10-K
1
tm211174d1_10k.htm
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
FOR ANNUAL AND
TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2020
OR
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from to
001-38807
(Commission file number)
ANCHIANO THERAPEUTICS
LTD.
(Exact name of
registrant as specified in its charter)
Israel
81-3676773
(State
or other jurisdiction
of
incorporation or organization )
(I.R.S.
Employer
Identification
No.)
One
Kendall Square
Building
1400E
Suite 14-105
Cambridge,
MA
02139
(Address
of principal executive offices)
(Zip
Code)
(857) 259-4622
Registrant’s telephone number, including area code
Securities registered
pursuant to Section 12(b) of the Act:
Title
of each class
Trading
Symbol(s)
Name
of each exchange on which registered
American Depositary
Shares, each representing five ordinary shares, no par value per share
ANCN
Nasdaq Capital
Market
Ordinary shares,
no par value per share
n/a
Nasdaq Capital
Market*
* Not
for trading; only in connection with the registration of American Depositary Shares.
Securities registered
pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
¨
Accelerated
filer
¨
Non-accelerated
filer
x
Smaller
reporting company
x
Emerging
growth company
x
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ¨
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued its audit report. Yes ¨ No x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of ordinary
shares held by non-affiliates of the registrant on the last business day of the registrant’s most recently completed second
fiscal quarter was $16,607,978.24, based on the closing sale price of the registrant’s American Depositary Shares as reported
on the Nasdaq Capital Market on June 28, 2019.
As of February 18, 2021, the registrant
had 37,099,352 ordinary shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
FORM 10-K
TABLE OF CONTENTS
PART I
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
3
Item
1.
Business
5
Item 1A.
Risk Factors
38
Item 1B.
Unresolved Staff Comments
67
Item 2.
Properties
67
Item 3.
Legal Proceedings
67
Item 4.
Mine Safety Disclosures
67
PART II
Item 5.
Market for Registrant’s
ADSs, Related Stockholder Matters and Issuer Purchases of Equity Securities
68
Item 6.
Selected Financial Data
68
Item 7.
Management’s Discussion
and Analysis of Financial Condition and Results of Operations
69
Item 8.
Financial Statements
and Supplementary Data
77
Item 9.
Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure
78
Item 9A.
Controls and Procedures
78
Item 9B.
Other Information
78
PART III
Item 10.
Directors, Executive
Officers and Corporate Governance
79
Item 11.
Executive Compensation
82
Item 12.
Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters
87
Item 13.
Certain Relationships
and Related Transactions, and Director Independence
89
Item 14.
Principal Accountant Fees
and Services
90
PART IV
Item 15.
Exhibits and Financial Statement
Schedules
91
2
PART I
In this Annual Report on Form 10-K,
unless the context otherwise requires:
· references
to “Anchiano,” the “Company,” “us,” “we”
and “our” refer to Anchiano Therapeutics Ltd., an Israeli company, and its
consolidated subsidiaries;
· references
to “ordinary shares,” “our shares” and similar expressions refer
to the Company’s ordinary shares, no nominal (par) value per share;
· references
to “ADSs” refer to the American Depositary Shares listed on the Nasdaq Capital
Market (“Nasdaq”) under the symbol “ANCN,” each representing
five ordinary shares of the Company;
· references
to “dollars,” “U.S. dollars” and “$” are to United
States Dollars;
· references
to “NIS” are to New Israeli Shekels;
· references
to the “Companies Law” are to Israel’s Companies Law, 5759-1999, as
amended; and
· references
to the “SEC” are to the U.S. Securities and Exchange Commission.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements set forth under the captions
“Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and “Risk Factors,” and other statements included elsewhere in this Annual Report on Form 10-K, which are not
historical, constitute “forward-looking statements” within the meanings of Section 27A of the Securities Act
of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), including statements regarding expectations, beliefs, intentions or strategies for the future.
These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking
statements. In some cases, you can identify forward-looking statements by terms including “anticipates,” “believes,”
“could,” “estimates,” “expects,” “intends,” “may,” “plans,”
“potential,” “predicts,” “projects,” “should,” “will,” “would,”
and similar expressions intended to identify forward-looking statements, but these are not the only ways these statements are
identified. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and
subject to risks and uncertainties.
Factors that could cause our actual results
to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:
· the
results of the strategic review that our board of directors initiated;
· the
composition of our board of directors;
· the
initiation, timing, progress and results of our preclinical studies and other therapeutic
candidate development efforts;
· our
ability to develop and advance a future therapeutic candidate into clinical trial or
to successfully complete our preclinical studies;
· our
receipt of regulatory approvals for a future therapeutic candidate, and the timing of
other regulatory filings and approvals;
· the
clinical development, commercialization and market acceptance of a future therapeutic
candidate;
3
· our
ability to establish and maintain corporate collaborations and integrate new therapeutic
candidates and new personnel;
· the
interpretation of the properties and characteristics of a future therapeutic candidates;
· the
implementation of our business model and strategic plans for our business and future
therapeutic candidates;
· the
scope of protection we are able to establish and maintain for intellectual property rights
covering future therapeutic candidates and our ability to operate our business without
infringing the intellectual property rights of others;
· estimates
of our expenses, future revenues, capital requirements and our needs for additional financing;
· risks
relating to our ability to finance our activities and research programs;
· our
dependence on performance by third-party providers of services and supplies, including
without limitation, clinical research organizations;
· the
inherent risks and uncertainties in developing the types of preclinical products we are
attempting to develop;
· competitive
companies, technologies and our industry;
· risks
related to our ability to maintain compliance with the continued listing standards of
Nasdaq; and
· risks
relating to changes in healthcare laws, rules and regulations in the United States
or elsewhere.
· risks
related to previous announced combination with Chemomab including with respect to the
change of our business prospects, new product candidates, and clinical development plans
following such combination.
· risks
related to a failure to complete the previous announced combination with Chemomab, including
our ability to support our operation with limited cash runway.
4
Item
1. Business
On December 14, 2020, we entered
into an Agreement and Plan of Merger “(Merger Agreement”) with Chemomab Ltd. (“Chemomab”), an Israeli
limited company and a clinical-stage biotech company focusing on the discovery and development of innovative therapeutics for
fibrosis-related diseases with high unmet need, which included the proposed business combination (“Merger”) of CMB
Acquisition Ltd., a wholly owned subsidiary of ours, with Chemomab as the surviving company, subject to shareholder approval.
As a result, you should not place undue reliance on the plans discussed below relating to the pan-RAS and PDE10/ß-catenin
programs as they are subject to change.
The merger is described in detail in a
proxy statement / prospectus that we filed with the SEC on February 12, 2021 and that is available at this link: https://www.sec.gov/Archives/edgar/data/1534248/000110465921021553/tm211883-6_424b3.htm
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. These therapies are called small molecule targeted therapies. Our company has obtained the option to license
small molecule technologies that we believe we can develop into product candidates that can deliver novel treatments for cancer
patients whose cancers are caused by mutated genes and for whom existing therapies are limited in effectiveness. The first of
these technologies comprises small molecules that potently inhibit the products of RAS oncogenes. RAS oncogenes are the most frequently
mutated family of genes in human cancer, responsible for almost a third of all human malignancies, and almost half of the three
most lethal cancers ( i.e ., lung cancer, colorectal cancer and pancreatic cancer). To date there are no approved therapies
that are effective in countering their tumorigenic effects. Our second technology consists of small molecules that interfere with
the Wnt/APC/β-catenin biochemical pathway through the inhibition of phosphodiesterase 10 (“PDE10”). Mutations
in this pathway are involved in most human colorectal cancers, the second leading cause of cancer deaths in the United States,
as well as in the hereditary cancer predisposition syndrome, familial adenomatous polyposis (“FAP”), which gives rise
to colorectal cancer. As is true for RAS-driven cancers, to date there are no approved therapies specifically for cancers that
carry mutations in the Wnt/APC/β-catenin pathway genes.
Previously we discovered and developed
a gene therapy, inodiftagene vixteplasmid (“inodiftagene”), designed to treat early stage bladder cancer. We developed
this gene therapy in six clinical trials in pancreatic cancer, ovarian cancer, and bladder cancer. Based on these preliminary
clinical studies, we planned and initiated a clinical trial designed as the basis for potential regulatory approval of inodiftagene.
This clinical trial, the Phase 2 Codex trial, was initiated in December 2018, enrolling patients through the following year.
We terminated the program in November 2019 based on our assessment that the observed preliminary efficacy of inodiftagene
in bladder cancer was insufficient to support regulatory approval.
In parallel to the now-terminated inodiftagene
program, our corporate goals for 2019 called for the expansion of our pipeline, and we determined to move toward small molecule
anti-cancer therapeutics. In September 2019, we entered into a collaboration and license agreement (the “Collaboration
Agreement”) with ADT Pharmaceuticals, LLC (“ADT”) pursuant to which we agreed to use commercially reasonable
efforts to conduct research and development activities with respect to the pan-RAS and PDE10/β-catenin programs under the
oversight of a jointly established steering committee. In addition, ADT granted us an exclusive option to license its small molecule
technologies. The Collaboration Agreement covers two proprietary classes of molecules: (1) inhibitors of RAS, and (2) inhibitors
of the Wnt/APC/β-catenin pathway via PDE10. Pursuant to the Collaboration Agreement, we have an exclusive option to license
the suite of intellectual property covering these molecules, with granted patents that extend to 2034.
We believe we will be able to develop these
molecules into product candidates to provide new therapies for patients with cancers whose pathogenesis depends on mutant RAS
oncogenes, or on mutations in the Wnt/APC/β-catenin pathway. Both of these genetic lesions cause enormous human suffering
by reason of the cancers they cause. These genes are primarily responsible for lung, colorectal, and pancreatic cancers, the most
common lethal cancers, among others. Mutations in one of the RAS genes are present in more than 30% of all human cancers, making
these the most frequent oncogenic mutations in cancer. The Wnt/APC/β-catenin pathway genes are mutated in approximately 90%
of colorectal cancers.
5
The impact of RAS and Wnt/APC/β-catenin
mutations can be best understood by considering cancer incidence and death rates in the United States. According to the American
Cancer Society, in 2020, it is expected that more than 1.8 million new cases of cancers will be diagnosed in the United States,
and approximately 606,520 people in the United States are expected to die of cancer. More than 30% of these cancers have RAS mutations.
The cancers with the highest estimated mortality rates in the United States for 2020 are lung cancer (approximately 136,000 deaths),
colorectal cancer (approximately 53,000 deaths), and pancreatic cancer (approximately 47,000 deaths), which together are estimated
to account for over 235,000 deaths in 2020 in the United States alone. These three cancer types are largely driven by mutant RAS.
Globally, the epidemiologic profile is similar. The Wnt/APC/β-catenin pathway is similarly implicated in a large number of
lethal cancers. Approximately 90% of colorectal cancers carry mutations in either the adenomatous polyposis coli (“APC”)
gene or in the CTNNB1 gene that encodes β-catenin. This translates into approximately 48,000 deaths due to colorectal cancer
carrying Wnt/APC/β-catenin pathway mutations in the United States alone. Additionally, the involvement of the Wnt/APC/β-catenin
pathway in the hereditary cancer syndrome FAP via mutations in the APC gene affects approximately 16,000 additional patients in
the United States.
The RAS oncogenes are heavily implicated
in the genesis of a broad spectrum of cancers as the most common oncogenic alterations known. There are three members of the RAS
family of genes: KRAS, HRAS, and NRAS. Of the most frequently lethal cancer types, lung cancers (non-small cell lung cancers,
“NSCLC”) have mutations in one of the RAS family of genes in approximately 35% of cases; colorectal cancers carry
RAS mutation in approximately 45% of cases; and pancreatic cancers carry RAS mutations in over 95% of cases. We estimate that
the total addressable population of patients with RAS-mutation driven solid tumors alone is more than 165,000 patients per year
in the US. This enormous toll of cancer morbidity and mortality suggests that therapies directed at tumors carrying mutated forms
of RAS are urgently needed.
Treating cancers that carry mutated oncogenes
by discovering and developing small molecule inhibitors of the mutated protein products of the oncogene is one of the most successful
cancer treatment paradigms that exists. Approved small molecule targeted drugs include inhibitors of the oncogenic breakpoint
cluster region-Abelson murine leukemia viral oncogene homolog 1 (“BCR-ABL”) including imatinib, dasatinib, and ponatinib
in leukemia; inhibitors of oncogenically mutated epidermal growth factor receptor (“EGFR”) in NSCLC including erlotinib
and osimertinib; inhibitors of mutated anaplastic leukemia kinase (“ALK”) in NSCLC such as crizotinib and brigatinib;
and many others. However, there are no approved inhibitors for mutated members of the RAS family of oncogenes. Until very recently,
the unique biochemistry and biology of the RAS family had resisted efforts of cancer biologists to discover and develop drugs
capable of inhibiting the activity of the mutated protein. However, in 2014 work by Shokat and others led to new approaches to
the discovery of small molecules capable of inhibiting a particular mutated form of RAS, known as KRAS G12C. This designates a
mutation in the KRAS member of the RAS family, in which an amino acid at position 12 is altered due to a mutation in the encoding
gene. In 2019, this work led to the first demonstration in the clinic of anti-tumor response associated with treatment with KRAS
G12C inhibitors under development by Amgen and Mirati Therapeutics. We believe the significance of these successes is field-altering,
as for the first time there is evidence that inhibition of mutated RAS isoforms may be undertaken in the same manner as other
successful small molecule targeted therapies had shown possible against other mutated oncogenes. In other words, RAS has become
a clinically validated target. However, KRAS is only one of three mutated isoforms of the RAS family, and only approximately 11%
of KRAS mutations are of the G12C type. This means that while these observations have proven that RAS-directed therapy using small
molecule inhibitors is possible with clinical effect, results so far are confined to a small subset of patients carrying a particular
mutation. That said, the values of the companies pursuing KRAS G12C inhibitors has grown by many billions of dollars during 2019.
Our lead focus is our pan-RAS program,
which we believe is poised to take advantage both of the fact that RAS inhibition has been shown to be clinically valid, and initial
successes by existing therapies have been confined to a fraction of tumors that carry RAS mutations. A broadly-acting pan-RAS
inhibitor with the potential to treat RAS-driven cancers regardless of RAS isoform or mutation would be clinically useful. We
believe our RAS-inhibitor molecules have potential for RAS inhibition in a broad variety of clinical settings.
The characteristics one would need in such
inhibitors include: selectivity for activated RAS; potency against cells harboring mutant RAS; consistency of biochemical data
with RAS inhibition (as opposed to other pathway points of inhibition); evidence for binding RAS directly; in vivo anti-tumor
activity; and immunological stimulation in vivo consistent with other clinical RAS inhibitors.
6
Our small molecule inhibitors have been
demonstrated to have these characteristics. Our lead RAS-inhibitor molecules are novel structures that share an indene core. These
molecules potently inhibit growth of tumor cells harboring mutant RAS, while having greater than 100-fold selectivity over cells
with normal RAS activity. Inhibitory activity has been observed with low nanomolar potency in KRAS-, HRAS-, and NRAS-driven tumor
cell models with a variety of mutations across a variety of tumor types. This activity is observable in both monolayer cultures,
and in 3-D spheroid cultures, which may have higher predictive value for anti-tumor activity. These compounds inhibit downstream
signaling through RAF and PI3K pathways, which is consistent with their acting directly on RAS, as opposed to another pathway
molecule. They initiate cell-cycle arrest and induce apoptosis, consistent with cell killing. Importantly, the inhibitors demonstrate
blockade of GTP loading of RAS in the nucleotide-free state in cell-free biochemical assays, suggesting that their mechanism of
action is through interference of GTP-mediated signaling. They have exhibited in vivo activity in RAS-mutant tumor models.
Finally, an emerging characteristic of RAS inhibition is the stimulation of anti-tumor immunity. This has been shown with AMG
510, a KRAS G12C inhibitor presently in the clinic, and it suggests that effective RAS inhibition stimulates several anti-tumor
immune mechanisms. Our inhibitors have been shown to similarly stimulate anti-tumor T-cell-mediated immune mechanisms, suggesting
that their mechanism is indeed effected through RAS.
We have identified lead compounds with
the desired biologic and biochemical characteristics with regard to effecting pan-RAS inhibition. We are undertaking additional
structural studies and medicinal chemistry to identify a clinical lead compound. We anticipate that we will identify a clinical
development lead compound in the next 12 to18 months, followed by 12 months of Investigational New Drug (“IND”) application-enabling
studies. We believe this will allow us to initiate our first in human trial in 2022. Initial clinical studies will enroll patients
with RAS mutations and advanced solid tumors. The clinical development of other targeted therapies in tumors with genetically
defined driver mutations, including the development plans for the KRAS G12C inhibitors presently under investigation, suggests
that there is a path to accelerated approval based on a single well-designed multi-center single-arm study. We would then pursue
the expansion of indications to additional tumor types, earlier lines of therapy, and combination studies, with additional trials.
Our focus initially will be on the pan-RAS-inhibitor
program. Our second program, the PDE10/β-catenin program, will proceed in collaboration with ADT. This program’s suite
of small molecules selectively and potently inhibit PDE10 and suppress Wnt/APC/β-catenin signaling in preclinical models.
PDE10 inhibition has been shown to downregulate β-catenin expression and inhibits polyp and tumor growth. We have identified
molecules that are orally bioavailable, and, in our preliminary mouse models, have been shown to inhibit the development of intestinal
polyposis and colon cancer, and the growth of pulmonary metastases. Initial plans for continued preclinical development of the
PDE10/β-catenin program will be funded by ADT using Small Business Innovation Research (“SBIR”) grants to ADT.We
believe we are positioned for the successful development of small molecule inhibitors. We believe that our pan-RAS and PDE10/β-catenin
programs have substantial promise to lead to new development candidates with the potential to treat lethal tumors harboring RAS
and Wnt/APC/β-catenin pathway mutations in the United States and globally.
In January 2020, our board of directors
approved management’s recommendation to close our office and laboratories located in Israel. Following the closure of the
Israeli facilities at the end of May 2020, our sole remaining office was located in Cambridge, Massachusetts. Under circumstances
related our restructuring this office has not been in use for a large part of the year and our lease for this office in Cambridge,
Massachusetts terminated on February 28, 2021. We are allowed, however, to continue using this address to receive mail.
On July 2, 2020, our Chief Executive
Officer, Dr. Frank Haluska, sent a letter to the Chairman of our board of directors outlining Dr. Haluska’s belief
that events had occurred that were sufficient to trigger his ability to resign for “Good Reason” under his employment
agreement. Our board of directors informed Dr. Haluska that it disagreed with the letter’s assertions regarding “Good
Reason” and treated the letter as a constructive resignation effective as of July 2, 2020. On July 12, 2020, Dr. Frank
Haluska tendered his written resignation from our board of directors, effective immediately. Dr. Haluska referenced the matters
articulated in his letter of July 2, 2020, and the Company’s response and actions following receipt of the letter as
the basis for his resignation from the Board. It is our position, based on advice from our legal counsel, that Dr. Haluska
resigned without Good Reason, is not entitled to severance, and we will contest any and all claims for severance. Prior to the
appointment of Mr. Neil Cohen as interim Chief Executive Officer in October 2020 (see below), our board of directors
handled all matters related to CEO duties.
On October 20, 2020, we appointed
Mr. Neil Cohen as interim Chief Executive Officer of Anchiano, effective immediately. Mr. Cohen continues to serve as
a member of our board of directors. The Company also appointed Andrew Fine to serve as our Chief Financial Officer, effective
immediately. Mr. Fine previously served as our Interim Chief Financial Officer pursuant to a subcontracting agreement.
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
July 2020 to undertake reductions in headcount and other cost saving measures. These included plans to temporarily reduce
our internal and external research and development work on the Company’s pan-RAS-inhibitor program until there is greater
clarity regarding Anchiano’s ability to fund the program. We continue to undertake actions for the promotion of the program
and its assets and towards strengthening the protection of all related intellectual property.
On December 14, 2020 we entered into
an Agreement and Plan of Merger with Chemomab, an Israeli limited company and a clinical-stage biotech company focusing on the
discovery and development of innovative therapeutics for fibrosis-related diseases with high unmet need, which included the proposed
Merger of CMB Acquisition Ltd., a wholly owned subsidiary of ours, with Chemomab as the surviving company, subject to shareholder
approval. A shareholder meeting has been scheduled for March 15, 2021 to approve the Merger and related proposals. For more
information regarding Chemomab and the proposed Merger, see the proxy statement/prospectus we filed with the SEC on February 12,
2021 and that can be found at this link: https://www.sec.gov/Archives/edgar/data/1534248/000110465921021553/tm211883-6_424b3.htm
Our Product Pipeline
Our preclinical programs are summarized
below and consist of two preclinical programs. We have a partnership with ADT related to two small molecule development programs
targeting oncogenic pathways, focused on RAS and PDE10/β-catenin, respectively.
7
Our Therapeutics Pipeline
Pan-RAS
Program : Our highest priority program targets oncogenic mutations in the RAS family of genes ( i.e. , KRAS,
HRAS, and NRAS gene families), which are present in more than 30% of cancers. RAS plays a pivotal role in signal transduction
pathways leading to tumor cell proliferation and survival. Our pan-RAS program has identified novel indene-based small molecules
that exhibit potent and selective inhibition of activated RAS signaling regardless of isoform or mutation, or pan-RAS inhibition.
PDE10/ß-catenin
Program : Genetic alterations in components that make up the Wnt signaling pathway, which includes APC and β-catenin,
are prevalent in a number of cancer types, occurring in more than 80% of colorectal cancers. Our PDE10/ß-catenin program
has identified small molecules that selectively and potently inhibit PDE10 and suppress Wnt/APC/β-catenin signaling in preclinical
models. PDE10 inhibition has been shown to down regulate β-catenin expression and inhibits polyp and tumor growth. We believe
it has potential for application in the treatment of cancer as well as spontaneous and familial polyposis syndromes.
Inodiftagene
vixteplasmid : Previously we discovered and developed a gene therapy, inodiftagene, designed to treat non-muscle
invasive bladder cancer (“NMIBC”). We had developed this gene therapy in six clinical trials in pancreatic cancer,
ovarian cancer, and bladder cancer. Based on these preliminary clinical studies, we determined to test this product candidate
in a clinical trial designed as the basis for potential regulatory approval. This clinical trial, the Codex trial, was initiated
in December 2018, enrolling patients through the following year. In November 2019, we discontinued the pivotal Phase
2 Codex study. After a thorough analysis of the data, we determined that there was a low probability of surpassing the pre-defined
futility threshold at the planned interim analysis, which required 10 complete responses in 35 patients. As of November 14,
2019, 16 patients were evaluable after the first disease assessment on treatment; of these, three, or 19%, had experienced a complete
response. The data also indicated a low probability of achieving an efficacy profile that in our estimation would be necessary
to support regulatory approval. The safety data on the investigational product were consistent with those observed in prior preliminary
clinical trials. In April 2020 we notified Yissum Technology Transfer Company of the Hebrew University Ltd. (“Yissum”)
that as a result of our decision to discontinue clinical development of inodiftagene, we will cease payments to maintain intellectual
property (“IP”) we licensed from Yissum that supported the development and as related to a licensing and development
agreement between the parties (“License Agreement”). In August 2020 we agreed with Yissum on termination of the
License Agreement and return of the IP.
8
Pan-RAS Program
Background
According to the National Cancer Institute,
mutations in the RAS family of genes ( i.e. , KRAS, HRAS, and NRAS) are the most frequent oncogenic mutations in cancer,
present in over 30% of all cancers. These mutations are involved in more than 181,000 cancer deaths per year (more than 30% of
606,000 deaths) in the United States alone. The three most lethal cancers, lung cancer, colorectal cancer and pancreatic cancer,
are driven largely by mutant RAS. Of these cancer types, non-small cell lung cancers (“NSCLC”) have mutations in the
RAS family of genes in approximately 35% of cases; colorectal cancers carry RAS mutation in approximately 45% of cases; and pancreatic
cancers carry RAS mutations in over 95% of cases. Taken together, in these three cancer types, RAS mutations account for more
than 100,000 lethal cases of cancer per year in the United States. The World Health Organization estimates that in 2018, the most
common causes of cancer death are lung cancer (1.76 million deaths) and colorectal cancer (862,000 deaths). According to the National
Cancer Institute Surveillance, Epidemiology, and End Results (SEER) Program, five-year survival outcomes in advanced NSCLC, colorectal
cancer and pancreatic cancer are particularly dismal - 5%, 14% and 3%, respectively.
We estimate that the total addressable
population of patients with RAS-mutation driven solid tumors alone totals more than 165,000 patients per year in the United States.
These morbidity and mortality rates suggest that therapies directed at tumors carrying mutated forms of RAS are urgently needed.
Taken together, these statistics suggest
that the patient population that could benefit from effective therapy targeting RAS mutations is large. The U.S. annual incidence
of NSCLC, colorectal cancer, and pancreatic cancer combined is approximately 395,000 patients, of which approximately 295,00 are
advanced cases. We estimate that this translates into approximately 130,000 addressable patients annually with RAS-mutated advanced
solid tumors in the United States in these three indications. We estimate that other solid tumors will add approximately 35,000
additional addressable patients for a total annual addressable patient population of 165,000 in the United States. RAS mutations
are similarly frequent globally. Despite success in development of therapies targeting other genetic drivers in cancer, there
have been no approved RAS inhibitors to date. The frequency of RAS mutations in cancer, the high mortality associated with the
disease, and the lack of any approved targeted therapies creates a significant clinical need.
RAS plays a pivotal role in cell signal
transduction pathways leading to tumor cell proliferation and survival. RAS, a membrane bound protein, resides in an inactive,
or GDP-bound, state. Following stimulation, RAS releases guanosine triphosphate (“GDP”) and forms a transient nucleotide-free
state, subsequently binding with guanosine triphosphate (“GTP”). Active, or GTP-bound, RAS engages specific RAS effector
proteins ( e.g. , RAF, PI3K), resulting in activation of pathways leading to cell proliferation and survival. Oncogenic activation
of RAS occurs mainly via mutations in codons 12, 13 and 61—with a shift to the GTP-bound state and constitutive activation
of RAS effector pathways.
9
RAS Signaling Pathway
Abbreviations:
EGFR
=
epidermal
growth factor receptor,
ERK
=
extracellular
signal-regulated kinase
GRB2 =
growth factor receptor-bound
protein 2
MEK =
mitogen activated
protein kinase
P =
phosphorylated
PI3K =
phosphatidylinositol
3-kinase
PIP2 =
phosphatidylinositol
(4,5)-bisphosphate
PIP3 =
phosphatidylinositol
(3,4,5)-trisphosphate
SOS =
son of sevenless
The understanding of the oncogenic properties
of RAS has driven the search for anti-RAS therapeutics for several decades. However, mutant RAS has long been viewed as “undruggable”
directly due to its minute structural differences from wild-type RAS, its smooth surface and lack of deep pockets for binding
of small molecule inhibitors. Initial attempts to inhibit mutant RAS focused on inhibition of farnesyltransferase, responsible
for posttranslational modifications associated with correct localization of the protein. However, this line of investigation has
been unsuccessful to date in clinical trials. More recently, a previously unrecognized pocket of RAS—the Switch II Pocket
(“SII-P”)—was discovered in the inactive GDP-bound form. Compounds have been identified that selectively target
the cysteine mutation at codon 12 (also known as the KRAS G12C mutation) and bind covalently to RAS G12C, targeting SII-P and
preventing loading of GTP and engagement of effectors. A number of KRAS G12C mutation inhibitors are currently in Phase 1 clinical
trials ( e.g. , Amgen Inc.’s AMG-510 and Mirati Therapeutics, Inc.’s MRTX849), with early clinical data
reporting evidence of activity in KRAS G12C mutation-positive cancers, particularly NSCLC. These drugs have generated enormous
excitement, with the most advanced drug, AMG-510, showing an overall response rate (“ORR”) of 48% in 23 evaluable
NSCLC patients with eight out of 11 responders remaining in response and on treatment. Similarly, MRTX849 has shown a 50% ORR
in six patients with NSCLC in its initially presented Phase 1 data set.
We believe the significance of these successes
is field-altering, as for the first time there is evidence that inhibition of mutated RAS isoforms may be undertaken in the same
manner as other successful small molecule targeted therapies had shown possible against other mutated oncogenes. In other words,
RAS has become a clinically validated target. However, these current investigational drugs are mutation specific—with G12C
representing approximately 9% of RAS mutations in cancer. As shown below, KRAS represents the most commonly mutated isoform of
RAS, and there is a spectrum of activating mutations that have been observed with this isoform. This means that only approximately
11% of the KRAS mutations can be addressed with G12C inhibitors. A variety of activating mutations have also been observed with
the HRAS and NRAS isoforms, which remain unaddressed. While these observations have proven that RAS-directed therapy using small
molecule inhibitors is possible with clinical effect, results so far are confined to a small subset of patients carrying a particular
mutation. That said, the market capitalization of the companies pursuing KRAS G12C inhibitors has grown by many billions of dollars
during 2019.
10
Frequency of RAS Mutations by Tumor Type (cancers with
>5% RAS mutation frequency)
Adapted from: Cox et al., Nat Rev Drug Discov, 2014
Frequency of Specific KRAS mutations in KRAS-Mutated Lung,
Colorectal, Pancreatic and Biliary Tract Cancers
Adapted from: Vasan et al., Clinical cancer research,
2014
We believe that our pan-RAS program is
poised to take advantage both of the fact that RAS inhibition has been shown to be clinically valid, and that initial successes
have been confined to a fraction of tumors that carry RAS mutations. A broadly acting RAS inhibitor with the potential to treat
RAS-driven cancers regardless of RAS isoform or mutation ( i.e ., a pan-RAS inhibitor) would be clinically useful. It is
also not yet well understood what resistance mechanisms to KRAS G12C mutation inhibitors will develop in the clinic. A pan-RAS
inhibitor may be clinically preferable in KRAS G12C mutation-positive patients if resistance to KRAS G12C mutation inhibitors
leads to mutations in other RAS isoforms or other KRAS mutations, and may also have utility in such patients who have been treated
previously with a KRAS G12C mutation inhibitor. There is a clear need to continue to develop new and more effective direct inhibitors
of RAS, preferably with broad activity against the multiple RAS isoforms and various mutations. Given the frequency of RAS mutations
overall, a pan-RAS inhibitor would have potential to address a substantial proportion of cancer patients—significantly more
than any other genetic target for which drugs have been developed to date (and, we estimate, approximately 11 times more patients
than are addressable by the KRAS G12C mutation inhibitors). Therefore, our pan-RAS program is our highest priority.
11
Our Approach
Our lead RAS inhibitor molecules are novel
indene derivatives of sulindac, a well-studied and clinically utilized anti-inflammatory agent with activity against cells carrying
mutated RAS. Our RAS inhibitor molecules have been engineered to eliminate cyclooxygenase-2 (“COX-2”) inhibitory activity,
present in sulindac, to lessen the potential cardiovascular side effects observed with sulindac and other related drugs.
We believe our RAS inhibitor molecules
have potential for RAS inhibition in a broad variety of clinical settings, because they exhibit the characteristics we believe
are necessary in a pan-RAS inhibitor. Our RAS inhibitor molecules potently, selectively, and reversibly inhibit growth of tumor
cells harboring mutant RAS, while having greater than 100-fold selectivity over cells with normal RAS activity. Inhibitory activity
has been observed with low nanomolar potency (<10 nM) in KRAS-, HRAS-, and NRAS-driven models with a variety of mutations (e.g.
KRAS G12C, G13D, G12V, G12S; HRAS G12D; and NRAS Q61K) across a variety of tumor types, which suggests that these molecules could
have utility across the broad spectrum of RAS mutations and tumor types in which these mutations have been observed to drive cancer.
