Purple Biotech .(PPBT) - 2020 Q4 - Annual Report

Key Information Selected Financial Data The company presents selected consolidated financial data for the five years ended December 31, 2020, highlighting consistent operating losses, a significant increase in net loss to $28.1 million in 2020, and substantial asset growth to $83.8 million Consolidated Statement of Operations (Years Ended December 31) | | 2020 (USD thousands) | 2019 (USD thousands) | 2018 (USD thousands) | 2017 (USD thousands) | 2016 (USD thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | 1,000 | 1,000 | 1,000 | 100 | - | | Research and development expenses | 7,488 | 2,674 | 5,268 | 4,640 | 4,180 | | Sales, general and administrative expenses | 6,306 | 6,078 | 5,195 | 6,397 | 3,003 | | Operating loss | 12,612 | 7,156 | 7,826 | 11,966 | 7,183 | | Financing expense (income), net | 15,462 | (1,479) | (2,257) | 947 | 4,942 | | Loss for the year | 28,074 | 5,893 | 5,569 | 12,913 | 12,125 | | Loss per ordinary share (Basic and diluted) | (2.44) | (3.00) | (3.9) | (13.7) | (21.1) | Statement of Financial Position Data (As of December 31) | | 2020 (USD thousands) | 2019 (USD thousands) | 2018 (USD thousands) | 2017 (USD thousands) | 2016 (USD thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 11,247 | 4,385 | 5,163 | 3,947 | 6,758 | | Working capital | 56,184 | 4,756 | 5,200 | 4,010 | 13,625 | | Total assets | 83,803 | 14,718 | 14,723 | 14,183 | 14,914 | | Total equity | 79,752 | 10,859 | 11,004 | 8,688 | 13,385 | Adjusted Operating Loss (Non-IFRS) | | 2020 (USD thousands) | 2019 (USD thousands) | 2018 (USD thousands) | 2017 (USD thousands) | 2016 (USD thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating loss for the year | 12,612 | 7,156 | 7,826 | 11,966 | 7,183 | | Less ESOP expenses | (2,645) | (1,273) | (773) | (2,308) | (400) | | Adjusted operating loss | 9,967 | 5,883 | 7,053 | 9,658 | 6,783 | Risk Factors The company outlines significant risks across financial, operational, regulatory, and legal domains that could adversely affect its business, financial condition, and future results Risks Related to Financial Condition and Capital Requirements The company faces financial risks including a history of operating losses, a cumulative deficit of approximately $77.5 million by year-end 2020, and an ongoing need for substantial additional capital to fund operations - The company has incurred losses of approximately $77.5 million since the commencement of its pharmaceutical R&D activities through December 31, 2020, and expects to incur significant additional losses[44] - Profitability is dependent on the successful development and commercialization of its oncology candidates (NT219, CM24) and the successful marketing of its FDA-approved drug, Consensi[44][45] - The company needs to raise additional capital to fund its operations; failure to do so could force delays, scope reductions, or elimination of research, development, or commercialization programs[46] Risks Related to Business and Regulatory Matters The company faces significant business and regulatory risks, including potential clinical trial failures, reliance on third parties, COVID-19 impacts, and obligations to the Israel Innovation Authority - Clinical trials for therapeutic candidates may fail to demonstrate adequate safety and efficacy, which is a primary risk that could prevent or delay regulatory approval and commercialization[51] - The company relies on third parties for critical functions including Chemistry Manufacturing and Controls (CMC), research, preclinical studies, and clinical trials, making it vulnerable to their performance and compliance[71][72] - The COVID-19 pandemic may adversely affect operations, including causing slowdowns in clinical trial site activities, difficulties in patient enrollment, and potential disruptions to production and supply chains[95][119][120] - The company's subsidiary, TyrNovo, has obligations to the Israel Innovation Authority (IIA) for grants received, which include royalty payments on future revenues and restrictions on transferring manufacturing and know-how outside of Israel[129][134][135] Risks Related to the Pharmaceutical Industry The company operates in a highly competitive and regulated pharmaceutical industry, facing challenges in market viability, competition, reimbursement, and compliance with extensive healthcare laws - Even with regulatory approval, Consensi and future therapeutic candidates may not become commercially viable due to factors like low market acceptance, competition, and insufficient reimbursement[142][144] - The pharmaceutical industry is highly competitive, with many companies having greater resources; new drugs or technologies developed by others could render the company's products obsolete[146][147] - Profitability is heavily dependent on adequate coverage and reimbursement from third-party payers; there is significant uncertainty regarding