Item 1.
|
Financial Statements
|
Condensed Consolidated
Balance Sheets as of June 30, 2020 and December 31, 2019
ANCHIANO THERAPEUTICS LTD.
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(Unaudited, in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,824
|
|
|
$
|
17,575
|
|
Prepaid expenses and other
|
|
|
848
|
|
|
|
636
|
|
Total current assets
|
|
|
9,672
|
|
|
|
18,211
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
18
|
|
|
|
158
|
|
Operating lease right-of-use
|
|
|
275
|
|
|
|
1,199
|
|
Other non-current assets
|
|
|
51
|
|
|
|
187
|
|
Total assets
|
|
$
|
10,016
|
|
|
$
|
19,755
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
974
|
|
|
$
|
875
|
|
Accrued expenses and other
|
|
|
609
|
|
|
|
2,855
|
|
Operating lease liability
|
|
|
168
|
|
|
|
391
|
|
Total current liabilities
|
|
|
1,751
|
|
|
|
4,121
|
|
|
|
|
|
|
|
|
|
|
Non-current operating lease liability
|
|
|
108
|
|
|
|
725
|
|
Total liabilities
|
|
|
1,859
|
|
|
|
4,846
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
Ordinary shares, no par value - authorized 500,000,000 shares as of June 30, 2020
and 100,000,000 shares as of December 31,2019; issued and outstanding 37,099,352 shares at June 30, 2020 and December
31,2019
|
|
|
-
|
|
|
|
-
|
|
Paid-in capital
|
|
|
119,732
|
|
|
|
119,468
|
|
Currency translation differences reserve
|
|
|
872
|
|
|
|
872
|
|
Accumulated deficit
|
|
|
(112,447
|
)
|
|
|
(105,431
|
)
|
Total shareholders' equity
|
|
|
8,157
|
|
|
|
14,909
|
|
Total liabilities and shareholders' equity
|
|
$
|
10,016
|
|
|
$
|
19,755
|
|
See accompanying notes to unaudited condensed consolidated financial statements
Condensed Consolidated
Statements of Operations and Comprehensive Loss for the Six Months Ended June 30, 2020 and 2019
ANCHIANO THERAPEUTICS LTD.
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
(Unaudited, in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,307
|
|
|
$
|
2,576
|
|
|
$
|
2,357
|
|
|
$
|
6,711
|
|
General and administrative
|
|
|
2,176
|
|
|
|
1,962
|
|
|
|
4,001
|
|
|
|
3,253
|
|
Restructuring expense
|
|
|
-
|
|
|
|
-
|
|
|
|
670
|
|
|
|
-
|
|
Total operating expenses
|
|
|
3,483
|
|
|
|
4,538
|
|
|
|
7,028
|
|
|
|
9,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance (income) expense, net
|
|
|
(2
|
)
|
|
|
(99
|
)
|
|
|
(12
|
)
|
|
|
4,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
$
|
(3,481
|
)
|
|
$
|
(4,439
|
)
|
|
$
|
(7,016
|
)
|
|
$
|
(14,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding - basic and diluted
|
|
|
37,099,352
|
|
|
|
37,099,352
|
|
|
|
37,099,352
|
|
|
|
31,748,163
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
Condensed Consolidated
Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2020 and 2019
ANCHIANO THERAPEUTICS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited, in thousands, except share data)
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
|
|
|
translation
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Amounts
|
|
|
Paid-in
|
|
|
differences
|
|
|
Accumulated
|
|
|
|
|
|
|
shares
|
|
|
(*)
|
|
|
capital
|
|
|
reserve
|
|
|
deficit
|
|
|
Total
|
|
Balance at January 1, 2020
|
|
|
37,099,352
|
|
|
$
|
-
|
|
|
$
|
119,468
|
|
|
$
|
872
|
|
|
$
|
(105,431
|
)
|
|
$
|
14,909
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
186
|
|
|
|
-
|
|
|
|
-
|
|
|
|
186
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,535
|
)
|
|
|
(3,535
|
)
|
Balance at March 31, 2020
|
|
|
37,099,352
|
|
|
|
-
|
|
|
|
119,654
|
|
|
|
872
|
|
|
|
(108,966
|
)
|
|
|
11,560
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
78
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,481
|
)
|
|
|
(3,481
|
)
|
Balance at June 30,
2020
|
|
$
|
37,099,352
|
|
|
$
|
-
|
|
|
$
|
119,732
|
|
|
$
|
872
|
|
|
$
|
(112,447
|
)
|
|
$
|
8,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2019
|
|
|
15,575,682
|
|
|
$
|
-
|
|
|
$
|
87,240
|
|
|
$
|
872
|
|
|
$
|
(78,307
|
)
|
|
$
|
9,805
|
|
Issuance of shares,
net
|
|
|
21,523,670
|
|
|
|
-
|
|
|
|
