As filed with the Securities and Exchange
Commission on April 4, 2017
Registration No. 333-216238
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 2
to
Form F-1
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Bioblast
Pharma Ltd
.
(Exact name of registrant as specified
in its charter)
State of Israel
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2834
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Not Applicable
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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Mr.
Fredric Price
Bioblast Pharma Ltd.
37 Dereh Menachem Begin St.,
15th Floor
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Zysman,
Aharoni, Gayer and
Sullivan & Worcester LLP
1633 Broadway
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Tel-Aviv 6522042 Israel
Tel: +972-72-240-9060
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New York, NY 10019
Tel: 212.660.5000
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(Address, including
zip code, and telephone number,
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(Name, address,
including zip code, and telephone
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including area
code, of registrant’s principal executive offices)
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number, including
area code, of agent for service)
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Copies to:
Oded Har-Even, Esq.
Shy S. Baranov, Esq.
Robert V. Condon III, Esq.
Zysman, Aharoni, Gayer and
Sullivan & Worcester LLP
1633 Broadway
New York, NY 10019
Tel: 212.660.5000
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Mor Limanovich, Adv.
David Huberman, Adv.
Zysman, Aharoni, Gayer &
Co.
41-45 Rothschild Blvd.
Beit Zion
Tel-Aviv, Israel 65784
Tel: +972.3.795.5555
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Rick A. Werner, Esq.
Haynes and Boone, LLP
30 Rockefeller Plaza, 26
th
Floor
New York, NY 10112
Tel: 212.659.7300
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Dr. Zvi Gabbay,
Adv.
Barnea & Co.
HaRakevet St. 58
Tel Aviv, Israel
6777016
Tel: +972.3.640.0600
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Approximate date of commencement of
proposed sale to the public:
As soon as practicable after the effective date hereof.
If any of the securities being registered
on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the
following box.
x
If
this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration statement number of the earlier effective registration statement for
the same offering.
¨
If
this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
If
this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Aggregate Offering
Price
(1)
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Amount of
Registration Fee
(2)
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Class A Units consisting of
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$
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5,606,250
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$
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649.76
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(i) Ordinary Shares, par value NIS 0.01
(3)
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-
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(ii) Series A Warrants
to purchase Ordinary Shares
(3) (4)
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-
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Class B Units consisting of
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$
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1,625,000
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$
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188.34
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(i) Pre-funded Series
B Warrants to purchase Ordinary Shares
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-
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(ii) Series A Warrants
to purchase Ordinary Shares
(4)
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-
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Ordinary Shares issuable
upon exercise of Series A Warrants
(3)
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$
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5,423,438
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$
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628.58
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Ordinary Shares issuable
upon exercise of Series B Warrants
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-
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Total
(5)
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$
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12,654,688
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$
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1,466.68
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(1)
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Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended, or the Securities
Act.
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(2)
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Calculated pursuant to Rule 457(o) under the Securities Act
based on an estimate of the proposed maximum aggregate offering price.
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(3)
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Includes shares which may be issued upon exercise of a 45-day
option granted to the underwriters to cover over-allotments, if any (up to 15% of the
offering amount).
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(4)
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No separate fee is required pursuant to Rule 457(g) of the
Securities Act.
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(5)
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1,332.85 previously paid.
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The registrant hereby amends this registration statement
on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
The information in this prospectus
is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting offers to
buy these securities in any state where the offer or sale is not permitted.
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PRELIMINARY PROSPECTUS
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SUBJECT TO COMPLETION
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DATED APRIL 4
,
2017
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Up to 6,414,474
Class
A Units consisting of
Ordinary Shares
and
Warrants
and
2,166,667 Class B Units consisting
of Pre-Funded Warrants and Warrants
(6,435,855 Ordinary Shares underlying
the Warrants)
We are offering, in a firm
commitment underwritten offering, up to 6,414,474 Class A Units, with each Class A Unit consisting of (i) one Ordinary Share,
par value NIS 0.01, or Ordinary Shares, and (ii) a warrant to purchase .75 Ordinary Share, or a Series A Warrant. The initial
exercise price per full Ordinary Share purchasable upon exercise of the Series A Warrants is equal to 100% of the per Class A
Unit public offering price, and will be exercisable at any time after the date of issuance and will expire five years after
issuance. Each Class A Unit will be sold at an assumed offering price of $0.76 per unit, the closing price of our
Ordinary Shares on the NASDAQ Global Market on March 31, 2017. The actual offering price per Class A Unit will be determined
between us and the underwriters at the time of pricing, and may be at a discount to the current market price. The Class A
Units will not be issued or certificated. The Ordinary Shares and Series A Warrants part of a Class A Unit are immediately
separable and will be issued separately, but will be purchased together in this offering.
We are also offering to those purchasers,
if any, whose purchase of Class A Units in this offering would result in the purchaser, together with its affiliates and certain
related parties, beneficially owning more than 4.99% of our outstanding Ordinary Shares immediately following the consummation
of this offering, the opportunity to purchase, if they so choose, up to 2,166,667 Class B Units, in lieu of Class A Units that
would otherwise result in beneficial ownership in excess of 4.99% (or at the election of the purchaser, 9.99%) of our outstanding
Ordinary Shares, with each Class B Unit consisting of (i) a pre-funded warrant to purchase one Ordinary Share, or a
Series B Warrant, and (ii) one (1) Series A Warrant. The Series B Warrants will have an exercise price of $0.01 per Ordinary Share
and will be exercisable until exercised in full. Each Class B Unit will be sold at an assumed offering price of $0.75. The actual
offering price per Class B Unit will be determined between us and the placement agent at the time of pricing, and may be at a
discount to the current market price. The Class B Units will not be issued or certificated. The pre-funded Series B Warrants and
the Series A Warrants part of a Class B Unit are immediately separable and will be issued separately, but will be purchased together
in this offering. There can be no assurance that we will sell any of the Series B Warrants being offered.
The
Ordinary Shares issuable from time to time upon exercise of the Series A Warrants and the Series B Warrants are also being offered
by this prospectus. We refer to the Ordinary Shares, Series A Warrants and Series B Warrants being offered hereby, and the Ordinary
Shares issued or issuable upon exercise of the Series A Warrants and Series B Warrants, collectively, as the Securities.
See
“Description of Share Capital and Securities Offered Hereby” for more information.
Our Ordinary Shares are listed on the
NASDAQ Global Market under the symbol “ORPN.” The closing price of our Ordinary Shares on the NASDAQ Global Market,
on March 31, 2017, was $0.76 per Ordinary Share. There is currently no established public trading market for the Series A Warrants
and Series B Warrants offered in this offering. The Series A Warrants and Series B Warrants are not and will not be listed for
trading on any national securities exchange.
We are an “emerging growth company”
as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and are subject to reduced public company reporting
requirements.
Investing
in our Ordinary Shares involves a high degree of risk. See “Risk Factors” beginning on page 8 of this prospectus for
a discussion of information that should be carefully considered in connection with an investment in our Ordinary Shares.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
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Per
Class A
Unit
(Ordinary
Shares and
Series A
Warrants)
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Per
Class B
Unit
(Series B
Warrants and
Series A
Warrants)
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Total
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Public offering price
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$
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$
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Underwriting discounts
and commissions
(1)
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$
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$
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Proceeds to us (before expenses)
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$
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$
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(1)
H.C.
Wainwright & Co., LLC, or H.C. Wainwright, the representative of the underwriters, will receive compensation in addition
to the underwriting discounts and commissions upon the closing of this offering. See the heading entitled
“Underwriting” on page 114 of this prospectus for additional disclosure regarding compensation and expenses to
H.C. Wainwright and the underwriters payable by us.
We have granted the underwriters an
option, exercisable one or more times in whole or in part, to purchase up to an aggregate of 962,171 additional Ordinary Shares
and/or additional Series A Warrants to purchase up to an aggregate amount of 721,628 Ordinary Shares, in any combination thereof
from us at an assumed offering price of $0.75 per Ordinary Share and $0.01 per Series A Warrant, less the underwriting discounts
and commissions, within 45 days from the date of this prospectus to cover over-allotments, if any. If the underwriters exercise
the option in full, the total underwriting discounts and commissions payable will be $361,563 and the total proceeds to us, before
expenses, will be $6,869,688.
The underwriters expect to deliver the
Securities to purchasers in the offering on or about , 2017.
H.C. Wainwright & Co.
The date of this prospectus is ,
2017
TABLE OF CONTENTS
You should rely only on the information
contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you.
We have not authorized anyone to provide you with information that is different. We are offering to sell our Ordinary Shares,
and seeking offers to buy our Ordinary Shares, only in jurisdictions where offers and sales are permitted. The information in
this prospectus is accurate only as of the date of this prospectus or any such free writing prospectus, regardless of the time
of delivery or the time of any sale of our Ordinary Shares.
For investors outside the United States:
neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus
or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions
relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.
In this prospectus, “we,” “us,”
“our,” the “Company” and “Bioblast” refer to Bioblast Pharma Ltd. and its wholly owned subsidiary,
Bio Blast Pharma, Inc., a Delaware corporation.
In this prospectus, the term
“Trehalose IV” refers to trehalose 90mg/mL intravenous solution, our current product candidate. In the past we
have also referred to “Trehalose” (including all varying dosages) as “Cabaletta”.
Our reporting currency and functional currency
is the U.S. dollar. Unless otherwise expressly stated or the context otherwise requires, references in this prospectus to “dollars”
or “$” mean U.S. dollars.
PROSPECTUS SUMMARY
The items in the following summary
are described in more detail later in this prospectus. This summary provides an overview of selected information and does not
contain all of the information you should consider before buying our Securities. Therefore, you should read the entire prospectus
carefully, especially the “Risk Factors” section beginning on page 8 and our financial statements and the
related notes appearing at the end of this prospectus before deciding to invest in our Securities.
THE COMPANY
Overview
We are a clinical stage biotechnology company
committed to developing meaningful therapies for patients with rare and ultra-rare genetic diseases. Currently our focus is on
trehalose, a therapeutic platform that offers potential solutions for several diseases that share a common pathophysiological
mechanism, which are the functional changes that accompany a particular syndrome or disease. Since our inception in 2012, our
work with trehalose has centered around oculopharyngeal muscular dystrophy, or OPMD, and Spinocerebellar Ataxia Type 3, or SCA3.
We address diseases with severe and debilitating manifestations, where the unmet medical need is clear, the biological mechanism
of action is understood, and for which there is no satisfactory treatment.
Trehalose IV Solution
Trehalose is a protein stabilizer and an
autophagy enhancer that activates lysosomal pathways. We have developed a proprietary high dose, trehalose 90mg/mL intravenous,
or Trehalose IV, solution that allows trehalose to reach target organs and facilitate tissue penetration to the brain and muscles.
Mutant unstable cellular proteins are the cause of several protein aggregation genetic diseases known as PolyA/PolyQ diseases,
including OPMD, where mutant protein aggregates in muscle, and in SCA3 where mutant protein aggregates in the brain. These pathological
proteins aggregate within cells and cell nuclei, eventually leading to cell death. Data from the literature and from our nonclinical
studies in both cell and animal models of disease indicate that trehalose may have the potential to prevent mutant protein aggregation
and to enhance autophagy in human diseases, by stabilizing proteins, reducing the formation of protein aggregates, and promoting
clearance of abnormal proteins or other storage materials thereby preventing cell death.
Drug Candidate - Overview and Development Plan
Our current product candidate, the Trehalose
IV solution, has been developed internally. Our strategy is to retain global commercialization rights to our product to maximize
long-term value. Over time, we may decide to build our own commercial organization in the United States, which we believe would
be of modest size due to the relatively small number of specialists who treat patients with rare and ultra-rare diseases. We will
consider partnership arrangements that may accelerate product development and facilitate access to international market opportunities.
The diseases which we are addressing have
severe consequences on patients’ health, quality of life and potential life expectancy. In addition, these diseases create
significant burdens on patients’ families and caretakers as well as on public health resources. In all diseases we are addressing,
patients either cannot be offered an alternative therapy or the current solutions are inadequate in their abilities to alter the
course of the disease. We believe that prompt and efficient drug development can be of substantial benefit to the patients who
are suffering from these incurable diseases. We have assembled an experienced team of employees, consultants, service providers
and a Board of Directors with extensive drug development and commercialization capabilities, particularly in the orphan drug area.
Trehalose IV Solution for the Treatment of OPMD
Trehalose IV solution is our proprietary
drug candidate for the treatment of OPMD, an ultra-rare, inherited myopathy. OPMD is a muscle disease caused by a primary defect
in muscle cells as a result of aggregation of a protein called PABPN1. Overall worldwide prevalence of OPMD is estimated at 1:100,000.
Characteristically to genetic diseases with autosomal inheritance, there are documented clusters of higher prevalence,
for example, in people of French Canadian origin residing in Quebec, Canada, among Hispanics in Northern New Mexico, USA, and
Bukhara Jews in Israel. The prevalence data collected suggest that the prevalence is approximately 1:1,000 patients among French
Canadian, approximately 12:100,000 patients among Hispanics of Northern New Mexico, and approximately 1:600 patients among Bukhara
Jews in Israel. We estimate that there are about 4,300 patients in the United States and Canada and overall about 12,000 patients
around the world.
OPMD is characterized by progressive muscle
weakness that leads to development of symptoms including ptosis (dropping of eyelids), dysphagia (difficulty in swallowing) and
proximal muscle weakness. As the dysphagia becomes more severe, patients may suffer from repeated incidents of aspiration pneumonia,
may become malnourished (cachexia), and may develop tongue atrophy and speech difficulties (dysphonia). OPMD is caused by a genetic
mutation responsible for the creation of a mutant protein (PABPN1) with an expanded polyalanine domain that aggregates within
patient muscle cells. OPMD is one of a larger group of diseases called tri-nucleotide repeat diseases that are associated with
the presence of an abnormal cellular protein that aggregates in the cells eventually causing cell death. In OPMD, the mutant protein
PABPN1 was found to be correlated with disease severity in animal models and was identified within the typical cellular protein
aggregates-the intranuclear inclusion body (INI) that is the diagnostic hallmark of the disease.
There is no drug therapy or, to our knowledge,
potential cure for OPMD. Current therapeutic strategies are confined to interventions and surgical procedures that have limited
efficacy and may need to be repeated while the progressive loss of muscle contractility continues relentlessly.
Trehalose IV Solution for the Treatment of SCA3
SCA3, also known as Machado Joseph disease,
a dominantly inherited ataxia, is the most common of the cerebellar ataxias, and is one of a group of genetic diseases that are
characterized by memory deficits, spasticity, difficulty with speech and swallowing, weakness in arms and other muscular disorders.
The prevalence of SCA3 is conservatively estimated at approximately 3-4 cases per 100,000 people in North America and Europe.
The prevalence of the disease is highest among people of Portuguese/Azorean descent. For example, among immigrants of Portuguese
ancestry in New England, the prevalence is approximately one in 4,000, and the highest prevalence in the world, about one in 140,
occurs on the small Azorean island of Flores. There is no medical treatment for SCA3 and current approaches are focused on alleviating
disease symptoms and supportive care.
In most individuals with SCA3, symptoms
typically begin in the third to fifth decade of life but can start as early as young childhood or as late as 70 years of age.
Eventually SCA3 leads to paralysis, and severe cases can lead to an early death in the fourth decade of life. SCA3 is incurable,
and there is currently no approved treatment for the disease. Natural history studies indicate that death occurs, on average,
21 years after diagnosis. SCA3 is caused by a mutation in the DNA that leads to the creation of a pathological protein called
ataxin 3. In affected patients, ataxin 3 is unstable, aggregates within the cells, and eventually leads to cell death.
Multiple reported studies in cell models
have shown that trehalose, both as an anti-mutant protein aggregation agent and as an autophagy enhancer, is able to reduce protein
aggregates and improve cell survival in several spinocerebellar ataxias including SCA3 cells. We have conducted animal studies
in two disease models of SCA3, demonstrating that we have found that treatment with trehalose reduced the level of the pathological
protein in nerve cells and reduced the disease symptoms in animal models. In 2015, we announced positive
in vivo
proof
of concept results of our Trehalose IV solution for SCA3 in these two different mouse models of the disease.
Trehalose IV Solution Next Steps
During 2016, we initiated a
prospective natural history of disease study for OPMD conducted at the Sherbrooke University in Canada. As part of the study,
retrospective data from more than 300 patients was reviewed and a longitudinal data collection is expected to begin in 2017
to document the natural progression of the disease over time including, age of onset, age at diagnosis, mutation size and
symptoms. Based on preliminary analysis of retrospective data collected, 96.6% of patients in the cohort experienced
dysphagia as one of their symptoms.
During 2017, and subject to regulatory
approval, we anticipate initiating a multicenter 24 week, double-blind placebo-controlled Phase 2b trial with our Trehalose IV
solution in OPMD. We plan to enroll 48 patients and randomize them in a 1:1 ratio. The study is designed to assess safety and
tolerability as well as explore whether our Trehalose IV solution could improve or prevent worsening of OPMD disease markers.
Based on the mechanism of action of trehalose
and nonclinical and clinical findings, we believe that this drug platform has the potential to treat several PolyA/PolyQ diseases,
protein aggregation diseases, lysosomal storage diseases and certain hepatic diseases. As such, during 2017 we plan to initiate
our Trehalose IV solution diversification program and clinically test our Trehalose IV solution in one or more other diseases.
During 2017 we will also continue to pursue pre-commercial activities for our Trehalose IV solution in OPMD.
Our Approach
Our approach is to develop our Trehalose
IV solution as a first-in-class therapy for orphan-designated genetic diseases with high unmet needs where the mechanism of action
involves prevention of protein aggregation, activation of autophagy or lysosomal pathways, and where there is involvement of the
brain and/or muscle. We focus on diseases where there is proof of concept for trehalose in disease models. The main components
of our business strategy include the following:
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Focus
on rare and ultra-rare diseases with significant unmet medical need
. There are numerous
rare and ultra-rare metabolic genetic diseases that currently have no approved drug therapy.
Some such diseases have drugs currently in development. Patients suffering from these
diseases often have a high unmet medical need with significant morbidity and/or mortality.
We are focused on developing and commercializing therapies for multiple indications with
our current focus on genetic diseases with high unmet needs characterized by protein
aggregation or abnormal storage of metabolites, including neuromuscular diseases and
lysosomal storage diseases with a neurologic or muscle involvement;
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·
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Focus
on diseases and therapies with clear mechanisms of action
. We focus on diseases that
have biology and root causes that are well understood. We believe that developing drugs
that directly impact known disease pathways will increase the probability of success
of our development programs;
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·
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Develop
and selectively commercialize our Trehalose IV solution for multiple indication
s.
Development of multiple programs based on one compound has the potential to generate
development and commercial efficiencies as well as multiple market opportunities and
reduced risk; and
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·
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Focus
on excellent and efficient clinical and regulatory execution
. We believe that
building a successful and sustainable rare disease-focused company requires very specific
expertise in the areas of patient identification, clinical trial design and conduct,
and regulatory strategy. We have assembled a team with both a successful track record
in managing global clinical development activities in an efficient manner, and with multinational
experience in obtaining regulatory approvals for rare disease products.
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Risks Associated with Our Business
Our ability to implement our business strategy
is subject to numerous risks that you should be aware of before making an investment decision. These risks are described more
fully in the section entitled “Risk Factors” immediately following this prospectus summary. These are not the only
risks we face. These risks include, among others:
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our
ability to continue as a going concern;
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·
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we
are in Phase 2 development of Trehalose IV, which is the only product candidate that
we currently pursue. It may be several years, if ever, before it or any other product
candidate we pursue is approved for commercialization;
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·
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we
are a development-stage biotechnological company and have a limited operating history
on which to assess our business, have incurred significant losses since our inception,
and anticipate that we will continue to incur significant losses for the foreseeable
future;
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·
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even
if this offering is successful, we expect that we will need to raise additional funding
before we can expect to become profitable from sales of our products;
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we are heavily dependent upon the success of Trehalose IV, which
is in the early stages of clinical development, and we cannot provide any assurance that it will receive regulatory approval;
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we may find it difficult to enroll patients in our clinical trials,
in particular with respect to Trehalose IV and any future product candidates that we may pursue, which could delay or prevent
clinical trials of Trehalose IV and any future product candidates we may develop and potentially harm our business;
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·
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even
if we are able to obtain regulatory approval to sell Trehalose IV, because the target
patient populations of our current and any future product candidates is small, we must
be able to successfully identify patients and achieve a significant market share to maintain
profitability and growth;
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·
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we
do not have any products approved for sale by the U.S. Food and Drug Administration,
or the FDA, or any other regulatory bodies, with such approval being a prerequisite to
the sale of a new drug product in the United States;
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·
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the
insurance coverage and reimbursement status of newly-approved orphan products is uncertain
and failure to obtain or maintain adequate coverage and reimbursement for current and/or
future product candidates could limit our ability to market this product and decrease
our ability to generate revenue;
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·
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if
we are unable to obtain and maintain effective intellectual property rights for our technology,
product candidates, or any future product candidates, we may not be able to compete effectively
in our markets;
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·
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our ability to regain and effectively comply with NASDAQ listing
requirements including minimum stockholders’ equity and minimum bid price of $1.00 per share; and
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our
future success depends in part upon our ability to retain our executive team, particularly
Mr. Fredric Price, and to attract, retain, and motivate other qualified personnel.
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Corporate Information
We are an
Israeli corporation based in Tel Aviv and were incorporated on January 22, 2012. Our principal executive offices are located at
37 Dereh Menachem Begin St., Tel Aviv 6522042, Israel, and our telephone number is: +972-722409060. Our website address is https://bioblastpharma.com
,
the contents of which are not a part of this prospectus and is included as an inactive textual reference.
Implications of being an “Emerging Growth Company”
We are an “emerging
growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as
modified by the JOBS Act. As such, we are eligible to, and intend to, take advantage of certain exemptions from various
reporting requirements applicable to other public companies that are not “emerging growth companies” such as the
exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We
could remain an “emerging growth company” for up to five years from the date of our initial public offering in
July 2014, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenue exceeds $1
billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the U.S.
Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our securities
held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter,
or (c) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year
period.
Implications of being a “Foreign Private Issuer”
We are subject to the information reporting
requirements of the Exchange Act that are applicable to “foreign private issuers,” and under those requirements we
file reports with the U.S. Securities and Exchange Commission, or the SEC. As a foreign private issuer, we are not subject to
the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to reporting
obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. For
example, we are not required to issue quarterly reports, proxy statements that comply with the requirements applicable to U.S.
domestic reporting companies, or individual executive compensation information that is as detailed as that required of U.S. domestic
reporting companies. We also have four months after the end of each fiscal year to file our annual report with the SEC and are
not required to file current reports as frequently or promptly as U.S. domestic reporting companies. Our officers, directors and
principal shareholders are exempt from the requirements to report transactions in our equity securities and from the short-swing
profit liability provisions contained in Section 16 of the Exchange Act. As a foreign private issuer, we are not subject to the
requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. In addition, as a foreign private issuer,
we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the NASDAQ
Stock Market rules for domestic U.S. issuers (See “Risk Factors — Risks Related to this Offering and the
Ownership of Our Securities.”) These exemptions and leniencies will reduce the frequency and scope of information and protections
available to you in comparison to those applicable to a U.S. domestic reporting company. We intend to take advantage of the exemptions
available to us as a foreign private issuer during and after the period we qualify as an “emerging growth company”.
THE OFFERING
Class A Units offered by us
|
|
We are offering up to 6,414,474 Class A Units. Each Class A Unit will consist of (i) one Ordinary Share, and (ii) a warrant to purchase .75 Ordinary Share, or a Series A Warrant. The Class A Units will not be certificated and the Ordinary Shares and Series A Warrants part of such unit are immediately separable and will be issued separately in this offering.
This prospectus also relates to the offering of Ordinary Shares issuable upon exercise of the Series
A Warrants part of the Class A Units.
|
|
|
|
Class B Units offered by us
|
|
We are also offering to those purchasers, if any, whose purchase of Class A Units in
this offering would result in the purchaser, together with its affiliates and certain related parties, beneficially owning more
than 4.99%
(or at the election of the purchaser, 9.99%)
of our outstanding
Ordinary Shares immediately following the consummation of this offering, the opportunity to purchase, if they so choose, up to
2,166,667 Class B Units, in lieu of Class A Units that would otherwise result in beneficial ownership in excess of 4.99%
(or
9.99%, as applicable)
of our outstanding Ordinary Shares.
|
|
|
|
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|
Each Class B unit will consist of (i) a pre-funded warrant to purchase one Ordinary Share,
or a Series B Warrant, and (ii) and one Series A Warrant. The Class B Units will not be certificated and the pre-funded Series
B Warrants and the Series A Warrants part of such unit are immediately separable and will be issued separately in this offering.
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|
|
|
|
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This prospectus also relates to the offering of Ordinary Shares issuable upon exercise
of the pre-funded Series B Warrants and the Series A Warrants part of the Class B Units.
|
|
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Series A Warrants
|
|
The initial exercise price per full Ordinary Share purchasable
upon exercise of the Series A Warrants is equal to 100% of the per Class A Units public offering
price, and will be exercisable at any time after the date of issuance and will expire five years from the date of issuance. To
better understand the terms of the Series A Warrants, you should carefully read the “Description of Share Capital and
Securities Offered Hereby” section of this prospectus. You should also read the form of Series A Warrant,
which is filed as an exhibit to the registration statement that is included in this prospectus.
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Pre-Funded Series B Warrants
|
|
Each Series B Warrant will have an exercise price of $0.01
per full Ordinary Share and will be exercisable until it is exercised in full. To better understand the terms of the Series
B Warrants, you should carefully read the “Description of Share Capital and Securities Offered Hereby” section
of this prospectus. You should also read the form of Pre-Funded Series B Warrant, which is filed as an exhibit to the registration
statement that is included in this prospectus.
|
|
|
|
Ordinary Shares to be outstanding after this offering
|
|
22,806,244 Ordinary Shares (or 23,768,415 Ordinary Shares if the over-allotment option
is exercised in full).
|
|
|
|
Over-allotment option
|
|
We have granted the underwriters an option, exercisable
one or more times in whole or in part, to purchase up to an aggregate of 962,171 additional Ordinary Shares and/or additional
Series A Warrants to purchase up to an aggregate amount of 721,628 Ordinary Shares, in any combination thereof from us at an assumed
offering price of $0.75 per Ordinary Share and $0.01 per Series A Warrant,
less the underwriting
discounts and commissions within 45 days from the date of this prospectus to cover over-allotments, if any
.
|
|
|
|
Use of proceeds
|
|
We expect to receive approximately $5.78 million in net proceeds from the sale of
8,581,141
units offered by us in this offering
(approximately $6.47 million if the over-allotment option is exercised in full), based on an assumed public offering price of
$0.76 per Class A Unit and an assumed public offering price of $0.75 per Class B Unit, the closing price of our Ordinary
Shares on March 31, 2017, and after deducting estimated underwriting discounts and commissions and estimated offering
expenses payable by us. The actual offering price per unit will be as determined between us and the underwriters at the time
of pricing, and may be at a discount to the current market price
.
|
|
|
|
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We expect to use the net proceeds from this offering to initiate a Phase 2b clinical trial of our Trehalose IV solution for the treatment of OPMD, patients; initiate one or two Phase 2a clinical trials of our Trehalose IV solution for other indications; continue a prospective natural history of disease study for OPMD; and for working capital and other general corporate purposes. See “Use of Proceeds” for additional information.
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Risk factors
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|
You should read the “Risk Factors” section starting on page 8 of this prospectus for a discussion of factors to consider carefully before deciding to invest in our Ordinary Shares.
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NASDAQ symbol
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Our Ordinary Shares are listed on the NASDAQ Global Market under the symbol “ORPN.”
The Series A Warrants and Series B Warrants are not and will not be listed for trading on any national securities exchange.
|
The number of Ordinary Shares to be
outstanding after this offering is based on 16,391,770 Ordinary Shares outstanding as of April 3, 2017, and excludes:
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·
|
2,571,156 Ordinary Shares issuable upon the exercise of options
to purchase Ordinary Shares outstanding as of April 3, 2017, at a weighted-average exercise price of $3.41 per share;
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·
|
1,080,645 Ordinary Shares issuable upon the exercise of warrants to purchase Ordinary
Shares outstanding as of April 3, 2017, at an exercise price of $4.50 per share; and
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·
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774,804 Ordinary Shares reserved for future issuance under the 2013 Incentive Option
Plan.
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Unless otherwise indicated, all information
in this prospectus assumes the following:
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·
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no exercise of the Series A Warrants to be issued pursuant to this prospectus;
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|
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·
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no exercise by the underwriters of their over-allotment option; and
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·
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no exercise of outstanding options or warrants to acquire Ordinary Shares on or after
April 3, 2017.
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SUMMARY
CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial
data for the years ended December 31, 2016, 2015 and 2014 and as of December 31, 2016 and 2015 are derived from, and should be
read in conjunction with, the audited consolidated financial statements, and notes thereto, included elsewhere in this prospectus.
The summary consolidated financial data for the years ended December 31, 2013 and 2012 and as of December 31, 2014, 2013 and 2012
have been derived from audited financial statements not included in this prospectus.
Our historical results are not necessarily
indicative of the results that may be expected in the future. The following summary financial data should be read in conjunction
with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, our financial
statements and related notes included elsewhere in this prospectus.
Statement of Operations Data - Year Ended December 31
U.S. dollars in thousands, except share and per share data
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Research and development
|
|
$
|
8,881
|
|
|
$
|
7,694
|
|
|
$
|
4,441
|
|
|
$
|
732
|
|
|
$
|
140
|
|
Pre-commercialization
|
|
|
1,085
|
|
|
|
829
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
General and administrative
|
|
|
5,900
|
|
|
|
6,953
|
|
|
|
2,639
|
|
|
|
416
|
|
|
|
86
|
|
Total operating expenses
|
|
|
15,866
|
|
|
|
15,476
|
|
|
|
7,080
|
|
|
|
1,148
|
|
|
|
226
|
|
Loss from operations
|
|
|
(15,866
|
)
|
|
|
(15,476
|
)
|
|
|
(7,080
|
)
|
|
|
(1,148
|
)
|
|
|
(226
|
)
|
Financial income, net
|
|
|
60
|
|
|
|
135
|
|
|
|
58
|
|
|
|
3
|
|
|
|
(3
|
)
|
Loss before taxes on income
|
|
|
(15,806
|
)
|
|
|
(15,341
|
)
|
|
|
(7,022
|
)
|
|
|
(1,145
|
)
|
|
|
(229
|
)
|
Taxes on income
|
|
|
(216
|
)
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Deemed dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
-
|
|
Net loss
|
|
$
|
(16,022
|
)
|
|
$
|
(15,365
|
)
|
|
$
|
(7,022
|
)
|
|
$
|
(1,171
|
)
|
|
$
|
(229
|
)
|
Net loss attributable to Ordinary shareholders
|
|
$
|
(16,022
|
)
|
|
$
|
(15,365
|
)
|
|
$
|
(7,022
|
)
|
|
$
|
(1,171
|
)
|
|
$
|
(229
|
)
|
Net loss per share attributable to Ordinary shareholders - basic and diluted
|
|
$
|
(1.01
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.03
|
)
|
Weighted average number of Ordinary shares outstanding - basic and diluted
|
|
|
15,906,220
|
|
|
|
14,230,480
|
|
|
|
12,259,600
|
|
|
|
8,423,018
|
|
|
|
7,551,427
|
|
Balance Sheet Data - December 31,
U.S. dollars in thousands
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Cash and cash equivalents
|
|
$
|
6,871
|
|
|
$
|
7,286
|
|
|
$
|
10,583
|
|
|
$
|
270
|
|
|
$
|
146
|
|
Short-term bank deposits
|
|
|
3,007
|
|
|
|
12,046
|
|
|
|
22,028
|
|
|
|
-
|
|
|
|
-
|
|
Current Assets
|
|
|
10,541
|
|
|
|
20,392
|
|
|
|
32,885
|
|
|
|
299
|
|
|
|
156
|
|
Total assets
|
|
|
10,630
|
|
|
|
20,516
|
|
|
|
32,954
|
|
|
|
306
|
|
|
|
156
|
|
Current liabilities
|
|
|
1,931
|
|
|
|
2,514
|
|
|
|
2,280
|
|
|
|
131
|
|
|
|
81
|
|
Long-term liabilities
|
|
|
-
|
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Liabilities
|
|
|
1,931
|
|
|
|
2,584
|
|
|
|
2,280
|
|
|
|
131
|
|
|
|
81
|
|
Accumulated deficit
|
|
|
(39,809
|
)
|
|
|
(23,787
|
)
|
|
|
(8,422
|
)
|
|
|
(1,400
|
)
|
|
|
(229
|
)
|
Shareholders’ equity
|
|
|
8,699
|
|
|
|
17,932
|
|
|
|
30,674
|
|
|
|
175
|
|
|
|
75
|
|
RISK
FACTORS
An investment in our Securities involves
a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. You
should carefully consider the following information about these risks, together with the other information appearing elsewhere
in this prospectus, including our financial statements and related notes thereto, before deciding to invest in our Securities.
The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results
of operations and future growth prospects. In these circumstances, the market price of our Ordinary Shares could decline, and
you may lose all or part of your investment.
Risks Related to Our Financial Position
and Capital Resources
We are a development-stage company and have a limited
operating history on which to assess our business, we have incurred significant losses since our inception, and anticipate that
we will continue to incur significant losses for the foreseeable future.
We are a development-stage biotechnological
company with a limited operating history. We have incurred net losses since our inception in January 2012, including a net loss
of $16.0 million for the year ended December 31, 2016. As of December 31, 2016, we had an accumulated deficit of $39.8 million.
We have devoted substantially all of our
financial resources to identify, acquire, license, and develop our current product candidate, including conducting nonclinical
and clinical trials and providing general and administrative support for these operations. To date, we have financed our operations
primarily through the sale of equity securities. The amount of our future net losses will depend, in part, on the rate of our
future expenditures. Biotechnological product development is a highly speculative undertaking and involves a substantial degree
of risk. We are in Phase 2 development of Trehalose IV, which is the only product candidate that we currently pursue. It may be
several years, if ever, before we have this product candidate and/or any future product candidates that we may pursue approved
for commercialization. Even if we obtain regulatory approval to market a product candidate, our future revenue will depend upon
the size of any markets in which our product candidates may receive approval, and our ability to achieve sufficient market acceptance,
pricing, reimbursement from third-party payers, and adequate market share for our current or future product candidates in those
markets.
We have incurred continuing losses,
and depend on outside financing resources to continue our activities. On August 5, 2014, we completed a successful initial
public offering that raised net proceeds of approximately $31.4 million, and in March 2016 we completed a net $6.1 million
registered direct offering of our Ordinary Shares and a private placement of warrants to purchase additional Ordinary Shares.
In the opinion of our management and based on our current business plans, our balances of cash and cash equivalents including
short-term bank deposits will enable us to fund our activities at least until the end of the second quarter of 2017. However,
the actual amount of cash we will need to fund our operations is subject to many factors, including, but not limited to, the
timing, design and execution of the clinical trials of our existing drug candidate, any future projects which may be
in-licensed or any other business development activities. For example, changing circumstances and/or acquisition of new
technologies may cause us to consume capital significantly faster than management currently anticipates and we may need to
spend more money than currently expected because of, among others, circumstances beyond our control. Should we be unable to
obtain additional funding required, we may reduce our activities until we have sufficient funds to continue.
We expect to continue to incur significant
expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially
if and as we:
|
·
|
continue
our research and nonclinical and clinical development of our product candidate and any
future products candidates that we may pursue;
|
|
·
|
expand
the scope of our clinical trials for our sole product candidate;
|
|
·
|
change
or add additional manufacturers or suppliers;
|
|
·
|
seek
regulatory and marketing approvals for our current and any future product candidates
that successfully complete clinical trials;
|
|
·
|
establish a sales,
marketing, and distribution infrastructure to commercialize Trehalose IV and/or any products we pursue in the
future for
which we may obtain marketing approval;
|
|
·
|
seek
to identify, assess, acquire, license, and/or develop other future product candidates;
|
|
·
|
make
milestone or other payments under any license agreements;
|
|
·
|
seek
to maintain, protect, and expand our intellectual property portfolio;
|
|
·
|
seek
to attract and retain skilled personnel; and
|
|
·
|
create
additional infrastructure to support our operations as a public company and our product
development and planned future commercialization efforts.
|
Further, the net losses we incur may fluctuate
significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may
not be a good indication of our future performance.
The report of our independent registered public accounting
firm contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.
The report of our independent registered
public accounting firm on our audited financial statements as of and for the year ended December 31, 2016 contains an explanatory
paragraph expressing substantial doubt about our ability to continue as a going concern. Our financial statements do not include
any adjustments that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. This
going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities
or otherwise. Further reports on our financial statements may include an explanatory paragraph with respect to our ability to
continue as a going concern. If we cannot continue as a going concern, our investors may lose their entire investment.
We have not generated any revenue from any commercial
products and may never be profitable.
Our ability to become profitable depends
upon our ability to generate revenue. Unless and until marketing approval is obtained from either the FDA (to market and sell
Trehalose IV in the United States), the European Medicines Agency, or EMA (to market and sell Trehalose IV in the European Union),
or any comparable foreign agency for Trehalose IV or any future product candidates we may develop, we may not be able to generate
any revenue or attain profitability. In addition, our ability to generate profits after any regulatory approval of our current
or future product candidates is subject to our ability to contract for the manufacture of commercial quantities of our product
candidates at acceptable cost levels and establish sales and marketing capabilities or identify and enter into one or more strategic
collaborations to effectively market and sell any approved product candidates.
Even if Trehalose IV or any future product
candidate is approved for commercial sale, any approved therapeutic may not gain market acceptance or achieve commercial success,
and such commercialization could come with significant costs. If we are unable to generate product revenues, we will not become
profitable and may be unable to continue operations without continued funding.
We have a limited operating history and no history of
commercializing drugs, which may make it difficult for you to evaluate the success of our business to date and to assess our future
viability.
We commenced operations in 2012, and our
operations to date have been largely focused on raising capital and developing Trehalose IV, including undertaking nonclinical
studies and conducting clinical trials. Trehalose IV is the only product candidate that we are currently pursing. We have not
yet demonstrated our ability to successfully complete additional later-stage clinical trials, obtain FDA or other regulatory approvals,
manufacture a commercial-scale drug or arrange for a third party to do so on our behalf, or conduct sales and marketing activities
necessary for successful commercialization.
Consequently, we may encounter unforeseen
expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will
need to transition at some point from a company with a development focus to a company capable of supporting commercial activities.
We may not be successful in such a transition.
Risks Related to Development, Regulatory
Approval and Commercialization of Trehalose IV and any Future Product Candidates
We are currently entirely dependent on the success of
Trehalose IV, which is in the early stages of clinical development. We cannot give any assurance that Trehalose IV or any future
product candidate will receive regulatory approval, which is necessary before they can be commercialized.
We are a biotechnology company with no
products approved by regulatory authorities or available for commercial sale, and have never submitted a product for approval
to the FDA or comparable foreign regulatory authorities. Our future success is dependent on our ability to successfully develop,
obtain regulatory approval for, and then successfully commercialize Trehalose IV.
Currently, we are focusing our entire business
on the development of Trehalose IV, which is in the early stages of development. Trehalose IV will require additional non-clinical
and clinical development, management of nonclinical, clinical, and manufacturing activities, regulatory approval, obtaining adequate
manufacturing supply, building of a commercial organization, and significant marketing efforts before we generate any revenue
from product sales. We completed two Phase 2a clinical trials of Trehalose IV in two indications. We are not permitted to market
or promote any of our current or any future product candidates before we receive regulatory approval from the FDA or comparable
foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates, including
Trehalose IV. We may also receive regulatory approval in some jurisdictions, but not others. We cannot be certain that Trehalose
IV will be successful in clinical trials or receive regulatory approval. Further, Trehalose IV may not receive regulatory approval,
even if it is successful in clinical trials. If we do not receive regulatory approvals for any product candidates we attempt to
develop, we are not likely to be able to continue our operations.
We generally plan to seek regulatory approval
to commercialize Trehalose IV in the United States, Canada, the European Union, and in additional foreign countries where we have
commercial rights. To obtain regulatory approval in other countries, we must comply with numerous and varying regulatory requirements
of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales,
pricing, and distribution of the product candidates we may attempt to commercialize. Even if we are successful in obtaining approval
in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions, and as such our revenues and results
of operations could be negatively affected.
The drug development and regulatory approval processes
of the FDA and comparable foreign regulatory authorities are comprehensive and therefore are likely to be lengthy and expensive.
If we are ultimately unable to obtain regulatory approval for our current or future product candidates, our business will be substantially
harmed.
The time required to obtain approval by
the FDA and comparable foreign regulatory authorities is expensive, typically takes many years following the commencement of early
stage clinical trials, and depends upon numerous factors. We have not obtained regulatory approval for our sole product candidate.
In addition, even if we obtain regulatory
approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize Trehalose IV successfully.
For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability to
develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject
to restrictions or post-approval commitments that render Trehalose IV not commercially viable. Further, regulatory authorities
may approve Trehalose IV for fewer or more limited indications than we request, may limit approved usage to narrower patient populations,
may grant approval contingent on the performance of costly post- marketing clinical trials, or may approve Trehalose IV with a
label that does not include the labeling claims necessary or desirable for the successful commercialization of that indication.
Any of the foregoing scenarios could harm the commercial prospects for Trehalose IV and our business.
Delays in the initiation of the planned
Phase 2b clinical trial of Trehalose IV in OPMD and the clinical trials for other indications, or any future clinical trials we
intend to conduct for other product candidates we may develop, or negative findings in those trials, could significantly affect
our product development costs or our ability to commercialize Trehalose IV. We do not know whether future trials will begin or
whether all of our planned clinical trials, will be completed on schedule, if at all, or will be successful. Product development
costs for Trehalose IV for OPMD or any other future indications we may pursue or for product candidates we may develop in the
future will increase if we have delays in testing or approval, if we need to perform more or larger clinical studies than planned
or if we have delays in adding new clinical trial sites.
The success of Trehalose IV and/or any
other future product candidates that we may pursue, will depend on the receipt and maintenance of regulatory approval and the
issuance and maintenance of such approvals is uncertain and subject to a number of risks, including the following:
|
·
|
the
FDA or comparable foreign regulatory authorities, institutional review boards, or IRBs,
or ethics committees may disagree with the design or conduct of our clinical trials and
suspend or terminate the trials;
|
|
·
|
we
may not be able to provide acceptable evidence of Trehalose IV’s safety and efficacy;
|
|
·
|
the
results of our clinical trials may not meet the level of statistical or clinical significance
required by the FDA or comparable foreign regulatory authorities for marketing approval;
|
|
·
|
patients
in our clinical trials may suffer adverse effects for reasons that may or may not be
related to Trehalose IV and would raise concerns regarding safety;
|
|
·
|
the
population studied in any clinical program may not be sufficiently broad or representative
to assure safety or efficacy in the full population for which we seek approval;
|
|
·
|
the
data collected from clinical trials may not be sufficient to obtain regulatory approval
in the United States or elsewhere;
|
|
·
|
the
FDA or comparable foreign regulatory authorities may find, during an inspection at clinical
sites, serious violations that jeopardize patient safety and rights and either stop or
disregard the results of the study;
|
|
·
|
the
FDA or comparable foreign regulatory authorities may identify deficiencies with the manufacturing
processes or facilities of third-party manufacturers with which we contract for clinical
and commercial supplies and/or may suspend or withdraw approval of our products;
|
|
·
|
the
approval policies or regulations of the FDA or comparable foreign regulatory authorities
may significantly change in a manner rendering our clinical data insufficient for approval;
|
|
·
|
we
may need to repeat trials if previous and future research activities are no longer acceptable
by the FDA and other comparable regulatory agencies to support regulatory approval;
|
|
·
|
the
FDA or comparable foreign regulatory authorities have substantial discretion in the approval process and
may refuse to accept any application or may decide that our data are insufficient for
approval and require additional clinical trials, or nonclinical or other studies; and
|
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even
if we obtain marketing approval in one or more countries, future safety or other issues
could result in the suspension or withdrawal of regulatory approval in such countries.
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These factors that can cause, or lead to,
termination or suspension of, or a delay in the commencement or completion of clinical trials may also ultimately lead to the
denial or even withdrawal of regulatory approval of Trehalose IV for OPMD, SCA3 and any other indication.
We have no experience in filing the applications
necessary to gain regulatory approvals and have relied before and expect to continue to rely on consultants and third-party contract
research organizations, or CROs, with expertise in this area to assist us in this process. Securing FDA and other comparable regulatory
approval requires the submission of extensive nonclinical and clinical data, information about product manufacturing processes
and inspection of facilities and supporting information to the FDA for each therapeutic indication to establish a product candidate’s
safety and efficacy for each indication and manufacturing quality.
In addition, regulatory approval
obtained in one jurisdiction does not necessarily mean that a product candidate will receive regulatory approval in all
jurisdictions in which we may seek approval, but the failure to obtain approval in one jurisdiction may negatively impact our
ability to seek approval in a different jurisdiction. The inability to meet the continuously evolving regulatory standards
for approval may result in our failing to obtain regulatory approval to market our current product candidate or any other
product candidate we may develop in the future, which would significantly harm our business, results of operations, and
prospects.
Positive results of clinical trials may be different
from results of other clinical trials, and positive data from open-label clinical trials might not be replicated in subsequent
open-label (open versus blinded) or placebo-controlled (controlled versus non-controlled) clinical trials.
Failure can occur at any time during the
clinical trial process. The results of nonclinical trials and early clinical trials of any product candidate we may develop may
not be predictive of the results of later-stage clinical trials. Product candidates that have shown promising results in early-stage
clinical trials may still suffer significant setbacks in subsequent clinical trials. There is a high failure rate for drugs proceeding
through clinical trials, and product candidates in later stages of clinical trials may fail to show the desired safety and efficacy
traits despite having progressed through nonclinical trials and initial clinical trials. A number of companies in the biotechnological
industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding
promising results in earlier trials. Moreover, nonclinical and clinical data are often susceptible to varying interpretations
and analyses. We do not know whether any Phase 2, Phase 3, or other clinical trials we may conduct will demonstrate consistent
or adequate efficacy and safety sufficient to obtain regulatory approval to market our drug candidates.
On March 16, 2016, we reported the final
results from our open-label HOPEMD Phase 2a clinical trial, on October 24, 2016 we reported the finals results of a double-blind
placebo-controlled pharmacokinetic study of Trehalose IV in healthy volunteers, and on September 12, 2016 we reported the results
of the extension portion of HOPEMD Phase 2a trial. This trial relates to the treatment of patients suffering from OPMD, with our
lead product candidate, Trehalose IV. These final results may not necessarily predict results from future trials. Results in our
open-label HOPEMD Phase 2a clinical trial might not be repeated in later trials or may not be statistically significant, because,
among other things, early stage trials are often conducted in smaller groups of patients than later trials, and without the same
trial design features, such as randomized controls and blinding. If the results are not replicated in future trials or are not
statistically significant, we might not be able to rationalize continued development of the product candidate, or substantiate
our request to obtain approval from applicable regulatory authorities at a future time.
Changes in regulatory requirements and guidance may also
occur and we may need to amend clinical trial protocols submitted to applicable regulatory authorities to reflect these changes.
Amendments may require us to resubmit clinical trial protocols to IRBs or ethics committees for re-examination, which may impact
the costs, timing or successful completion of a clinical trial.
The FDA’s and other regulatory authorities’
policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval
of Trehalose IV and any future product candidates we may develop. We cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow
or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able
to maintain regulatory compliance, clinical trials may be adversely effected, terminated, or disregarded. Additionally, we may
lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability, which would harm our business,
prospects, financial condition and results of operations.
In the event that the FDA’s and/or other
regulatory authorities’ policies change, we could be forced to conduct additional pre-clinical, clinical trials or other studies
with respect to Trehalose IV or any future product candidates we may develop beyond those that we currently contemplate. Regardless
of past results, if we are unable to successfully complete the additional requirements required by regulatory changes, we may
be delayed in obtaining regulatory approval of Trehalose IV and/or any future product candidates we may develop, we may not be able
to obtain regulatory approval at all or we may obtain approval of indications that are not as broad as intended. Moreover, due
to potential regulatory changes, our product development costs may also increase if we experience delays in the additional testing
or approvals required. As a result, we may not have sufficient funding to complete the testing and approval process for Trehalose
IV or any future product candidates we may develop. Significant clinical trial delays could allow our competitors to bring products
to market before we do and impair our ability to commercialize our products if and when approved. If any of this occurs, our business
would be harmed.
In addition, approval policies, regulations,
or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s
clinical development and may vary among jurisdictions, which may require significant financial resources and may cause delays
in the approval or the decision not to approve an application.
We may find it difficult to enroll patients in our clinical
trials, in particular with respect to Trehalose IV and/or any future product candidates that we may pursue, which could delay
or prevent clinical trials of Trehalose IV and any future product candidates we may develop and potentially harm our business.
Identifying and approving patients (those
with required or desired characteristics to achieve diversity in a trial) to participate in clinical trials of Trehalose IV and
any future product candidates we may develop in the future is critical to our success. The timing of our clinical trials depends
on the speed at which we can recruit patients to participate in testing Trehalose IV and any future product candidates we may
develop as well as completion of required follow-up periods. If patients are unable or unwilling to participate in our clinical
trials for any reason, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of Trehalose
IV and any future product candidates we may develop may be delayed. These delays could result in increased costs, delays in advancing
Trehalose IV or any of our future product candidates, delays in testing the safety and effectiveness of our product candidates
or termination of the clinical trials altogether, any of which would have an adverse effect on our business.
In particular, the conditions for which
we currently plan to evaluate Trehalose IV are orphan diseases, which consist of limited patient populations from which to draw
for clinical trials. Patient enrollment is affected by factors including:
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severity
of the disease under investigation;
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design
of the clinical trial protocol;
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perceived
risks and benefits of the product candidate under trial;
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proximity
and availability of clinical trial sites for prospective patients;
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availability
of competing therapies and clinical trials;
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efforts
to facilitate timely enrollment of patients in clinical trials; and
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our
ability to monitor patients adequately during and after treatment.
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We could encounter delays in recruitment
for clinical trials if physicians and healthcare providers encounter unresolved ethical issues associated with enrolling patients
in clinical trials of Trehalose IV and any future product candidates we may develop. We may not be able to initiate or continue
clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials. Our ability
to successfully initiate, enroll and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting
business in foreign countries, including:
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difficulty
in establishing or managing relationships with CROs and physicians;
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different
requirements and standards for conducting clinical trials;
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our
inability to locate qualified local consultants, physicians and partners; and
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the
potential burden of complying with a variety of foreign laws, medical standards and regulatory
requirements, including the regulation of pharmaceutical and biotechnology products and
treatments.
