Israel | 4 Bruria St. Tel Aviv, Israel 6745442 Tel: +972 3 7177050 | |
(Jurisdiction of incorporation or organization) | (Address of principal executive offices) |
Title of each class to be registered | Trading Symbol(s) | Name of each exchange on which each class is to be registered | ||
Ordinary shares, par value NIS 0.03 per share | PRFX | The Nasdaq Stock Market LLC |
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | ||||
Emerging Growth Company ☒ |
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
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PART I | ||
4 | ||
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4 | ||
A. | Selected Financial Data | 4 |
B. | Capitalization and Indebtedness | 5 |
C. | Reasons for the Offer and Use of Proceeds | 5 |
D. | Risk Factors | 5 |
35 | ||
A. | History and Development of the Company | 35 |
B. | Business Overview | 36 |
C. | Organizational Structure | 53 |
D. | Property, Plants and Equipment | 53 |
53 | ||
53 | ||
A. | Operating Results | 56 |
B. | Liquidity and Capital Resources | 58 |
C. | Research and Development, Patents and Licenses | 61 |
D. | Trend Information | 61 |
E. | Off-Balance Sheet Arrangements | 61 |
F. | Tabular Disclosure of Contractual Obligations | 61 |
62 | ||
A. | Directors and Senior Management | 62 |
B. | Compensation | 64 |
C. | Board Practices | 67 |
D. | Employees | 81 |
E. | Share Ownership | 81 |
82 | ||
A. | Major Shareholders | 82 |
B. | Related Party Transactions | 83 |
C. | Interests of Experts and Counsel | 84 |
84 | ||
A. | Statements and Other Financial Information | 84 |
B. | Significant Changes | 85 |
85 | ||
A. | Offer and Listing Details | 85 |
B. | Plan of Distribution | 85 |
C. | Markets | 85 |
D. | Selling Shareholders | 85 |
E. | Dilution | 85 |
F. | Expenses of the Issue | 85 |
85 | ||
A. | Share Capital | 85 |
B. | Articles of Association | 85 |
C. | Material Contracts | 86 |
D. | Exchange Controls | 86 |
E. | Taxation | 86 |
F. | Dividends and Paying Agents | 96 |
G. | Statement by Experts | 96 |
H. | Documents on Display | 96 |
I. | Subsidiary Information | 96 |
96 | ||
97 | ||
A. | Debt Securities | 97 |
B. | Warrants and rights | 97 |
C. | Other Securities | 97 |
D. | American Depositary Shares | 97 |
97 | ||
PART II | ||
97 | ||
97 | ||
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PART III | ||
100 | ||
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101 | ||
102 |
• | not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; and |
• | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis). |
● | our history of significant losses, our need to raise additional capital and our ability to obtain additional capital on acceptable terms, or at all; |
● | our dependence on the success of our initial product candidate, PRF-110; |
● | the outcomes of preclinical studies, clinical trials and other research regarding PRF-110 and future product candidates; |
● | the impact of the COVID-19 pandemic on our operations; |
● | our limited experience managing clinical trials; |
● | our ability to retain key personnel and recruit additional employees; |
● | our reliance on third parties for the conduct of clinical trials, product manufacturing and development; |
● | the impact of competition and new technologies; |
● | our ability to comply with regulatory requirements relating to the development and marketing of our product candidates; |
● | commercial success and market acceptance of our product candidates; |
● | our ability to establish sales and marketing capabilities or enter into agreements with third parties and our reliance on third party distributors and resellers; |
● | our ability to establish and maintain strategic partnerships and other corporate collaborations; |
● | the implementation of our business model and strategic plans for our business and product candidates; |
● | the scope of protection we are able to establish and maintain for intellectual property rights and our ability to operate our business without infringing the intellectual property rights of others; |
● | the overall global economic environment; |
● | our ability to develop an active trading market for our ordinary shares and whether the market price of our ordinary shares is volatile; |
● | statements as to the impact of the political and security situation in Israel on our business; and |
● | those factors referred to in “Item 3.D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects”, as well as in this Annual Report on Form 20-F generally. |
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
ITEM 3. | KEY INFORMATION |
A. | Selected Financial Data |
Year ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Operating expenses: | ||||||||||||
Research and development | (354,000 | ) | (136,000 | ) | (223,000 | ) | ||||||
Selling, general and administrative | (1,317,000 | ) | (553,000 | ) | (277,000 | ) | ||||||
Operating loss for the period | (1,671,000 | ) | (689,000 | ) | (500,000 | ) | ||||||
Financial expenses, net: | (2,162,000 | ) | (590,000 | ) | (328,000 | ) | ||||||
Loss before taxes | (3,833,000 | ) | (1,279,000 | ) | (828,000 | ) | ||||||
Tax expenses | (220,000 | ) | - | - | ||||||||
Comprehensive loss | (4,053,000 | ) | (1,279,000 | ) | (828,000 | ) | ||||||
Loss per ordinary share, basic and diluted | (1.25 | ) | (4.17 | ) | (3.24 | ) |
Weighted average number of shares of ordinary share used in computing basic and diluted net loss per share | 3,243,943 | 576,556 | 576,556 |
December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Cash and cash equivalents | 15,677,000 | 941,000 | 40,000 | |||||||||
Restricted cash | �� | 13,000 | 6,000 | 6,000 | ||||||||
Prepaid clinical trial expenses and deferred clinical trial costs | 1,294,000 | - | - | |||||||||
Prepaid expenses and other current assets | 807,000 | 25,000 | 34,000 | |||||||||
Total current assets | 17,791,000 | 972,000 | 80,000 | |||||||||
Property and equipment, net | 10,000 | - | - | |||||||||
Other non-current asset | - | 192,000 | - | |||||||||
Total current liabilities | 961,000 | 6,339,000 | 18,000 | |||||||||
Convertible debt | - | - | 4,520,000 | |||||||||
Provision for tax benefits | 220,000 | - | - | |||||||||
Derivative warrant liability | - | 447,000 | - | |||||||||
Temporary equity | - | 6,621,000 | 6,621,000 | |||||||||
Shareholders’ equity (deficit) | 16,620,000 | (12,243,000 | ) | (11,078,000 | ) |
B. | Capitalization and Indebtedness |
C. | Reasons for the Offer and Use of Proceeds |
D. | Risk Factors |
● | We have incurred significant losses since our inception and expect to incur losses for the foreseeable future. We may never achieve or maintain profitability; |
● | Our limited operating history may make it difficult for you to assess our future viability. We have never generated revenues and may never be profitable; |
● | We will need substantial additional funding, which may not be available to us on acceptable terms or at all. If we are unable to raise capital when needed, we may be forced to delay, reduce and/or eliminate our research and drug development programs or future commercialization efforts; |
● | We are dependent on the success of our initial product candidate, PRF-110, for which two clinical trials are planned. Our clinical trials of PRF-110 may not be successful. If we are unable to obtain approval for and commercialize PRF-110 or experience significant delays in doing so, our business will be materially harmed; |
● | The COVID-19 pandemic may adversely affect our development efforts including the planned clinical trials for PRF-110; |
● | We have not yet commercialized any products or technologies, and we may never become profitable; |
● | The loss of the services of our key personnel would negatively affect our business; |
● | If we are unable to successfully complete our clinical trial programs for PRF-110, or if such clinical trials take longer to complete than we project, our ability to execute our current business strategy will be adversely affected; |
● | We have limited experience in conducting and managing clinical trials necessary to obtain regulatory approvals. If our drug candidates and technologies do not receive the necessary regulatory approvals, we will be unable to commercialize our products; |
● | If third parties on which we will have to rely for clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our products; |
● | Even if we or our collaborative/strategic partners or potential collaborative/strategic partners receive approval to market our drug candidates, if our products fail to achieve market acceptance, we will never record meaningful revenues; |
● | If the third parties upon whom we rely to manufacture our products do not successfully manufacture our products, our business will be harmed; |
● | If our competitors develop and market products that are less expensive or more effective than our product, our revenues and results may be harmed and our commercial opportunities may be reduced or eliminated; |
● | Significant interruptions in our access to certain key inputs such as raw materials and drug products may impair our business; |
● | We may not be able to successfully identify and execute strategic alliances or other relationships with third parties or to successfully manage the impacts of acquisitions, dispositions or relationships on our operations. |
● | We are subject to risks relating to intellectual property rights and risks of infringement; |
● | If we are unable to maintain patent protection for our products, our competitors could develop and commercialize products and technology similar or identical to our product candidates, and our ability to successfully commercialize any product candidates we may develop, and our science may be adversely affected; |
● | Obtaining and maintaining our patent protection depends on compliance with various procedural measures, document submissions, fee payments and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements; |
● | Conditions in the Middle East and in Israel may harm our operations; |
● | Your rights and responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the rights and responsibilities of shareholders of U.S. companies. |
● | Our international clinical trials may be delayed or otherwise adversely impacted by social, political and economic factors affecting the particular foreign country; |
● | Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our shareholders have limited protections against interested director transactions, conflicts of interest and similar matters; |
● | We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our ordinary shares less attractive to investors; |
● | We incur increased costs as a result of operating as a public company listed on a U.S. national securities exchange and our management will be required to devote substantial time to new compliance initiatives; |
● | We have only initially commenced evaluating whether our existing internal control over financial reporting is effectively operating , and we cannot provide any assurance that there are no material weaknesses or significant deficiencies in our existing internal controls; |
● | Because certain of our directors and executive officers are among our largest shareholders, they can exert significant control over our business and affairs and have actual or potential interests that may depart from investors; |
● | U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes; |
● | The market price of our ordinary shares may be highly volatile, which could result in substantial losses for holders of our ordinary shares; |
● | initiate and manage clinical trials for PRF-110; |
● | seek regulatory approvals; |
● | implement internal systems and infrastructures; |
● | hire management and other personnel; and |
● | progress PRF-110 towards commercialization. |
● | the scope, progress, results and costs of our current and future clinical trials of PRF-110 for our current targeted uses; |
● | the costs, timing and outcome of regulatory review of PRF-110; |
● | the extent to which we acquire or invest in businesses, products and technologies, including entering into or maintaining licensing or collaboration arrangements for PRF-110 on favorable terms, although we currently have no commitments or agreements to complete any such transactions; |
