Item 1: Financial Statements
AYALA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| June 30 2021 | December 31 2020 |
| (Unaudited) |
| CURRENT ASSETS: |
| Cash and Cash Equivalents | $ | 44,412 | $ | 42,025 |
| Short-term Restricted Bank Deposits | 119 | 90 |
| Trade Receivables | 929 | 681 |
| Prepaid Expenses and other Current Assets | 1,550 | 1,444 |
| Total Current Assets | 47,010 | 44,240 |
| LONG-TERM ASSETS: |
| Other Assets | $ | 270 | $ | 305 |
| Property and Equipment, Net | 1,192 | 1,283 |
| Total Long-Term Assets | 1,462 | 1,588 |
| Total Assets | $ | 48,472 | $ | 45,828 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY: |
| CURRENT LIABILITIES: |
| Trade Payables | $ | 2,833 | $ | 3,726 |
| Other Accounts Payables | 2,377 | 3,151 |
| Total Current Liabilities | 5,210 | 6,877 |
| LONG TERM LIABILITIES: |
| Long-term Rent Liability | 502 | 553 |
| Total Long-Term Liabilities | $ | 502 | $ | 553 |
| STOCKHOLDERS’ STOCKHOLDERS’ EQUITY: |
| Common Stock of $ 0.01 par value per share; 200,000,000 shares authorized at June 30, 2021 and December 31, 2020; 13,240,961 and 12,824,463 shares issued at June 30, 2021 and, respectively December 31, 2020; 13,092,925 and 12,728,446 shares outstanding at June 30, 2021 and December 31, 2020, respectively | $ | 131 | $ | 128 |
| Additional Paid-in Capital | 133,925 | 109,157 |
| Accumulated Deficit | ( 91,296 | ) | ( 70,887 | ) |
| Total Stockholders’ Equity | 42,760 | 38,398 |
| Total Liabilities and Stockholders’ Equity | $ | 48,472 | $ | 45,828 |

See accompanying notes to unaudited condensed consolidated financial statements.
4
| For the Three Months Ended June 30, | For the Six Months Ended June 30, |
| 2021 | 2020 | 2021 | 2020 |
| Revenues from licensing agreement | $ | 761 | $ | 1,045 | $ | 1,735 | $ | 2,046 |
| Cost of services | ( 761 | ) | ( 1,045 | ) | ( 1,735 | ) | ( 2,046 | ) |
| Gross profit | — | — | — | — |
| Operating expenses: |
| Research and development | 8,121 | 5,067 | 15,046 | 10,195 |
| General and administrative | 2,536 | 1,546 | 4,839 | 2,857 |
| Operating loss | ( 10,657 | ) | ( 6,613 | ) | ( 19,885 | ) | ( 13,052 | ) |
| Financial Income (Loss), net | ( 22 | ) | 40 | ( 114 | ) | 2 |
| Loss before income tax | ( 10,679 | ) | ( 6,573 | ) | ( 19,999 | ) | ( 13,050 | ) |
| Taxes on income | ( 162 | ) | ( 139 | ) | ( 410 | ) | ( 260 | ) |
| Net loss attributable to common stockholders | ( 10,841 | ) | ( 6,712 | ) | ( 20,409 | ) | ( 13,310 | ) |
| Net Loss per share attributable to common stockholders, basic and diluted | $ | ( 0.75 | ) | $ | ( 0.74 | ) | $ | ( 1.46 | ) | $ | ( 1.90 | ) |
| Weighted average common shares outstanding, basic and diluted | 14,417,423 | 9,018,637 | 13,954,676 | 6,989,762 |

| Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Deficit |
| Series A Preferred Stock | Series B Preferred Stock | Receipt on Account of Series B Preferred Stock | Total Amount |
| Number | Amount | Number | Amount | Number | Amount |
| Balance as of December 31, 2019 | 3,679,778 | 23,823 | 3,750,674 | 29,550 | — | 53,373 | 4,998,874 | 51 | 1,770 | ( 40,741 | ) | ( 38,920 | ) |
| Conversion of Preferred Stock | ( 3,679,778 | ) | ( 23,823 | ) | ( 3,750,674 | ) | ( 29,550 | ) | — | ( 53,373 | ) | 3,715,222 | 37 | 53,336 | — | 53,373 |
| Share based compensation | — | — | — | — | — | — | 6,056 | 1 | 693 | — | 694 |
| Issuance of Common Stock, Initial public offering net of issuance costs of $ 2,835 | — | — | — | — | — | — | 3,940,689 | 39 | 52,080 | — | 52,119 |
| Net Loss | — | — | — | — | — | — | — | — | — | ( 13,310 | ) | ( 13,310 | ) |
| Balance as of June 30, 2020 | — | — | — | — | — | — | 12,660,841 | 128 | 107,879 | ( 54,051 | ) | 53,956 |
| Balance as of December 31, 2020 | — | — | — | — | — | — | 12,728,446 | 128 | 109,157 | ( 70,887 | ) | 38,398 |
| Issuance of shares and warrants, net of Issuance Cost of $ 1,665 | — | — | — | — | — | — | 333,333 | 3 | 23,319 | — | 23,322 |
| Share based compensation | — | — | — | — | — | — | 25,146 | — | 1,419 | — | 1,419 |
| Exercise of stock options | — — | — — | — | — | — | — | 6,000 | — | 30 | — | 30 |
| Net loss | — | — | — | — | — | — | — | — | — | ( 20,409 | ) | ( 20,409 | ) |
| Balance as of June 30, 2021 | — — | — | — | — | — | — | 13,092,925 | 131 | 133,925 | ( 91,296 | ) | 42,760 |
| Balance as of March 31, 2020 | 3,679,778 | 23,823 | 3,750,674 | 29,550 | — | 53,373 | 5,003,380 | 51 | 2,063 | ( 47,339 | ) | ( 45,225 | ) |
| Conversion of Preferred Stock | ( 3,679,778 | ) | ( 23,823 | ) | ( 3,750,674 | ) | ( 29,550 | ) | — | ( 53,373 | ) | 3,715,222 | 37 | 53,336 | — | 53,373 |
| Share based compensation | — | — | — | — | — | — | 1,550 | 1 | 400 | — | 401 |
| Issuance of Common Stock, Initial public offering net of issuance costs of $ 2,835 | — | — | — | — | — | — | 3,940,689 | 39 | 52,080 | — | 52,119 |
| Net Loss | — | — | — | — | — | — | — | — | — | ( 6,712 | ) | ( 6,712 | ) |
| Balance as of June 30, 2020 | — | — | — | — | — | — | 12,660,841 | 128 | 107,879 | ( 54,051 | ) | 53,956 |
| Balance as of March 31, 2021 | — | — | — | — | — | — | 13,072,213 | 131 | 133,358 | ( 80,455 | ) | 53,034 |
| Conversion of Preferred Stock | — | — | — | — |
| Share based compensation | — | — | — | — | — | — | 20,712 | 567 | — | 567 |
| Net Loss | — | — | — | — | — | — | — | — | — | ( 10,841 | ) | ( 10,841 | ) |
| Balance as of June 30, 2021 | — | — | — | — | — | — | 13,092,925 | 131 | 133,925 | ( 91,296 | ) | 42,760 |

