Business Context and Reporting Period
Company: BioCancell Ltd. (formerly BioCancell Therapeutics Inc. "BTI")
Reporting Period: Fiscal year ended December 31, 2012
Accounting Standards: International Financial Reporting Standards (IFRS)
Functional Currency: New Israeli Shekels (NIS)
BioCancell is a development-stage biopharmaceutical company focused on discovering and developing novel therapies for cancer, specifically targeting the H19 and IGF2 genes. The company's lead product candidate is BC-819, a double-stranded DNA plasmid construct designed to destroy H19-positive cancer cells. During 2012, the company completed a reincorporation merger, moving its domicile from the U.S. (Delaware) to Israel. The U.S. entity was dissolved in December 2012. The company has no commercial revenue and relies on equity financing and government grants to fund operations.
Key Financial Metrics
| Metric (NIS Thousands) | 2012 | 2011 |
|---|---|---|
| Revenue | 0 | 0 |
| Research & Development Expenses (Net) | 13,782 | 12,585 |
| General & Administrative Expenses | 5,651 | 7,444 |
| Operating Loss | (19,433) | (20,029) |
| Net Loss | (24,183) | (17,481) |
| Net Loss Per Share (Basic & Diluted) | (0.48) | (0.66) |
| Cash and Cash Equivalents (Year End) | 5,724 | 919 |
| Total Current Assets | 9,157 | 3,086 |
| Total Current Liabilities | 4,889 | 16,129 |
| Shareholders' Equity | 3,291 | (13,623) |
Note: All figures are in thousands of NIS unless otherwise noted. The company reported no revenue for the period.
Material Changes vs. Prior Period
- Net Loss Increase: Net loss increased by approximately 38% to NIS 24.2 million in 2012 from NIS 17.5 million in 2011. This increase was primarily driven by a NIS 4.0 million loss from the change in fair value of financial instruments (warrants and convertible notes), which reversed a gain recorded in 2011.
- Operating Expenses: Net R&D expenses increased by 9.5% to NIS 13.8 million, driven by costs for the Phase IIb pancreatic cancer trial, partially offset by the completion of the bladder cancer trial. G&A expenses decreased by 24% to NIS 5.7 million due to reduced restructuring and professional fees.
- Liquidity Improvement: Cash and cash equivalents increased significantly from NIS 0.9 million to NIS 5.7 million. This was achieved through a public offering in November 2012 (raising approx. NIS 15.7 million) and the conversion/repayment of convertible notes.
- Balance Sheet Restructuring: Total current liabilities decreased from NIS 16.1 million to NIS 4.9 million, largely due to the repayment and conversion of NIS 9.2 million in convertible notes payable that were outstanding in 2011.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Guidance
Management stated that the company has sufficient cash to meet planned operating needs only until May 2013. The company expects to continue incurring substantial losses in future periods while testing product candidates. No specific financial guidance was provided beyond the cash runway estimate.
Material Risks
- Going Concern: The auditors included an explanatory paragraph stating that recurring losses raise substantial doubt about the company's ability to continue as a going concern. The financial statements do not include adjustments that might result if the company cannot continue operations.
- Financing Needs: The company requires substantial additional funds to complete clinical trials and commercialization. Failure to secure financing could force a significant scaling back or cessation of operations.
- Regulatory Approval: Success is contingent on obtaining regulatory approval (FDA, EMA) for BC-819. There is no certainty that clinical trials will succeed or that the drug will be approved.
- Intellectual Property: The company relies on an exclusive license from Yissum (Hebrew University). Some patents expire beginning in 2017. The license can be terminated if the company becomes insolvent or breaches material obligations.
- Legal Proceedings: The company is engaged in arbitration with Tikcro Technologies Ltd. regarding anti-dilution adjustments and conversion rights from 2008 investment agreements. The outcome could result in the issuance of additional shares or adjustments to warrant exercise prices.
Unusual Items
The 2012 net loss was significantly impacted by a NIS 4.0 million non-cash charge related to the fair value adjustment of warrants and convertible notes. This was a reversal of a NIS 3.8 million gain recorded in 2011, driven by changes in the company's stock price and implied volatility.
Investor Verification Checklist
- Cash Runway: Verify the current cash balance and burn rate to confirm if the "May 2013" liquidity estimate remains valid or if additional financing has been secured.
- Arbitration Outcome: Monitor the status of the arbitration with Tikcro Technologies Ltd., as a ruling against the company could lead to significant dilution of existing shareholders.
- Clinical Trial Results: Review the final data and FDA feedback regarding the Phase IIb trials for bladder and pancreatic cancer, which are critical for future funding and valuation.
- Merger Negotiations: Note that in early 2013, the company suspended merger negotiations with its controlling shareholder (CBI) to pursue potential collaborations with international pharmaceutical companies. Verify the status of these collaborations.
- Government Grants: Confirm the status of grants from the Israeli Office of the Chief Scientist and BIRD Foundation, as these offset a portion of R&D expenses and carry repayment obligations upon commercial success.