Tessera Defense & Homeland Security Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations References in this Quarterly Report to “the Company”, “BiomX”, “we”, “us” or “our”, mean BiomX Inc. and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise. References in this Quarterly Report to “BiomX Ltd.” mean BiomX Ltd., our wholly owned Israeli subsidiary. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. General We are a clinical company developing products using both natural and engineered phage technologies designed to target and destroy bacteria that affect the appearance of skin, as well as harmful bacteria in chronic diseases, such as inflammatory bowel disease, or IBD, Cystic Fibrosis, or CF, Atopic Dermatitis, or AD, primary sclerosing cholangitis, or PSC, and colorectal cancer, or CRC. Bacteriophage or phage are viruses that target bacteria and are considered inert to mammalian cells. By developing proprietary combinations of naturally occurring phage and by creating novel phage using synthetic biology, we develop phage-based therapies intended to address large-market and orphan diseases. Since inception in 2015, we have devoted substantially all our resources to organizing and staffing the company, raising capital, acquiring rights to or discovering product candidates, developing our technology platforms, securing related intellectual property rights, and conducting discovery, research and development activities for our product candidates. We do not have any products approved for sale, our products are still in the preclinical and clinical development stages, and we have not generated any revenue from product sales. As we move our product candidates from preclinical to clinical stage and continue with clinical trials, we expect our expenses to increase. Our phage-based product candidates are developed utilizing our proprietary research and development platform named BOLT. The BOLT platform is unique, employing cutting edge methodologies and capabilities across disciplines including computational biology, microbiology, synthetic engineering of phage and their production bacterial hosts, bioanalytical assay development, manufacturing and formulation, to allow agile and efficient development of natural or engineered phage combinations, or cocktails. BOLT is designed to allow parallel phage cocktail development under two optional paths: ● A personalized approach aimed at conducting a rapid initial clinical proof of concept study in patients (Phase 2 results) within approximately 12-18 months of project initiation. In certain indications the time to clinical proof of concept may be longer depending on the indication, identity of target bacteria, recruitment rate, cohort size and other factors. Under this path we develop an initial phage cocktail or cocktails of naturally-occurring phage designed to target the bacterial strains isolated from each study subject participating in the clinical proof of concept study. This phage cocktail or cocktails may differ from the final optimized phage cocktail to be commercialized, if approved. The ability to move quickly into clinical development is also driven by the strong safety profile of naturally-occurring phage, which we believe will allow us to bypass GLP toxicity studies and safety studies in healthy volunteers based on feedback from the FDA in connection with our IBD development program, and to proceed directly to Phase 2 proof of concept. 2 ● Development of the final optimized fixed phage cocktail to be commercialized – the optimized cocktail targets a broad patient population and may be comprised of naturally-occurring or synthetically engineered phage. The cocktail contains phage with complementary features and is further optimized for multiple characteristics such as broad target host range, ability to prevent resistance, biofilm penetration, stability and ease of manufacturing. Development of the optimized phage cocktail is anticipated to require 1-2 years and will be conducted in parallel to developing the personalized product candidates and executing the clinical proof of concept studies described above. Clinical and Pre-Clinical Developments On November 12, 2020, we announced consolidation of our IBD and PSC programs into a single broad host range product candidate, named BX003, under development for both indications. Prior to November 2020, we had two separate phage product candidates for IBD and for PSC, with our IBD product candidate named BX002 and PSC product candidate named BX003. After the consolidation, the current BX003 product candidate is now under development to treat both IBD and PSC, targeting bacterial strains of Klebsiella pneumoniae , or K. pneumoniae , a potential pathogen implicated in both diseases. Prior to the consolidation, our Phase 1a clinical study was conducted only on BX002, and future clinical studies are planned to be conducted on BX003 for both IBD and PSC. On February 2, 2021, we announced positive results of a randomized, single-blind, multiple-dose, placebo-controlled Phase 1a pharmacokinetic study of BX002, our product candidate for IBD and PSC, conducted under an investigational new drug, or IND, application submitted to the FDA. The study evaluated the safety and tolerability of orally administered BX002 in 18 healthy volunteers. Subjects were randomized to receive orally either BX002 or placebo, twice daily for three days. Subjects were