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Trehalose IV and/or any future product candidates that
we may pursue may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval,
if any.
Undesirable side effects caused by Trehalose
IV, our only current product candidate, could cause us or regulatory authorities to interrupt, delay, or halt clinical trials
and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign
authorities. Patients enrolled in our trials of Trehalose IV for OPMD and other indications, may suffer side effects associated
with the use of our Trehalose IV. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects.
In such an event, our trials could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could
order us to cease further development of or deny or withdraw approval of our product candidates for any or all targeted indications.
Any drug-related side effects could affect
patient recruitment, the ability of enrolled patients to complete the trial, and/or result in potential product liability claims.
Additionally, if Trehalose IV or any other
product candidate we may choose to develop receives marketing approval, and we or others later identify undesirable side effects
caused by such products (even when used or tested for other indications, patient populations or other countries), or if a patient
suffers a serious complication, including death, with respect to one of our products, a number of potentially significant negative
consequences could result, including but not limited to:
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regulatory
authorities may withdraw approvals of such product;
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regulatory
authorities may require additional warnings on the label;
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we
may be required to create a Risk Evaluation and Mitigation Strategy, or REMS plan, which
could include a medication guide outlining the risks of such side effects for distribution
to patients, a communication plan for healthcare providers, and/or other elements to
assure safe use;
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we
could be sued and held liable for harm caused to patients; and
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our
reputation may suffer.
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Any of these events could prevent us from
achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our
business, results of operations, and prospects.
Even if we receive regulatory approval of Trehalose IV,
we may still face future development and regulatory challenges that could inhibit or preclude our ability to commercialize Trehalose
IV for any indication.
If Trehalose IV is approved, they will be
subject to ongoing regulatory requirements for manufacturing and quality, labeling, packaging, storage, advertising, promotion,
sampling, record-keeping, conduct of post-marketing trials, and submission of safety, efficacy, and other post-market information,
including both federal and state requirements in the United States and in other foreign jurisdictions. In addition, manufacturers,
manufacturers’ facilities, shippers and distributors are required to comply with extensive FDA and other international regulatory
regulations, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices,
or cGMP. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with
cGMP and adherence to commitments made in any approved New Drug Application, or NDA, Marketing Authorization Application, or MAA.
Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance,
including manufacturing, production, shipping storage and quality control.
Any regulatory approvals that we
receive for Trehalose IV may be subject to limitations on the approved indicated uses for which the product may be marketed
or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4
clinical trials, and surveillance to monitor the safety and efficacy of the product candidate, including pharmacovigilance
data collection. We will also be required to routinely report adverse reactions and production problems, if any, to the FDA
and other international regulatory agencies, and to comply with requirements concerning advertising and promotion for our
products. The FDA or comparable foreign regulatory authorities could require a special warning on the label, such as a Black
Box Warning, which could significantly affect marketing and promotional efforts. Promotional communications with respect to
prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information
in the product’s approved label. As such, we may not promote Trehalose IV and/or any future product candidates that we
may pursue for indications or uses for which they do not have regulatory approval. The holder of an approved NDA or MAA must also submit new or supplemental applications and variations and obtain FDA and other regulatory authority approval
for certain changes to product labeling or manufacturing processes. We could also be asked to conduct post-marketing clinical
trials to verify the safety and efficacy of our products in general or in specific patient subsets. If original marketing
approval were to be obtained for our products via the accelerated or conditional approval pathways, we could be required to
conduct a post-marketing confirmatory clinical trial. A post-marketing trial that fails to confirm the clinical benefit or
failure to complete such a trial could result in the withdrawal of marketing approval and, thus, cessation of marketing and
sales of the product.
If we or a regulatory agency discovers
previously unknown problems such as adverse events of unanticipated severity or frequency, or problems with the facility where
the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose
restrictions on that product or us. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement
authority may, among other actions:
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issue
FDA Form 483 or Warning Letters, which may be made public, or similar letters by other
regulatory authorities;
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publish
information on the FDA or other authorities homepage;
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impose
civil or criminal penalties;
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impose
an Import Alert or detention;
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suspend
or withdraw regulatory approval;
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suspend
any of our ongoing clinical trials;
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refuse
to approve pending applications or supplements to approved applications submitted by
us;
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seek
an injunction or impose other restrictions on our operations, including closing our contract
manufacturers’ facilities; or
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seize
or detain products, or require corrective action, such as a product recall.
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Any government investigation of alleged
violations of law could require us to expend significant time and resources in response, and could generate negative publicity.
Any failure by us or our partners to comply with ongoing regulatory requirements may significantly and adversely affect our ability
to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn,
the value of our company and our operating results will be adversely affected.
We may face substantial competition from other companies
with considerable resources that may already have products available in the market, and they or others may also discover, develop
or commercialize additional products before or more successfully than we do.
Our industry is highly competitive and
subject to rapid and significant technological change as researchers learn more about diseases and develop new technologies and
treatments. Our potential competitors include primarily large pharmaceutical, biotechnology and specialty pharmaceutical companies.
In attempting to achieve the widespread commercialization of Trehalose IV, we will face competition from established drug companies
or generic versions of these products. Key competitive factors affecting the commercial success of Trehalose IV and any other
product candidates we may develop are likely to be efficacy, safety and tolerability profile, reliability, convenience of administration,
price and reimbursement and effectiveness of our promotional activities. Competition could also force us to lower prices or could
result in reduced sales with other, more well-known or effective products or by selling their product at a lower price.
Our existing or potential competitors may
have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery
and development of current or future product candidates we may develop, obtaining FDA and other regulatory approvals of products
and the commercialization of those products. These companies may also have long-established relationships within the medical and
patient community, including patients, physicians, nurses and commercial third-party payors and government payors. Our ability
to compete successfully will depend largely on our ability to:
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discover
and develop product candidates that are competitive with or superior to other products
in the market;
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obtain
required regulatory approvals;
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be
free of material capital commitments and limitations;
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adequately
communicate the benefits of Trehalose IV, if approved;
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attract
and retain qualified personnel;
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obtain
and maintain patent and/or other proprietary protection for Trehalose IV and any future
product candidates that we may develop; and
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in
certain geographies, obtain collaboration arrangements to commercialize Trehalose IV
and any future product candidates we may develop.
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Mergers and acquisitions in the pharmaceutical
and biotechnology industries may result in even more resources being concentrated among a small number of our competitors. Accordingly,
our competitors may be more successful than we may be in obtaining FDA or other regulatory agency approvals of drugs and achieving
widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than
any drug we may commercialize and may render Trehalose IV or any future product candidates we may develop obsolete or non-competitive
before we can recover the expenses of developing and commercializing Trehalose IV or any future product candidates we may develop.
In addition, if one or more clinical trials
are delayed, not only could our competitors be able to bring products to market before we do, and significantly reduce the commercial
viability of Trehalose IV, but any trial delays could also shorten any periods during which our products have patent protection.
Such delays may allow our competitors to bring products to market before we do, which could impair our ability to obtain orphan
exclusivity and to successfully commercialize our current or future product candidates and may harm our business and results of
operations.
We anticipate that we will face intense
and increasing competition as new drugs enter the market and more advanced technologies become available. If we are unable to
compete effectively, our opportunity to generate revenue from the sale of Trehalose IV or any future product candidates we may
develop, if approved, could be impaired.
The number of patients suffering from OPMD and SCA3 is
small and has yet to be established with precision. Our assumptions and estimates regarding prevalence may be wrong. If our Trehalose
IV product candidate is approved for sale, and the actual number of patients in the applicable market is smaller than we estimate,
our revenue could be adversely affected, possibly materially.
We target indications that are rare
or ultra-rare diseases. Based on our own market research, in the United States and Canada there are approximately 4,300
patients with OPMD, our target indication. Similarly, there are a small number of individuals with SCA3, also known as
Machado Joseph disease. However, there is no guarantee that these estimates are correct. The ultimate number of patients with
OPMD and SCA3, in particular the number of patients for whom our Trehalose IV solution, if approved, is approved for use,
could actually be significantly fewer than these estimates.
If the total addressable market for our
products is smaller than we estimate, our revenue could be adversely affected, possibly materially.
Even if we receive regulatory approval of Trehalose IV,
it may not achieve an adequate level of government price authorization or acceptance by physicians, patients and third-party payors
and government payors, and we may not generate sufficient revenue or be able to achieve or sustain profitability.
Even if we receive regulatory approvals
of Trehalose IV, its commercial success will depend in large part on the willingness of private and government payers to reimburse
for its use at an appropriate price and for physicians to prescribe Trehalose IV to their patients. In order to achieve an acceptable
level of prescriptions for Trehalose IV, we must be able to meet the needs of payors, the medical community and patients with
respect to cost, efficacy, safety and other factors, including, but not limited to, the following:
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the
efficacy of the product as demonstrated in clinical trials and potential advantages over
competing treatments;
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the
prevalence and severity of any side effects, including any limitations or warnings contained
in a product’s approved labeling;
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the
clinical indications for which approval is granted;
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relative
convenience and ease of administration;
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the
cost of treatment, particularly in relation to competing treatments;
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the
willingness of the target patient population to try new therapies and of physicians to
prescribe these therapies;
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the
strength of marketing and distribution support and timing of market introduction of competitive
products;
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publicity
concerning our products or competing products and treatments; and
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sufficient
price approval and third-party insurance reimbursement to generate sufficient revenue
and achieve or sustain profitability.
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Even if Trehalose IV is approved, it may
not achieve an adequate level of acceptance by physicians, healthcare payors and patients, and we may not generate sufficient
revenue or be able to achieve or sustain profitability. Our efforts to educate the medical community, patients, governments and
private payors on the benefits of Trehalose IV to achieve an adequate level of their acceptance may require significant resources
and may never be successful.
The manufacture and packaging of our current and
any future product candidates that we may pursue are subject to FDA requirements and those of similar foreign regulatory
bodies. If we or our third-party manufacturers fail to satisfy these requirements, our product development and
commercialization efforts may be harmed.
The manufacture and packaging of pharmaceutical
products, such as trehalose dyhidrate, our active pharmaceutical ingredient, or API, and our Trehalose IV solution, if approved,
are regulated by the FDA and similar foreign regulatory bodies and must be conducted in accordance with the FDA’s cGMP and
comparable requirements of foreign regulatory bodies. In order to comply with these requirements, we may be required to perform
additional development work, including, but not limited to changes or additions to the manufacturing process and increased quality
controls. Failure by us or our third-party manufacturers to comply with applicable regulations or requirements could result in
sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing
approval of our products, delays, suspension or withdrawal of approvals, seizures or voluntary recalls of product, operating restrictions
and criminal prosecutions, any of which could harm our business.
Should Trehalose IV solution or
any future product that we may pursue be approved to market in the United States, post approval changes in the manufacturing
process or procedure may require FDA review and approval. Changes include, but are not limited to, changes in the location
where the product is manufactured, the manufacturing process, or the identity of a third-party manufacturer. The
FDA ensures that the change does not compromise the quality of the product. Any new facility is subject to an inspection by
the FDA and would require us to demonstrate product comparability to the FDA. There are comparable foreign requirements.
This review may be costly and time consuming and could delay or prevent the launch of a product. Moreover, the cost
of manufacturing may be too high to sustain profitability or conduct clinical and nonclinical trials.
In order to obtain approval of our Trehalose
IV and/or any future product candidates that we may pursue, we will be required to complete a process validation which is defined
as the collection and evaluation of data, from the process design stage through commercial production, which establishes scientific
evidence that a process is capable of consistently delivering quality product. Process validation involves a series of activities
taking place over the lifecycle of the product and process. If the FDA does not consider the result of the process validation
or required testing to be satisfactory, regulatory approval and/or commercial supply after launch may be delayed. The FDA and
similar foreign regulatory bodies may also implement new requirements, or change their interpretation and enforcement of existing
requirements, for manufacture, packaging or testing of products at any time. If we are unable to comply, we may be subject to
regulatory, civil actions or penalties which could harm our business.
Our relationships with patients,
physicians, third-party payors and others will be subject to applicable state and federal anti-kickback, fraud and abuse and
other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages,
reputational harm and diminished profits and future earnings.
Healthcare providers, physicians, and others
will play a primary role in the recommendation and prescription of Trehalose IV and any future product candidates we may develop
for which we obtain regulatory approval. Our operations may expose us to broadly applicable federal and state fraud and abuse,
patient privacy, and other healthcare laws and regulations that may affect our business or financial arrangements and relationships
through which we would market, sell and distribute our products. Restrictions under applicable federal and state healthcare laws
and regulations that may affect our operations and expose us to areas of risk include the following:
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the
federal Anti-Kickback Statute, which prohibits, among other things, persons and entities
from knowingly and willfully soliciting, offering, receiving or paying remuneration,
directly or indirectly, in cash or in kind, to induce or reward, or in return for, either
the referral of an individual, or the purchase, order or recommendation of, any good,
item, or service, for which payment may be made in whole or in part, under a federal
healthcare program, such as Medicare and Medicaid;
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federal
civil and criminal false claims laws and civil monetary penalty laws, including the False
Claims Act, which impose criminal and civil penalties, including through civil whistleblower
or qui tam actions, against individuals or entities for knowingly presenting, or causing
to be presented, to the federal government, including the Medicare and Medicaid programs,
claims for payment that are false or fraudulent or making a false statement to avoid,
decrease or conceal an obligation to pay money to the federal government;
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the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which
imposes criminal and civil liability for knowingly and willfully executing, or attempting
to execute, a scheme to defraud any healthcare benefit program or obtain, by means of
false or fraudulent pretenses, representations, or promises, any of the money or property
owned by, or under the custody or control of, any healthcare benefit program, and for
knowingly and willfully falsifying, concealing or covering up a material fact or making
any materially false statements in connection with the delivery of or payment for healthcare
benefits, items or services;
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act
of 2009, and their implementing regulations, which also impose obligations and requirements
on healthcare providers, health plans, and healthcare clearinghouses as well as their
respective business associates that perform services for them that involve the use or
disclosure of individually identifiable health information, including mandatory contractual
terms, with respect to safeguarding the privacy, security and transmission of certain
individually identifiable health information;
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the
federal transparency requirements under the Affordable Care Act, or the ACA, including
the provision commonly referred to as the Physician Payments Sunshine Act, which requires
certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable
under Medicare, Medicaid or Children’s Health Insurance Program to report annually
to Centers for Medicare and Medicaid Services, or CMS, information related to payments
and other transfers of value to physicians and teaching hospitals, and ownership and
investment interests held by physicians and their immediate family members;
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analogous
state and foreign laws and regulations, such as state anti-kickback and false claims
laws, which may be broader in scope and apply to referrals and items or services reimbursed
by both governmental and non-governmental third-party payors, including private insurers;
some state laws which require pharmaceutical companies to comply with the pharmaceutical
industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government and may require drug manufacturers to report information
to the state related to payments and other transfers of value to physicians and other
healthcare providers, price disclosures, or marketing expenditures; and state and foreign
laws which govern the privacy and security of health information in specified circumstances,
many of which differ from each other in significant ways and often are not preempted
by federal law, thus complicating compliance efforts; and
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the
U.S. Foreign Corrupt Practices Act, or FCPA, which prohibits companies from making improper
payments to foreign government officials and other persons for the purpose of obtaining
or retaining business.
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Because of the breadth of these laws and
the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could
be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these
laws. For example, the Affordable Care Act, among other things, amends the intent requirement of the federal anti-kickback and
criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent
to violate it. Moreover, the Affordable Care Act provides that the government may assert that a claim including items or services
resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False
Claims Act.
Efforts to ensure that our business arrangements
with third parties are compliant with applicable healthcare laws and regulations will involve the expenditure of appropriate,
and possibly significant, resources. In addition, and with respect to dealings with governmental regulatory agencies, we cannot
assure that our employees or independent contractors will not engage in prohibited conduct under the FCPA. If our operations are
found to be in violation of any current or future statutes, regulations or case law involving applicable fraud and abuse or other
healthcare laws and regulations, we may be subject to significant civil, criminal and administrative penalties, damages, fines,
disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, contractual damages,
reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, which could
adversely affect our ability to operate our business and our results of operations. If any physicians or other healthcare providers
or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs, which could adversely
affect our ability to operate our business and our results of operations.
The long-term growth of our business depends on our efforts
to leverage Trehalose IV to be used in other indications, which may require substantial financial resources and may ultimately
be unsuccessful.
The long-term growth of our business depends
upon our ability to utilize our proprietary Trehalose IV as a platform to be used in other indications, aside from SCA3 and OPMD,
which is something that we may never achieve or ever receive regulatory approval for. Research programs to identify new target
indications for Trehalose IV require substantial technical, financial and human resources whether or not we ultimately identify
any such applicable indication.
There are a number of FDA, EMA and other
health authority requirements that we must satisfy before we can commence a clinical trial of Trehalose IV in other indications.
If we are able to identify additional potential new indications, satisfaction of these regulatory requirements will entail substantial
time, effort and financial resources. Any time, effort and financial resources we expend on development of other indications may
impair our ability to continue development and commercialization of Trehalose IV for the treatment of OPMD and SCA3. As a result
of such impairments, we may never commence clinical trials of such development programs despite expending significant resources
in pursuit of their development. If we do commence clinical trials of other indications, these product candidates may never demonstrate
sufficient safety and efficacy to be approved by the FDA or other regulatory authorities. If any of these events occur, we may
be forced to abandon our development efforts for such program or programs, which could harm our business.
We may be unable to obtain orphan drug designation or
exclusivity for the use of Trehalose IV for other indications. Even if we obtain orphan drug designation, we may not be able to
capitalize on its benefits.
Our Trehalose IV solution has been granted
orphan designation in the United States and the European Union for the treatment of OPMD and SCA3. Regulatory authorities in some
jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient populations
as orphan drugs. Under the Orphan Drug Act of 1983, or the Orphan Drug Act, the FDA may designate a product candidate as an orphan
drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient population of fewer
than 200,000 individuals diagnosed annually in the United States, or a patient population greater than 200,000 in the United States
where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States.
In the European Union, the European Commission, after reviewing the opinion of the EMA’s Committee for Orphan Medicinal
Products, or COMP, grants orphan drug designation to promote the development of products that are intended for the diagnosis,
prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons
in the European Union. In the Health Canada proposal, a rare disease is described as a life-threatening, seriously debilitating,
or serious chronic condition that only affects a very small number of patients, typically less than five in 10,000 persons.
Additionally, orphan drug designation is
granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious
and chronic condition when, without incentives, it is unlikely that sales of the drug would be sufficient to justify the necessary
investment in developing the product candidate. Even if we request orphan drug designation for any future product candidates or
other indications we may develop, there can be no assurances that the FDA or the European Commission will grant any of these product
candidates such designation. Additionally, the orphan drug designation by the FDA of our current or any future product candidates
we may develop as an orphan drug does not guarantee that the FDA will accelerate regulatory review of or ultimately approve that
product candidate.
Generally, if a product candidate with
an orphan drug designation subsequently receives the first marketing approval of the indication for which it has such designation,
the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing
application for the same drug and indication for that time period, except in limited circumstances. The applicable period is seven
years in the United States and 10 years in Europe. The European exclusivity period can be reduced to six years if a product no
longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity
is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was
materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients
with the rare disease or condition.
Because the extent and scope of patent
protection for our products may in some cases be limited, orphan drug designation is especially important for our products for
which orphan drug designation may be available. For Trehalose IV, we plan to rely on the exclusivity period under the Orphan Drug
Act to maintain a competitive position. If we do not obtain orphan drug exclusivity for Trehalose IV or any therapeutic candidate
designated as an orphan drug but does not have broad patent protection, our competitors may then sell the same drug to treat the
same condition sooner than if we had obtained orphan drug exclusivity and our revenue will be reduced.
Even though, we may have obtained orphan
drug designation for Trehalose IV in the United States for the treatment of OPMD and SCA3, we may not successfully obtain orphan
drug exclusivity. Any such exclusivity that we do obtain may not effectively protect the product candidate from competition because
different drugs can be approved for the same condition and the same drugs can be approved for different indications and might
then be used off-label in our approved indication. In the United States, even after an orphan drug is approved, the FDA can subsequently
approve another drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown
to be safer, more effective or makes a major contribution to patient care. In addition, if our current or any future product candidate
we may develop receives an orphan drug designation is approved for a particular indication or use within the rare disease or condition,
the FDA may later approve the same drug for additional indications or uses within that rare disease or condition that are not
protected by our exclusive approval. As a result, if our product is approved and receives orphan drug status, the FDA can still
approve other drugs for use in treating the same indication or disease covered by our product, which could create a more competitive
market for us.
We currently have no sales organization and a limited
pre-commercial/marketing organization. If we are unable to establish sales and marketing capabilities or enter into agreements
with third parties to market and sell our products that may be approved or cleared for marketing in the future, we may be unable
to generate any revenue.
We currently do not have any products that
are approved or cleared for marketing. In the event that Trehalose IV and/or any therapeutic candidate that we may pursue is
approved or cleared for marketing, we may still be unable to generate revenue. Although our management has experience with selling
other similar products in the past while employed at other companies, we as a company have no experience selling and marketing
our current product candidate and we currently have no sales organization and limited pre-commercial/marketing organization. To
successfully commercialize any products that may result from our development programs, we will need to develop these capabilities,
either on our own or with others. If our current product candidate or any future product candidates receive regulatory approval,
we intend to establish a sales and marketing organization with technical expertise and supporting distribution capabilities to
commercialize our product candidates in major markets, which will be expensive, difficult, and time consuming. Any failure or
delay in the development of our internal sales, marketing, and distribution capabilities would adversely impact the commercialization
of our products. We would need to invest resources in this prior to regulatory approval, which may prove to be a waste if
such approval cannot be obtained.
Further, given our lack of prior experience
in marketing and selling biotechnological products, our initial estimate of the size of the required sales force may be materially
inadequate when compared to the size of the sales force actually required to effectively commercialize our current and/or future
product candidates. As such, we may be required to hire substantially more sales representatives to adequately support the commercialization
of our current and/or future product candidates or we may incur excess costs as a result of hiring more sales representatives
than necessary. With respect to certain geographical markets, we may enter into collaborations with other entities to utilize
their local marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if
at all. If our future collaborators do not commit sufficient resources to commercialize our future products, if any, and we are
unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient product revenue to
sustain our business. We may be competing with companies that currently have extensive and well-funded marketing and sales operations.
Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete
successfully against these more established companies.
While orphan drug products are typically sold at a high
price relative to other medications, the market may not be receptive to high pricing of our products.
We currently have one product candidate
and may develop additional product candidates to treat rare and ultra-rare diseases, a space where medications are usually sold
at high prices compared with other medications. However, even if regulatory authorities approve any product candidates that we
may develop, the market may not be receptive to, and it may be difficult for us to achieve, a per-patient per-year price high
enough to allow us to realize a return on our investment.
The insurance coverage and reimbursement status
of newly-approved products is uncertain. If we are able to obtain regulatory approval for our product candidates, failure to
obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those
products and decrease our ability to generate revenue.
Our target patient populations are
small, and accordingly the pricing, coverage, and reimbursement of our current and/or future product candidates, if approved,
must be adequate to support our commercial infrastructure. Our per-patient prices must be sufficient to recover our
development and manufacturing costs and potentially achieve profitability. Accordingly, the availability and adequacy of
coverage and reimbursement by governmental and private payers are essential for most patients to be able to afford
potentially expensive treatments such as ours, assuming we are able to obtain regulatory approval for our products. If we are
able to obtain regulatory approval, sales of our product candidates will depend substantially, both domestically and abroad,
on the extent to which the costs of our product candidates will be paid for by health maintenance, managed care, pharmacy
benefit, and similar healthcare management organizations, or reimbursed by government authorities, private health insurers,
and other third-party payers. If coverage and reimbursement are not available, or are available only in limited levels, we
may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved
reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a return on
our investment.
There is significant uncertainty related
to the insurance coverage and reimbursement of newly approved products. The process for determining whether a third-party payor
will provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay
for the product. Moreover, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement
rate will be approved. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness
of medical products and services, in addition to their safety and efficacy. In order to obtain coverage and reimbursement for
any product that might obtain regulatory approval, we may need to provide supporting scientific, clinical and cost-effectiveness
data relating to such product, which may be costly and difficult to obtain. Further, in the U.S., the Centers for Medicare and
Medicaid Services, or CMS, and other third-party payors, frequently change product descriptors, coverage policies, product and
service codes, payment methodologies and reimbursement rates. Private payers tend to follow the coverage reimbursement policies
and payment limitations established by CMS to a substantial degree. It is difficult to predict what CMS or any other third-party
payor will decide with respect to reimbursement for products such as ours, assuming we are able to obtain regulatory approval
for our products, and any such policies or payment limitations may be subject to change in the future.
Outside the United States, international
operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing
emphasis on cost-containment initiatives in Europe, Canada, and other countries has and will continue to put pressure on the pricing
and usage of any product candidate we attempt to commercialize. In many countries, the prices of medical products are subject
to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such systems
are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicinal products,
but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict
the amount that we are able to charge for any product candidate that we may develop. Accordingly, in markets outside the United
States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate
commercially reasonable revenue and profits.
Moreover, increasing efforts by
government bodies and third-party payers in the United States and abroad to cap or reduce healthcare costs may cause both
coverage and the level of reimbursement for newly approved products to be limited and, as a result, we may not obtain
adequate payment or coverage for our current or any future product candidates. We expect to experience pricing pressures in
connection with the sale of our current product candidate or any future product candidates, if we obtain regulatory approval,
due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional
legislative changes. In the U.S., changes in federal healthcare policy and reforms aimed at lowering healthcare costs were
enacted through the Affordable Care Act in 2010 and some provisions are still being implemented. Some reforms and cost
containment measures could result in reduced reimbursement rates for our product candidates, which would adversely affect our
business strategy, operations and financial results. The downward pressure on healthcare costs in general, particularly
prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high
barriers are being erected to the entry of new products.
Healthcare legislative reform measures may have a material
adverse effect on our business and results of operations.
In the United States, there have
been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively
referred to as the Affordable Care Act, was signed into law, which substantially changes the way health care is financed by
both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The Affordable Care Act,
among other things, subjects biologic products to potential competition by lower-cost biosimilars, imposes reporting
requirements on manufacturers related to drug samples and financial relationships with certain healthcare providers,
addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are
calculated, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends
the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on
manufacturers of certain branded prescription drugs, and promotes a new Medicare Part D coverage gap discount program. Some
of the provisions of the Affordable Care Act have not yet been fully implemented, and certain provisions have been subject to
judicial and Congressional challenges. The healthcare regulatory environment in the U.S. is still in flux, and judicial
challenges and legislative initiatives to modify, limit, or repeal the Affordable Care Act continue, and may increase in
light of the change in administrations following the U.S. presidential election. For example, a recent Executive Order signed
by the U.S. President directed executive departments and federal agencies to waive, defer, grant exemptions from, or
delay the implementation of provisions of the Affordable Care Act that would impose a fiscal or regulatory burden on
individuals and certain entities to the maximum extent permitted by law. We cannot predict the impact on our business of
future legal challenges to the Affordable Care Act or other changes to current laws and regulations. However, any changes
that lower reimbursements for products that we obtain regulatory approval for, or that impose administrative and
financial burdens on us, could adversely affect our business.
In addition, other legislative changes
have been proposed and adopted in the United States since the Affordable Care Act was enacted. These changes include, among others,
aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, starting in 2013. We expect that additional
state and federal healthcare reform measures will be adopted in the future, which may alter or completely replace the existing
healthcare financing structure. Any of these reform measures could limit the amounts that federal and state governments will pay
for healthcare products and services, which could result in reduced demand for any such product candidate that we may have developed
or additional pricing pressures on our business.
In December 2016, the 21st Century
Cures Act became law. There are expected to be a number of changes to the FDA’s regulation of drugs including revisions
to the approval processes. While the life sciences industry expects, for the most part, these changes to be positive, the
long-term effects remain uncertain. Similarly, a new U.S. Presidential administration took office in January 2017.
It is possible that the new administration may implement additional healthcare reforms, including potentially significant
changes to existing healthcare programs and policies, such as the ACA.
Similar initiatives and legislations may
come into force in other jurisdictions as well, such as in the different countries of the European Union, where price ceilings
and rebate systems are essential parts of the reimbursement of medicinal products. Some of these systems are being adapted on
a regular or irregular basis to further reduce drug prices.
We may not be able to maintain our current product liability
coverage, and, even if we do, our coverage may not be adequate to cover any or all liabilities that we may incur, which could
decrease our cash and harm our business.
We currently have $10 million in product
liability insurance coverage in the aggregate, which may not be adequate to cover any or all liabilities that we may incur. Insurance
coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate
to satisfy any liability that may arise. We intend to expand our product liability insurance coverage to include the sale of commercial
products if we obtain marketing approval of Trehalose IV and any future product candidates we may develop, but we may be unable
to obtain commercially reasonable product liability insurance for these product candidates, if approved for marketing. Large judgments
have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability
claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash
and harm our business, and in the extreme case, cause us to shut down. In addition, we may not be able to maintain sufficient
insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims, which could prevent
or inhibit the commercial production and sale of our products.
Additionally, if any claims are brought
against us, even if we are fully covered by insurance, we may suffer harm such as adverse publicity. We also could suffer diversion
of attention of technical and management personnel and incur substantial costs in resolving disputes, including litigation, with
our insurance provider regarding coverage.
Risks Related to our Reliance on Third
Parties
We rely, and will continue to rely in the future, on
third parties to conduct our nonclinical studies, clinical trials, drug product manufacturing and other research and development
activities. If these third parties do not appropriately carry out their contractual duties, fail to conduct high-quality studies
or meet expected deadlines, regulatory approval and commercialization of Trehalose IV or any future candidates we may develop
could be delayed or not obtained at all.
We do not have the ability to conduct all
of our clinical trials independently. We relied and continue to rely on third parties, including clinical investigators, third-party
CROs, labs and consultants, to monitor, manage and protect sensitive data for, and execute our ongoing nonclinical and planned
clinical programs for Trehalose IV and other potential product candidates. We currently have a small number of employees, which
limits the internal resources we have available to identify and monitor our third-party providers. Nevertheless, we are responsible
for ensuring that each of our nonclinical studies and clinical trials are conducted, not only in accordance with contractual obligations,
but also in accordance with the applicable protocol and legal, regulatory and scientific requirements and standards, including,
for example, Good Laboratory Practices, the Animal Welfare Act and Good Clinical Practices, or GCPs. In addition, we rely on their
policies and standard operating procedures. In addition, we may be responsible for maintaining compliance with applicable federal
and state regulations that impose requirements related to privacy and security of health information, including those promulgated
pursuant to HIPAA. Our reliance on third parties does not relieve us of our regulatory responsibilities. Regulatory authorities
enforce GCPs and other standards through periodic inspections of trial sponsors, principal investigators and trial sites. If we
or any of these third parties fail to comply with applicable GCPs and other standards, the clinical data generated in our clinical
trials may be deemed unreliable and the relevant regulatory authorities may require us to perform additional clinical trials in
support of our regulatory approval applications. We cannot assure you that upon inspection by a given regulatory authority, such
regulatory authority will determine that any of our clinical trials comply with GCP requirements and other standards. Failure
to comply with these regulations may require us to repeat nonclinical studies and clinical trials, which would delay the regulatory
approval process. If the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols,
regulatory requirements or for other reasons, our nonclinical studies and clinical trials may be extended, delayed or terminated
and we may not be able to obtain regulatory approval of or successfully commercialize Trehalose IV and any future product candidates
we may develop. Additionally, we must ensure that our contracts with third parties are at an affordable price. As a result, our
results of operations and the commercial prospects for our current and/or future product candidates could be harmed, our costs
could increase and our ability to generate revenues could be delayed. To the extent we are unable to identify and successfully
manage the performance of third-party service providers in the future, our business may be adversely affected.
We rely completely on third parties to manufacture Trehalose
IV. Our business could be harmed if those third parties fail to provide us with sufficient quantities of Trehalose IV, or fail
to do so at acceptable quality levels.
We do not currently have, nor do we plan
to acquire, the infrastructure or internal capability to manufacture our nonclinical and clinical drug supplies for use in the
conduct of our nonclinical and clinical trials, and we lack the resources and the capability to manufacture Trehalose IV on a
clinical or, if approved, commercial scale. In specific instances we may rely on a single provider or manufacturer for a product
candidate. For example, the raw materials used to manufacture our Trehalose IV solution product candidate are acquired from a
single third party drug products supplier. Additionally, our Trehalose IV solution is manufactured by a single third party manufacturer.
There are a limited number of suppliers for raw materials that are used to manufacture trehalose, and there may be a need to identify
alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce any product candidate
we are developing for our clinical trials, and, if approved, ultimately for commercial sale. Any significant delay or discontinuity
in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to
replace a third-party manufacturer could considerably delay completion of our clinical trials.
In the event that the FDA believes that
Trehalose IV and/ or any future therapeutic candidate that we may develop in the future, is approvable, our contract manufacturers
would be audited by the FDA before approving our NDA. We rely on our contract manufacturing partners for compliance with cGMPs
for manufacture of both API and finished drug products. These cGMP regulations and other relevant standards cover all aspects
of the manufacturing, testing, quality control and record keeping relating to Trehalose IV. If our contract manufacturers cannot
successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others,
we will not be able to secure and/or maintain regulatory approval of our product candidate being manufactured at their manufacturing
facilities or have sufficient quantities to meet market demands. If the FDA or a comparable foreign regulatory authority finds
deficiencies at these facilities, we may need to find alternative manufacturing facilities, which would significantly impact our
ability to develop, obtain regulatory approval of or market Trehalose IV, if approved.
If, for any reason, these third parties
are unable or unwilling to perform, we may not be able to terminate our agreements with them, and we may not be able to locate
alternative manufacturers or formulators or enter into favorable agreements with them and we cannot be certain that any such third
parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate manufacturer
of finished drug product experiences any significant difficulties in its respective manufacturing processes for our API or finished
Trehalose IV product or should cease doing business with us, we could experience significant interruptions in the supply of Trehalose
IV or may not be able to create a supply of Trehalose IV at all. Our inability to coordinate the efforts of our third-party manufacturing
partners, or the lack of capacity available at our third-party manufacturing partners, could impair our ability to supply Trehalose
IV at required levels. Due to the significant regulatory requirements that we would need to satisfy in order to qualify a new
bulk or finished product manufacturer, if we face these or other difficulties with our current manufacturing partners, we could
experience significant interruptions in the supply of Trehalose IV if we decided to transfer the manufacture of Trehalose IV to
one or more alternative manufacturers in an effort to deal with the difficulties.
In the event that Trehalose IV and/or
any future product candidates that we may pursue is approved or cleared for marketing, manufacturers may not have the
experience or ability to manufacture those products at commercial levels. We may run into technical or scientific issues
related to manufacturing or development that we may be unable to resolve in a timely manner or with available funds.
If the manufacturing costs of Trehalose
IV remain at current levels, these costs may significantly impact our operating results. In order to reduce costs, we may need
to develop and implement process improvements. However, in order to do so, we will need, from time to time, to notify or make
submissions with regulatory authorities, and the improvements may be subject to approval by such regulatory authorities. We cannot
be sure that we will receive these necessary approvals or that these approvals will be granted in a timely fashion. We also cannot
guarantee that we will be able to enhance and optimize output in our commercial manufacturing process, as any deviations from
normal manufacturing processes, for Trehalose IV and any other product candidate we may develop, could result in reduced production
yields, product defects, and other supply disruptions. If we cannot enhance and optimize output, we may not be able to reduce
our costs over time.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain effective patent
and other intellectual property rights for our product candidates or any future product candidates, we may not be able to compete
effectively in our markets.
We rely upon a combination of patents,
trade secret protection, and confidentiality agreements to protect the intellectual property related to our technologies and product
candidates. Our success depends in large part on our and our licensors’ ability to obtain and maintain patent and other
intellectual property protection in the United States and in other countries around the world with respect to our proprietary
technology and products.
We have sought to protect our proprietary
position by filing patent applications in the United States and abroad related to our novel technologies, methods of treatments,
formulations and products that are important to our business. This process is expensive, time consuming and inherently uncertain.
We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late
to obtain patent protection. It is also possible that some of our filed applications may not result in issued patents.
There is no assurance that all potentially
relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a
patent from issuing from a pending patent application. Publications of discoveries in the scientific literature often lag behind
the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until
18 months after filing, or are published in a foreign language or in some cases not at all. We therefore cannot be certain that
we or our licensors were the first to make the invention claimed in our owned and licensed patents or pending applications, or
that we or any of our licensors were the first to file for patent protection of such inventions before any prior publication.
Even if patents do successfully issue, and even if such patents cover our product candidates, third parties may challenge their
validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore,
even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide
exclusivity for our product candidates, or prevent others from designing around our claims.
If we cannot obtain and maintain effective
patent rights for our product candidates, we may not be able to compete effectively and our business and results of operations
could be harmed.
Patent policy and rule changes could increase the uncertainties
and costs surrounding the prosecution of our patent applications and the value, enforcement or defense of our issued patents.
Changes in either the patent laws or interpretation
of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent
protection. The United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent
U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights
of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in
the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending
on future actions by the U.S. Congress, the federal courts, and the U.S. Patent and Trademark Office, or USPTO, the laws and regulations
governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing
patents and patents that we might obtain in the future. The laws and courts of foreign countries also may not protect our rights
to the same extent as the laws and courts of the United States.
If we are unable to maintain effective proprietary rights
for our product candidate or any future product candidates, we may not be able to compete effectively in our markets.
In addition to the protection afforded
by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable
or that we elect not to patent, processes for which patents are difficult to obtain or to enforce and any other elements of our
product candidate discovery and development processes that involve proprietary know-how, information or technology that is not
covered by patents. Trade secrets, however, can be difficult to protect. We seek to protect our proprietary technology and processes,
in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We
also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our
premises and physical and electronic security of our information technology systems. While we have confidence in these individuals,
organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach.
In addition, our trade secrets may otherwise become known or be independently discovered by competitors. There are different
laws of varying scope and strength that protect trade secrets in every state of the U.S., as well as foreign countries, and depending
on what acts occur where, or what law applies to a given situation, the trade secret may not be recognized as a trade secret,
many not fall under a confidentiality agreement, or may be found insufficient by a court ruling on such a dispute over trade secrets
or other proprietary information.
Although we expect all of our employees
and consultants to assign their inventions to us, and all of our employees, consultants, advisors, and any third parties who have
access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide any
assurances that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will
not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation
or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on
our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse
against third parties for misappropriating the trade secret.
We may not be successful in obtaining or maintaining
necessary rights to our product candidate through acquisitions and in-licenses.
While we currently have three issued
patents and other pending patent applications, our programs may require the use of intellectual proprietary rights held by third
parties. Accordingly, the growth of our business may depend in part on our ability to acquire, in-license, maintain or use these
proprietary rights. In addition, our current and/or future product candidates may require specific formulations to work effectively
and efficiently and the rights to these formulations may be held by others. We may be unable to acquire or in-license any compositions,
methods of use, processes, or other third-party intellectual property rights from third parties that we identify as necessary
for our current and/or future product candidates. The licensing and acquisition of third-party intellectual property rights is
a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party
intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over
us due to their size, cash resources, and greater clinical development and commercialization capabilities.
If we are unable to successfully obtain
rights to required third-party intellectual property rights, we may have to abandon development of that program and our business
and financial condition could suffer.
We may be involved in lawsuits to protect or enforce
our patents or confidential information, which could be expensive, time consuming, and unsuccessful.
Competitors may infringe our patents or
the patents of our licensors, or misappropriate our confidential information. If we or one of our licensing partners were to initiate
legal proceedings against a third party to enforce a patent or confidential information covering or related to a product candidate
we develop, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable or
that the confidential information is not confidential or otherwise not protectable. In patent litigation in the United States,
defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be
an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds
for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant
information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity
and unenforceability is unpredictable.
Interference or other post-grant proceedings
provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority or patentability
of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require
us to cease using the related technology or to attempt to license rights to it from the prevailing party, or might eliminate the
key claim coverage of a product, process, or proposed technology. Depending on the proceeding, our business could be harmed if
the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation, or interference
or other post-grant proceedings may fail and, even if successful, may result in substantial costs and distract our management
and other employees. In addition, the uncertainties associated with litigation and post-grant proceedings at the PTO or equivalent
patent office in any other jurisdiction could have a material adverse effect on our ability to raise the funds necessary to continue
our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development
partnerships that would help us bring our current and/or future product candidates to market.
Furthermore, because of the substantial
amount of discovery required in connection with any type of intellectual property litigation or even the more limited discovery
in a post-grant proceeding, there is a risk that some of our confidential information could be compromised by disclosure during
this type of litigation or proceeding. There could also be public announcements of the results of hearings, motions, or other
interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have
a material adverse effect on the price of our Ordinary Shares.
We may be subject to claims that our employees, consultants,
or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have
wrongfully used or disclosed alleged trade secrets of their former employers.
We employ individuals who were previously
employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors.
Although we try to ensure that our employees, consultants, and independent contractors do not use the proprietary information
or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, or independent
contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary
information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against
these claims. If we fail in defending any such claims, in addition to paying monetary damages or be subjected to a court order,
we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful
in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may be subject to claims challenging the inventorship
or ownership of our patents and other intellectual property.
We may be subject to claims that former
employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor
or co-inventor, or that such third party owns the patent or intellectual property rights. For example, we may have inventorship
or ownership disputes arise from conflicting obligations of consultants or others who are involved in developing our current or
any future product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or
ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a
material adverse effect on our business. Even if we are successful in defending against such claims, litigation or patent office
proceedings could result in substantial costs and be a distraction to management and other employees. Therefore, we may receive
less revenue from future products if such claims are successful which in turn could impact our future profitability.
We may not be able to protect our intellectual property
rights throughout the world.
Competitors may use our technologies in
jurisdictions where we have not obtained patent protection to develop their own products and may also export otherwise infringing
products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These
products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient
to prevent them from competing.
Many companies have encountered significant
problems in protecting, enforcing, and defending intellectual property rights in foreign jurisdictions. The legal systems of certain
countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual
property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement
of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our
patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and
attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in
any lawsuits or post-grant proceedings that we initiate and the damages or other remedies awarded to us if we prevail, if any,
may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may
be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Our reliance on third parties requires us to share our
trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated
or disclosed.
Because we rely on third parties to develop
and manufacture our current product candidate, we must, at times, share trade secrets with them. We seek to protect our proprietary
technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative
research agreements, consulting agreements, or other similar agreements with our collaborators, advisors, employees, and consultants
prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties
to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working
with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets
become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation
of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s
discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material
adverse effect on our business.
Risks Related to Our Business Operations
Our future success depends in part on our ability to
retain our executive officers and management level employees and to attract, retain, and motivate other qualified personnel.
Our ability to compete in the highly competitive
pharmaceuticals industry depends in large part upon our ability to attract and retain highly qualified managerial, pre-commercial,
scientific and medical personnel. We are highly dependent on our management, commercial, scientific and medical personnel. In
order to induce valuable employees to remain with us, we have provided employees with stock options that vest over time. The value
to employees of stock options that vest over time is significantly affected by movements in our stock price that we cannot control
and, together with our other compensation programs and benefits, may at any time be insufficient to counteract more lucrative
offers from other companies.
We are highly dependent on
Fredric Price, our Executive Chairman of the Board of Directors and Chief Executive Officer, Dr. Warren Wasiewski, our Chief
Medical Officer and Vice President of Research and Development, Dr. Zohar Argov, special advisor, Mr. Chaime Orlev, our Chief
Financial Officer and Vice President of Finance and Administration, and Dana Gelbaum our Chief Commercial Officer. These
executives have significant research and development, regulatory industry, sales and marketing, operational, and/or corporate
finance and legal experience. The loss of any executive or other principal member of our management team would impair our
ability to identify, develop and market new products and conduct successful operations.
As our development and commercialization
plans and strategies develop, we expect to need additional managerial, operational, sales, marketing, financial, legal, research,
and other resources. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities
and devote a substantial amount of time to managing these growth activities. Our expected growth could require significant capital
expenditures and may divert financial resources from other projects, such as the development of additional product candidates.
In addition, failure to succeed in nonclinical
or clinical trials may make it more challenging to recruit and retain qualified personnel. The inability to recruit and retain
qualified personnel, or the loss of the services of these executives without proper replacement, may impede the progress of our
overall growth.
If this were to occur, our expenses could increase more than expected, our ability to generate
and/or grow revenue could be reduced and we could face challenges in implementing our business strategy.
We underwent management and other changes that could
impact our ability to execute our operational plans as quickly as we have planned.
During 2016 and 2015, we experienced significant
management and cultural shifts. For example, in January 2015, our co-founder and then Chief Executive Officer, Dr. Dalia Megiddo,
became Chief Development Officer and Mr. Colin Foster was appointed as our Chief Executive Officer and President. In November
2015, we announced that Dr. Megiddo and Udi Gilboa, our then Chief Financial Officer, would both transition to advisor positions.
Our management further expanded, by the hiring of Dr. Warren Wasiewski as Chief Medical Officer and Vice President of Research
and Development and other key executives, in connection with our establishment of a U.S.-based headquarters in New Haven, Connecticut,
in addition to our facility in Israel. In June 2016, we decided to close our U.S. based headquarters, terminate the employment
agreements of most of the executives and employees in the United States, including that of Colin Foster, and we appointed Fredric
Price as our Executive Chairman and Chief Executive Officer. In September and November 2016, we engaged new executive officers,
including Mr. Chaime Orlev as Chief Financial Officer and Vice President of Finance and Administration and Dana Gelbaum as Chief
Commercial Officer. In addition, during 2016, we shifted the emphasis of our development activities and concentrated solely on
the development of Trehalose IV for OPMD, SCA3, and other indications while terminating all activities regarding previously developed
products. The changes that we implemented and any future changes we may implement occupy much of our existing senior management’s
time, are difficult to manage and might not always prove to be successful.
Our employees, independent contractors, consultants,
commercial partners, principal investigators, CROs and vendors may engage in misconduct or other improper activities, including
noncompliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.
We are exposed to the risk that our employees,
independent contractors, consultants, commercial partners, principal investigators, CROs and vendors may engage in fraudulent
conduct or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable
foreign regulatory authorities, to provide accurate information to the FDA or comparable foreign regulatory authorities, to comply
with regulations pertaining to clinical trials, to comply with manufacturing standards we have established, to comply with federal
and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable
foreign regulatory authorities, and to report financial information or data accurately or disclose unauthorized activities to
us. The misconduct of our employees and contractors could also involve the improper use of information obtained in the course
of clinical trials and other research and development activities, which could result in regulatory sanctions and serious harm
to our reputation. In connection with our initial public offering, we implemented a code of conduct and ethics for our directors,
officers and employees, but it is not always possible to identify and deter such misconduct, and the precautions we take to detect
and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any
such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions
could have a significant impact on our business and results of operations, including the imposition of significant fines or other
sanctions.
We incur significant costs as a result of operating as
a public company, and our management is required to devote substantial time to new compliance initiatives.
As a public company, we incur significant
legal, accounting, and other expenses. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection
Act, as well as rules subsequently implemented by the SEC and the NASDAQ Stock Market, or NASDAQ, have imposed various requirements
on public companies. New laws and regulations as well as changes to existing laws and regulations affecting public companies,
including the provisions of the Sarbanes-Oxley Act, and changes in required accounting practices and rules adopted by the SEC
and by NASDAQ, would likely result in increased costs to us as we respond to their requirements.
Emerging growth companies may implement
some of these requirements over a longer period and up to five years from the date of their initial public offering. We are taking
advantage of this legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted
or planned and thereby incur unexpected expenses. Shareholder activism, the current political environment, and the current high
level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which
may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.
Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover,
these rules and regulations have increased our legal and financial compliance costs and will make some activities more time consuming
and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer
liability insurance and we may be required to incur substantial costs to maintain our current levels of such coverage.
The Sarbanes-Oxley Act requires, among
other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In
particular, pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to perform system and process evaluation and testing
of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over
financial reporting. Our testing may reveal deficiencies in our internal control over financial reporting that are deemed to be
material weaknesses. Our compliance with the SEC’s rules requires that we incur substantial accounting expense and expend
significant management efforts. Per Section 404 of the Sarbanes-Oxley Act, we are required to disclose if we maintain effective
disclosure controls and procedures and internal control over financial reporting. Nevertheless, for so long as we remain an emerging
growth company, as defined in the JOBS Act, we are not required to comply with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act.
Our internal control over financial reporting
will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will
not occur or that all control issues and instances of fraud will be detected. Moreover, if we are not able to comply with the
SEC’s requirements in a timely manner or if we identify or our independent registered public accounting firm identifies
deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we may not be able to
produce timely and accurate financial statements. As a result we would be required to place additional financial and management
resources on solving the issue. Moreover, if any of the aforementioned were to occur, the market price of our stock could decline
and we could be subject to sanctions or investigations by the stock exchange on which our Ordinary Shares is listed, the SEC or
other regulatory authorities.
Compliance with changing European privacy laws could
require us to incur significant costs or experience significant business disruption and failure to so comply could result in an
adverse impact on our business.
In Europe, Directive 95/46/EC of the European
Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data
and on the free movement of such data, or the Directive, has required European Union member states to implement data protection
laws to meet the strict privacy requirements of the Directive. Among other requirements, the Directive regulates transfers of
personally identifiable data that is subject to the Directive, or Personal Data, to countries such as the United States, that
have not been found to provide adequate protection to such Personal Data. We have not in the past and cannot in the future rely
upon adherence to the U.S. Department of Commerce’s Safe Harbor Privacy Principles and compliance with the U.S.-EU and U.S.-Swiss
Safe Harbor Frameworks as agreed to and set forth by the U.S. Department of Commerce, and the European Union and Switzerland,
which established a means for legitimating the transfer of Personal Data by data controllers in the European Economic Area, or
the EEA, to the United States. As a result of the October 6, 2015 European Union Court of Justice, or ECJ, opinion in Case C-362/14
(Schrems v. Data Protection Commissioner) regarding the adequacy of the U.S.-EU Safe Harbor Framework, the U.S. – EU Safe
Harbor Framework is no longer deemed to be a valid method of compliance with requirements set forth in the Directive (and member
states’ implementations thereof) regarding the transfer of Personal Data outside of the EEA.
Recently, it was announced that negotiators
from Europe and the United States reached political agreement on a successor to the Safe Harbor framework that will be referred
to as the EU-US Privacy Shield. However, we cannot predict when all of the details regarding the Privacy Shield program will be
finalized and a procedure is introduced to allow interested companies to participate in the program. While the details regarding
the Privacy Shield program continue to be finalized, we will continue to face uncertainty as to whether our efforts to comply
with our obligations under European privacy laws will be sufficient. If we are investigated by a European data protection authority,
we may face fines and other penalties. Any such investigation or charges by European data protection authorities could have a
negative effect on our existing business and on our ability to attract and retain new customers. We may be unsuccessful in establishing
conforming means of transferring data from the EEA, including due to ongoing legislative activity, which may vary the current
data protection landscape.
