UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38716

GAMIDA CELL LTD.

(Exact Name of Registrant as Specified in its Charter)

Israel

Not Applicable

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer

Identification No.)

116 Huntington Avenue, 7^th Floor
Boston, MA		02116
(Address of principal executive offices)		(Zip Code)

(617) 892-9080

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of exchange on which registered

Ordinary Shares, par value NIS 0.01 per share

GMDA

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 121,523,280 ordinary shares outstanding as of August 11, 2023.

TABLE OF CONTENTS

		Page
PART I-FINANCIAL INFORMATION		1
	Item 1. Financial Statements.	1
	CONDENSED CONSOLIDATED BALANCE SHEETS	2
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS	4
	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’EQUITY	5
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	7
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	9
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	18
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.	29
	Item 4. Controls and Procedures.	29
PART II-OTHER INFORMATION		31
	Item 1. Legal Proceedings.	31
	Item 1A. Risk Factors.	31
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	86
	Item 3. Defaults Upon Senior Securities.	86
	Item 4. Mine Safety Disclosures.	86
	Item 5. Other Information.	86
	Item 6. Exhibits.	87
SIGNATURES		89

Trademarks and Trade Names

Unless the context requires otherwise, “Gamida,” “Gamida Cell,” “we,” “us,” “our” or the “Company” mean Gamida Cell Ltd. and its wholly-owned subsidiary, Gamida Cell Inc.

Gamida Cell and Omisirge are trademarks of ours that we use in this quarterly report on Form 10-Q, or Quarterly Report. This Quarterly Report also includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this Quarterly Report appear without the ® or ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to our trademark and tradenames. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements.

Gamida Cell ltd. AND ITS SUBSIDIARY

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2023

U.S. DOLLARS IN THOUSANDS

UNAUDITED

INDEX

	Page

Condensed Consolidated Balance Sheets	2

Condensed Consolidated Statements of Operations	4

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)	5

Condensed Consolidated Statements of Cash Flows	8

Notes to Condensed Consolidated Financial Statements	9

- - - - - - - - - - - - - -

GAMIDA CELL LTD. AND ITS SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)

			June 30,		December 31,
	Note		2023		2022
			(unaudited)

ASSETS

CURRENT ASSETS:
Cash and cash equivalents			$	54,075	$	64,657
Restricted Cash				138		-
Inventory				2,390		-
Prepaid expenses and other current assets				2,262		1,889

Total current assets				58,865		66,546

NON-CURRENT ASSETS:
Restricted deposits				3,150		3,668
Property, plant and equipment, net				43,639		44,319
Operating lease right-of-use assets		3		4,336		7,024
Severance pay fund				1,291		1,703
Other long-term assets				1,227		1,513

Total non-current assets				53,643		58,227

Total assets			$	112,508	$	124,773

The accompanying notes are an integral part of the condensed consolidated financial statements.

GAMIDA CELL LTD. AND ITS SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)

			June 30,			December 31,
	Note		2023			2022
			(unaudited)

LIABILITIES AND SHARHOLDERS’ DEFICIT

CURRENT LIABILITIES:
Trade payables			$	2,440		$	6,384
Employees and payroll accruals				5,545			5,300
Operating lease liabilities		3		2,176			2,648
Accrued interest of convertible senior notes				1,842			1,652
Accrued expenses and other current liabilities				8,735			8,891

Total current liabilities				20,738			24,875

NON-CURRENT LIABILITIES:
Convertible senior notes, net		4, 5		86,117			96,450
Warrants liability		5		25,629			-
Accrued severance pay				1,403			1,914
Long-term operating lease liabilities		3		2,461			4,867
Other long-term liabilities				1,873			4,690

Total non-current liabilities				117,483			107,921

CONTINGENT LIABILITIES AND COMMITMENTS

SHAREHOLDERS’ DEFICIT:		7, 8
Share capital -
Ordinary shares of NIS 0.01 par value - Authorized: 225,000,000 and 150,000,000 shares at June 30, 2023 (unaudited) and December 31, 2022, respectively; Issued: 112,425,611 and 74,703,030 shares at June 30, 2023 (unaudited) and December 31, 2022, respectively; Outstanding: 112,274,165 and 74,583,026 shares at June 30, 2023 (unaudited) and December 31, 2022, respectively				305			211
Treasury ordinary shares of NIS 0.01 par value - 151,446 and 120,004 shares at June 30, 2023 (unaudited) and December 31, 2022, respectively				*			*
Additional paid-in capital				443,450			408,598
Accumulated deficit				(469,468	)		(416,832	)

Total shareholders’ deficit				(25,713	)		(8,023	)

Total liabilities and shareholders’ deficit			$	112,508		$	124,773

Represents an amount lower than $1.

