GAMIDA CELL LTD. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report and the audited financial statements and notes thereto as of and for the year endedDecember 31, 2021 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , or Annual Report, which was filed with theSecurities and Exchange Commission , or theSEC , onMarch 24, 2022 . The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the "safe harbor" created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These statements speak only as of their date. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this Quarterly Report. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update
any
forward-looking statements.
Company Overview
We are an advanced cell therapy company committed to cures for blood cancers and
serious hematologic diseases. We harness our cell expansion platform to create
therapies with the potential to redefine standards of care in areas of serious
medical need. While cell therapies have the potential to address a variety of
diseases, they are limited by availability of donor cells, matching a donor to
the patient, and the decline in donor cell functionality when expanding the
cells to achieve a therapeutic dose. We have leveraged our NAM platform, or
nicotinamide cell expansion technology platform to develop a pipeline of product
candidates designed to address the limitations of other cell therapies. Our
proprietary technology allows for the proliferation and enhancement of donor
cells, which allows for maintaining the cells' functional therapeutic
characteristics, providing a treatment alternative for patients.
HSCT is subject to a number of significant limitations, including: (i) delays in
finding a suitable match, during which disease progression may make patients
ineligible for transplant? (ii) an insufficient number or delayed engraftment of
donor cells, leaving patients without a functioning immune system and leading to
potentially life-threatening immune deficiency following transplant? (iii) a
lack of long-term compatibility between the donor cells and the patient's own
cells, resulting in potentially fatal graft versus host disease, or GvHD; and
(iv) older donor age may correspond to a negative impact on the patient's
outcome. In addition, there is ethnic and racial disparity in access to HSCT:
data from 2018 indicate that white patients of European descent are
approximately four times more likely to receive a transplant than Black
patients.
Umbilical cord blood is a readily available source of stem cells for patients
who need HSCT and do not have a matched related donor. It is easier to find a
match when using stem cells derived from cord blood, since a full match is not
required for a successful transplant using cord blood. However, on average, a
typical cord blood graft contains approximately one-tenth the number of stem and
progenitor cells compared to stem cell grafts from adult bone marrow or
peripheral blood donors. This lower number of cells may delay engraftment of the
donor cells and reconstitution of the immune system. This, in turn, increases
both time in the hospital and the likelihood that a patient might contract a
life-threatening infection.
Omidubicel, our lead product candidate, is designed to address the limitations
of hematopoietic stem cell transplantation. Omidubicel consists of NAM-expanded
and enhanced hematopoietic stem cells and differentiated immune cells, including
T cells. The final cell therapy product is cryopreserved until the patient is
ready to begin the transplant, when it is thawed and infused. Omidubicel has the
potential to be a stem cell graft in two broad patient groups: (i) patients with
high-risk leukemias and lymphomas who require HSCT but who lack access to an
appropriate matched related donor? and (ii) patients with severe hematologic
disorders such as severe aplastic anemia.
21
In October 2021 , the complete results from our pivotal Phase 3 clinical study of
omidubicel in 125 patients with various hematologic malignancies were published
in the peer-reviewed medical journal Blood. The trial achieved its primary
endpoint of time to neutrophil engraftment as well as all three of the
prespecified secondary endpoints. These secondary endpoints were the proportion
of patients who achieved platelet engraftment by day 42, the proportion of
patients with grade 2 or grade 3 bacterial or invasive fungal infections in the
first 100 days following transplant, and the number of days alive and out of the
hospital in the first 100 days following transplant. All three secondary
endpoints demonstrated statistical significance in an intent-to-treat analysis.
