ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our
financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained
elsewhere in this Annual Report. The analysis of the financial condition and results of operations excludes APT as it was acquired after
December 31, 2023. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from those discussed in any forward-looking statement because
of various factors, including those described in the sections titled “Cautionary Statement Regarding Forward-Looking Statements”
and “Risk Factors” in this Annual Report.
Overview
We are a clinical stage product discovery company
developing products using both natural and engineered phage technologies designed to target and kill specific harmful bacteria associated
with chronic diseases, such as CF and DFO. Bacteriophage or phage are bacterial, species-specific, strain-limited viruses that infect,
amplify and kill the target bacteria and are considered inert to mammalian cells. By utilizing proprietary combinations of naturally occurring
phage and by creating novel phage using synthetic biology, we develop phage-based therapies intended to address both large-market and
orphan diseases.
Since BiomX Ltd.’s inception in 2015, we
have devoted substantially all our resources to organizing and staffing our company, raising capital, acquiring rights to or discovering
product candidates, developing our technology platforms, securing related intellectual property rights, and conducting discovery, research
and development and clinical activities for our product candidates. We do not have any products approved for sale, and we have not generated
any revenue from product sales. As we advance our product candidates, we expect our expenses to remain significant. To date, we have
funded our operations with proceeds from sales of our Common Stock, preferred shares and warrants, governmental grants, collaboration
agreements and debt. As of December 31, 2023, we had received gross proceeds of approximately $154 million from sales of our securities.
In addition, as of December 31, 2023, we have received $2.0 million from our collaboration agreements and recorded a reduction from research
and development expenses of $2.2 million. The remainder of $0.2 million was received in January 2024. In addition, through December 31,
2023, we had received an aggregate of $8.0 million in the form of grants from the IIA, of which $1.1 million had been received as of December
31, 2023.
In addition, we have incurred significant operating
losses. Our ability to generate revenue from product sales sufficient to achieve profitability will depend on the successful development
of, the receipt of regulatory approval for, and eventual commercialization of one or more of our product candidates. Our net losses were
approximately $26.2 million and $28.3 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we
had an accumulated deficit of $163 million and expect that for the foreseeable future we will continue to incur significant expenses as
we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our
product candidates. In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization
expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with in-licensing
or acquiring additional product candidates.
Because of the numerous risks and uncertainties
associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able
to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become
profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels
and be forced to reduce or terminate our operations. We may implement cost reduction strategies, which may include amending, delaying,
limiting, reducing or terminating one or more of our programs or ongoing or planned clinical trials of our product candidates. In May
2022, we announced, as part of our corporate restructuring plan (the “Corporate Restructuring”), our intention to reduce our
operating costs, including a 50% reduction in personnel, while prioritizing our ongoing CF program.
On December 31, 2023, we had cash, cash equivalents
and restricted cash of $15.9 million. Our financial statements contain an explanatory paragraph regarding substantial doubt about our
ability to continue as a going concern for at least one year until April 3, 2025, as discussed further below under “-Liquidity and
Capital Resources”.
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On March 6, 2024 we entered
into a merger agreement with APT and certain other parties, as a result of which APT became our wholly-owned subsidiary, effective as
of March 15, 2024, or the Acquisition. The Acquisition was structured as a stock-for-stock transaction whereby all outstanding equity
interests of APT were exchanged in a merger for an aggregate of 9,164,968 shares of BiomX common stock, 40,470 shares of Series X Preferred
Stock, convertible upon stockholder approval into 40,470,000 shares of BiomX common stock, and warrants, or the Merger Warrants, exercisable
for 2,166,497 shares of BiomX common stock. Upon the consummation of the Acquisition, a successor-in-interest of APT became a wholly-owned
subsidiary of BiomX. The Merger Warrants will be exercisable at any time after the date of the receipt of BiomX stockholder approval of
their exercise at an exercise price of $5.00 per share and will expire on January 28, 2027.
Concurrently with the consummation
of the Acquisition, BiomX consummated a private placement financing, or the March 2024 PIPE, with existing and new investors, resulting
in aggregate gross proceeds of approximately $50 million, in which the investors purchased (i) an aggregate of 216,417 shares of Series
X Preferred Stock, convertible upon stockholder approval into an aggregate of up to 216,417,000 shares of BiomX common stock, and (ii)
warrants, or the Private Placement Warrants, to purchase up to an aggregate of 108,208,500 shares of BiomX common stock, at a combined
purchase price of $231.10 per share of Series X Preferred Stock and an accompanying Private Placement Warrant to purchase 500 shares of
BiomX common stock. The Private Placement Warrants will be exercisable any time after the date of the receipt of BiomX stockholder approval,
at an exercise price of $0.2311 per share, and will expire on the 24-month anniversary of the initial exercisability date.