The accompanying notes are an integral part of the condensed consolidated financial statements.

GAMIDA CELL LTD. AND ITS SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands (except share and per share data)

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	Unaudited

Research and development expenses, net	$	8,687	$	10,563	$	17,527	$	21,868
Commercial expenses		3,862		3,193		9,438		7,072
General and administrative expenses		6,253		4,290		11,417		8,429

Total operating loss		18,802		18,046		38,382		37,369

Financial expenses, net		12,874		508		14,254		1,408

Loss	$	31,676	$	18,554	$	52,636	$	38,777

Net loss per share attributable to ordinary shareholders, basic and diluted		0.31		0.31		0.59		0.65

Weighted average number of shares used in computing net loss per share attributable to ordinary shareholders, basic and diluted		102,921,207		59,546,273		89,913,214		59,510,918

The accompanying notes are an integral part of the condensed consolidated financial statements.

GAMIDA CELL LTD. AND ITS SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT

U.S. dollars in thousands (except share and per share data)

	Three months ended June 30, 2023
	Ordinary shares					Treasury		Additional paid-in		Accumulated			Total shareholders’
	Number			Amount		shares		capital		deficit			deficit

Balance as of March 31, 2023 (unaudited)		82,033,646		$	222	$	*	$	422,203	$	(437,792	)	$	(15,367	)

Issuance of ordinary shares upon release of restricted share units		4,742			*		-		*		-			*
Treasury shares		(27,775	)		*		*		*		-			*
Exercise of options		246			*		-		*		-			*
Issuance of ordinary shares, net of issuance expenses**		24,210,755			67		-		10,315		-			10,382
Issuance of ordinary shares, for 2022 Note		6,019,281			16		-		9,465		-			9,481
Exercise of warrants liability		33,270			*		-		45		-			45
Share-based compensation		-			-		-		1,422		-			1,422
Loss		-			-		-		-		(31,676	)		(31,676	)

Balance as of June 30, 2023(unaudited)		112,274,165		$	305	$	*	$	443,450	$	(469,468	)	$	(25,713	)

	Six months ended June 30, 2023
	Ordinary shares					Treasury		Additional paid-in		Accumulated			Total shareholders’
	Number			Amount		shares		capital		deficit			deficit

Balance as of December 31, 2022		74,583,026		$	211	$	*	$	408,598	$	(416,832	)	$	(8,023	)

Issuance of ordinary shares upon release of restricted share units		112,369			*		-		*		-			*
Treasury shares		(31,442	)		*		*		*		-			*
Exercise of options		246			*		-		*		-			*
Issuance of ordinary shares, net of issuance expenses***		27,782,870			77		-		15,522		-			15,599
Issuance of ordinary shares, for 2022 Note		9,793,826			17		-		16,364		-			16,381
Exercise of warrants liability		33,270			*		-		45		-			45
Share-based compensation		-			-		-		2,921		-			2,921
Loss		-			-		-		-		(52,636	)		(52,636	)

Balance as of June 30, 2023 (unaudited)		112,274,165			305		*		443,450		(469,468	)		(25,713	)

	*	Represents an amount lower than $1
	**	Issuance costs of approximately $2,163
	***	Issuance costs of approximately $2,325

The accompanying notes are an integral part of the condensed consolidated financial statements.

GAMIDA CELL LTD. AND ITS SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

U.S. dollars in thousands (except share and per share data)

	Three months ended June 30, 2022
	Ordinary shares					Treasury		Additional paid-in		Accumulated			Total shareholders’
	Number			Amount		shares		capital		deficit			equity

Balance as of March 31, 2022 (unaudited)		59,946,298		$	169	$	*	$	382,495	$	(357,680	)	$	24,984

Treasury shares		(7,568	)		-		*		*		-			*
Issuance of ordinary shares, net of issuance expenses**		38,458			-		-		84		-			84
Share-based compensation		-			-		-		1,336		-			1,336
Loss		-			-		-		-		(18,554	)		(18,554	)

Balance as of June 30, 2022 (unaudited)		59,977,188		$	169	$	*	$	383,915	$	(376,234	)	$	7,850