monitored for safety for seven days in a clinical unit, with follow-up monitoring for safety assessments conducted at 14 and 28 days after completion of dosing. BX002 was demonstrated to be safe and well-tolerated, with no serious adverse events and no adverse events leading to discontinuation. In addition, the study met its objective of delivering high concentrations of viable phage to the gastrointestinal tract of approximately 10 10 PFU, or plaque forming units. This equals approximately 1,000 times more viable phage compared to the bacterial burden of K. pneumoniae in IBD and PSC patients as measured in stool. Based on the Phase 1a study results, we plan to advance to a Phase 1b/2a study evaluating the efficacy of BX003 for the reduction of K. pneumoniae in individuals that carry the target bacteria. Results from the Phase 1b/2a study are expected in the second quarter of 2022. On March 31, 2021, we announced the selection of the phage cocktail for BX004, our therapeutic phage product candidate under development for chronic respiratory infections caused by Pseudomonas aeruginosa, or P. aeruginosa, a main contributor to morbidity and mortality in patients with CF. Based on recommendations from the Cystic Fibrosis Therapeutic Development Network, we updated our Phase 2 proof-of-concept study design and timelines to a Phase 1b/2a trial in CF patients with chronic respiratory infections caused by P. aeruginosa. The Phase 1b/2a trial will be comprised of two parts. Part 1 will evaluate the safety, pharmacokinetics and microbiologic/clinical activity of BX004 in eight CF patients in a single ascending dose and multiple ascending dose design. Results from Part 1 are expected in the first quarter of 2022. Part 2 of the Phase 1b/2a trial will evaluate the safety and efficacy of BX004 in 21 CF patients randomized to a treatment or placebo cohort in a 2:1 ratio. Results from Part 2 are expected by the second quarter of 2022. 3 On March 31, 2021, we announced the selection of the phage cocktail for BX005, our topical phage product candidate targeting Staphylococcus aureus , or S. aureus , a bacterium associated with the development and exacerbation of inflammation in atopic dermatitis. By reducing S. aureus burden, BX005 is designed to shift the skin microbiome composition to its “pre-flare” state to potentially result in clinical improvement. Results from a Phase 2 proof-of-concept trial evaluating the safety and efficacy of BX005 in atopic dermatitis patients are expected in the first half of 2022. On May 24, 2021, we announced that we have completed enrollment of 140 patients under our Phase 2 cosmetic clinical study of BX001, a topical gel comprised of a cocktail of naturally-occurring phage targeting Cutibacterium acnes , or C. acnes , to improve the appearance of acne-prone skin in subjects with acne-prone skin. C. acnes are bacteria implicated in the pathophysiology of acne vulgaris. The study is a 12-week randomized, single center, double-blind, placebo-controlled trial with 140 individuals with mild-to-moderate acne vulgaris. Subjects enrolled are randomized into two cohorts: BX001 or placebo (vehicle) in a 1:1 ratio and will self-administer BX001 or placebo twice daily. The key endpoints will evaluate the safety, tolerability and efficacy of BX001. Full analysis of the 12-week study is expected to be available at end of October 2021. For our CRC program, we are exploring phage mediated delivery of therapeutic payloads to Fusobacterium nucleatum bacteria residing in the tumors of patients with colorectal cancer. Preclinical results from animal studies evaluating use of phage therapy in combination with checkpoint inhibitors are expected in the fourth quarter of 2021. For more information regarding our product candidates, see Part I, Item 1 “Business” of our 2020 Annual Report. COVID-19 On March 12, 2020, the World Health Organization declared COVID-19 a global pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries have imposed unprecedented restrictions on travel, mandatory business closures and other measures designed to mitigate the spread, leading to a substantial reduction in economic activities in countries around the world, resulting in certain disruptions to our business throughout 2020 and in 2021. In response to the pandemic, we have implemented the mandatory as well as recommended measures to safeguard the health and safety of our employees and clinical trial participants, and the continuity of our business operations, including social distancing in our offices, a work from home policy for all employees who are able to perform their duties remotely and restricting all nonessential travel, and we expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees, clinical trial participants and others in light of COVID-19. As of August 10, 2021, COVID-19 has not had a material impact on our results of operations. However, uncertainty remains as to the potential impact of COVID-19 on our future research and development activities and the potential for a material impact on the Company increases the longer the virus impacts certain aspects of economic activity around the world. The full extent to which COVID-19 will directly or indirectly impact our business, results of operations and financial condition, including our ability to fulfill our clinical trial enrollment needs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets, the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact on financial markets and the global economy, the effectiveness of vaccines and vaccine distribution efforts and the effectiveness of other actions taken in the United States and other countries to contain and treat the disease. During the second quarter of 2020, we updated our guidance on the timing of certain clinical milestones partly due to the health and safety precautions we had taken and challenges we continue to face in clinical trial enrollment due to COVID-19. It is not currently possible to predict how long the pandemic will last, what the long-term global effects will be, or the time that it will take for economic activity to return to pre-pandemic levels, and we do not yet know the full impact on our business and operations. We will continue to monitor COVID-19 closely and follow health and safety guidelines as they evolve. 4 Consolidated Results of Operations Comparison of the Three Months Ended June 30, 2021 and 2020 The following table summarizes our consolidated results of operations for the three months ended June 30, 2021 and 2020: Three Months ended June 30, 2021 2020 USD in thousands Research and development (“R&D”) expenses, net 3,824 3,717 Amortization of intangible assets 380 380 General and administrative expenses 3,098 2,297 Operating loss 7,302 6,394 Financial expense (income), net 31 (188 ) Loss before tax 7,333 6,206 Tax expenses 3 - Net loss 7,336 6,206 Basic and diluted loss per share of Common Stock 0.30 0.27 Weighted average number of shares of Common Stock outstanding, basic and diluted 24,320,259 22,969,075 R&D expenses, net (net of grants received from the Israel Innovation Authority, or the IIA, and considerations from research collaborations) were $3.8 million for the three months ended June 30, 2021, compared to $3.7 million for the three months ended June 30, 2020. The increase of $0.1 million, or 3%, is primarily due to increased expenses related to conducting pre-clinical and clinical trials of our product candidates and an increase in stock-based compensation and salaries and related expenses, mainly due to the growth in the number of employees in R&D and clinical activities, partially offset by an increase in IIA grants that were recorded during the period. The Company recorded $2.6 million and $0.5 million of IIA grants and grants receivables during the three months ended June 30, 2021 and June 30, 2020, respectively. General and administrative expenses were $3.1 million for the three months ended June 30, 2021, compared to $2.3 million for the three months ended June 30, 2020. The increase of $0.8 million, or 35%, is primarily due to an increase in stock-based compensation and salaries and related expenses, mainly due to the growth in the number of employees, due to an increase in expenses associated with operating as a public company, such as directors’ and officers’ insurance and due to expenses resulted from moving into new premises. Financial expense, net was $0.03 million for the three months ended June 30, 2021, compared to financial income, net of $0.2 million for the three months ended June 30, 2020. The increase in financial expense, net of $0.23 million, or 115%, is primarily due to the USD/NIS exchange rate differences and due to the decrease in interest rates on bank deposits and money market funds. Basic and diluted loss per share of Common Stock was $0.30 for the three months ended June 30, 2021, compared to $0.27 for the three months ended June 30, 2020. The increase in diluted loss per shares of $0.03, or 11%, is primarily due to the increase in our general and administrative expenses which resulted in a higher net loss. 5 Comparison of the Six Months Ended June 30, 2021 and 2020 The following table summarizes our consolidated results of operations for the six months ended June 30, 2021 and 2020: Six Months ended June 30, 2021 2020 USD in thousands R&D expenses, net 9,494 7,246 Amortization of intangible assets 759 759 General and administrative expenses 5,591 4,355 Operating loss 15,844 12,360 Financial income, net (112 ) (253 ) Loss before tax 15,732 12,107 Tax expenses 6 - Net loss 15,738 12,107 Basic and diluted loss per share of Common Stock 0.65 0.53 Weighted average number of shares of Common Stock outstanding, basic and diluted 24,134,065 22,944,482 Research and development expenses, net (net of IIA grants and consideration from research collaborations) were $9.5 million for the six months ended June 30, 2021, compared to $7.2 million for the six months ended June 30, 2020. The increase of $2.3 million, or 32%, is primarily due to expenses related to conducting pre-clinical and clinical trials of our product candidates and due to an increase in stock-based compensation and salaries and related expenses, mainly due to the growth in the number of employees in R&D and clinical activities, offset by an increase in IIA grants. The Company recorded $2.6 million and $0.5 million of IIA grants and grants receivables during the six months ended June 30, 2021 and June 30, 2020, respectively. General and administrative expenses were $5.6 million for the six months ended June 30, 2021, compared to $4.4 million for the six months ended June 30, 2020. The increase of $1.2 million, or 27%, is primarily due to an increase in stock-based compensation and salaries and related expenses, mainly due to the growth in the number of employees, due