The Directive may be replaced in time with
the pending European General Data Protection Regulation, which may impose additional obligations and risk upon our business and
which may increase substantially the penalties to which we could be subject in the event of any non-compliance. We may incur substantial
expense in complying with the new obligations to be imposed by the European General Data Protection Regulation and we may be required
to make significant changes in our operations, all of which may adversely affect our business.
If we fail to comply with environmental, health and safety
laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on
the success of our business.
Our research and development activities
and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use, and disposal of
hazardous materials, including the components of our product candidate and other hazardous compounds. We and our manufacturers
and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous
materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’
facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of
our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly
clean-up and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials
and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling
and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee
that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may
be held liable for any resulting damages, such liability could exceed our resources and state or federal or other applicable authorities
may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations
are complex, change frequently, and have tended to become more stringent. We cannot predict the impact of such changes and cannot
be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.
Security breaches and other disruptions could compromise
our information and expose us to liability, which would cause our business and reputation to suffer.
We collect and store sensitive data, including
intellectual property, our proprietary business information and that of our manufacturers, business partners, healthcare professionals
and patients. This includes, where required or permitted by applicable laws, personally identifiable information. The secure maintenance
of this information is critical to our operations and business strategy. Despite our security measures, our information technology
and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.
Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or
stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under
laws that protect the privacy of personal information, disrupt our operations, and damage our reputation which could adversely
affect our business.
Exchange rate fluctuations between the U.S. dollar and
non-U.S. currencies may negatively affect our results of operations.
The U.S. dollar is our functional and reporting
currency; however, a portion of our operations are currently conducted in Israel and a portion of the Israeli expenses are currently
paid or denominated in New Israeli Shekels, or NIS. We also contract with CROs internationally, primarily for the execution of
clinical trials and manufacturing activities. A portion of these transactions are settled in Euros or Great British Pounds, or
GBPs. As a result, we are exposed to the risk that the NIS, Euro or GBP may appreciate relative to the U.S. dollar, or, if the
NIS, Euro or GBP instead devalue relative to the U.S. dollar, that the relative inflation rate may exceed such rate of devaluation,
or that the timing of such devaluation may lag behind the relative inflation. In any such event, the U.S. dollar cost of our operations
in Israel and transactions with certain CROs and other third parties would increase and our U.S. dollar-denominated results of
operations would be adversely affected. To date, we have not engaged in hedging transactions. In the future, we may enter into
currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal
operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.
If the U.S. dollar cost of our operations increases, our U.S. dollar-measured results of operations will be adversely affected.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and
Qualitative Disclosure about Market Risk.”
Risks Related to this Offering and
Ownership of Our Securities
If we are unable to comply with NASDAQ listing requirements,
our Ordinary Shares could be delisted from the NASDAQ Global Market, and as a result we and our shareholders could incur material
adverse consequences, including negative impact on our liquidity, our stockholders’ ability to sell shares and our ability
to raise capital.
Our Ordinary Shares are currently listed
on the NASDAQ Global Market. Our listing on the NASDAQ Global Market is conditioned upon our continued compliance with the NASDAQ
Marketplace Rules, including minimum stockholders’ equity of $10,000,000 and minimum bid price of $1.00 per share for the
last 30 consecutive business days.
On March 6, 2017, we received a deficiency
letter from NASDAQ stating that our annual report on Form 20-F for the period ended December 31, 2016 reported stockholders’
equity below the minimum threshold of $10,000,000 for continued listing, and accordingly we have 45 calendar days to submit a
plan to regain compliance. If our plan to regain compliance is accepted, we may be granted an extension of up to 180 calendar
days from the date of the letter to evidence compliance.
In addition, as of March 14, 2017, the bid
price of our Ordinary Shares was $0.86. If we fail to comply with a minimum bid price of $1.00 per share for 30 consecutive business
days, we would have a period of 180 calendar days to achieve compliance by meeting the applicable standard for a minimum of ten
consecutive business days. If we are not in compliance before the expiration of the 180 day compliance period, NASDAQ may grant
us an additional 180 day compliance period, provided that on the 180
th
day of the first compliance period we have demonstrated
that we meet all applicable standards for initial listing on the NASDAQ (except the bid price requirement) based on our most recent
public filings and market information.
If we fail to achieve compliance with NASDAQ
Marketplace Rules, including the minimum stockholders’ equity threshold and minimum bid price of $1.00 per a share, our
Ordinary Shares could be delisted from the NASDAQ Global Market. If our Ordinary Shares are delisted from the NASDAQ Global Market,
our shareholders could incur material adverse consequences such as reduced liquidity and reduced market prices for their securities.
Following such delisting, we could encounter material adverse consequence, including increased difficulty in issuing additional
securities at an attractive price, or at all, in order to fund our operations.
Even if we maintain compliance with the
NASDAQ Global Market upon the completion of this offering, we cannot assure you that we will in the future be able to satisfy
the continued listing requirements of the NASDAQ Global Market.
Our directors, executive officers and principal shareholders
exercise significant control over our company, which will limit your ability to influence corporate matters.
After this offering, our executive
officers, directors and principal shareholders will beneficially own approximately 44.2% of our Ordinary Shares. As a result,
these shareholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder
approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration
of ownership may delay or prevent a change in control of our company and make some future transactions more difficult or impossible
without the support of these shareholders. The interests of these shareholders may not coincide with our interests or the interests
of other shareholders.
We will likely be characterized as a “passive foreign
investment company” for U.S. tax purposes, which could cause adverse U.S. income tax consequences to U.S. holders of our
Ordinary Shares.
If we were to be characterized as a passive
foreign investment company, or PFIC, under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year
during which a U.S. taxpayer owns Ordinary Shares, such U.S. holder could be liable for additional taxes and interest charges
upon certain distributions by us and any gain recognized on a sale, exchange or other disposition, including a pledge, of the
Ordinary Shares, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition of our
income and the projected composition and estimated fair market values of our assets, we believe that we likely will be deemed
a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. Were we to be classified as a PFIC,
a U.S. investor may be able to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the Ordinary
Shares for our taxable year ended December 31, 2016, provided that such U.S. investor is eligible to make, and successfully makes,
a “mark-to-market” election. U.S. investors could also mitigate some of the adverse U.S. federal income tax consequences
of us being classified as a PFIC by making a “qualified electing fund”, or QEF, election, provided that we provide
the information necessary for a U.S. investor to make such an election. We intend to make available to U.S. investors upon request
the information necessary for U.S. holders to make qualified electing fund elections. U.S. Holders are strongly urged to consult
their tax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences
to them of making a QEF or mark-to-market election with respect to our Ordinary Shares in the event we that qualify as a PFIC.
For more information see Taxation – “U.S. Federal Income Tax Consequences.”
We do not know whether a market for our Ordinary Shares
will be sustained or what the market price of our Ordinary Shares will be and as a result it may be difficult for you to sell
your shares.
On August 5, 2014, we completed an initial
public offering of 3,200,000 Ordinary Shares at a price to the public of $11.00 per share. In March 2016, we completed the sale
of 2,161,290 Ordinary Shares in a registered direct offering at a price of $3.10 per share, which included a private placement
of warrants to purchase additional Ordinary Shares. Although our Ordinary Shares are quoted on the NASDAQ Global Market, an active
trading market for our Ordinary Shares may not be sustained. It may be difficult for you to sell your Ordinary Shares at all or
without depressing the market price for the Ordinary Shares. As a result of these and other factors, you may not be able to sell
your Ordinary Shares at or above the price you paid for such shares or at all. In addition, the trading price of our Ordinary
Shares is likely to be volatile.
We have registered for the offer and sale
a number of the Ordinary Shares that are reserved for issuance pursuant to outstanding options, and intend to similarly register
additional Ordinary Shares in the future. Shares covered by such registration statements upon the exercise of stock options generally
will be eligible for sale in the public market, except that affiliates continue to be subject to volume limitations and other
requirements of Rule 144 under the Securities Act. The issuance or sale of such shares could depress the market price of our Ordinary
Shares.
In addition, the stock market in general,
and NASDAQ in particular, as well as biotechnology companies, have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of small companies. Broad market and industry factors may
negatively affect the market price of our Ordinary Shares, regardless of our actual operating performance. Further, a systemic
decline in the financial markets and related factors beyond our control may cause our share price to decline rapidly and unexpectedly.
In addition, our ability to raise additional capital may be dependent on our shares being quoted on the NASDAQ Global Market or
upon obtaining stockholder approval. There can be no assurance that we will be able to satisfy the criteria for continued listing
on the NASDAQ Global Market. If our share price falls below the listing standards of NASDAQ Global Market, our Ordinary Shares
may be delisted from trading.
We may be subject to securities litigation, which is
expensive and could divert management attention.
The market price of our securities may
be volatile, in the past companies that have experienced volatility in the market price of their stock have been subject to securities
class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in
substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse
determination in litigation could also subject us to significant liabilities. While we currently have directors’ and officers’
insurance,
there is no guarantee that the current policy will be maintained, or whether it will be sufficient to cover the costs of potential
litigation.
Sales of a substantial number of our Ordinary Shares
in the public market by our existing shareholders could cause our share price to fall.
Sales of substantial amounts of our Ordinary
Shares in the public market after this offering, or the perception that these sales may occur, could materially and adversely
affect the price of our securities and could impair our ability to raise capital through the sale of additional equity securities.
The Ordinary Shares sold in this offering will be freely tradable, without restriction, in the public market.
In connection with this offering, we, our
executive officers and directors have agreed prior to the commencement of this offering, subject to limited exceptions, not to
sell or transfer any Ordinary Shares for 90 days after the date of this prospectus without the consent of the underwriters. However,
the underwriters may release these shares from any restrictions at any time. We cannot predict what effect, if any, market sales
of shares held by any shareholder or the availability of shares for future sale will have on the market price of our Ordinary
Shares.
If securities or industry analysts do not publish or
cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or
publish negative reports regarding our business or our Ordinary Shares, our share price and trading volume could decline.
The trading market for our Ordinary Shares
is and will be influenced by the research and reports that industry or securities analysts may publish about us, our business,
our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts
will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding
our Ordinary Shares, or provide more favorable relative recommendations about our competitors, our share price would likely decline.
If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose
visibility in the financial markets, which in turn could cause our share price or trading volume to decline.
We have never paid cash dividends on our capital stock
and we do not anticipate paying any dividends in the foreseeable future. Consequently, any gains from an investment in our Ordinary
Shares will likely depend on whether the price of our Ordinary Shares increases, which may not occur.
We have not paid cash dividends on any
of our classes of capital stock to date and we currently intend to retain our future earnings, if any, to fund the development
and growth of our business. In addition, the Israeli Companies Law 5759-1999, or the Companies Law, imposes restrictions on our
ability to declare and pay dividends. As a result, capital appreciation, if any, of our Ordinary Shares will be your sole source
of gain for the foreseeable future. Consequently, in the foreseeable future, you will likely only experience a gain from your
investment in our Ordinary Shares if the price of our Ordinary Shares increases beyond the price in which you originally acquired
the Ordinary Shares.
If you purchase our Securities
in this offering, you will incur immediate and substantial dilution in the book value of your shares.
The offering price in this offering
is substantially higher than the net tangible book value per share of our Ordinary Shares. Therefore, if you purchase Securities
in this offering, you will pay a price per Ordinary Share that substantially exceeds our net tangible book value per Ordinary
Share. As a result, if you purchase Securities in this offering, you will incur immediate dilution of $0.18 per share, based on
an assumed public offering price of $0.76 per share, which is the last reported sale price of our Ordinary Shares on March 31,
2017, and our as adjusted net tangible book value as of December 31, 2016. Moreover, purchasers of Ordinary Shares in this offering
will have contributed approximately 11.7% of the aggregate price paid by all purchasers of our Ordinary Shares, however, will
own approximately 34.4% of our Ordinary Shares outstanding after this offering. In addition, as of April 3, 2017, options to
purchase 2,571,156 of our Ordinary Shares at a weighted average exercise price of $3.41 per share, and warrants to purchase 1,080,645
of our Ordinary Shares at an exercise price of $4.50 per share were outstanding. The exercise of these options, warrants and offered
warrants would result in additional dilution. As a result of this dilution, investors purchasing shares in this offering may receive
significantly less than the purchase price paid in this offering in the event of liquidation. For more information, please refer
to the section of this prospectus entitled “Dilution”.
The Series A Warrants are speculative in nature.
The Series A Warrants offered by us
in this offering do not confer any rights of ownership of Ordinary Shares on their holders, such as voting rights or the right
to receive dividends, but only represent the right to acquire Ordinary Shares at a fixed price for a limited period of time. Specifically,
commencing on the date of issuance, holders of the Series A Warrants may exercise their right to acquire Ordinary Shares and pay
an assumed exercise price per full Ordinary Share of $0.76, subject to adjustment upon certain events, prior to five years from
the date of issuance, after which date any unexercised Series A Warrants will expire and have no further value.
Management will have broad discretion as to the use of
the proceeds from this offering.
Our management will have broad discretion
in the allocation of the net proceeds and could use them for purposes other than those contemplated at the time of this offering.
Our shareholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds.
The JOBS Act and our status as a foreign private issuer
will allow us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors
and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence
in our company and adversely affect the market price of our Ordinary Shares.
For so long as we remain an “emerging
growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various requirements
that are applicable to public companies that are not emerging growth companies including:
|
·
|
the
provisions of the Sarbanes-Oxley Act requiring that our independent registered public
accounting firm provide an attestation report on the effectiveness of our internal control
over financial reporting;
|
|
·
|
Section
107 of the JOBS Act, which provides that an emerging growth company may take advantage
of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act,
for complying with new or revised accounting standards. This means that an emerging growth
company may delay the adoption of certain accounting standards until those standards
would otherwise apply to private companies. We have elected to delay such adoption of
new or revised accounting standards. As a result, our financial statements may not be
comparable to companies that comply with the public company effective date; and
|
|
·
|
any
rules that may be adopted by the Public Company Accounting Oversight Board requiring
mandatory audit firm rotation or a supplement to the auditor’s report on the financial
statements.
|
We intend to take advantage of these exemptions
until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last
day of the fiscal year (a) following the fifth anniversary of our initial public offering which occurred in 2014, (b) in which
we have total annual gross revenue of at least $1 billion, or (c) in which we are deemed to be a large accelerated filer, which
means the market value of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the prior June 30th, and
(2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.
Our status as a foreign private issuer
also exempts us from compliance with certain laws and SEC regulations and certain regulations of NASDAQ, including the proxy rules,
the short-swing profits recapture rules, and certain governance requirements such as independent director oversight of the nomination
of directors and executive compensation. Also, although a recent amendment to the Companies Law will require us to disclose the
annual compensation of our five most highly compensated senior officers and directors on an individual basis (rather than on an
aggregate basis, as was permitted under the Companies Law for Israeli public companies listed overseas, such as in the United
States, prior to such amendment), this disclosure will not be as extensive as that required of a U.S. domestic issuer. For example,
it currently appears as if the disclosure required under Israeli law would be limited to compensation paid in the immediately
preceding year without any requirement to disclose option exercises and vested stock options, pension benefits or potential payments
upon termination or change of control.
We cannot predict if investors will find
our Ordinary Shares less attractive because we may rely on these exemptions. If some investors find our Ordinary Shares less attractive
as a result, there may be a less active trading market for our Ordinary Shares, and our share price may be more volatile and may
decline.
Risks Related to Israeli Law and Our
Operations in Israel
While some of our senior management team is in the
United States, a number of our officers, directors and employees are located in Israel and, therefore, our results may be
adversely affected by political, economic and military instability in Israel.
Our business headquarters, part of our
senior management team and a number of our directors and employees are located in Israel. Accordingly, political, economic and
military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number
of armed conflicts have taken place between Israel and its neighboring countries, the Hamas militant group and the Hezbollah.
Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely
affect our operations and results of operations. Since October 2000, there have been increasing occurrences of terrorist violence.
In 2006, a conflict between Israel and the Hezbollah in Lebanon resulted in thousands of rockets being fired from Lebanon into
Israel. In 2008, Israel engaged in an armed conflict with Hamas in the Gaza Strip, which involved missile strikes against Israel
and negatively affected business conditions in Israel. In 2012 and 2014, Israel experienced a similar armed conflict, resulting
in hundreds of rockets being fired from the Gaza Strip. Ongoing and revived hostilities or other Israeli political or economic
factors, such as, an interruption of operations at the Tel Aviv airport, could prevent or delay shipments of our components or
products. If continued or resumed, these hostilities may negatively affect business conditions in Israel in general and our business
in particular. In the event that hostilities disrupt the ongoing operation of our facilities or the airports and seaports on which
we depend to import and export our supplies and any product candidates, our operations may be materially adversely affected.
In addition, since 2010 political uprisings
and conflicts in various countries in the Middle East, including Egypt and Syria, are affecting the political stability of those
countries. It is not clear how this instability will develop and how it will affect the political and security situation in the
Middle East. This instability has raised concerns regarding security in the region and the potential for armed conflict. Any potential
future conflict could also include missile strikes against parts of Israel, including our offices and facilities. Such instability
may lead to deterioration in the political and trade relationships that exist between the State of Israel and certain other countries.
Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, could
harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may
sometimes decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements
when necessary in order to meet our business partners face to face. Several countries, principally in the Middle East, still restrict
doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel
and Israeli companies if hostilities in Israel or political instability in the region continues or increases. Similarly, Israeli
companies are limited in conducting business with entities from countries that are considered to be in a state of war with Israel.
In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance
in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions
in such agreements.
Our commercial insurance does not cover
losses that may occur as a result of an event associated with the security situation in the Middle East or for any resulting disruption
in our operations. Although the Israeli government has in the past covered the reinstatement value of certain damages that were
caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or, if maintained,
will be sufficient to compensate us fully for damages incurred and the government may cease providing such coverage or the coverage
might not suffice to cover potential damages. Any losses or damages incurred by us could have a material adverse effect on our
business. Any armed conflicts or political instability in the region would likely negatively affect business conditions generally
and could harm our results of operations.
Further, in the past, the State of Israel
and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel
and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial
conditions or the expansion of our business.
We may become subject to claims for remuneration or royalties
for assigned service invention rights by our employees, which could result in litigation and harm our business.
A significant portion of our intellectual
property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967,
or the Patent Law, and recent decisions by the Israeli Supreme Court and the Israeli Compensation and Royalties Committee, a body
constituted under the Patent Law, employees may be entitled to remuneration for intellectual property that they develop for us
unless they explicitly waive any such rights. Although we enter into agreements with our employees pursuant to which they agree
that any inventions created in the scope of their employment or engagement are owned exclusively by us, we may face claims demanding
remuneration. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current
and former employees, or be forced to litigate such claims, which could negatively affect our business.
Under current Israeli law, we may not be able to enforce
our Israeli employees’ covenants not to compete and therefore may be unable to prevent our competitors from benefiting from
the expertise of some of our former employees.
We generally enter into non-competition
agreements with our key employees, in most cases within the framework of their employment agreements. These agreements prohibit
our key employees, if they cease working for us, from competing directly with us or working for our competitors for a limited
period. Under applicable Israeli law, we may be unable to enforce these agreements or any part thereof against our Israeli employees.
If we cannot enforce our non- competition agreements against our Israeli employees, then we may be unable to prevent our competitors
from benefiting from the expertise of these former employees, which could impair our business, results of operations and ability
to capitalize on our proprietary information.
Provisions of Israeli law and our amended and restated
articles of association may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent
a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
As a company incorporated under the
law of the State of Israel, we are subject to Israeli corporate law. Israeli corporate law regulates mergers, requires tender
offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors,
officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example,
a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each
merging company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders
of both merging companies have approved the merger. In addition, a majority of each class of securities of the target company
must approve a merger. Moreover, a tender offer for all of a company’s issued and outstanding shares can only be completed
if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender
offer also requires approval of and a majority of the offerees that do not have a personal interest in the tender offer approves
the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the company’s
outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at
any time within six months following the completion of the tender offer, claim that the consideration for the acquisition of the
shares does not reflect their fair market value, and petition an Israeli court to alter the consideration for the acquisition,
unless accordingly, other than those who indicated their acceptance of the tender offer in case the acquirer stipulated in its
tender offer that a shareholder that accepts the offer may not seek such appraisal rights, and the acquirer or the company published
all required information with respect to the tender offer prior to the tender offer’s response date. See “Description
of Share Capital and Securities Offered Hereby —Acquisitions under Israeli Law” for additional information.
Furthermore, Israeli tax considerations
may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty
with Israel exempting such shareholders from Israeli tax. See “Taxation - Israeli Tax Considerations” for
additional information.
Our amended and restated articles of association
also contain provisions that could delay or prevent changes in control or changes in our management without the consent of our
Board of Directors. These provisions include the following:
|
·
|
no
cumulative voting in the election of directors, which limits the ability of minority
shareholders to elect director candidates; and
|
|
·
|
the
right of our Board of Directors to elect a director to fill a vacancy created by the
expansion of the Board of Directors or the resignation, death or removal of a director,
which may prevent shareholders from being able to fill vacancies on our Board of Directors.
|
It may be difficult to enforce a judgment of a United
States court against us, to assert United States securities laws claims in Israel or to serve process on our officers and directors
that reside outside of the United States.
We were incorporated in Israel. Several
of our directors reside outside of the United States, and most of our assets and the assets of these persons are located outside
of the United States. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil
liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not necessarily
be enforced by an Israeli court. It also may be difficult for you to affect service of process on these persons in the United
States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for
an investor, or any other person or entity, to initiate an action with respect to United States securities laws in Israel. Israeli
courts may refuse to hear a claim based on an alleged violation of United States securities laws reasoning that Israel is not
the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may
determine that Israeli law and not United States law is applicable to the claim. If United States law is found to be applicable,
the content of applicable United States law must be proven as a fact by expert witnesses, which can be a time consuming and costly
process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses
the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may
not be able to collect any damages awarded by either a United States or foreign court.
Your rights and responsibilities as a shareholder will
be governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders of U.S.
companies.
The rights and responsibilities of the
holders of our Ordinary Shares are governed by our amended and restated articles of association and by Israeli law. These rights
and responsibilities differ in some material respects from the rights and responsibilities of shareholders in typical U.S.-based
corporations. In particular, a shareholder of an Israeli company has certain duties to act in good faith and fairness toward the
Company and other shareholders, and to refrain from abusing its power in us. See “Management – Approval of Related
Party Transactions under Israeli Law” for additional information. There is limited case law available to assist us in understanding
the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations
on holders of our Ordinary Shares that are not typically imposed on shareholders of U.S. corporations.
Our operations may be disrupted as a result of the obligation
of management or key personnel to perform military service.
Our employees and consultants in Israel,
including members of our senior management, may be obligated to perform one month, and in some cases longer periods, of military
reserve duty until they reach the age of 40 (or older, for citizens who hold certain positions in the Israeli armed forces reserves)
and, in the event of a military conflict or emergency circumstances, may be called to immediate and unlimited active duty. In
the event of severe unrest or other conflict, individuals could be required to serve in the military for extended periods of time.
In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is
possible that there will be similar large-scale military reserve duty call-ups in the future. Our operations could be disrupted
by the absence of a significant number of our officers, directors, employees and consultants related to military service. Such
disruption could materially adversely affect our business and operations.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA
Some of the statements made under “Prospectus
Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus constitute forward-looking
statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” “intends,” or “continue,” or the negative of these terms
or other comparable terminology.
Forward-looking statements include, but
are not limited to, statements about:
|
·
|
our
ability to continue as a going concern;
|
|
·
|
our
expectations regarding the timing of commencing clinical trials with respect to our Trehalose
IV solution in OPMD;
|
|
·
|
our
expectations regarding the progress of our clinical trials, including the duration, cost
and whether such trials will be conducted at all;
|
|
·
|
the
number, scope, size and design of our planned development programs, including nonclinical,
clinical trials;
|
|
·
|
our
intention to successfully complete clinical trials in order to be in a position to submit
an NDA to the FDA;
|
|
·
|
our
intention to apply for regulatory approval for our current and any future product candidates
we may develop, and the costs and timing of such regulatory approvals;
|
|
·
|
the
likelihood of regulatory approvals for any product candidate we may develop;
|
|
·
|
the
timing, cost or other aspects of the commercial launch of any product candidate we may
develop, including our intention to a build a commercial infrastructure to support commercialization
of our current and any future product candidates we may develop;
|
|
·
|
our
intention to enter into strategic partnerships;
|
|
·
|
our
intention to retain global commercialization rights to our product to maximize long-term
value;
|
|
·
|
future
sales of our product candidate or any other future products or product candidates;
|
|
·
|
our
ability to achieve favorable pricing for our product candidate;
|
|
·
|
the
potential for our product candidates to receive designation as an orphan drug and implications
if they do not receive such designation;
|
|
·
|
that
any product candidate we develop potentially offers effective solutions for various diseases;
|
|
·
|
whether
we will develop any future product candidates internally or through strategic partnerships;
|
|
·
|
our
expectations regarding the manufacturing and supply of any product candidate we may have
developed for use in our nonclinical and clinical trials, and the commercial supply of
those product candidates;
|
|
·
|
third-party
payer reimbursement for our current or any future product candidates;
|
|
·
|
our
estimates regarding anticipated expenses, capital requirements and our needs for substantial
additional financing;
|
|
·
|
the
ultra-rare and rare diseases patient market size and market adoption of our current or
any future product candidates by physicians and patients;
|
|
·
|
completion
and receiving favorable results of clinical trials for our product candidates;
|
|
·
|
protection
of our intellectual property, including issuance of patents to us by the USPTO and other
governmental patent agencies;
|
|
·
|
our
intention to pursue marketing and orphan drug exclusivity periods that are available
to us under regulatory provisions in certain countries;
|
|
·
|
the
development and approval of the use of our current or any future product candidates for
additional indications other than ultra-rare and rare diseases;
|
|
·
|
our
expectations regarding commercial and pre-commercial activities;
|
|
·
|
our
expectations regarding licensing, acquisitions, and strategic operations; and
|
These statements are only current predictions
and are subject to known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual
results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking
statements. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors” and
elsewhere in this prospectus. You should not rely upon forward-looking statements as predictions of future events.
Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance,
or achievements. Except as required by law, we do not intend to update or revise any of the forward-looking statements, whether
as a result of new information, future events or otherwise, after the date of this prospectus.
PRICE
HISTORY OF OUR ORDINARY SHARES
Our Ordinary Shares have been listed on
the NASDAQ Global Market under the symbol “ORPN” since July 30, 2014. Prior to that date, there was no public trading
market for our Ordinary Shares. The following table sets forth for the periods indicated the high and low sales prices per ordinary
share as reported on the NASDAQ Global Market:
|
|
Low
|
|
|
High
|
|
Annual information
|
|
|
|
|
|
|
|
|
2014
|
|
$
|
4.50
|
|
|
$
|
11.00
|
|
2015
|
|
$
|
3.45
|
|
|
$
|
8.85
|
|
2016
|
|
$
|
0.92
|
|
|
$
|
7.95
|
|
Quarterly information
|
|
|
|
|
|
|
|
|
First quarter 2015
|
|
$
|
5.80
|
|
|
$
|
8.85
|
|
Second quarter 2015
|
|
$
|
5.10
|
|
|
$
|
8.50
|
|
Third quarter 2015
|
|
$
|
4.90
|
|
|
$
|
7.15
|
|
Fourth quarter 2015
|
|
$
|
3.45
|
|
|
$
|
6.60
|
|
First quarter 2016
|
|
$
|
2.30
|
|
|
$
|
7.95
|
|
Second quarter 2016
|
|
$
|
1.54
|
|
|
$
|
3.13
|
|
Third quarter 2016
|
|
$
|
1.50
|
|
|
$
|
2.04
|
|
Fourth quarter 2016
|
|
$
|
0.92
|
|
|
$
|
1.75
|
|
First quarter 2017
|
|
$
|
0.75
|
|
|
$
|
1.55
|
|
Monthly information
|
|
|
|
|
|
|
|
|
October 2016
|
|
$
|
1.50
|
|
|
$
|
1.75
|
|
November 2016
|
|
$
|
1.30
|
|
|
$
|
1.71
|
|
December 2016
|
|
$
|
0.92
|
|
|
$
|
1.58
|
|
January 2017
|
|
$
|
1.01
|
|
|
$
|
1.55
|
|
February 2017
|
|
$
|
1.15
|
|
|
$
|
1.55
|
|
March 2017
|
|
$
|
0.75
|
|
|
$
|
1.07
|
|
USE
OF PROCEEDS
We expect to receive
approximately $5.78 million in net proceeds from the sale of 8,581,141 Class A Units or Class B Units offered by us in
this offering (approximately $6.47 million if the over-allotment option is exercised in full), based on an assumed public
offering price of $0.76 per Class A Unit, the closing price of our Ordinary Shares on March 31, 2017, and after
deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The actual offering
price per unit will be as determined between us and the underwriters at the time of pricing, and may be at a discount to
the current market price. A $0.10 increase (decrease) in the assumed public offering price of $0.76 per Class A Unit
would increase (decrease) our net proceeds from this offering by approximately $0.81 million, assuming that the number of
units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. We may also increase or decrease the number of units
we are offering. An increase (decrease) of 1,000,000 units in the number of units offered by us would increase (decrease) the
net proceeds to us from this offering by approximately $0.72 million after deducting estimated underwriting discounts and
estimated offering expenses payable by us.
We currently expect to use the net proceeds
from this offering for the following purposes:
|
·
|
Approximately $4.50 million to initiate a Phase 2b clinical trial
of our Trehalose IV solution for the treatment of OPMD patients;
|
|
·
|
Approximately $500,000 to initiate one or two Phase 2a clinical
trial of our Trehalose IV solution for other indications; and
|
|
·
|
Approximately $250,000 to continue a prospective natural history
of disease study for OPMD.
|
We expect to use the remainder of any net
proceeds from this offering for working capital and other general corporate purposes.
The amounts and schedule of our actual
expenditures will depend on multiple factors including the progress of our clinical development and regulatory efforts, the status
and results of the clinical trials, the pace of our partnering efforts with respect to manufacturing and commercialization and
the overall regulatory environment. Therefore, our management will retain broad discretion over the use of the proceeds from this
offering. We may ultimately use the proceeds for different purposes than what we currently intend. Pending any ultimate use of
any portion of the proceeds from this offering, if the anticipated proceeds will not be sufficient to fund all the proposed purposes,
our management will determine the order of priority for using the proceeds, as well as the amount and sources of other funds needed.
Pending our use of the net proceeds from
this offering, we may invest the net proceeds in a variety of capital preservation investments, including short-term, investment
grade, interest bearing instruments and/or governmental securities.
DIVIDEND
POLICY
We have never declared or paid cash dividends
on our Ordinary Shares. We do not anticipate paying dividends in the foreseeable future. Payment of cash dividends, if any, in
the future will be at the discretion of our Board of Directors and will depend on then-existing conditions, including our financial
condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our Board of
Directors may deem relevant.
The Companies Law imposes further restrictions
on our ability to declare and pay dividends. See “Description of Share Capital and Securities Offered Hereby—Dividend
and Liquidation Rights” for additional information.
Payment of dividends may be subject to
Israeli withholding taxes. See “Taxation—Israeli Tax Considerations” for additional information.
CAPITALIZATION
The following table sets forth our cash and
cash equivalents and our capitalization as of December 31, 2016:
|
·
|
on
an actual basis; and
|
|
·
|
on an as adjusted basis to give effect to the sale of 8,581,141
units in this offering at an assumed public offering price of $0.76 per Class A Unit, the last reported sale price of the
Ordinary Shares on the NASDAQ Global Market on March 31, 2017, and $0.75 per Class B Unit, after deducting underwriting discounts
and commissions and estimated offering expenses payable by us.
|
You should read this table in conjunction with
the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. Information
in the table below is in thousands, except for share and per share amounts.
|
|
December 31, 2016
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
U.S. dollars in thousands,
|
|
|
|
except share data
|
|
Cash and cash equivalents
|
|
$
|
6,871
|
|
|
$
|
12,646
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Ordinary shares of NIS 0.01 par value - 50,000,000 shares authorized at December 31, 2016 actual and as adjusted; 16,391,770
and 22,806,244 issued and outstanding shares at December 31, 2016 actual and as adjusted, respectively
|
|
|
45
|
|
|
|
63
|
|
Additional paid-in capital
|
|
|
48,463
|
|
|
|
54,220
|
|
Accumulated deficit
|
|
|
(39,809
|
)
|
|
|
(39,809
|
)
|
Total
stockholders’ equity
|
|
$
|
8,699
|
|
|
$
|
14,474
|
|
The number of Ordinary Shares to be outstanding
after this offering is based on 16,391,770 Ordinary Shares outstanding as of December 31, 2016, and excludes:
|
·
|
2,651,781
Ordinary Shares issuable upon the exercise of options to purchase Ordinary Shares outstanding as of December 31, 2016, at a weighted-average
exercise price of $3.41 per share;
|
|
·
|
1,080,645
Ordinary Shares issuable upon the exercise of warrants to purchase Ordinary Shares outstanding as of December 31, 2016, at an
exercise price of $4.50 per share; and
|
|
·
|
694,179
Ordinary Shares reserved for future issuance under the 2013 Incentive Option Plan.
|
DILUTION
If you invest in our Securities, you
will experience immediate and substantial dilution to the extent of the difference between the public offering price of our Securities
and the as adjusted net tangible book value per share of our Ordinary Shares immediately after the offering.
Our historical net tangible book value
per share is determined by dividing our total tangible assets, less total liabilities, by the actual number of outstanding Ordinary
Shares. The historical net tangible book value of our Ordinary Shares as of December 31, 2016, was $8.70 million, or $0.53 per
share.
The as adjusted net tangible book value
of our Ordinary Shares as of December 31, 2016, was $14.47 million, or $0.58 per share. The as adjusted net tangible book value
gives effect to the sale of 8,581,141 units in this offering at the public offering price of $0.76 per Class A Unit (based on
the last reported sale price of the Ordinary Shares on the NASDAQ Global Market on March 31 2017), or $0.75 per Class B Unit,
after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The difference between the
public offering price and the as adjusted net tangible book value per share represents an immediate dilution of $0.18 per
share to new investors purchasing units in this offering.
The following table illustrates this dilution
on a per share basis to new investors:
Assumed public offering price per Class A Unit
|
|
|
|
|
|
$
|
0.76
|
|
Historical net tangible book value per share before this offering, as of December 31, 2016
|
|
$
|
0.53
|
|
|
|
|
|
Increase in net tangible book value per share attributable to new
investors in this offering
|
|
|
0.05
|
|
|
|
|
|
As adjusted net tangible book value per share after offering
|
|
|
|
|
|
|
0.58
|
|
Dilution in as adjusted tangible book value per share to new investors
|
|
|
|
|
|
$
|
0.18
|
|
The preceding table excludes as of December
31, 2016 (i) 2,651,781 Ordinary Shares issuable upon the exercise of outstanding options at a weighted average exercise price
of $3.41 (ii) 1,080,645 Ordinary Shares issuable upon the exercise of outstanding warrant at an exercise price of $4.50 (iii)
6,435,855 Ordinary Shares issuable upon the exercise of warrants, to be issued in this offering, and any Ordinary Shares issuable
upon the exercise of warrants issued pursuant to the exercise of the over-allotment option.
To the extent outstanding options or
warrant or offered warrants are exercised, you will incur further dilution.
If the underwriters’ over-allotment
option to purchase additional units from us is exercised in full, and based on the public offering price of $0.76 per Class
A Unit (based on the last reported sale price of the Ordinary Shares on the NASDAQ Global Market on March 31, 2017), the as adjusted net tangible book value per share after this offering would be approximately $0.59 per share,
the increase in the as adjusted net tangible book value per share attributable to new investors would be approximately $0.06 per
share and the dilution to new investors purchasing shares in this offering would be approximately $0.17 per share.
A $0.10 increase in the assumed
public offering price of $0.76 per Class A Unit and $0.75 per Class B Unit, would result in the as adjusted net tangible book
value per share after this offering increase by $0.03 and be approximately $0.61 per share, the as adjusted net tangible book
value per share attributable to new investors increase by $0.03 and would be approximately $0.08 per share and the dilution
to new investors purchasing shares in this offering would be approximately $0.25 per share. Conversely, a $0.10 decrease in
the assumed public offering price of $0.76 per Class A Unit and $0.75 per Class B Unit would result in the as adjusted net
tangible book value per share after this offering decrease by $0.03 and be approximately $0.55 per share, the as adjusted net
tangible book value per share attributable to new investors decrease by $0.03 and would be approximately $0.02 per share and
the dilution to new investors purchasing shares in this offering would be approximately $0.11 per share.
An increase
of 1,000,000 units in the number of units offered by us, would increase our as adjusted net tangible book
value after this offering by approximately $0.72 million and would result in the as adjusted net tangible book value per
share after this offering increase by $0.01 and be approximately $0.59 and the dilution per Ordinary Share to new investors
decrease by $0.01 and would be approximately $0.17, assuming no changes in the assumed public offering price of
$0.76 per Class A Unit and $0.75 per Class B Unit and after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by us. Conversely, a decrease of 1,000,000 units in the number of units
offered by us, would decrease our as adjusted net tangible book value after this offering by approximately $0.72 million and
would result in the as adjusted net tangible book value per share after this offering to decrease by $0.01 and
be approximately $0.57, and the dilution per Ordinary Share to new investors increase by $0.01 and would be approximately
$0.19, assuming no changes in the assumed public offering price of $0.76 per Class A Unit and $0.75 per Class B Unit
and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by
us. The information discussed above is illustrative only and will adjust based on the actual public offering price
and other terms of the offering determined at pricing.
The table below summarizes as of December
31, 2016, on the as adjusted basis described above, the number of Ordinary Shares we issued and sold, the total consideration
we received and the average price per share (1) paid by our existing shareholders and (2) to be paid by new investors purchasing
our Class A Units in this offering at the public offering price of $0.76 per unit, or $0.75 per Class B Unit, before deducting
underwriting discounts and commissions and estimated offering expenses payable by us.
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Per Share
|
|
Existing shareholders
|
|
|
16,391,770
|
|
|
|
65.6
|
%
|
|
$
|
48,973,819
|
|
|
|
88.3
|
%
|
|
$
|
2.99
|
|
New investors
|
|
|
8,581,141
|
|
|
|
34.4
|
%
|
|
$
|
6,500,000
|
|
|
|
11.7
|
%
|
|
$
|
0.76
|
|
Total
|
|
|
24,972,911
|
|
|
|
100.0
|
%
|
|
$
|
55,473,819
|
|
|
|
100.0
|
%
|
|
$
|
2.22
|
|
The number of Ordinary Shares to be outstanding
after this offering is based on 16,391,770 Ordinary Shares outstanding as of December 31, 2016, and excludes:
|
·
|
2
,651,781
Ordinary Shares issuable upon the exercise of options to purchase Ordinary Shares outstanding as of December 31, 2016, at a weighted-average
exercise price of $3.41 per share;
|
|
·
|
1,080,645
Ordinary Shares issuable upon the exercise of warrants to purchase Ordinary Shares outstanding as of December 31, 2016, at an
exercise price of $4.50 per share; and
|
|
·
|
694,179
Ordinary Shares reserved for future issuance under the 2013 Incentive Option Plan.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial
data for the years ended of December 31, 2016, 2015 and 2014 and as of December 31, 2016, and 2015 are derived from, and should
be read in conjunction with, the audited consolidated financial statements, and notes thereto, included elsewhere in this prospectus.
The summary consolidated financial for the years ended December 31, 2013 and 2012 and as of December 31, 2014, 2013 and 2012 have
been derived from audited financial statements not included in this prospectus. Our historical results are not necessarily indicative
of the results that may be expected in the future. The following summary financial data should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes
included elsewhere in this prospectus.
Statement of Operations Data - Year Ended December 31
U.S. dollars in thousands, except share and per share data
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Research and development
|
|
$
|
8,881
|
|
|
$
|
7,694
|
|
|
$
|
4,441
|
|
|
$
|
732
|
|
|
$
|
140
|
|
Pre-commercialization
|
|
|
1,085
|
|
|
|
829
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
General and administrative
|
|
|
5,900
|
|
|
|
6,953
|
|
|
|
2,639
|
|
|
|
416
|
|
|
|
86
|
|
Total operating expenses
|
|
|
15,866
|
|
|
|
15,476
|
|
|
|
7,080
|
|
|
|
1,148
|
|
|
|
226
|
|
Loss from operations
|
|
|
(15,866
|
)
|
|
|
(15,476
|
)
|
|
|
(7,080
|
)
|
|
|
(1,148
|
)
|
|
|
(226
|
)
|
Financial income, net
|
|
|
60
|
|
|
|
135
|
|
|
|
58
|
|
|
|
3
|
|
|
|
(3
|
)
|
Loss before taxes on income
|
|
|
(15,806
|
)
|
|
|
(15,341
|
)
|
|
|
(7,022
|
)
|
|
|
(1,145
|
)
|
|
|
(229
|
)
|
Taxes on income
|
|
|
(216
|
)
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Deemed dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
-
|
|
Net loss
|
|
$
|
(16,022
|
)
|
|
$
|
(15,365
|
)
|
|
$
|
(7,022
|
)
|
|
$
|
(1,171
|
)
|
|
$
|
(229
|
)
|
Net loss attributable to Ordinary shareholders
|
|
$
|
(16,022
|
)
|
|
$
|
(15,365
|
)
|
|
$
|
(7,022
|
)
|
|
$
|
(1,171
|
)
|
|
$
|
(229
|
)
|
Net loss per share attributable to Ordinary shareholders - basic and diluted
|
|
$
|
(1.01
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.03
|
)
|
Weighted average number of Ordinary shares outstanding - basic and diluted
|
|
|
15,906,220
|
|
|
|
14,230,480
|
|
|
|
12,259,600
|
|
|
|
8,423,018
|
|
|
|
7,551,427
|
|
Balance Sheet Data - December 31,
U.S. dollars in thousands
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Cash and cash equivalents
|
|
$
|
6,871
|
|
|
$
|
7,286
|
|
|
$
|
10,583
|
|
|
$
|
270
|
|
|
$
|
146
|
|
Short-term bank deposits
|
|
|
3,007
|
|
|
|
12,046
|
|
|
|
22,028
|
|
|
|
-
|
|
|
|
-
|
|
Current Assets
|
|
|
10,541
|
|
|
|
20,392
|
|
|
|
32,885
|
|
|
|
299
|
|
|
|
156
|
|
Total assets
|
|
|
10,630
|
|
|
|
20,516
|
|
|
|
32,954
|
|
|
|
306
|
|
|
|
156
|
|
Current liabilities
|
|
|
1,931
|
|
|
|
2,514
|
|
|
|
2,280
|
|
|
|
131
|
|
|
|
81
|
|
Long-term liabilities
|
|
|
-
|
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Liabilities
|
|
|
1,931
|
|
|
|
2,584
|
|
|
|
2,280
|
|
|
|
131
|
|
|
|
81
|
|
Accumulated deficit
|
|
|
(39,809
|
)
|
|
|
(23,787
|
)
|
|
|
(8,422
|
)
|
|
|
(1,400
|
)
|
|
|
(229
|
)
|
Shareholders’ equity
|
|
|
8,699
|
|
|
|
17,932
|
|
|
|
30,674
|
|
|
|
175
|
|
|
|
75
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should
be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion
and other parts of the prospectus contain forward-looking statements based upon current expectations that involve risks and uncertainties.
Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements
as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
Introduction
We are a clinical stage biotechnology company
committed to developing meaningful therapies for patients with rare and ultra-rare genetic diseases. Currently our focus is on
Trehalose IV, a therapeutic platform that offers potential solutions for several diseases that share a common pathophysiological
mechanism, which are the functional changes that accompany a particular syndrome or disease. Since our inception in 2012, our
work with trehalose has centered around two diseases, OPMD and SCA3. We also address diseases with severe and debilitating manifestations,
where the unmet medical need is clear, the biological mechanism of action is understood, and for which there is no satisfactory
treatment.
To date, we have not generated
revenue from the sale of any product, and we do not expect to generate significant revenue unless and until we obtain
marketing approval of, and commercialize our product candidate. As of December 31, 2016, we had an accumulated deficit of
$39.81 million. Our financing activities are described below under “Liquidity and Capital Resources”. We expect
to continue to incur significant expenses and operating losses for at least the next several years as we continue to
incur substantial expenses related to product development, clinical and nonclinical studies, regulatory filling and, if
approved, commercial launch of our product candidate. These losses, combined with prior losses will continue to have an
adverse effect on our cash resources, shareholders’ deficit and working capital. As a result of these expected losses
and negative cash flows from operations, along with our current cash position, we only have sufficient resources to fund
operations at least until the end of second quarter of 2017. Therefore, there is substantial doubt about our ability to
continue as a going concern.
If we obtain regulatory approval for our product
candidate and any future product candidates we may develop, we may incur significant sales, marketing, in-licensing and outsourced
manufacturing expenses, as well as continued research and development expenses. In addition, we expect our research and development
expenses to significantly increase in connection with our planned additional Phase 2b clinical trial of Trehalose IV for treatment
of OPMD patients and other planned clinical trials of our Trehalose IV solution for treatments of other indications, and as we
develop additional product candidates for our drug pipeline. Because of the numerous risks and uncertainties associated with developing
and commercializing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable,
if at all.
Until such time, if ever, as we can generate
substantial product revenues, we expect to finance our cash needs through a combination of equity offerings and debt financings,
as well as license and collaboration agreements with potential partners. We may be unable to raise capital when needed or on attractive
terms, or to enter into collaboration agreements, which could force us to delay, limit, reduce or terminate our product development
or future commercialization efforts. We will need to generate significant revenues to achieve profitability, which we may not
be able to achieve.
Financial Overview
Research and Development
Research and development expenses consist of
expenses incurred in performing research and development activities, including compensation and benefits (which includes share
based compensation for research and development employees), an allocation of facilities expenses, overhead expenses, nonclinical
pharmacology and toxicology studies, manufacturing process-development, clinical trial and related clinical manufacturing expenses,
fees paid to CROs, investigative sites, and other external expenses. In the early phases of development, our research and development
costs include expanding our product platform as well as early development of specific product candidates. As we expand the clinical
development of our Trehalose IV solution, we expect the amount of research and development spending to continue to grow. The majority
of our research and development expenses are spent on the development of our Trehalose IV solution.
We expense research and development costs as
incurred. Conducting a significant amount of research and development is central to our business model. Product candidates in
advanced stages of clinical development generally have higher development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of advanced stage clinical trials. We plan to increase our research and development
expenses for the foreseeable future as we seek to obtain regulatory approval for our Trehalose IV solution in the United States
and rest of the world as well as to expand the indications for our Trehalose IV solution, and to further advance our nonclinical
and earlier stage research and development projects into clinical stages. The successful development of our Trehalose IV solution
for treatment of OPMD patients and other indications is highly uncertain. At this time, we cannot reasonably estimate the nature,
timing or costs of the efforts that will be necessary to complete the remainder of the development of our Trehalose IV solution,
or the period, if any, in which material net cash inflows from this product candidate may commence. Clinical development timelines,
the probability of success and development costs can differ materially from expectations. For example, if the FDA or another regulatory
authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion
of clinical development of a product candidate or if we experience significant delays in any of our clinical trials, we could
be required to expend significant additional financial resources and time on the completion of clinical development.
Pre-commercialization
Pre-commercialization expenses consist primarily
of professional fees related to preparation for, and if approved, the eventual commercialization of our Trehalose IV solution,
including compensation and benefits (which includes share-based compensation), fees paid to third parties for market research
activities and commercialization planning activities, and allocation of facilities expenses and overhead expenses. We anticipate
that these expenses will materially increase as we accelerate our preparation for commercialization and, if it is approved, start
to market our Trehalose IV solution and as we explore new collaborations to develop and commercialize our Trehalose IV solution
and other products.
General and Administrative
General and administrative expenses consist
primarily of salaries and related benefits, including share-based compensation, related to our executive, finance, business development,
and support functions. Other general and administrative expenses include facility-related costs not otherwise allocated to research
and development expenses, travel expenses for our general and administrative personnel and professional fees for auditing, tax,
as well as corporate and intellectual property legal services. We anticipate that our general and administrative expenses will
increase in future periods, reflecting an expanding infrastructure and increased professional fees associated with being a public
company and potentially as a commercial-stage company.
Finance
Income, Net
Finance income, net consists mainly of interest
income on bank deposits offset by bank fees and exchange rate fluctuations.
Provision for Income Taxes
We are subject to Israeli income taxes for
earnings generated in Israel and for federal and state income taxes for earnings of our wholly-owned U.S. subsidiary generated
in the United States. Our consolidated tax expense is affected by the mix of our taxable income (loss) in the Israel and the United
States permanent items, discrete items, and unrecognized tax benefits. We file Israeli income tax returns, U.S. federal and various
U.S. states returns. The associated tax filings remain subject to examination by applicable tax authorities for a certain length
of time following the tax year to which those filings relate. As of December 31, 2016, in Israel and the United States, all the
tax years since inception (2012 in Israel, and 2015 in the United States) remain subject to examination by the applicable taxing
authorities.
Results of Operations
C
omparison for the years ended December 31, 2016 and 2015
The following tables set
forth, for the periods indicated, our results of operations and the change between the specified periods expressed as a percent
increase or decrease:
Research and Development Expenses
|
|
2016
|
|
|
2015
|
|
|
$ change
|
|
|
% change
|
|
|
|
U.S. dollars in thousands, except percentages
|
|
Research and development
|
|
|
8,881
|
|
|
|
7,694
|
|
|
|
1,187
|
|
|
|
15
|
%
|
For the year ended December
31, 2016, our total research and development expenses increased by approximately $1.19 million, or 15%, compared to the prior
year. The increase was primarily due to increased salaries and related expenses including share-based compensation expenses, as
well as initiation activities with respect to our planned Phase 2b clinical trial of our Trehalose IV solution for treatment of
OPMD patients.
Pre-Commercialization Expenses
|
|
2016
|
|
|
2015
|
|
|
$ change
|
|
|
% change
|
|
|
|
U.S. dollars in thousands, except percentages
|
|
Pre-commercialization
|
|
|
1,085
|
|
|
|
829
|
|
|
|
256
|
|
|
|
31
|
%
|
For the year ended December 31, 2016, our pre-commercialization
expenses increased by $256,000, or 31%, compared to the prior year. The increase was primarily due to increased market research
activities directed at assessing the commercial opportunity presented by our Trehalose IV solution for treatment of OPMD and SCA3
patients which were offset by reversal of previously recognized share-based compensation due to forfeiture of options previously
granted to departing employees.