In December 2021 , we also reported data from an analysis of a subset of 37
patients from the Phase 3 randomized trial of omidubicel at Annual Meeting of
the American Society of Hematology , or ASH. The analysis was aimed at
investigating the reduced infection rates observed in the study and showed that
the omidubicel-treated patients had more rapid recovery of a wide variety of
immune cells including CD4+ T cells, B cells, NK cells and dendritic cell
subtypes. The robust recovery of the immune system provides rationale for fewer
severe bacterial, fungal and viral infections in patients treated with
omidubicel. Additional analyses are ongoing to further characterize the immune
recovery following omidubicel transplantation. In June 2022 , we completed the
submission of our omidubicel BLA to the FDA, and in July 2022 , it was accepted
for priority review. The FDA set an action date of January 30, 2023 under the
Prescription Drug User Fee Act, or PDUFA, and indicated that it was not planning
to hold an advisory committee meeting as part of the BLA review.
In addition, we have applied our NAM cell expansion technology to natural
killer, or NK, cells, to develop our initial NK product candidate, GDA-201, an
investigational, NK cell-based immunotherapy for the treatment of hematologic
and solid tumors in combination with standard of care antibody therapies. A
fresh formulation of GDA-201 was evaluated in a Phase 1/2 investigator-sponsored
trial for the treatment of relapsed or refractory non-Hodgkin lymphoma, or NHL,
and multiple myeloma, or MM. Data from the trial demonstrate that GDA-201 was
well-tolerated and no dose-limiting toxicities were observed in 19 patients with
NHL and 16 patients with MM. The data show that therapy using GDA-201 with
monoclonal antibodies demonstrated significant clinical activity in heavily
pretreated patients with advanced NHL. Of the 19 patients with NHL, 13 complete
responses and one partial response were observed, with an overall response rate
of 74% and a complete response rate of 68%. At the December 2021 Annual Meeting
of ASH, we reported two-year follow-up data from this clinical trial and
reported on two-year outcomes and cytokine biomarkers associated with survival.
The data demonstrated a median duration of response of 16 months (range 5-36
months), an overall survival at two years of 78% (95% CI, 51%-91%) and a safety
profile similar to that reported previously.
In September 2021 , we submitted an investigational new drug application, or IND,
for a Phase 1/2 clinical trial of a cryopreserved formulation GDA-201 in
patients with follicular and diffuse large B-cell lymphomas, which was
subsequently placed on clinical hold prior to the initiation of patient dosing.
On April 21, 2022 , we received correspondence from the FDA indicating that we
satisfactorily addressed all clinical hold issues identified by the FDA and that
the FDA has removed the clinical hold and cleared our IND for GDA-201. In May
2022 , we opened enrollment in our Phase 1/2 study of GDA-201 in patients with
follicular and diffuse large B-cell lymphomas. In August 2022 , we announced that
the first patient was dosed with GDA-201 in this study.
We have incurred significant net losses since our formation in 1998. Our net
losses were $38.8 million and $42.7 million for the six months ended June 30,
2022 and 2021, respectively. As of June 30, 2022 , our accumulated deficit was
$376.2 million . We expect to continue to incur losses for the foreseeable
future, and our losses may fluctuate significantly from year to year. We are
currently assessing whether, if the FDA approves omidubicel for marketing in the
United States , to market the product ourselves or to pursue strategic
alternatives for the commercialization of omidubicel. If we decide to market
omidubicel ourselves, we will require substantial additional funding.
We expect that our expenses will increase substantially in connection with our ongoing activities as we:
? seek regulatory approval for omidubicel and work with the FDA during the
priority review period for our BLA for omidubicel?
22
? establish a sales, marketing and distribution infrastructure, if we do not
pursue a strategic partnership for commercialization, and scale up
manufacturing capabilities to commercialize omidubicel upon obtaining
regulatory approval?
? progress our ongoing Phase 1/2 clinical trial of GDA-201 in patients with NHL?
? continue the preclinical development of our other product candidates?
? maintain, expand and protect our intellectual property portfolio?
? add equipment and physical infrastructure to support our research and
development and commercialization efforts?
