Chemomab Therapeutics(CMMB) - 2018 Q4 - Annual Report

PART I Key Information This section presents selected financial data, highlighting the company's increasing operating losses and negative shareholders' equity, along with an extensive list of risk factors emphasizing dependence on inodiftagene and going concern doubts Selected Financial Data The company's selected financial data for 2016-2018 shows a consistent and growing net loss, reaching $13.28 million in 2018, with increasing operating expenses and worsening negative shareholders' equity Selected Consolidated Financial Data (USD, in thousands, except per share data) | Indicator | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Statements of Operations: | | | | | Research and development expenses | $7,559 | $6,229 | $2,384 | | General and administrative expenses | $5,485 | $3,163 | $2,258 | | Operating loss | $13,044 | $9,392 | $4,642 | | Net loss | $13,279 | $9,806 | $4,742 | | Net loss per ordinary share | $1.05 | $1.09 | $0.87 | | Financial Position Data: | | | | | Cash and cash equivalents | $7,517 | $1,454 | $4,564 | | Working capital | $884 | ($842) | $3,073 | | Total assets | $12,574 | $2,087 | $5,655 | | Total liabilities | $13,664 | $2,696 | $2,359 | | Total shareholders' equity (deficiency) | ($1,090) | ($609) | $3,296 | Risk Factors The company faces significant risks, primarily its complete dependence on the success of its sole clinical-stage product, inodiftagene, alongside uncertainties in regulatory approval, funding, and market volatility - The company's business is entirely dependent on the success of its lead product candidate, inodiftagene. Failure to receive regulatory approval or achieve commercialization would severely harm the business[25][26] - The company requires substantial additional funds for research and development. Without new funding, it may need to scale back or cease operations[34][35][37] - The consolidated financial statements for December 31, 2018, contain a going concern warning due to recurring losses from operations. The accumulated net loss through 2018 totaled approximately $76 million[40] - The company may be characterized as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. shareholders[183] Information On The Company Anchiano Therapeutics is a clinical-stage biotechnology company focused on developing inodiftagene for early-stage bladder cancer, with this section detailing its history, business overview, product pipeline, intellectual property, manufacturing, competition, regulations, organizational structure, and property History and Development of the Company The company was incorporated in Israel in 2011 as BioCancell Ltd., later changing its name to Anchiano Therapeutics Ltd. in August 2018, and completed an initial public offering on the Nasdaq in February 2019 - The company was incorporated in Israel on September 22, 2011, and changed its name from BioCancell Ltd. to Anchiano Therapeutics Ltd. in August 2018[195] - The company's American Depositary Shares (ADSs) commenced trading on the Nasdaq under the symbol 'ANCN' on February 12, 2019[196] - Capital expenditures were $0.2 million in 2018 and $0.03 million in 2017, primarily for laboratory equipment[196] Business Overview Anchiano is a clinical-stage biotech company developing inodiftagene, a targeted gene therapy for non-muscle invasive bladder cancer (NMIBC), advancing into two pivotal studies with a potential market exceeding $1.5 billion - The company's lead product candidate, inodiftagene, is a targeted gene therapy for early-stage non-muscle invasive bladder cancer (NMIBC)[200][201] - The company is planning two pivotal clinical trials: the Codex Clinical Trial (Phase 2) for BCG-unresponsive patients and the Leo Clinical Trial (Phase 3) for patients whose disease recurred after one course of BCG[206] Inodiftagene Clinical Development Program | INDICATION | CANDIDATE | STAGE | RESULTS/STATUS | | :--- | :--- | :--- | :--- | | NMIBC | Inodiftagene | Phase 1/2 & Phase 2 | 33% Complete Response (CR); 1-yr Recurrence-Free Survival (RFS) 46% | | | Inodiftagene | Pivotal Phase 2 (Codex) | Initiation 4Q2018 | | | Inodiftagene with BCG | Phase 2 | 3-month RFS 95%; 6-month RFS 78% | | | Inodiftagene with BCG | Pivotal Phase 3 (Leo) | Initiation planned 4Q2019 | | Pancreatic cancer | Inodiftagene / with gemcitabine | Phase 1/2 & Phase 2 | Showed some Partial Responses (PR) and stable disease | | Ovarian cancer | Inodiftagene | Phase 2 | 1 CR of malignant ascites in compassionate use | - The FDA has granted the program Fast Track designation and provided a Special Protocol Assessment (SPA) for the Phase 3 Leo Clinical Trial[206] Organizational Structure Anchiano Therapeutics Ltd. is the parent company, with a wholly-owned Israeli subsidiary that in turn wholly owns a Delaware-incorporated subsidiary for U.S. operations Company Subsidiaries | Name | Jurisdiction of Incorporation | Parent | Ownership | | :--- | :--- | :--- | :--- | | Anchiano Therapeutics Israel Ltd. | Israel | Anchiano Therapeutics Ltd. | 100% | | Anchiano Therapeutics, Inc. | Delaware, USA | Anchiano Therapeutics Israel Ltd. | 