| Six Months Ended |
| June 30, 2021 | June 30, 2020 |
| CASH FLOWS FROM OPERATING ACTIVITIES: |
| Net Loss | $ | ( 20,409 | ) | $ | ( 13,310 | ) |
| Adjustments to Reconcile Net Loss to Net Cash used in Operating Activities: |
| Shared Based Compensation | $ | 1,419 | $ | 694 |
| Depreciation | 94 | 89 |
| (Increase) decrease in Prepaid Expenses and Other Assets | ( 106 | ) | 63 |
| Increase in Trade Receivables | ( 248 | ) | ( 367 | ) |
| Increase (decrease) in Trade Payable | ( 1,124 | ) | 430 |
| Increase in Long Term Rent Liability | — | 235 |
| Increase (decrease) in other Accounts Payable | ( 823 | ) | 460 |
| Net Cash used in Operating Activities | ( 21,197 | ) | ( 11,706 | ) |
| CASH FLOWS FROM INVESTING ACTIVITIES: |
| Proceeds from maturities of long-term deposits | — | 237 |
| Purchase of Property and Equipment | ( 3 | ) | ( 33 | ) |
| Net Cash provided by (used in) Investing Activities | ( 3 | ) | 204 |
| CASH FLOWS FROM FINANCING ACTIVITIES: |
| Proceeds from Issuance of Shares, net | — | 52,369 |
| Issuance of shares and warrants, Net | 23,553 | — |
| Exercise of Stock Options | 30 | — |
| Net Cash provided by Financing Activities | 23,583 | 52,369 |
| Increase in Cash and Cash Equivalents and Restricted Bank Deposits | 2,383 | 40,867 |
| Cash and Cash Equivalents and Restricted Bank Deposits at Beginning of the period | 42,370 | 16,808 |
| Cash and Cash Equivalents and Restricted Bank Deposits at End of the period | $ | 44,753 | $ | 57,675 |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES |
| Non-cash deferred issuance costs | $ | 231 | $ | 250 |
| Amortization of deferred rent liability | $ | 51 | $ | — |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
| Cash Received for Interest | $ | 7 | $ | 47 |
| Tax Paid in Cash, net of refunds | $ | 80 | $ | 92 |
| Reconciliation of cash, cash equivalents and restricted bank deposits |
| June 30,2021 | June 30,2020 |
| Cash and Cash Equivalents | $ | 44,412 | $ | 57,355 |
| Restricted Bank Deposits | 119 | 83 |
| Restricted Bank Deposits in Other Assets | 222 | 237 |
| Cash and Cash Equivalents and Restricted Bank Deposits at End of the Period | $ | 44,753 | $ | 57,675 |

AYALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1—SIGNIFICANT ACCOUNTING POLICIES General a) Ayala Pharmaceuticals, Inc. (the “Company”) was incorporated in November 2017. The Company is a clinical stage oncology company dedicated to developing and commercializing small molecule therapeutics for patients suffering from rare and aggressive cancers, primarily in genetically defined patient populations. The Company’s current portfolio of product candidates, AL101 and AL102, target the aberrant activation of the Notch pathway with gamma secretase inhibitors. b) In 2017, the Company entered into an exclusive worldwide license agreement with respect to AL101 and AL102. c) The Company’s lead product candidates, AL101 and AL102 have completed preclinical and Phase 1 studies. AL101 is currently being evaluated in a Phase 2 trial (ACCURACY) in patient with recurrent/metastatic adenoid cystic carcinoma (“R/M ACC”) bearing Notch-activating mutations and in a phase 2 trial (TENACITY) in patients with recurrent/metastatic triple negative breast cancer (“R/M TNBC”) bearing Notch-activating mutations. AL102 is currently being evaluated in a pivotal Phase 2/3 clinical trial for patients with desmoid tumors (RINGSIDE) and is being evaluated in a Phase 1 clinical trial in combination with Novartis’ BMCA targeting agent, WVT078, in Patients with relapsed/refractory Multiple Myeloma. d) The Company has a wholly-owned Israeli subsidiary, Ayala-Oncology Israel Ltd. (the “Subsidiary”), which was incorporated in November 2017. e) Since inception, the Company has devoted its primary efforts to raising capital and research and development activities and has incurred significant operating losses and negative cash flows from operations. From its inception through June 30, 2021, all of the Company’s financial support has been provided primarily from the sale of its convertible preferred and common stock. The Company previously identified conditions and events that raise substantial doubt about its ability to continue as a going concern. As a result of the completion of the Company’s initial public offering (“IPO”) in May 2020 and the Private Placement in February 2021, the Company believes that its cash, cash equivalents and short-term restricted bank deposits as of June 30, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements at least for the next 12 months. The Company has based this estimated on assumptions that may prove to be wrong, and it may use its available capital resources sooner than it currently expects. Future additional funding may not be available on terms available to the Company or at all. If the Company is unable to obtain sufficient funding, it could be required to delay its development efforts, limit activities and reduce research and development costs, which could adversely affect its business prospects. Initial Public Offering and Related Transactions On May 12, 2020, the Company completed the sale of shares of its common stock in its IPO. In connection with the IPO, the Company issued and sold 3,940,689 shares of common stock, including 274,022 shares associated with the partial exercise on June 4, 2020 of the underwriters’ option to purchase additional shares, at a price to the public of $ 15.00 per share, resulting in net proceeds to the Company of approximately $ 52.2 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. All shares issued and sold were registered pursuant to a registration statement on Form S-1 (File No. 333-236942), as amended, declared effective by the U.S. Securities and Exchange Commission (the “Commission”) on May 7, 2020. In connection with the IPO, the Company effected a one-for-two reverse stock split of its common stock which became effective on May 4, 2020. Upon the closing of the IPO, all of the outstanding shares of Series A preferred stock and Series B preferred stock automatically converted into an aggregate of 3,715,222 shares of common stock. Subsequent to the closing of the IPO, there were no shares of preferred stock outstanding. On February 19, 2021, the Company entered into a Securities Purchase Agreement (the “2021 Purchase Agreement”) with the purchasers named therein. Pursuant to the 2021 Purchase Agreement, the Company agreed to sell (i) an aggregate of 333,333 shares of its common stock (the “Private Placement Shares”), par value $ 0.01 per share, together with warrants to purchase an aggregate of 116,666 shares of its common stock with an exercise price of $ 18.10 per share (the “Common Warrants”), for an aggregate purchase price of $ 4,999,995.00 and (ii) pre-funded warrants to purchase an aggregate of 1,333,333 shares of its common stock with an exercise price of $ 0.01 per share (the “Pre-Funded Warrants” and collectively with the Common Warrants, the “Private Placement Warrants”), together with an aggregate of 466,666 Common Warrants, for an aggregate purchase price of $ 19,986,661.67 (collectively, the “Private Placement”). The Company had issuance costs of approximately $ 1,665 thousand of which 231 thousand was not yet paid due to payment terms. The Private Placement closed on February 23, 2021. The warrants were classified as a component of permanent equity pursuant to ASC 480 “Distinguishing Liabilities from Equity” and ASC 815 “Derivatives and Hedging.” $ Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments (of a normal recurring nature) considered necessary for a fair statement of the results for the interim periods presented have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2020 (the “Annual Report”) with the Securities and Exchange Commission (the “SEC”). The comparative balance sheet at December 31, 2020 has been derived from the audited financial statements at that date. The Company’s significant accounting policies have not changed materially from those included in Note 2 of the Company’s audited consolidated financial statements for the year ended December 31, 2020 included in the Company’s Annual Report. 8
AYALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1—SIGNIFICANT ACCOUNTING POLICIES (continued): Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Net Loss per Share Basic and diluted loss per share (“LPS”) are computed by dividing net loss by the weighted average number of shares of the Company’s common stock, par value $ 0.01 per share (the “Common Stock”), outstanding for each period and the weighted average number of warrants to purchase common stock with $ 0.01 purchase price. The calculation of basic and diluted LPS includes 1,333,333 and 970,370 weighted average warrants with an exercise price of $ 0.01 for the three and six month ended June 30, 2021, respectively. The calculation of diluted LPS does not include 901,067 options outstanding to purchase common stock with anti-dilutive effect for the three and six month ended June 30, 2021. The calculation of diluted LPS does not include 3,679,778 shares of Series A Preferred Stock, and 3,750,674 shares of Series B Preferred Stock and 698,361 options outstanding to purchase common stock with anti-dilutive effect for the three and six month ended June 30, 2020. Newly Issued Accounting Pronouncements As an “emerging growth company,” the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflects this election. In February 2016, the FASB issued ASU 2016-02—Leases, requiring the recognition of lease assets and liabilities on the balance sheet. The standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than 12 months. The standard is effective for public entities for fiscal years beginning after December 15, 2018 and for the Company for fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact of adopting this new guidance on its financial statements. In June 2016, the FASB issued ASU No. 2016-13 (Topic 326), Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The guidance will be effective for the Company for fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing a variety of exceptions within the framework of ASC 740. These exceptions include the exception to the incremental approach for intra-period tax allocation in the event of a loss from continuing operations and income or a gain from other items (such as other comprehensive income), and the exception to using general methodology for the interim period tax accounting for year-to-date losses that exceed anticipated losses. The guidance will be effective for the Company beginning January 1, 2022, and interim periods in fiscal years beginning January 1, 2023. Early adoption is permitted. The Company is currently evaluating the effect that ASU 2019-12 will have on its condensed consolidated financial statements and related disclosures. In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature and a beneficial conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS). ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2023 and can be adopted on either a fully retrospective or modified retrospective basis. The Company is currently evaluating the effect that ASU 2020-06 will have on its condensed consolidated financial statements and related disclosures 9
| (i) | identify the contract(s) with a customer; |
| (ii) | identify the performance obligations in the contract; |
| (iii) | determine the transaction price; |
| (iv) | allocate the transaction price to the performance obligations in the contract; and |
| (v) | recognize revenue when (or as) the entity satisfies a performance obligation. |
| Six months ended | Three months ended |
| June 30, | June 30, |
| 2021 | 2021 |
| (in thousands) |
| Uncertain tax position at the beginning of the period | $ | 581 | $ | 695 |
| Additions for uncertain tax position of prior years (foreign exchange and interest) | 10 | 7 |
| Additions for tax positions of current year | 320 | 209 |
| Uncertain tax position at the end of the period | $ | 911 | $ | 911 |

