Chemomab Therapeutics Ltd. annual report, FY2020

Business context and reporting period

This is Anchiano Therapeutics Ltd.’s Form 10-K for the fiscal year ended December 31, 2020, filed March 7, 2021—not a Chemomab Therapeutics Ltd. 10-K or a quarterly report. Anchiano was a preclinical oncology company developing pan-RAS and PDE10/β-catenin small-molecule programs. It had discontinued clinical development of inodiftagene in 2019. On December 14, 2020, Anchiano agreed to merge with Chemomab, a clinical-stage fibrosis-focused biotech, subject to closing conditions.

Financial results and liquidity

At December 31, 2020, cash and cash equivalents were $5.392 million, versus $17.575 million a year earlier; total assets were $6.179 million and shareholders’ equity was $3.577 million. Current assets of $6.116 million exceeded current liabilities of $2.586 million. Total liabilities were $2.602 million, including $0.195 million of operating lease liabilities; the balance sheet does not show conventional borrowings. Cash, cash equivalents and restricted cash declined by $12.313 million during 2020. Investing activities provided $0.102 million and financing activities provided $0.297 million.

Margins are not meaningful because the company reported no revenue. The financial statements were prepared on a going-concern basis, but the auditor and management cited substantial doubt about Anchiano’s ability to continue as a going concern. Management expected available cash to fund needs only through completion of the contemplated merger in the first half of 2021.

Material changes versus the prior comparable period

• Net loss fell by $15.515 million, while R&D expense decreased 72%, primarily after July 2020 cost reductions and a temporary reduction in RAS research activity.
• G&A expense rose approximately 16%, mainly because of professional fees, insurance and personnel costs.
• Restructuring expense declined 78%. The company closed its Israeli office and laboratories, reduced headcount and terminated or curtailed certain external research and clinical-related contracts.
• Financing results improved from a $4.226 million net expense in 2019 to $0.103 million net income in 2020. The 2019 expense was mainly a one-time warrant fair-value remeasurement; 2020 income reflected interest and foreign-exchange gains.
• Anchiano had no material financing proceeds from new share issuance in 2020; 2019 financing cash flow included its $30.5 million IPO.

Outlook, risks and unusual items

• The proposed Chemomab merger required shareholder and Nasdaq approvals and other conditions, including at least $30 million of financing concurrent with closing. Before that financing, the merger terms contemplated former Chemomab holders owning approximately 90% of the combined company on a fully diluted basis, subject to adjustments.
• If the merger failed, Anchiano said it would need further financing or another strategic transaction; its board could consider dissolution and liquidation. The filing cautions that additional capital might not be available on acceptable terms.
• Anchiano’s oncology programs were preclinical, and their future under the combined company was uncertain. The filing describes possible development timelines, including a potential first-in-human pan-RAS trial in 2022, but these plans depended on candidate selection, IND-enabling work, financing and other conditions. PDE10/β-catenin work was lower priority and expected to rely initially on ADT funding.
• The merger agreement and its associated dilution, integration, financing, execution and business-continuity risks are material. Five shareholder complaints filed in 2021 alleged omissions or misrepresentations in merger disclosures; the company said the outcome was too early to assess.
• Former CEO Frank Haluska’s disputed “Good Reason” resignation could create up to $0.4 million in exposure. Anchiano disputed entitlement to severance, intended to contest claims and recorded no provision.
• Anchiano had received approximately $4 million cumulatively in Israel Innovation Authority grants tied to discontinued inodiftagene development. No royalty liability was recorded; the company had asked the IIA to confirm that no royalties were due, and had not received a response by the financial-statement date.
• The company reported accumulated losses of $117.040 million and no product revenue. Other risks include dependence on ADT and third-party research providers, early-stage development and regulatory uncertainty, intellectual-property protection, COVID-19 disruption, Nasdaq listing compliance and potential financing-related dilution.

The auditor issued an unqualified opinion on the financial statements while highlighting the going-concern uncertainty. Management stated internal control over financial reporting was effective at year-end; the auditor was not engaged to audit those controls.

Important facts for investors to verify

1. Whether the merger closed, whether the required financing was secured, and the final ownership and dilution terms.
2. Actual cash runway and funding needs if the merger or alternative financing did not proceed.
3. Which Anchiano programs, if any, the combined company chose to advance and the resources committed to them.
4. Developments in the merger-related litigation, the former CEO’s potential claim and the IIA royalty request.
5. ADT option and license status, including exercise fees, milestones, royalties and any effect of the merger on those rights.