Immediately following the
Acquisition, and without taking into account the shares of Convertible Preferred Stock issued in the March 2024 PIPE, and assuming conversion
of all of the Convertible Preferred Stock into Common Stock, our stockholders (including holders of the Pre-Funded Warrants, as defined
below) prior to the Acquisition owned approximately 55% of the share capital of the Company and APT’s stockholders prior to the
Acquisition owned approximately 45% of the share capital of the Company.
Components of Our Consolidated Results of Operations
Revenue
To date, we have not generated any revenue from
product sales and do not expect to generate any revenue from product sales in the near future. If development efforts for our product
candidates are successful and result in any necessary regulatory approvals or otherwise lead to any commercialized products or additional
license agreements with third parties, we may generate revenue in the future from product sales or payments from collaboration or license
agreements with third parties.
Operating Expenses
Research and Development Expenses, net
Research and development expenses consist primarily
of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs
as incurred, offset by IIA grants and, to a lesser degree, income from research and development collaboration agreements. These expenses
include:
● development and operation of our proprietary platform;
● depreciation and other expenses.
We recognize external development costs based on
an evaluation of the progress to completion of specific tasks using information provided to us by our service providers.
We do not allocate employee costs or facility expenses,
including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as
such, are not separately classified. We use internal resources primarily to oversee the research and discovery as well as for managing
our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple
programs and, therefore, we do not track their costs by program.
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The table below summarizes our research and development
expenses incurred by program:
Year Ended December 31,
USD In thousands
Salaries and related benefits (including stock-based compensation) 6,004 9,130
Infrastructure & other unallocated or R&D expenses 2,410 2,017
Total research and development expenses, net 16,698 16,244
Research and development activities are central
to our business. Product candidates in later stages of clinical development generally have higher development costs than those in earlier
stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Our research and development
expenses reflect, among other things, programs that were discontinued or put on hold as well as new development programs. As a result,
we expect that our research and development expenses will increase substantially over the next several years, particularly as we increase
personnel costs, including stock-based compensation, contractor costs and facilities costs, as we continue to advance the development
of our product candidates. We also may incur additional expenses related to milestone and royalty payments payable to third parties with
whom we have entered into license agreements to acquire the rights to our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily
of salaries, related benefits and stock-based compensation expenses for personnel in executive, finance, corporate, business development
and administrative functions. General and administrative expenses also include legal fees relating corporate and securities matters; professional
fees for accounting, tax and audit services; insurance costs; travel expenses; and facility-related expenses, including rent, as well
as operating related costs.
We believe that our general and administrative
expenses may increase in the future as we integrate the APT operations and support our continued research activities and development of
our product candidates. We also anticipate that we will continue to incur significant accounting, audit, legal, regulatory, compliance,
directors’ and officers’ insurance costs as well as investor and public relations expenses associated with being a public
company. We anticipate the additional costs for these services will increase our general and administrative expenses in the future. Additionally,
if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expenses
as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.
Amortization of intangible assets
Intangible assets consist of in-process research
and development, amortized for a period of three years, that started on January 1, 2020 and ended on December 31, 2022.
Other income
Other income consists of proceeds from sub-leasing
a portion of our office space in Ness Ziona, Israel starting in August 2022.
Interest expenses
Interest expense consists of interest incurred under the Hercules Loan
Agreement (as defined below(. We entered into a Loan and Security Agreement with Hercules Capital, Inc., or Hercules, with respect to
a venture debt facility, or the Hercules Loan Agreement. Under the Hercules Loan Agreement, Hercules provided the Company with access
to a term loan with an aggregate principal amount of up to $30 million, or the Term Loan Facility. On March 19, 2024, the Company prepaid
all of the remaining loan under the Term Loan Facility in a total of $10,428 thousands. The prepayment included an end of term charge
of $983 thousands and accrued interest of $69 thousands.
Financial expenses, net
Financial expenses, net consist primarily of income
or expenses related to revaluation of foreign currencies and interest income on our bank deposits and money market funds.
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Results of Operations
Comparison of the Years Ended December 31,
2023 and 2022
The following table summarizes our consolidated
results of operations for the years ended December 31, 2023 and 2022:
Year ended December 31,
USD In thousands
Amortization of intangible assets - 1,519
General and administrative expenses 8,650 9,456
R&D expenses, net (net of grants received
from the IIA, and consideration from research collaborations) were $16.7 million for the year ended December 31, 2023, compared to $16.2
million for the year ended December 31, 2022. The increase of $0.5 million, or 3%, in the year ended December 31, 2023 compared to the
prior year, is primarily due to the following:
We recorded grants from the IIA totaling $1.1 million
for each of the years ended December 31, 2023 and December 31, 2022.
Amortization of intangible assets ended on December
31, 2022, as the intangible asset was fully amortized.
General and administrative expenses were $8.7
million for the year ended December 31, 2023, compared to $9.5 million for the year ended December 31, 2022. The decrease of $0.8
million, or 8%, is primarily due to a decrease of $0.9 million in the Company’s directors’ and officers’ insurance
premium.
