Entera Bio Ltd. 10-Q

ITEM 1. FINANCIAL STATEMENTS ENTERA BIO LTD. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2022 TABLE OF CONTENTS Page CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: Condensed Consolidated Balance Sheets (unaudited) 4 Condensed Consolidated Statements of Operations (unaudited) 5 Condensed Consolidated Statements of Changes in Shareholders' Equity (unaudited) 6 Condensed Consolidated Statements of Cash Flows (unaudited) 7 Notes to Condensed Consolidated Financial Statements (unaudited) 8 3 ENTERA BIO LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands, except share data) (Unaudited) June 30, December 31, 2022 2021 A s s e t s CURRENT ASSETS: Cash and cash equivalents 17,279 24,892 Accounts receivable 225 183 Other current assets 922 254 TOTAL CURRENT ASSETS 18,426 25,329 NON-CURRENT ASSETS: Property and equipment, net 166 156 Operating lease right-of-use assets 170 239 Deferred income taxes 280 217 Funds in respect of employee rights upon retirement 46 46 TOTAL NON-CURRENT ASSETS 662 658 TOTAL ASSETS 19,088 25,987 L i a b i l i t i e s and shareholders' equity CURRENT LIABILITIES: Accounts payable 109 166 Accrued expenses and other payables 1,411 2,801 Current maturities of operating lease 172 179 Contract liabilities - 15 TOTAL CURRENT LIABILITIES 1,692 3,161 NON-CURRENT LIABILITIES : Operating lease liabilities 5 123 Liability for employee rights upon retirement 122 138 TOTAL NON-CURRENT LIABILITIES 127 261 TOTAL LIABILITIES 1,819 3,422 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Ordinary Shares, NIS 0.0000769 par value: Authorized - as of June 30, 2022 and December 31, 2021, 140,010,000 shares; issued and outstanding: - as of June 30, 2022 and December 31, 2021, 28,809,922 and 28,804,411 shares, respectively * * Additional paid-in capital 106,623 104,950 Accumulated other comprehensive income 41 41 Accumulated deficit ( 89,395 ) ( 82,426 ) TOTAL SHAREHOLDERS' EQUITY 17,269 22,565 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 19,088 25,987 * Represents an amount less than one thousand US dollars The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 4 ENTERA BIO LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (U.S. dollars in thousands, except share and per share data) (Unaudited) Six Months Ended June 30, Three Months Ended June 30, 2022 2021 2022 2021 REVENUES 112 266 44 109 COST OF REVENUES 87 172 33 99 GROSS PROFIT 25 94 11 10 OPERATING EXPENSES: Research and development 3,084 2,351 1,394 1,227 General and administrative 4,052 2,674 1,880 1,364 Other income ( 27 ) ( 22 ) ( 14 ) ( 11 ) TOTAL OPERATING EXPENSES 7,109 5,003 3,260 2,580 OPERATING LOSS 7,084 4,909 3,249 2,570 FINANCIAL (INCOME) LOSS ,NET ( 104 ) ( 5 ) ( 60 ) 24 LOSS BEFORE INCOME TAX 6,980 4,904 3,189 2,594 INCOME TAX BENEFIT ( 11 ) ( 31 ) ( 4 ) ( 17 ) NET LOSS 6,969 4,873 3,185 2,577 LOSS PER SHARE BASIC AND DILUTED 0.24 0.21 0.11 0.1 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE 28,806,217 23,377,668 28,808,023 24,716,608 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 5 ENTERA BIO LTD CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. dollars in thousands, except share and per share data) (Unaudited) Ordinary shares Additional Accumulated other Number of shares issued Amounts paid-in capital Comprehensive income Accumulated deficit Total BALANCE AT JANUARY 1, 2022 28,804,411 * 104,950 41 ( 82,426 ) 22,565 Net loss - - - - ( 6,969 ) ( 6,969 ) Exercise of options to ordinary shares 5,511 * 13 - - 13 Share-based compensation - - 1,660 - - 1,660 BALANCE AT JUNE 30, 2022 28,809,922 * 106,623 41 ( 89,395 ) 17,269 BALANCE AT APRIL 1, 2022 28,804,411 * 105,914 41 ( 86,210 ) 19,745 Net loss - - - - ( 3,185 ) ( 3,185 ) Exercise of options to ordinary shares 5,511 * 13 - - 13 Share-based compensation - - 696 - - 696 BALANCE AT JUNE 30, 2022 28,809,922 * 106,623 41 ( 89,395 ) 17,269 BALANCE AT JANUARY 1, 2021 21,057,922 * 77,708 41 ( 70,239 ) 7,510 Net loss - - - - ( 4,873 ) ( 4,873 ) Issuance of shares due to the ATM program, net of issuance costs 3,946,265 * 19,342 - - 19,342 Exercise of options to ordinary shares 99,974 * 275 - - 275 Exercise of warrants to ordinary shares 3,175,050 * 3,158 - - 3,158 Share-based compensation - - 865 - - 865 Vested restricted share units 7,000 - - - - - BALANCE AT JUNE 30, 2021 28,286,211 * 101,348 41 ( 75,112 ) 26,277 BALANCE AT APRIL 1, 2021 23,776,785 * 88,144 41 ( 72,535 ) 15,650 Net loss - - - - ( 2,577 ) ( 2,577 ) Issuance of shares due to the ATM program, net of issuance costs 1,400,000 * 9,484 - - 9,484 Exercise of options to ordinary shares 28,594 * 48 - - 48 Exercise of warrants to ordinary shares 3,080,832 * 3,134 - - 3,134 Share-based compensation - - 538 - - 538 BALANCE AT JUNE 30, 2021 28,286,211 * 101,348 41 ( 75,112 ) 26,277 * Represents an amount less than one thousand US dollars. The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 6 ENTERA BIO LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands, except share and per share data) (Unaudited) Six months ended June 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ( 