ENTERA BIO LTD.
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"),
Section 27A of the Securities Act of 1933, as amended, (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act"), about our expectations, beliefs or intentions regarding our
product development efforts, business, financial condition, results of
operations, strategies and prospects. You can identify forward-looking
statements by the fact that these statements do not relate to historical or
current matters. Rather, forward-looking statements relate to anticipated or
expected events, activities, trends or results as of the date they are made.
Because forward-looking statements relate to matters that have not yet occurred,
these statements are inherently subject to risks and uncertainties that could
cause our actual results to differ materially from any future results expressed
or implied by the forward-looking statements. Many factors could cause our
actual activities or results to differ materially from the activities and
results anticipated in forward-looking statements. These factors include those
contained in "Item 1A - Risk Factors" and "Cautionary Statement Regarding
Forward-Looking Statements" of this Annual Report on Form 10-K. We do not
undertake any obligation to update forward-looking statements except as required
by applicable law. We intend that all forward-looking statements be subject to
the safe harbor provisions of PSLRA. These forward-looking statements reflect
our views only as of the date they are made.
For purposes of this Item 7, references to the "Company," "we," "us" and "our"
refer to
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Overview
Entera is a clinical stage biopharmaceutical company and a leader in the development of orally delivered macromolecule therapeutics, including peptides and therapeutic proteins. Currently, most protein therapies are administered via frequent intravenous, subcutaneous, or intramuscular injections. In chronic diseases where patients require persistent management, these cumbersome, often painful and high-priced injections can create a major treatment gap. Furthermore, from a technical standpoint, oral delivery of therapeutic proteins has historically been challenging due to enzymatic degradation within the gastrointestinal tract, poor absorption into the blood stream and variable drug exposures. Entera's proprietary technology is designed to deliver orally administered proteins with sufficient bioavailability to meet treatment goals, using white mini tablets (around 6mm in diameter) of the desired protein. We strategically focus on underserved, chronic medical conditions where oral administration of a mini tablet peptide or peptide replacement therapy has the potential to significantly shift a treatment paradigm. We currently have two product candidates in the clinical stage of development: EB613 and EB612. Both candidates are first-in-class daily mini tablets of human parathyroid hormone (hPTH (1-34), teriparatide). To date, Entera's proprietary PTH tablets have been safely administered to a total of 72 healthy subjects in Phase 1 studies and 153 patients across Phase 2 studies in osteoporosis and hypoparathyroidism, two diseases that remain underserved with the current standard of care and which disproportionately affect women. In addition to these product candidates, we have various internal early stage research programs in other approved peptides such as GLP-2 and hGH, as well as outside early stage collaborations to potentially diversify our revenue stream. Since our inception, we have raised a total of$84.7 million from a combination of public and private equity offerings, grants and the exercise of options and warrants. Since inception, we have incurred significant losses. For the years endedDecember 31, 2022 and 2021, our operating losses were$13.0 million and$12.2 million , respectively, and we expect to continue to incur significant expenses and losses for the foreseeable future. As ofDecember 31, 2022 , we had an accumulated deficit of$95.5 million . Our losses may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials, our expenditures on research and development activities, and payments under any future collaborations into which we may enter. As a result of our recurring losses from operations, negative cash flows and lack of liquidity, management is of the opinion that there is substantial doubt as to the Company's ability to continue as a going concern. Our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of, and for the year ended,December 31, 2022 , expressing the existence of substantial doubt about our ability to continue as a going concern. The audited consolidated financial statements included herein have been prepared assuming that we will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. If we are unable to raise the requisite funds, we will need to delay certain program initiation, curtail or cease operations. See "Item 1A-Risk Factors-Risks Related to Our Financial Position and Need forAdditional Capital ." As ofDecember 31, 2022 , we had cash and cash equivalents of$12.3 million . We believe that our existing cash resources will be sufficient to meet our projected operating requirements into the third quarter of 2024, which include the capital required to fund our ongoing operations, including R&D and the completion of the Phase 1 PK study related to the new formulation EB612. However, this does not include the capital required to fund our proposed Phase 3 pivotal study for EB613 in osteoporosis and comparative PK study of EB613 and Forteo®. We currently do not have funding sufficient for such Phase 3 or PK studies, and our ability to commence such studies requires additional funding, which may not be available on reasonable terms, or at all. Any delay or our inability to secure such funding will delay or prevent the commencement of these studies. In order to fund further operations, we will need to raise additional capital. We may raise these funds through a variety of means, including private or public equity offerings, debt financings, strategic collaborations and licensing arrangements. Additional financing may not be available when we need it or may not be available on terms that are favorable to us.
