Pluri Inc. 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our shares of common stock trade on the Nasdaq Capital Market and the Tel Aviv Stock Exchange under the symbol PSTI. As of September 4, 2020, there were 101 holders of record, and 25,554,668 shares of our common stock were issued and outstanding. American Stock Transfer and Trust Company, LLC is the registrar and transfer agent for our common shares. Their address is 6201 15th Avenue, 2nd Floor, Brooklyn, NY 11219, telephone: (718) 921-8300, (800) 937-5449. Item 6. Selected Financial Data Not applicable. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. - We are a leading developer of placenta-based cell therapy product candidates for the treatment of multiple ischemic, inflammatory and hematologic conditions. Our operations are focused on the research, development, manufacturing, conducting clinical trials and business development of cell therapeutics and related technologies. We are currently enrolling patients in two Phase III studies: one for CLI and another for muscle recovery following surgery for hip fracture. In addition, we are focusing on other indications such as ARS, incomplete recovery following bone marrow transplantation, Steroid-Refractory cGVHD and IC. We received clearance from the FDA and the PEI to conduct a Phase II study evaluating PLX cells for the treatment of severe cases of the COVID-19 complicated by ARDS. We have treated several patients in Israel and in the United States suffering from severe ARDS associated with COVID-19 under a compassionate use program. In addition, the FDA has cleared our EAP for the use of our PLX-PAD cells to treat up to 100 patients suffering from ARDS caused by COVID-19 outside of our ongoing Phase II COVID-19 study in the U.S. We believe that each of these indications is a severe unmet medical need. 37 PLX cells are derived from a class of placental cells that are harvested from donated placenta at the time of full term healthy delivery of a baby. PLX cell products require no tissue or blood matching prior to administration. They are produced using our proprietary three-dimensional expansion technology. Our manufacturing facility complies with the European, Japanese, Israeli, South Korean and the FDA’s cGMP requirements and has been inspected and approved by the European and Israeli regulators for production of PLX-PAD for late stage trials. We have also granted manufacturer/importer authorization and cGMP Certification by Israel’s Ministry of Health. If we obtain FDA and other regulatory approvals to market PLX cells, we expect to have in-house production capacity to grow PLX cells in commercial quantities. See “ – Research and Development - In-House Clinical Manufacturing” for additional information. Our goal is to make significant progress with our clinical pipeline and our clinical trials in order to ultimately bring innovative, potent therapies to patients who need new treatment options. We expect to demonstrate a real-world impact and value from our pipeline, technology platform and commercial-scale manufacturing capacity. Our business model for commercialization and revenue generation includes, but is not limited to, direct sale of our products, partnerships, licensing deals, and joint ventures with pharmaceutical companies. We were incorporated in Nevada in 2001, and we have a wholly owned subsidiary in Israel called Pluristem Ltd. and a wholly owned subsidiary in Germany called Pluristem GmbH. RESULTS OF OPERATIONS – YEAR ENDED JUNE 30, 2020 COMPARED TO YEAR ENDED JUNE 30, 2019. Revenues Revenues for the year ended June 30, 2020 were $23,000 and revenues for the year ended June 30, 2019 were $54,000. All revenues in the years ended June 30, 2020 and June 30, 2019 were related to the sale of our PLX cells for research use. Cost of Revenues Cost of revenues for the year ended June 30, 2019 were $2,000 compared to no cost of revenues for the year ended June 30, 2020. All cost of revenues are related to the royalties we are obligated to pay to the IIA. Research and Development, Net Research and development net costs (costs less participation and grants by the IIA, Horizon 2020 and other parties) for the year ended June 30, 2020 decreased by 18% to $21,577,000 from $26,427,000 for the year ended June 30, 2019. The decrease is mainly attributed to (1) our increasingly efficient production activities that resulted in a decrease in materials consumption, (2) a decrease in payroll expenses related to a decrease in the average number of employees and temporary salary deductions during April and May 2020 (as part of our expense reduction strategy due to COVID-19), (3) a decrease in stock-based compensation expenses related to the amount of restricted stock units, or RSUs, granted and their vesting schedules, (4) a decrease in expenses related to clinical site initiation and (5) a decrease in rent expenses due to the implementation of Accounting Standards Update No. 2016-02, “Leases,” which resulted in a reduction of $160,000 (for further information please refer to Note 7 in the accompanying financial statements to this Annual Report). The decrease was partially offset by lower participation by the European Union with respect to the Horizon 2020 grants, which was primarily utilized in the first year of the projects, and a lower participation by the IIA due to a decrease in the grant obtained in calendar year 2020 compared to calendar year 2019 and to calendar year 2018. 