Exhibit 99.2
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following selected financial data and discussion of our operating and financial condition and prospects in conjunction with the financial
statements and the notes thereto included elsewhere in this Form 6-K. Our financial statements are prepared in accordance with U.S. GAAP, and reported in U.S. dollars. We maintain our accounting books and records in U.S. dollars and our functional
currency is the U.S. dollar. Certain amounts presented herein may not sum due to rounding. Unless the context requires otherwise, references in this report to “PainReform,” the “Company,” “we,” “us” and “our” refer to PainReform Ltd, an Israeli
company. “NIS” means New Israeli Shekel, and “$,” “US$,” “U.S. dollars” and “USD” mean United States dollars.
Forward Looking Statements
The following discussion contains “forward-looking statements,” including statements regarding expectations, beliefs, intentions or strategies for the future. These statements
may identify important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking
statements. Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:
|
• |
our history of losses and needs for additional capital to fund our operations and our inability to obtain additional capital on acceptable terms, or at all;
|
|
• |
our dependence on the success of our initial product candidate, PRF-110;
|
|
• |
the outcomes of preclinical studies, clinical trials and other research regarding PRF-110 and future product candidates;
|
|
• |
the impact of the COVID-19 pandemic on our operations;
|
|
• |
our limited experience managing clinical trials;
|
|
• |
our ability to retain key personnel and recruit additional employees;
|
|
• |
our reliance on third parties for the conduct of clinical trials, product manufacturing and development;
|
|
• |
the impact of competition and new technologies;
|
|
• |
our ability to comply with regulatory requirements relating to the development and marketing of our product candidates;
|
|
• |
our ability to establish and maintain strategic partnerships and other corporate collaborations;
|
|
• |
the implementation of our business model and strategic plans for our business and product candidates;
|
|
• |
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and our ability to operate our business without infringing the intellectual property rights of others;
|
|
• |
the overall global economic environment;
|
|
• |
our ability to develop an active trading market for our ordinary shares and whether the market price of our ordinary shares is volatile; and
|
|
• |
statements as to the impact of the political and security situation in Israel on our business.
|
All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of the Form 6-K to which this discussion is attached and are expressly
qualified in their entirety by the cautionary statements included herein. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of
unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.
Overview
We are a clinical stage specialty pharmaceutical company focused on the reformulation of established therapeutics. Our proprietary extended release drug-delivery system is
designed to provide an extended period of post-surgical pain relief without the need for repeated dose administration while reducing the potential need for the use of opiates.
Our strategy is to incorporate generic drugs with our proprietary extended release drug-delivery system in order to create extended release drug products and to take advantage of
the 505(b)(2) regulatory pathway created by the Food and Drug Administration, or the FDA. The 505(b) (2) new drug application, or NDA, process, provides for FDA approval of a new drug based in part on data that was developed by others, including
published literature references and data previously reviewed by the FDA in its approval of a separate application. PRF-110, our first product candidate, is based on the local anesthetic ropivacaine, targeting the post-operative pain relief
market. PRF-110 is an oil-based, viscous, clear solution that is deposited directly into the surgical wound bed prior to closure to provide localized and extended post-operative analgesia.
In a small, 15-patient Phase 2 proof-of-concept clinical study in hernia repair, PRF-110 provided substantial pain reduction for up to 72 hours post-operatively. A comparison of
these results to historical data for ropivacaine alone suggests a substantial advantage to using PRF-110 over the local analgesic agent, ropivacaine, alone. As indicated in the FDA approved drug description, ropivacaine provides pain relief for
only 2 to 6 hours. The surgeons that participated in the PRF-110 Phase 2 trial reported that it was easily integrated into the procedure and was non-disruptive of existing surgical techniques. Ropivacaine, the active drug used in PRF-110, is a safe
and well-characterized local analgesic agent and the other components that make up the remainder of the PRF-110 formulation are classified as GRAS (Generally Regarded As Safe) by the FDA, mitigating many potential safety issues that are common in
drug development.