100% | Property, Plant and Equipment The company operates from leased facilities, with its corporate headquarters and a laboratory in Jerusalem, Israel, and its U.S. subsidiary leasing office space in Cambridge, Massachusetts - The company's corporate headquarters are located in leased space in Jerusalem, Israel[383] - The U.S. subsidiary leases approximately 1,850 square feet of office space in Cambridge, Massachusetts, with an annual rent of about $0.1 million[386] Operating And Financial Review And Prospects This section details the company's financial performance, liquidity, and capital resources, highlighting a history of increasing operating losses, significant expense growth, and a going concern warning, with IPO proceeds expected to fund operations through Q2 2020 Operating Results The company has generated no revenue and incurred increasing operating losses, reaching $13.0 million in 2018, driven by a 21% rise in R&D expenses and a 73% increase in G&A expenses, resulting in a $13.3 million net loss - The company has incurred operating losses since inception, with an accumulated net loss of approximately $76.1 million through December 31, 2018[389] Comparison of Operating Results (USD, in thousands) | Item | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Research and development expenses | $7,559 | $6,229 | $2,384 | | General and administrative expenses | $5,485 | $3,163 | $2,258 | | Operating loss | $13,044 | $9,392 | $4,642 | | Net loss | $13,279 | $9,806 | $4,742 | - R&D expenses increased by 21% in 2018 compared to 2017, primarily due to clinical trial initiation and manufacturing process development[412] - G&A expenses increased by 73% in 2018 compared to 2017, mainly due to an option grant to the CEO, increased payroll provisions, and professional fees[414] Liquidity and Capital Resources As a clinical-stage company with no revenue, operations have been financed through private placements, public offerings, and grants, with recurring losses raising substantial doubt about its going concern ability, though February 2019 IPO proceeds are expected to fund activities through Q2 2020 - The company's recurring losses from operations raise substantial doubt about its ability to continue as a going concern[430] - Net proceeds from the February 2019 initial public offering are expected to provide sufficient capital to fund activities through the second quarter of 2020[430] Summary of Cash Flow Activities (USD, in thousands) | Activity | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | ($14,744) | ($8,515) | ($3,732) | | Net cash provided by (used in) investing activities | ($338) | ($34) | $78 | | Net cash provided by financing activities | $21,162 | $5,242 | $6,063 | Tabular Disclosure of Contractual Obligations As of December 31, 2018, the company had significant contractual obligations totaling $4.4 million, including $1.7 million in operating lease obligations and $2.7 million in other long-term clinical liabilities, primarily with Syneos Health Contractual Obligations at December 31, 2018 (USD, in thousands) | Obligation Type | Total | Less than 1 year | 1-3 years | 3-5 years | | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $1,700 | $500 | $900 | $300 | | Other long-term clinical liabilities | $2,700 | $800 | $1,500 | $400 | - The company has a minimum future obligation of $2.7 million to its clinical research organization, Syneos Health, for the management of the Codex Clinical Trial[441] Directors, Senior Management and Employees This section details the company's leadership team, board of directors, and employees, including biographies, compensation, equity incentive plans, and board practices, noting 19 employees as of year-end 2018 Directors and Senior Management The company is led by CEO Dr. Frank G. Haluska, supported by an experienced senior management team and a nine-member board of directors chaired by Dr. Stephen Hoffman - Dr. Frank G. Haluska serves as the Chief Executive Officer and a Director[444][446] - Jonathan Burgin is the Chief Financial Officer and Chief Operating Officer[444][447] - Dr. Stephen Hoffman serves as the Chairman of the Board of Directors[444][453] Compensation For 2018, aggregate compensation for executive officers and directors was approximately $2.0 million, with CEO Dr. Frank G. Haluska receiving about $2.1 million, including $1.46 million in equity-based compensation, under the company's two equity incentive plans - Aggregate compensation paid to executive officers and directors for the year ended December 31, 2018, was approximately $2.0 million[464] 2018 Compensation for Top 5 Officers (USD, in thousands) | Name and Principal Position | Salary | Bonus | Equity-Based Compensation | Total | | :--- | :--- | :--- | :--- | :--- | | Dr. Frank G. Haluska, CEO | $436 | $200 | $1,455 | $2,091 | | Dr. Yan Moore, Chief Medical Officer | $314 | — | $8 | $322 | | Mr. Jonathan Burgin, CFO & COO | $210 | $49 | $73 | $332 | | Dr. Ron Knickerbocker, SVP | $296 | $91 | $106 | $493 | | Mr. Sean Daly, VP | $255 | $65 | $56 | $376 | Board Practices The board of directors consists of nine members, eight of