| Year ended December 31, |
| 2021 | 181 |
| 2022 | 362 |
| 2023 | 362 |
| 2024 | 121 |
| $ | 1,026 |

Upon termination of the BMS License Agreement in its entirety by the Company for convenience or by BMS, the Company grants an exclusive, non-transferable, sublicensable, worldwide license to BMS under certain of its patent rights that are necessary to develop, manufacture or commercialize BMS Licensed Compounds or BMS Licensed Products. In exchange for such license, BMS must pay the Company a low single-digit percentage royalty on net sales of the BMS Licensed Compounds and/or BMS Licensed Products by it or its affiliates, licensees or sublicensees, provided that the termination occurred after a specified developmental milestone for such BMS Licensed Compounds and/ or BMS Licensed Products. Option and License Agreement with Novartis International Pharmaceutical Ltd. In December 2018, the Company entered into an evaluation, option and license agreement, or the Novartis Option Agreement, with Novartis International Pharmaceutical Limited, or Novartis, pursuant to which Novartis agreed to conduct certain studies to evaluate AL102 in combination with its B-cell maturation antigen, or BCMA, therapies in multiple myeloma, and the Company agreed to supply AL102 for such studies. All supply and development costs associated with such evaluation studies are fully borne by Novartis. Under the Novartis Option Agreement, the Company granted Novartis an exclusive option to obtain an exclusive (including as to the Company and its affiliates), sublicensable (subject to certain terms and conditions), worldwide license and sublicense (as applicable) under certain patent rights and know-how controlled by the Company (including applicable patent rights and know-how that are licensed from BMS pursuant to the BMS License Agreement) to research, develop, manufacture (subject to the Company’s non-exclusive right to manufacture and supply AL102 or the Novartis Licensed Product for Novartis) and commercialize AL102 or any pharmaceutical product containing AL102 as the sole active ingredient, or the Novartis Licensed Product, for the diagnosis, prophylaxis, treatment, or prevention of multiple myeloma in humans. The Company also granted Novartis the right of first negotiation for the license rights to conduct development or commercialization activities with respect to the use of AL102 for indications other than multiple myeloma. Additionally, from the exercise by Novartis of its option until the termination of the Novartis Option Agreement, the Company may not, either itself or through its affiliates or any other third parties, directly or indirectly research, develop or commercialize certain BCMA-related compounds for the treatment of multiple myeloma. According to the agreement, Novartis shall pay the Company a low eight figure option exercise fee in order to exercise its option and activate its license, upon which the Company will be eligible to receive development, regulatory and commercial milestone payments of up to $ 245 million in the aggregate and tiered royalties on net sales of Novartis Licensed Products by Novartis or its affiliates or sublicensees at rates ranging from a mid-single-digit to low double-digit percentage, depending on the total annual worldwide net sales of Novartis Licensed Products. Royalties will be paid on a country-by-country and Novartis Licensed Product-by-Novartis Licensed Product basis from the first commercial sale of a particular Novartis Licensed Product in a country until the latest of (a) 10 years after the first commercial sale of such Novartis Licensed Product in such country, (b) when such Novartis Licensed Product is no longer covered by a valid claim in the licensed patent rights in such country, or (c) the expiration of any regulatory or marketing exclusivity for such Novartis Licensed Product in such country. Contemporaneously with the Novartis Option Agreement, the Company entered into a stock purchase agreement and associated investment agreements, or the SPA, with Novartis’ affiliate, Novartis Institutes for BioMedical Research, Inc., or NIBRI, pursuant to which NIBRI acquired a $ 10 million equity stake in the Company. Novartis shall own any inventions, and related patent rights, invented solely by it or jointly with the Company in connection with activities conducted pursuant to the Novartis Option Agreement. The Company will maintain first right to prosecute and maintain any patents licensed to Novartis, both before and after its exercise of its option. The Company maintain the first right to defend and enforce its patents prior to Novartis’s exercise of its option, upon which Novartis gains such right with respect to patents included in the license. The option granted to Novartis will remain in effect until the earlier of (a) 60 days following the last visit of the last subject in the evaluation studies, the termination of the Novartis Option Agreement, or (c) 36 months following the delivery by the Company to Novartis of sufficient amounts of clinical evaluation materials to conduct the anticipated clinical studies. The Novartis Option Agreement remains in effect until such time as no Novartis Licensed Product is being developed or commercialized by Novartis, its affiliates, or sublicensees (including distributors or commercial partners), unless terminated earlier. The Company has the right to terminate the Novartis Option Agreement (a) for Novartis’s material breach if such breach remains uncured for 60 days (such cure period shall be extended for an additional period during which Novartis is making good faith efforts to cure such breach) or (b) for Novartis’s failure to use commercially reasonable efforts to develop or commercialize AL102 and/or the Novartis Licensed Product not remedied within four months following written notice to Novartis. Novartis has the right to terminate the Novartis Option Agreement (a) in its entirety or on a country-by-country basis for convenience, upon 60 days written notice to us, (b) for Company’s material breach if such breach remains uncured for 60 days (such cure period shall be extended for an additional period during which Novartis is making good faith efforts to cure such breach) or (c) upon immediate written notice to the Company for insolvency-related events involving the Company. 