? hire additional clinical development, regulatory, commercial, quality control
and manufacturing personnel? and
? add operational, financial and management information systems and personnel,
including personnel to support our product development and planned future
commercialization. Although we completed two equity financing transactions in 2020 and a convertible debt financing in 2021, we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval and prepare for and, if any of our product candidates are approved, proceed to commercialization. We may obtain additional financing in the future through the issuance of our ordinary shares, through other equity or debt financings or through collaborations or partnerships with other companies. We may not be able to raise additional capital on terms acceptable to us, or at all, and any failure to raise capital as and when needed could compromise our ability to execute on our business plan. Although it is difficult to predict future liquidity requirements, we believe that our current total existing funds will be sufficient to fund our operations into mid-2023, excluding the cost of commercializing omidubicel. Our ability to successfully transition to profitability or cash flow positivity will be dependent upon achieving a level of revenue adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. ThroughJune 30, 2022 , the Company has funded its operations with the proceeds from the sale of equity and debt. The Company has incurred recurring losses since its inception, including net losses of$38.8 million and$42.7 million for the six months endedJune 30, 2022 and 2021, respectively. In addition, the Company had an accumulated deficit of$376.2 million as ofJune 30, 2022 . The Company expects to continue to generate operating losses for the foreseeable future. The Company's expectation that it will generate operating losses and negative operating cash flows in the future and the need for additional funding to support its planned operations raise substantial doubt regarding the Company's ability to continue as a going concern for a period of one year after the date of the condensed consolidated financial statements included elsewhere in this Quarterly Report. If the Company is unable to obtain additional funding, the Company will be forced to delay, reduce or eliminate some or all of its clinical development programs, assess strategic alternatives for the commercialization of omidubicel or the Company may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments that might result from the outcome of the uncertainties described above. 23
Components of Results of Operations
Revenue We do not currently have any products approved for sale and, to date, we have not recognized any revenue. In the future, we may generate revenue from a combination of product sales, reimbursements, up-front payments and future collaborations. If we fail to achieve clinical success or obtain regulatory approval of any of our product candidates in a timely manner, our ability to generate future revenue will be impaired.
Research and development expenses, net
The largest component of our total operating expenses has historically been, and we expect will continue to be, research and development. Our research and development expenses, net of IIA grants, consist primarily of:
? salaries and related costs, including share-based compensation expense, for our
personnel in research and development functions;
? expenses incurred under agreements with third parties, including CROs,
subcontractors, suppliers and consultants, for the conduct of our preclinical
studies and clinical trials;
? expenses incurred to acquire, develop and manufacture preclinical study and
clinical trial materials; and
? facility and equipment costs, including depreciation expense, maintenance and
allocated direct and indirect overhead costs.
Research and development expenses (net of grants) are recognized in the consolidated statements of comprehensive loss when incurred.
ThroughJune 30, 2022 , we have received an aggregate of approximately$36.6 million in grants from theIsraeli Innovation Authority , or the IIA, including from theBereshit Consortium sponsored by the IIA, of which$34.0 million is royalty-bearing grants, and$2.6 million is non-royalty-bearing grants, and all of which was awarded for research and development funding. Pursuant to the terms of the royalty-bearing grants, we are obligated to pay the IIA royalties at the rate of between 3% to 3.5% on all our revenue, up to a limit of 100% of the amounts of theU.S. dollar-linked grants received, plus annual interest calculated at a rate based on the 12-month LIBOR. We have not paid any royalties to the IIA to date.The Bereshit Consortium program does not require payments of royalties to the IIA, but all other restrictions under the Innovation Law, such as local manufacturing obligations and know-how transfer limitations, as further detailed hereunder, are applicable to the know how developed by us with the funding received in such consortium program. OnJuly 27, 2017 , theUnited Kingdom's Financial Conduct Authority , or theFCA , which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. Following consultations inDecember 2020 andJanuary 2021 , theICE Benchmark Administration Limited , or the IBA, announced that (i) it intended to cease publication of 1-week and 