Exhibit 3
OPERATING AND FINANCIAL REVIEW
You should read the following discussion of our operating and financial condition and prospects in conjunction with the financial statements and the notes thereto included elsewhere in this 6-K, as well as in our Annual Report on Form 20-F filed on March 22, 2012.
U.S. dollar amounts herein (other than amounts that were originally receivable or payable in dollars) have been translated for the convenience of the reader from the original NIS amounts at the representative rate of exchange as of June 30, 2012 ($1 = NIS 3.923). The dollar amounts presented should not be construed as representing amounts that are receivable or payable in dollars or convertible into dollars, unless otherwise indicated.
Forward Looking Statements
The following discussion contains “forward-looking statements”, including statements regarding expectations, beliefs, intentions or strategies for the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms including “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions, and are subject to risks and uncertainties. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.
Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:
· | the initiation, timing, progress and results of our preclinical studies, clinical trials, and other therapeutic candidate development efforts; |
· | our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinical studies or clinical trials; |
· | our receipt of regulatory approvals for our therapeutic candidates, and the timing of other regulatory filings and approvals; |
· | the clinical development, commercialization, and market acceptance of our therapeutic candidates; |
· | our ability to establish and maintain corporate collaborations; |
· | the interpretation of the properties and characteristics of our therapeutic candidates and of the results obtained with our therapeutic candidates in preclinical studies or clinical trials; |
· | the implementation of our business model, strategic plans for our business and therapeutic candidates; |
· | the scope of protection we are able to establish and maintain for intellectual property rights covering our therapeutic candidates and our ability to operate our business without infringing the intellectual property rights of others; |
· | estimates of our expenses, future revenues, capital requirements and our needs for additional financing; |
· | competitive companies, technologies and our industry; and |
· | statements as to the impact of the political and security situation in Israel on our business. |
Overview
We are a clinical stage biopharmaceutical development company dedicated to identifying, in-licensing and developing therapeutic candidates that have advantages over currently available therapies or address unmet medical needs. Our current development pipeline consists of five clinical therapeutic candidates: BL-1020, BL-1021, BL-1040, BL-5010 and BL-7040. In addition, we have nine therapeutic candidates in pre-clinical development. We generate our pipeline by systematically identifying, rigorously validating and in-licensing therapeutic candidates that we believe exhibit a relatively high probability of therapeutic and commercial success. We also operate, with substantial financial support of the Office of the Chief Scientist of the Israeli Ministry of Trade and Industry (OCS), a biotechnology incubator to evaluate therapeutic candidates. As of June 30, 2012, we have received approximately NIS 52.0 million ($13.3 million) of grants in the form of loans from the OCS to operate the incubator, which does not include an additional NIS 21.6 million ($5.5 million) of grants we have received from the OCS outside of the incubator agreement as of that date. Such amounts include loans equal to approximately NIS 34.0 million ($8.7 million) for terminated programs. We are not required to repay loans for terminated programs. Our strategy includes commercializing our therapeutic candidates through out-licensing arrangements with biotechnology and pharmaceutical companies and evaluating, on a case by case basis, the commercialization of our therapeutic candidates independently.