● | the costs and timing of future commercialization activities, including drug sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval, to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time; |
● | the amount of revenue, if any, received from commercial sales of PRF-110, should it receive marketing approval; |
● | the costs of preparing, filing and prosecuting patent applications, maintaining, defending and enforcing our intellectual property rights and defending intellectual property-related claims; |
● | our ability to establish strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement; |
● | our headcount growth and associated costs as we expand our business operations and our research and development activities; |
● | the costs of operating as a public company; and |
● | the impact of the COVID-19 pandemic, which may exacerbate the magnitude of the factors discussed above. |
● | successful and timely completion of our ongoing clinical trials of PRF-110; |
● | initiation and successful patient enrolment and completion of additional clinical trials on a timely basis; |
● | our ability to demonstrate PRF-110’s safety, tolerability and efficacy to the FDA or any comparable foreign regulatory authority for marketing approval; |
● | timely receipt of marketing approvals for PRF-110; |
● | maintaining patent protection, trade secret protection and regulatory exclusivity, both in the U.S. and internationally; |
● | successfully defending and enforcing our rights in our intellectual property portfolio; |
● | avoiding and successfully defending against any claims that we have infringed, misappropriated or otherwise violated any intellectual property of any third party; |
● | the performance of our future collaborators, if any; |
● | the extent of, and our ability to timely complete, any required post-marketing approval commitments imposed by FDA or other applicable regulatory authorities; |
● | establishment of supply arrangements with third-party raw materials and drug product suppliers and manufacturers who are able to manufacture clinical trial and commercial quantities of PRF-110 and to develop, validate and maintain a commercially viable manufacturing process that is compliant with current Good Manufacturing Practices, or cGMP, at a scale sufficient to meet anticipated demand and over time enable us to reduce our cost of manufacturing; |
● | establishment of scaled production arrangements with third-party manufacturers to obtain finished products that are compliant with cGMP and appropriately packaged for sale; |
● | successful launch of commercial sales following any marketing approval; |
● | a continued acceptable safety profile following any marketing approval; |
● | commercial acceptance by patients, the medical community and third-party payors; |
● | the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities; |
● | the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments; and |
● | our ability to compete with other post-operative pain, or POP, treatments. |
● | the timing of regulatory approvals in the countries, and for the uses, we seek; |
● | the competitive environment; |
● | the establishment and demonstration in the medical community of the safety and clinical efficacy of our products and their potential advantages over existing therapeutic products; |
● | our ability to enter into strategic agreements with pharmaceutical and biotechnology companies with strong marketing and sales capabilities; |
● | the adequacy and success of distribution, sales and marketing efforts; and |
● | the pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan administrators. |
● | obtaining regulatory approvals (e.g., an Investigational New Drug, or IND, application) to commence a clinical trial; |
● | reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
● | slower than expected rates of patient recruitment due to narrow screening requirements and competing clinical studies; |
● | the inability of patients to meet protocol requirements imposed by the FDA or other regulatory authorities; |
● | the need or desire to modify our manufacturing process; |
● | delays, suspension, or termination of the clinical trials due to the institutional review board responsible for overseeing the study at a particular study site; and |
● | governmental or regulatory delays or “clinical holds” requiring suspension or termination of the trials. |
● | assist us in developing, testing and obtaining regulatory approval; |
● | manufacture our drug candidates; and |
● | market and distribute our products. |
● | perceptions by members of the health care community, including physicians, of the safety and efficacy of our product; |
● | the potential advantages that our product offers over existing treatment methods or other products that may be developed; |
● | the cost-effectiveness of our product relative to competing products; |
● | the availability of government or third-party pay or reimbursement for our products; and |
● | the effectiveness of our or our partners’ sales, marketing and distribution efforts. |
● | litigation involving patients taking our drug; |
● | restrictions on such drugs, manufacturers or manufacturing processes; |
● | restrictions on the labeling or marketing of a drug; |
● | restrictions on drug distribution or use; |
● | requirements to conduct post-marketing studies or clinical trials; |
● | warning letters or untitled letters; |
● | withdrawal of the drugs from the market; |
● | refusal to approve pending applications or supplements to approved applications that we submit; |
● | recall of drugs; |
● | fines, restitution or disgorgement of profits or revenues; |
● | suspension or withdrawal of marketing approvals; |
● | damage to relationships with any potential collaborators; |
● | exclusion from or restrictions on coverage by third-party payors; |
● | unfavorable press coverage and damage to our reputation; |
● | refusal to permit the import or export of drugs; |
● | drug seizure; or |
● | injunctions or the imposition of civil or criminal penalties. |
● | decreased demand for a product; |
● | damage to our reputation; |
● | withdrawal of clinical trial volunteers; and |
● | loss of revenues. |
● | the potential disruption of our ongoing business; |
● | the distraction of management away from the ongoing oversight of our existing business activities; |
● | incurring additional indebtedness; |
● | the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; |
● | an increase in the scope and complexity of our operations; and |
● | the loss or reduction of control over certain of our assets. |
● | result in costly litigation; |
● | divert management’s attention and resources; |
● | cause product shipment delays; and |
● | require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. |
● | others may be able to make products that are similar to our product candidates or utilize similar science or technology but that are not covered by the claims of the patents that we may own or license from our licensors or that incorporate certain research in our product candidates that is in the public domain; |
● | we might not have been the first to file patent applications covering our inventions; |
● | others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
● | issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; |
● | our competitors or other third parties might conduct research and development activities in countries where do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
● | the patents of others may harm our business if, for example, we are found to have infringed those patents or if those patents serve as prior art to our patents which could potentially invalidate our patents; and |
● | we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property, which could ultimately result in public disclosure of the intellectual property if the third party’s patent application is published or issues to a patent. |
● | difficulty in establishing or managing relationships with clinical research organizations and physicians; |
● | different standards for the conduct of clinical trials and/or health care reimbursement; |
● | our inability to locate qualified local consultants, physicians, and partners; |
● | the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical products and treatment; and |
● | general geopolitical risks, such as political and economic instability, and changes in diplomatic and trade relations. |
● | being permitted to provide only three years of audited financial statements, in addition to any required unaudited condensed interim financial statements, with correspondingly reduced “Management’s discussion and analysis of financial condition and results of operations” disclosure; |
● | not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; |
● | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; and |
● | reduced disclosure obligations regarding executive compensation. |
● | to elect or defeat the election of our directors; |
● | amend or prevent amendment of our charter documents or by-laws; |
● | effect or prevent a merger, sale of assets or other corporate transaction; and |
● | to control the outcome of any other matter submitted to our shareholders for vote. |
● | less liquid trading market for our securities; |
● | more limited market quotations for our securities; |
● | determination that our ordinary shares and/or warrants are a “penny stock” that requires brokers to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our securities; |
● | more limited research coverage by stock analysts; |
● | loss of reputation; and |
● | more difficult and more expensive equity financings in the future. |
● | changes or developments in laws or regulations governing our business; |
● | announcements of regulatory approvals or the failure to obtain them, or specific label indications or patient populations for their use, or changes or delays in the regulatory review process; |
● | unsatisfactory results of preclinical studies or clinical trials; |
● | adverse actions taken by regulatory agencies with respect to our manufacturing supply chain or sales and marketing activities; |
● | announcements of innovations or new products by us or our competitors; |
● | any intellectual property infringement, misappropriation or other actions in which we may become involved; |
● | any adverse changes to our relationships with manufacturers or suppliers; |
● | announcements concerning our competitors; |
● | achievement of expected product sales and profitability or our failure to meet expectations; |
● | our commencement of, or involvement in, litigation; and |
● | any changes in our board of directors or management. |
INFORMATION ON THE COMPANY |
A. | History and Development of the Company |
B. | Business Overview |
● | addressing unmet medical needs; |
● | de-risked drug development by using long-established APIs and our patented, proprietary extended release drug-delivery system; |
● | reduced development costs; |
● | rapid preclinical and clinical testing; |
● | well understood paths to approval: and |
● | the potential to disrupt current practices. |
● | PRF-110 is highly viscous and thus stays in place when placed into a surgical wound bed. |
● | PRF-110 remains within the surgical site when the skin is closed, without being toxic or proinflammatory. |
● | PRF-110 is easy to administer and its use is consistent with current surgical practice. |
● | PRF-110 is highly uniform and resistant to degradation in the wound, resulting is sustained,/extended release of the analgesic. |
● | Ropivacaine, the active drug used in PRF-110, is a safe and well-characterized local anesthetic. |
● | The components that make up the remainder of the PRF-110 formulation are classified as GRAS (Generally Regarded As Safe) by the FDA. |
● | We have amassed a human toxicology portfolio for PRF-110, demonstrating that there are no PRF-110-asociated serious adverse events in either healthy controls or in surgical patients. |