General and Administrative Expenses
|
|
2016
|
|
|
2015
|
|
|
$ change
|
|
|
% change
|
|
|
|
U.S. dollars in thousands, except percentages
|
|
General and administrative
|
|
|
5,900
|
|
|
|
6,953
|
|
|
|
(1,053
|
)
|
|
|
(15
|
)%
|
For the year ended December 31, 2016, our general
and administrative expenses decreased by approximately $1.05 million, or 15%, compared to the prior year. The decrease was primarily
due to our decision to downsize corporate overhead by reducing the number of employees of our wholly-owned U.S. subsidiary and
closing of U.S. offices. The general and administrative costs during 2016 included termination related payments to departing employees.
Such termination related payments were offset by reversal of previously recognized share-based compensation due to forfeiture
of options previously granted to departing employees.
Finance Income, Net
Our finance income, net totaled $60,000
for the year ended December 31, 2016, and was $135,000 for the year ended December 31, 2015. The decrease was primarily
due to the reduction of our outstanding balance of cash equivalents and short-term bank deposits on which we generate
interest income.
Provision for Income Taxes
Our total tax provision was $216,000
for the year ended December 31, 2016, representing an effective tax rate of (1.37%), as compared to a tax provision of
$24,000 for the year ended December 31, 2015, representing an effective tax rate of (0.16%).
Our deferred tax assets at December 31, 2016
and 2015 were $5,000 and $0, respectively. Deferred tax assets were reported net of valuation allowances of approximately
$7.64 million and $5.77 million at December 31, 2016 and 2015, respectively, primarily as a result of the recording of a full
valuation allowance against net operating loss, or NOL, carryforwards, as we believe it is more likely than not that we will not
be able to generate sufficient future taxable income to absorb them. On December 31, 2016, we had Israeli NOL carryforwards of
approximately $24.72 million. The Israeli NOL carryforwards do not expire.
Our effective tax rate differs from the statutory
rate each year primarily due to a full valuation allowance maintained against deferred tax assets.
Comparison for the Years Ended December 31, 2015 and
2014
The following tables set forth, for the periods
indicated, our results of operations and the change between the specified periods expressed as a percent increase or decrease:
Research and Development Expenses
|
|
2015
|
|
|
2014
|
|
|
$ change
|
|
|
% change
|
|
|
|
U.S. dollars in thousands
|
|
Research and development
|
|
$
|
7,694
|
|
|
$
|
4,441
|
|
|
$
|
3,253
|
|
|
|
73
|
%
|
For the year ended
December 31, 2015, our total research and development expenses increased by approximately $3.25 million, or 73%, compared to the
prior year. The increase was primarily due to an increase in clinical trial and manufacturing related expenses associated with
our Trehalose IV solution and other product candidates, as well as increases in compensation related expenses, share-based compensation
and employee recruitment costs.
Pre-Commercialization Expenses
|
|
2015
|
|
|
2014
|
|
|
$ change
|
|
|
% change
|
|
|
|
U.S. dollars in thousands
|
|
Pre-commercialization
|
|
$
|
829
|
|
|
$
|
-
|
|
|
$
|
829
|
|
|
|
*
|
|
* Not a meaningful percentage
For the year ended December 31, 2015, our pre-commercialization
expenses totaled $829,000 and included costs related to the hiring of our Chief Commercial Officer during August 2015, and
to actively assessing the commercial opportunity presented by our Trehalose IV solution in treating OPMD and SCA3. There were
no pre-commercialization expenses incurred in 2014.
General and Administrative Expenses
|
|
2015
|
|
|
2014
|
|
|
$ change
|
|
|
% change
|
|
|
|
U.S. dollars in thousands
|
|
General and administrative
|
|
$
|
6,953
|
|
|
$
|
2,639
|
|
|
$
|
4,314
|
|
|
|
163
|
%
|
For the year ended December 31, 2015, our general
and administrative expenses increased by $4.31 million, or 163%, compared to the prior year. The increase was primarily due to
increased compensation and related share-based compensation expense, related to hiring of a new Chief Executive Officer and chief
corporate development officer as well as support staff in the United States and increased professional fees.
Finance Income, net
Our finance income, net totaled $135,000
for the year ended December 31, 2015, and was $58,000 for the year ended December 31, 2014. The increase was primarily
attributable to the increased duration in which cash equivalents and short-term bank deposits were earning interest
income.
Provision for Income Taxes
Our total tax provision was $24,000 for
the year ended December 31, 2015, representing an effective tax rate of (0.16%), and was mainly attributable to taxable earnings
generated by our wholly-owned U.S. subsidiary. For the year ended December 31, 2014 our tax provision was $0, mainly as a result
of full valuation allowance against NOL carryforwards.
Deferred tax assets at December 31, 2015 and
2014 were $0 and were reported net of valuation allowances of approximately $5.77 million and $1.79 million at December 31, 2015
and 2014, respectively, primarily as a result of the recording of a full valuation allowance against NOL carryforwards, as we
believe it is more likely than not that we will not be able to generate sufficient future taxable income to absorb them. On December
31, 2015, we had Israeli NOL carryforwards of $13.51 million. The Israeli NOL carryforwards do not expire.
Our effective tax rate differs from the statutory
rate each year primarily due to a full valuation allowance maintained against deferred tax assets.
Liquidity and Capital Resources
Since our inception and through December
31, 2016, we had raised an aggregate of $44.16 million to fund our operations, of which nearly $37.49 million is from issuing
our Ordinary Shares in our initial public offering and follow-on offerings, and nearly $6.67 million from the issuance of private
securities.
At December 31, 2016, our cash, cash equivalents
and short-term bank deposits were $9.88 million, compared to approximately $19.33 million at December 31, 2015. Our cash and cash
equivalents are highly liquid investments with maturities of 90 days or less at the date of purchase, and are stated at fair
value. We did not hold any marketable securities nor any mortgage asset-backed or auction-rate securities in our investment portfolio
as of December 31, 2016. Our U.S. subsidiary held $252,000 in cash as of December 31, 2016. All of our cash is available
for corporate use.
Plan of Operations and Future Funding Requirements
Our primary uses of capital are, and we expect
will continue to be, further development and the seeking of regulatory approval of our Trehalose IV solution. These costs will
include clinical trial costs, manufacturing and process development costs, compensation and related expenses, third-party clinical
and nonclinical research and development services, laboratory and related supplies, legal and other regulatory expenses, and other
general operating costs.
We expect that our cash and
cash equivalents and short-term deposits as of December 31, 2016 will fund our operating expenses and capital
expenditure requirements, based on our current plan, at least until the end of second fiscal quarter of 2017. Such current
plan includes the commencement of a Phase 2b double-blind placebo-controlled trial of our Trehalose IV solution during 2017
and other early phase clinical trials to test our Trehalose IV solution in other indications, which is subject to regulatory
approval. Additional funding beyond our existing cash resources will be required to entirely cover the cost of the Phase 2b
study and the underlying expense of our operations while the study is ongoing. Should we be unable to obtain the additional
funding required to complete our clinical activity, we may reduce those activities until we have sufficient resources to do
so. In addition, we expect that we will require substantial additional capital to obtain regulatory approval for, and
to commercialize, our Trehalose IV solution. Furthermore, our operating plans may change as a result of many factors that
may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future capital
requirements will depend on many factors, including:
|
·
|
continuing
our research and nonclinical and clinical development of our product candidate;
|
|
·
|
expanding
the scope of our current clinical trials for our product candidate;
|
|
·
|
change
or addition of additional manufacturers or suppliers;
|
|
·
|
seeking
regulatory and marketing approvals for our product candidate that successfully complete clinical trials;
|
|
·
|
establishing
a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
|
|
·
|
seeking
to identify, assess, acquire, license, and/or develop other product candidates;
|
|
·
|
milestone
or other payments under any license agreements;
|
|
·
|
maintaining,
protecting, and expanding our intellectual property portfolio;
|
|
·
|
seeking
to attract and retain skilled personnel
;
and
|
|
·
|
creating
additional infrastructure to support our operations as a public company and our product development and planned future commercialization
efforts
.
|
Until such time, if ever, as we can generate
substantial product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings and
license and collaboration arrangements. To the extent that we raise additional capital through future issuance of equity or debt,
the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect the rights of our existing ordinary shareholders. If we raise additional funds through collaboration
arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams or drug candidates on terms
that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we
may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights
to develop and market our current and any future product candidates that we would otherwise prefer to develop and market ourselves.
This may raise substantial doubts about our ability to continue as a going concern.
Cash Flow
The following is a summary of cash flows for
the years ended December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars in thousands
|
|
Operating activities
|
|
$
|
(15,486
|
)
|
|
$
|
(13,249
|
)
|
Investing activities
|
|
|
8,982
|
|
|
|
9,952
|
|
Financing activities
|
|
|
6,089
|
|
|
|
-
|
|
Operating Activities
For the year ended December 31,
2016, net cash used in operating activities was approximately $15.49 million and primarily consisted of $16.02 million in net
loss, adjusted for non-cash items of $777,000 (primarily share-based compensation expenses), and changes in operating assets
and liabilities of $241,000. Net cash used in operating activities was approximately $13.25 million during the year ended
December 31, 2015, and primarily consisted of approximately $15.37 million in net loss, adjusted for non-cash items of
approximately $2.62 million (primarily share-based compensation expenses), and partially offset by changes in operating
assets and liabilities of $506,000. The increase in net cash used of approximately $2.24 million was driven by increased
activities related to clinical studies of our Trehalose IV solution in OPMD and SCA3and an increase in compensation and
related personnel expenses, professional services and pre-commercial work related to our Trehalose IV solution.
Investing Activities
For the year ended December 31, 2016, net
cash provided by investing activities was $8.98 million, compared to cash provided by investing activities of $9.95 million for
the year ended December 31, 2015. The majority of cash provided by investing activities in both years is attributable to withdrawal
of short-term bank deposits that matured during both years.
Financing Activities
For the year ended December 31, 2016, net
cash provided by financing activities was $6.09 million and consisted of net proceeds from a public offering of Ordinary Shares
and warrants. There was no cash provided by financing activities during the year ended December 31, 2015.
We have an effective Form F-3 registration
statement, filed under the Securities Act with the SEC using a “shelf” registration process. Under this shelf registration
process, and subject to certain limitations, we may, from time to time, sell our Ordinary Shares in one or more offerings up to
a total dollar amount of $100 million. However, since the aggregate market value of our Ordinary Shares held by non-affiliates
is less than $75 million, we are limited to selling Ordinary Shares under such “shelf” registration statement during
any 12 month period that have an aggregate value that is no more than one-third of the aggregate market value of our Ordinary
Shares held by non-affiliates. In March 2016, we issued 2,161,290 Ordinary Shares in a registered direct offering with gross proceeds
of approximately $6.70 million. As a result of this limitation, we are currently not able to sell any Ordinary Shares under this
“shelf” registration statement.
Critical
Accounting Policies and Use of Estimates
Our management’s discussion and analysis
of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses,
and the disclosure of contingent assets and liabilities as of and during the reporting periods. These items are monitored and
analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base
our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of assets and liabilities and the reported amount
of expenses that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period
in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
While our significant accounting policies are
described in more detail in the notes to our consolidated financial statements included elsewhere in this prospectus, we believe
that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation
of our consolidated financial statements and understanding and evaluating our reported financial results.
Share-based
Compensation
We issue share-based awards to employees and
nonemployees generally in the form of options. We account for our share-based awards in accordance with Financial Accounting Standards
Board, or FASB, Accounting Standards Codification, or ASC, Topic 718,
Compensation—Stock Compensation
, or ASC 718.
ASC 718 requires all share-based payments to employees, including grants of employee options and modifications to existing options,
to be recognized in the consolidated statements of operations based on their fair values on the date of grant or date of modification.
We account for share-based awards to nonemployees in accordance with FASB ASC Topic 505-50,
Equity-Based Payments to Non-Employees
,
which requires the fair value of the nonemployee awards to be remeasured as the award vests. For employee stock-based awards with
only service conditions, we recognize compensation using the graded vesting attribution approach over the requisite service period,
which is usually the vesting period of the award.
For modification of share-based compensation
awards, we record the incremental fair value of the modified awards as compensation on the date of modification for vested awards,
or over the remaining vesting period for unvested awards. The incremental compensation is the excess of the fair value of the
modified awards on the date of modification over the fair value of the original awards immediately before the modification.
Compensation expense related to our share-based
awards is subject to a number of estimates including volatility and the underlying fair value of our Ordinary Shares, as well
as the estimated life of the awards. Since our initial public offering in July 2014, share option value has been determined based
on the trading price of our Ordinary Shares. As of December 31, 2016 and 2015, we recognized share-based compensation expenses
of $700,000 and $2.62 million, respectively.
Income Taxes
The consolidated financial statements presented
elsewhere in this prospectus reflect provisions for Israeli, federal and state income taxes. Deferred tax assets and liabilities
represent future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis
of assets and liabilities and for loss carryforwards using enacted tax rates expected to be in effect in the years in which the
differences reverse. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets
will not be realized. We cannot be certain that future Israeli taxable income will be sufficient to realize our deferred tax assets
and, accordingly, a full valuation allowance has been provided against our Israeli net deferred tax assets.
We evaluate the tax positions we have taken
when preparing our Israeli, federal and state income tax returns, and determine whether it is more likely than not that a tax
position will be sustained upon examination. If it is not more likely than not that a position will be sustained, none of the
benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more-likely-than-not
recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the
contingency. As of December 31, 2016 and 2015, we have provided a liability of $24,000 and $0, respectively.
JOBS Act
Section 107 of the JOBS Act provides that
an “emerging growth company” can take advantage of an extended transition period for complying with new or revised
accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards
would otherwise apply to private companies. We are electing to delay such adoption of new or revised accounting standards. As
a result, our financial statements may not be comparable to companies that comply with the public company effective date.
Quantitative and Qualitative Disclosure about Market Risk
In the ordinary course of our operations, we
are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.
The market risk inherent in our financial instruments
and in our financial position represents the potential loss arising from adverse changes in interest rates. As of December 31,
2016, we had approximately $9.88 million in cash and cash equivalents and short-term bank deposits, consisting of cash in checking
accounts and deposits at Israeli and U.S. banking institutions. Our primary exposure to market risk is interest rate sensitivity,
which is affected by changes in the general level of Israeli and U.S. interest rates. Given the current low rates of interest
we receive, we do not believe will be adversely affected if such rates are reduced. As of December 31, 2016, we had no outstanding
borrowings, and as such, we are not exposed to interest rate risks associated with credit facilities or other debt.
We are subject to currency risk for balances
held, or denominated, in currencies other than U.S. dollars. We work to maintain all balances in U.S. dollars until payment in
other currencies is required. In addition, portions of our expenses are denominated in each of NIS, Euro and GBP. For instance,
in 2016, approximately 19% of our expenses were denominated in NIS. Changes of 5% and 10% in the U.S. dollar / NIS exchange rate
will increase/decrease our operating expenses by approximately 1% and 2%, respectively. However, these historical figures may
not be indicative of future exposure, as the percentage of our NIS denominated expenses may change in the future.
We do not hedge our foreign currency exchange
risk.
Off-Balance Sheet Arrangements
We
did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the
rules and regulations of the SEC.
Contractual Obligations
The following table summarizes our contractual
obligations at December 31, 2016:
|
|
Total
|
|
|
Less than 1
year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than 5
years
|
|
|
|
(in thousands of U.S. dollars)
|
|
Operating leases (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
$
|
174
|
|
|
$
|
99
|
|
|
$
|
75
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Motor vehicles
|
|
|
14
|
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
188
|
|
|
$
|
113
|
|
|
$
|
75
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(1) Represents future minimum lease payments under non-cancelable
operating leases in effect as of December 31, 2016.
The table excludes potential payments we may
be required to make under existing agreements with suppliers and service providers as the timing of when these payments will actually
be made is uncertain and the payments are contingent upon the initiation and completion of future activities.
BUSINESS
Overview
We are a clinical stage biotechnology company
committed to developing meaningful therapies for patients with rare and ultra-rare genetic diseases. Currently our focus is on
trehalose, a therapeutic platform that offers potential solutions for several diseases that share a common pathophysiological
mechanism, which are the functional changes that accompany a particular syndrome or disease. Since our inception in 2012, our
work with trehalose has centered around OPMD and SCA3. We address diseases with severe and debilitating manifestations, where
the unmet medical need is clear, the biological mechanism of action is understood, and for which there is no satisfactory treatment.
Trehalose IV Solution
Trehalose is a protein stabilizer and
an autophagy enhancer that activates lysosomal pathways. We have developed a proprietary high dose, trehalose 90mg/mL
intravenous, or Trehalose IV, solution that allows trehalose to reach target organs and facilitate tissue penetration to the
brain and muscles. Mutant unstable cellular proteins are the cause of several protein aggregation genetic diseases known as
PolyA/PolyQ diseases, including OPMD, where mutant protein aggregates in muscle, and in SCA3 where mutant protein aggregates
in the brain. These pathological proteins aggregate within cells and cell nuclei eventually leading to cell death. Data from
the literature and from our nonclinical studies in both cell and animal models of disease indicate that trehalose may have
the potential to prevent mutant protein aggregation and to enhance autophagy in human diseases by stabilizing proteins,
reducing the formation of protein aggregates, and promoting clearance of abnormal proteins or other storage materials thereby
preventing cell death
.
Summary of our Clinical Trials to Date
In March 2016, we reported final results
of our HOPEMD Phase 2a open-label study in which 25 patients with OPMD were treated with our Trehalose IV solution for 24 weeks
using a weekly dose of 27 grams. Our Trehalose IV solution was observed to be generally safe and well tolerated, with no drug-related
serious adverse events, and while not powered for efficacy, the study produced early efficacy signals. These efficacy signals
related to the main symptoms of OPMD, such as dysphagia (difficulty in swallowing) and muscle weakness. At the conclusion of the
24-week trial, patients were allowed to continue treatment for another 12 months. 22 patients of the original HOPEMD trial enrolled
in this extension study (16 of whom continued to receive our Trehalose IV solution while six were in the non-treatment group),
in which our Trehalose IV solution was observed to be generally safe and well tolerated. Patients who remained on our Trehalose
IV solution remained stable with improved dysphagia and patients withdrawn from treatment had worsening of their dysphagia. In
October 2016, we reported the results of a randomized double-blind placebo-controlled trial assessing the pharmacokinetics of
trehalose in 24 healthy volunteers (randomized 3:1 trehalose to placebo) to establish safety and tolerability of escalating doses
of trehalose and to determine the Maximum Tolerated Dose (MTD), or maximum feasible dose, and assess pharmacokinetics of escalating
doses of trehalose. Our Trehalose IV solution was observed to be generally safe and well tolerated at twice the 27 grams dose
used in the HOPEMD clinical trial. The MTD was 54 grams administered by IV over 60 minutes. In January 2017, we reported the results
of a Phase 2a open-label study of 14 SCA3 patients for a six-month period; eight patients received a dose of 13.5 grams and six
patients received a dose of 27 grams of our Trehalose IV solution on a weekly basis. (The study began with 15 patients; however,
one patient withdrew after three weeks and prior to any efficacy assessment). Weekly Trehalose IV infusions of both doses were
generally safe and well tolerated. There were no changes in any safety laboratory parameters with treatment. Patients remained
stable with no change on the Scale for Assessment and Rating of Ataxia, or SARA, score – a well-accepted clinical tool for
measuring the effect of the disease – over the six-month period. Five patients received treatment for as long as 12 months
and continued to remain stable on the SARA scale.
SARA is a clinical scale that assesses a range
of different impairments in cerebellar ataxia. The scale is made up of eight measurements related to gait, stance, sitting, speech,
finger-chase test, nose-finger test, fast alternating movements and heel-shin test. A higher score indicates a more symptomatic
patient. A recently published long term natural history study in patients with SCA3 showed an average annual increase of 1.56
points on the SARA scale score, denoting the disease progression.
Our Approach
Our approach is to develop our Trehalose IV
solution as a first-in-class therapy for orphan-designated genetic diseases with high unmet needs where the mechanism of action
involves prevention of protein aggregation, activation of autophagy or lysosomal pathways, and where there is involvement of the
brain and/or muscle. We focus on diseases where there is proof of concept for trehalose in disease models.
The patients we seek to treat have diseases
with limited or no treatment options, and their lives and well-being are highly dependent upon on the development of new therapies.
The main components of our business strategy include the following:
|
·
|
Focus
on rare and ultra-rare diseases with significant unmet medical need
. There are numerous
rare and ultra-rare metabolic genetic diseases that currently have no approved drug therapy.
Some such diseases have drugs currently in development. Patients suffering from these
diseases often have a high unmet medical need with significant morbidity and/or mortality.
We are focused on developing and commercializing therapies for multiple indications with
our current focus on genetic diseases with high unmet needs characterized by protein
aggregation or abnormal storage of metabolites, including neuromuscular diseases and
lysosomal storage diseases with a neurologic or muscle involvement;
|
|
·
|
Focus
on diseases and therapies with clear mechanisms of action
. We focus on diseases that
have biology and root causes that are well understood. We believe that developing drugs
that directly impact known disease pathways will increase the probability of success
of our development programs;
|
|
·
|
Develop
and selectively commercialize our Trehalose IV solution for multiple indication
s.
Development of multiple programs based on one compound has the potential to generate
development and commercial efficiencies as well as multiple market opportunities and
reduced risk; and
|
|
·
|
Focus
on excellent and efficient clinical and regulatory execution
. We believe that
building a successful and sustainable rare disease-focused company requires very specific
expertise in the areas of patient identification, clinical trial design and conduct,
and regulatory strategy. We have assembled a team with both a successful track record
in managing global clinical development activities in an efficient manner, and with multinational
experience in obtaining regulatory approvals for rare disease products.
|
Drug Candidate - Overview and Development Plan
Our strategy is to retain global commercialization
rights to our product to maximize long-term value. Over time, we may decide to build our own commercial organization in the United
States, which we believe would be of modest size due to the relatively small number of specialists who treat patients with rare
and ultra-rare diseases. We will consider partnership arrangements that may accelerate product development and facilitate access
to international market opportunities.
The diseases which we are addressing have severe
consequences on patients’ health, quality of life and potential life expectancy. In addition, these diseases create significant
burdens on patients’ families and caretakers as well as on public health resources. In all diseases we are addressing, patients
either cannot be offered an alternative therapy or the current solutions are inadequate to alter the course of the disease. We
believe that prompt and efficient drug development can be of substantial benefit to the patients who are suffering from these
incurable diseases. We have assembled an experienced team of employees, consultants, service providers and a Board of Directors
with extensive drug development and commercialization capabilities, particularly in the orphan drug area.
Trehalose
Trehalose is naturally-occurring and is
well known for its protein-stabilizing properties, and recently, for its autophagy enhancing properties and effect on
activation of lysosomal pathways. When orally administered, trehalose is metabolized at the epithelial brush border of the
intestine into two D-glucose molecules. Less than 0.5% of ingested trehalose is absorbed into the blood stream where it is
further metabolized by the liver and kidney. To achieve therapeutic amounts of trehalose in the muscle cells, it is necessary
to circumvent the massive metabolism in the gastrointestinal tract.
Our proprietary IV solution of Trehalose IV
has been designed to circumvent the breakdown of trehalose in the gastrointestinal tract and to enable therapeutic doses of trehalose
to reach target organ muscle and brain tissues.
We have shown in a nonclinical study that
trehalose administered via an IV is able to penetrate muscle and remain measurable in the muscle tissue for 48
hours. In a separate study trehalose administered via an IV was shown to penetrate the brain where it remained measurable for 24 hours.
Trehalose is a low molecular weight disaccharide
(0.342 kilodaltons), which is a chemical molecule comprised of two sugar components that can prevent the folding of proteins and
that buffer abnormal protein aggregation, thus protecting against pathological processes in cells. Trehalose has been shown to
prevent pathological aggregation of proteins within cells in several diseases associated with abnormal cellular-protein aggregation
as well as acting as an autophagy enhancer. Autophagy is the basic catabolic mechanism that involves cell-based degradation of
unnecessary or dysfunctional cellular components. Autophagy in healthy adults, or if regulated in those with abnormalities, ensures degradation and recycling of cellular components. Trehalose effectively reduced the aggregation and toxicity of
mutant PABPN1 proteins in OPMD cell models. Furthermore, treatment of an OPMD in a mouse model with trehalose resulted in the
attenuation of muscle weakness, decreased aggregate formation and a reduced number of TUNEL-positive nuclei in skeletal muscle
fibers.
The following provides an illustration of the
proposed trehalose mechanism of action:
Trehalose IV Solution for the Treatment of OPMD
Trehalose IV solution is our proprietary drug
candidate for the treatment of OPMD, an ultra-rare, inherited myopathy. OPMD is a muscle disease caused by a primary defect in
muscle cells as a result of aggregation of a protein called PABPN1. Overall worldwide prevalence of OPMD is estimated at 1:100,000.
Characteristically to genetic diseases with autosomal inheritance, there are documented clusters of higher prevalence.
For example, in people of French Canadian origin residing in Quebec, Canada, among Hispanics in Northern New Mexico, USA, and
Bukhara Jews in Israel. The prevalence data collected suggest that the prevalence is approximately 1:1,000 patients among French
Canadian
1
, approximately 12:100,000 patients among Hispanics of Northern New Mexico, and approximately 1:600 patients
among Bukhara Jews in Israel
1
. We estimate that there are about 4,300 patients in the United States and Canada and
overall about 12,000 patients around the world
3
.
OPMD is characterized by progressive muscle
weakness that leads to development of symptoms including ptosis (dropping of eyelids), dysphagia (difficulty in swallowing) and
proximal muscle weakness. As the dysphagia becomes more severe, patients may suffer from repeated incidents of aspiration pneumonia,
may become malnourished (cachexia), and may develop tongue atrophy and speech difficulties (dysphonia). OPMD is caused by a genetic
mutation responsible for the creation of a mutant protein (PABPN1) with an expanded polyalanine domain that aggregates within
patient muscle cells. OPMD is one of a larger group of diseases called tri-nucleotide repeat diseases that are associated with
the presence of an abnormal cellular protein that aggregates in the cells, eventually causing cell death. In OPMD, the mutant
protein PABPN1 was found to be correlated with disease severity in animal models and was identified within the typical cellular
protein aggregates-the intranuclear inclusion body (INI) that is the diagnostic hallmark of the disease.
The following provides an illustration of the
OPMD symptoms:
There is no drug therapy or, to our knowledge,
potential cure for OPMD. Current therapeutic strategies are confined to interventions and surgical procedures that have limited
efficacy and may need to be repeated while the progressive loss of muscle contractility continues relentlessly.
The HOPEMD Phase 2a open-label clinical study
was conducted at two centers - Montreal Neurological Institute at McGill University in Montreal, Canada, and
Hadassah-Hebrew University Medical Center in Jerusalem, Israel. The primary objective was to assess the safety and tolerability
of our Trehalose IV solution in patients suffering from OPMD. Although not powered for efficacy, secondary endpoints were included
to explore if our Trehalose IV solution could improve or prevent worsening of OPMD disease markers, notably those related to dysphagia
(difficulty in swallowing) and upper and lower muscle weakness. A total of 25 patients were enrolled, with 11 patients in Canada
and 14 patients in Israel. All 25 patients received our Trehalose IV solution weekly, for 24 weeks.
Our Trehalose IV solution was observed to be
generally safe and well-tolerated with no drug-related serious adverse events. There were no significant changes in lab safety
data including chemistry, hematology, and electrocardiography tests. There was one death due to aspiration pneumonia that was
not considered drug-related but instead was related to the underlying disease. No patients chose to discontinue the study for
reasons related to safety or side effects. Additionally, improvements versus baseline were observed in a number of secondary efficacy
endpoints related to dysphagia and muscle strength and function as detailed below.
The dysphagia (swallowing difficulties) endpoints
were the timed cold water drinking test (80mL) for all sites, the nectar (80mL) and honey (80mL) timed drinking tests at the Canadian
site and the Penetration Aspiration Score as measured by video fluoroscopy (VFS-PAS), a radiographic technique to determine the
severity of swallowing difficulties and risk of aspiration. The swallowing quality of life questionnaire (SWAL-QOL), specifically
developed for patients suffering from swallowing problems, was employed to assess the degree to which patients felt that their
swallowing capability improved with treatment.
In a post-hoc analysis there was a 40.2%
reduction in the median individual drinking time (n=23) and in the nectar and honey timed drinking tests, there was a 46.5% and
61.7% reduction, respectively, in the median drinking times (n=11). Patients in the Israeli arm of the trial did not get tested
for nectar or honey timed drinking tests. Out of the 11 patients in Canada whose scores were evaluated in the per protocol analysis
of the VFS-PAS, six patients improved (54.5%), two patients showed stabilization (18.2%), and three patients deteriorated (27.2%).
Deviations from protocol and deficient radiological procedures lead to exclusion of the VFS-PAS tests from the Israel cohort from
the final analysis. With respect to the SWAL-QOL questionnaire, there was a 12.4% (n=24) mean improvement versus baseline with
the mean total symptom severity score increasing from 43.2 to 48.7.
In the muscle strength tests, as measured quantitatively
by a digital hand-held dynamometer, there was a mean increase in lower body muscle strength compared to baseline in knee extension
of 15.0% (n=22) and foot dorsiflexion of 22.4% (n=22). Hip flexion did not materially change (1.3% deterioration, n=21). For the
upper extremity strength tests, arm (bicep) flexion increased on average 17.9% (n=22), and shoulder abduction increased by 11.4%
(n=22). In the muscle function tests, the 30 second arm-lift test showed an average of 16.0% increase in the number of completed
tasks (n=20 right arm -21 left arm) at 24 weeks of treatment versus baseline while the 30 second sit-to-stand test showed a 16.6%
increase (n=21). The standard 4-stair climbing test did not materially change (1.5% deterioration, n=21).
At the conclusion of the 24-week trial, 22
patients (13 in Israel and 9 in Canada) elected to continue treatment for another 12 months; 16 of whom continued to receive Trehalose
IV while six were in the non-treatment group. There were three main objectives for this extension study: (i) to determine the
long-term effect of trehalose on disease progression as assessed by the changes in the disease markers; (ii) to determine the
long-term effect of trehalose on disease progression as assessed by the changes in the patient’s swallowing quality of life;
and (iii) to determine the long-term safety and tolerability of repeated IV administration of trehalose 30 grams in OPMD patients.
The
results from the extension study indicated that trehalose was generally safe and well tolerated. There were no clinically
significant changes in safety labs. There was one serious adverse event, unrelated to drug treatment, renal colic; and there
were no infusion reactions or adverse events leading to discontinuation. Patients who remained on treatment (n=16) continued
to benefit, as demonstrated by a continued improvement in the cold water drinking test times. Patient who were removed
from treatment (n=6) had an increase in their cold water drinking times over the one year period. Thus, the treatment
effects of trehalose persisted over the year of continued treatment, but were lost for those who came off treatment. At the
conclusion of the 12-month extension study, 10 patients in Israel rolled into a 52-week compassionate use study, and nine
patients in Canada were rolled into a subsequent 52-week extension study. These studies were initiated in September 2016. All
19 patients participating in these studies receive a weekly dose of 27 grams of our Trehalose IV solution.
Trehalose IV Solution for the Treatment of SCA3
SCA3, also known as Machado Joseph disease,
a dominantly inherited ataxia, is the most common of the cerebellar ataxias, and is one of a group of genetic diseases that are
characterized by memory deficits, spasticity, difficulty with speech and swallowing, weakness in arms and other muscular disorders.
The prevalence of SCA3 is conservatively estimated at approximately 3-4 cases per 100,000 people in North America and Europe.
The prevalence of the disease is highest among people of Portuguese/Azorean descent. For example, among immigrants of Portuguese
ancestry in New England, the prevalence is approximately one in 4,000, and the highest prevalence in the world, about one in 140,
occurs on the small Azorean island of Flores. There is no medical treatment for SCA3 and current approaches are focused on alleviating
disease symptoms and supportive care.
In most individuals with SCA3, symptoms typically
begin in the third to fifth decade of life but can start as early as young childhood or as late as 70 years of age. Eventually
SCA3 leads to paralysis, and severe cases can lead to an early death in the fourth decade of life. SCA3 is incurable, and there
is currently no approved treatment for the disease. Natural history studies indicate that death occurs, on average, 21 years
after diagnosis. SCA3 is caused by a mutation in the DNA that leads to the creation of a pathological protein called ataxin
3. In affected patients, ataxin 3 is unstable, aggregates within the cells, and eventually leads to cell death.
Multiple reported studies in cell models have
shown that trehalose, both as an anti-mutant protein aggregation agent and as an autophagy enhancer, is able to reduce protein
aggregates and improve cell survival in several spinocerebellar ataxias including SCA3 cells. We have conducted animal studies
in two disease models of SCA3, demonstrating that treatment with trehalose reduced the level of the pathological protein in nerve
cells and reduced the disease symptoms. In 2015, we announced positive
in vivo
proof of concept results for our Trehalose
IV solution for SCA3 in these two different mouse models.
During 2015 and 2016, we conducted a 24-week
Phase 2a open-label study (that also included a six-month follow-up period) investigating Trehalose IV in patients with SCA3.
The objectives of the study were to establish safety and tolerability of two doses of Trehalose IV as well as to assess an effect
of the drug on reducing the rate of clinical decline in this progressively disabling disease. The Phase 2a open-label study evaluated
14 SCA3 patients over 24 weeks; eight patients received a dose of 13.5 grams of Trehalose IV, and six patients received a dose
of 27 grams, both on a weekly basis. (The study began with 15 patients; however, one patient withdrew after three weeks prior
to any efficacy assessment). Investigators and patients were blinded to the dose administered.
The study had several key findings, including
(i) weekly trehalose infusions of both doses were generally safe and well tolerated (there were no changes in any safety laboratory
parameters with treatment), (ii) patients remained stable with no change on the SARA score – over the 24 week treatment
and (iii) five patients received treatment for as long as 12 months and continued to remain stable on the SARA scale.
Trehalose IV Solution Safety and Dosing
During 2016, we conducted a randomized
double-blind placebo-controlled single ascending dose pharmacokinetic (PK) study of Trehalose IV in 24 healthy volunteers
separated into three groups of eight patients. In each group, six patients received trehalose and two patients received
a placebo. The first group received 27 grams of IV trehalose as a one hour infusion. The second group was then dosed with 54
grams, and the third group was then dosed with 81 grams. The primary objective of the study was to establish safety and
tolerability of escalating doses of trehalose. The secondary objectives were to determine the Maximum Tolerated Dose (MTD)
and pharmacokinetics of escalating doses of trehalose. The key findings of the study were: (i) the MTD was determined to be
54 grams administered IV over 60 minutes, which is twice the level of drug that has been given to patients in our OPMD and
SCA3 Phase 2a studies, (ii) 54 grams of trehalose administered over one hour was generally safe and well tolerated with no
changes in any safety parameters, (iii) the PK of trehalose was linear; i.e. doubling the dose, doubled the exposure, (iv)
the half-life of trehalose was approximately 1.5 hours and did not change when the dose was increased, (v) there was no
effect on serum glucose levels during or following the infusion, and (vi) the rate of trehalose clearance from the blood was
directly related to the patient’s weight; i.e., the greater the weight the faster the clearance of drug.
Peak serum concentration increased with increasing
doses from 27 grams to 81 grams. The mean elimination half-life (t½) ranged from 1.41 hours to 1.59 hours and was consistent
as the dose increased. In the 81-gram dose cohort, one subject out of six subjects who received trehalose had an increase in liver
enzymes that resolved without treatment; thus no higher doses of trehalose were administered, thereby establishing the MTD for
trehalose as 54 grams. There was a positive relationship between clearance of trehalose from the blood and body weight over a
range of 50 kilograms (kg) to 100kg. This finding suggested that clearance is related to body size and thus, weight-based dosing,
i.e. g/kg, would be more appropriate to achieve consistent exposure across a range of body weights in future studies.
Overview of Clinical and Nonclinical Study Results
The most common adverse event in the HOPEMD
Phase 2a study in patients with OPMD, as well as in the Phase 2a study in patients with SCA3, was transient and benign glucosuria,
lasting for a few hours after infusion of trehalose. Glucosuria is the result of the metabolism of trehalose by the enzyme trehalase
into two glucose molecules and subsequent excretion in the urine. The following table summarizes the dosing of Trehalose IV solutions
administered during completed clinical studies:
A total of 58 people have been exposed to trehalose:
25 patients with OPMD, 15 patients with SCA3 and 18 healthy subjects, with some patients having been on the drug for more than
18 months. These patients and healthy volunteers have received a total of more than 2,200 doses of Trehalose IV, representing
a total of more than 56,000 grams. Overall, trehalose has been well tolerated in all 58 people, with no infusion reactions being
reported and no safety signals identified. No adverse event has led to discontinuation of the study drug, or drug related death.
Nonclinical toxicology studies have shown that
trehalose is generally safe and well tolerated, is not genotoxic, and there is no CYP450 inhibition in drug-drug interaction analysis.
Such nonclinical toxicology studies included two short-term 3-months studies in dogs and rats using a dose of 3.6 g/kg which were
completed, and two chronic toxicity studies. Chronic toxicology studies were performed at a dose range of 2.7 g/kg through 10.8g/kg
and include a 6-months rat study (in which the in-life phase was terminated at 5 months due to catheter complications) and an
on-going 9-month dog study for which the 6-months interim report had no negative findings. The six-month rat study report showed
that there was no systemic toxicity, at any dose studied, of trehalose. However, there was increased incidence of procedural-related
(indwelling catheters) complications with increasing doses of trehalose, thus suggesting that trehalose infusion may exacerbate
this procedure-related event. Indwelling catheters have not been used and are not permitted in the clinical trials of trehalose.
Trehalose IV 90mg/mL Solution Next Steps
During 2016, we initiated a prospective natural
history of disease study for OPMD conducted at the Sherbrooke University in Canada. As part of the study, retrospective data from
more than 300 patients was reviewed and a longitudinal data collection will begin in 2017 to document the natural progression
of the disease over time including, age of onset, age at diagnosis, mutation size and symptoms. Based on preliminary analysis
of retrospective data collected, 96.6% of patients in the cohort experienced dysphagia as one of their symptoms.
During 2017, and subject to regulatory
approval, we anticipate initiating a multicenter 24 week, double-blind placebo-controlled Phase 2b trial with our Trehalose IV
solution in OPMD. We plan to enroll 48 patients and randomize them in a 1:1 ratio. The study is designed to assess safety and
tolerability as well as explore whether our Trehalose IV solution could improve or prevent worsening of OPMD disease markers.
Based on the mechanism of action of trehalose
and nonclinical and clinical findings, we believe that this drug platform has the potential to treat several PolyA/PolyQ diseases,
protein aggregation diseases, lysosomal storage diseases and certain hepatic diseases. As such, during 2017, we plan to initiate
our Trehalose IV solution diversification program and clinically test our Trehalose IV solution in one or more other diseases.
During 2017, we will also continue to pursue pre-commercial activities for our Trehalose IV solution in OPMD.
Competition
The commercialization of new drugs is competitive,
and we may face worldwide competition from individual investigators, major pharmaceutical companies, specialty pharmaceutical
companies, biotechnology companies and ultimately biosimilar and generic companies. Our competitors may develop or market therapies
that are more effective, safer, or less costly than any that may be commercialized by us, or may obtain regulatory approval for
their therapies more rapidly than we may obtain approval for ours. Many of our competitors have substantially greater financial,
technical and human resources than we have. Additional mergers and acquisitions in the pharmaceutical industry may result in even
more resources being concentrated in our competitors. Competition may increase further as a result of advances made in the commercial
applicability of technologies and greater availability of capital for investment in these fields. Our success will be based in
part on our ability to build and actively manage a portfolio of indication-specific trehalose products that addresses unmet medical
needs and creates value in patient therapy.
Trehalose IV Solution Competition
Although we are not aware of any other products
currently in clinical development for the treatment of OPMD, it is possible that competitors may produce, develop and commercialize
therapeutics, or utilize other approaches, such as gene therapy, to treat OPMD. Benitec Pharma is in the nonclinical testing phase
with a gene silencing program. University Hospital, Caen tested an autologous transplantation of myoblasts for treatment of ptosis
related to OPMD. Hopitaux de Paris, Association Francaise contre les Myopathies (AFM) is testing autologous transplantation of
myoblasts for the treatment of dysphagia related to OPMD.
With respect to our programs in our Trehalose
IV solution for SCA3, Biohaven Pharmaceutical is developing a new chemical entity, BHV-4157, for SCA3 which is in a Phase 2b/3
clinical trial. Steminent Biotherapeutics is developing a stem cell based therapy (allogeneic adipose derived mesenchymal stem
cells) in a Phase 2 clinical trial. It is possible that other competitors may produce, develop and commercialize therapeutics,
or utilize other approaches such as gene therapy, to treat SCA3. In the last few years several academic research initiatives were
conducted to explore the efficacy of approved drugs such as lithium, varenicline (Chantix ®) and 4 aminopyridine (dalfampridine).
Although only insignificant amounts of trehalose
can be absorbed through an oral administration, it is possible that other companies or individuals may attempt to use food-grade
trehalose taken orally as a substitute for a drug, and others may attempt to sell the product via a nutraceutical or food pathway.
We believe that if our patent applications are approved, we will be well protected in our intellectual property from the use of
trehalose as an IV product.
Terminated License Agreements
In 2011, we entered into a Research and Exclusive
License Agreement with Yissum Research Development Company of the Hebrew University of Jerusalem Ltd., and another with Hadasit
Medical Research Services and Development Ltd. whereby we obtained exclusive licenses to a mitochondrial protein replacement platform
which included two patent families. In addition, on January 1, 2014, we entered into an Exclusive License Agreement with Ramot
at Tel Aviv University Ltd. for the use, development and commercialization of a read-through. Both agreements were terminated
during September and November 2016, respectively, and we surrendered all rights and titles to these platforms and related data.
Pursuant to the mutual termination agreement with Ramot at Tel Aviv University Ltd, and under certain conditions, although unlikely,
we may be entitled to future royalty payments.
Intellectual Property and Patents and Proprietary Rights
The proprietary nature of, and protection for,
our current and/or any future product candidates, processes and know-how are important to our business as is our ability to operate
without infringing on the proprietary rights of others, and to prevent others from infringing our proprietary rights. We seek
patent protection in the United States and internationally for our current and any future product candidates we may develop and
other technology. Our policy is to patent or in-license the technology, inventions and improvements that we consider important
to the development of our business. In addition to patent protection, we intend to use other means to protect our proprietary
rights, including pursuing marketing or data exclusivity periods, orphan drug status, and similar rights that are available under
regulatory provisions in certain countries, including the United States, Europe, Japan, and China. See “U.S. Government
Regulation - Orphan Designation and Exclusivity,” “U.S. Government Regulation - Pediatric Studies
and Exclusivity,” “U.S. Government Regulation - Patent Term Restoration,” “U.S. Government Regulation - Biosimilars
and Exclusivity,” “U.S. Government Regulation - Abbreviated New Drug Applications for Generic Drugs,”
“U.S. Government Regulation - Hatch-Waxman Patent Certification and the 30-Month Stay,” and “European
Union/Rest of World Government Regulation - Orphan Designation and Exclusivity” below for additional information. We
also rely on trade secrets, know-how and continuing innovation to develop and maintain our competitive position. We cannot be
certain that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications
filed by us in the future, nor can we be sure that any of our existing patents or any patents granted to us in the future will
be commercially useful or sufficient in protecting our technology. We seek regulatory approval for our products in disease
areas with high unmet medical need, great market potential and where we have a proprietary position through patents covering various
aspects of our products, such as composition, dosage, formulation, use and manufacturing process, among others. Our success depends
on an intellectual property portfolio that supports our future revenue streams and erects barriers to our competitors. We are
maintaining and building our patent portfolio through filing new patent applications, prosecuting existing applications and licensing
and acquiring new patents and patent applications.
Despite these measures, any of our intellectual
property and proprietary rights could be challenged, invalidated, circumvented, infringed, found unenforceable, or misappropriated,
or such intellectual property and proprietary rights may not be sufficient to permit us to take advantage of current market trends
or otherwise to provide competitive advantages. For more information, see “Risks Related to our Intellectual Property.”
With respect to any patents that may issue in the United States and Europe, we may also be entitled to obtain a patent term extension
and/or patent term adjustment to extend or adjust the patent expiration date. For example, in the United States, we can apply
for a patent term extension of up to five years for one of the patents covering a product once the product is approved by the
FDA. The exact duration of the extension depends on the time we spend in clinical trials as well as getting an NDA from the FDA.
Trehalose IV solution
We have three U.S. issued patents relating
to methods of administering IV trehalose for the treatment of OPMD (US 9,084,720), SCA3 (US 9,125,924) and Huntington’s
disease (US 9,572,825). In addition, we have filed 12 patent applications that are pending in the United States and around the
world that relate to the use of parenteral trehalose for the treatment of protein aggregation diseases. The patent applications
are directed to a novel therapeutic regime using parenteral administration of trehalose, thereby achieving higher bioavailability
and therapeutic efficacy in the treatment of myopathic and neurodegenerative diseases associated with abnormal protein aggregation,
specifically polyalanine (PolyA) or polyglutamine (PolyQ) expansion protein and tauopathies disorders such as OPMD, SCA, spino
bulbar muscular atrophy, Huntington’s disease and other diseases. Of those patent applications, one pending patent application
in the United States relates to deuterated forms of trehalose.
The expiring patent terms for such patents
and, if issued, pending patent applications in the United States would be 2034 if all fees are timely paid, with possible patent
term extension. We intend to pursue marketing and orphan drug exclusivity periods that are available to us under regulatory provisions
in certain countries.
In addition, we have received orphan drug
designation for the use of trehalose in OPMD and SCA3 patients, in the United States and in the E.U., which if approved will provide
seven and ten years, respectively, of data exclusivity for the product.
Trademarks
We have filed with the USPTO an intent
to use application for the trademark BIOBLAST in association with prescription pharmaceutical preparations for the treatment of
rare and ultra-rare (orphan) diseases.
Other
We rely upon unpatented trade secrets, know-how
and continuing technological innovation to develop and maintain our competitive position. We seek to protect our ownership of
know-how and trade secrets through an active program of legal mechanisms including assignments, confidentiality agreements, material
transfer agreements, research collaborations and licenses.
Manufacturing
We currently contract with third parties for
the manufacturing and testing of our Trehalose IV solution for nonclinical and clinical trials and intend to do so in the future.
We do not own or operate manufacturing facilities for the production of clinical quantities of our product candidate. We currently
have no plans to build our own clinical or commercial scale manufacturing capabilities, though we may decide to build a capable
facility in the future.
The drug substance for our Trehalose IV solution
is purchased from a third-party supplier and the drug product for our Trehalose IV solution is manufactured by a third-party manufacturer.
To date, our third-party manufacturers have
met our manufacturing requirements. Although we have not yet engaged our third-party manufacturers in long-term commercial supply
agreements, we expect third-party manufacturers to be capable of providing sufficient quantities of our product candidate to meet
anticipated full scale commercial demands. In addition to third parties with whom we currently work, we believe that there are
alternate sources of supply that can satisfy our clinical and commercial requirements, although we cannot be certain that identifying
and establishing relationships with such sources, if necessary, would not result in significant delay or material additional costs.
Sales and Marketing
We may build the commercial infrastructure
in the United States to effectively support the commercialization of our current or any future product candidates, if and when
we believe a regulatory approval of the first of such a product candidate in that particular geographic market appears imminent.
The commercial infrastructure for orphan products typically consists of a targeted, specialty sales force that calls on a limited
and focused group of physicians supported by sales management, medical liaisons, internal sales support, an internal marketing
group and distribution support. One challenge unique to commercializing therapies for rare diseases is the difficulty in identifying
eligible patients due to the very small and sometimes heterogeneous disease populations. Our management team is experienced in
maximizing patient identification for both clinical development and commercialization purposes in rare diseases.
Additional capabilities important to the orphan
marketplace include the management of key accounts such as managed care organizations, group-purchasing organizations, specialty
pharmacies and government accounts. To develop the appropriate commercial infrastructure, we will have to invest significant amounts
of financial and management resources, some of which will be committed prior to any confirmation that our current or any future
product candidates will be approved.
Outside of the United States, where appropriate,
we may elect in the future to utilize strategic partners, distributors, or contract sales forces to assist in the commercialization
of our products. In certain instances, we may consider building our own commercial infrastructure.
Government Regulation
Clinical trials, the drug approval process
and the marketing of drugs are intensively regulated in the United States and in all other major foreign countries. Governmental
authorities in the United States (including federal, state and local authorities) and in other countries, extensively regulate,
among other things, the manufacturing, research and clinical development, marketing, labeling and packaging, storage, distribution,
post-approval monitoring and reporting, advertising and promotion, pricing and export and import of pharmaceutical products, such
as those we are developing. The process for obtaining regulatory approvals and the subsequent compliance with appropriate federal,
state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.
U.S. Government Regulation
In the United States, the FDA regulates drugs
under the Federal Food, Drug, and Cosmetic Act, or FDCA, and related regulations, and the Public Health Service Act, or PHSA and
its implementing regulations. FDA approval is required before any new drug candidate or dosage form, including a new use of a
previously approved drug, can be marketed in the United States. We intend to submit an NDA in the United States. Failure
to comply with the applicable United States regulatory requirements at any time during the product development process, approval
process or after approval may subject an applicant to administrative or judicial sanctions. These sanctions could include the
imposition by the FDA or an IRB of a clinical hold on trials, the FDA’s refusal to approve pending applications or supplements,
license suspension or revocation, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial
suspension of production or distribution, other corrective action, injunctions, fines, civil penalties or criminal prosecution.
Any agency or judicial enforcement action could have a material adverse effect on us.
The FDA and foreign regulatory authorities
impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical products.
These agencies and other federal, state and local entities regulate research and development activities and the
testing, manufacture, quality control, safety, effectiveness, labeling, storage, distribution, record keeping, approval,
advertising and promotion of our products.
The FDA’s policies may change and additional
government regulations may be enacted that could prevent or delay regulatory approval of our platforms and candidate products
or any future product candidates or approval of new disease indications or label changes. We cannot predict the likelihood, nature
or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the
United States or abroad.
Marketing Approval
The process required by the FDA before a product
candidate may be marketed in the United States generally involves the following:
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completion
of extensive nonclinical laboratory tests and nonclinical animal studies, all performed
in accordance with cGMP and current Good Laboratory Practices, or cGLP, guidance and regulations;
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submission
to the FDA of an investigational new drug, or IND, application which must become effective
before human clinical trials may begin and must be updated annually;
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approval
by an IRB or ethics committee representing each clinical site before each clinical trial
may be initiated;
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performance
of adequate and well-controlled human clinical trials to establish the safety and efficacy
of the product candidate for each proposed indication;
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preparation
of and submission to the FDA an NDA after completion of all clinical
trials;
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potential
review of the product application by an FDA Advisory Committee, where appropriate and
if applicable;
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a
determination by the FDA within 60 days of its receipt of an NDA to file the application
for review;
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satisfactory
completion of FDA pre-approval inspection of the manufacturing facilities where the proposed
product is produced to assess compliance with cGMP; and
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FDA
review and approval of an NDA prior to any commercial marketing or sale of the
drug in the United States.