13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual Report”), our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage oncology company focused on developing and commercializing small molecule therapeutics for patients suffering from rare and aggressive cancers, primarily in genetically defined patient populations. Our differentiated development approach is predicated on identifying and addressing tumorigenic drivers of cancer, through a combination of our bioinformatics platform and next-generation sequencing to deliver targeted therapies to underserved patient populations. Our current portfolio of product candidates, AL101 and AL102, targets the aberrant activation of the Notch pathway using gamma secretase inhibitors. Gamma secretase is the enzyme responsible for Notch activation and, when inhibited, turns off the Notch pathway activation. Aberrant activation of the Notch pathway has long been implicated in multiple solid tumor and hematological cancers and has often been associated with more aggressive cancers. In cancers, Notch is known to serve as a critical facilitator in processes such as cellular proliferation, survival, migration, invasion, drug resistance and metastatic spread, all of which contribute to a poorer patient prognosis. AL101 and AL102 are designed to address the underlying key drivers of tumor growth, and our initial Phase 2 clinical data of AL101 suggest that our approach may address shortcomings of existing treatment options. We believe that our novel product candidates, if approved, have the potential to transform treatment outcomes for patients suffering from rare and aggressive cancers.
Our product candidates, AL101 and AL102, are being developed as potent, selective, small molecule gamma secretase inhibitors, or GSIs. We obtained an exclusive, worldwide license to develop and commercialize AL101 and AL102 from Bristol-Myers Squibb Company, or BMS, in November 2017. BMS evaluated AL101 in three Phase 1 studies in more than 200 subjects and AL102 in a single Phase 1 study in 36 subjects with various cancers who had not been prospectively characterized for Notch activation, and to whom we refer to as unselected subjects. While these Phase 1 studies did not report statistically significant overall results, clinical activity was observed across these studies in cancers in which Notch has been implicated as a tumorigenic driver.
We are currently conducting our ongoing Phase 2 ACCURACY trial for the treatment of recurrent/metastatic adenoid cystic carcinoma, or R/M ACC, in subjects with progressive disease and Notch-activating mutations. If approved, we believe that AL101 has the potential to be the first therapy approved by the U.S. Food and Drug Administration, or FDA, for patients with R/M ACC and address the unmet medical need of these patients. AL101 was granted Orphan Drug Designation in May 2019 for the treatment of adenoid cystic carcinoma, or ACC, and fast track designation in February 2020 for the treatment of R/M ACC. In the second quarter of 2020, we commenced dosing of patients in our ACCURACY trial for the treatment of R/M ACC with Notch-activating mutations at the higher dose of 6mg. We plan to report additional data from this trial in [the second half of] 2021.
We are currently also evaluating AL101 as a monotherapy in an open-label Phase 2 clinical trial for the treatment of patients with Notch-activated recurrent or metastatic (R/M) triple negative breast cancer (TNBC). We refer to this trial as the TENACITY trial. It is an open-label, multicenter, single arm study which is expected to initially enroll up to 26 patients with Notch-activated R/M TNBC whose disease has recurred or progressed after three or fewer lines of prior therapy. Notch activation will be determined using a Next Generation Sequencing (NGS) based assay screen. We dosed the first patient enrolled in this study in January 2021 and expect to report preliminary data in 2022.
We are currently evaluating AL102 as a monotherapy in a Phase 2/3 pivotal study (RINGSIDE) for the treatment of desmoid tumors in adult and adolescent patients. We expect to report interim data from Part A in mid-2022, with Part B commencing thereafter.
In addition, we are collaborating with Novartis International Pharmaceutical Limited, or Novartis, which is currently evaluating AL102 in a phase 1 clinical trial for the treatment of multiple myeloma, or MM, in combination with Novartis’ B-cell maturation antigen, or BCMA, targeting therapies. The first patient was dosed with AL102 in combination with Novartis’ BCMA targeting agent in April 2021.
We are also developing AL101 for the treatment of T-ALL, an aggressive, rare form of T-cell specific leukemia. Based on findings from our Phase 1 study of AL101 and supporting data from our preclinical studies, we intend to commence a Phase 2 clinical trial of AL101 for the treatment of R/R T-ALL in 2022, subject to the impact of COVID-19 on our business.
We were incorporated as a Delaware corporation on November 14, 2017, and our headquarters is located in Rehovot, Israel. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital and conducting research and development activities for our product candidates. To date, we have funded our operations primarily through the sales of common stock and convertible preferred stock.
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| • | advance our Phase 2 TENACITY trial of AL101 for the treatment of R/M TNBC; |
| • | advance our Phase 2/3 RINGSIDE pivotal trial of AL102 for the treatment of desmoid tumors; |
| • | initiate or commence a clinical trial for the treatment of relapsed/refractory T-cell acute lymphoblastic leukemia, or R/R T-ALL, or obtain and conduct clinical trials for any other product candidates; |
| • | assuming successful completion of our Phase 2 ACCURACY trial of AL101 for the treatment of R/M ACC, may be required by the FDA to complete Phase 3 clinical trials to support submission of a New Drug Application, or NDA, of AL101 for the treatment of R/M ACC; |
| • | establish a sales, marketing and distribution infrastructure to commercialize AL101 and/or AL102, if approved, and for any other product candidates for which we may obtain marketing approval; |
| • | collaborate with leading diagnostic companies to develop diagnostic tests for identifying patients with Notch-activating mutations; |
| • | maintain, expand, protect and enforce our intellectual property portfolio; |
| • | hire additional staff, including clinical, scientific, technical, regulatory, operational, financial, commercial and other personnel, to execute our business plan; and |
| • | add clinical, scientific, operational, financial and management information systems and personnel to support our product development and potential future commercialization efforts, and to enable us to operate as a public company. |

