Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws, and is subject to the safe-harbor created by such Act and laws. Forward-looking statements may include statements regarding our goals, beliefs, strategies, objectives, plans, including product and technology developments, future financial conditions, results or projections or current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms, or other variations thereon or comparable terminology. These statements are merely predictions and therefore inherently subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance levels of activity, or our achievements, or industry results to be materially different from those contemplated by the forward-looking statements. Such forward-looking statements appear in this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and may appear elsewhere in this Quarterly Report on Form 10-Q and include, but are not limited to, statements regarding the following:

Our business and operations are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report.

In addition, historic results of scientific research, clinical and preclinical trials do not guarantee that the conclusions of future research or trials would not suggest different conclusions. Also, historic results referred to in this periodic report would be interpreted differently in light of additional research, clinical and preclinical trials results. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, or the 2021 Annual Report, as well as Item 1A of this Quarterly Report. Readers are also urged to carefully review and consider the various disclosures we have made in that report.

As used in this quarterly report, the terms “we”, “us”, “our”, the “Company” and “Pluristem” mean Pluristem Therapeutics Inc. and our wholly owned subsidiaries, Pluristem Ltd. and Pluristem GmbH, unless otherwise indicated or as otherwise required by the context.

Overview

We are a biotechnology company with an advanced cell-based technology platform. We have developed a unique three-dimensional, or 3D, technology platform for cell expansion with an industrial scale in-house GMP cell manufacturing facility. We are utilizing our technology in the field of regenerative medicine and plan to utilize it in other industries and verticals that have a need for our mass scale and cost-effective cell expansion platform.

Our operations are focused on the research, development and manufacturing of cells, conducting clinical studies and the business development of cell therapeutics and cell based technologies, such as our recent collaboration with Tnuva Food Industries – Agricultural Cooperative in Israel Ltd., through its fully owned subsidiary, Tnuva Food-Tech Incubator (2019), Limited Partnership, or Tnuva, to use our technology to establish a cultured food platform.

We use our advanced cell-based technology platform in the field of regenerative medicine to develop placenta-based cell therapy product candidates for the treatment of multiple inflammatory, muscle injuries and hematologic conditions. We develop, and intend to commercialize, cell therapy production technologies and products that are derived from the human placenta after a full-term delivery of a healthy baby. Our placental expanded, or PLX, cells are adherent stromal cells that are expanded using our 3D platform.  Our PLX cells can be administered to patients off-the-shelf, without blood or tissue matching or additional manipulation prior to administration. PLX cells are believed to release a range of therapeutic proteins in response to the patient’s condition.

We intend to enhance the global reach of our cell expansion technology and PLX product portfolio, enabling the development of various new cell-based products for multiple applications, based on our innovative technology and manufacturing capabilities.

Our goal is to make significant progress with our clinical pipeline and clinical studies to ultimately bring innovative, potent therapies to patients who need new treatment options. In addition, we plan to continue leveraging our proprietary technology for other industries and verticals that have a need for our mass scale and cost-effective cell expansion platform, such as the food tech industry. We expect to demonstrate a real-world impact and value from our cell based technology platform and PLX pipeline. Our business model for commercialization and revenue generation includes, but is not limited to, licensing deals, joint ventures, direct sale of our products and partnerships.

Clinical Studies

We are conducting several multinational clinical studies which consist of a Phase III clinical study in muscle recovery following surgery for hip fracture and two Phase II clinical studies in Acute Respiratory Distress Syndrome, or ARDS, associated with COVID-19 in the United States, Europe and Israel. In addition, we are focusing on other clinical programs in the hematological field such as a Phase I clinical study for incomplete recovery following bone marrow transplantation in the United States and Israel, an investigator-led Phase I/II Chronic Graft versus Host Disease study in Israel, and Acute Radiation Syndrome, or ARS, under the U.S. Food and Drug Administration, or FDA, animal rule. We believe that each of these indications is a severe unmet medical need.