26,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,500
|
|
Reclassification
of warrants due to reassessment
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,628
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,628
|
)
|
Reclassification
of warrants due to modification
|
|
|
-
|
|
|
|
-
|
|
|
|
8,198
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,198
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
380
|
|
|
|
-
|
|
|
|
-
|
|
|
|
380
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,913
|
)
|
|
|
(9,913
|
)
|
Balance at March 31, 2019
|
|
|
37,099,352
|
|
|
|
-
|
|
|
|
118,690
|
|
|
|
872
|
|
|
|
(88,220
|
)
|
|
|
31,342
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
368
|
|
|
|
-
|
|
|
|
-
|
|
|
|
368
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,439
|
)
|
|
|
(4,439
|
)
|
Balance at June 30,
2019
|
|
|
37,099,352
|
|
|
$
|
-
|
|
|
$
|
119,058
|
|
|
$
|
872
|
|
|
$
|
(92,659
|
)
|
|
$
|
27,271
|
|
(*)
No par value
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements
Condensed Consolidated
Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019
ANCHIANO THERAPEUTICS LTD.
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,016
|
)
|
|
$
|
(14,352
|
)
|
Adjustments required to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Financing costs, net
|
|
|
-
|
|
|
|
4,647
|
|
Depreciation
|
|
|
74
|
|
|
|
42
|
|
Gain on sale of property and equipment
|
|
|
(19
|
)
|
|
|
-
|
|
Share-based payments
|
|
|
264
|
|
|
|
748
|
|
Write-off of right-of-use related to restructuring
|
|
|
84
|
|
|
|
-
|
|
Changes in operating asset and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid and other current
|
|
|
(212
|
)
|
|
|
1,828
|
|
Other non-current assets
|
|
|
6
|
|
|
|
-
|
|
Trade payables
|
|
|
99
|
|
|
|
584
|
|
Accrued expenses and other
|
|
|
(2,246
|
)
|
|
|
(534
|
)
|
Net cash used in operating activities
|
|
|
(8,966
|
)
|
|
|
(7,037
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(34
|
)
|
|
|
(91
|
)
|
Proceeds from sale of property and equipment
|
|
|
119
|
|
|
|
-
|
|
Net cash provided by (used in) investing activities
|
|
|
85
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of ordinary shares and warrants
|
|
|
-
|
|
|
|
30,500
|
|
Issuance costs
|
|
|
-
|
|
|
|
(3,879
|
)
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
26,621
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
(8,881
|
)
|
|
|
19,493
|
|
Cash, cash equivalents and restricted cash at, beginning of period
|
|
|
17,705
|
|
|
|
7,640
|
|
Cash, cash equivalents and restricted cash at, end of period
|
|
$
|
8,824
|
|
|
$
|
27,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation in amounts on consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,824
|
|
|
$
|
27,003
|
|
Restricted cash
|
|
|
-
|
|
|
|
130
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
8,824
|
|
|
$
|
27,133
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Reclassification of warrants due to reassessment
|
|
$
|
-
|
|
|
$
|
3,628
|
|
Reclassification of warrants due to modification
|
|
$
|
-
|
|
|
$
|
8,198
|
|
Taxes paid in cash
|
|
$
|
-
|
|
|
$
|
605
|
|
Interest paid in cash
|
|
$
|
-
|
|
|
$
|
4
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
Notes to Condensed Consolidated
Financial Statements
1. The Company and Basis of Presentation
Anchiano Therapeutics
Ltd. is an early-stage preclinical biopharmaceutical company committed to discovering and
developing new cancer therapies designed to target the products of mutated genes that are drivers of human malignancies.
The Company is developing small-molecule pan-mutant RAS inhibitors and inhibitors of PDE10 and the β-catenin pathway.
In November 2019,
the Company discontinued clinical development of inodiftagene vixteplasmid. After a thorough evaluation of the available 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, which was evaluating inodiftagene vixteplasmid in patients with BCG-unresponsive non-muscle-invasive
bladder cancer (“NMIBC”), and announced the discontinuation of the study.
