Entera Bio Ltd. — Form 20-F Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2018, filed March 28, 2019. Entera is an Israeli clinical-stage biopharmaceutical company developing oral delivery technology for large-molecule therapeutics. Its principal candidates are EB613 for osteoporosis and EB612 for hypoparathyroidism. Financial statements are prepared under IFRS and presented in U.S. dollars.
Entera had no approved products and no product sales. Its primary development activities involved oral PTH programs and preparation for additional clinical studies. The company completed its Nasdaq IPO in July 2018 and had 11,459,780 ordinary shares outstanding at year-end.
Key financial metrics
| U.S. dollars in thousands, except per-share data | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | 500 | — | New |
| Research and development expense | 8,518 | 2,768 | +207.7% |
| General and administrative expense | 2,843 | 8,575 | -66.8% |
| Operating loss | 10,861 | 11,343 | -4.3% |
| Net comprehensive loss | 10,304 | 11,197 | -8.0% |
| Basic loss per share | $1.30 | $2.49 | Improved |
| Cash used in operating activities | 9,796 | 4,526 | Higher use |
| Cash and cash equivalents | 7,506 | 11,746 | -4,240 |
| Short-term bank deposits | 4,015 | — | New |
| Working capital | 10,678 | 10,397 | +281 |
| Total liabilities | 3,225 | 44,836 | Substantially lower |
| Accumulated deficit | 52,117 | 41,813 | Higher deficit |
Reported revenue consisted entirely of $500,000 attributed to the license of Entera’s intellectual property under its Amgen agreement. The filing records a $725,000 receivable and a $225,000 contract liability at December 31, 2018; the related initial cash payment of $725,000 was received in January 2019. No milestone or royalty revenue was recognized.
Gross margin is not meaningful because the reported revenue was a license transaction rather than product sales. The company remained loss-making, with operating expenses substantially exceeding revenue. Share-based compensation was $1.233 million, compared with $4.885 million in 2017.
Financing cash flow was $9.624 million, primarily from net IPO proceeds. Investing cash flow was negative $4.068 million, primarily due to a $4.0 million short-term bank deposit. Cash and short-term deposits totaled $11.521 million at year-end. The company reported no convertible loans or preferred-share liabilities at December 31, 2018; $1.372 million of warrant liabilities remained.
Material changes versus the prior comparable period
- Research and development spending increased by $5.75 million, primarily due to employee costs, clinical materials and manufacturing, the EB612 PK/PD study, CRO expenses and regulatory consulting.
- General and administrative expense declined by $5.732 million, largely because 2017 included substantial share-based compensation and financing-related professional fees. The 2018 figure also benefited from a $1.326 million reversal related to forfeited options following the resignation of the former chairman.
- Revenue increased from zero to $500,000 following the Amgen collaboration and license agreement signed in December 2018.
- The July 2018 IPO generated approximately $11.2 million of gross proceeds and $9.6 million of net cash proceeds. Preferred shares and certain convertible loans converted into ordinary shares at the IPO.
- Total liabilities fell from $44.836 million to $3.225 million, while shareholders’ equity improved from a capital deficiency of $31.558 million to positive equity of $10.116 million, primarily because of the IPO-related conversions and equity issuance.
- Operating cash use increased from $4.526 million to $9.796 million as development activity accelerated.
Guidance, outlook, commentary and risks
Management stated that existing cash and cash equivalents would not fund research and development, general and administrative expenses and working capital requirements for the next 12 months. As of March 15, 2019, cash and cash equivalents were approximately $9.6 million. The company has no committed external funding sources and expects to seek additional equity, debt, grants, collaborations or licensing arrangements.
The auditor and management expressed substantial doubt about Entera’s ability to continue as a going concern absent additional liquidity. The financial statements were prepared on a going-concern basis and contain no adjustments for a possible failure to continue operations. Failure to obtain funding could require the company to delay, reduce or terminate development programs or cease operations.
EB613: Following a November 2018 FDA pre-IND meeting, Entera planned a Phase 2a dose-ranging study in approximately 160 osteoporosis patients, expected to begin in the first half of 2019. Subject to favorable results and adequate funding, management anticipated a Phase 3 study comparing oral PTH with Forteo over approximately 12 months, potentially beginning in 2020 and enrolling approximately 600 to 800 patients. The company believes bone mineral density may be acceptable as the primary endpoint, but this remains subject to regulatory agreement and successful development.
EB612: The treatment phase of a PK/PD study was completed in late 2018. Preliminary results for a four-times-daily regimen showed improvements in serum calcium, phosphate, active vitamin D and urinary calcium, with no serious adverse events reported. A future Phase 2b/3 study is dependent on funding and must address safety, efficacy and the requirement to demonstrate clinical superiority or a major contribution to patient care relative to Natpara’s U.S. orphan exclusivity, which runs through January 2022.
Amgen collaboration: Amgen is responsible for clinical development, regulatory approval, manufacturing and commercialization of programs selected under the collaboration. Entera may receive up to $270 million in potential milestone and option payments and tiered royalties in the low-to-mid single digits, but these amounts are contingent and were not recognized as revenue. Amgen paid a $725,000 initial technology access fee in January 2019.
- Major risks include recurring losses, negative operating cash flow, limited liquidity and potential dilution from future financings.
- Both product candidates remain in clinical development, and regulatory approval, clinical success, commercialization and profitability are uncertain.
- Entera faces competition from Forteo, Natpara, generic osteoporosis treatments and other oral or long-acting PTH programs.
- The company relies on third parties for clinical research, manufacturing and certain development activities and has no commercial sales, marketing or distribution infrastructure.
- Intellectual property protection is limited and Emisphere has notified Entera that it claims ownership of certain patents acquired from Oramed. No legal proceeding had been filed as of the report date.
- Israeli Innovation Authority funding creates royalty and technology-transfer restrictions. The company may owe royalties on future product revenue and certain Amgen payments.
- The company is exposed to Israeli shekel currency fluctuations and does not hedge foreign-exchange risk.
- The filing states that Entera believes it was not a PFIC for 2018, but future PFIC status remains uncertain for U.S. investors.
Most important facts for investors to verify
- Available liquidity, monthly cash burn and the timing, size and terms of the next financing.
- Whether the company can continue as a going concern without substantial dilution or loss of development rights.
- Final results of the EB612 PK/PD study and the design, funding and start of the Phase 2b/3 trial.
- FDA feedback and actual regulatory requirements for the EB613 Phase 2 and Phase 3 program, including whether BMD can serve as the pivotal endpoint.
- Clinical safety, efficacy and comparative-superiority evidence against Natpara and Forteo.
- Amgen’s progress, exercise of additional program options, and whether contingent milestone and royalty economics become achievable.
- The status and potential financial impact of Emisphere’s patent ownership claim and the company’s broader patent portfolio.
- The dilution potential from outstanding options and warrants, including 1,610,000 tradable warrants and other pre-IPO warrants and options.
- The accounting and cash timing of the Amgen arrangement, including the $225,000 contract liability and the $725,000 payment received in January 2019.