to an increase in expenses associated with operating as a public company, such as directors’ and officers’ insurance and due to expenses of moving into new premises. Financial income, net was $0.1 million for the six months ended June 30, 2021, compared to $0.3 million for the six months ended June 30, 2020. The decrease of $0.2 million, or 67%, is primarily due to the USD/NIS exchange rate differences and due to the decrease in interest rates on bank deposits and money market funds. Basic and diluted loss per share of Common Stock was $0.65 for the six months ended June 30, 2021, compared to $0.53 for the six months ended June 30, 2020. The decrease of $0.12, or 23%, is primarily due to the increase in our R&D expenses, net which resulted in a higher net loss. Liquidity and Capital Resources We believe our cash and cash equivalents on hand, including funds from the recently completed registered direct offering and the first tranche of the venture debt facility, will be sufficient to meet our working capital and capital expenditure requirements until at least the middle of 2023. In the future we will likely require or desire additional funds to support our operating expenses and capital requirements or for other purposes, such as acquisitions, and may seek to raise such additional funds through public or private equity, such as the registered direct offering discussed below or debt financings, loans such as the venture debt discussed below or collaborative agreements or from other sources, as well as under the ATM Agreement discussed below. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected. 6 Cash Flows The following table summarizes our sources and uses of cash for the six months ended June 30, 2021 and 2020: Six Months Ended June 30, 2021 2020 USD in thousands Net cash used in operating activities (12,799 ) (11,407 ) Net cash provided by (used in) investing activities 17,587 (856 ) Net cash provided by financing activities 5,236 83 Effect of exchange rate changes on cash and cash equivalents and restricted cash (11 ) - Net increase (decrease) in cash and cash equivalents 10,013 (12,180 ) Operating Activities Net cash used in operating activities for the six months ended June 30, 2021 was $12.8 million primarily due to a net loss of $15.7 million, offset by non-cash charges of $2.5 million and changes in our operating assets and liabilities of $0.4 million. Non-cash charges for the six months ended June 30, 2021 consisted primarily of depreciation and amortization expenses of $1.1 million and stock-based compensation expenses in the amount of $1.6 million, offset by changes in contingent considerations of $0.2 million. Net changes in our operating assets and liabilities consisted primarily due to change in other current assets in the amount of $0.9 million, partially offset by a decrease in accounts payable of $0.3 million and a decrease in net change in operating leases of $0.2 million. Net cash used in operating activities for the six months ended June 30, 2020 was $11.4 million primarily due to a net loss of $12.1 million and changes in our operating assets and liabilities of $1.4 million, offset by non-cash charges of $2.1 million. Non-cash charges for the six months ended June 30, 2020 consisted primarily of depreciation and amortization expenses of $1.0 million and stock-based compensation expenses of $1.0 million. Net changes in our operating assets and liabilities were primarily due to a change in other current assets of $1.2 million, partially offset by a decrease in accounts payable of $2.6 million. Investing Activities During the six months ended June 30, 2021, net cash provided by investing activities was $17.6 million, primarily as a result of liquidation of short-term deposits, partially offset by purchases of property and equipment which consisted primarily of leasehold improvements and lab equipment as part of construction work on our new in-house manufacturing facility, laboratories and offices. During the six months ended June 30, 2020, net cash used in investing activities was $0.9 million, primarily as a result of an increase in bank deposits and purchases of property and equipment. We have invested, and plan to continue to invest, our existing cash in short-term investments in accordance with our investment policy. These investments may include money market funds and investment securities consisting of U.S. Treasury notes, and high quality, marketable debt instruments of corporations and government sponsored enterprises. We use foreign exchange contracts (mainly option and forward contracts) to hedge balance sheet items from currency exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, we record gains or losses that offset the revaluation of the balance sheet items under financial expenses, net in our condensed consolidated statements of operations. As of June 30, 2021, we had outstanding foreign exchange contracts in the amount of approximately $4.0 million. As of June 30, 2020, we had no outstanding foreign exchange contracts. Financing Activities During the six months ended June 30, 2021, net cash provided by financing activities was $5.2 million, primarily from issuance of Common Stock pursuant to the Open Market Sales Agreement referred to below. In December 2020, pursuant to a registration statement on Form S-3 declared effective by the Securities and Exchange Commission on December 11, 2020, we