Item 7. Management’s Discussion and Analysis
ITEM 7 . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report contains forward-looking statements within the meaning of the PSLRA, Section 27A of the Securities Act, and Section 21E of the Exchange Act, about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies and prospects. You can identify forward-looking statements by the fact that these statements do not relate to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those contained in “Item 1A - Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” of this Annual Report. We do not undertake any obligation to update forward-looking statements except as required by applicable law. We intend that all forward-looking statements be subject to the safe harbor provisions of PSLRA. These forward-looking statements reflect our views only as of the date they are made.
Overview
Entera is a clinical stage company focused on developing first-in-class oral tablet formats of peptides or protein replacement therapies. We focus on underserved, chronic medical conditions for which oral administration of a protein therapy has the potential to significantly shift a treatment paradigm.
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Currently, most protein therapies are administered via frequent intravenous, subcutaneous, or intramuscular injections. In chronic diseases where patients require persistent management, these cumbersome, often painful and high-priced injections can create a major treatment gap.
From a technical standpoint, oral delivery of therapeutic proteins is challenging due to the enzymatic degradation within the gastrointestinal tract and poor absorption into the blood stream due to the proteins’ polarity and molecular weight. We leverage our N-Tab™ oral delivery technology which is designed to simultaneously stabilize the peptide in the gastrointestinal tract and promote its absorption into the bloodstream.
Our most advanced product candidate, EB613 (oral PTH (1-34), teriparatide), is being developed as the first oral, osteoanabolic (bone building) once-daily tablet treatment for post-menopausal women with low BMD and high-risk osteoporosis with no prior fracture. A placebo controlled, dose ranging Phase 2 study of EB613 tablets (n= 161) met primary (pharmacodynamic/bone turnover biomarker) and secondary endpoints (BMD). Following the completion of a Type C and a Type D meeting with the U.S. Food and Drug Administration’s (FDA), we announced the FDA’s concurrence that a 2-year, placebo-controlled phase 3 (registrational) study with Total Hip BMD as primary endpoint could support a new drug application (“NDA”) for EB613.
The EB612 program is being developed as the first oral PTH(1-34) tablet peptide replacement tablet therapy for hypoparathyroidism. With respect to our EB612 program we are currently testing new generations of our N-Tab™ Technology with the naked PTH(1-34) peptide to assess the effectiveness once or twice a day dosing regimens as well as collaborating with a third party on another peptide in this field. To date, Entera’s proprietary PTH tablets have been safely administered to a total of 102 healthy subjects in Phase 1 studies and 153 patients in Phase 2 studies in osteoporosis and hypoparathyroidism, two diseases that remain underserved with the current standard of care and which disproportionately affect women. We believe these product candidates, if approved, hold the potential to become standards of care for patients with osteoporosis and hypoparathyroidism. Additionally, we are exploring the use of our PTH(1-34) tablets for the treatment of stress fractures in athletes and expect to collaborate with an investigator sponsored study in this area. We expect to initiate a phase 2 trial for this indication in the second half of 2024.
In May 2023, the results from our oral GLP-2 program were published in the International Journal of Peptide Research and Therapeutics, “Oral Delivery Technology Enabling Gastro-Mucosal Absorption of Glucagon-Like-Peptide-2 Analog (Teduglutide) - A Novel Approach for Injection-Free Treatment of Short Bowel Syndrome.” We believe GLP-2 represents a strong candidate for our N-Tab™ Technology and warrants further development as an injection-free alternative to patients suffering from short bowel syndrome and other gastrointestinal disorders where GLP-2 plays a role.
