Business context and reporting period
Can-Fite BioPharma Ltd. filed this annual report on Form 20-F for the fiscal year ended December 31, 2018; it is not a standalone 2018 Q4 report. The Israeli clinical-stage biopharmaceutical company develops A3 adenosine receptor-targeting drug candidates. Its financial statements are prepared under IFRS, as issued by the IASB, and amounts below are in U.S. dollars unless stated otherwise.
The company had no marketed products or product-sale revenue. Its reported revenue came principally from licensing and distribution arrangements. Ordinary shares outstanding at year-end were 40.4 million.
Financial performance and position
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $3.820 million | $0.789 million |
| Research and development expense | $6.075 million | $5.106 million |
| General and administrative expense | $3.159 million | $2.868 million |
| Operating loss | $5.414 million | $7.185 million |
| Net loss | $6.571 million | $6.433 million |
| Basic and diluted loss per share | $0.17 | $0.19 |
| Net cash used in operating activities | $4.155 million | $8.972 million |
Revenue grew substantially, mainly from recognition of CMS Medical and Gebro upfront payments and amounts under other licensing agreements; it was not product-sales revenue. Operating loss narrowed, but net loss increased as net financial expense rose to $1.153 million from net financial income of $0.012 million. FY 2018 financial expense included a $644,000 investment revaluation loss and $427,000 of interest expense associated with IFRS 15 financing-component accounting. Operating and net loss margins were approximately negative 142% and negative 172%, respectively; gross margin is not meaningful for this licensing-revenue business.
At December 31, 2018, cash and cash equivalents were $3.615 million; current assets were $7.903 million and current liabilities $3.119 million. The resulting current ratio was about 2.5, but current assets included $4.015 million of receivables and prepaid expenses, rather than cash. Total assets were $7.952 million, total liabilities $4.937 million, and equity $3.015 million, down from $5.014 million a year earlier. The filing reports no significant long-term borrowings; liabilities chiefly comprised payables and deferred revenue. The company had an accumulated deficit of $100.6 million.
Operating cash use was lower than the prior year, partly reflecting increased deferred revenue and working-capital movements; this should not be read as a comparable reduction in underlying development spending. Financing provided $4.387 million in 2018, primarily from the March equity-and-warrant offering. Investing cash use was $33,000. Cash increased by $110,000 during the year.
Material changes versus the prior comparable period
- Revenue increased by $3.031 million, driven by licensing-payment recognition, while R&D expense rose 19% as the company initiated the Piclidenoson rheumatoid-arthritis Phase III trial.
- G&A expense increased 10%, primarily due to professional-services and investor-relations costs.
- Net financial results shifted from a small net gain in 2017 to a $1.153 million net expense in 2018, including investment revaluation and IFRS 15-related interest costs.
- Cash and cash equivalents rose modestly, but total liabilities increased and shareholders’ equity declined. Share count increased from 33.3 million to 40.4 million during 2018.
- Effective January 1, 2018, the company changed its functional and reporting currency from NIS to U.S. dollars. It also adopted IFRS 15 using the modified retrospective method; the opening accumulated-deficit adjustment was $350,000.
Outlook, commentary and key risks
Management expected R&D spending to rise through 2019 and beyond, while G&A was expected to remain broadly at the 2018 level. Management stated that available resources, including a January 2019 registered direct offering that raised $2.35 million gross, were expected to fund operations for at least 12 months from the report’s issuance. The filing also states that additional financing will be needed and may be unavailable or dilutive; clinical-trial costs and timing remain uncertain.
- Piclidenoson was in Phase III trials for rheumatoid arthritis and psoriasis. Namodenoson was in a Phase II NASH study, with top-line results expected in the second half of 2019. A planned sexual-dysfunction IND submission was postponed while the company evaluated additional compounds.
- In March 2019, after year-end, Can-Fite reported that the Namodenoson Phase II HCC study missed its primary overall-survival endpoint in the full 78-patient population. The company reported more favorable survival and other signals in the CPB7 subgroup; these subgroup findings do not change the failed primary endpoint.
- All candidates remain unapproved and dependent on clinical and regulatory success, financing, intellectual-property protection, third-party manufacturing and potential licensing partners. The company cited prior trials that failed primary endpoints, competition, and its lack of in-house sales and marketing capabilities.
- Other risks include possible dilution from equity and warrants, foreign-exchange exposure, dependence on key personnel, Israeli political and security conditions, and regulatory, product-liability, data-privacy and patent risks. The company reported effective disclosure controls and internal control over financial reporting at year-end; the auditor did not provide an attestation opinion on internal controls.
- The prior securities class-action case was finally dismissed in December 2018. The company reported no other legal or arbitration proceedings with significant financial effects.
Important facts for investors to verify
- Confirm the cash runway assumptions against the $3.615 million year-end cash balance, $4.155 million operating cash use, January 2019 financing proceeds, and planned Phase III spending.
- Track enrollment, timing, endpoints and results for both Piclidenoson Phase III trials and the Namodenoson NASH Phase II trial; separately assess the HCC study’s missed primary endpoint and subgroup results.
- Reconcile reported licensing revenue with cash receipts, deferred-revenue balances and IFRS 15 recognition judgments; distinguish recognized revenue from contingent milestone and future royalty potential.
- Review dilution from outstanding warrants and options, including the January 2019 financing, and compare potential proceeds with future funding needs.
- Assess whether the current-asset balance is readily available for operations, given the material receivables and prepaid-expense component, and monitor the Wize Pharma investment valuation.