This potent activity is observable in both monolayer cultures, and in 3-D spheroid cultures, which may have higher predictive
value for anti-tumor activity. These compounds inhibit downstream signaling through RAF and PI3K pathways, which is consistent
with their acting directly on RAS, as opposed to another pathway molecule. They initiate cell-cycle arrest and induce apoptosis,
consistent with cell killing. Importantly, the inhibitors demonstrate blockade of GTP loading of RAS in the nucleotide-free state
in cell-free biochemical assays, suggesting that their mechanism of action is through interference of GTP-mediated signaling.
They have exhibited in vivo activity in RAS mutant tumor models. Finally, an emerging characteristic of RAS inhibition
is the stimulation of anti-tumor immunity. This has been shown with AMG 510, a KRAS G12C inhibitor presently in the clinic, and
it suggests that effective RAS inhibition stimulates several anti-tumor immune mechanisms. Our inhibitors have been shown to similarly
stimulate anti-tumor T-cell-mediated immune mechanisms. These multiple lines of evidence are all consistent with the characteristics
one would expect to observe with a drug that is killing cells by direct inhibition of RAS.
We believe these molecules have potential
for RAS inhibition in a broad variety of clinical settings. Over the next 12-18 months our main goals are to understand the specific
mechanism of action and physical basis of binding of the compounds to RAS, and to optimize the initially identified series of
compounds to identify a lead development candidate.
One of our lead compounds in the pan-RAS
program, ANC 007 (also referred to as MCI-062), has been observed to have less than 10 nanomolar cellular potency in monolayer
cultures of tumor cells harboring mutant RAS. Similar potency was observed in 3D spheroid cultures, which are cell cultures that
are permitted to grow in all three dimensions and are considered by some to be more predictive of in vivo activity than
monolayer culture. Cell lines with wild-type (“WT”) RAS and concurrent upstream mutations (e.g. EGFR) that signal
through RAS display similar inhibition to cell lines with mutated RAS. Cell lines with WT RAS in the absence of upstream activation
are less sensitive (>100-fold selectivity), regardless of downstream activating mutations. Sensitivity to ANC 007 can be conferred
by transduction of HT-29 cells (WT RAS) with mutant RAS. This means that mutated (or activated) RAS is required for the activity
of the drug. These observations are consistent with the inhibition of RAS regardless of isoform, and regardless of the mutations
tested. In addition, they suggest that the activation of RAS (by mutation or upstream signaling) is a key feature of selectivity.
If this key finding of pan-RAS inhibition with this series of compound can be translated into a drug candidate exhibiting similar
broad activity in vivo , we believe the clinical potential is substantial.
12
Potent and Selective Pan-RAS Inhibition with ANC 007
Source:
Keeton et al., AACR 2019; Mattox et al. AACR 2019; McConnell et al. AACR 2017; Data on File. ANC 007 has previously been
referred to as MCI-062.
13
Potent and Selective RAS Inhibition of Monolayer and
Spheroid Culture with ANC 007
Panels:
· A,
B, C, D: Growth inhibitory activity of ANC 007 (MCI-062) was tested using
the CellTiter-Glo luminescence assay.
· E:
Inhibition of colony formation was tested on a five different cell lines
using ANC 007. BcPC-3 is a pancreatic cell line with non-mutated, or wild type, RAS.
Other four cell lines carry RAS mutations.
· F:
Replication incompetent retrovirus encoding HRAS-G12V mutant or empty
vector was prepared by transfection of A293T cells with packaging and envelope plasmids.
Crude supernatant collected and used to tranduce HT29 colon cancer cells. Stable pools
of each were expanded and expression of HRAS was characterized by western blot.
Source:
Keeton et al., AACR 2019; Mattox et al. AACR 2019; Data on File.
ANC 007 has been shown to inhibit signaling
through RAF and PI3K pathways ( i.e. , nodes in the signal transduction cascade that are downstream (distal) to RAS), which
suggests that the node of inhibition is RAS itself, rather than one of the effectors further downstream. As shown below, treatment
of MIA-PaCa-2 pancreatic cancer cells with KRAS G12C results in inhibition of signaling of the MAPK pathway as evidenced by inhibition
of phosphorylation of CRAF, MEK, and ERK. AKT phosphorylation is also inhibited. The observation that both sides of the signaling
pathways downstream from RAS (RAF/MEK/ERK and AKT) are inhibited suggests that the node of inhibition is RAS itself, rather than
one of the effectors further downstream. MAPK signaling in KRAS G13D mutant HCT-116 colon cancer cells is inhibited in vivo
as well.
14
Inhibition of Downstream Signaling Through RAF and PI3K
Pathways with ANC 007
Panels:
· A,
ANC 007 (MCI-062) reduced RAS-GTP levels and inhibits activation of downstream
RAS signaling in MIA-PaCa-2 pancreatic cancer cells Cells were treated with vehicle or
ANC 007 for 24 hours in serum-free media and subsequently stimulated with 30 ng/mL EGF
for 10 minutes. RAS- GTP levels after treatment were determined by the active RAS pull-down
using GST-RAF1- RBD/glutathione agarose and detection by Western blotting. Detection
of phospho-protein levels was performed by Western blot.
· B,
ANC 007 inhibits activation of downstream RAS signaling and activates
anti-tumor immunity in murine RAS mutant colon cancer model. Mice were implanted in the
right flank with 10 million HCT- 116 tumor cells per mouse. ANC 007-treated mice received
5 mg/kg MCI-062 twice daily by peritumoral administration. Vehicle-treated mice received
5% DMSO/5% cremophor EL/90% water once daily by peritumoral administration. RAS-GTP levels
in tumor lysates were determined by the active RAS pull-down and detection by Western
blotting. Levels of MAPK proteins and immune markers were determined by Western blotting
with the whole tumor lysate. Each lane corresponds to an individual animal.
Source:
Keeton et al., AACR 2019; Mattox et al. AACR 2019.
15
To initially characterize
the molecular mechanism of action of ANC 007, it has been tested in cell-free biochemical assays utilizing recombinant KRAS in
order to evaluate the potential for direct binding of the drug to the RAS protein. Incubation of ANC 007 with nucleotide-free
KRAS followed by addition of GTP led to a concentration dependent reduction of RAS-GTP levels in an RBD pull-down experiment.
This effect was not observed when ANC 007 was incubated with GTP-loaded RAS. The RBD assay utilizes the Ras-binding domain (RBD)
of the RAS effector kinase Raf1 which been shown to bind specifically to the GTP-bound form of RAS proteins, making it an ideal
tool for affinity purification of GTP-Ras. This experiment suggests ANC 007 directly inhibits GTP binding to RAS when RAS is in
the nucleotide-free state but not in the GTP-bound state. Similarly, in a guanine nucleotide exchange assay, which uses a fluorescently-labeled
guanine nucleotide analogue (MANT-GTP) to evaluate nucleotide binding to RAS, addition of ANC 007 to nucleotide-free KRAS inhibits
MANT-GTP binding. We believe the results of these cell-free experiments indicate that the mechanism of ANC 007 involves direct
binding to RAS to exert its effect. Further work, including such structural biology methodologies as x-ray crystallography, are
planned to more specifically elucidate the mechanism of action and binding contacts of these compounds.
Inhibition of GTP Binding to Recombinant KRAS in Cell-Free
Biochemical Assays Under Nucleotide-Free (nf) Conditions with ANC 007
Panels:
· A,
ANC 007 (MCI-062) inhibits GTP binding to recombinant nucleotide-free
RAS in RBD pull-down experiment. Nucleotide-free recombinant WT-KRAS was prepared by
incubation with 20 mM EDTA on ice. ANC 007 or vehicle was incubated 1 h with nucleotide-free
WT-KRAS, followed by addition of GTP and an additional 30 min incubation (left) or, ANC
007 was incubated with WT-KRAS after addition of GTP (GTP-bound, right). RAS-GTP levels
after treatment were determined by the active RAS pull-down assay using GST-RAF1-RBD/glutathione
agarose and detection by Western blotting.
· B,
ANC 007 inhibits GTP binding to recombinant nucleotide-free RAS in guanine
nucleotide exchange assay. Nucleotide-free recombinant WT-KRAS was prepared by incubation
with 20 mM EDTA on ice. Nucleotide free KRAS was incubated with ANC 007 or vehicle for
1 h on ice, followed by addition of an excess of MgCl 2 with fluorogenic MANT-GTP.
Recombinant KRAS not treated with EDTA (GTP-KRAS) was included as a control indicator
of intrinsic turnover rate. The development of fluorescence reflecting MANT-GTP
binding to KRAS was monitored over the course of a 45 min incubation.
16
Source: Mattox et al. AACR 2019; Data on File.
ANC 007 has exhibited potent anti-tumor
activity in RAS-driven tumor models in mice, consistent with the cell based in vitro data. As shown below, ANC 007 inhibited
tumor growth by intratumoral administration in KRAS mutant colon tumor xenograft models (HCT116 and CT26 cell lines).
In Vivo Antitumor Activity in RAS-driven Tumor Models
with ANC 007
Panels:
· A:
ANC 007 (MCI-062) inhibits growth of KRAS mutant HCT-116 tumor cells in
a subcutaneous mouse xenograft model. Athymic nude mice were implanted in the right flank
with 10 million tumor cells per mouse. Mice were treated once daily by intratumoral administration.
Control mice received vehicle only (5% DMSO/5% cremophor EL/90% water) once daily by
intratumoral administration. N=8 mice for vehicle group, n=7 mice for 5 mg/kg ANC 007
group, n=4 mice for 10 mg/kg ANC 007 group.
· B:
Mice were implanted in the right flank with one million CT-26 tumor cells
per mouse. ANC 007 treated mice received 5 mg/kg ANC 007 twice daily by peritumoral administration.
Vehicle-treated mice received 5% DMSO/5% cremophor EL/90% water once daily by peritumoral
administration. Shown on left is control (vehicle-treated) mice and on the right are
mice treated with ANC 007.
17
As shown below, in an immune competent
mouse RAS-mutant tumor model, ANC 007 suppressed tumor growth in association with decreased PD-L1 levels in tumors; decreased
PD-1 in T-cells; increased proportion of CD4+ and CD8+ T-cells in tumors; and reduced Treg cells in tumors (as evidenced by Foxp3
expression). Similar effects on the tumor immune microenvironment have been observed with KRAS G12C inhibitors, including AMG-510,
and this stimulation of anti-tumor immunity appears to be an emerging characteristic of RAS inhibition itself. These lines of
evidence suggest that effective RAS inhibition stimulates several anti-tumor immune mechanisms., and ANC 007 has been shown to
similarly stimulate these anti-tumor T-cell-mediated immune mechanisms.
Inhibition of Tumor Growth with ANC 007 Associated with
Activation of Antitumor Immunity
Panels:
·
A: ANC 007 (MCI-062) reduces
PD-L1 expression in RAS driven tumor model. Mice were implanted in the right flank with one million CT26 tumor cells per mouse.
ANC 007-treated mice received 5 or 10 mg/kg ANC 007 once daily by intratumoral administration. Vehicle-treated mice received
5% DMSO/5% cremophor EL/90% water once daily by intratumoral administration. RAS-GTP levels in tumor lysates were determined
by the active RAS pull-down and detection by Western blotting. of immune markers was performed on whole tumor lysate.
·
B, C, D, E:
ANC 007 reduces PD-1, increases proportion of CD4+ and CD8+ T-cells, and reduces Tregs. Subcutaneous CT-26
murine tumors were excised from vehicle or ANC 007 treated mice, and digested for 1 h using the gentle-MACS dissociator and
murine tumor digestion protease cocktail. Following digestion, single cell suspensions were recovered by passage through
a cell strainer, and cell counts were normalized by quantitation using a hemacytometer. Fluorescently labelled antibodies
used to quantitate the indicated cell populations by flow cytometry.
Preclinical Development
We initiated development of a series of
compounds that exhibit pan-RAS inhibition as detailed in the experiments above. The lead compounds demonstrate low nM IC50 potency
against all RAS isoforms and all mutants tested, in cell lines of several histologies, and in monolayers and spheroids; inhibit
RAS signaling; induce cell cycle arrest and apoptosis; inhibit binding of GTP to nucleotide-free RAS; bind to the GTP catalytic
domain, in computational structural studies; inhibit mutant RAS-driven tumor growth in vivo ; and demonstrate in vivo
activation of anti-tumor immunity that includes the down-regulation of PD-L1. Over the next 12-18 months we plan to (1) replicate
and expand on the data generated previously by ADT, including further characterization of the biological activity of the compounds;
(2) undertake structural biology investigations to understand the specific mechanism of action and physical basis of the
compounds binding to RAS; and (3) optimize the initially identified series of compounds, including ANC 007, to identify a
lead development candidate for further preclinical and then clinical development. The preclinical work will be primary performed
by a contract research organization(s) (“CRO”), with oversight and strategic guidance by us.
18
We have internally initiated experiments
with ANC 007 and have replicated key cell-based data, including monolayer and spheroid cell viability and colony forming assays,
with results consistent with those generated by ADT for the molecule across multiple cell lines and RAS mutations. This work has
independently confirmed similar potency and selectivity results with ANC 007 to those presented.
A key aspect of developing these compounds
is to gain a detailed understanding of their mechanism of action and binding to RAS. To that end, we have embarked on a suite
of biophysical and structural biology studies, including techniques such as nano differential scanning fluorimetry (nanoDSF),
microscale thermophoresis (MST), protein nuclear magnetic resonance (NMR) and x-ray crystallography to understand specifically
how these compounds bind to the RAS protein. This data will be crucial to understanding how this family of compounds exert their
effect and learnings will be integrated into the medicinal chemistry strategy in order to develop an optimized product candidate.
ANC 007 and related compounds require further optimization in order to identify a suitable clinical candidate. Evaluation of orally
bioavailable candidates will include work up of ADME (absorption, distribution, metabolism, and excretion) profile, in vivo
pharmacokinetic profile and efficacy, as well as initial assessment of in vivo toxicity. From the time of lead candidate
nomination, we anticipate that it will take approximately 12 months to perform IND-enabling studies and submit an IND for First
in Human studies, which we would anticipate to commence in 2022.
Clinical Development Plan and Regulatory Pathway
Clinical development will be initiated
once a lead product candidate has been nominated, all necessary IND-enabling studies have been performed and an IND application
has been successfully submitted to and accepted by the U.S. Food and Drug Administration (“FDA”) and adequate financing
has been secured. Initial Phase 1 clinical investigation will be performed in patients with advanced solid tumors harboring a
RAS mutation, with the objective of identifying a recommended Phase 2 dose and to evaluate the safety and tolerability of the
product candidate, as well as to evaluate preliminary anti-tumor activity. Given the initial clinical activity observed in lung
cancer with the KRAS G12C inhibitors in the clinic, we anticipate that NSCLC may be an area of initial focus, as well as colorectal
and pancreatic cancer (given the prevalence of RAS mutations in these cancers). However, we anticipate that this study would enroll
patients with multiple tumor types as long as a RAS mutation is present.
The clinical development path of other
targeted therapies in genetically defined tumors, such as those with EGFR, ALK, ROS1 and TRK aberrations, suggest that there exists
the opportunity for accelerated clinical development of a RAS inhibitor as well, provided the investigational drug exhibits high
response rate with clinically meaningful duration in a well-defined population with a significant unmet medical need. As in these
prior examples, accelerated approval may be initially granted on the basis of a single well-executed, multi-center single arm,
Phase 2 study (with the potential for different cohorts based on tumor type to support multiple indications in a single study).
Given the clinical proof of concept observed in NSCLC with the G12C inhibitors, we anticipate prioritizing RAS mutant NSCLC patients
previously treated with standard of care ( i.e ., platinum-based chemotherapy/checkpoint inhibitors) as an initial pivotal
cohort. Other potential pivotal cohorts include advanced CRC, after 5-FU/oxaliplatin/irinotecan, and advanced pancreatic adenocarcinoma,
after 5-FU or gemcitabine based therapy. Given the clinical need and the size of the patient population we anticipate this study
would proceed rapidly.
After approval in an initial indication,
we would then pursue indication expansion with additional tumor types, earlier lines of therapy, and combination therapy (including
with chemotherapy, other targeted therapies and checkpoint inhibitors, which have shown potential for synergy with RAS inhibition
preclinically). Beyond initial pivotal cohort considerations, we will investigate RAS mutation in other appropriate tumor types
such as bladder cancer and melanoma, and consider the potential for tumor agnostic indication, particularly in rare tumors and/or
tumor types with infrequent RAS mutations, which is another area with potential for approval based on Phase 2 data. Patients who
have failed G12C-specific inhibitor would also be a defined cohort to evaluate early on—given the hypothesis that resistance
here may be mediated by other RAS isoforms or mutations.
A robust translational medicine effort
is needed as clinical and biomarker data may point to differential activity based on activating mutation or specific RAS gene,
if so development will need to take these considerations into account (patient selection).
19
An appropriately expansive clinical development
plan will contemplate how to move into investigation of first line treatment once activity is observed in the refractory setting.
Confirmatory studies for initial indication(s) can be randomized Phase 3 studies in earlier lines of therapy with standard
of care comparators. This may likely involve investigation of combination therapy, and therefore we plan for early evaluation
of combination safety and preliminary efficacy, based on tumor types showing activity in monotherapy evaluation to potentially
inform confirmatory studies and other indication expansion, depending on tumor type/setting. Combinations may be with chemotherapy,
checkpoint inhibitors and other rational combination partners based on emerging molecular mechanisms of resistance to RAS inhibition.
Beyond first line treatment in the advanced/metastatic
setting, earlier stage disease/adjuvant setting is an exciting space to consider given the potential to significantly alter the
course of disease. Moving targeted therapy into the adjuvant space has been challenging, but success has been seen with checkpoint
inhibition and smart trial design ( e.g. , durvalumab in Stage III NSCLC). These are longer trials compared to metastatic
setting, but the relatively large RAS patient populations ( e.g. , in NSCLC and colorectal cancer) make this attractive/feasible
to consider. Finally, an additional area to consider, based on the preclinical data, is patients with RAS WT tumors with upstream
activation who have failed targeted therapy/standard of care—such as Her2 mutant NSCLC and EGFR mutant NSCLC ( e.g. ,
T790M/C797S ‘triple mutant’).
As mentioned above,
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 July 2020 to undertake reductions in headcount and other cost saving measures. These
included plans to temporarily reduce our internal and external research and development work on the Company’s RAS Program
until there is greater clarity regarding Anchiano’s ability to fund the program. We continue to undertake actions for the
promotion of the program and its assets and towards strengthening the protection of all related intellectual property.
PDE10/β-catenin Program
Background
Genetic alterations in components that
make up the Wnt signaling pathway, which includes APC and β-catenin, are prevalent in a number of cancer types, occurring
in approximately 90% of colorectal cancers. This translates into approximately 48,000 deaths annually due to colorectal cancer
carrying Wnt/APC/β-catenin pathway mutations in the Unites States alone. Additionally, germline mutations of APC lead to
the hereditary cancer syndrome, FAP, which affects approximately 16,000 additional patients in the United States annually.
Wnt signaling controls the level of intracellular
activated β-catenin, a key effector of oncogenic signal transduction, and oncogenic alterations in Wnt, APC, or β-catenin
all result in elevated and uncontrolled levels of β-catenin. Wnt signaling is initiated upon binding of secreted Wnt ligands
to Frizzled receptors and low-density lipoprotein receptor-related protein (“LRP”) co-receptors, which induces phosphorylation
of Dishevelled (“Dvl”). Phosphorylated Dvl then associates with Axin, leading to dissociation of the β-catenin
destruction complex (which includes APC and GSK3β). Free β-catenin then accumulates in the cytoplasm and translocates
to the nucleus. Mutations which activate the Wnt pathway all culminate in the accumulation of high levels of oncogenic β-catenin
in the cell nucleus. Therefore, we believe a successful intervention in this pathway requires lowering β-catenin levels or
otherwise inhibiting it. β-catenin, a transcription factor, has been considered historically to be an “undruggable”
target, lacking the deep binding pockets present in enzymes and receptors. As a result, drug screening efforts have primarily
focused on other pathway components.
Recent studies have shown that PDE10 is
overexpressed during early stages of tumorigenesis and is essential for tumor cell growth. PDE10 inhibition increases cyclic GMP
levels in tumor cells to activate protein kinase G (PKG) signaling leading to the degradation of the oncogenic pool of β-catenin
to suppress critical proteins essential for tumor cell proliferation and survival. For the foregoing reasons, we believe that
targeting PDE10 provides a novel approach to selectively suppress β-catenin mediated transcriptional activity.
20
Wnt/APC/β-catenin and PDE10 pathways
Adapted from Li et al., Oncogene, 2014
Abbreviations:
5’GMP
=
guanosine
monophosphate
cGMP
=
cyclic
guanosine monophosphate
GTP
=
guanosine
triphosphate
NO
=
nitric
oxide
PDE10
=
phosphodiesterase
type 10
pGC
=
particulate
guanylyl cyclase
PKG
=
protein
kinase G
sGC
=
soluble
guanylyl cyclase
TCF
=
T-cell
factor
Our Approach
Our PDE10/ β-catenin program has identified
small molecule indene derivatives that selectively and potently inhibit PDE10 and suppress Wnt/APC/β-catenin signaling in
preclinical models. PDE10 inhibition has been shown to down regulate β-catenin expression and inhibits polyp and tumor growth.
It has potential for application in the treatment of cancer as well as spontaneous and familial polyposis syndromes. Our orally
available small molecule PDE10 inhibitors have unique advantages over known PDE10 inhibitors with potential for development in
FAP, colon, lung, liver, breast and other cancers.
Inhibition of PDE10 induces cGMP/PKG signaling
to phosphorylate and induce degradation of β-catenin to suppress key proteins essential for tumor cell proliferation and
survival. PDE10 knockdown (“KD”) or inhibition with small molecules inhibits growth and colony formation of colon,
lung, and breast tumor cells.
21
PDE10 overexpression in colon tumor cells; inhibition
blocks colony formation and ß-catenin/Tcf transcription.
Panels:
·
A: Differential PDE10 levels
in normal colonocytes (NCM460) and colon tumor cells as measured by Western blot.
·
B: PDE10 siRNA knockdown
inhibits colony formation of HT29 colon tumor cells.
·
C: PDE10 siRNA suppresses
Tcf transcription of key regulatory genes (e.g., survivin, cyclin D, myc, etc.).
·
D: Treatment of HT29 cells
with PDE10 inhibitor ANC 094 (also referred to as ADT-094) leads to reduction of ß-catenin and products of Tcf transcription
as measured by Western blot.
Source:
Li et al., Oncogene, 2015; Data on File .
One representative compound in this program,
ANC 061 (also referred to as MCI-030) inhibits PDE10 to activate cGMP/PKG signaling, resulting in the phosphorylation and degradation
of the oncogenic pool of β-catenin to selectively inhibit the growth of colon tumor cells in vitro. Oral administration to
mice with the Apc+/min-FCCC genotype (a mouse strain with the APC mutation that produces an augmented incidence of colorectal
adenomas and small intestinal cancers, used as a model to study polyposis syndromes and colon cancer) significantly inhibited
incidence and multiplicity of colon adenomas and carcinomas in a dose-dependent fashion. Further in vivo studies with ANC
061 are in progress at Fox Chase Cancer Center to confirm these findings. These studies are funded by NCI, and if proof of concept
is established there is the potential to further develop this compound in FAP in collaboration with NCI through its PREVENT Cancer
Preclinical Drug Development Program.
22
Inhibition of Colon Tumorigenesis in the Apc Min
Model
Panels:
·
A,
ANC 061 (MCI-030) induced a dose dependent decrease in adenoma incidence from 94.74% in control mice to 76.19% in mice treated
with 1000 parts per million (ppm) ANC 061 and 57.80% of mice treated with 1500 ppm ANC 061.
·
B,
Adenoma multiplicity was also significantly reduced from 4.0 in the control group to 2.9 in mice treated with 1000 ppm ANC
061, and to 1.95 in mice treated with 1500 ppm ANC 061.
·
C,
A reduction in micro adenomas was also observed.
·
D,
Multiplicity of flat adenomas was abolished in mice receiving 1500 ppm and reduced in mice treated with 1000 ppm ANC 061 from
0.32 per mouse in the control group to 0.24, respectively.
·
E, Incidence
of mice with cancer was reduced from 10.53% in the vehicle group to 4.76% in mice treated with 1000 ppm ANC 061 and to 0%
in mice treated with 1500 ppm ANC 061, n=19-21.
Source: Ward et al., AACR 2019.
Another compound in this program, ANC 030
(also referred to as MCI-048) administered orally inhibits tumor growth in an orthotopic lung cancer mouse model without apparent
toxicity. ANC 030 significantly extends survival in the A549 mouse model from a median 44 to 77 days with 25% of mice surviving
until the end of the experiment. It was also effective in multiple other mouse models of lung and breast cancer, including models
of metastasis.
23
Inhibits Lung Tumorigenesis in A549 Lung Cancer Model
Panels:
·
A, The A549 human lung
adenocarcinoma cells with luciferase (Luc) tag were generated using lentiviral particles expressing luciferase gene driven
by a CMV promoter and a stable A549Luc clone was selected. Female athymic nude mice were implanted with 1x10 6 A549Luc
cells intrathoracically. Mice were treated by oral gavage once a day with the vehicle (Maalox) or MCI-048 at doses of
25, 50, or 100 mg/kg (n = 7/group) starting five days before tumor cell implantation. After implantation, treatment
continued for 4 additional weeks. Tumor growth was monitored weekly through the detection of the bioluminescence of
the A549Luc cells using In Vivo Imaging System (IVIS, IVIS Spectrum, Caliper Life Sciences). Signal intensity was quantified
as the average number of photons emitted from a mouse within the chest cavity (Living Image software, version 4.3.1.)
·
B, Female athymic nude
mice were implanted with 1x10 6 cells per mouse of cultured A549 human lung adenocarcinoma cells into the intrathoracic
space of the left lung on Day 0. Animals were randomly assigned to two treatment groups (n=15) on Day 1 and treated
with either MCI-048 formulated in Maalox by oral gavage at a dose of 100 mg/kg once daily for 8 weeks or with Maalox using
the same schedule starting on Day 1. All surviving mice were euthanized on Day 151.
Source: Zhu et al. AACR 2019
24
Preclinical Development
We initiated development of a series of
compounds that exhibit potent PDE10 inhibition and induce degradation of β-catenin to suppress key proteins essential for
tumor cell proliferation and survival. Initial plans for continued preclinical development will be funded with ADT using SBIR
grants to ADT. While we are excited by the potential for this program, we have made the decision to initially prioritize advancement
of our pan-RAS program. Once a product candidate has been nominated for IND-enabling studies in the pan-RAS program, we plan to
allocate resources for development of the PDE10/ β-catenin program. We estimate approximately six months will be necessary
from that time for lead optimization and product candidate nomination. From lead candidate nomination, we anticipate approximately
12 months to perform IND enabling studies and submit an IND for First in Human studies. Development of the program could potentially
be accelerated with additional resources.
Clinical Development Plan and Regulatory Pathway
Clinical development will be initiated
once a lead product candidate has been nominated, all necessary Investigational New Drug (IND) enabling studies have been performed
and an IND application has been successfully submitted to and accepted by the USA. Initial Phase 1 clinical investigation in cancer
will be performed in patients with advanced solid tumors, focusing on tumor types where the Wnt/APC/β-catenin pathway is
implicated such as colorectal cancer, hepatocellular carcinoma, breast cancer and lung cancer, with the objective of identifying
a recommended Phase 2 dose and to evaluate the safety and tolerability of the product candidate, as well as to evaluate preliminary
anti-tumor activity. We anticipate that colorectal cancer may be an initial indication of focus in pivotal development, given
the prominence of the Wnt/APC/β-catenin pathway in this disease. Subsequent development will be dependent on the signs of
activity observed. If efficacy data allows (i.e. high response rate with meaningful duration of response in an indication of high
unmet need), an accelerated approval path based on Phase 2 data may be considered. If not, a more traditional approach with a
randomized Phase 3 program comparing to standard of care treatment will be required.
A separate development path in FAP may
also be pursued. This would initiate with a Phase 1 dose escalation study in healthy volunteers (single dose) and FAP patients
(multiple dose). A randomized Phase 3 program in patients with FAP is anticipated to be required for registration.
As mentioned above,
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 July 2020 to undertake reductions in headcount and other cost saving measures. These
included plans to temporarily reduce our internal and external research and development work on the Company’s PDE10/β-catenin
Programs until there is greater clarity regarding Anchiano’s ability to fund the program. We continue to undertake actions
for the promotion of the program and its assets and towards strengthening the protection of all related intellectual property.
Collaborations and License Agreements
ADT
In September 2019, we entered into
the Collaboration Agreement with ADT pursuant to which we agreed to use commercially reasonable efforts to conduct research and
development activities with respect to the pan-RAS and PDE10/β-catenin programs under the oversight of a steering committee
jointly established with ADT. ADT is a private company focused on discovering, developing and securing patent protection for novel
molecules that inhibit activated RAS- or Wnt-mediated signaling pathways that drive the growth of many human cancers. ADT’s
technology currently comprises a broad, novel proprietary small-molecule class, encompassing at least two distinct mechanistic
subclasses that share a common chemical core; one subclass targets RAS and the other subclass inhibits PDE10 to activate cGMP/PKG
signaling and induce degradation of the oncogenic pool of β-catenin.
Under the terms of the Collaboration Agreement,
we were granted an exclusive option to license the RAS and PDE10/β-catenin programs in exchange for a $3.0 million upfront
payment to ADT and will fund certain research activities. At any time through obtaining an IND designation, we will have the option
to exclusively license the compounds we develop worldwide and will be responsible for all aspects of preclinical and clinical
development and global commercialization. If we exercise our option, we will pay ADT an option exercise fee and will be responsible
for development and commercialization of any compounds or products containing any compounds under the pan-RAS and PDE10/ß-catenin
programs. We will also incur additional payment obligations to ADT for any product candidates developed under the pan-RAS and
PDE10/ß-catenin programs, including milestone payments based on certain events with respect to product development and regulatory
achievements, and royalty payments based on net sales of any commercialized products. We are responsible for all aspects of development
for the pan-RAS and PDE10/ß-catenin programs. We also have the option to sublicense the licenses granted to us by ADT.
25
In connection with the Collaboration Agreement,
we also entered into a Consulting and Collaboration Research Support Agreement with ADT (the “Support Agreement”),
whereby ADT provides support services for our research and development activities with respect to the pan-RAS and PDE10/ß-catenin
programs, including providing key research and discovery personnel, in exchange for a fee.
ADT may terminate the Collaboration Agreement
in the event of a material default in any of our material obligations under the Collaboration Agreement (following a cure period).
In the event the Collaboration Agreement is terminated, all licenses and options granted to us will be terminated and we will
not be able to develop the compounds under the pan-RAS and PDE10/ß-catenin programs or any products containing such compounds.
The Collaboration Agreement also restricts assignment except to a successor of substantially all of the business to which the
Collaboration Agreement relates, whether in a merger, sale of stock, sale of assets, reorganization or other transaction.
Yissum
On November 14, 2005, we entered into
the License Agreement with Yissum, which was subsequently amended several times, most recently in November 2013. Yissum granted
us an exclusive, worldwide license for the development, use, manufacture and commercialization of products arising out of patents
owned by, and patent applications filed by Yissum in connection with the H19 and IGF2-P4 genes. Yissum retained right, title and
interest in the products, technologies or other inventions arising out of our research and development of these patents and patent
applications, except for intellectual property developed with funding from the Israel Innovation Authority (“IIA”),
which will be owned by us and transferred to Yissum only upon our dissolution or termination of the License Agreement or upon
a decision by the IIA that it no longer requires us to own the intellectual property developed with its funding. We have the right
to grant sub-licenses to third parties in accordance with the terms set forth in the License Agreement.
