ANCHIANO THERAPEUTICS LTD. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis, particularly with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read "Risk Factors" in Item 1A of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to 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 preclinical biotechnology company committed to discovering and
developing new cancer therapies designed to target the products of mutated genes
that are drivers of human malignancies. Throughout most of 2019, we ran a Phase
2 study, designated Codex, evaluating inodiftagene vixtepasmid in patients with
BCG-unresponsive NMIBC. However, in
On
For further information regarding our business and operations, see "Item 1. Business."
Our corporate structure consists of a parent company,
License Agreements
In
In
Recent Events
On
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In light of business circumstances, and in order to conserve cash and preserve
optionality while alternatives are being identified and assessed, we made a
decision during
We also engaged
On
On
At the effective time of the Merger, we anticipate that each share of Chemomab common stock outstanding immediately prior to the effective time of the Merger will be converted into the right to receive approximately 1,028.99 shares of Anchiano common stock, subject to adjustment to account for a reverse split of Anchiano common stock at a reverse split ratio to be determined by Anchiano's board of directors, subject to shareholder approval, and to be implemented prior to the consummation of the Merger.
Immediately following the merger, and prior to any private investment as part of the merger, the former Chemomab security holders will own approximately 90% of the aggregate number of shares of Anchiano common stock and the security holders of Anchiano as of immediately prior to the Merger will own approximately 10% of the aggregate number of shares of Anchiano common stock on a fully diluted basis.
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Components of Operating Results
Revenues
To date, we have not generated any revenue. We do not expect to receive any revenue unless and until we obtain regulatory approval and commercialize a future product candidate, or until we receive revenue from a collaboration such as a co-development or out-licensing agreement. There can be no assurance that we will receive such regulatory approvals, and if a future product candidate is approved, that we will be successful in commercializing it.
Research and Development Expenses
Research and development activities are our primary focus, despite our strategic decision during 2020 to temporarily reduce development of the Company's RAS program and to institute various cost savings measures to preserve liquid resources. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We do not believe that it is possible at this time to accurately project total expenses required for us to reach commercialization of our product candidates. Due to the inherently unpredictable nature of preclinical and clinical development, we are unable to estimate with certainty the costs we will incur and the timelines that will be required in the continued development and approval of our product candidates. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be subject to future collaborations, if and when such arrangements will be entered into, if at all, and to what degree such arrangements would affect our development plans and capital requirements. Should our strategic merger initiatives not come to fruition we expect our research and development expenses to increase over the next several years as our clinical programs progress and as we seek to initiate clinical trials of additional product candidates. We also expect to incur increased research and development expenses as we selectively identify and develop additional product candidates.
Research and development expenses include the following:
· employee-related expenses, such as salaries and share-based compensation;
· expenses relating to outsourced and contracted services, such as
CROs, external laboratories and consulting, research and advisory
services;
· supply, development and manufacturing costs relating to clinical
trial materials;
· expenses incurred in operating our laboratories and small-scale equipment;
· preclinical study expenses and related developmental costs; and
· costs associated with regulatory compliance.
We recognize research and development expenses as we incur them.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, including share-based compensation related to directors and employees, facility costs, patent application and maintenance expenses, and external professional service costs, including legal, accounting, audit, finance, business development, investor relations and human resource services, and other consulting fees.
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Finance Expenses, Net
Finance expenses, net, consisted primarily of finance expenses recorded due to revaluation of investor warrants at fair value during a period where these could not be classified within equity (for more details, see Note 6c in "Item 8. Financial Statements and Supplementary Data" below), offset by interest income.
Restructuring Expenses
We have recognized restructuring provisions for the direct expenditures arising from restructuring initiatives, where the plans are sufficiently detailed and where appropriate communication to those affected has been made To this end, we have recorded restructuring expenses comprised principally of contract termination costs and employee severance and associated termination costs related to the reduction of our workforce.
One-time termination benefits are expensed at the date the employees are notified, unless the employees must provide future services beyond a minimum retention period, in which case the benefits are expensed ratably over the future service periods. A provision for contract termination costs, in which a contract is terminated or the entity will continue to incur costs under a contract for its remaining term without economic benefit (an onerous contract), is recognized only when the contract is terminated or when the entity permanently ceases using the rights granted under the contract.
Income Taxes
We have yet to generate taxable income in
Results of Operations
Below is a summary of our results of operations for the periods indicated:
Year ended December 31,
2020 2019
Operating Expenses:
Research and development $ 3,783 $ 13,303
General and administrative 7,180 6,245
Restructuring expense 749 3,350
Total operating expenses 11,712 22,898
Finance (income) expense,net (103 ) 4,226
Net loss and comprehensive loss $ 11,609 $ 27,124
Loss per share basic and diluted $ 0.31 $ 0.79 Weighted average number of shares outstanding used in computation of basic and diluted loss per share in thousands
37,099 34,446
Our results of operations have varied in the past and can be expected to vary in the future due to numerous factors. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance.