On November 15, 2021, we announced that we fully completed the enrollment of 240 patients for our Phase III clinical study in muscle recovery following surgery for hip fracture. The multinational clinical study includes patients from the U.S., Europe, and Israel, and we expect to announce topline results in the third calendar quarter of 2022.

On December 27, 2021, we announced topline results for our COVID-19 studies based on 89 patients enrolled. The primary efficacy endpoint was the number of ventilator free days, or VFD, from day 1 through day 28 of the studies. VFD at day 60 and all-cause mortality at days 28 and 60 were part of the secondary efficacy endpoints in the studies. The studies did not meet the primary efficacy endpoint of statistically significant improvement of VFD at 28 days. Taking into consideration the baseline risk factors of the ARDS patients, no differences in the safety profile were observed between PLX-PAD and placebo.

We have completed enrollment in our first in human Phase I clinical study in incomplete hematopoietic recovery following hematopoietic cell transplantation, or HCT, in the United States and Israel. The study has completed enrollment of 21 patients and is designed to assess the safety of PLX-R18. We completed one year follow up for all patients during September 2021. In April 2021, we announced positive topline results of this study and we plan to announce final results following a one year follow up during the first calendar quarter of 2022.

Our manufacturing facility complies with the European, Japanese, Israeli, South Korean and the FDA’s current Good Manufacturing Practice, or cGMP, requirements and has been inspected and approved by the European Qualified Person, or QP, and Israeli MoH for production of PLX cells for late stage trials. We have also been granted manufacturer/importer authorization and cGMP Certification by the Israeli Ministry of Health. If we obtain FDA and other regulatory approvals to market PLX cells, we expect to have in-house production capacity to grow PLX cells in commercial quantities.

Food Tech

On January 5, 2022, we entered a joint venture with Tnuva and through our fully owned subsidiary Pluristem Ltd. Under the joint venture agreement, we established a new company, Plurinuva Ltd. (which name may be changed from time to time), an Israeli company, or NewCo, with the purpose of developing cultured meat products of all types and kinds. NewCo is intended to be engaged in the development, manufacturing and commercialization of technology, know-how and products that will be based on licensed products relating to the field of cultured meat, or the Field.

Pursuant to the joint venture, Tnuva entered into a Share Purchase Agreement, or the SPA, with NewCo and Pluristem Ltd., pursuant to which NewCo shall issue, on the closing date of the SPA, 15.79% of its share capital to Tnuva, as well as a warrant to purchase additional shares of Newco, in consideration of an aggregate of $7,500,000 in cash. In addition, pursuant to the SPA, in the event the Company decides to use its technology for the development of cultured milk or fish products, Tnuva shall also have the right, for a period of seven (7) years following the Closing Date, to participate in the formation of additional separate joint ventures for the development of those products.

Prior to the Closing Date, the Subsidiary and NewCo also agreed to execute a Technology License Agreement, or the License Agreement, and at the Closing, the Subsidiary and NewCo shall execute a Transitional Services Agreement, or the Services Agreement. Pursuant to the License Agreement, the Subsidiary shall grant NewCo an exclusive, royalty bearing, perpetual and irrevocable, worldwide, non-transferable (except under specific circumstances specified thereunder), sublicensable license to its technology for the use in the development of the Licensed Products. In addition, NewCo shall grant the Subsidiary, pursuant to the License Agreement, an exclusive, perpetual and irrevocable, worldwide, sublicensable, royalty-free, license to use, make, exploit and develop the improvements made by NewCo to the licensed technology outside of the Field. In consideration for the license, NewCo agreed to grant the Subsidiary royalties in the mid-single digits. Pursuant to the terms of the Services Agreement, the Subsidiary shall provide NewCo transitional services to support its commercial efforts on a cost basis, for an initial term of eighteen (18) months, subject to mutual extension for an additional six (6) months.