Interest expenses were $2.4 million for the year
ended December 31, 2023, compared to $2.1 million for the year ended December 31, 2022. The increase of $0.3 million, or 14%, is due to
the increase of the U.S. prime rate, which led to increased interest payments under the Hercules Loan Agreement.
Finance income, net was $1.2 million for the year
ended December 31, 2023, compared to $0.9 million for the year ended December 31, 2022. The increase of $0.3 million, or 33% is primarily
due to rising interest rates, leading to an increase in interest income on our bank deposits. Such increase was partly offset by a decrease
due to the appreciation of the U.S. dollar against the NIS, which resulted in higher exchange rate expenses.
Other income was $0.4 million for the year
ended December 31, 2023, compared to $0.1 million for the year ended December 31, 2022. The increase of $0.3 million, or 300%, is due
to receipt of proceeds from a sublease agreement for a portion of our office space in Ness Ziona, Israel entered into in August 2022 following
our Corporate Restructuring.
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Liquidity and Capital Resources
Sources of Liquidity
We have never generated any revenue from sales
of our products and have incurred significant operating losses and negative cash flows from our operations. We have funded our operations
to date primarily with proceeds from the sale of our Common Stock, preferred shares and warrants, venture debt, IIA grants and funds from
collaboration agreements and through the business combination between Chardan Healthcare Acquisition Corp., a special purpose acquisition
company, and BiomX Ltd., pursuant to which Chardan Healthcare Acquisition Corp. changed its name to BiomX Inc. Through December 31, 2023,
we had received gross cash proceeds of approximately $154 million from sales of our Common Stock and preferred shares. In August 2021,
we borrowed $15.0 million under the Hercules Loan Agreement. In addition, we received approximately $1.9 million from our collaboration
agreements and grants from the IIA for each of the years ended December 31, 2023 and December 31, 2022.
Cash in excess of immediate requirements is invested
primarily with a view to liquidity and capital preservation.
On December 4, 2020, we filed a shelf registration
statement on Form S-3, which was declared effective by the SEC on December 11, 2020. In addition, on December 4, 2020, we entered into
an Open Market Sale AgreementSM, or the Sale Agreement, with Jefferies LLC Jefferies, pursuant to which we could issue and
sell shares of our Common Stock having an aggregate offering price of up to $50 million from time to time through Jefferies. We were not
obligated to make any sales of Common Stock under the Sale Agreement. Through December 31, 2023, we sold an aggregate of 983,384 shares
of Common Stock pursuant to the Sale Agreement for aggregate gross proceeds of $5.8 million. We terminated the Sale Agreement on December
7, 2023.
On August 16, 2021 we entered into the Hercules
Loan Agreement with Hercules, with respect to a venture debt facility. Under the Hercules Loan Agreement, Hercules provided the us with
access to a term loan with an aggregate principal amount of up to $30 million, available in three tranches, subject to certain terms and
conditions. The first tranche of $15 million was advanced to us on the date the Hercules Loan Agreement was executed. The milestones
for the second and third tranches were not reached and have expired. and accordingly we never received additional amounts under the Hercules
Loan Agreement. We were required to make interest-only payments through March 1, 2023, and we were required to repay the principal balance
and interest in monthly installments through September 1, 2025. On March 19, 2024, we voluntarily prepaid the outstanding amount under
the Hercules Loan Agreement and such agreement expired.
On February 22, 2023, we entered into a securities
purchase agreement to issue and sell an aggregate of 15,997,448 shares of our Common Stock and 14,610,714 pre-funded warrants, or the
Pre-Funded Warrants, and collectively, the Securities, at a price of $0.245 per share and $0.244 per Pre-Funded Warrant, through a private
placement pursuant to an exemption from registration requirements under the Securities Act, or the February 2023 PIPE. The gross proceeds
from the February 2023 PIPE were approximately $7.5 million, before deducting issuance costs. The offering closed in two parts. The first
closing, which resulted in the issuance of 3,199,491 shares of Common Stock and 2,776,428 Pre-Funded Warrants for gross proceeds of $1.5
million, occurred on February 27, 2023. Such Pre-Funded Warrants became exercisable on February 27, 2023, at an exercise price of $0.001
per share of Common Stock and have no expiration date. At the first closing, we raised net proceeds of $1.3 million, after deducting issuance
costs of $0.2 million. On April 24, 2023, our stockholders approved the issuance of up to 24,632,243 shares of Common Stock, including
shares underlying Pre-Funded Warrants, in accordance with NYSE American rules. On May 4, 2023, we completed the second closing of the
February 2023 PIPE and issued an aggregate of 12,797,957 shares of Common Stock and 11,834,286 Pre-Funded Warrants. Such Pre-Funded Warrants
became exercisable on May 4, 2023, at an exercise price of $0.001 per share of Common Stock and have no expiration date. At the second
closing, we raised net proceeds of $5.9 million, after deducting issuance costs of $0.1 million. As of December 31, 2023, no Pre-Funded
Warrants had been exercised.