We are responsible for all future development and commercialization of AL101 and AL102. In consideration for the rights granted under the agreement, we paid BMS a payment of $6 million and issued to BMS 1,125,929 shares of Series A preferred stock valued at approximately $7.3 million, which converted to 562,964 shares of common stock in connection with our initial public offering, or IPO. We are obligated to pay BMS up to approximately $142 million in the aggregate upon the achievement of certain clinical development or regulatory milestones and up to $50 million in the aggregate upon the achievement of certain commercial milestones by each product containing the licensed BMS compounds. In addition, we are obligated to pay BMS tiered royalties ranging from a high single-digit to a low teen percentage on worldwide net sales of all products containing the licensed BMS compounds. BMS has the right to terminate the BMS License Agreement in its entirety upon written notice to us (a) for insolvency-related events involving us, (b) for our material breach of the BMS License Agreement if such breach remains uncured for a defined period of time, (c) for our failure to fulfill our obligations to develop or commercialize the BMS Licensed Compounds and/or BMS Licensed Products not remedied within a defined period of time following written notice by BMS, or (d) if we or our affiliates commence any action challenging the validity, scope, enforceability or patentability of any of the licensed patent rights. We have the right to terminate the BMS License Agreement (a) for convenience upon prior written notice to BMS, the length of notice dependent on whether a BMS Licensed Product has received regulatory approval, (b) upon immediate written notice to BMS for insolvency-related events involving BMS, (c) for BMS’s material breach of the BMS License Agreement if such breach remains uncured for a defined period of time, or (d) on a BMS Licensed Compound-by-BMS Licensed Compound and/or BMS Licensed Product-by-BMS Licensed Product basis upon immediate written notice to BMS if we reasonably determine that there are unexpected safety and public health issues relating to the applicable BMS Licensed Compounds and/or BMS Licensed Products. Upon termination of the BMS License Agreement in its entirety by us for convenience or by BMS, we grant an exclusive, non-transferable, sublicensable, worldwide license to BMS under certain of our patent rights that are necessary to develop, manufacture or commercialize BMS Licensed Compounds or BMS Licensed Products. In exchange for such license, BMS must pay us a low single-digit percentage royalty on net sales of the BMS Licensed Compounds and/or BMS Licensed Products by it or its affiliates, licensees or sublicensees, provided that the termination occurred after a specified developmental milestone for such BMS Licensed Compounds and/or BMS Licensed Products. Novartis License Agreements In December 2018, we entered into an evaluation, option and license agreement, or the Novartis Agreement, with Novartis International Pharmaceutical Limited, or Novartis, pursuant to which we granted Novartis an exclusive option to obtain an exclusive license to research, develop, commercialize and manufacture AL102 for the treatment of multiple myeloma. We will continue to supply Novartis quantities of AL102, products containing AL102 and certain other materials for purposes of conducting evaluation studies not comprising human clinical trials during the option period, together with our know-how as may reasonably be necessary in order for Novartis to conduct such evaluation studies. Novartis has agreed to reimburse us for all such expenses. At any time during the option term, Novartis may exercise its option by payment of a low eight figure option exercise fee. If Novartis exercises its option, it will be obligated to pay us up to an additional $245 million upon the achievement of certain clinical development and commercial milestones. In addition, Novartis is obligated to pay us tiered royalties at percentages ranging from a mid-single digit to a low double-digit percentage on worldwide net sales of products licensed under the agreement. The option we granted to Novartis will remain in effect until the earlier of (a) 60 days following the last visit of the last subject in the evaluation studies, (b) the termination of the Novartis Agreement, or (c) 36 months following the delivery by us to Novartis of sufficient amounts of clinical evaluation materials to conduct the anticipated clinical studies. The Novartis Agreement remains in effect until such time as no Novartis Licensed Product is being developed or commercialized by Novartis, its affiliates, or sublicensees (including distributors or commercial partners), unless terminated earlier. We have the right to terminate the Novartis Agreement (a) for Novartis’s material breach if such breach remains uncured for 60 days (such cure period shall be extended for an additional period during which Novartis is making good faith efforts to cure such breach) or (b) for Novartis’s failure to use commercially reasonable efforts to develop or commercialize AL102 and/or the Novartis Licensed Product not remedied within four months following written notice to Novartis. Novartis has the right to terminate the Novartis Agreement (a) in its entirety or on a country-by-country basis for convenience, upon 60 days’ written notice to us, (b) for our material breach if such breach remains uncured for 60 days (such cure period shall be extended for an additional period during which we are making good faith efforts to cure such breach) or (c) upon immediate written notice to us for insolvency-related events involving us. Financial Overview Except as described below, there have been no material changes from the disclosure provided under the caption “Components of Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020. 16
| For the Three Months Ended | For the Six Months Ended |
| June 30, | June 30, |
| 2021 | 2020 | 2021 | 2020 |
| (in thousands except share and per share data) |
| Revenues from licensing agreement | $ | 761 | $ | 1,045 | $ | 1,735 | $ | 2,046 |
| Cost of services | (761 | ) | 1,045 | (1,735 | ) | 2,046 |
| Gross profit | — | — | — | — |
| Operating expenses: |
| Research and development | 8,121 | 5,067 | 15,046 | 10,195 |
| General and administrative | 2,536 | 1,546 | 4,839 | 2,857 |
| Operating loss | (10,657 | ) | (6,613 | ) | (19,885 | ) | (13,052 | ) |
| Financial Income (loss), net | (22 | ) | 40 | (114 | ) | 2 |
| Loss before income tax | (10,679 | ) | (6,573 | ) | (19,999 | ) | (13,050 | ) |
| Taxes on income | (162 | ) | (139 | ) | (410 | ) | (260 | ) |
| Net loss attributable to common stockholders | (10,841 | ) | (6,712 | ) | (20,409 | ) | (13,310 | ) |
| Net Loss per share attributable to common stockholders, basic and diluted | $ | (0.75 | ) | $ | (0.74 | ) | $ | (1.46 | ) | $ | (1.90 | ) |
| Weighted average common shares outstanding, basic and diluted | 14,417,423 | 9,018,637 | 13,954,676 | 6,989,762 |
| • | employee-related expenses, including salaries, benefits and stock-based compensation expense for personnel engaged in research and development functions; |
| • | expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with CROs, investigative sites and consultants; |
| • | costs of manufacturing our product candidates for use in our preclinical studies and clinical trials, as well as manufacturers that provide components of our product candidates for use in our preclinical and current and potential future clinical trials; |
| • | costs associated with our bioinformatics platform; |
| • | consulting and professional fees related to research and development activities; |
| • | costs related to compliance with clinical regulatory requirements; and |
| • | Facility costs and other allocated expenses, which include expenses for rent and maintenance of our facility, utilities, depreciation and other supplies. |