● | Based on extensive toxicology and pharmacokinetic studies, as well as positive Phase 2 results, the FDA has granted our company an IND for PRF-110 and approved the initiation of Phase 3 trials for the treatment of post-operative pain. |
● | Unlike many drug trials that take months to years to complete and which are complex and whose endpoints are difficult to interpret, the planned trials are expected to last for 72 hours with a seven day and a one-month follow-up, with primary endpoint of pain measurement on the familiar scale of 0 (no pain) to 10 (worst imaginable pain). |
● | Upon completion of the Phase 3 studies, if successful, we plan to apply for a NDA for the management of post-operative pain. |
● | If and when approved for commercial sale, we intend to capitalize on the opportunity and carry out post-approval trials in a number of additional surgical indications, including breast augmentation/reduction, bariatric procedures, hysterectomy, cholecystectomy as well as orthopaedic procedures including joint replacements and open fracture repair. We intend to capitalize on these opportunities to become the leader in opiate-free, long-acting local and regional analgesia. |
● | Hospitals; |
● | Free-standing surgical centers; and |
● | Surgical offices. |
● | Posimir by Durect (DRRX). A bupivacaine collagen matrix was recently approved by the FDA for only arthroscopic subacromial decompression (niche market ~600,000 annual procedures in the U.S.). |
● | Innocoll has developed a surgical resorbable implant using bupivacaine-collagen matrix but was sent a Refusal letter by the FDA requiring that it be submitted as a Drug/Device combination. Innocoll was later acquired by Gurnet Point Capital for $209M in July 2017. In August 2020, the FDA approved the product for only open inguinal hernia repair. |
● | CA-008 from Concentric Analgesics is a water-soluble, non-opioid prodrug that rapidly converts into capsaicin in the surgical site This product recently completed a Phase II clinical trial. |
● | TLC590, from the Taiwan Liposome Company, is a liposomal formulation of ropivacaine that has recently completed Phase II trials in patients following hernia surgery. |
● | LIQ865 is an injectable conjugate of ropivacaine and a PGLA co-polymer, developed by Liquidia Technologies. This product recently completed a Phase 1trial in the U.S. |
● | completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations; |
● | submission to the FDA of an IND, which must take effect before human clinical trials begin; |
● | approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated; |
● | performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each proposed indication; |
● | preparation and submission to the FDA of an NDA requesting marketing for one or more proposed indications; |
● | review by an FDA advisory committee, where appropriate or if applicable; |
● | satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices, or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity; |
● | satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data; |
● | payment of user fees and securing FDA approval of the NDA; and |
● | compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post-approval studies. |
Phase 1: | The drug is initially introduced into healthy human subjects or, in certain indications such as cancer, patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage. |
Phase 2: | The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. |
Phase 3: | The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. |
Phase 4: | Post-approval studies, which are conducted following initial approval, are typically conducted to gain additional experience and data from treatment of patients in the intended therapeutic indication. |
● | restrictions on the marketing or manufacturing of the product, including total or partial suspension of production, complete withdrawal of the product from the market or product recalls; |
● | fines, warning letters or holds on post-approval clinical trials; |
● | refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals; |
● | product seizure or detention, or refusal to permit the import or export of products; or |
● | injunctions or the imposition of civil or criminal penalties. |
● | Compliance with the EU’s stringent pharmacovigilance and safety reporting rules, pursuant to which inter alia post-authorization studies and additional monitoring obligations can be imposed, has to be ensured. |
● | The manufacturing of authorized drugs, for which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the EMA’s GMP requirements and comparable requirements of other regulatory bodies in the EU, which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. |
● | The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs, cooperation with healthcare professionals and advertising of drugs directed to the general public, are strictly regulated in the EU notably under Directive 2001/83EC, as amended, and EU member state laws. |
C. | Organizational Structure |
D. | Property, Plant and Equipment |
UNRESOLVED STAFF COMMENTS |
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
● | continue the ongoing and planned preclinical and clinical development of our drug candidates; |
● | build a portfolio of drug candidates through the acquisition or in-license of drugs, drug candidates or technologies; |
● | initiate preclinical studies and clinical trials for any additional drug candidates that we may pursue in the future; |
● | seek marketing approvals for our current and future drug candidates that successfully complete clinical trials; |
● | establish a sales, marketing and distribution infrastructure to commercialize any drug candidate for which we may obtain marketing approval; |
● | develop, maintain, expand and protect our intellectual property portfolio; |
● | implement operational, financial and management systems; and |
● | attract, hire and retain additional administrative, clinical, regulatory and scientific personnel. |
● | employee-related expenses, including salaries, benefits and stock-based compensation expense; |
● | fees paid to consultants for services directly related to our drug development and regulatory effort; |
● | expenses incurred under agreements with contract research organizations, as well as contract manufacturing organizations and consultants that conduct preclinical studies and clinical trials; |
● | costs associated with preclinical activities and development activities; |
● | costs associated with technology and intellectual property licenses; |
● | milestone payments and other costs under licensing agreements. |
● | number of clinical trials required for approval and any requirement for extension trials; |
● | per patient trial costs; |
● | number of patients that participate in the clinical trials; |
● | number of sites included in the clinical trials; |
● | countries in which the clinical trial is conducted; |
● | length of time required to enroll eligible patients; |
● | potential additional safety monitoring or other studies requested by regulatory agencies; and |
● | efficacy and safety profile of the drug candidate. |
A. | Operating Results |
Year ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
(US$) | ||||||||||||
Statement of comprehensive loss data: | ||||||||||||
Research and development | 354,000 | 136,000 | 223,000 | |||||||||
General and administrative | 1,317,000 | 553,000 | 277,000 | |||||||||
Total operating costs | 1,671,000 | 689,000 | 500,000 | |||||||||
Financial expenses, net | 2,162,000 | 590,000 | 328,000 | |||||||||
Loss before taxes | 3,833,000 | 1,279,000 | 828,000 | |||||||||
Tax expenses | 220,000 | - | - | |||||||||
Net loss | 4,053,000 | 1,279,000 | 828,000 |
Critical Accounting Policies and Estimates |
Our statements are prepared in accordance with U.S. GAAP. Some of the accounting methods and policies used in preparing our financial statements under U.S. GAAP are based on complex and subjective assessments by our management or on estimates based on past experience and assumptions deemed realistic and reasonable based on the circumstances concerned. The actual value of our assets, liabilities and shareholders’ equity and of our accumulated deficit could differ from the value derived from these estimates if conditions change and these changes had an impact on the assumptions adopted. See Note 2 to our financial statements for a description of our significant accounting policies.
Derivative warrant liability |
We determined the fair value of the Company’s warrants using Black-Scholes model of which the most significant assumption was the underlying share price and volatility.
Share Based Compensation |
JOBS Act Exemptions and Foreign Private Issuer Status |
● | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; |
● | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; |
● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events; and |
● | Regulation FD, which regulates selective disclosures of material information by issuers. |
B. | Liquidity and Capital Resources. |
On March 8, 2021, we entered into a definitive securities purchase agreement with certain institutional investors, or the Purchasers, for the purchase and sale of 1,304,346 ordinary shares, and warrants to purchase up to an aggregate of 652,173 ordinary shares at a combined purchase price of $4.60 per ordinary share and accompanying warrant. We received net proceeds of approximately $5.5 million from the private placement. The warrants will be exercisable for a period of five and one half years from the date of issuance and have an exercise price of $4.60 per share, subject to adjustment as set forth in the warrants for share splits, share dividends, recapitalizations and similar events.
In connection with the private placement, we also entered into a Registration Rights Agreement, dated as of March 8, 2021, with the Purchasers, or the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, we agreed to file a registration statement, or the Registration Statement, with the SEC on or prior to April 9, 2021 to register the resale of the ordinary shares and the ordinary shares issuable upon exercise of the warrants and to cause such Registration Statement to be declared effective on or prior to May 7, 2021 (or, in the event of a “full review” by the SEC, June 6, 2021). If we fail to meet the specified filing deadlines or keep the Registration Statement effective, subject to certain permitted exceptions, we will be required to pay liquidated damages to the Purchasers.
We paid an aggregate of approximately $500,000 in placement agent fees and expenses and issued unregistered placement agent warrants to purchase 52,173 ordinary shares, at an exercise price of $5.06 per ordinary share and a term expiring on March 10, 2026.
Developing drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. We believe our existing financial resources as of the date of issuance of this Annual Report on Form 20-F, will be sufficient to fund our operating expenses and capital expenditure requirements for twelve months from the date of issuance of this Annual Report on Form 20-F. Our estimate as to how long we expect our funds to support our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. Our future capital requirements will depend on many factors, including:
● | the scope, progress, results and costs of our current and future clinical trials of PRF-110 for our current targeted uses; |
● | the costs, timing and outcome of regulatory review of PRF-110; |
● | the extent to which we acquire or invest in businesses, products and technologies, including entering into or maintaining licensing or collaboration arrangements for PRF-110 on favorable terms, although we currently have no commitments or agreements to complete any such transactions; |
● | the costs and timing of future commercialization activities, including drug sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval, to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time; |
● | the amount of revenue, if any, received from commercial sales of PRF-110, should it receive marketing approval; |
