We are a late clinical-stage specialty pharmaceutical company focused on developing and commercializing our proprietary, innovative and differentiated topical drug candidates for dermatological therapy. Our lead product candidates,candidate, FMX101 (4% minocycline foam), is being developed for the treatment of moderate-to-severe acne and our second product candidate, FMX103 (1.5% minocycline foam), is being developed for the treatment of moderate-to-severe papulopustular rosacea,rosacea. Both product candidates are novel topical foam formulations of the antibiotic minocycline. Based onminocycline and were developed using our Molecule Stabilizing Technology, a proprietary foam platform designed to optimize the topical delivery of minocycline, an active pharmaceutical ingredient, or API, that is currently available only in oral form despite its prevalent use in dermatology.
We announced positive top-line results observed infrom both of our Phase II and Phase III clinical trials for each of FMX101 and FMX103 in the second half of 2018. We submitted our Phase IInew drug application, or NDA, to the FDA, for FMX101 in December 2018, and Phase III clinical trialsexpect to submit an NDA for FMX103 in mid-2019. In March 2019, we announced that the FDA accepted our NDA for FMX101 for review, with a targeted Prescription Drug User Fee Act, or PDUFA, action date of October 20, 2019. We cannot provide any assurances or predict with any certainty the schedule for which we will, if at all, receive approval from the FDA with respect to FMX101 or FMX103. See “–Key Developments” below. Despite the considerable U.S. market opportunities for acne and rosacea, we believe these product candidates, if approved, have the potential to provide a fast, effective and well-tolerated treatment for their respective indications, whichmarkets are currently underserved and commonly treated by oral prescription products such as oral minocycline oraland doxycycline and various other non-foamnon-minocycline topical therapies. If approved, we believe FMX101 and FMX103 have the potential to provide first-in-class topical treatments for millions of people who suffer from their respective indications.
Our corporate strategy is to develop and solidify a commercial presence in acne and rosacea by obtaining FDA approval for, and launching our lead product candidates, FMX101 and FMX103, in the United States. We may also enter into partnerships with third parties to reach other geographic territories or therapeutic fields through their respective sales forces and infrastructure. Following these near-term goals, we intend to grow beyond these indications into other dermatological indications, and to diversify our product and commercial development beyond minocycline and the tetracycline class of antibiotics. We are currently developing additional foam and other topical products for acne, rosacea and other dermatology indications in vehicle platforms designed to enhance delivery of their respective APIs. We are also evaluating diversifying into synergistic technologies and specialties either on our own or through partnerships.
We have been advancingFMX101 is a product candidate containing micronized minocycline hydrochloride, an antibiotic in the tetracycline class, in a 4% concentration for the treatment of moderate-to-severe acne vulgaris. The active pharmaceutical ingredient is suspended in our Molecule Stabilizing Technology foam vehicle, an elegant, light-feeling topical foam that is easily spread across wide areas of the skin. In September 2018, we announced our third pivotal Phase III clinical trial of FMX101 (Study 22) for FMX101. We announcedFX2017-22) met both of its co-primary endpoints, demonstrating a statistically significant reduction in the first patient enrollednumber of inflammatory lesions and a statistically significant improvement in this trial on August 3, 2017 and hadpatients’ Investigator’s Global Assessment, or IGA, scores, a metric commonly used to measure efficacy in acne trials. These positive results followed the last patient enrolled and dosed on May 7, 2018. We received positive top-line results from thisour initial two Phase III clinical trials of FMX101 that we announced in 2017, where both co-primary endpoints were met in one trial (Study FX2014-05) and one of the two co-primary endpoints showed statistical significance in the other trial (Study FX2014-04). We embarked on our third quarter of 2018. See “- Key Developments” below. Previously,Phase III trial (Study FX2017-22) following a Type B meeting with the FDA in March 2017, we announcedwhich the FDA confirmed that replicating the results of Study FX2014-05 would likely support an efficacy claim for FMX101. In addition to the double-blind stagepositive Study FX2017-22 efficacy results, very few safety adverse events (and no treatment-related serious adverse events) were observed both in Study FX2017-22 and in the 40-week open label safety portion of Studies FX2014-04 and FX20410-05 that we concluded in January 2018.
FMX103 is a product candidate also containing micronized minocycline hydrochloride suspended in our Molecule Stabilizing Technology vehicle, at a lower 1.5% concentration, for the treatment of moderate-to-severe papulopustular rosacea. In November 2018, we announced that both of our two initial Phase III clinical trials for FMX101. Statistical significance was observed in both co-primary efficacy endpoints in one study (Study 05); however, statistical significance was demonstrated in only oneFMX103 (Studies FX2016-11 and FX2016-12) met each of the co-primary efficacy endpoints in the second study (Study 04). Statistical significance was also demonstrated for FMX101 compared to vehicle in the pooled analysis of thetheir co-primary endpoints, as well as key secondary endpoints for Studies 05 and 04. The third trial (Study 22) was initiated followingdemonstrating a Type B meeting conducted with the FDA in June of 2017. During this meeting, we confirmed that achieving statistically significant results for FMX101 versus vehiclereduction in both co-primary efficacy endpointsinflammatory lesion counts and IGA treatment success of approximately 50% from baseline. There were no treatment-related serious adverse events, very few reported adverse events and positive user-experience reports overall in a third independent clinical trial would be sufficient for establishing an efficacy claim in a new drug application (“NDA”), or NDA submission. A previous Phase II clinical trial of FMX101 also showed clinically and statistically significant results in all primary and secondary endpoints. As previously announced, in January 2018 we announced the completion of a long-term safety study that was an extension of our two initialthese Phase III clinical trials for FMX101. The results fromas well as in the long-term40-week open label safety study showed FMX101 to be well-tolerated and to have an acceptable safety profile.