On December 7, 2023, we filed a shelf registration
statement on Form S-3, which was declared effective by the SEC on January 2, 2024. In addition, on December 7, 2023, we entered into the
ATM Agreement, with Wainwright, as manager, pursuant to which we may issue and sell shares of our Common Stock having an aggregate offering
price of up to $7.5 million from time to time through Wainwright. We are not obligated to make any sales of Common Stock under the ATM
Agreement. From January 1, 2024 through March 26, 2024, we issued 75,179 shares of Common Stock pursuant to the ATM Agreement for aggregate
gross proceeds of $19 thousand.
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On March 15, 2024, in connection with the Acquisition,
we consummated the March 2024 PIPE, pursuant to which we sold an aggregate of 216,417 shares of Convertible Preferred Stock and Private
Placement Warrants to purchase up to an aggregate of 108,208,500 shares of Common Stock for aggregate gross proceeds of approximately
$50 million.
Our financial statements contain an explanatory
paragraph regarding substantial doubt about our ability to continue as a going concern for at least one year until April 3, 2025. In the
future, we will likely require or desire additional funds to support our operating expenses and capital requirements or for other purposes,
such as acquisitions, and may seek to raise such additional funds through public or private equity or debt financings or collaborative
agreements or from other sources, as we are doing now with the ATM Agreement and as we did with the Hercules Loan Agreement. If certain
disruptions due to, for instance, the Israel-Hamas War, or Israeli political instability persists and deepens, we could experience an
inability to access additional capital, which could in the future negatively affect our capacity to support our operating expenses and
capital requirements or to make investments for other purposes, such as acquisitions.
We have no other commitments to obtain additional
financing and cannot assure you that additional financing will be available at all or, if available, that such financing would be obtainable
on terms favorable to us and would not be dilutive. Our future liquidity and cash requirements will depend on numerous factors, including
the introduction of new products as well as the ability to continue to maintain controls over our operating expenditures.
Cash Flows
The following table summarizes our cash flows for
each of the periods presented:
Year Ended December 31,
USD In thousands
Net cash used in operating activities (21,286 ) (29,092 )
Net cash provided by (used in) investing activities 1,951 (2,107 )
Net cash provided by financing activities 2,899 292
Net increase (decrease) in cash and cash equivalents (16,430 ) (30,801 )
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Operating Activities
During the year ended December 31, 2023, operating
activities used $21.3 million of net cash, primarily due to a net loss of $26.2 million and by net cash used by changes in our operating
assets and liabilities of $2.5 million and non-cash charges of $2.4 million. Non-cash charges for the year ended December 31, 2023, mainly
consisted of stock-based compensation expenses of $1.0 million, depreciation and amortization of $0.9 million and amortization of debt
issuance costs of $0.6 million. Net changes in our operating assets and liabilities for the year ended December 31, 2023, consisted primarily
of an increase in trade account payables of $0.6 million and an increase in other account payables of $1.2 million, partially offset by
a decrease in other current assets of $0.8 million.
During the year ended December 31, 2022, operating
activities used $29.1 million of net cash, primarily due to a net loss of $28.3 million and by net cash used by changes in our operating
assets and liabilities of $4.4 million and non-cash charges of $3.7 million. Non-cash charges for the year ended December 31, 2022, mainly
consisted of stock-based compensation expenses of $1.5 million and depreciation and amortization of $2.5 million. Net changes in our operating
assets and liabilities for the year ended December 31, 2022, consisted primarily of a decrease in trade account payables of $2.0 million
and a decrease in other account payables of $3.3 million, partially offset by a decrease in other current assets of $1.0 million.
Investing Activities
During the year ended December 31, 2023, investment
activities used in net cash of $2.0 million, proceeds from withdrawal of short-term deposits of $2.0 million.
During the year ended December 31, 2022, investing activities used in net cash of $2.1 million, mainly consisting of investment in short-term
deposits of $13.5 million, partially offset by proceeds from withdrawal of short-term deposits of $11.5 million.
We have invested, and plan to continue to invest,
our existing cash in short-term investments in accordance with our investment policy. These investments may include money market funds
and investment securities consisting of U.S. Treasury notes, and high quality, marketable debt instruments of corporations and government
sponsored enterprises. We use foreign exchange contracts (mainly option and forward contracts) to hedge balance sheet items from currency
exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these
foreign exchange contracts, we recognize gains or losses that offset the revaluation of the balance sheet items also recorded under financial
expenses, net. As of December 31, 2023, we had outstanding foreign exchange contracts in the amount of approximately $4.1 million
with a fair value asset of $0.3 million. As of December 31, 2022, we had outstanding foreign exchange contracts in the amount of approximately
$4.5 million, with a fair value liability of $55,000.
Financing Activities
During the year ended December 31, 2023, financing
activities provided net cash of $3.0 million, mainly consisting of $7.2 million due to issuances of Common Stock under the February 2023
PIPE, net of issuance costs, partially offset by the repayment of long-term debt of $4.3 million under the Hercules Loan Agreement.