In January 2020, the
Board of Directors of the Company approved management’s recommendation to close the Company’s office and laboratories
located in Israel. Following the closure of the Israeli facilities, the Company’s sole remaining office will be located in
Cambridge, Massachusetts (for details, see Note 4 below). During the last two years, there has been a significant increase in the
Company’s activities in the United States, resulting from the Company’s management’s strategic decision to shift
its development, financing and ongoing operations from Israel to the United States.
On July 2,
2020, the Company’s Chief Executive Officer Dr. Frank Haluska sent a letter to the Company’s Chairman 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 Board 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. Until a new CEO is identified and appointed, the Board will handle all matters related to CEO duties. On July 12, 2020,
Dr. Frank Haluska tendered his written resignation from the Company’s 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. With regards to the resignation of Dr. Frank
Haluska the Company has a potential maximum exposure of up to $0.4 million relating to claims of “Good Reason”
resignation. It is the Company’s position that the CEO resigned without Good Reason, is not entitled to severance, and
the Company will contest any and all claims for severance.
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 include plans
to temporarily pause 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.
In the third quarter
of 2020 the Company anticipates taking a restructuring charge associated with severance, discontinuation of clinical development
activities, and vacating the Company’s Cambridge facility. The Company is currently in the process of determining the amount
of the restructuring charge.
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". The Company’s ordinary shares 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., which itself wholly owns a Delaware-incorporated subsidiary, Anchiano Therapeutics, Inc.
Liquidity
The
condensed 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 condensed consolidated
financial statements, the Company has incurred losses and cash flow deficits from operations since inception, resulting in an accumulated
deficit at June 30, 2020 of $112.4 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 into the first
quarter 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, 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 may not be available
to the Company on any terms. 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.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Unaudited Interim Financial Information
The
interim condensed consolidated financial statements included in this quarterly report are unaudited. The unaudited interim
financial statements have been prepared in accordance with accounting principles generally accepted in the United States
(“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting and reflect,
in the opinion of management, all adjustments of a normal and recurring nature that are necessary for a fair statement of the
Company’s financial position as of June 30, 2020, and its results of operations for the three and six months ended June
30, 2020 and 2019, changes in shareholders’ equity for the three and six months ended June 30, 2020 and 2019,
and cash flows for the six months ended June 30, 2020 and 2019. The results of operations for the three and six months ended
June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for
any other future annual or interim period. The December 31, 2019 balance sheet was derived from audited financial statements,
but does not include all disclosures required by U.S. GAAP. These financial statements should be read in conjunction with the
audited financial statements included in the Company’s Form 10-K for the year ended December 31, 2019 as filed with the
SEC. The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended
December 31, 2019 included in the Company’s Form 10-K. Since the date of such financial statements, there have been no
changes to the Company’s significant accounting policies.
2. Summary of Significant Accounting
Policies
a. Use of
Estimates
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 condensed 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 condensed consolidated financial statements, and the reported amounts of expenses during the
reporting periods. Actual results could differ from those estimates.
b. Reclassifications
Certain prior year
amounts shown in the accompanying unaudited 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.
c. Recent Accounting
Pronouncements
Recent accounting
pronouncements, other than below, issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC did not
or are not believed by management to have a material effect on the Company’s present or future financial statements.
In December 2019,
the FASB issued “ASU 2019-12, Simplifying the Accounting for Income Taxes.” The objective of the standard
is to improve areas of GAAP by removing certain exceptions permitted by ASC 740 and clarifying existing guidance to facilitate
consistent application. The standard will become effective for us beginning on January 1, 2021. The Company is currently evaluating
the new standard to determine the potential impact on its financial condition, results of operations, cash flows, and financial
statement disclosures.
3. Accrued expenses and other
Accrued and other
current liabilities consist of the following for the periods indicated (in thousands):
|
|
June 30,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Accrued expenses
|
|
$
|
352
|
|
|
$
|
372
|
|
Restructuring accrual
|
|
|
160
|
|
|
|
2,161
|
|
Payroll and related
|
|
|
97
|
|
|
|
60
|
|
Liability for employee rights upon retirement
|
|
|
-
|
|
|
|
262
|
|
|
|
$
|
609
|
|
|
$
|
2,855
|
|
4. Leases
In January 2018,
the Company signed an agreement to rent a laboratory and offices in Jerusalem through May 2023. The Company had an option
to extend the agreement by another five years. The annual rent (including management fees) is approximately $0.4 million and is
linked to the Israeli Consumer Price Index. Pursuant to the agreement, bank guarantees of $0.1 million were provided to the property
owner. In January 2020, pursuant to the Company’s decision to close its Israeli operations, the agreement was modified
such that the Company vacated the facilities on May 30, 2020 but will continue to make scheduled lease payments through October
31, 2020. The Company recorded restructuring expense of $247,000 related to the modification of the Israeli lease agreement and
settled all obligations associated with the lease.