reimbursement for new products, and payers are increasingly focused on cost-containment[150][151] - The company is subject to numerous federal and state healthcare laws, including the Anti-Kickback Statute and the False Claims Act; failure to comply could result in significant penalties and harm to the business[162][163] Risks Related to Legal Proceedings and Intellectual Property The company faces risks from ongoing legal proceedings, including patent ownership claims and infringement suits, and challenges in obtaining and enforcing intellectual property protection - The company is involved in multiple legal proceedings, including a patent ownership claim by Bar Ilan University against its subsidiary TyrNovo and a patent infringement lawsuit filed against Lupin Ltd. regarding a generic version of Consensi[175][176] - The company is also facing class action motions in Israel related to its public disclosures in 2015 and the subsequent investigation by the Israel Securities Authority (ISA), which was settled via an Enforcement Arrangement[177][179] - The company's success depends on its ability to obtain and enforce patent protection for its therapeutic candidates, but the patent process is complex and uncertain, and issued patents may be challenged or circumvented by competitors[183][185] Risks Related to Operations in Israel As an Israeli-incorporated company, the company is exposed to regional political and economic instability, challenges in enforcing U.S. judgments, and currency fluctuation risks - The company's operations are based in Israel, making it susceptible to political, economic, and military instability in the region, which could adversely affect business and operations[203] - It may be difficult for investors to enforce U.S. judgments against the company, its Israeli-resident officers, and directors, or to assert U.S. securities law claims in Israeli courts[197] - Provisions of Israeli law and the company's articles of association, such as those regulating mergers and tender offers, may delay or prevent a change of control[208] - The company is exposed to currency fluctuations as a portion of its expenses are in NIS while its reporting currency is the U.S. dollar[213] Risks Related to ADSs and Ordinary Shares The market price of the company's ADSs and ordinary shares is subject to high volatility, potential dilution from future sales, delisting risks, and adverse U.S. tax consequences for investors - The market price of the company's ADSs and ordinary shares is subject to significant fluctuation and volatility, common for biotechnology and pharmaceutical companies[219][221] - The company regained compliance with NASDAQ's minimum $1.00 bid price requirement in September 2020 after a ratio change, but failure to maintain this in the future could lead to delisting[224] - The company may be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could result in negative tax consequences for U.S. investors[235] - As a foreign private issuer, the company is exempt from certain SEC reporting and corporate governance requirements applicable to U.S. domestic companies, potentially providing less information and protection to investors[236][237] Information on the Company History and Development Incorporated in Israel in 1968, the company evolved into a biopharmaceutical entity through strategic acquisitions of Kitov Pharmaceuticals, TyrNovo, and FameWave, culminating in its renaming to Purple Biotech Ltd. in December 2020 - The company's ADSs have been traded on NASDAQ since November 2015 under the symbol "PPBT"[252] - Key strategic acquisitions include Kitov Pharmaceuticals (Consensi) in 2013, a majority stake in TyrNovo (NT219) in 2017, and FameWave (CM24) in 2020[254][255][256] - The company changed its name from Kitov Pharma Ltd. to Purple Biotech Ltd. on December 7, 2020[257] Business Overview Purple Biotech is a clinical-stage company focused on developing therapies to overcome tumor immune evasion and drug resistance, operating in Oncology and Pain/Hypertension segments - The company operates through two segments: Oncology (CM24 and NT219) and Pain and Hypertension (Consensi)[261][262] - The U.S. commercial launch of Consensi began in May 2020 through its distribution partner[262] - The company's strategy is to focus on oncology assets, leverage its clinical and regulatory expertise, expand its pipeline through acquisitions or in-licensing, and collaborate with third parties for development and commercialization[276][284] Oncology Segment (CM24 and NT219) The oncology segment focuses on clinical-stage candidates CM24, an immune checkpoint inhibitor, and NT219, a small molecule targeting cancer drug resistance, both advancing in Phase 1/2 trials - CM24 is a humanized monoclonal antibody targeting the CEACAM1 immune checkpoint; a Phase 1/2 trial is planned in collaboration with Bristol Myers Squibb to evaluate CM24 in combination with nivolumab (Opdivo)[264][278] - NT219 is a small molecule dual inhibitor of IRS1/2 and STAT3 designed to overcome cancer drug resistance; a Phase 1/2 first-in-human study of NT219 as a single agent and in combination with cetuximab began in H2 2020[265][292][307] - The company has entered into a master development services agreement with Rentschler Biopharma SE for the manufacturing of CM24 clinical trial batches for a total of $6.4 million[291] Pain and Hypertension Segment - Consensi This segment centers on Consensi®, an FDA-approved fixed-dose combination drug commercially launched in the U.S. in May 2020, with additional licensing agreements for South Korea and China - Consensi is an FDA-approved combination of celecoxib and amlodipine besylate for the simultaneous treatment of osteoarthritis pain and hypertension[334] - The company launched U.S. commercial sales of Consensi in May 2020[347] - Exclusive commercialization agreements are in place for South Korea with Kuhnil Pharmaceutical and for China with Hebei Changshan Biochemical Pharmaceutical Co., Ltd[366][367] - The company entered into an exclusive marketing and distribution agreement with Coeptis for the U.S. market, which includes royalties of 20% on net sales and potential milestone payments up to $99.5 million[368] Intellectual Property The company protects its proprietary technology through patents and licenses, with extensive patent families covering its oncology and pain/hypertension assets, and is actively involved in patent infringement litigation - FameWave's CM24 is covered by five patent families with patents granted in the U.S., Europe, and other key markets, with terms extending to 2030 and beyond[371] - TyrNovo's NT219 is covered by five patent families with patents granted in the U.S. and Europe, with terms extending to 2027 and beyond[383] - Consensi is protected by U.S. patents covering its composition and methods of use, with terms extending to 2029 and 2030[392][393] - In September 2020, the company filed a patent infringement complaint against Lupin Ltd. for its attempt to market a generic version of Consensi[397] Government Regulations and Funding The company is subject to extensive regulation by the FDA and other international authorities, with a lengthy drug approval process, and has received grants from the Israel Innovation Authority with associated obligations - The company's operations are subject to extensive regulation by the FDA and other global health authorities, covering all stages from development to post-marketing[403] - The company utilized the Section 505(b)(2) NDA pathway for Consensi, which allows for an expedited approval process by referencing data from previously approved drugs[414] - The company's subsidiary TyrNovo has received approximately NIS 5.5 million ($1.71 million) in grants from the Israel Innovation Authority (IIA), creating a contingent royalty obligation on future sales[434][440] Organizational Structure Purple Biotech Ltd. is an Israeli company with wholly-owned subsidiaries FameWave Ltd. and Kitov USA Inc., and a majority-owned subsidiary, TyrNovo Ltd. - The company's structure includes wholly-owned subsidiaries FameWave Ltd. and Kitov USA Inc., and a majority-owned subsidiary, TyrNovo Ltd. (98.47% ownership)[441] Property, Plant and Equipment The company leases all its facilities, with its principal executive offices located in Rehovot, Israel, under a lease expiring in December 2025 with an extension option - The company leases its principal executive offices in Rehovot, Israel, under a lease agreement that expires on December 31, 2025, with an option to extend[442] Operating and Financial Review and Prospects Operating Results For the year ended December 31, 2020, revenues remained stable at $1.0 million, but operating loss increased by 76% to $12.6 million, and net loss surged to $28.1 million, primarily due to higher R&D and non-cash finance expenses Comparison of Operating Results (2020 vs. 2019) | Metric | 2020 (USD thousands) | 2019 (USD thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | 1,000 | 1,000 | 0% | | R&D Expenses | 7,500 | 2,700 | 180% | | Operating Loss | 12,600 | 7,200 | 76% | | Finance Expenses, net | 15,500 | (1,500) (income) | N/A | | Net Loss | 28,100 | 5,900 | 376% | - The 180% increase in R&D expenses in 2020 was primarily due to costs related to the initiation of NT219 clinical trials and manufacturing for the planned CM24 clinical trials[474] - The significant increase in net loss in 2020 was largely driven by a $17.1 million increase in non-cash finance expenses related to changes in the fair value of derivative warrants[478][479] Liquidity and Capital Resources The company significantly strengthened its financial position in 2020 by raising approximately $55.1 million in net proceeds, resulting in $60.8 million in cash and deposits by year-end, though substantial additional funds will be needed for future development - In 