Chemomab Therapeutics(CMMB) - 2020 Q4 - Annual Report

Part I Business Anchiano Therapeutics is a preclinical biotech company focused on pan-RAS and PDE10/β-catenin small molecule cancer therapies, undergoing restructuring and a pending merger with Chemomab Ltd - On December 14, 2020, Anchiano entered into a merger agreement with Chemomab Ltd., a clinical-stage biotech company. Post-merger, Chemomab shareholders will own approximately 90% of the combined company[16][34][439] - The company terminated its inodiftagene gene therapy program in November 2019 due to insufficient preliminary efficacy in the Phase 2 Codex trial[18][40] - In September 2019, Anchiano entered into a collaboration and license agreement with ADT Pharmaceuticals, gaining an exclusive option to license two small molecule programs: pan-RAS inhibitors and PDE10/β-catenin inhibitors[19] - In July 2020, the company implemented cost-saving measures, including headcount reductions and a temporary scale-back of R&D on the pan-RAS program to conserve cash while exploring strategic alternatives[33][95] Our Product Pipeline The company's pipeline includes preclinical pan-RAS and PDE10/β-catenin inhibitor programs, following the discontinuation of its inodiftagene gene therapy - Pan-RAS Program: The highest priority program targets oncogenic mutations across all RAS gene families (KRAS, HRAS, NRAS), which are present in over 30% of all cancers. The program has identified novel indene-based small molecules that show potent and selective pan-RAS inhibition[38] - PDE10/β-catenin Program: This program targets the Wnt signaling pathway, which is altered in over 80% of colorectal cancers. It has identified small molecules that inhibit PDE10, leading to the suppression of Wnt/APC/β-catenin signaling[39] - Inodiftagene Vixteplasmid (Discontinued): The pivotal Phase 2 Codex study for this gene therapy was discontinued in November 2019 due to a low probability of meeting the futility threshold. The license agreement with Yissum for the related intellectual property was subsequently terminated in August 2020[40][132] Collaborations and License Agreements Current development programs are based on a September 2019 collaboration with ADT Pharmaceuticals, while the previous inodiftagene license with Yissum was terminated - Anchiano entered into a collaboration agreement with ADT in September 2019, paying a $3.0 million upfront fee for an exclusive option to license the RAS and PDE10/β-catenin programs. If the option is exercised, Anchiano will be responsible for all development and commercialization, with further milestone and royalty payments due to ADT[126] - The license agreement with Yissum for the inodiftagene gene therapy was terminated in August 2020. The company ceased payments to maintain the related intellectual property and returned all IP documentation to Yissum[132] Intellectual Property The company's IP strategy relies on patents and trade secrets, with core licensed patents from ADT for pan-RAS and PDE10/β-catenin programs expiring in 2035, potentially extending to 2039 - The patent portfolio for the pan-RAS and PDE10/β-catenin programs, licensed from ADT, includes three issued U.S. patents and several international patents. Issued patents expire in 2035, while pending applications could extend protection to 2039[144] Competition Anchiano faces intense competition in cancer therapeutics, with specific KRAS mutation inhibitors from Mirati and Amgen, while PDE10/β-catenin competitors focus on CNS indications - Pan-RAS Program: Competitors include Mirati Therapeutics, Amgen, Boehringer Ingelheim, and Merck, who are developing inhibitors for specific KRAS mutations (e.g., G12C). Anchiano believes its pan-RAS approach is differentiated[150] - PDE10/β-catenin Program: Competitors with PDE10 inhibitors, such as H. Lundbeck A/S and Omeros Corporation, are mainly focused on Central Nervous System (CNS) indications, not cancer[151] Government Regulation The company is subject to extensive FDA and EMA regulations covering drug development, clinical trials, marketing approval, post-approval compliance, and U.S. fraud, abuse, pricing, and reimbursement laws - Drug development requires extensive preclinical and clinical trials to satisfy FDA requirements before an NDA can be submitted for marketing approval. The process is lengthy, costly, and uncertain[153][154][161] - The company's operations are subject to U.S. federal and state anti-kickback statutes and the False Claims Act, which prohibit improper remuneration to induce referrals or the submission of false claims to government healthcare programs[172][176] - Sales of future products will depend on coverage and reimbursement from third-party payors, including government programs and private insurers. The Affordable Care Act (ACA) and other legislative measures continue to impact drug pricing and