38 General and Administrative General and administrative expenses decreased by 13% from $9,157,000 for the year ended June 30, 2019 to $7,922,000 for the year ended June 30, 2020. This decrease is attributed to a decrease in stock-based compensation expenses related to the amount of RSUs granted and their vesting schedules, a decrease in payroll expenses related to a 25% reduction of the annual salary of our CEO and, a 25% reduction of the annual compensation of our Executive Chairman and temporary salary deductions during April and May 2020 (as part of our expense reduction strategy due to COVID-19). The decrease was partially offset by an increase in professional services expenses related to the EIB Agreement. Financial Income, Net Financial income increased from $225,000 for the year ended June 30, 2019 to $324,000 for the year ended June 30, 2020. This increase is mainly attributable to increased income from exchange rates related to the strength of the U.S. dollar against the NIS and changes in the fair value of our hedging instruments related to the strength of the U.S. dollar against the NIS, partially offset by financial expense from the implementation of Accounting Standards Update No. 2016-02, “Leases,” which resulted in an expense of $261,000 (for further information please refer to Note 7 in the accompanying financial statements to this Annual Report). Net Loss Net loss for the year ended June 30, 2020 was $29,152,000 as compared to a net loss of $35,307,000 for the year ended June 30, 2019. The changes were mainly due to a decrease in research and development expenses, net, and a decrease in general and administrative expenses, net for the reasons mentioned above. Net loss per share for the year ended June 30, 2020 was $1.60 per share, as compared to $2.90 per share for the year ended June 30, 2019. The net loss per share decreased mainly as a result of an increase in our weighted average number of shares due to the issuance of additional shares issued during fiscal year 2020, and by a decrease in the net loss. Liquidity and Capital Resources As of June 30, 2020, our total current assets were $48,461,000 and our total current liabilities were $7,987,000. On June 30, 2020, we had a working capital surplus of $40,474,000 and an accumulated deficit of $280,156,000. As of June 30, 2019, our total current assets were $26,371,000 and our total current liabilities were $8,158,000. On June 30, 2019, we had a working capital surplus of $18,213,000 and an accumulated deficit of $251,004,000. Our cash and cash equivalents and restricted cash as of June 30, 2020 amounted to $9,229,000. This is a decrease of $4,043,000 from the $5,186,000 reported as of June 30, 2019. Cash balances decreased in the year ended June 30, 2020 for the reasons presented below. Operating activities used cash of $26,369,000 in the year ended June 30, 2020. Cash used by operating activities in the year ended June 30, 2020 primarily consisted of payments to subcontractors, suppliers, and professional services providers primarily related to our ongoing clinical trials and payments of salaries to our employees, offset by participation of the IIA, Horizon 2020 and other grants. Investing activities used cash of $30,458,000 in the year ended June 30, 2020. The investing activities in the year ended June 30, 2020 consisted primarily of cash used for investment in short-term deposits of $17,949,000, investment in long-term deposits of $12,239,000 and payments of $270,000 related to investments in property and equipment. 39 Financing activities generated cash in the amount of $60,870,000 during the year ended June 30, 2020. The cash generated in the year ended June 30, 2020 from financing activities is related to net proceeds of $43,262,000 from issuing shares of our common stock under our Sales Agreement (defined below), net proceeds of $14,901,000 from issuing shares of our common stock in a registered direct offering in May 2020 and net proceeds of $2,707,000 from issuing shares of our common stock from the exercise of warrants. On February 6, 2019, we entered into an Open Market Sales Agreement SM , or the Sales Agreement, with Jefferies LLC, or Jefferies, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $50,000,000 from time to time through Jefferies. We are not obligated to make any sales of common stock under the Sales Agreement. From February 6, 2019 through June 30, 2020, we sold an aggregate of 8,297,750 shares of common stock pursuant to the Sales Agreement for aggregate gross proceeds of $ 49,140,965. On June 30, 2020, our shelf registration on Form S-3 declared effective by the SEC on June 23, 2017 expired, and as a result thereof, the parties stopped utilizing the Sales Agreement. On July 16, 2020, we entered into a new Open Market Sales Agreement SM , or the 2020 Sales Agreement, with Jefferies, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $75,000,000 from time to time through Jefferies. Upon entering into the 2020 Sales Agreement, we filed a new shelf registration statement on Form S-3, which was declared effective by the SEC on July 23, 2020. In the year ended June 30, 2020, warrants to purchase up to 386,678 shares from our April 2019 firm commitment public offering, or