Patent Transfer, Licensing Agreements and Grant Funding
Oramed Patent Transfer Agreement
In 2011, we entered into a patent transfer agreement with Oramed, or the Patent
Transfer Agreement, pursuant to which Oramed assigned to us all of its rights,
title and interest in the patent rights Oramed licensed to us when we were
originally organized, subject to a worldwide, royalty-free, exclusive,
irrevocable, perpetual and sub-licensable license granted to Oramed under the
assigned patent rights to develop, manufacture and commercialize products or
otherwise exploit such patent rights in the fields of diabetes and influenza.
Additionally, we agreed not to engage, directly or indirectly, in any activities
in the fields of diabetes and influenza. Under the terms of the Patent Transfer
Agreement, we agreed to pay Oramed royalties equal to 3% of our net revenues
generated, directly or indirectly, from exploitation of the assigned patent
rights, including the sale, lease or transfer of the assigned patent rights or
sales of products or services covered by the assigned patent rights.
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Amgen Research Collaboration and License Agreement
OnDecember 10, 2018 , we entered into a research collaboration and license agreement with Amgen, which we refer to as the Amgen Agreement, with respect to inflammatory disease and other serious illnesses. Pursuant to the Amgen Agreement, we and Amgen have agreed to use our proprietary drug delivery platform to develop oral formulations for one preclinical large molecule program that Amgen has selected. In exchange for entering into the agreement, Amgen paid us a non-refundable and non-creditable initial access fee of$725,000 in the first quarter of 2019, of which$500,000 was attributed to the right to use the intellectual property and$225,000 was attributed to the pre-clinical R&D services that we are obligated to perform under the Amgen Agreement. In addition, under the Amgen Agreement, Amgen reimburses us for additional expenses that we incur for any work we do under the collaboration. Thus far during our collaboration, Amgen has paid$968,000 for pre-clinical R&D services by the end of 2022. Amgen is responsible for the clinical development, regulatory approval, manufacturing and worldwide commercialization of the programs. Pursuant to the terms of the Amgen Agreement, Amgen is required to make aggregate payments of up to$270 million upon achievement of various clinical and commercial milestones or its exercise of options to select the additional two programs to include in the collaboration. In addition, Amgen is required to make tiered royalty payments ranging from the low to mid-single digits as a percentage of Amgen's net sales of the applicable products covered by the Amgen Agreement. Amgen's obligation to pay royalties with respect to a product in a particular country commences upon the first commercial sale of such product in such country and expires on a country-by-country and product-by-product basis on the later of (a) the date on which the sale of the product is no longer covered by a valid claim of a patent licensed to Amgen under the Amgen Agreement, and (b) the tenth anniversary of the first commercial sale of such product in such country. Under the Amgen Agreement, we granted Amgen an exclusive, worldwide, sub-licensable license to certain of our intellectual property relating to our drug delivery technology to develop, manufacture and commercialize the applicable products. We have retained all intellectual property rights to our drug delivery technology, Amgen will retain all rights to its large molecules and any subsequent improvements, and ownership of certain intellectual property developed through the performance of the collaboration is to be determined byU.S. patent law. Each party is responsible for the filing and prosecution of patents relating to its owned developments and, with respect to any jointly-owned developments, we are responsible for the filing and prosecution of patents solely claiming improvements to our drug delivery technology and Amgen is responsible for the filing and prosecution of any other jointly-owned developments. Amgen has the primary right to enforce any such patents against third-party infringement with