extension (Study FX2016-13) that was recently completed in February 2019.We developed FMX101 and FMX103 using our proprietary Molecule Stabilizing Technology foam-based technology platform that was optimized for delivery of minocycline hydrochloride, a characteristically unstable small molecule, through the skin. We are also advancingcurrently developing in-house a pipeline of other innovative products to enhance our two pivotal Phase III clinical trials (known as Studies 11minocycline platform, including FCD105, a product candidate for the treatment of acne vulgaris that combines minocycline with a retinoid and 12)which we anticipate evaluating in the U.S. for FMX103, minocycline foam for moderate-to-severe papulopustular rosacea. We announced the enrollment of the first patient in our Phase III trials on June 12, 2017, and had the last patient enrolled and dosed on June 27, 2018. Our Phase II clinical trial for FMX103 demonstrated clinically and statistically significant results in all primary and secondary endpoints. We received positive top-line results from these two trials in the fourth quarter of 2018. See “-Key Developments” below.
In addition, we successfully completed a Phase II clinical trial with FDX104, our proprietary doxycycline foam for the management of moderate-to-severe rash associated with epidermal growth factor receptor inhibitor (EGFRI) anticancer treatments. As the majority of our efforts and resources have been devoted to the development of FMX101 and FMX103 over the past year, limited work has been done during this year to further the development of FDX104.(Study FX2016-40) beginning in mid-2019. We are also currently assessingreviewing potential acquisitions of pipeline products at various stages of development that could be incorporated into our various options with regard to this product candidate.
vehicle for optimized delivery.
We developed FMX101, FMX103 and FDX104 using ourIn addition, we have other proprietary technology, which includes our foam-based platforms. Our technology enables us to formulate and stabilize a wide varietydelivery technologies in development that enable topical delivery of product candidates and deliver them directly to their target site. We have independently developed a series of proprietary foam platforms,other APIs, each having unique pharmacological features and characteristics.characteristics designed to keep the API stable when delivered and directed to the target site. We are conducting research and are in the early stages of in-house development of FMX110, a topical gel formulation of doxycycline hyclate for the treatment of papulopustular rosacea, and FMX109, a non-tetracycline acne product candidate that contains a combination of nicotinamide and a retinoid for the treatment of moderate-to-severe acne vulgaris. We believe our foam and other topical delivery platforms may offer significant advantages over alternative delivery options and are suitable for multiple application sites. We believe our proprietary foam-based platforms may serve as a foundation in developing a potential pipeline of productssites across a range of conditions. In July 2015, an affiliate of Bayer HealthCare AG, or Bayer, received FDA approval for Finacea® Foam (azelaic acid 15%), or Finacea, a prescription foam product for the treatment of rosacea, which utilizes our proprietary foam technology.
BesidesIn addition to our in-house development projects, we have entered into development and license agreements relating to our technology with various pharmaceutical companies, such as Bayer, Mylan N.V. and Actavis Laboratories. Our total revenues from these development andmost notably with LEO Pharma A/S, or LEO, who assumed a license agreements, since our inception through September 30, 2018, amounted to approximately $30.9 million. The collaborationagreement we initially entered into with Bayer in particular, has led toHealthCare AG, or Bayer. In 2015, Bayer received FDA approval for Finacea® Foam (15% azelaic acid), or Finacea, a prescription foam product for the development and commercializationtreatment of Finacea,rosacea, which uses one of ourutilizes an emulsion-based proprietary foam technology platforms.platform that we licensed to them that is different from our surfactant-free foam platform that supports our lead product candidates. Bayer began selling Finacea in the United States in the third quarter of 2015. On2015, and in September 4, 2018, LEO Pharma A/S, or LEO, acquired Bayer’s prescription dermatology business in the United States, including Finacea. As part of the acquisition,Finacea from Bayer and assumed all rights and responsibilities under our initial license agreement with BayerBayer. Together with respect to Finacea was assigned to LEO. LEO, has assumed all of the rights and responsibilities of Bayer under the license agreement as it relates to Finacea, including the payment of royalties to us and the litigation matters, whichwe are discussed further below. Since its commercial launch through September 30, 2018, we received (or became entitled to receive) a total of $9.4 million in royalties for this product from both Bayer and LEO. As previously disclosed, we received notifications from third partylitigating against several generic pharmaceutical companies that they had filedfor alleged infringement of certain of our patents following the generic companies’ submission of abbreviated NDAsnew drug applications with the FDA, seeking approval forto manufacture and sell generic versions of Finacea prior to the expiry of certain patents licensed by us to Bayer. In JanuaryFinacea. We recently settled our litigation against Perrigo FINCO UK Limited Partnership, or Perrigo, but our litigation against two other companies, Teva Pharmaceuticals USA, Inc. and February of this year weTaro Pharmaceutical Industries, Ltd. and Bayer initiated legal action against such third parties. We are committed to defending our intellectual property rights globally, including patents we have licensed to other pharmaceutical companies as part of our collaboration efforts. Our FMX101 and FMX103 products are based on a different foam technology platform and different patents than those listed in the Approved Drug Products with Therapeutic Equivalence Evaluations, or Orange Book, for Finacea.
To date, we have not yet submitted any product candidates for approval by regulatory authorities and we do not currently have rights to any products that have been approved for marketing in any territory. We have financed our operations primarily through private and public placements of our shares, convertible loans and from development and licensing collaborations. We have incurred significant losses since our inception in 2003. Our accumulated deficit at September 30, 2018 was $201.3 million and our net loss for the nine and three months ended September 30, 2018 was $60.1 million and $15.5 million respectively. A substantial amount of our net losses resulted from costs incurred in connection with our research and development programs and clinical trials and from general and administrative costs associated with our operations. The net losses and negative operating cash flows incurred to date, together with expected future losses, have had, and likely will continue to have, an adverse effect on our shareholders’ equity and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate offsetting revenue, if any. We expect to continue to incur significant expenses and operating losses for the foreseeable future.its affiliates, remains ongoing.