2-monthU.S. dollar LIBOR at the end of 2021 and (ii) subject to compliance with applicable regulations, it intends to continue publication of the remainingU.S. dollar LIBOR tenors untilJune 30, 2023 , effectively extending the LIBOR transition period toJune 30, 2023 . However, theFCA has indicated it will not compel panel banks to continue to contribute to LIBOR after the end of 2021 and theFederal Reserve Board , theOffice of the Comptroller of the Currency , and theFederal Deposit Insurance Corporation have encouraged banks to cease entering into new contracts that useU.S. dollar LIBOR as a reference rate no later thanDecember 31, 2021 . There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. A committee established by theFederal Reserve , the Alternative Reference Rates Committee, announced the replacement of LIBOR with a new index, based on overnight repurchase agreements collateralized byU.S. Treasury securities, called the Secured Overnight Financing Rate, or the SOFR. TheFederal Reserve Bank of New York began publishing SOFR inApril 2018 . Other jurisdictions have also proposed their own alternative to LIBOR, including the Sterling Overnight Index Average for Sterling markets, the Euro Short Term Rate for Euros andTokyo Overnight Average Rate for Japanese Yen. Although SOFR appears to be the preferred replacement rate forU.S. dollar LIBOR, at this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement tool, and the future of LIBOR is still uncertain. The effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR or other reference rates that may be enacted in theUnited Kingdom or elsewhere cannot be predicted at this time, and it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may have on the financial markets for financial instruments based on LIBOR. 24 In addition to paying any royalties due, we must abide by other restrictions associated with receiving such grants under the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984, which will also continue to apply to us following the repayment in full of the amounts due to the IIA. The Innovation Law restricts our ability to manufacture products and transfer technologies outside ofIsrael , and may impair our ability to enter into agreements that involve IIA-funded products or know-how without the approval of the IIA. Any approval, if given, will generally be subject to additional financial obligations by us. Failure to comply with the requirements under the Innovation Law may subject us to mandatory repayment of grants received by us, together with interest and penalties, as well as expose us
to criminal proceedings. Pursuant to the IIA's licensing rules, or the Licensing Rules, a grant recipient may enter into licensing arrangements or grant other rights in know-how developed under IIA programs outside ofIsrael , subject to the prior consent of the IIA and payment of license fees, calculated in accordance with the Licensing Rules. The amount of the license fees is based on various factors, including the consideration received by the licensor in connection with the license, and shall not exceed six times the amount of the grants received by the grant recipient (plus accrued interest) for the applicable know-how being licensed. In certain cases, such as when the license consideration includes nonmonetary compensation or when a "special relationship" exists between the licensor and licensee (e.g., when a party controls the other party or is the other party's exclusive distributor), or when the agreed upon consideration does not reflect, in the IIA's opinion, the market value of the license, the IIA may base the value of the transaction on an economic assessment that it obtains for such purpose. We are currently focused on advancing our product candidates, and our future research and development expenses will depend on their clinical success. Research and development expenses will continue to be significant and will increase over at least the next several years as we continue to develop our product candidates and conduct preclinical studies and clinical trials of our product candidates. Government grants received from the IIA are recognized as a reduction of the related research and development expenses. We do not believe that it is possible at this time to accurately project total expenses required for us to reach commercialization of omidubicel or any of our other product candidates. However, with the objective of extending our cash runway into mid-2023, consistent with the anticipated timeline for potentialU.S. approval of omidubicel, we have been reducing operating expenses primarily by implementing a workforce reduction of approximately 10% inJanuary 2022 and delaying other hiring and planned spending this year. A majority of the anticipated savings is in research and development expenses. Commercial expenses
Commercial expenses consist primarily of personnel costs, including share-based compensation, related to executive and commercial functions, and external consulting service fees.
General and administrative expenses
General and administrative expenses consist primarily of personnel costs, including share-based compensation, related to directors, executive, finance, and administrative functions, facility costs and external professional service costs, including legal, accounting and audit services and other consulting fees.