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The testing and approval process requires substantial
time and financial resources and we cannot be certain that any approvals for our candidate products will be granted on a timely
basis, if at all.
An IND is a request for authorization from
the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general
investigational plan and the protocol(s) for human studies. The IND also includes results of
in vitro
and
in vivo
studies
and animal testing results assessing the toxicology, pharmacokinetics and pharmacodynamic characteristics of the product; chemistry,
manufacturing and controls information; and any available human data or literature to support the use of the investigational new
drug. An IND must become effective before human clinical trials may begin. An IND will automatically become effective 30 days
after receipt by the FDA, unless before that time the FDA raises concerns or questions related to the proposed clinical trials.
In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or
questions before clinical trials can begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical
trials to commence.
We will need to successfully complete clinical
trials in order to be in a position to submit an NDA to the FDA. Our planned future clinical trials for our candidate products
may not begin or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including:
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not
obtaining regulatory approval to commence a trial;
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not
reaching agreement with third-party clinical trial sites and their subsequent performance
in conducting accurate and reliable studies on a timely basis;
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not
obtaining IRB approval to conduct a trial at a prospective site;
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recruiting
an insufficient number of patients to participate in a trial;
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inadequate
supply of the drug; and
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clinical
adverse finding(s) during the trial itself.
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We must reach agreement with the FDA on the
proposed protocols for our future clinical trials in the United States. A separate submission apart from an IND application must
be made for each clinical trial to be conducted during product development. Further, an independent IRB for each site proposed
to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that site. Informed
consent must also be obtained from each trial subject. Regulatory authorities, an IRB or the sponsor, may suspend or terminate
a clinical trial at any time on various grounds, including a finding that the participants are being exposed to an unacceptable
health risk.
Clinical trials
Clinical trials involve the administration
of the product candidate to human subjects under the supervision of qualified investigators in accordance with current good clinical
practices, or cGCP, which include the requirement that all research subjects provide their informed consent for their participation
in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial,
the parameters to be used in monitoring safety and the efficacy criteria to be evaluated. A protocol for each clinical trial and
any subsequent protocol amendments must be submitted to the FDA as part of the IND. Additionally, approval must also be obtained
from each clinical trial site’s IRB before the studies may be initiated and the IRB must monitor the trial until completed.
There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.
Our objective is to conduct clinical trials
for our candidate products and, if those trials are successful, seek marketing approval from the FDA and other worldwide regulatory
bodies.
For purposes of NDA approval, human clinical
trials are typically conducted in phases that may overlap.
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Phase
1
. The drug is initially introduced into healthy human subjects and tested
for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In
the case of some products for severe or life-threatening diseases, especially when the
product may be too inherently toxic to ethically administer to healthy volunteers, the
initial human testing is often conducted in patients;
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Phase
2
. This phase involves trials in a limited patient population to identify
possible adverse effects and safety risks, to preliminarily evaluate the efficacy of
the product for specific targeted diseases and to determine dosage tolerance and optimal
dosage;
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Phase
3
. This phase involves trials undertaken to further evaluate dosage, clinical
efficacy and safety in an expanded patient population, often at geographically dispersed
clinical trial sites. These trials are intended to establish the overall benefit/risk
profile of the product and provide an adequate basis for product labeling; and
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Phase
4
. In some cases, the FDA may condition approval of an NDA for
a product candidate on the sponsor’s agreement to conduct additional clinical trials
after approval. In other cases, a sponsor may voluntarily conduct additional clinical
trials after approval to gain more information about the drug. Such post-approval studies
are typically referred to as Phase 4 clinical trials.
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A pivotal trial is a clinical trial that adequately
meets regulatory agency requirements for the evaluation of a drug candidate’s efficacy and safety such that it can be used
to justify the approval of the product. Generally, pivotal trials are Phase 3 trials, but the FDA may accept results from Phase
2 trials if the trial design provides a well-controlled and reliable assessment of clinical benefit, particularly in situations
where there is an unmet medical need and the results are sufficiently robust.
The FDA, the IRB, or the clinical trial sponsor
may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being
exposed to an unacceptable health risk.
Additionally, some clinical trials are overseen
by an independent group of qualified experts organized by the clinical trial sponsor, known as a Data Safety Monitoring Board
or Committee. This group provides oversight and assessment of designated milestones based on access to certain data during the
conduct of the trial. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive
climate.
All of these trials must be conducted in accordance
with GCP requirements in order for the data to be considered reliable for regulatory purposes.
The clinical trial process can take three to
ten years or more to complete and there can be no assurance that the data collected will support FDA approval or licensure of
the product. Government regulation may delay or prevent marketing of a product candidate or new drugs for a considerable period
of time and impose costly procedures upon our activities. We cannot be certain that the FDA or any other regulatory agency will
grant approvals for a product candidate on a timely basis, if at all. Success in early stage clinical trials does not ensure success
in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval.
The NDA Approval Process
Assuming successful completion of all required
testing in accordance with all applicable regulatory requirements, detailed investigational new drug product information is submitted
to the FDA in the form of an NDA requesting approval to market the product for one or more indications. Under federal law, the
submission of most NDAs is subject to an application user fee. For the FDA’s fiscal year 2017, the application user fee
with clinical data is $2,038,100, and the sponsor of an approved NDA is also subject to annual product and establishment user
fees. For the FDA’s fiscal year 2017, these fees are set at $97,750 per product and $512,200 per establishment. These fees
are typically increased annually. Applications for orphan drug products are exempted from the NDA user fees and may be exempted
from product and establishment user fees, unless the application includes an indication for other than a rare disease or condition.
An NDA must include all relevant data available
from pertinent nonclinical and clinical trials, regardless of the results or findings, together with detailed information relating
to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data is generated from company-sponsored
clinical trials intended to test the safety and effectiveness of a use of a product, or in certain instances, from other sources,
including trials initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and
quantity to establish the safety and effectiveness of the investigational new drug product to the satisfaction of the FDA.
The FDA will initially review the NDA for completeness
before it accepts it for filing. The FDA has 60 days from receipt of an NDA to determine whether the application will be accepted
for filing based on the agency’s threshold determination that the application is sufficiently complete to permit substantive
review. After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the
proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with
cGMP to assure and preserve the product’s identity, strength, quality and purity. The FDA may refer applications for novel
drug products or drug products that present difficult questions of safety or efficacy to an Advisory Committee, typically a panel
that includes independent clinicians and other experts, for review, evaluation and a recommendation as to whether the application
should be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an Advisory Committee, but
it considers such recommendations carefully when making decisions.
Upon the request of an applicant, the FDA may
grant a Priority Review designation to a product, which sets the target date for FDA action on the application at six months,
rather than the standard ten months. Priority review is given where preliminary assessments indicates that a product, if approved,
has the potential to provide a significant improvement compared to marketed products or offers a therapy where no satisfactory
alternative therapy exists. Priority Review designation does not alter the scientific/medical standard for approval or the quality
of evidence necessary to support approval.
The FDA is required to complete its review
in a certain amount of time, for which the user fees are paid to help with the costs of the evaluation. However, FDA and the sponsor
can agree to extend this review time. After the FDA completes its review of an NDA, it will communicate to the sponsor
that the drug will either be approved, or it will issue a Complete Response Letter to communicate that the NDA will not
be approved in its current form and inform the sponsor of changes that must be made or additional clinical, nonclinical or manufacturing
data that must be received before the application can be approved, with no implication regarding the ultimate approvability of
the application.
Before approving an NDA, the FDA will typically
inspect the facilities at which the drug substance or drug product is manufactured. The FDA will not approve the product unless
it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure
consistent production of the product within required specifications.
Additionally, before approving an NDA, the
FDA may inspect one or more clinical sites to assure compliance with GCPs. If the FDA determines the application, manufacturing
process or manufacturing facilities are not acceptable, it typically will outline the deficiencies and often will request additional
testing or information. This may significantly delay further review of the application. If the FDA finds that a clinical site
did not conduct the clinical trial in accordance with GCP, the FDA may determine the data generated by the clinical site should
be excluded from the primary efficacy analyses provided in the NDA. Additionally, notwithstanding the submission of any requested
additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
The testing and approval process for a drug
requires substantial time, effort and financial resources and this process may take several years to complete. Data obtained from
clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent
regulatory approval. The FDA may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated
costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing our products.
The FDA may require, or companies may pursue,
additional clinical trials after a product is approved. These so-called Phase 4 trials may be made a condition to be satisfied
for continuing drug approval. The results of Phase 4 trials can confirm the effectiveness of a product candidate and can provide
important safety information. In addition, the FDA now has express statutory authority to require sponsors to conduct post-market
trials to specifically address safety issues identified by the agency.
Any approvals that we may ultimately receive
could be withdrawn if required post-marketing trials or analyses do not meet the FDA requirements, which could materially harm
the commercial prospects for our candidate products.
The FDA also has authority to require a Risk
Evaluation and Mitigation Strategy, or REMS, from sponsors to ensure that the benefits of a drug or biological product outweigh
its risks. A sponsor may also propose a REMS as part of the NDA submission. The need for a REMS is determined as part of the review
of the NDA. Based on statutory standards, elements of a REMS may include “Dear Doctor” letters, a Medication
Guide, more elaborate targeted educational programs and in some cases restrictions on distribution. These elements are negotiated
as part of the NDA approval, and in some cases if consensus is not obtained until after the Prescription Drug User Fee Act review
cycle, the approval date may be delayed. Once adopted, REMS are subject to periodic assessment and modification.
Even if a product candidate receives regulatory
approval, the approval may be limited to specific disease states, patient populations and dosages, or might contain significant
limitations on use in the form of warnings, precautions or contraindications, including Black Box Warnings, or in the form of
risk management plans, restrictions on distribution, or post-marketing trial requirements. Further, even after regulatory approval
is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or complete
withdrawal of the product from the market. Delay in obtaining, or failure to obtain, regulatory approval for our candidate products,
or obtaining approval but for significantly limited use, would harm our business. In addition, we cannot predict what adverse
governmental regulations may arise from future U.S. or foreign governmental action.
FDA Post-Approval Requirements
Drugs manufactured or distributed pursuant
to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating
to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences
with the product. After approval, changes to the approved product or the addition of new indications or other labeling claims
are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products
and the establishments at which such products are manufactured, as well as new application fees for supplemental applications
with clinical data.
Drug sponsors and their manufacturers are subject
to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP requirements. Changes to the manufacturing
process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being
implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation
requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to
expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects
of regulatory compliance.
We rely, and expect to continue to rely, on
third parties for the production of clinical quantities of our current product candidate and expect to rely in the future on third
parties for the production of commercial quantities. Future FDA and state inspections may identify compliance issues at our facilities
or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources
to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements
may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the product
from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Also, new
government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change,
which could delay or prevent regulatory approval of our products under development.
The FDA may withdraw approval if compliance
with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later
discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with
manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to
add new safety information; imposition of a requirement to conduct post-market trials or clinical trials to assess new safety
risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include,
but not limited to the following:
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restrictions
on the marketing or manufacturing of the product, complete withdrawal of the product
from the market or product recalls;
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fines,
warning letters or holds on post-approval clinical trials;
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refusal
of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or
revocation of product license approvals;
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injunctions
or the imposition of civil or criminal penalties; or
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product
seizure or detention, or refusal to permit the import or export of products.
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The FDA strictly regulates marketing, labeling,
advertising, and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications
and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations
prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject
to significant enforcement and product liability exposure.
Orphan Drug Designation and Exclusivity
The FDA may grant orphan drug designation to
drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States, or if it
affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and
making the drug for this type of disease or condition will be recovered from sales in the United States.
Orphan drug designation entitles a party to
financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers.
In addition, if a product receives FDA approval for the indication for which it has orphan designation, the product is entitled
to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication
for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with
orphan exclusivity. Orphan drug designation does not affect the regulatory review standards or shorten the review period. Designation
does not imply FDA approval, and it is possible a company may, in certain cases, lose designation before a product’s approval
and, thus, may not obtain orphan drug exclusivity.
European Union/Rest of World Government Regulation
In addition to regulations in the United States,
we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial
sales and distribution of our products.
Whether or not we obtain FDA approval for a
product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of
clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar
process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical
trials. In the European Union, for example, a clinical trial application, or CTA, must be submitted for each clinical protocol
to each country’s national health authority and an independent ethics committee, much like the FDA and IRB, respectively.
Once the CTA is accepted in accordance with a country’s requirements, the clinical trial may proceed.
The requirements and process governing the
conduct of clinical trials vary from country to country. In all cases, the clinical trials are conducted in accordance with cGCP,
the applicable regulatory requirements, and the ethical principles that have their origin in the Declaration of Helsinki.
To obtain regulatory approval of an investigational
medicinal product under European Union regulatory systems, we must submit a marketing authorization application. The content of
the NDA filed in the United States is similar to that required in the European Union, with the exception of, among other
things, country and EU-specific document requirements.
For other countries outside of the European
Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing product licensing, pricing, and
reimbursement vary from country to country.
Countries that are part of the European Union,
as well as countries outside of the European Union, have their own governing bodies, requirements, and processes with respect
to the approval of pharmaceutical products. If we fail to comply with applicable foreign regulatory requirements, we may be subject
to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution.
Authorization Procedures in the European Union
Medicines can be authorized in the European
Union by using either the centralized authorization procedure or national authorization procedures (Decentralized or Mutual recognition
or national procedures).
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Centralized
procedure.
The European Commission implemented the centralized procedure
for the approval of human medicines to facilitate marketing authorizations that are valid
throughout the EEA which is comprised of the 28 member states of the European Union plus
Norway, Iceland, and Lichtenstein. This procedure results in a single marketing authorization
issued by the European Commission that is valid across the EEA. The centralized procedure
is compulsory for human medicines that are: derived from biotechnology processes, such
as genetic engineering, contain a new active substance indicated for the treatment of
certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or
autoimmune diseases and other immune dysfunctions, and officially designated orphan medicines.
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For medicines that do not fall within these categories,
an applicant has the option of submitting an application for a centralized marketing authorization to the EMA following a favorable
eligibility request by the EMA, as long as the medicine concerned is a significant therapeutic, scientific or technical innovation,
or if its authorization would be in the interest of public health.
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National
authorization procedures
. There are also two other possible routes to
authorize medicinal products in several European Union countries, which are available
for investigational medicinal products that fall outside the scope of the centralized
procedure:
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Decentralized
procedure
. Using the decentralized procedure, an applicant may apply for
simultaneous authorization in more than one European Union country of medicinal products
that have not yet been authorized in any European Union country and that do not fall
within the mandatory scope of the centralized procedure.
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Mutual
recognition procedure.
In the mutual recognition procedure, a medicine
is first authorized in one European Union Member State, in accordance with the procedure
laid down in the EU directive 2001/83 as amended and implemented into national legislation.
Following this, further marketing authorizations can be sought from other European Union
countries in a procedure whereby the countries concerned agree to recognize the validity
of the original, national marketing authorization.
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In some cases, a Pediatric Investigation Plan,
or PIP, and/or a request for waiver or deferral, is required for submission prior to submitting a marketing authorization application.
A PIP describes, among other things, proposed pediatric trials and their timing relative to clinical trials in adults.
New Chemical Entity Exclusivity
In the European Union, new chemical entities,
sometimes referred to as new active substances or new molecular entities, as well as submissions following Article 8.3 of Directive
2001/83 as amended, qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market
exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union from referencing the innovator’s
data to assess a generic (abbreviated) application for eight years, after which generic marketing authorization can be submitted,
and the innovator’s data may be referenced, the product may be approved but must not be launched prior to the end of the
10 years data exclusivity period. The overall ten-year period will be extended by one year if, during the first eight years of
those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which,
during the scientific evaluation prior to their authorization, is held to bring a significant clinical benefit, in comparison
with existing therapies, or by six months if there is a pediatric development in accordance with a PIP has been performed.
Orphan Drug Designation and Exclusivity
In the European Union, the EMA’s COMP
grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment
of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union
and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant
benefit to those affected, i.e. where a prior approval was granted). Additionally, designation is granted for products intended
for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and
when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary
investment in developing the medicinal product.
In the European Union, orphan drug designation
entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity is granted
following medicinal product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer
met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.
This period can be prolonged to 12 years in case a pediatric development has been performed following an agreed PIP.
Orphan drug designation must be requested and
granted before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in, or
shorten the duration of, the regulatory review and approval process.
Exceptional Circumstances/Conditional
Approval
Orphan drugs or drugs with unmet medical needs
may be eligible for European Union approval under exceptional circumstances or with conditional approval. Approval under exceptional
circumstances is applicable to all applications including orphan products and is used when an applicant is unable to provide comprehensive
data on the efficacy and safety under normal conditions of use because the indication for which the product is intended is encountered
so rarely that the applicant cannot reasonably be expected to provide comprehensive evidence, when the present state of scientific
knowledge does not allow comprehensive information to be provided, or when it is medically unethical to collect such information.
Conditional marketing authorization is applicable to orphan medicinal products, medicinal products for seriously debilitating
or life-threatening diseases, or medicinal products to be used in emergency situations in response to recognized public threats.
Conditional marketing authorization can be granted on the basis of less complete data than is normally required in order to meet
unmet medical needs and in the interest of public health, provided the risk-benefit balance is positive, it is likely that the
applicant will be able to provide the comprehensive clinical data after approval, and unmet medical needs will be fulfilled. Conditional
marketing authorization is subject to certain specific obligations to be reviewed annually. The initial approval needs to be renewed
annually. This renewal is controlled by the CHMP and, if not granted, may lead to cessation of the marketing authorization at
the end of this particular year
Accelerated Review
Under the Centralized Procedure in the European
Union, the maximum timeframe for the evaluation of a marketing authorization application is 210 days (excluding clock stops, when
additional written or oral information is to be provided by the applicant in response to questions asked by the EMA’s Committee
for Medicinal Products for Human Use, or CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when
a medicinal product is expected to be of a major public health interest, particularly from the point of view of therapeutic innovation.
In this circumstance, EMA ensures that the opinion of the CHMP is given within 150 days, excluding clock stops.
Drug Application Process in Canada
In Canada, the
Food and Drugs Act
governs which drugs can be manufactured, marketed and sold in the country. It also establishes approval processes and sets standards
for the manufacture, testing, packaging and labelling of regulated products. Applications for approval to market drugs and related
products in Canada are reviewed by the Health Products and Food Branch, or HPFB, of Health Canada.
New Drug Approval Process
In the case of new drugs, the HPFB
will review preclinical test results indicating that the substance produces the desired result and is not toxic, before
authorizing clinical trials in Canada. When the clinical trial studies (the application process is detailed below) prove that
the drug has potential therapeutic value that outweighs the risks associated with its use, the sponsor may file a New Drug
Submission, or NDS, with HPFB.
An NDS consists of data and material on
the safety, effectiveness and quality of the drug, as well as the results of the preclinical and clinical studies, whether done
in Canada or elsewhere, and information that the sponsor proposes to provide to health care practitioners and consumers, such as
details regarding the production of the drug, packaging and labelling, and information regarding therapeutic claims and side effects.
If the HPFB concludes that the benefits
outweigh the risks and that the risks can be mitigated, the drug is issued a Notice of Compliance, as well as a Drug Identification
Number which permits the sponsor to market the drug in Canada and indicates the drug’s official approval in Canada.
Clinical Trial Application Process
In Canada, clinical trial sponsors
must submit a clinical trial application, or CTA, to Health Canada for authorization to sell or import a drug for the
purpose of a clinical trial. A CTA must be filed prior to the initiation of the trial, and approval from both
Health Canada and the clinical site(s) Research Ethics Board(s) must be obtained prior to the initiation of the trial. During
the 30-day review of Health Canada, a ‘No Objection Letter’ is issued to the sponsor company if the application
is deemed acceptable. All clinical testing is subject to rigorous regulatory requirements, including the requirement to
follow good clinical practices, obtain study subjects informed consent, and obtain institutional review board or independent
ethics committee approval.
Orphan Drugs in Canada
Canada does not have
specific legislation regarding orphan drug development and approval. Health Canada is developing an orphan drug regulatory
framework that seeks to encourage the development of orphan drugs and increase the availability of these products on the
Canadian market. In this regard, the
Office of Legislative and Regulatory Modernization, Policy, Planning and
International Affairs Directorate, Health Products and Food Branch
published the
Initial Draft Discussion Document for
A Canadian Orphan Drug Regulatory Framework
.
Health Canada’s draft definition
of the term “orphan drug” is to mean a drug that meets the following criteria:
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a.
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The drug is intended for the diagnosis, treatment, mitigation or prevention of a life-threatening,
seriously debilitating, or serious and chronic disease or condition affecting not more than five (5) in ten thousand (10,000) persons
in Canada; and
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b.
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The drug is not currently authorized by the Minister or if currently authorized, it will provide
a potentially substantial benefit for the patient
distinguishable from the existing therapy.
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In the absence of an orphan drug regulatory
framework in Canada, Canadians have been able to access some orphan drugs, also known as
Drugs
for Rare Diseases,
through Health Canada’s Special Access Program, clinical trials or as new drugs that have received
their Notice of Compliance under Part C, Division 8 of the
Food and Drug Regulations
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Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage
and reimbursement status of any drug products for which we may obtain regulatory approval. In the United States and markets in
other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the
availability of coverage and reimbursement from third-party payers. Third-party payers include government authorities, managed
care providers, private health insurers and other organizations. If we obtain regulatory approval for our products, third-party
payers may not provide coverage for our products, or may limit coverage to specific drug products on an approved list, or formulary,
which might not include all of the FDA-approved drugs for a particular indication. Moreover, a payer’s decision to provide
coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement
may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product
development.
Third-party payers are increasingly
challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in
addition to their safety and efficacy. To obtain coverage and reimbursement for any product that receives
regulatory approval for commercial sale, we may need to provide supporting scientific, clinical and cost-effectiveness data,
which may be difficult and costly to obtain. Our current or any future product candidates may not be considered medically
necessary or cost-effective. If third-party payers do not consider a product to be cost-effective compared to other available
therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment
may not be sufficient to allow us to sell our products at a profit.
The U.S. government, state legislatures and
foreign governments have shown significant interest in implementing cost containment programs to limit the growth of
health care costs, including price controls, reporting requirements, restrictions on reimbursement and requirements for substitution
of generic products for branded prescription drugs. By way of example, the ACA contains provisions that may reduce
the profitability of drug products, including, for example, increased rebates for drugs sold to Medicaid programs, extension of
Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees
based on pharmaceutical companies’ share of sales to federal health care programs. Adoption of additional government controls
and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments
for pharmaceuticals.
In the U.S., judicial challenges as
well as legislative initiatives to modify, limit, or repeal the ACA have been initiated and continue,
including a recent Executive Order signed by the U.S. President directing executive departments and federal agencies to
waive, defer, grant exemptions from, or delay the implementation of provisions of the ACA that would impose a
fiscal or regulatory burden on individuals and certain entities to the maximum extent permitted by law. The extent to which
any repeal or replacement of elements of the ACA or other legislation would affect our ability to obtain
regulatory approval for the sale of Trehalose IV, or the prices and net revenues from its sale is unknown at the time of this
filing and represent an additional uncertainty.
In the European Union, governments influence
the price of pharmaceutical products through their pricing and reimbursement rules, legislation and control of national health
care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative
list systems under which products may only be marketed once a reimbursement price has been agreed to by the government. To obtain
reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness
of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices
for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription
drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition,
in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.
In Canada, the federal government, provinces and territories
provide coverage to about one third of residents through publicly financed programs. Both the federal and provincial governments
play a role in regulating drug prices and reimbursement. The prices of patented drugs are regulated at the federal level by the
Patented Medicine Prices Review Board, which ensures that prices are not excessive. Also, drugs must be approved at the provincial
level in order to be covered under provincial health insurance systems. Once Health Canada has approved a drug for use, the country’s
public drug plans must decide if the drug will be eligible for public reimbursement. The Canadian Agency for Drugs and Technologies
in Health (CADTH), an independent non-profit agency has a mandate to provide advice and evidence-based information about the effectiveness
of drugs and other health technologies to Canadian health care decision makers. CADTH implements a Common Drug Review (CDR) process
to provide formulary recommendations for all provinces except Quebec. Through the CDR process, CADTH conducts evaluations of the
clinical, economic, and patient evidence on drugs, and uses this evaluation to provide reimbursement recommendations and advice
to Canada’s federal, provincial, and territorial public drug plans, with the exception of Quebec. About two-thirds of Canada’s
residents are covered for prescription drugs by private insurance. Private plans establish their own lists of covered drugs.
The marketability of any products for which
we receive regulatory approval for commercial sale may suffer if governmental and other third-party payers fail to provide adequate
coverage and reimbursement. In addition, there is an increasing emphasis on cost containment measures in the United States and
other countries, which we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party
reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products
for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Other Healthcare Laws and Compliance Requirements
If we obtain regulatory approval for our current
or any future product candidates, we may be subject to various federal and state laws targeting fraud and abuse in the healthcare
industry. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may
be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws
that may affect our ability to operate include:
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the
federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly
and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly,
to induce or reward, or in return for, the referral of an individual, or the purchase,
order or recommendation of any good, item or service reimbursable under a federal healthcare
program, such as Medicare and Medicaid;
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federal
civil and criminal false claims laws and civil monetary penalty laws, including the False
Claims Act, which prohibit, among other things, individuals or entities from knowingly
presenting, or causing to be presented, claims for payment from the federal government,
including Medicare, Medicaid, or other third-party payers, that are false or fraudulent;
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HIPAA,
which imposes criminal and civil liability for knowingly and willfully executing, or
attempting to execute, a scheme to defraud any healthcare benefit program or obtain,
by means of false or fraudulent pretenses, representations, or promises, any of the money
or property owned by, or under the custody or control of, any healthcare benefit program,
and for knowingly and willfully falsifying, concealing or covering up a material fact
or making any materially false statements in connection with the delivery of or payment
for healthcare benefits, items or services;
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the
federal transparency laws, including the physician sunshine provisions of the Affordable
Care Act, that requires certain drug manufacturers to disclose certain payments and other
transfers of value provided to physicians and teaching hospitals, and ownership and investment
interests held by physicians and their family members;
|
|
·
|
HIPAA,
as amended by HITECH, and its implementing regulations, which imposes certain requirements
relating to the privacy and security of individually identifiable health information;
and
|
|
·
|
state
law equivalents of each of the above federal laws, such as anti-kickback and false claims
laws which may apply to items or services reimbursed by any third-party payer, including
commercial insurers, and state laws governing the privacy and security of health information
in certain circumstances, many of which differ from each other in significant ways and
may not have the same effect, thus complicating compliance efforts; and
|
|
·
|
the
FCPA, which prohibits companies from making improper payments to foreign government officials
and other persons for the purpose of obtaining or retaining business.
|
The Affordable Care Act broadened the reach
of the fraud and abuse laws by, among other things, amending the intent requirement of the federal Anti-Kickback Statute and the
applicable criminal healthcare fraud statutes contained within 42 U.S.C. §1320a-7b. Pursuant to the statutory amendment,
a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have
committed a violation. In addition, the Affordable Care Act provides that the government may assert that a claim including items
or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes
of the civil False Claims Act (discussed below) or the civil monetary penalties statute. Many states have adopted laws similar
to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed
by any source, not only federal healthcare programs such as the Medicare and Medicaid programs.
Safeguards we implement to prohibit improper
payments or offers of payments by our employees, consultants, and others may be ineffective, and violations of the fraud and abuse
laws, the FCPA and similar laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against
us, any of which would likely harm our reputation, business, financial condition and result of operations.
If our operations are found to be in violation
of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including
civil and criminal penalties, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment,
damages, fines, disgorgement, contractual remedies, reputational harm, diminished profits and future earnings, and the curtailment
or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of
operations.
Labeling, Marketing and Promotion
The FDA closely regulates the labeling, marketing
and promotion of drugs. While doctors are free to prescribe any drug approved by the FDA for any use, a company can only make
claims relating to safety and efficacy of a drug that are consistent with FDA approval, and the company is allowed to actively
market a drug only for the particular use and treatment approved by the FDA. In addition, any claims we make for our products
in advertising or promotion must be appropriately balanced with important safety information and otherwise be adequately substantiated.
Failure to comply with these requirements can result in adverse publicity, enforcement letters, such as publicly-posted warning
letters, corrective advertising, injunctions and potential civil and criminal penalties. Government regulators recently have increased
their scrutiny of the promotion and marketing of drugs. These federal enforcement actions can also potentially lead to state actions
and product liability claims, as well as competitor challenges of deceptive advertising.
Anti-Kickback Statute, False Claims Act, and Other Laws
In the United States, the research, manufacturing,
distribution, sale and promotion of drug products and medical devices are potentially subject to regulation by various federal,
state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services, other divisions
of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice, state
Attorneys General, and other federal, state and local government agencies. For example, sales, marketing and scientific/educational
grant programs must comply with, among others, the federal Anti-Kickback Statute, the federal False Claims Act, privacy and security
regulations promulgated under HIPAA, and similar state laws, as applicable. All of these activities are also potentially subject
to federal and state consumer protection and unfair competition laws.
The federal Anti-Kickback Statute makes
it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf) to knowingly and
willfully solicit, receive, offer, or pay any remuneration that is intended to induce or reward referrals, or the purchase,
order, or prescription of a particular drug or other item or service, for which payment may be made under a federal
healthcare program, such as Medicare or Medicaid.
The federal False Claims Act prohibits
anyone from knowingly presenting, or causing to be presented, for payment to the government, claims for items or services
(including drugs) that are false or fraudulent, such as claims for items or services not provided as claimed, or claims for
medically unnecessary items or services.
There are also an increasing number of state
laws that require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities
as to what is required to comply with the laws. In addition, a similar federal requirement requires manufacturers to track and
report to the federal government certain payments made to physicians and certain teaching hospitals made in the previous calendar
year. These laws may affect our sales, marketing, and other promotional activities by imposing administrative and compliance burdens
on us, and additional laws and regulations may be enacted in the future that expand our compliance obligations even further. In
addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject
to the penalty provisions of the pertinent state, and federal authorities.
Other Regulations
We are also subject to numerous federal, state
and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard
control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws
and regulations now or in the future.
Israel
Clinical Testing in Israel
In order to conduct clinical testing on humans
in the State of Israel, special authorization must first be obtained from the ethics committee and general manager of the institution
in which the clinical trials are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects
implemented pursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time,
and other applicable legislation. These regulations require authorization by the institutional ethics committee and general manager
as well as from the Israeli Ministry of Health, except in certain circumstances, and in the case of genetic trials, special fertility
trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeing ethics committee.
The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from
the project to determine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee
must ensure that adequate protection exists for the rights and safety of the participants as well as the accuracy of the information
gathered in the course of the clinical testing. Since we perform a portion of the clinical trials on certain of our therapeutic
candidates in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution
in which we intend to conduct our clinical trials, and in most cases, from the Israeli Ministry of Health.
Organizational Structure
Our sole wholly owned subsidiary is Bio Blast
Pharma, Inc., which was incorporated in the state of Delaware.
Property and facilities
Our headquarters are currently located in Tel
Aviv, Israel and consists of approximately 3,390 square feet of leased office space under a three-year lease, which commenced
in 2014, with an option to extend the lease for two additional consecutive three-year periods. During December 2016, we exercised
the option to extend the lease for an additional three years period through 2020, while maintaining the right to terminate the
lease agreement under certain conditions during the extended lease term. During 2015 and 2016, we leased U.S. office facilities
- one in New Haven, Connecticut and one in Doylestown, PA for use by our U.S. staff and management under two short-term lease
agreements. As of October 2016, we terminated these lease agreements and vacated these locations.
We consider our current office space sufficient
to meet our anticipated needs for the foreseeable future and suitable for the conduct of our business.
Employees
As of April 3, 2017, our staff included
10 persons. Our management consists of our Chief Executive Officer, our Chief Financial Officer and Vice President of Finance
and Administration, our Chief Medical Officer and Vice President of Research and Development and our Chief Commercial officer.
We believe that we maintain good relations with all of our employees.
Capital Expenditures
Our capital expenditures for 2016, 2015 and
2014 amounted to $18,000, 48,000 and $63,000, respectively. These expenditures were primarily for computers, electrical equipment,
office furniture and leasehold improvements. We expect to finance future expenditures primarily from available cash resources.
MANAGEMENT
Executive Officers and Directors
The following table sets forth information
regarding our executive officers, senior management and directors:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Fredric Price
|
|
71
|
|
Executive Chairman of the Board of Directors,
Chief Executive Officer
|
|
|
|
|
|
Chaime Orlev
|
|
46
|
|
Chief Financial Officer, Vice President of Finance
and Administration
|
|
|
|
|
|
Dr. Warren Wasiewski
|
|
64
|
|
Chief Medical Officer, Vice President of Research
and Development
|
|
|
|
|
|
Dana Gelbaum
|
|
43
|
|
Chief Commercial Officer
|
|
|
|
|
|
Prof. Avizohar Argov
|
|
69
|
|
Special Medical Advisor to the Chief Executive
Officer
|
|
|
|
|
|
Michael Burshtine
(1)(2)(3)
|
|
53
|
|
Director
|
|
|
|
|
|
Thomas I.H. Dubin
(1)(3)
|
|
55
|
|
Director
|
|
|
|
|
|
Colin Foster
|
|
54
|
|
Director
|
|
|
|
|
|
Robert Friedman
(1)(3)
|
|
61
|
|
Director
|
|
|
|
|
|
Marlene Haffner
(2)(3)
|
|
76
|
|
Director
|
|
|
|
|
|
Dr. Dalia Megiddo
|
|
65
|
|
Director
|
|
|
|
|
|
Ran Nussbaum
|
|
43
|
|
Director
|
|
|
|
|
|
Dr. Ralf Rosskamp
(2)(3)
|
|
64
|
|
Director
|
|
(1)
|
Member
of our Audit Committee.
|
|
|
(2)
|
Member of our Compensation Committee.
|
|
(3)
|
Indicates independent director under
NASDAQ rules.
|
Fredric Price
has been our Chief
Executive Officer since July 2016, and has served as Executive Chairman of our Board of Directors since April 2014, having served
as our Chairman of the Board of Directors from April 2012 until April 2014. Since 2013, Mr. Price has served as a member of the
Advisory Board of FDNA Inc. From 2013 until 2014, he was Executive Chairman of the Board of Directors and from 2008 to 2013 Chairman
of the Board of Directors and Chief Executive Officer of Chiasma, Inc. From 2004 to 2008, Mr. Price was Chairman of the Board
of Directors of Omrix Biopharmaceuticals, Inc., from 2006 to 2012 a member of the Board of Directors of Enobia Pharma Corp., from
2007 to 2010 a member of the Board of Directors of Pharmasset Inc., from 2007 to 2011 Executive Chairman of the Board of Directors
of Peptimmune, Inc., from 2004 to 2005 Executive Chairman of the Board of Directors of Zymenex A/S, from 2000 to 2004 Chairman
of the Board of Directors and Chief Executive Officer of BioMarin Pharmaceutical Inc., and from 1994 to 2000 Chief Executive Officer
and a member of the Board of Directors of Applied Microbiology Inc. As Chairman and/or Chief Executive Officer, he has raised
more than $700 million in a variety of securities transactions, led a total of 22 M&A and licensing transactions, built FDA
approved facilities and had drugs approved in the United States as well as in international markets. His earlier experience includes
having been Vice President of Finance and administration and Chief Financial Officer of Regeneron Pharmaceuticals, Inc., the founder
of the strategy consulting firm RxFDP, and Vice President of Pfizer, Inc. with both line and staff responsibilities. Mr. Price
is a co-inventor of 17 issued U.S. patents. He received a B.A. from Dartmouth College and an M.B.A. from the Wharton School of
the University of Pennsylvania.
Chaime Orlev
has been our Chief Financial
Officer and Vice President, Finance and Administration since September 2016. Prior to joining us, he served as the Vice President
of Finance and Administration of Chiasma, Inc. (NASDAQ: CHMA) from 2010 to 2016. In addition, he was a financial consultant to
several Israeli biotechnology and medical device companies from 2008 to 2010. From 2008 to 2009, Mr. Orlev served as Chief Financial
Officer of Oramed Pharmaceuticals Inc.(NASDAQ: ORMP). Mr. Orlev served as Chief Financial Officer of Gammacan International Inc.
from 2005 to 2008 and as Vice President, Finance and Chief Financial Officer of Huntleigh USA Corporation from 2001 to 2004. Mr.
Orlev received his M.B.A. from the Leon Recanati Graduate School of Business Administration at the Tel Aviv University and a B.A.
in Business Administration from the College of Business in Israel. Mr. Orlev is a Certified Public Accountant under the laws of
Israel.
Dr. Warren Wasiewski
has been our Chief
Medical Officer and Vice President of Research and Development since November 2015. Dr. Wasiewski is a board certified pediatric
neurologist with twenty-two years of clinical experience in pediatric neurology and fifteen years of experience in the pharmaceutical
industry. From 2014 to 2015, Dr. Wasiewski was Chief Medical Officer and Executive Vice President of Clinical Development for
Neurotrope BioScience, Inc. Prior to this, from 2012 to 2014, he was Vice President of Clinical Development for Neurology at Alexion
Pharmaceuticals, Inc. (NASDAQ: ALXN), an S&P 500 biopharmaceuticals company that discovers, develops, and commercializes medicines
for patients with ultra-rare, life-threatening disorders. From 2001 to 2006 he was the Senior Medical Director for AstraZeneca
plc (LON: AZN) in Neurology. In 2012, Dr. Wasiewski was an Associate Professor of Pediatrics and Neurology at Penn State Children’s
Hospital where he had previously served from 1987 to 1991 as an Assistant Professor of Pediatrics. In 1991, he founded Child Neurology
Associates PC in Lancaster PA and was appointed Chair of Pediatrics at Lancaster General Hospital. Dr. Wasiewski has a B.A. from
Rutgers College, an M.S. from State University of New York Downstate Medical Center, and an M.D. from State University of New
York, at Buffalo. Dr. Wasiewski is member of the medical honor society, Alpha Omega Alpha and Fellow of the American Academy of
Pediatrics.
Dana Gelbaum
has been our Chief Commercial
Officer since November 2016. Ms. Gelbaum also serves as the VP Global Marketing & Corporate Development at Chiasma, Inc.
(NASDAQ:CHMA), a position she has held since January 2016. Prior to that, and since 2009, Ms. Gelbaum held various roles at Chiasma,
Inc. From 2007 to 2008, she was Director of Business Development at Recoly N.V., a biotechnology company that developed a drug
for hemophilia A. Prior to that, and from 2003 to 2007, Ms. Gelbaum was an associate at Johnson & Johnson Development
Corporation, Johnson & Johnson’s investment arm, focusing on investments in biopharmaceutical companies in Europe
and medical device companies in Israel. Prior to that, and from 2001 to 2003 Ms. Gelbaum was a Manager at Ernst & Young Life
Science Corporate Finance Department. Ms. Gelbaum received her M.Sc. and M.B.A. from Tel Aviv University.
Prof. Avizohar Argov
has been our Special
Medical Advisor to the Chief Executive Officer since November 2015. Prior to that and since June 2014 Prof. Argov was our Chief
Medical Officer. Since 1991, Prof. Argov has been a Professor of Neurology & Josephine Frank Kanrich Chair of Neuromuscular
Diseases, Hadassah-Hebrew University Medical Center in Jerusalem, Israel, and since 1996, has been an adjunct professor in the
Department of Neurology/Neurosurgery at the Neurological Institute at McGill University in Montreal, Canada. Since 2010, Prof.
Argov has been a member of the executive committee of the World Muscle Society. From 2010 until 2011 he served as the President
of the European Neurological Society and the Chairman of its subcommittee of Muscle & Neuromuscular Disorders. In addition,
he has served as the Chairman of the Israeli Society of Neuromuscular Diseases. Prof. Argov’s primary research fields include
hereditary inclusion body myopathies, hereditary neuromuscular disorders, particularly in Jewish ethnic clusters, and latrogenic
neuromuscular disorders, particularly drug-induced myasthenia. He received his M.D. from the Hebrew University-Hadassah Medical
School in Jerusalem, Israel and was a Resident in Neurology at the Hadassah University Hospital in Jerusalem, Israel. He received
training in neuromuscular diseases from the Muscular Dystrophy Association in Newcastle Upon Tyne, England and further training
in biochemistry and biophysics from the University of Pennsylvania in the United States.
Michael Burshtine
has been a director
since October 30, 2014. Mr. Burshtine is currently serving as co-Chief Executive Officer at Adhestick Innovations Ltd., a chemical
company specializing in the development, manufacturing and marketing of adhesion polymers formulations. Mr. Burshtine served as
the president and Chief Executive Officer of Flight Medical Innovations Ltd., a med-tech company specializing in the development,
manufacturing and marketing of portable ventilators, between 2009 and May 2014. Prior to that, between 2007 and 2009, he served
as President and Chief Executive Officer of Recoly N.V., a bio-med company engaged in the research, development and commercialization
of drug enhancement technologies. From 2004 to 2007, he served as the Chief Financial Officer of Omrix Biopharmaceuticals Inc.,
a public biotechnology company that develops, manufactures and commercializes plasma derivative products. Mr. Burshtine has been
a certified CPA since 1994 and was a senior partner at Kesselman & Kesselman PricewaterhouseCoopers (PwC) auditing firm, until
2004. He holds an M.B.A. and a B.A. in economics and accounting, both from Tel Aviv University. Mr. Burshtine serves on our Audit
Committee and our Compensation Committee.
Thomas I.H. Dubin
has been a director
since September 2015. Mr. Dubin is an attorney and has over twenty years of senior leadership experience in the pharmaceutical
and biotechnology industries. From January 2014 through November 2014, Mr. Dubin served as an advisor to the Chief Executive Officer
of Infinity Pharmaceuticals Inc. (NASDAQ: INFI). From 2008 through 2013, he was Senior Vice President and Chief Legal Officer,
and from 2001 through 2008 he was Vice President and General Counsel, of Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). Prior
to Alexion, from 1992 to 2000, Mr. Dubin served in senior positions at ChiRex, Inc. (NASDAQ:CHRX) and at Warner-Lambert
Company (NYSE:WLA) prior to its sale to Pfizer, Inc. Mr. Dubin began his career as an attorney with Cravath, Swaine & Moore
LLP in New York City. He is a Trustee of the American Jewish World Service, and a Member of Launchpad Venture Group. Mr. Dubin
received his J.D. from New York University School of Law, and his B.A. from Amherst College, cum laude.
Colin Foster
has been a director
since January 2015, having served as our President and Chief Executive Officer from January 2015 until July 2016. Mr. Foster has
extensive experience in leading therapeutic, diagnostic, and medical device companies in the United States and internationally,
working across the R&D-to-commercial continuum. He was a founder of iSci Management LLC, a life sciences advisory firm, and
served as its Managing Director from 2011 until 2015. In 2005, Mr. Foster co-founded Optherion, Inc., a venture backed biologics
and diagnostics company targeting ultra-orphan diseases of the immune system and age-related macular degeneration, and served
as its Chief Executive Officer from 2006 until 2012. Prior to that, and from 1994 until 2004, he held various senior executive
positions at Bayer AG, including President and Chief Executive Officer of Bayer Pharmaceuticals Corporation USA and Region Head
of the North American Pharmaceuticals business of Bayer AG. In 1988, Mr. Foster began his post-graduate career with Sandoz Canada
Inc. before embarking on an international career with Bayer in Canada, the USA, and Europe. From January 2014 through August 2015,
Mr. Foster served as Executive Chairman of Ivenix, Inc. Mr. Foster has a B.Sc. in Zoology and Microbiology from the University
of Toronto, and an M.B.A. from Western University in Canada.
Robert Friedman
has been a director
since October 2016. Mr. Friedman has had a long career in life sciences management consulting that began with The Wilkerson Group
in 1987 and has included IBM Corporation, Easton Associates, LLC, where he was a co-founder, and Navigant Consulting, Inc.
He has advised companies both large and small in biotechnology, pharmaceuticals, medical devices and diagnostics. Mr. Friedman’s
areas of expertise include corporate and product strategy development and execution, pre-commercial planning, and due diligence.
In addition to his experience as a consultant, Mr. Friedman spent five years as an equity analyst for several investment banks
including Lehman Brothers, Paine Webber and Hanover Securities, where he covered universes of both large- and small-cap biotech
companies. Mr. Friedman began his career as an Associate at Steinberg & Lyman, a venture capital fund dedicated to creating
new biopharmaceutical firms. There, he was instrumental in founding Genetic Therapy, Inc., the first gene therapy company,
which was sold to Novartis. Mr. Friedman holds an MBA in Marketing and Finance from the Johnson Graduate School of Management,
Cornell University, and a BA in Biology from Yeshiva University.
Dr. Marlene Haffner
has been a director
since July 1, 2013. From 1986 until 2007, Dr. Haffner served as the Director of the Office of Orphan Products Development (OOPD)
of the FDA. As OOPD Director she was responsible for the leadership and management of the FDA orphan products development program,
the first Orphan Products program in the world. After leaving the FDA, and from 2007 until 2009, she served as Executive Director,
Global Regulatory Policy and Intelligence at Amgen, Inc., and since 2009 has held the position of Chief Executive Officer at Orphan
Solutions and Haffner Associates, LLC, services companies for the orphan drug industry. In addition to her consulting activities,
Dr. Haffner is Adjunct Professor, Department of Preventive Medicine and Biometrics and Clinical Professor at the Department of
Medicine of the F. Edward Hébert School of Medicine, Uniformed Services University of the Health Sciences in Bethesda,
Maryland. For 36 years she served in the United States Public Health Service beginning her career with the Indian Health Service
in Gallup, New Mexico prior to moving to the FDA. Dr. Haffner received her M.D. from the George Washington University
School of Medicine where she then interned in Internal Medicine. She received further training in internal medicine, dermatology
and hematology at the Presbyterian Hospital, New York and at the Albert Einstein College of Medicine, New York. She received an
M.P.H. from the Johns Hopkins University Bloomberg School of Public Health. During her public health career, she rose to the rank
of Rear Admiral in the United States Public Health Service.
Dr.
Dalia Megiddo
has been a director since our inception. From our inception until February 2015, Dr. Megiddo was our Chief
Executive Officer, from January 2015 to November 2015, she was our Chief Development Officer and from November 2015 to December
2016, she was a special advisor to our Chief Executive Officer. Dr. Megiddo co-founded Alcobra Ltd. (NASDAQ: ADHD), a company
primarily focused on the development and commercialization of a drug to treat Attention Deficit Hyperactivity Disorder in February
2008, and became a Director at that time. She is an entrepreneur and a medical doctor in family medicine. Since 2000, she has
been a manager of InnoMed Ventures LP, an Israeli venture capital fund focused on life sciences. From 2006 to 2010, she was also
a manager of 7 Health Ventures Ltd., an Israeli venture capital fund. She is also the founder of a number of life science companies.
Dr. Megiddo received her M.D. degree from Hebrew University Hadassah Medical School and holds a specialist degree in Family Medicine,
and also holds an M.B.A. from the Kellogg-Recanati School of Business.
Ran Nussbaum
has been a director since
July 1, 2013. Mr. Nussbaum is a co-founder, and since 2004, has served as a managing partner of the Pontifax Group Ltd., a venture
capital firm. Mr. Nussbaum currently serves as a director of several companies, including, Kite Pharma Inc. (NASDAQ: KITE) (since
July 2013), Eloxx Pharmaceuticals, Ltd. (since September 2013), UroGen Pharma Ltd. (since April 2013), Quiet Therapeutics Ltd.
(since September 2010), Ocon Medical Ltd. (since May 2013), Nutrina Ltd. (since December 2014), N.T.B Pharma Ltd. (since November
2015) and NovellusDx Ltd. (since December 2015). In addition, Mr. Nussbaum previously served as a director of CollPlant Holdings
Ltd. (TASE: CLPT) (from May 2010 until August 2014.), Protab Ltd. (from December 2010 until August 2014), Fusimab Ltd. (from July
2010 until December 2014), c-Cam Biotherapeutics Ltd. (from April 2012 until July 2015) and Insuline Medical Ltd. (TASE: INSL)
(from December 2013 until January 2015).
Dr. Ralf Rosskamp
has been a director
since August 2016. Dr. Rosskamp has served as Chief Medical Officer of Summit PLC since September 2015. From 2013 to 2015, Dr.
Rosskamp served as VP Global Clinical Development of NPS Pharmaceuticals, Inc. (NASDAQ: NPSP). Dr. Rosskamp received his MD and
PhD from the University of Bonn in Germany.
Arrangements Concerning Election of Directors; Family Relationships
There are no arrangements or understandings
with major shareholders, customers, suppliers or others pursuant to which any of our directors or members of senior management
were selected as such. In addition, there are no family relationships among our executive officers and directors.
Compensation
In accordance with the Companies Law, the table
below reflects the compensation granted to our five most highly compensated officers during or with respect to the year ended
December 31, 2016. All amounts reported reflect the cost to the Company for the year ended December 31, 2016. Amounts paid in
NIS are translated into U.S. dollars at the rate of NIS 3.845 = U.S.$1.00, based on the average representative rate of exchange
between the NIS and the U.S. dollar as reported by the Bank of Israel in the year ended December 31, 2016.
Name and Position
|
|
Salary/Fees
(1)
|
|
|
Share-Based
Compensation
(2)
|
|
|
Bonus/Severance
(3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fredric
Price,
Chairman of the Board of Directors, Chief Executive Officer
(4)
|
|
$
|
250,000
|
|
|
$
|
825,025
|
|
|
$
|
125,000
|
|
|
$
|
1,200,025
|
|
Colin Foster,
Director
and former President and Chief Executive Officer
(5)
|
|
$
|
254,200
|
|
|
$
|
-
|
|
|
$
|
912,000
|
|
|
$
|
1,166,200
|
|
Dr. Warren Wasiewski,
Chief Medical Officer, Vice President of Research and Development
(6)
|
|
$
|
432,749
|
|
|
$
|
333,304
|
|
|
$
|
128,000
|
|
|
$
|
894,053
|
|
Robert Cook,
former
Chief Financial Officer
(7)
|
|
$
|
243,759
|
|
|
$
|
-
|
|
|
$
|
393,750
|
|
|
$
|
637,509
|
|
Theresa Stevens,
former
Chief Corporate Development Officer
(8)
|
|
$
|
192,864
|
|
|
$
|
-
|
|
|
$
|
393,750
|
|
|
$
|
586,614
|
|
|
(1)
|
Represents salaries, related
compensation expenses, employer’s costs and fees
|
|
(2)
|
Amounts reflect the grant
date fair value of option awards granted or modified during the year ended December 31, 2016, in accordance with ASC 718.