reimbursement[187][188] Employees As of December 31, 2020, the company significantly reduced its workforce to 3 employees from 16 in 2019, reflecting restructuring and cost-saving measures Employee Headcount by Function and Geography (2019 vs. 2020) | | 2020 | 2019 | |---|---|---| | Function: | | | | Administrative | 3 | 8 | | Research and development | 0 | 8 | | Total | 3 | 16 | | Geography: | | | | Israel | 2 | 9 | | Cambridge, Massachusetts, USA | 1 | 7 | | Total | 3 | 16 | Risk Factors The company faces significant risks including the proposed Chemomab merger, financial viability, preclinical development dependency, intellectual property challenges, potential Nasdaq delisting, and concentrated shareholder influence - Merger Risk: Failure to consummate the proposed merger with Chemomab could materially harm the company, potentially leading to its dissolution and liquidation. Shareholders may not realize a benefit commensurate with the dilution from the merger[200][201][202] - Financial Risk: The company requires substantial additional funds and there is significant doubt about its ability to continue as a going concern. Its current funds are only expected to last until the completion of the merger[204][205][277] - Development Risk: The company is entirely dependent on the success of its two early-stage preclinical programs. It relies heavily on its collaboration agreement with ADT and could lose all rights if it fails to comply with its obligations[205][206][208] - Market and Shareholder Risk: The ADS price is highly volatile and could be delisted from Nasdaq for failing to meet the minimum bid price requirement. A few large shareholders hold significant influence over the company[219][381][412] Properties The company significantly downsized its physical footprint, closing its Israeli office and terminating its Cambridge, Massachusetts lease, and currently owns no real property - The company's Israeli office and laboratories were closed in May 2020[418] - The lease for the Cambridge, Massachusetts office was terminated effective February 28, 2021. The company is permitted to continue using the address for mail[418] Legal Proceedings The company faces five stockholder complaints challenging the proposed Chemomab merger, alleging S-4 registration statement omissions or misrepresentations and seeking injunctive relief and damages - Five separate complaints have been filed by stockholders challenging the proposed merger with Chemomab[420] - The complaints allege that the S-4 Registration Statement omitted or misrepresented material information and seek injunctive relief and damages[420] Part II Management's Discussion and Analysis of Financial Condition and Results of Operations The company's financial condition reflects a transition to preclinical focus, with a net loss of $11.6 million in 2020, reduced R&D expenses, $5.4 million cash, and significant going concern doubt pending the Chemomab merger - The company's auditors have issued a going concern warning, stating that recurring losses and cash flow deficits raise substantial doubt about its ability to continue operations. Existing cash is only expected to be sufficient to complete the merger with Chemomab[277][477][621] Results of Operations (in thousands) | | Year ended Dec 31, 2020 | Year ended Dec 31, 2019 | |---|---|---| | 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 | $11,609 | $27,124 | | Loss per share basic and diluted | $0.31 | $0.79 | - R&D expenses decreased by 72% to $3.8 million in 2020 from $13.3 million in 2019, primarily due to restructuring and the temporary reduction of research activities on the RAS programs[452] - G&A expenses increased by 16% to $7.2 million in 2020, mainly due to higher professional fees, insurance, and manpower costs, partially offset by lower share-based compensation[453] - Net cash used in operating activities decreased to $12.7 million in 2020 from $16.5 million in 2019, reflecting lower clinical trial and manufacturing expenses[462][463] Financial Statements and Supplementary Data The audited consolidated financial statements for 2020, prepared under U.S. GAAP, include a "Going Concern" warning due to recurring losses, encompassing Balance Sheets, Statements of Operations, and Cash Flows Consolidated Balance Sheets As of December 31, 2020, total assets declined to $6.2 million from $19.8 million, with total shareholders' equity falling to $3.6 million from $14.9 million Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | |---|---|---| | Assets | | | | Cash and cash equivalents | $5,392 | $17,575 | | Total current assets | $6,116 | $18,211 | | Total assets | $6,179 | $19,755 | | Liabilities and Equity | | | | Total current liabilities | $2,586 | $4,121 | | Total liabilities | $2,602 | $4,846 | | Total shareholders' equity | $3,577 | $14,909 | Consolidated Statements of Operations and Comprehensive Loss For 