 2017.

The increase of $1 .

1 million was primarily due to a n in crease in interest income of $0.

3 million and a $0.8 million decrease in interest expense on debt issuance costs .

We recorded a decrease of $0.8 million in professional service fees incurred during the three months ended March 31, 2018 related to the reverse merger we completed on December 19, 2017.

Other (income) expense

We recorded $60 thousand in other income for the three months ended March 31, 2019, compared to $43 thousand in other expense for the same period ended March 31, 2018.

The increase was primarily due to an increase in interest income of $0.3 million due to our higher cash balance resulting from net proceeds of $53.6 million received from our initial public offering, described below under Principal Financing Activities in April 2018 and proceeds received of $15 million from the issuance of debt in January 2019, offset by interest expense incurred on that debt of $0.3 million.

Liquidity and Capital Resources

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Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

Since our inception and through September 30, 2018, we have funded our operations primarily through equity and convertible debt financings in private placements, as described below.

As of September 30, 2018, we had cash and cash equivalents of $55.3 million.

On April 30, 2018, the Company completed an underwritten public offering (“2018 Offering”) of 5,899,500 shares of common stock of the Company at the public offering price of $9.75 per share.

The Company received net proceeds of approximately $53.6 million after deducting underwriting discounts and commissions and estimated offering expenses.

We expect that our cash and cash equivalents will enable us to fund our current operations to 2020.

Our future viability beyond that point is dependent on our ability to raise additional capital to finance our operations.

Although we have been successful in raising capital in the past, there is no assurance that we will be successful in obtaining such additional financing on terms acceptable to us, if at all.

If we are unable to obtain funding, we could be forced to delay, reduce or eliminate our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations.

Since our inception and through March 31, 2019, we have funded our operations primarily through equity and convertible debt financings in private placements, as described below.

We have a history of net losses and negative cash flows from operating activities since inception, and as of March 31, 2019, had an accumulated deficit of $98.1 million.

We expect to continue to incur net losses and use cash in our operations in the foreseeable future.

To date, we have not generated revenue from the sale of any product or service and do not expect to generate significant revenue unless and until obtaining marketing approval and commercialization of our product candidates currently in development.

A successful transition to profitable operations is dependent upon achieving a level of revenue adequate to support our cost structure.

We have financed our operations primarily from the sale of our equity securities.

We may never achieve profitability, and unless and until we do, we will continue to need to raise additional cash to fund our operations.

We believe that our cash and cash equivalents of $53.5 million at March 31, 2019 will enable us to meet the anticipated cash needs required to reach top line Phase 2 data in cystic fibrosis and cystinosis in 2019 and maintain our current and planned operations into the second quarter of 2020.

Our cash and cash equivalents are highly liquid investments with original maturities of 90 days or less at the date of purchase and consist of cash in operating accounts and secured investments, primarily in U.S.

Management intends to fund future operations through private or public debt or equity financing transactions, and may seek additional capital through arrangements with strategic partners or from other sources.

If we are unable to obtain financing, we will evaluate options which may include reducing or deferring operating expenses which may have a material adverse effect on our operations and future prospects.

Principal Financing Activities

On April 30, 2018, the Company completed an underwritten public offering of 5,899,500 shares of common stock of the Company at the public offering price of $9.75 per share.

The Company received net proceeds of approximately $53.6 million after deducting underwriting discounts and commissions and estimated offering expenses.

On May 22, 2017, Eloxx Limited entered into a Share Purchase Agreement (the “2017 SPA”) (and subsequently joinder agreements) with certain existing and new investors, whereby, an aggregate gross amount of $21.5 million, which included the conversion of the loan as detailed in Note 6 to the unaudited condensed consolidated financial statements contained in this report, was received by Eloxx Limited in exchange for the issuance of 7,136,289 shares of Series C preferred stock with par value of $0.01 with the initial closing, of which 39,293 shares were issued as a result of the anti-dilution effect of the Reverse Merger.

The related issuance costs were $0.6 million.

In connection with the 2017 SPA, the Company granted 142,524 warrants to purchase 142,524 shares of Series C preferred stock as fees to certain service providers.

Upon the closing of the Reverse Merger in December 2017, the Company issued 6,333,333 shares of common stock related to the closing of the 2017 SPA with a par value of $0.01 for an aggregate gross amount of $17.5 million.

Additionally, Sevion raised $1.5 million prior to the Reverse Merger.