In September 2023, we entered into a research collaboration agreement with OPKO. Under the terms of this agreement, OPKO has agreed to supply its proprietary long-acting GLP-2 peptide and certain Oxyntomodulin analogs for the development of oral tablet formulations using our proprietary N-Tab™ technology. Oxyntomodulin (OXM) is a naturally occurring peptide hormone found in the colon, with glucagon-like-peptide 1 (GLP-1) and glucagon dual agonist activity which suppresses appetite and induces weight loss. OPKO has developed several proprietary, modified OXM analogs as potential candidates for treating obesity, including an injectable pegylated peptide which demonstrated significant reductions in weight loss and decreased plasma triglyceride levels in over 430 patients in phase 2/2B studies. We expect in vivo PK/PD data from both the oral GLP-2 tablet program and the oral OXM tablet program in 2024. We and OPKO have each agreed to be responsible for specific phases of development of the two oral peptides to the point of demonstrated in vivo feasibility.
Since our inception, we have raised a total of $91.3 million from a combination of public and private equity offerings, grants and the exercise of options and warrants. Since inception, we have incurred significant losses. For the years ended December 31, 2023 and 2022, our operating losses were $8.9 million and $13.0 million, respectively, and we expect to continue to incur significant expenses and losses for the foreseeable future. As of December 31, 2023, we had an accumulated deficit of $104.4 million. Our losses may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials, our expenditures on research and development activities, and payments under any future collaborations into which we may enter.
As a result of our recurring losses from operations, negative cash flows and lack of liquidity, management is of the opinion that there is substantial doubt as to the Company's ability to continue as a going concern. Our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of, and for the year ended, December 31, 2023, expressing the existence of substantial doubt about our ability to continue as a going concern. The audited consolidated financial statements included herein have been prepared assuming that we will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. If we are unable to raise the requisite funds, we will need to delay certain program initiation, curtail or cease operations. See “Item 1A-Risk Factors-Risks Related to Our Financial Position and Need for Additional Capital.”
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As of December 31, 2023, we had cash and cash equivalents of $11.0 million. We believe that our existing cash resources will be sufficient to meet our projected operating requirements through the second quarter of 2025, which include the capital required to fund our ongoing operations, including R&D, the completion of the Phase 1 study related to the new generation platform and the GLP-2/OXM collaborative research we are conducting with OPKO. However, this does not include the capital required to fund our proposed Phase 3 pivotal study for EB613 in osteoporosis. We currently do not have funding sufficient for this Phase 3 study, and our ability to commence the study requires additional funding, which may not be available on reasonable terms, or at all. Any delay or our inability to secure such funding will delay or prevent the commencement of this study.
In order to fund further operations, we will need to raise additional capital. We may raise these funds through a variety of means, including private or public equity offerings, debt financings, strategic collaborations and licensing arrangements. Additional financing may not be available when we need it or may not be available on terms that are favorable to us.
Patent Transfer, Licensing Agreements and Grant Funding
Oramed Patent Transfer Agreement
In 2011, we entered into the Patent Transfer Agreement with Oramed, pursuant to which Oramed assigned to us all of its rights, title and interest in the patent rights that Oramed licensed to us when we were originally organized, subject to a worldwide, royalty-free, exclusive, irrevocable, perpetual and sub-licensable license granted to Oramed under the assigned patent rights to develop, manufacture and commercialize products or otherwise exploit such patent rights in the fields of diabetes and influenza. Additionally, we agreed not to engage, directly or indirectly, in any activities in the fields of diabetes and influenza. Under the terms of the Patent Transfer Agreement, we agreed to pay Oramed royalties equal to 3% of our net revenues generated, directly or indirectly, from exploitation of the assigned patent rights, including the sale, lease or transfer of the assigned patent rights or sales of products or services covered by the assigned patent rights.
Israeli Innovation Authority Grants
We have received grants of approximately $0.5 million from the IIA to partially fund our research and development. The grants are subject to certain requirements and restrictions under the Research Law. In general, until the grants are repaid with interest, royalties are payable to the Israeli government in the amount of 3% on revenues derived from sales of products or services developed in whole or in part using the IIA grants, including EB613, EB612 and any other oral PTH product candidates we may develop. The royalty rate may increase to 5%, with respect to approved applications filed following any year in which we achieve sales of over $70 million.