We do not expecthave also out-licensed other foam technology platforms to generate revenue from product sales unless and until we successfully complete clinical trials and obtain marketing approval fromother third parties to develop branded pharmaceutical products containing different APIs for potential commercialization that are in the FDA for one or moreearly stages of our lead product candidates, FMX101 or FMX103. Accordingly, we anticipate that we will need to raise additional capital in order to complete the development and commercialization of FMX101 and FMX103 and to advance the development of our other product candidates. Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs primarily through a combination of public and private equity offerings, debt or other structured financings, and entry into strategic collaborations. We may be unable to raise capital when needed or on attractive terms, which would force us to delay, limit, reduce or terminate our development programs or commercialization efforts. We will need to generate significant revenue to achieve and sustain profitability, and we may never be able to do so.
development.Below is a summary of selected key developments affecting our business that have occurred since June 30,December 31, 2018:
| · | On January 23, 2019, Ms. Sharon Barbari was appointed as a member of our board of directors. Dr. Dalia Megiddo resigned from our board of directors, effective April 10, 2019, the date of our annual general meeting. |
| · | On March 7, 2019, we announced that the FDA accepted for review our NDA for FMX101 and set October 20, 2019 as the targeted PDUFA action date. In April, the FDA conducted a pre-approval inspection of our U.S. offices in conjunction with its review of our NDA for FMX101 and made some minor inspectional observations that are being addressed, which we do not believe will adversely impact the FDA’s review of our NDA for FMX101. We are seeking approval of FMX101 for the treatment of inflammatory lesions of non-nodular moderate-to-severe acne vulgaris in patients nine years of age and older. Our NDA submission includes the previously-communicated results from our two Phase III trials, Studies FX2014-05 and FX2017-22, and also incorporates information on chemistry manufacturing and controls, and data from non-clinical toxicology studies on FMX101. |
| · | On April 2, 2019, we announced that, together with LEO Pharma, we have settled the Hatch-Waxman litigation with Perrigo, relating to Finacea® Foam. |
On August 10, 2018, following our Type B meeting with the FDA on February 14, 2018, we received a letter from the FDA’s Division of Dermatology requesting information on the canister, foaming pump and other device constituent parts of our FMX101 product candidate. The letter referred to FMX101 as a combination product and requested information relating to the quality and design control of the device, including (1) the device description documentation, (2) the design control documentation, (3) the traceability documentation, and (4) additional considerations related to the biocompatibility and sterility of the product candidate. We expect to provide the requested information to the FDA using readily available data derived from our Study 22. We also expect to compile such information for our NDA submission and file the NDA for FMX101, with no material increases of the expected budget or material changes to the anticipated timing of our NDA submission.| · | Our partner, LEO, recently informed us that batches of Finacea produced by the contract manufacturer have failed to meet the required specifications for the finished product. As a result, LEO has not been able to deliver the same quantity of Finacea for sale, which has decreased the royalty payments from LEO to us for sales of Finacea. In the three months ended March 31, 2019, our total revenue decreased by $598 thousand or 66% to $308 thousand compared to $906 thousand in the three months ended March 31, 2018. LEO has informed us that they are working diligently to address the issue in order to be able to produce sufficient supply of the finished product to meet the demand for Finacea in the market. This supply chain issue for Finacea is not related to the manufacturing, production or supply of any of our products, including FMX101 and FMX103. |
On November 7, 2018, we announced the positive results of our Phase III clinical trials (Studies 11 and 12) for FMX103 in the United States for the treatment of moderate-to-severe papulopustular rosacea. Studies 11 and 12 were identical, double-blind, randomized, vehicle-controlled studies that enrolled a total of 1,522 subjects (Study 11: 751 subjects, Study 12: 771 subjects) with moderate-to-severe papulopustular rosacea at a total of 100 sites in the United States. Patients were randomized 2:1 to receive either FMX103 minocycline foam (1.5%) or vehicle foam, respectively, once daily over a period of 12 weeks. The safety and tolerability of FMX103 were also evaluated. The most commonly reported adverse events in the clinical trial related to upper respiratory tract infections. There were no treatment-related serious adverse events. FMX103 was observed in the clinical trial to have a generally favorable safety profile and appeared to be generally well tolerated. Based on the efficacy and safety profile observed in clinical studies to date, we believe FMX103, if approved, may present an attractive option for the treatment of moderate-to-severe papulopustular rosacea. Our goal is to file an NDA for FMX103 in 2019.
Revenues
To date, we have not generated any revenues from sales of FMX101, FMX103 or any of our other product candidates. We dowill not expect to commercially launch FMX101 or our other product candidates in the United States or generate any revenues from sales of any of our product candidates until after obtaining marketing approval, which we do not expect before the end of 2019, until after completion of their development and clinical testing and after obtaining approvals for their marketing in the U.S.2019. Our ability to generate revenues from sales will depend on the successful commercialization of FMX101, FMX103 and our other product candidates.
As of September 30, 2018,March 31, 2019, we generated cumulative revenues of approximately $30.9$32.0 million under development and license agreements, of which approximately $18.4 million were development service payments, approximately $3.1 million were contingent payments and $9.4$10.5 million were royalty payments. The royalties were paid in relation to Finacea, the prescription foam product that we developed in collaboration with Bayer. In the three and nine months ended September 30, 2018March 31, 2019, we received (or became entitled to receive) royalty payments in an amount of $865,000 and $2.7 million, respectively.$0.3 million. We may become entitled to additional contingent payments, subject to achievement of the applicable clinical results by our other licensees. In light of the current phase of development under these agreements, we do not expect to receive significant payments in the near term, if at all.
Cost of Revenues
Our total cost of revenues for the three and nine months ended September 30, 2017, was $11,000 and thereThere was no cost of revenues for the three and nine months ended September 30,March 31, 2019 and 2018, as revenues consist almost entirely fromof royalties, which do not bear related cost of revenue.