The related issuance costs for these transactions was $0.5 million.

For more information, see Note 9 to the unaudited condensed consolidated financial statements contained in this report.

On April 30, 2018, we completed an underwritten public offering of 5,899,500 shares of common stock of the Company at the public offering price of $9.75 per share.

We received net proceeds of approximately $53.6 million after deducting underwriting discounts and commissions and estimated offering expenses.

On January 30, 2019, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”), in its capacity as administrative agent, collateral agent and lender, and WestRiver Innovation Lending Fund VIII, L.P.

(“WestRiver”).

Pursuant to the terms and conditions of the Loan Agreement, the Lenders agreed to extend term loans to us in an aggregate principal amount of up to $25 million, comprised of (i) an initial loan advance of $15 million and (ii) a subsequent loan advance of $10 million, subject to first achieving certain conditions (collectively, the “Term Loan Advances”).

The initial term loan was funded on January 30, 2019.

The subsequent loan advance is available at our election prior to December 31, 2019 after the occurrence of certain milestone events relating to data from our clinical trials and receipt by us of certain minimum cash proceeds of at least $75 million from an additional equity offering through a private placement or a public offering.

The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities

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Net cash provided by financing activities

Operating Activities

During the nine months ended September 30, 2018, net cash used in operating activities was $22.3 million, which resulted primarily from our net loss of $33.2 million partially offset by non-cash charges of $9.6 million related to stock-based compensation, $0.1 million of depreciation expense and $1.2 million related to changes in working capital primarily for accounts payables and accrued expenses.

During the nine months ended September 30, 2017, the net cash used in operating activities was $9.7 million, primarily driven by our net loss of $10.6 million, partially offset by the amortization and revaluation of an embedded conversion feature of $0.6 million and $0.2 million related to changes in working capital primarily for other current assets and accrued expenses offset by decreases in accounts payables.

Investing Activities

During the nine months ended September 30, 2018, the net cash used in investing activities was $0.1 million, primarily driven by the net purchase of property and equipment and long-term deposits.

During the nine months ended September 30, 2017, the net cash used in investing activities was $0.2 million, primarily driven by the purchase of property and equipment.

Financing Activities

During the nine months ended September 30, 2018, the net cash provided by financing activities was $53.7 million, primarily due to the net proceeds from the 2018 offering of $53.6 million.

During the nine months ended September 30, 2017, the net cash provided by financing activities was $21.2 million, resulting from the proceeds from the issuance of Series C preferred stock of $18.7 million and proceeds from the issuance of convertible loan and financial derivatives relating to the Series C preferred stock of $2.5 million.

Technion Research and Development Foundation Limited (“TRDF”) Agreement

On August 29, 2013, the Company entered into the Technion Agreement with TRDF, with respect to certain technology relating to aminoglycosides and the redesign of aminoglycosides for the treatment of human genetic diseases caused by premature stop mutations and further results of the research of the technology, in order to develop and commercialize products based on such technology.

Under the Technion Agreement, TRDF is obligated to provide the Company with research services for an estimated annual payment of $0.1 million, the precise amount to be agreed by the parties prior to the beginning of each year of the research period.

For the three and nine months ended September 30, 2018, the Company recorded research and development expense of $0.1 million and $0.1 million, respectively, in relation to in relation to reimbursement for the preparation, filing, prosecution and maintenance of TRDF patent rights related to Eloxx Limited.

For the three and nine months ended September 30, 2017, the Company recorded general and administrative expenses amounting to $0 and $7,000, respectively, and research and development expenses amounting to $24,000 in relation to the Technion Agreement.

As of September 30, 2018 and December 31, 2017, amounts recorded in accrued expenses were $6,000 and $25,000, respectively.

In addition, TRDF granted us a license to use, market, sell or sub-license the rights of the product developed under the TRDF research results (the “Licensed Product”), as fully defined in the Technion Agreement, for the following considerations:

(a) milestone payments, to be transferred upon meeting certain milestones as defined in the Technion Agreement, up to total consideration of $6.1 million;

(b) certain royalties on a low- to mid- single-digit percentage of net sales (subject to change in the case of (x) sublicensing to a big pharmaceutical or biotechnology company, or (y) payment of royalties to third parties, or (z) commercialization by a third party of an authorized generic to a licensed product), for a period until the later of (i) the expiration of a valid claim on the Licensed Product in each country the Licensed Product is sold to, or (ii) a certain amount of years from the date of the first commercial sale of the Licensed Product in such country, and (c) a low- to mid- double-digit percentage of any non-royalty sub-license income received by us from a sub-licensed entity.