The amount that must be repaid may be increased up to six times the amount of the grant received and the interest. The rate of royalties may be accelerated and the royalty liability may increase (up to three times the amount of the grant amount and the interest), if manufacturing of the products developed with the grant money is transferred outside of the State of Israel. Moreover, a payment of up to 600% of the grant received may be required upon the transfer of any IIA-funded know-how to a non-Israeli entity. We signed a contract with a U.K.-based contract manufacturing organization to produce and supply pills for trials performed worldwide. We believe that, because this production is not for commercial purposes, it will not affect the royalty rates to be paid to the IIA. Should the IIA successfully take a contrary position, the maximum royalties to be paid to the IIA will be approximately $1.5 million, which is three times the amount of the original grant (three times of the interest will also be added). Under a collaboration agreement that was previously mutually terminated in May 2023, from 2019 through March 31, 2023, we recognized an aggregate amount of $1.7 million of revenue in accordance with ASC 606, "“Revenues from Contracts with Customers” With respect to revenue generated from the collaboration agreement. Prior to its termination, we had been required to pay to the IIA 5.38% of each payment made to us under the collaboration agreement with an ultimately liability of up to 600% of the grant received plus interest. As of December 31, 2023, we had paid royalties to the IIA in the amount of $83,000 related to a collaboration agreement and other material transfer agreements (“MTAs”). As of December 31, 2023, we owed $13,000 to the IIA, which was paid in February 2024.
In addition to paying any royalties due, we must abide by other restrictions associated with receiving such grants under the Research Law that continue to apply following repayment to the IIA.
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Financial Overview
Revenue
To date, we have not generated any revenue from sales of our products, and we do not expect to receive any revenue from any product candidates that we develop unless and until we obtain regulatory approval and successfully commercialize our products.
Revenues are recognized according to ASC 606, “Revenues from Contracts with Customers”.
According to ASC 606, a performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. Goods and services that are not distinct are bundled with other goods or services in the contract until a bundle of goods or services that is distinct is created. A good or service promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Options granted to the customer that do not provide a material right to the customer that it would not receive without entering into the contract do not give rise to performance obligations.
Under ASC 606, the consideration that we would be entitled to upon the achievement of contractual milestones, which are contingent upon the occurrence of future events of development and commercial progress, are a form of variable consideration. When assessing the portion, if any, of such milestone-related consideration to be included in the transaction price, we first assess the most likely outcome for each milestone, and exclude the consideration related to milestones of which the occurrence is not considered the most likely outcome. We then evaluate if any of the variable consideration determined in the first step is constrained. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available. We did not recognize any revenues from milestone payments.
An entity should recognize revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property only when (or as) the later of the following events occurs:
• The subsequent sale or usage occurs; and
• The performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied).
Research and Development Expenses
We primarily focus on our research and development activities. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase significantly in future periods as we advance EB613, EB612 and other product candidates into later stages of clinical development and invest in additional preclinical candidates.
Research and development expenses consist of costs incurred for the development of our drug delivery technology and our product candidates, including:
• employee-related expenses, including salaries, bonuses and share-based compensation expenses for employees and service providers in the research and development function;
• expenses incurred in operating our laboratories including our small-scale manufacturing facility;
• expenses incurred under agreements with CROs, and investigative sites that conduct our clinical trials;
• expenses related to outsourced and contracted services, such as external laboratories, consulting and advisory services;
• supply, development and manufacturing costs relating to clinical trial materials; and
• other costs associated with pre-clinical and clinical activities.