In November 2019, we discontinued
the pivotal Phase 2 Codex study, evaluating the gene therapy inodiftagene in patients with BCG-unresponsive NMIBC. After a thorough
analysis of the data, we determined that there was a low probability of surpassing the pre-defined futility threshold at the planned
interim analysis, which required 10 complete responses in 35 patients. At the time we discontinued the study, 16 patients were
evaluable after the first disease assessment on treatment, of which three patients, or 19%, had experienced a complete response.
The data also indicated a low probability of achieving an efficacy profile that in the company’s estimation would be necessary
to support regulatory approval. The safety data on the investigational product were consistent with those observed in prior trials.
In April 2020 we notified Yissum that
as a result of our decision to discontinue clinical development of inodiftagene, we will cease payments to maintain intellectual
property (“IP”) we licensed from Yissum that supported the development and as related to the License Agreement. In
August 2020 we agreed with Yissum on termination of the License Agreement, we destroyed or returned all IP documentation
to Yissum, and Yissum and we mutually waived, released and discharged the other from all claims of any type.
26
Our Competitive Strengths
Our technologies are small molecule targeted
therapies that are directed against two pathways that have been long understood to contribute fundamentally to the pathogenesis
of human cancer, the RAS pathway and the Wnt/APC/β-catenin biochemical pathway. We are initially focusing on our pan-RAS
program, and we are developing compounds that exhibit pan-RAS cytotoxicity.
We believe we can develop these compounds
into product candidates, and that our competitive strengths put us in a unique position for success if we pursue the path towards
further development after the review of strategic alternatives, as follows:
·
Our product candidates are targeted therapies.
We believe that the application of small molecule targeted therapy approaches to pan-RAS inhibition has a high
likelihood of success. The development of small molecule targeted therapies against the products of mutated driver oncogenes
is one of the most productive endeavors in the field of cancer therapy. Mutated driver oncogenes cause cancer cell proliferation,
the first and most fundamental hallmark of cancer. The RAS genes are the most common example of such mutated driver oncogenes.
These cancer genes have been identified by natural selection as being critical drivers of malignant proliferation and they
are prime therapeutic targets. This potential for therapeutic exploitation has in turn been coupled with progress in physical
methods and chemical engineering that allow the design of small molecules that directly inhibit the function of the key mutated
driver genes. This approach has resulted in successful therapies for cancers whose genetic alterations include mutations in
a variety of oncogenes. An important observation from this field is that, in general, preclinical data, both in vitro
and in vivo , have been very strongly predictive for the development of these therapies. If the physical inhibition
of the target molecule can be established and characterized by structural, chemical and biochemical methods and the target
gene is a mutated positively acting driver gene, then preclinical activity correlates strongly with clinical activity. The
RAS family of genes are driver oncogenes, the most commonly mutated oncogenes known. We believe that our existing preclinical
data demonstrating and characterizing small molecule pan-RAS inhibition forms the foundation for development of these molecules
into product candidates that can be used in clinical settings.
·
Our molecules are first-in-class molecules.
There are no small molecule targeted therapies that have successfully been shown to exhibit pan-RAS inhibitory
activity, and whose mechanism of action involves direct inhibition of RAS. A variety of approaches to RAS inhibition have
been tested, including interference with the intracellular localization and processing of RAS, inhibition of its binding to
other signaling molecules, and other approaches. Current clinical–stage investigational drugs, such as AMG-510, have
been shown to bind to and directly inhibit the KRAS G12C mutation, a subset of mutant RAS proteins. KRAS is one of 3 RAS family
genes, and approximately 9% of RAS mutations are KRAS G12C mutations. To our knowledge, no other pan-RAS inhibitors like our
molecules are currently being tested.
·
Our preclinical data strongly support
the activity of our molecules against cancer. The characteristics one would predict in molecules with preclinical
pan-RAS inhibitory activity include: selectivity for activated RAS; nanomolar potency against cells harboring mutant RAS;
consistency of biochemical data with RAS inhibition (as opposed to other pathway points of inhibition); evidence for binding
RAS directly; in vivo anti-tumor activity; and immunological stimulation in vivo consistent with other clinical
RAS inhibitors. Our small molecule inhibitors have been demonstrated to have these characteristics, and we believe we can
develop our molecules into product candidates that will have potential for pan-RAS inhibition in a variety of clinical settings.
27
·
Recent data have validated cancer treatment
with a RAS inhibitor. Until recently, the unique biochemistry and biology of the RAS gene family had resisted
efforts of cancer biologists to discover and develop drugs capable of inhibiting the activity of the mutated protein. However,
recent developments have led to the discovery of small molecules capable of inhibiting a particular mutated form of RAS, known
as KRAS G12C. Preliminary successes of drugs under development such as AMG-510 and MRTX849, are field-altering, as for the
first time there is evidence that inhibition of mutated RAS isoforms may be undertaken in the same manner as other successful
small molecule targeted therapies had shown possible against other mutated oncogenes. In other words, RAS is a clinically
validated target susceptible to small-molecule targeted therapy approaches.
·
Our development plan addresses substantial
unmet needs. Despite the preliminary success demonstrated by AMG 510 and MRTX849, KRAS is only one of three
mutated isoforms of the RAS gene family, comprising approximately 85% of RAS mutations, and only approximately 11% of KRAS
mutations are of the G12C type. A number of tumor types have large proportions of mutations in other RAS isoforms. Melanoma
exhibits mutations in RAS in approximately 30% of cases, almost all of which are in NRAS. Of the 55% of colorectal cancers
that carry RAS mutations, 5% are NRAS. Approximately half of the mutations in multiple myeloma are in NRAS. The RAS mutations
in thyroid cancer and acute myeloid leukemia are predominantly NRAS (approximately 5-15% (depending on sub-type) and 15% respectively)
. Bladder and head and neck cancers carry largely HRAS mutations. This means that while recent observations have proven that
RAS-directed therapy using small molecule inhibitors is possible with clinical effect, results so far are confined to a small
subset of patients carrying a particular mutation. In a larger sense, even though preliminary success has been demonstrated
by KRAS G12C mutation inhibitors, at this time there are no approved inhibitors of mutated RAS in cancers that carry these
genetic lesions. We believe there is much potential for broader treatment of RAS-mutated tumors, for treatment of tumors that
have become resistant after KRAS G12C mutation-inhibitor therapy, for earlier line treatment and for combination therapy,
and we believe that we can develop our molecules into product candidates capable of potentially meeting these broader needs.
Intellectual Property
While our policy is to obtain patents by
application, license or otherwise, to maintain trade secrets and to seek to operate without infringing on the intellectual property
rights of third parties, technologies related to our business have been rapidly developing in recent years. Additionally, patent
applications that we may file or license from third parties may not result in the issuance of patents, and our current or future
issued patents may be challenged, invalidated or circumvented. Therefore, we cannot predict the extent of claims that may be allowed
or enforced against our patents, nor be certain of the priority of inventions covered by pending third-party patent applications.
If third parties prepare and file patent applications that also claim technology or therapeutics to which we have rights, we may
have to engage in proceedings to determine priority of invention, which could result in substantial costs to us, even if the eventual
outcome is favorable. Moreover, because of the extensive time required for clinical development and regulatory review of products
we may develop, it is possible that the patent or patents on which we rely to protect such products could expire or be close to
expiration by the commencement of commercialization, thereby reducing the value of such patent. Loss or invalidation of certain
of our patents, or a finding of unenforceability or limited scope of certain of our intellectual property, could have a material
adverse effect on us. See “ Risk Factors—Risks Related to Our Intellectual Property and Potential Litigation .”
28
In addition to patents, we rely on trade
secrets and know-how to develop and maintain our competitive position. Trade secrets and know-how can be difficult to protect.
We seek to protect our proprietary processes, in part, by confidentiality agreements and invention assignment agreements with
our employees, consultants, scientific advisors, contractors and commercial partners. These agreements are designed to protect
our proprietary information. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how
by maintaining physical security of our premises and physical and electronic security of our information technology systems. While
we have confidence in these individuals, organizations and systems, such agreements or security measures may be breached, and
we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently
discovered by competitors or others.
Pan-RAS and PDE10/β-catenin Program Patents
Pursuant
to the Collaboration Agreement, we have been granted an exclusive option to license patent rights for our pan-RAS and PDE10/ b -catenin
programs. This patent portfolio includes three issued U.S. patents, 2 issued Japanese patents, and one issued patent in each of
China, Australia, Europe and Hong Kong directed to RAS inhibitor compounds, prodrugs and methods of use. In addition to this we
have two pending related U.S. patent applications directed to RAS and PDE10 inhibitor compounds and corresponding foreign pending
counterpart patent applications, and one Patent Cooperation Treaty (“PCT”) patent application directed to RAS inhibitor
compounds. The issued patents, and pending U.S. patent applications, if issued, will expire in 2035. We expect any patents based
on the PCT application, if we continue to pursue patent protection in the United States and elsewhere, if issued, to expire in
2039.
Additional Technologies
·
BC-821  - Our licensed
patent portfolio includes two issued U.S. patents directed to composition of matter and method of use, and related issued
foreign patents and patent applications. We expect these patents and patent application, if issued, to expire between 2028
and 2029.
·
Cancer-Specific TNF-α and DTA mutual
expression vector  - Our licensed patent portfolio includes one U.S. patent directed to nucleic acid
vectors and related issued foreign patents. We expect these patents to expire in 2026.
·
H19 targeted siRNA for cancer  - Our
licensed patent portfolio includes one issued U.S. patent directed to composition of matter, and related foreign patents.
We expect these patents to expire in 2026.
·
H19 targeted siRNA for rheumatoid arthritis  -
Our licensed patents include one issued U.S. patent directed to methods for treating rheumatoid arthritis, and related foreign
patents. We expect these patents to expire in 2028.
Marketing, Sales and Distribution
Given our stage of development, we do not
have any internal sales, marketing or distribution infrastructure or capabilities. In the event we receive regulatory approval
for a future product candidate and secure adequate funding, we intend, where appropriate, to consider commercialization relationships.
In addition, we may consider out-licensing some or all of our worldwide patent rights to more than one party to achieve the fullest
development, marketing and distribution of any future product we develop.
29
Competition
Competition in the development of human
cancer therapeutics, in particular targeted therapies, is intense and rapidly evolving. We face competition both in the United
States and internationally from small and large private and publicly traded biotechnology and pharmaceutical companies, government
agencies, universities and other research institutions. Many of our competitors have substantially greater resources and capabilities,
in the form of financing, development, manufacturing, and commercialization, than we do. Our ability to create value for our shareholders
depends on our ability to successfully develop product candidates that have differentiated benefits from competing drugs and biologics,
that are either in development or commercially available. While we believe our approach, expertise, focus and intellectual property
provide us with a competitive advantage, we are aware of several companies that inhibit the same molecular target, and in some
cases in the same population, being pursued by us. We believe our primary competitors by program and target are as follows:
Pan-RAS
Program : We are not aware of any competitors with development programs or molecules in clinical testing that target
mutations across all three RAS family of genes (HRAS, KRAS, and NRAS). We are aware of several competitors with clinical and preclinical
development programs that directly target one or more mutations in KRAS family of genes, including Mirati Therapeutics, Inc.,
Amgen, Inc., Boehringer Ingelheim AG, Merck & Co., Inc., and others. It is likely that other companies are
also researching inhibitors in the HRAS and NRAS families of genes. We will continue to monitor scientific and patent publications
for the emergence of other potential competitors.
PDE10/β-catenin
Program : We are aware of several companies that have PDE10 inhibitor programs in preclinical or clinical development,
including among others, H. Lundbeck A/S, Omeros Corporation, and Celon Pharma SA –mainly focused on CNS indications. Likewise,
we are aware of several companies that have β-catenin inhibitor program in preclinical or clinical development, including
among others, PRISM Pharma Co., Ltd, and Fog Pharmaceuticals, Inc. We will continue to monitor scientific and patent publications
for the emergence of other potential competitors.
Government Regulation
We are subject to extensive regulation
by the various national health regulatory authorities, such as the FDA, Health Canada and other national, state and provincial
regulatory agencies.
U.S. Food and Drug Administration
The research, development, and marketing
authorization of drugs and other pharmaceutical products in the United States is subject to the Federal Food, Drug, and Cosmetic
Act (the “FFDCA”), which empowers the FDA to require extensive non-clinical and clinical toxicity testing before a
new drug or biologic is deemed safe and effective and receives marketing authorization. Following initial laboratory and animal
testing that show that investigational use in humans is reasonably safe, a drug can be studied in clinical trials in humans under
an IND in accordance with the regulations at 21 CFR 312.
In order to satisfy FDA data requirements,
an extensive battery of preclinical experiments to assess the safety of such new drugs are conducted, followed by two or three
phases of clinical trials before they are considered for widespread human use. Upon successful completion of a future clinical
trial program, we may be in a position to manufacture and market our prospective pharmaceutical products. The marketing authorization
of our products would be conditional upon obtaining the approval of health authorities in each country in which they would be
marketed, including, but not limited to, the FDA and the EMA. FDA regulations govern the following activities that we may perform,
or that have been performed on our behalf, to ensure that drugs that we develop are safe and effective for their intended uses:
30
·
preclinical (animal)
testing including toxicology studies;
·
submission of an
IND;
·
human testing in
clinical trials, Phases 1, 2 and 3;
·
recordkeeping and
retention;
·
pre-marketing review
through submission of a new drug application (“NDA”);
·
drug manufacturing,
testing and labeling, which must comply with current good manufacturing practice (“cGMP”) regulations;
·
drug marketing,
sales and distribution; and
·
post-marketing study
commitments (Phase 4), post-marketing pharmacovigilance surveillance, complaint handling, reporting of deaths or serious injuries,
product sample retention, manufacturing deviation reporting and repair or recall of drugs.
Failure to comply with
applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
·
warning letters,
untitled letters, fines, injunctions, consent decrees and civil penalties;
·
disqualification
of clinical investigator and/or sponsor from current and future studies;
·
clinical hold on
clinical trials;
·
operating restrictions,
partial suspension or total shutdown of production;
·
refusal to approve
an NDA;
·
post-marketing withdrawal
of approval; and
·
criminal
prosecution.
The FDA’s preclinical and IND requirements
The first step to obtaining FDA approval
of a new drug involves development, purification and pre-clinical testing of a pharmaceutically active agent in laboratory animals.
Once appropriate preclinical data have been generated to demonstrate that the drug is reasonably safe for initial testing in humans,
an IND can be prepared and submitted to the FDA for review. In the IND review process, FDA physicians and scientists evaluate
the proposed clinical trial protocol, chemistry and manufacturing controls, pharmacologic mechanisms of action of the drug and
toxicological effects of the drug in animals and in vitro . Within 30 days of the IND submission, the drug review division
of the FDA may contact the filer regarding potential concerns and, if necessary, implement a clinical hold until certain issues
are resolved satisfactorily. If the FDA does not take any action, the filer may proceed with clinical trials on the 31st day.
Clinical trials
Clinical trials represent the pre-market
testing ground for unapproved drugs, generally taking several years to complete. Before testing can begin, an institutional review
board (“IRB”) must have been reviewed and approved for the use of human subjects in the clinical trial. During clinical
trials, an investigational compound is administered to humans and evaluated for its safety and effectiveness in treating, preventing
or diagnosing a specific disease or condition. The clinical trials generally consist of Phase 1, Phase 2, and Phase 3 testing.
During clinical trials, the FDA and IRBs closely monitor the studies and may suspend or terminate trials at any time for a number
of reasons, such as finding that patients are being exposed to an unacceptable health risk. The results of clinical trials are
critical factors in the approval or disapproval of a new drug.
31
Submission and review of an NDA
An NDA requesting approval to market the
drug for one or more indications may be submitted to the FDA once sufficient data has been gathered through preclinical and clinical
testing. The application includes all relevant data available from pertinent preclinical and clinical trials, including negative
or ambiguous results as well as positive findings, together with detailed information relating to the drug’s chemistry,
manufacturing, controls and proposed labeling, among other things. In most cases, the submission of an NDA is subject to a substantial
application fee.
The FDA has 60 days from its receipt of
an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that
it is sufficiently complete to permit substantive review. Once the NDA submission is accepted for filing, the FDA begins an in-depth
substantive review. NDAs receive either standard or priority review. The FDA has a goal of ten months from the date of filing
to review and act on a standard NDA for a new molecular entity. A drug representing a significant improvement over existing therapy
in the treatment, prevention or diagnosis of a disease may receive priority review.
The FDA has various specific programs,
including Fast Track, Breakthrough Therapy, Accelerated Approval and Priority Review, each of which is intended to expedite the
process for reviewing drugs, and in certain cases involving Accelerated Review, permit approval of a drug on the basis of a surrogate
endpoint. Even if a drug qualifies for one or more of these programs, the FDA may later decide that the drug no longer meets the
conditions for qualification or that the time period for FDA review or approval will be shortened. Fast Track designation facilitates
the development and expedites the review of drugs to treat serious or life-threatening diseases or conditions and fill unmet medical
needs. Although this designation does not affect the standards for approval, the FDA will attempt to facilitate early and frequent
meetings with a sponsor of a Fast Track designated drug.
The FDA reviews an NDA to determine, among
other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged
or held meets standards designed to assure the product’s continued safety, quality and purity. The review process is often
significantly extended by FDA requests for additional information or clarification. The FDA may refer the application to an advisory
committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by
the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving an NDA, the FDA typically
will inspect the facility or facilities where the drug is manufactured. The FDA will not approve an application unless it determines
that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent
production of the drug within required specifications. In addition, before approving an NDA, the FDA will typically inspect one
or more clinical trial sites to assure compliance with good clinical practice requirements.
After evaluating the NDA and all related
information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities
and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response
letter generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and
may require additional clinical or preclinical testing for the FDA to reconsider the application. Even with submission of this
additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An
approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
If a product receives regulatory approval,
the approval may be significantly limited to specific diseases, subpopulations, and dosages or the indications for use may otherwise
be limited, which could restrict the commercial value of the product. In addition, the FDA may require us to conduct Phase 4 testing,
which involves clinical trials designed to further assess a drug’s safety and/or effectiveness after NDA approval and may
require testing and surveillance programs to monitor the safety of approved products which have been commercialized.
32
Pervasive and continuing regulation in the United States
After a drug is approved for marketing
and enters the marketplace, numerous regulatory requirements continue to apply. These include, but are not limited to:
·
The
FDA’s cGMP regulations require manufacturers, including third-party manufacturers, to follow stringent requirements
for the methods, facilities and controls used in manufacturing, processing, testing and packing of a drug product;
·
Labeling
regulations and the FDA prohibitions against the promotion of drug for unapproved uses (known as off-label uses), as well
as requirements to provide adequate information on both risks and benefits during promotion of the drug;
·
Approval
of product modifications or use of the drug for an indication other than approved in the NDA;
·
Adverse
drug experience regulations, which require companies to report information on rare, latent or long-term drug effects not identified
during pre-market testing;
·
Post-market
testing and surveillance requirements, including Phase 4 trials, when necessary, to protect the public health or to provide
additional safety and effectiveness data for the drug; and
·
The
FDA’s recall authority, whereby it can ask, or under certain conditions order, drug manufacturers to recall from the
market a product that is in violation of governing laws and regulations.
After a drug receives approval, any modification
in conditions of use, active ingredient(s), route of administration, dosage form, strength or bioavailability, will require a
new clearance or approval, for which it may be possible to submit a supplemental NDA, referring to preclinical and certain clinical
studies presented in the drug’s original NDA, accompanied by additional clinical data necessary to demonstrate the safety
and effectiveness of the product with the proposed changes. Additional clinical studies may be required for proposed changes.
Fraud and abuse laws in the United States
A variety of U.S. federal and state laws
apply to the sale, marketing and promotion of drugs that are paid for, directly or indirectly, by U.S. federal or state healthcare
programs such as Medicare and Medicaid. The restrictions imposed by these laws are in addition to those imposed by the FDA, the
U.S. Federal Trade Commission and corresponding state agencies. Some of these laws significantly restrict or prohibit certain
types of sales, marketing and promotional activities by drug manufacturers. Violation of these laws may result in significant
criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties and exclusion or debarment
from United States federal and state healthcare and other programs. Many private health insurance companies also prohibit payment
to entities that have been sanctioned, excluded or debarred by U.S. federal agencies.
Anti-kickback statutes in the United States
The U.S. federal anti-kickback statute
prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration,
directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or
recommending of a good or service, for which payment may be made in whole or in part under a United States federal healthcare
program such as the Medicare and Medicaid programs. The definition of “remuneration” has been broadly interpreted
to include anything of value, including gifts, discounts, the furnishing of supplies or equipment, payments of cash and waivers
of payments. Several courts have interpreted the statute’s intent requirement to mean that, if any one purpose of an arrangement
involving remuneration is to induce referrals or otherwise generate business involving goods or services reimbursed in whole or
in part under federal healthcare programs, the statute has been violated. Penalties for violations include criminal penalties
and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other U.S. federal healthcare
programs. In addition, some kickback allegations have been claimed to violate the U.S. False Claims Act (as discussed below).
33
The federal anti-kickback statute is broad
and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that
the statute is broad and may technically prohibit many innocuous or beneficial arrangements, the Office of Inspector General of
the Department of Health and Human Services (“OIG”) has issued a series of regulations, known as “safe harbors.”
These safe harbors set forth provisions which, if met in form and substance, will assure healthcare providers and other parties
that they will not be prosecuted under the federal anti-kickback statute. The failure of a transaction or arrangement to fit precisely
within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct
and business arrangements that do not fully satisfy an applicable safe harbor may result in increased scrutiny by government enforcement
authorities such as the OIG or the United States Department of Justice.
Many states have adopted laws similar to
the U.S. federal anti-kickback statute. Some of these state prohibitions are broader than the U.S. federal statute, and apply
to the referral of patients and recommendations for healthcare items or services reimbursed by any source, not only the Medicare
and Medicaid programs. Government officials have focused certain enforcement efforts on marketing of healthcare items and services,
among other activities, and have brought cases against individuals or entities with sales personnel who allegedly offered unlawful
inducements to potential or existing physician customers in an attempt to procure their business.
U.S. False Claims Act
The U.S. False Claims Act prohibits any
person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment by a federal healthcare
program or knowingly making, or causing to be made, a false statement or record in order to have a false claim paid or avoiding,
decreasing or concealing an obligation to pay money to the federal government. The federal government’s interpretation of
the scope of the law has in recent years grown increasingly broad. Most states also have statutes or regulations similar to the
U.S. False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states,
apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of
a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment. Several drug manufacturers
have been prosecuted under the false claims laws for allegedly providing free drugs to physician customers with the expectation
that the physician customers would bill federal programs for the product. In addition, several recent cases against drug manufacturers
have alleged that the manufacturers improperly promoted their products for “off-label” use, outside of the scope of
the FDA-approved labeling.
U.S. Health Insurance Portability and Accountability
Act of 1996 (HIPAA)
HIPAA created a new federal healthcare
fraud statute that prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private
payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government-sponsored programs.
Among other things, HIPAA also imposes new criminal penalties for knowingly and willfully falsifying, concealing or covering up
a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment
for healthcare benefits, items or services, along with theft or embezzlement in connection with a healthcare benefits program
and willful obstruction of a criminal investigation involving a federal healthcare offense. Further, HIPAA, as amended by the
Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations,
which also imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy and security
of individually identifiable health information of covered entities subject to the rule, such as health plans, healthcare clearinghouses
and certain healthcare providers as well as their business associates, independent contractors of a covered entity that perform
certain services involving the use or disclosure of individually identifiable health information on its behalf and their subcontractors
that use, disclose, access, or otherwise process individually identifiable health information.
34
U.S. Affordable Care Act Section 6002 (the Sunshine
Act)
Enacted in 2010 under the Affordable Care
Act of 2010, Public Law No. 111-148 (the “ACA”), the Physician Payments Sunshine Act is a national disclosure
program that promotes transparency by publishing data on the financial relationships between the healthcare industry (applicable
manufacturers) and healthcare providers (physicians and teaching hospitals) on a publicly accessible website. The Sunshine Act
requires that certain manufacturers of drugs, devices, biologicals, or medical supplies report payments or other transfers of
value made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals
as well as certain ownership or investment interests held by physicians or their immediate family members to the Centers for Medicare &
Medicaid Services (CMS). Beginning in 2022, applicable manufacturers will also be required to report information regarding payments
and other transfers of value provided during the previous year to physician assistants, nurse practitioners, clinical nurse specialists,
certified nurse anesthetists, anesthesiologist assistants, and certified nurse-midwives. A violation of this act may result in
fines and/or civil liabilities. Any payment or transfer of value that is currently prohibited under the anti-kickback statute,
the U.S. False Claims Act, or other health care fraud and abuse laws may still be subject to fines, sanctions, or lawsuit.
Non-U.S. regulation
Marketing authorization requests outside
of the United States are subject to regulatory approval of the respective authorities in the country in which we would like to
market. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from
country to country. No action can be taken to market any product in a country until an appropriate application has been approved
by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent
in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be
approved prior to its marketing application approval. The pricing review period often begins after market approval is granted.
Even if a product is approved by a regulatory authority, satisfactory prices might not be approved for such product. In the European
Union, authorization can be obtained through one of the following pathways: (i) the “centralized” procedure,
described in greater detail below, with applications made directly to the EMA leading to the grant of a European marketing authorization
by the European Commission, (ii) the “decentralized procedure,” whereby companies may apply for simultaneous
authorization in more than one EU country of medicinal products that have not yet been authorized in any EU country, or do not
fall within the mandatory scope of the centralized procedure, (iii) the “mutual recognition” procedure, in which
applications are made to one or more member states, leading to national marketing authorizations mutually recognized by other
member states, or (iv) a “national authorization” application made to a single EU member state. Based on the
nature of our products, the marketing authorization will be through the centralized procedure.
The EMA is responsible for the centralized
procedure, which results in a single marketing authorization that is valid across the European Union. Applications through the
centralized procedure are submitted directly to the EMA. The procedure consists of three milestones:
(i)
Evaluation
by a scientific committee for up to seven months, at the end of which the committee adopts an opinion on whether the drug
should be approved for marketing. During this period, the EMA may send questions to the company, at which time the aforementioned
review clock stops until answers are provided.
(ii)
Formal
decision by the EMA’s Committee for Medicinal Products for Human Use, which is transmitted to the European Commission,
which issues a formal decision on the authorization of the product.
(iii)
Marketing
authorization: Once a European Community marketing authorization has been granted, the marketing-authorization holder can
begin to make the medicine available to patients and healthcare professionals in all EU countries.
Even after a company receives marketing
authorization, EU law regulates the distribution, classification for supply, labeling and packaging, and advertising of medicinal
products for human use. The European Union also regulates the manufacture of medicinal products, requiring cGMP, set forth in
the EU Guidelines to Good Manufacturing Practice — Medicinal Products for Human and Veterinary Use.
EU pharmacovigilance directives and regulations
require a company to establish post-market surveillance systems that include individual adverse reaction case reports, periodic
safety update reports, and company-sponsored post-authorization safety studies. If a medicinal product’s overall risk and
benefit profile is found to have changed significantly for any reason, it may be required to be varied, withdrawn, or have its
use suspended.
35
Patent term restoration and extension
A patent claiming a new drug product may
be eligible for a limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (the
“Hatch-Waxman Act”) which permits a patent restoration of up to five years for patent term lost during product development
and FDA regulatory review. The restoration period granted is typically one-half the time between the effective date of an IND
and the submission date of an NDA, plus the time between the submission date of an NDA and the ultimate approval date. Patent
term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval
date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension
must be submitted prior to the expiration of the patent in question. A patent that covers multiple drugs for which approval is
sought can only be extended in connection with one of the approvals. The PTO reviews and approves the application for any patent
term extension or restoration in consultation with the FDA.
Pharmaceutical coverage, pricing and reimbursement
Significant uncertainty exists as to the
coverage and reimbursement status of any products for which we may seek to obtain regulatory approval. In the United States and
other markets, sales of any future product for which we receive regulatory approval for commercial sale will depend in part on
the availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities,
managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide
coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay
for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which
might not include all of the FDA-approved drug products for a particular indication. Third-party payors are increasingly challenging
the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety
and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness
of our prospective products, in addition to the costs required to obtain the FDA approvals. Additionally, a future product may
not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does
not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable
us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
In March 2010, a significant healthcare
reform was signed into law in the United States. The healthcare reform law substantially changes the way healthcare will be financed
by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The healthcare reform law contains
a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and
abuse, which has impacted existing government healthcare programs and resulted in the development of new programs, including Medicare
payment for performance initiatives and improvements to the physician quality reporting system and feedback program.
Additionally, the healthcare reform law:
·
Increased
the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%;
·
Required
collection of rebates for drugs paid by Medicaid managed care organizations; and
·
Imposed
a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs”
to specified federal government programs.
There have been executive, judicial and
Congressional challenges to certain aspects of the healthcare reform law. The U.S. Supreme Court is currently reviewing the constitutionality
of the healthcare reform law, although it is unknown when a decision will be made. It is unclear how the Supreme Court ruling,
other such litigation, and the healthcare reform measures of the Biden administration will impact the healthcare reform law and
our business.
In addition, there has been increasing
legislative and enforcement interest in the United States with respect to drug pricing practices. Specifically, there have been
several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things,
bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform
government program reimbursement methodologies for drugs. At the federal level, the Trump administration used several means to
propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives.
It is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives. We expect
additional healthcare reform initiatives to be adopted in the future, particularly in light of the new presidential administration.
We also expect these initiatives to increase pressure on drug pricing. Further, it is possible that additional governmental action
is taken in response to the evolving effects of the COVID-19 pandemic.
36
In the European Union, pricing and reimbursement
schemes vary widely from country to country. Some countries provide that drug products may be marketed only after agreeing on
a reimbursement price. Some countries may require the completion of additional studies that compare the cost-effectiveness of
a particular drug to currently available therapies. For example, the European Union provides options for its member states to
restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the
prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or may
instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market.
Other member states allow companies to set their own prices for drug products, but monitor and control company profits. The downward
pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high
barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced
markets exert competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement
limitations for drug products may not allow favorable reimbursement and pricing arrangements.
Environmental, Health and Safety Matters
We, our agents and our service providers,
including our manufacturers, may be subject to various environmental, health and safety laws and regulations, including those
governing air emissions, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive
and biological materials and wastes and the cleanup of contaminated sites. We believe that our business, operations and facilities,
including, to our knowledge, those of our agents and service providers, are being operated in compliance in all material respects
with applicable environmental and health and safety laws and regulations. All information with respect to any chemical substance
is filed and stored as a Material Safety Data Sheet, as required by applicable environmental regulations. Based on information
currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. However,
significant expenditures could be required in the future if we, our agents or our service providers are required to comply with
new or more stringent environmental or health and safety laws, regulations or requirements.
Employees
As of December 31, 2020, we had 3
employees based in Jerusalem, Israel and our Cambridge, Massachusetts office. The following table sets forth the total number
of full-time employees as of the periods indicated by function and geography:
As
of December 31,
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
Local labor laws govern the length of the
workday and workweek, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance
pay, annual leave, sick days, advance notice of termination, Social Security payments or regional equivalents, and other conditions
of employment and include equal opportunity and anti-discrimination laws. None of our employees is party to any collective bargaining
agreements. We generally provide our employees with benefits and working conditions beyond the required minimums. We have a good
relationship with our employees, and have never experienced any employment-related work stoppages.
Available Information
The SEC maintains an internet site that
contains reports, proxy and information statements, and other information regarding issuers that file electronically with the
SEC. Our filings with the SEC are available to the public through this website at http://www.sec.gov .
We maintain a corporate website at www.anchiano.com.