	Six months ended June 30, 2022
	Ordinary shares					Treasury		Additional paid-in		Accumulated			Total shareholders’
	Number			Amount		shares		capital		deficit			equity

Balance as of December 31, 2021		59,970,389		$	169	$	-	$	381,225	$	(337,457	)	$	43,937

Issuance of ordinary shares upon release of restricted share units		3,600			*		-		*		-			*
Treasury shares		(82,685	)		-		*		*		-			*
Exercise of options		47,426			*		-		76		-			76
Issuance of ordinary shares, net of issuance expenses**		38,458			-		-		84		-			84
Share-based compensation		-			-		-		2,530		-			2,530
Loss		-			-		-		-		(38,777	)		(38,777	)

Balance as of June 30, 2022 (unaudited)		59,977,188		$	169	$	*	$	383,915	$	(376,234	)	$	7,850

Represents an amount lower than $1.

Issuance costs of approximately $3.

The accompanying notes are an integral part of the condensed consolidated financial statements.

GAMIDA CELL LTD. AND ITS SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands (except share and per share data)

	Six months ended June 30,
	2023			2022
	(Unaudited)

Cash flows from operating activities:

Loss	$	(52,636	)	$	(38,777	)

Adjustments to reconcile loss to net cash used in operating activities:

Depreciation of property, plant and equipment		214			224
Financing expense (income), net		1,363			(273	)
Share-based compensation		2,921			2,530
Change in Fair Value of Warrants liability		4,876			-
Change in Fair Value of convertible senior note		4,254			-
Warrants Issuance Costs		1,733			-
Amortization of loan issuance costs		455			385

Change in assets and liabilities:
Inventory		(295	)		-
Operating lease right-of-use assets		1,363			1,226
Operating lease liabilities		(1,553	)		(1,649	)
Accrued severance pay, net		(99	)		14
Increase in prepaid expenses and other assets		(211	)		(19	)
Decrease in trade payables		(3,944	)		(5,535	)
Increase (decrease) in accrued expenses and other liabilities		(2,728	)		2,285

Net cash used in operating activities		(44,287	)		(39,589	)

Cash flows from investing activities:

Purchase of property, plant and equipment		(821	)		(1,540	)
Purchase of marketable securities		-			(3,708	)
Proceeds from maturity of marketable securities		-			26,175
Proceeds from restricted deposits		-			500

Net cash provided by (used in) investing activities	$	(821	)	$	21,427

The accompanying notes are an integral part of the condensed consolidated financial statements.

GAMIDA CELL LTD. AND ITS SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands (except share and per share data)

	Six months ended June 30
	2023			2022
	(Unaudited)

Cash flows from financing activities:

Proceeds from exercise of options	$	-		$	76
Proceeds from exercise of warrants liability		45			-
Proceeds from share issuance and warrants liability, net		34,785			84
Warrants issuance cost		(166	)		-

Net cash provided by financing activities		34,664			160

Decrease in cash and cash equivalents and restricted cash		(10,444	)		(18,002	)
Cash and cash equivalents at beginning of period		64,657			55,892

Cash and cash equivalents and restricted cash at end of period	$	54,213		$	37,890

Significant non-cash transactions:

Purchase of property, plant and equipment on credit		-			282
Exercise of 2022 Note principal	$	15,000		$	-
Exercise of 2022 Note interest	$	1,332		$	-

Supplemental disclosures of cash flow information:
Cash paid for interest	$	(3,228	)	$	(2,203	)

The accompanying notes are an integral part of the condensed consolidated financial statements.

GAMIDA CELL LTD. AND ITS SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data and unless otherwise indicated)

NOTE 1:- GENERAL

Gamida Cell Ltd. (the “Company”), founded in 1998, is a cell therapy pioneer working to turn cells into powerful therapeutics. The Company applies a proprietary expansion platform leveraging the properties of nicotinamide, or NAM, to allogeneic cell sources including umbilical cord blood-derived cells and natural killer, or NK, cells to create cell therapy candidates, with the potential to redefine standards of care.

On April 17, 2023, the U.S. Food and Drug Administration (“FDA”) approved the Company’s allogenic cell therapy, Omisirge (omidubicel-onlv), for use in adult and pediatric patients 12 years and older with hematologic malignancies who are planned for umbilical cord blood transplantation following myeloablative conditioning to reduce the time to neutrophil recovery and the incidence of infection. In addition, the Company has applied its NAM cell expansion technology to NK cells, to develop its initial NK product candidate, GDA-201, an investigational, NK cell-based immunotherapy for the treatment of hematologic and solid tumors in combination with standard of care antibody therapies.