2020, the company raised approximately $55.1 million in net proceeds through a series of financing activities, including public offerings and warrant exercises[498] - As of December 31, 2020, the company had approximately $60.8 million in cash, cash equivalents, and short- and long-term deposits[494] Cash Flow Summary (Years Ended December 31) | Activity | 2020 (USD millions) | 2019 (USD millions) | 2018 (USD millions) | | :--- | :--- | :--- | :--- | | Net Cash Used in Operating Activities | (12.1) | (5.6) | (8.5) | | Net Cash Provided by (Used in) Investing Activities | (49.6) | (0.4) | 2.0 | | Net Cash Provided by Financing Activities | 68.5 | 5.2 | 7.8 | Contractual Obligations as of December 31, 2020 | Obligation Type | Total (USD thousands) | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating Lease Obligations | 1,087 | 222 | 445 | 420 | - | | Purchase Obligations | 2,857 | 2,652 | - | 205 | - | | Other Long-term Liabilities | 265 | - | - | 265 | - | | Total | 4,209 | 2,874 | 445 | 890 | - | Directors, Senior Management and Employees Directors and Senior Management The company's leadership comprises experienced professionals, including Dr. Eric Rowinsky as independent Chairman, Isaac Israel as CEO, and Gil Efron as Deputy CEO and CFO - Dr. Eric Rowinsky, an expert in cancer therapeutic development, serves as the Independent Director and Chairman of the Board[506] - Isaac Israel is the Chief Executive Officer and a Director[506][507] - Gil Efron serves as the Deputy Chief Executive Officer and Chief Financial Officer[506][513] Compensation For 2020, aggregate compensation for directors and officers was approximately $3.6 million, with the five most highly compensated officers receiving $3.5 million, and shareholders approved new equity grants to leadership - Aggregate compensation for all directors and officers in 2020 was approximately $3.6 million[519] 2020 Compensation for Five Most Highly Compensated Office Holders (USD) | Name | Position | Salary/Other | Bonus | Share-based Payment | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Isaac Israel | CEO and Director | 375,318 | 134,778 | 618,649 | 1,128,745 | | Gil Efron | CFO and Deputy CEO | 265,844 | 114,471 | 378,095 | 758,410 | | Dr. Bertrand Liang | Chief Medical Officer | 345,368 | 101,519 | 306,708 | 753,595 | | Dr. Hadas Reuveni | VP of R&D | 219,754 | 52,258 | 234,784 | 506,796 | | Dr. Michael Schickler | Head of Clinical Operations | 158,375 | 60,762 | 149,544 | 368,681 | - In August 2020, shareholders approved grants of options and RSUs to all directors and officers, vesting over three years[524] Board Practices The Board of Directors consists of seven members, with a majority independent, operating under a staggered three-year term structure and adhering to a shareholder-approved Compensation Policy - The Board of Directors has seven members, divided into three staggered classes with three-year terms[533][534] - The company has opted out of the Israeli Companies Law requirement to appoint external directors, instead complying with NASDAQ's director independence and committee composition rules for U.S. domestic issuers[538] - The company has an Audit Committee, a Compensation Committee, and a Nominations Committee to oversee financial reporting, compensation policies, and director nominations, respectively[541][548][560] - A comprehensive Compensation Policy, approved by shareholders in August 2020, governs the terms of service and employment for directors and officers[554] Employees As of December 31, 2020, the company had 13 employees and full-time consultants, primarily located in Israel, with no history of labor-related work stoppages - As of December 31, 2020, the company had 13 employees (including full-time consultants), up from 9 in 2019 and 10 in 2018[591][592][593] - The workforce is split between research and development (7) and general/administrative roles (6)[591] Major Shareholders and Related Party Transactions Major Shareholders As of March 7, 2021, CVI Investments, Inc. was the only shareholder known to beneficially own 5% or more of the company's ordinary shares, while officers and directors collectively owned less than 1% 5% or Greater Shareholders (as of March 7, 2021) | Name of Beneficial Owner | Shares Beneficially Owned | Percentage | | :--- | :--- | :--- | | CVI Investments, Inc. | 13,488,880 | 7.2% | - As of March 7, 2021, all officers and directors as a group beneficially owned less than 1% of the company's ordinary shares[597] Related Party Transactions The company engages in related party transactions primarily with its subsidiaries, including intercompany loans and service agreements for R&D, management, and administrative services reimbursed at cost plus 5% - Purple Biotech provided a loan of up to ~$2 million to its subsidiary FameWave in connection with its acquisition[614] - The company has service agreements with its subsidiaries FameWave and