whom are independent under Nasdaq rules, with the company opting to follow U.S. corporate governance standards for board and committee independence instead of Israeli external director requirements - The board consists of nine directors, with eight qualifying as independent under Nasdaq rules[491] - The company has elected to opt out of the Israeli Companies Law requirement to appoint external directors, and will instead comply with Nasdaq and SEC independence requirements[497][498] - The Audit Committee consists of Ruth Alon, Efrat Makov, and Dennison Veru. Mr. Veru and Ms. Makov are designated as audit committee financial experts[505] Employees As of December 31, 2018, the company had 19 full-time employees, with 12 in research and development and 7 in administrative roles, primarily based in Israel Employee Headcount by Function and Geography (as of Dec 31) | Category | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Function | | | | | Administrative | 7 | 7 | 6 | | Research and development | 12 | 10 | 12 | | Geography | | | | | Israel | 14 | 14 | 17 | | Cambridge, MA, USA | 5 | 3 | 1 | | Total | 19 | 17 | 18 | Major Shareholders and Related Party Transactions This section identifies the company's major shareholders holding 5% or more of its ordinary shares, including Clal Biotechnology Industries, Shavit Capital Funds, and Access Industries, and details related party transactions such as bridge financing and a 2018 securities purchase agreement Major Shareholders (5% or greater) | Name of Beneficial Owner | Percentage Beneficially Owned | | :--- | :--- | | Clal Biotechnology Industries Ltd. | 23.57% | | Shavit Capital Funds | 21.67% | | Access Industries Holdings LLC | 17.58% | | Edgewater Partner Holdings Ltd. | 5.18% | | Palisade Medical Equity I, LP | 5.07% | - In June 2018, the company raised $22.9 million in a private placement from investors including Shavit Capital Funds and Clal Biotechnology Industries Ltd. (CBI)[544] - The company entered into an information rights agreement with CBI, providing it with access to financial statements and other material information required for CBI's public reporting[545] Financial Information This section refers to the detailed financial statements in Item 18, confirms no material legal proceedings or dividend payments, and highlights significant post-year-end changes including the February 2019 IPO which raised $30.5 million and triggered anti-dilution share and warrant issuances - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[550] - In February 2019, the company completed its initial public offering, selling 2,652,174 ADSs at $11.50 per ADS for aggregate gross proceeds of $30.5 million[551] - The IPO triggered price protection rights from a prior financing, resulting in the issuance of an additional 8,262,800 ordinary shares and warrants for 6,207,329 ordinary shares to certain investors[552] The Offer and Listing This section details the company's securities and their trading markets, noting that American Depositary Shares (ADSs) began trading on the Nasdaq under 'ANCN' in February 2019, while ordinary shares are scheduled for delisting from the Tel Aviv Stock Exchange (TASE) in June 2019 - The company's ADSs began trading on the Nasdaq under the symbol 'ANCN' on February 12, 2019[554] - The company's ordinary shares will be delisted from the Tel Aviv Stock Exchange (TASE) on June 17, 2019[556] Additional Information This section covers supplementary corporate information, including material contracts with Yissum and Boehringer-Ingelheim, Israeli exchange controls, and a detailed summary of Israeli and U.S. federal income tax considerations for shareholders, highlighting the company's belief that it was and will likely remain a Passive Foreign Investment Company (PFIC) - The company has an exclusive worldwide license agreement with Yissum Research Development Company for the development and commercialization of products related to the H19 gene[564] - The company has a clinical supply agreement with Boehringer Ingelheim for the development and manufacturing of inodiftagene[565] - The company believes it was a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes in 2017 and 2018 and expects to be a PFIC in 2019, which could result in adverse tax consequences for U.S. Holders[595][606] Quantitative and Qualitative Disclosure on Market Risk This section refers to Note 10 of the financial statements for detailed quantitative and qualitative information regarding the company's exposure to market risks, such as credit, liquidity, and currency risks - For information on market risk, the report refers to Note 10 of the financial statements[635] Description of Securities Other Than Equity Securities This section describes securities other than equity, noting the existence of warrants to purchase ordinary shares accounted for as a liability derivative instrument, and detailing the terms of American Depositary Shares (ADSs), including the role of The Bank of New York Mellon as depositary and a schedule of fees - The company has outstanding warrants to purchase ordinary shares at an exercise price of $1.932 