RAPHAEL PHARMACEUTICAL INC. You should read the following discussion and analysis of our financial condition and results of operations together with our audited annual consolidated financial statements as ofDecember 31, 2022 andDecember 31, 2021 and accompanying notes appearing elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this Annual Report. All amounts are inU.S. dollars and rounded. Company Overview We are a pharmaceutical drug research and development company focused on the discovery and clinical development of life-improving drug therapies based on cannabinoids, including CBD oil. Unless indicated otherwise, we plan on using oil derived from CBD strains with low levels of THC. All references to the use of CBD in our product candidates refer to CBD strains with less than 0.3% of THC. We are currently in the pre-clinical development stage for of our lead product candidate, our RA product candidate for the treatment of RA. In addition, we are aiming to develop a pharmaceutical drug product for the treatment of hyperinflammtory syndrom inflammation related to COVID-19, which may be based on data or studies related to our RA product candidate. We successfully completed a prelinical sutdy for the RA product candidate atRambam Hospital as well as
a mice model trial.
OnFebruary 9, 2022 , we filed an application for a clinical trial with the Medical Cannabis Unit of the MOH. OnFebruary 16, 2022 we submitted an application with the Helsinki Committee atRambam Hospital for a clinical trial in COVID-19 patients. The Company plans to submit such applications for our
RA product during 2022. Our goal is to become a leader in development of CBD oil-based pharmaceutical drug products for the treatment of indications in which we believe there is a high unmet medical need in a range of disorders, including those related to inflammation in the body, including RA and COVID-19. InNovember 2022 , we submitted a proposal to the MOH for a clinical trial of a cannabis-based drug aimed at mitigating the deterioration of COVID-19 patients. The proposal has progressed and has been passed on to the Helsinki Committee for the final decision. In order to achieve our goal, we have and will continue to build an experienced team of senior executives and scientists, with experience in all facets of pharmaceutical research and development, drug formulation, clinical trial execution and regulatory submissions. We intend to leverage the knowledge of our team in order to complete the clinical trials needed to receive approvals of our product candidates from applicable regulatory authorities. Initially, we intend to obtain approvals for our product candidates from the FDA and the Medical Cannabis Unit of the MOH. Upon obtaining FDA approvals, or in the event that we are not successful in obtaining such approvals, we intend to apply for EMA and other countries' governmental regulatory agencies approvals for our product candidates. If we are successful in obtaining FDA approvals for our product candidates, we intend to enter into royalty agreements with GMP approved medical manufactures and distributors, having them using our medical formulas strains for the purpose of growing, cultivating, manufacturing, and distributingRaphael Pharmaceutical medical indications in their designated territories. For this purpose, inOctober 2022 , we entered into an agreement with theMedical Cannabis Research Center at Rambam Health Care Campus, and Rambam MedTech for the development of a new, patentable formulation that combines purified cannabinoids to treat rheumatoid diseases. The overall objective of this study is to identify a novel cannabinoid based patentable formulation to treat Rheumatoid diseases. Specifically, to investigate combination of purified cannabinoids to downregulate inflammation related to Rheumatoid diseases. We propose to base our study on data derived from Dr.Igal Louria-Hayon's studies (Helsinki #0442-20-RMB ) on the evaluation of the immune regulation properties of cannabinoids on the immune system and the data derived from the cannabinoids receptors study (Helsinki #0331-20-RMB ). We will analyze the activation of cannabinoid receptors on mouse models and will study the role of purified cannabinoid as a potential to develop a novel patentable formulation to treat RA. 48
Components of Operating Results
Operating Expenses Our current operating expenses consist of two components - research and development expenses, and general and administrative expenses. To date, we have not generated any revenues. We do not expect to receive any revenue from our product candidate unless and until we obtain regulatory approval and commercialize our product candidate or enter into agreements with third parties to commercialize them. There can be no assurance that we will receive such regulatory approvals, and if our product candidate is approved, that we will be successful in commercializing them.
Research and Development Expenses
Research and development activities are our primary focus. Products 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 that our research and development expenses will increase as we prepare for, and commence, registrational clinical trials of our RA and COVID-19 product candidates. A key activity in progressing our product candidates toward registrational trials is the development of large-scale manufacturing processes that are tailored specifically to our product candidate. In order to confirm the suitability of a new manufacturing facility and/or process, numerous experiments are needed. Moreover, the regulatory requirements in preparation for manufacturing a drug to be used in a registrational trial or for commercial use involve validation activities and extensive updates to our regulatory files, all of which are lengthy and costly activities. For these reasons, the development of manufacturing processes currently represents the largest portion of our research and development expenses. Research and development expenses include, but are not limited to, the following:
? employee-related expenses, such as salaries and share-based compensation;
? expenses of developing manufacturing processes;
? expenses relating to outsourced and contracted services, such as
external laboratories and consulting and advisory services;
? costs associated with pre-clinical activities;
? patent application and maintenance expenses;
? expenses incurred in operating our laboratories and small-scale
equipment; and
? clinical development expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of employee related expenses, including salaries, benefits, and equity-based compensation, for personnel in executive, finance, accounting, business development and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters, and fees for accounting and consulting services.