| Three Months Ended June 30, | Six Months Ended June 30, |
| $ | % | $ | % |
| 2021 | 2020 | Change | Change | 2021 | 2020 | Change | Change |
| ($ in thousands) |
| Research and Development | 8,121 | 5,067 | 3,054 | 60 | % | 15,046 | 10,195 | 4,851 | 48 | % |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, | June 30, | June 30, |
| 2021 | 2020 | 2021 | 2020 |
| Program-Specific Costs: |
| AL 101 |
| ACC | 3,680 | 3,794 | 7,936 | 7,461 |
| TNBC | 2,533 | 996 | 3,960 | 1,976 |
| General Expenses | 263 | 277 | 803 | 758 |
| AL 102 |
| General Expenses | 10 | — | 24 | — |
| Desmoid | 1,635 | — | 2,323 | — |
| Total Research and Development Expenses | $ | 8,121 | $ | 5,067 | $ | 15,046 | $ | 10,195 |
| Three Months Ended June 30, | Six Months Ended June 30, |
| $ | % | $ | % |
| 2021 | 2020 | Change | Change | 2021 | 2020 | Change | Change |
| ($ in thousands) |
| General and Administrative | 2,536 | 1,546 | 990 | 64 | % | 4,839 | 2,857 | 1,982 | 69 | % |

On February 19, 2021, we entered into a Securities Purchase Agreement (the “2021 Purchase Agreement”) with the purchasers named therein (the “Investors”). Pursuant to the 2021 Purchase Agreement, we agreed to sell (i) an aggregate of 333,333 shares of our common stock (the “Private Placement Shares”), par value $0.01 per share, together with warrants to purchase an aggregate of 116,666 shares of our common stock with an exercise price of $18.10 per share (the “Common Warrants”), for an aggregate purchase price of $4,999,995.00 and (ii) pre-funded warrants to purchase an aggregate of 1,333,333 shares of our common stock with an exercise price of $0.01 per share (the “Pre-Funded Warrants” and collectively with the Common Warrants, the “Private Placement Warrants”), together with an aggregate of 466,666 Common Warrants, for an aggregate purchase price of $19,986,661.67 (collectively, the “Private Placement”). The Private Placement closed on February 23, 2021. The exercise price and the number of shares of common stock issuable upon exercise of each Private Placement Warrant are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock. In addition, in certain circumstances, upon a fundamental transaction, a holder of Common Warrants will be entitled to receive, upon exercise of the Common Warrants, the kind and amount of securities, cash or other property that such holder would have received had they exercised the Private Placement Warrants immediately prior to the fundamental transaction. The Pre-Funded Warrants will be automatically exercised on cashless basis upon the occurrence of a fundamental transaction. Each Common Warrant is exercisable from the date of issuance and has a term of three years and each Pre-Funded Warrant is exercisable from the date of issuance and has a term of ten years. Pursuant to the 2021 Purchase Agreement, we agreed to use reasonable best efforts to register the Private Placement Shares and Private Placement Warrants for resale by the Investors on a registration statement on Form S-3 promptly following the date such form is available for use by us, but in no event later than June 15, 2021. The Warrants were classified as a component of permanent equity pursuant to ASC 480 “Distinguishing Liabilities from Equity” and ASC 815 “Derivatives and Hedging.” The Private Placement was exempt from registration pursuant to Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder, as a transaction by an issuer not involving a public offering. On June 4, 2021, we filed a resale Registration Statement on Form S-3 (File No. 333-256793) to register the Private Placement Shares and Private Placement Warrants. In June 2021, we entered into an Open Market Sales Agreement, or the Sales Agreement, with Jefferies LLC, or Jefferies, as sales agent, pursuant to which we may, from time to time, issue and sell common stock with an aggregate value of up to $200.0 million in “at-the-market” offerings, under our Registration Statement on Form S-3 (File No. 333-256792) filed with the SEC on June 4, 2021 (the “ATM”). Sales of common stock, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined in Rule 415(a) of the Securities Act, including sales made directly through the Nasdaq Global Market or on any other existing trading market for our common stock. No securities were issued pursuant to the Sales Agreement during the three months ended June 30, 2021. 19
| Six Months EndedJune 30, |
| 2021 | 2020 |
| ($ in thousands) |
| Cash Flows provided by (used in): |
| Operating Activities | (21,197 | ) | (11,706 | ) |
| Investing Activities | (3 | ) | 204 |
| Financing Activities | 23,583 | 52,369 |
| Net increase (decrease) in cash and cash equivalents and short-term restricted bank deposits | 2,383 | 40,867 |
| • | the costs of conducting future clinical trials of AL101 and AL102; |
| • | the cost of manufacturing additional material for future clinical trials of AL101 and AL102; |