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Our research and development expenses may vary substantially from period to period based on the timing of our research and development activities, including due to the timing of initiation of clinical trials and the enrollment of patients in clinical trials. For the years ended December 31, 2023 and 2022, our research and development expenses were $4.5 million and $5.8 million, respectively. Research and development expenses for the years ended December 31, 2023 and 2022 were primarily for the development of EB613, EB612, and development of our new generation platform. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from, any of our product candidates. This is due to numerous risks and uncertainties associated with developing drugs, including:
• the uncertainty of the scope, rate of progress, results and cost of our clinical trials, nonclinical testing and other related activities;
• the cost of manufacturing clinical supplies and establishing commercial supplies of our product candidates and any products that we may develop;
• the number and characteristics of product candidates that we pursue;
• the cost, timing and outcomes of regulatory approvals;
• the cost and timing of establishing any sales, marketing, and distribution capabilities; and
• the terms and timing of any collaborative, licensing and other arrangements that we may establish, including any milestone and royalty payments thereunder.
A change in the outcome of any of these variables with respect to the development of EB613, EB612 or any other product candidate that we may develop could mean a significant change in the costs and timing associated with the development of such product candidate. For example, if the FDA or other regulatory authority were to require us to conduct preclinical or clinical studies beyond those that we currently anticipate as necessary for development, if we experience significant delays in enrollment in any clinical trials, or if we encounter difficulties in manufacturing our clinical supplies, then we could be required to expend significant additional financial resources and time on the completion of the clinical development.
General and Administrative Expenses
General and administrative expenses consist principally of salaries, benefits, share-based compensation and related costs for directors and personnel in executive and finance functions. Other general and administrative expenses include D&O insurance and other insurance, communication expenses, professional fees for legal and accounting services, costs associated with maintaining and prosecuting our intellectual property portfolio and business development expenses.
We expect that our general and administrative expenses will increase in the future as we increase our headcount and expand our administrative function to support our operations.
Financial Expenses (Income), Net
Financial expenses (income), net are composed primarily of interest income from bank deposits and exchange rate differences of certain currencies against our functional currency.
Income Tax Expenses (Benefit)
We have not generated taxable income since our inception, and as of December 31, 2023, we had carry-forward tax losses of $75.8 million. We anticipate that we will be able to carry forward these tax losses indefinitely to future tax years. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carryforward tax losses. We provided a full valuation allowance with respect to the deferred tax assets related to these carry forward losses of the Company.
The Company’s subsidiary, Entera Bio, Inc., is taxed separately under U.S. tax laws. As of December 31, 2023, Entera Bio Inc. had tax loss carry-forwards of $156 thousand.
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Results of Operations
Comparison of Years Ended December 31, 2023 and 2022
Year Ended
December 31,
Increase (Decrease)
2023
2022
$ %
(In thousands, except for percentage information)
Revenues
$
-
$
134
$
(134
)
(100
)%
Cost of revenues
$
-
$
101
(101
)
(100
)%
Operating expenses:
Research and development expenses
$
4,510
$
5,848
$
(1,338
)
(22.8
)%
General and administrative expenses
$
4,430
$
7,253
$
(2,823
)
(38.9
)%
Other income
$
(49
)
$
(51
)
$
2
(3.9
)%
Operating loss
$
8,891
$
13,017
$
(4,126
)
(31.6
)%
Financial income, net
$
(31
)
$
(83
)
$
52
(62.6
)%
Income tax expenses
$
29
$
137
$
(108
)
(78.8
)%
Net loss
$
8,889
$
13,071
$
(4,182
)
(32.0
)%
Revenue
Revenues for the year ended December 31, 2022 were mainly attributable to pre-clinical R&D services provided under our previously terminated collaboration agreement. We did not recognize any revenue for the year ended December 31, 2023 due to the termination of the collaboration agreement, effective May 2, 2023.
Cost of Revenues
Cost of revenues for the year ended December 31, 2022 were mainly attributable to pre-clinical R&D services provided under our previously terminated collaboration agreement. The decrease in cost was due to the lack of revenue, as described above, for the year ended December 31, 2023.