We are currently preparing for the launch of our two Phase 3 clinical trials of PRF-110, one for the treatment of patients undergoing bunionectomy and the other for the treatment
of hernia repair operations.
In 2021, we encountered delays with our former contract manufacturing organization, or CMO, in Israel in manufacturing clinical trial batches of product mainly due to regulatory
failures in its facilities, Good Manufacturing Practices issues and turnover of personnel. We put in place a plan and actions directed at shifting manufacturing and scale-up operations of PRF-110 to North America and engaged Pharmaceutics
International, a U.S.-based CMO for the purpose of manufacturing our clinical trial batches. We have completed process validation to comply with FDA’s manufacturing standards and regulations. We intend to begin manufacturing PRF-110 batches for the
first of two planned Phase 3 clinical trials soon. As a result, we expect to commence our first clinical trial in bunionectomy during the fourth quarter of 2022.
Since our inception in November 2007, we have devoted substantially all of our efforts to organizing and planning our business, building our management and technical team,
developing our proprietary drug delivery system and PRF-110, and raising capital.
After successful completion of the first trial, we plan to initiate the hernia repair clinical trial. We believe that there is a great unmet need for effective, long-lasting,
non-opiate treatments for post-operative pain. The current market in post-operative pain treatment is approximately $12 billion, which is expected to grow to over $45 billion by the end of 2026 (Persistence Market Research, 2018). These market
projections are based on the current generation of post-operative pain products, which largely consist of systemically administered opiates. At present, most of the available analgesics are dosed every four to six hours, requiring nursing attention
when in the hospital, or discharge of the patients with an excess of drugs to treat anticipated pain. This exposure to opiates is a significant risk factor leading to opiate abuse disorder (Hah, et al. Chronic Opioid Use After Surgery: Implications
for Perioperative Management in the Face of the Opioid Epidemic. 2017). PRF-110 was created to prolong analgesia at the surgical site, thus facilitating early post-operative ambulation, speeding recovery and reducing time in hospital. In addition,
it is anticipated that PRF-110 will reduce opiate exposure and thereby lessen the risk of opiate abuse disorder.
Every year, starting 2017, there are more than 50 million surgical procedures performed annually in the U.S. in both hospitals and in ambulatory surgery centers. We believe that
many of these invasive and painful procedures should be eligible for treatment with extended-release ropivacaine through our product, PRF-110. As reported in Pharmacotherapy, 2013, 99% of all surgeries are treated with opiates. The extended release
nature of PRF-110 is intended to reduce pain for up to 72 hours from the time of surgery, thereby obviating/diminishing the need for additional pain medications. There are currently available several extended release products, mainly Exparel with
revenues of over $500M in 2021.
We believe that PRF-110 will significantly extend post-operative analgesia, will be significantly less costly to produce than the currently available extended release product
and, unlike that product, will not require delicate handing. We plan to launch PRF-110 either by ourselves or with a strategic partner that is experienced in marketing products in surgical environments.
We expect to continue to incur significant expenses and increasing losses for next several years. Our net losses may fluctuate significantly from period to period, depending on
the timing of our planned clinical trials and expenditures on our other research and development and commercial development activities. We expect our expenses will increase substantially over time as we:
|
• |
continue the ongoing and planned preclinical and clinical development of our drug candidates;
|
|
• |
build a portfolio of drug candidates through the acquisition or in-license of drugs, drug candidates or technologies;
|
|
• |
initiate preclinical studies and clinical trials for any additional drug candidates that we may pursue in the future;
|
|
• |
seek marketing approvals for our current and future drug candidates that successfully complete clinical trials;
|
|
• |
establish a sales, marketing and distribution infrastructure to commercialize any drug candidate for which we may obtain marketing approval;
|
|
• |
develop, maintain, expand and protect our intellectual property portfolio;
|
|
• |
implement operational, financial and management systems; and
|
|
• |
attract, hire and retain additional administrative, clinical, regulatory and scientific personnel.