We incur expenses related to audit, legal, regulatory and tax-related services,
director and officer insurance premiums, executive compensation, and other
customary costs associated with being a public company subject to the US
domestic issuer listing requirements of Nasdaq and the
Financial expenses, net
Financial expenses, net, is our financing expenses from convertible senior notes after deducting financing income from deposits and marketable securities.
25
Income taxes
We have yet to generate taxable income in Israel , as we have historically
incurred operating losses resulting in carry forward tax losses totaling
approximately $237.4 million (including capital losses of $0.5 million ) as of
December 31, 2021 . In addition, the US subsidiary has net operating losses
carryforward of $33.1 million for federal tax purposes as of December 31, 2021 .
We anticipate that we will continue to generate tax losses for the foreseeable
future and that we will be able to carry forward these tax losses indefinitely
to future taxable years. Accordingly, we do not expect to pay taxes in Israel
until we have taxable income after the full utilization of our carry forward tax
losses. We provided a full valuation allowance, to reduce deferred tax assets to
their estimated realizable value, since it is more likely than not that all of
the deferred tax assets will not be realized.
Analysis of Results of Operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
June 30, Change
2022 2021 Amount Percentage
(in thousands)
Operating ExpensesResearch and development expenses, net(1)$ 10,563 $ 13,350 $ (2,787 )% (20.9 )% Commercial expenses(1) 3,193 4,988 (1,795 ) (36.0 ) General and administrative expenses(1) 4,290 3,874
416 10.7 Operating loss 18,046 22,212 (4,166 ) (18.8 ) Financial expenses, net 508 1,345 (837 ) (62.2 ) Loss$ 18,554 $ 23,557 $ (5,003 )% (21.2 )
(1) Includes share-based compensation expense as follows:
Three Months Ended
June 30, Change
2022 2021 Amount Percentage
(in thousands)Research and development expenses, net$ 553 $ 372 $ 181 % 48.7 % Commercial expenses 358 229 129 56.3 General and administrative expenses 425 511 (86 ) (17.0 ) Total share-based compensation$ 1 , 336$ 1,112 $
224 % 20.0
Research and development expenses, net
Research and development expenses, net, decreased by approximately$2.8 million to$10.6 million in the three months endedJune 30, 2022 from$13.4 million in the three months endedJune 30, 2021 . The decrease was attributable mainly to a$2.4 million decrease in clinical activities relating to the conclusion of our Phase 3 clinical trial and decrease of$0.4 million in GDA 201 clinical program. Commercial expenses Our commercial expenses decreased by approximately$1.8 million to$3.2 million in the three months endedJune 30, 2022 from$5.0 million in the three months endedJune 30, 2021 . The decrease was attributable mainly to an approximate$2.1 million decrease in launch readiness activities, offset by an increase of$0.3 million in headcount related expenses. 26
General and administrative expenses
General and administrative expenses increased by approximately$0.4 million to$4.3 million in the three months endedJune 30, 2022 , up from$3.9 million in the three months endedJune 30, 2021 . The increase was attributable to a$0.9 million increase in professional services expenses and a newU.S. office lease agreement, offset by a decrease of$0.5 million in headcount related expenses. Financial expenses, net Financial expenses, net, decreased by approximately$0.8 million to$0.5 million in the three months endedJune 30, 2022 , compared to$1.3 million in the three months endedJune 30, 2021 . The decrease was primarily due to$0.6 million in non-cash expenses and an increase of$0.2 million in interest income from cash management.