We do not expect substantial changes in cost of revenue unless and until we obtain regulatory approval for our lead product candidates and begin serial production of such products, whether internally or through third party manufacturers, at which point we expect our cost of revenues to grow along with the growth of our sales and inventory needs.
Operating Expenses
Research and development expenses
Research and development activities are, and will continue to be, 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. We expect to incur significant research and development costs to increase significantly forin the foreseeable future assuming our pipeline products progress into clinical trials. However, we do not believe that it is possible at this time to accurately project total program-specific expenses to reach commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will affect our clinical development programs and plans.
Our research and development expenses relate primarily to the development of FMX101 and FMX103. From January 1, 2007 until September 30, 2018,March 31, 2019, we cumulatively spent approximately $157.7$180.2 million on research and development of FMX101, FMX103 and our other product candidates. Our total research and development expenses for the three-month periods ended September 30,March 31, 2019 and 2018 and 2017 were approximately $13.1 million$10.8 and $15.8 million, respectively, and for the nine-month periods ended September 30, 2018 and 2017 were approximately $52.8 and $42.4$22.8 million, respectively. We charge all research and development expenses to operations as they are incurred. We expect research and development expenses to lessen in the near term due to the completion of our Phase III clinical trials for FMX101 and FMX103.
The successful development of FMX101, FMX103 and additionalour product candidates is highly uncertain. While we have a filed an NDA for FMX101 and expect to file one for FMX103, we cannot provide any assurances or predict with any certainty the schedule on which we will, if at all, receive approval from the FDA with respect to either of FMX101 and FMX103. As such, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of our technology for additional indications. This uncertainty is due to numerous risks and variables associated with developing products, including the uncertainty of:
| · | the scope, rate of progress and expense of our research and development activities; |
| · | the terms and timing of regulatory approvals; and |
| · | our ability to file, prosecute, obtain, maintain, defend and enforce patents and other intellectual property rights and the expense of taking such actions; |
| · | the ability to market, commercializefiling, prosecuting, obtaining, maintaining, defending and achieve market acceptance for FMX101, FMX103 or anyenforcing patents and other product candidate that we may develop in the future; and |
| · | our ability to identify, evaluate, acquire or obtain licenses for intellectual property if needed, to facilitate the commercialization of our products and technologies.rights; |
A change in the outcome of any of these variables with respect to the development of FMX101, FMX103 or our other product candidates could result in a significant change in the costs and timing associated with their development. For example, if the FDA or foreign regulatory authority were to require us to conduct preclinical studies and clinical trials beyond those which we currently anticipate for the completion of clinical development of our product candidates, or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional time and financial resources on the completion of the clinical development.
Research and development expenses consist primarily of:
| · | employee-related expenses, including salaries, benefits and related expenses, including share-based compensation expenses; |
| · | expenses incurred under agreements with third parties, including subcontractors, suppliers and consultants that conduct regulatory activities, clinical trials and preclinical studies; |
| · | expenses incurred to acquire, develop and manufacture clinical trial materials; |
| · | facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other operating costs; and |
| · | other costs associated with preclinical and clinical activities and regulatory operations. |
We have managed to finance our research and development operations and expenses without the aid of government grants, other than a loan in the amount of approximately $450,000 received from the Israel-U.S. Bi-national Industrial Research and Development Foundation, or BIRD, in 2008, which was fully repaid in 2016. Accordingly, we are not subject to the provisions of the Law for Encouragement of Research and Development in the Industry, 5744-1984, nor to any directives issued by the Israel Innovation Authority, previously known as the Office of the Chief Scientist of the Ministry of the Economy.
Selling, general and administrative expenses
Our selling, general and administrative expenses consist principally of:
| · | employee-related expenses, including salaries, benefits and related expenses, including share-based compensation expenses; |
| · | costs associated with market research and business development activities in preparation for future marketing and sales, including activities intended to select the most promising product candidates for further development and commercialization; |
| · | legal and professional fees for auditors and other consulting expenses not related to research and development activities or to market research or business development activities; |
| · | cost of office space, communication and office expenses; |
| · | information technology expenses; |
| · | depreciation of tangible fixed assets related to our general and administrative activities or to our market research and business development activities; and |
| · | costs associated with filing, prosecuting, obtaining and maintaining patents and other intellectual property. |
As part of our growth strategy, we have begun building up our dedicated U.S. marketing and business development team and infrastructure, and we intend to further increase such U.S. infrastructure, as well as expand our marketing effort to new markets. We therefore expect selling and marketing expenses to increase in absolute terms as a percentage of our revenues. Our total selling, general and administrative expenses for the three-month periodsthree months ended September 30,March 31, 2019 and 2018 and 2017 were approximately $3.3 million$5.3 and $2.9 million, respectively, and for the nine-month periods ended September 30, 2018 and 2017 were approximately $10.0 million and $9.2$3.8 million, respectively.
Our ability to commercialize FMX101 and FMX103 successfully, if approved, is highly uncertain and depends on a number of factors, including market adoption of our product candidates by physicians and patients, market access uncertainty, our ability to scale to the market opportunity and the existence of existing and future products that may compete with ours. As such, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary for successful commercialization of our product candidates, if approved.
Financial Income
Financial income consists primarily of gains from interest earned from our bank deposits and financial income on our marketable securities.
Taxes on Income
The standard corporate tax rate in Israel during the year 2018 is 23%, a decrease compared to the 24% tax rate during 2017.
We have yet to generate taxable income in Israel, as we have historically incurred operating losses resulting in carry forward tax losses totaling approximately $88.6$146.7 million as of December 31, 2017.2018. During 2018, we incurred a carry forward tax loss in our U.S. subsidiary, Foamix Pharmaceuticals Inc., of $0.4 million. We anticipate that we will be able to carry forward these tax losses to future tax years. Accordingly, we do not expect to pay taxes in Israelthe applicable jurisdiction until we have taxable income after the full utilization of our carry-forward tax losses.losses in that jurisdiction. We provided a full valuation allowance with respect to the deferred tax assets related to these carry-forward losses.