Pursuant to the SPA, Tnuva and NewCo agreed to enter into a Commercialization Agreement within twelve (12) months pursuant to which Tnuva shall be granted exclusive marketing, distribution and sale rights of the Licensed Products in Israel. Tnuva’s exclusivity in the region will be subject to achieving and maintaining specific milestones. NewCo shall retain exclusive worldwide marketing, distribution, and sale rights for the Licensed Products worldwide, except in Israel.

RESULTS OF OPERATIONS – THREE AND SIX MONTHS ENDED DECEMBER 31, 2021 COMPARED TO THREE AND SIX MONTHS ENDED DECEMBER 31, 2020.

Revenues

We had no revenues for either the six or three-month periods ended December 31, 2021 and December 31, 2020.

Research and Development Expenses, Net

Research and development expense, net (costs less participation and grants by the Horizon 2020 program, the IIA and other parties) for the six-month period ended December 31, 2021 decreased by 8% from $13,915,000 for the six-month period ended December 31, 2020 to $12,860,000. The decrease is mainly attributed to a decrease in clinical trial subcontractor expenses following the termination of our prior study relating to the use of our PLX-PAD cells for the treatment of critical limb ischemia, or CLI, and the progress of our Phase II studies of ARDS associated with COVID-19. The decrease was partially offset by higher payroll expenses related to payroll adjustments and the strength of the New Israel Shekel, or NIS, against the U.S. dollar and a decrease in participation by the EU with respect to the Horizon 2020 program, as a result of our utilizing the entirety of the grant under such program during the six-month period ended December 31, 2020.

Research and development expense, net (costs less participation and grants by the Horizon 2020 program, the IIA and other parties) for the three-month period ended December 31, 2021 decreased by 18% from $7,977,000 for the three-month period ended December 31, 2020 to $6,507,000. The decrease is mainly attributed to a decrease in clinical trial subcontractor expenses following the termination of the CLI and the progress of our Phase II studies of ARDS associated with COVID-19. The decrease was partially offset by higher payroll expenses related to payroll adjustments and the strength of the NIS against the U.S. dollar.

General and Administrative Expenses

General and administrative expenses for the six-month period ended December 31, 2021 increased by 19% from $7,896,000 for the six-month period ended December 31, 2020 to $9,376,000. The increase is mainly attributed to an increase in share-based compensation expenses related to granted restricted stock units, or RSUs, an increase in payroll expenses related to payroll adjustments, an increase in head count in general and administrative departments and the strength of the NIS against the U.S. dollar.

General and administrative expenses for the three-month period ended December 31, 2021 decreased by 16% from $5,097,000 for the three-month period ended December 31, 2020 to $4,288,000. The decrease is mainly attributed to a decrease in share-based compensation expenses related to granted RSUs. The decrease was partially offset by an increase in payroll expenses related to new employees and payroll adjustments, and provision for losses due to cyber event as mentioned in the Risk Factors below.

Financial Income

Financial income decreased from a financial income of $947,000 for the six-month period ended December 31, 2020 to a financial income of $419,000 for the six-month period ended December 31, 2021. This decrease is mainly attributable to a decrease in income from exchange rate differences on deposits linked to the NIS, partially offset by an increase in interest income on deposits linked to the Euro.

Financial income decreased from a financial income of $646,000 for the three-month period ended December 31, 2020 to a financial income of $156,000 for the three-month period ended December 31, 2021. This decrease is mainly attributable to a decrease in income from exchange rate differences on deposits linked to the NIS, partially offset by an increase in interest income on deposits linked to the Euro.

Financial Expenses

Financial expenses increased from financial expense of $179,000 for the six-month period ended December 31, 2020 to financial expenses of $555,000 for the six-month period ended December 31, 2021. This increase is mainly attributable to interest expenses related to the EIB loan provided to us pursuant to the EIB Finance Agreement.

Financial expenses increased from a financial expense of $126,000 for the three-month period ended December 31, 2020 to financial expenses of $301,000 for the three-month period ended December 31, 2021. This increase is mainly attributable to interest expenses related to the EIB loan provided to us pursuant to the EIB Finance Agreement.