During the year ended December 31, 2022, financing
activities provided net cash of $0.3 million, mainly consisting of $0.3 million due to issuances of Common Stock under the Sale Agreement.
Contractual Obligations, Commitments and Contingencies
Our contractual
obligations and commitments relate primarily to our Hercules Loan Agreement, operating leases and non-cancelable purchase obligations
under agreements with various research and development organizations and suppliers in the ordinary course of business. In September 2020,
we entered into a lease agreement for new office and laboratory space in Ness Ziona, Israel.
In the normal
course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general
indemnifications. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future
but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification
obligations. However, we may record charges in the future as a result of these indemnification obligations.
In accordance
with our certificate of incorporation and bylaws, as well as contractual indemnification agreements, we have potential indemnification
obligations to our officers and directors for specified events or occurrences, subject to some limits, while they are serving at our request
in such capacities. There have been no claims to date, and we have director and officer insurance that may enable us to recover a portion
of any amounts paid for future potential claims.
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Government Grants and Related Royalties
The Government of Israel, through the IIA, encourages
research and development projects by providing grants. We may receive grants from the IIA at the rates that range from 20% to 50%
of the research and development expenses, as prescribed by the research committee of the IIA. Through December 31, 2023, we had received
an aggregate of $8.0 million in the form of grants from the IIA. BiomX Ltd was formed as an incubator company as part of the FutuRx incubator,
and, until 2017, the majority of its funding was from IIA grants and funding by the incubator, which is supported by the IIA. We continued
to apply for and receive IIA grants after we left the incubator. The requirements and restrictions for such grants are found in the Research
Law. Under the Research Law, royalties of 3% to 3.5% on the revenue derived from sales of products or services developed in whole or in
part using these IIA grants are payable to the Israeli government. We developed both of our platform technologies, at least in part, with
funds from these grants, and, accordingly, we would be obligated to pay these royalties on sales of any of our product candidates that
achieve regulatory approval.
Below is a description of
our obligations in connection with the grants received from the IIA under the Research Law:
Local Manufacturing Obligation
As long as the manufacturing of our product candidates
takes place in Israel and no technology funded with IIA grants is sold or out licensed to a non-Israeli entity, the maximum aggregate
royalties paid generally would not exceed 100% of the grants made to us, plus annual interest equal to the 12-month SOFR applicable to
U.S. dollar deposits, as published on the first business day of each calendar year.
Under the terms of the Research Law, the products
may be manufactured outside of Israel by us or by another entity only if prior approval is received from the IIA (such approval is not
required for the transfer of up to 10% of the manufacturing capacity in the aggregate, in which case a notice must be provided to the
IIA and not be objected to by the IIA within 30 days of such notice).
Know-How Transfer Limitation
The Research Law restricts the ability to transfer
know-how funded by the IIA outside of Israel. Transfer of IIA funded know-how outside of Israel requires prior approval of the IIA and
may be subject to payments to the IIA, calculated according to formulae provided under the Research Law. The redemption fee is subject
to a cap of six times the total amount of the IIA grants, plus interest accrued thereon (i.e. the total liability to the IIA, including
accrued interest, multiplied by six). If we wish to transfer IIA funded know-how, the terms for approval will be determined according
to the nature of the transaction and the consideration paid to us in connection with such transfer.
Approval of transfer of IIA funded know-how to
another Israeli company may be granted only if the recipient abides by the provisions of the Research Law and related regulations, including
the restrictions on the transfer of know-how and manufacturing rights outside of Israel.
Change of Control
Any non-Israeli citizen, resident or entity that,
among other things, (i) becomes a holder of 5% or more of our share capital or voting rights, (ii) is entitled to appoint our directors
or our chief executive officer or (iii) serves as one of our directors or as our chief executive officer (including holders of 25% or
more of the voting power, equity or the right to nominate directors in such direct holder, if applicable) is required to notify the IIA
and undertake to comply with the rules and regulations applicable to the grant programs of the IIA, including the restrictions on transfer
described above.
Approval to manufacture products outside of Israel
or consent to the transfer of IIA funded know-how, if requested, is within the discretion of the IIA. Furthermore, the IIA may impose
certain conditions on any arrangement under which it permits us to transfer IIA funded know-how or manufacturing out of Israel.
The consideration available
to our shareholders in a future transaction involving the transfer outside of Israel of know-how developed with IIA funding (such as a
merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA.
As of December 31, 2023, no sales were generated
and the balance of the principal and interest in respect of our commitments for future payments to the IIA totaled approximately $7.9
million, as compared to $6.6 million as of December 31, 2022. As part of funding our current and planned product development activities,
we may submit follow-up grant applications for new grants.