During the three-month periods ended September 30, 2018 and 2017 we incurred tax expenses of $13,000 and $57,000, respectively, in our U.S. subsidiary, Foamix Pharmaceuticals Inc., and during the nine-month periods ended September 30, 2018 and 2017 we incurred tax expenses of $463,000 and $209,000, respectively.
Comparison of the Three-Month Periods Ended September 30,March 31, 2019 and 2018 and 2017
Revenues
Our total revenues decreased by $36,000,$0.6 million, or 4.0%66%, from $901,000to $0.3 million in the three months ended September 30, 2017 to $865,000March 31, 2019, from $0.9 in the three months ended September 30,March 31, 2018. The changedecrease is due to a decreasethe failure of LEO’s contract manufacturer of Finacea to meet the required specifications for the finished product, which resulted in development service payments,the inability of LEO to deliver the same quantity of Finacea for sale, which was offset by an increase in turn decreased our royalty payments from Bayerpayments. LEO has informed us that they are working diligently to address the issue in order to be able to produce sufficient supply of the finished product to meet the demand for Finacea in the market. This supply chain issue for Finacea is not related to the manufacturing, production or supply of any of our products, including FMX101 and LEO for sales of Finacea.
FMX103.Cost of revenues
Our total cost of revenues for the three months ended September 30, 2017 was $11,000 and thereThere was no cost of revenues for the three-month periodperiods ended September 30,March 31, 2019 and 2018, as revenues consist almost entirely fromof royalties, which bear no related cost of revenue.
Research and development expenses
Our research and development expenses for the three months ended September 30, 2018March 31, 2019 were $13.1$10.8 million, representing a decrease of $2.7$12.0 million, or 17.1%52.6%, compared to $15.8$22.8 million for the three months ended September 30, 2017.March 31, 2018. The decrease in research and development expenses resulted primarily from a decrease of $3.6$13.8 million in costs relating predominantlyclinical trial expenses due to the completion of FMX101 and FMX103 clinical trials, offset by an increase of $434,000$0.6 million in payroll and payroll-related expenses including share-based compensation primarily due to an increase in salary raises, anheadcount and salaries, and $0.6 million increase of $139,000 in advisors, consultants and other professional services expenses, and an increase of $120,000 in travelconsulting expenses.
Selling, general and administrative expenses
Our general and administrative expenses for the three months ended September 30, 2018March 31, 2019 were $3.3$5.3 million, representing an increase of $376,000,$1.5 million, or 13.0%39.4%, compared to $2.9$3.8 million for the three months ended September 30, 2017.March 31, 2018. The increase in selling, general and administrative expenses resulted primarily from an increase of $270,000 in payroll and payroll-related expenses including share-based compensation primarily due to an increase in headcount and salary raises, and an increase of $104,000$1.4 million in expenses relatedmostly relating to our Board of Directors.pre-commercialization activities and market research.
Operating loss
OurAs a result of the foregoing, our operating loss for the three months ended September 30, 2018March 31, 2019 was $15.6$15.9 million, representing a decrease of $2.2 million, or 12.4%, compared to an operating loss of $17.8$25.7 million for the three months ended September 30, 2017.
March 31, 2018, a decrease of $9.8 million, or 38.1%.
Finance income
In the three-month periods ended September 30,March 31, 2019 and 2018, and 2017, our financial income included mostly gains from marketable securities and interest earned on our bank deposits.
The finance expenses (income) by cash and non-cash components are as follows:
| | | Three months ended September 30, | |
| | | 2018 | | | 2017 | |
| | | (in thousands of U.S. dollars) | |
| Interest on bank deposits | | $ | (51 | ) | | $ | (113 | ) |
| Gain from marketable securities, net | | | (107 | ) | | | (163 | ) |
| Foreign exchange gain, net | | | - | | | | (28 | ) |
| Total income | | | (158 | ) | | | (304 | ) |
| Less: | | | | | | | | |
| Foreign exchange loss, net | | | 35 | | | | - | |
| Other expenses | | | 4 | | | | 2 | |
| Total expenses | | | 39 | | | | 2 | |
| Finance income, net | | $ | (119 | ) | | $ | (302 | ) |
Taxes on income
During the three-month periods ended September 30, 2018 and 2017 we did not generate taxable income in Israel. However, we had incurred tax expenses in our U.S. subsidiary, Foamix Pharmaceuticals Inc., in the amount of $13,000 and $57,000 for the three-month periods ended September 30, 2018 and 2017, respectively.
Net Loss
Our net loss for the three months ended September 30, 2018 was $15.5 million, compared to $17.6 million for the three months ended September 30, 2017, a decrease of $2.1 million, or 11.9%.
Comparison of the Nine-Month Periods Ended September 30, 2018 and 2017
Revenues
Our total revenues increased by $109,000, or 4.2%, from $2.6 million in the nine months ended September 30, 2017 to $2.7 million in the nine months ended September 30, 2018. The increase is mainly due to an increase in royalty payments from Bayer and LEO for sales of Finacea.
Cost of revenues
Our total cost of revenues for the nine months ended September 30, 2017 was $11,000 and there was no cost of revenues for the nine-month period ended September 30, 2018, as revenues consist entirely from royalties, which bear no related cost of revenue.