Our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, including our Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports,
are accessible through our website, free of charge, as soon as reasonably practicable after these reports are filed electronically
with, or otherwise furnished to, the SEC. Information contained on, or that can be accessed through, our website is not incorporated
by reference into this Annual Report on Form 10-K, and you should not consider information on our website to be part of this
Annual Report on Form 10-K.
37
Item
1A.
Risk Factors
You should consider carefully the following
information about the risks described below, together with the other information contained in this Annual Report and in our other
public filings, in evaluating our business. If any of the following risks actually occurs, our business, financial condition,
results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the
market price of our common stock would likely decline.
Risk Factors Summary
Risks Related to the Proposed Merger with Chemomab
· If
the proposed merger with Chemomab is not consummated, Anchiano could suffer materially
and Anchiano’s share price could decline.
· If
the Merger is not completed, Anchiano’s board of directors may decide to pursue
a dissolution and liquidation of Anchiano. In such an event, the amount of cash available
for distribution to our shareholders, if any, will depend heavily on the timing of such
liquidation as well as the amount of cash that will need to be reserved for commitments
and contingent liabilities.
· Our
shareholders may not realize a benefit from the Merger commensurate with the ownership
dilution they will experience in connection with the Merger.
· Should
the Merger be consummated, the combined company may not pursue the advancement of Anchiano’s
existing developmental programs.
Risks Related to Our Business
· The
current pandemic of COVID-19 and the future outbreak of other highly infectious or contagious
diseases could seriously affect our business.
· We
will require substantial additional funds to complete our research and development activities,
and, if additional funds are not available, we may need to significantly scale back or
cease our business.
· There
is substantial doubt as to whether we can continue as a going concern.
· We
depend completely on the success of our two preclinical programs and, if we are not able
to advance these successfully through the preclinical and clinical development process,
our business prospects will be materially and adversely affected.
Risks Related to our Preclinical Development
· Our
preclinical developmental programs are at an early stage. As a result, we are unable
to predict if, or when, we will successfully develop or commercialize any product under
either program.
· If
the preclinical and clinical studies that we are required to conduct to gain regulatory
approval are delayed or unsuccessful, we may not be able to market any product that we
develop in the future.
· If
toxicities or serious adverse or undesirable side effects are identified during preclinical
or clinical development, we may need to abandon or limit such development.
Risks Related to our Dependence on Third Parties
· We
are substantially dependent on our Collaboration Agreement with ADT. If we fail to comply
with our obligations under the Collaboration Agreement into which we entered with ADT,
we could lose development and commercialization rights that are critical to the continuation
of our business if the Merger is not consummated.
· We
expect to rely significantly on preclinical contract research organizations and clinical
research organizations to assist us with the development of the Compounds and any product
that we develop in the future.
· If
we, or if our service providers or any third-party manufacturers, fail to comply with
regulatory requirements, we or they could be subject to enforcement actions, which could
adversely affect our ability to market and sell a product we develop in the future.
38
Risks Related to our Operations
· If
we are unable to re-hire and retain qualified employees, our ability to implement our
business plan may be adversely affected.
· Product
liability claims or lawsuits could cause us to incur substantial liabilities.
· Significant
disruptions of our information technology systems, or those of our third-party vendors,
or security breaches could adversely affect our business operations and/or result in
the loss, misappropriation and/or unauthorized access, use or disclosure of, or the prevention
of access to, confidential information, including, among other things, trade secrets
or other intellectual property, proprietary business information and personal information,
and could result in financial, legal, business, and reputational harm to us.
Risks Related to Government Regulation
· Our
relationships with customers and third-party payors will be subject to applicable anti-kickback,
fraud and abuse and other healthcare laws and regulations, which could expose us to criminal
sanctions, civil penalties, program exclusion, contractual damages, reputational harm
and diminished profits and future earnings.
· Coverage
and adequate reimbursement may not be available for any future product candidates, which
could make it difficult for us to sell profitably, if approved.
Risks Related to Our Intellectual Property
· We
may be required in the future to license patent rights from third-party owners in order
to develop a product. If we cannot obtain such licenses, or if such owners do not properly
maintain or enforce the patents underlying such licenses, our competitive position and
business prospects will be harmed.
· If
we are unable to obtain and enforce patent protection for our inventions, our ability
to develop and commercialize any product that we develop in the future will be harmed.
· Intellectual
property rights do not necessarily address all potential threats to our competitive advantage.
Risks Related to the ADSs
· The
ADS price could continue to be highly volatile and you may not be able to resell your
ADSs at or above the price you paid for them.
· A
limited number of shareholders will have the ability to influence the outcome of director
elections and other matters requiring shareholder approval.
· Because
we no longer qualify as a foreign private issuer, we are required to comply fully with
the reporting requirements of the Exchange Act applicable to U.S. domestic issuers and,
as a result, are have incurred and will continue to incur significant legal, accounting
and other expenses that we would not incur as a foreign private issuer.
· You
may be subject to limitations on transfer of your ADSs.
Risks Related to the Proposed Merger with Chemomab (the
“Merger”)
If the proposed merger with Chemomab
is not consummated, Anchiano could suffer materially and Anchiano’s share price could decline.
The
consummation of the proposed Merger with Chemomab is subject to a number of closing conditions, including the approval by our
shareholders, approval by Nasdaq of our initial listing application of our ordinary shares represented by American Depositary
Shares in connection with the Merger, and other customary closing conditions. In addition, at the closing date of the Merger,
the net cash held by Anchiano, as described in the Merger Agreement, shall be positive or zero, or, if it is negative, the deficit
in such net cash at the closing date of the Merger shall be no greater than $300,000. We are targeting a closing of the transaction
in March-April 2021.
39
If the proposed Merger
is not consummated, we may be subject to a number of material risks, and our share price could be adversely affected, as follows:
· We
have incurred and expect to continue to incur significant expenses related to the proposed
Merger with Chemomab, even if the Merger is not consummated.
· The
Merger Agreement contains covenants restricting our solicitation of competing acquisition
proposals and the conduct of our business between the date of signing the Merger Agreement
and the closing of the Merger. As a result, significant business decisions and transactions
before the closing of the Merger require the consent of Chemomab. Accordingly, we may
be unable to pursue business opportunities that would otherwise be in our best interest
as a standalone company. We have invested significant time and resources in the transaction
process and if the Merger Agreement is terminated we will have a limited ability to continue
our current operations without obtaining additional financing.
· Our
collaborators and other business partners and investors in general may view the failure
to consummate the Merger as a poor reflection on our business or prospects.
· Some
of our collaborators and other business partners may seek to change or terminate their
relationships with us as a result of the proposed Merger or the failure thereof.
· As
a result of the Merger, current and prospective employees could experience uncertainty
about their future roles within the combined company. This uncertainty may adversely
affect our ability to retain our key employees, who may seek other employment opportunities.
· Our
management team may be distracted from day to day operations as a result of the proposed
Merger.
· Nasdaq
could determine to delist our ADSs which could have an adverse effect on the value of
our ADSs and any future ability to raise capital.
In addition, if the
Merger Agreement is terminated and our board of directors determines to seek another business combination, it may not be able
to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by
each party in the Merger. In such circumstances, our board of directors may elect to, among other things, divest all or a portion
of our business, or take the steps necessary to liquidate all of our business and assets, and in either such case, the consideration
that we receive may be less attractive than the consideration to be received by us pursuant to the Merger Agreement and related
financing.
If the Merger is not completed, Anchiano’s
board of directors may decide to pursue a dissolution and liquidation of Anchiano. In such an event, the amount of cash available
for distribution to our shareholders, if any, will depend heavily on the timing of such liquidation as well as the amount of cash
that will need to be reserved for commitments and contingent liabilities.
There
can be no assurance that the Merger will be completed. If the Merger is not completed, our board of directors may decide to pursue
a dissolution and liquidation of Anchiano. In such an event, the amount of cash available for distribution to our shareholders
will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution
will be reduced as we continue to fund our operations. In addition, if our board of directors were to approve and recommend, and
our shareholders were to approve, a dissolution and liquidation, we would be required under Israeli law to pay our outstanding
obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions
in liquidation to our shareholders. As a result of this requirement, a portion of our remaining cash assets may need to be reserved
pending the resolution of such obligations. In addition, we may be subject to litigation or other claims related to a dissolution
and liquidation. If a dissolution and liquidation were pursued, our board of directors, in consultation with its advisors, would
need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of Anchiano
ADSs could lose all or a significant portion of their investment in the event of Anchiano’s liquidation, dissolution or
winding up.
Some Anchiano officers and directors
have interests in the Merger that may influence them to support or approve the Merger.
Some of our officers
and directors participate in arrangements that provide them with interests in the Merger that are different from our shareholders,
including, among others, the continued service as an officer or director of the combined company, continued indemnification and
the potential ability to sell an increased number of shares of the combined company in accordance with Rule 144 under the
Securities Act of 1933, as amended. These interests, among others, may influence our officers and directors to support or approve
the Merger.
40
The Merger may be completed even though
material adverse changes may result from the announcement of the Merger, industry-wide changes and other causes.
In
general, either party can refuse to complete the Merger if there is a material adverse change affecting the other party following
December 14, 2020, the date of the Merger Agreement. However, some types of changes do not permit either party to
refuse to complete the Merger, even if such changes would have a material adverse effect on Anchiano, to the extent they resulted
from the following (unless, in some cases, they have a disproportionate effect on Anchiano or Chemomab, as the case may be):
· changes
or conditions generally affecting the industries or markets in which Anchiano and Chemomab
operate, and changes in the industries in which Anchiano and Chemomab operate regardless
of geographic region (including legal and regulatory changes);
· acts
of war, armed hostilities or terrorism;
· changes
in financial, banking or securities markets;
· any
change in, or any compliance with or action taken for the purpose of complying with,
any federal, state, national, foreign, material local or municipal or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict, decree, rule,
regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented
or otherwise put into effect by or under the authority of any governmental body (including
under the authority of Nasdaq or the Financial Industry Regulatory Authority), or changes
in any interpretations thereof;
· any
change in U.S. generally accepted accounting principles or interpretations thereof;
· the
announcement of the Merger Agreement or the pendency of the Merger;
· the
taking of any action required to be taken by the Merger Agreement;
· pandemics
(including the COVID-19 pandemic), including any worsening thereof, man-made disasters,
natural disasters, acts of God or other force majeure event; and
· changes
in U.S. or non-U.S. general economic or political conditions, or in the financial, credit
or securities markets in general, including any shutdown of any governmental authority.
If adverse changes occur
but Anchiano and Chemomab must still complete the Merger, the combined company’s share price may suffer.
The market price of the combined
company’s shares may decline as a result of the Merger.
The market price
of the combined company’s shares may decline as a result of the Merger for a number of reasons, including if:
· the
combined company does not achieve the perceived benefits of the Merger as rapidly or
to the extent anticipated by financial or industry analysts;
· the
effect of the Merger on the combined company’s business and prospects is not consistent
with the expectations of financial or industry analysts; or
· investors
react negatively to the effect on the combined company’s business and prospects
from the Merger.
Our shareholders may not realize a
benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.
If the combined company
is unable to realize the strategic and financial benefits currently anticipated from the Merger, our shareholders will have experienced
substantial dilution of their ownership interest without receiving any commensurate benefit. Significant management attention
and resources will be required to integrate the two companies. Delays in this process could adversely affect the combined company’s
business, financial results, financial condition and share price following the Merger. Even if the combined company were able
to integrate the business operations successfully, there can be no assurance that this integration will result in the realization
of the full benefits of synergies, innovation and operational efficiencies that may be possible from this integration and that
these benefits will be achieved within a reasonable period of time.
During the pendency of the Merger,
we will be subject to contractual limitations set forth in the Merger Agreement that restrict our ability to enter into business
combination transactions with another party.
Covenants
in the Merger Agreement impede our ability to make acquisitions or complete other transactions that are not in the ordinary course
of business pending completion of the Merger. As a result, if the Merger is not completed, we may be at a disadvantage to our
competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, we are prohibited from soliciting,
initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that
could lead to entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition
of such party’s securities, a tender offer for such party’s securities, a merger or other business combination outside
the ordinary course of business. Any such transactions could be favorable to our shareholders.
41
Because the lack of a public market
for Chemomab’s ordinary shares makes it difficult to evaluate the fairness of the Merger, Chemomab’s shareholders
may receive consideration in the Merger that is greater than the fair market value of Chemomab’s ordinary shares.
The outstanding share
capital of Chemomab is privately held and is not traded in any public market. The lack of a public market makes it difficult to
determine the fair market value of Chemomab’s ordinary shares. Since the number of Anchiano ADSs to be issued to Chemomab’s
shareholders was determined based on negotiations between the parties, it is possible that the value of the our ADSs to be issued
in connection with the Merger will be greater than the fair market value of Chemomab’s ordinary shares.
The combined company
will incur significant transaction costs as a result of the Merger, including investment banking, legal and accounting fees. In
addition, the combined company will incur significant consolidation and integration expenses which cannot be accurately estimated
at this time. Actual transaction costs may substantially exceed estimates and may have an adverse effect on the combined company’s
financial condition and operating results.
Should the Merger be consummated, Chemomab’s
principal shareholders, and certain executive officers and directors, will own a significant percentage of Anchiano shares and
will be able to exert significant control over matters submitted to the shareholders for approval.
Under
the terms of the Merger Agreement, on a pro-forma basis and after closing of the Merger but prior to the closing of the planned
financing to occur as a condition to the completion of the Merger of at least $30 million , the Chemomab securityholders
immediately before the Merger are expected to own approximately 90% of the aggregate number of ordinary shares of Anchiano (on
a fully diluted basis) and the securityholders of Anchiano immediately before the Merger are expected to own approximately 10%
of the aggregate number of ordinary shares of Anchiano (on a fully diluted basis), subject to certain assumptions and to the net
cash adjustment mechanism set forth in the Merger Agreement.
After the Merger with
Anchiano, certain of Chemomab’s officers and directors, and shareholders who held more than 5% of the Chemomab ordinary
shares, will beneficially own a significant percentage of Anchiano securities. This significant concentration of share ownership
may adversely affect the trading price for Anchiano securities because investors often perceive disadvantages in owning shares
in companies with controlling shareholders. These shareholders, if they acted together, could significantly influence all matters
requiring approval by the shareholders following the Merger, including the election of directors and the approval of mergers or
other business combination transactions. The interests of these shareholders may not always coincide with the interests of other
shareholders.
Certain shareholders could attempt
to influence changes within Anchiano that could adversely affect Anchiano’s operations, financial condition and the value
of Anchiano’s ordinary shares.
Anchiano’s shareholders
may from time to time seek to acquire a controlling stake in Anchiano, engage in proxy solicitations, advance shareholder proposals
or otherwise attempt to effect changes. Campaigns by shareholders to effect changes at publicly-traded companies are sometimes
led by investors seeking to increase short-term shareholder value through actions such as financial restructuring, increased debt,
special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions
by activist shareholders can be costly and time-consuming and could disrupt Anchiano’s operations and divert the attention
of the Anchiano board of directors and senior management from the pursuit of the proposed transaction. These actions could adversely
affect Anchiano’s operations, financial condition, Anchiano’s ability to consummate the Merger and the value of Anchiano
ordinary shares.
Should the Merger be consummated, the
combined company may not pursue the advancement of Anchiano’s existing developmental programs.
In
September 2019, we entered into an option to license agreement with ADT Pharmaceuticals, LLC pursuant to which the parties
agreed to conduct research and development activities of novel small-molecule inhibitors (RAS and PDE10/β-catenin).
As part of the arrangement, we are primarily responsible for the research, development, manufacturing and regulatory activities
and ADT assists with the research activities as necessary in exchange for a quarterly fee from us. In connection with the agreement,
ADT also granted us exclusive rights to research, develop, manufacture and commercialize the aforementioned compounds relating
to patents owned by ADT and any products containing such compounds worldwide.
Following
the effective time of the Merger, Chemomab (as successor in interest to Anchiano) will have sole authority over whether and how
to pursue the continued development of the RAS compounds pursuant to the ADT License Agreement (if at all), and there is no guarantee
that Chemomab will pursue the continued development. Anchiano and Chemomab (as successor in interest to Anchiano following
the Merger) may decide to assign the license agreement or terminate the agreement at any time in its entirety or on a compound-by-compound
basis after providing 90 days written notice to ADT.
42
Anchiano and Chemomab have become involved
in securities litigation in connection with the Merger and may become involved in additional securities litigation or shareholder
derivative litigation in connection with the Merger, which has and may continue to divert the attention of Anchiano and Chemomab
management and harm the combined company’s business, and insurance coverage may not be sufficient to cover all related costs
and damages.
Securities litigation
or shareholder derivative litigation frequently follows the announcement of certain significant business transactions, such as
the sale of a business division or announcement of a business combination transaction. As disclosed in Note 10 of Notes to Consolidated
Financial Statements, Anchiano and Chemomab have been named as defendants in securities litigation in connection with the Merger
and may become involved in additional securities litigation or shareholder derivative litigation in connection with the Merger,
and the combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts
management’s attention and resources, which could adversely affect the business of Anchiano, Chemomab and the combined company.
Should the Merger be consummated, following
which Chemomab’s business is expected to constitute a significant portion of the business of the combined company, additional
significant risks may apply to the combined business as detailed in the proxy statement/prospectus previously filed on February 12,
2021, and incorporated by reference herein (File No. 333-252070), and will include “Risks Related to Chemomab’s
Business, Research and Development and the Biopharmaceutical Industry,” “Risks Related to Chemomab’s Intellectual
Property Rights,” “Risks Related to Chemomab’s Regulatory Approvals,” “Risks Related to Commercialization
of Chemomab’s Product Candidates,” “Risks Related to Chemomab’s Incorporation and Location in Israel,”
or “Risks Related to the Combined Company” occur, those events could cause the potential benefits of the Merger not
to be realized.
Risks Related to our Business
The
current pandemic of COVID-19 and the future outbreak of other highly infectious or contagious diseases could seriously
affect our business.
Broad-based business or economic disruptions
could adversely affect our planned research and development activities and ability to raise additional funds. For example, to
date, the COVID-19 pandemic has caused significant disruptions to the Israeli, United States and global economy and has contributed
to significant volatility and negative pressure in financial markets. The global impact of the outbreak is continually evolving
and, as additional cases of the virus are identified, many countries, including Israel and the United States, have reacted by
instituting quarantines, restrictions on travel and mandatory closures of businesses. Most countries, including where we or the
third parties with whom we engage operate, have also reacted by instituting quarantines, restrictions on travel, “shelter
in place” rules, and restrictions on types of business that may continue to operate.
The extent to which COVID-19 may impact our
activities and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence,
such as the duration of the outbreak, the severity of COVID-19, or the effectiveness of actions to contain and treat COVID-19.
The continued spread of COVID-19 globally could adversely impact our activities and operations in Israel and the United States,
including our ability to raise additional funds, identify third parties we engage, or seek to engage for preclinical and clinical
development activities, and identify and engage with third parties within the framework of other business and strategic initiatives.
These could all delay progress, increase our operating expenses, and have a material adverse effect on our financial results.
We cannot presently predict the scope and
severity of any potential business shutdowns or disruptions. If we or any of the third parties with whom we engage, however, were
to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines
presently planned could be materially and negatively affected, which could have a material adverse impact on our business and
our results of operation and financial condition.
We recently changed our business strategy,
are now a preclinical development company, and may encounter difficulties in managing this transition, which could significantly
disrupt our business.
On November 15, 2019, we announced
the discontinuation of our Phase 2 Codex study evaluating the gene therapy inodiftagene vixteplasmid in patients with bladder
cancer. After analysis of the data, we determined that there is a low probability of surpassing the predefined futility threshold
at the planned interim analysis, which required 10 complete responses in 35 patients. The data also indicated a low probability
of achieving an efficacy profile that, in our estimation, would be necessary to support regulatory approval. As a result, we changed
our business strategy in November 2019 to devote our full resources to our small molecule pan-RAS inhibitor and PDE10/β-catenin
inhibitor programs that we acquired in September 2019. To manage this change, we undertook a workforce reduction in order
to accommodate our new business strategy. In particular, as previously announced, we closed our office and laboratories located
in Israel due to the discontinuation of our Phase 2 Codex study. Following the closure of the Israeli facilities, our sole
office was located in Cambridge, Massachusetts. Our lease for this office in Cambridge, Massachusetts terminated on February 28,
2021. We are allowed, however, to continue using this address to receive mail. Due to our limited resources, we may not be able
to effectively manage this change in our business strategy. If our current management team is unable to effectively manage this
transition, our expenses may increase more than expected and we may not be able to implement our business strategy. In addition,
as discussed above, our strategy may be subject to review.
43
We will require substantial additional
funds to complete our research and development activities, and, if additional funds are not available, we may need to significantly
scale back or cease our business.
We have generated substantial accumulated
losses since inception. We have not generated any revenues to date and do not expect to generate any revenue in the near future.
As a result, we expect to continue to experience negative cash flow for the foreseeable future. We can offer no assurance that
we will ever operate profitably or that we will generate positive cash flow in the future. A significant portion of our research
and development activities has been financed by the issuance of equity securities (including in our initial public offering in
February 2019). There is no certainty that we will be able to obtain additional sources of funding for our research and development
activities (see the risk factor entitled “Raising additional capital may cause dilution to our existing shareholders, restrict
our operations or require us to relinquish rights to our technologies or assets”). A lack of adequate funding may cause
a cessation of all or part of our research and development activities and business.
We will require substantial funds to discover,
develop, protect and conduct research and development for our prospective products, including pre-clinical studies and clinical
trials, and to manufacture and market any such product that may be approved for commercial sale. As of December 31, 2020,
we held approximately $5.4 million in cash and cash equivalents. Our current available funds are not sufficient for all of these
activities and we expect our current available funds to be adequate to satisfy our capital and operating needs through to the
completion of the contemplated merger. Our financing needs may also increase substantially because of the results of our research
and development, preclinical studies and clinical trials and costs arising from additional regulatory approvals. We may not succeed
in raising additional funds in a timely manner. The timing of our need for additional funds will depend on a number of factors,
which are difficult to predict or may be outside of our control, including:
•
the resources, time and costs required to initiate
and complete our research and development and to initiate and complete preclinical studies and clinical trials and to obtain
regulatory approvals for any products that we develop in the future;
•
progress in our research and development programs;
•
the timing and amount of milestone, royalty
and other payments; and
•
costs necessary to protect any intellectual
property rights.
If our estimates and predictions relating
to any of these factors are incorrect, we may need to modify our business plan. Additional funds may not be available to
us when needed on acceptable terms, or at all. If we are unable to raise funds on acceptable terms, we may not be able to execute
our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements.
This may seriously harm our business, financial condition and results of operations. If we are not able to continue operations,
investors may suffer a complete loss of their investments in our securities.
We are now an early-stage preclinical
biotechnology company and may never be able to successfully develop a marketable product. We have only recently acquired two preclinical
programs, and there is no assurance that our future operations will generate any revenue. If we cannot develop a marketable product
or generate sufficient revenues, we may be required to suspend or cease operations.
We are now an early-stage preclinical biotechnology
company that recently acquired an option to develop, manufacture and commercialize two developmental programs targeting oncogenic
pathways that are focused on small molecule inhibitors RAS and PDE10/ß-catenin (the “Compounds”) pursuant to
a collaboration and license agreement we entered into with ADT on September 20, 2019 (the “Collaboration Agreement”).
Our operations prior to that date were not relevant to the development of the Compounds. Our operations relating to our two current
preclinical programs have been limited to business planning, performing research, analyzing preclinical data and preparing to
advance identified molecules through additional preclinical studies. The Compounds identified by us in connection with both our
Pan-RAS and PDE10/ß-catenin programs are in the concept, research and preclinical stages. As a result, we cannot be certain
that our research and development efforts will be successful or, if successful, that any products that are developed from the
Compounds will ever be approved by the U.S. FDA. Typically, it takes 10 to 12 years to develop one new medicine from the time
it is discovered to when it is available for treating patients, and longer timeframes are not uncommon. Even if approved, any
products that are developed from the Compounds may not generate sufficient commercial revenues for us to continue operating. Our
operating history should not be considered when evaluating our performance as it relates to our abandoned bladder cancer product
candidate. As a result, we are subject to all of the business risks associated with a new enterprise, including, but not limited
to, risks of unforeseen capital requirements, failure of business strategy either in research, preclinical testing or in clinical
trials, failure to establish business relationships, and competitive disadvantages against other companies. If we fail to become
profitable, we may be forced to suspend or cease our operations.
44
We do not have a history of commercial
sales and do not anticipate earning operating income over the coming years, and our failure to receive marketing approval for
a product that we develop in the future would negatively impact our ability to continue our business operations.
Our predecessor entity, BioCancell Therapeutics
Inc. (“BTI”), was formed on July 26, 2004, and since then we have been a development-stage company. We have never
received marketing approval for any product candidate and, as a result, have not recorded any sales. We expect that we will operate
at a loss over the coming years, as we do not expect to generate any revenue from operations in the near term. We may not be able
to develop, or receive marketing approval for, any product from our current preclinical research and development efforts. In addition,
even if we obtain all necessary approvals to market a product, there is no certainty that there will be sufficient demand to justify
the production and marketing of any such product.
There is substantial doubt as to whether
we can continue as a going concern.
Our consolidated financial statements as
of December 31, 2020 contain an explanatory paragraph that states that our recurring losses from operations raise substantial
doubt about our ability to continue as a going concern. Our financial statements do not include any measurement or presentation
adjustment for assets or liabilities that might result if we would be unable to continue as a going concern. We have incurred
operating losses since inception, have not generated any revenues and have not achieved profitable operations. Our net loss, accumulated
during the development stage through December 31, 2020, totaled approximately $117 million, and we expect to continue to
incur substantial losses in future periods while we continue our research and development activities.
We depend completely on the success
of our two preclinical programs and, if we are not able to advance these successfully through the preclinical and clinical development
process, our business prospects will be materially and adversely affected.
We have no products that are in active
clinical development or approved for commercial sale. We expect that a substantial portion of our efforts and expenditures over
the next few years will be devoted to the research and development of small molecule inhibitors (pan-RAS and PDE10/β-catenin
programs). Our business depends completely on the successful preclinical and clinical development of products derived from the
Compounds. We cannot be certain that any such product candidate will be developed or receive regulatory approval given that the
Compounds remain in early preclinical stages of development.
Our ability to develop, obtain regulatory
approval for, and ultimately commercialize, a product derived from the Compounds effectively will depend on many factors, including
the following:
•
successful completion of preclinical studies
and clinical trials, which will depend substantially upon the satisfactory performance of third-party contractors;
•
successful achievement of the objectives of
planned preclinical studies and clinical trials, including the demonstration of a favorable risk-benefit outcome;
•
receipt of marketing approvals from the FDA
and similar regulatory authorities outside the United States;
•
establishing efficient and effective commercial
manufacturing, supply and distribution arrangements;
•
establishing sufficient market share and promoting
acceptance of the product by patients, the medical community and third-party payors;
45
•
successfully executing an effective pricing
and reimbursement strategy;
•
maintaining a continued acceptable safety and
adverse event profile following regulatory approval; and
•
qualifying for, identifying, registering, maintaining,
enforcing and defending intellectual property rights and claims.
The Compounds will require additional non-clinical
and clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient
commercial manufacturing capacity and significant marketing efforts before we can be in a position to generate any revenue from
product sales. We are not permitted to market or promote any product derived from the Compounds before we receive regulatory approval
from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval. If we are unable
to develop or receive marketing approval in a timely manner or at all, we could experience significant delays or an inability
to commercialize products derived from the Compounds, which would materially and adversely affect our business, financial condition
and results of operations.
Raising additional capital may cause
dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or assets.
Until such time, if ever, as we can generate
sufficient revenues, we expect to finance our cash needs through equity offerings, debt financings or other third-party funding,
marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. We will require
substantial funding to fund our developmental efforts, our operating expenses and other activities. To the extent that we raise
additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, certain
price protection rights may be triggered and the terms of the newly issued securities may include liquidation or other preferences
that adversely affect your rights. Investors in the June 2018 fundraising are entitled to certain price protection rights
with respect to their ordinary shares and warrants in the event of a future share issue by us where the price per share is less
than the price per share reflected in our initial public offering, which triggered these rights. Additionally, debt financing,
if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such
as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain funding on a timely
basis, we may be required to significantly curtail one or both of our preclinical development programs, which would adversely
impact our potential revenues, results of operations and financial condition.
We may allocate our limited resources
to pursue a particular drug candidate or indication and fail to capitalize on drug candidates or indications that may later prove
to be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial
resources, we must limit our licensing, research, and development programs to specific drug candidates that we identify for specific
indications. As a result, we may forego or delay pursuit of opportunities with other drug candidates or for other indications
that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on
viable commercial drugs or profitable market opportunities. In addition, if we do not accurately evaluate the commercial potential
or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through collaboration,
licensing, or other royalty arrangements when it would have been more advantageous for us to retain sole development and commercialization
rights to such drug candidate.
46
The pharmaceutical and biotechnology
market is highly competitive. If we are unable to compete effectively with existing products, new treatment methods and new technologies,
we may be unable to commercialize any products that we may develop in the future.
The biotechnology market is highly competitive,
is subject to rapid technological change and is significantly affected by existing rival drugs and medical procedures, new product
introductions and the market activities of other participants. Pharmaceutical and biotechnology companies, academic institutions,
governmental agencies and other public and private research organizations may pursue the research and development of technologies,
drugs or other therapeutic products for the treatment of some or all of the diseases that we are target. We also may face competition
from products that have already been approved and accepted by the medical community for the treatment of these same indications.
We are aware of a number of companies developing small molecule drugs for the treatment of cancer. Our competitors may develop
products more rapidly or more effectively than us. Many of our competitors have:
•
much greater experience, financial, technical
and human resources than we have at every stage of the discovery, development, manufacture and commercialization process;
•
more extensive experience in preclinical studies,
conducting clinical trials, obtaining and maintaining regulatory approvals and manufacturing and marketing products;
•
products that have been approved or are in late
stages of development;
•
established distribution networks;
•
collaborative arrangements with leading companies
and research institutions; and
•
entrenched and established relationships with
healthcare providers and payors.
In addition, many of these companies, in
contrast to us, are well-capitalized. As a result of any of the foregoing factors, our competitors may develop or commercialize
products, including small molecule inhibitors, with significant advantages over any product that we may develop in the future.
If our competitors are more successful in commercializing their products than us, their success could adversely affect our competitive
position and harm our business prospects.
Even if we receive regulatory approval
to market a product that we develop in the future, the market may not be receptive to the product upon its commercial introduction.
We may have difficulties convincing the
medical community and third-party payors to accept and use any product that we are able to develop in the future even following
our receipt of regulatory approval for commercialization. Key participants in pharmaceutical marketplaces, such as physicians,
third-party payors and consumers, may not accept a product that we develop. Even if such a product is accepted by these participants,
the medical community may not consider effectiveness and safety alone as a sufficient basis for prescribing such as product in
lieu of other alternative treatment methods and medications that are available.
Risks Related to our Preclinical Development
Our preclinical developmental programs
are at an early stage. As a result, we are unable to predict if, or when, we will successfully develop or commercialize any product
under either program.
We currently have no products beyond preclinical
studies and our internal product development programs are at an early stage of preclinical development. Any product that we develop
in the future will require significant investment in both preclinical studies and later clinical trials. We cannot be certain
that preclinical and clinical development of any product derived from our current product development programs will be successful
or that we will obtain regulatory approval or be able to successfully commercialize any product and generate revenue. Success
in preclinical studies does not ensure that clinical trials will be successful, and the clinical trial process may fail to demonstrate
that a product that we develop is safe and effective for its proposed use. Any such failure could cause us to abandon further
development of one or more products and may delay development of other potential products. Any delay in, or termination of, our
preclinical studies or clinical trials will delay and possibly preclude the filing of a new drug application with the FDA or comparable
regulatory authorities and, ultimately, our ability to generate any product revenue.