In May 2018,
the Company signed an agreement to rent space for its headquarter offices in Cambridge, Massachusetts. This agreement was amended
in October 2019 to reflect relocating to a new 2,400 square foot suite within the same facility effective February 1, 2020. The
annual rent is approximately $0.2 million. The amended lease term ends January 31, 2022 and there are no options to extend the
lease.
Pursuant to the changes
detailed in Note 1 above, in July 2020, the Company initiated discussions to vacate the Cambridge facility as part of its restructuring
of operations.
5. License Agreement
In September 2019,
the Company announced that it entered into an option to license agreement with ADT Pharmaceuticals, LLC (“ADT”). Pursuant
to the terms and conditions set forth in the agreement, the parties agreed to conduct research and development activities of novel
small-molecule inhibitors (RAS and PDE10/β-catenin). As part of the arrangement, the Company is 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 the Company. In connection with the agreement, ADT also granted the Company 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 agreement, the Company committed to pay
ADT (i) a $3 million upfront fee; (ii) a fee upon transfer of the know-how and intellectual property rights to the Company;
and then (iii) additional payments, including milestone and royalty payments. The Company has the ability to terminate the
agreement at any time in its entirety or on a compound-by-compound basis after providing 90 days written notice to ADT. The upfront
fee was paid in the third quarter of 2019. The Company accounted for the upfront fee and additional payments as a research and
development expenses.
In April 2020, the Company notified Yissum
Technology Transfer Company of the Hebrew University Ltd. (“Yissum”) that as a result of the Company’s previous
decision to discontinue clinical development of inodiftagene, it will cease payments to maintain intellectual property (“IP”)
it licensed from Yissum that supported the development. Yissum informed the Company that it deems the Company’s decision
a breach of the licensing and development agreement between the parties (“License Agreement”) and expects the Company
to take steps necessary to return the licensed IP to Yissum promptly. Yissum did not assert any demands for monetary relief in
its notice to the Company. Yissum and the Company have agreed on terms to terminate the License Agreement, return all IP documentation
to Yissum and to mutually waive, release and discharge the other party from all claims of any type.
6. Restructuring
Restructuring
provisions are recognized for the direct expenditures arising from restructuring initiatives, where the plans are sufficiently
detailed and where appropriate communication has been made to those affected.
The
Company has recorded restructuring expenses related principally to contract termination costs due to the discontinuation of the
clinical trials to CROs and manufacturers and contractual involuntary termination benefits to employees which have been accounted
for as ongoing benefit arrangements and associated termination costs related to the reduction of its 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 pursuant to contract for its remaining
term without economic benefit, is recognized only when the contract is terminated or when the entity permanently ceases using
the rights granted under the contract.
In
November 2019, the Company decided to discontinue its Phase 2 Codex study in patients with BCG-unresponsive NMIBC. In connection
with this decision, the Company is required to make certain payments under contracts with CROs and with manufactures of the drug
in order to terminate the contracts and close the trials. This restructuring plan included a reduction in the workforce of seven
employees.
In
January 2020, the Board of Directors approved management’s recommendation to close the Company’s office and laboratories
located in Israel. In connection with this restructuring, the employment of the remaining five Israeli employees was
terminated in the second quarter of 2020.
As
noted above, in conjunction with this decision the Company renegotiated its lease for Israeli laboratory and office space. In
connection with this decision, the Company vacated the facilities on May 31, 2020 but will continue to make scheduled lease payments
through October 31, 2020. In the first quarter of 2020, the Company recorded a restructuring charge to adjust its operating lease
right of use asset and operating lease liability to reflect the loss on the early termination of the Israeli lease obligation.
The
following table represents a roll forward of the restructuring and other activities noted above (in thousands):
|
|
CRO,
Manufacturing
and other related
|
|
|
Severance-
related
|
|
|
Facility
and
Leases
|
|
|
Total
|
|
Balance,
January 1, 2020
|
|
$
|
2,572
|
|
|
$
|
336
|
|
|
$
|
-
|
|
|
$
|
2,908
|
|
Expenses
|
|
|
423
|
|
|
|
-
|
|
|
|
247
|
|
|
|
670
|
|
Paid
or consumed
|
|
|
(2,835
|
)
|
|
|
(336
|
)
|
|
|
(247
|
)
|
|
|
(3,418
|
)
|
Balance,
June 30, 2020
|
|
$
|
160
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
160
|
|
7. Shareholders’
Equity
a.
