Company Quick10K Filing
Intec Pharma
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 33 $-0
10-Q 2019-11-12 Quarter: 2019-09-30
10-Q 2019-08-09 Quarter: 2019-06-30
10-Q 2019-05-07 Quarter: 2019-03-31
10-K 2019-02-27 Annual: 2018-12-31
20-F 2018-03-09 Annual: 2017-12-31
20-F 2017-04-07 Annual: 2016-12-31
20-F 2016-03-14 Annual: 2015-12-31
8-K 2019-12-11 Other Events, Exhibits
8-K 2019-12-02 Officers, Shareholder Vote
8-K 2019-12-02 Enter Agreement, Regulation FD, Exhibits
8-K 2019-11-12 Earnings, Exhibits
8-K 2019-09-24
8-K 2019-09-13 Officers
8-K 2019-09-09 Regulation FD, Exhibits
8-K 2019-09-03
8-K 2019-08-09 Earnings, Exhibits
8-K 2019-07-22 Regulation FD, Other Events, Exhibits
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-04-02 Officers, Shareholder Vote, Exhibits
8-K 2019-03-04 Regulation FD, Exhibits
8-K 2019-02-27 Earnings, Exhibits
8-K 2019-01-22 Officers
8-K 2019-01-07 Regulation FD, Exhibits
8-K 2019-01-01 Other Events
NTEC 2019-09-30
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Nature of Operations and Basis of Presentation:
Note 2 - Significant Accounting Policies:
Note 3 - Marketable Securities
Note 4 - Commitments and Contingent Liabilities:
Note 5 - Share Capital:
Note 6 - Accounts Payable and Accruals - Other:
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Disclosure Controls and Procedures
Part II. Other Information
Item 1.Legal Proceedings
Item 1A. Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5. Other Information
Item 6.Exhibits
EX-10.1 f10q0919ex10-1_intecpharma.htm
EX-31.1 f10q0919ex31-1_intecpharma.htm
EX-31.2 f10q0919ex31-2_intecpharma.htm
EX-32.1 f10q0919ex32-1_intecpharma.htm
EX-32.2 f10q0919ex32-2_intecpharma.htm

Intec Pharma Earnings 2019-09-30

NTEC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
NTEC 47 12 0 0 -21 -21 -21 1.0 -44%
GRFS 12,477 7,780 0 0 0 0 -592 0%
MRKR 55 4 0 0 -151 -151 -53 0.4 -274%
TRIL 55 14 0 0 0 0 -0 0%
AZN 60,651 46,607 0 0 0 0 -893 0%
ZOM 9 2 0 0 -24 -24 -6 0.2 -258%
VTVT 9 22 11 0 -7 -4 6 0% -1.4 -76%
XTLB 9 0 0 0 0 -1 0%
AFMD 116 0 0 0 0 -0 0%
OASM 568 223 0 0 0 0 -0 0%

10-Q 1 f10q0919_intecpharma.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM                      TO                     

 

Commission File Number 001-37521

 

 

 

INTEC PHARMA LTD.

(Exact name of Registrant as specified in its Charter)

 

 

 

Israel   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

12 Hartom Street

Har Hotzvim, Jerusalem

  9777512
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: +972-2-586-4657

 

 

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES ☒ NO ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer ☐   Smaller reporting company
Emerging growth company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Ordinary Shares, no par value     NTEC   The Nasdaq Capital Market

 

The number of shares of Registrant’s ordinary shares outstanding as of November 11, 2019: 35,019,479.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I — FINANCIAL INFORMATION  
 
Item 1. Condensed Consolidated Financial Statements (Unaudited) 1
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statement of Changes in Shareholders’ Equity 5
Condensed Consolidated Statements of Cash Flows 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 22
 
PART II —  OTHER INFORMATION  
  23
Item 1. Legal Proceedings 23
Item 1A. Risk Factors 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3. Defaults upon Senior Securities 23
Item 4. Mine Safety Disclosures 23
Item 5. Other Information 23
Item 6. Exhibits 23

 

i

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

  

 

 

 

 

 

 

 

 

 

INTEC PHARMA LTD.

UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2019

 

 

 

 

 

1

 

  

INTEC PHARMA LTD.

UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

 

TABLE OF CONTENTS 

 

  Page
   
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:  
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in Shareholders’ Equity F-4-F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7-F-15

 

2

 

 

INTEC PHARMA LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   September 30,   December 31, 
   2019   2018 
  

U.S. dollars

in thousands

 
Assets        
CURRENT ASSETS:        
Cash and cash equivalents  $14,966   $39,246 
Investment in marketable securities (Note 3)   767    1,333 
Prepaid expenses and other receivables   2,453    2,986 
TOTAL CURRENT ASSETS   18,186    43,565 
           
NON-CURRENT ASSETS:          
Other assets (Note 4b)   4,204    5,431 
Property and equipment, net (Note 4b)   6,200    12,233 
Operating lease right-of-use assets (Note 4a)   1,687    - 
Deferred tax assets   504    281 
TOTAL NON-CURRENT ASSETS   12,595    17,945 
           
TOTAL ASSETS  $30,781   $61,510 
           
Liabilities and shareholders’ equity          
CURRENT LIABILITIES -          
Accounts payable and accruals:          
Trade  $4,834   $2,849 
Other (Note 6)   6,774    4,807 
TOTAL CURRENT LIABILITIES   11,608    7,656 
LONG-TERM LIABILITIES -          
Non-current operating lease liabilities (Note 4a)   1,132    - 
Other liabilities   554    309 
TOTAL LONG-TERM LIABILITIES   1,686    309 
TOTAL LIABILITIES   13,294    7,965 
           
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)          
SHAREHOLDERS’ EQUITY:          
Ordinary shares, with no par value - authorized: 100,000,000 Ordinary Shares as of September 30, 2019 and December 31, 2018; issued and outstanding: 35,019,479 and 33,232,988 Ordinary Shares as of September 30, 2019 and December 31, 2018, respectively   727    727 
Additional paid-in capital   199,627    194,642 
Accumulated deficit   (182,867)   (141,824)
TOTAL SHAREHOLDERS’ EQUITY   17,487    53,545 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $30,781   $61,510 

   

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

 

INTEC PHARMA LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three months ended
September 30
   Nine months ended
September 30
 
   2019   2018   2019   2018 
  

U.S. dollars

in thousands

  