the 2019 Public Offering, were exercised by investors at an exercise price of $7.00 per share, resulting in the issuance of 386,678 shares of common stock for net proceeds of approximately $2,707,000. On May 5, 2020, we entered into a securities purchase agreement with two institutional investors, or the Investors, pursuant to which we sold, in a registered direct offering to the Investors, 1,587,302 shares of common stock for net proceeds of approximately $14,901. On April 30, 2020, we and our Israeli subsidiary, Pluristem Ltd., and our German subsidiary, Pluristem GmbH, entered into the EIB Agreement with the EIB, pursuant to which we can obtain a loan in the amount of Euro 50 million, or the Loan, payable in tranches, subject to the achievement of certain clinical, regulatory and scale up milestones. Each of the Company and Pluristem Ltd. are guarantors under the Finance Contract. The Loan is not secured and will be disbursed in three tranches consisting of one tranche of Euro 20 million, or the First Tranche, a second tranche of Euro 18 million, or the Second Tranche, and a third tranche of Euro12 million, or the Third Tranche, each as may be requested by us, subject to the achievement of clinical, regulatory and scale up milestones. The tranches will be treated independently, each with its own interest rate and maturity period. The fixed interest rate is 0% per annum for the First Tranche and 1.00% for each of the Second Tranche and Third Tranche. The deferred interest rate is 4% per annum for the First Tranche, 3% for the Second Tranche and 2% for the Third Tranche. We are required to repay the First Tranche and the Second Tranche, with all other amounts owed thereunder, in a single installment on the maturity date of that tranche, following the five-year anniversaries from each of the First Tranche and the Second Tranche disbursements. We are required to repay the Third Tranche, with all other amounts owed thereunder, in two equal installments, with the first such payment following the fourth anniversary of the disbursement date and the last repayment on a date not later than five years from the disbursement date. To date, we have not yet received a disbursement pursuant to the EIB Agreement. During the year ended June 30, 2020, we received cash of approximately $23,000 from third parties from the sale of our PLX cells for research use. Our cash and cash equivalents and restricted cash as of June 30, 2019 amounted to $5,186,000. This is a decrease of $4,701,000 from the $9,887,000 reported as of June 30, 2018. Cash balances decreased in the year ended June 30, 2019 for the reasons presented below. 40 Operating activities used cash of $29,453,000 in the year ended June 30, 2019. Cash used by operating activities in the year ended June 30, 2019 primarily consisted of payments to subcontractors, suppliers, and professional services providers primarily related to our ongoing Phase III clinical trials and payments of salaries to our employees, offset by participation of the IIA, Horizon 2020 and other grants. Investing activities provided cash of $1,170,000 in the year ended June 30, 2019. The investing activities in the year ended June 30, 2019 consisted primarily of cash provided from repayment of short term deposits of $1,415,000, offset by payments of $239,000 related to investments in property and equipment and Investment in restricted bank deposits of $6,000. Financing activities generated cash in the amount of $23,582,000 during the year ended June 30, 2019. The cash generated in the year ended June 30, 2019 from financing activities is related to net proceeds, after deducting underwriting commissions and discounts, and other offering expenses, of $19,464,000 from issuing shares of our common stock in the Public Offering and Registered Direct Offering (as defined below), aggregate net proceeds of $4,003,000 from issuing shares of our common stock under our (1) At Market Sales Agreement, or the ATM Agreement, with FBR Capital Markets & Co., MLV & Co. LLC and Oppenheimer & Co. Inc., and (2) the Sales Agreement, proceeds of $107,000 related to a grant received from the Israel-United States Binational Industrial Research and Development Foundation and net proceeds of $8,000 from the exercise of options. In July 2017, we entered into the ATM Agreement with FBR Capital Markets & Co., MLV & Co. LLC and Oppenheimer & Co. Inc., each an Agent, which provided that, upon the terms and subject to the conditions and limitations set forth in the ATM Agreement, we could elect, from time to time, to issue and sell shares of common stock having an aggregate offering price of up to $80,000,000 through any of the Agents. We were not obligated to make any sales of common stock under the ATM Agreement. From July 2017 through February 4, 2019, we sold an aggregate of 530,541 shares of common stock pursuant to the ATM Agreement at an average price of $13.70 per share. On February 4, 2019, we notified the Agents of the termination of the ATM Agreement. From February 6, 2019 through June 30, 2019, we sold an aggregate of 236,800 shares of common stock pursuant to the Sales Agreement at an average price of $9.70 per share. On April 8, 2019, we sold, pursuant to an underwriting agreement relating to the 2019 Public Offering, an aggregate of 2,857,143 shares of common stock and warrants to purchase