6,969 ) ( 4,873 ) Adjustments required to reconcile net loss to net cash used in operating activities: Depreciation 32 24 Deferred income taxes ( 63 ) ( 109 ) Share-based compensation 1,660 865 Finance income, net ( 71 ) ( 4 ) Changes in operating asset and liabilities: Decrease (increase) in accounts receivable ( 42 ) 139 Increase in other current assets ( 704 ) ( 602 ) Increase (decrease) in accounts payable ( 57 ) 125 Increase (decrease) in accrued expenses and other payables ( 1,390 ) 143 Decrease in contract liabilities ( 15 ) ( 150 ) Net cash used in operating activities ( 7,619 ) ( 4,442 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 42 ) - Net cash used in investing activities ( 42 ) - CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares through ATM programs, net of issuance costs - 19,342 Exercise of options and warrants into shares 13 3,433 Net cash provided by financing activities 13 22,775 INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 7,648 ) 18,333 CASH, CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT BEGINNING OF THE PERIOD 24,964 8,663 CASH, CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF THE PERIOD 17,316 26,996 Reconciliation in amounts on consolidated balance sheets: Cash and cash equivalents 17,279 26,926 Restricted deposits included in other current assets 37 70 Total cash and cash equivalents and restricted cash 17,316 26,996 SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS: Operating lease right of use assets obtained in exchange for new operating lease liabilities - 31 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 7 ENTERA BIO LTD . NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share data) (Unaudited) NOTE 1 - DESCRIPTION OF BUSINESS: a. Entera Bio Ltd. (collectively with its subsidiary, the "Company") was incorporated on September 30, 2009 under the laws of the State of Israel and commenced operation on June 1, 2010. On January 8, 2018 the Company incorporated Entera Bio Inc., a wholly owned subsidiary incorporated in Delaware, United States.The Company is a leader in the development of orally delivered macromolecule therapeutics, including peptides and other therapeutic proteins. The Company applies its platform for use in areas with significant unmet medical need, where adoption of injectable therapies is limited due to cost, convenience and compliance challenges for patients. The Company’s most advanced product candidates, EB613 for the treatment of osteoporosis and EB612 for the treatment of hypoparathyroidism, are based on its proprietary technology platform and are both in clinical development. Additionally, the Company intends to license its oral delivery technology to biopharmaceutical companies for use with their proprietary compounds. Entera established such a collaboration with Amgen Inc. (“Amgen”) in December 2018, for the use of the Company’s oral delivery platform in the field of inflammatory diseases. b. The Company's ordinary shares, NIS 0.0000769 par value per share (“ordinary shares”), have been listed for trading on the Nasdaq Capital Market since the Company’s initial public offering in July 2018, in which total of 1,400,000 ordinary shares and 1,400,000 warrants to purchase up to 700,000 ordinary shares were issued in consideration for net proceeds of $ 9.6 million, after deducting offering expenses. c. On December 10, 2018, the Company entered into a research collaboration and license agreement (the “Amgen Agreement”) with Amgen for the use of the Company’s oral delivery platform in the field of inflammatory disease and other serious illnesses. Pursuant to the Amgen Agreement, the Company and Amgen have agreed to use the Company’s proprietary drug delivery platform to develop oral formulations for one preclinical large molecule program that Amgen has selected. Amgen also has options to select up to two additional programs to include in the Amgen Agreement. Amgen is responsible for the clinical development, regulatory approval, manufacturing and worldwide commercialization of the programs. The Company granted Amgen an exclusive, worldwide, sublicensable license under certain of its intellectual property relating to its drug delivery technology to develop, manufacture and commercialize the applicable products. The Company has retained all intellectual property rights to its drug delivery technology, and Amgen has retained all rights to its large molecules and any subsequent improvements, and ownership of certain intellectual property developed through the performance of the agreement is to be determined by U.S. patent law. d. Because the Company is engaged in research and development activities, it has not derived significant income from its activities and has incurred accumulated losses in the amount of $ 89.4 million through June 30, 2022 and negative cash flows from operating activities. The Company's management is of the opinion that its available funds as of June 30, 2022 will allow the Company to operate under its current plans through the second quarter of 2023. These factors raise substantial doubt