|
Financial Operations Overview
Revenue
We have not generated any revenue and do not expect to generate any revenue unless or until we obtain regulatory approval of and commercialize one or more of our current or
future drug candidates. In the future, we may also seek to generate revenue from a combination of research and development payments, license fees and other upfront or milestone payments.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, which include, among other things:
|
• |
employee-related expenses, including salaries, benefits and stock-based compensation expense;
|
|
• |
fees paid to consultants for services directly related to our drug development and regulatory effort;
|
|
• |
expenses incurred under contract manufacturing organizations, as well as contract manufacturing organizations and consultants that conduct preclinical studies and clinical trials;
|
|
• |
costs associated with development activities;
|
|
• |
costs associated with technology and intellectual property licenses; and
|
|
• |
milestone payments and other costs under licensing agreements.
|
Costs incurred in connection with research and development activities are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized
based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors.
Research and development activities are and will continue to be central to our business model. We expect our research and development expenses to increase for the foreseeable
future as we advance our current and future drug candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. It
is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct. The duration, costs and timing of clinical trial programs and development of our current and future drug candidates will
depend on a variety of factors that include, but are not limited to, the following:
|
• |
number of clinical trials required for approval and any requirement for extension trials;
|
|
• |
per patient trial costs;
|
|
• |
number of patients that participate in the clinical trials;
|
|
• |
number of sites included in the clinical trials;
|
|
• |
countries in which the clinical trial is conducted;
|
|
• |
length of time required to enroll eligible patients;
|
|
• |
potential additional safety monitoring or other studies requested by regulatory agencies; and
|
|
• |
efficacy and safety profile of the drug candidate.
|
In addition, the probability of success for any of our current or future drug candidates will depend on numerous factors, including competition, manufacturing capability and
commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate, as well as an assessment of each drug candidate’s commercial potential.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and share-based compensation. Other general and administrative
expenses include directors’ and officers’ liability insurance premiums, costs associated with being a publicly traded company, fees associated with investor relations, professional fees for consultants, tax and legal services and facility-related
costs.
We expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs. In addition, if our current or
future drug candidates are approved for sale, we expect that we would incur expenses associated with building our commercial and distribution infrastructure.
Financial Expenses, Net
Financial expenses, net, primarily consists from change in fair value of derivative warrant liability, bank management fees and commissions and exchange rate differences
expenses.
Results of Operations
Research and development expenses. Research and development expenses were $1.4 million for the six months ended June 30, 2022 compared to
$1.7 million for the six months ended June 30, 2021, a decrease of $0.3 million. The decrease was primarily due to a decrease in payment to subcontractors and clinical trials costs.
General and administrative expenses. General and administrative expenses were $2.1 for the six months ended June 30, 2022 compared to
$2.0 million for the six months ended June 30, 2021. An increase in headcount related and regulation costs were offset with a decrease in insurance costs and certain professional services costs.
Financial expense, net. Financial expense, net was negligible for the six months ended June 30, 2022 compared to financial expenses, net
of $ 43,000 for the six months ended June 30, 2021, a decrease of $43,000. The decrease was primarily due to changes in exchange rate costs.
Net loss. As a result of the foregoing, we incurred a net loss of $3.5 million for the six months ended June 30, 2022 compared to a net loss of $3.7 million
for the six months ended June 30, 2021, a decrease of $0.2 million.
Liquidity and Capital Resources
Since our inception through June 30, 2022, we have funded our operations primarily through proceeds from our initial public offering and private placements. As of June 30, 2022,
we had an accumulated deficit of approximately $27.2 million, cash and cash equivalents of $13.8 million and a positive working capital of $15.4 million.
On March 8, 2021, we entered into a definitive securities purchase agreement with certain institutional investors, or the Purchasers, for the purchase and sale of 1,304,346
ordinary shares, and warrants to purchase up to an aggregate of 652,173 ordinary shares at a combined purchase price of $4.60 per ordinary share and accompanying warrant. We received net proceeds of approximately $5.5 million from the private
placement. The warrants are exercisable for a period of five and one half years from the date of issuance and have an exercise price of $4.60 per share, subject to adjustment as set forth in the warrants for share splits, share dividends,
recapitalizations and similar events. In July 2021, as a result of an exercise of warrants held by one of the Purchasers, we received gross proceeds of approximately $1.9 million.