2018 Private Placement
In
June 2018, the Company completed a $22.9 million fundraising round from investors in the United States and Israel. In consideration
for the investment, the Company issued 5,960,787 ordinary shares at a price per share of approximately $3.842, as well as 2,713,159
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 from December 31, 2018, the closing date of the transaction, and may
be exercised on a cashless basis.
In
addition, the investors were granted price protection rights (to shares and warrants) in the event of a future share issuance
by the Company wherein 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). For details of an allocation that took
place in 2019 pursuant to these rights, see Note 7b below. The warrants and shares were recorded within equity on the issuance
date.
Effective
January 1, 2019, the Company changed its functional currency from NIS to USD. Due to this change, the exercise price of the warrants
was no longer denominated in the Company’s functional currency and therefore not considered indexed to the Company’s
own stock according to ASC 815-40. Accordingly, the Company recorded the fair value of the warrants as a liability at January
1, 2019.
Subsequently,
upon the Company’s Nasdaq initial public offering on February 14, 2019, the warrants’ term was modified such
that the exercise price currency was changed to USD. As a result, the warrants were once again considered indexed to the Company’s
own stock according to ASC 815-40. Accordingly, the fair value of the warrants at February 14, 2019 was reclassified from a liability
to equity on that date.
The
following table summarizes the activity for the warrants whose fair value measurements are estimated utilizing Level 3 inputs:
|
|
2019
|
|
Fair value on January 1, 2019
|
|
$
|
3,628
|
|
Adjustments-finance
expenses
|
|
|
4,570
|
|
Fair value on February
14, 2019
|
|
$
|
8,198
|
|
The
Company has determined the fair value of the warrants (a Level 3 valuation) as of January 1, 2019 and February 14, 2019.
The fair value of these warrants was estimated by implementing the Probability-Weighted Expected Return Method or the Black-Scholes
Method. The following parameters were used:
|
|
Derivative
Financial
Instrument
|
|
|
|
February
14,
2019
|
|
|
January
1,
2019
|
|
Stock price
|
|
|
$ 1.84
|
|
|
|
$ 2.50
|
|
Expected term
|
|
|
End
of 2022
|
|
|
|
End
of 2022
|
|
Risk free rate
|
|
|
2.49%
|
|
|
|
1.37%
|
|
Volatility
|
|
|
52%
|
|
|
|
48%
|
|
b.
Public Offering
On
February 14, 2019, the Company raised gross proceeds of $30.5 million in its Nasdaq initial public offering (“IPO”),
allocating 2,652,174 ADSs, each representing five ordinary shares of the Company. The ADSs are listed under the symbol “ANCN.”
In accordance with price protection rights granted in 2018 and activated in the offering (see Note 7a above for details and accounting
treatment), the Company issued 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).
c.
Share-based compensation
The
Company has two share-based compensation plans under which share options or other share-based awards have been granted: the 2011
Share Option Plan and the 2017 Share Option Plan (the “2017 Plan”). The 2017 Plan replaced the 2011 Share Option Plan
with respect to future grants; and, therefore, no further awards may be made under 2011 Share Option Plan. The Compensation Committee
of the Board of Directors and the Board of Directors administer these plans.