as to the Company's ability to continue as a going concern. Management is in the process of evaluating various financing alternatives in the public or private equity markets or through the license of the Company's technology 1 8 ENTERA BIO LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share data) (Unaudited) NOTE 1 - DESCRIPTION OF BUSINESS (continued): e. Covid-19 In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic. The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. During 2021, there was a broad distribution of several vaccinations and medicines to overcome the pandemic. The Company has adjusted its operations to co-exist with the pandemic and has encouraged its employees to get vaccinated against COVID-19. Though the Company sees great progress to overcome the COVID-19 pandemic, the COVID-19 pandemic may continue to impact the Company’s business operations, with outbursts of new variants of the COVID-19 from time to time, and there is uncertainty in the nature and degree of its continued effects over time. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: a. Basis of presentation of the financial statements These unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial statements. Accordingly, they do not include all of the information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as of June 30, 2022, the consolidated results of operations, statements of changes in shareholders' equity for the three and six-month periods ended June 30, 2022 and 2021 and cash flows for the six-month periods ended June 30, 2022 and 2021. The consolidated results for the three and six-month periods ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2021 as filed with the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 8, 2022. The comparative balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S. GAAP for annual financial statements. 9 ENTERA BIO LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share data) (Unaudited) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued): b. 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 outstanding ordinary shares during the period. Diluted loss per share is based upon the weighted average number of ordinary shares and of ordinary shares equivalents outstanding when dilutive. Ordinary share equivalents include outstanding stock options and warrants, which are included under the treasury stock method when dilutive. The calculation of diluted loss per share does not include options and warrants, exercisable into 6,326,180 shares and 7,804,106 shares for the six months ended June 30, 2022 and 2021, respectively and 6,473,863 shares and 7,718,887 shares for the three months ended June 30, 2022 and 2021, respectively, because the effect would be anti-dilutive. c. Newly issued and recently adopted accounting pronouncements: Recently issued accounting pronouncements adopted 1) 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 adoption of this guidance did not have material impact on the Company’s consolidated financial statements. 2) In August 2020, the FASB issued ASU 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40).” This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The adoption of this guidance did not have material impact on the Company’s consolidated financial statements. NOTE 3 - SHARE-BASED COMPENSATION: a. On August 23, 2021, the Company’s Board of Directors approved the following option grants which were approved by the shareholders of the Company on October 4, 2021: i. Grants of options to purchase ordinary shares with a total fair value 0f $ 195 for each of the seven non-executive board members on January 1, 2022. The options will vest over 3 years in twelve equal quarterly instalments starting on January 1, 2022 the vesting commencement date. On January 1, 2022, which is considered the awards grant date, the Company granted 752,899 ordinary shares to non-executive directors with an exercise price of $ 2.815 per share. ii. Grants of options to purchase ordinary shares with a total fair value 0f $ 65 for each of the seven non-executive board members on January 1, 2022. The options will vest over 1 year in four equal quarterly instalments starting on January 1, 2022 the vesting commencement date. On January 1, 2022, which is considered the awards grant date, the Company granted 250,964 ordinary shares to non-executive directors with an exercise price of $ 2.815 per share. 