up to 2,857,143 shares of common stock, inclusive of the underwriter’s over-allotment option which was exercised in full, for aggregate gross proceeds of $20,000,000. The warrants issued in the Public Offering are exercisable for a period of five years from issuance and have an exercise price of $7.00 per share. In addition, on April 8, 2019, we sold, pursuant to a subscription agreement with a certain investor in a registered direct offering, or the Registered Direct Offering, 142,857 shares of common stock, for aggregate gross proceeds of $1,000,000. The net proceeds from the Public Offering and the Registered Direct Offering, after deducting underwriting commissions and discounts, and other offering expenses, were $19,464,000. During the year ended June 30, 2019, we received cash of approximately $54,000 from third parties from the sale of our PLX cells for research use. During the years ended June 30, 2020 and 2019, we received total cash grants of approximately $1,227,000 and $1,374,000, respectively, from the European Union research and development consortiums relating to the Horizon 2020 program. Non-dilutive grants The IIA has supported our activity during the past 14 years. Our last program was approved by the IIA in 2019 and relates to a grant of approximately $500,000. The grant was used to cover research and development expenses for the period January 1, 2019 to December 31, 2019. 41 According to the IIA grant terms, we are required to pay royalties at a rate of 3% on sales of products and services derived from technology developed using this and other IIA grants until 100% of the dollar-linked grants amount plus interest are repaid. In the absence of such sales, no payment is required. During the year ended June 30, 2020, no royalties were paid to the IIA. The IIA may impose certain conditions on any arrangement under which the IIA permits the Company to transfer technology or development out of Israel or outsource manufacturing out of Israel. While the grant is given to the Company over a certain period of time (usually a year), the requirements and restrictions under the Israeli Law for the Encouragement of Industrial Research and Development, 1984 continue and do not have a set expiration period, except for the royalties, which requirement to pay them expires after payment in full. In May 2020, we were selected as a member of the CRISPR-IL consortium, a group funded by the IIA. CRISPR-IL brings together the leading experts in life science and computer science from academia, medicine, and industry, to develop AI based end-to-end genome-editing solutions. CRISPR-IL is funded by the IIA with a total budget of approximately $10,000,000 of which, an amount of approximately $480,000 is a direct grant allocated to us, for a period of 18 months, with a potential for extension of an additional 18 months and additional budget from the IIA. CRISPR-IL participants include leading companies, and medical and academic institutions. In July 2018, we were awarded a marketing grant of approximately $52,000 under the “Shalav” program of the Israeli Ministry of Economy and Industry. The grant is intended to facilitate certain marketing and business development activities with respect to our advanced cell therapy products in the U.S. market. In July 2017, we were awarded an additional Smart Money grant of approximately $229,000 from Israel’s Ministry of Economy. The Israeli government granted us budget resources that we intend to use to advance our product candidate towards marketing in China-Hong Kong markets. We will also receive close support from Israel’s trade representatives stationed in China, including Hong Kong, along with experts appointed by the Smart Money program. In August 2016, our CLI program in the European Union was awarded a Euro 7,600,000 (approximately $8,500,000) grant. The grant is part of the European Union’s Horizon 2020 program. The Phase III study of PLX-PAD in CLI will be a collaborative project carried out by an international consortium led by the Berlin-Brandenburg Center for Regenerative Therapies together with the Company and with participation of additional third parties. The grant will cover a significant portion of the CLI program costs. An amount of Euro 1,900,000 (approximately $2,100,000) is a direct grant allocated to us, and the Company also expects to benefit from cost savings resulting from grant amounts allocated to the other consortium members. In July 2017, the consortium amended the consortium agreement, pursuant to which the original grant allocation was amended such that we will receive an additional direct grant of Euro 1,000,000 (approximately $1,100,000). The additional direct grant was allocated to us from the total amount of the original grant. In September 2017, our Phase III study of PLX-PAD cell therapy in the treatment of muscle injury following surgery for hip fracture was awarded a Euro 7,400,000 (approximately $8,300,000) grant, as part of the European Union’s Horizon 2020 program. This Phase III study will be a collaborative project carried out by an international consortium led by Charité, together with us, and with participation of additional third parties. The grant will cover a significant portion of the project costs. An amount of Euro 2,550,000 (approximately $2,900,000) is a direct grant allocated to us for manufacturing and other costs, and we also expect to have a direct benefit from cost savings resulting from grant amounts allocated to the other consortium members. In October 2017, the nTRACK, a collaborative project carried out by an international consortium led by Leitat was awarded a Euro 6,800,000 (approximately $7,600,000) non-royalty bearing grant. An amount of Euro 500,000 (approximately $560,000) is a direct grant allocated to us. We also expect to benefit from cost savings resulting from grant amounts allocated to the other consortium members. 