respect to a product that has the same mechanism of action as one of the collaboration programs, subject to involvement by us in certain circumstances. During certain periods covered by the Amgen Agreement, we may not alone, or with a third party, research, develop, manufacture or commercialize certain products that interact with the targets of the applicable collaboration programs. The collaboration is governed by a joint research committee, or JRC, made up of equal representatives of us and Amgen. The JRC may establish additional subcommittees to oversee particular projects or activities. Subject to certain limitations, if the JRC is unable to make a decision by consensus, the disagreement is to be resolved through escalation to specified senior executive officers of the parties, although Amgen has the final decision-making ability with respect to certain pre-defined issues. The term of the Amgen Agreement commenced onDecember 10, 2018 , and unless earlier terminated, continues in full force and effect, on a product-by-product basis, until expiration of the last-to-expire royalty term with respect to such product. At any point in the research, development or commercialization process, subject to certain conditions, Amgen can terminate the Amgen Agreement in its entirety or with respect to a specific development program. Both parties can terminate the agreement for a material breach by the other party that goes uncured, subject to a 90-day notice period.
Israeli Innovation Authority Grants
We have received grants of approximately$0.5 million from the IIA to partially fund our research and development. The grants are subject to certain requirements and restrictions under the Israeli Encouragement of Research, Development and Technological Innovation in Industry Law 5477-1984, or the Research Law. In general, until the grants are repaid with interest, royalties are payable to the Israeli government in the amount of 3% on revenues derived from sales of products or services developed in whole or in part using the IIA grants, including EB613, EB612 and any other oral PTH product candidates we may develop. The royalty rate may increase to 5%, with respect to approved applications filed following any year in which we achieve sales of over$70 million . 80 -------------------------------------------------------------------------------- The amount that must be repaid may be increased up to six times the amount of the grant received and the interest. The rate of royalties may be accelerated and the royalty liability may increase (up to three times the amount of the grant amount and the interest), if manufacturing of the products developed with the grant money is transferred outside of theState of Israel . Moreover, a payment of up to 600% of the grant received may be required upon the transfer of any IIA-funded know-how to a non-Israeli entity. We signed a contract with aU.K. -based contract manufacturing organization to produce and supply pills for trials performed worldwide. We believe that, because this production is not for commercial purposes, it will not affect the royalty rates to be paid to the IIA. Should the IIA successfully take a contrary position, the maximum royalties to be paid to the IIA will be approximately$1.5 million , which is three times the amount of the original grant (three times of the interest will also be added). Following the signing of the Amgen Agreement, we have been required to pay 5.38% of each payment by Amgen and up to 600% of the grant received and the interest. As ofDecember 31, 2022 , we had paid royalties to the IIA in the amount of$83,000 related to the Amgen Agreement. In addition to paying any royalties due, we must abide by other restrictions associated with receiving such grants under the Research Law that continue to apply following repayment to the IIA.
Financial Overview
Revenue
To date, we have not generated any revenue from sales of our products, and we do not expect to receive any revenue from any product candidates that we develop unless and until we obtain regulatory approval and successfully commercialize our products.
Under the Amgen Agreement, through
Revenues, including revenues under the Amgen Agreement, are recognized according to ASC 606, "Revenues from Contracts with Customers".