We anticipate that our general and administrative expenses will increase in the future to support continued research and development activities, potential commercialization of our product candidates and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. We also anticipate increased expenses related to the reimbursements of third-party patent related expenses in connection with the ongoing interference proceeding with respect to certain of our in-licensed intellectual property. Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance withSEC requirements and insurance costs. 49 Comparison of the Year EndedDecember 31, 2022 to the year endedDecember 31, 2021 Results of Operations For the For the Year Year Ended Ended December 31, December 31, 2022 2021 U.S. dollars in thousands (execpt for share and per share data) Operating expenses: Research and development expenses$ (1,178 ) $ (776 ) General and administrative expenses (2,139 ) (853 ) Operating loss (3,317 ) (1,629 )
Financial income (expense), net (41 ) 5 Net loss and comprehensive loss $
(3,358 )
Basic and diluted net loss per share $
(0.23 ) $ (0.14 )
Weighted average number of shares of ordinary shares used in computing basic and diluted net loss per share
14,341,518 11,171,704
Research and Development Expenses
Our research and development expenses totaled$1,178 thousand for the year endedDecember 31, 2022 , representing an increase of$402 thousand , or 52%, compared to$776 thousand for the year endedDecember 31, 2021 . The increase was primarily attributable to the increase in our share based compensation to our consultants and service providers, which was$0 in 2021.
General and Administrative Expenses
Our general and administrative expenses totaled$2,139 thousand for the year endedDecember 31, 2022 , representing an increase of$1,286 thousand , or 150%, compared to$853 thousand for the year endedDecember 31, 2021 . The increase was primarily attributable to increase in our share based payment compensation for our officers, directors and consultants, which was$0 in 2021. Operating Loss As a result of the foregoing, our operating loss totaled$3,317 thousand for the year endedDecember 31, 2022 , representing an increase of$1,688 thousand , or 103%, compared to$1,629 thousand for the year endedDecember 31, 2021 .
Financing Income (expense), Net
We recognized financing expense, net of$41 thousand for the year endedDecember 31, 2022 , representing a increase of$46 thousand , or 920%, compared to finance income of$5 thousand for the year endedDecember 31, 2021 . The decrease was primarily attributable to exchange rate differences between theU.S. dollar
and the New Israeli Shekel. Net and Comprehensive Loss
As a result of the foregoing, our loss totaled
50
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with US GAAP.
There are no critical accounting estimates for the years ended December 31 ,2022 and 2021.
Liquidity and Capital Resources
The Company has funded its operations to date primarily through equity financing and the issuance of a loan. Additional funding will be required to complete the Company's research and development and clinical trials, to attain regulatory approvals, to begin the commercialization efforts of the Company's product and to achieve a level of sales adequate to support the Company's cost structure. As ofDecember 31, 2022 , we had approximately$288 thousand in cash and cash equivalents, and have invested most of our available cash funds in ongoing
cash accounts. Overview
The table below presents our cash flows for the periods indicated:
For the
Year Ended For the Year Ended
December 31, December 31,
2022 2021
U.S. dollars in thousands
Cash used in operating activities $ (759 ) $ (1,418 )
Cash provided by investing activities $ (2 ) $ -
Cash provided by financing activities $ 896 $ 1,476
Net increase (decrease) in cash and cash equivalents $ 135 $ 58
Net cash used in operating activities was$759 thousand for the year endedDecember 31, 2022 , compared with net cash used in operating activities of$1,418 thousand for the year endedDecember 31, 2021 . The$659 thousand decrease in the net cash used in operating activities during 2022, compared to 2021, was primarily the result of$1,734 thousand increase in net loss which was offset by an increase of$2,290 thousand in share-based payment in exchange for services in the amount of$267 thousand in other current assets which derived mainly from lower research and development activity during 2022 compared with 2021. Net cash used in investing activities for the year endedDecember 31, 2022 was$2 thousand compared to$0 for the year endedDecember 31, 2021 . The decrease of$2 thousand in net cash provided by investing activities during 2022 compared to 2021 was mainly due to purchase of fixed assets. Net cash provided by financing activities for the year endedDecember 31, 2022 was$896 thousand compared to$1,476 thousand for the year endedDecember 31, 2021 . The decrease of$580 thousand in net cash provided by financing activities during 2022 compared to 2021 was mainly due to lower proceeds in 2022 from issuance of common stock and warrants compared with 2021. Current Outlook We have financed our operations to date primarily through proceeds from founder's capital and issuance of shares and warrants. We have incurred losses and generated negative cash flows from operations since inception. To date we have not generated revenue, and we do not expect to generate significant revenues from the sale of our products in the near future. We do not believe that our current cash on hand will be sufficient to fund our projected operating requirements. This raises substantial doubt about our ability to continue as a going concern. At this time, there is no guarantee that we will be able to obtain an adequate level of financial resources required for the short and long-term support of our operations or that we will be able to obtain additional financing as needed, or meet the conditions of such financing, or that the costs of such financing may not be prohibitive. These conditions raise substantial doubt about our ability to continue as a going concern for a period within one year from the date of the financial statements included elsewhere in this Annual Report. 51