Net Loss

Net loss for the six and three-month periods ended December 31, 2021 was $22,372,000 and $10,940,000 respectively, as compared to net loss of $21,043,000 and $12,554,000 for the six and three-month periods ended December 31, 2020. For the six-month period, the increase was mainly due to increases in general and administrative expenses, and for the three-month period the decrease was due to a decrease in general and administrative expenses and research and development expenses, as described above. Net loss per share for the six and three-month periods ended December 31, 2021 was $0.70 and $0.34 as compared to $0.82 and $0.49 for the six and three-month periods ended December 31, 2020.

For the six and three-month periods ended December 31, 2021 and December 31, 2020, we had weighted average common shares outstanding of 32,068,271, 32,136,352, and 25,599,008, 25,662,752, respectively, which were used in the computations of net loss per share for the six and three-month periods.

The increase in weighted average common shares outstanding reflects the issuance of additional shares mainly related to the issuances of shares pursuant to a securities purchase agreement with certain institutional investors in February 2021, issuances of shares pursuant to our Open Market Sale Agreement^TM, or the ATM Agreement, that we entered into with Jefferies LLC, or Jefferies, on July 16, 2020, issuances of additional shares upon the settlement of RSUs issued to directors, employees and consultants, and shares issued as a result of exercises of outstanding warrants and options.

Liquidity and Capital Resources

As of December 31, 2021, our total current assets were $60,153,000 and total current liabilities were $9,595,000. On December 31, 2021, we had a working capital surplus of $50,558,000, shareholders’ equity of $39,840,000 and an accumulated deficit of $352,393,000.

Our cash and cash equivalents as of December 31, 2021 amounted to $18,715,000, compared to $7,824,000 as of December 31, 2020, and compared to $31,241,000 as of June 30, 2021. Cash balances changed in the six months ended December 31, 2021 and 2020 for the reasons presented below.

Operating activities used cash of $18,652,000 in the six months ended December 31, 2021, compared to $13,984,000 in the six months ended December 31, 2020. The increase is manly attributed to payments made to our suppliers, an increase in payments to our employees and the strength of the NIS against the U.S. Dollar. Cash used in operating activities in the six months ended December 31, 2021 and 2020 consisted primarily of payments of fees to our suppliers, subcontractors, professional services providers and consultants, including the costs of our clinical studies, and payments of salaries to our employees, partially offset by grants from the IIA, the EU’s Horizon 2020 program, Israel’s Ministry of Economy and other research grants.

Investing activities provided cash of $7,075,000 in the six months ended December 31, 2021, compared to cash provided of $11,771,000 for the six months ended December 31, 2020. The investing activities in the six-month period ended December 31, 2021 consisted primarily of the withdrawal of $12,658,000 of long-term deposits, partially offset by the investment of $5,539,000 in short-term deposits and payments of $44,000 related to investments in property and equipment. The investing activities in the six-month period ended December 31, 2020, consisted primarily of the withdrawal of $2,445,000 of short-term deposits and the withdrawal of $9,533,000 of long-term deposits, partially offset by payments of $207,000 related to investment in property and equipment.

Financing activities did not generate cash during the six months period ended December 31, 2021, compared to $1,284,000 for the six months ended December 31, 2020. The cash generated in the six months ended December 31, 2020 from financing activities was related to net proceeds of $920,000 related to issuances made under the ATM Agreement and net proceeds of $364,000 from the exercise of warrants.

On July 16, 2020, we entered into the ATM Agreement with Jefferies, pursuant to which we may issue and sell our common shares having an aggregate offering price of up to $75,000,000 from time to time through Jefferies. Upon entering into the ATM Agreement, we filed a new shelf registration statement on Form S-3, which was declared effective by the SEC on July 23, 2020. During the year ended June 30, 2021, we sold 1,045,097 of our common shares under the ATM Agreement at an average price of $8.50 per share for aggregate net proceeds of approximately $8,506,000. During the six-months ended December 31, 2021, we did not sell any of our common shares under the ATM Agreement. 