According to ASC 606, a performance obligation is a promise to provide a
distinct good or service or a series of distinct goods or services. Goods and
services that are not distinct are bundled with other goods or services in the
contract until a bundle of goods or services that is distinct is created. A good
or service promised to a customer is distinct if the customer can benefit from
the good or service either on its own or together with other resources that are
readily available to the customer and the entity's promise to transfer the good
or service to the customer is separately identifiable from other promises in the
contract. Options granted to the customer that do not provide a material right
to the customer that it would not receive without entering into the contract do
not give rise to performance obligations. We identified two performance
obligations in the agreement: the license to use the Company's proprietary drug
delivery platform and pre-clinical research and development services
("pre-clinical R&D services"). The license to our intellectual property has
significant standalone functionality, since we are not required to continue to
support, develop or maintain the intellectual property transferred and will not
undertake any activities to change the standalone functionality of the
intellectual property. Therefore, we recognized the revenues related to this
performance obligation in December 2018 at the point in time that control of the
license was transferred to Amgen. The preclinical R&D services include
discovery, research and design preclinical activities relating to the programs
selected by Amgen. Revenues attributed to the preclinical R&D services are
recognized during the period the pre-clinical R&D services are provided
according to the input model method on a cost-to-cost basis. Each of these items
met the definition of distinct performance obligation. The Company evaluated the
standalone selling price of the pre-clinical R&D services at $225,000 and the
right to use the intellectual property at $500,000 .
Under ASC 606, the consideration that we would be entitled to upon the
achievement of contractual milestones, which are contingent upon the occurrence
of future events of development and commercial progress, are a form of variable
consideration. When assessing the portion, if any, of such milestone-related
consideration to be included in the transaction price, we first assess the most
likely outcome for each milestone, and exclude the consideration related to
milestones of which the occurrence is not considered the most likely outcome. We
then evaluate if any of the variable consideration determined in the first step
is constrained. Variable consideration is included in the transaction price if,
in our judgment, it is probable that a significant future reversal of cumulative
revenue under the contract will not occur. Estimates of variable consideration
and determination of whether to include estimated amounts in the transaction
price are based largely on an assessment of our anticipated performance and all
information (historical, current and forecasted) that is reasonably available.
We did not recognize any revenues from milestone payments.
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An entity should recognize revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property only when (or as) the later of the following events occurs:
• The subsequent sale or usage occurs; and
• The performance obligation to which some or all of the sales-based or
usage-based royalty has been allocated has been satisfied (or partially
satisfied).
We did not recognize any revenues from royalties because royalties are payable based on future commercial sales, as defined in the Amgen Agreement, and there have been no commercial sales.
For the years ended
Research and Development Expenses
Research and development expenses consist of costs incurred for the development of our drug delivery technology and our product candidates. Those expenses include:
• employee-related expenses, including salaries, bonuses and share-based
compensation expenses for employees and service providers in the research and
development function;
• expenses incurred in operating our laboratories including our small-scale
manufacturing facility;
• expenses incurred under agreements with CROs, and investigative sites that
conduct our clinical trials;
• expenses related to outsourced and contracted services, such as external
laboratories, consulting and advisory services;
• supply, development and manufacturing costs relating to clinical trial
materials; and
• other costs associated with pre-clinical and clinical activities.
Research and development activities are the primary focus of our business. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase significantly in future periods as we advance EB613 and EB612 into later stages of clinical development and invest in additional preclinical candidates. Our research and development expenses may vary substantially from period to period based on the timing of our research and development activities, including due to the timing of initiation of clinical trials and the enrollment of patients in clinical trials. For the years endedDecember 31, 2022 and 2021, our research and development expenses were$5.8 million and$6.8 million , respectively. Research and development expenses for the years endedDecember 31, 2022 and 2021 were primarily for the development of EB613 and EB612. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from, any of our product candidates. This is due to numerous risks and uncertainties associated with developing drugs, including:
• the uncertainty of the scope, rate of progress, results and cost of our
clinical trials, nonclinical testing and other related activities;
• the cost of manufacturing clinical supplies and establishing commercial
supplies of our product candidates and any products that we may develop;
• the number and characteristics of product candidates that we pursue;
• the cost, timing and outcomes of regulatory approvals;
• the cost and timing of establishing any sales, marketing, and distribution
capabilities; and
• the terms and timing of any collaborative, licensing and other arrangements
that we may establish, including any milestone and royalty payments thereunder.