● | the costs of preparing, filing and prosecuting patent applications, maintaining, defending and enforcing our intellectual property rights and defending intellectual property-related claims; |
● | our headcount growth and associated costs as we expand our business operations and our research and development activities; |
● | the costs of operating as a public company; |
● | maintaining minimum shareholders’ equity requirements under the Nasdaq rules; and |
● | the impact of the COVID-19 pandemic. |
2020 | 2019 | 2018 | ||||||||||
Net cash used in operating activities | (2,557,000 | ) | (609,000 | ) | (635,000 | ) | ||||||
Net cash used in investing activities | (10,000 | ) | - | - | ||||||||
Net cash provided by financing activities | 17,310,000 | 1,510,000 | 488,000 | |||||||||
Increase in cash and cash equivalents and restricted cash | 14,743,000 | 901,000 | (147,000 | ) | ||||||||
Cash and cash equivalents and restricted cash, at the beginning of year | 947,000 | 46,000 | 193,000 | |||||||||
Cash and cash equivalents and restricted cash, at the end of year | 15,690,000 | 947,000 | 46,000 |
C. | Research and Development, Patents and Licenses |
D. | Trend Information |
E. | Off-Balance Sheet Arrangements |
F. | Tabular Disclosure of Contractual Obligations |
Payments due by period | ||||||||||||||||||||
Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | ||||||||||||||||
Obligations under master clinical research organization agreement (1) | $ | 2,907,000 | - | - | - | $ | 2,907,000 | |||||||||||||
Obligations under master clinical trial agreement (2) | $ | 7,107,000 | - | - | - | $ | 7,107,000 | |||||||||||||
Total | $ | 10,014,000 | $ | 10,014,000 |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. | Directors and Senior Management |
Name | Age | Position | ||
Senior Management | ||||
Mr. Ilan Hadar | 51 | Chief Executive Officer and Chief Financial Officer | ||
Prof. Eli Hazum | 72 | Chief Technology Officer and Director | ||
Dr. Sigal Aviel | 57 | Chief Operating Officer | ||
Mrs. Rita Keynan | 52 | Vice President of Pharmaceutical Operations | ||
Non-Employee Director | ||||
Dr. Ehud Geller | 74 | Chairman of the Board and Director | ||
Mr. Efi Cohen-Arazi(1) (2) (3) (4) | 73 | Director | ||
Dr. Ellen S. Baron(1) (2) (3)(4) | 68 | External Director | ||
Mr. Augustine Lawlor(1) (2) (3)(4) | 69 | External Director |
(1) | Member of the Compensation Committee |
(2) | Member of the Audit Committee |
(3) | Independent Director under Israeli Law |
(4) | Independent Director under the Nasdaq Listing Rules |
B. | Compensation |
Salaries, fees, commissions, and bonuses (in thousands of U.S. dollars) | Pension, retirement and similar benefits (in thousands of U.S. dollars) | Value of Options Granted(1) (in thousands of U.S. dollars) | ||||||||||
All senior management and directors as a group, consisting of 10 persons | 646 | 29 | 38 |
(1) | Consists of amounts recognized as share-based compensation expense for the year ended December 31, 2020. Assumptions and key variables used in the calculation of such amounts are discussed in Note 10 of our financial statements. |
Name and Position(1) | Salary | Social Benefits(2) | Bonuses | Value of Options Granted(3) | All Other Compensation(4) | Total | ||||||||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||||||||||
Ehud Geller, Chairman | - | - | - | - | 150 | 150 | ||||||||||||||||||
Ilan Hadar, Chief Executive Officer | 47 | 8 | - | - | 3 | 58 | ||||||||||||||||||
Eli Hazum Chief Technology Officer | 144 | - | 36 | - | - | 180 | ||||||||||||||||||
David Weinstein Former Chief Medical Officer | 64 | - | 20 | 2 | 15 | 101 | ||||||||||||||||||
Sigal Aviel Chief Operating Officer | 117 | 21 | 27 | 36 | - | 201 |
(1) | All executive officers listed in the table were employed on a full-time basis during 2020, excluding Mr. Hadar who became our Chief Executive Officer and Chief Financial Officer in November 2020, and Mr. Weinstein who stepped down as Chief Medical Officer in November 2020. |
(2) | “Social Benefits” include payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds, vacation pay and recuperation pay as mandated by Israeli law. |
(3) | Consists of amounts recognized as share-based compensation expense for the year ended December 31, 2020. Assumptions and key variables used in the calculation of such amounts are discussed in Note 10 of our financial statements. |
(4) | “All Other Compensation” includes chairman of the board of directors' annual fee, automobile-related expenses pursuant to the Company’s automobile leasing program and consulting related fees. |
C. | Board Practices |
● | at least a majority of the shares of non-controlling shareholders or shareholders that do not have a personal interest in the approval voted at the meeting are voted in favor (disregarding abstentions); or |
● | the total number of shares of non-controlling shareholders or shareholders that do not have a personal interest in the approval voted against the proposal does not exceed 2% of the aggregate voting rights in the company. |
● | an employment relationship; |
● | a business or professional relationship maintained on a regular basis; |
● | control; and |
● | service as an office holder, excluding service as a director in a private company prior to the first offering of its shares to the public if such director was appointed as a director of the private company in order to serve as an external director following the initial public offering. |
● | such majority includes at least a majority of the shares held by shareholders who are non-controlling shareholders and do not have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer as a disinterested majority; or |
● | the total number of shares voted by non-controlling shareholders and by shareholders who do not have a personal interest in the election of the external director, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company. |
● | his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and is approved at a shareholders meeting by a disinterested majority, where the total number of shares held by non-controlling, disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related or Competing Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with a Related or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director. The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstanding shares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or a company controlled by such shareholder, have a business relationship with the company or are competitors of the company; |
● | the external director proposed his or her own nomination, and such nomination was approved in accordance with the requirements described above; |
● | his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majority required for the initial election of an external director (as described above). |
● | he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does not apply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and |
● | he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than two years in service shall not be deemed to interrupt the continuation of the service. |
● | retaining and terminating our independent auditors, subject to the ratification of the board of directors, and in the case of retention, to that of the shareholders; |
● | pre-approving of audit and non-audit services and related fees and terms, to be provided by the independent auditors; |
● | overseeing the accounting and financial reporting processes of the Company and audits of our financial statements, the effectiveness of our internal control over financial reporting and making such reports as may be required of an audit committee under the rules and regulations promulgated under the Exchange Act; |
● | reviewing with management and our independent auditor our annual and quarterly financial statements prior to publication or filing (or submission, as the case may be) to the SEC; |
● | recommending to the board of directors the retention and termination of the internal auditor, and the internal auditor’s engagement fees and terms, in accordance with the Companies Law as well as approving the yearly or periodic work plan proposed by the internal auditor; |
● | reviewing with our general counsel and/or external counsel, as deem necessary, legal and regulatory matters that could have a material impact on the financial statements; |
● | identifying irregularities in our business administration, inter alia, by consulting with the internal auditor or with the independent auditor, and suggesting corrective measures to the board of directors; and |
● | reviewing policies and procedures with respect to transactions (other than transactions related to the compensation or terms of services) between the company and officers and directors, or affiliates of officers or directors, or transactions that are not in the ordinary course of the Company’s business and deciding whether to approve such acts and transactions if so required under the Companies Law. |
● | determining whether there are deficiencies or irregularities in the business management practices of our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the board of directors to improve such practices; |
● | determining the approval process for transactions with a controlling shareholder or in which a controlling shareholder has a personal interest; |
● | determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”); |
● | where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to the board of directors and proposing amendments thereto; |
● | examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities; |
● | examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; and |
● | establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees. |
• | Officers’ interests are as closely as possible aligned with our interests; |
• | The correlation between pay and performance will be enhanced; |
• | We will be able to recruit and retain top level executives capable of leading us to further business success, facing the challenges ahead; |
• | Our officers will be motivated to achieve a high level of business performance without taking unreasonable risks. Therefore, the variable compensation component may not be based on extreme business performance goals which might potentially impose unreasonable risks on our officers; and |
• | An appropriate balance between different compensation elements (e.g., fixed vs. variable, short-term vs. long-term and cash payments vs. equity-based compensation). |
● | recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than five years from the company’s initial public offering, or otherwise three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur five years from the company’s initial public offering, or otherwise every three years); |
● | recommending to the board of directors periodic updates to the compensation policy; |
● | assessing implementation of the compensation policy; |
● | determining whether to approve the terms of compensation of certain office holders which, according to the Companies Law, require the committee’s approval; and |
● | determining whether the compensation terms of a candidate for the position of the chief executive officer of the company needs to be brought to approval of the shareholders according to the Companies Law. |
● | the responsibilities set forth in the compensation policy; |
● | reviewing and approving the granting of options and other incentive awards to the extent such authority is delegated by our board of directors; and |
● | reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors. |
● | overseeing our corporate governance functions on behalf of the board; |
● | making recommendations to the board regarding corporate governance issues; |
● | identifying and evaluating candidates to serve as our directors consistent with the criteria approved by the board; |
● | reviewing and evaluating the performance of the board; |
● | serving as a focal point for communication between director candidates, non-committee directors and our management; selecting or recommending to the board for selection candidates to the board; and |