The following is a description of our five clinical therapeutic candidates:
· | BL-1020 is an orally available drug in development for the treatment of schizophrenia. In September 2009, we announced positive topline results from the phase 2b EAGLE trial of BL-1020. In June 2011, we commenced the phase 2/3 CLARITY trial of BL-1020, which is currently being carried out at clinical sites in Romania and India. |
· | BL-1040 is a novel resorbable polymer solution for use in the prevention of cardiac remodeling that may occur in patients who have suffered an acute myocardial infarction, or AMI. BL-1040 is being developed as a medical device. In March 2010, we announced positive results from a phase 1/2 clinical trial. We have entered into an exclusive, worldwide, royalty-bearing out-licensing arrangement with Ikaria Inc., or Ikaria, with respect to the development, manufacture and commercialization of BL-1040. In December 2011, Ikaria commenced PRESERVATION 1, a CE Mark registration clinical trial of BL-1040 (now called by Ikaria “Bioabsorbable Cardiac Matrix,” or BCM). |
· | BL-5010 is a novel therapeutic candidate for the non-surgical removal of skin lesions. In December 2010, we announced positive results from a phase 1/2 clinical trial of BL-5010. BL-5010 has received European confirmation from the British Standards Institution Notified Body (BSI) in the UK, of the regulatory pathway classification as a Class IIa medical device. We are currently in the process of developing a unique applicator for BL-5010. |
· | BL-7040 is an orally available synthetic oligonucleotide which we intend to develop for the treatment of IBD. We recently commenced a phase 2 study to evaluate the effectiveness of BL-7040 for the treatment of IBD at four sites in Israel. |
· | BL-1021 is a new chemical entity in development for the treatment of neuropathic pain. In December 2011, we completed a phase 1a clinical trial to assess safety, tolerability and pharmacokinetics of a single administration of BL-1021 at doses between 10 mg and 80 mg in healthy volunteers. Study results demonstrated that a single administration of BL-1021 in the dose range examined was safe and well tolerated, with no significant changes noted in vital signs, ECG or laboratory safety parameters at any dose when compared either to baseline measurements or to the placebo group. In addition, preliminary modeling of the pharmacokinetic data collected in this trial predicts that a once daily administration of BL-1021 at the dose levels assessed will enable reaching effective doses in patients. We are currently evaluating various alternatives with this therapeutic candidate from a clinical and business perspective, including potential development collaborations with other parties, as well as focusing on a more specific therapeutic indication within the general area of neuropathic pain. |
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In 2009, we entered into an exclusive, worldwide, royalty-bearing licensing arrangement with Ikaria. Under the agreement, we granted Ikaria an exclusive, worldwide license to develop, manufacture and commercialize BL-1040 for use in the prevention, mitigation and treatment of injuries to the myocardial tissue of the heart. Under the arrangement, Ikaria is obligated to use commercially reasonable efforts to complete clinical development of, and to commercialize, BL-1040 or products related thereto. We received an upfront payment of $7.0 million upon the execution of the license agreement. Upon successful completion of the phase 1/2 clinical trial, Ikaria paid us a milestone payment of $10.0 million in March 2010, and we are entitled to receive additional milestone and royalty payments upon the occurrence of certain events.
In June 2010, we entered into an exclusive, royalty-bearing out-licensing arrangement with Cypress Bioscience with regard to BL-1020, covering the United States, Canada and Mexico, which became effective in August 2010. We received an upfront fee of $30.0 million from Cypress Bioscience upon the effectiveness of the agreement. In May 2011, following the acquisition of Cypress Bioscience by Royalty Pharma earlier in the year, we reacquired all of the rights to develop and commercialize BL-1020 from Cypress Bioscience and currently hold full global rights to the product. We are continuing to develop BL-1020, and commenced the phase 2/3 CLARITY trial in June 2011, which is currently being carried out at clinical sites in Romania and India. Concurrent with the conduct of the trial and in accordance with our business strategy, we have continued to hold discussion with potential out-licensing partners for the further development and commercialization of BL-1020 at its more advanced stages.
We have funded our operations primarily through the sale of equity securities (both in private placements and in three public offerings on the TASE), funding received from the OCS, payments received under the licensing arrangements with Ikaria and Cypress Bioscience, and interest earned on investments. We expect to continue to fund our operations over the next several years through our existing cash resources, potential future milestone payments that we expect to receive from Ikaria, interest earned on our investments and additional capital to be raised through public or private equity offerings or debt financings. As of June 30, 2012, we held approximately $30.6 million of cash, cash equivalents and short-term bank deposits, based on the exchange rate reported by the Bank of Israel as of June 30, 2012.
Recent Company Developments
Patent Protection
In April 2012, we announced that an issue notification was received from the United States Patent and Trademark Office (USPTO) granting 1,787 days of patent term adjustment for the patent claiming the composition of BCM (BL-1040). Accordingly, the term of this patent will now extend through at least April 2029.
