Can-Fite(CANF) - 2020 Q4 - Annual Report

PART I Key Information Selected financial data highlights a history of net losses, alongside a comprehensive list of business and financial risks Selected Financial Data The company reports a history of operating losses, with fluctuating revenues and a net loss of $14.4 million in 2020 Selected Consolidated Financial Data (2018-2020) | Financial Metric | 2020 (USD in thousands) | 2019 (USD in thousands) | 2018 (USD in thousands) | | :--- | :--- | :--- | :--- | | Revenues | 763 | 2,032 | 3,820 | | Operating Loss | (14,139) | (12,007) | (5,414) | | Net Loss | (14,443) | (12,625) | (6,571) | | Net Loss per Share | (0.04) | (0.14) | (0.17) | | Total Assets | 9,523 | 8,174 | 7,952 | | Total Shareholders' Equity | 6,074 | 2,442 | 3,015 | - Effective January 1, 2018, the company changed its functional and reporting currency to the U.S. dollar[32] Risk Factors The company faces significant risks from its history of losses, uncommercialized products, and geopolitical instability - The company has incurred operating losses since its inception, with an accumulated deficit of approximately $125.5 million as of December 31, 2020[44] - The pipeline's reliance on the A3AR platform technology and key molecules like Piclidenoson and Namodenoson presents significant development risk[39][64] - Operations in Israel expose the company to regional political, economic, and military instability, which could adversely affect business[42][146] - As a foreign private issuer, the company follows home country governance practices, potentially offering less investor protection than NYSE American rules[42][179] Information on the Company This section details the company's history, A3AR platform technology, drug pipeline, business strategy, and regulatory environment History and Development of the Company Founded in 1994, the company is an Israeli biopharmaceutical firm listed on the TASE and NYSE American - The company was founded on September 11, 1994, by Dr. Pnina Fishman and Dr. Ilan Cohn[185] - The company's ADSs began trading on the NYSE American under the symbol "CANF" on November 19, 2013[185] - Capital expenditures were minimal, totaling $26,000 in 2020, primarily for computer equipment[186] Business Overview The company develops small molecule drugs targeting the A3 adenosine receptor for inflammatory and cancer indications - The company's platform technology is based on targeting the A3 adenosine receptor (A3AR), which is highly expressed in cancer and inflammatory cells[188][189] Product Pipeline Status | Product Candidate | Indication | Status | | :--- | :--- | :--- | | Piclidenoson (CF101) | Psoriasis | Phase III | | | COVID-19 | Phase II | | Namodenoson (CF102) | Liver Cancer (HCC) | Preparing for Phase III | | | NASH | Preparing for Phase IIb | | CF602 | Erectile Dysfunction | Preclinical | | Cannabinoids | Various | Preclinical | - The company's strategy is to build an integrated biotechnology company by developing its portfolio and commercializing products through out-licensing arrangements[198][202] - As of March 15, 2020, the company owned or exclusively licensed 15 patent families containing approximately 163 issued patents and pending applications worldwide[321] Organizational Structure The corporate structure consists of the parent company and three wholly-owned, inactive subsidiaries - The company has three wholly-owned subsidiaries: Eye-Fite Limited (Israel), which is being wound up, and Can-Fite Biopharma Europe (France), all of which are currently inactive[417] Property, Plants and Equipment The company leases approximately 300 square meters of office and lab space in Petah-Tikva, Israel - The company leases its headquarters in Petah-Tikva, Israel, which houses administrative, clinical, and research operations, including a 150-square-meter laboratory[418] Operating and Financial Review and Prospects Financial analysis shows decreased revenue, increased R&D expenses, continued net losses, and reliance on equity financing Results of Operations Revenues decreased 63% in 2020 due to lower recognized payments, while R&D expenses rose 8.9% from clinical trial costs Comparison of Results of Operations (2019 vs. 2020) | Item | 2020 (USD in millions) | 2019 (USD in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $0.76 | $2.03 | -63% | | R&D Expenses | $11.95 | $10.97 | +8.9% | | G&A Expenses | $2.95 | $3.06 | -3.6% | | Financial Expense, net | $0.3 | $0.6 | -50% | Comparison of Results of Operations (2018 vs. 2019) | Item | 2019 (USD in millions) | 2018 (USD in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $2.0 | $3.8 | -47.3% | | R&D Expenses | $10.9 | $6.0 | +81.6% | | G&A Expenses | $3.0 | $3.1 | -3.1% | Liquidity and Capital Resources Operations are funded by equity offerings and licensing, with existing resources deemed sufficient for the next twelve months - As of December 31, 2020, the company had approximately $8.3 million in cash and cash equivalents[491] - In 2020, the company raised a combined $18.9 million from warrant exercises and registered direct offerings[491] Cash Flow Summary (2018-2020) | Cash Flow Activity | 2020 (USD in millions) | 2019 (USD in millions) | 2018 (USD in millions) | | :--- | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($12.0) | ($11.0) | ($4.1) | | Net Cash Used in Investing Activities | ($0.03) | ($0.003) | ($0.03) | | Net Cash Provided by Financing Activities | $17.7 | $10.1 | $4.4 | Contractual Obligations Total contractual obligations were $192,716 as of year-end 2020, primarily for milestone and lease payments Contractual Obligations as of December 31, 2020 (USD) | Obligation Type | Total | Less than 1 year | 1-3 years | | :--- | :--- | :--- | :--- | | Leiden University milestones | 122,678 | 12,268 | 110,410 | | Car lease obligations | 70,038 | 44,932 | 25,106 | | Total | 192,716 | 57,200 | 135,516 | Directors, Senior Management and Employees This section details the company's leadership, compensation, board structure, and employee base of eight people Directors and Senior Management The leadership team includes co-founders Dr. Ilan Cohn (Chairman) and Dr. Pnina Fishman (CEO) - The key management includes Dr. Ilan Cohn (Chairman), Dr. Pnina Fishman (CEO), Motti Farbstein (COO & CFO), and Dr. Sari Fishman (VP Business Development)[501] Compensation Aggregate compensation for eight office holders was $1.633 million in 2020, with formal agreements for senior management Aggregate Compensation for Office Holders (2020) | Group | Number of Persons | Total Compensation (USD) | | :--- | :--- | :--- | | All office holders | 8 | 1,633,000 | Compensation of Top 5 Office Holders (2020) | Name | Position | Total Compensation (USD) | | :--- | :--- | :--- | | Pnina Fishman | CEO | 685,000 | | Motti Farbstein | CFO | 468,000 | | Sari Fishman | VP Business Development | 329,000 | | Yaacov Goldman | External Director | 41,000 | | Guy Regev | External Director | 41,000 | Board Practices The six-member board is staggered into three classes and governed by Israeli law, including audit and compensation committees - In February 2020, shareholders approved a staggered Board of Directors, divided into three classes with three-year terms[536] - Under Israeli Companies Law, the company is required to have at least two external directors[548][560] - The company has an Audit Committee and a Compensation Committee as required by Israeli law[561][571] Employees As of December 31, 2020, the company had eight employees in Israel, none covered by a collective bargaining agreement - As of December 31, 2020, the company had eight employees in Israel across management, R&D, and business development[603] Share Ownership Intracoastal Capital LLC was the only shareholder with over 5% ownership, while management held less than 1% - As of March 15, 2021, Intracoastal Capital LLC was the only beneficial owner of more than 5% of the company's voting securities, holding approximately 6.4%[606][609] - Senior management and directors as a group beneficially owned less than 1% of the company's outstanding ordinary shares as of March 15, 2021[606] - The company maintains two share option plans, with options to purchase 11,923,400 ordinary shares outstanding as of December 31, 2020[611][613] Major Shareholders and Related Party Transactions This section details significant ownership and transactions, including management agreements and a settlement with an activist shareholder Related Party Transactions Key transactions include a 2017 merger involving a former subsidiary, management employment agreements, and a 2019 settlement - In November 2017, the company's former subsidiary, OphthaliX, completed a merger, and Can-Fite reacquired