Filing summary
Entity and period: The supplied filing is AIT Therapeutics, Inc.’s Form 10-K for the fiscal year ended December 31, 2017, filed March 30, 2018. It does not appear to be a Beyond Air, Inc. filing. This is an annual report, not a standalone fourth-quarter report. The merger with Advanced Inhalation Therapies Ltd. closed in January 2017 and was accounted for as a reverse merger and recapitalization.
Business context
AIT was a clinical-stage medical-device company developing a system that generates inhaled nitric oxide (NO) from ambient air, at concentrations up to 400 ppm. Its programs targeted persistent pulmonary hypertension of the newborn (PPHN), infant bronchiolitis, and nontuberculous mycobacteria (NTM) lung infections. The company had no approved products and had generated no product revenue.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in thousands except per-share data.
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $4,438 | $673 |
| General and administrative expense | $6,629 | $1,039 |
| Operating loss | $11,067 | $2,333 |
| Financial expense, net | $6,977 | $1,360 |
| Net loss | $18,044 | $3,720 |
| Basic and diluted loss per share | $3.01 | $2.69 |
| Net cash used in operating activities | $7,119 | $692 |
R&D expense increased with clinical-trial, contractor, manufacturing, intellectual-property, and warrant-related costs. G&A rose substantially, including higher share-based compensation and public-company and merger-related costs. Financial expense included $5.412 million associated with warrant issuance and revaluation. The resulting net loss was nearly five times the prior year’s loss; operating margins are not meaningful because the company had no revenue.
At year-end, cash and cash equivalents were $1.201 million and marketable securities were $0.606 million; restricted cash was $6,000. Total assets were $2.189 million, total liabilities $10.568 million, and shareholders’ deficiency $8.379 million. The $9.172 million warrant liability was a major component of liabilities; it is a derivative liability, not conventional borrowings. The bank loan was repaid in 2017, and convertible notes converted to shares at the merger. No conventional long-term debt was reported at year-end.
Cash provided by financing activities was $9.462 million, primarily from equity and warrant financings; investing activities used $1.149 million. Accumulated deficit was $31.617 million. A subsequent February 2018 offering generated approximately $9.820 million in gross proceeds after exercise of Tranche A warrants; this was not part of FY 2017 cash or results.
Changes, outlook, and key risks
- FY 2017 was the first full year following the merger and involved a significant increase in development spending, administrative costs, losses, and operating cash use versus 2016.
- Management expected further R&D spending. Planned milestones included bronchiolitis study data in Q2 2018, an FDA discussion on NTM trial design, and a planned PPHN 510(k) filing around year-end 2018. These were expectations, not assured outcomes.
- Clinical evidence was preliminary and based on small studies. The filing cautions that early results may not predict pivotal-trial outcomes and may not satisfy FDA requirements. NO-related risks include elevated methemoglobin and nitrogen dioxide toxicity.
- Management stated that available resources were expected to cover liquidity needs for at least 12 months from financial-statement approval, while also stating that year-end resources were expected to fund operations only through Q1 2018. The company had no committed future funding at year-end and described possible cost reductions if needed. The February 2018 financing is an important subsequent event.
- Key risks include dependence on additional capital, regulatory and clinical-trial uncertainty, seasonal bronchiolitis enrollment, reliance on third-party manufacturers and clinical contractors, intellectual-property and licensing obligations, and potential dilution. The common stock traded on OTC Pink with limited trading activity.
- In January 2018, AIT obtained an exclusive global NitricGen license, with up to $2 million in milestone payments, low-single-digit royalties on applicable sales, and options for 100,000 shares. The filing reports a $200,000 milestone payment in March 2018.
Important facts for investors to verify
- Confirm issuer identity: the filing names AIT Therapeutics, Inc., not Beyond Air, Inc.
- Reconcile the stated liquidity runway with the filing’s differing Q1 2018 and 12-month liquidity statements, and assess the effect and terms of the February 2018 financing.
- Review the warrant liability valuation, anti-dilution provisions, and potential share dilution; the liability was measured at fair value and materially affected reported expenses.
- Check subsequent clinical-trial progress, FDA feedback, required regulatory pathway, and whether the preliminary study results are confirmed in adequately powered trials.
- Review third-party manufacturing readiness, CareFusion and Pulmonox license milestones and royalties, and NitricGen payment and royalty obligations.