10 ENTERA BIO LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share data) (Unaudited) NOTE 3 - SHARE-BASED COMPENSATION (continued): b. On March 31, 2022, the Company’s Board of Directors approved option grants to purchase 115,000 ordinary shares to certain executive officers and 20,000 options granted to a service provider, in each case with an exercise price of $ 2.86 per share. The options vest over four years from the date of grant; 25% vest on the first anniversary of the date of grant and the remaining 75% of the option will vest in twelve equal quarterly installments following the first anniversary of the grant date. The fair value of the options at the date of grant was $ 147 . Of these options, 55,000 are subject to the approval of the shareholders of the Company and as such, are not included as part of the fair value. c. On April 28, 2022, the Company’s Board of Directors approved options grants to purchase 220,000 ordinary shares to employees with an exercise price of $ 2.57 per share. The options vest over four years from the date of grant; 25% vest on the first anniversary of the date of grant and the remaining 75% of the option will vest in twelve equal quarterly installments following the first anniversary of the grant date. The fair value of the options at the date of grant was $ 364 . d. On May 11, 2022, the Company’s Board of Directors approved a grant of options to purchase 500,000 ordinary shares to the Company’s Chief Financial Officer, who has since been appointed the Company’s Chief Executive Officer. These options have an exercise price of $ 2.02 per share and vest over four years from the date of grant; 25% vest on the first anniversary of the date of grant and the remaining 75% of the option will vest in twelve equal quarterly installments following the first anniversary of the grant date. These options are subject to the approval of the shareholders of the Company. The fair value of each option granted is estimated at the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions: Six months ended June 30, 2022 Exercise price $ 2.57 -$ 2.86 Dividend yield - Expected volatility 69 %- 70 % Risk-free interest rate 1.35 %- 2.87 % Expected life - in years 5.5 - 6.5 e. On June 15, 2022 the Company signed on a separation agreement with Dr. Phillip Schwartz, the Company’s former President of R&D, under which he agreed to continue to provide services to the Company until July 21, 2022 (the “Separation Date”). Pursuant to the terms of the separation agreement and subject to approval of the Company’s shareholders, Dr. Schwartz is entitled to receive a full acceleration of the options to purchase 100,000 ordinary shares granted in April 2021, such that 68,750 outstanding options to acquire ordinary shares that not already vested will be deemed to have vested as of the Separation date. These options, together with 357,500 options to purchase ordinary shares, granted in 2017 will remain exercisable, consistent with the original exercise periods. In addition, the separation agreement provides for the following payments to Dr. Schwartz, all of which would have otherwise been payable in accordance with either Israeli law or pursuant to his existing employment agreement: a one-time cash separation payment in an amount equal to NIS 537,600 (approximately $ 155,900 ) and additional payments of approximately NIS 737,771 (approximately $ 213,952 ) in respect of all other ongoing accrued benefits, subject to any mandatory deductions. The foregoing payments were recognized in the research and development expenses. 11 ENTERA BIO LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share data) (Unaudited) NOTE 4 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION: Balance sheets: June 30, December 31, Accrued expenses and other payables: 2022 2021 Employees and employees related 182 147 Income tax 20 134 Provision for vacation 260 308 Accrued expenses 949 2,212 1,411 2,801 NOTE 5 - SUBSEQUENT EVENTS: a. On July 15, 2022, the Company’s Board of Directors appointed Ms. Miranda Toledano as the Company’s new CEO and approved a grant of additional (see also note 3d) options to purchase 600,000 ordinary shares at an exercise price of $ 1.40 per share. The options vest over four years from the date of grant; 25% vest on the first anniversary of the date of grant and the remaining 75% of the option will vest in twelve equal quarterly installments following the first anniversary of the applicable grant date. In addition, upon the occurrence of a Triggering Event (as defined below), the Board of Directors will grant Ms. Toledano options to purchase 200,000 ordinary shares. "Triggering Event" shall mean the earlier of the following events: (i) the execution by the Company of a binding strategic or partnership agreement with a strategic partner to fund the Company's Phase III FDA Trial; or (b) raising sufficient funding to complete the Company's Phase III FDA Trial, in each case as such event was approved by the Board of Directors. The foregoing option grants are subject to the Company’s shareholders' approval. b. On July 15, 2022, the Company entered into a mutual separation agreement with Dr. Spiros Jamas, the Company’s former CEO. Pursuant to the separation agreement, Dr. Jamas received the following benefits: (i) a one-time lump sum payment of his annual base salary for a period of 13 months, for a total gross amount equal to $ 411,666.67 ; and (ii) an extension of the exercise period for the vested portion of the options granted to Dr. Jamas on January 4, 2021, representing collectively 492,832 ordinary shares, through the end of a two-year period commencing on July 15, 2022. All of Dr. Jamas’ remaining unvested options, totaling 821,386 options, were forfeited. 12