U.S. dollars

in thousands

 
OPERATING EXPENSES:                    
RESEARCH AND DEVELOPMENT EXPENSES, net   (8,448)   (7,809)   (24,850)   (25,089)
GENERAL AND ADMINISTRATIVE EXPENSES   (2,157)   (1,696)   (6,491)   (5,800)
IMPAIRMENT OF LONG-LIVED ASSETS   (9,759)        (9,759)     
OPERATING LOSS   (20,364)   (9,505)   (41,100)   (30,889)
FINANCIAL INCOME (EXPENSES), net   14    163    157    (5)
LOSS BEFORE INCOME TAX   (20,350)   (9,342)   (40,943)   (30,894)
TAX BENEFIT (INCOME TAX)   (28)   164    (100)   (46)
NET LOSS   (20,378)   (9,178)   (41,043)   (30,940)
                     
  

U.S. dollars

 
LOSS PER SHARE BASIC AND DILUTED   (0.61)   (0.28)   (1.23)   (1.01)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER ORDINARY SHARE IN THOUSANDS   33,516    33,226    33,356    30,505 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

 

(Continued) - 1

 

INTEC PHARMA LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

   Ordinary Shares   Additional paid-in
capital
   Accumulated Deficit   Total 
   Number of shares   Amounts   Amounts 
       U.S. dollars in thousands 
BALANCE AT JANUARY 1, 2018                    
CHANGES IN THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2018:   26,075,770   $727   $156,356   $(98,281)  $58,802 
Issuance of ordinary shares, net of issuance costs   7,150,000    -    35,029    -    35,029 
Exercise of options   218    -    1    -    1 
Share-based compensation (Note 5b)   -    -    2,452    -    2,452 
Net loss   -    -    -    (30,940)   (30,940)
BALANCE AT SEPTEMBER 30, 2018   33,225,988   $727   $193,838   $(129,221)  $65,344 
                          
BALANCE AT JANUARY 1, 2019                         
CHANGES IN THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019:   33,232,988   $727   $194,642   $(141,824)  $53,545 
Issuance of ordinary shares, net of issuance costs (Note 5a(1))   1,716,679    -    1,969    -    1,969 
Exercise of options (Note 5a(2))   69,812    -    268    -    268 
Share-based compensation (Note 5b)   -    -    2,748    -    2,748 
Net loss   -    -    -    (41,043)   (41,043)
BALANCE AT SEPTEMBER 30, 2019   35,019,479   $727   $199,627   $(182,867)  $17,487 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

(Continued) - 2

 

INTEC PHARMA LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

   Ordinary Shares   Additional paid-in
capital
   Accumulated Deficit   Total 
   Number of shares   Amounts   Amounts 
       U.S. dollars in thousands 
         
BALANCE AT JULY 1, 2018   33,225,988   $727   $192,987   $(120,043)  $73,671 
CHANGES IN THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2018:                         
Share-based compensation (Note 5b)   -    -    851    -    851 
Net loss   -    -    -    (9,178)   (9,178)
BALANCE AT SEPTEMBER 30, 2018   33,225,988   $727   $193,838   $(129,221)  $65,344 
                          
BALANCE AT JULY 1, 2019   33,302,800   $727   $196,871   $(162,489)  $35,109 
CHANGES IN THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2019:                         
Issuance of ordinary shares, net of issuance costs (Note 5a(1))   1,716,679    -    1,969    -    1,969 
Share-based compensation (Note 5b)   -    -    787    -    787 
Net loss   -    -    -    (20,378)   (20,378)
BALANCE AT SEPTEMBER 30, 2019   35,019,479   $727   $199,627   $(182,867)  $17,487 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6

 

 

INTEC PHARMA LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine months ended
September 30
 
   2019   2018 
   U.S. dollars in thousands 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss   (41,043)   (30,940)
Adjustments required to reconcile net loss to net cash used in operating activities:          
Depreciation   643    639 
Impairment of long-lived asset   

9,759

      
Exchange differences on cash and cash equivalents   69    (528)
Right of use asset   523    - 
Lease liability   (380)   - 
Losses (gains) on marketable securities   (10)   141 
Share-based compensation   2,748    2,452 
Changes in operating assets and liabilities:          
Decrease (increase) in prepaid expenses and other receivables   483    (979)
Increase in deferred tax assets   (223)   - 
Increase (decrease) in accounts payable and accruals   3,268    (1,734)
Increase in other liabilities   245    - 
Net cash used in operating activities   (23,918)   (30,949)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (791)   (2,632)
Investment in other assets   (2,315)   (2,450)
Proceeds from disposal (purchase) of marketable securities, net   576    (38)
Net cash used in investing activities   (2,530)   (5,120)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of ordinary shares, net of issuance costs   1,969    35,029 
Proceeds from exercise of options   268    1 
Net cash provided by financing activities   2,237    35,030 
DECREASE IN CASH AND CASH EQUIVALENTS   (24,211)   (1,039)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD   39,246    53,393 
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS   (69)   528 
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD   14,966    52,882 
           
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:          
Liability with respect to property and equipment (see note 4b(1))   123    1,898 
Liability with respect to other assets (see note 4b(2))   549    244 
           
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION -          
Taxes paid   50    31 
Interest received   315    522 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7

 

 

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION:

 

a.Nature of operations

 

1)Intec Pharma Ltd. (“Intec”) is engaged in the development of proprietary technology which enables the gastric retention of certain drugs. The technology is intended to significantly improve the efficiency of the drugs and substantially reduce their side-effects or the effective doses.

 

Intec is a limited liability public company incorporated in Israel.

 

Intec’s ordinary shares are traded on the NASDAQ Capital Market (“NASDAQ”).

 

In September 2017, Intec incorporated a wholly-owned subsidiary in the United States of America in the State of Delaware - Intec Pharma Inc. (the “Subsidiary”, together with Intec - “the Company”). The Subsidiary was incorporated mainly to provide Intec executive and management services, including business development, medical affairs and investor relationship activities outside of Israel.

 

2)The Company engages in research and development activities and has not yet generated revenues from operations. In addition, on July 22, 2019, the Company announced top-line results according to which its Phase III clinical trial for AP-CD/LD did not achieve its primary and secondary endpoints. As these results are considered a triggering event, the Company performed an impairment test on certain of its long-lived assets which resulted in an impairment charge of approximately $9.8 million. For more details see note 4b(3). Accordingly, there is no assurance that the Company’s operations will generate positive cash flows. As of September 30, 2019, the cumulative losses of the Company were approximately $182.9 million. Management expects that the Company will continue to incur losses from its operations, which will result in negative cash flows from operating activities.