The
fair value of each option granted is estimated using the Black-Scholes option pricing method. The volatility is based on the Company’s
historical volatility. The risk-free interest rate assumption is based on observed Treasury yields over the expected term of the
options granted with USD-denominated exercise prices (options granted in the past with NIS-denominated exercise prices used the
equivalent Israeli government bond yields). The Company’s management uses the mid-point between the vesting date and the
contractual term for each vesting tranche or its expectations, as applicable, of each option as its expected term. The expected
term of the options granted represents the period of time that granted options are expected to remain outstanding
The
fair value of each option granted in the six months ended June 30, 2019 was estimated on the grant date using the Black-Scholes
option pricing model with the following assumptions:
|
|
Six
months ended
|
|
|
|
June
30, 2019
|
|
Value of ordinary share
|
|
|
$1.03
- $1.54
|
|
Dividend
yield
|
|
|
0%
|
|
Expected volatility
|
|
|
51.5%
- 68.6%
|
|
Risk-free interest rate
|
|
|
2.2%
- 2.5%
|
|
Expected term (years)
|
|
|
5.5
- 6.9
|
|
The
fair value of each option granted in the six months ended June 30, 2020 was estimated on the grant date using the Black-Scholes
option pricing model with the following assumptions:
|
|
Six
months ended
|
|
|
|
June
30, 2020
|
|
Value of ordinary
share
|
|
|
$0.23
- $0.24
|
|
Dividend
yield
|
|
|
0%
|
|
Expected
volatility
|
|
|
65.6%
- 67.3%
|
|
Risk-free
interest rate
|
|
|
0.36%
to 0.45%
|
|
Expected
term (years)
|
|
|
5.5
- 7.0
|
|
The
following table summarizes the number of options outstanding and exercisable as of June 30, 2020:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life in Years
|
|
Options outstanding - January 1, 2020
|
|
|
3,822,374
|
|
|
$
|
2.50
|
|
|
|
8.5
|
|
Granted
|
|
|
775,000
|
|
|
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
(418,096
|
)
|
|
|
|
|
|
|
|
|
Options outstanding - June 30, 2020
|
|
|
4,179,278
|
|
|
$
|
2.31
|
|
|
|
8.3
|
|
Options exercisable - June 30, 2020
|
|
|
2,434,232
|
|
|
$
|
3.06
|
|
|
|
7.7
|
|
The
aggregate intrinsic value of both outstanding and exercisable options at June 30, 2020 is $0.
The
following table illustrates the effect of share-based compensation on the statements of operations (in thousands):
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Research
and development
|
|
$
|
54
|
|
|
$
|
142
|
|
|
$
|
127
|
|
|
$
|
284
|
|
General
and administrative
|
|
|
24
|
|
|
|
226
|
|
|
|
137
|
|
|
|
464
|
|
|
|
$
|
78
|
|
|
$
|
368
|
|
|
$
|
264
|
|
|
$
|
748
|
|
8. Net
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 three and six month periods presented:
|
|
2020
|
|
|
2019
|
|
Stock Options
|
|
|
4,179,278
|
|
|
|
3,973,858
|
|
Warrants
|
|
|
10,975,959
|
|
|
|
10,975,959
|
|
9. Subsequent events
COVID-19
Outbreak
In
March 2020 the World Health Organization declared the global novel coronavirus (COVID-19) outbreak a pandemic. As of August 5,
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.
Item 2.
|
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 Quarterly Report on Form 10-Q. 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 our Annual Report on Form 10-K for
the year ended December 31, 2019 as filed with the SEC 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.
Since entering into
the License Agreement, we have focused our efforts on the development of our pan-RAS-inhibitor program. In order to advance this
program, our management had been working to identify additional financing sources and/or potential co-development partners. Such
efforts, however, have not resulted in opportunities that are sufficiently mature to date. As a result, we have decided to undertake
certain cost-saving measures, including a workforce reduction and temporary pause of our internal and external research and development
activities with respect to our pan-RAS-inhibitor program, in order to conserve cash and preserve optionality while alternatives
are being identified and assessed. The workforce reduction is expected to include 3 employees, which represent approximately 60%
of our workforce as of June 30, 2020, and is expected to be completed in the 3rd quarter of 2020. We may incur severance
related charges and other costs due to events associated with or resulting from the workforce reduction.
We have also engaged
Oppenheimer & Co. to act as our financial advisor to review strategic alternatives focused on maximizing stockholder value.
Despite undertaking this process, we may not be successful in completing a transaction, and, even if a strategic transaction is
completed, it ultimately may not deliver the anticipated benefits or enhance stockholder value.
Our corporate structure
consists of a parent company, Anchiano Therapeutics Ltd., incorporated in Israel, which wholly owns a subsidiary, Anchiano Therapeutics
Israel Ltd, incorporated in Israel, which itself wholly owns a subsidiary, Anchiano Therapeutics, Inc. incorporated in Delaware.
We currently maintain offices in Cambridge, Massachusetts.
License Agreement
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 that supported
the development. Yissum informed us that it deems the our decision a breach of the licensing and development agreement between
the parties (“License Agreement”) and expects us to take steps necessary to return the licensed IP to Yissum promptly.
Yissum did not assert any demands for monetary relief in its notice to us. We and Yissum have agreed on terms to terminate the
License Agreement, return all IP documentation to Yissum and to mutually waive, release and discharge the other party from all
claims of any type. An agreement relating to such is expected to be signed in the third quarter of 2020.