In addition, we will be required to pay a fee to TRDF upon an exit event as described in the Technion Agreement.

Moreover, upon the closing of an Exit Event which is not Initial Public Offering ("IPO"), as defined in the Technion Agreement, TRDF shall be entitled to an amount equal to 3% of all non-refundable, non-contingent consideration, whether in cash or in kind, actually received by the Company and / or its shareholders.

Upon the closing of an exit event which is IPO, as defined in the Technion Agreement, TRDF shall be entitled to a number of Ordinary Shares of the Company representing 3% of the Company's outstanding shares on a fully diluted basis immediately prior to the closing of such IPO.

On August 9, 2017 , we received a legal claims letter from TRDF regarding TRDF’s alleged entitlement to an exit fee in accordanc e with the Technion Agreement as a result of t he announced Reverse Merger .

We recorded a $3.4 million research and development expense with an offsetting adjustment to additional paid-in capital for the year ended December 31, 2017 , related to the planned issuance of shares to TRDF at fair market valu e on the purported date of the exit event .

On June 13, 2018, we issued 569,395 shares to TRDF in satisfaction of this claim.

Contractual Obligations

There have been no material changes to our contractual obligations during the nine months ended September 30, 2018.

Please refer to our contractual obligations reported in our Annual Report on Form 10-K for the year ended December 31, 2017.

Our operating activities used cash of $ 9.

2 million and $5.7 million during the three months ended March 31, 2019 and March 31, 2018 , respectively .

For the three month s ended March 31, 2019, n et cash used in operating activities resulted primarily from our net loss of $ 11.9 million partially offset by n on-cash charges of $ 2.

7 million related to stock-based compensation , $ 33 thousand of depreciation expen se and $0.1 million related to our amortization of debt discount.

For the three months ended March 31, 2018, net cash used in operating activities resulted primarily from our net loss of $ 8.6 million partially offset by non-cash charges of $ 2.1 million related to changes in working capital primarily for accounts payable and accrued expenses and $0.7 million related to stock-based compensation.

Our investing activities used cash of $19 thousand and $57 thousand during the three months ended March 31, 2019 and March 31, 2018, respectively.

Cash used in investing activities was primarily for the purchase of property and equipment and deposits on leased office space.

Our financing activities provided cash of $5.2 million for the three months ended March 31, 2019.

Cash provided resulted primarily from the issuance of debt of $15 million in January 2019 and proceeds of $0.5 million from the purchase of common stock offset by the purchase of marketable securities of $8.9 million and the payment of taxes of $1.1 million associated with the vesting of restricted stock units.

No cash was provided or used by financing activities during the period ended March 31, 2018.

Form S-3 and Equity Sales Agreement

On April 10, 2018, we filed a shelf registration statement (“April 2018 Shelf”) on Form S-3 with the Securities and Exchange Commission (the “SEC”).

The 2018 Shelf (File No.

333-224207) was declared effective on April 20, 2018 and covers the offering, issuance and sale of up to $125 million of our common stock, preferred stock, debt securities or warrants and other securities, either individually or in combination.

In November 2018, we entered into an Equity Distribution Agreement (“the Agreement”) with Citigroup Global Markets Inc.

and Cantor Fitzgerald & Co.

(collectively, the “Sales Agents”), pursuant to which we may sell and issue shares of our common stock up to an aggregate of $50 million through the Sales Agents.

The shares were offered pursuant to the April 2018 Shelf.

In January 2019, we sold 35,362 shares of common stock and received net proceeds of $0.7 million.

At March 31, 2019, there was approximately $47.0 million available for future sales pursuant to the Agreement.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not have any off-balance sheet arrangements, as such term is defined under Item 303 of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

We did not have during the periods presented, and we do not have any off-balance sheet arrangements, as such term is defined under Item 303 of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expense, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Quantitative and Qualitati ve Disclosures about Market Risk

Not applicable to a “smaller reporting company”, as defined in Item 10(f)(1) of SEC Regulation S-K.

Cont rols and Procedures

Management’s Evaluation of our Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

As of September 30, 2018, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934).

Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of September 30, 2018, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2018, there have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis