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 condensed
consolidated financial statements and the related notes included
elsewhere in this Quarterly Report on Form 10-Q, as well as our
audited consolidated financial statements and related notes for the
year ended December 31, 2021, as filed in our Annual Report on Form
10-K for the year ended December 31, 2021 (the “2021 Annual
Report”). 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 2021 Annual Report, as may be
supplemented by our Quarterly Reports on Form 10-Q, 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.
References to
“we,” “us,” “our” and “Chemomab” in this “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”
below refer to the Company after the Merger, and, with respect to
historical periods preceding the Merger, refer to Chemomab Ltd.,
whose business became the business of the Company upon consummation
of the Merger.
Overview
We are a
clinical-stage biotechnology company focused on the discovery and
development of innovative therapeutics for fibrotic and
inflammatory diseases with high unmet needs. Based on the unique
and pivotal role of the soluble protein CCL24 in promoting fibrosis
and inflammation, we developed CM-101, a monoclonal antibody
designed to bind and block CCL24 activity. We believe CM-101 has
demonstrated the potential to treat multiple severe and
life-threatening fibrotic and inflammatory
diseases.
Chemomab has
pioneered the therapeutic targeting of CCL24, a chemokine that
promotes various types of cellular processes that regulate
inflammatory and fibrotic activities through the CCR3 receptor. The
chemokine is expressed in various types of cells, including immune
cells, endothelial cells and epithelial cells. We have developed a
novel CCL24 inhibiting product candidate with dual anti-fibrotic
and anti-inflammatory activity that modulates the complex interplay
of both of these inflammatory and fibrotic mechanisms that drive
abnormal states of fibrosis and clinical fibrotic diseases. This
innovative approach is being developed for difficult to treat rare
diseases, also known as orphan indications or diseases, such as
primary sclerosing cholangitis, or PSC and systemic sclerosis, or
SSc, for which patients have no established disease modifying
standard of care treatment
options.
Fibrosis is the abnormal and excessive accumulation of collagen and
extracellular matrix, the non-cellular component in all tissues and
organs, which provides structural and biochemical support to
surrounding cells. When present in excessive amounts, collagen and
extracellular matrix lead to scarring and thickening of connective
tissues, affecting tissue properties and potentially leading to
organ failure. Excessive fibrosis can occur in many different
tissues, including lung, liver, kidney, muscle, skin, and the
gastrointestinal tract, resulting in a wide array of progressive
fibrotic conditions. Fibrosis and inflammation are intrinsically
linked. While a healthy inflammatory response is necessary for
efficient tissue repair; after disease or injury, an excessive,
uncontrolled inflammatory response can lead to tissue fibrosis that
in turn can further stimulate inflammatory processes in a
fibro-inflammatory vicious cycle.
CM-101, our lead clinical
product candidate, is a first-in-class humanized monoclonal
antibody that attenuates the basic function of the soluble
chemokine CCL24, also known as eotaxin-2, as a regulator of major
inflammatory and fibrotic pathways. We have demonstrated that
CM-101 interferes with the underlying biology of inflammation and
fibrosis through a novel and differentiated mechanism of action.
Based on these findings, we are actively advancing CM-101 in Phase
2 clinical studies directed toward two distinct clinical
indications that include patients with liver, skin, and/or lung
fibrosis. We are currently conducting a Phase 2 clinical study in
primary sclerosing cholangitis, a rare obstructive and cholestatic
liver disease. The study is actively recruiting patients in the
U.S., Europe and Israel and is being expanded by adding additional
dosing arms as well as an open label extension. In addition, we are
planning to open a Phase 2 clinical trial in SSc around year-end
and begin dosing patients in the first quarter of 2023. The trial
in SSc, a rare autoimmune rheumatic disease characterized by
fibrosis in the skin and lung and other organs, will focus on
establishing biological and clinical proof of concept in this
patient population . Although our primary focus is on these two
rare indications, an additional Phase 2 clinical study in patients
with liver fibrosis due to non-alcoholic steatohepatitis, or NASH
has completed the treatment phase This trial will provide safety
and pharmacokinetic (PK) data that will be informative in
determining whether the company advances the development of its
current subcutaneous formulation of CM-101. Additionally, the trial
is measuring a number of biomarkers that may be relevant to the
potential activity of CM-101 in other fibro-inflammatory
conditions. Results of this trial are expected by the end of the
year.
Recent
Developments
New Executive
Appointments
On August 29, 2022,
Christina Crater, MD, joined the Company as Vice President of
Clinical Development. Dr. Crater has an extensive background in
medical affairs and clinical trial design and execution across a
broad range of therapeutic indications, Dr. Crater has served as a
medical monitor, safety physician, therapeutic expert and study
director in all phases of clinical development, Her career spans
working in-house at pharmaceutical and biotechnology firms, and at
major clinical research organizations (CROs). Previously Dr. Crater
was a Senior Clinical Trial Physician at Bristol-Myers Squibb, and
she served in senior clinical development roles with PRA Health
Sciences and PAREXEL International. Earlier in her career, Dr.
Crater worked as an internal medicine physician. She received an MD
degree from the University of Tennessee and holds a BS from Rhodes
College.
Chemomab’s
Clinical Programs
Chemomab’s
clinical programs are designed to optimize the clinical development
of lead product candidate CM-101 by maximizing the clinical
information obtained, generating important data to support future
advancement to registration trials, and decreasing the overall risk
in the CM-101 clinical development program in the lead indications
of PSC and SSc, as well as potentially in additional indications
where the scientific rationale is strong. The key top-line key
activities that are being conducted in the clinical development
programs include the following:
Continue the expansion of the PSC clinical trial
through the addition of new clinical sites, the addition of an
important dose finding component and an open label extension
phase. We are significantly expanding the Phase 2
clinical trial in PSC by implementing a dose finding component to
the CM-101 development program. We have increased the size of the
study to an expected 93 patients by adding two additional dose
cohorts to the current 10 mg/kg cohort; a lower dose cohort to
evaluate a 5 mg/kg dose, and a higher dose cohort to evaluate a 20
mg/kg dose. Each cohort will enroll 25 patients with PSC and the
placebo cohort will enroll 18 patients. In addition, we are adding
an open-label extension to the trial to evaluate the safety,
tolerability and durability of effect over a total of 48 weeks of
treatment duration. The trial’s primary outcome is an evaluation of
CM-101’s safety and tolerability. Secondary endpoint include a wide
range of relevant biomarkers. Regulatory submissions to support
trial expansion and other relevant changes are
underway.
Lastly, we will be
performing an interim safety analysis of the currently enrolling
dose cohort and expect the analysis to be completed before the end
of this year. The primary purpose of this safety analysis is to
enable review by the CM-101 Data Monitoring Committee, to support
the evaluation of the higher 20mg/kg dose in the CM-101 clinical
development program.
Based on our ongoing efforts
to expand the number of clinical trial sites and enhance
recruitment activities, the current clinical development landscape
and the increased size of the study, we anticipate that the
top-line data from this Phase 2 trial in PSC will be available in
the second half of 2024.
Finalize the design of a Phase 2
trial in systemic sclerosis focusing on establishing biological
proof-of-concept in clinically relevant aspects of this complex
disease. We are focusing our SSc trial towards
establishing biological proof of concept in this patient
population. We believe that the design of our planned SSc trial
should enable an expedited path to data supporting proof of the
relevance of CCL-24 biology, provide further elucidation of the
different mechanisms of action of CM-101, and potentially detect a
CM-101 clinical efficacy signal for treating the skin, lung and
vascular damage seen in SSc patients. We expect to launch the trial
around the end of 2022 and begin enrolling patients early in
2023.
Concluding our safety, pharmacokinetic and
biomarker liver fibrosis study, yielding a data readout targeted
near the end of 2022. We completed the treatment period
in our safety, tolerability and biomarker trial that is evaluating
our current subcutaneous formulation of CM-101 in NASH patients
with liver fibrosis. We believe that the data from this trial could
provide useful insights in support of the CM-101 development
program, including characterizing the safety and tolerability of
CM-101 in patients with serious liver disease, assessing possible
early signs of biomarker activity that are relevant for a number of
fibro-inflammatory disorders, and providing the tolerability and
pharmacokinetic data needed to assess next steps in the development
of our current subcutaneous formulation.
Shelf Registration Statement and ATM
Offering
On April 30,
2021, we filed a shelf registration statement on Form S-3 with the
SEC (File No. 333-255658) for the issuance and sale by us of up to
$200,000,000 of our ordinary shares, ADSs, debt securities,
warrants and units comprising any combination of the foregoing
securities (the “Shelf Registration Statement”). On the same date,
we entered into a sales agreement (the “Sales Agreement”) with
Cantor Fitzgerald, pursuant to which we may offer and sell, from
time to time, at our option, through or to Cantor Fitzgerald, up to
an aggregate of $75,000,000 of our ADSs (the “ATM Facility”).
During the period from April 30, 2021 through June 30, 2021, we had
sold an aggregate of 699,806 ADSs pursuant to the Sales Agreement
for a total gross consideration of approximately $15.9
million.
On April 25,
2022, we filed a prospectus supplement with the SEC for the
issuance and sale of up to $18,125,000 of our ADSs in connection
with the reactivation of the ATM Facility and pursuant to General
Instruction I.B.6 of Form S-3, which, subject to certain
exceptions, limits the amount of securities we are able to offer
and sell under such registration statement to one-third of our
unaffiliated public float. Any ADSs offered, or to be offered, and
sold under the Sales Agreement were issued and sold, or will be
issued and sold, pursuant to the Shelf Registration Statement and
the applicable prospectus or prospectus supplement by methods
deemed to be an “at the market offering” as defined in Rule
415(a)(4) promulgated under the Securities Act, or if specified by
us, by any other method permitted by
law.
During the
period from July 1, 2021 through September 30, 2022, we did not
sell ADSs pursuant to the Sales
Agreement.
Corporate
Information
We were
incorporated on September 22, 2011 under the laws of the State of
Israel. In March 2021, in connection with the Merger, we changed
our name from Anchiano Therapeutics Ltd. to Chemomab Therapeutics
Ltd. Our principal executive offices are located at Kiryat Atidim,
Building 7, Tel Aviv, Israel 6158002, and our phone number is
+972-77-331-0156. Our website is: www.chemomab.com. The
information contained on, or that can be accessed through, our
website is not incorporated by reference into this Quarterly Report
on Form 10-Q. We have included our website address as an inactive
textual reference only.
Components of Operating
Results
Revenue
To date, we
have not generated any revenue. We do not expect to generate any
revenue unless and until we obtain regulatory approval and
commercialize a 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 any product candidate is approved,
that we will be successful in commercializing
it.
Research and Development
Expenses
Research and
development expenses consist primarily of costs incurred in
connection with the development of our product candidates. These
expenses include:
| |
• |
expenses
incurred under agreements with contract research organizations or
contract manufacturing organizations, as well as investigative
sites and consultants that conduct our clinical trials, preclinical
studies and other scientific development
services;
|
| |
• |
manufacturing
scale-up expenses and the cost of acquiring and manufacturing
preclinical and clinical trial
materials;
|
| |
• |
employee-related
expenses, including salaries, related benefits, travel and
share-based compensation expenses for employees engaged in research
and development functions, as well as external costs, such as fees
paid to outside consultants engaged in such
activities;
|
| |
• |
license
maintenance fees and milestone fees incurred in connection with
various license agreements;
|
| |
• |
costs related
to compliance with regulatory requirements;
and
|
| |
• |
depreciation
and other expenses.
|
We recognize
external development costs based on an evaluation of the progress
to completion of specific tasks using information provided to us by
our service providers.
We do not
allocate employee costs or facility expenses, including
depreciation or other indirect costs, to specific programs because
these costs are deployed across multiple programs and, as such, are
not separately classified. We use our internal resources primarily
to oversee research, as well as for managing our preclinical
development, process development, manufacturing and clinical
development activities. Our employees work across multiple programs
and, therefore, we do not track costs by
program.
Research and
development activities are fundamental to our business. 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. As a result, we expect that our
research and development expenses will increase substantially over
the next several quarters and years as we continue to advance the
development of our product candidates. We also expect to incur
additional expenses related to milestone and royalty payments
payable to third parties with whom we have entered into license
agreements to acquire the rights to its product
candidates.
General and Administrative
Expenses
General and
administrative expenses consist primarily of salaries, related
benefits and share-based compensation expenses for personnel in
executive and administrative functions. General and administrative
expenses also include professional fees for legal, consulting,
accounting and audit services.
We anticipate
that our general and administrative expenses will increase in the
future as we increase headcount and general activities to support
our continued research activities and development of our product
candidates as well as expanding our presence in the United States.
We also anticipate that we will incur increased headcount,
accounting, audit, legal, regulatory, compliance, director and
officer insurance costs, as well as investor and public relations
expenses associated with being a public company. We expect that the
additional costs for these services will substantially increase our
general and administrative expenses. Additionally, if and when we
believe that regulatory approval of a product candidate appears
likely, we expect to incur an increase in payroll and related
expenses as a result of our preparation for commercial operations,
especially as it relates to the sales and marketing of any product
candidate.
Results of
Operations
Three and
Nine Months Ended September 30, 2022 Compared to the Three and Nine
Months Ended September 30, 2021
Below is a
summary of our results of operations for the periods
indicated:
Three Months
Ended September 30, 2022 Compared to the Three Months Ended
September 30, 2021
|
|
|
Three months
ended
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Increase/(decrease)
|
|
|
|
|
2022
|
|
|
2021
|
|
|
$ |
|
|
%
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
$
|
5,423
|
|
|
$
|
1,487
|
|
|
$
|
3,936
|
|
|
|
265
|
%
|
|
General and
administrative
|
|
|
2,894
|
|
|
|
1,404
|
|
|
|
1,490
|
|
|
|
106
|
%
|
|
Operating
loss
|
|
|
8,317
|
|
|
|
2,891
|
|
|
|
5,426
|
|
|
|
188
|
%
|
|
Financing
expense (income),
net
|
|
|
(237
|
)
|
|
|
77
|
|
|
|
(314
|
)
|
|
|
(408
|
)%
|
|
Net
loss
|
|
$
|
8,080
|
|
|
$
|
2,968
|
|
|
$
|
5,112
|
|
|
|
172
|
%
|
Nine Months
Ended September 30, 2022 Compared to the Nine Months Ended
September 30, 2021
|
|
|
Nine months
ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
Increase/(decrease)
|
|
|
|
2022
|
|
|
2021
|
|
|
$
|
|
|
|
%
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
$
|
11,082
|
|
|
$
|
3,951
|
|
|
$
|
7,131
|
|
|
|
180
|
|
General and
administrative
|
|
|
8,809
|
|
|
|
3,392
|
|
|
|
5,417
|
|
|
|
160
|
|
Operating
loss
|
|
|
19,891
|
|
|
|
7,343
|
|
|
|
12,548
|
|
|
|
171
|
|
Financing
expense, net
|
|
|
27
|
|
|
|
99
|
|
|
|
(72)
|
|
|
|
(73)
|
|
Income Tax
(benefit)
|
|
|
(544)
|
|
|
|
-
|
|
|
|
(544)
|
|
|
|
(100)
|
|
Net
loss
|
|
$
|
19,374
|
|
|
$
|
7,442
|
|
|
$
|
11,932
|
|
|
|
160
|
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.
Research and development
expenses
Research and
development expenses increased by approximately $3.9 million, or
265%, for the three months ended September 30, 2022, as compared to
the same period in 2021. The increase was primarily due to
increased clinical and preclinical
activities.
Research and
development expenses increased by approximately $7.1 million, or
180%, for the nine months ended September 30, 2022, as compared to
the same period in 2021 also due primarily to increased clinical
and preclinical activities.
General
and administrative
expenses
General and
administrative expenses increased by approximately $1.5 million, or
106%, for the three months ended September 30, 2022, as compared to
the same period in 2021. The increase was primarily due to increase
in salaries and related benefits expenses of $1.0 million mainly
related to key additions to the senior management team, as well as
increase in non-cash share-based expenses in the amount of $0.3
million.
General and
administrative expenses increased by approximately $5.4 million, or
160%, for the nine months ended September 30, 2022, as compared to
the same period in 2021. The increase was primarily due to the
increase in non-cash share-based expenses in the amount of $1.3
million as well as increase in salaries and related benefits
expenses of $2.3 million mainly related to key additions to the
senior management team, and a provision of $0.6 million for
expenses recorded in relation to an audit by the Israeli Tax
Authority.
Financing income (expense),
net
Financing
income, net was $237 thousand for the three months ended September
30, 2022 as compared to an expense of $77 thousand during the same
period in 2021. The increase in financing income was primarily due
to interest income from bank deposits, partially offset by foreign
currency exchange rate loss.
Financing
expense, net decreased by approximately $72 thousand for the nine
months ended September 30, 2022 as compared to the same period in
2021. The increase was primarily due to foreign currency exchange
rate loss partially offset by interest income from bank
deposits,
Liquidity and Capital
Resources
Since
inception, we have not generated any revenue and have incurred
significant operating losses and negative cash flows from our
operations, resulting in an accumulated deficit at September 30,
2022 of $55.5 million. We have funded our operations to date
primarily with proceeds from the sale of our ADSs, and, prior to
the Merger, other equity securities. As of September 30, 2022, we
had an aggregate of approximately $46.5 million of cash, cash
equivalents and short-term deposits. Cash in excess of immediate
requirements is invested primarily with a view to liquidity and
capital preservation. June 30,
2021
Developing
product candidates, conducting clinical trials and commercializing
products are expensive, and we will need to raise substantial
additional funds to achieve our strategic objectives. We believe
that our existing cash resources, including from the ADSs sold
pursuant to the Sales Agreement, will be sufficient to fund our
projected cash requirements through the end of 2023. Nevertheless,
we will require significant additional financing in the future to
fund our operations, including if and when we progress into
additional clinical trials, obtain regulatory approval for any of
our product candidates and commercialize the same. We believe that
we will need to raise significant additional funds before we have
any cash flow from operations, if at all. Our future capital
requirements will depend on many factors,
including:
| |
• |
the progress
and costs of our preclinical studies, clinical trials and other
research and development
activities;
|
| |
• |
the scope,
prioritization and number of our clinical trials and other research
and development programs;
|
| |
• |
the amount of
revenues and contributions we receive under future licensing,
development and commercialization arrangements with respect to our
product candidates;
|
| |
• |
the costs of
the development and expansion of our operational
infrastructure;
|
| |
• |
the costs and
timing of obtaining regulatory approval for our product
candidates;
|
| |
• |
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;
|
| |
• |
the costs of
acquiring or undertaking development and commercialization efforts
for any future products, product candidates or
platforms;
|
| |
• |
the magnitude
of our general and administrative expenses;
and
|
| |
• |
any cost that
we may incur under future in- and out-licensing arrangements
relating to our product
candidates.
|
We currently
do not have any commitments for future external funding. In the
future, we will need to raise additional funds, and we may decide
to raise additional funds even before we need such funds if the
conditions for raising capital are favorable. Until we can generate
significant recurring revenues, we expect to satisfy our future
cash needs through debt or equity financings, credit facilities or
by out-licensing applications of our product candidates. The sale
of equity or convertible debt securities may result in dilution to
our existing shareholders. The incurrence of indebtedness would
result in increased fixed obligations and could also subject us to
covenants that restrict our operations. We cannot be certain that
additional funding, whether through grants from the Israel
Innovation Authority, financings, credit facilities or
out-licensing arrangements, will be available to us on acceptable
terms, if at all. If sufficient 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 applications of our product candidates, or obtain
funds through arrangements with collaborators or others that may
require us to relinquish rights to certain potential products that
we might otherwise seek to develop or commercialize
independently.
Cash
Flows
The table
below shows a summary of our cash flow activities for the periods
indicated:
|
|
|
Nine months
ended
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
Increase/(decrease)
|
|
|
|
|
2022
|
|
|
2021
|
|
|
$ |
|
|
%
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Net cash used
in operating activities
|
|
$
|
(14,667
|
)
|
|
$
|
(9,480
|
)
|
|
$
|
(5,187
|
)
|
|
|
55
|
%
|
|
Net cash
provided by (used in) investing
activities
|
|
|
10,183
|
|
|
|
(25,605
|
)
|
|
|
35,788
|
|
|
|
(140
|
)%
|
|
Net cash
provided by financing activities
|
|
|
61
|
|
|
|
61,155
|
|
|
|
(61,094
|
)
|
|
|
(99
|
)%
|
|
Net increase
(decrease) in cash, cash equivalents and restricted
cash
|
|
$
|
(4,423
|
)
|
|
$
|
26,070
|
|
|
$
|
(30,493
|
)
|
|
|
(117
|
)%
|
Operating
activities
Net
cash used in operating activities increased by $5.2 million, or
55%, for the nine months ended September 30 2022, as compared to
the same period in 2021. The increase was primarily related to the
increase in net loss of $11.9 million, offset by an increase in
accrued expenses of $3.3 million, decrease in other receivables of
$1.5 million and changes in non-cash activities adjustment of $1.5
million
Investing
activities
Net cash
provided by investing activities for the nine months ended
September 30, 2022 was approximately $10.2 million compared to net
cash used by investing activities of $25.6 million for same period
in 2021. Net cash provided by investing activities for the nine
months ended September 30, 2022 is primarily related to an increase
in short term bank deposits. Net cash used in investing activities
for the nine months ended September 30, 2021 was primarily related
to the deposit of proceeds received from a private placement in
bank deposits.
Financing
activities
Net cash
provided by financing activities for the nine months ended
September 30, 2022 decreased by approximately $61.1 million, as
compared to the same period in 2021. The decrease is primarily
related to proceeds from the issuance of ADSs of approximately
$58.7 million (net of expenses) recorded during the nine months
ended on September 30, 2021.
Financing
activities for the nine months ended September 30, 2021 reflect
proceeds received from a private placement transaction that closed
on March 22, 2021, pursuant to which the Company sold ADSs in an
amount equal to $45.5 million, as well as sales of the Company's
ADSs sold under the Sales
Agreement.
Contractual
Commitments
The Company’s
contractual commitments at September 30, 2022 were as follows (in
thousands):
|
Remainder of
2022
|
|
|
$
|
1,860
|
|
|
2023
|
|
|
|
6,878
|
|
|
2024
|
|
|
|
634
|
|
|
2025-2027
|
|
|
|
159
|
|
|
Total
|
|
|
$
|
9,531
|
|
Critical Accounting
Policies
Our financial
statements are prepared in accordance with generally accepted
accounting principles in the United States (“GAAP”). The
preparation of our financial statements and related disclosures in
accordance with GAAP requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue,
costs and expenses, and the disclosure of contingent assets and
liabilities in our financial statements. We base our estimates on
historical experience, known trends and events and various other
factors that it believes are reasonable under the circumstances,
the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. We evaluate our estimates and
assumptions on an ongoing basis. Our actual results may differ from
these estimates under different assumptions or
conditions.
While our
significant accounting policies are described in more detail in
Note 2 to in consolidated financial statements included the 2021
Annual Report, we believe that the following accounting estimates
are those that include a higher degree of judgment or complexity
and are reasonably likely to have a material impact on our
financial condition or results of operations and are therefore
considered critical accounting
policies.
Share-Based
Compensation
We apply
Accounting Standard Codification (ASC) 718-10, “Share-Based
Payment,” which requires the measurement and recognition of
compensation expenses for all share-based payment awards made to
employees and directors, including employee options under our
option plans based on estimated fair
values.
ASC 718-10
requires that we estimate the fair value of equity-based payment
awards on the date of grant using an option-pricing model. The fair
value of the award is recognized as an expense over the requisite
service periods in our statements of comprehensive loss. We
recognize share-based award forfeitures as they occur, rather than
estimate by applying a forfeiture
rate.
In June 2018,
the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) 2018-07, “Compensation-Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting”, which simplifies the accounting for nonemployee
share-based payment transactions by aligning the measurement and
classification guidance, with certain exceptions, to that for
share-based payment awards to employees. The amendments expand the
scope of the accounting standard for share-based payment awards to
include share-based payment awards granted to non-employees in
exchange for goods or services used or consumed in an entity’s own
operations and supersedes the guidance related to equity-based
payments to non-employees. We adopted these amendments on January
1, 2019.
We recognize
compensation expenses for the fair value of non-employee awards
over the requisite service period of each
award.
We estimate
the fair value of options granted as equity awards using a
Black-Scholes options pricing model. The option-pricing model
requires a number of assumptions, of which the most significant are
share price, expected volatility and the expected option term (the
time from the grant date until the options are exercised or
expire). We determine the fair value per share of the underlying
stock by taking into consideration its most recent sales of stock,
as well as additional factors that we deem relevant. Our Board of
Directors determined the fair value of ordinary shares based on
valuations performed using the Option Pricing Method subject to
relevant facts and circumstances. We have historically been a
private company and lack company-specific historical and implied
volatility information of its stock. Expected volatility is
estimated based on volatility of similar companies in the
biotechnology sector. We have historically not paid dividends and
have no plans to issue dividends. The risk-free interest rate is
based on the yield from governmental zero-coupon bonds with an
equivalent term. The expected option term is calculated for options
granted to employees and directors using the “simplified” method.
Grants to non-employees are based on the contractual term. Changes
in the determination of each of the inputs can affect the fair
value of the options granted and the results of
operations.
Recently-Issued Accounting
Pronouncements
Certain
recently-issued accounting pronouncements are discussed in Note 2,
Summary of Significant Accounting Policies, to the audited
consolidated financial statements in our 2021 Annual
Report.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
We are an
emerging growth company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and are not
required to provide the information under this
item.
Item 4. CONTROLS AND
PROCEDURES.
Evaluation of Disclosure Controls and
Procedures
Disclosure
controls and procedures are designed to ensure that information
required to be disclosed by us in our Exchange Act reports is
recorded, processed, summarized, and reported within the time
periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to our management,
including our principal executive officer and principal financial
officer or persons performing similar functions, as appropriate to
allow timely decisions regarding required
disclosure.
Under the
supervision and with the participation of our management, including
our principal executive officer and principal financial and
accounting officer, we conducted an evaluation of the effectiveness
of our disclosure controls and procedures, as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of
September 30, 2022. Any controls and
procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control
objective and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures. Based on such evaluation, our principal
executive officer and principal financial officer have concluded
that our disclosure controls and procedures were effective as of
September 30, 2022.
Changes in Internal Control over Financial
Reporting
We
consummated the Merger on March 16, 2021, which has been accounted
for as a reverse capitalization for accounting purposes, and, upon
consummation of the Merger, we reconstituted our Board of Directors
and our senior management team. The Company’s management has been
in the process of strengthening the Company’s internal control over
financial reporting since the Merger, including during the quarter
ended September 30, 2022, including adopting new policies and
procedures appropriate to the Company’s current business and
management team. The foregoing actions are being taken solely in
connection with the changes effected in connection with the Merger
and not as the result of any material weakness or deficiency in the
Company’s internal control over financial
reporting.
Except as
described above, there have been no changes in our internal control
over financial reporting that occurred during the last fiscal
quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
PART II. –
OTHER INFORMATION
Item 1. Legal
Proceedings
From time to
time, we may become involved in legal proceedings relating to
claims arising from the ordinary course of business. Our management
believes that there are currently no claims or actions pending
against us, the ultimate disposition of which could have a material
adverse effect on our results of operations, financial condition or
cash flows.
There have
been no material changes from the information set forth in “Item
1A. Risk Factors” in our 2021 Annual
Report.
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds.
None.
Item 3. Defaults Upon Senior
Securities.
Not
applicable.
Item 4. Mine Safety
Disclosures.
Not
applicable.
Item 5. Other
Information.
Buyback
Arrangement
In connection with the Merger, certain
shareholders of Chemomab Ltd. were entitled to defer an immediate
Israeli tax liability resulting from the exchange of shares that
otherwise would have been deemed a sale. The deferral is set to
lapse on March 16, 2023. Dr. Adi Mor, co-founder of Chemomab Ltd.
and both our Chief Scientific Officer and a Class III director, and
Prof. Kobi George, co-founder of Chemomab Ltd. (together with Dr.
Adi Mor, the “Co-Founders”), will be required to pay a substantial
tax liability to the Israeli Tax Authority upon the expiration date
of the deferral period. In order to cover this tax liability, the
Co-Founders will be required to sell part of their holdings in the
Company.
In light of the foregoing, we elected to enter
into a share purchase agreement (the “Repurchase Arrangement”) with
the Co-Founders whereby we agreed, subject to the requisite court
approval required under Section 303(a) of the Israeli Companies
Law, 5759-1999 (the “Companies Law”), to repurchase up to an
aggregate of $2,500,000 worth of American Depositary Receipts (the
“ADSs”) of the Company (each representing twenty (20) ordinary
shares, no par value, of the Company) owned by the Co-Founders, in
order to avoid a situation in which the Co-Founders would have to
execute bulk sales of their ADSs on the open market in order to be
able to pay the outstanding tax liability. These repurchases will
be made at market price. We believe that the Repurchase Arrangement
protects the best interests of our shareholders by mitigating
volatility of the market for the Company’s
ADSs.
We do not expect any change in our cash runway
as a result of this Repurchase Arrangement. The cash runway is
expected to last through the end of 2023, consistent with the
disclosure under “Liquidity and Capital Resources” in this
Quarterly Report on Form 10-Q. As of the date of this Quarterly
Report on Form 10-Q, we have not yet obtained court
approval.
(a) The
following documents are filed as exhibits to this Quarterly Report
or incorporated by reference
herein.
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.
INS*
|
|
Inline XBRL
Instance Document
|
|
101.
SCH*
|
|
Inline XBRL
Taxonomy Extension Schema
Document
|
|
101.
CAL*
|
|
Inline XBRL
Taxonomy Extension Calculation Linkbase
Document
|
|
101.
DEF*
|
|
Inline XBRL
Taxonomy Extension Definition Linkbase
Document
|
|
101.
LAB*
|
|
Inline XBRL
Taxonomy Extension Label Linkbase
Document
|
|
101.
PRE*
|
|
Inline XBRL
Taxonomy Extension Presentation Linkbase
Document
|
|
104*
|
|
Cover Page
Interactive Data File (formatted as Inline XBRL and contained in
Exhibit 101)
|
| |
*
|
Filed
herewith.
|
| |
**
|
The
certifications attached as Exhibits 32.1 and 32.2 that accompany
this Quarterly Report on Form 10-Q are not deemed filed with the
Securities and Exchange Commission and are not to be incorporated
by reference into any filing of the Registrant under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, whether made before or after the date of this Quarterly
Report on Form 10-Q, irrespective of any general incorporation
language contained in such
filing.
|
Pursuant to
the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly
authorized.
|
|
CHEMOMAB
THERAPEUTICS LTD.
|
|
|
|
|
|
Date:
November 10, 2022
|
By:
|
/s/ Dale
Pfost
|
|
|
Name:
|
Dale
Pfost
|
|
|
Title:
|
Chief
Executive Officer
|
|
|
|
|
|
Date:
November 10, 2022
|
By:
|
/s/ Donald
Marvin
|
|
|
Name:
|
Donald
Marvin
|
|
|
Title:
|
Chief
Financial Officer
|