Comparison of the six months ended
The following table summarizes our results of operations for the six months
ended
Six Months Ended
June 30, Change
2022 2021 Amount Percentage
(in thousands)
Operating ExpensesResearch and development expenses, net(1)$ 21,868 $ 24,710 $ (2,842 )% (11.5 )% Commercial expenses(1) 7,072 9,219 (2,147 ) (23.3 ) General and administrative expenses(1) 8,429 7,387 1,042 14.1 Operating loss 37,369 41,316 (3,947 ) (9.6 ) Financial expenses, net 1,408 1,427 (19 ) (1.3 ) Loss$ 38,777 $ 42,743 $ (3,966 )% (9.3 )
(1) Includes share-based compensation expense as follows:
Six Months Ended
June 30, Change
2022 2021 Amount Percentage
(in thousands)
Research and development expenses, net
49 %
Commercial expenses 648 400 248 62
General and administrative expenses 864 942 (78 ) (8.4 )
Total share-based compensation $ 2,530 $ 2,025 $ 505 % 24.9
Research and development expenses, net
Research and development expenses, net, decreased by approximately$2.8 million to$21.9 million in the six months endedJune 30, 2022 from$24.7 million in the six months endedJune 30, 2021 . The decrease was attributable mainly to a$4.3 million decrease in clinical activities relating to the conclusion of our Phase 3 clinical trial and decrease in GDA 201 clinical program offset by an increase of$1.2 million in salaries and benefits, consisting primarily of additional headcount focused on operational activities in connection with the omidubicel BLA submission and an increase of$0.3 million in IIA grants and other expenses. 27 Commercial expenses
Our commercial expenses decreased by approximately$2.1 million to$7.1 in the six months endedJune 30, 2021 from$9.2 million in the six months endedJune 30, 2021 . The decrease was attributable mainly to a$3.9 million decrease in launch readiness activities, offset by an increase of$1.8 million in headcount related expenses, including restructuring.
General and administrative expenses
General and administrative expenses increased by approximately$1.0 million to$8.4 million in the six months endedJune 30, 2022 , up from$7.4 million in the six months endedJune 30, 2021 . The increase was attributable to a$0.8 million increase in professional services expenses and a$0.2 million increase in newU.S. office lease agreement. Financial expenses, net Financial expenses, net, decreased by approximately$0.02 million to$1.4 million in the six months endedJune 30, 2022 , compared to$1.4 million in the six months endedJune 30, 2021 . The decrease was primarily due to an increase of$0.2 million in other non cash income offset by an increase of$0.2 million in financing interest expenses from our convertible senior notes.
Critical Accounting Policies and Estimates
This discussion and analysis of our consolidated financial statements has been prepared in accordance with generally accepted accounting principles inthe United States , orU.S. GAAP, as set forth in theFinancial Accounting Standards Board , or FASB, Accounting Standards Codification, or ASC. Prior to 2021, we prepared our financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by theInternational Accounting Standards Board , or IASB, as permitted inthe United States , based on our status as a foreign private issuer. At the end of the 2021 fiscal year, we lost our status as a foreign private issuer, and became subject to theU.S. domestic filer requirements, one of which requires us to prepare our consolidated financial statements in accordance withU.S. generally accepted accounting principles, orU.S. GAAP. We are devoting substantially all of our efforts toward research and development activities. In the course of such activities, we have sustained operating losses and we expect such losses to continue in the foreseeable future. Our accumulated deficit as ofJune 30, 2022 was$376.2 million and negative cash flows from operating activities during the six months endedJune 30, 2022 was$39.6 million . We are planning to finance our operations from our existing and potential future working capital resources and we continue to evaluate additional sources of capital and financing. However, there is no assurance that additional capital and/or financing will be available to us, and even if available, whether it will be on acceptable terms or in the amounts required. As ofAugust 15, 2022 , the date of issuance of these condensed consolidated financial statements, the Company expects that its cash, cash equivalents and investments of$55.1 million as ofJune 30, 2022 will be sufficient to fund its operating expenses and capital expenditure requirements into mid-2023, excluding the cost of commercializing omidubicel. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments that might result from the outcome of the uncertainties described in Note 1(d) to the financial statements. While our significant accounting policies are more fully described in the notes to our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, as well as in our consolidated financial statements appearing in our Annual Report on form 10-K for the year endedDecember 31, 2021 , we believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management's estimates and assumptions. We consider an accounting estimate to be critical if: (i) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (ii) changes in the estimate could have a material impact on our financial condition or results of operations. 28 Convertible senior notes OnFebruary 16, 2021 Gamida Cell Ltd.'s wholly ownedU.S. subsidiary,Gamida Cell Inc. , issued convertible senior notes, or the Notes, with an aggregate original principal amount of$75.0 million in a private placement. The Notes were issued on a senior unsecured basis, have a maturity date ofFebruary 15, 2026 , bear 5.875% interest, and may be exchanged, at the election of the holder, for ordinary shares ofGamida Cell Ltd. at an initial per share price of$17.76 , subject to adjustments. We account for the Notes in accordance with ASC 470-20 "Debt with Conversion and Other Options." We early adopted ASU 2020-06 using the modified retrospective approach. The convertible senior notes are accounted for as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives according to ASC 815-40.