47
Any product that we develop in the
future will be required to undergo a time-consuming, costly and burdensome pre-market approval process, and we may be unable to
obtain regulatory approval for such product.
Any product that we develop in the future
will be subject to extensive governmental regulations relating to development, clinical trials, manufacturing and commercialization.
Rigorous preclinical studies, clinical trials and extensive regulatory approval processes are required to be successfully completed
in the United States and in many foreign jurisdictions, such as the European Union and Japan, before a new product may be offered
and sold in any of these countries or regions. Satisfaction of these and other regulatory requirements is costly, time-consuming,
uncertain and subject to unanticipated delays.
Preclinical studies and clinical trials
are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Because
any product that we develop in the future will be based on new technologies, we expect that it will require extensive research
and development and necessitate substantial manufacturing and processing costs. In addition, costs to treat potential side effects
that may result from a product we develop may be significant. Accordingly, our preclinical and clinical trial costs could be significantly
higher than for more conventional therapeutic technologies or drug products.
In the United States, the products that
we intend to develop and market are regulated by the FDA under its drug development and review process. The time required to obtain
FDA and other approvals for any product that we develop in the future is inherently unpredictable. Before such products can be
marketed, we must obtain clearance from the FDA first through submission of an IND, then through successful completion of human
testing under three phases of clinical trials and finally through submission of an NDA. Even after successful completion of clinical
testing, there is a risk that the FDA may request further information from us, disagree with our findings or otherwise undertake
a lengthy review of our NDA submission.
There can be no assurance that the FDA
will grant a license for any NDA that we may submit. It is possible that none of the products that we develop in the future will
obtain the appropriate regulatory approvals necessary for us to commence the offer and sale of such products. Any delay or failure
in obtaining required approvals could have a material adverse effect on our ability to generate revenues from a particular prospective
product.
If we decide to market any drug that we
develop in jurisdictions in addition to the United States, we may incur the same costs or more in satisfying foreign regulatory
requirements governing the conduct of preclinical and clinical trials, manufacturing and marketing and commercialization of any
product that we develop in the future. Approval by the FDA by itself does not assure approval by regulatory authorities outside
the United States. Each of these foreign regulatory approval processes includes all of the risks associated with the FDA approval
process, as well as risks attributable to having to satisfy local regulations within each of these foreign jurisdictions. Our
inability to obtain regulatory approval outside the United States may adversely compromise our business prospects.
If the preclinical and clinical studies
that we are required to conduct to gain regulatory approval are delayed or unsuccessful, we may not be able to market any product
that we develop in the future.
We may experience delays in any phase of
the preclinical or clinical development of a product, including during its research and development. The completion of any of
these studies may be delayed or halted for numerous reasons, including, but not limited to, the following:
•
the FDA, IRBs, the European Union regulatory
authorities (the European Medicines Agency (“EMA”) and national authorities), or other regulatory authorities
do not approve a clinical study protocol or place a clinical study on hold;
•
patients do not enroll in a clinical study or
results from patients are not received at the expected rate;
•
patients discontinue participation in a clinical
study prior to the scheduled endpoint at a higher than expected rate;
•
patients experience adverse events from a product
we develop;
48
•
patients die during a clinical study for a variety
of reasons that may or may not be related to the product that is the subject of the study;
•
third-party clinical
investigators do not perform the studies in accordance with the anticipated schedule or consistent with the study protocol
and good clinical practices or other third-party organizations do not perform data collection and analysis in a timely or
accurate manner;
•
third-party clinical investigators engage in
activities that, even if not directly associated with our studies, result in their debarment, loss of licensure, or other
legal or regulatory sanction;
•
regulatory inspections of manufacturing facilities,
which may, among other things, require us to undertake corrective action or suspend the preclinical or clinical studies;
•
changes in governmental regulations or administrative
actions;
•
the interim results of the preclinical or clinical
study, if any, are inconclusive or negative; and
•
the study design, although approved and completed,
is inadequate to demonstrate effectiveness and safety.
We
have limited experience in conducting and managing preclinical studies and any product that we develop in the future may not have
favorable results in later clinical trials or receive regulatory approvals.
We have limited experience in conducting
and managing the preclinical studies and clinical trials necessary to obtain regulatory approvals for a product. We may
rely on third parties for preclinical and clinical development activities and our reliance on third parties will reduce our control
over these activities. Accordingly, third-party contractors may not complete activities on schedule, or may not conduct
preclinical studies and clinical trials in accordance with regulatory requirements or our trial design. If these third parties
do not successfully carry out their contractual duties or meet expected deadlines, we may be required to replace them, which may
delay the affected trial.
Clinical failure can occur at any stage
of preclinical or clinical development. Preclinical studies and clinical trials may produce negative or inconclusive results,
and our collaborators or we may decide, or regulators may require us, to conduct additional clinical trials or nonclinical studies.
In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret
our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in pre-clinical studies and early
clinical trials does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide
adequate data to demonstrate the efficacy and safety of a product. A number of companies in the pharmaceutical industry, including
those with greater resources and experience than us, have suffered significant setbacks in preclinical studies and clinical trials,
even after seeing promising results in earlier trials or studies.
We may experience difficulties in identifying
and recruiting suitable patients for clinical studies, which may significantly compromise our ability to develop a product in
the future.
We may experience difficulties in identifying
and recruiting suitable patients for clinical studies because of the high demand for such patients’ involvement in current
and future studies and trials for potential drugs or because the supply of suitable patients may be low because of strict inclusion
criteria requirements. The realization of any of the foregoing risks may significantly compromise our ability to develop a future
product, which would adversely impact our potential revenues, results of operations and financial condition.
49
If toxicities or serious adverse or
undesirable side effects are identified during preclinical or clinical development, we may need to abandon or limit such development.
We do not have a product candidate in clinical
development and, as a result, the risk we are unable to successfully develop a future product is high. A product’s preclinical
toxicology profile might not support moving the product into clinical studies, and even then, it is impossible to predict when,
or if, any future product that we develop will prove effective or safe in humans or will receive regulatory approval. If any such
product is associated with undesirable side effects or has characteristics that are unexpected, we may need to abandon its development
or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less
prevalent, less severe or more acceptable from a risk-benefit perspective.
The commercial value of any clinical
study that we may commence and conduct in the future will significantly depend upon our choice of medical indication and our selection
of a patient population for our clinical study of an indication, and our inability to commence clinical testing or our choice
of clinical strategy may significantly compromise our business prospects.
If we successfully complete a clinical
study, the commercial value of any such study will depend significantly upon our choice of indication and our selection of a patient
population for that indication. We may incorrectly assess the market opportunities of an indication or may incorrectly estimate
or fail to appreciate fully the scientific and technological difficulties associated with treating an indication. Furthermore,
the quality and robustness of the results and data of any clinical study that we may conduct in the future will depend upon our
selection of a patient population for clinical testing. Our inability to commence clinical testing or our choice of clinical strategy
may significantly compromise our business prospects.
Risks Related to our Dependence on Third
Parties
We are substantially dependent on our
Collaboration Agreement with ADT. If we fail to comply with our obligations under the Collaboration Agreement into which we entered
with ADT, we could lose development and commercialization rights that are critical to the continuation of our business if the
Merger is not consummated.
On September 20, 2019, we entered
into the Collaboration Agreement with ADT in which we agreed to use commercially reasonable efforts to conduct research and development
activities with respect to the Compounds under the oversight of a jointly established steering committee. As part of the arrangement,
we are primarily responsible for the research, development, manufacturing and regulatory activities relating to the Compounds.
In consideration for the rights granted under the Collaboration Agreement, we agreed to make milestone payments to ADT with respect
to the development and commercialization of any products containing the Compounds. ADT also granted us an exclusive option to
research, develop, manufacture and commercialize Compounds relating to patents owned by ADT and any products containing such Compounds
worldwide in exchange for an additional fee. We agreed to pay ADT royalties ranging in the low- to mid-single digit percentage
on sales of any products containing the Compounds. ADT may terminate the Collaboration Agreement in the event of our material
default in any of our material obligations under the Collaboration Agreement (following a cure period). In the event the Collaboration
Agreement is terminated, all licenses and options granted to us will be terminated and we will not be able to develop the Compounds
or any products containing the Compounds. The Collaboration Agreement also restricts assignment except to a successor of substantially
all of the business to which the Collaboration Agreement relates, whether in a merger, sale of stock, sale of assets, reorganization
or other transaction. If the Merger is not consummated, the loss of such rights would materially adversely affect our business,
financial condition, operating results and prospects. To the extent the strategic review results in a determination to monetize
the pan-RAS program, we may be limited in our ability to do so.
The failure of ADT to effectively perform
its obligations under the Collaboration Agreement could materially and adversely affect us.
Pursuant to the terms and conditions set
forth in the Collaboration Agreement, ADT contractually agreed to collaborate with us in order to conduct research and development
activities of the Compounds under the oversight of a joint steering committee that we established with ADT. As part of the arrangement,
ADT is required to assist us with research activities relating to the Compounds as necessary. In connection with the Collaboration
Agreement, ADT also granted us an exclusive option to research, develop, manufacture and commercialize Compounds relating to patents
owned by ADT and any products containing such Compounds worldwide. Our right to research, develop, manufacturer and commercialize
the Compounds is exclusively based upon the rights provided to us by ADT as part of the Collaboration Agreement. If ADT or a successor
company fails or refuses to perform its obligations under, or comply with the terms and conditions set forth in, the Collaboration
Agreement for any reason, we may not be able to research, develop, manufacture and/or commercialize the Compounds or any products
containing the Compounds, which would materially adversely affect our business, financial condition, operating results and prospects.
50
We are dependent on ADT for certain
support services related to our research and development activities with respect to the Compounds and any failure or delay by
ADT to provide such services could harm our business.
In connection with the Collaboration Agreement,
we also entered into a Consulting and Collaboration Research Support Agreement with ADT (the “Support Agreement”),
whereby ADT provides support services for our research and development activities with respect to the Compounds, including providing
key research and discovery personnel. We are dependent upon ADT’s continued performance under this Support Agreement. To
the extent ADT is unable to, or determines not to, perform these support services, we may not be able to undertake the research
and development activities to develop the Compounds on our own or find other collaborators on acceptable terms. This could impact
our ability to develop the Compounds and materially adversely impact our business, financial condition, operating results and
prospects.
We expect to rely significantly on
preclinical contract research organizations and clinical research organizations to assist us with the development of the Compounds
and any product that we develop in the future.
Our reliance on clinical research organizations
may result in delays in completing, or a failure to complete, non-clinical testing or clinical trials if they fail to perform
under our agreements with them. In the course of product development, we expect to engage clinical manufacturing organizations
to manufacture drug material for us to be used in non-clinical and clinical testing and contract research organizations to conduct
and manage non-clinical and clinical studies. As a result, many important aspects of our preclinical research activities and clinical
testing will be out of our direct control. If any of these organizations we may engage in the future fail to perform their obligations
under our agreements with them or fail to perform non-clinical testing and/or clinical trials in a satisfactory manner, we may
face delays in completing such testing or trials. Furthermore, any loss or delay in obtaining contracts with such entities may
also delay the completion of our preclinical studies, clinical trials, regulatory filings and the potential market approval of
our potential drug compounds.
We may seek to enter into further collaborations
in the future, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development
and commercialization plans.
Any collaboration or license agreements
that we may enter into in the future may impose various development, commercialization, funding, royalty, diligence, sublicensing,
insurance and other obligations on us. Our obligations under any of these license agreements could include, without limitation:
•
royalty payments;
•
annual maintenance fees;
•
providing progress reports;
•
maintaining insurance coverage;
•
paying fees related to prosecution, maintenance
and enforcement of patent rights;
•
minimum annual payments; and
•
undertaking diligent efforts to develop and
introduce therapeutic products into the commercial market as soon as practicable.
If we were to breach
any of our material obligations as described above, the counterparties to any such agreements may have the right to terminate
the agreement and any licenses contemplated thereby, which could result in our inability to develop, manufacture and sell products
that are covered by the licensed technology or a competitor gaining access to the licensed technology.
51
If we, or if our service providers
or any third-party manufacturers, fail to comply with regulatory requirements, we or they could be subject to enforcement actions,
which could adversely affect our ability to market and sell a product we develop in the future.
If we, or if our service providers or any
third-party manufacturers, fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to
enforcement actions, which could adversely affect our ability to successfully develop, market and sell a product we develop in
the future and could harm our reputation. These enforcement actions may include:
•
restrictions on, or prohibitions against, marketing;
•
restrictions on importation;
•
suspension of review or refusal to approve new
or pending applications;
•
suspension or withdrawal of product approvals;
•
product seizures;
•
injunctions; and
•
civil and criminal penalties and fines.
Risks Related to our Operations
If we are unable to re-hire and retain
qualified employees, our ability to implement our business plan may be adversely affected.
The loss of the service of key employees
during the strategic review process that we went through during 2020 would likely delay our achievement of product development
and our other business objectives should the proposed merger not complete.
Recruiting and retaining qualified scientific,
clinical, manufacturing and sales and marketing personnel will be critical to our success. We may not be able to attract and retain
these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar
personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions.
Difficulty in hiring employees to fill key roles could slow or prevent our ability to develop and commercialize our products.
Our financial condition and the announcement of our process of exploring strategic opportunities may result in difficulties retaining
and attracting qualified employees.
In addition, we would expect to work extensively
with consultants and advisors, including scientific and clinical advisors, who provide advice and/or services in various business
and development functions, including preclinical and clinical development, operations and strategy, regulatory matters, legal,
and finance, to assist us in formulating our research and development and commercialization strategy. The potential success of
our drug development programs depends, in part, on collaborations with certain of these consultants and advisors. Our consultants
and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other
entities that may limit their availability to us. We do not know if we will be able to build and maintain such relationships or
that such consultants and advisors will not enter into other arrangements with competitors, any of which could have a detrimental
impact on our development objectives and our business.
52
Under applicable employment laws, we
may not be able to enforce covenants not to compete.
Our employment agreements generally include
covenants not to compete. These agreements prohibit our employees, if they cease working for us, from competing directly with
us or working for our competitors for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions
in which our employees work. For example, Israeli courts have required employers seeking to enforce covenants not to compete
to demonstrate that the competitive activities of a former employee will harm one of a limited number of material interests of
the employer, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual
property. If we cannot demonstrate that such an interest will be harmed, we may be unable to prevent our competitors from benefiting
from the expertise of our former employees or consultants and our competitiveness may be diminished.
We may be subject to claims that our
employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Many of our employees, including our senior
management, were previously employed at other biotechnology or pharmaceutical companies, including our potential competitors.
Some of these employees may have executed proprietary rights, non-disclosure and non-competition agreements in connection with
such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others
in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including
trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened
or pending claims related to these matters or concerning the agreements with our senior management, but future litigation may
be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we
may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation
could result in substantial costs and be a distraction to management.
Our business may be affected by litigation
and government investigations.
We may from time to time receive inquiries
and subpoenas and other types of information requests from government authorities and others and we may become subject to claims
and other actions related to our business activities. While the ultimate outcome of investigations, inquiries, information requests
and legal proceedings is difficult to predict, defense of litigation claims can be expensive, time-consuming and distracting,
and adverse resolutions or settlements of those matters may result in, among other things, modification of our business practices,
costs and significant payments, any of which could have a material adverse effect on our business, financial condition, results
of operations and prospects.
Product liability claims or lawsuits
could cause us to incur substantial liabilities.
We will face an inherent risk of product
liability exposure related to the testing of our drug candidates in human clinical trials. If we cannot successfully defend ourselves
against claims that our products caused injuries, we could incur substantial liabilities. Although we maintain product liability
insurance coverage, it may not be adequate to cover all liabilities that we may incur. Insurance coverage may be increasingly
expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability
that may arise.
We are exposed to a risk of substantial
loss due to claims that may be filed against us in the future because our insurance policies may not fully cover the risk of loss
associated with our operations.
We are exposed to the risk of having claims
seeking monetary damages being filed against us for loss or harm suffered by participants of our preclinical and clinical studies
or for loss or harm suffered by users of any drug that may receive approval for commercialization in the future. In either event,
the FDA or the regulatory authorities of other countries or regions may commence investigations of the safety and effectiveness
of any such trial or commercialized drug, the manufacturing processes and facilities or marketing programs utilized in respect
of any such trial or drug, and may result in mandatory or voluntary recalls of any commercialized drug or other significant enforcement
action such as limiting the indications for which any such drug may be used, or suspension or withdrawal of approval for any such
drug. Investigations by the FDA or any other regulatory authority in other countries or regions also could delay or prevent the
completion of any of our other clinical development programs. In the event that we are required to pay damages for any such claim,
we may be forced to seek bankruptcy or to liquidate because our asset and revenue base may be insufficient to satisfy the payment
of damages and any insurance that we have obtained or may obtain for product, preclinical study or clinical trial liability may
not provide sufficient coverage against potential liabilities. Our insurance policy for the discontinued inodiftagene compound
provides coverage in the amount of up to $10 million in the aggregate.
53
Significant disruptions of information technology systems
or security breaches could adversely affect our operations.
We are increasingly dependent upon information
technology systems, infrastructure and data to operate our business. In the ordinary course of business, we collect, store and
transmit large amounts of confidential information (including, among other things, trade secrets or other intellectual property,
proprietary business information and personal information). It is critical that we do so in a secure manner to maintain the confidentiality
and integrity of such confidential information. We also have outsourced elements of our operations to third parties, and as a
result we manage a number of third-party vendors that may or could have access to our confidential information. Attacks on information
technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and they are being
conducted by increasingly sophisticated and organized groups and individuals with a wide range of motives and expertise. The size
and complexity of our information technology systems, and those of third-party vendors with whom we contract, and the large amounts
of confidential information stored on those systems, make such systems vulnerable to service interruptions or to security breaches
from inadvertent or intentional actions by our employees, third-party vendors, and/or business partners, or from cyber-attacks
by malicious third parties. Cyber-attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks,
social engineering and other means to affect service reliability, and threated the confidentiality, integrity, and availability
of information.
Significant disruptions of our information
technology systems, or those of our third-party vendors, or security breaches could adversely affect our business operations and/or
result in the loss, misappropriation and/or unauthorized access, use or disclosure of, or the prevention of access to, confidential
information, including, among other things, trade secrets or other intellectual property, proprietary business information and
personal information, and could result in financial, legal, business, and reputational harm to us.
Any failure or perceived failure by us
or any third-party collaborators, service providers, contractors or consultants to comply with our privacy, confidentiality, data
security or similar obligations to third parties, or any data security incidents or other security breaches that result in the
unauthorized access, release or transfer of sensitive information, including personally identifiable information, may result in
governmental investigations, enforcement actions, regulatory fines, litigation or public statements against us, could cause third
parties to lose trust in us or could result in claims by third parties asserting that we have breached our privacy, confidentiality,
data security, or similar obligations, any of which could have a material adverse effect on our reputation, business, financial
condition, or results of operations. Moreover, data security incidents and other security breaches can be difficult to detect,
and any delay in identifying them may lead to increased harm. While we have implemented data security measures intended to protect
our information technology systems and infrastructure, there can be no assurance that such measures will successfully prevent
service interruptions or data security incidents.
Our business and operations would suffer in the event
of system failures.
Despite the implementation of security
measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from
computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While
we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause
interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss
of preclinical or clinical data from completed or ongoing or planned preclinical studies or clinical trials could result in delays
in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any
disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of
confidential or proprietary information, we could incur liability and the further development of a product could be delayed.
54
Risks Related to Government Regulation
Our relationships with customers and third-party payors
will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us
to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and diminished profits and future
earnings.
Healthcare providers, and third-party payors
play a primary role in the recommendation of any product for which we obtain marketing approval. Our future arrangements with
third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations
that may constrain the business or financial arrangements and relationships through which we market, sell and distribute products
for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include
the following:
•
the federal healthcare anti-kickback statute,
as mentioned above, prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or
providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual
for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state
healthcare programs such as Medicare and Medicaid;
•
the federal False Claims Act imposes civil penalties,
including civil whistleblower actions, against individuals or entities for knowingly presenting, or causing to be presented,
claims for payment to the federal government that are false or fraudulent or making a false statement to avoid, decrease or
conceal an obligation to pay money to the federal government;
•
the federal Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical
Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also
imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission
of individually identifiable health information;
•
the federal false statements
statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false
statement in connection with the delivery of or payment for healthcare benefits, items or services;
•
the federal transparency requirements under
applicable healthcare laws will require manufacturers of drugs, devices, biologics and medical supplies to report to the Department
of Health and Human Services information related to physician payments and other transfers of value and physician ownership
and investment interests; and
55
•
analogous state laws and regulations, such as
state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items
or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical
companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments
to physicians and other health care providers or marketing expenditures.
Some state laws require pharmaceutical
companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers
of value to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy
and security of health information in some circumstances, many of which differ from each other in significant ways and often are
not preempted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that
our business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs.
It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes,
regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found
to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant
civil, criminal and administrative penalties, damages, fines and exclusion from government funded healthcare programs, such as
Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or
entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal,
civil or administrative sanctions, including exclusions from government-funded healthcare programs.
Coverage and adequate reimbursement may not be available
for any future product candidates, which could make it difficult for us to sell profitably, if approved.
Market acceptance and sales of any product
candidates that we commercialize, if approved, will depend in part on the extent to which coverage and reimbursement for these
drugs and related treatments will be available from third-party payors, including government health administration authorities,
managed care organizations and other private health insurers. Third-party payors decide which therapies they will pay for and
establish reimbursement levels. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting
their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement
to be provided for any product candidates that we develop will be made on a payor-by-payor basis. One third-party payor’s
determination to provide coverage for a drug does not assure that other payors will also provide coverage, and adequate reimbursement,
for the drug. Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate
reimbursement rate will be approved. Each third-party payor determines whether or not it will provide coverage for a therapy,
what amount it will pay the manufacturer for the therapy, and on what tier of its formulary it will be placed. The position on
a third-party payor’s list of covered drugs, or formulary, generally determines the co-payment that a patient will need
to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians. Patients who
are prescribed treatments for their conditions and providers prescribing such services generally rely on third-party payors to
reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products unless coverage is provided
and reimbursement is adequate to cover a significant portion of the cost of our products. Third-party payors have attempted to
control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that coverage
and reimbursement will be available for any drug that we commercialize and, if reimbursement is available, what the level of reimbursement
will be. Inadequate coverage and reimbursement may impact the demand for, or the price of, any drug for which we obtain marketing
approval. If coverage and adequate reimbursement are not available, or are available only to limited levels, we may not be able
to successfully commercialize any future product candidates that we may develop.
Healthcare legislative reform measures may have a negative
impact on our business and results of operations.
In the United States and some foreign jurisdictions,
there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare
system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and
affect our ability to profitably sell any product candidates for which we obtain marketing approval. We expect that healthcare
reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure
on the price that we receive for any approved drug. Any reduction in reimbursement from Medicare or other government programs
may result in a similar reduction in payments from private third-party payors. The implementation of cost containment measures
or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize any product
candidate that we may develop.
56
Inadequate funding for the FDA, the SEC and other government
agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from
being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions
on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve
new products can be affected by a variety of factors, including government budget and funding levels, the ability to hire and
retain key personnel and to accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times
at the FDA have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies
on which our operations may rely, including those that fund research and development activities is subject to the political process,
which is inherently fluid and unpredictable.
Risks Related to Our Intellectual Property
We may be required in the future to license patent rights
from third-party owners in order to develop a product. If we cannot obtain such licenses, or if such owners do not properly maintain
or enforce the patents underlying such licenses, our competitive position and business prospects will be harmed.
We currently license patents from ADT in
conducting our research and development activities pursuant to the Collaboration Agreement. We may be required to obtain additional
licenses in the future if we believe it is necessary or useful for our business and our research and development efforts to use
third-party intellectual property or if our efforts would infringe upon the intellectual property rights of third parties. Our
business prospects depend in part on the ability of ADT and any future licensor, to obtain, maintain and enforce patent protection
for our licensed intellectual property. Our licensors may terminate our license, may not successfully prosecute or may fail to
maintain their patent applications that we have licensed, may determine not to pursue litigation against other persons that are
infringing these patents or may pursue such litigation less aggressively than we would. Without protection for the intellectual
property that we have licensed and that we may license in the future, other companies might be able to offer substantially identical
products for sale, which could adversely affect our competitive position and harm our business prospects.
57
Confidentiality agreements with employees and others
may not adequately prevent disclosure of trade secrets and other proprietary information.
We currently rely, and intend to rely in
the future, on trade secrets, know-how and technology that are not protected by patents to maintain our competitive position.
In order to protect our proprietary technology and processes, we also rely in part on confidentiality agreements with our collaborators,
employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not
effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized
disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information,
and in such cases we could not assert any trade secret rights against such party. Costly and time-consuming litigation could be
necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection
could adversely affect our competitive position and harm our business prospects.
If we are unable to obtain and enforce patent protection
for our inventions, our ability to develop and commercialize any product that we develop in the future will be harmed.
Our success depends,
to a considerable extent, on our ability to protect proprietary methods and technologies that we develop under the patent and
other intellectual property laws of the United States and other countries, so that we may prevent others from unlawfully using
our inventions and proprietary information. The patent position of pharmaceutical or biotechnology companies, including ours,
is generally uncertain and involves complex legal and factual considerations. The standards that the U.S. Patent and Trademark
Office (the “PTO”) and its foreign counterparts use to grant patents are not always applied predictably or uniformly
and may change. There also is no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable
in pharmaceutical or biotechnology patents. Even if our rights are not directly challenged, disputes among third parties could
lead to the weakening or invalidation of our intellectual property rights. Accordingly, we do not know the degree of future protection
for our proprietary rights or the breadth of claims that will be allowed with respect to any patents issued to us or to others.
Additionally, the mere issuance of a patent does not guarantee that it is valid or enforceable against third parties.
We may become involved in lawsuits to protect or enforce
our patents, which could be expensive, time consuming and unsuccessful.
A third party may sue us for infringing
its patent rights or may claim that we have improperly obtained or used its confidential or proprietary information. Likewise,
we may need to resort to litigation to enforce a patent issued or licensed to us or to determine the scope and validity of third-party
proprietary rights. In addition, during an infringement proceeding, a court may decide that the patent rights we are asserting
are invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our
patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents
at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in
connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised
by disclosure during this type of litigation. In addition, our licensors may have rights to file and prosecute such claims and
we are reliant on them. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if
resolved in our favor, could be significant, and the litigation would divert our management’s efforts. From a financial
perspective, there is a risk that we would not be able to sustain the costs of any such litigation and would be forced to seek
bankruptcy or to liquidate because of our limited asset and revenue base.
We may become subject to claims for remuneration or royalties
for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
We may be subject to claims that former
employees, collaborators or other third parties have an interest in, or right to compensation, with respect to our current patent
and patent applications, future patents or other intellectual property as an inventor or co-inventor. For example, we may have
inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing a product for
us. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation.
If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights,
such as exclusive ownership of, or the right to use, valuable intellectual property. Such an outcome could have a material adverse
effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs
and be a distraction to management and other employees.
58
We generally enter into
assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions
created in the scope of their employment or engagement with us. Although our employees have agreed to assign to us service invention
rights and have specifically waived their right to receive any special remuneration for such assignment beyond their regular salary
and benefits, we may face claims demanding remuneration in consideration for assigned inventions.
Intellectual property rights do not necessarily address
all potential threats to our competitive advantage.
The degree of future protection afforded
by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately
protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
•
Others may be able to make products that are
similar to a product we develop, but that are not covered by the claims of the patents that we own or have exclusively licensed.
•
We or our licensors or strategic partners might
not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have
exclusively licensed.
•
We or our licensors or strategic partners might
not have been the first to file patent applications covering certain of our inventions.
•
Others may independently develop similar or
alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.
•
It is possible that our pending patent applications
will not lead to issued patents.
•
Issued patents that we own or have exclusively
licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal
challenges by our competitors.
•
Our competitors might conduct research and development
activities in countries where we do not have patent rights and then use the information learned from such activities to develop
competitive products for sale in our major commercial markets.
•
We may not develop additional proprietary technologies
that are patentable.
•
The patents of others may have an adverse effect
on our business.
Should any of these events occur, they
could significantly harm our business, results of operations and prospects.
59
Risks Related to the ADSs
The ADS price could continue to be highly volatile and
you may not be able to resell your ADSs at or above the price you paid for them.
The trading price of the ADSs has been
highly volatile, and is likely to continue to be highly volatile as we undertake the strategic review process, and such volatility
may continue or become more severe if and when a transaction or business arrangement is announced or we announce that we are no
longer exploring strategic opportunities. From our initial public offering on February 12, 2019 to December 31, 2020,
the ADS price has ranged from $0.54 to $11.50 per ADS. The following factors, among others, could have a significant impact on
the market price of the ADSs:
•
actual or anticipated fluctuations in our results
of operations;
•
changes in operational strategy;
•
variance in our financial performance from the
expectations of market analysts;
•
announcements by us or our competitors of significant
business developments, changes in strategic relationships, acquisitions or development plans;
•
announcements by us regarding the clinical development,
commercialization and market acceptance of a therapeutic candidate;
•
our involvement in litigation;
•
our sale of ADSs, ordinary shares or other securities
in the future;
•
changes in personnel;
•
the trading volume of
the ADSs, particularly as a microcap company with a few significant shareholders;
•
changes in the estimation
of the future size and growth rate of our markets;
•
market conditions in
our industry; and
•
general economic and
market conditions.
The ADSs may have a low trading volume
for a number of reasons, including that a substantial portion of the ADSs are held by a few significant shareholders, limiting
our public float. As a result, holders of our ADSs may encounter difficulty selling their ADSs or obtaining a suitable price at
which to sell such ADSs.
In addition, the stock markets have experienced
extreme price and volume fluctuations, and securities of small cap and microcap companies are particularly volatile. Broad market
and industry factors may materially harm the market price of the ADSs, regardless of our operating performance. In the past, following
periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted
against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s
attention and resources could be diverted.
A limited number of shareholders will have the ability
to influence the outcome of director elections and other matters requiring shareholder approval.
According
to a Schedule 13D filed on December 14, 2020, Clal Biotechnology Industries Ltd., or CBI, is the beneficial owner of approximately
25.1% of our outstanding shares and Access Industries Holdings LLC, or AIH, Access Industries Management, LLC, or AIM,
Access Industries, LLC, or LLC, and Len Blavatnik beneficially own approximately 42.7% of Anchiano’s outstanding shares
(which includes the shares beneficially owned by CBI). In addition, according to a Schedule 13G filed on January 2, 2020,
the Shavit Capital Funds collectively beneficially own approximately 21.7% of Anchiano’s outstanding shares.
As a result of their significant holdings
in our shares, Access, CBI and the Shavit Capital Funds have the ability to exert substantial influence over matters requiring
approval by our shareholders, including electing directors and approving mergers, acquisitions or other business combination or
corporate restructuring transactions. This concentration of ownership may also discourage, delay or prevent a change in control
of our Company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale
of our Company and might reduce our share price.
60
If equity research analysts do not publish research or
reports about our business or if they issue unfavorable commentary or downgrade the ADSs, the price of the ADSs could decline.