 

The Company believes that it has adequate cash to fund its ongoing activities into the second quarter of 2020. Its ability to execute its operating plan beyond the second quarter of 2020 is dependent on its ability to obtain additional capital principally through entering into collaborations, strategic alliances, or license agreements with third parties and/or raising capital from the public and/or private investors and/or institutional investors. The negative outcome of the Phase III clinical trial that was announced on July 22, 2019 and uncertainty regarding the Company’s development programs is expected to adversely affect its ability to obtain funding and there is no assurance that it will be successful in obtaining the level of financing needed for its activities. The Company has taken measures to reduce its costs, including reducing headcount, and is continuingly evaluating measures to reduce additional costs to preserve existing capital. If the Company is unsuccessful in securing sufficient financing, it may need to curtail or cease operations. As a result, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date of these financial statements.

 

These financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.

 

3)On March 1, 2019, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”). During September 2019, the Company sold 1,716,679 ordinary shares under the Sales Agreement raising a total of approximately $2.0 million (net of issuance expenses of $107 thousand). For more details see note 5a(1).

  

8

 

 

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued):

 

b.Basis of presentation

 

The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and S-X Article 10 for interim financial statements. Accordingly, they do not contain all information and notes required by US GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as of September 30, 2019, the consolidated results of operations, changes in equity for the three and nine-month periods ended September 30, 2019 and 2018 and cash flows for the nine-month periods ended September 30, 2019 and 2018.

 

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual financial statements for the year ended December 31, 2018, as filed in the 10-K on February 27, 2019. The condensed balance sheet data as of December 31, 2018 included in these unaudited condensed consolidated financial statements was derived from the audited financial statements for the year ended December 31, 2018 but does not include all disclosures required by US GAAP for annual financial statements.

 

The results for the nine-month period ended September 30, 2019 are not necessarily indicative of the results expected for the year ending December 31, 2019.

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:

 

a.Principles of consolidation

 

The consolidated financial statements include the accounts of Intec and its Subsidiary. Intercompany balances and transactions have been eliminated upon consolidation.

  

b.Fair value measurement

 

Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into nine broad levels, which are described as follows:

 

Level 1:Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

Level 2:Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

 

Level 3:Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

 

The marketable securities which are measures at fair value are categorized as Level 1.

 

The carrying amount of the cash and cash equivalents, other receivable and accrued expenses and other liabilities approximates their fair value.

 

9

 

 

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

 

c.Loss per share

 

Loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of ordinary shares outstanding during the period. Diluted loss per share is based upon the weighted average number of ordinary shares and of ordinary shares equivalents outstanding when dilutive. Ordinary share equivalents include outstanding stock options which are included under the treasury stock method when dilutive.

 

The following share options were excluded from the calculation of diluted loss per ordinary share because their effect would have been anti-dilutive for the periods presented (share data):

 

  

Three months ended

September 30

  

Nine months ended

September 30

 
   2019   2018   2019   2018 
Outstanding stock options   4,156,765    3,466,482    4,314,300    3,247,927 

 

d.Research and development expenses, net

 

Research and development expenses, net for the three and nine-month periods ended September 30, 2019 and 2018, include participation in research and development expenses as follows:

 

  

Three months ended

September 30

  

Nine months ended

September 30

 
   2019   2018   2019   2018 
   U.S. dollars in thousands 
Participation in research and development expenses   168    92    983    550 

  

e.Newly adopted accounting pronouncements

 

1)In February 2016, the FASB established ASC Topic 842, “Leases” (Topic 842), by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. The Company adopted the new standard on January 1, 2019 using the modified retrospective transition method and has not restated comparative periods. The new standard provides a number of optional practical expedients in transition. The Company has elected the ‘package of practical expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs for leases entered into prior to adoption of Topic 842.

 

Additionally, the Company did not separate lease and non-lease components for all of its leases. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. Instead, the Company will continue to recognize the lease payments for those leases in profit or loss on a straight-line basis over the lease term.

 

The most significant effects of adoption relate to (1) the recognition of new ROU assets and lease liabilities on its balance sheet for real estate operating leases; and (2) providing significant new disclosures about its leasing activities.

 

10

 

 

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

 

Upon adoption, the Company recognized additional operating lease liabilities, of approximately $2.2 million based on the present value of the remaining lease payments under current leasing standards for existing operating leases. The Company also recognized corresponding ROU assets of approximately $2.2 million. Lease terms may include options to extend or terminate the lease when the Company is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company’s leases may include variable payments based on measures that include changes in price index which are expensed as incurred and presented as operating expense on the condensed consolidated statements of operations in the same line item as expense arising from fixed lease payments.

 

The new standard also provides practical expedients for an entity’s ongoing accounting. Beginning in 2019, the Company changed its disclosed lease recognition policies and practices, as well as to other related financial statement disclosures due to the adoption of this standard. See Note 4a.

 

2)In June 2018, the FASB issued ASU 2018-07, “Compensation-Stock Compensation” (Topic 718” or “ASU 2018-07”) to improve the usefulness of information provided to users of financial statements while reducing cost and complexity in financial reporting and provide guidance aligning the measurement and classification for share-based payments to nonemployees with the guidance for share-based payments to employees. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. This standard, adopted as of January 1, 2019, had no material impact on the Company’s consolidated financial statements.

  

NOTE 3 - MARKETABLE SECURITIES

 

The Company’s marketable securities have a minimum of A rating by global rating agencies. These marketable securities are recorded at fair value with changes recorded in the statement of operations as “financial income, net”, as the Company chose to apply the fair value option.

 

As of September 30, 2019, and December 31, 2018, the amount of the marketable securities is approximately $0.8 million and $1.3 million, respectively.

 

The gain, net from changes in marketable securities for the nine-month period ended September 30, 2019 amounted to approximately $10 thousand and the loss, net from changes in marketable securities for the nine-month period ended September 30, 2018 amounted to approximately $141 thousand. The gain, net from changes in marketable securities for the three-month periods ended September 30, 2019 and 2018 amounted to approximately $5 thousand and $13 thousand, respectively.

  

11

 

 

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4 - COMMITMENTS AND CONTINGENT LIABILITIES:

 

a.Lease Agreements

 

1)The Company is a tenant under a lease agreement in respect of offices and operational spaces in Jerusalem until June 30, 2021. The lease agreement includes an option to extend the lease term until June 30, 2022 (the “Extension Option”). The exercise of the Extension Option may be made in the Company’s sole discretion. Rent payments are denominated in NIS and linked to the Israeli CPI.