Research and Development Expenses
Research and development expenses for the year ended December 31, 2023 were $4.5 million, as compared to $5.8 million for the year ended December 31, 2022. The decrease of $1.3 million was primarily due to a decrease of $1.5 million in pre-clinical activity and materials costs, a decrease of $0.6 million in employee compensation, including a one-time payment made to a former employee pursuant to the terms of his separation agreement. The decrease was partially offset by an increase of $0.8 million in clinical expenses for our Phase 1 PK study related to our new generation platform and new formulations for EB612 .
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2023 were $4.4 million, compared to $7.3 million for the year ended December 31, 2022. The decrease of $2.8 million was mainly attributable to a decrease of $1.1 million in employee compensation, including a one-time payment to our former employee pursuant to the terms of his separation agreement, a decrease of $0.8 million as part of a restructuring of professional fees and other advisor expenses, a decrease in Board fees of $0.2 million due to the Board’s forfeiture of their fees for the third and fourth quarters of 2023 and a decrease of $0.7 million in D&O insurance costs.
Financial Income, Net
Financial income, net for the year ended December 31, 2023 was $31,000, compared to $83,000 for the year ended December 31, 2022. Our financial income for 2023 was composed primarily of interest income from bank deposits and exchange rate differences of certain currencies against our functional currency, which is the U.S. Dollar.
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Liquidity and Capital Resources
Since inception, we have incurred significant losses. As a result of our recurring losses from operations, negative cash flows from operating activities and lack of liquidity, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of, and for the year ended, December 31, 2023, expressing the existence of substantial doubt about our ability to continue as a going concern. For the years ended December 31, 2023 and 2022, our operating losses were $8.9 million and $13.0 million, respectively. We expect to continue to incur significant expenses and losses for the next several years as we advance our products through development and provide administrative support for our operations. As of December 31, 2023, we had an accumulated deficit of $104.4 million. Since our inception, we have raised a total of $91.3 million, including $25.3 million through at-the-market-offering (“ATM”) programs, $6.6 million in our December 2023 Private Placement (as defined below), $14.3 million in our December 2019 private placement, $11.2 million in our IPO in 2018 and $33.9 million in aggregate funding from a combination of grants, exercise of options and warrants and private placements of Ordinary Shares, preferred shares and debt prior to our IPO. In addition, as of December 31, 2023, we had received approximately $1.7 million under our previously terminated collaboration agreement.
As of December 31, 2023, we had cash and cash equivalents of $11.0 million. Our primary uses of cash have been to fund research and development, general and administrative and working capital requirements, and we expect these will continue to be our primary uses of cash.
Equity Offerings
On September 2, 2022, we entered into a Sales Agreement with SVB Securities LLC, as sales agent, to implement an ATM program under which we may from time to time offer and sell up to 5,000,000 Ordinary Shares (the “SVB ATM Program”) under our currently effective Registration Statement on Form S-3 and a related prospectus supplement forming a part thereof. The sales agent is entitled to a fixed commission of 3% of the aggregate gross proceeds as well as and reimbursement of expenses. As of December 31, 2023, we had sold 4,030 shares under the SVB ATM Program for aggregate proceeds of $5 thousand, net of issuance costs.
On December 20, 2023, we entered into a securities purchase agreement with certain investors (the “Purchasers”), providing for the private placement (the “December 2023 Private Placement”) to the Purchasers of an aggregate of 7,916,879 units (collectively, the “Units”), each Unit consisting of (i) one Ordinary Share (or, in lieu thereof, one pre-funded warrant to purchase one Ordinary Share (the “Pre-Funded Warrants”)) and (ii) one warrant to purchase one Ordinary Share (the “Ordinary Share Warrant”), for aggregate proceeds of approximately $6.6 million (or $0.835 per Unit, which represented the aggregate of the Nasdaq closing price on December 20, 2023 plus $0.125 per Ordinary Share Warrant). The Private Placement was priced at the market under applicable Nasdaq rules and closed on December 22, 2023.
