Entera Bio Ltd. 10-Q

ITEM 1. FINANCIAL STATEMENTS ENTERA BIO LTD. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 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 the Consolidated Financial Statements (unaudited) 8 3 ENTERA BIO LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands, except share data) (Unaudited) September 30, December 31, 2022 2021 A s s e t s CURRENT ASSETS: Cash and cash equivalents 14,323 24,892 Accounts receivable 233 183 Other current assets 634 254 TOTAL CURRENT ASSETS 15,190 25,329 NON-CURRENT ASSETS: Property and equipment, net 152 156 Operating lease right-of-use assets 126 239 Deferred income taxes 66 217 Funds in respect of employee rights upon retirement 6 46 TOTAL NON-CURRENT ASSETS 350 658 TOTAL ASSETS 15,540 25,987 Liabilities and shareholders' equity CURRENT LIABILITIES: Accounts payable 413 166 Accrued expenses and other payables 651 2,801 Current maturities of operating lease 129 179 Contract liabilities - 15 TOTAL CURRENT LIABILITIES 1,193 3,161 NON-CURRENT LIABILITIES : Operating lease liabilities 3 123 Liability for employee rights upon retirement 32 138 TOTAL NON-CURRENT LIABILITIES 35 261 TOTAL LIABILITIES 1,228 3,422 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Ordinary Shares, NIS 0.0000769 par value: Authorized - as of September 30, 2022 and December 31, 2021, 140,010,000 shares; issued and outstanding: - as of September 30, 2022 and December 31, 2021, 28,809,922 and 28,804,411 shares, respectively * * Additional paid-in capital 106,733 104,950 Accumulated other comprehensive income 41 41 Accumulated deficit ( 92,462 ) ( 82,426 ) TOTAL SHAREHOLDERS' EQUITY 14,312 22,565 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 15,540 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) Nine Months Ended September 30, Three Months Ended September 30, 2022 2021 2022 2021 REVENUES 120 406 8 140 COST OF REVENUES 93 237 6 65 GROSS PROFIT 27 169 2 75 OPERATING EXPENSES: Research and development 4,497 4,122 1,413 1,771 General and administrative 5,512 4,208 1,460 1,535 Other income ( 33 ) ( 32 ) ( 6 ) ( 11 ) TOTAL OPERATING EXPENSES 9,976 8,298 2,867 3,295 OPERATING LOSS 9,949 8,129 2,865 3,220 FINANCIAL (INCOME) LOSS, NET ( 96 ) 2 8 7 LOSS BEFORE INCOME TAX 9,853 8,131 2,873 3,227 INCOME TAX BENEFIT (EXPENSES) 183 ( 44 ) 194 ( 13 ) NET LOSS 10,036 8,087 3,067 3,214 LOSS PER SHARE BASIC AND DILUTED 0.35 0.32 0.11 0.11 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE 28,807,470 25,203,221 28,809,922 28,680,833 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 Number of shares issued Amounts Additional paid-in capital Accumulated other Comprehensive income Accumulated deficit Total BALANCE AT JANUARY 1, 2022 28,804,411 * 104,950 41 ( 82,426 ) 22,565 Net loss - - - - ( 10,036 ) ( 10,036 ) Exercise of options to ordinary shares 5,511 * 13 - - 13 Share-based compensation - - 1,770 - - 1,770 BALANCE AT SEPTEMBER 30, 2022 28,809,922 * 106,733 41 ( 92,462 ) 14,312 BALANCE AT JULY 1, 2022 28,809,922 * 106,623 41 ( 89,395 ) 17,269 Net loss - - - - ( 3,067 ) ( 3,067 ) Share-based compensation - - 110 - - 110 BALANCE AT SEPTEMBER 30, 2022 28,809,922 * 106,733 41 ( 92,462 ) 14,312 BALANCE AT JANUARY 1, 2021 21,057,922 * 77,708 41 ( 70,239 ) 7,510 Net loss - - - - ( 8,087 ) ( 8,087 ) Issuance of shares due to the ATM program, net of issuance costs 4,386,728 * 21,805 - - 21,805 Exercise of options to ordinary shares 157,711 * 397 - - 397 Exercise of warrants to ordinary shares 3,175,050 * 3,158 - - 3,158 Share-based compensation - - 1,493 - - 1,493 Vested restricted share units 7,000 - - - - - BALANCE AT SEPTEMBER 30, 2021 28,784,411 * 104,561 41 ( 78,326 ) 26,276 BALANCE AT JULY 1, 2021 28,286,211 * 101,348 41 ( 75,112 ) 26,277 Net loss - - - - ( 3,214 ) ( 3,214 ) Issuance of shares due to the ATM program, net of issuance costs 440,463 * 2,463 - - 2,463 Exercise of options to ordinary shares 57,737 * 122 - - 122 Share-based compensation - - 628 - - 628 BALANCE AT SEPTEMBER 30, 2021 28,784,411 * 104,561 41 ( 78,326 ) 26,276 * 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) Nine months ended September 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ( 10,036 ) ( 8,087 ) Adjustments required to reconcile net loss to net cash used in operating activities: Depreciation 48 39 Deferred income taxes 151 ( 166 ) Share-based compensation 1,770 1,493 Finance income, net ( 74 ) ( 6 ) Changes in operating asset and liabilities: Decrease (increase) in accounts receivable ( 50 ) 3 Increase in