In March 2023, the Company announced a strategic reprioritization of its business activities to primarily focus on the commercial launch of Omisirge.

Prior to FDA approval of Omisirge in April 2023, the Company devoted substantially all of its efforts toward research and development activities. In the course of such activities, the Company has sustained operating losses and expects such losses to continue in the foreseeable future. The Company’s accumulated deficit as of June 30, 2023 was $469,468 and negative cash flows from operating activities during the six-month period ended June 30, 2023 were $44,287. The Company’s management plan is to seek a strategic partnership to support the commercialization of Omisirge or seek additional financing as required to fund its operations until achieving positive cash flows. However, there is no assurance that a strategic transaction and/or capital financing will be available to the Company, and even if available, whether it will be on terms acceptable to the Company or in amounts required.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company were unable to continue as a going concern.

The Company has a wholly owned U.S. subsidiary, Gamida Cell Inc. (the “Subsidiary”), which was incorporated in 2000, under the laws of the State of Delaware. The Company has one operating segment and reporting unit. The subsidiary was created to assist with the commercialization of the Company’s products in the United States.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation of the financial statements:

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K as of December 31, 2022 filed with the SEC on March 31, 2023. The interim period results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year.

Use of estimates:

The preparation of the unaudited condensed financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities at the dates of the consolidated financial statements, and the reported amount of expenses during the reporting periods. Actual results could differ from those estimates.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Inventories:

Inventories are stated at the lower of cost or net realizable value; cost is determined using the standard cost. The Company regularly evaluates its ability to realize the value of inventory. If the inventories are deemed damaged, if actual demand for the Company’s therapies deteriorates, or if market conditions are less favorable than those projected, inventory write-offs may be required.

During the three and six months period ended June 30, 2023, no write-offs were recorded.

Recently adopted accounting standards:

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. Topic 326 was effective for the Company beginning on January 1, 2023, and effective January 1, 2023, the Company adopted the standard. Adoption of the standard did not have an impact on the financial statements.

NOTE 3:- LEASES

The Company has entered into operating leases primarily for its production plant and its laboratories and offices. The leases have remaining lease terms of up to five years, and the Company does not assume renewals in its determination of the lease term unless the renewals are considered as reasonably certain at lease commencement.

The components of operating lease costs are as follows:

	Six months ended June 30,
	2023		2022

Operating lease costs	$	1,160	$	1,417
Short-term lease costs		82		84

Total lease costs	$	1,242	$	1,501

	Three months ended June 30,
	2023		2022

Operating lease costs	$	497	$	781
Short-term lease costs		-		60

Total lease costs	$	497	$	841

Supplemental balance sheet information related to operating leases is as follows:

	Six months ended June 30, 2023

Weighted average remaining lease term (in years)		3.09
Weighted average discount rate		3.35	%

NOTE 3:- LEASES (Cont.)

Maturities of lease liabilities were as follows:

	As of June 30, 2023

2023		1,347
2024		1,200
2025		1,062
2026		706
Thereafter		541

Total undiscounted lease payments		4,856
Less: Imputed interest		(219	)

Present value of lease liabilities	$	4,637

NOTE 4: CONVERTIBLE SENIOR NOTES, NET

On February 16, 2021, the Subsidiary issued convertible senior notes (the “2021 Notes”) due in 2026, in the aggregate principal amount of $75 million, pursuant to an Indenture between the Company, the Subsidiary, and Wilmington Savings Fund Society, FSB, dated February 16, 2021 (the “Indenture”). The 2021 Notes bear interest payable semiannually in arrears, at a rate of 5.875% per year. The 2021 Notes will mature on February 15, 2026, unless earlier converted, redeemed or repurchased in accordance with their terms.

Subject to the provisions of the Indenture, the holders of the 2021 Notes have the right, prior to the close of business on the second scheduled trading day immediately preceding February 15, 2026, to convert any 2021 Notes or portion thereof that is $1,000 or an integral multiple thereof, into the Company’s ordinary shares at an initial conversion rate of 56.3063 shares per $1,000 principal amount of 2021 Notes (equivalent to an exchange price of $17.76 per share). The conversion rate is subject to adjustment in specified events.

Upon the occurrence of a fundamental change (as defined in the Indenture), holders of the 2021 Notes may require the Company to repurchase for cash all or a portion of their 2021 Notes, in multiples of $1,000 principal amount, at a repurchase price equal to 100% of the principal amount of the 2021 Notes, plus any accrued and unpaid interest, if any, to, but excluding, interest accrued after the date of such repurchase notice. If certain fundamental changes referred to as make-whole fundamental changes occur, the conversion rate for the 2021 Notes may be increased.

Subject to the provisions of the Indenture, the Subsidiary may redeem for cash all or a portion of the 2021 Notes for cash, at its option, at a redemption price equal to 100% of the principal amount of the 2021 Notes to be redeemed, plus accrued and unpaid interest on the notes to be redeemed, if the last reported closing price of the Company’s ordinary shares has been at least 130% of the exchange price then in effect for at least 20 trading days during any 30 consecutive trading day period, and in the event of certain tax law changes.

The Company accounts for its 2021 Notes in accordance with ASC 470-20 “Debt with Conversion and Other Options.” The 2021 Notes are accounted for as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives according to ASC 815-40.

	As of June 30, 2023			As of December 31, 2022

Liability component:
Principal amount	$	75,000		$	75,000
Issuance costs		(4,223	)		(4,223	)

Net of issuance costs		70,777			70,777
Amortized issuance costs		1,836			1,423

Net carrying amount	$	72,613		$	72,200

The total issuance costs of the 2021 Notes amounted to $4,223 and are amortized to interest expenses at an annual effective interest rate of 7.37%, over the term of the 2021 Notes.

As of June 30, 2023, and December 31, 2022, the total estimated fair value of the 2021 Notes was $74,883 and $73,331, respectively. The fair value was determined using the Company’s effective rates for June 30, 2023 and December 31, 2022. The fair value of the 2021 Notes is classified as Level 3, see Note 5 below for further details.

NOTE 4: CONVERTIBLE SENIOR NOTES, NET (Cont.)

In December 2022, the Company, as guarantor, and the Subsidiary entered into a Loan and Security Agreement (the “Loan Agreement”) with certain funds managed by Highbridge Capital Management, LLC (collectively, “Highbridge”), as the lenders (together with the other lenders from time to time party thereto, the “Lenders”), and Wilmington Savings Fund Society, FSB, as collateral agent and administrative agent. Pursuant to the Loan Agreement, the Subsidiary issued $25 million aggregate principal amount of convertible senior notes (the “2022 Note”). The 2022 Note bears interest of 7.5% which will be paid on a quarterly basis and monthly principal installment payments.

The 2022 Note is exchangeable, at the option of the Lenders, into ordinary shares at an exchange rate of 0.52356 ordinary shares per $1.00 principal amount (equivalent to an exchange price of $1.91 per share), together with a make-whole premium equal to all accrued and unpaid and remaining coupons due through the maturity date. The exchange rate is subject to adjustment in the event of ordinary share dividends, reclassifications and certain other fundamental transactions affecting the ordinary shares. In addition, under certain circumstances, the Company can issue ordinary shares in exchange for the discharge of the monthly principal installment payments.

The Loan Agreement contains customary representations and warranties and covenants, including a $20.0 million minimum liquidity covenant and certain negative covenants restricting dispositions, changes in business and business locations, mergers and acquisitions, indebtedness, issuances of preferred stock, liens, collateral accounts, restricted payments, transactions with affiliates, compliance with laws, and issuances of capital stock. Most of these restrictions are subject to certain minimum thresholds and exceptions. Certain of the negative covenants will terminate when less than $5.0 million of principal amount is outstanding under the Loan Agreement. As of June 30, 2023, the Company is in compliance with such covenants.

The Company has elected the fair value option to measure the 2022 Note upon issuance, in accordance with ASC 825-10. Under the fair value option, the 2022 Note is measured at fair value each period with changes in fair value reported in the statements of operations. According to ASC 825-10, changes in fair value that are caused by changes in the instrument-specific credit risk will be presented separately in other comprehensive income (loss).

As of June 30, 2023, the Company issued 8,737,870 and 1,055,956 ordinary shares in exchange for the discharge of $15,000 of the aggregate outstanding balance and the discharge of $1,331 interest make-whole payments, respectively, in respect of the 2022 Note.

NOTE 5: FAIR VALUE MEASUREMENTS

Cash and cash equivalents, restricted cash, restricted deposits, prepaid expenses and other assets, trade payables and accrued expenses and other liabilities, are stated at their carrying value which approximates their fair value due to the short time to the expected receipt or payment.