2020, the company reported a net loss of $11.6 million ($0.31 per share), a significant improvement from $27.1 million in 2019, driven by reduced operating expenses Statement of Operations Data (in thousands) | | Year ended Dec 31, 2020 | Year ended Dec 31, 2019 | |---|---|---| | Total operating expenses | $11,712 | $22,898 | | Net loss and comprehensive loss | $11,609 | $27,124 | | Loss per share basic and diluted | $0.31 | $0.79 | Consolidated Statements of Cash Flows In 2020, net cash used in operating activities was $12.7 million, a decrease from $16.5 million in 2019, resulting in an end-of-year cash balance of $5.4 million Consolidated Cash Flow Data (in thousands) | | Year ended Dec 31, 2020 | Year ended Dec 31, 2019 | |---|---|---| | Net cash used in operating activities | $(12,712) | $(16,458) | | Net cash provided by (used in) investing activities | $102 | $(95) | | Net cash provided by financing activities | $297 | $26,621 | | Net increase (decrease) in cash | $(12,313) | $10,068 | | Cash at end of period | $5,392 | $17,705 | Controls and Procedures Management assessed the effectiveness of internal control over financial reporting using the COSO 2013 framework and concluded it was effective as of December 31, 2020 - Management assessed the effectiveness of internal control over financial reporting using the COSO 2013 framework[489] - Management concluded that as of December 31, 2020, the company's internal control over financial reporting was effective[489] Part III Directors, Executive Officers and Corporate Governance The company's leadership includes Neil Cohen (CEO) and Andrew Fine (CFO), with an independent Board of Directors overseeing Audit, Compensation, and Nominating committees, adhering to a Code of Business Conduct and Ethics - Key executive officers include Neil Cohen (CEO and Director) and Andrew Fine (CFO)[493] - The Board of Directors has three committees: Audit, Compensation, and Nominating and Governance. All committee members (Ruth Alon, Stan Polovets, Isaac Kohlberg) are independent[505][510][511] - The company has appointed an internal auditor as required by Israeli Companies Law[512] Executive Compensation In FY2020, aggregate executive and director compensation was approximately $2.7 million, with the company utilizing 2011 and 2017 equity incentive plans, and 220,353 ordinary share options outstanding - Aggregate compensation paid to executive officers and directors for the year ended December 31, 2020, was approximately $2.7 million[515] 2020 Compensation for Most Highly Compensated Officers (in thousands) | Name and Principal Position | Salary ($) | Bonus ($) | Equity-Based Compensation ($) | Total ($) | |---|---|---|---|---| | Mr. Jonathan Burgin (Ex. CFO & COO) | 457 | - | 73 | 530 | | Dr. Frank G. Haluska (Ex. CEO) | 303 | - | 83 | 385 | | Dr. David Kerstein (Ex. CMO) | 426 | - | (107) | 319 | | Dr. Ron Knickerbocker (Ex. SVP) | 354 | - | (53) | 301 | | Mr. Sean Daly (Ex. VP) | 295 | - | (26) | 269 | - The company utilizes a 2011 Share Option Plan and a 2017 Equity-Based Incentive Plan for granting equity awards[528][539] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The company's ownership is highly concentrated, with Access Industries Holdings LLC, Clal Biotechnology Industries Ltd., and Shavit Capital Funds holding significant stakes, while executive officers and directors own less than 1% collectively Beneficial Ownership of 5% and Greater Shareholders | Name of Beneficial Owner | Percentage of Ordinary Shares Beneficially Owned* | |---|---| | Access Industries Holdings LLC | 42.67% | | Clal Biotechnology Industries Ltd. | 25.09% | | Shavit Capital Funds | 21.67% | | Edgewater Partner Holdings Ltd. | 5.18% | - Beneficial ownership is based on 37,099,352 ordinary shares outstanding as of the report date[551] Principal Accountant Fees and Services In FY2020, total fees to the independent accounting firm were $163,000, a decrease from $258,000 in 2019, primarily for audit services, all pre-approved by the Audit Committee Accountant Fees (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | |---|---|---| | Audit Fees | 160 | 255 | | Audit-Related Fees | - | - | | Tax Fees | 3 | 3 | | All Other Fees | - | - | | Total | 163 | 258 | - The Audit Committee has sole authority to approve the scope and fees for all audit and non-audit services provided by the independent auditors[572] Part IV Exhibits and Financial Statement Schedules This section lists all Form 10-K exhibits, including the Chemomab Merger Agreement, ADT Collaboration Agreement, equity plans, and Sarbanes-Oxley Act officer certifications - Key exhibits include the Agreement and Plan of Merger with Chemomab (Exhibit 2.1) and the Collaboration and License Agreement with ADT Pharmaceuticals (Exhibit 4.1)[575] - The filing includes required certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act[575]