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Outlook
We expect our expenses to remain substantially
in the same level in connection with our ongoing activities. Our expenses will remain substantial and may also increase as we:
● continue the development of our product candidates;
● work to integrate the business of APT;
Our financial statements contain an explanatory
paragraph regarding substantial doubt about our ability to continue as a going concern for at least one year until April 3, 2025. We have
based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
If we receive regulatory approval for our product candidates, we expect to incur significant commercialization expenses related to product
manufacturing, sales, marketing and distribution, depending on where we choose to commercialize.
Until such time, if ever, that we can generate
product revenue sufficient to achieve profitability, we expect to finance our cash needs through public or private sales of our equity,
including under the ATM Agreement, loans, milestone payments, possibly additional grants from the IIA or other government or non-profit
institutions and other outside funding sources. Our ability to raise additional capital in the equity and debt markets is dependent on
a number of factors including, but not limited to, market volatility resulting from the, Israel-Hamas War, other armed conflicts such
as in Ukraine or other disruptions, and market demand for our securities, which itself is subject to a number of development and business
risks and uncertainties, as well as the uncertainty that we would be able to raise such additional capital at a price or on terms that
are favorable to the Company. To the extent that we raise additional capital through the sale of equity or convertible debt securities,
our stockholders’ ownership interests may be materially diluted, and the terms of such securities could include liquidation or other
preferences that adversely affect their rights as a common stockholder. Debt financing and preferred equity 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 additional funds through government and other third-party funding, collaboration
agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be
favorable to us. If we are unable to raise additional funds through equity or debt financings 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 products
or product candidates that we would otherwise prefer to develop and market by ourselves. For more information regarding the risks related
to our outlook, see “Risk Factors — Risks Related to Our Business, Technology and Industry.”
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Foreign Exchange Contracts
We entered into forward and option contracts to
hedge against the risk of overall changes in future cash flow from payments of salaries and related expenses, as well as other expenses
denominated in NIS. As of December 31, 2023 and 2022, we had outstanding foreign exchange contracts in the nominal amount of approximately
$4.1 million and $4.5 million, respectively.
Critical Accounting Estimates
Our consolidated financial statements are prepared
in accordance with US GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets
and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other
factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing
basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described
in more detail in note 2 to our consolidated financial statements, we believe that the following accounting policies are those most critical
to the judgments and estimates used in the preparation of our consolidated financial statements.
Accrued research and development expenses
As part of the process of preparing our consolidated
financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open
contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf
and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise
notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule
or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance
sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm
the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research
and development expenses include fees paid to:
● vendors in connection with preclinical development activities;
We measure the expense recognized based on our
estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs and subcontractors that supply,
conduct and manage preclinical studies, human clinical studies and clinical trials on our behalf. The financial terms of these agreements
are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments
made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these
contracts depend on factors such as the successful enrollment of patients and the completion of certain milestones. In accruing service
fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the
actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid
expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding
of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result
in changes in estimates that increase or decrease amounts recognized in any particular period. To date, there have not been any material
adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation
We apply ASC 718-10, “Stock-Based Payment,”
which requires the measurement and recognition of compensation expenses for all stock-based payment awards made to employees and directors,
including employee stock options under our stock plans based on estimated fair values.
ASC 718-10 requires that we estimate the fair value
of equity-based payment awards on the date of grant using an option-pricing model. The fair value of the award is recognized as an expense
over the requisite service periods in our Consolidated Statements of Operations. We recognize stock-based award forfeitures as they occur,
rather than estimate by applying a forfeiture rate.
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We recognize compensation expenses for the fair
value of non-employee awards over the requisite service period of each award.
We estimate the fair value of stock options granted
as equity awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the
most significant are share price, expected volatility and the expected option term (the time from the grant date until the options are
exercised or expire). We determine the fair value per share of the underlying stock by taking into consideration our most recent sales
of stock. BiomX Ltd. has historically been a private company and lacks company-specific historical and implied volatility information
of its stock. We used an average historical stock price volatility based on a combined weighted average of our historical average volatility
and that of a selected peer group of comparable public companies within the biotechnology and pharmaceutical industry that were deemed
to be representative of future stock price trends as we do not have a sufficient historical trading history of our Common Stock. We will
continue to apply this process until a sufficient amount of historical information regarding the volatility of our stock price becomes
available. We have historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based
on the yield from governmental zero-coupon bonds with an equivalent term. The expected option term is calculated for all stock option
grants using the “simplified” method. Changes in the determination of each of the inputs can affect the fair value of the
options granted and the results of our operations.
Intangible assets
In-process research and development acquired in
a business combination were recognized at fair value as of the acquisition date and subsequently accounted for as indefinite-lived intangible
assets until completion or abandonment of the associated research and development efforts.