The following tables present information about the Company’s financial assets and liabilities that are measured in fair value on a recurring basis as of June 30, 2023 and December 31, 2022:

	June 30, 2023						December 31, 2022
	Level 1		Level 3		Total		Level 1		Level 3		Total
Financial assets:
Money market funds included in cash and cash equivalent	$	47,559			$	47,559	$	58,827	$	-	$	58,827

Total Assets Measured at Fair Value		47,559				47,559		58,827		-		58,827
Financial Liabilities:
2022 Note		-		13,504		13,504		-		24,250		24,250
Warrants liability		-		25,629		25,629		-		-		-
Total liabilities measured at fair value	$	-	$	39,133	$	39,133	$	-	$	24,250	$	24,250

NOTE 5: FAIR VALUE MEASUREMENTS (Cont.)

The Company classifies cash equivalents within Level 1, and the 2021 Notes, 2022 Note and warrants liability are classified within Level 3, because the Company uses quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair values.

The warrants liability was valued using a Black Scholes Option Pricing Model, which is considered to be a Level 3 fair value measurement. The Black Scholes model’s primary unobservable input utilized in determining the fair value of the Private warrants is the expected volatility of the ordinary shares. The expected volatility was implied from a blend of the Company’s own ordinary share and the average historical share volatilities of several unrelated public companies within the Company’s industry that the Company considers to be comparable to its own business.

The following table summarizes the warrants liability activity as of June 30, 2023:

	Warrant liability

Initial Measurement (April 21, 2023)	$	20,753
Change in fair value		4,876
Balance June 30, 2023	$	25,629

The key inputs used in the valuation of the warrants liability as of June 30, 2023 and April 21, 2023, the initial measurement date, are included below:

Input	June 30, 2023			April, 21, 2023 Initial Measurement

Exercise Price	$	1.35		$	1.35
Share price on date	$	1.93		$	1.60
Risk-free rate		4.1	%		3.7	%
Expected Volatility		90	%		91	%
Time to liquidation (years)		4.7			5.0
Dividend Rate		0	%		0	%

The 2022 Note was valued using the Monte Carlo simulation analysis to generate expected future cash flows based on movement in the Company’s stock price. These future cash flows were then discounted to present value. Cash flows associated with the future conversion of loan principal into shares were discounted at the risk-free rate commensurate with the remaining term of the loan. Future cash flows resulting from the contractual debt payments were discounted at a market yield. The significant inputs into the Monte Carlo simulation were the closing stock price as of June 30, 2023, volatility analysis of the stock, and the risk-free rate using U.S. Treasury Constant Maturity Rate for the remaining time between the valuation date and maturity date.

The fair value for the 2022 Note liability as of June 30, 2023 and December 31, 2022:

	2022 Notes

Balance December 31, 2022	$	24,250
2023 Principal Reduction		(15,000	)
Change in fair value		4,254
Balance June 30, 2023	$	13,504

The key inputs used in the valuation of the 2022 Note liability as of June 30, 2023 and December 31, 2022 the initial measurement date:

Input	June 30, 2023			December 31, 2022

Voluntary Conversion Price	$	1.91		$	1.91
Share price on date	$	1.93		$	1.29
Risk-free rate		5.2	%		4.4	%
Expected Volatility		100	%		75	%
Implied Yield		31.0	%		32.8	%

NOTE 6: CONTINGENT LIABILITIES AND COMMITMENTS

Legal proceedings:

From time to time the Company or its subsidiary may be involved in legal proceedings and/or litigation arising in the ordinary course of business. While the outcome of these matters cannot be predicted with certainty, the Company does not believe it will have a material effect on its consolidated financial position, results of operations, or cash flows.

Bank guarantees:

As of June 30, 2023, the Company obtained bank guarantees in the amount of $2,773, primarily in connection with an Investment Center grant which requires a bank guarantee in order to ensure the fulfillment of the grant terms.

Government grants:

The Company has received grants from the Israeli Innovation Authority (the “IIA”) to finance its research and development programs in Israel, through which the Company received IIA participation payments in the aggregate amount of $37,082 through June 30, 2023, of which $34,477 is royalty-bearing grants and $2,605 is non-royalty-bearing grants. In return, the Company is committed to pay IIA royalties at a rate of 3-5% of future sales of the developed products, up to 100% of the amount of grants received plus interest at LIBOR rate. Through June 30, 2023, no royalties have been paid or accrued. The Company’s contingent royalty liability to the IIA at June 30, 2023, including grants received by the Company and the associated LIBOR interest on all such grants totaled to $43,187.

Lonza Settlement:

In December 2022, the Company signed an agreement with Lonza Netherlands B.V., or Lonza, to mutually terminate their Service Agreement, whereas the Company shall pay Lonza an aggregate amount of 8.0 million Euros. As of June 30, 2023, the Company paid the first payment of 1.5 million Euro, 2.5 million Euro will be paid in 2023 and the remaining 4 million Euro will be paid in 2024.

NOTE 7: SHAREHOLDERS’ EQUITY

Ordinary shares:

Subject to the Company’s amended and restated Articles of Association, the holders of the Company’s ordinary shares have the right to receive notices to attend and vote in general meetings of the Company’s shareholders, and the right to participated in dividends and other distributions upon liquidation.

On September 27, 2022, the Company issued and sold, in an underwritten public offering, an aggregate of 12,905,000 of its ordinary shares at a public offering price of $1.55 per share for gross proceeds of approximately $20,000,000, before deducting underwriting discounts and commissions and estimated offering expenses.

On April 19, 2023, the Company issued and sold, in an underwritten public offering, 17,500,000 of its ordinary shares and accompanying warrants to purchase 17,500,000 ordinary shares at a public offering price of $1.30 per ordinary share and accompanying warrants, for gross proceeds of approximately $22.8 million, before deducting underwriting discounts and commissions, and estimated offering expenses of $1.9 million.

As of June 30, 2023, the Company raised $13,765 in net proceeds in 2023 by issuing 10,282,870 shares via an ATM facility, at an average public offering price of $1.38.

NOTE 7: SHAREHOLDERS’ EQUITY (Cont.)

Warrants to investors:

As part of its April 2023 underwritten public offering of its securities, the Company granted certain investors 17,500,000 warrants to purchase the Company’s ordinary shares that will expire on April 21, 2028. The warrants were classified as a liability on the balance sheet initially, and subsequently measured at fair value on the consolidated statement of operations, as the warrants are not considered indexed to the Company’s own equity pursuant to ASC 815-40. The change in fair value of the warrants liability was recognized in financial expenses, net, in the consolidated statements of operation. As of June 30, 2023, 33,270 of such warrants have been exercised into the Company’s ordinary shares.

Treasury Shares:

During the three months ended June 30, 2023, the Company cancelled 27,775 outstanding restricted shares.

NOTE 8: SHARE-BASED COMPENSATION

Option plans:

Under the Company’s amended 2014 Israel Share Option Plan (the “2014 Plan”), 1,152,044 ordinary shares were allocated to the Company’s employees. No equity grants under the 2014 Plan remain outstanding.

On January 23, 2017, the Company’s Board of Directors approved the Company’s 2017 Share Incentive Plan (the “2017 Plan” and together with the 2014 Plan, the “Option Plans”), and the subsequent grant of options to the Company’s employees, officers and directors. Pursuant to the 2017 Plan, the Company initially reserved for issuance 312,867 ordinary shares, nominal value NIS 0.01 each. On February 28, 2017, the Company’s shareholders approved the 2017 Plan.

The 2017 Plan provides for the grant of awards, including options, restricted shares and restricted share units to the Company’s directors, employees, officers, consultants and advisors.

On June 26, 2017 and on December 28, 2017, the Company’s Board of Directors approved the reservation of 463,384 and 559,764 additional ordinary shares, respectively, for issuance under the 2017 Plan (totaling, including previous plans, an aggregate of 1,338,015 ordinary Shares).

On February 25, 2021 and November 17, 2021, the board of directors and shareholders, respectively, approved an amendment and restatement of the 2017 Plan. The 2017 Plan, as amended, also contains an “evergreen” provision, which provides for an automatic allotment of ordinary shares to be added every year to the pool of ordinary shares available for grant under the 2017 Plan. Under the evergreen provision, on January 1 of each year (beginning January 1, 2022), the number of ordinary shares available under the 2017 Plan automatically increases by the lesser of the following: (i) 4% of our outstanding ordinary shares on the last day of the immediately preceding year; and (ii) an amount determined in advance of January 1 by the board of directors.

The Company estimates the fair value of stock options granted using the binominal option-pricing model. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term.

Expected volatility was calculated based upon the Company’s historical share price and historical volatilities of similar entities in the related sector index. The expected term of the options granted is derived from output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.

NOTE 8: SHARE-BASED COMPENSATION (Cont.)