As ofDecember 31, 2022 , our cash and cash equivalents were$288 thousand . We believe that our existing cash and cash equivalents will be sufficient to fund our projected cash requirements throughJune 2023 . Therefore, we will require significant additional financing in the near future to fund our operations. We currently anticipate that we will require approximately$600 thousand for research and development activities over the course of the next 12 months. We also anticipate that we will require approximately$1,400 thousand for capital expenditures over such 12-month period, which consists primarily of expenditures for clinical trials and general Company operating costs. In addition, our operating plans may change as ae result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future capital requirements will depend on many factors, including: ? our research and development efforts, including our ability to finish research and development projects or product development within the allotted or expected timeline; ? the cost, timing and outcomes of seeking to commercialize our products in a timely manner; ? our ability to generate cash flows; ? economic weakness, including inflation, or political instability in particular foreign economies and markets; ? government regulation in our industry, and more specifically, the costs and timing of obtaining regulatory approval or permits to launch our technology in various geographical markets; and ? The costs of, and timing for, strengthening our manufacturing agreements for production of our wave energy systems. Until we can generate significant revenues, if ever, we expect to satisfy our future cash needs through our existing cash, cash equivalents and short-term deposits, loans, or debt or equity financings. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to, one or more applications of our products. This may raise substantial doubts about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
Rambam Research Agreement OnJuly 17, 2019 , we entered into a sponsored research agreement, or the Research Agreement, with Rambam MT, pursuant to which the Company agreed to fund a research project, to be performed by Rambam MD, with a research plan aimed at identifying the effects of different cannabis strains on the function of immune cells. OnOctober 28, 2020 , the Company and Rambam MT agreed to expand the research plan to study the anti-inflammatory activities of cannabis extracts in an RA mouse model. OnFebruary 15, 2021 , the Company and Rambam MT agreed to further expand the research plan to study the effect of cannabis extracts on the immunopathology of the COVID-19 disease. The Sponsored Researched Agreement is for an initial term of 48 months. 52
Pursuant to the Research Agreement, we agreed to pay Rambam$1.4 million in four equal payments, due on the first day of August on each successive year from 2019 through 2022. Furthermore, in accordance with the terms of the Research Agreement, we and Rambam MT will have joint ownership of any IP created as a result of research programs covered by such agreement. In connection with the Research Agreement, Rambam MT agreed not to work, study or develop any technologies with other entities that compete with our work with Rambam MT for our COVID-19 product candidate or RA product candidate for a term of three and seven years, respectively, from the end of the parties' collaboration with respect to the COVID-19 product candidate and seven years from the end of the term of the Research Agreement with respect to the RA product candidate. Subject to commercial sales of any product candidate using the intellectual property created as a part of the research covered by such agreement,Raphael Israel is required to pay Rambam MT a royalty in an amount equal to 6% of all net sales, subject to certain deductions, such as taxes paid by any purchaser, transportation and shipping costs, and other customary deductions. As ofDecember 31, 2022 , the Company paid$1.15 million pursuant to the Research Agreement and in the first quarter of 2023 the Company paid the remaining$0.25 million
Way of Life Cannabis Agreement
InOctober 2020 ,Raphael Israel entered into an engagement agreement with Wolc, pursuant to which, subject to its completing the Share Exchange with Easy Energy,Raphael Israel will be provided with up to 15 liters of CBD oil, from a strain of cannabis during a term of 18 months, to be provided in two to three deliveries of between one to seven liters of CBD oil. In accordance withRaphael Israel's agreement with Wolc,Raphael Israel has agreed to issue to certain persons affiliated with Wolc 3% of Raphael's issued and outstanding share capital as of the date of the Share Exchange, to be provided in three equal issuances; provided, however, that such persons may elect to receive a cash payment of$100,000 instead of any one issuance of Raphael's shares. In addition to the issuance of shares,Raphael Israel has also agreed to pay Wolc a royalty fee equal to 15% of the net royalties generated from sales ofRaphael Israel's pharmaceutical drug products that are developed at Rambam hospital inIsrael . OnJuly 27, 2022 , the Company issued 100,500 shares of common stock to Wolc in connection with the engagement agreement. The value of such issued shares was based on the value of the service provided, which amounted to$100,000 .
Except for the above, we have not engaged in any off-balance sheet arrangements, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.
We do not believe that our off-balance sheet arrangements and commitments have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
© Edgar Online, source