In connection with the private placement, we also entered into a Registration Rights Agreement, dated as of March 8, 2021, with the Purchasers, or the Registration Rights
Agreement. Pursuant to the Registration Rights Agreement, we filed a registration statement, or the Registration Statement, with the U.S. Securities and Exchange Commission, or the SEC, to register the resale of the ordinary shares and the ordinary
shares issuable upon exercise of the warrants. The Registration Statement was declared effective on April 9, 2021.
Developing drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives.
We believe our existing financial resources as of the date of issuance of this Form 6-K, will be sufficient to fund our operating expenses and capital expenditure requirements for at least the twelve months from the date of issuance of this Form
6-K. Our estimate as to how long we expect our funds to support our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances,
some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. Our future capital requirements will depend on many factors,
including:
|
• |
the costs, timing and outcome of regulatory review of PRF-110;
|
|
• |
the scope, progress, results and costs of our current and future clinical trials of PRF-110 for our current targeted uses;
|
|
• |
the extent to which we acquire or invest in businesses, products and technologies, including entering into or maintaining licensing or collaboration arrangements for PRF-110 on favorable terms, although we currently have no commitments
or agreements to complete any such transactions;
|
|
• |
the costs and timing of future commercialization activities, including drug sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval, to the extent that such sales,
marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time;
|
|
• |
the amount of revenue, if any, received from commercial sales of PRF-110, should it receive marketing approval;
|
|
• |
the costs of preparing, filing and prosecuting patent applications, maintaining, defending and enforcing our intellectual property rights and defending intellectual property-related claims;
|
|
• |
our ability to establish strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such
agreement;
|
|
• |
our headcount growth and associated costs as we expand our business operations and our research and development activities;
|
|
• |
the costs of operating as a public company;
|
|
• |
maintaining minimum shareholders’ equity requirements under the Nasdaq rules; and
|
|
• |
the impact of the COVID-19 pandemic and the Russian invasion of Ukraine, which may exacerbate the magnitude of the factors discussed above.
|
We expect our expenses to increase in connection with our planned operations. Until such time, if ever, as we can generate substantial revenues, we expect to finance our cash
needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and/or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your
ownership interest may be diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a shareholder. In addition, debt financing, if available,
would result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming
shares or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of
their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our
technology, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, reduce and/or eliminate our product candidate
development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Cash Flows
The following table sets forth the major components of our statements of cash flows for the periods presented (U.S. dollars in thousands):
|
|
|
Six months
Ended
June 30,
2022
|
|
|
Six months
Ended
June 30,
2021
|
|
|
Net cash used in operating activities
|
|
$
|
(2,699
|
)
|
|
$
|
(3,424
|
)
|
|
Net cash used in investing activities
|
|
|
(3
|
)
|
|
|
(16
|
)
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
5,554
|
|
|
Increase (decrease) in cash and cash equivalents and restricted cash
|
|
|
(2,702
|
)
|
|
|
2,114
|
|
|
Cash and cash equivalents and restricted cash, at the beginning of year
|
|
|
16,571
|
|
|
|
15,690
|
|
|
Cash and cash equivalents and restricted cash, at the end of period
|
|
$
|
13,869
|
|
|
$
|
17,804
|
|
Net cash used in operating activities
For the six months ended June 30, 2022 and 2021, net cash used in operating activities was $2.7 million and $3.4 million, respectively. The decrease was mainly due to decrease of
payments to consultants and clinical trials.
Net cash used in investing activities
For the six months ended June 30, 2022, net cash used in investing activities was $3,000, compared to $16,000 in the six months ended June 2021. The decrease was due to less
investments in property in 2022.
Net cash provided by financing activities
For the six months ended June 30, 2022, net cash provided by financing activities was negligible, compared to cash provided of $5.6 million in the six months ended June 2021 due to proceeds from
the March 2021 private placement.
Research and Development, Patents and Licenses.