In April 2020, we and our subsidiaries, Pluristem Ltd. and Pluristem GmbH, executed the EIB Finance Agreement for funding of up to €50 million in the aggregate, payable in three tranches. The proceeds from the EIB Finance Agreement are intended to support our research and development in the European Union to further advance our regenerative cell therapy platform, and to bring the products in our pipeline to market. The proceeds from the EIB Finance Agreement are expected to be deployed in three tranches, subject to the achievement of certain clinical, regulatory and scaling up milestones.

During June 2021, we received the first tranche in the amount of $24,449,000 (€20 million) pursuant to the EIB Finance Agreement. The amount received is due to be repaid on June 1, 2026 and bears annual interest of 4% to be paid together with the principal of the loan. As of December 31, 2021, the interest accrued was in the amount of $522,000 (€462,000).

According to the IIA grant terms, we are required to pay royalties at a rate of 3% on sales of products and services derived from technology developed using this and other IIA grants until 100% of the dollar-linked grants amount plus interest are repaid. In the absence of such sales, no payment is required. Through December 31, 2021, total grants obtained from the IIA aggregated to approximately $27,743,000 and total royalties paid and accrued amounted to $169,000.

In June 2020, we announced that we were selected as a member of the CRISPR-IL consortium, a group funded by the IIA. CRISPR-IL brings together the leading experts in life science and computer science from academia, medicine, and industry, to develop Artificial Intelligence, or AI, based end-to-end genome-editing solutions. These next-generation, multi-species genome editing products for human, plant, and animal DNA, have applications in the pharma, agriculture, and aquaculture industries. CRISPR-IL is funded by the IIA with a total budget of approximately $10,000,000 of which, an amount of approximately $480,000 was a direct grant allocated to us, for the initial period of 18 months. During October 2021, we received an approval for an additional grant of approximately $583,000 from the IIA pursuant to the CRISPR-IL consortium program, for an additional period of 18 months.

Through December 31, 2021, we received total grants of approximately $646,000 in cash from the IIA pursuant to the CRISPR-IL consortium program, out of which an amount of $245,000 was received during the six-months ended December 31, 2021.

The currency of our financial portfolio is mainly in U.S. dollars and we use options contracts in order to hedge our exposures to currencies other than the U.S. dollar. For more information, please see Item 7A. - “Quantitative and Qualitative Disclosures about Market Risk” in the 2021 Annual Report.

We have an effective Form S-3 registration statement (File No. 333-239890), filed under the Securities Act of 1933, as amended, with the SEC using a “shelf” registration process. Under this shelf registration process, we may, from time to time, sell our common shares, preferred shares and warrants to purchase common shares, and units of two or more of such securities in one or more offerings up to a total dollar amount of $250,000,000. As of February 4, 2022, other than the $75,000,000 of common shares we are eligible to sell pursuant to the ATM Agreement, and the $30,000,000 of common shares we sold in a registered direct offering in February 2021, no securities have been sold pursuant to our effective Form S-3 registration statement.

Outlook

We have accumulated a deficit of $352,393,000 since our inception in May 2001. We do not expect to generate any significant revenues from sales of products in the next twelve months. Our cash needs may increase in the foreseeable future. We expect to generate revenues, from the sale of licenses to use our technology or products, but in the short and medium terms will unlikely exceed our costs of operations.

We may be required to obtain additional liquidity resources in order to support the commercialization of our products and maintain our research and development and clinical trials activities.

We are continually looking for sources of funding, including non-diluting sources such as the EIB Finance Agreement, grants from the IIA, EU’s Horizon 2020 program, Israel’s Ministry of Economy and other research grants, collaboration with other companies and sales of our common shares.

We believe that we have sufficient cash to fund our operations for at least the next 12 months.