 

To secure the Company’s obligations to the lease agreement in Jerusalem, the Company granted a bank guarantee to the lessor, which amounted to approximately $146 thousand as of September 30, 2019.

 

The Company also leases office space in Modi’in and New York City for a short-term period.

 

2)The Company has entered into operating lease agreements for vehicles used by its employees. The lease periods are generally for three years and the payments are linked to the Israeli CPI. To secure the terms of the lease agreements, the Company has made certain prepayments to the leasing company, representing approximately three months of lease payments.

 

Lease expense for the three and nine month-period ended September 30, 2019 was comprised of the following:

 

   Three months
ended
September 30,
   Nine months
ended
September 30,
 
   2019   2019 
   U.S. dollars in thousands 
Operating lease expense   190    576 
Short-term lease expense   26    76 
Variable lease expense   1    2 
    217    654 

  

Supplemental information related to leases are as follows:

 

   September 30, 
   2019 
   U.S. dollars
in thousands
 
Operating lease right-of-use assets   1,685 
Current Operating lease liabilities   662 
Non-current operating lease liabilities   1,132 

 

Other information:

 

Operating cash flows from operating leases (cash paid in thousands)   563 
Weighted Average Remaining Lease Term   2.65 
Weighted Average Discount Rate   5.43%

 

12

 

 

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):

 

Maturities of lease liabilities are as follows:

 

Year  Amount 
   U.S. dollars
in thousands
 
2019 (excluding the nine months ended September 30, 2019)   185 
2020   728 
2021   668 
2022   333 
Total lease payments   1,914 
Less imputed interest   (120)
Total   1,794 

 

3)ASC 840 Disclosures-

 

The Company elected the modified retrospective transition method and included the following tables previously disclosed.

 

Future contractual obligations under the abovementioned operating lease agreements (not including the Extension Option) as of December 31, 2018 are as follows:

 

Year  Amount 
   U.S. dollars
in thousands
 
2019   772 
2020   721 
2021   332 
Total   1,825 

 

b.Establishment of the Commercial Scale Production Capabilities for AP-CD/LD

 

1)Automated Production Line

 

In April 2017, the Company engaged with an international manufacturer for ordering a large-scale automated production line for manufacturing Accordion Pills (the “Production Line”). The total cost of the Production Line amounted to approximately €8.1 million. As of September 30, 2019, and December 31, 2018, the Company transferred payments of approximately €8.1 million (approximately $9.4 million) and €7.4 million (approximately $8.6 million), respectively. In addition, as of September 30, 2019 and December 31, 2018 the Company recognized a liability in the amount of approximately €113 thousand (approximately $123 thousand) and €148 thousand (approximately $170 thousand), respectively. As of the date of the issuance of these condensed consolidated financial statements, the installation process and qualification studies of the Production Line at the commercial site at Lohmann Therapie-Systeme AG (“LTS”) was completed and the Company intends to begin the validation and stability studies in the coming months. For more details regarding the Manufacturing Services with LTS see note 2 below.

 

13

 

 

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):

 

2)LTS Process Development Agreement

 

In December 2018, the Company entered into a Process Development Agreement for Manufacturing Services with LTS for the manufacture of AP-CD/LD (the “Agreement”). Under the Agreement, the Company will bear the costs incurred by LTS to acquire the production equipment for AP-CD/LD (“Equipment”) in the amount of approximately €7.0 million, however such amount will later be reimbursed to the Company by LTS in the form of a reduction in the purchase price of the AP-CD/LD product. As of September 30, 2019, the Company transferred payments of approximately €6.3 million (approximately $7.2 million) in costs of the Equipment, of which approximately €2.0 million (approximately $2.3 million) was paid during the nine-month period ended September 30, 2019 and recognized a liability in an additional amount of approximately €502 thousand (approximately $549 thousand) and as of December 31, 2018 recognized a liability of €436 thousand (approximately $499 thousand). The Company has recognized the Equipment as non-current other assets.

 

The Agreement contains several termination rights which are expected to be included in a definitive manufacturing and supply agreement. As of September 30, 2019, the Company recognized a liability that was recorded against research and development expenses, net in the amount of approximately €3.0 million (approximately $3.3 million), for LTS’s facility upgrading costs, of which €1.0 million (approximately $1.1 million) was paid in October 2019. The remaining liability balance in the amount of €2.0 million (approximately $2.2 million) will be paid to LTS only if the Company decides to not continue with the project or commercialization of AP-CD/LD. The liability that was recorded as of December 31, 2018, was approximately €1.65 million (approximately $1.9 million).

  

3)Impairment Assessment

 

The Company’s long-lived assets include property, plant and equipment and long-term other assets. The Company evaluates its long-lived assets for impairment in accordance with ASC 360, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Estimates of future cash flows and timing of events for evaluating long-lived assets for impairment are based upon management’s assumptions and market conditions. If any of its long-lived assets are considered to be impaired, the amount of impairment to be recognized is the excess of the carrying amount of the assets over its fair value. 

 

In July 2019, the Company announced top-line results from its pivotal Phase III clinical trial for AP-CD/LD for the treatment of advanced Parkinson’s which did not meet its target endpoints. The Company determined that the Phase III clinical trial results constituted a triggering event that required the Company to evaluate its Production Line and Equipment, net, from the liability described in note 4b(2), together “AP-CD/LD Assets, net”, for impairment test.

 

For the three and nine month period ended September 30, 2019, the Company recorded an impairment charge of approximately $9.8 million of its AP-CD/LD Assets, net, which represents the excess carrying value compared to the fair value of the AP-CD/LD Assets, net. As of September 30, 2019, the fair value of the AP-CD/LD Assets, net, is approximately $5.4 million.

 

The impairment charge is recorded as an operating expense and was the result of both internal and external factors. The fair value was determined using the discounted cash flow method (level 3) which utilized significant estimates and assumptions surrounding the amount and timing of the projected net cash flows, which includes the probability of out-licensing the AP-CD/LD program to a third-party, the probability of obtaining FDA approval, the expected impact of competition, the discount rate, which seeks to reflect the various risks inherent in the projected cash flows, and the tax rate.

 

While management believes the assumptions used in their impairment assessment are reasonable, any changes in the actual market conditions versus the assumptions used in the model could result in a change in estimated future cash flows, which may result in an additional impairment charge on AP-CD/LD Assets, net in the future.