● | making other recommendations to the board regarding affairs relating to our directors. |
● | a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights; |
● | a person (or a relative of a person) who has the power to appoint a director or the general manager of the company; |
● | an office holder or director (or a relative of an officer or director) of the company; or |
● | a member of the company’s independent accounting firm, or anyone on its behalf. |
● | information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and |
● | all other important information pertaining to these actions. |
● | refrain from any act involving a conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs; |
● | refrain from any activity that is competitive with the company; |
● | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and |
● | disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder. |
● | a transaction other than in the ordinary course of business; |
● | a transaction that is not on market terms; or |
● | a transaction that may have a material impact on the company’s profitability, assets, or liabilities. |
● | an amendment of the articles of association of the company; |
● | an increase in the company’s authorized share capital; |
● | a merger; or |
● | the approval of related party transactions and acts of office holders that require shareholder approval. |
● | financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking must detail the abovementioned foreseen events and amount or criteria; |
● | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder: (i) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result of such investigation or proceeding and (b) no financial liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and (ii) in connection with a monetary sanction; |
● | expenses associated with an administrative procedure, as defined in the Israeli Securities Law, conducted regarding an office holder, including reasonable litigation expenses and reasonable attorneys’ fees; and |
● | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent. |
● | a breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder; |
● | a breach of fiduciary duty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
● | a monetary liability imposed on the office holder in favor of a third party; and |
● | expenses incurred by an office holder in connection with an administrative procedure, including reasonable litigation expenses and reasonable attorneys’ fees. |
● | a breach of fiduciary duty, except for indemnification and insurance for a breach of the fiduciary duty to the company and to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
● | a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder; |
● | an act or omission committed with intent to derive illegal personal benefit; or |
● | a fine or forfeit levied against the office holder. |
D. | Employees. |
E. | Share Ownership. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | Major Shareholders |
● | each of our directors and senior management; |
● | all of our directors and senior management as a group; and |
● | each person (or group of affiliated persons) known by us to be the beneficial owner of 5% or more of the outstanding ordinary shares. |
Ordinary Shares Beneficially Owned | Percentage Owned** | |||||||
Senior Management and Directors | ||||||||
Ilan Hadar(1) | - | - | ||||||
Dr. Ehud Geller(2) | 3,292,250 | 32.7 | % | |||||
Dr. Sigal Aviel(3) | 89,540 | * | ||||||
Rita Keynan(4) | - | - | ||||||
Prof. Eli Hazum(5) | 153,882 | 1.5 | % | |||||
Ellen S. Baron(6) | - | - | ||||||
Augustine Lawlor(6) | - | - | ||||||
Efi Cohen-Arazi(6) | - | - | ||||||
All senior management and directors as a group (8 persons) | 3,535,672 | 34.3 | % | |||||
More than 5% Shareholders | ||||||||
XT Hi-Tech Investments (1992) Ltd. (7) | 1,752,959 | 17.4 | % | |||||
D Partners 2 (8) | 571,289 | 5.7 | % | |||||
Medica III Investment group (2) | 3,292,250 | 32.7 | % | |||||
Armistice Capital, LLC(9) | 839,346 | 8.3 | % |
* | Less than 1% |
** | Based on 10,062,383 ordinary shares outstanding |
(1) | Does not include options to purchase 267,296 ordinary shares exercisable at $5.7375 per share and expiring on February 23, 2031, that vest in more than 60 days from March 15, 2021. |
(2) | Consists of 3,292,250 beneficially owned by the Medica III Investment group which includes Medica III Investments (International) L.P. which holds 1,112,745 ordinary shares, Medica III Investments (Israel) L.P. which holds 404,455 ordinary shares, Medica III Investments (S.F.) L.P. which holds 439,574 ordinary shares, Medica III Investments (P.F.) L.P. which holds 236,573 ordinary shares, Medica III Investments (Israel) (B) L.P. which holds 571,429 ordinary shares, and Poalim Medica III Investments L.P. which holds 527,474 ordinary shares. The beneficial owners under Medica Group are: MCP Opportunity Secondary Program III L.P 10.57%, NYC Police Pension Fund 8.8%, Quantum Partners LDC 13.2%, Migdal Insurance Company Ltd 8.8%. None of which include individuals who hold more than 5% interest. Medica III Management L.P., an entity held 50% by Dr. Ehud Geller and 50% by Batsheva Elran, is the managing entity of Medica III Fund. The principal business address of Medica III Investment is 60C Medinat Hayehudim, Herzliya, 4676670, Israel. Does not include options to purchase 60,000 ordinary shares approved for issuance to Mr. Geller. Such options are exercisable at $4.50 per share and expiring on February 23, 2031, that vest in more than 60 days from March 15, 2021. |
(3) | Consists of options to purchase 89,540 ordinary shares exercisable at a weighted average exercise price of $1.57 and expiring on November 12, 2029. Does not include options to purchase 12,792 ordinary shares exercisable at an exercise price of $3.339 and expiring on November 12, 2029, that vest in more than 60 days from March 15, 2021. |
(4) | Does not include options to purchase 133,652 ordinary shares exercisable at $5.7375 per share and expiring on January 1, 2031, that vest in more than 60 days from March 15, 2021. |
(5) | Consists of options to purchase 153,882 ordinary shares exercisable at $0.24 per share and expiring on April 2, 2024. |
(6) | Does not include options to purchase 60,000 ordinary shares approved for issuance. Such options are exercisable at $4.50 per share and expiring on February 23, 2031, that vest in more than 60 days from March 15, 2021. |
(7) | XT Hi-Tech Investments (1992) Ltd., is an indirect wholly owned subsidiary of XT Investments Ltd., which is a direct wholly-owned subsidiary of XT Holdings Ltd., of which Orona Investments Ltd., or Orona, and Lynav Holdings Ltd., or Lynav, are each the direct owners of one-half of the outstanding ordinary shares. Orona is indirectly owned 56% by Mr. Udi Angel, who also indirectly owns 100% of the means of control of Orona. Lynav is held 95% by CIBC Bank and Trust Company (Cayman) Ltd., or CIBC, as trustee of a discretionary trust established in the Cayman Islands. Udi Angel is member of the board of directors of XT Hi-Tech Investments (1992) Ltd. and has a casting vote with respect to various decisions taken by the board including voting and disposition over shares held by XT Hi-Tech Investments (1992) Ltd. The principal business address XT Hi-Tech Investments (1992) Ltd. is 9 Andrei Sakharov St., Haifa, Israel. |
(8) | D Partners 2 is a fund comprised of two limited partnerships formed under the laws of the Cayman Islands and of Israel. Mr. Shlomo Dovrat, Mr. Harel Beit-On, Mr. Avi Zeevi and Mr. Eylon Penchas hold indirect interests of more than 5% in, and are directors in, and/or shareholders of, various entities that comprise the General Partner of D Partners 2 and may be deemed to be the beneficial owners of the PainReform shares held by D Partners 2. Mr. Dovrat, Mr. Beit-On, Mr. Zeevi and Mr. Penchas disclaim beneficial ownership of the shares held by D Partners 2 except to the extent of their respective pecuniary interests therein. D Partners 2 and the individuals and entities that control it are part of a group generally known as “Viola Partners” or the “Viola” group. The principal business address of D Partners 2 is Ackerstein Towers Building D, Abba Eban Blvd 12, Herzliya, Israel. |
(9) | The following information is based in part on a Schedule 13G dated February 16, 2021 with the SEC by Armistice Capital LLC and Steven Boyd. Armistice Capital, LLC, the investment manager of Armistice Capital Master Fund Ltd., or Armistice, and Steven J. Boyd, the managing member of Armistice Capital, LLC, hold shared voting and dispositive power over the ordinary shares held by Armistice. The principal business address of Armistice is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, NY, 10022. The reported amount of shares does not include warrants to purchase ordinary shares which are subject to a 4.99% blocker. |
B. | Related Party Transactions |
C. | Interests of Experts and Counsel |
FINANCIAL INFORMATION. |
A. | Statements and Other Financial Information. |
B. | Significant Changes |
THE OFFER AND LISTING |
A. | Offer and Listing Details |
B. | Plan of Distribution |
C. | Markets |
D. | Selling Shareholders |
E. | Dilution |
F. | Expenses of the Issue |
ADDITIONAL INFORMATION |
A. | Share Capital |
B. | Memorandum and Articles of Association |
C. | Material Contracts |
D. | Exchange Controls |
E. | Taxation. |
● | amortization over an eight-year period of the cost of patents and rights to use a patent and know-how which were purchased in good faith and are used for the development or advancement of the Industrial Enterprise; |
● | deduction over a three-year period of expenses incurred in connection with the issuance and listing of shares on a stock market; and |
● | under certain conditions, an election to file tax returns with related Israeli Industrial Companies. |
● | owns a Preferred Enterprise, which is defined as an “Industrial Enterprise” (as defined under the Investment Law) that is classified as either a “Competitive Enterprise” (as defined under the Investment Law) or a “Competitive Enterprise in the Field of Renewable Energy” (as defined under the Investment Law); |
● | is controlled and managed from Israel; |
● | is not a “Family Company,” a “Home Company,” or a “Kibbutz” (collective community) as defined under the Income Tax Ordinance; |
● | keeps acceptable books of account and files reports in accordance with the provisions of the Investment Law and the Income Tax Ordinance; and |
● | was not, and certain officers of which were not, convicted of certain crimes in the 10 years prior to the tax year with respect to which benefits are being claimed. |
F. | Dividends and Paying Agents |
G. | Statement by Experts |
H. | Documents on Display |
I. | Subsidiary Information. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. | Debt Securities. |
B. | Warrants and rights. |
C. | Other Securities. |
D. | American Depositary Shares |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
ITEM 15. | CONTROLS AND PROCEDURES |
AUDIT COMMITTEE FINANCIAL EXPERT |
ITEM 16B. | CODE OF ETHICS |
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
(USD in thousands) | ||||||||
Audit fees (1) | 80 | 135 | ||||||
Audit-related fees | - | - | ||||||
Tax fees | - | - | ||||||
All other fees | - | - | ||||||
Total | 80 | 135 |
(1) | The audit fees for the years ended December 31, 2020 and 2019 includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financial statements, statutory audits of the Company and its subsidiary, issuance of consents and assistance with review of documents filed with the SEC. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
ITEM 16G. | CORPORATE GOVERNANCE |
● | Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, rather than seeking approval for corporate actions in accordance with Nasdaq Listing Rule 5635. In particular, under this Nasdaq Listing Rule, shareholder approval is generally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption or amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) if such equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is required (subject to certain limited exceptions) for, among other things: (a) transactions with directors concerning the terms of their service (including indemnification, exemption, and insurance for their service or for any other position that they may hold at a company), for which approvals of the compensation committee, board of directors, and shareholders are all required; (b) extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described below under “Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions;” (c) terms of office and employment or other engagement of our controlling shareholder, if any, or such controlling shareholder’s relative, which require the special approval described below under “Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions;” (d) approval of transactions with Company’s Chief Executive Officer with respect to his or hers compensation, whether in accordance with the approved compensation policy of the Company or not in accordance with the approved compensation policy of the Company, or transactions with officers of the Company not in accordance with the approved compensation policy; and (e) approval of the compensation policy of the Company for office holders. In addition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies. |
● | Nomination of our directors. Israeli law and our amended articles of association do not require director nominations to be made by a nominating committee of our board of directors consisting solely of independent directors, as required under the Listing Rules of the Nasdaq Stock Market. We rely on the exemption available to foreign private issuers under the Nasdaq Listing Rules and follow Israeli law and practice with regard to the process of nominating directors, in accordance with which directors are recommended by our board of directors for election by our shareholders (other than directors elected by our board of directors to fill a vacancy). |
● | Quorum requirement. Under our amended and restated articles of association and as permitted under the Companies Law, a quorum for any meeting of shareholders shall be the presence of at least two shareholders present in person, by proxy or by a written ballot, who hold at least 25% of the voting power of our shares (or if a higher percentage is required by law, such higher percentage) instead of 33 1/3% of the issued share capital required under the Nasdaq Listing Rules. If within half an hour from the time designated for the meeting a quorum is not present, them will stand adjourned to the same day in the following week, at the same time and place. If a quorum is not present at the adjourned meeting within half hour from the time designated for its start, the meeting shall take place with any number of participants. |
● | Periodic reports. As opposed to making periodic reports to shareholders and proxy solicitation materials available to shareholders in the manner specified by the Nasdaq Marketplace Rules, the Companies Law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. We will only mail such reports to shareholders upon request; and |
● | Compensation of officers. We follow Israeli law and practice with respect to the approval of officer compensation. While our compensation committee currently complies with the provisions of the Nasdaq Listing Rules relating to composition requirements and Israeli law generally requires that the compensation of the chief executive officer and all other executive officers be approved, or recommended to the board for approval, by the compensation committee (and in certain instances, shareholder approval is required), Israeli law includes relief from compensation committee approval in certain instances. For details regarding the approvals required under the Israeli Companies Law and regulation promulgated thereunder for the approval of compensation of the chief executive officer, all other executive officers and directors, see Item 6C “Directors, Senior Management and Employees— Board Practices — Approval of Related Party Transactions under Israeli Law — Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions”). |
MINE SAFETY DISCLOSURE |
ITEM 17. | FINANCIAL STATEMENTS |
ITEM 18. | FINANCIAL STATEMENTS |
EXHIBITS. |
Exhibit No. | Exhibit Description | |
101 | The following financial information from PainReform Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2020, formatted in Extensible Business Reporting Language (XBRL): (i) Statement of Financial Position, (ii) Statements of Comprehensive Loss, (iii) Statements of Changes in Equity, (iv) Statements of Cash Flows and (iv) Notes to Financial Statements.* |
* | Filed herewith. |
# | Management contract or compensatory plan. |
Page | |
F-2 | |
F-3 | |
F-4 | |
F-5 | |
F-6 | |
F-7 - F-26 |
As of December 31, | |||||||||||
Note | 2020 | 2019 | |||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 15,677 | $ | 941 | |||||||
Restricted cash | 2e | 13 | 6 | ||||||||
Prepaid clinical trial expenses and deferred clinical trial costs | 13 | 1,294 | - | ||||||||
Prepaid expenses and other current assets | 3 | 807 | 25 | ||||||||
Total current assets | 17,791 | 972 | |||||||||
Property and equipment, net | 10 | (* | ) | ||||||||
Other non-current assets | - | 192 | |||||||||
Total assets | $ | 17,801 | $ | 1,164 | |||||||
Liabilities and shareholders’ deficit | |||||||||||
Current liabilities: | |||||||||||
Trade payables | $ | 720 | $ | - | |||||||
Other accounts payable and accrued expenses | 4 | 241 | 166 | ||||||||
August and December 2019 Convertible notes | 6b | - | 1,032 | ||||||||
Convertible notes | 6a | - | 5,141 | ||||||||
Total current liabilities | 961 | 6,339 | |||||||||
Non-current liabilities: | |||||||||||
Provision for tax benefits | 7e | 220 | |||||||||
Derivative warrant liability | 5 | - | 447 | ||||||||
Total non-current liabilities | 220 | 447 | |||||||||
Commitments and contingencies | 8 | ||||||||||
Temporary equity: | |||||||||||
Convertible preferred shares, NIS 0.03 par value; Authorized: 18,300,000 shares; Issued and outstanding: 2,954,267 shares; Aggregate liquidation preference of $0 and $15,250 as of December 31, 2020 and 2019, respectively | 9 | - | 6,621 | ||||||||
Shareholders’ deficit: | 10 | ||||||||||
Ordinary shares, NIS 0.03 par value; Authorized: 16,666,667 and 4,700,000 shares as of December 31, 2020 and 2019, respectively; Issued and outstanding: 8,758,037 and 576,556 shares as of December 31, 2020 and 2019, respectively; | 78 | 5 | |||||||||
Additional paid-in capital | 33,023 | 180 | |||||||||
Accumulated deficit | (16,481 | ) | (12,428 | ) | |||||||
Total shareholders’ equity (deficit) | 16,620 | (12,243 | ) | ||||||||
Total liabilities, temporary equity and shareholders’ equity (deficit) | $ | 17,801 | $ | 1,164 |
(*) | Less than $1. |
For the Year Ended December 31, | ||||||||||||||||
Note | 2020 | 2019 | 2018 | |||||||||||||
Operating expenses: | ||||||||||||||||
Research and development expenses | 11a | $ | (354 | ) | $ | (136 | ) | $ | (223 | ) | ||||||
General and administrative expenses | 11b | (1,317 | ) | (553 | ) | (277 | ) | |||||||||
Operating loss | (1,671 | ) | (689 | ) | (500 | ) | ||||||||||
Financial expense, net | 11c | (2,162 | ) | (590 | ) | (328 | ) | |||||||||
Loss before taxes | (3,833 | ) | (1,279 | ) | (828 | ) | ||||||||||
Tax expenses | (220 | ) | - | - | ||||||||||||
Net loss and comprehensive loss | $ | (4,053 | ) | $ | (1,279 | ) | $ | (828 | ) | |||||||
Basic and diluted net loss per share | 2m | $ | (1.25 | ) | $ | (4.17 | ) | $ | (3.24 | ) | ||||||
Weighted average number of shares of ordinary share used in computing basic and diluted net loss per share | 3,243,943 | 576,556 | 576,556 |
Convertible preferred shares (Temporary equity) | Ordinary shares | Additional paid-in | Accumulated | Total shareholders’ | ||||||||||||||||||||||||
Number | Amount | Number | Amount | capital | deficit | equity (deficit) | ||||||||||||||||||||||
Balance as of January 1, 2018 | 2,954,267 | $ | 6,621 | 576,556 | $ | 5 | $ | 66 | $ | (10,321 | ) | $ | (10,250 | ) | ||||||||||||||
Net loss and comprehensive loss | — | — | — | — | — | (828 | ) | (828 | ) | |||||||||||||||||||
Balance as of December 31, 2018 | 2,954,267 | $ | 6,621 | 576,556 | $ | 5 | $ | 66 | $ | (11,149 | ) | $ | (11,078 | ) | ||||||||||||||
Share-based compensation | — | — | — | — | 89 | — | 89 | |||||||||||||||||||||
Operating lease provided by controlling shareholder | — | — | — | — | 25 | — | 25 | |||||||||||||||||||||
Net loss and comprehensive loss | — | — | — | — | — | (1,279 | ) | (1,279 | ) | |||||||||||||||||||
Balance as of December 31, 2019 | 2,954,267 | $ | 6,621 | 576,556 | $ | 5 | $ | 180 | $ | (12,428 | ) | $ | (12,243 | ) | ||||||||||||||
Conversion of preferred shares into ordinary shares | (2,954,267 | ) | (6,621 | ) | 2,954,267 | 26 | 6,595 | - | 6,621 | |||||||||||||||||||
Conversion of convertible notes into ordinary shares | — | — | 2,727,214 | 25 | 7,135 | - | 7,160 | |||||||||||||||||||||
Share issuance under Initial Public Offering, net | — | — | 2,500,000 | 22 | 17,288 | - | 17,310 | |||||||||||||||||||||
Equity classification of a derivative warrant liability (Note 6(b)) | - | - | 1,552 | - | 1,552 | |||||||||||||||||||||||
Share-based compensation to employees | — | — | — | — | 38 | — | 38 | |||||||||||||||||||||
Share-based compensation to service providers | — | — | — | — | 202 | — | 202 | |||||||||||||||||||||
Operating lease provided by controlling shareholder | — | — | — | — | 33 | — | 33 | |||||||||||||||||||||
Net loss and comprehensive loss | — | — | — | — | — | (4,053 | ) | (4,053 | ) | |||||||||||||||||||
Balance as of December 31, 2020 | - | $ | - | 8,758,037 | $ | 78 | $ | 33,023 | $ | (16,481 | ) | $ | 16,620 |
(*) | Represents amount less than $1 |
For the Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Cash flows from operating activities | ||||||||||||
Net loss | $ | (4,053 | ) | $ | (1,279 | ) | $ | (828 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Depreciation | (* | ) | 1 | (* | ) | |||||||
Operating lease provided by controlling shareholder | 33 | 25 | - | |||||||||
Share-based compensation to employees | 38 | 89 | (* | ) | ||||||||
Share-based compensation to service providers | 202 | - | - | |||||||||
Interest expense and amortization of discount on convertible notes | 987 | 541 | 324 | |||||||||
Issuance costs | - | 47 | - | |||||||||
Revaluation of derivative warrant liability | 1,105 | 2 | - | |||||||||
Change in: | ||||||||||||
Other current and non-current assets | (1,884 | ) | (183 | ) | (14 | ) | ||||||
Trade payables | 720 | (2 | ) | (62 | ) | |||||||
Other accounts payable | 295 | 150 | (55 | ) | ||||||||
Net cash used in operating activities | (2,557 | ) | (609 | ) | (635 | ) | ||||||
Cash flows from investing activities | ||||||||||||
Purchase of property and equipment | (10 | ) | - | (* | ) | |||||||
Net cash used in investing activities | (10 | ) | - | (* | ) | |||||||
Cash flows from financing activities | ||||||||||||
Proceeds from issuance of convertible notes, net | - | 241 | 488 | |||||||||
Proceeds from issuance of August and December 2019 convertible notes and warrants, net | - | 1,269 | - | |||||||||
Proceeds from issuance of ordinary shares under Initial Public Offering, net | 17,310 | - | - | |||||||||
Net cash provided by financing activities | 17,310 | 1,510 | 488 | |||||||||
Change in cash, cash equivalents and restricted cash | 14,743 | 901 | (147 | ) | ||||||||
Cash, cash equivalents and restricted cash at the beginning of the year | 947 | 46 | 193 | |||||||||
Cash, cash equivalents and restricted cash at the end of the year | $ | 15,690 | $ | 947 | $ | 46 |
(*) | Represents amount less than $1 |
NOTE 1:- | GENERAL |
a. | The Company was incorporated and started business operations in November 2007. The Company is a clinical stage specialty pharmaceutical company focused on the reformulation of established therapeutics. The Company’s proprietary extended release drug-delivery system is designed to provide an extended period of post-surgical pain relief without the need for repeated dose administration while reducing the potential need for the use of opiates. |