We accounted for the acquisition of RondinX Ltd.
using the acquisition method of accounting, which required us to estimate the fair values of the assets acquired and liabilities assumed. This
included acquired in-process research and development and contingent consideration. Adjustments to the fair value of contingent consideration
are recorded in earnings. On January 1, 2020, the in-process R&D efforts were completed. The Company had determined the useful life
of the R&D assets for three years and began amortizing these assets accordingly in the financial statements. During the year ended
on December 31, 2022 we recorded amortization expenses of $1.5 million. As of December 31, 2022, the intangible asset was fully amortized.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
As a smaller reporting company, we are not required
to make disclosures under this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and the notes thereto
begin on page F-1 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief
Executive Officer and our Interim Chief Financial Officer (our principal executive officer and principal financial officer, respectively),
performed an evaluation of 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 December 31, 2023. Based on the aforementioned evaluation, our management has concluded that our disclosure controls
and procedures were effective at a reasonable assurance level as of December 31, 2023.
Management’s Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Our internal control over financial reporting has been designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles in the United States of America.
Our internal control over financial reporting includes
policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions
and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures
are being made only in accordance with authorization of our management and directors; and provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
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Management assessed the effectiveness of our internal
control over financial reporting on December 31, 2023. In making this assessment, management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission 2013 framework, in Internal Control—Integrated Framework. Based on
that assessment under those criteria, management has determined that, as of December 31, 2023, our internal control over financial reporting
was effective.
We are exempt from this requirement to provide an attestation report
of our independent registered public accounting firm regarding internal control over financial reporting due to our status under the Exchange
Act as a non-accelerated filer as of the current time Changes in Internal Control over Financial Reporting
There have been no changes in our internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter
of fiscal year 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
Trading Arrangements
During the
three months ended December 31, 2023, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement”
or “non-Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation S-K.
Ratification of Stock Issuance
On April
2, 2024, our Board of Directors adopted resolutions, or the Resolutions, approving the ratification of the issuance of one share of Common
Stock issued in connection with the consummation of the Acquisition pursuant to Section 204 of the Delaware General Corporation Law, or
the Ratification. A copy of the Resolutions adopted by our Board of Directors setting forth the information with respect to the Ratification
required under Section 204 of the Delaware General Corporation Law is set forth in Exhibit 99.1 to this Annual Report. Any claim that
any defective corporate act or putative stock ratified pursuant to the Ratification is void or voidable due to the failure of authorization
specified in the Resolutions, or that the Delaware Court of Chancery should declare in its discretion that the Ratification in accordance
with Section 204 of the Delaware General Corporation Law not be effective, or be effective only on certain conditions, must be brought
within 120 days from the giving of this notice (which is deemed to be given on the date that this Annual Report is filed with the SEC).
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICITIONS THAT PREVENT
INSPECTIONS
Not applicable.
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part
III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set forth below are the names, ages and positions
of each of the individuals who serve as our executive officers and member of the Board of Directors, or Board, as of April 3, 2024.
Name Age Position
Executive Officers
Jonathan Solomon 47 Chief Executive Officer and Director
Assaf Oron 49 Chief Business Officer
Marina Wolfson 39 Chief Financial Officer
Avraham Gabay 39 Interim Chief Financial Officer
Dr. Merav Bassan 58 Chief Development Officer
Non-Employee Directors
Dr. Russell Greig(1)(2)(3) 71 Director and Chairman of the Board of Directors
Jonathan Leff(2) 55 Director
Dr. Alan Moses(2) 74 Director
Gregory Merril (3) 58 Director
Edward Williams(1) 67 Director
Dr. Jesse Goodman(3) 72 Director
(1) Member of the audit committee
(2) Member of the compensation committee
(3) Member of the nominating and corporate governance committee
Executive Officers
Jonathan
Solomon has served as the Chief Executive Officer and as a director of the Company since October 2019. Mr. Solomon served
as Board member of BiomX Ltd., or BiomX Israel, from February 2016 and also as Chief Executive Officer from February 2017 to October 2019.
From July 2007 to December 2015, Mr. Solomon was a co-founder, President, and Chief Executive Officer of ProClara Biosciences Inc. (formerly
NeuroPhage Pharmaceuticals Inc.), a biotechnology company pioneering an approach to treating neurodegenerative diseases. Prior to joining
ProClara, he served for ten years in a classified military unit of the Israeli Defense Forces. Mr. Solomon holds B.Sc. magna cum laude
in Physics and Mathematics from the Hebrew University, an M.Sc. summa cum laude in Electrical Engineering from Tel Aviv University, and
an MBA with honors from the Harvard Business School.
We believe that Mr. Solomon’s
qualifications to sit on our Board include his extensive board and management experience in the biotech industry.
Assaf Oronhas served
as the Chief Business Officer of the Company since October 2019. Mr. Oron served as Chief Business Officer of BiomX Ltd. from January
2017 to October 2019. Prior to this position, he served in various roles at Evogene Ltd. (Nasdaq:EVGN), an agriculture biotechnology company,
which utilizes a proprietary integrated technology infrastructure to enhance seed traits underlying crop productivity, from March 2006
to December 2016, including Executive Vice President of Strategy and Business Development and Executive Vice President of Corporate Development.