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Year ended
Research and development expenses
Research and development expenses decreased by approximately
General and administrative expenses
General and administrative expenses increased by approximately
Restructuring expenses
Restructuring expenses decreased by approximately
In
Separately, in
In
Financing expense, net
Financing expense, net decreased by approximately
On initial measurement, the warrants together with their price protections were classified as equity instruments that are not subsequently measured at fair value, and thus we allocated the proceeds according to the relative fair value of the instruments.
However, we changed our functional currency from NIS to USD as of
Consequently, the warrants were measured at fair value from
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Income tax
Income tax remained at
Cash Flows
The table below shows a summary of our cash flow activities for the periods
indicated:
Year ended
December 31, Increase/(decrease)
2020 2019 $ %
(in thousands)
Net cash used in operating activities $ (12,712 ) $ (16,458 ) $ (3,746 ) -23 %
Net cash provided by (used in)
investing activities 102 (95 ) (197 ) -207 %
Net cash provided by financing
activities 297 26,621 (26,324 ) -99 %
Net increase (decrease) in cash, cash
equivalents and restricted cash $ (12,313 ) $ 10,068 $ (22,381 ) -222 %
Operating activities
Net cash used in operating activities decreased by approximately
Investing activities
Net cash used in investing activities decreased by approximately
Financing activities
Net cash provided by financing activities decreased by approximately
Effects of Currency Fluctuation
Currency fluctuations could affect us through increased or decreased costs,
mainly for goods and services acquired outside of
Off-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities as to which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that would expose us to material continuing risks, contingent liabilities or any other obligation under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
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Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations
is based on our financial statements, which we prepared in accordance with
Financial Derivatives
We evaluate all financial instruments issued in connection with its equity
offerings when determining the proper accounting treatment for such instruments
in our financial statements. We consider a number of generally accepted
accounting principles under
Accrued Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees payable to clinical research organizations and investigative sites in connection with clinical trials, vendors in connection with preclinical development activities, vendors related to product manufacturing, development, and distribution of clinical materials; and professional service fees for consulting and related services.
We base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuant to our contract arrangements. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period.
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Recently-Issued Accounting Pronouncements
Certain recently-issued accounting pronouncements are discussed in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
Liquidity and Capital Resources
Following several fundraising rounds in prior years, in
In
As shown in the accompanying consolidated financial statements, we have incurred
losses and cash flow deficits from operations since inception, resulting in an
accumulated deficit at
Current Outlook
We estimate that our current cash resources will allow us to complete the
contemplated merger with Chemomab during the first half of 2021, meaning that
should the merger not be completed further fundraising will be required in order
to identify and pursue alternative strategic partnerships or complete the
research and development of our product candidates. Should the contemplated
merger not be completed we would expect to satisfy our future cash needs through
capital raising from the public, private investors and institutional investors,
such as through the public offering of ordinary shares that we completed in
Developing drugs, conducting preclinical and clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. We will require significant additional financing in the future to fund our operations, including if and when we progress into clinical trials of our product candidates, obtain regulatory approval for one or more of our product candidates, obtain commercial manufacturing capabilities and commercialize one or more of our product candidates. Our future capital requirements will depend on many factors, including, but not limited to:
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· the progress and costs of our preclinical and clinical trials and
other research and development activities;
· the scope, prioritization and number of our preclinical and clinical
trials and other research and development programs;
· the amount of revenues and contributions we receive under future
licensing, collaboration, development and commercialization
arrangements with respect to our product candidates;
· the costs of development and expansion of our operational infrastructure;
· the costs and timing of obtaining regulatory approval for one or
more of our product candidates;
· our ability, or that of our collaborators, to achieve development
milestones, marketing approval and other events or developments
under potential future licensing agreements;
· the costs of filing, prosecuting, enforcing and defending patent
claims and other intellectual property rights;
· the costs and timing of securing manufacturing arrangements for
clinical or commercial production;
· the costs of contracting with third parties to provide sales and
marketing capabilities for us or establishing such capabilities
ourselves;
· the costs of acquiring or undertaking development and
commercialization efforts for any future products, product
candidates or technology;
· the magnitude of our general and administrative expenses; and
· any additional costs that we may incur under future in- and
out-licensing arrangements relating to one or more of our product
candidates.
Until we can generate significant recurring revenues, and should the contemplated merger not be completed, we would expect to satisfy our future cash needs through capital raising or by out-licensing and/or co-developing applications of one or more of our product candidates. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of or eliminate research or development plans for, or commercialization efforts with respect to, one or more of our product candidates and make necessary change to our operations to reduce the level of our expenditures in line with available resources.
We are a development-stage company and it is not possible for us to predict with any degree of accuracy the outcome of our research and development efforts. As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net loss, liquidity or capital resources, or that would cause financial information to not necessarily be indicative of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties, demands, commitments and events are described in this item.
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