Costs incurred in connection with research and development activities are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized
based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors.
Research and development activities are and will continue to be central to our business model. We expect our research and development expenses to increase for the foreseeable
future as we advance our current and future drug candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. It
is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct. The duration, costs and timing of clinical trial programs and development of our current and future drug candidates will
depend on a variety of factors that include, but are not limited to, the following:
|
• |
number of clinical trials required for approval and any requirement for extension trials;
|
|
• |
per patient trial costs;
|
|
• |
number of patients that participate in the clinical trials;
|
|
• |
number of sites included in the clinical trials;
|
|
• |
countries in which the clinical trial is conducted;
|
|
• |
length of time required to enroll eligible patients;
|
|
• |
potential additional safety monitoring or other studies requested by regulatory agencies; and
|
|
• |
efficacy and safety profile of the drug candidate.
|
In addition, the probability of success for any of our current or future drug candidates will depend on numerous factors, including competition, manufacturing capability and
commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate, as well as an assessment of each drug candidate’s commercial potential.
Trend Information.
We are a development stage company and it is not possible for us to predict with any degree of accuracy the outcome of our research, development or commercialization efforts. As
such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenues, income from continuing
operations, profitability, liquidity or capital resources, or that would cause financial information to not necessarily be indicative of future operating results or financial condition. However, to the extent possible, certain trends,
uncertainties, demands, commitments and events are identified in the preceding subsections.
Off-Balance Sheet Arrangements.
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Judgments and Estimates
Our statements are prepared in accordance with GAAP. Some of the accounting methods and policies used in preparing our financial statements under GAAP are based on complex and
subjective assessments by our management or on estimates based on past experience and assumptions deemed realistic and reasonable based on the circumstances concerned. The actual value of our assets, liabilities and shareholders’ equity and of our
accumulated deficit could differ from the value derived from these estimates if conditions change and these changes had an impact on the assumptions adopted. See Note 2 to our audited financial statements and the related notes thereto for the years
ended December 31, 2021, 2020 and 2019, included in our Form 20-F for the year ended December 31, 2021, for a description of our significant accounting policies.
OTHER INFORMATION
Material Weakness
We have identified a material weakness in our internal control over financial reporting as of June 30, 2022, as further
described in the Risk Factors section below.
Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors described in the section titled “Risk Factors” in our Annual Report
on Form 20-F as filed with the SEC on March 16, 2022 (the “2021 Annual Report”).
There have been no material changes from the risk factors previously disclosed in our 2021 Annual Report, except as noted below.
We have identified a material weakness in our internal control over financial reporting as of June 30, 2022. If we are unable to develop
and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely
affect our business and operating results.
We have identified a material weakness in our internal controls over financial reporting relating to our accounting controls. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a
timely basis.
The Company’s management, including our chief executive officer and chief financial officer, concluded that, as of June 30, 2022, we didn’t have effective controls related to
changes of suppliers' payments details in our systems.
During June 2022, we experienced a cybersecurity incident in which a third party impersonated a supplier of services by using a falsified email domain account and requested us
to wire a payment to a false bank account. As a result, we transferred an amount of $165,000 to the third party (a fictitious vendor). We were able to recover some of the falsely obtained payment from our financial institution, but have
established an immaterial reserve for the amount of the disbursement that we have no assurance will be recoverable.
In response, we implemented certain changes to our internal control procedures with respect to payments to suppliers that seek to provide alternate bank account information to
us. We have also updated our information technology procedures and hired the services of a cybersecurity consultant to assist with implementing a range of steps to enhance our security protections in order to prevent future cybersecurity incidents.
In addition, we have enhanced our organizational awareness of cybersecurity, our information security and our vendor/payment validation procedures within our organization.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. Measures to remediate material weaknesses may be time-consuming and
costly and there is no assurance that such initiatives will ultimately have the intended effects. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our
financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results. If we identify any new material weaknesses in the future, any such newly identified
material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain
compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable share exchange listing requirements, investors may lose confidence in our financial reporting and adversely affect our business and
operating results. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