b. | Going concern and management plans Since its inception, the Company has devoted substantially all of its efforts to research and development, clinical trials, and capital raising activities. The Company is still in its development and clinical stage and has not yet generated revenues. The Company has incurred losses of $4,053, $1,279 and $828 for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, the Company’s accumulated deficit was $16,481. The Company has funded its operations to date primarily through equity financing. Additional funding will be required to complete the Company’s research and development and clinical trials, to attain regulatory approvals, to begin the commercialization efforts of the Company’s product and to achieve a level of sales adequate to support the Company’s cost structure. On September 3, 2020, the Company closed an IPO of 2,500,000 units at a price of $8.00 per unit for gross proceeds of approximately $20,000 (net proceeds of approximately $17.3 million after deducting underwriting discounts and commissions and other offering expenses). Refer to Note 1(d). On March 11, 2021, the Company closed a private placement of 1,304,346 ordinary shares and accompanying warrants to purchase an aggregate of up to 652,173 ordinary shares at a combined purchase price of $4.60 per share and accompanying warrant resulting in gross proceeds of $6,000. Refer to Note 14(d). Based on the Company's current operating plan, the Company believes that its existing capital resources will be sufficient to fund operations for at least one year after the date the financial statements are issued. |
c. | The Company effected a 3-for-1 reverse split of the Company’s ordinary shares and convertible preferred shares on July 6, 2020. All issued and outstanding ordinary shares and convertible preferred shares and related per share amounts contained in these financial statements have been retroactively adjusted to reflect this reverse share split for all periods presented. |
d. | On September 3, 2020, the Company closed its IPO of 2,500,000 units at a price of $8.00 per unit. Each unit consisted of one ordinary share and one warrant to purchase one ordinary share. The ordinary shares and warrants were immediately separable from the units and were issued separately. The warrants are exercisable immediately, expire five years from the date of issuance and have an exercise price of $8.80 per share. On October 5, 2020, the underwriters exercised their over-allotment option and were issued warrants to purchase 375,000 ordinary shares in return for net amount of $3.The Company received gross proceeds of approximately $20,000 (net proceeds of approximately $17.3 million after deducting underwriting discounts and commissions and other offering expenses). |
e. | Public health epidemics or outbreaks could adversely impact the Company’s business. In late 2019, a novel strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially the outbreak was largely concentrated in China, it rapidly spread across the globe, including in Israel and the United States. The extent to which COVID-19 pandemic impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to contain the coronavirus or treat its impact. In particular, the continued spread of the coronavirus globally, could adversely impact the Company’s operations and workforce, including other Company’s research and clinical trials and its ability to raise capital, which in turn could have an adverse impact on the Company's business, financial condition and results of operation. |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES |
a. | Basis of presentation: |
b. | Use of estimate in preparation of financial statements: |
c. | Financial statements in United States dollars: |
d. | Cash and cash equivalents: |
e. | Restricted cash: |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
f. | Fair Value Measurements: |
g. | Property and equipment, net: |
% | ||||
Computers and electronic equipment | 33 | |||
Furniture and office equipment | 7 |
h. | Research and development expenses: |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
i. | Income taxes: |
j. | Concentrations of credit risk: |
k. | Convertible notes: |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
l. | Derivative warrant liability |
m. | Basic and diluted loss per share: |
Year ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Numerator: | ||||||||||||
Net loss applicable to shareholders of ordinary shares | $ | (4,053 | ) | $ | (1,279 | ) | $ | (828 | ) | |||
Interest accrued on convertible preferred shares | - | (1,130 | ) | (1,046 | ) | |||||||
Total loss attributed to ordinary shares | (4,053 | ) | (2,409 | ) | (1,874 | ) | ||||||
Denominator: | ||||||||||||
Shares of ordinary share used in computing basic and diluted net loss per share | 3,243,943 | 576,556 | 576,556 | |||||||||
Net loss per share of ordinary share, basic and diluted | $ | (1.25 | ) | $ | (4.17 | ) | $ | (3.24 | ) |
n. | Share-based compensation: |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
o. | Deferred offering costs |
p. | Disclosure of recent accounting pronouncements |
NOTE 3:- | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
December 31, | ||||||||
2020 | 2019 | |||||||
Receivables from governmental authorities | $ | 53 | $ | 22 | ||||
Prepaid expenses | 734 | 3 | ||||||
Other | 20 | - | ||||||
$ | 807 | $ | 25 |
NOTE 4:- | OTHER ACCOUNT PAYABLES AND ACCRUED EXPENSES |
December 31, | ||||||||
2020 | 2019 | |||||||
Employees and related liabilities | $ | 92 | $ | 15 | ||||
Accrued expenses | 149 | 151 | ||||||
$ | 241 | $ | 166 |
NOTE 5:- | FAIR VALUE MEASUREMENTS |
Exercise price | $2.55-$4.74 | |||
Expected volatility | 72.29 | % | ||
Risk free rate | 1.5%-1.67 | % | ||
Expected life (years) | 4.65-5 | |||
Dividend yield | 0 | % |
NOTE 5:- | FAIR VALUE MEASUREMENTS (Cont.) |
Balance as of December 31, 2018 | $ | - | ||
Issuance of warrants in connection with convertible notes (Note 6 (b)) | 445 | |||
Changes in fair value | 2 | |||
Balance as of December 31, 2019 | $ | 447 | ||
Changes in fair value | 1,105 | |||
Equity classification of a derivative warrant liability | (1,552 | ) | ||
Balance as of December 31, 2020 | $ | - |
NOTE 6:- | CONVERTIBLE NOTES |
a. | From 2014 until 2018, the Company issued convertible notes in the total principal amount of $3,688 to existing shareholders. During the years ended December 31, 2019 and 2018, the Company issued convertible notes in the principal amount of $241 and $488, respectively, to existing shareholders. The Company recorded interest expense amounting to $271, $379 and $324 for the years ended December 31, 2020, 2019 and 2018, respectively. |
i. | Automatic Conversion Upon Occurrence of a Qualified Investment – upon the closing of a qualified investment (issuance of preferred securities if at least $ 3,000 from a third party), the notes would have been automatically converted into securities of the Company on the same terms and conditions as in such qualified investment. The conversion would have been on the same terms and conditions and would have borne the same rights, subject to a conversion price per share equal to the lowest price per share to be paid under the qualified investment less agreed upon percentage equal to 3% multiplied by the number of months from the grant date of the applicable note and up to a maximum of 54%. |
ii. | Optional conversion – each note holder, at its sole discretion, would have been entitled, by a written notice, to convert the note held by it into Series A Preferred Shares at a conversion price equal to $2.241 (subject to adjustments in accordance with the Company's Articles of Association). |
iii. | Deemed Liquidation Event Repayment – in the event of a Deemed Liquidation Event (generally meaning consolidation or merger of the Company or sale of all or substantially all of the Company assets or issued share capital resulting in a third party holding more than 50% of the voting power or the right to appoint more than 50% of the board members) then immediately prior to the consummation of such event, the Company would have paid each note holder (which was not earlier converted) a sum equal to the principal amount of the note multiplied by three, plus the interest accrued up to the date of repayment. |
NOTE 6:- | CONVERTIBLE NOTES (Cont.) |
b. | In August and December 2019, the Company issued 14.2 units consisting of convertible notes (the “2019 Convertible Notes”) and warrants for a total consideration of $1,420 (representing a consideration of $100 per unit), after giving effect to a 10% discount. |
c. | On December 9, 2019, in connection with the 2019 Convertible Notes, the Company issued placement agent in the offering warrants (the "Agent' Warrants") to purchase an aggregate of 55,785 ordinary shares or units (refer to Note 1(d)), at an exercise price of $6.72 per unit. Each unit consists of one ordinary share and one warrant to purchase one ordinary shares, exercisable through September 3, 2025, at an exercise price of $8.80. The Agent' Warrants expire on December 8, 2024. As a result of the issuance of the Agent' Warrants issuance, the Company recorded a discount on the convertible note, which was amortized as financing expense amounting to $65 for the year ended December 31, 2020. |
NOTE 7:- | TAXES ON INCOME |
a. | Tax rates applicable to the Company: |
b. | Net operating loss carry forward: |
c. | As of December 31, 2020, the Company had final tax assessments for tax years prior to and including the tax year ended December 31, 2015. |
d. | Deferred income taxes: |
December 31, | ||||||||
2020 | 2019 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carry forward | $ | 3,476 | $ | 2,992 | ||||
Deferred tax asset before valuation allowance | 3,476 | 2,992 | ||||||
Valuation allowance | (3,476 | ) | (2,992 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
e. | Uncertain tax positions: |
December 31, | ||||
2020 | ||||
Opening balance | - | |||
Tax positions taken in the current year | 217 | |||
Increase related to current year tax positions | 3 | |||
Closing balance | $ | 220 |
NOTE 8:- | COMMITMENTS AND CONTINGENCIES |
a. | During the years ended December 31, 2020, 2019 and 2018, the Company rented its office space from a related party for an annual rental fee of $33. As of December 31, 2020, the rent agreement with the related party was terminated. On December 10, 2020, the Company entered into a new rental agreement for a period of twelve months starting on January 1, 2021, with extension option for additional twelve months, for an annual rental fee of $22. |
b. | On November 23, 2020, the Company entered into employment agreement with Rita Kenan under which Mrs. Kenan will serve at the Company as VP Operations commencing January 1, 2021. Under the terms of the agreement, in the event Mrs. Keenan will not receive payment of her 2020 bonus, for which she is entitled from her former employer due to her employment during 2020, due to a reason unrelated to Mrs. Keenan’s actions or conduct, the Company agreed to pay Mrs. Keenan the unpaid 2020 bonus or any portion thereof, in the amount of up to NIS 140,000. |
c. | During November and December 2020, the Company entered into certain clinical trial agreements with a US vendor to serve as the clinical research organization for the Company's planned Phase 3 trials of PRF-110, expected to take place in 2021 (refer to note 13). Under the first agreement, the Company is obligated to pay an accumulated amount of approximately $2,907 (excluding pass-through costs) upon milestone completions and under the second agreement an accumulated amount of approximately $7,107 (excluding advertising budget) upon actual number of evaluable subjects. |
NOTE 9:- | TEMPORARY EQUITY |
Convertible Preferred Shares - Series A | ||||||||||||||||
Shares Authorized | Shares Issued and Outstanding | Carrying Value | Liquidation Preference | |||||||||||||
As of December 31, 2019 | 18,300,000 | 2,954,267 | $ | 6,621 | $ | 15,250 |
A. | Priority on Receipt of Dividends and/or Bonus Shares |
B. | Conversion Rights |
NOTE 9:- | TEMPORARY EQUITY (Cont.) |
C. | Automatic and Mandatory Conversion |
D. | Voting Rights |
E. | Anti-dilution Protection |