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A change in the outcome of any of these variables with respect to the
development of EB613, EB612 or any other product candidate that we may develop
could mean a significant change in the costs and timing associated with the
development of such product candidate. For example, if the FDA or other
regulatory authority were to require us to conduct preclinical and/or clinical
studies beyond those which we currently anticipate will be required for the
completion of clinical development, if we experience significant delays in
enrollment in any clinical trials or if we encounter difficulties in
manufacturing our clinical supplies, then we could be required to expend
significant additional financial resources and time on the completion of the
clinical development.
General and Administrative Expenses
General and administrative expenses consist principally of salaries, benefits, share-based compensation and related costs for directors and personnel in executive and finance functions. Other general and administrative expenses include D&O insurance and other insurance, communication expenses, professional fees for legal and accounting services, patent counseling and portfolio maintenance and business development expenses.
We expect that our general and administrative expenses will increase in the future as we increase our headcount and expand our administrative function to support our operations.
Financial Expenses (Income), Net
Financial expenses (income), net are composed primarily of interest income and exchange rate differences of certain currencies against our functional currency.
Income Tax Expenses (Benefit)
We have not generated taxable income since our inception, and as ofDecember 31, 2022 , we had carry-forward tax losses of$67.1 million . We anticipate that we will be able to carry forward these tax losses indefinitely to future tax years. Accordingly, we do not expect to pay taxes inIsrael until we have taxable income after the full utilization of our carryforward tax losses. We provided a full valuation allowance with respect to the deferred tax assets related to these carry forward losses of the Company. The Company's subsidiary,Entera Bio, Inc. , is taxed separately under theU.S. tax laws. As ofDecember 31, 2022 ,Entera Bio Inc. has tax loss carry-forwards of$98 thousand . Results of Operations
Comparison of Years Ended
Year Ended
December 31, Increase (Decrease)
2022 2021 $ %
(In thousands, except for percentage information)
Revenues $ 134 $ 571 $ (437 ) (77 )%
Cost of revenues $ 101 $ 373 (272 ) (73 )%
Operating expenses:
Research and development expenses $ 5,848 $ 6,771 $ (923 ) (14 )%
General and administrative expenses
$ 1,563 27 % Other income$ (51 ) $ (46 ) $ (5 ) 11 % Operating loss$ 13,017 $ 12,217 $ 800 7 % Financial expenses (income), net$ (83 ) $ 29 $ (112 ) (386 )% Income tax expenses (benefit)$ 137 $ (59 ) $ 196 (332 )% Net loss$ 13,071 $ 12,187 $ 884 7 % Revenue Revenues for the years endedDecember 31, 2022 and 2021 were$134,000 and$571,000 , respectively. For 2022 and 2021, the majority of our revenues were attributable to research and development, or R&D, services provided to Amgen under the Amgen Agreement and other MTA agreements. The decrease in revenue for the year endedDecember 31, 2022 as compared to the prior year period was primarily due to finalization of third year pre-clinical R&D services. We did not generate any revenues prior to entering into the Amgen Agreement. 83
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Cost of Revenues
Cost of revenues for the year endedDecember 31, 2022 were$101,000 compared to$373,000 for the year endedDecember 31, 2021 and were primarily attributed to salaries and related expenses in connection with the R&D services provided under the Amgen Agreement and other MTA agreements. The decrease in cost of revenues for the year endedDecember 31, 2022 was primarily due to decreased revenues under the Amgen Agreement, as described above.
Research and Development Expenses
Research and development expenses for the year endedDecember 31, 2022 were$5.8 million , as compared to$6.8 million for the year endedDecember 31, 2021 . The decrease of$1.0 million was primarily attributed to a decrease of$0.6 million related to the completion of our Phase 2 trial for EB613 inSeptember 2021 , and a decrease of$0.9 million in pre-clinical activities related to our planned Phase 3 clinical trial for EB613, which were partially offset by an increase of$0.3 million in continued materials and production costs, strengthening the R&D organization in preparation for EB613's proposed phase 3 study and EB612's proposed new formulation PK study and an increase of$0.2 million in employee compensation, primarily related to a one-time payment to our former President of R&D.