In June 2012, we announced that two notices of allowance had been issued by the USPTO for BL-1021. The first was issued for a patent application claiming BL-1021’s composition that, when issued, will be valid until at least September 2022. The other notice of allowance was for a patent application claiming the use of BL-1021 for the treatment of pain that, when issued, will be valid until at least January 2028.
In July 2012, we announced that we had received from the European Patent Office a notice of intention to grant a European patent claiming the salt of BL-1020.
Addition and Termination of Therapeutic Candidates
As part of our business strategy, we continue to actively source, rigorously evaluate and in-license selected therapeutic candidates. In line with our business strategy, during the period beginning April 1, 2012 through the date of this announcement we also terminated two projects at their early pre-clinical stages (BL-6020 and BL-7050) due to lack of efficacy or other scientific considerations. BL-6020 was intended to treat cancer cachexia, and BL-7050 was intended to treat neuropathic pain. BL-7050 is being transferred to our Early Development Program (EDP) for further work on lead molecule selection.
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Revenues
Our revenues to date have been generated primarily from milestone payments under our licensing arrangements with Ikaria and the amounts we have received to date from Cypress Bioscience. We entered into a license and collaboration agreement with Ikaria in July 2009, which was amended and restated in August 2009. Ikaria subsequently paid us an up-front payment of $7.0 million. In addition, upon successful completion of the phase 1/2 clinical trial, Ikaria paid us a milestone payment of $10.0 million, which was subject to a 15% withholding tax in the United States. We received a full refund of the tax withheld from the U.S. Internal Revenue Service in the third quarter of 2011. In June 2010, we entered into a license agreement with Cypress Bioscience. Under the terms of the license agreement, we received an upfront fee of $30.0 million. The license agreement with Cypress Bioscience was terminated, effective as of May 31, 2011.
Under the terms of our agreement with Ikaria, in addition to the payments mentioned above, the maximum future development-related payments to which we are entitled is $115.5 million. We are also entitled to maximum commercialization milestone payments of $150.0 million, subject to the terms and conditions of the license agreement. Certain payments we have received from Ikaria have been subject to a 15% withholding tax in the United States, and certain payments we may receive in the future, if at all, may also be subject to a 15% withholding tax in the United States. Receipt of any milestone payment under the Ikaria agreement depends on many factors, some of which are beyond our control. We cannot assure you that we will receive any of these future payments. We believe that we may be entitled to a refund of withholding taxes paid in connection with future payments from the U.S. government but there can be no assurance that we will be able to obtain such a refund. In addition, we may be able to use U.S. taxes withheld from future payments to us as credits against Israeli corporate income tax when we have income, if at all, but there can be no assurance that we will be able to realize the credits. Our payments to our in-licensors are to be made from the net consideration received from our out-licensees.
We expect our revenues for the next several years to be derived primarily from payments under our current agreement with Ikaria, as well as additional collaborations that we may enter into in the future, including with regard to BL-1020, BL-1021, BL-5010, BL-7040 or other therapeutic candidates. Furthermore, we may receive future royalties on product sales, if any, under our agreement with Ikaria, as well as under any future agreement relating to BL-1020, BL-1021, BL-5010, BL-7040 or other compounds.
Research and Development
Our research and development expenses consist primarily of salaries and related personnel expenses, fees paid to external service providers, up-front and milestone payments under our license agreements, patent-related legal fees, costs of preclinical studies and clinical trials, drug and laboratory supplies and costs for facilities and equipment. We primarily use external service providers to manufacture our product candidates for clinical trials and for the majority of our preclinical and clinical development work. We charge all research and development expenses to operations as they are incurred. We expect our research and development expense to remain our primary expense in the near future as we continue to develop our therapeutic candidates.
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The following table identifies our current major research and development projects:
Project | Status | Expected or Recent Near Term Milestone |
BL-1020 | Phase 2/3 CLARITY trial | CLARITY study results – second half of 2013 |
BL-1040 | CE registration pivotal trial | PRESERVATION 1 study results – 2013 |
BL-5010 | Completed phase 1/2 | Completion of unique applicator prototype by end of 2012; commencement of pivotal CE Mark registration trial in first half of 2013 |
BL-7040 | Phase 2a trial | Study results - end of 2012/early 2013 |
BL-1021 | Completed phase 1a | Phase 1b multiple ascending dose study |
We recently reassessed the expected completion date of the phase 2/3 CLARITY trial in light of the receipt of lower-than-expected study enrollment data in both Romania and India and, as noted above, have updated the study completion date to the second half of 2013.