NOTE 9:- | TEMPORARY EQUITY (Cont.) |
E. | Anti-dilution Protection (Cont.) |
F. | Veto Rights to certain Preferred Shares Holders |
G. | Liquidation Preference |
NOTE 9:- | TEMPORARY EQUITY (Cont.) |
G. | Liquidation Preference (Cont.) |
NOTE 10:- | SHAREHOLDERS’ EQUITY (DEFICIT) |
a. | On July 6, 2020, the Company’s shareholders approved a 1-for-3 reverse share split of shares of the Company’s ordinary shares and convertible preferred shares effected on July 6, 2020. All issued and outstanding ordinary shares and convertible preferred shares and related per share amounts reflected in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. See also Note 1c. |
b. | In August 2020, the Company entered into an IR/PR service agreement (the "Service Agreement") with Crescendo Communications, LLC ("Crescendo"), for a period of two years, commencing immediately after the IPO closing date, and in consideration for 152,110 restricted Company's ordinary shares (the "Consideration"), reflecting 3.75% of the Company's' share capital fully diluted Pre-IPO. On August 23, 2020, the Company's Board of Directors approved the Service Agreement with Crescendo and the grant of the abovesaid ordinary shares. The Company recognized $137 during the year ended December 31, 2020 as share-based compensation expense related with the consideration. As of December 31, 2020, the foregoing shares have not been issued. |
c. | Concurrent with the closing of the IPO, on September 3, 2020, all of the Company’s convertible notes issued from 2014 through 2018 (inclusive of accrued interest) were converted into 2,415,022 ordinary shares, and all the of the 2019 Convertible Notes (inclusive of the 10% increase of the August 2019 convertible notes principal amount (refer to note 10d) and inclusive of accrued interest on all outstanding notes) were converted into 312,170 IPO units, each consisting of one ordinary share and one warrant, exercisable immediately, at an exercise price of $8.80 and with an expiry date of 5 years of the IPO closing date (refer to note 1(d)). Additionally, on the IPO closing date, the amount and exercise price of the 2019 Convertible Notes related warrants were fixed at 297,589 warrants, each exercisable, at an exercise price of $6.72, into a single unit (refer to Note 1(d)), consisting of one ordinary share and one warrant, exercisable through September 3, 2025, at an exercise price of $8.80. With the amount and exercise price of the August and December 2019 warrants units being fixed, the respective derivative warrant liability, as of the IPO closing date, was classified in equity (refer to note 5). Furthermore, on the IPO closing date, all of the Company’s outstanding convertible preferred shares were converted into 2,954,267 ordinary shares. As part of the IPO, the Company granted the IPO underwriters an over-allotment option , exercisable not later than 45 days after the IPO closing date, to purchase up to 375,000 additional ordinary shares and/or warrants to purchase up to 375,000 ordinary shares at the public offering price per share or warrant ($7.99 and $0.01, respectively), less the underwriting discounts and commissions. On October 5, 2020 the underwriters exercised their over-allotment option and were issued warrants to purchase 375,000 ordinary shares in return for net amount of $3. The warrants are exercisable through September 3, 2025, at an exercise price of $8.80. As of December 31, 2020, the option to purchase up to 375,000 additional ordinary shares expired. In addition, on the IPO closing date, the Company granted to the underwriters of the IPO warrants to purchase 125,000 ordinary shares, which equals five percent (5%) of the total number of units sold in the IPO, excluding the over-allotment option, at an exercise price $10.00 per share. The warrants (the “Underwriters’ Warrants”) contain a cashless exercise feature. The Underwriters’ Warrants are exercisable for ordinary shares on a cash or cashless basis at an exercise price of $10.00 per ordinary share which price reflects 125% of the public offering price of the units issued in the offering. The Underwriters’ Warrants are exercisable following twelve (12) months after the effective date of the registration statement relating to the IPO and expire five (5) years after such effective date. The Underwriters’ Warrants are non-transferable. |
NOTE 10:- | SHAREHOLDERS’ EQUITY (DEFICIT) (Cont.) |
Type | ISSUANCE DATE | NUMBER OF WARRANTS | EXERCISE PRICE | EXERCISABLE THROUGH |
August 2019 warrants (note 6b) | August 22, 2019 | 205,268 | $6.72 (*) | August 22, 2024 |
December 2019 warrants (note 6b) | December 9, 2019 | 92,321 | $6.72 (*) | December 8, 2024 |
Warrants to bridge financing placement agent (note 6c) | December 9, 2019 | 55,785 | $6.72 (*) | December 8, 2024 |
Warrants to underwriters (note 10) | September 3, 2020 | 125,000 | $10.00 | September 1, 2025 |
Warrants to underwriters (note 10) | October 5, 2020 | 375,000 | $8.80 | October 5, 2025 |
IPO warrants (note 1d, note 6b) | September 3, 2020 | 2,812,170 | $8.80 | September 3, 2025 |
NOTE 10:- | SHAREHOLDERS’ EQUITY (DEFICIT) (Cont.) |
June 12, 2019 | ||||
Risk-free interest rate | 2.13 | % | ||
Expected volatility | 82.29 | % | ||
Dividend yield | 0 | |||
Expected term | 10 | |||
Exercise price | 3.339 |
NOTE 10:- | SHAREHOLDERS’ EQUITY (DEFICIT) (Cont.) |
September 5, 2019 | ||||
Risk-free interest rate | 1.43% - 1.49 | % | ||
Expected volatility | 82.82%–85.56 | % | ||
Dividend yield | 0 | |||
Expected term | 5.75 | |||
Exercise price | $0.24 – $3.339 |
Number of options | Weighted average exercise price | Weighted average remaining contractual life | ||||||||||
Options outstanding as of December 31, 2018 | 153,882 | $ | 0.24 | 5.25 | ||||||||
Options outstanding as of December 31, 2019 | 153,882 | $ | 0.24 | 4.25 | ||||||||
Options outstanding as of December 31, 2020 | 153,882 | $ | 0.24 | 3.25 | ||||||||
Options exercisable as of December 31, 2020 and 2019 | 153,882 | $ | 0.24 | 3.25 |
Number of options | Weighted average exercise price | Weighted average remaining contractual life | ||||||||||
Options outstanding as of December 31, 2019 | 219,456 | $ | 2.62 | 9.56 | ||||||||
Options outstanding as of December 31, 2020 | 219,456 | $ | 2.62 | 8.56 | ||||||||
Options exercisable as of December 31, 2020 | 200,269 | $ | 2.55 | 8.55 |
NOTE 11:- | SELECTED STATEMENTS OF OPERATIONS DATA |
a. | Research and development expenses: |
Year ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Subcontractors and consultants | $ | 217 | $ | 21 | $ | 171 | ||||||
Payroll and related expenses | 90 | 59 | - | |||||||||
Share-based compensation expense | 18 | 14 | - | |||||||||
Patent | 29 | 42 | 52 | |||||||||
$ | 354 | $ | 136 | $ | 223 |
b. | General and administrative expenses: |
Year ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Professional services | $ | 727 | $ | 342 | $ | 218 | ||||||
Payroll and related expenses | 154 | 60 | - | |||||||||
D&O insurance | 360 | - | - | |||||||||
Rent and office maintenance | 37 | 33 | 34 | |||||||||
Share-based compensation expense | 20 | 75 | (* | ) | ||||||||
Others | 19 | 43 | 25 | |||||||||
$ | 1,317 | $ | 553 | $ | 277 |
c. | Financial expenses, net: |
Year ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Interest expense and amortization of discount on convertible notes | 987 | 541 | 324 | |||||||||
Issuance expenses | 65 | 47 | - | |||||||||
Bank fees | 3 | 2 | 1 | |||||||||
Change in fair value of derivative warrant liability | 1,105 | 2 | - | |||||||||
Exchange rate differences | 2 | (2 | ) | 3 | ||||||||
Total financial expenses, net | $ | 2,162 | $ | 590 | $ | 328 |
NOTE 12:- | RELATED PARTIES BALANCES AND TRANSACTIONS |
A. | During the years ended December 31, 2019 and 2018, the Company issued convertible notes in the amount of $95 and $279, respectively, to existing shareholders. As described under Note 6 above, the notes bore interest at an annual interest rate of 8%, compounded on the basis of a 365-day year and were convertible into convertible preferred shares of the Company. Refer to Note 6. On September 3, 2020, upon consummation of the IPO, the outstanding balance of the convertible notes was converted into ordinary shares. |
B. | Starting in January 2014, the Company sub-leased office space and received management services from Zori Medica 2010 Ltd., a private company affiliated with Medica Venture Partners, the controlling shareholder of the Company. The Company was subject to an annual rental fee of $33 for the office space and $20 as a quarterly management fee. The management services continued until the end of March 2018. |
C. | On April 1, 2018, the Company signed a consultancy agreement with Prof. Hazum, a director of the Company, under which Prof. Hazum shall serve as chief executive officer of the Company on a 3 days per week basis, in consideration for a monthly fee of $12. |
D. | On January 26, 2020, the Company’s Board of Directors approved a one-time immediate payment of $150 and a payment of $37.5 on a quarterly basis (for such time as the service engagement continues) to the Chairman of the Board of Directors contingent upon shareholder approval which was granted on July 6, 2020 and successful completion of Company’s IPO which closed on September 3, 2020. |
a. | Balances with related parties: |
December 31, | ||||||||
2020 | 2019 | |||||||
Convertible notes | $ | - | $ | 4,746 |
b. | Transactions with related parties: |
2020 | 2019 | 2018 | ||||||||||
Amounts charged to: | ||||||||||||
General and administrative expenses | $ | 370 | $ | 210 | $ | 168 | ||||||
Interest expense on convertible notes | $ | 251 | $ | 351 | $ | 313 |
NOTE 13:- | CLINICAL TRIALS On November 13, 2020 (the "First Agreement Execution Date"), the Company entered into a Master Clinical Research Organization Agreement (the "First Agreement"), and on December 3, 2020, the Company entered into a Master Clinical Trial Agreement (the "Second Agreement") both with Lotus Clinical Research as the Company's clinical research organization for the Company's planned Phase 3 trials of PRF-110, which are expected to take place in 2021. Under the First Agreement, a non-refundable payment of $581 was made on December 28, 2020. Such payment was accounted for as prepaid clinical trial expenses as of December 31, 2020. Under the Second Agreement, a non-refundable deposit (the "Second Agreement Deposit") of $710 is required. As of December 31, 2020, the Second Agreement Deposit was not paid yet. For the year ended December 31, 2020, the Company recorded $710 as deferred clinical trial costs to reflect this non-refundable due. |
NOTE 14:- | SUBSEQUENT EVENTS |
a. | Under a CEO employment agreement with the Company’s CEO, the Company agreed to issue to the CEO options to purchase 267,296 ordinary shares. The exercise price of the options is $5.7375. The options vest quarterly over a period of four years provided that on such date the CEO shall serve in such capacity. The CEO's employment terms, including the abovesaid options grant, were approved at a shareholders’ meeting of the Company which took place on February 23, 2021. |
b. | On February 23, 2021, the shareholders of the Company approved the grant of options to purchase 60,000 ordinary shares of the Company to each of three board members (three persons), options to purchase 60,000 ordinary shares to its Chairman of the board of directors and options to purchase 60,000 ordinary shares to its Chief Technology Officer. Each of the options may be exercised at $4.50 per share. The options vest on a quarterly basis over thirty-six months, so that 1/12 of the options shall vest on the last day of each three-month period, provided that on such date each of the serving directors shall serve in such capacity. |
c. | On March 11, 2021, the Company closed a private placement of 1,304,346 ordinary shares and accompanying warrants to purchase an aggregate of up to 652,173 ordinary shares at a combined purchase price of $4.60 per share and accompanying warrant resulting in gross proceeds of $6,000. |
PAINREFORM LTD. | |||
Date: March 18, 2021 | By: | /s/ Ilan Hadar | |
Ilan Hadar | |||
Chief Executive Officer |