General and Administrative Expenses
General and administrative expenses for the year endedDecember 31, 2022 were$7.3 million , compared to$5.7 million for the year endedDecember 31, 2021 . The increase of$1.6 million was primarily attributable to an increase of$0.4 million in non-cash share-based compensation granted to directors and executive officers and an increase of$0.4 with respect to a one-time payment to our former Chief Executive Officer. Additionally, there was an increase of$0.5 million in professional fees and an increase of$0.3 million in D&O insurance costs.
Financial Expenses (Income), Net
Financial income, net for the year endedDecember 31, 2022 was$83,000 , compared to$29,000 financial expenses, net for the year endedDecember 31, 2021 . Our financial expenses (income) is composed primarily of exchange rate differences of certain currencies against our functional currency, which is theU.S. Dollar.
Liquidity and Capital Resources
Since inception, we have incurred significant losses. As a result of our recurring losses from operations, negative cash flows from operating activities and lack of liquidity, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of, and for the year ended,December 31, 2022 , expressing the existence of substantial doubt about our ability to continue as a going concern. For the years endedDecember 31, 2022 and 2021, our operating losses were$13.0 million and$12.2 million , respectively. We expect to continue to incur significant expenses and losses for the next several years as we advance our products through development and provide administrative support for our operations. As ofDecember 31, 2022 , we had an accumulated deficit of$95.5 million . Since our inception, we have raised a total of$84.7 million , including$25.3 million through at-the-market-offering ("ATM") programs,$14.3 million in ourDecember 2019 private placement,$11.2 million in our IPO in 2018 and$33.9 million in aggregate funding from a combination of grants, exercise of options and warrants and private placements of Ordinary Shares, preferred shares and debt prior to our IPO. In addition, as ofDecember 31, 2022 , we had received approximately$1.4 million under the Amgen Agreement. As ofDecember 31, 2022 , we had cash and cash equivalents of$12.3 million . Our primary uses of cash have been to fund research and development, general and administrative and working capital requirements, and we expect these will continue to be our primary uses of cash. InJuly 2020 , we entered into an equity distribution agreement withCanaccord Genuity LLC , as sales agent, to implement an at-the-market offering program under which we, from time to time, were able to offer and sell our Ordinary Shares, having an aggregate offering amount of up to$13.9 million . This ATM program terminated in accordance with its terms following our sale of the full dollar amount of ordinary shares permitted thereunder. OnMay 7, 2021 we entered into an At Market Issuance Sales Agreement withB. Riley Securities, Inc. , as sales agent, under which we, from time to time, had been able to offer and sell up to 5,000,000 Ordinary Shares . For the year endedDecember 31, 2021 , we sold an aggregate of 4,386,728 ordinary shares under the foregoing ATM programs for aggregate proceeds of$21.8 million , net of issuance costs. 84 -------------------------------------------------------------------------------- Following our loss of foreign private issuer status onJanuary 1, 2022 , we were no longer able to use our then-current ATM program, as offers and sales under which had been registered on our registration statement on Form F-3, which may be used only by a foreign private issuer; therefore, we filed a new shelf registration statement on Form S-3 (file no. 333-365286) onMay 27, 2022 to, among other things, facilitate our use of the Amended B. Riley ATM Program and SVB ATM Program (each as defined below). OnMay 27,2022 we entered into an Amended and Restated at Market Issuance Sales Agreement withB. Riley Securities, Inc. , as sales agent, under which we were able, from time to time, to offer and sell up to 5,000,000 Ordinary Shares (the "Amended B. Riley ATM Program"). EffectiveAugust 30, 2022 , we terminated the Amended B. Riley ATM Program, and we had not sold any shares under such agreement. OnSeptember 2, 2022 , we entered into a Sales Agreement withSVB Securities LLC , as sales agent, to implement an ATM program under which we may from time to time offer and sell up to 5,000,000 Ordinary Shares (the "SVB ATM Program") under our currently effective Registration Statement on Form S-3 and a related prospectus supplement forming a part thereof. The sales agent is entitled to a fixed commission of 3% of the aggregate gross proceeds as well as and reimbursement of expenses. As ofDecember 31, 2022 , we had not sold any shares under the SVB ATM Program. Funding Requirements We believe that our existing cash resources will be sufficient to meet our projected operating requirements into the third quarter of 2024, which include the capital required to fund our ongoing operations, including R&D and the completion of the Phase 1 PK study related to the new formulation EB612. However, this does