 

c.During 2019 the Company received letters (each a “Letter” and collectively the “Letters”) from several of its former directors and officers. The Letters include several claims related, among others, to a purported vesting of certain options that were issued to them due to the execution by the Company of a manufacturing agreement with LTS for the production of the Company’s AP-CD/LD. On July 30, 2019, the board of directors of the Company resolved that the vesting conditions have not been met. As of the date of the issuance of these condensed consolidated financial statements, the Company is yet to receive their response, and at this stage cannot assess whether a claim would be filed, and if filed, its likelihood of success.

 

14

 

 

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 - SHARE CAPITAL:

 

a.Changes in share capital

 

1)On March 1, 2019, the Company entered into a Sales Agreement with Cowen which provides that, upon the terms and subject to the conditions and limitations in the Sales Agreement, the Company may elect from time to time, to offer and sell ordinary shares through an “at-the-market” equity offering program having an aggregate offering price of up to $75.0 million through Cowen acting as sales agent. The issuance and sale of ordinary shares by the Company under the program is being made pursuant to the Company’s effective “shelf” registration statement on Form S-3 filed with the SEC on March 1, 2019 and declared effective on March 28, 2019. During September 2019, the Company sold 1,716,679 ordinary shares under the Sales Agreement at an average price of $1.21 per share for aggregate net proceeds of approximately $2.0 million, net of issuance expenses of $107 thousand.

 

2)During the nine-month period ended September 30, 2019, options to purchase 69,812 ordinary shares granted to employees and service providers were exercised for consideration of approximately $268 thousand.

    

b.Share-based compensation:

 

1)In January 2016, the Company’s board of directors approved a new option plan (the “2015 Plan”). Originally, the maximum number of ordinary shares reserved for issuance under the 2015 Plan was 700,000 ordinary shares for grants to directors, employees and consultants. In July 2016 an increase of 700,000 ordinary shares was approved by the board of directors.

 

In December 2017 and September 2018, an increase of 2,100,000 and 1,000,000 ordinary shares, respectively, was approved by the Company’s shareholders at a general meeting of shareholders.

 

As of September 30, 2019, 175,598 shares remain available for grant under the Plan.

 

2)On August 22, 2019, the Company reduced the exercise price of 1,263,655 options previously granted to employees (excluding executive officers and directors) to $0.44 (determined based on the close price of the Company’s ordinary shares on Nasdaq on August 21, 2019).  The total incremental fair value of these options amounted to $253 and was determined based on the Black-Scholes pricing options model using the following assumptions: risk free interest rate of 1.5%, expected volatility of 99% - 122%, expected term of 2.6-4.4 years and dividend yield of: 0%. The incremental fair value of these options will be recognized over the remaining vesting period and until January 2022.

 

  3) In the nine months ended September 30, 2019 and 2018, the Company granted options as follows:

 

   Nine months ended September 30, 2019
   Number of
options granted
   Exercise price
range
  Vesting
period
  Expiration
Employees*   1,465,000   $0.9-$7.64  3 years  7 years
Directors   120,000   $4.86  3 years  7 years

 

   Nine months ended September 30, 2018
   Number of
options granted
   Exercise price
range
  Vesting
period range
  Expiration
Employees*   1,175,000   $4.44-$6.67  3 years  7 years
Directors   120,000   $4.44  3 years  7 years

 

*As part of the reduction in exercise price of the options described in note 5b(2), the option exercise price was adjusted to $0.44.

 

15

 

 

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 - SHARE CAPITAL (continued):

 

The fair value of options granted to employees during the nine months ended September 30, 2019, and 2018 was $4.4 million and $3.1 million, respectively.

 

The fair value of options granted to employees on the date of grant was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:

 

   Nine months ended September 30
   2019  2018
Value of ordinary share  $1.15-$7.46  $4.20-$6.45
Dividend yield  0%  0%
Expected volatility  53.32%-97.81%  45.87%-46.47%
Risk-free interest rate  1.75%-2.57%  2.25%-2.73%
Expected term  5 years  5 years

  

4)The following table illustrates the effect of share-based compensation on the statements of operations:

 

   Three months ended
September 30
   Nine months ended
September 30
 
   2019   2018   2019   2018 
   U.S. dollars in thousands   U.S. dollars in thousands 
Research and development expenses, net   371    459    1,538    1,315 
General and administrative expenses   416    392    1,210    1,137 
    787    851    2,748    2,452 

  

NOTE 6 - ACCOUNTS PAYABLE AND ACCRUALS - OTHER:

 

   September 30,   December 31, 
   2019   2018 
   U.S. dollars in thousands 
Expenses payable  $4,525   $3,400 
Current operating lease liabilities (see Note 4a)   662    - 
Salary and related expenses, including social security and other taxes   1,224    1,078 
Accrual for vacation days and recreation pay for employees   341    309 
Other   22    20 
   $6,774   $4,807 

 

 

 

 

 

 

 

16

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our results of operations and financial condition for the periods described. This discussion should be read together with our condensed consolidated interim financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q. This information should also be read in conjunction with the information contained in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 27, 2019, including the consolidated annual financial statements as of December 31, 2018 and their accompanying notes included therein. We have prepared our condensed consolidated interim financial statements in accordance with U.S. GAAP.

 

This Quarterly Report on Form 10-Q of Intec Pharma Ltd. contains forward-looking statements about our expectations, beliefs and intentions. Forward-looking statements can be identified by the use of forward-looking words such as “believe”, “expect”, “intend”, “plan”, “may”, “should”, “could”, “might”, “seek”, “target”, “will”, “project”, “forecast”, “continue” or “anticipate” or their negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical matters. These forward-looking statements are based on assumptions and assessments made in light of management’s experience and perception of historical trends, current conditions, expected future developments and other factors believed to be appropriate. Forward-looking statements in Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of our control. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the following: our limited operating history and history of operating losses, our ability to continue as a going concern, our ability to obtain additional financing, our ability to successfully operate our business or execute our business plan, our ability to enter into collaborative, licensing, and other commercial relationships and on terms commercially reasonable to us, the timing and cost of our clinical trials, the completion and receiving favorable results in our clinical trials, our ability to obtain and maintain regulatory approval of our product candidates, our ability to protect and maintain our intellectual property and licensing arrangements, our ability to develop, manufacture and commercialize our product candidates, the risk of product liability claims, the availability of reimbursement, and the influence of extensive and costly government regulation, and our ability to remain listed on the Nasdaq Capital Market. More detailed information about the risks and uncertainties affecting us is contained under the heading "Risk Factors" included in our most recent Annual Report on Form 10-K filed with the SEC on February 27, 2019, and in other filings that we have made and may make with the Securities and Exchange Commission in the future. 