Such grant date fair value does not take into account any estimated forfeitures related to service-vesting conditions. For
information regarding assumptions underlying the valuation of equity awards, see Note 10 to our financial statements and the
discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical
Accounting Policies and Use of Estimates—Share-based Compensation” included elsewhere in this prospectus. These
amounts do not correspond to the actual value that may be recognized by the respective executive officers upon vesting of
applicable awards.
|
|
(3)
|
Represents discretionary bonuses and separation
related payments for departing executive officers with respect to the year ended December 31, 2016 (excluding employer’s
costs).
|
|
(4)
|
Mr. Price has been the Chief Executive Officer
since May 2016, and Executive Chairman of the Board of Directors, since April 2012.
|
|
(5)
|
Mr. Foster’s employment as President and Chief
Executive Officer of the Company terminated in June 2016.
|
|
(6)
|
Dr. Wasiewski has been the Chief Medical Officer,
Vice President of Research and Development since November 2015.
|
|
(7)
|
Mr. Cook’s employment with the Company
terminated in June 2016.
|
|
(8)
|
Ms. Stevens’ employment with the Company
terminated in May 2016.
|
The aggregate amount of compensation paid or
accrued to all of our directors and executive officers as a group with respect to the year ended December 31, 2016 was approximately
$6.5 million. Such amount is inclusive of the grant date fair value of option awards granted or modified during the year ended
December 31, 2016 in the amount of $1.8 million. The amount does not include business travel, relocation, professional and business
association due and expenses.
Employment and Service Agreements with Executive Officers
We
have entered into written employment agreements with all of our executive officers. Each of these agreements contains provisions
regarding non-competition, confidentiality of information and ownership of inventions. The non-competition provision applies for
a period that is generally 12 months following termination of employment. The enforceability of covenants not to compete in Israel
and the United States is subject to limitations. In addition, we are required to provide notice prior to terminating the employment
of our executive officers, other than in the case of a termination for cause. For further information, see “Risk Factors
–
Risks Related to Israeli Law and Our
Operations in Israel.”
Corporate Governance Practices
As
an Israeli company issuing shares to the public, we are subject to various corporate governance requirements under Israeli law
relating to such matters as the appointment of the Audit Committee, the Compensation Committee and an internal auditor. These
requirements are in addition to the corporate governance requirements imposed by the NASDAQ Stock Market rules and other applicable
provisions of U.S. securities laws as applicable to foreign private issuers. Under the NASDAQ Stock Market rules, a foreign private
issuer may generally follow its home country rules of corporate governance in lieu of the comparable requirements of the NASDAQ
Stock Market rules, except for certain matters, including (among others) the composition and responsibilities of the Audit Committee
and the independence of its members within the meaning of the rules and regulations of the SEC. For further information, see “Risk
Factors
–
Risks Related to Israeli Law and
Our Operations in Israel” and “Management—NASDAQ Listing Rules and Home Country Practices.”
Board Practices
Board of Directors
Under the Companies Law, our Board of Directors
is vested with the power to set corporate policy and oversee our business. Our Board of Directors may exercise all powers and
may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible
for our day-to-day management and have individual responsibilities established by our Board of Directors. Our Chief Executive
Officer is appointed by, and serves at the discretion of, our Board of Directors, subject to the employment agreement that we
have entered into with him. All other executive officers are appointed by our Chief Executive Officer, and are subject to the
terms of any applicable employment agreements that we may enter into with them.
Under our amended and restated articles of
association, our Board of Directors must consist of at least five and not more than eleven directors. Following the resignations
of Messrs. Udi Gilboa and Gili Cohen, our Board of Directors currently consists of nine directors. We have only one class of directors.
Our directors are each elected at the annual
general meeting of our shareholders and serve until the next annual general meeting. Such election is subject to the selection,
or recommendation for the Board of director’s selection, by a majority of independent directors. Directors may nevertheless be
removed prior to the end of their term by the majority of our shareholders at a general meeting of our shareholders or upon the
occurrence of certain events, all in accordance with the Companies Law and our amended and restated articles of association.
In addition, our amended and restated articles
of association allow our Board of Directors to appoint directors, to fill vacancies on our Board of Directors, for a term of office
equal to the remaining period of the term of office of the directors whose offices have been vacated, or appoint new additions
to the Board of Directors up to the maximum number of directors.
Under the Companies Law, nominations for directors
may be made by any shareholder holding at least one percent of our outstanding voting power. However, any such shareholder may
make such a nomination only if a written notice of such shareholder’s intent to make such nomination has been given to our
Board of Directors. Any such notice must include certain information which is required under the Companies Law to provide to our
shareholders, the consent of the proposed director nominee(s) to serve as our director(s) if elected and a declaration signed
by the nominee(s) declaring that there is no limitation under the Companies Law preventing their election and that all of the
information that is required under the Companies Law to be provided to us in connection with such election has been provided.
External Directors
Under the Companies Law, except as provided
below, companies incorporated under the laws of the State of Israel that are publicly traded, including Israeli companies with
shares listed on the NASDAQ, are required to appoint at least two external directors who meet the qualification requirements set
forth in the Companies Law. The definitions of an external director under the Companies Law and independent director under the
Listing Rules of NASDAQ are similar such that it would generally be expected that our two external directors will also comply
with the independence requirement under the Listing Rules of NASDAQ.
Pursuant to newly enacted regulations under
the Companies Law, the Board of Directors of a company such as the Company is not required to have external directors if: (i)
the company does not have a controlling shareholder (as such term is defined in the Companies Law); (ii) a majority of the directors
serving on the Board of Directors are “independent,” as defined under NASDAQ Listing Rule 5605(a)(2); and (iii) the
company follows NASDAQ Rule 5605(e)(1), which requires that the nomination of directors be made, or recommended to the Board of
Directors, by a Nominating Committee of the Board of Directors consisting solely of independent directors, or by a majority of
independent directors. The Company meets all these requirements. On June 28, 2016, our Board of Directors resolved to adopt the
corporate governance exemption set forth above, and accordingly we no longer have external directors as members of our Board of
Directors. Mr. Gili Cohen, a former director, served as our last external director until October 13, 2016. Mr. Cohen subsequently
left our Board of Directors on January 15, 2017.
Leadership Structure of the Board
In accordance with the Companies Law and our
amended and restated articles of association, our Board of Directors is required to appoint one of its members to serve as Chairman
of the Board of Directors. Our Board of Directors has appointed Mr. Fredric Price (who is also serving as our Chief Executive
Officer) to serve as Executive Chairman of the Board of Directors. Under the Companies Law, the Chief Executive Officer of a public
company may not serve as the chairperson of the board of such company unless approved by the Company’s shareholders, which
approval lapses after three years. On August 9, 2016, our shareholders approved that our Executive Chairperson may also serve
as our Chief Executive Officer.
Role of Board in Risk Oversight Process
Risk assessment and oversight are an integral
part of our governance and management processes. Our Board of Directors encourages management to promote a culture that incorporates
risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational
risks at regular management meetings, and conducts specific strategic planning and review sessions during the year that include
a focused discussion and analysis of the risks facing us. Throughout the year, senior management reviews these risks with the
Board of Directors at regular board meetings as part of management presentations that focus on particular business functions,
operations or strategies and presents the steps taken by management to mitigate or eliminate such risks.
Board Committees
Audit Committee
Under the Companies Law, the Board of Directors
of a public company must appoint an audit committee.
Our Audit Committee provides assistance to
our Board of Directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial
reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants
and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our Audit
Committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy
it that the accountants are independent of management.
Under the Companies Law, our Audit Committee
is responsible for:
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determining
whether there are deficiencies in the business management practices of our Company, and
making recommendations to the Board of Directors to improve such practices;
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determining
whether to approve certain related party transactions (including transactions in which
an office holder has a personal interest and whether such transaction is extraordinary
or material under the Companies Law) (see “Management—Approval of Related
Party Transactions under Israeli law”);
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examining
our internal controls and internal auditor’s performance, including whether the
internal auditor has sufficient resources and tools to dispose of its responsibilities;
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examining
the scope of our auditor’s work and compensation and submitting a recommendation
with respect thereto to our Board of Directors or shareholders, depending on which of
them is considering the appointment of our auditor;
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establishing
procedures for the handling of employees’ complaints as to the management of our
business and the protection to be provided to such employees;
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determining
whether certain acts of an office holder not in accordance with his or her fiduciary
duty owed to the Company are extraordinary or material and to approve such acts and certain
related party transactions (including transactions in which an office holder has a personal
interest) and whether such transaction is extraordinary or material under the Companies
Law (see “Management —Approval of Related Party Transactions under Israeli
Law”);
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deciding
whether to approve and to establish the approval process (including by tender or other
competitive proceedings) for certain transactions with a controlling shareholder or in
which a controlling shareholder has a personal interest; and
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determining
the process of approving of transactions that are not negligible, including determining
the types of transactions that will be subject to the approval of the Audit Committee.
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Audit Committee - Charter
Our Board of Directors has adopted an Audit
Committee charter setting forth the responsibilities of the Audit Committee consistent with the rules of the SEC and the Listing
Rules of NASDAQ and the requirements under the Companies Law, as described below. The Audit Committee Charter is posted on our
website.
NASDAQ requirements
Under the Listing Rules of NASDAQ, we are required
to maintain an Audit Committee consisting of at least three independent directors, all of whom are financially literate and one
of whom has accounting or related financial management expertise.
Our Audit Committee consists of Mr. Michael
Burshtine, who serves as the chairperson, Mr. Thomas Dubin and Mr. Robert Friedman. Our Board of Directors has determined that
Mr. Burshtine is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as
defined by the Listing Rules of NASDAQ. All of the members of our Audit Committee meet the requirements for financial literacy
under the applicable Listing Rules of NASDAQ.
Each member of the Audit Committee is required
to be “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act.
Compensation Committee
Under the Companies Law, the Board of Directors
of a public company must appoint a Compensation Committee.
Under the Listing Rules of NASDAQ, we are required
to maintain a Compensation Committee consisting entirely of independent directors (or the determination of such compensation solely
by the independent members of our Board of Directors).
Our Compensation Committee consists of Mr.
Michael Burshtine, Dr. Marlene Haffner and Dr. Ralf Rosskamp.
Under the Companies Law, our Compensation Committee
is responsible for (i) proposing an office holder compensation policy to the Board of Directors, (ii) proposing necessary revisions
to the compensation policy and examining its implementation, (iii) determining whether to approve transactions with respect to
the terms of office and employment of office holders and (iv) determining, in accordance with our office holder compensation policy,
whether to exempt an engagement with an unaffiliated nominee for the position of Chief Executive Officer from requiring shareholders’
approval. Under the regulations promulgated under the Companies Law, certain exemptions and reliefs with respect to the Compensation
Committee are granted to companies whose securities are traded outside of Israel. We may use these exemptions and reliefs after
the listing of our Ordinary Shares on the NASDAQ.
The Companies Law provides that our compensation
policy must serve as the basis for the decisions concerning the financial terms of employment or engagement of executives and
directors, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment
or engagement. The compensation policy must be approved (or reapproved) not longer than every three years, and relate to certain
factors, including advancement of the company’s objective, business plan and its long term strategy and creation of appropriate
incentives for office holders. It must also consider, among other things, the company’s risk management, size and nature
of its operations. The compensation policy must furthermore consider the following additional factors:
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the
knowledge, skills, expertise and accomplishments of the relevant office holder;
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the
office holder’s roles and responsibilities and prior compensation agreements with
him or her;
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the
relationship between the terms offered and the average compensation of the other employees
of the company, including those employed through manpower companies;
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the
impact of disparities in salary upon work relationships in the company;
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the
possibility of reducing variable compensation at the discretion of the Board of Directors
or the possibility of setting a limit on the exercise value of non-cash variable equity-based
compensation; and
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as
to severance compensation, the period of service of the office holder, the terms of his
or her compensation during such service period, the company’s performance during
that period of service, the person’s contributions towards the company’s
achievement of its goals and the maximization of its profits and the circumstances under
which the person is leaving the company.
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The compensation policy must also include the
following principles:
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the
link between variable compensation and long-term performance and measurable criteria;
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the
relationship between variable and fixed compensation, and the ceiling for the value of
variable compensation;
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the
conditions under which a director or executive would be required to repay compensation
paid to him or her if it was later shown that the data upon which such compensation was
based was inaccurate and was required to be restated in the company’s financial
statements;
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the
minimum holding or vesting period for variable, equity-based compensation; and
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maximum limits for severance compensation.
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Our compensation policy, consistent with the
foregoing Companies Law requirements, was adopted by our shareholders on May 5, 2015
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Compensation Committee - Charter
Our Board of Directors has adopted a
Compensation Committee Charter setting forth the responsibilities of the Compensation Committee consistent with the Listing Rules
of NASDAQ and the requirements under the Companies Law, as described above. The Compensation Committee Charter requires that our
Compensation Committee be comprised of at least three members. The Compensation Committee Charter, which was amended and restated
on October 13, 2016, is posted on our website.
Nominating Committee
Our Board of Directors does not have an independent
Nominating Committee. As indicated above, the election of members of our Board of Directors is subject to the selection, or recommendation
for the Board of director’s selection, by a majority of our independent directors.
Internal auditor
Under the Companies Law, the Board of Directors
of an Israeli public company must appoint an internal auditor recommended by the Audit Committee and nominated by the Board of
Directors. An internal auditor may not be:
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a
person (or a relative of a person) who holds more than 5% of the Company’s outstanding
shares or voting rights;
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a
person (or a relative of a person) who has the power to appoint a director or the general
manager of the company;
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an
office holder (including a director) of the company (or a relative thereof); or
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a
member of the company’s independent accounting firm, or anyone on his or her behalf.
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The role of the internal auditor is to examine,
among other things, our compliance with applicable law and orderly business procedures.
NASDAQ Listing Rules and Home Country Practices
The Sarbanes-Oxley Act, as well as related
rules subsequently implemented by the SEC, requires foreign private issuers, such as us, to comply with various corporate governance
practices. In addition, we are required to comply with NASDAQ Stock Market rules. Under those rules, we may elect to follow certain
corporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance
requirements otherwise imposed by the NASDAQ Stock Market rules for U.S. domestic issuers.
In accordance with Israeli law and practice
and subject to the exemption set forth in Rule 5615 of the Listing Rules of NASDAQ, we have elected to follow the provisions
of the Companies Law, rather than the Listing Rules of NASDAQ, with respect to the following requirements:
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Distribution
of periodic reports to shareholders; proxy solicitation.
As opposed to the
Listing Rules of NASDAQ, which require listed issuers to make such reports available
to shareholders in one of a number of specific manners, Israeli law does not require
us to distribute periodic reports directly to shareholders, and the generally accepted
business practice in Israel is not to distribute such reports to shareholders but to
make such reports available through a public website. In addition to making such reports
available on a public website, we currently make our audited financial statements available
to our shareholders at our offices and will only mail such reports to shareholders upon
request. As a foreign private issuer, we are generally exempt from the SEC’s proxy solicitation
rules.
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Quorum
.
While the Listing Rules of NASDAQ require that the quorum for purposes of any meeting
of the holders of a listed company’s common voting stock, as specified in the company’s
bylaws, be no less than one third of the company’s outstanding common voting stock,
under Israeli law, a company is entitled to determine in its articles of association
the number of shareholders and percentage of holdings required for a quorum at a shareholders
meeting. In line with the Listing Rules of NASDAQ, our amended and restated articles
of association provide that the quorum required for our general meetings of shareholders
consists of at least two shareholders present in person, by proxy or written ballot who
holds or represent between them at least one-third of the total outstanding voting rights.
A meeting adjourned for lack of a quorum is generally adjourned to the same day in the
following week at the same time and place or to a later time/date if so specified in
the summons or notice of the meeting. However, unlike the Listing Rules of NASDAQ, at
the reconvened meeting, any two or more shareholders present in person or by proxy shall
constitute a lawful quorum.
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Compensation
of officers.
Israeli law and our amended and restated articles of association do
not require that the independent members of our Board of Directors (or a Compensation
Committee composed solely of independent members of our Board of Directors) determine
an executive officer’s compensation, as is generally required under the NASDAQ
Stock Market rules with respect to the Chief Executive Officer and all other executive
officers.
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Shareholder approval is generally required in the event
(i) approval by our Board of Directors and our Compensation Committee is not consistent with our office holders’ compensation policy,
or (ii) compensation required to be approved is that of our Chief Executive Officer or an executive officer who is also the controlling
shareholder of us (including an affiliate thereof). Such shareholder approval shall require a majority vote of the shares present
and voting at a shareholders meeting, provided either (i) such majority includes a majority of the shares held by non-controlling
shareholders who do not have a personal interest in the compensation arrangement that are voted at the meeting, excluding for
such purpose any abstentions disinterested majority, or (ii) the total shares held by non-controlling disinterested shareholders
voted against the arrangement does not exceed 2% of the voting rights in us.
Additionally, approval of the compensation of a director,
including a director who is also an executive officer, shall require a simple majority vote of the shares present and voting at
a shareholders meeting, if consistent with our office holders compensation policy or a special majority as set forth above if
the proposed compensation for the director is not consistent with our compensation policy. Our Compensation Committee and Board
of Directors may, in special circumstances, approve the compensation of an executive officer (other than a director or a controlling
shareholder) despite shareholders’ objection, based on specified arguments and taking shareholders’ objection into
account. Our Compensation Committee may exempt an engagement with a nominee for the position of Chief Executive Officer, who meets
the non-affiliation requirements for an external director, as set forth in the Companies Law, from requiring shareholders’
approval, if such engagement is consistent with our office holders compensation policy and our Compensation Committee determines
based on specified arguments that presentation of such engagement to shareholders’ approval is likely to prevent such engagement.
A director or executive officer may not be present
when the Compensation Committee or Board of Directors of a company discusses or votes upon the terms of his or her compensation,
unless the Chairman of the Compensation Committee or Board of Directors (as applicable) determines that he or she should be present
to present the transaction that is subject to approval.
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Shareholder
approval.
We will seek shareholder approval for all corporate actions requiring such
approval under the requirements of the Companies Law, rather than seeking approval for
corporation actions in accordance with NASDAQ Listing Rule 5635. In particular,
under this NASDAQ rule, shareholder approval is generally required for: (i) an acquisition
of shares/assets of another company that involves the issuance of 20% or more of the
acquirer’s shares or voting rights or if a director, officer or 5% shareholder has greater
than a 5% interest in the target company or the consideration to be received; (ii) the
issuance of shares leading to a change of control; (iii) adoption/amendment of equity
compensation arrangements; and (iv) issuances of 20% or more of the shares or voting
rights (including securities convertible into, or exercisable for, equity) of a listed
company via a private placement (and/or via sales by directors/officers/5% shareholders)
if such equity is issued (or sold) at below the greater of the book or market value of
shares. By contrast, under the Companies Law, shareholder approval is required for, among
other things: (i) transactions with directors concerning the terms of their service
or indemnification, exemption and insurance for their service (or for any other position
that they may hold at a company), for which approvals of the Compensation Committee,
Board of Directors and shareholders are all required, (ii) extraordinary transactions
with controlling shareholders of publicly held companies, which require the special approval
described below under “Approval of Related Party Transactions under Israeli Law
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Disclosure of personal interests of controlling shareholders”,
and (iii) terms of employment or other engagement of the controlling shareholder
of the company or such controlling shareholder’s relative, which require the special
approval described below under “Approval of Related Party Transactions under Israeli
Law
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Disclosure of personal interests of controlling shareholders”. In addition,
under the Companies Law, a merger requires approval of the shareholders of each of the
merging companies.
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Approval of Related Party Transactions under Israeli Law
Fiduciary Duties of Directors and Executive Officers
The Companies Law codifies the fiduciary
duties that office holders owe to a company. Each person listed in the table under “Management—Executive Officers
and Directors” is an office holder under the Companies Law.
An office holder’s fiduciary duties
consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care with
which a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires
that an office holder act in good faith and in the best interests of the company. The duty of care includes a duty to use reasonable
means to obtain:
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information
on the advisability of a given action brought for his or her approval or performed by
virtue of his or her position; and
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all
other important information pertaining to these actions.
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The duty of loyalty requires an office
holder to act in good faith and for the benefit of the company, and includes a duty to:
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refrain
from any conflict of interest between the performance of his or her duties to the company
and his or her other duties or personal affairs;
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refrain
from any activity that is competitive with the company;
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refrain
from exploiting any business opportunity of the company to receive a personal gain for
himself or herself or others; and
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disclose
to the company any information or documents relating to the company’s affairs which
the office holder received as a result of his or her position as an office holder.
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Disclosure of Personal Interests of an Office Holder
The Companies Law requires that an office
holder promptly disclose to the Board of Directors any personal interest that he or she may have concerning any existing or proposed
transaction with the company, as well as any substantial information or document with respect thereof. An interested office holder’s
disclosure must be made promptly and in any event no later than the first meeting of the Board of Directors at which the transaction
is considered. A personal interest includes an interest of any person in an act or transaction of a company, including a personal
interest of one’s relative or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder,
director or general manager or in which he or she has the right to appoint at least one director or the general manager, but excluding
a personal interest stemming from one’s ownership of shares in the company. Furthermore, a personal interest includes the
personal interest of a person for whom the office holder holds a voting proxy, or the interest of the office holder with respect
to his or her vote on behalf of the shareholder for whom he or she holds a proxy even if such shareholder itself has no personal
interest in the approval of the matter. An office holder is not, however, obliged to disclose a personal interest if it derives
solely from the personal interest of a relative of such office holder in a transaction that is not considered an extraordinary
transaction. Under the Companies Law, an extraordinary transaction is defined as any of the following:
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a
transaction other than in the ordinary course of business;
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a
transaction that is not on market terms; or
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a
transaction that may have a material impact on a company’s profitability, assets
or liabilities.
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If it is determined that an office holder
has a personal interest in a transaction which is not an extraordinary transaction, approval by the Board of Directors is required
for the transaction, unless the company’s articles of association provide for a different method of approval. Our amended
and restated articles of association do not state otherwise. Further, so long as an office holder has disclosed his or her personal
interest in a transaction, the Board of Directors may approve an action by the office holder that would otherwise be deemed a
breach of duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest
or that is not performed by the office holder in good faith. Approval first by the company’s Audit Committee and subsequently
by the Board of Directors is required for an extraordinary transaction in which an office holder has a personal interest. Arrangements
regarding the compensation, indemnification or insurance of an office holder require the approval of the Compensation Committee,
Board of Directors and, in certain circumstances, the shareholders, in that order, as described above under “Management—NASDAQ
Listing Rules and Home Country Practices—Compensation of officers” and “Management—NASDAQ Listing Rules
and Home Country Practices—Shareholder approval.”
Generally, except with respect to non-extraordinary
transactions, a person who has a personal interest in a matter which is considered at a meeting of the Board of Directors or the
Audit Committee may not be present at such a meeting or vote on that matter unless a majority of the directors or members of the
Audit Committee have a personal interest in the matter, or unless the Chairman of the Audit Committee or Board of Directors (as
applicable) determines that he or she should be present in order to present the transaction that is subject to approval. Generally,
if a majority of the members of the Audit Committee and/or the Board of Directors has a personal interest in the approval of a
transaction, then all directors may participate in discussions of the Audit Committee and/or the Board of Directors on such transaction
and the voting on approval thereof, but shareholder approval is also required for such transaction.
Disclosure of a personal interest is also
required of a person who is an interested party with respect to (i) a private placement submitted for approval whereby 20% or
more of the company’s outstanding share capital prior to the placement is offered, and the payment for which is not only
in cash or in tradable securities registered in a stock exchange, or that is not at market terms, and which will result in an
increase of the holdings of a shareholder that already holds 5% or more of the company’s outstanding share capital or voting
rights or will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding
share capital or voting rights or (ii) a private placement submitted for approval that as a result of which will become a controlling
shareholder. Such personal interest disclosure requirements also apply to certain shareholders of a public company who have a
personal interest in the adoption by the shareholders of certain proposals with respect to (i) certain special tender offers or
forced bring along share purchase transactions, (ii) approval of a compensation policy governing the terms of employment and compensation
of office holders, (iii) approval of the terms of employment and compensation of the Chief Executive Officer, (iv) approval of
the terms of employment and compensation of office holders of the company when such terms deviate from the compensation policy
previously approved by the company’s shareholders and (v) approving the appointment of either (1) the Chairman of the Board
or his/her relative as the Chief Executive Officer of the company or (2) the Chief Executive Officer or his/her relative as the
Chairman of the Board of Directors of the company. If any shareholder casting a vote at a shareholders meeting in connection with
such proposals as aforesaid does not notify the company if he, she or it has a personal interest with respect to such proposal,
his, her or its vote with respect to the proposal will be disqualified.
Disclosure of Personal Interests of Controlling Shareholders
The disclosure requirements regarding personal
interests that apply to directors and executive officers also apply to controlling shareholders, as defined below. The Companies
Law requires a special approval procedure for (1) extraordinary transactions with controlling shareholders, (2) extraordinary
transactions with a third party where a controlling shareholder has a personal interest in the transaction and (3) any transaction
with the controlling shareholder or the controlling shareholder’s relative regarding terms of service provided directly
or indirectly (including through a company controlled by the controlling shareholder) and terms of employment (for a controlling
shareholder who is not an office holder).
Such extraordinary transactions with controlling
shareholders require the approval of the Audit Committee or the Compensation Committee, as applicable, the Board of Directors
and the majority of the voting power of the shareholders present and voting at the general meeting of the company (not including
abstentions), provided that either:
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the
majority of the shares of shareholders who have no personal interest in the transaction
and who are present and voting, vote in favor; or
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shareholders
who have no personal interest in the transaction who vote against the transaction do
not represent more than 2% of the aggregate voting rights in the company.
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Any shareholder participating in the vote
on approval of an extraordinary transaction with a controlling shareholder must inform the company prior to the voting whether
or not he or she has a personal interest in the approval of the transaction and if he or she fails to do so, his or her vote will
be disregarded.
Further, extraordinary transactions with
controlling shareholders, extraordinary transactions with a third party where a controlling shareholder has a personal interest
in the transaction or transactions with a controlling shareholder or his or her relative concerning terms of service or employment
need to be re-approved once every three years; provided, however, that with respect to extraordinary transactions with controlling
shareholders or extraordinary transaction with a third party where a controlling shareholder has a personal interest in the transaction,
the Audit Committee may determine that the duration of the transaction in excess of three years is reasonable given the circumstances
related thereto.
In accordance with regulations promulgated
under the Companies Law, certain defined types of extraordinary transactions between a public company and its controlling shareholder
or controlling shareholders are exempt from the shareholder approval requirements. Furthermore, a transaction with a controlling
shareholder that would otherwise require approval of the shareholders is generally exempt from shareholders’ approval if
the Audit Committee and the Board of Directors determine that the transaction is on market terms and in the ordinary course of
business and does not otherwise harm the company. Examples to such transactions are stipulated in the regulations and include
transactions, the terms of which were concluded as a framework transaction and approved as such; transactions which are solely
extensions to ongoing transactions and are made on substantially similar terms; transactions that can only benefit the company,
without imposing any liabilities. However, such exemptions will not apply if one or more shareholders holding at least 1% of the
issued and outstanding shares or voting rights, objects to the use of these exemptions in writing not later than 14 days from
the date the company notifies its shareholders of the adoption by the relevant corporate bodies of the resolution regarding the
transaction without shareholder approval in reliance upon such exemption.
A “controlling shareholder”
is defined in the Companies Law for purposes of the provisions governing related party transactions and office holder compensation
as a person with the ability to direct the actions of a company, or a person who holds 25% or more of the voting power in a public
company if no other shareholder owns more than 50% of the voting power in the company, but excluding a person whose power derives
solely from his or her position as a director of the company or any other position with the company. Any two or more persons holding
voting rights in the company, who each have a personal interest in the approval of the same such transaction, shall be deemed
to be one holder with respect thereto.
Arrangements regarding the terms of engagement
and compensation of a controlling shareholder who is an office holder, and the terms of employment of a controlling shareholder
who is an employee of the company, require the approval of the Compensation Committee, Board of Directors and, generally, the
shareholders, in that order, as described above under “Management—NASDAQ Listing Rules and Home Country Practices
- Compensation of officers.”
Shareholder Duties
Pursuant to the Companies Law, a shareholder
has a duty to act in good faith and in a customary manner toward the company and other shareholders and to refrain from abusing
his or her power in the company, including, among other things, in voting at the general meeting of shareholders and at class
shareholder meetings with respect to the following matters:
|
·
|
an
amendment to the company’s articles of association;
|
|
·
|
an
increase of the company’s authorized share capital;
|
|
·
|
approval
of interested party transactions and acts of office holders that require shareholder
approval.
|
In addition, a shareholder also has a general
duty to refrain from discriminating against other shareholders.
Certain shareholders have a further duty
of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows that it has
the power to determine the outcome of a shareholder vote or a shareholder class vote and any shareholder who has the power to
appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law
does not define the substance of this duty of fairness, except to state that the remedies generally available upon a breach of
contract will also apply in the event of a breach of the duty to act with fairness.
Exculpation, Insurance and Indemnification of Directors
and Officers
Under the Companies Law, a company may
not exculpate an office holder from liability for a breach of a fiduciary duty. An Israeli company may exculpate an office holder
in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty
of care but only if a provision authorizing such exculpation is included in its articles of association. Our amended and restated
articles of association include such a provision. The company may not exculpate in advance a director from liability arising out
of a prohibited dividend or distribution to shareholders.
Under the Companies Law and the Israeli
Securities Law, 5728-1968, or the Israeli Securities Law, a company may indemnify, or undertake in advance to indemnify, an office
holder for the following liabilities and expenses, imposed on office holder or incurred by office holder due to acts performed
by him or her as an office holder, provided its articles of association include a provision authorizing such indemnification:
|
·
|
financial
liability incurred by or imposed on him or her in favor of another person pursuant to
a judgment, including a settlement or arbitrator’s award approved by a court. However,
if an undertaking to indemnify an office holder with respect to such liability is provided
in advance, then such an undertaking must be limited to events which, in the opinion
of the Board of Directors, can be foreseen based on the company’s activities when
the undertaking to indemnify is given, and to an amount or according to criteria determined
by the Board of Directors as reasonable under the circumstances, and such undertaking
shall detail the abovementioned foreseen events and amount or criteria;
|
|
·
|
reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder as
a result of an investigation or proceeding instituted against him or her by an authority
authorized to conduct such investigation or proceeding, provided that (1) no indictment
was filed against such office holder as a result of such investigation or proceeding
and (2) (i) no financial liability, such as criminal penalty, was imposed upon him or
her as a substitute for the criminal proceeding as a result of such investigation or
proceeding or, (ii) if such financial liability was imposed, it was imposed with respect
to an offense that does not require proof of criminal intent or as a monetary sanction;
|
|
·
|
reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder or
imposed by a court in proceedings instituted against him or her by the company, on its
behalf, or by a third party, or in connection with criminal proceedings in which the
office holder was acquitted, or as a result of a conviction for a crime that does not
require proof of criminal intent; and
|
|
·
|
expenses,
including reasonable litigation expenses and legal fees, incurred by an office holder
in relation to an administrative proceeding instituted against such office holder, or
certain compensation payments required to be made to an injured party, pursuant to certain
provisions of the Israeli Securities Law.
|
Under the Companies Law, a company may
insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder if and
to the extent provided in the company’s articles of association:
|
·
|
a
breach of the duty of loyalty to the company, provided that the office holder acted in
good faith and had a reasonable basis to believe that the act would not harm the company;
|
|
·
|
a
breach of duty of care to the company or to a third party, including a breach arising
out of the negligent conduct of an officer; and
|
|
·
|
a
financial liability imposed on the office holder in favor of a third party.
|
Without derogating from the aforementioned,
subject to the provisions of the Companies Law and the Israeli Securities Law, we may also enter into a contract to insure an
office holder, in respect of expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in
relation to an administrative proceeding instituted against such office holder or payment required to be made to an injured party,
pursuant to certain provisions of the Israeli Securities Law.
Nevertheless, under the Companies Law,
a company may not indemnify, exculpate or insure an office holder against any of the following:
|
·
|
a
breach of fiduciary duty, except for indemnification and insurance for a breach of the
duty of loyalty to the company in the event office holder acted in good faith and had
a reasonable basis to believe that the act would not prejudice the company;
|
|
·
|
a
breach of duty of care committed intentionally or recklessly, excluding a breach arising
out of the negligent conduct of the office holder;
|
|
·
|
an
act or omission committed with intent to derive unlawful personal benefit; or
|
|
·
|
a
fine, monetary sanction, penalty or forfeit levied against the office holder.
|
The Securities Law provides that a company
cannot obtain insurance against or indemnify a third party (including its officers and/or employees) for any administrative procedure
conducted by the Israeli Securities Authority and/or monetary fine (other than for certain legal expenses and payments of damages
to an injured party). The Israeli Securities Law permits insurance coverage and/or indemnification for certain liabilities incurred
in connection with an administrative procedure, such as reasonable legal fees and certain compensation payable to injured parties
for damages suffered by them, provided that such insurance and/or indemnification is permitted under the company’s articles
of association. Our amended and restated articles of association contains such a provision.
Under the Companies Law, exculpation, indemnification
and insurance of office holders require the approval of the Compensation Committee, Board of Directors and, in certain circumstances,
by our shareholders, as described above under “Management—NASDAQ Listing Rules and Home Country Practices—Compensation
of officers”
Our amended and restated articles of association
permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted by the Companies Law and Israeli
Securities Law.
We have obtained directors’ and officers’
liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay all premiums
thereunder to the fullest extent permitted by the Companies Law, the Israeli Securities Law, and our amended and restated articles
of association. In addition, we have entered into agreements with each of our office holders undertaking to indemnify them to
the fullest extent permitted by Israeli law, including with respect to liabilities resulting from this offering to the extent
that these liabilities are not covered by insurance. In the opinion of the SEC, however, indemnification of directors and office
holders for liabilities arising under the Securities Act is against public policy and therefore unenforceable. It is our intention
to include in our office holders compensation policy to be brought for approval of the shareholders following the issuance of
the securities hereunder (and as required under the Companies Law) applicable provisions with respect to directors’ and
officers’ liability insurance for the benefit of our office holders, as well as with respect to indemnification of office
holders.
Code of Business Conduct and Ethics
We have adopted a written code of ethics
that applies to our officers and employees, including our principal executive officer, principal financial officer, principal
controller and persons performing similar functions as well as our directors. Our Code of Business Conduct and Ethics is posted
on our website at
https://bioblastpharma.com/
. Information contained on, or that can be accessed through, our website does
not constitute a part of this prospectus and is not incorporated by reference herein. If we make any amendment to the Code of
Business Conduct and Ethics or grant any waivers, including any implicit waiver, from a provision of the code, we will disclose
the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC including
the instructions to Item 16B of Form 20-F. We have not granted any waivers under our Code of Business Conduct and Ethics.
2013 Incentive Option Plan
We maintain one equity incentive plan - our
2013 Incentive Option Plan, or our 2013 Plan. As of April 3, 2017, there were a total of 3,345,960 options to purchase Ordinary
Shares under our 2013 Plan, of which 2,571,156 options to purchase Ordinary Shares were issued and outstanding and 774,804 remained
available for future issuance. A total of 1,462,912 options to purchase Ordinary Shares were vested as of that date, with a weighted
average exercise price of $4.21 per share.
Our 2013 Plan, which was adopted by our Board
of Directors on November 13, 2013, and amended most recently on March 28, 2016, provides for the grant of options to our and our
affiliates’ respective directors, employees, office holders, service providers and consultants.
The 2013 Plan is administered by our Board
of Directors, which shall determine, subject to Israeli law, the grantees of awards and various terms of the grant. The 2013 Plan
provides for granting options in compliance with Section 102 of the Israeli Income Tax Ordinance, 1961, or the Ordinance.
Options granted under the 2013 Plan to
Israeli employees have been granted under the capital gains track of Section 102 of the Ordinance. Section 102 of the Ordinance
allows employees, directors and officers, who are not controlling shareholders and are considered Israeli residents, to receive
favorable tax treatment for compensation in the form of shares or options. Our Israeli non-employee service providers and controlling
shareholders may only be granted options under Section 3(i) of the Ordinance, which does not provide for similar tax benefits.
Section 102 of the Ordinance includes two alternatives for tax treatment involving the issuance of options or shares to a trustee
for the benefit of the grantees and also includes an additional alternative for the issuance of options or shares directly to
the grantee. Section 102(b)(2) of the Ordinance, the most favorable tax treatment for grantees, permits the issuance to a trustee
under the “capital gains track.” However, under this track we are not allowed to deduct an expense with respect to
the issuance of the options or shares. In order to comply with the terms of the capital gains track, all options granted under
the 2013 Plan pursuant and subject to the provisions of Section 102 of the Ordinance, as well as the Ordinary Shares issued upon
exercise of these options and other shares received subsequently following any realization of rights with respect to such options,
such as share dividends and share splits, must be granted to a trustee for the benefit of the relevant employee, director or officer
and should be held by the trustee for at least two years after the date of the grant.
Options granted under the 2013 Plan will
generally vest over four years commencing on the date of grant such that 25% vest after one year and an additional 6.25% vest
at the end of each subsequent three-month period thereafter for 36 months. Options that are not exercised within ten years from
the grant date expire, unless otherwise determined by the Board of Directors or its designated committee, as applicable. In case
of termination for reasons of disability or death, the grantee or his legal successor may exercise options that have vested prior
to termination within a period of six months from the date of disability or death. If we terminate a grantee’s employment
or service for cause, all of the grantee’s vested and unvested options will expire on the date of termination. If a grantee’s
employment or service is terminated for any other reason, the grantee may exercise his or her vested options within 90 days of
the date of termination. Any expired or unvested options return to the pool for reissuance.
In the event of a merger or consolidation
of our company subsequent to which we shall no longer exist as a legal entity, or a sale of all, or substantially all, of our
shares or assets or other transaction having a similar effect on us, then any outstanding option shall be assumed, or an equivalent
option shall be substituted, by such successor corporation or an affiliate thereof or, in case the successor corporation refuses
to assume or substitute the option, our Board of Directors or its designated committee may (a) provide the grantee with the opportunity
to exercise the option as to all or part of the shares, vested or otherwise, and (b) specify a period of time, no less than 7
days, following which all outstanding options shall terminate.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other than the executive and director compensation
and indemnification arrangements discussed in “Management,” and the transaction described below, we have not entered
into any transactions since January 1, 2014, to which we have been or are a party and in which any of our directors, executive
officers or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with,
any of these individuals or entities, had or will have a direct or indirect material interest.
Employment Agreements
We have entered into written employment
agreements with each of our executive officers. These agreements provide for notice periods of varying duration for termination
of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive
base salary and benefits. We have also entered into customary non-competition, confidentiality of information and ownership of
inventions arrangements with our executive officers. However, the enforceability of the noncompetition provisions may be limited
under applicable law. We describe our service agreements with directors under “Management—Exculpation, Insurance and
Indemnification of Directors and Officers” above.
Options
Since our inception we have granted
options to purchase our Ordinary Shares to our officers and certain of our directors. Such option agreements may contain acceleration
provisions upon certain merger, acquisition, or change of control transactions. We describe our option plans under “Management—2013
Incentive Option Plan” above. If the relationship between us and an executive officer or a director is terminated, except
for cause (as defined in the various option plan agreements), options that are vested will generally remain exercisable for ninety
days after such termination.
Indemnification Agreements and Insurance Coverage
Our articles of association permit us to
exculpate, indemnify and insure each of our directors and office holders to the fullest extent permitted by the Companies Law.
We have entered into indemnification agreements with each of our directors and other office holders, undertaking to indemnify
them to the fullest extent permitted by Israeli law. We have also obtained directors and officers insurance for each of our
officers and directors.
PRINCIPAL
SHAREHOLDERS
The following table sets forth information
relating to the beneficial ownership of our Ordinary Shares as of April 3, 2017, by: each person, or group of affiliated persons,
known by us to beneficially own more than 5% of our outstanding Ordinary Shares; each of our directors; each of our executive
officers; and all directors and executive officers as a group.
The number of shares beneficially owned
by each entity, person, director or executive officer is determined in accordance with the rules of the SEC, and the information
is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any
shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual
has the right to acquire within 60 days of April 3, 2017 through the exercise of any stock options or other rights. Except as
otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment
power with respect to all Ordinary Shares held by that person.
Ordinary Shares that a person has the
right to acquire within 60 days of April 3, 2017, are deemed outstanding for purposes of computing the percentage ownership of
the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other
person, except with respect to the percentage ownership of all directors and executive officers as a group. Unless otherwise indicated
below, the address for each beneficial owner listed is c/o Bioblast Pharma Ltd., 37 Dereh Menechem Begin St., 15th Floor, Tel
Aviv 6522042 Israel.
We are not owned or controlled, directly
or indirectly, by another corporation or by any foreign government. We are not aware of any arrangement that may, at a subsequent
date, result in a change of control of our company.
|
|
|
|
|
Percentage of shares
beneficially owned
|
|
|
|
Number of shares
beneficially
owned
|
|
|
Before offering
|
|
|
After offering
|
|
|
|
|
|
|
|
|
|
|
|
Holders of more than 5% of our voting securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Udi Gilboa
(1)
|
|
|
3,320,512
|
|
|
|
20.3
|
%
|
|
|
14.6
|
%
|
Dr. Dalia Megiddo
(1)
|
|
|
3,311,421
|
|
|
|
20.2
|
%
|
|
|
14.5
|
%
|
Ran Nussbaum
(2)
|
|
|
2,529,008
|
|
|
|
15.4
|
%
|
|
|
11.1
|
%
|
Fredric Price
(3)
|
|
|
1,107,985
|
|
|
|
6.4
|
%
|
|
|
4.7
|
%
|
Directors and executive officers who are not 5% holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Chaime Orlev
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Dr. Warren Wasiewski
(4)
|
|
|
80,046
|
|
|
|
0.5
|
%
|
|
|
0.3
|
%
|
Dana Gelbaum
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Prof. Avizohar Argov
(5)
|
|
|
18,750
|
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
Michael Burshtine
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Thomas I.H. Dubin
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Colin Foster
(6)
|
|
|
252,709
|
|
|
|
1.5
|
%
|
|
|
1.1
|
%
|
Robert Friedman
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Marlene Haffner
(7)
|
|
|
83,579
|
|
|
|
0.5
|
%
|
|
|
0.4
|
%
|
Dr. Ralf Rosskamp
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
All directors and executive officers as
a group (13 persons)
(8)
|
|
|
7,383,498
|
|
|
|
41.5
|
%
|
|
|
30.5
|
%
|
(1)
|
Based solely on a Schedule 13G filed with the SEC on February 15, 2015, and which reflects
holdings as of December 31, 2014. Mr. Gilboa served as a director on our Board of Directors until January 2, 2017.
|
(2)
|
Comprised of Pontifax (Cayman) III Limited Partnership that holds 804,909 Ordinary Shares
and Pontifax (Israel) III Limited Partnership that holds 1,724,099 Ordinary Shares. These two entities are under common control
of, and are affiliated with, our director, Ran Nussbaum. The address of Ran Nussbaum is 14 Shenkar St. Herzliya, 46140, Israel.
Based solely on a Schedule 13G filed with the SEC on February 17, 2015, and which reflects holdings as of December 31, 2016.
|
(3)
|
Comprised of: (a) 131,572 Ordinary Shares; and (b) 976,233 options to purchase Ordinary
Shares presently exercisable or exercisable within 60 days of April 3, 2017.
|
(4)
|
Comprised of 80,046 options to purchase Ordinary Shares presently exercisable or exercisable
within 60 days of April 3, 2017.
|
(5)
|
Comprised of 18,750 options to purchase Ordinary Shares presently exercisable or exercisable
within 60 days of April 3, 2017.
|
(6)
|
Comprised of: (a) 3,676 Ordinary Shares; and (b) 249,033 options to purchase Ordinary
Shares presently exercisable or exercisable within 60 days of April 3, 2017.
|
(7)
|
Comprised of 83,579 options to purchase Ordinary Shares presently exercisable or exercisable
within 60 days of April 3, 2017.
|
(8)
|
Comprised of: (a) 5,975,857 Ordinary Shares; and (b) 1,407,641 options to purchase Ordinary
Shares presently exercisable or exercisable within 60 days of April 3, 2017.
|
Record Holders
According to our transfer agent, as
of April 3, 2017, there were seven record holders of our Ordinary Shares, among whom are three U.S. holders (including Cede &
Co., the nominee of the Depositary Trust Company, holding 65.301% of our Ordinary Shares). The number of record holders in the
United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders
are resident since many of these Ordinary Shares are held by brokers or other nominees. None of our shareholders has different
voting rights from other shareholders.
DESCRIPTION
OF SHARE CAPITAL AND SECURITIES OFFERED HEREBY
The following is a description of our share
capital and provisions of our amended and restated articles of association.
General
Ordinary Shares
Our share capital is NIS 500,000, consisting
of 50,000,000 Ordinary Shares NIS 0.01 par value per share. In addition to the warrants and options described below, in the last
three years, we have issued an aggregate of 7,208,903 Ordinary Shares.
Warrants
As part of a registered direct offering
that was consummated on March 22, 2016, we issued to the investors warrants to purchase up to 1,080,645 Ordinary Shares, exercise
price of $4.50 per share, exercisable for a period of five years commencing on September 22, 2016. The warrants include a mechanism
for cashless exercise, and standard provisions regarding adjustments for stock dividends, splits and fundamental transactions.
As of April 3, 2017, none of the warrants have been exercised.
Options
As of April 3, 2017, there were a total
of 3,345,960 options to purchase Ordinary Shares under our 2013 Plan, of which 2,571,156 options to purchase Ordinary Shares were
issued and outstanding, and 774,804 remained available for future issuance. A total of 1,462,912 options to purchase Ordinary
Shares were vested as of that date, with a weighted average exercise price of $4.21 per share. We describe our option plan under
“Management - 2013 Incentive Option Plan.”
Units in this Offering
We are offering up to 6,414,474 Class
A Units. Each Class A Unit will consist of (i) one Ordinary Share, and (ii) one Series A Warrant. We are also offering to those
purchasers, if any, whose purchase of Class A Units in this offering would result in the purchaser, together with its affiliates
and certain related parties, beneficially owning more than 4.99% (or at the election of the purchaser, 9.99%) of our outstanding
Ordinary Shares immediately following the consummation of this offering, the opportunity to purchase, if they so choose, up to
2,166,667 Class B Units, in lieu of Class A Units that would otherwise result in beneficial ownership in excess of 4.99% (or 9.99%,
as applicable) of our outstanding Ordinary Shares.
Each Class B unit will consist of (i)
a pre-funded Series B Warrant and (ii) and one Series A Warrant.
Series A Warrants
The following summary of certain
terms and provisions of the Series A Warrants offered hereby is not complete and is subject to, and qualified in its entirety
by the provisions of the Series A Warrant which is filed as an exhibit to the registration statement of which this prospectus
is a part. Prospective investors should carefully review the terms and provisions set forth in the form of Series A Warrant agreement.
Exercisability
The Series A Warrants are exercisable
immediately upon issuance and at any time up to the date that is five years from the date of issuance. The Series A Warrants
will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice accompanied
by payment in full for the number of Ordinary Shares purchased upon such exercise (except in the case of a cashless exercise as
discussed below), and other applicable charges and taxes. Unless otherwise specified in the Series A Warrant, the holder will
not have the right to exercise the Series A Warrants, in whole or in part, if the holder (together with its affiliates) would
beneficially own in excess of 4.99% of the number of our Ordinary Shares outstanding immediately after giving effect to the exercise,
as such percentage is determined in accordance with the terms of the Series A Warrants. However, any holder may decrease
or increase such percentage to any other percentage, not in excess of 9.99%, upon at least 61 days’ prior notice from the
holder to us.
Cashless Exercise
In the event that no current prospectus
is available for the issuance of the Ordinary Shares underlying the Series A Warrants, the holder may, in its sole discretion,
exercise the Series A Warrants and, in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise
in payment of the aggregate exercise price, elect instead to receive upon such exercise the net number of Ordinary Shares determined
according to the formula set forth in the Series A Warrant agreement.
Exercise Price
The initial exercise price per full
Ordinary Share purchasable upon exercise of the Series A Warrants is equal to 100% of the per
Class A Unit public offering price, and is subject to adjustments for stock splits, reclassifications, subdivisions, and other
similar transactions.
Fundamental Transaction
If, at any time while a Series A Warrant
is outstanding, we consummate any fundamental transaction, as described in the form of warrant and generally including any consolidation
or merger with or into another corporation, the consummation of a transaction whereby another entity acquires more than 50% of
our outstanding Ordinary Shares, or the sale or other disposition of all or substantially all of our assets, or other transaction
in which our Ordinary Shares are converted into or exchanged for other securities or other consideration, the holder of any Series
A Warrants will thereafter receive upon exercise of the Series A Warrants, the securities or other consideration to which a holder
of the number of Ordinary Shares then deliverable upon the exercise or conversion of such warrants would have been entitled upon
such consolidation or merger or other transaction.
Transferability
Subject to applicable laws, the Series
A Warrants may be transferred at the option of the holders upon surrender of the Series A Warrants to us, together with the appropriate
instruments of transfer.
Listing
The Series A Warrants will be issued
in physical form. We do not plan on applying to list the Series A Warrants on the NASDAQ Global Market, any other national securities
exchange or any other nationally recognized trading system.
Rights as a Shareholder
Except as otherwise provided in the
Series A Warrant or by virtue of such holder’s ownership of Ordinary Shares, the holder of Series A Warrants does not have
rights or privileges of a holder of Ordinary Shares, including any voting rights, until the holder exercises the warrants.
Pre-Funded Series B Warrants
The following summary of certain
terms and provisions of the Series B Warrants offered hereby is not complete and is subject to, and qualified in its entirety
by the provisions of the form of Pre-Funded Series B Warrant, which is filed as an exhibit to the registration statement of which
this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the Series B Warrant
agreement.
The purpose of the pre-funded Series
B Warrants is to enable investors that may have restrictions on their ability to beneficially own more than 4.99% (or at the election
of the investor, 9.99%) of our outstanding Ordinary Shares following the consummation of this offering the opportunity to invest
capital into the Company without triggering such ownership restrictions. By receiving pre-funded Series B Warrants in lieu of
the Ordinary Shares contained in the Class A Units which would result in such holders’ ownership exceeding 4.99% (or at
the election of the investor, 9.99%), such holders will have the ability to exercise their options to purchase the Ordinary Shares
underlying the pre-funded Series B warrants for nominal consideration of $0.01 per Ordinary Share at a later date.