42 Outlook We have accumulated a deficit of $280,156,000 since our inception in May 2001. 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 will unlikely exceed our costs of operations. We may be required to obtain additional liquidity resources in order to support the commercialization of our products and maintain our research and development and clinical trials activities. We are continually looking for sources of funding, including non-diluting sources such as the EIB Financing, the IIA grants, the European Union grant and other research grants, collaboration with other companies and sales of our common stock. We believe that we have sufficient cash to fund our operations for at least the next 12 months. Application of Critical Accounting Policies Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing in this Annual Report. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations. The discussion and analysis of our financial condition and results of operations is based on our financial statements, which we prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Stock-Based Compensation Stock-based compensation is considered a critical accounting policy due to the significant expenses of RSUs which were granted to our employees, directors and consultants. In fiscal year 2020, we recorded stock-based compensation expenses related to options, restricted stock and RSUs in the amount of $2,561,000. In accordance with ASC 718, “Compensation-Stock Compensation”, or ASC 718, RSUs granted to employees and directors are measured at their fair value on the grant date. All RSUs granted in fiscal years 2020 and 2019 were granted for no consideration; therefore their fair value was equal to the share price at the date of grant, based on the close trading price of our shares known at the grant date. The RSUs granted in fiscal year 2019 to non-employees consultants were remeasured in any future vesting period for the unvested portion of the grants. The RSUs granted in fiscal year 2020 to non-employees consultants were measured at their fair value on the grant date in accordance with ASU No. 2018-07 - “Compensation—Stock Compensation” The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in our consolidated statements of operations. We have graded vesting based on the accelerated method over the requisite service period of each of the awards. The expected pre-vesting forfeiture rate affects the number of the shares. Based on our historical experience, the pre-vesting forfeiture rate per grant is 7% for the shares granted to employees and 0% for the shares granted to our directors, CEO, Executive Chairman and non-employee consultants. 43 Research and Development Expenses, Net We expect our research and development expenses to remain our primary expense in the near future as we continue to develop our product candidates. Our research and development expenses consist primarily of clinical trials expenses, consultant and subcontractor expenses, payroll and related expenses, lab material expenses, stock-based compensation expenses, rent and maintenance expenses and patent expenses. The following table provides a breakdown of the related costs for fiscal years 2018 through 2020 (in thousands of dollars): Year ended June 30, 2020 2019 2018 Payroll and related expenses $ 8,478 $ 9,752 $ 9,915 Materials expenses 2,821 5,871 4,521 Clinical trials expenses 6,021 5,774 4,370 Depreciation expenses 1,453 1,841 1,893 Consultants and subcontractor expenses 1,351 2,028 1,469 Rent and maintenance expenses 1,227 1,473 1,429 Stock-based compensation expenses 556 1,616 1,423 Patent expenses 528 482 426 Other Research and development expenses 661 1,045 925 Total expenses 23,096 29,882 26,371 Less: Research and development participation grants (1,519 ) (3,455 ) (3,742 ) Research and development expenses, net $ 21,576 $ 26,427 $ 22,629 We invest heavily in research and development. Research and development expenses, net, were our major operating expenses, representing 73%, 74% and 67% of the total operating expenses for each of our fiscal years 2020, 2019 and 2018, respectively. We expect that in the upcoming years our research and development expenses, net, will continue to be our major operating expense. Contractual Obligations The following summarizes our contractual obligations and other commitments on June 30, 2020, and the effect such obligations could have on our liquidity and cash flow in future periods: Payments due by period Contractual Obligations Total Less than 1 year 1-3 years 3-5 years More than 5 years Operating lease obligations $ 1,706,000 $ 1,123,000 $ 563,000 $ 20 - Accrued severance pay, net $ 248,000 - - - $ 248,000 Total $ 1,954,000 $ 1,123,000 $ 563,000 $ 20 $ 248,000 Off Balance Sheet Arrangements We have no off balance sheet arrangements.