other current assets ( 380 ) ( 198 ) Increase in accounts payable 247 161 Increase (decrease) in accrued expenses and other payables ( 2,149 ) 368 Decrease in contract liabilities ( 15 ) ( 158 ) Net cash used in operating activities ( 10,488 ) ( 6,551 ) CASH FLOWS FROM INVESTING ACTIVITIES: Funds with respect to employee rights upon retirement ( 55 ) - Purchase of property and equipment ( 44 ) ( 7 ) Net cash used in investing activities ( 99 ) ( 7 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares through ATM programs, net of issuance costs - 21,805 Exercise of options and warrants into shares 13 3,555 Net cash provided by financing activities 13 25,360 INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 10,574 ) 18,802 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 14,390 27,465 Reconciliation in amounts on consolidated balance sheets: Cash and cash equivalents 14,323 27,395 Restricted deposits included in other current assets 67 70 Total cash and cash equivalents and restricted cash 14,390 27,465 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 SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION: Income taxes paid 165 2 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 operations 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 with Amgen (the “Amgen Agreement”) 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. 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: 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 $ 92.5 million through September 30, 2022 and negative cash flows from operating activities. The Company's management is of the opinion that its available funds as of September 30, 2022 will allow the Company to operate under its current plans through the second quarter of 2023. This assumes ongoing R&D, the Hypo PK study and continued investments in production, analytics, and clinical research operations to enable initiation of EB613 phase 3 during the second half 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 to additional external parties through partnerships or research collaborations as the Company will need to finance future research and development activities, general and administrative expenses and working capital through fund raising. However, there is no certainty about the Company's ability to obtain such funding. The financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. d. Covid-19 Since the World Health Organization declared the outbreak of COVID-19 a pandemic in March 2020, 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 effects of the pandemic have generally lessened, its effects may continue to impact the Company’s business operations, include due to new variants of the virus 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 September 30, 2022, the consolidated results of operations, statements of changes in shareholders' equity for the three and nine-month periods ended September 30, 2022 and 2021 and cash flows for the nine-month periods ended September 30, 2022 and 2021. The consolidated results for the three and nine-month periods ended September 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. D iluted 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 6,239,921 shares and 7,025,691 shares for the nine months ended September 30, 2022 and 2021, respectively, and 6,068,670 shares and 5,492,432 shares for the three months ended September 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 three years in twelve equal quarterly instalments starting on January 1, 2022, which was the vesting commencement date. On January 1, 2022, which is considered the awards grant date, the Company granted options to purchase 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 one year in four equal quarterly instalments starting on January 1, 2022, which was the vesting commencement date. On January 1, 2022, which is considered the awards grant date, the Company granted options to purchase 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 the following option grants: i. options to purchase 80,000 ordinary shares to an executive officer and a service provider, in each case, with an exercise price of $ 2.86 per share. The fair value of the options was $ 147 . ii. options to purchase 55,000 ordinary shares to certain executive officers with an exercise price of $ 2.86 per share. This grant was subject to shareholders' approval, which was obtained at a meeting of the Company’s shareholders held on September 7, 2022. The fair value of the options was $ 37 . 