Exercisability
The Series B Warrants are exercisable
until fully exercised. The Series B Warrants will be exercisable, at the option of each holder, in whole or in part by delivering
to us a duly executed exercise notice accompanied by payment in full for the number of Ordinary Shares purchased upon such exercise
(except in the case of a cashless exercise as discussed below). Unless otherwise specified in the Series B Warrant, a holder will
not have the right to exercise the Series B Warrants, in whole or in part, if the holder (together with its affiliates) would
beneficially own in excess of 4.99% of the number of our Ordinary Shares outstanding immediately after giving effect to the exercise,
as such percentage is determined in accordance with the terms of the Series B Warrants. However, any holder may decrease
or increase such percentage to any other percentage, not in excess of 9.99%, upon at least 61 days’ prior notice from the
holder to us.
Cashless Exercise
In the event that a registration statement
covering the Ordinary Shares underlying the Series B Warrants is not effective, or no current prospectus is available for the
issuance of the Ordinary Shares underlying the Series B Warrants, the holder may, in its sole discretion, exercise Series B Warrants
and, in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate
exercise price, elect instead to receive upon such exercise the net number of Ordinary Shares determined according to the formula
set forth in the Series B Warrant.
Exercise Price
The initial exercise price per Ordinary
Share purchasable upon exercise of the Series B Warrants is equal to $0.01.
Listing
The Series B Warrants will be issued
in physical form. We do not plan on applying to list the pre-funded Series B Warrants on The NASDAQ Global Market, any other national
securities exchange or any other nationally recognized trading system.
Registration Rights
As part of the registered direct offering
that was consummated on March 22, 2016, we granted piggyback registration rights with respect to Ordinary Shares issuable upon
the exercise of warrants issued to certain investors, which rights have been waived in connection with this offering.
The registration rights expire upon the
earlier of March 22, 2017, or the first day as of which all of the warrant shares may be sold under Rule 144. The exercise price
of the warrants is $4.50 per share. As of the date of this prospectus, none of the warrants have been exercised.
Voting Rights
Subject to any rights or restrictions for
the time being attached to any class or classes of shares, each shareholder shall have one vote for each share of which he or
she is the holder, whether on a show of hands or on a poll. Our amended and restated articles of association do not permit cumulative
voting and it is not mandated by Israeli law. Votes may be given either personally or by proxy. A proxy need not be a shareholder.
If any shareholder is without legal capacity, he may vote by means of a trustee or a legal custodian, who may vote either personally
or by proxy. If two or more persons are jointly entitled to a share then, in voting upon any question, the vote of the senior
person who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other registered
holders of the share and, for this purpose seniority shall be determined by the order in which the names stand in the shareholder
register.
Transfer of Shares
Our Ordinary Shares that are fully paid
for are issued in registered form and may be freely transferred under our amended and restated articles of association, unless
the transfer is restricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded. The
ownership or voting of our Ordinary Shares by non-residents of Israel is not restricted in any way by our amended and restated
articles of association or the laws of the State of Israel, except under certain circumstances for ownership by nationals of some
countries that are, or have been, in a state of war with Israel.
Election of Directors
Our Ordinary Shares do not have cumulative
voting rights in the election of directors. As a result, the holders of a majority of the voting power represented at a shareholders
meeting have the power to elect all of our directors.
Our directors hold office for their scheduled
term unless they are removed from office upon the occurrence of certain events, in accordance with the Companies Law and our amended
and restated articles of association. In addition, our amended and restated articles of association allow our Board of Directors
to appoint directors to fill vacancies on the Board of Directors to serve for a term of office equal to the remaining period of
the term of office of the directors(s) whose office(s) have been vacated.
Dividend and Liquidation Rights
We may declare a dividend to be paid to
the holders of our Ordinary Shares in proportion to their respective shareholdings. Under the Companies Law, dividend distributions
are determined by the Board of Directors and do not require the approval of the shareholders of a company unless the company’s
articles of association provide otherwise. Our amended and restated articles of association do not require shareholder approval
of a dividend distribution and provide that dividend distributions may be determined by our Board of Directors.
Pursuant to the Companies Law, the distribution
amount is limited to the greater of retained earnings or earnings generated over the previous two years, as such are defined in
the Companies Law, according to our then last reviewed or audited financial reports, provided that the date of the financial reports
is not more than six months prior to the date of distribution, or we may distribute dividends that do not meet such criteria only
with court approval. Where court approval is required, we will only be permitted to pay a dividend if the court determines that
there is no reasonable concern that payment of the dividend will prevent us from satisfying our existing and foreseeable obligations
as they become due.
In the event of our liquidation, after
satisfaction of liabilities to creditors, our assets will be distributed to the holders of our Ordinary Shares in proportion to
their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend
or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Exchange Controls
There are currently no Israeli currency
control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceeds from
the sale of our Ordinary Shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding
certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative
action at any time.
Non-residents of Israel who purchase our
securities with non-Israeli currency will be able to repatriate dividends (if any), liquidation distributions and the proceeds
of any sale of such securities, into non-Israeli currencies at the rate of exchange prevailing at the time of repatriation, provided
that any applicable Israeli taxes have been paid (or withheld) on such amounts.
Neither our amended and restated articles
of association nor the laws of the State of Israel restrict in any way the ownership or voting of our Ordinary Shares by non-residents
of Israel, except with respect to citizens of countries that are in a state of war with Israel.
Shareholder Meetings
Under Israeli law, we are required to hold
an annual general meeting of our shareholders once every calendar year that must be no later than 15 months after the date of
the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special
meetings. Our Board of Directors may call special meetings whenever it sees fit, at such time and place, within or outside of
Israel, as it may determine. In addition, the Companies Law provides that our Board of Directors is required to convene a special
meeting upon the written request of (i) any two of our directors or one-quarter of our Board of Directors or (ii) one or more
shareholders holding, in the aggregate, either (a) 5% of our outstanding issued shares and 1% of our outstanding voting power
or (b) 5% of our outstanding voting power.
Subject to the provisions of the Companies
Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders
of record on a date to be decided by the Board of Directors. Furthermore, the Companies Law requires that resolutions regarding
the following matters must be passed at a general meeting of our shareholders:
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amendments
to our amended and restated articles of association;
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the
exercise of our Board of Directors’ powers by a general meeting, if our Board of
Directors is unable to exercise its powers and the exercise of any of its powers is required
for our proper management;
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appointment
or termination of our auditors;
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approval
of acts and transactions involving related parties, as defined by the Companies Law;
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increases
or reductions of our authorized share capital; and
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The Companies Law and our amended and restated
articles of association require that a notice of any annual general meeting or special shareholders meeting be provided to shareholders
at least 21 days prior to the meeting and if the agenda of the meeting includes matters upon which shareholders may vote by means
of a voting deed, including the appointment or removal of directors, the approval of a compensation policy with respect to office
holders, the approval of transactions with office holders or interested or related parties, or an approval of a merger, notice
must be provided at least 35 days prior to the meeting.
Under the Companies Law and our amended
and restated articles of association, shareholders are not permitted to take action via written consent in lieu of a meeting.
Voting Rights
Quorum Requirements
The quorum required for our general meetings
of shareholders consists of at least two shareholders present in person, by proxy or written ballot who hold or represent between
them at least one-third of the total outstanding voting rights. A meeting adjourned for lack of a quorum is generally adjourned
to the same day in the following week at the same time and place or to a later time/date if so specified in the summons or notice
of the meeting. At the reconvened meeting, any two or more shareholders present in person or by proxy shall constitute a lawful
quorum.
Vote Requirements
Our amended and restated articles of association
provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by the Companies Law
or by our amended and restated articles of association. Under the Companies Law certain actions require a special majority, which
may include (i) approving an extraordinary transaction with a controlling shareholder and the terms of employment or other engagement
of the controlling shareholder of the company or such controlling shareholder’s relative (even if not extraordinary), requiring
the approval described above under “Approval of Related Party Transactions under Israeli Law—Disclosure of Personal
Interests of Controlling Shareholders,” (ii) approving executive officers’ compensation inconsistent with our office
holder compensation policy, compensation of our Chief Executive Officer or the compensation of an executive officer who is also
the controlling shareholder of our company (including an affiliate thereof), all of which require the special majority approval
described above under “Management—NASDAQ Listing Rules and Home Country Practices—Compensation of officers,”
(iii) approving the authorization of the Chairman of the Board of Directors or a relative thereof to assume the role or responsibilities
of the Chief Executive Officer, or the authorization of the Chief Executive Officer or a relative thereof to assume the role or
responsibilities of the Chairman of the Board of Directors for periods of no longer than three years each and subject to receipt
of the approval of a majority of the shares voting on the matter, providing that either (1) included in such majority are at least
two-thirds of the shares of shareholders who are non-controlling parties and do not have a personal interest in the said resolution
(excluding for such purpose any abstentions) or (2) the total number of shares of shareholders specified in clause (3) who voted
against the resolution does not exceed 2% of the voting rights in the company and (iv) approving mergers, certain private placements
that will increase certain types of shareholders’ relative holdings in the company or certain special tender offers or forced
bring along share purchase transactions, all of which require the approval described below under “Acquisitions under Israeli
Law.”
Further exceptions to the simple majority
vote requirement are a resolution for the voluntary winding up, or an approval of a scheme of arrangement or reorganization, of
the company pursuant to Section 350 of the Companies Law, which requires the approval of the majority of the shareholders present
at the meeting and who are together the holders of 75% of the voting rights represented at the meeting, in person, by proxy or
by voting deed and voting on the resolution.
Israeli law provides that a shareholder
of a public company may vote in a meeting and in a class meeting by means of a voting deed in which the shareholder indicates
how he or she votes on resolutions relating to the following matters:
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appointment
or removal of directors;
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approval
of transactions with office holders or interested or related parties;
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authorization
of the Chairman of the Board of Directors or a relative thereof to assume the role or
responsibilities of our Chief Executive Officer, and authorization of our Chief Executive
Officer or a relative thereof to assume the role or responsibilities of the Chairman
of the Board of Directors;
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approval
of an arrangement or reorganization of the company pursuant to Section 350 of the Companies
Law;
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approval
of the compensation policy with respect to the terms of office and employment of office
holders; and
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other
matters in respect of which there is a provision in the articles of association providing
that decisions of the general meeting may also be passed by voting deed or which may
be prescribed by Israel’s Minister of Justice.
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The provision allowing the vote by voting
deed does not apply if, to the best of our knowledge at the time of calling the general shareholders meeting, a controlling shareholder
will hold on the record date for such shareholders meeting, voting power sufficient to determine the outcome of the vote.
The Companies Law provides that a shareholder,
in exercising his or her rights and performing his or her obligations toward us and our other shareholders, including voting at
general meetings, must act in good faith and in a customary manner and avoid abusing his or her power. See “Management—Approval
of Related Party Transactions under Israeli Law—Shareholder Duties” above for further detail.
Access to Corporate Records
Under the Companies Law and our amended
and restated articles of association, shareholders are provided access to the following corporate records: minutes of our general
meetings; our shareholders register and principal shareholders register, amended and restated articles of association and financial
statements; and any document that we are required by law to file publicly with the Israeli Companies Registrar or the Israel Securities
Authority. In addition, shareholders may submit a reasoned request to be provided with any document related to an action or transaction
requiring shareholder approval under the approval of related party transaction provisions of the Companies Law. We may deny this
request if we believe it has not been submitted in good faith or if such denial is necessary to protect our interest or protect
a trade secret or patent.
Modification of Class Rights
The rights attached to any class of shares,
such as voting, liquidation and dividend rights, may be amended by adoption of a resolution by the holders of a majority (or a
special majority, as may be applicable to the particular matter) of the shares of that class present at a separate class meeting,
or otherwise in accordance with the rights attached to such class of shares, as set forth in our amended and restated articles
of association.
Acquisitions under Israeli Law
Full Tender Offer
A person wishing to acquire shares of a
public Israeli company and who could as a result hold over 90% of the target company’s issued and outstanding share capital
or voting rights is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase
of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and
who could as a result hold over 90% of the issued and outstanding share capital or voting rights of a certain class of shares
is required to make a tender offer to all of the shareholders who hold shares of the relevant class for the purchase of all of
the issued and outstanding shares of that class. If the shareholders who do not accept the offer hold less than 5% of the issued
and outstanding share capital and voting rights of the company or of the applicable class, all of the shares that the acquirer
offered to purchase will be transferred to the acquirer by operation of law (provided that a majority of the offerees that do
not have a personal interest in such tender offer shall have approved it, which condition shall not apply if, following consummation
of the tender offer, the acquirer would hold at least 98% of all of the company’s outstanding shares and voting rights (or shares
and voting rights of the relevant class)). However, shareholders may, at any time within six months following the completion of
the tender offer, petition the court to alter the consideration for the acquisition. Even shareholders who indicated their acceptance
of the tender offer may so petition the court, unless the acquirer stipulated that a shareholder that accepts the offer may not
seek appraisal rights. If the shareholders who did not accept the tender offer hold 5% or more of the issued and outstanding share
capital or voting rights of the company or of the applicable class, the acquirer may not acquire shares of the company that will
increase its holdings to more than 90% of the company’s issued and outstanding share capital or voting rights or 90% of
the shares or voting rights of the applicable class, from shareholders who accepted the tender offer.
Special Tender Offer
The Companies Law provides that an acquisition
of shares of an public Israeli company must be made by means of a special tender offer if as a result of the transaction the shareholder
could become a holder of 25% or more of the voting rights in the company, unless one of the exemptions in the Companies Law (as
described below) is met. This rule does not apply if there is already another holder of at least 25% of the voting rights in the
company. Similarly, the Companies Law provides that an acquisition of shares of a public company must be made by means of a tender
offer if as a result of the acquisition the purchaser could become a holder of more than 45% of the voting rights in the company,
if there is no other shareholder of the company who holds more than 45% of the voting rights in the company, unless one of the
exemptions in the Companies Law is met. Such exemptions include (a) acquisition of shares issued in the course of a private placement
approved by the general meeting of the company as a private placement intended to provide purchaser with holdings of 25% or more
of the voting rights in the company, if there is no other shareholder of the company who holds more than 25% of the voting rights
in the company, or as a private placement intended to provide purchaser with holdings of more than 45% of the voting rights in
the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company, (b)
acquisition of shares from a holder of 25% or more of the voting rights in the company following which purchaser shall hold 25%
or more of the voting rights in the company or (c) acquisition of shares from a holder of 45% or more of the voting rights in
the company following which purchaser shall hold 45% or more of the voting rights in the company.
A special tender offer must be extended
to all shareholders of a company but the offeror is not required to purchase shares representing more than 5% of the voting power
attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders. A special tender
offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be
acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected
to the offer (disregarding holders who control the offeror and who have a personal interest in the acceptance of the offer or
the holder of 25% or more of the voting rights of the company, any of their relatives or corporations controlled by any of the
above).
If a special tender offer is accepted,
then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person
or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger
with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook
to effect such an offer or merger in the initial special tender offer.
Merger
The Companies Law permits merger transactions
between Israeli companies if approved by each party’s Board of Directors and, unless certain requirements described under
the Companies Law are met, by a majority vote of each party’s shares, and, in the case of the target company, a majority
vote of each class of its shares, voted on the proposed merger at a shareholders meeting called with at least 35 days’ prior
notice.
For purposes of the shareholder vote, unless
a court rules otherwise, the merger will not be deemed approved if a majority of the votes of shares represented at the shareholders
meeting (disregarding abstentions) that are held by parties other than the other party to the merger, or by any person (or group
of persons acting in concert) who holds (or hold, as the case may be) 25% or more of the voting rights or the right to appoint
25% or more of the directors of the other party, vote against the merger, or anyone on such parties’ behalf, including relatives
of such parties and corporations controlled them, vote against the merger. If, however, the merger involves a merger with a company’s
own controlling shareholder or if the controlling shareholder has a personal interest in the merger, then the merger is instead
subject to the same special majority approval that governs all extraordinary transactions with controlling shareholders (as described
above in this prospectus under “Management—NASDAQ Listing Rules and Home Country Practices—Shareholder approval”).
If the transaction would have been approved
by the shareholders of a merging company but for the separate approval of each class or the exclusion of the votes of certain
shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting
rights of a company, if the court holds that the merger is fair and reasonable, taking into account the value of the parties to
the merger and the consideration offered to the shareholders of the company that have petitioned the court to approve the merger.
Upon the request of a creditor of either
party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern
that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the
merger, and may further give instructions to secure the rights of creditors.
In addition, a merger may not be consummated
unless at least 50 days have passed from the date on which a proposal for approval of the merger was filed by each party with
the Israeli Registrar of Companies and at least 30 days have passed from the date on which the merger was approved by the shareholders
of each party.
Anti-takeover Measures under Israeli Law
The Companies Law allow us to create
and issue shares having rights different from those attached to our Ordinary Shares, including shares providing certain preferred
rights, distributions or other matters and shares having preemptive rights. As of the closing of this offering, no preferred shares
will be authorized under our amended and restated articles of association. In the future, if we do authorize, create and issue
a specific class of preferred shares, such class of shares, depending on the specific rights that may be attached to it, may have
the ability to frustrate or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the
market value of their Ordinary Shares. The authorization and designation of a class of preferred shares will require an amendment
to our amended and restated articles of association, which requires the prior approval of the holders of a majority of the voting
power attaching to our issued and outstanding shares at a general meeting. The convening of the meeting, the shareholders entitled
to participate and the majority vote required to be obtained at such a meeting will be subject to the requirements set forth in
the Companies Law as described above in “Description of Share Capital and Securities Offered Hereby—Voting Rights.”
Borrowing Powers
Pursuant to the Companies Law and our amended
and restated articles of association, our Board of Directors may exercise all powers and take all actions that are not required
under law or under our amended and restated articles of association to be exercised or taken by our shareholders or other corporate
bodies, including the power to borrow money for company purposes.
Changes in Capital
Our amended and restated articles of association
enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must
be approved by a resolution duly passed by our shareholders at a general meeting by voting on such change in the capital. In addition,
transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient
retained earnings or profits and, in certain circumstances, an issuance of shares for less than their nominal value, require the
approval of both our Board of Directors and an Israeli court.
Transfer Agent
Our transfer agent in the United States
is VStock Transfer, LLC, its address is 18 Lafayette Place, Woodmere, New York 11598, and its telephone number is (212) 828-8436.
SHARES
ELIGIBLE FOR FUTURE SALE
Our shares trade on the NASDAQ Global Market.
However, a liquid trading market for our Ordinary Shares may not be sustained after this offering. Sales of substantial amounts
of our Ordinary Shares following this offering, or the perception that these sales could occur, could adversely affect prevailing
market prices of our Ordinary Shares and could impair our future ability to obtain capital, especially through an offering of
equity securities. Assuming that the underwriters do not exercise their over-allotment option with respect to this offering and
assuming no exercise of options outstanding following the offering, we will have an aggregate of
Ordinary Shares outstanding upon completion of this offering. Of these shares, the Ordinary Shares sold in this offering will
be freely tradable without restriction or further registration under the Securities Act, unless purchased by “affiliates”
(as that term is defined under Rule 144 of the Securities Act), who may sell only the volume of shares described below and whose
sales would be subject to additional restrictions described below.
The
remaining Ordinary Shares will be held by our existing shareholders. Because substantially all of these shares have been held
for more than 6 months, they also will be freely tradable without restriction or further registration, except that shares
held by affiliates must be sold only subject to the fulfillment of certain conditions, including manner of sale provisions,
notice requirements, and a volume limitation that limits the number of shares that may be sold thereby, within any three-month
period, and except for the lock-up restrictions described below.
Lock-Up agreements
We, all of our directors and executive
officers and certain of our shareholders have signed lock-up agreements pursuant to which, subject to certain exceptions,
they have agreed not to sell or otherwise dispose of their Ordinary Shares for a period of ninety days after the date of the
closing of the offering of the Ordinary Shares without the prior written consent of H.C. Wainwright. In addition, we have
agreed not to issue any Ordinary Shares, subject to certain exceptions, for a period of ninety days after the closing
of the offering of Ordinary Shares without the prior written consent of H.C. Wainwright.
Rule 144
In general, and unless subject to a lock-up
agreement or otherwise restricted, under Rule 144, any person who is not our affiliate and has held their shares for at least
six months, including the holding period of any prior owner other than one of our affiliates, may sell shares without restriction.
In addition, under Rule 144, any person who is not an affiliate of ours and has held their shares for at least one year, including
the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares
immediately upon the closing of this offering without regard to whether current public information about us is available.
In the case of a person who is our affiliate
or who was our affiliate at any time during the preceding three months and who has beneficially owned restricted securities for
at least six months, including the holding period of any prior owner other than one of our affiliates, the right to sell is also
subject to the fulfillment of certain additional conditions, including manner of sale provisions, notice requirements, and a volume
limitation that limits the number of shares that may be sold thereby, within any three-month period that does not exceed the greater
of:
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1% of the number of Ordinary Shares then outstanding, which will
equal shares; or
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the
average weekly trading volume of our Ordinary Shares on the NASDAQ Global Market during
the four calendar weeks preceding the filing of a notice on Form 144 with respect to
the sale.
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If an affiliate acquires “restricted
securities,” those securities will also be subject to holding period requirements. Substantially all of our outstanding
Ordinary Shares are either unrestricted or will be eligible for sale under Rule 144. We cannot estimate the number of our Ordinary
Shares that our existing shareholders will elect to sell.
Form S-8 Registration Statements
We have filed registration statements on
Form S-8 under the Securities Act to register an aggregate of 2,345,960 Ordinary Shares, in the aggregate, issued or reserved
for issuance under our equity incentive plans. In the future we intend to similarly register additional Ordinary Shares. Such
registration statements became effective automatically upon filing. Ordinary Shares issued upon exercise of a share option and
registered pursuant to the Form S-8 registration statements will, subject to vesting provisions, lock-up restrictions and Rule
144 volume limitations applicable to our affiliates, be available for sale in the open market immediately. As of February 20,
2017, a total of 2,621,781 Ordinary Shares underlying options were outstanding under our equity incentive plans.
TAXATION
The following description is not intended to constitute
a complete analysis of all tax consequences relating to the ownership or disposition of our Ordinary Shares. You should consult
your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise
under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.
The following is a summary of the current
tax structure, which is applicable to companies in Israel, with special reference to its effect on us. The following also contains
a discussion of material Israeli and U.S. tax consequences to persons purchasing our Ordinary Shares and government programs from
which we and some of our group companies benefit. To the extent that the discussion is based on new tax legislation, which has
yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion
will accord with any such interpretation in the future. The discussion is not intended and should not be construed as legal or
professional tax advice and is not exhaustive of all possible tax considerations. An Israeli company that is subject to Israeli
taxes on the income of its non-Israeli subsidiaries will receive a credit for income taxes paid/withheld or that will be paid/withheld
by the subsidiary in its country of residence, according to the terms and conditions determined in the Israeli Tax Ordinance.
The following summary is included herein
as general information only and is not intended as a substitute for careful tax planning. Accordingly, each investor should consult
his or her own tax advisor as to the particular tax consequences to such investor of the purchase, ownership or sale of an Ordinary
Share, including the effect of applicable state, local, foreign or other tax laws and possible changes in tax laws.
ISRAELI TAX CONSIDERATIONS
THE FOLLOWING IS A SUMMARY OF THE MATERIAL ISRAELI INCOME TAX
LAWS APPLICABLE TO US. THIS SECTION ALSO CONTAINS A DISCUSSION OF MATERIAL ISRAELI INCOME TAX CONSEQUENCES CONCERNING THE OWNERSHIP
AND DISPOSITION OF OUR ORDINARY SHARES. THIS SUMMARY DOES NOT DISCUSS ALL THE ASPECTS OF ISRAELI INCOME TAX LAW THAT MAY BE RELEVANT
TO A PARTICULAR INVESTOR IN LIGHT OF HIS OR HER PERSONAL INVESTMENT CIRCUMSTANCES OR TO SOME TYPES OF INVESTORS SUBJECT TO SPECIAL
TREATMENT UNDER ISRAELI LAW. EXAMPLES OF THIS KIND OF INVESTOR INCLUDE RESIDENTS OF ISRAEL OR TRADERS IN SECURITIES WHO ARE SUBJECT
TO SPECIAL TAX REGIMES NOT COVERED IN THIS DISCUSSION. TO THE EXTENT THAT THE DISCUSSION IS BASED ON NEW TAX LEGISLATION THAT
HAS NOT YET BEEN SUBJECT TO JUDICIAL OR ADMINISTRATIVE INTERPRETATION, WE CANNOT ASSURE YOU THAT THE APPROPRIATE TAX AUTHORITIES
OR THE COURTS WILL ACCEPT THE VIEWS EXPRESSED IN THIS DISCUSSION. THIS SUMMARY IS BASED ON LAWS AND REGULATIONS IN EFFECT AS OF
THE DATE OF THIS PROSPECTUS AND DOES NOT TAKE INTO ACCOUNT POSSIBLE FUTURE AMENDMENTS WHICH MAY BE UNDER CONSIDERATION.
General corporate tax structure in Israel
As of January 1, 2016, Israeli resident
companies, such as us, are generally subject to corporate tax at the rate of 25%. As of January 1, 2017, the corporate tax rate
is reduced to 24% and as of January 1, 2018, should be further reduced to 23%. Between January 1, 2014 and December 31, 2015,
the corporate tax rate was 26.5%.
Capital gains derived by an Israeli resident
company are generally subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation
will be considered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or
(b) its business is managed and controlled from Israel.
Taxation of our Israeli individual shareholders on receipt
of dividends
Israeli residents who are individuals are
generally subject to Israeli income tax for dividends paid on our Ordinary Shares (other than bonus shares or share dividends)
at a rate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the
time of distribution or at any time during the preceding 12-month period.
As of January 1, 2016, an additional income
tax at a rate of 2% will be imposed on high earners whose annual taxable income or gain exceeds NIS 803,520. As of January 1,
2017, an additional income tax at a rate of 3% will be imposed on high earners whose annual taxable income or gain exceeds NIS
640,000.
A “substantial Shareholder”
is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis,
holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control”
generally include the right to vote in a general meeting of shareholders, receive profits, nominate a director or an officer,
receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or
she is to exercise such right(s), and whether by virtue of shares, rights to shares or other rights, or in any other manner, including
by means of voting or trusteeship agreements.
The term “Israeli Resident”
for Individuals is generally defined under Israeli Income Tax Ordinance [New Version], 1961, or the Israeli Tax Ordinance, as
an individual whose center of life is in Israel. According to the Israeli Tax Ordinance, in order to determine the center of life
of an individual, account will be taken of the individual’s family, economic and social connections, including: (a) the
place of the individual’s permanent home; (b) the place of residence of the individual and his family; (c) the place of
the individual’s regular or permanent place of business or the place of his permanent employment; (d) place of the individual’s
active and substantial economic interests; (e) place of the individual’s activities in organizations, associations and other
institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel
for 183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the
total period of the individual’s presence in Israel in that tax year and the two previous tax years is 425 days or more.
The presumption in this paragraph may be rebutted either by the individual or by the assessing officer.
Taxation of Israeli Resident Corporations on Receipt of
Dividends
Israeli resident corporations are generally
exempt from Israeli corporate income tax with respect to dividends paid on our Ordinary Shares.
Capital Gains Taxes Applicable to Israeli Resident Shareholders
The income tax rate applicable to Real
Capital Gain derived by an Israeli individual from the sale of shares which had been purchased after January 1, 2012, whether
listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder”
(as defined above) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate
of 30%. As of January 1, 2016, an additional tax at a rate of 2% will be imposed on high earners whose annual income or gains
exceed NIS 803,520. As of January 1, 2017, an additional income tax at a rate of 3% will be imposed on high earners whose annual
taxable income or gain exceeds NIS 640,000.
Moreover, capital gains derived by a shareholder
who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary business income, are taxed in
Israel at ordinary income rates (currently, up to 50% for individuals and As of January 1, 2016, 25% for Israeli resident corporations.
As of January 1, 2017, the corporate tax rate is reduced to 24% and as of January 1, 2018, should be further reduced to 23%).
Taxation of Non-Israeli Shareholders on Receipt of Dividends
Non-Israeli residents are generally subject
to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% (or 30% for individuals, if such individual
is a “substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date),
which tax will be withheld at source, unless a tax certificate is obtained from the Israeli Tax Authority authorizing withholding-exempt
remittances or a reduced rate of tax pursuant to an applicable tax treaty.
A non-Israeli resident who receives dividends
from which tax was withheld is generally exempt from the duty to file tax returns in Israel in respect of such income.
For example, under the Convention Between
the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended, Israeli
withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of
dividends paid out of the profits of a Benefited Enterprise, subject to certain conditions. Where the recipient is a U.S. corporation
owning 10% or more of the outstanding shares of the voting stock of the paying corporation during the part of the paying corporation’s
taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any) and not
more than 25% of the gross income of the paying corporation for such prior taxable year (if any) consists certain interest or
dividends, the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.
Capital gains income taxes applicable to non-Israeli shareholders.
Non-Israeli resident shareholders are generally
exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Ordinary Shares, provided
that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However,
non-Israeli corporations’ shareholders will not be entitled to the foregoing exemptions if an Israeli resident (i) has a
controlling interest of more than 25% in such non-Israeli corporation or (ii) is the beneficiary of or is entitled to 25% or more
of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
Regardless of whether shareholders may
be liable for Israeli income tax on the sale of our Ordinary Shares, the payment of the consideration may be subject to withholding
of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their
capital gains in order to avoid withholding at source at the time of sale.
Estate and gift tax
Currently, Israeli law does not impose
estate or gift taxes.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT
ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF OUR ORDINARY SHARES,
INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
U.S.
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION
AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR
HER OWN TAX ADVISOR AS TO THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY
SHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
U.S. Federal Income Taxation
Subject to the limitations described in
the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S. Holder”
arising from the purchase, ownership and sale of the Ordinary Shares. For this purpose, a “U.S. Holder” is a holder
of Ordinary Shares that is: (1) an individual citizen or resident of the United States, including an alien individual who is a
lawful permanent resident of the United States or meets the substantial presence residency test under U.S. federal income tax
laws; (2) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) or a partnership (other
than a partnership that is not treated as a U.S. person under any applicable U.S. Treasury Regulations) created or organized in
or under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) an estate, the income
of which is subject to U.S. federal income tax regardless of source; (4) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial
decisions of the trust; (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided
in U.S. Treasury regulations; or (6) any person otherwise subject to U.S. federal income tax on a net income basis in respect
of the Ordinary Shares, if such status as a U.S. Holder is not overridden pursuant to the provisions of an applicable tax treaty.
This summary is for
general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income
tax considerations that may be relevant to a decision to purchase or hold our Ordinary Shares. This summary generally
considers only U.S. Holders that will own our Ordinary Shares as capital assets. Except as explicitly discussed below, this
summary does not consider the U.S. federal tax consequences to a person that is not a U.S. Holder, nor does it describe the
rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is based on the provisions of the Code, final, temporary and proposed U.S. Treasury Regulations promulgated thereunder,
administrative and judicial interpretations thereof, and the U.S./Israel Income Tax Treaty, all as in effect as of the date
hereof and all of which are subject to change, possibly on a retroactive basis, and all of which are open to differing
interpretations. We will not seek a ruling from the U.S. Internal Revenue Service, or the IRS, with regard to the U.S.
federal income tax treatment of an investment in our Ordinary Shares by U.S. Holders and, therefore, can provide no
assurances that the IRS will agree with the conclusions set forth below.
This discussion does not address all of
the aspects of U.S. federal income taxation that may be relevant to a particular shareholder based on such shareholder’s particular
circumstances and in particular does not discuss any estate, gift, generation-skipping, transfer, state, local or foreign tax
considerations. In addition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1)
a bank, life insurance company, regulated investment company, or other financial institution or “financial services entity”;
(2) a broker or dealer in securities or foreign currency; (3) a person who acquired our Ordinary Shares in connection with employment
or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5) a U.S. Holder that
holds our Ordinary Shares as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or other risk-reduction
transaction for U.S. federal income tax purposes; (6) a tax-exempt entity; (7) real estate investment trusts; (8) a U.S. Holder
that expatriates out of the United States or a former long-term resident of the United States; or (9) a person having a functional
currency other than the U.S. dollar. This discussion does not address the U.S. federal income tax treatment of a U.S. Holder that
owns, directly or constructively, at any time, Ordinary Shares representing 10% or more of our voting power. Additionally, the
U.S. federal income tax treatment of persons who hold Ordinary Shares through a partnership or other pass-through entity are not
considered.
You are encouraged to consult your own
tax advisor with respect to the specific U.S. federal and state income tax consequences to you of purchasing, holding or disposing
of our Ordinary Shares, including the effects of applicable state, local, foreign or other tax laws and possible changes in the
tax laws.
Distributions on Ordinary Shares
Subject to the discussion under the heading
“Passive Foreign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary
income the amount of any distribution paid on Ordinary Shares (including the amount of any Israeli tax withheld on the date of
the distribution), to the extent that such distribution does not exceed our current and accumulated earnings and profits, as determined
for U.S. federal income tax purposes. The amount of a distribution that exceeds our earnings and profits will be treated first
as a non-taxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares to the extent thereof,
and then capital gain. Corporate holders generally will not be allowed a deduction for dividends received. For noncorporate U.S.
Holders, to the extent that their total adjusted income does not exceed applicable thresholds, the maximum federal income tax
rate for “qualified dividend income” and long-term capital gains is generally 15%. For those noncorporate U.S. Holders
whose total adjusted income exceeds such income thresholds, the maximum federal income tax rate for “qualified dividend
income” and long-term capital gains is generally 20%. For this purpose, “qualified dividend income” means, inter
alia , dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is
a corporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange
of information program. The IRS has stated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible
for the benefits of that treaty.
In addition, our dividends will be qualified
dividend income if our Ordinary Shares are readily tradable on NASDAQ or another established securities market in the United States.
Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year,
as a PFIC. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held our Ordinary Shares
or ADRs for at least 61 days of the 121 day period beginning on the date which is 60 days before the ex-dividend date, or (2)
to the extent the U.S. Holder is under an obligation to make related payments on substantially similar property. Any days during
which the U.S. Holder has diminished its risk of loss on our Ordinary Shares are not counted towards meeting the 61-day holding
period. Finally, U.S. Holders who elect to treat the dividend income as “investment income” pursuant to Code section
163(d)(4) will not be eligible for the preferential rate of taxation.
The amount of a distribution with respect
to our Ordinary Shares will be measured by the amount of the fair market value of any property distributed, and for U.S. federal
income tax purposes, the amount of any Israeli taxes withheld therefrom. (See discussion above under “Israeli Tax Considerations
- Taxation of Our Shareholders - Dividends.”) Cash distributions paid by us in NIS will be included in the income of U.S.
Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income
of the U.S. Holder, and U.S. Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S.
dollar value. If the U.S. Holder subsequently converts the NIS, any subsequent gain or loss in respect of such NIS arising from
exchange rate fluctuations will be U.S. source ordinary exchange gain or loss.
Distributions paid by us will generally
be foreign source income for U.S. foreign tax credit purposes. Subject to the limitations set forth in the Code, U.S. Holders
may elect to claim a foreign tax credit against their U.S. income tax liability for Israeli income tax withheld from distributions
received in respect of the Ordinary Shares. In general, these rules limit the amount allowable as a foreign tax credit in any
year to the amount of regular U.S. tax for the year attributable to foreign source taxable income. This limitation on the use
of foreign tax credits generally will not apply to an electing individual U.S. Holder whose creditable foreign taxes during the
year do not exceed $300, or $600 for joint filers, if such individual’s gross income for the taxable year from non-U.S.
sources consists solely of certain passive income. A U.S. Holder will be denied a foreign tax credit with respect to Israeli income
tax withheld from dividends received with respect to the Ordinary Shares if such U.S. Holder has not held the Ordinary Shares
for at least 16 days out of the 31-day period beginning on the date that is 15 days before the ex-dividend date or to the extent
that such U.S. Holder is under an obligation to make certain related payments with respect to substantially similar or related
property. Any day during which a U.S. Holder has substantially diminished his or her risk of loss with respect to the Ordinary
Shares will not count toward meeting the 16-day holding period. A U.S. Holder will also be denied a foreign tax credit if the
U.S. Holder holds the Ordinary Shares in an arrangement in which the U.S. Holder’s reasonably expected economic profit is
insubstantial compared to the foreign taxes expected to be paid or accrued. The rules relating to the determination of the U.S.
foreign tax credit are complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what
extent, they are entitled to such credit. U.S. Holders that do not elect to claim a foreign tax credit may instead claim a deduction
for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.
Disposition of Shares
Except as provided under the PFIC rules
described below, upon the sale, exchange or other disposition of our Ordinary Shares, a U.S. Holder will recognize capital gain
or loss in an amount equal to the difference between such U.S. Holder’s tax basis in the sold Ordinary Shares and the amount realized
on the disposition of such Ordinary Shares (or its U.S. dollar equivalent determined by reference to the spot rate of exchange
on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale
or exchange or other disposition of Ordinary Shares will be long-term capital gain or loss if the United States Holder has a holding
period of more than one year at the time of the disposition.
In general, gain realized by a U.S. Holder
on a sale, exchange or other disposition of Ordinary Shares will generally be treated as U.S. source income for U.S. foreign tax
credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares is generally allocated
to U.S. source income. However, U.S. Treasury Regulations require such loss to be allocated to foreign source income to the extent
specified dividends were received by the taxpayer within the 24-month period preceding the date on which the taxpayer recognized
the loss. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares is subject to limitations.
Tax on Net Investment Income
U.S. Holders who are individuals, estates
or trusts will generally be required to pay a 3.8% tax on their net investment income (including dividends on and gains from the
sale or other disposition of our Ordinary Shares), or in the case of estates and trusts on their net investment income that is
not distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds
applicable thresholds.
Passive Foreign Investment Companies.
Special U.S. federal income tax laws apply
to a U.S. Holder who owns shares of a corporation that was (at any time during the U.S. Holder’s holding period) a PFIC. We would
be treated as a PFIC for U.S. federal income tax purposes for any tax year if, in such tax year, either:
·
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75% or more of our gross
income (including our pro rata share of gross income for any company, U.S. or foreign, in which we are considered to own 25%
or more of the shares by value), in a taxable year is passive, or the Income Test; or
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·
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At least 50% of our assets,
averaged over the year and generally determined based upon value (including our pro rata share of the assets of any company
in which we are considered to own 25% or more of the shares by value), in a taxable year are held for the production of, or
produce, passive income, or the Asset Test.
|
For this purpose, passive income generally
consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and from notional
principal contracts. Cash is treated as generating passive income.
If we are or become a PFIC, each U.S. Holder
who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has not elected to
mark the shares to market (as discussed below), would, upon receipt of certain distributions by us and upon disposition of our
Ordinary Shares at a gain, be liable to pay U.S. federal income tax at the then prevailing highest tax rates on ordinary income
plus interest on such tax, as if the distribution or gain had been recognized ratably over the taxpayer’s holding period
for the Ordinary Shares. In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder,
the tax basis of such shares would not receive a step-up to fair market value as of the date of the decedent’s death, but
instead would be equal to the decedent’s basis if lower, unless all gain were recognized by the decedent. Indirect investments
in a PFIC may also be subject to special U.S. federal income tax rules.
The PFIC taxation regime would not apply
to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the Ordinary Shares while we are
a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such a QEF election
is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s
pro rata
share of our
ordinary earnings as ordinary income and such U.S. Holder’s
pro rata
share of our net capital gains as long-term
capital gain, regardless of whether we make any distributions of such earnings or gain. In general, a QEF election is effective
only if we make available certain required information. The QEF election is made on a shareholder-by-shareholder basis and generally
may be revoked only with the consent of the IRS. U.S. Holders should consult with their own tax advisors regarding eligibility,
manner and advisability of making a QEF election if we are treated as a PFIC.
A U.S. Holder of PFIC shares which are
traded on qualifying public markets, including the NASDAQ, can elect to mark the shares to market annually, recognizing as ordinary
income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of
the PFIC shares and the U.S. Holder’s adjusted tax basis in the PFIC shares. Losses are allowed only to the extent of net mark-to-market
gain previously included income by the U.S. Holder under the election for prior taxable years.
Based on
the nature of our business, the projected composition of our income and the projected composition and estimated fair market values
of our assets, we likely will be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in
the future. U.S. Holders who hold Ordinary Shares during a period when we are a PFIC will be subject to the foregoing rules,
even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or mark-to-market election. U.S.
Holders are strongly urged to consult their tax advisors about the PFIC rules, including tax return filing requirements and the
eligibility, manner, and consequences to them of making a QEF or mark-to-market election with respect to our Ordinary Shares in
the event we that qualify as a PFIC. As with a QEF election, a mark-to-market election is made on a shareholder-by-shareholder
basis, applies to all Ordinary Shares held or subsequently acquired by an electing U.S. holder and can only be revoked with consent
of the IRS (except to the extent the Ordinary Shares no longer constitute “marketable stock”).
Information Reporting and Withholding
A U.S. Holder may be subject to backup
withholding (at a rate of 28%) with respect to cash dividends and proceeds from a disposition of Ordinary Shares. In general,
back-up withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding
will not apply with respect to payments made to designated exempt recipients, such as corporations and tax-exempt organizations.
Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a
U.S. Holder, provided that the required information is timely furnished to the IRS.
Foreign Asset Reporting
Certain U.S. Holders who are individuals may be required to report information relating to an interest
in the Ordinary Shares, subject to certain exceptions
.
U.S. Holders are urged
to consult their tax advisors regarding the application of these and other reporting requirements that may apply to their ownership
of Ordinary Shares.
Non-U.S. Holders of Ordinary Shares
Except as provided below, an individual,
corporation, estate or trust that is not a U.S. Holder generally will not be subject to U.S. federal income or withholding tax
on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares.
A non-U.S. Holder may be subject to U.S.
federal income or withholding tax on a dividend paid on our Ordinary Shares or the proceeds from the disposition of our Ordinary
Shares if: (1) such item is effectively connected with the conduct by the non-U.S. Holder of a trade or business in the United
States or, in the case of a non-U.S. Holder that is a resident of a country which has an income tax treaty with the United States,
such item is attributable to a permanent establishment or, in the case of gain realized by an individual non-U.S. Holder, a fixed
place of business in the United States; (2) in the case of a disposition of our Ordinary Shares, the individual non-U.S. Holder
is present in the United States for 183 days or more in the taxable year of the sale and other specified conditions are met; (3)
the non-U.S. Holder is subject to U.S. federal income tax pursuant to the provisions of the U.S. tax law applicable to U.S. expatriates.
In general, non-U.S. Holders will not be
subject to backup withholding with respect to the payment of dividends on our Ordinary Shares if payment is made through a paying
agent, or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S.
related person, non-U.S. Holders may be subject to backup withholding, unless the non-U.S. Holder provides on an applicable Form
W-8 (or a substantially similar form) a taxpayer identification number, certifies to its foreign status, or otherwise establishes
an exemption. A U.S. related person for these purposes is a person with one or more current relationships with the United States.
The amount of any backup withholding from
a payment to a non-U.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle
such holder to a refund, provided that the required information is timely furnished to the IRS.
UNDERWRITING
We have entered into an underwriting agreement with the underwriters
named below. H.C. Wainwright & Co., LLC is acting as representative of the underwriters.
The underwriting agreement provides
for the purchase of a specific number of units by each of the underwriters. The underwriters’ obligations are several, which
means that each underwriter is required to purchase a specified number of units, but is not responsible for the commitment of
any other underwriter to purchase units. Subject to the terms and conditions of the underwriting agreement, each underwriter has
severally agreed to purchase the number of units set forth opposite its name below:
Underwriter
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Number
of
Class A Units
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|
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Number
of
Class B Units
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|
H.C. Wainwright & Co., LLC
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|
|
|
|
|
|
|
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Total
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The underwriters have agreed to purchase
all of the units offered by this prospectus (other than those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its commitment to purchase units, the commitments of
non-defaulting underwriters may be increased or the underwriting agreement may be terminated, depending on the circumstances.
The underwriters are offering the units subject to various conditions and may reject all or part of
any order. The representative has advised us that the underwriters propose to offer the units directly to the public at the public
offering price that appears on the cover page of this prospectus. In addition, the representative may offer some of the units
to other securities dealers at such price less a concession of $ per
share. After the units are released for sale to the public, the representative may change the offering price and other selling
terms at various times.
Over-Allotment Option
We have granted the underwriters an
over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters
to purchase up to an aggregate of 962,171 additional Ordinary Shares and/or additional Series A Warrants to purchase up to an
aggregate amount of 721,628 Ordinary Shares, in any combination thereof, to cover over-allotments, if any. If the underwriters
exercise all or part of this option, they will purchase Ordinary Shares at an assumed offering price of $0.75 per Ordinary Share
and $0.01 per Series A Warrant, less the underwriting discounts and commissions. If this option is exercised in full, the total
price to the public will be $7,231,250, and the total proceeds to us will be $6,869,688, before expenses. The underwriters have
severally agreed that, to the extent the over-allotment option is exercised, they will each purchase a number of additional units
proportionate to the underwriter’s initial amount reflected in the foregoing table.
Discounts and Commissions
The following table provides information regarding the amount
of the discount to be paid to the underwriters by us:
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Per
Class A
Unit
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Per
Class B
Unit
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Total
Without
Exercise
of Over-
Allotment
Option
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|
|
|
Total
With Full
Exercise
of Over-
Allotment
Option
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Public offering price
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$
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|
|
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$
|
|
|
|
$
|
|
|
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$
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|
|
Underwriting discounts and commissions
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$
|
|
|
|
$
|
|
|
|
$
|
|
|
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$
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|
|
Proceeds, before expenses, to us
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$
|
|
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$
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|
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$
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$
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We have agreed to pay the representative a non-accountable expense
allowance to equal to $35,000 and legal fees and expenses of up to $75,000.
We estimate that our total expenses of the offering, excluding
the underwriting discounts and commissions and expenses, will be approximately $ .
Subject to the consummation of this offering, we have also agreed
to provide the representative a right of first refusal for a period of nine months, to act as our lead manager or lead agent with
respect to certain future capital raising transactions undertaken by us and tail compensation for nine months in certain circumstances.
Indemnification
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
Lock-Up Agreements
We, our officers and directors and certain of our shareholders
have agreed to a 90 day “lock up” with respect to Ordinary Shares and other of our securities beneficially owned, including
securities that are convertible into Ordinary Shares and securities that are exchangeable or exercisable for Ordinary Shares. This
means that, subject to certain exceptions, for a period of 90 days following the date of this prospectus, we and such persons may
not offer, sell, pledge or otherwise dispose of any such securities without the prior written consent of the representative.
NASDAQ Listing
Our Ordinary Shares are listed on the
NASDAQ Global Market under the trading symbol “ORPN.” The Series A Warrants and Series B Warrants are not and will
not be listed for trading on any national securities exchange.
Price Stabilization, Short Positions and Penalty Bids
Rules of the SEC may limit the ability of the underwriters to
bid for or purchase shares before the distribution of the shares is completed. However, the underwriters may engage in the following
activities in accordance with the rules:
|
|
·
|
Stabilizing transactions — The representative
may make bids or purchases for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing
bids do not exceed a specified maximum.
|
|
|
·
|
Over-allotments and syndicate covering transactions
— The underwriters may sell more units in connection with this offering than the number of units than they have committed
to purchase. This over-allotment creates a short position for the underwriters. This short sales position may involve either
“covered” short sales or “naked” short sales. Covered short sales are short sales made in an amount
not greater than the underwriters’ over-allotment option to purchase additional units in this offering described above.
The underwriters may close out any covered short position either by exercising their over-allotment option or by purchasing
Ordinary Shares in the open market. To determine how they will close the covered short position, the underwriters will consider,
among other things, the price of Ordinary Shares available for purchase in the open market, as compared to the price at which
they may purchase units through the over-allotment option. Naked short sales are short sales in excess of the over-allotment
option. The underwriters must close out any naked short position by purchasing Ordinary Shares in the open market. A naked
short position is more likely to be created if the underwriters are concerned that, in the open market after pricing, there
may be downward pressure on the price of the Ordinary Shares that could adversely affect investors who purchase units in this
offering.
|
|
|
·
|
Penalty bids — If the representative purchases
Ordinary Shares in the open market in a stabilizing transaction or syndicate covering transaction, they may reclaim a selling
concession from the underwriters and selling group members who sold those Ordinary Shares as part of this offering.
|
Similar to other purchase transactions, the underwriters’ purchases
to cover the syndicate short sales or to stabilize the market price of our Ordinary Shares may have the effect of raising or maintaining
the market price of our Ordinary Shares or preventing or mitigating a decline in the market price of our Ordinary Shares. As a
result, the price of the shares of our Ordinary Shares may be higher than the price that might otherwise exist in the open market.
The imposition of a penalty bid might also have an effect on the price of the Ordinary Shares if it discourages resales of the
Ordinary Shares.
Neither we nor the underwriters make any representation or prediction
as to the effect that the transactions described above may have on the price of the Ordinary Shares. These transactions may occur
on The NASDAQ Global Market or otherwise. If such transactions are commenced, they may be discontinued without notice at any time.
Electronic Delivery of Preliminary Prospectus
: A prospectus
in electronic format may be delivered to potential investors by one or more of the underwriters. The electronic format will be
identical to the paper version of such preliminary prospectus. Other than the prospectus in electronic format, the information
on any underwriter’s web site and any information contained in any other web site maintained by an underwriter is not part
of this prospectus.
Determination of Offering Price
The public offering price for our units
has been determined by negotiations between us and the representative. Among the factors to be considered in these negotiations
were the prevailing market conditions, our financial information, market valuations of other companies that we and the representative
believes to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed
relevant.
Other Relationships
From time to time, the underwriters and their affiliates may
provide in the future, various advisory, investment and commercial banking and other services to us in the ordinary course of business,
for which they have received and may continue to receive customary fees and commissions. However, except as disclosed in this prospectus,
we have no present arrangements with the underwriter for any further services.
H.C. Wainwright & Co., LLC acted as our co-placement agent
in our registered direct offering consummated in March 2016, for which it received compensation.
Notice to Non-U.S. Investors
Israel
This document does not constitute a prospectus under the Israeli
Securities Law, 5728-1968, or the Securities Law, and has not been filed with or approved by the Israel Securities Authority. In
the State of Israel, this document is being distributed only to, and is directed only at, and any offer of the securities offered
hereby is directed only at, investors listed in the first addendum, or the Addendum, to the Israeli Securities Law, consisting
primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors,
members of the Tel Aviv Stock Exchange, underwriters, venture capital funds, entities with equity in excess of NIS 50 million and
“qualified individuals”, each as defined in the Addendum (as it may be amended from time to time), collectively referred
to as qualified investors (in each case purchasing for their own account or, where permitted under the Addendum, for the accounts
of their clients who are investors listed in the Addendum). Qualified investors will be required to submit written confirmation
that they fall within the scope of the Addendum, are aware of the meaning of same and agree to it.