| • | the scope, progress, results and costs of discovery, preclinical development, laboratory testing and clinical trials for other potential product candidates we may develop or acquire, if any; |
| • | the costs, timing and outcome of regulatory review of our product candidates; |
| • | the achievement of milestones or occurrence of other developments that trigger payments under any current or future license, collaboration or other agreements; |
| • | the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval; |
| • | the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; |
| • | the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, protecting and enforcing our intellectual property rights and defending intellectual property-related claims; |
| • | the severity, duration and impact of the COVID-19 pandemic, which may adversely impact our business and clinical trials; |
| • | our headcount growth and associated costs as we expand our business operations and our research and development activities; and |
| • | the costs of operating as a public company. |

Emerging Growth Company Status The Jumpstart Our Business Start-ups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period under the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult. We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, or December 31, 2025, (b) in which we have total annual gross revenues of $1.07 billion or more, or (c) in which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our outstanding common stock held by non-affiliates exceeds $700 million as of last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
22
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are not subject to any material legal proceedings.
Item 1A. Risk Factors.
There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On May 12, 2020, we completed our IPO and issued and sold 3,666,667 shares of our common stock at a price to the public of $15.00 per share. On June 9, 2020, in connection with the partial exercise of the underwriters’ option to purchase additional shares, we issued and sold 274,022 additional shares of common stock at a price of $15.00 per share.
The offer and sale of all of the shares in the offering was registered under the Securities Act pursuant to a Registration Statement on Form S-1 (File No. 333-236942), as amended, filed in connection with our IPO, or the Registration Statement, which was declared effective by the SEC on May 7, 2020. The offering terminated after the sale of all securities registered pursuant to the Registration Statement. The net proceeds of approximately $52.2 million have been invested in short- and intermediate-term investments in accordance with our investment policy. These investments may include money market funds and investment securities consisting of U.S. Treasury notes, and high quality, marketable debt instruments of corporations and government sponsored enterprises. There has been no material change in the expected use of the net proceeds from our IPO as described in the final prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act on May 11, 2020 in connection with the IPO.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
| ExhibitNumber | Description | Form | File No. | Exhibit | Filing Date | Filed/FurnishedHerewith |
| 3.1 | Restated Certificate of Incorporation of Ayala Pharmaceuticals, Inc. | 8-K | 001-39279 | 3.1 | 5/12/2020 |
| 3.2 | Amended and Restated Bylaws of Ayala Pharmaceuticals, Inc. | 8-K | 001-39279 | 3.2 | 5/12/2020 |
| 4.1 | Form of Common Warrant. | 8-K | 001-39279 | 4.1 | 1/22/21 |
| 4.2 | Form of Pre-Funded Warrant. | 8-K | 001-39279 | 4.2 | 1/22/21 |
| 31.1 | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | * |
| 31.2 | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | * |
| 32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | * | * |
| 32.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | * | * |
| 101.INS | Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | * |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | * |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | * |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | * |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | * |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | * |

| * | Filed herewith. |

| ** | Furnished herewith. |

25
| AYALA Pharmaceuticals, Inc. |
| Date: August 12, 2021 | By: | /s/ Roni Mamluk |
| Roni Mamluk, Ph.D. |
| Chief Executive Officer |
| (principal executive officer) |
| Date: August 12, 2021 | By: | /s/ Yossi Maimon |
| Yossi Maimon, CPA, M.B.A. |
| Chief Financial Officer |
| (principal financial and accounting officer) |


Question: What is the total cost of developing the drug AL102, considering the payment made to BMS, research and development costs over the 6 months of 2021, and the potential payout to BMS upon successful completion of certain clinical, regulatory and commercial milestones (in millions of dollars)?

Solution:
def solution():
     #Define variables name and value

    initial_payment_to_BMS = 6  # in million
    stock_payment_to_BMS = 7.3  # in million
    potential_milestone_payment_to_BMS = 142 + 50  # in million clinical + regulatory milestone payment

    research_and_dev_expense = 15.046  # in million, the expense for 6 months of 2021

    #Do math calculation to get the answer
    total_cost_AL102 = initial_payment_to_BMS + stock_payment_to_BMS + potential_milestone_payment_to_BMS + research_and_dev_expense
    return total_cost_AL102


Answer: 220.346