Research and development expenses
Our research and development expenses for the nine months ended September 30, 2018 were $52.8 million, representing an increase of $10.4 million, or 24.5%, compared to $42.4 million for the nine months ended September 30, 2017. The increase in research and development expenses resulted primarily from (a) an increase of $8.5 million in costs relating predominantly to FMX101 and FMX103 clinical trials, (b) an increase of $2.0 million in payroll and payroll-related expenses, including share-based compensation, primarily due to a change in the measurement of share based compensation expenses of a consultant and an increase in headcount and salary raises, (c) an increase of $504,000 in travel expenses, and (d) an increase of $225,000 in advisors, consultants and other professional services expenses. Such increases were offset by a decrease of $1.2 million in compensation to one of our co-founders in the nine months ended September 30, 2017.
Selling, general and administrative expenses
Our general and administrative expenses for the nine months ended September 30, 2018 were $10.0 million, representing an increase of $813,000, or 8.8%, compared to $9.2 million for the nine months ended September 30, 2017. The increase in selling, general and administrative expenses resulted primarily from (a) an increase of $1.9 million in payroll and payroll-related expenses, including share-based compensation, mostly due to an increase in headcount, salary raises and accounting modification relating to share based compensation of a consultant, (b) an increase of $512,000 in advisors and other professional services expenses, and (c) an increase of $256,000 in expenses related to our Board of Directors. Such increases were offset by (i) a decrease of $1.5 million in compensation to one of our co-founders in the nine months ended September 30, 2017, and (ii) a decrease of $201,000 in travel expenses.
Operating loss
Our operating loss for the nine months ended September 30, 2018 was $60.1 million, compared to an operating loss of $49.0 million for the nine months ended September 30, 2017, an increase of $11.1 million, or 22.7%.
Finance income
In the nine-month periods ended September 30, 2018 and 2017, our financial income included mostly gains from marketable securities and interest earned on our bank deposits.
The finance expenses (income) by cash and non-cash components are as follows:
| | | Nine months ended September 30, | | | Three months ended March 31, | |
| | | 2018 | | | 2017 | | | 2019 | | | 2018 | |
| | | (in thousands of U.S. dollars) | | | (in thousands of U.S. dollars) | |
| Interest on bank deposits | | $ | (205 | ) | | $ | (438 | ) | | $ | (179 | ) | | $ | (57 | ) |
| Gain from marketable securities, net | | | (326 | ) | | | (448 | ) | | | (357 | ) | | | (106 | ) |
| Total income | | | (531 | ) | | | (886 | ) | | | (536 | ) | | | (163 | ) |
| Less: | | | | | | | | | | | | | | | | |
| Other expenses | | | 13 | | | | 12 | | | | 4 | | | | 3 | |
| Foreign exchange loss, net | | | 47 | | | | 28 | | | | 28 | | | | 87 | |
| Total expenses | | | 60 | | | | 40 | | | | 32 | | | | 90 | |
| Finance income, net | | $ | (471 | ) | | $ | (846 | ) | | $ | (504 | ) | | $ | (73 | ) |
Taxes on income
During the nine-monththree-month periods ended September 30,March 31, 2019 and 2018, and 2017 we did not generate taxable income in Israel. However, we had incurred tax income of $176,000 and tax expenses in our U.S. subsidiary, Foamix Pharmaceuticals Inc., in the amount of $463,000 and $209,000 for the nine-month periods ended September 30, 2018 and 2017,$330,000, respectively. The increase in tax expenses resulted mainly from an increase in operations of Foamix Pharmaceuticals Inc.income recognized during the three months ended March 31, 2019 relates to the reversal a provision for uncertain tax positions.
Net Loss
Our net loss for the ninethree months ended September 30, 2018March 31, 2019 was $60.1$15.2 million, compared to $48.4$26.0 million for the ninethree months ended September 30, 2017, an increaseMarch 31, 2018, a decrease of $11.7$10.8 million, or 24.2%42%.
Liquidity
Since our inception, we have incurred losses from operations and negative cash flows from our operations. For the ninethree months ended September 30,March 31, 2019 we incurred a net loss of $15.2 million, which included $16.6 million used for operating activities. For the three months ended March 31, 2018 we incurred a net loss of $60.1$26.0 million, which included $57.7 million used for operating activities. For the nine months ended September 30, 2017 we incurred a net loss of $48.4 million, which included $40.5$23.2 million used for operating activities.
As of September 30,March 31, 2019, and March 31, 2018, and September 30, 2017 we had a working capital surplus of $103.0$75.7 million and $70.8$38.4 million, respectively, and an accumulated deficit of $201.3$230.6 million and $123.9$167.2 million, respectively.
Our principal source of liquidity as of September 30, 2018March 31, 2019 consisted of cash and investments of $110.5$82.9 million.
In September 2014, we completed our initial public offering in which we sold 6,700,000 Ordinary Shares for $6.00 per share raising total net proceeds, after expenses, of approximately $35.7 million. In October 2014 the underwriters exercised their option to purchase an additional 968,200 Ordinary Shares. The proceeds from the exercise of the option, net of underwriters’ commission, were approximately $5.4 million, bringing the total net proceeds from the initial public offering, after expenses, to approximately $41.1 million.
In April 2015, we completed a follow-on offering in which we sold 7,419,353 Ordinary Shares, including the exercise of an underwriter option, for $9.30 per share, raising total net proceeds, after expenses, of approximately $64.2 million.
On September 30, 2016 we completed another follow-on offering under an effective shelf registration statement, in which we sold 5,700,000 Ordinary Shares for $9.50 per share, raising net proceeds, after expenses and underwriter commissions, of approximately $50.4 million. An additional 300,000 Ordinary Shares were sold by certain selling shareholders. In October 2016 the underwriters partially exercised the option granted to them in the underwriting agreement and purchased an additional 411,959 Ordinary Shares. The proceeds from the exercise of the option, net of expenses and underwriter commissions, were approximately $3.7 million, bringing the total net proceeds from the offering to approximately $54.1 million.