not include the capital required to fund our proposed Phase 3 pivotal study for EB613 in osteoporosis and comparative PK study of EB613 and Forteo®. We currently do not have funding sufficient for such Phase 3 or PK studies, and our ability to commence such studies requires additional funding, which may not be available on reasonable terms, or at all. Any delay or our inability to secure such funding will delay or prevent the commencement of these studies. We have based these estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development of our product candidates, and the extent to which we may enter into collaborations with third parties for development of these or other product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the development of our current and future product candidates. Our future capital requirements will depend on many factors, including:
• the costs, timing and outcome of clinical trials for, and regulatory review of,
EB613, EB612 and any other product candidates we may develop;
• the costs of development activities for any other product candidates we may
pursue;
• the costs of preparing, filing and prosecuting patent applications, maintaining
and enforcing our intellectual property rights and defending intellectual
property-related claims; and
• our ability to establish collaborations on favorable terms, if at all.
We are in the process of evaluating various financing alternatives in the public or private equity markets or through license of our technology to additional external parties through partnerships or research collaborations as we will need to finance future research and development activities, general and administrative expenses and working capital through fund raising. However, there is no certainty about our ability to obtain such funding. Other than the SVB ATM Program, we do not have any committed external sources of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our then-existing shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that may adversely affect our existing shareholders' rights as shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may include requirements to hold minimum levels of funding. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or collaborations, when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our oral PTH product candidates and any other product candidates that we would otherwise prefer to develop and market ourselves. Our audited consolidated financial statements for the year endedDecember 31, 2022 , included elsewhere in this Annual Report on Form 10-K, note that there is substantial doubt about our ability to continue as a going concern as of such date; and in its report accompanying our audited consolidated financial statements included herein, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations and our cash outflows from operating activities raise substantial doubt as to our ability to continue as a going concern. This means that our management and our independent registered public accounting firm have expressed substantial doubt about our ability to continue our operations without an additional infusion of capital from external sources. The audited consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that may be necessary should we be unable to continue as a going concern. If we are unable to finance our operations, our business would be in jeopardy and we might not be able to continue operations and might have to liquidate our assets. In that case, investors might receive less than the value at which those assets are carried on our financial statements, and it is likely that investors would lose all or a part of their investment. 85
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Cash Flows
Year Ended
The following table sets forth the primary sources and uses of cash for each of
the periods set forth below:
(audited)
Year ended December 31,
2022 2021
(in thousands)
Net Cash used in operating activities $ (12,499 ) $ (9,063 )
Net Cash used in investing activities (102 ) (17 )
Net Cash provided by financing activities 13 25,381
Net increase (decrease) in cash and cash equivalents
Net Cash used in operating activities for the year endedDecember 31, 2022 was$12.5 million , consisting primarily of our operating loss of$13.0 million and an increase of$1.8 million in our working capital, which was partially offset by approximately$2.3 million of share-based compensation and depreciation expenses.Net Cash used in operating activities for the year endedDecember 31, 2021 was$9.1 million , consisting primarily of our operating loss of$12.2 million , which was partially offset by$1.7 million of share-based compensation, depreciation and deferred income taxes, and a decrease of$1.4 million in our working capital. The increase of$3.4 million in cash used in operating activities for the year endedDecember 31, 2022 compared to the same period in 2021 was mainly attributed to an increase of$0.8 million in our operating loss, and an increase of$3.2 million in working capital primarily due to payments to suppliers and services providers, which was partially offset by an increase of$0.4 million in share-based compensation and depreciation expenses.