Each Ordinary Share Warrant has an exercise price of $1.00 per share (a premium of 41% to the closing price per Ordinary Share on Nasdaq on December 20, 2023), is immediately exercisable, and expires five years from the date of issuance, and is subject to customary adjustments for dividends, splits, combinations and fundamental transactions, such as a merger of the Company. None of the warrants contain any “ratchet”, “reset” or other adjustments related to financial antidilution.
If all Ordinary Share Warrants were exercised for cash, then the Company would receive additional proceeds of approximately $7.9 million. There can be no assurance that the holders of the Ordinary Share Warrants exercise their respective warrants for cash, or at all.
Funding Requirements
We believe that our existing cash resources will be sufficient to meet our projected operating requirements through the second quarter of 2025, which include the capital required to fund our ongoing operations, including R&D, the completion of the Phase 1 study related to the new generation platform and the GLP-2/OXM collaborative research we are conducting with OPKO. However, this does not include the capital required to fund our proposed Phase 3 pivotal study for EB613 in osteoporosis. We currently do not have funding sufficient for the pivotal phase 3 study, and our ability to commence the study will require additional funding, which may not be available on reasonable terms, or at all. Any delay or our inability to secure such funding will delay or prevent the commencement of these studies.
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We have based these estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development of our product candidates, and the extent to which we may enter into collaborations with third parties for development of these or other product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the development of our current and future product candidates. Our future capital requirements will depend on many factors, including:
● the costs, timing and outcome of clinical trials for, and regulatory review of our five oral peptide programs, including EB613 and EB612 and any other product candidates we may develop;
● the costs of development activities for any other product candidates we may pursue;
● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and
● our ability to establish collaborations on favorable terms, if at all.
We are in the process of evaluating various financing alternatives in the public or private equity markets or through license of our N-Tab™ technology to additional external parties through partnerships or research collaborations as we 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 our ability to obtain such funding.
Other than the SVB ATM Program, we do not have any committed external sources of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our then-existing shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that may adversely affect our existing shareholders’ rights as shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may include requirements to hold minimum levels of funding. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or collaborations, when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our oral PTH product candidates and any other product candidates that we would otherwise prefer to develop and market ourselves.
Our audited consolidated financial statements for the year ended December 31, 2023, included elsewhere in this Annual Report, note that there is substantial doubt about our ability to continue as a going concern as of such date; and in its report accompanying our audited consolidated financial statements included herein, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations and our cash outflows from operating activities raise substantial doubt as to our ability to continue as a going concern. This means that our management and our independent registered public accounting firm have expressed substantial doubt about our ability to continue our operations without an additional infusion of capital from external sources. The audited consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that may be necessary should we be unable to continue as a going concern. If we are unable to finance our operations, our business would be in jeopardy and we might not be able to continue operations and might have to liquidate our assets. In that case, investors might receive less than the value at which those assets are carried on our financial statements, and it is likely that investors would lose all or a part of their investment.
Cash Flows
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
The following table sets forth the primary sources and uses of cash for each of the periods set forth below:
(audited)
Year ended December 31,
2023
2022
(in thousands)
Net Cash used in operating activities
$
(7,310
)
$
(12,499
)
Net Cash used in investing activities
(17
)
(102
)
Net Cash provided by financing activities
6,036
13
Net decrease in cash and cash equivalents
$
(1,291
)
$
(12,588
)
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Net Cash Used in Operating Activities
Net Cash used in operating activities for the year ended December 31, 2023 was $ 7.3 million, consisting primarily of our operating loss of $8.9 million, and an increase of $ 0.2 million in our working capital which was partially offset by approximately $ 1.8 million of share-based compensation and depreciation expenses.
Net Cash used in operating activities for the year ended December 31, 2022 was $12.5 million, consisting primarily of our operating loss of $13.0 million and an increase of $1.8 million in our working capital, which was partially offset by approximately $2.3 million of share-based compensation and depreciation expenses.