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. 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. We expect our research and development expenses to increase over the next several years as our
development programs progress and as we seek to initiate clinical trials. 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;
|
|
·
|
preclinical study expenses and related developmental costs; and
|
|
·
|
costs associated with regulatory compliance.
|
We recognize research
and development expenses as we incur them.
Starting in the third
quarter of 2020, we expect our primary focus to shift away from research and development activities to general and administrative
expenses as we execute our review of strategic alternatives focused on maximizing stockholder value.
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. Beginning with the third quarter of 2020, our general and administrative expenses are also expected to include costs
related to the engagement of advisors in connection with our review of strategic alternatives to maximize stockholder
value.
Finance (Income) Expense,
Net
Finance (Income) expense,
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 [7a] in “Item 1. Financial Statements Unaudited”
above), offset by interest income received on the Company’s cash and cash equivalents and foreign currency exchange gains
and losses.
Restructuring Expense
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, employee severance and associated termination costs related to the reduction of our
workforce and costs associated with the early termination of facility leases.
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.
Pursuant to our
strategic decision to temporarily pause development of the pan-RAS-inhibitor program and to preserve liquid resources, we
have decided to undertake certain cost-saving measures. These measures will include severing employees and vacating our
Cambridge facility. We anticipate taking a restructuring charge in the third quarter of 2020 as a result of these
restructuring activities. The Company is currently in the process of determining the amount of the restructuring charge. With
regards to the resignation of Dr. Frank Haluska the Company has a potential maximum exposure of up to $0.4 million relating
to claims of “Good Reason” resignation. It is the Company’s position that the CEO resigned without Good
Reason, is not entitled to severance, and the Company will contest any and all claims for severance.
Results of Operations
Below is a summary
of our results of operations for the periods indicated:
|
|
Three months ended
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Increase/(decrease)
|
|
|
June 30,
|
|
|
Increase/(decrease)
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,307
|
|
|
$
|
2,576
|
|
|
$
|
(1,269
|
)
|
|
|
-49
|
%
|
|
$
|
2,357
|
|
|
$
|
6,711
|
|
|
$
|
(4,354
|
)
|
|
|
-65
|
%
|
General and administrative
|
|
|
2,176
|
|
|
|
1,962
|
|
|
|
214
|
|
|
|
11
|
%
|
|
|
4,001
|
|
|
|
3,253
|
|
|
|
748
|
|
|
|
23
|
%
|
Restructuring expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
670
|
|
|
|
-
|
|
|
|
670
|
|
|
|
-
|
|
Operating loss
|
|
|
(3,483
|
)
|
|
|
(4,538
|
)
|
|
|
(1,055
|
)
|
|
|
23
|
%
|
|
|
(7,028
|
)
|
|
|
(9,964
|
)
|
|
|
(2,936
|
)
|
|
|
29
|
%
|
Financing (income) expense, net
|
|
|
(2
|
)
|
|
|
(99
|
)
|
|
|
97
|
|
|
|
-98
|
%
|
|
|
(12
|
)
|
|
|
4,388
|
|
|
|
(4,400
|
)
|
|
|
-100
|
%
|
Net loss
|
|
$
|
(3,481
|
)
|
|
$
|
(4,439
|
)
|
|
$
|
(958
|
)
|
|
|
22
|
%
|
|
$
|
(7,016
|
)
|
|
$
|
(14,352
|
)
|
|
$
|
(7,336
|
)
|
|
|
51
|
%
|
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.
Three and Six Months
Ended June 30, 2020 Compared to the Three and Six Months Ended June 30, 2019
Research and development expenses
Research and development
expense decreased by approximately $1.3 million, or 49%, and $4.4 million, or 65%, in the three and six months ended June 30, 2020,
respectively, from the comparable periods of 2019. The decrease is primarily due to reductions in third-party clinical trial and
manufacturing costs associated with the Phase 2 Codex clinical trial which was discontinued in November 2019, partially offset
by third-party development costs incurred in 2020 associated with the RAS program acquired in September 2019.
As a result of the
restructuring decisions made in July 2020, we anticipate research and development expenses will decrease significantly in future
periods as the Company temporarily pauses its research activities on the RAS programs, severs its research and development employees
and vacates its facilities.