 

All references to “we,” “us,” “our,” “Intec”, “the Company” and “our Company” in this Quarterly Report on Form 10-Q are to Intec Pharma Ltd. and its U.S. subsidiary Intec Pharma Inc., unless the context otherwise requires.

  

Overview

 

We are a clinical stage biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology, which we refer to as the Accordion Pill. Our Accordion Pill is an oral drug delivery system that is designed to improve the efficacy and safety of existing drugs and drugs in development by utilizing an efficient gastric retention and specific release mechanism. Our product pipeline currently includes several product candidates in various clinical trial stages. Our leading product candidate, AP-CD/LD, is being developed for the indication of treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients.

 

In July 2019, we announced top-line results from our pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s disease known as the ACCORDANCE study in which the ACCORDANCE study did not meet its target endpoints. While AP-CD/LD provided treatment for Parkinson’s disease symptoms, it did not demonstrate statistically superiority over immediate release CD/LD on the primary endpoint of OFF time reduction under the conditions established in the protocol. Treatment-emergent adverse effects observed with AP-CD/LD were generally consistent with the known safety profile of CD/LD formulations and no new safety issues were observed throughout the double-blinded study, during the gastroscopy safety sub-study or the 12-month open-label extension study. From our review of the data, we have observed a meaningful reduction in OFF time in certain subsets of patients. We have completed most of the analysis of the full data set and we are currently seeking to partner AP-CD/LD as the basis for the strategy for AP-CD/LD moving forward.

 

Previously, we successfully completed a Phase II clinical trial for AP-CD/LD for the treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients and in February 2019, we announced that AP-CD/LD met the primary endpoint in a pharmacokinetic, or PK, study comparing the AP-CD/LD 50/500mg dosed three times daily, the most common dose used in our ACCORDANCE study, to 1.5 tablets of CD/LD immediate release (Sinemet™) 25/100 dosed five times per day in Parkinson’s disease patients.

 

We have invested in the commercial scale manufacture of AP-CD/LD, for which we are in partnership with LTS Lohmann Therapie-Systeme AG, or LTS. In December 2018, the large commercial scale production line ("Production Line") was delivered to LTS in Andernach, Germany and recently we completed the qualification studies for the commercial scale manufacture of the Accordion Pill and we intend to begin the validation and stability studies in the coming months. 

 

17

 

 

In addition, we have initiated a clinical development program for our Accordion Pill platform with the two primary cannabinoids contained in cannabis sativa, which we refer to as AP-Cannabinoids. We are formulating and testing CBD and THC for the treatment of various pain indications. AP-Cannabinoids are designed to extend the absorption phase of CBD and THC, with the goal of more consistent levels for an improved therapeutic effect, which may address several major drawbacks of current methods of treatment, such as short duration of effect, delayed onset, variability of exposure, variability of the administered dose and adverse events that correlate with peak levels. In March 2017, we initiated a Phase I single-center, single-dose, randomized, three-way crossover clinical trial in Israel to compare the safety, tolerability and PK of AP-THC/CBD with Sativex®, an oral buccal spray containing CBD and THC that is commercially available outside of the United States. Initial results demonstrated that the Accordion Pill platform is well suited to safely deliver CBD and THC with significant improvements in exposure compared with Sativex®. In December 2018, we initiated a PK study of AP-THC and the results of the study demonstrate that the custom designed AP delivery system in the AP-THC PK study did not meet our expectations. We are continuing to advance the AP-Cannabinoids clinical development program and we are seeking to launch a PK study with the optimized AP-THC in 2020.

 

While the ACCORDANCE results were not what we expected, we continue to believe in the potential of the Accordion Pill platform. In December 2018, we reported that we successfully developed an Accordion Pill for a Novartis proprietary compound that met the required in vitro specifications set forth in a feasibility agreement with Novartis. We recently completed the human PK study that was initiated during the first quarter of 2019 and the study demonstrated that the AP met the technical requirements set forth by Novartis. Novartis undertook a full commercial assessment of the program, and to date, has not definitively decided whether they will opt into negotiations for a commercial agreement. As a result, we have determined that will not need the volume of clinical manufacturing to support that program at this time and plan to restructure those dedicated to the Novartis program in order to reduce our burn.

 

In May 2019, we reported entering into a research collaboration agreement with Merck for the development of a custom-designed AP for one of Merck’s proprietary compounds and are now initiating the design and construction of this new AP. We aim to have a final construct completed and in-vitro tested by the middle of 2020.

 

We continue to advance discussions with other potential pharmaceutical partners for the development of new custom-designed APs. We believe the data from our ACCORDANCE trial enhances those discussions as it validates the AP platform and provides long-term safety data.

  

Results of Operations

 

The table below provides our results of operations for the periods indicated.

 

   Three months ended
September 30
   Nine months ended
September 30
 
   2018   2019   2018   2019 
   (dollars in thousands)   (dollars in thousands) 
                 
Research and development expenses, net  $(7,809)  $(8,448)  $(25,089)  $(24,850)
General and administrative expenses   (1,696)   (2,157)   (5,800)   (6,491)
Impairment of long-lived assets   -    (9,759)   -    (9,759)
Operating loss   (9,505)   (20,364)   (30,889)   (41,100)
Financial income (expenses), net   163    14    (5)   157 
Loss before income tax   (9,342)   (20,350)   (30,894)   (40,943)
Tax benefit (Income tax)   164    (28)   (46)   (100)
Net loss  $(9,178)  $(20,378)  $(30,940)  $(41,043)

  

Three and Nine Months Ended September 30, 2019 Compared to Three and Nine Months Ended September 30, 2018

 

Research and Development Expenses, Net

 

Our research and development expenses, net, for the three months ended September 30, 2019 amounted to approximately $8.4 million, an increase of approximately $600,000, or 8%, compared to approximately $7.8 million for the three months ended September 30, 2018. The increase for the three-month period was primarily due to an increase in expenses related to our open label extension study. This increase was offset by a decrease in expenses related to our ACCORDANCE study and a decrease in expenses related to the scale up activities for the commercial scale production capabilities for AP-CD/LD at LTS.