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 . 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 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 Ms. Miranda Toledano, who was serving as the Company’s Chief Financial Officer at the time of the grant. Ms. Toledano has since been appointed the Company’s Chief Executive Officer (as described in Note 3(e) below). This grant was subject to shareholders' approval, which was obtained at a meeting of the Company’s shareholders held on September 7, 2022. These options have an exercise price of $ 2.00 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. The fair value of the options was $ 390 . e. On July 15, 2022, the Company’s Board of Directors appointed Ms. Miranda Toledano as the Company’s Chief Executive Officer and approved a grant of options to purchase 600,000 ordinary shares at an exercise price of $ 1.40 per share, which are in addition to the options described in note 3d above. This grant was subject to shareholders' approval, which was obtained at a meeting of the Company’s shareholders held on September 7, 2022. 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. The fair value of the options was $ 524 . In addition, upon the occurrence of a Triggering Event (as defined below) and subject to the approval of the Board of Directors, Ms. Toledano will be granted additional options to purchases 200,000 ordinary shares. The exercise price will be determined at the time of the Board of Directors’ approval. "Triggering Event" means 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 is approved by the Board of Directors. 11 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): 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: Nine months ended September 30, 2022 Exercise price $ 1.40 -$ 2.86 Dividend yield - Expected volatility 69 %- 70.2 % Risk-free interest rate 1.35 %- 3.36 % Expected life - in years 5.5 - 6.5 f. On June 15, 2022, the Company entered into a separation agreement with Dr. Phillip Schwartz, the Company’s former President of R&D, under which Dr. Schwartz agreed to continue to provide services to the Company until July 21, 2022 (the “Separation Date”). Pursuant to the terms of the separation agreement, which were approved by the Company’s shareholders on September 7, 2022, Dr. Schwartz received a full acceleration of his unvested options, as of the Separation date, to purchase 68,750 ordinary shares granted in April 2021 that otherwise would have been forfeited. These options, together with 31,250 already vested options granted in April 2021 and 357,500 already vested options to purchase ordinary shares granted in 2017, will be exercisable for a period of 10 years from their respective initial grant dates. The acceleration described above was recognized as a "Type III" modification; therefore, on the shareholder approval date, the Company recognized the incremental costs of unvested options based on the fair value of the options on such date. In addition, the extension of the exercise period for the vested awards was recognized as a "Type I" modification. The total expense amount was $ 112 thousand, which was classified as additional share-based compensation costs in the research and development expenses. 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 $ 155.9 ) and additional payments of NIS 737,771 (approximately $ 214.0 ) in respect of all other ongoing accrued benefits, subject to any mandatory deductions. The foregoing payments were recognized in the research and development expenses. g. On July 15, 2022, the Company entered into a mutual separation agreement with the Company’s former Chief Executive Officer, Dr. Spiros Jamas. 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 $ 411.7 ; and (ii) an extension of the exercise period for the vested portion of the options granted on January 4, 2021, based on the award original terms, representing an aggregate of 492,832 ordinary shares, through the end of a two-year period commencing on July 15, 2022. Effective July 15, 2022 , upon termination of the employment agreement with Dr. Jamas, the remaining 821,386 unvested options were forfeited and recognized as a reverse of expense of $ 457 in the general and administrative expenses. 12 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: September 30, December 31, Accrued expenses and other payables: 2022 2021 Employees and employees related 159 147 Income tax - 134 Provision for vacation 114 308 Accrued expenses 378 2,212 651 2,801 13