General and administrative expenses
General and administrative
costs increased by approximately $0.2 million, or 11%, and $0.7 million, or 23%, in the three and six months ended June 30, 2020,
respectively, from the comparable period of 2019. The increase is primarily due to increased personnel costs, insurance costs and
professional fees associated with establishing an infrastructure to support a U.S. publicly traded company after the Company’s
initial public offering in February 2019.
As a result of the
restructuring decisions made in July 2020, we anticipate general and administrative expenses will decrease significantly in future
periods as the Company rationalizes its general and administrative employees and other corporate activities and vacates its Cambridge
facility.
Restructuring expense
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.
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 five Israeli employees.
Restructuring expenses
incurred during the second quarter of 2020 were comprised principally of contract termination costs, employee severance and associated
termination costs related to the reduction of our workforce, and costs associated with the early termination of our lease facility.
In July 2020, we made
the strategic decision to temporarily pause development of our RAS program and to institute various cost savings measures to preserve
liquid resources. These activities will include severing employees and vacating our Cambridge facility. We anticipate taking a
restructuring charge in the third quarter of 2020 as a result of these restructuring activities. The Company is currently in the
process of determining the amount of the restructuring charge.
Financing (income) expense, net
Financing (income)
expense, net decreased by approximately $0.1 million, or 98%, and $4.4 million, or 100%, in the three and six months ended June
30, 2020, respectively, from the comparable periods of 2019.
In the three and six
months ended June 30, 2020, finance expense was primarily interest income, foreign currency exchange rate gains and gains associated
with the sale of laboratory equipment from our now closed Israeli operation.
For the three and
six months ended June 30, 2019, finance expense of was primarily related to the 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 US dollars. 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.
Cash Flows
The table below shows
a summary of our cash flow activities for the periods indicated:
|
|
Six months ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Increase/(decrease)
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(8,966
|
)
|
|
$
|
(7,037
|
)
|
|
$
|
1,929
|
|
|
|
27
|
%
|
Net cash provided by (used in) investing activities
|
|
|
85
|
|
|
|
(91
|
)
|
|
|
(176
|
)
|
|
|
-193
|
%
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
26,621
|
|
|
|
(26,621
|
)
|
|
|
-100
|
%
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
$
|
(8,881
|
)
|
|
$
|
19,493
|
|
|
$
|
(28,374
|
)
|
|
|
-146
|
%
|
Operating activities
Net cash used in
operating activities increased by $1.9 million, or 27%, for the six months ended June 30, 2020 compared to the same period of
2019. Net loss adjusted for non-cash activities was $6.5 million for the six months ended June 30, 2020 compared to $8.9
million resulting in favorable cash flow of $2.4 million. This was more than offset by unfavorable changes in working capital
of approximately $4.3 million. The unfavorable changes in working capital was primarily driven by a significant prepayment
for contract manufacturing in 2018 which reversed and generated favorable cash flow in 2019 with no similar impact in 2020,
and a decrease in accounts payables and accruals in 2020 reflecting the overall reduction in research and development expense
in addition to payment of severance and contractual cancellation costs associated with restructuring activities accrued at
December 31, 2019.
Investing activities
Investing activities
in the six months ended June 30, 2020 reflect net proceeds of $0.1 million from the sale of laboratory equipment from our now closed
facility in Israel, partially offset by purchases of fixed assets. Investing activities in the six months ended June 30, 2019 were
purchases of fixed assets.
Financing activities
Financing activities
in the six months ended June 30, 2019 reflect the net proceeds from our IPO on February 14, 2019. There were no financing activities
in the six months ended June 30, 2020.
Contractual Commitments
The Company’s
contractual commitments are as follows at June 30, 2020 (in thousands):
|
|
Operating Lease
|
|
Remainder of 2020
|
|
$
|
117
|
|
2021
|
|
|
189
|
|
2022
|
|
|
16
|
|
Total
|
|
$
|
322
|
|
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 six months ended June 30, 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.
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 revenues and 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.
For
a discussion of our critical accounting policies, please read Part II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations in our 2019 Form 10-K. There have been no material changes to these critical accounting policies
since our 2019 Form 10-K.
Recently-Issued Accounting Pronouncements
Certain recently-issued
accounting pronouncements are discussed in Note [2], Summary of Significant Accounting Policies, to the unaudited condensed consolidated
financial statements included in “Item 1. Financial Statements Unaudited.”
Liquidity and Capital Resources
The condensed 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 June 30, 2020 of
$112.3 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, including in connection with costs
associated with its strategic review process. The Company believes that its existing cash and cash equivalents will only be sufficient
to fund its projected cash needs into the first quarter 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, 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.