On April 13, 2018, we entered into a Securities Purchase Agreement with OrbiMed Partners Master Fund Limited, or OrbiMed, pursuant to which we agreed to issue and sell, in a registered offering by the Company,under an effective shelf registration statement, an aggregate of 2,940,000 Ordinary Shares, par value NIS 0.16 per share, at a purchase price equivalent to $5.50 per share, representing a premium to the Company’s Ordinary Shares’ last closing price, for aggregate net proceeds of approximately $16.1 million, after deducting offering expenses. The closing of the issuance and sale of these securities took place on April 16, 2018, pursuant to our shelf registration statement on Form S-3, which was filed with the SEC on April 2, 2018 and became effective on April 12, 2018.
On September 18, 2018, we completed an additional follow-on offering under aour effective shelf registration statement filed with the SEC on Form S-3 (File No. 333-224084) on April 2, 2018 and declared effective on April 12, 2018, in which we sold 11,670,000 Ordinary Shares forat a price of $6.00 per share, raising net proceeds, after expenses and underwriter commissions, of approximately $65.5$65.6 million. UponAfter the closing of the offering, the underwriters further exercised thean option granted to them in the underwriting agreement and purchasedpurchase 1,750,500 additional Ordinary Shares at the per share price of the offering. The proceeds from the exercise of the option, net of expenses and underwriter commissions, were approximately $9.8 million, bringing the total net proceeds from the offering to approximately $75.3$75.4 million.
We anticipate that with our existing cash and investments we will be able to fund our planned operating expenses and capital expenditure requirements through mid 2020.mid-2020. These planned expenses and expenditures include: (a) the full developmentpre-commercialization and filing of an NDAlaunch preparations for FMX101, whichassuming we expect to submit by the end of 2018,receive regulatory approval, (b) completion of our two Phase III clinical trials for FMX103, (c) full development and filing of an NDA for FMX103, which we expect to submit in mid-2019, and (c) certain pipeline development activities. We expect we will need additional funding to support our operating expenses and capital requirements for the second half of 2020 and beyond, including with regard to the commercialization of any of our product candidates if they are granted regulatory approval, and to fund our internal and external research and development efforts. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Capital Resources
Overview
To date, we have financed our operations through private and public placements of our Ordinary Shares, convertible loans and through fees, cost reimbursements and royalties received from our licensees.
From inception through March 31, 2019 (d)we have received net cash proceeds of approximately $280.1 million from the issuance of Ordinary Shares, preferred shares, exercise of options and warrants and from convertible loans.
Cash flows
The following table summarizes our statement of cash flows for the three-month periods ended March 31, 2019 and 2018:
| | | Three months ended March 31, | |
| | | 2019 | | | 2018 | |
| | | (in thousands of U.S. dollars) | |
| Net cash (used in) / provided by: | | | | | | |
| Operating activities | | $ | (16,642 | ) | | $ | (23,193 | ) |
| Investing activities | | | 7,739 | | | | 20,008 | |
| Financing activities | | | 16 | | | | - | |
Net cash used in operating activities
The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and measurements and changes in components of working capital. Adjustments to net income for non-cash items mainly include depreciation and amortization and share-based compensation.
Net cash used in operating activities was $16.6 million in the three months ended March 31, 2019, compared to $23.2 million in the three months ended March 31, 2018. The decrease was attributable primarily to the decrease in activity related to clinical trials.
Net cash provided by investing activities
Net cash provided by investing activities was $7.7 million in the three months ended March 31, 2019, compared to $20.0 million in the three months ended March 31, 2018. The decrease in investing activities was attributable primarily to a decrease in proceeds from the sale and maturity of marketable securities and bank deposits.
Net cash provided by financing activities
There was $16,000 provided by financing activities in the three months ended March 31, 2019, compared to none in the three months ended March 31, 2018. The increase was attributable to proceeds from exercise of options.
Cash and funding sources
The table below summarizes our main sources of financing for the three-month periods ended March 31, 2019 and 2018:
| | | Proceeds from our underwritten public offerings(1) | | | Proceeds from our direct public offerings | | | Proceeds from issuance of Ordinary Shares | | | Payments from licensees | | | Total | |
| Three months ended March 31, 2019 | | | - | | | | - | | | | 16,000 | | | | 206,000 | | | | 222,000 | |
| Three months ended March 31, 2018 | | | - | | | | - | | | | - | | | | 989,000 | | | | 989,000 | |
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(1) Net of issuance costs.
Our sources of financing in the three months ended March 31, 2019 totaled $222,000 and consisted mainly of payments from licensees.
Our sources of financing in the three months ended March 31, 2018 totaled $989,000 and consisted of payments from licensees.
We have no ongoing material financial commitments (such as lines of credit) that may affect our liquidity over the next five years.
Funding requirements
We anticipate that with our existing cash and investments we will be able to fund our planned operating expenses and capital expenditure requirements through mid-2020. These planned expenses include: (a) full development and filing of an NDA for FMX103, which we expect to submit in mid-2019, (b) certain pipeline development activities, and (e) (c) any pre-commercialization and launch preparations for FMX101.FMX101 in anticipation of possible regulatory approval. We expect we will need additional funding to support our operating expenses and capital requirements for 2020 and beyond, including with regard to the commercialization of our product candidates and to fund our internal and external research and development efforts. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Capital Resources
Overview
To date, we have financed our operations through private and public placements of our Ordinary Shares, convertible loans and through fees, cost reimbursements and royalties received from our licensees.
From inception through September 30, 2018, we have received net cash proceeds of approximately $280.1 million from the issuance of Ordinary Shares, preferred shares, exercise of options and warrants and from convertible loans.
Cash flows
The following table summarizes our statement of cash flows for the nine-month periods ended September 30, 2018 and 2017:
| | | Nine months ended September 30, | |
| | | 2018 | | | 2017 | |
| | | (in thousands of U.S. dollars) | |
| Net cash (used in) / provided by: | | | | | | |
| Operating activities | | $ | (57,766 | ) | | $ | (40,544 | ) |
| Investing activities | | $ | 37,345 | | | $ | 29,990 | |
| Financing activities | | $ | 92,362 | | | $ | 124 | |
Net cash used in operating activities
The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and measurements and changes in components of working capital. Adjustments to net income for non-cash items mainly include depreciation and amortization and share-based compensation.