Net Cash Provided by Financing Activities
Net Cash provided by financing activities for the year endedDecember 31, 2022 primarily derived from net proceeds of$13 thousand from the exercise of options to purchase Ordinary Shares.Net Cash provided by financing activities for the year endedDecember 31, 2021 primarily derived from net proceeds of$21.8 million from the issuance of Ordinary Shares under our ATM and$3.6 million from the exercise of warrants and options. 86
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Contractual Obligations
The following tables summarize our contractual obligations and commitments as of
Payments due by period
Less than More than
Contractual Obligations Total 1 year 1 - 3 years 3 - 5 years 5 years
(In thousands)
Operating leases for facility
- $ - $ - Total$ 96 $ 96 $ - $ - $ - Severance Obligations We have long-term liabilities for severance pay that are calculated pursuant to Israeli law generally based on the most recent salary of the relevant employees multiplied by the number of years of employment to the extent not covered by our regular deposits with defined contribution plans. As ofDecember 31, 2022 , our severance pay liability, net was immaterial. Because the timing of any such payments is not fixed and determinable, we have not included these liabilities in the table above. Contingencies We also have obligations to make future payments to third parties that become due and payable on the achievement of certain milestones, such as royalties upon sale of products or revenues from the Amgen Agreement. We have not included these commitments in our statements of financial position or in the table above because the achievement and timing of these milestones is not fixed and determinable. These potential future commitments include a commitment to pay Oramed royalties equal to 3% of our net revenues pursuant to the terms of the Patent Transfer Agreement between us and Oramed and a commitment to pay royalties to the IIA.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance withU.S. generally accepted accounting principles, or GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. While our significant accounting policies are more fully described in Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are the most critical to assist shareholders and investors reading the consolidated financial statements in fully understanding and evaluating our financial condition and results of operations. These policies relate to the more significant areas involving management's judgments and estimates and they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of the matters that are inherently uncertain.
Revenue Recognition
With respect to the Amgen Agreement, we used our judgement to identify our deliverables in the agreement and whether the deliverables are distinct performance obligation. In addition, we use our judgement to determine the allocation of the transaction price between our identified distinct performance obligations. We also used significant judgment in order to determine the R&D services period. For a description of our revenue recognition policy see "Note 2-Summary of Significant Accounting Policies-Revenue Recognition" of our audited consolidated financial statements for the year endedDecember 31, 2022 , included elsewhere in this Annual Report.
Share-Based Compensation
In 2013 and in 2018, we adopted share-based compensation plans for employees,
directors and service providers. Our share-based compensation plan adopted in
2013 governs the issuance of equity incentive awards prior to our initial public
offering, and the share-based compensation plan adopted in 2018 governs the
issuance of equity incentive awards from and after the closing of our initial
public offering. As part of the plans, we grant employees, directors and service
providers, from time to time and at our discretion, options to purchase our
Ordinary Shares and restricted share units. The fair value of the services
received in exchange for the grant of the options is recognized as an expense in
our statements of comprehensive loss with a corresponding adjustment to equity
in our statements of financial position. The total amount is recognized as an
expense ratably over the service period of the options, which is the period
during which all vesting conditions are expected to be met.
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We estimate the fair value of our share-based compensation to employees,
directors and service providers using the Black-Scholes option pricing model,
which requires the input of highly subjective assumptions, including (a) the
expected volatility of our shares, (b) the expected term of the award, (c) the
risk-free interest rate, (d) expected dividends and (e) the fair value of our
Ordinary Shares at the date of grant.
The following table summarizes the allocation of our share-based compensation
expense:
Year ended
December 31,
2022 2021
(in thousands)
Cost of revenues $ 14 $ 102
Research and development 708 661
General and administrative 1,525 1,098
Total $ 2,247 $ 1,861 Recently Issued Accounting Pronouncements
Certain recently issued accounting pronouncements are discussed in Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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