The following table lists the inputs to the binomial option-pricing model used for the fair value measurement of equity-settled share options for the six months ended June 30, 2023 and 2022:

	Six months ended June 30,
	2023			2022
	(unaudited)

Dividend yield		0	%		0	%
Expected volatility of the share prices		74	%		66	%
Risk-free interest rate		3.7	%		2.8	%
Expected term (in years)		8			8

Based on the above inputs, the fair value of the options was determined to be $1.06 - $1.85 per option at the grant date.

The following table summarizes the number of options granted to employees under the Option Plans as of June 30, 2023 and related information:

	Number of options			Weighted average exercise price

Balance as of December 31, 2022		6,133,903		$	4.62

Granted		2,018,234			1.53
Exercised		(246	)		0.25
Forfeited		(410,901	)		3.01
Expired		(292,628	)		6.00

Balance as of June 30, 2023 (unaudited)		7,448,362			3.86

Exercisable as of June 30, 2023 (unaudited)		3,343,425			5.36

As of June 30, 2023, there are $8,570 of total unrecognized costs related to share-based compensation that are expected to be recognized over a period of up to four years.

A summary of restricted shares and restricted share units activity as of June 30, 2023 is as follows:

	Number of restricted shares and restricted share units			Weighted average grant date fair value
	(unaudited)			(unaudited)
Unvested as of December 31, 2022		1,126,743		$	3.29

Granted		986,706			1.54
Vested		(212,843	)		4.22
Forfeited		(222,191	)		2.60

Unvested as of June 30, 2023 (unaudited)		1,678,415			2.23

NOTE 8: SHARE-BASED COMPENSATION (Cont.)

The total share-based compensation expense related to all of the Company’s equity-based awards, recognized for the three and six months ended June 30, 2023 and 2022 is comprised as follows:

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(unaudited)

Research and development expenses, net	$	382	$	553	$	796	$	1,018
Commercial expenses		357		358		691		648
General and administrative expenses		683		425		1,434		864

Total share-based compensation	$	1,422	$	1,336	$	2,921	$	2,530

NOTE 9: BASIC AND DILUTED NET LOSS PER SHARE

Basic net loss per ordinary share is computed by dividing net loss for each reporting period by the weighted-average number of ordinary shares outstanding during each year. Diluted net loss per ordinary share is computed by dividing net loss for each reporting period by the weighted average number of ordinary shares outstanding during the period, plus dilutive potential ordinary shares considered outstanding during the period, in accordance with ASC No. 260-10 “Earnings Per Share.”

Details of the number of shares and loss used in the computation of loss per share:

	Three months ended June 30,								Six months ended June 30,
	2023				2022				2023				2022
	Unaudited
	Weighted number of shares		Net loss attributable to ordinary shares of the Company		Weighted number of shares		Net loss attributable to ordinary shares of the Company		Weighted number of shares		Net loss attributable to ordinary shares of the Company		Weighted number of shares		Net loss attributable to ordinary shares of the Company

For the computation of basic and diluted loss		102,921,207		31,676		59,546,273		18,554		89,913,214		52,636		59,510,918		38,788

All outstanding warrants, share options, and restricted shares, as well as any shares issuable upon exchange of the convertible senior notes, for the three and six months ended June 30, 2023 and 2022 have been excluded from the calculation of the diluted net loss per share, because all such securities are anti-dilutive for all periods presented. The total number of potential shares excluded from the calculation of diluted net loss per share are as follows:

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(unaudited)

Convertible senior notes		11,832,124		4,222,973		11,832,124		4,222,973
Warrants		17,466,730		3,313,512		17,466,730		3,313,512
Share options		7,406,981		5,132,921		7,014,715		4,946,420
Restricted shares		1,696,224		1,322,782		1,503,128		1,178,583

Total		38,402,059		13,992,188		37,816,697		13,661,488

NOTE 10: SUBSEQUENT EVENTS

From July 1, 2023 through August 9, 2023, the Company raised an additional $14.0 million in net proceeds by issuing 9,249,115 ordinary shares via an ATM facility, at an average public offering price of $1.56.

From July 1, 2023 through August 9, 2023, we made a monthly installment payment of $0.6 million on the 2022 Note. As of August 9, 2023, the outstanding principal amount of the 2022 Note is $9.4 million.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report and the audited financial statements and notes thereto as of and for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2022, or Annual Report, which was filed with the Securities and Exchange Commission, or the SEC, on March 31, 2023. The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These statements speak only as of their date. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.

Company Overview

SEC Form 10-Q filed by Gamida Cell Ltd.