The trading market for the ADSs relies
in part on the research and reports that equity research analysts publish about us and our business. The price of the ADSs could
decline if one or more securities analysts downgrade the ADSs or if those analysts issue other unfavorable commentary or cease
publishing reports about us or our business. The analysts at many brokerage firms do not currently monitor the trading activity
or otherwise provide coverage of lower priced stocks, such as the ADSs. As a result, many investment funds are reluctant to invest
in lower priced stocks. Market prices for securities of biotechnology and other life sciences companies historically have been
particularly volatile, subject even to large daily price swings, due in part to the failure to elicit meaningful stock analyst
coverage and downgrades of the company’s stock by analysts.
Because we no longer qualify as a foreign private issuer,
we are required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers and, as
a result, have incurred and will continue to incur significant legal, accounting and other expenses that we would not incur as
a foreign private issuer.
Beginning on January 1, 2020, we have
been required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers because
we no longer qualify as a foreign private issuer. The regulatory and compliance costs to us under U.S. securities laws as a U.S.
domestic issuer are expected to be significantly higher. We are now required to file periodic reports, proxy materials and registration
statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign
private issuer.We have also been required to modify certain of our corporate governance policies and committee charters to comply
with accepted governance practices and requirements associated with U.S. domestic listed issuers. In addition, we lost our ability
to rely upon exemptions from certain Nasdaq corporate governance requirements that are available to foreign private issuers.
As a result of becoming a public company, our management
is required to devote substantial additional time to new compliance initiatives as well as to compliance with ongoing public reporting
requirements.
As a public company in the United States,
we incur significant additional accounting, legal and other expenses that we did not incur before our initial public offering.
We incur costs associated with corporate governance requirements of the SEC and Nasdaq, as well as requirements under Section 404
and other provisions of the Sarbanes-Oxley Act. These rules and regulations increase our legal and financial compliance costs,
introduce new costs such as investor relations, stock exchange listing fees and shareholder reporting, and make some activities
more time consuming and costly. The implementation and testing of such processes and systems require us to hire outside consultants
and incur other significant costs. Any future changes in the laws and regulations affecting public companies in the United States,
including Section 404 and other provisions of the Sarbanes-Oxley Act, and the rules and regulations adopted by the SEC
and Nasdaq, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules and
regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer
liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to
obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and
retain qualified persons to serve on our board of directors, our board committees, if any, or as executive officers.
We do not intend to pay dividends in the foreseeable
future.
We do not anticipate paying any cash dividends
on the ADSs. We currently intend to retain all available funds and any future earnings to fund the development and growth of our
business. As a result, capital appreciation, if any, of our ordinary shares will be the investors’ sole source of gain for
the next several years. In addition, Israeli law limits our ability to declare and pay dividends, and may subject us to certain
Israeli taxes.
61
You may not receive the same distributions or dividends
as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive dividends or other
distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them
available to you.
The depositary for the ADSs has agreed
to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities
underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of
ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical
to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder
of ADSs if it consists of securities that require registration under the Securities Act, but that are not properly registered
or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency
that was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with,
any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such
property and hold it as “deposited securities” or may seek to affect a substitute dividend or distribution, including
net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no
obligation under U.S. securities laws to register any ADSs, ordinary shares, rights or other securities received through such
distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights
or anything else to holders of ADSs. In addition, the depositary may deduct from such dividends or distributions its fees and
may withhold an amount on account of taxes or other governmental charges to the extent the depositary believes it is required
to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders
of our ordinary shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends
if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value
of the ADSs.
ADS holders may not be entitled to a jury trial with
respect to claims arising under the deposit agreement, which could augur less favorable results to the plaintiff(s) in any
such action.
The deposit agreement governing the ADSs
representing our ordinary shares provides that holders and beneficial owners of ADSs irrevocably waive the right to a trial by
jury in any legal proceeding arising out of or relating to the deposit agreement or the ADSs, including claims under federal securities
laws, against us or the depositary to the fullest extent permitted by applicable law. If this jury trial waiver provision is prohibited
by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge,
the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court.
However, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which
govern the deposit agreement, by a court of the State of New York or a federal court, which have non-exclusive jurisdiction over
matters arising under the deposit agreement. In determining whether to enforce a jury trial waiver provision, New York courts
and federal courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently
prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to
the deposit agreement and the ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar
a viable setoff or counterclaim sounding in fraud or one that is based upon a creditor’s negligence in failing to liquidate
collateral upon a guarantor’s demand, or in the case of an intentional tort claim (as opposed to a contract dispute), none
of which we believe are applicable in the case of the deposit agreement or the ADSs. No condition, stipulation or provision of
the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance
with any provision of the federal securities laws. If you or any other holder or beneficial owner of ADSs brings a claim against
us or the depositary in connection with matters arising under the deposit agreement or the ADSs, you or such other holder or beneficial
owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging
lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement,
it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil
procedures and may augur different results than a trial by jury would have had, including results that could be less favorable
to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice
hearing such claims, and the venue of the hearing.
62
Holders of ADSs must act through the depositary to exercise
their rights as our shareholders.
Holders of the ADSs do not have the same
rights as our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance
with the provisions of the deposit agreement for the ADSs. Under Israeli law and our articles of association, the minimum notice
period required to convene a shareholders’ meeting is no less than 35 or 14 calendar days, depending on the proposals on
the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of the ADSs may not receive sufficient
notice of a shareholders’ meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with
respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders
of the ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary
to extend voting rights to holders of the ADSs in a timely manner, but we cannot assure holders that they will receive the voting
materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary and its agents
are not responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the
effect of any such vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse
if their ADSs are not voted as they requested. In addition, in the capacity as a holder of ADSs, they will not be able to call
a shareholders’ meeting.
You may be subject to limitations on transfer of your
ADSs.
Your ADSs are transferable on the books
of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient
in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers
of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable
to do so because of any requirement of law or of any government or governmental body, under any provision of the deposit agreement,
or for any other reason in accordance with the terms of the deposit agreement.
Our U.S. shareholders may suffer adverse tax consequences
if we are characterized as a passive foreign investment company, or PFIC.
Generally, if for any taxable year, 75%
or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive
income, we would be characterized as a PFIC for U.S. federal income tax purposes. We believe that we were a PFIC in 2017, 2018
and 2019 and, based on estimates of our gross income and gross assets and the nature of our business, we believe that we will
be classified as a PFIC for the taxable year ending December 31, 2020. Because PFIC status is based on our income, assets
and activities for the entire taxable year, it is not possible to determine with certainty whether we will be characterized as
a PFIC for the 2020 taxable year until after the close of the year. Moreover, we must determine our PFIC status annually based
on tests that are factual in nature, and our status in future years will depend on our income, assets and activities in those
years. In any taxable year in which we are characterized as a PFIC for U.S. federal income tax purposes, a U.S. holder that owns
ADSs could face adverse U.S. federal income tax consequences, including having gains realized on the sale of the ADSs classified
as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on the ADSs
by individuals who are U.S. holders, and having interest charges apply to distributions by us and the proceeds of ADS sales. Certain
elections exist that may alleviate some adverse consequences of PFIC status and would result in an alternative treatment (such
as mark-to-market treatment) of the ADSs. If we are a PFIC in any year, U.S. holders may be subject to additional Internal Revenue
Service (“IRS”) filing requirements, including the filing of IRS Form 8621, as a result of directly or indirectly
owning stock of a PFIC.
We may be treated as a U.S. corporation for U.S. federal
income tax purposes.
For U.S. federal income tax purposes, a
corporation generally is considered tax resident in the place of its incorporation. We are incorporated under the laws of the
State of Israel and, therefore, we should be a non-U.S. corporation under this general rule. However, Section 7874 of the
Internal Revenue Code of 1986, as amended (the “Code”), contains rules that may result in a foreign corporation
being treated as a U.S. corporation for U.S. federal income tax purposes. The application of these rules is complex and there
is little guidance regarding certain aspects of their application.
63
Under Section 7874 of the Code, a
corporation created or organized outside the United States will be treated as a U.S. corporation for U.S. federal tax purposes
when (i) the foreign corporation directly or indirectly acquires substantially all of the properties held directly or indirectly
by a U.S. corporation, (ii) the former shareholders of the acquired U.S. corporation hold at least 80% of the vote or value
of the shares of the foreign acquiring corporation by reason of holding stock in the U.S. acquired corporation, and (iii) the
foreign corporation’s “expanded affiliated group” does not have “substantial business activities”
in the foreign corporation’s country of incorporation relative to its expanded affiliated group’s worldwide activities.
For this purpose, “expanded affiliated group” generally means the foreign corporation and all subsidiaries in which
the foreign corporation, directly or indirectly, owns more than 50% of the stock by vote and value, and “substantial business
activities” generally means at least 25% of employees (by number and compensation), assets and gross income of our expanded
affiliated group are based, located and derived, respectively, in the country of incorporation.
We were incorporated on September 22,
2011 under the laws of the State of Israel for the purpose of a reincorporation merger (“Reincorporation”), which
merged BTI with and into a wholly-owned subsidiary of BioCancell Ltd. We do not believe that we should be treated as a U.S. corporation
as a result of the Reincorporation under Section 7874 of the Code because we believe that we have substantial business activities
in Israel. However, the IRS may disagree with our conclusion on this point. In addition, there could be legislative proposals
to expand the scope of U.S. corporate tax residence and there could be changes to Section 7874 of the Code or the Treasury
Regulations promulgated thereunder that could result in us being treated as a U.S. corporation.
If it were determined that we should be
treated as a U.S. corporation for U.S. federal income tax purposes, we could be liable for substantial additional U.S. federal
income tax on our taxable income since the Reincorporation. In addition, payments of dividends to non-U.S. holders may be subject
to U.S. withholding tax.
Failure to achieve and maintain effective internal controls
in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, results of
operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,
which could have a material adverse effect on the price of the ADSs.
Effective internal controls are necessary
for us to provide reliable financial reports and effectively prevent fraud. We are required to document and test our internal
control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management
assessments of the effectiveness of our internal controls over financial reporting. If we fail to maintain the adequacy of our
internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that
we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404.
Disclosing deficiencies or weaknesses in our internal controls, failing to remediate these deficiencies or weaknesses in a timely
fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in
our reported financial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide
reliable financial reports or prevent fraud, our operating results could be harmed.
As an “emerging growth company” under the
Jumpstart Our Business Startups Act, we are permitted to, and intend to continue to, rely on exemptions from certain disclosure
requirements, which could make the ADSs less attractive to investors.
For as long as we are deemed an emerging
growth company, we are permitted to and intend to take advantage of specified reduced reporting and other regulatory requirements
that are generally unavailable to other public companies, including:
•
an exemption from the
auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404
of the Sarbanes-Oxley Act; and
•
an exemption from compliance
with any new requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”) requiring mandatory
audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional
information about our audit and our financial statements.
64
We will be an emerging growth company until
the earliest of (i) the last day of the fiscal year during which we had total annual gross revenues of $1.07 billion or more,
(ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt,
(iii) December 31, 2024 or (iv) the date on which we are deemed a “large accelerated issuer” as defined
in Regulation S-K of the Securities Act.
We cannot predict if investors will find
the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result,
there may be a less active trading market for the ADSs and the market price of the ADSs may be more volatile.
We could now be treated as a smaller reporting
company given that as of January 1, 2020 we are reporting as a U.S. domestic issuer.
We may take advantage of reduced disclosure and governance
requirements applicable to smaller reporting companies, which could make the ADSs less attractive to investors.
We have a public float of less than $250 million
and therefore qualify as a smaller reporting company under the rules of the SEC. As a smaller reporting company we are able
to take advantage of reduced disclosure requirements, such as simplified executive compensation disclosures and reduced financial
statement disclosure requirements in its SEC filings. Decreased disclosures in our SEC filings due to our status as a smaller
reporting company may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict
if investors will find the ADSs less attractive if we rely on these exemptions. If some investors find the ADSs less attractive
as a result, there may be a less active trading market for the ADSs and our share price may be more volatile. We may take advantage
of the reporting exemptions applicable to a smaller reporting company until we are no longer a smaller reporting company, which
status would end once we have a public float greater than $250 million. In that event, we could still be a smaller reporting
company if our annual revenues were below $100 million and we have a public float of less than $700 million.
The ADSs may be delisted from Nasdaq if we fail to comply
with continued listing standards.
If we fail to meet any of the continued
listing standards of Nasdaq, the ADSs could be delisted from The Nasdaq Capital Market. These continued listing standards include
specifically enumerated criteria, such as:
·
a $1.00 minimum closing
bid price;
·
shareholders’
equity of $2.5 million;
·
500,000 shares of publicly-held
shares with a market value of at least $1 million;
·
300 round-lot shareholders;
and
·
compliance with Nasdaq’s
corporate governance requirements, as well as additional or more stringent criteria that may be applied in the exercise of
Nasdaq’s discretionary authority.
There can be no assurance that we will
be able to maintain compliance and remain in compliance in the future. In particular, our share price may continue to decline
for a number of reasons, including many that are beyond our control. See “—The ADS price could continue to be highly
volatile and you may not be able to resell your ADSs at or above the price you paid for them.”
If we fail to comply with Nasdaq’s
continued listing standards, we may be delisted and the ADSs will trade, if at all, only on the over-the-counter market, such
as the OTC Bulletin Board or OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation
requirements. In addition, delisting of the ADSs could depress our share price, substantially limit liquidity of the ADSs and
materially adversely affect our ability to raise capital on terms acceptable to us, or at all. Further, delisting of the ADSs
would likely result in the ADSs becoming a “penny stock” under the Exchange Act.
65
Recent changes to the composition of our board of directors
and senior management may disrupt our business plans.
Four of our directors have recently resigned
from our board of directors and our CEO and CFO were replaced. It is possible that these changes in the board’s composition
and any future changes to the composition of our senior management team may disrupt our business and may create uncertainty among
investors, employees and our collaboration partner concerning our future direction and performance. Any such disruption or uncertainty
could have a material adverse impact on our results of operations and financial condition and the market price of the ADSs.
66
Item
1B.
Unresolved
Staff Comments
None.
Item 2. Properties
In January 2020, our board of directors
approved our management’s recommendation to close our Israeli office and laboratories. Following the closure of our Israeli
facilities in May 2020, our sole remaining office was located in Cambridge, Massachusetts. Our lease for this office in Cambridge,
Massachusetts terminated on February 28, 2021. We are allowed, however, to continue using this address to receive mail. We
do not currently own or lease any real property.
Item
3.
Legal
Proceedings
From time to time, we may be party to litigation
or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved
in any legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial
condition or results of operations.
Since our publication of the proposed merger
with Chemomab five separate complaints have been filed by putative stockholders of the Company challenging the proposed merger.
In general, the complaints each allege that the Registration Statement on Form S-4 that we filed with the SEC on January 13,
2021, omitted or misrepresented material information regarding the merger. The complaints seek, among other things, injunctive
relief, damages, and an award of plaintiff's costs, including attorneys’ fees and expenses. It is still too early to assess
and determine the possible / probable outcome of these complaints. See note 10B for additional detail.
Item
4.
Mine
Safety Disclosures
Not applicable.
67
PART II
Item
5.
Market
for Registrant’s ADSs, Related Stockholder Matters and Issuer Purchases of Equity Securities
The ADSs, representing our ordinary shares,
have been trading on Nasdaq under the symbol “ANCN” since February 12, 2019. Prior to that date, there was no
public trading market for the ADSs. Our ordinary shares were traded on the Tel Aviv Stock Exchange (“TASE”) until
June 2019, under the symbol “ANCN”.
As of February 18, 2020, there were
seven holders of record of our ordinary shares.
Item
6.
Selected
Financial Data
Not applicable.
68
Item
7.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
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 November 2019, after a thorough evaluation of data, we determined there
was a low probability of surpassing the pre-defined futility threshold at the planned interim analysis of the study, and announced
the discontinuation of the study and of active clinical development of inodiftagene vixtepasmid.
On September 13, 2019, we entered
into a Collaboration and License Agreement (the “License Agreement”) with ADT Pharmaceuticals, LLV (“ADT”),
pursuant to which we acquired the rights to two small molecule developmental programs targeting oncogenic pathways, focused on
pan-mutant RAS inhibitors (our “pan-RAS-inhibitor program”) and inhibitors of PDE10 and the β-catenin pathway,
respectively. Under the License Agreement, we are primarily responsible for the research, development, manufacturing, regulatory
and commercial activities with respect to the compounds conveyed and contemplated thereunder. Our operations are focused on the
successful development, regulatory approval and commercialization of products derived from such compounds.
For further information regarding our business
and operations, see “Item 1. Business.”
Our corporate structure consists of a parent
company, Anchiano Therapeutics Ltd. (formerly BioCancell Ltd.), incorporated in Israel, which wholly owns a subsidiary, Anchiano
Therapeutics Israel Ltd. (formerly BioCanCell Therapeutics Israel Ltd.), incorporated in Israel, which itself wholly owns a subsidiary,
Anchiano Therapeutics, Inc. (formerly BioCanCell USA, Inc.), incorporated in Delaware. We currently maintain offices
in Cambridge, MA.
License Agreements
In September 2019, we publicly announced
that we had entered into the License Agreement with ADT. Pursuant to the terms and conditions set forth in the License Agreement,
we mutually agreed to use commercially reasonable efforts to conduct research and development activities of novel small-molecule
inhibitors (RAS and PDE10/β-catenin). As part of the arrangement, we are primarily responsible for the research, development,
manufacturing and regulatory activities and ADT will assist with the research activities as necessary in exchange for a quarterly
fee. In connection with the License Agreement, ADT also granted us exclusive rights to research, develop, manufacture and commercialize
the aforementioned compounds relating to patents owned by ADT and any products containing such compounds worldwide. In consideration
for the rights granted under the License Agreement, we paid ADT a $3 million upfront fee in 2019, and agreed to pay to ADT (i) a
fee upon transfer of the know-how and intellectual property rights to us; and (ii) additional payments, including milestone
and royalty payments. We have the ability to terminate the License Agreement at any time in its entirety or on a compound-by-compound
basis after providing 90 days written notice to ADT. Since there is no alternative future use for the upfront fee, we accounted
for it as a research and development expense.
In April 2020, we notified Yissum
Technology Transfer Company of the Hebrew University Ltd. (“Yissum”) that as a result of our previous decision to
discontinue clinical development of inodiftagene, we will cease payments to maintain intellectual property ("IP") we
licensed from Yissum under the licensing and development agreement between the parties. In August 2020 we agreed with Yissum
on termination of the licensing and development agreement, we destroyed or returned all IP documentation to Yissum and we and
Yissum mutually waived, released and discharged each other from all claims of any type.
Recent Events
On July 2, 2020, our Chief Executive
Officer Dr. Frank Haluska sent a letter to the Chairman of our board of directors outlining Dr. Haluska’s belief
that events had occurred that were sufficient to trigger his ability to resign for “Good Reason” under his employment
agreement. Our board of directors informed Dr. Haluska that it disagreed with the letter’s assertions regarding “Good
Reason” and treated the letter as a constructive resignation effective as of July 2, 2020. On July 12, 2020, Dr. Frank
Haluska tendered his written resignation from our board of directors, effective immediately. Dr. Haluska referenced the matters
articulated in his letter of July 2, 2020, and the Company’s response and actions following receipt of the letter as
the basis for his resignation from the Board. It is our position, based on our legal counsel, that the CEO resigned without Good
Reason, is not entitled to severance, and we will contest any and all claims for severance. Prior to the appointment of Mr. Neil
Cohen as CEO in October 2020 (see below) our board of directors handled all matters related to CEO duties.
69
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
July 2020 to undertake reductions in headcount and other cost saving measures. These included plans to temporarily reduce
its internal and external research and development work on the Company’s pan-RAS-inhibitor program until there is greater
clarity regarding Anchiano’s ability to fund the program. We continue to undertake actions for the promotion of the program
and its assets and towards strengthening the protection of all related intellectual property.
We also engaged Oppenheimer &
Co. to act as our financial advisor to review strategic alternatives focused on maximizing shareholder value. This has resulted
in the contemplated merger with Chemomab
On October 20, 2020, we appointed
Mr. Neil Cohen as Chief Executive Officer of Anchiano. Mr. Cohen continues to serve as a member of our board of directors.
The Company also appointed Andrew Fine to serve as our Chief Financial Officer. Mr. Fine previously served as our Interim
Chief Financial Officer pursuant to a subcontracting agreement.
On December 14, 2020 we entered into
an Agreement and Plan of Merger with Chemomab, an Israeli limited company and a clinical-stage biotech company focusing on the
discovery and development of innovative therapeutics for fibrosis-related diseases with high unmet need, which included the proposed
Merger of CMB Acquisition Ltd., a wholly owned subsidiary of ours, with Chemomab as the surviving company, subject to shareholder
approval.
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.
70
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.
71
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 Israel. We have historically incurred operating losses resulting in carry forward tax losses totaling approximately $117 million
as of December 31, 2020. We anticipate that we will continue to generate tax losses for the foreseeable future and that we
will be able to carry forward these tax losses indefinitely to future taxable years. Accordingly, we do not expect to pay taxes
in Israel until we have taxable income after the full utilization of our carry forward tax losses. We have provided a full valuation
allowance with respect to the deferred tax assets related to these carry forward losses.
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.
72
Year ended December 31, 2020 Compared to the Year
Ended December 31, 2019
Research and development expenses
Research and development expenses decreased
by approximately $9.5 million, 72%, to approximately $3.8 million for the year ended December 31, 2020 compared to approximately
$13.3 million for the year ended December 31, 2019. The decrease resulted primarily from the restructuring decisions made
in July 2020 and the related decision to temporarily reduce our research activities on the RAS programs and sever our research
and development employees while continuing to undertake all necessary actions for the maintenance of the program, its assets and
all related intellectual property and licenses..
General and administrative expenses
General and administrative expenses increased
by approximately $1.0 million, or 16%, to approximately $7.2 million for the year ended December 31, 2020 compared to approximately
$6.2 million for the year ended December 31, 2019. The increase was primarily due to increases in professional fees, insurance
and manpower expenses, offset by a decrease in share-based payment.
Restructuring expenses
Restructuring expenses decreased by approximately
$2.6 million, or 78%, to approximately $0.7 million for the year ended December 31, 2020 compared to approximately $3.4 million
for the year ended December 31, 2019
In November 2019,
we decided to discontinue our Phase 2 Codex study in patients with BCG-unresponsive NMIBC. In connection with this decision, we
are required to make certain payments under contracts with CROs and with other manufactures of the drug in order to terminate
the contracts and close the trials. Moreover the restructuring plan included a reduction in the workforce of seven employees.
Separately, in January 2020
our board of directors approved management’s recommendation to close our office and laboratories located in Israel. The
closure resulted in the termination of employment of the Company’s remaining Israeli employees.
In July 2020, we
made the strategic decision to temporarily reduce development of our RAS program and to institute various cost savings measures
to preserve liquid resources. At the same time, we continued to actively pursue the maintenance of our Licensing Agreement with
ADT and protection of our intellectual property assets. The cost saving activities included contract termination with outsourced
contractors working on clinical activities and to whom we are required to make certain payments to terminate the contracts.
Financing expense, net
Financing expense, net
decreased by approximately $4.3 million, or 102%, to reflect financing income of approximately $0.1 million for the year ended
December 31, 2020 compared to a financing expense of approximately $4.2 million for the year ended December 31, 2019.
Financing income for the year ended December 31, 2020 was primarily interest income, foreign currency exchange rate gains.
The financing costs in 2019 were primarily due to revaluation of investor warrants at fair value during a period where these could
not be classified within shareholders’ equity, due to the following circumstances:
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 January 1, 2019. Due to this change from this date, the exercise price of the warrants
was no longer denominated in our functional currency and the warrants were therefore not considered indexed to our own stock according
to ASC 815-40 and no longer met all the criteria to be classified within equity. Therefore, the warrants were reclassified as
a liability at their fair value as of January 1, 2019, and any difference was accounted for as an adjustment to equity. Upon
our Nasdaq initial public offering of February 14, 2019, the warrants’ exercise price currency was changed to USD.
As a result, the warrants were reclassified within equity.
Consequently, the warrants were measured
at fair value from January 1, 2019 until February 14, 2019, with resulting finance expenses of $4.6 million, until they
were reclassified within equity.
73
Income tax
Income tax remained at
$0 million for the year ended December 31, 2020 as for the year ended December 31, 2019. Prior to 2019 our U.S. subsidiary
provided us with general and clinical trial management services. For these services, our US subsidiary was compensated on a cost-plus
basis, and recorded income taxes accordingly. In 2019, following our acquisition of the programs from ADT, our U.S. subsidiary
ceased to provide us with general clinical trial management services and expenses related to the ADT programs are not part of
the cost-plus compensation and accordingly our US subsidiary does not have taxable income for the current year.
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 $3.7 million, to approximately $12.7 million for the year ended December 31, 2020 compared
to approximately $16.5 million for the year ended December 31, 2019. This decrease is primarily due to the decrease in clinical
trial expenses, manufacturing expenses, manpower expenses and as offset by restructuring expenses.
Investing activities
Net cash used in investing
activities decreased by approximately $0.2 million, to reflect approximately $0.1 million of net cash provided by investing activities
for the year ended December 31, 2020 compared to $0.1 million of net cash used in investing activities for the year ended
December 31, 2019. This decrease was primarily due to the sale of laboratory equipment from our now closed facility in Israel,
partially offset by purchases of fixed assets.
Financing activities
Net cash provided by
financing activities decreased by approximately $26.3 million, to approximately $0.3 million for the year ended December 31,
2020 compared to $26.6 million for the year ended December 31, 2019. The net cash provided by financing activities for the
year ended December 31, 2020 reflects an adjustment of share issuance expenses that were expensed in 2019 in relation to
our initial public offering in the first quarter of 2019. We had no other financing activities in 2020.
Effects of Currency Fluctuation
Currency fluctuations could affect us through
increased or decreased costs, mainly for goods and services acquired outside of the United States. Currency fluctuations have
not had a material effect on our results of operations during the years ended December 31, 2020 or 2019.
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.
74
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 U.S. GAAP. Comparative
figures, which were previously presented and publicly reported in accordance with IFRS as issued by the International Accounting
Standards Board, have been adjusted as necessary to be compliant with our policies under U.S. GAAP. The preparation of our financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting
periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail throughout
this section. We base our estimates on historical experience and on various other factors that we believe are reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.
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 U.S. GAAP to determine such treatment and evaluates
the features of the instrument to determine the appropriate accounting treatment. We utilize the Probability Weighted Expected
Return Method (PWERM), Option Pricing Model (OM) or other appropriate methods to determine the fair value of its derivative financial
instruments such as the warrant liability. For financial instruments indexed to and potentially settled in our shares that are
determined to be classified as liabilities on the consolidated balance sheet, changes in fair value are recorded as a gain or
loss in our consolidated statement of operations with the corresponding amount recorded as an adjustment to the liability on its
consolidated balance sheet.
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.
75
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 June 2018, we completed a $22.9 million fundraising round from investors in the United States and Israel,
as well as existing shareholders, led by Shavit Capital Funds. In consideration for the investment, we issued 5,960,787 ordinary
shares (constituting approximately 38% of our issued and outstanding share capital after completion of the transaction) at a price
per share of approximately $3.842, as well as warrants to acquire additional shares equal to 80% of the shares issued, at an exercise
price per share of NIS 16.20 (approximately $4.32). The warrants are exercisable for five years and may be exercised on a cashless
basis. In addition, we granted the investors price protection rights (to shares and warrants) in the event of a future share issuance
where the price does not increase by at least approximately 42.86% over the price per share in the fundraising (or is less than
the adjusted price per share, if the price has already been adjusted).
In February 2019, we raised $30.5
million in our Nasdaq initial public offering, allocating 2,652,174 ADSs, each representing five ordinary shares. In accordance
with price protection rights granted in 2018 and activated in the offering, we allocated an additional 8,262,800 ordinary shares
(equivalent to 1,652,560 ADSs) to rights holders and adjusted their warrants to be exercisable for an additional 6,207,330 ordinary
shares (equivalent to 1,241,466 ADSs).
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 December 31, 2020 of approximately $117 million. We have financed operations to date primarily through public
and private placements of equity securities. We anticipate that we will continue to incur net losses for the foreseeable future.
We believe that our existing cash and cash equivalents will only be sufficient to fund our projected cash needs until the completion
of the contemplated merger with Chemomab during the first half of 2021. Accordingly, these factors, among others, raise substantial
doubt about our ability to continue as a going concern. To meet future capital needs, and should the contemplated merger
with Chemomab not be completed, we would need to raise additional capital through equity or debt financing or other strategic
transactions. However, any such financing may not be on favorable terms or even available to us. Our failure to obtain
sufficient funds on commercially acceptable terms when needed would have a material adverse effect on our business, results of
operations and financial condition. The forecast of cash resources is forward-looking information that involves risks and uncertainties,
and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based our
estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currently
anticipate.
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 February 2019. We may also engage with a partner in order to
share the costs associated with the development and manufacturing of our product candidates or seek to enter an out-licensing
agreement.
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:
76
·
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.
Item
8.
Financial
Statements and Supplementary Data
See the Index to Consolidated Financial Statements on Page F-1
attached hereto.
77
Item
9.
Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item
9A.
Controls
and Procedures
Management’s Annual Report on Internal Controls
Over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in
Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision
of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with GAAP and includes those policies and procedures that:
•
pertain to the maintenance
of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
•
provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that
our receipts and expenditures are being made only in accordance with authorizations of our management; and
•
provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future
periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
Our management, including our Chief Executive
Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting at December 31,
2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control—Integrated Framework (2013). Based on that assessment under those criteria, management
has determined that, as of December 31, 2020, our internal control over financial reporting was effective.
Item
9B.
Other
Information
None.
78
PART III
Item
10.
Directors,
Executive Officers and Corporate Governance
Our directors and executive officers, their
ages and positions as of the date of this Annual Report are as follows:
Name
Age
Position
Neil Cohen
57
Chief Executive Officer and Director
Andrew Fine
50
Chief Financial Officer
Stan Polovets (1)(2)(3)
57
Chairman
Ruth Alon (1)(2)(3)
69
Director
Isaac Kohlberg (1)(2)(3)
69
Director
(1)
Member of the Audit
Committee
(2)
Member of the Compensation
Committee
(3)
Member of the Nominating
and Governance Committee
A brief biography of each person who serves
as an executive officer and/or director of our Company is set forth below:
Neil
Cohen has served as a member of Anchiano’s board of directors since April 2020 and as Anchiano’s interim
Chief Executive Officer since October 2020. Mr. Cohen has served as the Chairman and Chief Executive Officer of Castel
Partners Ltd. since January 2012. In 1994, he co-founded Israel Seed Partners, a leading venture capital firm, and managed
the firm until 2019. Mr. Cohen has invested in and served on the boards of directors of many private technology companies,
including a large number which were acquired or completed successful initial public offerings, including Compugen (Nasdaq: CGEN),
Shopping.com (Nasdaq: SHOP, acquired by EBAY), Broadlight (acquired by Broadcom, Nasdaq: AVGO) and Cyota (acquired by RSA). He
is a venture partner at SKY, an Israeli middle-market private equity firm, Hetz Ventures Management Ltd., an early-stage Israeli
venture capital fund, and Shavit Capital. Mr. Cohen was previously the Business Editor of The Jerusalem Post and began his
career in the private equity group at N M Rothschild & Sons Limited in London. Mr. Cohen received a B.A. and M.A.
in Oriental Studies, with first class honors, from Oxford University.
