Business Context and Reporting Period
Company: Can-Fite BioPharma Ltd.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2015
Business Overview: Can-Fite is a clinical-stage biopharmaceutical company developing orally bioavailable small molecule therapeutics targeting the A3 adenosine receptor (A3AR). The company's pipeline includes CF101 (autoimmune-inflammatory and ophthalmic diseases), CF102 (oncology and liver diseases), and CF602 (sexual dysfunction). The company has not yet commercialized any products and relies on equity financing and licensing revenues.
Key Financial Metrics
| Metric (in thousands) | 2015 (NIS) | 2015 (USD*) | 2014 (NIS) |
|---|---|---|---|
| Revenues | 643 | 165 | - |
| Operating Expenses | 25,685 | 6,582 | 27,773 |
| Research & Development | 15,052 | 3,858 | 16,200 |
| General & Administrative | 10,633 | 2,725 | 11,573 |
| Operating Loss | (25,042) | (6,418) | (27,773) |
| Net Loss | (19,770) | (5,066) | (24,524) |
| Cash and Cash Equivalents | 66,026 | 16,921 | 36,091 |
| Total Assets | 68,708 | 17,609 | 39,667 |
| Total Liabilities | 27,935 | 7,160 | 12,967 |
| Shareholders' Equity | 40,773 | 10,449 | 26,700 |
*USD amounts are convenience translations based on the exchange rate of NIS 3.902 to $1.00 as of December 31, 2015.
Material Changes vs. Prior Period
- Revenue Recognition: The company recorded NIS 0.64 million in revenue for 2015, compared to zero in 2014. This was driven by the recognition of a portion of the NIS 5.14 million upfront payment received from Cipher Pharmaceuticals in March 2015.
- Operating Expenses: Total operating expenses decreased by approximately 7.9% (NIS 2.1 million) compared to 2014. R&D expenses declined due to the completion of the Phase II/III psoriasis study in Q1 2015 and reduced non-clinical expenses. G&A expenses decreased due to lower salary and investor relations costs.
- Financial Income: Net financial income increased significantly to NIS 5.29 million in 2015 from NIS 3.27 million in 2014, primarily due to a decrease in the fair value of warrants accounted for as financial liabilities.
- Liquidity: Cash and cash equivalents increased by NIS 29.9 million (83%) to NIS 66.0 million. This increase was fueled by the Cipher upfront payment and approximately NIS 48.3 million raised through registered direct offerings in September and October 2015.
Guidance, Outlook, and Risks
Outlook and Management Commentary
- Cash Runway: Management believes existing financial resources are sufficient to fund operations for the next twelve months from the filing date (March 2016).
- Capital Needs: The company anticipates continuing to incur substantial operating losses and will require additional capital to advance clinical trials and commercialization efforts. Future funding may come from equity/debt financings or licensing milestones.
- Clinical Pipeline Status:
- CF101: Awaiting EMA approval for a Phase III RA protocol (initiation expected Q2/Q3 2016). Designing a Phase III psoriasis protocol (initiation expected Q4 2016). OphthaliX (subsidiary) expects glaucoma Phase II data in Q2 2016.
- CF102: Conducting Phase II HCC study (enrollment completion expected H2 2016). Planning Phase II NASH study filing in Q2 2016.
- CF602: Preclinical work ongoing; IND submission for sexual dysfunction expected Q4 2016.
Risks and Contingencies
- Class Action Lawsuit: A purported class action lawsuit was filed in June 2015 alleging the company misled the public regarding CF101 efficacy. The claimant seeks damages of approximately NIS 125 million for shareholders. The company intends to vigorously defend the action, which it deems baseless.
- Development Risk: The company has experienced clinical setbacks, including a failed Phase III dry-eye study and failed Phase IIb RA studies (when combined with methotrexate). Success of future trials is not guaranteed.
- Intellectual Property: The license with the NIH expired in June 2015, resulting in the loss of composition of matter patents for CF101. The company relies on use patents and potential data exclusivity.
- Geopolitical Risk: Operations are based in Israel, exposing the company to regional political and military instability.
Investor Verification Checklist
- Cash Burn Rate: Verify the sufficiency of the NIS 66 million cash balance against the projected costs of initiating Phase III trials for RA and psoriasis in 2016.
- Revenue Recognition Policy: Review the amortization schedule for the Cipher Pharmaceuticals upfront payment to understand future revenue recognition patterns.
- Legal Exposure: Monitor the status of the Tel-Aviv District Court class action lawsuit and potential insurance coverage limits.
- Patent Portfolio: Assess the strength of the remaining "use" patents for CF101 following the expiration of the NIH composition of matter license.
- Subsidiary Support: Review the financial support letter issued to OphthaliX and the deferred payments owed to Can-Fite (approx. $3.7 million as of Dec 31, 2015).