 

Our research and development expenses, net, for the nine months ended September 30, 2019 amounted to approximately $24.9 million, a decrease of approximately $200,000, or 1%, compared to approximately $25.1 million for the nine months ended September 30, 2018. The decrease for the nine-month period was primarily due to a decrease in expenses related to our ACCORDANCE study. This decrease was offset by an increase in expenses related to the scale up activities for the commercial scale production capabilities for AP-CD/LD at LTS and a decrease in expenses related to our open label extension study.

 

18

 

 

We expect to continue to incur research and development expenses as we wind down the ACCORDANCE study [and its open-label extension study] and as we further advance the development of our other programs, subject to the availability of additional funding. However, due to the conclusion of the ACCORDANCE study [and its open-label extension], we expect our overall research and development expense to decrease substantially. To the extent our discussions with a potential partner result in a path toward further development of AP-CD/LD, our expenses, cash needs and operating losses may further increase.

 

General and Administrative Expenses

 

Our general and administrative expenses for the three months ended September 30, 2019 amounted to approximately $2.2 million, an increase of approximately $500,000, or 29%, compared to approximately $1.7 million for the three months ended September 30, 2018. Our general and administrative expenses for the nine months ended September 30, 2019 amounted to approximately $6.5 million, an increase of approximately $700,000, or 12%, compared to approximately $5.8 million for the nine months ended September 30, 2018. The increase for the three and nine-month periods was primarily related to the increase in payroll and related expenses mainly due to salary raises and increase in insurance expenses. This increase was offset by a decrease in professional services.

 

Impairment of Long-Lived Assets

 

For the three and nine months ended September 30, 2019, we recorded an impairment charge of approximately $9.8 million of our Production Line and Equipment, net, from the liability described in note 4b(2) to the condensed consolidated financial statements, together "AP-CD/LD Assets, net", which represents the excess carrying value compared to the fair value of the AP-CD/LD Assets, net. For more information, see note 4b(3) in our condensed consolidated financial statements for the nine months ended September 30, 2019.

 

Operating Loss

 

As a result of the foregoing, for the three months ended September 30, 2019 our operating loss was approximately $20.4 million, an increase of approximately $10.9 million or 115%, compared to our operating loss for the three months ended September 30, 2018 of approximately $9.5 million. For the nine months ended September 30, 2019 our operating loss was approximately $41.1 million, an increase of approximately $10.2 million, or 33%, compared to our operating loss for the nine months ended September 30, 2018 of approximately $30.9 million. The changes in the three and nine-month periods were mainly due to the impairment of our long-lived assets, changes in research and development expenses and general and administrative expenses, as detailed above.

 

Financial Income (expenses), Net

 

For the three months ended September 30, 2019, we had financial income from interest on cash and cash equivalents in the amount of approximately $44,000 offset by financial expenses from foreign currency exchange expenses in the amount of approximately $28,000 and bank fees. For the three months ended September 30, 2018, we had financial income from interest on cash equivalents in the amount of approximately $254,000 and financial income from change in fair value of marketable securities in the amount of approximately $13,000 offset by financial expenses from foreign currency exchange expenses in the amount of approximately $99,000, and bank fees.

 

For the nine months ended September 30, 2019, we had financial income from interest on cash and cash equivalents in the amount of approximately $326,000 offset by financial expenses from foreign currency exchange expenses in the amount of approximately $156,000 and bank fees. For the nine months ended September 30, 2018, we had financial expenses from foreign currency exchange expenses in the amount of approximately $488,000, financial expenses from change in fair value of marketable securities in the amount of approximately $141,000 and bank fees offset by financial income from interest on cash equivalents in the amount of approximately $641,000.

 

Income tax

 

For the three and nine months ended September 30, 2019 and 2018, we have not generated taxable income in Israel. However, for the three months ended September 30, 2019 we incurred tax expenses in our U.S. subsidiary in the amount of $28,000 and for the three months ended September 30, 2018 we incurred tax income in our U.S. subsidiary in the amount of $164,000. For the nine months ended September 30, 2019 and 2018, we incurred tax expenses in our U.S. subsidiary in the amount of $100,000 and $46,000, respectively.

 

19

 

 

Net Loss

 

Based on the foregoing, for the three months ended September 30, 2019 our net loss was approximately $20.4 million, an increase of approximately $11.2 million, or 122%, compared to net loss for the three months ended September 30, 2018 of approximately $9.2 million while for the nine months ended September 30, 2019 our net loss was approximately $41.0 million, an increase of approximately $10.1 million, or 33%, compared to our net loss for the nine months ended September 30, 2018 of approximately $30.9 million.

 

Liquidity and Capital Resources

 

Since our inception, we have funded our operations primarily through public and private offerings (in Israel and in the U.S.) of our equity securities, grants from the IIA and other grants from organizations such as the Michael J. Fox Foundation, and payments received under the feasibility and related agreements we have entered into with multinational pharmaceutical companies, pursuant to which we are entitled to full coverage of our development costs with regard to the projects specified in those agreements.

 

As of September 30, 2019, we had cash and cash equivalents and marketable securities of approximately $15.7 million. As of December 31, 2018, we had cash and cash equivalents and marketable securities of approximately $40.6 million.

 

Net cash used in operating activities was approximately $23.9 million for the nine months ended September 30, 2019 compared with net cash used in operating activities of approximately $30.9 million for the nine months ended September 30, 2018. This decrease resulted from changes in operating assets and liabilities items of approximately $6.5 million and a decrease in the net loss for the period in the amount of $500,000.

 

We had negative cash flow from investing activities of approximately $2.5 million for the nine months ended September 30, 2019 compared to negative cash flow from investing activities of approximately $5.1 million for the nine months ended September 30, 2018. This decrease resulted from a decrease in purchase of property and equipment in the amount of approximately $1.8 million, an increase in proceeds from the disposal of marketable securities in the amount of approximately $576,000 and a decrease of approximately $135,000 in investment in other assets related to the establishment of the commercial scale production capabilities for AP-CD/LD at LTS. 

 

Net cash provided by financing activities for the nine months ended September 30, 2019 was approximately $2.2 million, which was provided by funds received from the sale of our ordinary shares under our “at-the-market” equity offering program and proceeds from the exercise of options by employees. Net cash provided by financing activities for the nine months ended September 30, 2018 was approximately $35.0 million which was mainly provided by funds received from our April 2018 public offering of ordinary shares.