Net cash used in operating activities was $57.8 million in the nine months ended September 30, 2018, compared to $40.5 million in the nine months ended September 30, 2017. The increase was attributable primarily to increased net losses resulting from the increase in activity related mostly to clinical trials and payroll expenses.
Net cash provided by investing activities
Net cash provided by investing activities has been primarily related to proceeds from the sale and maturity of marketable securities and bank deposits. Net cash provided by investing activities was $37.3 million in the nine months ended September 30, 2018, compared to net cash provided by investing activities of $30.0 million in the nine months ended September 30, 2017. The increase in cash provided by investing activities was attributable primarily to an increase in proceeds from the sale and maturity of marketable securities and bank deposits, a decrease in investment in marketable securities, offset by an increase in investment in bank deposits.
Net cash provided by financing activities
Net cash provided by financing activities was $92.4 million in the nine months ended September 30, 2018, compared to $124,000 in the nine months ended September 30, 2017. The increase was attributable primarily to (i) the proceeds from the issuance of shares to OrbiMed based on the aforementioned Securities Purchase Agreement, in an aggregate net amount of approximately $16.1 million after deducting offering expenses, (ii) the increase in the amount of $840,000 in proceeds from the exercise of warrants, and (iii) the proceeds from the issuance of shares in the underwritten follow-on offering which closed on September 18, 2018, in an aggregate net amount of approximately $75.3 million after deducting offering expenses and underwriters’ commissions.
Cash and funding sources
The table below summarizes our main sources of financing for the nine-month periods ended September 30, 2018 and 2017:
| | | Proceeds from our offerings (1) | | | Proceeds from issuance of Ordinary Shares | | | Payments from licensees | | | Total | |
| | | (in thousands of U.S. dollars) | |
| Nine months ended September 30, 2018 | | $ | 91,479 | | | $ | 883 | | | $ | 2,797 | | | $ | 95,159 | |
| Nine months ended September 30, 2017 | | | - | | | $ | 145 | | | $ | 4,961 | | | $ | 5,106 | |
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(1)Net of issuance costs.
Our sources of financing in the nine months ended September 30, 2018 totaled $95.2 million and consisted primarily of $16.1 million of net proceeds from our registered direct offering to OrbiMed, $75.3 million of net proceeds from our underwritten follow-on offering which closed on September 18, 2018, and $2.8 million of payments from licensees.
Our sources of financing in the nine months ended September 30, 2017 totaled $5.1 million and consisted primarily of payments from licensees.
We have no ongoing material financial commitments (such as lines of credit) that may affect our liquidity over the next five years.
Funding requirements
We anticipate that with our existing cash and investments we will be able to fund our planned operating expenses and capital expenditure requirements through mid-2020. These planned expenses and expenditures include: (a) the full development and filing of an NDA for FMX101, which we expect to submit by the end of 2018, (b) completion of our two Phase III clinical trials for FMX103, (c) full development and filing of an NDA for FMX103, which we expect to submit in 2019, (d) certain pipeline development activities and (e) any pre-commercialization and launch preparations for FMX101. We expect we will need additional funding to support our operating expenses and capital requirements for all of 2020 and beyond, including with regard to the commercialization of our product candidates and to fund our internal and external research and development efforts. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Our present and future funding requirements will depend on many factors, including, among other things:inter alia:
| · | the progress, timing and completion of preclinical testing and clinical trials for FMX101, FMX103 or any future pipeline product candidate;candidates; |
| · | selling, marketing and patent-related activities undertaken in connection with the anticipated commercialization of FMX101, FMX103 and any other product candidates, andas well as costs involved in the development of an effective sales and marketing organization; |
| · | the time and costs involved in obtaining regulatory approval for FMX101, FMX103 and our other pipeline productsproduct candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of these products; |
| · | the number of potential new products we identify and decide to develop; |
| · | the costs involved in filing and prosecuting patent applications and obtaining, maintaining and enforcing patents or defending against claims or infringements raised by third parties, and license royalties or other amounts we may be required to pay to obtain rights to third party intellectual property rights; and |
| · | the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of FMX101, FMX103 and any other pipeline product that is commercialized. |
Our operating plan may change as a result of many factors currently unknown to us, and any such change may affect our funding requirements. We have never before launched a product commercially, and the costs involved in such commercial launch may exceed our expectations. We may therefore need to seek additional capital sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations or additional license arrangements. Such financings may result in dilution to shareholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business.
For more information as to the risks associated with our future funding needs, see “Part I, Item 1A—Risk Factors—Risks Related to Our Business and Industry—We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts” in our Annual Report on Form 10-K/A10-K for the year ended December 31, 2017,2018, as filed with the Securities and Exchange CommissionSEC on March 1, 2018.
February 28, 2019.Clinical trial costs are charged to research and development expense as incurred. We accrue for expenses resulting from obligations under contracts with clinical research organizations, or CROs. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided. Our objective is to reflect the appropriate trial expense in the consolidated financial statements by matching the appropriate expenses with the period in which services and efforts are expended. In the event advance payments are made to a CRO, the payments will be recorded as other assets, which will be recognized as expenses as services are rendered. The CRO contracts generally include pass-through fees including, but not limited to, regulatory expenses, investigator fees, travel costs and other miscellaneous costs. We estimate our clinical accruals based on reports from and discussion with clinical personnel and the CRO as to the progress or state of completion of the trials. We estimate accrued expenses as of each balance sheet date in the consolidated financial statements based on the facts and circumstances known at that time. Our clinical trial accrual is dependent, in part, upon the receipt of timely and accurate reporting from the CROs.