In addition to the projects set forth above, the following table identifies our current portfolio of projects that are in the preclinical stages of development. Such projects have significantly lower costs due to their stage of development.
Project | Description | Indication | Status |
BL-8020 | Small molecule | Hepatitis C | Preclinical studies |
BL-7010 | Polymer | Celiac disease | Preclinical studies |
BL-6030/1 | Small molecule | Bacterial infection | Preclinical studies |
BL-5040 | Protein | Cachexia | Preclinical studies |
BL-6040 | Small molecule | Rheumatoid arthritis | Preclinical studies |
BL-7020 | Protein | Psoriasis | Preclinical studies |
BL-7060/EDP 29 | Peptide | Acute myocardial infarction | Preclinical studies |
BL-8010/EDP30 | Peptide | Retinopathy | Preclinical studies |
BL-8030 | Small molecule | Hepatitis C | Preclinical studies |
We recently decided to perform additional detailed analyses to further evaluate potential additional lead molecules related to the BL-7060 and BL-8010 projects licensed from Compugen Ltd. The evaluation of these additional molecules is being funded within the framework of our EDP program.
Set forth below is a summary of the gross direct costs allocated to our main projects on an individual basis, as well as the gross direct costs allocated to our less significant projects on an aggregate basis, for the years ended December 31, 2009, 2010 and 2011; for the six months ended June 30, 2012; and on an aggregate basis since project inception. Certain of such costs are covered by OCS funding, although OCS funds received have not been deducted from the direct project costs in the table.
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Year Ended December 31, | Six Months Ended June 30, | Total Costs Since Project | ||||||||||||||||||
2009 | 2010 | 2011 | 2012 | Inception | ||||||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||||||
BL-1020 | 11,820 | 450 | 2,765 | 3,253 | 47,363 | |||||||||||||||
BL-1040 | 2,050 | 167 | 3 | - | 10,227 | |||||||||||||||
BL-5010 | 860 | 384 | 94 | 63 | 2,067 | |||||||||||||||
BL-1021 | 1,010 | 924 | 466 | 28 | 7,087 | |||||||||||||||
BL-7040 | - | - | 465 | 230 | 695 | |||||||||||||||
Other projects | 1,240 | 1,704 | 3,262 | 1,977 | 23,861 | |||||||||||||||
Total gross direct project costs (1) | 16,980 | 3,629 | 7,055 | 5,551 | 91,300 |
(1) | Does not include indirect project costs and overhead, including payroll and related expenses (including stock-based compensation), facilities, depreciation and impairment of intellectual property, which are included in total research and development expenses in our financial statements. Certain of such costs are also covered by OCS funding. |
As indicated in the above table, a significant portion of our research and development costs have been incurred in connection with our BL-1020 project. We expect to continue to incur significant additional costs on the BL-1020 project through 2013, as a result of the phase 2/3 CLARITY study that we are currently conducting.
From our inception through June 30, 2012, we have incurred research and development expense of approximately NIS 481.5 million ($122.7 million). We expect that a large percentage of our research and development expense in the future will be incurred in support of our current and future preclinical and clinical development projects. Due to the inherently unpredictable nature of preclinical and clinical development processes and given the early stage of our preclinical product development projects, we are unable to estimate with any certainty the costs we will incur in the continued development of the therapeutic candidates in our pipeline for potential commercialization. Clinical development timelines, the probability of success and development costs can differ materially from expectations. We expect to continue to test our product candidates in preclinical studies for toxicology, safety and efficacy, and to conduct additional clinical trials for each product candidate. If we are not able to enter into an out-licensing arrangement with respect to any therapeutic candidate prior to the commencement of later stage clinical trials, we may fund the trials for the therapeutic candidate ourselves.