The Notes are included in the calculation of diluted earnings per share, or EPS, if the assumed conversion into ordinary shares is dilutive, using the "if-converted" method. This involves adding back the periodic interest expense net of taxes associated with the Notes to the numerator and by adding the shares that would be issued in an assumed conversion (regardless of whether the conversion option is in or out of the money) to the denominator for the purposes of calculating diluted EPS. Since the effect of the Notes on the diluted EPS was antidilutive, we did not include them in our calculation of the diluted EPS. Share-based compensation We account for share-based compensation in accordance with ASC No. 718 "Compensation - Stock Compensation," or ASC No. 718, which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the award is recognized as an expense over the requisite service periods, which is the vesting period of the respective award, on a straight-line basis when the only condition to vesting is continued service. We selected the binominal option-pricing model as the most appropriate fair value method for our option awards. The fair value of restricted shares, is based on the closing market value of the underlying shares at the date of grant. Since our initial public offering, the fair value of our ordinary shares has been determined based on the closing price of our ordinary shares on the Nasdaq Global Market. We recognize forfeitures of equity-based awards as they occur.
Significant Accounting Policies
See note 2 of the accompanying unaudited consolidated financial statements for the six months endedJune 30, 2022 for a discussion of significant accounting policies.
Internal Control over Financial Reporting
Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, completed the process of determining whether our existing internal controls over financial reporting systems are compliant with Section 404 and whether there are any material weaknesses or significant deficiencies in our existing internal controls. Based on this process, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) of the Exchange Act) that occurred during our most
recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
29
Liquidity and Capital Resources.
Sources of Liquidity Since our inception, we have incurred losses and negative cash flows from our operations. For the six months endedJune 30, 2022 andJune 30, 2021 , we incurred a net loss of$38.8 million and$42.7 million , respectively, and net cash of$39.6 million and$40.6 million , respectively, was used in our operating activities. As ofJune 30, 2022 andDecember 31, 2021 we had working capital of$35.1 million and$73.2 million , respectively, and an accumulated deficit of$376.2 million and$337.5 million , respectively. Our principal sources of liquidity as ofJune 30, 2022 andDecember 31, 2021 , consisted of cash and cash equivalents and trading financial assets of$55.1 million and$95.9 million , respectively. Capital Resources Overview ThroughJune 30, 2022 , we have financed our operations primarily through private placements and public offerings of equity securities and through the grants received from the IIA. We have also entered into an Open Market Sale Agreement under which we have the option to offer and sell our ordinary shares having an aggregate gross sales price of up to$50 million from time to time throughJefferies LLC . Pursuant to the Open Market Sales Agreement and upon delivery of notice by the Company, Jefferies may sell our ordinary shares under an "at the market offering." From inception through toDecember 31, 2021 we did not sell any shares under this facility. During the six months endedJune 30, 2022 , we sold 38,458 shares pursuant to the Sales Agreement for net proceeds of$0.1 million , after deducting commissions. Cash flows
The following table summarizes our statement of cash flows for the six months
ended
Six Months Ended
June 30, Change
2022 2021 Amount Percentage
(in thousands)
Net cash provided by (used in)
Operating activities $ (39,589 ) $ (40,568 ) $ 979 2.4 %
Investing activities 21,427 (57,445 ) 78,872 137.3
Financing activities 160 71,333 (71,173 ) (99.8 )
Net cash used in operating activities
The cash used in operating activities during the aforementioned periods resulted primarily from our net losses incurred during such periods, as adjusted for non-cash charges and measurements and changes in components of working capital. Adjustments to net losses for non-cash items mainly share based compensation. Net cash used in operating activities was$39.6 million during the six months endedJune 30, 2022 , compared to$40.6 million used in operating activities during the six months endedJune 30, 2021 . The$1.0 million decrease in cash used was attributable primarily due to cash payment relating to delays in launch readiness.
