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Can-Fite And Univo Pharmaceuticals: Bad Timing

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About: Can-Fite BioPharma Ltd. (CANF)
by: First Genesis Consulting
Summary

In Q1/2019, Can-Fite announced that the Phase 2b study of Namodenoson in patients with liver cancer did not achieve its primary clinical endpoint.

We spent all of Q2/2019 trying to understand Capital Point Ltd justification for initiating a potential hostile takeover of Can-Fite.

We still do not have a full understanding of how the legal tussle between Can-Fite and Capital Point will pan out.

In Q3/2019, Can-Fite announced a collaborative agreement with Univo Pharmaceuticals to develop cannabinoid-based pharmaceuticals and assays.

The most important question is how does Capital Point feel about this new development?  They filed an injunction.

The SEC Filing

In a previous article, I explained the timeline of events that has led to the ongoing legal tussle between Can-Fite (CANF) and Capital Point Ltd as it attempts a hostile takeover of the CANF board concomitant with the dismissal of the CEO. The latest update on the potential hostile takeover:

Separately, on August 1, 2019, we received an additional letter from Capital Point requesting, among other things, that we convene a shareholders’ meeting in order to amend our articles of association, replace the members of the board of directors in accordance with the proposed amendment, dismiss our Chief Executive Officer and appoint a replacement Chief Executive Officer, and appoint an accounting firm to conduct an investigative audit. On August 21, 2019, we responded to Capital Point rejecting their requests. Subsequently, on August 28, 2019, Capital Point filed an emergency motion with the District Court of Tel Aviv to compel us to convene a special shareholders’ meeting and to schedule an emergency hearing. On August 30, 2019, the District Court rejected Capital Point’s motion for an emergency hearing, provided us until September 15, 2019 to respond, and gave Capital Point until September 8, 2019 to reconsider its motion to the court.

Based on the aforementioned SEC filing excerpt filed on August 30, 2019, we should have some clarity in upcoming days/weeks on Capital Point’s request to convene a special shareholders meeting.

Financial Update

In the midst of these legal events, CANF recently provided updates on its clinical pipeline in the Q2/2019 financial and clinical report as summarized below:

Upfront payments received from licensing deals in South Korea for Piclidenoson and Namodenoson with upfront and milestone payments of up to $10 million plus transfer pricing

Preparatory work for an End of Phase II meeting with FDA to initiate Phase III study in liver cancer is ongoing

Patient enrollment continues in two Phase III studies for Piclidenoson in the treatment of rheumatoid arthritis and psoriasis

Top-line data from Phase II NASH study with Namodenoson expected Q4 2019

As the end of Q2/2019, Can-Fite reported cash and cash equivalents of $8.2M. Simply put, they need funds to initiate the Phase 3 study in liver cancer patients. Specifically, CANF needs a long-term solution to its financial burden. This may have been one of the reasons why Capital Point stepped in.

Obviously, the clinical potential of CANF’s pipeline has never been an issue since most investors purchased CANF’s stock due to the therapeutic potential of Adenosine A3 receptor-based investigative drug candidates, Namodenoson and Piclidenoson. The issue was always the two decades of delay in clinical progress that has hindered its advance from clinical-stage to commercial-status. Personally, I am more than glad to see that the Phase 2a NAFLD/NASH topline data is due to be announced in Q4/2019.

The Univo Collaborative Agreement

I start by asking the question if the Univo agreement is progress or distraction? My personal opinion on the collaborative agreement with Univo Pharmaceuticals is not as relevant as Capital Point.

CANF was granted permission by the Supreme Court on July 9th to raise funds for its clinical program. However, its recent collaborative agreement with Univo Pharmaceuticals was unexpected. For the sole reason that in a letter dated May 23rd, 2019 Capital Point expressed its intent on being engaged in CANF’s future plans:

Capital Point may engage in discussions with Issuer's management and the current Board with respect to the composition of the Board. Capital Point may seek to discuss other topics, including but not limited to the Issuer's business, operations, management, future plans, and strategic alternatives that may be available to it to address, among other things, the Issuer's underperformance for shareholders.

Most would categorize the collaborative agreement with Univo Pharmaceuticals as a future plan for the company. So, what happens next considering this new development. CANF was given until September 19, 2019, to respond to the requests made by Capital Point. While this article was awaiting editorial review, Capital Point filed an injunction against the collaborative agreement signed with Union Pharmaceuticals:

On September 11, 2019, Capital Point filed a request for a temporary injunction with the District Court of Tel Aviv-Yafo (Economic Division) to prevent execution of a collaboration agreement between the Issuer and Univo Pharmaceuticals (“Univo”) that would violate a Supreme Court decision on July 29, 2019 requiring notice and participation rights to Capital Point should the Issuer seek to raise additional capital in order to prevent the Issuer from diluting Capital Point's holdings in the Issuer's ordinary shares. According to a press release by the Issuer on September 10, 2019, in exchange for certain laboratory and consulting services the Issuer agreed to pay Univo $500,000 and issue it approximately 19.9 million of its ordinary shares representing approximately 16.6% of the total ordinary shares outstanding after giving effect to the issuance. In its temporary injunction request, Capital Point said that such agreement attempts to circumvent the July 29, 2019 Supreme Court decision, dilute Capital Point’s holdings and prevent Capital Point from exercising its lawful rights as a shareholder under the Israel Companies Law and the Issuer’s Amended and Restated Articles of Association, causing irreparable harm to Capital Point. Captial Point further said that the agreement between the Issuer and Univo was illegal, since it would make Univo the controlling shareholder of the Issuer without approval of such agreement at a general meeting of shareholders, as required by the Israel Companies Law. Responding to the temporary injunction request, the District Court froze execution of the agreement with Univo until a hearing could be held on the matter on September 18, 2019, subject to a NIS 225,000 bank guarantee or deposit by Capital Point in the event of damages to the Issuer.

Personally, I dislike the agreement for the main reason that CANF has to focus on successfully executing ongoing clinical trials to advance to commercial-status. As a 25 year company, CANF is long overdue for a commercialized therapeutics. This unexpected move by CANF may have substantiated why Capital Point felt it had to initiate a hostile takeover.

Epilogue

CANF may have made a mess of things by initiating a collaborative agreement for new drug assets in the midst of a potential hostile takeover. To demonstrate strong leadership, CANF should have initiated a long-standing partnership agreement with big pharma for namodenoson in liver cancer and NASH.

Capital Point and CANF may be at war with each other. We the shareholders “demand” that best interest of the company and the shareholders be at the forefront of all negotiations. Capital Point and CANF may need to work together to move this company forward.

The late Nelson Mandela on ending the inhumane apartheid policy in South Africa:

If you want to make peace with your enemy, you have to work with your enemy. Then he becomes your partner. -Nelson Mandela, activist, South African president, Nobel Peace Prize (b. 1918)”

Disclosure: I am/we are long CANF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: As always, my articles are meant to facilitate your understanding. Readers are expected to form their own trading plan, do their own research and take responsibility for their own actions. Investing in common stock can result in partial or total loss of capital. Please implement due diligence and invest wisely.