While we are currently focused on advancing each of our product development projects, our future research and development expenses will depend on the clinical success of each therapeutic candidate, as well as ongoing assessments of each therapeutic candidate’s commercial potential. In addition, we cannot forecast with any degree of certainty which therapeutic candidates may be subject to future out-licensing arrangements, when such out-licensing arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain therapeutic candidates or projects in order to focus our resources on more promising therapeutic candidates or projects. Completion of clinical trials by us or our licensees may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a therapeutic candidate.
The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:
· | the number of sites included in the clinical trials; |
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· | the length of time required to enroll suitable patients; |
· | the number of patients that participate in the clinical trials; |
· | the duration of patient follow-up; |
· | whether the patients require hospitalization or can be treated on an out-patient basis; |
· | the development stage of the therapeutic candidate; and |
· | the efficacy and safety profile of the therapeutic candidate. |
We expect our research and development expenses to remain our most significant cost as we continue the advancement of our clinical trials and preclinical product development projects and place significant emphasis on in-licensing new product candidates. The lengthy process of completing clinical trials and seeking regulatory approval for our product candidates requires expenditure of substantial resources. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Due to the factors set forth above, we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of compensation for employees in business development and marketing functions. Other significant sales and marketing costs include costs for marketing and communication materials, professional fees for outside market research and consulting, legal services related to partnering transactions and travel costs.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for employees in executive and operational functions, including accounting, finance, legal, investor relations, information technology and human resources. Other significant general and administration costs include facilities costs, professional fees for outside accounting and legal services, travel costs, insurance premiums and depreciation.
Financial Expense and Income
Financial expense and income consists of interest earned on our cash, cash equivalents and short-term bank deposits; bank fees and other transactional costs; and expense or income resulting from fluctuations of the dollar and other currencies, in which a portion of our assets and liabilities are denominated, against the NIS (our functional currency).
Non-Operating Expense and Income
Non-operating expense and income includes fair-value adjustments of derivative liabilities on account of the warrants issued in the private placement which we conducted in February 2012. These fair-value adjustments are highly influenced by our share price at each period end (revaluation date). In addition, non-operating expense and income includes the pro-rata share of issuance expenses from the private placement related to the warrants.
Significant Accounting Policies and Estimates
We describe our significant accounting policies more fully in Note 2 to our consolidated financial statements for the year ended December 31, 2011.
The discussion and analysis of our financial condition and results of operations is based on our financial statements, which we prepare in accordance with IFRS. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, 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, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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Results of Operations – Overview
Revenues
We did not record any revenues during each of the six-month periods ended June 30, 2012 and 2011.
Cost of revenues
We did not record any cost of revenues during each of the six-month periods ended June 30, 2012 and 2011.
Research and development expenses
At December 31, 2010, our drug development pipeline consisted of 10 therapeutic candidates. During 2011, we added six new compounds to our pipeline, and discontinued the development of one compound from the pipeline, so that our drug development pipeline as of December 31, 2011 consisted of 15 therapeutic candidates. During the first six months of 2012, we added three new compounds to our pipeline and discontinued the development of two compounds from the pipeline, so that our drug development pipeline as of June 30, 2012 consisted of 16 therapeutic candidates. Subsequent to June 30, 2012, we discontinued the development of two additional compounds from the pipeline, so that our drug development pipeline as of the date of this report consists of 14 therapeutic candidates.
Operating Results Comparison between Periods
Revenues and cost of revenues
See discussion under “Results of Operations - Overview” above.
Research and development expenses
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
2011 | 2012 | Increase (decrease) | 2011 | 2012 | Increase (decrease) | |||||||||||||||||||
(in thousands of NIS) | ||||||||||||||||||||||||
Research and development expenses, net | 10,405 | 16,000 | 5,595 | 16,789 | 30,675 | 13,886 |
Comparison of three-month periods ending June 30, 2012 and 2011
Research and development expenses for the three months ended June 30, 2012 were NIS 16.0 million ($4.1million), an increase of NIS 5.6 million ($1.4 million), or 54%, compared to NIS 10.4 million ($2.7 million) for the three months ended June 30, 2011. The increase resulted primarily from expenses associated with the CLARITY clinical trial in respect of BL-1020, which commenced at the end of June 2011.