Net cash provided by (used in) investing activities
Net cash provided by investing activities was$21.4 million during the six months endedJune 30, 2022 , compared to$57.4 million used in investing activities during the six months endedJune 30, 2021 . The$78.9 million increase is primarily related to increase of$74.3 million of proceeds from maturity and purchase of marketable securities and changes in restricted deposits, and, by a decrease of$4.6 million from theKiryat Gat equipment purchase.
Net cash provided by financing activities
Net cash provided by financing activities was$0.2 million during the six months endedJune 30, 2022 , compared to$71.3 million during the six months endedJune 30, 2021 . The$71.1 million decrease is primarily related to net proceeds of$70.8 million received from the 2021 issuance of our convertible senior notes. Funding Requirements We believe that our existing funds will enable us to fund our operating expenses and capital expenditure requirements into mid-2023, excluding the cost of commercializing omidubicel. We cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. 30 We are currently assessing whether, if the FDA approves omidubicel for marketing inthe United States , to market the product ourselves or to pursue strategic alternatives for the commercialization of omidubicel. If we decide to market omidubicel ourselves, we will require substantial additional funding. Our present and future funding requirements will depend on many additional factors, including, among other things:
? the progress of the
? the progress of our ongoing Phase 1/2 clinical trial of GDA-201, and the
progress, timing and completion of preclinical studies of our other product
candidates;
? the costs related to obtaining regulatory approval for omidubicel and any of
our other product candidates, and any delays we may encounter as a result of
regulatory requirements or adverse clinical trial results with respect to any
of these product candidates;
? selling, marketing and patent-related activities undertaken in connection with
the commercialization of omidubicel, if we determine to internally
commercialize the product, if approved;
? the costs involved in filing and prosecuting patent applications and obtaining,
maintaining and enforcing patents or defending against claims or infringements
raised by third parties, and license royalties or other amounts we may be
required to pay to obtain rights to third-party intellectual property rights;
and
? establishing a sales, marketing and distribution infrastructure and scaling up
manufacturing capabilities to commercialize any products for which we obtain
regulatory approval and determine to commercialize internally. We have annual operating lease obligations related to our Haddasah production facility of approximately$1.0 million , which is included in research and development expense. We additionally have annual operating lease obligations related to ourBoston andKiryat Gat facilities in aggregate of$1.1 million , which is included in general and administrative expense. Furthermore, we expect to continue to incur substantial costs associated with operating as a public company subject to US domestic filer regulations. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. Until such time, if ever, as we can generate substantial product revenue, we may finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of any additional securities may include liquidation or other preferences that adversely affect your rights as a shareholder. 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. If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. Additional financing may not be available when we need it or may not be available on terms that are favorable to us. If we are unable to raise additional funds through equity or debt financings 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 product candidates that we would otherwise prefer to develop and market ourselves. For more information as to the risks associated with our future funding needs, see "Item 1A. Risk Factors-Principal Risk Factors."
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