TyrNovo, providing various services for which it is reimbursed at cost plus 5%[615][616] Financial Information Consolidated Statements and Other Financial Information This section references the full consolidated financial statements and details ongoing legal proceedings, including class action motions in Israel, a patent ownership claim against TyrNovo, and a patent infringement lawsuit against Lupin Ltd. Legal Proceedings The company is involved in several legal proceedings, including ongoing class action motions in Israel related to past disclosures and its U.S. IPO, a patent ownership claim against TyrNovo, and a patent infringement lawsuit against Lupin Ltd. - A 2015 motion for a class action lawsuit in Israel is ongoing, claiming damages of approximately NIS 16.4 million related to the company's November 2015 U.S. IPO[620] - The company settled an investigation by the Israel Securities Authority (ISA) via an Enforcement Arrangement, agreeing to pay a fine of NIS 1.5 million for negligent disclosures in 2014 and 2015[624][625] - A patent ownership claim was filed against subsidiary TyrNovo by Bar Ilan University in December 2020[633] - The company filed a patent infringement lawsuit against Lupin Ltd. in September 2020 after Lupin sought FDA approval to market a generic version of Consensi[634] Quantitative and Qualitative Disclosures About Market Risk Market Risk The company's primary market risk is foreign currency exchange risk due to NIS-denominated expenses, while interest rate and credit risks are considered immaterial as funds are held in short-term deposits - The company's main market risk is foreign currency exposure, as some expenses are in NIS while its functional currency is the USD[735] - Interest rate and credit risks are considered immaterial as cash is held in short-term deposits with major banking institutions[732][733] Sensitivity to USD/NIS Exchange Rate Changes (as of Dec 31, 2020) | Change in Exchange Rate | Impact on Income (loss) (USD thousands) | | :--- | :--- | | 5% Decrease | (40) | | 2% Decrease | (15) | | 2% Increase | 15 | | 5% Increase | 40 | Controls and Procedures Internal Controls Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, a conclusion attested to by the independent registered public accounting firm - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[748] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[750] - The independent registered public accounting firm has issued an attestation report on the effectiveness of the company's internal control over financial reporting[752] Financial Statements Consolidated Financial Statements The consolidated financial statements for 2020 show a significant increase in total assets to $83.8 million, driven by financing activities, and a net loss of $28.1 million, primarily due to non-cash finance expenses and increased R&D costs Key Financial Position Data (as of Dec 31) | | 2020 (USD thousands) | 2019 (USD thousands) | | :--- | :--- | :--- | | Total current assets | 59,282 | 8,302 | | Total assets | 83,803 | 14,718 | | Total current liabilities | 3,098 | 3,546 | | Total equity | 79,752 | 10,859 | Key Operations Data (Year ended Dec 31) | | 2020 (USD thousands) | 2019 (USD thousands) | 2018 (USD thousands) | | :--- | :--- | :--- | :--- | | Revenues | 1,000 | 1,000 | 1,000 | | Operating Loss | 12,612 | 7,156 | 7,826 | | Loss for the year | 28,074 | 5,893 | 5,569 | | Basic and diluted loss per ADS (USD) | 2.44 | 3.00 | 3.90 | Key Cash Flow Data (Year ended Dec 31) | | 2020 (USD thousands) | 2019 (USD thousands) | 2018 (USD thousands) | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (12,092) | (5,581) | (8,480) | | Net cash provided by (used in) investing activities | (49,595) | (449) | 2,044 | | Net cash provided by financing activities | 68,488 | 5,233 | 7,788 | Notes to the Consolidated Financial Statements The notes detail the company's accounting policies, segment reporting, asset acquisitions, significant equity increases from 2020 financing rounds, and contingent liabilities related to IIA grants and ongoing legal claims - The company operates in two segments: Oncology (NT219, CM24) and Pain and Hypertension (Consensi); in 2020, the Oncology segment incurred $6.5 million in R&D expenses, while the Pain and Hypertension segment incurred $0.3 million[904][908] - The acquisition of FameWave in January 2020 was accounted for as an asset purchase, with $14.3 million allocated to in-process research and development (IPR&D)[929][932][933] - In 2020, the company raised a total of approximately $55.1 million net from multiple financing rounds, significantly increasing its share premium and cash reserves[952][954][957][961] - The company has contingent liabilities to the Israel Innovation Authority (IIA) for grants received by TyrNovo, with a maximum royalty repayment of approximately NIS 5.5 million ($1.6 million) plus interest, payable from future revenues[993][994]