Stan
Polovets has served as chairman of Anchiano’s board of directors since April 2020. Mr. Polovets is
a graduate of Stanford Graduate School of Business, he also currently serves as a member of the Board of Overseers of New York
University (NYU) Tandon School of Engineering, NYU President’s Global Council, and the Council on Foreign Relations. Mr. Polovets
previously served as CEO of AAR, a private equity firm with a global energy portfolio valued in excess of $25 billion, and as
Sr. Vice President at TNK-BP, one of the world’s largest oil companies. Mr. Polovets also held management, advisory,
M&A and various financial positions at ExxonMobil, KPMG, TNK-BP and EY. Prior to joining Anchiano’s board, Mr. Polovets
served as Lead Non-Executive Director of Clal Industries, Lead Independent Director of L1 Energy, Lead Independent Director at
Taavura, member of the Board of Overseers at Stanford University’s Hoover Institution, Chairman for Eastern Europe at Edelman,
and director at oil companies Slavneft and TNK-BP. He is a co-founder and chairman of The Genesis Prize Foundation, a prominent
international philanthropic group.
Andrew
Fine has served as our Chief Financial Officer since October 2020 having previously served as our interim Chief
Financial Officer since July 2020. Mr. Fine has over 20 years of experience in executive financial and operational roles
and is currently Co-Managing Director at Line Consulting Ltd. Mr. Fine previously held roles as Chief Financial Officer at
Seeking Alpha, ScaleMP and Freightos, leading finance and operations for the companies’ global activities. Mr. Fine
holds a BA and an MBA from the Hebrew University of Jerusalem.
79
Ruth
Alon has served as a director since September 2017. Ms. Alon is the founder and Chief Executive Officer of
Medstrada Israel, a venture capital fund focusing on food and nutrition technologies. Between 1997 and 2016, Ms. Alon served
as a general partner of Pitango Venture Capital. Prior to her tenure at Pitango, Ms. Alon held senior positions with Montgomery
Securities from 1981 to 1987, Genesis Securities, LLC from 1993 to 1996, and Kidder Peabody & Co. from 1987 to 1993,
as well as managing her own medical device independent consulting business in San Francisco from 1995 to 1996. Ms. Alon was
the founder and chairperson of Israel Life Science Industry, a not-for-profit organization then representing the mutual goals
of approximately 700 Israeli life science companies. She is also the co-founder of IATI, Israel Advanced Technology Industries,
an umbrella organization for all high-tech and life sciences companies in Israel. She has a B.A. in economics from The Hebrew
University of Jerusalem, Israel and an M.B.A. from Boston University.
Isaac
Kohlberg has served as a director since February 2017. He is the Senior Associate Provost and Chief Technology
Development Officer at Harvard University. Previously, he was Chief Executive Officer of the Tel Aviv University Economic Corporation
and Chief Executive Officer of RAMOT at Tel Aviv University, a technology transfer company. He served as Vice President at New
York University Medical Center and Vice Provost of New York University. He also served as the Managing Director of Yeda R&D
Company of the Weizmann Institute of Science. Mr. Kohlberg serves on the board of directors of CBI and Elicio Therapeutics,
a privately-held biotechnology company of which CBI is a substantial shareholder. Mr. Kohlberg received a diploma in French
cultural and historical studies from the University of Strasbourg, an M.B.A. from INSEAD and an LL.B. from Tel Aviv University.
80
Committees of the Board of Directors
Our board of directors has established
the following committees. Each committee operates in accordance with a written charter that sets forth the committee’s structure,
operations, membership requirements, responsibilities and authority to engage advisors.
Audit Committee
Under the Companies Law, the Exchange Act
and Nasdaq rules, we are required to establish an Audit Committee.
The responsibilities of an Audit Committee
under the Companies Law include identifying and addressing flaws in the business management of the company, reviewing and approving
related party transactions, establishing whistleblower procedures, overseeing the company’s internal audit system and the
performance of its internal auditor, and assessing the scope of the work and recommending the fees of the company’s independent
accounting firm. In addition, the Audit Committee is required to determine whether certain related party actions and transactions
are “material” or “extraordinary” for the purpose of the requisite approval procedures under the Companies
Law and to establish procedures for considering proposed transactions with a controlling shareholder.
In accordance with U.S. law and Nasdaq
requirements, our Audit Committee is also responsible for the appointment, compensation and oversight of the work of our independent
auditors and for assisting our board of directors in monitoring our financial statements, the effectiveness of our internal controls
and our compliance with legal and regulatory requirements.
Under the Companies Law and related regulations,
the Audit Committee must consist of at least three directors who meet certain independence criteria. Under the Nasdaq rules, we
are required to maintain an Audit Committee consisting of at least three independent directors, all of whom are financially literate
and one of whom has accounting or related financial management expertise. Each of the members of the Audit Committee is required
to be “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act.
Our Audit Committee currently consists
of Ms. Ruth Alon, Mr. Stan Polovets and Mr. Isaac Kohlberg. All of the members are independent as defined in the
Companies Law, SEC rules and Nasdaq listing requirements. Our board of directors has determined that all members of our Audit
Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq
rules. Our board of directors has determined that Ms. Ruth Alon is an Audit Committee financial expert as defined by the
SEC rules and has the requisite financial experience as defined by the Nasdaq rules.
Compensation Committee
Under both the Companies Law and Nasdaq
rules, we are required to establish a Compensation Committee.
The responsibilities of a Compensation
Committee under the Companies Law include recommending to the board of directors, for ultimate shareholder approval by a special
majority, a policy governing the compensation of directors and officers based on specified criteria, reviewing modifications to
and implementing such compensation policy from time to time, and approving the actual compensation terms of directors and officers
prior to approval by the board of directors.
In accordance with U.S. law and Nasdaq
requirements, our Compensation Committee is also responsible for the appointment, compensation and oversight of the work of any
compensation consultant, independent legal counsel and other advisors retained by the Compensation Committee.
81
The Companies Law and related regulations
require the appointment of a Compensation Committee that complies with the requirements of Nasdaq. Under Nasdaq rules, we are
required to maintain a Compensation Committee consisting of at least two independent directors; each of the members of the Compensation
Committee is required to be independent under Nasdaq rules relating to Compensation Committee members, which are different
from the general test for independence of board and committee members. Our Compensation Committee currently consists of Ms. Ruth
Alon, Mr. Stan Polovets and Mr. Isaac Kohlberg. All of the members are independent as defined in the Companies Law and
the Nasdaq listing requirements.
Corporate Governance and Nominating Committee
We have established a Corporate Governance
and Nominating Committee, responsible for making recommendations to the board of directors regarding candidates for directorships
and the size and composition of the board. In addition, the committee is responsible for overseeing our corporate governance guidelines
and reporting and making recommendations to the board concerning corporate governance matters. Under the Companies Law, nominations
for director may also, under certain circumstances, be made by shareholders in accordance with the conditions prescribed by applicable
law and our articles of association. Our Corporate Governance and Nominating Committee currently consists of Ms. Ruth Alon,
Mr. Stan Polovets and Mr. Isaac Kohlberg. All of the members are independent as defined in the Nasdaq listing requirements.
Internal Auditor
Under the Companies Law, the board of directors
is required to appoint an internal auditor recommended by the Audit Committee. The role of the internal auditor is to examine,
among other things, whether the company’s actions comply with applicable law and proper business procedures. The internal
auditor may not be an interested party, a director or an officer of the company, or a relative of any of the foregoing, nor may
the internal auditor be our independent accountant or a representative thereof. Mr. Joseph Ginossar, CPA, who is the chief
executive officer of Fahn Kanne Control Management Ltd. (the Business Risk Services division of Grant Thornton Israel), currently
serves as our internal auditor.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange
Act requires our directors, executive officers and holders of more than 10% of our ordinary shares to file with the SEC reports
regarding their ownership and changes in ownership of our equity securities. We believe that all Section 16 filings requirements
were met by our officers and directors during 2020.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct
and Ethics that includes provisions ranging from restrictions on gifts to conflicts of interest. All of our employees and directors
are bound by this Code of Business Conduct and Ethics. Violations of our Code of Business Conduct and Ethics may be reported to
the Audit Committee. The Code of Business Conduct and Ethics includes provisions applicable to all of our employees, including
senior financial officers and members of our Board of Directors and is posted on our website. We intend to post amendments to
or waivers from any such Code of Business Conduct and Ethics.
Item
11.
Executive Compensation
Aggregate Compensation of Directors and Officers
The aggregate compensation we paid to our
executive officers and directors for the year ended December 31, 2020 was approximately $2.7 million. This amount includes
amounts paid, set aside or accrued to provide pension, severance, retirement or similar benefits or expenses, but does not include
share-based compensation expenses, or business travel, professional and business association dues and expenses reimbursed to office
holders, and other benefits commonly reimbursed or paid by companies in our industry. As of December 31, 2020, options to
purchase 220,353 ordinary shares granted to our officers and directors were outstanding under our share option plan at a weighted
average exercise price of $0.6 per share.
82
Individual Compensation of Officers
The table and summary below outlines the
compensation granted to our five most highly compensated officers with respect to the year ended December 31, 2020. For purposes
of the table and the summary below, “compensation” includes base salary, bonuses, equity-based compensation, retirement
or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking to provide such compensation.
Name
and Principal Position
Salary (1) (USD
in
thousands)
Bonus (2) (USD
in
thousands)
Equity-Based
Compensation (3)
(USD in thousands)
Total
(USD in
thousands)
Mr. Jonathan Burgin
Ex.Chief Financial and Operating Officer
$ 457
$ -
$ 73
$ 530
Dr. Frank G. Haluska
Ex.Chief Executive Officer
$ 303
$ -
$ 83
$ 385
Dr. David Kerstein
Ex.Chief Medical Officer
$ 426
$ -
$ (107 )
$ 319
Dr. Ron Knickerbocker
Ex.Senior Vice President of Clinical Development and Data Sciences
$ 354
$ -
$ (53 )
$ 301
Mr. Sean Daly
Ex.Vice President of Clinical Operations
$ 295
$ -
$ (26 )
$ 269
(1) Salary includes
gross salary plus payment by us of social benefits on behalf of the officer. Such benefits may include, to the extent applicable,
payments, contributions and/or allocations for risk insurance (e.g., life, or work disability insurance), payments for social
security, vacation, medical insurance and benefits, and other benefits and perquisites consistent with our policies.
(2) Represents bonuses
granted with respect to 2020.
(3) Represents the
equity-based compensation expenses recorded in our consolidated financial statements for the year ended December 31, 2020,
based on the options’ fair value on the grant date, calculated in accordance with applicable accounting guidance for equity-based
compensation. For a discussion of the assumptions used in reaching this valuation, see Note 2L to our annual consolidated financial
statements included in this Annual Report on Form 10-K.
Outstanding Equity Awards
The table below outlines the unexercised
options; stock that has not vested; and equity incentive plan awards for each executive officer outstanding as of December 31,
2020.
83
Option
award
Name
Number
of securities
underlying
unesercised options
(#) exercisable
Number
of
securities
underlying
unexercised
unearned
options (#)
Option
exercise
price ($)
Option
expiration
date
Neil
Cohen
-
55,000
0.17
14-Jul-30
3,533
-
76.60
24-Sep-21
4,504
-
7.29
8-May-24
Burgin Jonathan
6,000
-
3.76
26-Apr-25
87,500
12,500
2.83
8-Sep-27
98,875
127,125
1.03
30-Jun-29
562,782
-
2.60
27-Dec-26
Haluska Frank
164,942
-
2.90
25-Sep-27
909,203
-
3.67
30-Jun-28
Director Compensation
The table below outlines the unexercised
options; stock that has not vested; and equity incentive plan awards for each executive officer outstanding as of December 31,
2020.
Name
Feed
earned or paid
in cash ($)
Stock
awards
($)
Option
awards ($)
Non-equity
incentive plan
compensation ($)
Nonqualified
deferred
compensation
earnings ($)
All
other
compensation
($)
Total
($)
Outstanding
options as of
December 31,
2020
Veru Dennison
19,375
-
3,975
-
-
-
23,350
-
Howard Lawrance
10,625
-
3,975
-
-
-
14,600
-
Hardy Reginald
10,938
-
3,975
-
-
-
14,913
-
Ofer Gonen
8,750
-
0
-
-
-
8,750
-
Polovets Stan
71,250
-
1,933
-
-
-
73,183
55,000
Neil Cohen
32,408
-
1,933
-
-
-
34,341
55,000
Alon Ruth
53,050
-
10,289
-
-
-
63,340
55,353
Kohlberg Isaac
40,427
-
10,289
-
-
-
50,717
55,000
Employment Agreements
The material employment terms for Dr. Haluska,
our former Chief Executive Officer, are as follows: (1) an annual salary of $480,000 ($400,000 until April 30, 2019,
when it was amended by a general meeting of our shareholders); (2) an annual bonus, subject to achievement of objectives
set by the board of directors, in the target amount of $200,000; (3) payment of nine months’ of salary upon termination
(or resignation for a good reason event), a partial annual bonus (pro rata) and partial vesting acceleration of option warrants
(and in the case of termination or voluntary resignation with regard to changes in control of the company, a full annual bonus
and full vesting acceleration of option warrants); and (4) all employee benefit plans, programs and arrangements, and all
fringe benefits and perquisites that are made available to our senior executives, including health insurance coverage in accordance
with the terms of our health insurance plan. In total, we have allocated Dr. Haluska options to purchase 2,059,016 ordinary
shares in connection with his employment agreement. Of these, options to purchase 562,782, 164,942 and 909,203 ordinary shares
vest in four annual tranches from the date of his employment (May 2016) with respective exercise prices of $2.60, $2.90 and
$3.67, and options to purchase 422,090 ordinary shares vest in 16 quarterly tranches from the date of approval by our Board with
an exercise price of $1.03.
The material employment terms for Neil
Cohen, our interim Chief Executive Officer, as of October 20, 2020 consist of a monthly salary of $12,000. Prior to Mr. Cohen’s
employment, and in his capacity as a Director, we allocated Mr. Cohen options to purchase 55,000 ordinary shares. These options
vest over a period of 3 years, with 33.33% vesting after 12 months from the date of approval by our Board and thereafter vest
in 8 quarterly tranches.
Our other employees are employed under
the terms prescribed in their respective employment contracts. The employees are entitled to the social benefits prescribed by
law and as otherwise provided in their agreements. These agreements each contain provisions standard for a company in our industry
regarding non-competition, confidentiality of information and assignment of inventions. We also provide certain of our employees
with a company car, which is leased from a leasing company. These contracts provide for notice periods of varying duration for
termination of the agreement by us or by the relevant employee, during which time the employee will continue to receive base salary
and benefits.
84
Equity Incentive Plans
2011 Share Option Plan
On December 19, 2011, our board of
directors adopted a share option plan (the “2011 Plan”), to allocate options to purchase our ordinary shares to our
directors, officers, employees and consultants, and those of our affiliated companies (as such term is defined under the 2011
Plan), or the Grantees. The 2011 Plan is administered by our board of directors or a committee that was designated by our board
of directors for such purpose, or the Administrator.
Under the 2011 Plan, we may grant options
to purchase ordinary shares (“Options”), under four tracks: (i) Approved 102 capital gains Options through a
trustee, which was approved by the Israeli Tax Authority in accordance with Section 102(a) of the Israeli Income Tax
Ordinance (“ITO”), and granted under the tax track set forth in Section 102(b)(2) of the ITO, or the Approved
102 Capital Gains Options. The holding period under this tax track is 24 months from the date of allocation of Options to the
trustee or such period as may be determined in any amendment of Section 102 of the ITO, or any applicable tax ruling or guidelines;
(ii) Approved 102 Earned Income Options through a trustee, granted under the tax track set forth is Section 102(b)(1) of
the ITO, or the Approved 102 Earned Income Options. The holding period under this tax track is 12 months from the date of allocation
of Options to the trustee or such period as may be determined in any amendment of Section 102 of the ITO; (iii) Unapproved
102 Options (the Options will not be allocated through a trustee and will not be subject to a holding period), or the Unapproved
102 Options; and (iv) 3(i) Options (the Options will not be subject to a holding period). These Options shall be subject
to taxation pursuant to Section 3(i) of the ITO, or Section 3(i).
Options pursuant to the first three tax
tracks (under Section 102 of the ITO) can be granted to our employees and directors and the grant of Options under Section 3(i) can
be granted to our consultants and controlling shareholders (a controlling shareholder is defined under the Section 102 of
the ITO is a person who holds, directly or indirectly, alone or together with a “relative,” (i) the right to
at least 10% of the company’s issued capital or 10% of the voting power; (ii) the right to hold at least 10% of the
company’s issued capital or 10% of the voting power, or the right to purchase such rights; (iii) the right to receive
at least 10% of the company’s profits; or (iv) the right to appoint a company’s director). Grantees who are not
Israeli residents may be granted options that are subject to the applicable tax laws in their respective jurisdictions.
We determine, in our sole discretion, under
which of the first three tax tracks above the Options are granted and we notify the Grantee in a grant letter, as to the elected
tax track. As mentioned above, consultants and controlling shareholders can only be granted Section 3(i) Options.
The number of ordinary shares authorized
to be issued under the 2011 Plan will be proportionately adjusted for any increase or decrease in the number of ordinary shares
issued as a result of a distribution of bonus shares, change in our capitalization (split, combination, reclassification of the
shares or other capital change), or issuance of rights to purchase ordinary shares or payment of a dividend. We will not allocate
fractions of ordinary shares and the number of ordinary shares shall be rounded up to the closest number of ordinary shares.
In the event of a (i) merger or consolidation
in which we (in this context, specifically Anchiano Therapeutics Ltd.) is not the surviving entity or pursuant to which the other
company becomes Anchiano Therapeutics Ltd.’s parent company or that pursuant to which Anchiano Therapeutics Ltd. is the
surviving company but another entity holds 50% or more of Anchiano Therapeutics Ltd. voting rights, (ii) an acquisition of
all or substantially all of our ordinary shares, (iii) the sale of all or substantially all Company assets, or (iv) any
other event with a similar impact, the Company may exchange all of its outstanding Options granted under the 2011 Plan that remain
unexercised prior to any such transaction for options to purchase shares of the successor corporation (or those of an affiliated
company) following the consummation of such transaction.
Unless otherwise determined by the Administrator,
the exercise price of an Option granted under the 2011 Plan will be the average of the market price of the Company’s ordinary
shares during the 22 business days prior to the date on which our board of directors authorized the grant of Options; provided,
however, that such exercise price cannot be lower than the market price at the close of the trading day at which it was granted
by our board of directors. The exercise price will be specified in the grant letter every Grantee received from us in which the
Grantee notifies of the decision to grant him/her Options under the 2011 Plan.
85
Unless otherwise determined by the Administrator,
the Options granted under the Plan will become vested and may be exercised in 16 equal portions of 6.25% of the total number of
Options, at the end of each quarter following the day the Options were granted. Unless otherwise determined by our board of directors,
the Options may be exercised for ten years following the date of grant, unless terminated earlier, and as long as the Grantee
is employed by the Company (or by an affiliated company), or provides service to the Company (or an affiliated company).
The Administrator may, in its absolute
discretion, accelerate the time at which Options granted under the 2011 Plan or any portion of which will vest.
Unless otherwise determined by the Administrator,
in the event that the Grantee’s employment was terminated, not for Cause (as defined in the 2011 Plan), the Grantee may
exercise that portion of the Options that had vested as of the date of such termination until the end of the specified term in
the grant letter or the 2011 Plan. The portion of the Options that had not vested at such date, will be forfeited and can be re-granted
according to the terms of the 2011 Plan.
2017 Equity-Based Incentive Plan
On February 22, 2017, our board of
directors adopted our 2017 Equity-Based Incentive Plan (the “2017 Plan”), to allocate a variety of share-based awards
to our directors, officers, employees, consultants, advisors and service providers, and those of our affiliates (companies that
control us, are controlled by us or are under common control with us), or the Participants. The 2017 Plan is currently administered
by our board of directors, and may be administered by a committee designated by our board of directors for such purpose, or the
Administrator.
Under the 2017 Plan, we may grant options
to purchase ordinary shares or ADSs, restricted shares or ADSs, restricted share units and other awards based on our ordinary
shares, all of which are referred to as Awards. We may grant Awards under the same four tracks as described above with respect
to the 2011 Plan, subject to the same conditions as apply for the 2011 Plan. In addition, we may grant incentive stock options
and nonqualified stock options to Participants who are residents of the United States, and we may grant awards to Participants
who are residents of other countries that comply with the laws of those jurisdictions.
The number of ordinary shares authorized
to be issued under the 2017 Plan will be proportionately adjusted for any increase or decrease in the number of ordinary shares
issued as a result of a distribution of bonus shares, change in our capitalization (split, combination, reclassification of the
shares or other capital change), issuance of rights to purchase ordinary shares or payment of a dividend. We will not allocate
fractions of ordinary shares and the number of ordinary shares shall be rounded down to the closest number of ordinary shares.
In the event of a (i) merger, consolidation,
amalgamation or the like with or into another corporation, (ii) an acquisition (including an exchange) of all or substantially
all of our ordinary shares, (iii) the sale of all or substantially all of our assets, or (iv) any other event determined
by the Administrator to have a similar impact, then – unless otherwise determined by our board of directors in its sole
and absolute discretion – any Award then outstanding will be assumed or an equivalent Award shall be substituted by the
successor corporation, under substantially the same terms as the Award.
The exercise price of an option granted
under the 2017 Plan will, in general, be no less than the fair market value of the Company’s ordinary shares on the date
of grant, subject to any minimum exercise price prescribed by law. The Administrator determines the vesting provisions for each
Award and may, in its sole discretion, accelerate the time at which options granted under the 2017 Plan will vest. Unless otherwise
determined by the Administrator, options may be exercised for ten years (five years in the case of an incentive stock option granted
to a 10% shareholder), and as long as the Participant is employed by the Company (or by an affiliated company) or provides services
to the Company (or an affiliated company). If a Participant’s employment is terminated, other than for cause, the Participant
may generally exercise vested options for a limited period following termination.
86
In accordance with the terms of the 2017
Plan, on January 1 of each calendar year during the term of the 2017 Plan, the number of shares available for issuance under
the 2017 Plan shall be increased by 4% of the total number of company shares outstanding on December 31 of the immediately
preceding calendar year, or such lesser number as shall be determined by the administrator of the plan, subject to adjustments
required for recapitalization events.
As of February 18, 2020, our board
of directors has approved the issuance, under our incentive plans, of options to purchase 3,737,849 ordinary shares currently
outstanding at an average exercise price of $2.51 per share.
Item
12.
Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The following table sets forth information,
as of February 18, 2020, regarding beneficial ownership of our ordinary shares (including ordinary shares represented by
ADSs):
· each
person who is known by us to own beneficially more than 5% of our ordinary shares;
· each
director;
· each
executive officer; and
· all
of our directors and executive officers collectively.
Beneficial ownership is determined in accordance
with the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person has
or shares voting power, which includes the power to vote or to direct the voting of the security, or investment power, which includes
the power to dispose of or to direct the disposition of the security. For purposes of the table below, we deem ordinary shares
issuable pursuant to options or warrants that are currently exercisable or exercisable within 60 days of the date of this Annual
Report on Form 10-K, if any, to be outstanding and to be beneficially owned by the person holding the options or warrants
for the purposes of computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose
of computing the percentage ownership of any other person.
Unless otherwise
noted, the address of each director and current and former executive officer of Anchiano is One Kendall Square, Building 1400E,
Suite 14-105, Cambridge, Massachusetts 02139.
87
NAME OF BENEFICIAL OWNER
Total
Beneficial
Ownership
Percentage
of
Ordinary
Shares
Beneficially
Owned*
5% and Greater Shareholders
Clal
Biotechnology Industries Ltd. (1)
9,307,662
25.09 %
Shavit
Capital Funds (2)
8,868,546
21.67 %
Access
Industries Holdings LLC (3)
15,829,397
42.67 %
Edgewater
Partner Holdings Ltd. (4)
1,923,075
5.18 %
Directors and Executive Officers
Neil Cohen
62,110
*
Andrew Fine
—
*
Ruth
Alon (5)
32,399
*
Isaac
Kohlberg (6)
32,090
*
Stanislav Polovets
—
*
All current executive officers and directors as
a group (5 persons)
126,599
*
*
Percentage ownership based on 37,099,352 ordinary
shares outstanding as of the date of this Annual Report on Form 10-K.
(1)
The beneficial ownership is based in part on
the latest available filing made with the SEC on Schedule 13D on December 14, 2020 and consists of 6,911,166 ordinary
shares and warrants to purchase 2,396,496 ordinary shares. To the best of our knowledge, Clal Industries Ltd. owns 47% of
the outstanding shares of, and controls CBI (TASE: CBI). The remaining 53% of CBI’s outstanding shares are publicly-held
and listed on the TASE. Clal Industries Ltd. is wholly owned by Access AI Ltd., which is owned by AI Diversified Holdings
S.à r.l., which is owned by AI Diversified Parent S.à r.l., which is owned by AI Diversified Holdings Limited,
or AIDH Limited. AI SMS owns a majority of the equity of AIDH Limited. AIH owns a majority of the equity of AI SMS, and LLC
holds a majority of the outstanding voting interests in AIH. AIM controls LLC and AIH, and Len Blavatnik controls AIM. The
address of each of Clal Industries Ltd. and CBI is Triangle Tower, 3 Azrieli Center, Tel Aviv 67023, Israel and the address
of each of foregoing other than Clal Industries Ltd. and CBI is 40 West 57th Street, 28th Floor, New York, NY 10019.
(2)
The beneficial ownership is based on the latest
available filing made with the SEC on Schedule 13G January 2, 2020 and consists of 5,034,150 ordinary shares and warrants
to purchase 3,834,395 ordinary shares. Gabriel Capital Management Ltd. (“GCM”) is the management company to Shavit
Capital Fund III (US), L.P. (“Shavit III”), which holds 3,056,305 of the aforementioned ordinary shares and warrants
to purchase 2,314,286 ordinary shares, and certain other affiliated funds (collectively with Shavit III, the “Shavit
Funds”). Gabriel Leibler is the sole shareholder of the sole shareholder of GCM. Decisions regarding the voting and
disposition of securities held by the Shavit Funds are subject to approval by certain internal investment committees comprising
three or more individuals, of which Mr. Leibler is a member. As of December 31, 2019, other Shavit Funds held in
the aggregate 1,977,845 ordinary shares and warrants to purchase 1,520,110 ordinary shares. GCM may be deemed to beneficially
own such securities held by the Shavit Funds. To the best of our knowledge, the general partner of Shavit III and Shavit Capital
Fund 3 (Israel), L.P. is Shavit Capital Fund 3 GP, L.P., which is managed by Shavit Capital Management 3 (GP) Ltd. in its
capacity as the general partner. The general partner of Shavit Capital Fund IV (US), L.P. and Shavit Capital Fund 4 (Israel),
L.P. is Shavit Capital Fund 4 GP, L.P., which is managed by Shavit Capital Management 4 (GP) Ltd. in its capacity as the general
partner. The controlling shareholder of Shavit Capital Management 3 (GP) Ltd. and Shavit Capital Management 4 (GP) Ltd. is
a company, the controlling shareholder of which is Mr. Leibler. Neil Cohen holds a 3.45% interest in Shavit Capital Fund
3 (Israel), L.P. and a 1.67% interest in Shavit Capital Fund 4 (Israel), L.P. The address of each of the foregoing other than
Mr. Leibler and Mr. Cohen is Jerusalem Technology Park, Building 1B, Box 70, Malha, Jerusalem, 96951 Israel. The
address of Mr. Leibler is 4a Gidon Street, Jerusalem 9350604 Israel.
(3)
The beneficial ownership is based on the latest
available filing made with the SEC on Schedule 13D on December 14, 2020 and consists of (i) the ordinary
shares, ADSs and warrants owned directly by CBI and (ii) 6,521,735 ordinary shares represented by 1,304,347 ADSs owned
directly by AIH. For more information on AIH and CBI, see footnote (1) above.
(4)
Consists entirely of ordinary shares. Edgewater
Partner Holdings Ltd. is beneficially owned by Mr. Youqiang Yu, and as such, Mr. Yu may be deemed to beneficially
own the ordinary shares beneficially owned by Edgewater Partner Holdings Ltd. The shareholder’s business address is
c/o Edgewater Partner Holdings Ltd., Novasage Chambers, Level 2, CCCS Building, Beach Road, Apia, Samoa.
(5)
Represents 32,399 shares of Anchiano’s
issuable upon the exercise of options.
(6)
Represents 32,090 shares of Anchiano’s
issuable upon the exercise of options.
88
Item
13.
Certain Relationships and Related Transactions,
and Director Independence
Certain Relationships and Related Transactions
We have entered into employment agreements
with each of our executive officers. Compensation arrangements for our executive officers and directors are described in the sections
entitled “Item 11. Executive Compensation” and “Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.”
Our Articles of Association permit us to
insure each of our directors and officers to the fullest extent permitted by the Companies Law. We have obtained Directors and
Officers insurance for our executive officers and directors.
All related party
transactions are reviewed and approved by the Audit Committee, as required by the Audit Committee Charter.
Family Relationships
There are no family relationships among
directors or executive officers of our Company.
Corporate Governance and Independent Directors
In compliance with the listing requirements
of Nasdaq, we have a comprehensive plan of corporate governance for the purpose of defining responsibilities, setting high standards
of professional and personal conduct and assuring compliance with such responsibilities and standards. We currently regularly
monitor developments in the area of corporate governance to ensure we are in compliance with the standards and regulations required
by Nasdaq.
Our board of directors consists of four
directors, of whom three (Ms. Ruth Alon, Mr. Isaac Kohlberg and Mr. Stan Polovets) qualify as independent directors
under the corporate governance standards of the Nasdaq rules and the independence requirements of Rule 10A-3 of the
Exchange Act. Under our articles of association, our board of directors must consist of not less than three and no more than 11
directors. Pursuant to our articles of association, the vote required to appoint a director is a simple majority vote of holders
of our voting shares participating and voting at the relevant meeting.
In addition, our articles of association
allow our board of directors to appoint new directors to fill vacancies which occurred for any reason or as additional directors,
provided that the number of board members shall not exceed the maximum numbers of directors mentioned above. The appointment of
a director by the board shall be in effect until the following annual general meeting of the shareholders or until the end of
his tenure in accordance with our articles of association. Our board of directors may continue to operate for as long as the number
of directors is not less than the minimum number of directors mentioned above.
In addition, under the Companies Law, our
board of directors must determine the minimum number of directors who are required to have financial and accounting expertise.
Under applicable regulations, a director with financial and accounting expertise is a director who, by reason of his or her education,
professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial
statements. He or she must be able to thoroughly comprehend the financial statements of the company and initiate discussion regarding
the manner in which financial information is presented. In determining the number of directors required to have such expertise,
the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its
operations. Our board of directors has determined that we require at least one director with the requisite financial and accounting
expertise and that Ms. Ruth Alon, Mr. Isaac Kohlberg, Mr. Neil Cohen and Mr. Stan Polovets have such expertise.
89
Private Financings
In February 2018, CBI, which at the
time was our controlling shareholder, extended bridge financing to us in the principal amount of $1.0 million, which was
pending completion of the private placement of equity securities described below, and subsequently provided an additional $2.0
million principal amount of bridge financing. The unpaid principal amount of the bridge financing bore annual interest at the
rate payable on three-month U.S. Treasury bills. The repayment of the bridge financing was made by deducting the repayment amount
from the $5.0 million purchase price of the securities acquired by CBI pursuant to the Securities Purchase Agreement described
below.
Pursuant to a Securities Purchase Agreement
(“SPA”), dated March 29, 2018, between us and the investors identified therein, in June 2018 we issued 5,960,787
ordinary shares, and warrants to purchase an additional 4,768,629 ordinary shares, as well as price protection and certain other
rights. The gross proceeds from the sale of the ordinary shares amounted to $22.9 million. As a result of our February 2019
initial public offering, price protection rights included in the SPA were triggered, resulting in the issuance of 8,262,800 ordinary
shares and adjustments to the warrants, whereby they can be exercised for 6,207,330 additional ordinary shares, each at a price
of $1.932 per share. For information regarding the current shareholdings of Shavit Capital Funds and CBI, see “Item 12—Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Information Rights Agreement
We entered into an information rights agreement,
effective as of December 19 2018, with one of our principal shareholders, CBI. The information rights agreement provides
CBI with rights to receive our annual and quarterly financial statements, auditor consent letters and valuation reports, and other
information reasonably required by CBI to enable it to prepare its financial statements. The information rights agreement also
requires that we provide CBI with information material to the Company and mandated to be disclosed by the requirements applicable
to CBI, as well as certain other material information of the Company. The information rights agreement contains customary confidentiality
provisions and terminates when CBI, and any company that controls CBI, is no longer required to issue public reports relating
to us pursuant to the Exchange Act.