entered into an Open Market Sales Agreement, or the ATM Agreement, with Jefferies LLC, or Jefferies, which provides that, upon the terms and subject to the conditions and limitations in the ATM Agreement, we may elect, from time to time, to offer and sell shares of Common Stock having an aggregate offering price of up to $50,000,000 through Jefferies acting as sales agent. We are not obligated to make any sales of Common Stock under the ATM Agreement. From January 1, 2021 through June 30, 2021, we issued an aggregate of 734,164 shares of Common Stock under the ATM Agreement for aggregate gross proceeds of $5,293,016. From July 1, 2021 through August 10, 2021, we issued an aggregate of 9,800 shares of Common Stock pursuant to the ATM Agreement for aggregate gross proceeds of $55,103. We may continue to sell shares under the ATM Agreement and otherwise to use our shelf registration statement to raise additional funds from time to time. During the six months ended June 30, 2020 net cash provided by financing activities was $0.1 million, mainly as a result of exercise of stock options of $0.2 million offset by outflows in connection with the Recapitalization Transaction of $0.1 million. 7 On July 28, 2021, we completed a transaction under a securities purchase agreement, or the Securities Purchase Agreement, with certain institutional investors and all of our directors and certain of our executive officers, or, collectively, the Investors, pursuant to which we issued and sold, in a registered direct offering, or the Offering, directly to the Investors an aggregate of 3,750,000 units, with each unit consisting of one share of our shares of Common Stock, and one warrant to purchase 0.75 of a share of Common Stock, at a purchase price of $4.00 per unit. The net proceeds from the Offering amounted to $13.9 million, after the deduction of fees and Offering expenses and assuming no exercise of the warrants. The warrants will be exercisable six months after the date of issuance, at an exercise price of $5.00 per share and will expire five years from the date such warrants first become exercisable. The warrants will not be listed on the NYSE American Stock Market or any other exchange and no trading market for the warrants is expected to develop. The Securities Purchase Agreement contains customary representations, warranties and agreements by us. Additionally, in August 2021, we entered into a loan and security agreement, or the Hercules Loan Agreement, with Hercules Capital, Inc., or Hercules, pursuant to which a term loan in an aggregate principal amount up to $30.0 million, or the Term Loan, is available to us in three tranches. We expect to receive $14.6 million, net of $0.4 million of closing charges, promptly after signing the agreement on August 16, 2021 and, subject to certain conditions, two additional tranches of $10 million and $5 million will be available to us. See Item 5 . of Part II of this Quarterly Report for more information regarding the Hercules Loan Agreement, which is incorporated herein by reference. Outlook We have accumulated a deficit of $88.0 million since our inception. To date, we have not generated revenue from our operations and we do not expect to generate any significant revenues from sales of products in the next twelve months. Our cash needs may increase in the foreseeable future. We expect to generate revenues, from the sale of licenses to use our technology or products, but in the short and medium terms any amounts generated are unlikely to exceed our costs of operations. According to our estimates, our liquidity resources as of June 30, 2021, which consisted primarily of cash, cash equivalents and restricted cash of approximately $47.3 million together with the net proceeds from the Offering and the first tranche of the Loan, will be sufficient to fund our operations into at least middle of 2023. Consistent with our continuing R&D activities, we expect to continue to incur additional losses in the foreseeable future. To the extent we require funds above our existing liquidity resources in the medium and long term, we plan to fund our operations, as well as other development activities relating to additional product candidates, through future issuances of public or private equity or debt securities, including under our ATM Agreement, loans, including the Loan and possibly additional grants from the IIA or other government or non-profit institutions. Our ability to raise additional capital in the equity and debt markets is dependent on a number of factors including, but not limited to, the market demand for our securities, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that we would be able to raise such additional capital at a price or on terms that are favorable to us. 8 Off-Balance Sheet Arrangements As of June 30, 2021, we did not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. We entered into forward and option contracts to hedge against the risk of overall changes in future cash flow from payments of salaries and related expenses, as well as other expenses denominated in NIS, for a period of less than one year. As of June 30, 2021, we had outstanding foreign exchange contracts in the amount of approximately $4.0 million. As of June 30, 2020, we had no outstanding foreign exchange contracts. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, we are not required to make disclosures under this Item.