Prior to joining Evogene, Mr. Oron served as Chief Executive Officer of ChondroSite Ltd., a biotechnology company that develops engineered
tissue products in the field of orthopedics and as a senior project manager and strategic consultant at Israeli management consulting
company POC Ltd. Mr. Oron holds an M.Sc. in Biology (bioinformatics) and a B.Sc. in Chemistry and Economics, both from Tel Aviv University.
Marina Wolfsonhas served
as the Chief Financial Officer of the Company since April 2022 and is currently on a maternity leave. Ms. Wolfson served in several finance
and operations roles in the Company from December 2019 to March 2022. Ms. Wolfson’s experience includes working with large pharmaceutical
and hi-tech companies, as well as venture capital funds. Prior to joining the Company, Ms. Wolfson worked as Vice President of Finance
at BioView Ltd. (TASE:BIOV) from 2010 to 2019 and a senior auditor at Ernst & Young, from 2007 to 2010. Ms. Wolfson is a certified
public accountant in Israel and holds a B.A in Economics and Accounting (with honors) and an MBA (with honors, specializing in finance)
from Ben-Gurion University.
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Avraham
Gabay has served as the Company’s interim Chief Financial Officer, since the commencement of the maternity leave of Ms.
Wolfson, the Company’s Chief Financial Officer, in November 2023, and will serve in that role for as long as Ms. Wolfson is on such
leave. Prior to his appointment, from 2021 until 2023, Mr. Gabay served as the chief financial officer at Oravax Inc., a biotechnology
company focusing on research and development of an oral vaccine. Prior to that, from 2019 until 2021, Mr. Gabay was the chief financial
officer at Oramed Pharmaceuticals Inc. (Nasdaq: ORMP), which is developing an oral delivery platform for proteins and focusing on oral
insulin. From 2015 to 2019, Mr. Gabay served as a corporate controller at Orcam Technologies Ltd., a company which develops, manufactures
and sells a wearable assistive technology device for people who are blind, visually impaired or have reading or other disabilities. From
2014 to 2015, Mr. Gabay provided economic services in the advisory department of KPMG Israel, a certified public accounting firm, and
from 2013 to 2014, he worked in the tax department of the law firm, Gornitzky & Co. In addition, Mr. Gabay serves as a director on
the board of Nala Digital Ltd., a public company whose shares are listed for trading on the Tel Aviv Stock Exchange. Mr. Gabay holds a
bachelor’s degree in law and accounting (magna cum-laude) from Tel-Aviv University and is a certified public accountant in Israel
and a member of the Israeli Bar Association.
Dr. Merav Bassanhas
served as the Chief Development Officer of the Company since October 2019. Prior to this position, she served in various development roles
at Teva Pharmaceutical Industries Limited between 2005 and 2019, including Vice President, Head of Translational Sciences, Specialty Clinical
Development R&D from 2017 to 2019, Vice President, Pain and Global Internal Medicine, Project Leadership, Innovative Product Development,
Global IR&D from 2015 to 2017, and Project Champion, Senior Director, Innovative Product Development, Global IR&D from 2009 to
2015. Dr. Bassan holds a B.Sc. in Biology, a M.Sc. in Human Genetics and a Ph.D. in Neurobiology from Tel Aviv University, and she completed
a Post-Doctoral Fellowship in Neuroscience at Harvard Medical School at Harvard University.
Directors
The biography of Mr. Solomon
is set forth above under the header “Executive Officers.” The biographies of our non-employee directors are set forth below:
Dr. Russell Greig has served as a
director and chairman of the Board of the Company since October 2019. Dr. Greig has more than 44 years of experience in the
pharmaceutical industry, with knowledge and expertise in research and development, business development and commercial operations. He
spent the majority of his career at GlaxoSmithKline, or GSK, where he held a number of positions including GSK’s President of Pharmaceuticals
International from 2003 to 2008 and Senior Vice President Worldwide Business Development. From 2008 to 2010, Dr. Greig was also President
of SR One, GSK’s corporate venture group. He is currently Chairman of Cardior (Germany), Nucleome Therapeutics (UK) and BiomX (NYSE).
In addition, Dr. Greig previously served on the boards of Sanifit (Spain) (acquired by Vifor Pharma AG (SWX: VIFN), Tigenix N.V. (acquired
by Takeda Pharmaceutical Company Limited), Ablynx N.V. (acquired by Sanofi, France) and Merus N.V. (Nasdaq: MRUS). He was previously Chairman
of Syntaxin Ltd (UK) (acquired by Ipsen), Novagali Pharma S.A. (France) (acquired by Santen Pharmaceutical Co., Ltd.), and Isconova AB
(Sweden) (acquired by Novavax, Inc. (Nasdaq: NVAX). He served as acting Chief Executive Officer at Genocea Biosciences (Nasdaq: GNCA)
and Isconova AB for an interim period. He was also a member of the Scottish Scientific Advisory Committee, reporting to the First
Minister of Scotland.
We believe that Dr. Greig’s
qualifications to sit on our Board include his extensive board and leadership experience in business development and in drug research