Item
14.
Principal Accountant Fees and Services
The following table sets forth fees billed
to us by our independent registered public accounting firm during the fiscal years ended December 31, 2020 and 2019 for (i) services
rendered for the audit of our annual financial statements and the review of our quarterly financial statements; (ii) services
by our independent registered public accounting firm that are reasonably related to the performance of the audit or review of
our financial statements and that are not reported as Audit Fees; (iii) services rendered in connection with tax compliance,
tax advice and tax planning; and (iv) all other fees for services rendered.
Year
Ended December 31,
2020
2019
Audit Fees
160
255
Audit-Related Fees
-
-
Tax Fees
3
3
All Other Fees
-
-
Total
163
258
Policy on Audit Committee Pre-Approval of Audit and Permissible
Non-Audit Services of Independent Auditors
Our Audit Committee has the sole authority
to approve the scope of the audit and any audit-related services, as well as all audit fees and terms. The Audit Committee must
pre-approve any audit and non-audit services provided by our independent registered public accounting firm. The Audit Committee
will not approve the engagement of the independent registered public accounting firm to perform any services that the independent
registered public accounting firm would be prohibited from providing under applicable laws, rules and regulations, including
those of self-regulating organizations. The Audit Committee will approve permitted non-audit services by our independent registered
public accounting firm only if it determines that using a different firm to perform such services will be less efficient or cost-effective.
The Audit Committee reviews and pre-approves the statutory audit fees that can be provided by the independent registered public
accounting firm on an annual basis.
90
PART IV
Item
15.
Exhibits and Financial Statement Schedules
Exhibit No.
Description
1.1
Anchiano
Therapeutics Ltd. Amended and Restated Articles of Association (previously filed as Exhibit 3.2 of Amendment No. 4
to our Registration Statement on Form F-1 (File No. 333-229155) as filed with the SEC on February 11, 2019
and incorporated by reference herein).
2.1
Agreement
and Plan of Merger between Anchiano Therapeutics Ltd. and CMB Acquisition Ltd. and Chemomab Ltd., dated December 14,
2020 (previously filed as Exhibit 2.1 to our Current Report on Form 8-K (File No. 001-38807) as filed with
the SEC on December 15,2020 and incorporated by reference herein).
3.1
Deposit
Agreement between Anchiano Therapeutics Ltd., the Bank of New York Mellon as Depositary, and owners and holders from time
to time of ADSs issued thereunder (previously filed as Exhibit 4.1 to our Current Report on Form 6-K (File No. 001-38807)
as filed with the SEC on February 14, 2019 and incorporated by reference herein).
4.1
Collaboration
and License Agreement, dated as of September 13, 2019, by and between Anchiano Therapeutics Inc. and ADT Pharmaceuticals,
LLC (previously filed as Exhibit 10.1 to our Current Report on Form 6-K (File No. 001-38807) as filed with
the SEC on September 23, 2019 and incorporated by reference herein).
4.4
2011
Incentive Plan for Employees, Officers and Consultants (previously filed as Exhibit 10.6 of our Registration Statement
on Form F-1 (File No. 333-229155) as filed with the SEC on January 7, 2019 and incorporated by reference herein).
4.5
Compensation
Policy for Officers, dated February 2017 (previously filed as Exhibit 10.7 of our Registration Statement on Form F-1
(File No. 333-229155) as filed with the SEC on January 7, 2019 and incorporated by reference herein).
4.6
2017
Equity-Based Incentive Plan (previously filed as Exhibit 10.8 of our Registration Statement on Form F-1 (File No. 333-229155)
as filed with the SEC on January 7, 2019 and incorporated by reference herein).
4.7
Information
Rights Agreement between Anchiano Therapeutics Ltd. and Clal Biotechnology Industries Ltd., dated December 19, 2018 (previously
filed as Exhibit 10.10 of our Registration Statement on Form F-1 (File No. 333-229155) as filed with the SEC
on January 7, 2019 and incorporated by reference herein).
4.9
Proxy
Statement / Prospectus (previously filed in our Registration Statement on form S-4 (File No. 335-252070) as filed with
the SES on February 12, 2021 .
21.1
List of Subsidiaries
(filed herewith).
23.1
Consent
of Independent Registered Public Accounting Firm8 3 (filed herewith).
24.1
Power of Attorney
(filed herewith).
31.1
Certification
of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended (filed herewith).
31.2
Certification
of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended (filed herewith).
32.1
Certification
of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2
Certification
of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Document
91
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ANCHIANO THERAPEUTICS LTD.
Date: March 7, 2021
By:
/s/ Neil
Cohen
Neil Cohen
Chief Executive Officer
POWER
OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Neil Cohen and Andrew
Fine, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution,
for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and confirming that said attorneys-in-fact and agents,
or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature
Title
Date
/s/
Neil Cohen
Chief
Executive Officer
March 7,
2021
Neil Cohen
(Principal
Executive Officer) and Director
/s/
Andrew Fine
Chief
Financial Officer
March 7,
2021
Andrew Fine
(Principal
Financial and Accounting Officer)
/s/
Stan Polovets
Chairman
March 7,
2021
Stan Polovets
/s/
Ruth Alon
Director
March 7,
2021
Ruth Alon
/s/
Isaac Kohlberg
Director
March 7,
2021
Isaac Kohlberg
92
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020
F- 1
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020
INDEX
Page
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-3
CONSOLIDATED
FINANCIAL STATMENTS
F-4
Consolidated
Balance Sheets
F-4
Consolidated
Statements of Operations and Comprehensive Loss
F-5
Statements
of Changes in Shareholders’ Equity
F-6
Consolidated
Statements of Cash Flows
F-7
Notes
to Consolidated Financial Statements
F-8
F- 2
Report of Independent Registered Public
Accounting Firm
To the Stockholders and Board of Directors
Anchiano Therapeutics Ltd.
Opinion on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of Anchiano Therapeutics Ltd. and subsidiaries (the Company) as of December 31,
2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in shareholders’
equity, and cash flows for each of the years in the two year period ended December 31, 2020, and the related notes (collectively,
the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its
cash flows for each of the years in the two year period ended December 31, 2020, in conformity with U.S. generally accepted
accounting principles.
Going Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial
statements, the Company has suffered recurring losses and cash flow deficits from operations that together with other matters
described in the aforesaid note, raise substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we
are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Somekh Chaikin
Member Firm of KPMG International
We have served as the Company’s auditor since 2004.
Tel Aviv, Israel
March 7 ,
2021
F- 3
ANCHIANO THERAPEUTICS
LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(U.S. dollars in thousands, except share
and per share data)
December 31,
December 31,
Note
2020
2019
ASSETS
Current assets:
Cash and cash equivalents
3
$ 5,392
$ 17,575
Prepaid
expenses and other
724
636
Total current assets
6,116
18,211
Property and equipment, net
12
158
Operating lease right-of-use
4
-
1,199
Long-term pledged deposits
-
130
Other non-current assets
51
57
Total assets
$ 6,179
$ 19,755
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade payables
$ 678
$ 875
Accrued expenses and other
8a
1,729
2,855
Operating
lease liability
4
179
391
Total current liabilities
2,586
4,121
Non-current operating lease liability
4
16
725
Total liabilities
2,602
4,846
Commitments and contingencies
Shareholders' equity:
Ordinary shares, no par value - authorized 500,000,000
shares as of December 31, 2020 and 100,000,000 shares as of December 31,2019; issued and outstanding 37,099,352
shares at December 31, 2020 and December 31,2019
-
-
Additional Paid-in capital
6
119,745
119,468
Currency translation differences
reserve
872
872
Accumulated
deficit
(117,040 )
(105,431 )
Total shareholders'
equity
3,577
14,909
Total liabilities and shareholders'
equity
$ 6,179
$ 19,755
The accompanying notes are an integral
part of these consolidated financial statements
F- 4
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE LOSS
(U.S. dollars in thousands, except share
and per share data)
Note
Year
ended December 31,
2020
2019
Operating Expenses:
Research and development
$ 3,783
$ 13,303
General and administrative
7,180
6,245
Restructuring
expense
5b
749
3,350
Total operating
expenses
11,712
22,898
Finance (income) expense, net
8b
(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
The accompanying notes are an integral
part of these consolidated financial statements.
F- 5
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. dollars in thousands, except share
and per share data)
Currency
Ordinary shares
Additional
translation
Number of
Amounts
Paid-in
differences
Accumulated
shares
(*)
capital
reserve
deficit
Total
Balance at January 1, 2019
15,575,682
$
-
$
87,240
$
872
$
(78,307
)
$
9,805
Changes during 2019:
Issuance of shares, net
21,523,670
-
26,500
-
-
26,500
Reclassification of warrants due
to reassessment (see note 6b)
-
-
(3,628
)
-
-
(3,628
)
Reclassification of warrants due
to modification (see note 6b)
8,198
8,198
Share-based compensation
-
-
1,158
-
-
1,158
Net loss for
the year
-
-
-
-
(27,124
)
(27,124
)
Balance at December 31, 2019
37,099,352
-
119,468
872
(105,431
)
14,909
Changes during 2020:
Share-based compensation
-
-
(20
)
-
-
(20
)
Refund on share issuance expenses
297
297
Net loss
-
-
-
-
(11,609
)
(11,609
)
Balance at December 31, 2020
37,099,352
$
-
$
119,745
$
872
$
(117,040
)
$
3,577
(*) No par value
The accompanying notes are an integral part of these consolidated
financial statements
F- 6
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT
OF CASH FLOWS
(U.S. dollars in thousands, except share
and per share amounts)
Year
ended December 31,
2020
2019
Operating activities:
Net loss
$ (11,609 )
$ (27,124 )
Adjustments required to reconcile
net loss to net cash used in operating activities:
Financing costs, net
-
4,570
Depreciation
80
281
Gain on sale of property and
equipment
(36 )
-
Share-based payments
(20 )
1,158
Write-off of right-of-use
278
-
Changes in operating asset and
liabilities:
Prepaid and other current
(88 )
2,305
Other non-current assets
6
975
Trade payables
(197 )
1,076
Accrued
expenses and other
(1,126 )
301
Net cash
used in operating activities
(12,712 )
(16,458 )
Investing activities:
Purchase of property and equipment
(34 )
(95 )
Proceeds
from sale of property and equipment
136
-
Net cash
provided by (used in) investing activities
102
(95 )
Financing activities:
Proceeds from issuance of ordinary
shares and warrants
-
30,500
Share issuance costs
297
(3,879 )
Net cash
provided by financing activities
297
26,621
Increase (decrease) in cash, cash equivalents and restricted
cash
(12,313 )
10,068
Cash, cash equivalents and restricted
cash at, beginning of period
17,705
7,637
Cash, cash equivalents and restricted
cash at, end of period
$ 5,392
$ 17,705
Reconciliation in amounts on consolidated balance sheets:
Cash and cash equivalents
$ 5,392
$ 17,575
Restricted
cash
-
130
Total cash, cash equivalents
and restricted cash
$ 5,392
$ 17,705
F- 7
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(U.S. dollars in thousands, except share
and per share data)
NOTE 1 - NATURE OF OPERATIONS
Anchiano Therapeutics Ltd. (the "Company")
is a biopharmaceutical company dedicated to the discovery, development, and commercialization of novel, targeted therapies to
treat cancer in areas of significant clinical need. Anchiano is developing small-molecule pan-RAS inhibitors and inhibitors of
PDE10 and the β-catenin pathway, having discontinued active clinical development of inodiftagene vixteplasmid in November 2019.
After a thorough evaluation of the data, the Company determined there was a low probability of surpassing the pre-defined futility
threshold at the planned interim analysis of its Phase 2 Codex study, evaluating the gene therapy inodiftagene vixteplasmid in
patients with BCG-unresponsive non-muscle-invasive bladder cancer (NMIBC), and announced the discontinuation of the study. In
January 2020, our Board of Directors approved management’s recommendation to close the Company’s office and laboratories
located in Israel. Following the closure of the Israeli facilities at the end of May 2020, and as of December 31, 2020,
the Company’s sole remaining office was located at One Kendall Square, Building 1400E, Suite 14-105, Cambridge, Massachusetts.
In February 2021, in light of the effects the situation in which offices were no longer required under the circumstances,
the Company signed a lease termination agreement related to this office, effective as of February 28, 2021. (for details,
see Note 10 below).
On July 2, 2020, the Company’s
Chief Executive Officer Dr. Frank Haluska sent a letter to the Chairman of the Company’s board of directors outlining
Dr. Haluska’s belief that events had occurred that were sufficient to trigger his ability to resign for “Good
Reason” under his employment agreement. The company’s board of directors informed Dr. Haluska that it disagreed
with the letter’s assertions regarding “Good Reason” and treated the letter as a constructive resignation effective
as of July 2, 2020. On July 12, 2020, Dr. Frank Haluska tendered his written resignation from the Company’s
board of directors, effective immediately. See Note 9 for further detail.
In light of business circumstances, and in
order to conserve cash and preserve optionality while alternatives are being identified and assessed, the Company made a decision
during July 2020 to undertake reductions in headcount and other cost saving measures. These included plans to temporarily
reduce the Company’s internal and external research and development work on the Company’s pan-RAS-inhibitor program
until there is greater clarity regarding Anchiano’s ability to fund the program. We continue to undertake actions for the
promotion of the program and its assets and towards strengthening the protection of all related intellectual property.
On October 20, 2020, the Company appointed
Mr. Neil Cohen as its Chief Executive Officer. Mr. Cohen was a member of the Company’s board of directors prior
to his appointment as CEO and continues to serve in this capacity. The Company also appointed Mr. Andrew Fine to serve as
its Chief Financial Officer. Mr. Fine previously served as the Company’s Interim Chief Financial Officer pursuant to
a subcontracting agreement as of July 2020.
On December 14, 2020 the Company entered into an Agreement
and Plan of Merger with Chemomab, an Israeli limited company and a clinical-stage biotech company focusing on the discovery and
development of innovative therapeutics for fibrosis-related diseases with high unmet need, which included the proposed Merger
of CMB Acquisition Ltd., a wholly owned subsidiary of ours, with Chemomab as the surviving company. The merger is, subject to
shareholder approval as well as, amongst other things, the completion of a financing of no less than $30 million concurrently
with the closing of the merger, and the listing of the Anchiano ADSs on Nasdaq,
At the effective time of the merger, the
Company anticipates 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.
The Company is incorporated and registered
in Israel. The Company's American Depositary Shares ("ADSs"), each representing five ordinary shares of the Company
with no par value (the "ordinary shares"), began trading on the Nasdaq Capital Market (“Nasdaq”) in February 2019
under the symbol "ANCN". Its ordinary shares were traded on the Tel Aviv Stock Exchange (“TASE”) between
August 2006 and June 2019, at which time the Company voluntarily delisted from the TASE. The Company wholly owns a subsidiary,
Anchiano Therapeutics Israel Ltd. (formerly BioCanCell Therapeutics Israel Ltd.), which itself wholly owns a Delaware-incorporated
subsidiary, Anchiano Therapeutics, Inc. (formerly BioCanCell USA, Inc.) for the purposes of operating in the United
States. This subsidiary is subject to the tax laws of the State of Delaware.
The Company is subject to a number of risks
including with regard to the successful development of therapeutics, the ability to obtain adequate financing, the ability to
obtain FDA approval and reimbursement for any products the Company may develop, protection of intellectual property, fluctuations
in operating results, dependence on key personnel and collaborative partners, rapid technological changes inherent in the target
markets of any products the Company may develop, product liability , the introduction of substitute products and competition
from larger companies.
F- 8
In
March 2020 the World Health Organization declared the global novel coronavirus (COVID-19) outbreak a pandemic. As of December
31, 2020, the Company’s operations have not been significantly impacted by the COVID-19 outbreak. However, the Company cannot
at this time predict the specific extent, duration, or full impact that the COVID-19 outbreak will have on its financial condition
and operations, including ongoing and planned pre-clinical development activities.
Liquidity
The consolidated financial statements have
been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the
normal course of business. As shown in the accompanying consolidated financial statements, the Company has incurred losses and
cash flow deficits from operations since inception, resulting in an accumulated deficit at December 31, 2020 of $117 million.
The Company has financed operations to date primarily through public and private placements of equity securities. The Company
anticipates that it will continue to incur net losses for the foreseeable future. The Company believes that its existing cash
and cash equivalents will only be sufficient to fund its projected cash needs until the completion of the contemplated merger
with Chemomab during the first half of 2021. Accordingly, these factors, among others, raise substantial doubt about the Company’s
ability to continue as a going concern. To meet future capital needs, and should the contemplated merger with Chemomab not
be completed, the Company would need to raise additional capital through equity or debt financing or other strategic transactions. However,
any such financing may not be on favorable terms or even available to the Company. The failure of the Company to obtain sufficient
funds on commercially-acceptable terms when needed, would have a material adverse effect on the Company’s business, results
of operations and financial condition. The forecast of cash resources is forward-looking information that involves risks and uncertainties,
and the actual amount of the Company’s expenses could vary materially and adversely as a result of a number of factors.
The Company has based its estimates on assumptions that may prove to be wrong, and the Company’s expenses could prove to
be significantly higher than it currently anticipates.
F- 9
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(U.S. dollars in thousands, except share
and per share data)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
a.
Basis of presentation
The Company’s financial statements
have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
b.
Use of estimates
in the preparation of financial statements
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. The Company evaluates its assumptions on an ongoing basis, including
those related to share-based compensation, leases and derivatives. The Company's management believes that the estimates, judgment
and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and
assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
dates of the consolidated financial statements, and the reported amounts of expenses during the reporting periods. Actual results
could differ from those estimates.
F- 10
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(U.S. dollars in thousands, except share
and per share data)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
c.
Functional currency
Items included in the financial statements
of the Company's entities are measured using the currency of the primary economic environment in which the Company operates. The
Company's functional currency from inception through December 31, 2018 was the New Israeli Shekel (“NIS”), as
this was the functional currency of its significant operations. Effective January 1, 2019, due to significant business developments
and changes to its economic circumstances, the Company, as well as its Israeli subsidiary, reassessed its functional currency
and determined to change its functional currency to the U.S. dollar (“dollar”, “USD” or “$”)
from the NIS. The change in functional currency was accounted for prospectively from January 1, 2019, and the financial statements
prior to and including the period ended December 31, 2018 were not restated for the change in functional currency.
F- 11
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(U.S. dollars in thousands, except share
and per share data)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
d.
Principles of
consolidation
The consolidated financial statements
include the financial statements of Anchiano Therapeutics Ltd. and its wholly-owned subsidiaries. All intercompany transactions
and balances have been eliminated upon consolidation.
e.
Cash and cash
equivalents
Cash equivalents are short-term,
highly-liquid deposits that are not restricted as to withdrawal and are readily convertible to cash with original maturities of
three months or less, at the date acquired.
f.
Restricted cash
Restricted cash deposited in an interest-bearing
saving accounts which is used as a security for the Company's office rent and car leasing. Cash expected to be restricted for
more than one year from the balance sheet date is classified as long-term restricted cash in the consolidated balance sheets.
g.
Property and
equipment:
1) Property and equipment
are stated at cost, net of accumulated depreciation and amortization.
2) The Company’s
property and equipment are depreciated by the straight-line method on the basis of their
estimated useful life.
h.
Impairment of
long-lived assets
The Company tests long-lived assets
for impairment whenever events or circumstances present an indication of impairment. If the sum of expected future cash flows
(undiscounted and without interest charges) of the assets is less than the carrying amount of such assets, an impairment loss
would be recognized. The assets would be written down to their estimated fair values, calculated based on the present value of
expected future cash flows (discounted cash flows), or some other fair-value measure.
i.
Derivatives
Measurement of derivative financial
instruments
Derivatives are recognized initially
at fair value; attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition,
derivatives are measured at fair value, and changes therein are accounted for by recognizing them in profit or loss, as financing
income or expense.
Reassessment of derivatives
The classification of a contract
shall be reassessed at each balance sheet date. If the classification required changes as a result of events during the period,
the contract shall be reclassified as of the date of the event that caused the reclassification. There is no limit on the number
of times a contract may be reclassified. If a contract is reclassified from permanent or temporary equity to an asset or a liability,
the change in fair value of the contract during the period the contract was classified as equity shall be accounted for as an
adjustment to shareholders' equity. The contract subsequently shall be marked to fair value through earnings.
F- 12
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(U.S. dollars in thousands, except share
and per share data)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
i.
Derivatives (continued)
Issuance of parcel of securities
The consideration received from the
issuance of a parcel of equity securities is allocated according to the relative fair value of the instruments.
Direct issuance costs are attributed
to the specific securities in respect of which they were incurred, whereas joint issuance costs are attributed to the securities
on a proportionate basis according to the allocation of the consideration from the issuance of the parcel, as described above.
j.
Severance pay
The Israeli Severance Pay Law, 1963
(“Severance Pay Law”), specifies that employees are entitled to severance payment following the termination of their
employment. Under the Severance Pay Law, the severance payment is calculated as one-month salary for each year of employment (and
pro rata for a portion thereof). Under Section 14 of the Severance Pay Law, employees are entitled to monthly deposits, at
a rate of 8.33% of their monthly salary, made on behalf of the employee with investment firms or insurance companies. Payments
in accordance with Section 14 release the Group from any future severance payments in respect of those employees. As a result,
the Group does not recognize any liability for severance pay from the time Section 14 has been adopted with respect to an
employee, and the deposits under Section 14 are not recorded as an asset in the Company's balance sheet.
For the period during which the Group’s
employees in Israel were not subject to Section 14 are accounted for under the Shut Down method of accounting. Accordingly,
the Company calculated the liability for severance pay pursuant to the Severance Pay Law based on the most recent salary of these
employees, multiplied by the number of years of employment as of the balance sheet date. The Company's liability for these employees
is fully provided for via monthly deposits with severance pay funds, insurance policies and accruals. The value of these deposits
is recorded as an asset on the Company's balance sheet under Funds in respect of employee rights upon retirement and other short-term
assets.
k.
Contingencies
Certain conditions may exist, as
of the date of the financial statements, which may result in a loss to the Company but which will only be resolved when one or
more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against
the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits
of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be
sought.
Management applies the guidance in
ASC 450-20-25 when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable
that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is recorded
as accrued expenses in the Company’s financial statements. If the assessment indicates that a potential material loss contingency
is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability,
together with an estimate of the range of possible loss if determinable and material, are disclosed.
Loss contingencies considered to
be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantees are disclosed.
F- 13
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(U.S. dollars in thousands, except share
and per share data)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
l.
Share-based compensation
Share-based compensation expense
related to share awards is recognized based on the fair value of the awards granted. The fair value of each option award is estimated
on the grant date using the Black-Scholes-Merton option pricing model. The Black-Scholes-Merton option pricing model requires
the input of highly subjective assumptions, including the expected term of the option, the expected volatility of the price of
the Company’s ordinary shares and the expected dividend yield of ordinary shares. The assumptions used to determine the
fair value of the option awards represent management’s best estimates. These estimates involve inherent uncertainties and
the application of management’s judgment. The Company elected to recognize compensation costs for awards conditioned only
on continued service that have a graded vesting schedule using the accelerated method based on the multiple-option award approach.
Forfeitures are accounted for by estimating the number of awards expected to be forfeited instead of as they occur.
m.
Research and
development
Research and development expenses
include costs directly attributable to the conduct of research and development programs, including clinical trial and materials,
management development of production processes, salaries, wages and incidentals, laboratory rent and maintenance. All costs associated
with research and developments are expensed as incurred.
Intangible assets that are purchased
from others for use in R&D activities in a transaction other than a business combination are capitalized only if they have
alternative future use. Otherwise, such assets are expensed.
For the two years ended December 31,
2020, the Company did not capitalize any intangible asset purchased at an asset acquisition.
n.
Patent Costs
Costs related to filing and pursuing
patent applications are recorded as general and administrative expenses as incurred, since the recoverability of such expenditures
is uncertain.
F- 14
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(U.S. dollars in thousands, except share
and per share data)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
o.
Income taxes:
1)
Deferred taxes
Income taxes are computed using
the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently-enacted
tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes
will not be realized in the foreseeable future. Given the Company’s losses, the Company has provided a full valuation allowance
with respect to its deferred tax assets.
2)
Uncertainty in income
tax
The Company follows a two-step
approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition
by determining if the available evidence indicates that it is more likely than not that the position will be sustained based on
technical merits. If this threshold is met, the second step is to measure the tax position as the largest amount that has more
than a 50% likelihood of being realized upon ultimate settlement.
p.
Loss per share
Basic loss per share is computed
on the basis of the net loss for the period divided by the weighted-average number of ordinary shares outstanding during the period.
Diluted loss per share is based upon the weighted-average number of ordinary shares and of ordinary shares equivalents outstanding
when dilutive. Ordinary share equivalents include outstanding stock options which are included under the treasury stock method
when dilutive.
The following ordinary shares
underlying stock options and warrants were excluded from the calculation of diluted net loss per ordinary share, because their
effect would have been anti-dilutive for the years presented:
Year
ended December 31
2020
2019
Outstanding
stock options
2,565,301
3,822,374
Warrants
10,975,950
10,975,950
F- 15
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(U.S. dollars in thousands, except share
and per share data)
NOTE 2−SIGNIFICANT ACCOUNTING POLICIES (continued):
q.
Fair value measurement
Fair value is based on the price
that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between
market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the
guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into
three broad levels, which are described as follows:
Level 1:
Quoted prices (unadjusted)
in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the
highest priority to Level 1 inputs.
Level 2:
Observable prices that
are based on inputs not quoted on active markets, but corroborated by market data or active market data of similar or identical
assets or liabilities.
Level 3:
Unobservable inputs
are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company
utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent
possible and considers counterparty credit risk in its assessment of fair value. See Note 6c.
r.
Concentration of credit risks
Financial instruments that potentially
subject the Company to concentration of credit risk consist principally of cash and cash equivalents, and pledged deposits. The
Company deposits cash and cash equivalents with highly-rated financial institutions and, as a matter of policy, limits the amounts
of credit exposure to any single financial institution. The Company has not experienced any material credit losses in these accounts
and does not believe it is exposed to significant credit risk on these instruments.
F- 16
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(U.S. dollars in thousands, except share
and per share data)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued):
s.
Newly issued and recently adopted accounting
pronouncements:
Accounting pronouncements
recently adopted
1)
In February 2016,
the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize
most leases on their balance sheet as a right-of-use (ROU) asset and a lease liability. Leases are classified as either operating
or finance based on criteria similar to existing lease accounting, with the classification affecting the pattern and classification
of expense recognition in the statement of operations. This standard became effective on January 1, 2019. A modified
retrospective transition approach is allowed, applying the new standard to all leases existing at the date of initial application.
Operating-lease ROU assets and liabilities
are recognized at the commencement date based on the present value of lease payments over the lease term, while the ROU assets
are also adjusted for any prepaid or accrued lease payments. The Company uses its incremental borrowing rate, based on the information
available at the commencement date, to determine the present value of the lease payments. For lease modifications that decrease
the scope of the lease, the Company recognizes a decrease in the carrying amount of the right-of-use asset in order to reflect
the partial or full cancellation of the lease, and recognizes in profit or loss a profit (or loss) that equals the difference
between the decrease in the right-of-use asset and re-measurement of the lease liability.
The lease term is the non-cancellable
period of the lease plus periods covered by an extension or termination option, if it reasonably certain that the Company will
exercise the option.
After lease commencement, the Company
measures the lease liability at the present value of the remaining lease payments using the discount rate determined at lease
commencement (as long as the discount rate hasn’t been updated as a result of a reassessment event).
The Company subsequently measures
the ROU asset at the present value of the remaining lease payments, adjusted for the remaining balance of any lease incentives
received, any cumulative prepaid or accrued rent if relevant and any unamortized initial direct costs. Lease expenses for lease
payments are recognized on a straight-line basis over the lease term. Lease terms will include options to extend or terminate
the lease when it is reasonably certain that the Company will exercise or not exercise the option to renew or terminate the lease.
t.
Reclassifications
Certain prior year amounts shown
in the accompanying condensed consolidated financial statements have been reclassified to conform to the 2020 presentation. These
reclassifications did not have any effect on total current assets, total assets, total current liabilities, total liabilities,
total shareholders’ equity, net loss, or loss per share.
NOTE 3 – CASH AND CASH EQUIVALENTS:
December 31,
December 31,
2020
2019
In US dollars
Cash
$ 1,110
$ 9,349
Cash equivalents
4,001
7,451
In New Israeli Shekels
Cash
281
775
$ 5,392
$ 17,575
Cash equivalents are comprised of short-term
bank deposits with original maturities of three months or less, at the date acquired.
F- 17
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(U.S. dollars in thousands, except share
and per share data)
NOTE 4 - LEASES:
The Group leases facilities, labs
offices and cars for use in its operations, which are classified as operating leases. In addition to rent, the leases may require
the Group to pay directly for fees, insurance, maintenance and other operating expenses.
In May 2018, Anchiano Therapeutics, Inc.
signed an agreement to rent space for offices in Cambridge, Massachusetts, until December 2021. This agreement was amended
in October 2019 with the agreement ending in January 2022 with annual rent of approximately $185 thousand.
In February 2021, in light
of the situation in which offices were no longer required under the circumstances, the Company signed a lease termination agreement
(See note 10 below for further details). Given that the Company is no longer using the asset as of December 31, 2020 there
is a need for an impairment of the asset. As of December 31, 2020, the Company recognized a decrease of approximately $195
thousand in the carrying amount of the right-of-use asset to reflect the impairment of the right of use asset. In addition to
this the Company recognized a decrease of approximately $83.0 thousand in Q1 2020 on account of impairment of its right of use
asset for its facilities in Israel that the Company vacated.
The cash flow information related
to operating leases and the lease term and the discount rate related to Company’s operating lease right-of-use assets and
related lease liabilities are as follows:
Year ended
December 31,
2020
Operating cash flow
from operating leases
$ 247
Weighted Average Remaining Lease
Term (years)
1.33
Weighted Average Discount rate
10.20 %
Year ended
December 31,
2020
Operating lease expense
$ 242
Supplemental balance sheet information
related to operating leases was as follows
December 31,
2020
Assets
Operating lease right of use
$
-
Liabilities
Operating
lease liabilities, current portion
$ 179
Operating
lease liabilities, non-current portion
16
Total
$ 195
F- 18
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(U.S. dollars in thousands, except share
and per share data)
NOTE
4 – LEASES (continued) :
As of December 31, 2020, the
maturity of lease liabilities under our non-cancelable operating leases were as follows:
Operating
Lease
2021
189
2022
16
Total future minimum lease payments, undiscounted
205
Less: Imputed interest
-10
Present value of future minimum
lease payments
$ 195
NOTE
5 - COMMITMENTS :
A.
Royalty Commitments:
1.
Liability for royalty payments to the Israel
Innovation Authority
The Company is obligated to pay royalties
to the Israel Innovation Authority (the “IIA”) on proceeds from the sale of products developed from research and development
activities that were partially funded by grants from the IIA, relating to inodiftagene, development of which the Company discontinued
in 2019. See Note 1 above for details.
Under the specific terms of the funding
arrangements with the IIA, royalties of 3.5% to 25% are payable on the sale of products developed wi
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