assets by canceling approximately $5 million of debt[626][627] - The company has employment and consulting agreements with its senior management, including CEO Dr. Pnina Fishman and CFO Motti Farbstein[629] - In October 2019, the company entered into a settlement agreement with Capital Point Ltd. to resolve litigation and establish a five-year standstill[634] Financial Information The company is not involved in significant legal proceedings and reinvests all earnings rather than paying dividends Consolidated Financial Statements and Other Financial Information The company is not involved in any material legal proceedings and does not plan to pay cash dividends - The company is not involved in any legal or arbitration proceedings that are expected to have a significant effect on its financial position[637] - The company has never paid cash dividends and does not intend to in the foreseeable future, planning to reinvest earnings[638] Additional Information This section covers corporate governance, articles of association, Israeli acquisition laws, and tax considerations for shareholders Memorandum and Articles of Association The articles permit any lawful purpose and include provisions for a staggered board, meeting quorums, and dividend authority - The Board of Directors is staggered into three classes, which can make it more difficult for shareholders to replace incumbent directors[655][658] - The quorum for shareholder meetings is at least two shareholders holding at least 25% of the total outstanding voting rights[668] - Israeli law requires special tender offers for acquisitions that would result in a holding of 25% or 45% of the voting rights[677] Taxation This summarizes Israeli and U.S. tax rules for shareholders, including capital gains, dividends, and PFIC status - Non-Israeli resident shareholders are generally exempt from Israeli capital gains tax on the sale of shares under certain conditions[707] - Dividends paid to non-residents of Israel are generally subject to a 25% withholding tax, which may be reduced by a tax treaty[710][711] - The company does not believe it was a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes in 2020[718][730] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk and foreign currency risk from expenses in NIS and euros - The company's primary market risks are interest rate risk on its cash and investments, and foreign currency exchange risk[766] - Foreign currency risk stems from expenses denominated in NIS and euros, while the company's functional currency is the U.S. dollar[768] PART II Controls and Procedures Management concluded that both disclosure controls and internal control over financial reporting were effective as of year-end 2020 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[780] - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[783][784] Corporate Governance As a foreign private issuer, the company follows certain Israeli home country practices instead of NYSE American rules - The company follows Israeli home country practice for shareholder meeting quorum requirements, setting it at 25% of outstanding voting stock[798] - The company adheres to Israeli law instead of NYSE American rules regarding shareholder approval for certain equity compensation plans[798] PART III Financial Statements Audited financial statements show a net loss of $14.4 million for 2020 and highlight the need to raise additional funds Consolidated Balance Sheet Highlights (As of Dec 31, 2020) | Account | Amount (USD in thousands) | | :--- | :--- | | Total Assets | 9,523 | | Cash and cash equivalents | 8,268 | | Total Liabilities | 3,449 | | Total Shareholders' Equity | 6,074 | Consolidated Statement of Comprehensive Loss (Year Ended Dec 31) | Account | 2020 (USD in thousands) | 2019 (USD in thousands) | 2018 (USD in thousands) | | :--- | :--- | :--- | :--- | | Revenues | 763 | 2,032 | 3,820 | | Operating Loss | (14,139) | (12,007) | (5,414) | | Net Loss | (14,443) | (12,625) | (6,571) | | Net Loss Per Share | (0.04) | (0.14) | (0.17) | - The independent auditor's report identifies the company's liquidity and need to raise additional capital as a critical audit matter[819][820][821] - Subsequent to year-end, the company received $2.74 million from warrant exercises and a $2.25 million upfront payment from a new distribution agreement[915][916][917]