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Comparison of six-month periods ending June 30, 2012 and 2011
Research and development expenses for the six months ended June 30, 2012 were NIS 30.7 million ($7.8 million), an increase of NIS 13.9 million ($3.5 million), or 83%, compared to NIS 16.8 million ($4.3 million) for the six months ended June 30, 2011. The increase resulted primarily from expenses associated with the CLARITY clinical trial in respect of BL-1020, as well as a ramp-up in spending on several new projects introduced during the second half of 2011 and the first six months of 2012.
Sales and marketing expenses
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
2011 | 2012 | Increase (decrease) | 2011 | 2012 | Increase (decrease) | |||||||||||||||||||
(in thousands of NIS) | ||||||||||||||||||||||||
Sales and marketing expenses | 1,323 | 948 | (375 | ) | 2,073 | 1,714 | (359 | ) |
Comparison of three-month periods ending June 30, 2012 and 2011
Sales and marketing expenses for the three months ended June 30, 2012 were NIS 1.0 million ($0.2 million), a decrease of NIS 0.4 million ($0.1 million), or 28%, compared to NIS 1.3 million ($0.3 million) for the three months ended June 30, 2011. The decrease resulted primarily from efficiencies realized this year due to the reorganization of our business development team, including the relocation of our business development activities back to Israel, as well as professional services incurred in the three-month period last year related to the reacquisition of the rights to BL-1020 from Cypress Bioscience.
Comparison of six-month periods ending June 30, 2012 and 2011
Sales and marketing expenses for the six months ended June 30, 2012 were NIS 1.7 million ($0.4 million), a decrease of NIS 0.4 million ($0.1 million), or 17%, compared to NIS 2.1 million ($0.5 million) for the six months ended June 30, 2011. The reasons for the decrease are similar to those discussed above in the three-month comparison.
General and administrative expenses
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
2011 | 2012 | Increase (decrease) | 2011 | 2012 | Increase (decrease) | |||||||||||||||||||
(in thousands of NIS) | ||||||||||||||||||||||||
General and administrative expenses | 3,348 | 2,956 | (392 | ) | 6,274 | 6,481 | 207 |
Comparison of three-month periods ending June 30, 2012 and 2011
General and administrative expenses for the three months ended June 30, 2012 were NIS 2.9 million ($0.8 million), a decrease of NIS 0.4 million ($0.1 million), or 12%, compared to NIS 3.3 million ($0.9 million) for the three months ended June 30, 2011. The decrease resulted primarily from one-time professional services incurred in the three-month period last year associated with our initial listing on NASDAQ in July 2011.
Comparison of six-month periods ending June 30, 2012 and 2011
General and administrative expenses for the six months ended June 30, 2012 were NIS 6.5 million ($1.7 million), an increase of NIS 0.2 million ($0.1 million), or 3%, compared to NIS 6.3 million ($1.6 million) for the six months ended June 30, 2011. The small increase resulted primarily from ongoing professional services and travel expenses associated with our being listed on NASDAQ, partially offset by the one-time professional services discussed above in the three-month comparison.
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Non-operating income, net
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
2011 | 2012 | Increase (decrease) | 2011 | 2012 | Increase (decrease) | |||||||||||||||||||
(in thousands of NIS) | ||||||||||||||||||||||||
Non-operating income, net | 0 | 2,712 | 2,712 | 0 | 5,531 | 5,531 |
Comparison of three-month periods ending June 30, 2012 and 2011
Non-operating income for the three months ended June 30, 2012 results from a NIS 2.7 million ($0.7 million) fair-value adjustment of derivative liabilities on account of the warrants issued in the private placement which we conducted in February 2012.
Comparison of six-month periods ending June 30, 2012 and 2011
Non-operating income for the six months ended June 30, 2012 results from a NIS 6.7 million ($1.7 million) fair-value adjustment of derivative liabilities on account of the warrants issued in the private placement which we conducted in February 2012, offset by issuance expenses in the amount of NIS 1.2 million ($0.3 million) from the private placement related to the warrants.