 

Current Outlook

 

In July 2019, we announced that our Phase III clinical trial for AP-CD/LD did not meet its target endpoints. We have completed most of the analysis of the full data set and we are currently seeking to partner AP-CD/LD as the basis for the strategy for AP-CD/LD moving forward. There is no assurance that we will be successful in entering into a transaction with a partner or that if entered into any such transaction will be on terms favorable to us. We expect that our ongoing activities will result in continuing operating losses for the foreseeable future. We believe that we have adequate cash to fund our ongoing activities into the second quarter of 2020. Our ability to execute our operating plan beyond the second quarter of 2020 is dependent on our ability to obtain additional capital principally through entering into a collaborations, strategic alliances, or license agreements with a third party and/or raising capital from the public and/or private investors and/or institutional investors. The negative outcome of the Phase III clinical trial that was announced on July 22, 2019 and uncertainty regarding our development programs is expected to adversely affect our ability to obtain funding and there is no assurance that we will be successful in obtaining the level of financing needed for our activities. We have taken measures to reduce our costs, including reducing headcount, and are continuingly evaluating additional measures to reduce costs to preserve existing capital. If we are unsuccessful in securing sufficient financing, we may need to scale back our administrative and clinical development activities and may be required to cease our operations entirely. As a result, there is substantial doubt about our ability to continue as a going concern. For more information, see note 1a(2) in our condensed consolidated financial statements for the nine months ended September 30, 2019.

 

On March 1, 2019, we entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”), pursuant to which we may sell from time to time, at our option, up to $75.0 million of our ordinary shares through an “at-the-market” equity offering program under which Cowen will act as sales agent. The issuance and sale of ordinary shares by us under the program will be made pursuant to our effective “shelf” registration statement on Form S-3 (Registration Statement No. 333-230016) filed with the SEC on March 1, 2019, and declared effective on March 28, 2019. During the nine months ended September 30, 2019, we sold an aggregate of 1,716,679 of ordinary shares at an average price of $1.21 per ordinary share for net proceeds of approximately $2.0 million under the offering program.

 

Developing drugs, conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. We will require significant additional financing in the future to fund our operations, including if and when we progress into additional clinical trials of our product candidates, obtain regulatory approval for one or more of our product candidates, obtain commercial manufacturing capabilities and commercialize one or more of our product candidates. Our future capital requirements will depend on many factors, including, but not limited to:

 

the progress and costs of our clinical trials and other research and development activities;

 

the scope, prioritization and number of our clinical trials and other research and development programs;

 

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the amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect to our product candidates;

 

the costs of the development and expansion of our operational infrastructure;

 

the costs and timing of obtaining regulatory approval for one or more of our product candidates;

 

the ability of us, or our collaborators, to achieve development milestones, marketing approval and other events or developments under our potential future licensing agreements;

 

the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;

 

the costs and timing of securing manufacturing arrangements for clinical or commercial production;

 

the costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves;

 

the costs of acquiring or undertaking development and commercialization efforts for any future products, product candidates or technology;

 

the magnitude of our general and administrative expenses; and

 

any cost that we may incur under future in- and out-licensing arrangements relating to one or more of our product candidates.

  

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

  

Critical Accounting Policies

 

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates that affect the reported amounts of our assets, liabilities and expenses. Significant accounting policies employed by us, including the use of estimates, are presented in the notes to the consolidated financial statements included elsewhere in this Annual Report. We periodically evaluate our estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require our subjective or complex judgments, resulting in the need to make estimates about the effect of matters that are inherently uncertain. If actual performance should differ from historical experience or if the underlying assumptions were to change, our financial condition and results of operations may be materially impacted.

 

Our critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.  With the exception of the change for the accounting of leases as a result of the adoption of ASC Topic 842 on January 1, 2019 and the evaluation of long-lived assets for impairment, as further described below, which requires the use of estimates and judgment, there have been no material changes to those policies during the nine months ended September 30, 2019.

 

Long-Lived Assets

 

We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Estimates of future cash flows and timing of events for evaluating long-lived assets for impairment are based upon management’s assumptions and market conditions. If any of our long-lived assets are considered to be impaired, the amount of impairment to be recognized is the excess of the carrying amount of the assets over its fair value.

 

As of September 30, 2019, we incurred an asset impairment of approximately $9.8 million as a result of the top-line results from our pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s which did not meet its target endpoints. The impairment charge was the result of both internal and external factors and the fair value was determined using the discounted cash flow method (level 3) which utilized significant estimates and assumptions surrounding the amount and timing of the projected net cash flows, which includes the probability of out-licensing the AP-CD/LD program to a third-party, the probability of obtaining FDA approval, the expected impact of competition, the discount rate, which seeks to reflect the various risks inherent in the projected cash flows and the tax rate.

 

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We believe the assumptions used in our impairment assessment are reasonable, any changes in the actual market conditions versus the assumptions used in the model could result in a change in estimated future cash flows, which may result in an additional impairment charge on AP-CD/LD Assets, net, in the future.

 

Recently Issued Accounting Pronouncements

 

See Note 2, Significant Accounting Policies, to the condensed consolidated financial statements included in “Item 1- Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required for smaller reporting companies.

 

Item 4. Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2019. Based on that evaluation, our principal executive officer and principal financial officer have concluded that as of September 30, 2019 these disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act that occurred during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

 

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PART II. OTHER INFORMATION

 

Item 1.Legal Proceedings

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. There are currently no pending material legal proceedings, and we are currently not aware of any legal proceedings or claims against us or our property that we believe will have any significant effect on our business, financial position or operating results. None of our officers or directors is a party against us in any legal proceeding.

 

Item 1A. Risk Factors

 

Not required for smaller reporting companies.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.Defaults Upon Senior Securities

 

None.

 

Item 4.Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6.Exhibits

 

Exhibit No.   Exhibit Description
     
3.1   Articles of Association of Intec Pharma Ltd., as amended (incorporated herein by reference to Exhibit 3.4 of the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2019)
     
10.1*   Sales Agreement between Intec Pharma Ltd. and Cowen and Company, LLC dated March 1, 2019
     
31.1*   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended
     
31.2*   Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended
     
32.1#   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2#   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS*   XBRL Instance Document
     
101.SCH*   XBRL Taxonomy Extension Schema Document
     
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB*   XBRL Taxonomy Extension Labels Linkbase Document
     
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

   

* Filed herewith
# Furnished herewith

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Intec Pharma Ltd.
     
Date: November 12, 2019 By: /s/ Jeffrey A. Meckler
    Jeffrey A. Meckler
 Date: November 12, 2019

 

Chief Executive Officer and Vice Chairman

(Principal Executive Officer)

 

  By: /s/ Nir Sassi
    Nir Sassi
 

 

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

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