per share, which are accounted for as a liability derivative instrument[637] - The Bank of New York Mellon serves as the depositary for the company's ADSs, with each ADS representing five ordinary shares[640] PART II Material Modifications to the Rights of Security Holders and Use of Proceeds This section details the use of proceeds from the February 2019 initial public offering, where the company raised approximately $26.8 million in net proceeds, intending to use about 75% to advance the Phase 2 program for inodiftagene, expected to fund capital requirements until Q2 2020 - The February 2019 IPO generated net proceeds of approximately $26.8 million[648] - Approximately 75% of the net proceeds are intended to be used to advance the Phase 2 program for the lead product candidate, inodiftagene[650] Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of the reporting period, with this report not including a management assessment or auditor attestation on internal control over financial reporting, as permitted for newly public companies - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[651] - The report does not include a management assessment or auditor attestation on internal control over financial reporting, as permitted for newly public companies[652] Corporate Governance and Other Matters This section covers various corporate governance topics, identifying audit committee financial experts, confirming the adoption of a Code of Conduct, detailing fees paid to the principal accountant, and outlining the company's use of the foreign private issuer exemption to follow certain Israeli corporate governance practices instead of Nasdaq rules Audit Committee Financial Expert The board of directors has determined that Mr. Dennison Veru and Ms. Efrat Makov are qualified to serve as 'audit committee financial experts' as defined by SEC rules - The board has identified two audit committee financial experts: Mr. Dennison Veru and Ms. Efrat Makov[655] Code of Ethics The company has adopted an Unethical Conduct Reporting Procedure (Code of Conduct) applicable to all directors, executives, employees, and contractors, with a copy available on its website - A Code of Conduct has been adopted and applies to all company personnel and directors[656] Principal Accountant Fees and Services The company's auditor for 2017 and 2018 was Somekh Chaikin, a member firm of KPMG, with total fees increasing from $90,000 in 2017 to $190,000 in 2018, primarily due to audit services for SEC filings Fees Paid to Independent Registered Public Accounting Firm (USD, in thousands) | Fee Type | 2018 | 2017 | | :--- | :--- | :--- | | Audit fees | $187 | $87 | | Audit-related fees | $0 | $0 | | Tax fees | $3 | $3 | | Other fees | $0 | $0 | | Total | $190 | $90 | Corporate Governance As a foreign private issuer, the company utilizes exemptions to follow certain Israeli corporate governance practices instead of Nasdaq rules, particularly regarding shareholder meeting quorums and equity incentive plan approvals - The company utilizes the foreign private issuer exemption to follow certain Israeli corporate governance practices instead of Nasdaq rules[668] - Key exemptions include a lower quorum requirement for shareholder meetings (25%) and not requiring shareholder approval for adopting equity incentive plans[668] PART III Financial Statements This section contains the company's audited consolidated financial statements for 2016-2018, prepared in accordance with IFRS, with the independent auditor's report highlighting a going concern uncertainty due to recurring losses, and detailed notes covering financial position, operations, cash flows, equity changes, accounting policies, contingent liabilities, share-based payments, and financial instruments - The independent auditor's report includes a paragraph expressing substantial doubt about the company's ability to continue as a going concern due to recurring losses from operations[682] Consolidated Statement of Financial Position (USD, in thousands) | | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Total current assets | $10,920 | $1,854 | | Total assets | $12,574 | $2,087 | | Total current liabilities | $10,036 | $2,696 | | Total liabilities | $13,664 | $2,696 | | Total equity (deficiency) | ($1,090) | ($609) | Consolidated Statement of Operations (USD, in thousands) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Operating loss | $13,044 | $9,392 | $4,642 | | Net loss | $13,279 | $9,806 | $4,742 | | Basic and diluted loss per share | $1.05 | $1.09 | $0.87 | Exhibits This section lists all exhibits filed as part of the Annual Report on Form 20-F, including key corporate documents such as the Articles of Association, the Deposit Agreement for ADSs, the Exclusive License Agreement with Yissum, the Clinical Supply Agreement with Boehringer Ingelheim, various incentive plans, and required officer certifications - Lists key corporate documents filed as exhibits, including the Amended and Restated Articles of Association (Exhibit 1.1), the ADS Deposit Agreement (Exhibit 2.1), and the Exclusive License Agreement with Yissum (Exhibit 4.1)[676]