Financial income (expenses), net
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
2011 | 2012 | Increase (decrease) | 2011 | 2012 | Increase (decrease) | |||||||||||||||||||
(in thousands of NIS) | ||||||||||||||||||||||||
Financial income | 637 | 6,050 | 5,413 | 1,820 | 6,496 | 4,676 | ||||||||||||||||||
Financial expenses | (1,965 | ) | (172 | ) | 1,793 | (4,732 | ) | (2,403 | ) | 2,329 | ||||||||||||||
Net financial income (expenses) | (1,328 | ) | 5,878 | 7,206 | (2,912 | ) | 4,093 | 7,005 |
Comparison of three-month periods ending June 30, 2012 and 2011
We recognized net financial income of NIS 5.9 million ($1.5 million) for the three months ended June 30, 2012, a change of NIS 7.2 million ($1.8 million), compared to net financial expenses of NIS 1.3 million ($0.3 million) for the three months ended June 30, 2011. The change in net financial income resulted primarily from an increase in the average exchange rate of foreign currencies in relation to the NIS during the three months ended June 30, 2012, which had a positive effect on our net assets denominated in such foreign currencies during that period.
Comparison of six-month periods ending June 30, 2012 and 2011
We recognized net financial income of NIS 4.1 million ($1.0 million) for the six months ended June 30, 2012, a change of NIS 7.0 million ($1.8 million), compared to net financial expenses of NIS 3.0 million ($0.8 million) for the six months ended June 30, 2011. The reasons for the change in net financial income are similar to those discussed above in the three-month comparison.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through public (in Israel) and private offerings of our equity securities, grants and loans from the OCS, and payments received under our strategic licensing arrangements. At June 30, 2012, we held approximately NIS 119.9 million ($30.6 million) in cash, cash equivalents and short-term bank deposits.
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Net cash used in operating activities was NIS 36.4 million ($9.3 million) for the six months ended June 30, 2012, compared with net cash used in operating activities of NIS 21.3 million ($5.4 million) for the six months ended June 30, 2011. The NIS 15.1 million ($3.9 million) increase in net cash used in operating activities during the six-month period in 2012, compared to the six-month period in 2011, was primarily the result of increased research and development spending.
Net cash provided by investing activities for the six months ended June 30, 2012 was NIS 9.9 million ($2.5 million), compared to net cash used in investing activities of NIS 52.0 million ($13.2 million) for the six months ended June 30, 2011. The cash flows provided by investing activities relate primarily to a net increase in the amount of our short-term bank deposits that matured during the period.
Net cash provided by financing activities for the six months ended June 30, 2012 was NIS 52.3 million ($13.3 million), compared to an insignificant amount of net cash used in financing activities for the six months ended June 30, 2011. This increase relates to the private placement completed in February 2012.
Developing drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. Although we believe our existing cash resources will be sufficient to fund our approved operating plan into the first quarter of 2014, we will require significant additional financing in the future to fund our operations. Our future capital requirements will depend on many factors, including:
· | the progress and costs of our preclinical studies, clinical trials and other research and development activities; |
· | the scope, prioritization and number of our clinical trials and other research and development programs; |
· | the amount of revenues we receive under our collaboration or licensing arrangements; |
· | the costs of the development and expansion of our operational infrastructure; |
· | the costs and timing of obtaining regulatory approval of our therapeutic candidates; |
· | the ability of our collaborators to achieve development milestones, marketing approval and other events or developments under our collaboration agreements; |
· | the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; |
· | the costs and timing of securing manufacturing arrangements for clinical or commercial production; |
· | the costs of establishing sales and marketing capabilities or contracting with third parties to provide these capabilities for us; |
· | the costs of acquiring or undertaking development and commercialization efforts for any future product candidates; |
· | the magnitude of our general and administrative expenses; |
· | any cost that we may incur under current and future licensing arrangements relating to our therapeutic candidates; and |
· | payments to the OCS. |
Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through payments received under our collaborations, debt or equity financings, or by out-licensing other product candidates. We cannot be certain that additional funding will be available to us on acceptable terms, or at all.
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If funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or our commercialization efforts.
Off-Balance Sheet Arrangements
Since inception, we have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
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