The decrease of $ 5.2 million in cash used in operating activities for the year ended December 31, 2023 compared to the same period in 2022 was mainly attributed to a decrease of $ 4.1 million in our operating loss, a decrease of $ 1.6 million in working capital primarily due to payments to suppliers and services providers, which was partially offset by a decrease of $ 0.5 million in share-based compensation and depreciation expenses.
Net Cash Used in Investing Activities
Net Cash used in investing activities for the years ended December 31, 2023 and December 31, 2022 primarily consisted of purchase of property and equipment.
Net Cash Provided by Financing Activities
Net Cash provided by financing activities for the year ended December 31, 2023 primarily reflects net proceeds of $5.8 million from issuance of the Units in the December 2023 Private Placement.
Net Cash provided by financing activities for the year ended December 31, 2022 primarily reflects net proceeds of $13 thousand from the exercise of options to purchase Ordinary Shares.
Contractual Obligations
The following tables summarize our contractual obligations and commitments as of December 31, 2023 that will affect our future liquidity:
Payments due by period
Contractual Obligations
Total
Less than
1 year
1 - 3 years
3 - 5 years
More than
5 years
(In thousands)
Operating leases for facility
$
454
$
184
$
270
$
-
$
-
Total
$
454
$
184
$
270
$
-
$
-
Severance Obligations
We have long-term liabilities for severance pay that are calculated pursuant to Israeli law generally based on the most recent salary of the relevant employees multiplied by the number of years of employment to the extent not covered by our regular deposits with defined contribution plans. As of December 31, 2023, our severance pay liability, net was immaterial. Because the timing of any such payments is not fixed and determinable, we have not included these liabilities in the table above.
Contingencies
We also have obligations to make future payments to third parties that become due and payable on the achievement of certain milestones. We have not included these commitments in our statements of financial position or in the table above because the achievement and timing of these milestones is not fixed and determinable. These potential future commitments include a commitment to pay Oramed royalties equal to 3% of our net revenues pursuant to the terms of the Patent Transfer Agreement between us and Oramed and a commitment to pay royalties to the IIA.
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Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
While our significant accounting policies are more fully described in Note 2 to the consolidated financial statements included elsewhere in this Annual Report, we believe that the following accounting policies are the most critical to assist shareholders and investors reading the consolidated financial statements in fully understanding and evaluating our financial condition and results of operations. These policies relate to the more significant areas involving management’s judgments and estimates and they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of the matters that are inherently uncertain.
Share-Based Compensation
In 2013 and in 2018, we adopted share-based compensation plans for employees, directors and service providers. Our share-based compensation plan adopted in 2013 governs the issuance of equity incentive awards prior to our initial public offering, and the share-based compensation plan adopted in 2018 governs the issuance of equity incentive awards from and after the closing of our initial public offering. As part of the plans, we grant employees, directors and service providers, from time to time and at our discretion, options to purchase our Ordinary Shares and restricted share units. The fair value of the services received in exchange for the grant of the options is recognized as an expense in our statements of comprehensive loss with a corresponding adjustment to equity in our statements of financial position. The total amount is recognized as an expense ratably over the service period of the options, which is the period during which all vesting conditions are expected to be met.
We estimate the fair value of our share-based compensation to employees, directors and service providers using the Black-Scholes option pricing model, which requires the input of highly subjective assumptions, including (a) the expected volatility of our shares, (b) the expected term of the award, (c) the risk-free interest rate, (d) expected dividends and (e) the fair value of our Ordinary Shares at the date of grant.
The following table summarizes the allocation of our share-based compensation expense:
Year ended
December 31,
2023
2022
(in thousands)
Cost of revenues
$
-
$
14
Research and development
424
708
General and administrative
1,265
1,525
Total
$
1,689
$
2,247
Recently Issued Accounting Pronouncements
Certain recently issued accounting pronouncements are discussed in Note 2 to the consolidated financial statements included elsewhere in this Annual Report.