EXPENSES
RELATED TO THE OFFERING
We estimate that the total expenses
of this offering payable by us, excluding the underwriting discounts and commissions and expenses, will be approximately
$400,000 as listed below. All amounts listed below are estimates except the SEC registration fee, NASDAQ listing fee and the
Financial Industry Regulatory Authority, Inc., or FINRA, filing fee.
SEC filing fee
|
|
$
|
1,467
|
|
FINRA filing fee
|
|
|
2,225
|
|
NASDAQ filing fee
|
|
|
7,500
|
|
Transfer agent fees and expenses
|
|
|
6,750
|
|
Printer fees and expenses
|
|
|
10,000
|
|
Legal fees and expenses
|
|
|
300,000
|
|
Accounting fees and expenses
|
|
|
60,000
|
|
Miscellaneous
|
|
|
12,058
|
|
Total
|
|
$
|
400,000
|
|
LEGAL
MATTERS
Certain legal matters
concerning this offering will be passed upon for us by Zysman, Aharoni, Gayer and Sullivan & Worcester LLP, New York, New
York. Certain legal matters with respect to the legality of the issuance of the securities offered by this prospectus will be
passed upon for us by Zysman, Aharoni, Gayer & Co., Tel-Aviv, Israel. Certain legal matters related to the offering will
be passed upon for the underwriters by Haynes and Boone, LLP, New York, New York.
EXPERTS
Our
financial statements for fiscal years ended December 31, 2016 and December 31, 2015, included herein have been audited
by Kost Forer Gabbay & Kasierer (a Member of Ernst & Young Global), independent registered public accounting firm,
as set forth in their report thereon (which contains an explanatory paragraph describing conditions that raise substantial
doubt about the Company’s ability to continue as a going concern as described in Note 1 to the consolidated financial
statements). Such financial statements are included herein in reliance upon such report given on the authority of such firm
as experts in accounting and auditing. The address of Kost Forer Gabbay & Kasierer is 3 Aminadav St., Tel Aviv, Israel
67067.
ENFORCEABILITY
OF CIVIL LIABILITIES
We are incorporated under the laws of the
State of Israel. Service of process upon us and upon our directors and officers and the Israeli experts named in this registration
statement, a substantial majority of who reside outside of the United States, may be difficult to obtain within the United States.
Furthermore, because substantially all of our assets and substantially all of our directors and officers are located outside of
the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectible
within the United States.
We have been informed by our legal counsel
in Israel, Zysman, Aharoni, Gayer & Co., that it may be difficult to assert U.S. securities law claims in original actions
instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is
not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine
that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable
U.S. law must be proved as a fact which can be a time-consuming and costly process. Certain matters of procedure will also be
governed by Israeli law.
Subject to specified time limitations and
legal procedures, Israeli courts may enforce a U.S. judgment in a civil matter which, subject to certain exceptions, is non-appealable,
including judgments based upon the civil liability provisions of the Securities Act and the Exchange Act and including a monetary
or compensatory judgment in a non-civil matter, provided that among other things:
|
·
|
the
judgment is obtained after due process before a court of competent jurisdiction, according
to the laws of the state in which the judgment is given and the rules of private international
law currently prevailing in Israel;
|
|
·
|
the
judgment is final and is not subject to any right of appeal;
|
|
·
|
the
prevailing law of the foreign state in which the judgment was rendered allows for the
enforcement of judgments of Israeli courts;
|
|
·
|
adequate
service of process has been effected and the defendant has had a reasonable opportunity
to be heard and to present his or her evidence;
|
|
·
|
the
liabilities under the judgment are enforceable according to the laws of the State of
Israel and the judgment and the enforcement of the civil liabilities set forth in the
judgment is not contrary to the law or public policy in Israel nor likely to impair the
security or sovereignty of Israel;
|
|
·
|
the
judgment was not obtained by fraud and do not conflict with any other valid judgments
in the same matter between the same parties;
|
|
·
|
an
action between the same parties in the same matter is not pending in any Israeli court
at the time the lawsuit is instituted in the foreign court; and
|
|
·
|
the
judgment is enforceable according to the law of the foreign state in which the relief
was granted.
|
If a foreign judgment
is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted into non-Israeli
currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli
currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchange
in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount
of the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli consumer price index plus
interest at the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk
of unfavorable exchange rates.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration
statement on Form F-1 under the Securities Act relating to this offering of our units. This prospectus does not contain all
of the information contained in the registration statement. The rules and regulations of the SEC allow us to omit certain information
from this prospectus that is included in the registration statement. Statements made in this prospectus concerning the contents
of any contract, agreement or other document are summaries of all material information about the documents summarized, but are
not complete descriptions of all terms of these documents. If we filed any of these documents as an exhibit to the registration
statement, you may read the document itself for a complete description of its terms.
You may read and copy the registration
statement, including the related exhibits and schedules, and any document we file with the SEC without charge at the SEC’s
public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington,
DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an
Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings
with the SEC are also available to the public through the SEC’s website at http://www.sec.gov.
We are subject to the information reporting
requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements are filing reports
with the SEC. Those other reports or other information may be inspected without charge at the locations described above. As a
foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements,
and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly
and current reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities
are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year,
or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by
an independent registered public accounting firm, and will submit to the SEC, on Form 6-K, unaudited quarterly financial
information.
We maintain a corporate website at
https://bioblastpharma.com.
Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus. We have
included our website address in this prospectus solely as an inactive textual reference. We post on our website any materials
required to be so posted on such website under applicable corporate or securities laws and regulations, including, posting any
XBRL interactive financial data required to be filed with the SEC and any notices of general meetings of our shareholders.
BIOBLAST
PHARMA LTD.
BIOBLAST PHARMA
LTD. AND ITS SUBSIDIARY
CONSOLIDATED
FINANCIAL STATEMENTS
AS OF DECEMBER
31, 2016
INDEX
|
Kost
Forer Gabbay & Kasierer
3 Aminadav
St.
Tel-Aviv
6706703, Israel
|
Tel:
+972-3-6232525
Fax:
+972-3-5622555
ey.com
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders
and Board of Directors of
BIOBLAST PHARMA
LTD.
We have audited
the accompanying consolidated balance sheets of Bioblast Pharma Ltd. and its subsidiary (the “Company”) as of December 31,
2016, and 2015, and the related consolidated statements of operations, consolidated changes in shareholders’ equity and
consolidated cash flows for each of the three years in the period ended December 31, 2016. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant
estimates made by the management, and evaluating the overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion,
the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position
of the Company as of December 31, 2016, and 2015, and the consolidated results of their operations and their cash flows for each
of the three years ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
The accompanying
consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully
described in Note 1, the Company has incurred recurring losses and negative cash flows from operating activities during the year
ended December 31, 2016. Its ability to continue to operate is dependent upon obtaining additional financial support. These conditions
as described in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial
statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Tel-Aviv,
Israel
|
/S/
KOST FORER GABBAY & KASIERER
|
February
24, 2017
|
A
Member of EY Global
|
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars in thousands, except share data
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,871
|
|
|
$
|
7,286
|
|
Short-term bank deposits
|
|
|
3,007
|
|
|
|
12,046
|
|
Receivables and prepaid expenses
|
|
|
663
|
|
|
|
1,060
|
|
Total
current assets
|
|
|
10,541
|
|
|
|
20,392
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM ASSETS:
|
|
|
|
|
|
|
|
|
Long-term assets
|
|
|
18
|
|
|
|
33
|
|
Property and equipment, net
|
|
|
71
|
|
|
|
91
|
|
Total
long-term assets
|
|
|
89
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
10,630
|
|
|
$
|
20,516
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
700
|
|
|
$
|
1,412
|
|
Other accounts payable
|
|
|
1,231
|
|
|
|
1,102
|
|
Total
current liabilities
|
|
|
1,931
|
|
|
|
2,514
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES
|
|
|
-
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Ordinary shares of NIS 0.01 par value - 50,000,000 shares authorized at December
31, 2016 and 2015; 16,391,770 and 14,230,480 issued and outstanding shares at December 31, 2016 and 2015, respectively
|
|
|
45
|
|
|
|
39
|
|
Additional paid-in capital
|
|
|
48,463
|
|
|
|
41,680
|
|
Accumulated deficit
|
|
|
(39,809
|
)
|
|
|
(23,787
|
)
|
Total
stockholders’ equity
|
|
|
8,699
|
|
|
|
17,932
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
10,630
|
|
|
$
|
20,516
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
Year ended December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S. dollars in thousands, except share and per share
data
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
8,881
|
|
|
$
|
7,694
|
|
|
$
|
4,441
|
|
Pre-commercialization
|
|
|
1,085
|
|
|
|
829
|
|
|
|
-
|
|
General and administrative
|
|
|
5,900
|
|
|
|
6,953
|
|
|
|
2,639
|
|
Total
operating expenses
|
|
|
15,866
|
|
|
|
15,476
|
|
|
|
7,080
|
|
Loss from operations
|
|
|
(15,866
|
)
|
|
|
(15,476
|
)
|
|
|
(7,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income, net
|
|
|
60
|
|
|
|
135
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes on income
|
|
|
(15,806
|
)
|
|
|
(15,341
|
)
|
|
|
(7,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on income
|
|
|
(216
|
)
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(16,022
|
)
|
|
$
|
(15,365
|
)
|
|
$
|
(7,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Ordinary shareholders
|
|
$
|
(16,022
|
)
|
|
$
|
(15,365
|
)
|
|
$
|
(7,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Ordinary shareholders - basic and diluted
|
|
$
|
(1.01
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
(0.57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Ordinary shares outstanding - basic and diluted
|
|
|
15,906,220
|
|
|
|
14,230,480
|
|
|
|
12,259,600
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
|
|
|
Ordinary
shares
|
|
|
Additional
paid-in
|
|
|
Accumulated
|
|
|
Total
shareholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
Capital
|
|
|
deficit
|
|
|
equity
|
|
|
|
U.S.
dollars in thousands, except share and per share data
|
|
Balance
as of January 1, 2014
|
|
|
9,182,867
|
|
|
$
|
24
|
|
|
$
|
1,551
|
|
|
$
|
(1,400
|
)
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Ordinary shares ($0.95 per share), net of issuance costs of $0
|
|
|
1,065,076
|
|
|
|
3
|
|
|
|
1,009
|
|
|
|
-
|
|
|
|
1,012
|
|
Issuance
of Ordinary shares upon private placement ($6.07 per share), net of issuance costs of $382
|
|
|
782,537
|
|
|
|
3
|
|
|
|
4,365
|
|
|
|
-
|
|
|
|
4,368
|
|
Issuance
of Ordinary shares upon initial public offering ($11.00 per share), net of issuance costs of $3,795
|
|
|
3,200,000
|
|
|
|
9
|
|
|
|
31,396
|
|
|
|
-
|
|
|
|
31,405
|
|
Share
based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
736
|
|
|
|
-
|
|
|
|
736
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,022
|
)
|
|
|
(7,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2014
|
|
|
14,230,480
|
|
|
|
39
|
|
|
|
39,057
|
|
|
|
(8,422
|
)
|
|
|
30,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
2,623
|
|
|
|
-
|
|
|
|
2,623
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,365
|
)
|
|
|
(15,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2015
|
|
|
14,230,480
|
|
|
|
39
|
|
|
|
41,680
|
|
|
|
(23,787
|
)
|
|
|
17,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Ordinary shares and warrants for Ordinary shares in a registered direct offering ($3.10 per share), net of issuance costs
of $611
|
|
|
2,161,290
|
|
|
|
6
|
|
|
|
6,083
|
|
|
|
-
|
|
|
|
6,089
|
|
Share
based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
700
|
|
|
|
-
|
|
|
|
700
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,022
|
)
|
|
|
(16,022
|
)
|
Balance
as of December 31, 2016
|
|
|
16,391,770
|
|
|
$
|
45
|
|
|
$
|
48,463
|
|
|
$
|
(39,809
|
)
|
|
$
|
8,699
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
Year ended December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S. dollars in thousands
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(16,022
|
)
|
|
$
|
(15,365
|
)
|
|
$
|
(7,022
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and disposal of property and equipment
|
|
|
38
|
|
|
|
17
|
|
|
|
5
|
|
Share based compensation
|
|
|
700
|
|
|
|
2,623
|
|
|
|
736
|
|
Interest on short-term deposit
|
|
|
39
|
|
|
|
(18
|
)
|
|
|
(28
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in receivables and prepaid expenses
|
|
|
399
|
|
|
|
(786
|
)
|
|
|
(245
|
)
|
Decrease (increase) in long-term assets
|
|
|
13
|
|
|
|
(24
|
)
|
|
|
(4
|
)
|
Increase (decrease) in trade payables
|
|
|
(712
|
)
|
|
|
127
|
|
|
|
1,239
|
|
Increase in other accounts payable
|
|
|
129
|
|
|
|
107
|
|
|
|
910
|
|
Increase (decrease) in long-term liabilities
|
|
|
(70
|
)
|
|
|
70
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(15,486
|
)
|
|
|
(13,249
|
)
|
|
|
(4,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withdrawal of (investment in) short-term bank deposits
|
|
|
9,000
|
|
|
|
10,000
|
|
|
|
(22,000
|
)
|
Purchase of property and equipment
|
|
|
(18
|
)
|
|
|
(48
|
)
|
|
|
(63
|
)
|
Net cash provided by (used in) investing activities
|
|
|
8,982
|
|
|
|
9,952
|
|
|
|
(22,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares and warrants, net
|
|
|
6,089
|
|
|
|
-
|
|
|
|
36,785
|
|
Net cash provided by financing activities
|
|
|
6,089
|
|
|
|
-
|
|
|
|
36,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(415
|
)
|
|
|
(3,297
|
)
|
|
|
10,313
|
|
Cash and cash equivalents, beginning of the year
|
|
|
7,286
|
|
|
|
10,583
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
$
|
6,871
|
|
|
$
|
7,286
|
|
|
$
|
10,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
210
|
|
|
$
|
4
|
|
|
$
|
-
|
|
Cash received for interest
|
|
$
|
120
|
|
|
$
|
162
|
|
|
$
|
57
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Nature of business and basis of presentation
|
Nature of business
Bioblast Pharma Ltd. (the “Parent”)
was incorporated in Israel and commenced its operations on January 22, 2012. In January 2015, Bioblast Pharma Inc. was established
in the state of Delaware as a wholly owned subsidiary (the “Subsidiary”). The Parent and the Subsidiary (together
the “Company”) are a clinical-stage biotechnology company committed to developing clinically meaningful therapies
for patients with rare and ultra-rare genetic diseases. The Company focuses on trehalose, a therapeutic platform that potentially
offers solutions for several diseases that share a common pathophysiological mechanism, which are the functional changes that
accompany a particular syndrome or disease. The Company focuses on diseases with severe and debilitating manifestations, where
the unmet medical need is clear, the biological mechanism of action is understood, and for which there is no satisfactory treatment.
Since inception in 2012, the Company has been engaged in the development of potential treatments using trehalose for two diseases,
oculopharyngeal muscular dystrophy (“OPMD”) and spinocerebellar ataxia type 3 (SCA3; Machado Joseph disease). The
Company’s ordinary shares (“Ordinary shares”) are traded on the NASDAQ Global Market.
The Company has not generated revenue
from the sale of any product, and does not expect to generate significant revenue unless and until it obtains marketing approval,
and successfully commercializes its products. Since its inception, the Company has financed its operations through issuance of
preferred shares, its initial public offering (the “IPO”) and a subsequent registered direct offering. The Company
recorded a net loss of $16,022 thousand during the year ended December 31, 2016 and as of December 31, 2016, the Company had an
accumulated deficit of $39,809 thousand. As of December 31, 2016, the Company’s cash and short-term bank deposits were $9,878
thousand. Additional funding beyond its existing cash resources will be required to entirely cover the cost of the Company’s
planned Phase 2b study in OPMD patients and the underlying expense of the Company’s operations while the study is ongoing.
The Company plans to continue to fund its losses from operations and capital funding needs through the issuance of equity and/or
debt or through collaborations or license agreements with other companies. Equity or debt financing may not be available on a
timely basis on terms acceptable to the Company, or at all. If the Company is not able to secure adequate additional funding,
the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible,
or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations
and future prospects.
The Company’s ability to continue to
operate is dependent upon the ability to raise additional financing. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The financial statements as of December 31, 2016, do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
The Company is currently developing
trehalose, which is the only product candidate that it currently pursues. There can be no assurance that the Company’s research
and development activities with respect to trehalose will be successfully completed, that adequate protection for the Company’s
intellectual property will be obtained, that trehalose or any other future products the Company may developed will obtain required
regulatory approval or that any approved products will be commercially viable. Even if the Company’s development efforts
are successful, it is uncertain when, if ever, the Company will generate significant product sales. The Company operates in an
environment of rapid technological change and substantial competition from pharmaceutical and biotechnology companies
Basis of presentation
The accompanying consolidated financial
statements are prepared in conformity with accounting principles generally accepted in the United States of America (the “U.S.
GAAP”) and are stated in U.S. dollars. The consolidated financial statements have been prepared on the basis of continuity
of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Use of estimates
The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates, judgment and assumptions that affect the reported
amounts of assets, liabilities, expenses and the disclosure of contingent assets and liabilities as of and during the reporting
period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes
to be reasonable under the circumstances. Significant estimates relied upon in preparing the accompanying consolidated financial
statements related to expense recognition, the fair value of Ordinary shares and other equity instruments, accounting for share-based
compensation, income taxes, useful lives of long-lived assets, and accounting for certain accruals. The Company assesses the above
estimates on an ongoing basis; however, actual results could materially differ from those estimates.
|
2.
|
Summary of significant accounting
policies
|
Principles of consolidation
The consolidated financial statements
include the accounts of Bioblast Pharma Ltd and its Subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation.
Financial statements in U.S.
dollars
The Company finances its operations
primarily in U.S. dollars, and a significant part of the Company’s expenses are denominated and determined in U.S. dollars.
The Company’s management believes that the U.S dollar is the currency of the primary economic environment in which it operates
and expects to continue to operate in the foreseeable future. Thus, the functional currency of the Company is the U.S. dollar.
The Parent and the Subsidiary’s
transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances
have been remeasured to U.S. dollars in accordance with Accounting Standards Codification (“ASC”) 830, “Foreign
Currency Matters”, of the Financial Accounting Standards Board (the “FASB”). All transaction gains and losses
from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of operations
as financial income or expenses, as appropriate.
Cash equivalents
Cash equivalents are short-term highly
liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition.
Short-term bank deposits
Short-term bank deposits are deposits
with maturities of more than three months but less than one year. Short–term bank deposits are presented at their amortized
cost, including accrued interest, which approximates fair value. As of December 31, 2016, the Company’s bank deposits
were in U.S. dollars and bore interest at a rate of 1.25% per-annum.
Segment information
Operating segments are identified as
components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating
decision maker, the Company’s Chief Executive Officer, in making decisions regarding resource allocation and assessing performance.
The Company views its operations and manages its business in one operating segment.
Concentrations of credit risk
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and short-term bank deposits.
Cash and cash equivalents and short-term bank deposits are invested in major banks in Israel and the United States. Generally,
these deposits may be redeemed upon demand and therefore bear minimal risk. The Company has no off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
Fair value of financial instruments
The Company has no financial instruments
that are measured at fair value. The carrying amounts of cash and cash equivalents, short-term bank deposits, receivables and
prepaid expenses, trade payables and other accounts payable, approximate their fair value due to the short-term maturities of
such instruments.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Property and equipment
Property and equipment are stated at
cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives
of the assets at the following rates:
|
|
%
|
|
|
|
Computers and software
|
|
33
|
Electronic equipment
|
|
15
|
Office furniture and equipment
|
|
6
|
Leasehold improvements
|
|
The shorter of term of the lease or the useful life of the asset
|
Long-term assets
Long-term assets include long-term
deposits related to motor vehicles under operating leases, presented at their cost and deposits to secure credit line for the
Company’s employee’s credit cards. In accordance with FASB Accounting Standards Update (“ASU”) 2015-17,
long-term assets also include deferred tax assets.
Impairment of long-lived assets
The Company reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted
cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to sell. In 2016, 2015 and 2014, no impairment losses
were identified.
Contingent liabilities
In the normal course of business, the
Company is subject to proceedings, lawsuits, and other claims and assessments. The Company assesses the likelihood of any adverse
judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves
required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change
in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing
with these matters. We record charges for the losses we anticipate incurring in connection with litigation and claims against
us when we conclude a loss is probable and we can reasonably estimate these losses. During the years ended December 31, 2016,
2015, and 2014, we were not subject to any material litigation or claims and assessments.
Warrants
Warrants to purchase Ordinary shares
issued in connection with an offering of Ordinary shares are classified as a component of shareholders’ equity because they are
free standing financial instruments that are legally detachable, separately exercisable, do not embody an obligation for the Company
to repurchase its own shares, and permit the holders to receive a fixed number of Ordinary shares upon exercise. In addition,
the Ordinary shares warrants require physical settlement and do not provide any guarantee of value or return. Ordinary shares
warrants are initially recorded at their relative fair value and are not subsequently remeasured.
Research and development costs
Research and development costs are
expensed as incurred. Research and development costs include payroll and personnel expense, share-based compensation expenses
related to research and development personnel, consulting costs, external contract research and development expenses, raw materials,
drug product manufacturing costs, and allocated overhead including depreciation and amortization, rent, and utilities. Research
and development costs that are paid in advance of performance are capitalized as a prepaid expense and amortized over the service
period as the services are provided.
Clinical trial costs are a component
of research and development expenses. The Company accrues and expenses clinical trial activities performed by third parties on
an evaluation of the progress to completion of specific tasks using data such as hours spent in performance of services, patient
enrollment, clinical site activation, and other information provided to the Company by its vendors.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Share-based compensation
The Company applies ASC 718 and ASC
505-50 “Equity Based Payments to Non-Employees” (“ASC 505-50”) with respect to options and warrants issued
to non-employee’s consultants. The Company accounts for all share-based compensation granted to employees and nonemployees
using a fair value method. Share-based compensation is measured at the grant date fair value of employees’ and directors’
Ordinary share option grants and is recognized over the requisite service period of the awards, usually the vesting period, on
the graded vesting attribution method. The expenses are adjusted for actual forfeitures on a quarterly basis. Share-based compensation
awards to nonemployees are subject to revaluation over their vesting terms.
For modification of share compensation
awards, the Company records the incremental fair value of the modified award as share-based compensation on the date of modification
for vested awards or over the remaining vesting period for unvested awards. The incremental compensation is the excess of the
fair value of the modified award on the date of modification over the fair value of the original award immediately before the
modification.
The Company recognizes, as expense,
the estimated fair value of all share-based payments to employees which is determined using the Black-Scholes option pricing model
using the graded vesting attribution approach over the vesting period of the award. In periods that the Company grants Ordinary
share options, fair value assumptions are based on volatility, interest, dividend yield, and expected term over which the Ordinary
share options will be outstanding. The computation of expected volatility is based on an average historical share price volatility
based on an analysis of reported data for a peer group of comparable publicly traded companies, which were selected based upon
industry similarities. The interest rate for periods within the expected term of the award is based on the U.S. Treasury risk-free
interest rate in effect at the time of grant. The expected lives of the options were estimated using the simplified method.
Income taxes
The consolidated financial statements
reflect provisions for Israeli, U.S. federal and state income taxes. Deferred tax assets and liabilities represent future tax
consequences of temporary differences between the consolidated financial statement carrying amounts and the tax basis of assets
and liabilities and for loss carryforwards using enacted tax rates expected to be in effect in the years in which the differences
reverse. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not
be realized.
The Company determines whether it is
more likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position
will be sustained, none of the benefit attributable to the position is recognized. The tax benefit to be recognized for any tax
position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely
of being realized upon resolution of the contingency. The Company accounts for interest and penalties related to uncertain tax
positions as part of its tax expenses.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Basic and diluted loss per share
The Company computes basic loss per
share attributable to Ordinary shareholders by dividing net loss attributable to Ordinary shareholders by the weighted average
number of Ordinary share outstanding for the period. The Company computes diluted loss per Ordinary share after giving consideration
to all potentially dilutive Ordinary shares, including Ordinary share options and warrants outstanding during the period except
where the effect of such non-participating securities would be antidilutive.
Since the Company reported net loss
attributable to Ordinary shareholders for the years ended December 31, 2016, 2015 and 2014, basic and diluted net loss per share
attributable to Ordinary shareholders are the same as basic net loss per share attributable to Ordinary shareholders for those
periods. All Ordinary shares warrants and Ordinary share options have been excluded from the computation of diluted weighted-average
shares outstanding because such securities would have an antidilutive impact due to net losses reported for the years ended December
31, 2016, 2015 and 2014.
Recently issued accounting pronouncements
In February 2016, the FASB issued ASU
2016-02 -
Leases
(“ASC 842”), which sets out the principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual
approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively
a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective
interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with
a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires
lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct
financing leases and operating leases. The ASU is expected to impact our consolidated financial statements as we have certain
operating lease arrangements. ASC 842 supersedes the previous leases standard, ASC 840 Leases. The standard is effective on January 1,
2019, with early adoption permitted.
The Company is currently evaluating
the effect, if any, that the adoption of this new pronouncements will have on the Company’s consolidated financial statements.
Adoption of new standards
In November 2015, the FASB issued ASU
2015-17 related to balance sheet classification of deferred taxes. The new guidance requires that deferred tax assets and liabilities
to be classified as noncurrent in a classified statement of financial position.
In March 2016, the FASB issued ASU
2016-09, Improvements to Employee Share-Based Payment Accounting. The new guidance will require all income tax effects of awards
to be recognized in the income statement when the awards vest or are settled. It will allow an employer to repurchase more of
an employee’s shares than it can today for tax withholding purposes without triggering liability accounting. It also will
allow an employer to make a policy election to account for forfeitures as they occur. The Company elected to adopt the new standards
in 2016.
In 2014, the FASB issued ASU 15-2014,
Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of uncertainties about an entity’s ability
to continue as a Going Concern
, which defines management’s responsibility to assess an entity’s ability to continue
as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as
a going concern.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
3.
|
Receivables and prepaid expenses
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
Government authorities
|
|
$
|
52
|
|
|
$
|
145
|
|
Prepaid expenses
|
|
|
611
|
|
|
|
915
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
663
|
|
|
$
|
1,060
|
|
|
4.
|
Property and equipment, net
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
Computers and software
|
|
$
|
50
|
|
|
$
|
54
|
|
Electronic equipment
|
|
|
20
|
|
|
|
19
|
|
Office furniture and equipment
|
|
|
39
|
|
|
|
38
|
|
Leasehold improvements
|
|
|
2
|
|
|
|
2
|
|
|
|
$
|
111
|
|
|
$
|
113
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
40
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost
|
|
$
|
71
|
|
|
$
|
91
|
|
Depreciation expenses for
the years ended December 31, 2016, 2015 and 2014 were $25 thousands, $17 thousands, and $5 thousands, respectively.
During the year ended December
31, 2016, the Company disposed of certain property and equipment generating a net loss of $13 thousands which were classified
as general and administrative expense.
|
5.
|
Other accounts payable
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
Employees and payroll accruals
|
|
$
|
677
|
|
|
$
|
463
|
|
Accrued expenses
|
|
|
554
|
|
|
|
639
|
|
|
|
$
|
1,231
|
|
|
$
|
1,102
|
|
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
The Company entered into a research
and exclusive license agreement with Yissum Research Development Company of the Hebrew University in Jerusalem Ltd. (“Yissum”),
for the use, development and commercialization of TAT-MTS-Protein for protein replacement in mitochondrial diseases. The consideration
to Yissum was composed of a tiered low single digit royalty on net sales and a sublicense fee that will not exceed twenty (20)
percent of the sublicense consideration, however, if the sublicense arises from the sales of a product, the sublicense fee shall
not be less than a low single digit percent of the gross sales of such product. On September 30, 2016, the Company terminated
the license agreement with Yissum and surrendered all rights and titles to the licensed product and related data.
The Company entered into an exclusive
license agreement with Ramot at Tel Aviv University Ltd. (“Ramot”) for the use, development and commercialization
of a read-through platform. The consideration to Ramot was composed of a tiered low single digit royalty on net sales and a sublicense
fee that in the single digit percent range of payments or other consideration that the Company receives in connection with a sublicense.
On November 29, 2016, the Company executed a mutual termination agreement with Ramot pursuant to which it surrendered all rights
and titles to the platform and related data. In addition, pursuant to the mutual termination agreement and under certain conditions
the Company may be entitled to future royalty payments.
|
7.
|
Commitments and contingent
liabilities
|
The Parent entered into an operating
lease agreement for its facilities in Israel until June 2020, while maintaining the right to terminate the lease agreement under
certain conditions during its term. To secure its obligation under the lease agreement, the Parent provided bank guarantees in
the amount of $26 thousands. The lease expenses for those facilities for the years ended December 31, 2016, 2015 and 2014 amounted
to $100 thousands, $104 thousands, and $120 thousands, respectively.
The Subsidiary entered into short-term
operating lease agreements for office facilities in New Haven, CT and in Doylestown, PA. The combined lease expenses for those
facilities for the years ended December 31, 2016 and 2015 amounted to $80 thousands and $36 thousands, respectively. The Subsidiary
terminated both lease agreements during October, 2016.
The Parent entered into an operating
lease agreement for certain vehicles provided to its employees until 2019. To secure its obligation under the lease agreement,
the Parent provided a cash deposits in the total amount of $13 thousands, of which $11 thousands were classified as long-term
assets and $2 thousand as part of prepaid expenses. The vehicles lease expenses for the years ended December 31, 2016, 2015 and
2014 amounted to $46 thousands, $43 thousands and $25 thousands, respectively.
Future minimum non-cancelable payments
under these lease agreements as of December 31, 2016, are as follows:
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
2017
|
|
|
$
|
113
|
|
|
2018
|
|
|
|
75
|
|
|
|
|
|
$
|
188
|
|
As permitted under Israeli law, the
Parent indemnifies its officers, directors, and employees for certain events or occurrences that happen by reason of the relationship
with, or position held at, the Company. Through December 31, 2016, the Company had not experienced any losses related to these
indemnification obligations, and no claims were outstanding. The Company does not expect significant claims related to these indemnification
obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were
established.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
On January 26, 2014, the Company effected
the issuance of 6.55-to-1 bonus shares, which was equivalent to a 7.55-to-1 share split. As a result, all Ordinary shares, options
for Ordinary shares, exercise price and earnings per share amounts for periods prior to January 2014, were adjusted retrospectively.
The Ordinary shares confer upon their
holders the right to participate and vote in general shareholders’ meetings of the Company and to participate in the distribution
of dividends, if any, declared by the Company.
In June 2013, the Company entered
into a share purchase agreement according to which, the Company issued a total of 2,130,159 Ordinary shares at a price of $0.95
per share for total net consideration of $2,024 thousand, in two equal installments: June 2013 and January 2014.
On February 6, 2014, the Company
issued 782,537 Ordinary shares to private placement investors at a price of $6.07 per share for total net consideration of $4,368
thousand, net of related costs.
On August 5, 2014, the Company completed
an IPO of 3,200,000 Ordinary shares at a price of $11.00 per share for total net consideration of $31,405 thousands, after deducting
underwriting discounts and commissions and other issuance expenses.
On March 22, 2016, the Company completed
a registered direct offering of 2,161,290 Ordinary shares at a price of $3.10 per share for total net consideration of $6,089
thousands, after deduction underwriting commissions and other issuance expenses.
The following Ordinary
shares warrants were issued by the Company in 2016:
|
|
Shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Exercise Price
|
|
|
Issuance
|
|
|
Expiration
|
|
|
|
Warrants
|
|
|
Per Share
|
|
|
Date
|
|
|
Date
|
|
Issued In connection with:
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered direct offering of Ordinary shares
|
|
|
1,080,645
|
|
|
$
|
4.50
|
|
|
|
March 22, 2016
|
|
|
|
September
22, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,080,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Ordinary shares warrants are exercisable
at any time following September 22, 2016 and through their expiration dates
In December 2013, the Company adopted
the 2013 Incentive Option Plan (the “2013 Plan”), which provided for the grant of incentive Ordinary share options
and nonqualified Ordinary share options to employees, directors, and nonemployees of the Company. As of December 31, 2016, the
Company granted a total of 3,345,960 options to purchase Ordinary shares. Option awards generally expire 10 years from the grant
date and generally vest over four years, but vesting conditions can vary at the discretion of the Company’s board of
directors (the “Board”). As of December 31, 2016, 694,179 shares of Ordinary shares remain available for future grants
under the 2013 Plan.
The fair value of each Ordinary share
option issued was estimated at the date of grant using the following weighted-average assumptions:
|
Year
ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
1.18%-2.06%
|
|
1.30%
-1.90%
|
|
1.55%-2.21%
|
Expected option term (years)
|
5.00-7.00
|
|
5.12-7.00
|
|
5.12-7.00
|
Expected price volatility
|
79.34%-90.65%
|
|
70.40%-83.74%
|
|
69.49%-84.63%
|
Dividend yield
|
0%
|
|
0%
|
|
0%
|
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
A summary of option activity as of
December 31, 2016, and the year then ended is presented below:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Stock Options
|
|
|
Exercise Price
|
|
|
Term (Years)
|
|
|
Value
|
|
Outstanding, January 1, 2016
|
|
|
2,103,502
|
|
|
$
|
5.81
|
|
|
|
8.52
|
|
|
$
|
1,584,753
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,658,416
|
|
|
$
|
2.21
|
|
|
|
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(1,110,137
|
)
|
|
$
|
6.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
|
2,651,781
|
|
|
$
|
3.41
|
|
|
|
7.74
|
|
|
$
|
419,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2016
|
|
|
1,300,224
|
|
|
$
|
4.47
|
|
|
|
6.00
|
|
|
$
|
419,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest, December 31, 2016
|
|
|
2,651,781
|
|
|
$
|
3.41
|
|
|
|
7.74
|
|
|
$
|
419,840
|
|
The weighted-average grant date per-share
fair value of Ordinary shares options granted during 2016, 2015, and 2014 were $1.56, $4.16, and $4.10, respectively. At December 31,
2016, there was $1,309 thousands of unrecognized compensation cost related to Ordinary share options, which is expected to be
recognized over a weighted-average period of 3.0 years.
Share-based compensation expense is
classified in the consolidated statements of operations as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
531
|
|
|
$
|
381
|
|
|
$
|
83
|
|
Pre-commercialization expenses
|
|
|
(147
|
)
|
|
|
159
|
|
|
|
-
|
|
General and administrative expenses
|
|
|
316
|
|
|
|
2,083
|
|
|
|
653
|
|
|
|
$
|
700
|
|
|
$
|
2,623
|
|
|
$
|
736
|
|
During 2016, and primarily as result
of the workforce reductions discussed in Note 13, 1,110,137 Ordinary share options were forfeited. As a result of said forfeitures
$1,424 thousands of previously recognized share-based compensation expenses were reversed, of which $130 thousands, $287 thousands
and $1,007 thousands, were recorded in the research and development expenses, pre-commercialization expenses and general and administrative
expenses, respectively.
During 2016, the Company modified the
terms of certain outstanding Ordinary shares options by extending exercisability of the options through the first anniversary
of termination of employment. In addition, during 2015, the Company modified terms of certain outstanding Ordinary shares options
by (a) extending exercisability of the options through the first anniversary of termination of employment, and (b) accelerating
the vesting of Ordinary shares options upon termination of employment. The incremental compensation expense, resulting from comparing
the fair value of Ordinary shares options immediately before and immediately after the modifications, for the year ended December 31,
2015 totaled $46 thousands There was no incremental compensation related to the 2016 modification. The incremental compensation
expenses for the year ended December 31, 2015 were classified as general and administrative expense in the accompanying consolidated
financial statements.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Loss before provision for income taxes
consists of the following:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
Domestic (Israel)
|
|
$
|
15,765
|
|
|
$
|
13,388
|
|
|
$
|
7,022
|
|
Foreign (US)
|
|
|
41
|
|
|
|
1,953
|
|
|
|
-
|
|
|
|
$
|
15,806
|
|
|
$
|
15,341
|
|
|
$
|
7,022
|
|
The components of income tax provision
consist of the following:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
Current Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic (Israel)
|
|
$
|
5
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign (U.S)
|
|
|
166
|
|
|
|
24
|
|
|
|
-
|
|
Total current provision for income taxes
|
|
$
|
171
|
|
|
$
|
24
|
|
|
$
|
-
|
|
Previous years adjustments – foreign
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
Deferred tax benefit – foreign
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
-
|
|
Total provision for income tax
|
|
$
|
216
|
|
|
$
|
24
|
|
|
$
|
-
|
|
A reconciliation setting forth the
differences between the effective tax rates of the Company and the Israeli statutory tax rate is as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Israeli tax provision at statutory rate
|
|
|
25.00
|
%
|
|
|
26.50
|
%
|
|
|
26.50
|
%
|
Foreign/state rate differences
|
|
|
(0.32
|
)%
|
|
|
(0.22
|
)%
|
|
|
0.00
|
%
|
Non-deductible stock based compensation
|
|
|
(1.11
|
)%
|
|
|
(4.53
|
)%
|
|
|
(2.54
|
)%
|
Previous years taxes
|
|
|
(0.47
|
)%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Differences form which deferred taxes were not recorded
|
|
|
0.19
|
%
|
|
|
0.20
|
%
|
|
|
0.00
|
%
|
Changes in valuation allowance
|
|
|
(18.39
|
)%
|
|
|
(22.02
|
)%
|
|
|
(5.35
|
)%
|
Adjustment of deferred taxes due to tax rate changes
|
|
|
(5.89
|
)%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Other permanent differences
|
|
|
(0.38
|
)%
|
|
|
(0.09
|
)%
|
|
|
(18.61
|
)%
|
|
|
|
(1.37
|
)%
|
|
|
(0.16
|
)%
|
|
|
0.00
|
%
|
The Subsidiary is taxed under U.S.
tax law. The federal corporate tax rate (progressive) is up to 35%, excluding state tax. State tax rates vary and are dependent
on the state in which the Subsidiary conducts its business.
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
Operating loss roll forward
|
|
$
|
5,685
|
|
|
$
|
3,580
|
|
Reserves and allowances
|
|
|
1,956
|
|
|
|
2,185
|
|
Net deferred tax asset before valuation allowance
|
|
|
7,641
|
|
|
|
5,765
|
|
Valuation allowance
|
|
|
(7,636
|
)
|
|
|
(5,765
|
)
|
|
|
$
|
5
|
|
|
$
|
-
|
|
When realization of a deferred tax
asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations
is recognized as a reduction of income tax expense. Valuation allowances are provided against deferred tax assets when, based
on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets
will not be realized in future periods. The Company cannot be certain that future Israeli taxable income will be sufficient to
realize its deferred tax assets. Accordingly, a full valuation allowance has been provided against its Israeli net deferred tax
assets. The Company continues to monitor the need for a valuation allowance based on the profitability of its future operations.
The Parent has accumulated losses for
tax purposes as of December 31, 2016, in the amount of $24,717 thousands, which may be carried forward and offset against
taxable income in the future for an indefinite period.
The Company files income tax returns
in Israel, in the United States and in various U.S. states. The associated tax filings remain subject to examination by applicable
tax authorities for a certain length of time following the tax year to which those filings relate. In Israel and the United States
all tax years since inception remain subject to examination by the applicable taxing authorities as of December 31, 2016.
As of December 31, 2016, the Company
provided a liability of $24 thousands, for uncertain tax positions related to various income tax matters from prior years, which
was classified as other long-term liabilities. These uncertain tax positions would affect the Company’s effective tax rate,
if recognized. The Company does not expect that the amounts of uncertain tax positions will change significantly within the next
12 months.
|
12.
|
Related party transactions
|
Balances with related parties:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
Other accounts payables
|
|
$
|
1
|
|
|
$
|
132
|
|
Related parties’ expenses:
|
|
Year Ended December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense
|
|
$
|
318
|
|
|
$
|
312
|
|
|
$
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense
|
|
$
|
207
|
|
|
$
|
196
|
|
|
$
|
467
|
|
BIOBLAST
PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
In August 2013, the Company entered
in to a consulting agreement with an entity owned by one of its shareholders who was also a co-founder and a member of the Board.
Pursuant to the agreement, the shareholder was appointed as the Company’s chief financial officer in consideration for a
monthly fee of $6 thousand. In April 2014, the agreement was amended and restated to affect, upon the consummation of the Company’s
IPO (which took place in August 2014), an increase of the monthly fee to a total of $15 thousands as well as pay a one-time bonus
in the amount of $80 thousand. During 2015, the Company paid a subsequent one-time bonus to the shareholder in the amount of $70
thousands in connection with services rendered. As of January 2016, following the appointment of a new chief financial officer,
the consulting agreement was amended and restated. Pursuant to such amendment, the shareholder was appointed as a special advisor
to the chief executive officer with no change to his remuneration. In June 2016, the Company terminated the amended and restated
consulting agreement effective as of February 2017.
In September 2013, the Company entered
into a services agreement with a company owned by one of its shareholders who was also a co-founder and a member of the Board.
Pursuant to the agreement the Company leased an office facility and received office administration services in consideration for
a monthly fee of $6 thousand. The agreement was terminated in September 2014.
During December 2015, the Company paid
a $15 thousand one-time fee to an employee of an entity owned by one of the Company’s shareholders who was also a co-founder
and a member of the Board, for administration support services provided during 2015. In addition, during 2015, the Company paid
$1 thousand to a family member of the shareholder in connection with services provided related to leasehold improvements of the
Parent’s new offices. Such payment was recorded to leasehold improvement as part of property and equipment.
In August 2013, the Company entered
in to a consulting agreement with an entity owned by one of its shareholders who was also a co-founder and a member of the Board.
Pursuant to the agreement, the shareholder was appointed as the Company’s chief executive officer in consideration for a
monthly fee of $15 thousand. In April 2014, the agreement was amended and restated to affect, upon the consummation of the Company’s
IPO (which took place in August 2014), an increase of the monthly fee to of $19 thousands, as well as, pay a one-time bonus in
the amount of $90 thousand. As of January 2015, following the appointment of a new chief executive officer, the consulting agreement
was terminated and the Company’s shareholders approved the entry into an employment agreement, pursuant to which the shareholder
was appointed as chief development officer of the Company, and was entitled to a gross annual salary of $250 thousand. Such agreement
was never executed. In November 2015, effective retrospectively as of January 2015, the consulting agreement was amended and restated
(and the employment agreement was terminated). Pursuant to such amendment, the shareholder was appointed as a special advisor
to the chief executive officer and was entitled to a monthly fee of $28 thousand. In June 2016, the Company terminated the amended
and restated consulting agreement effective December 2016.
In July 2013, the Company entered into
a two-year services agreement with one of its shareholders, to render consulting services in consideration for a monthly fee of
$1 thousand. The agreement expired in July 2015. Effective as of August, 2014, the shareholder received an annual compensation
of $25 thousand, for services rendered as a member of the Board. As of August 2016, such annual director’s fee was increased
to a total of $30 thousand per year. In addition, in August 2016, the Company granted to a member of its Board, who is a principal
of the shareholder, 30,000 options to purchase Ordinary shares at an exercise price of $1.62 per share.
|
13.
|
Employee
benefits plan
|
Pursuant to the Israeli Severance Pay
Law 1963 (the “Israeli Severance Pay Law”), Israeli employees are entitled to severance pay equal to one month’s
salary for each year of employment, or a portion thereof. The Israeli employees of the Company agreed to the terms set forth under
Section 14 of the Israeli Severance Pay Law, according to which amounts deposited in severance pay funds by the Company shall
be the only severance payments released to the employee upon termination of employment, voluntarily or involuntarily. As a result,
no assets or liabilities are recorded in the accompanying consolidated balance sheets, as the Company is legally released from
the obligation to employees once the deposit amount has been paid. Such payments are recorded as severance expenses. The severance
expenses for the years ended December 31, 2016, 2015 and 2014 amounted to $65 thousand, $131 thousands, and $34 thousands, respectively.
Since 2015, the Company’s U.S.
operations maintain a retirement plan (the “U.S. Plan”) that qualifies as a deferred salary arrangement under Section 401(k)
of the Internal Revenue Code. Participants in the U.S. Plan may elect to defer a portion of their pre-tax earnings, up to the
Internal Revenue Service annual contribution limit. The Company matches 100% of each participant’s contributions up to 4%.
Contributions to the U.S. Plan are recorded during the year contributed as an expense in the consolidated statement of operations.
Total employer 401(k) contributions for the years ended December 31, 2016 and 2015 were$42 thousands, $11 thousands, respectively.
BIO
BLAST PHARMA LTD. AND ITS SUBSIDIARY
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
In June 2016, following a decision
to downsize the Company and focus on one product platform, the Subsidiary terminated the employment agreements of certain employees.
These employees were entitled to payments upon their involuntary termination. The employee termination process was completed by
the end of 2016. During the year ended December 31, 2016, the Subsidiary paid a total of $1,907 thousands, termination related
payments to departing employees, of which $145 thousands and $1,762 thousands were recorded as research and development and general
and administrative expenses, respectively. In addition, as of December 31, 2016, the Subsidiary accrued a total of $19 thousands
related to termination benefits of departing employees, to be paid during 2017.
|
14.
|
Financial income, net
|
Financial income, net are as follows:
|
|
Year Ended December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
90
|
|
|
$
|
186
|
|
|
$
|
85
|
|
Loss on foreign currency transactions, net
|
|
|
(22
|
)
|
|
|
(39
|
)
|
|
|
(21
|
)
|
Other expenses
|
|
|
(8
|
)
|
|
|
(12
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
60
|
|
|
$
|
135
|
|
|
$
|
58
|
|
|
15.
|
Quarterly Financial Data
(unaudited)
|
|
|
Three month ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
|
U.S. dollars in thousands, except for per share data
|
|
Loss from operations
|
|
$
|
(4,492
|
)
|
|
$
|
(3,722
|
)
|
|
$
|
(4,578
|
)
|
|
$
|
(3,074
|
)
|
Net loss
|
|
|
(4,594
|
)
|
|
|
(3,685
|
)
|
|
|
(4,670
|
)
|
|
|
(3,073
|
)
|
Net loss attributable to Ordinary shareholders
|
|
|
(4,594
|
)
|
|
|
(3,685
|
)
|
|
|
(4,670
|
)
|
|
|
(3,073
|
)
|
Net loss per share attributable to Ordinary shareholders - basic and diluted
|
|
$
|
(0.32
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.19
|
)
|
|
|
Three month ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
|
|
U.S. dollars in thousands, except for per share data
|
|
Loss from operations
|
|
$
|
(3,318
|
)
|
|
$
|
(3,738
|
)
|
|
$
|
(3,587
|
)
|
|
$
|
(4,833
|
)
|
Net loss
|
|
|
(3,299
|
)
|
|
|
(3,686
|
)
|
|
|
(3,551
|
)
|
|
|
(4,829
|
)
|
Net loss attributable to Ordinary shareholders
|
|
|
(3,299
|
)
|
|
|
(3,686
|
)
|
|
|
(3,551
|
)
|
|
|
(4,829
|
)
|
Net loss per share attributable to Ordinary shareholders - basic and diluted
|
|
$
|
(0.23
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.34
|
)
|
-.-.-.-.-.-.-.-.
Up to 6,414,474
Class
A Units consisting of
Ordinary Shares
and
Warrants
and
2,166,667 Class B Units consisting
of Pre-Funded Warrants and Warrants
(6,435,855 Ordinary Shares
underlying the Warrants)
PROSPECTUS
H.C. Wainwright
& Co.
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
Item 6.
|
Indemnification of Directors,
Officers and Employees
|
Under the Israeli Companies Law 5759-1999,
or the Companies Law, a company may not exculpate an office holder from liability for a breach of a fiduciary duty. An Israeli
company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the
company as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles
of association. Our amended and restated articles of association include such a provision. The company may not exculpate in advance
a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Companies Law and the Israeli
Securities Law, 5728-1968, or the Israeli Securities Law a company may indemnify, or undertake in advance to indemnify, an office
holder for the following liabilities and expenses, imposed on office holder or incurred by office holder due to acts performed
by him or her as an office holder, provided its articles of association include a provision authorizing such indemnification:
|
·
|
financial
liability incurred by or imposed on him or her in favor of another person pursuant to
a judgment, including a settlement or arbitrator’s award approved by a court. However,
if an undertaking to indemnify an office holder with respect to such liability is provided
in advance, then such an undertaking must be limited to events which in the opinion of
the Board of Directors can be foreseen based on the company’s activities when the
undertaking to indemnify is given, and to an amount or according to criteria determined
by the Board of Directors as reasonable under the circumstances, and such undertaking
shall detail the abovementioned foreseen events and amount or criteria.
|
|
·
|
reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder as
a result of an investigation or proceeding instituted against him or her by an authority
authorized to conduct such investigation or proceeding, provided that (1) no indictment
was filed against such office holder as a result of such investigation or proceeding
and (2)(i) no financial liability, such as a criminal penalty, was imposed upon
him or her as a substitute for the criminal proceeding as a result of such investigation
or proceeding or, (ii) if such financial liability was imposed, it was imposed with respect
to an offense that does not require proof of criminal intent or as a monetary sanction;
|
|
·
|
reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder or
imposed by a court in proceedings instituted against him or her by the company, on its
behalf or by a third party or in connection with criminal proceedings in which the office
holder was acquitted or as a result of a conviction for a crime that does not require
proof of criminal intent; and
|
|
·
|
expenses,
including reasonable litigation expenses and legal fees, incurred by an office holder
in relation to an administrative proceeding instituted against such office holder, or
certain compensation payments required to be made to an injured party, pursuant to certain
provisions of the Israeli Securities Law.
|
Under the Companies Law, a company may
insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder if and
to the extent provided in the company’s articles of association:
|
·
|
a
breach of duty of loyalty to the company, provided that the office holder acted in good
faith and had a reasonable basis to believe that the act would not harm the company;
|
|
·
|
a
breach of duty of care to the company or to a third party, including a breach arising
out of the negligent conduct of an officer; and
|
|
·
|
financial
liability imposed on the office holder in favor of a third party.
|
Without derogating from the aforementioned,
subject to the provisions of the Companies Law and the Israeli Securities Law, we may, also enter into a contract to insure an
office holder, in respect of expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in
relation to an administrative proceeding instituted against such office holder or payment required to be made to an injured party,
pursuant to certain provisions of the Israeli Securities Law.
Nevertheless, under the Companies Law,
a company may not indemnify, exculpate or insure an office holder against any of the following:
|
·
|
a
breach of fiduciary duty, except for indemnification and insurance for a breach of the
duty of loyalty to the company in the event office holder acted in good faith and had
a reasonable basis to believe that the act would not prejudice the company;
|
|
·
|
a
breach of duty of care committed intentionally or recklessly, excluding a breach arising
out of the negligent conduct of the office holder;
|
|
·
|
an
act or omission committed with intent to derive unlawful personal benefit; or
|
|
·
|
a
fine, monetary sanction, penalty or forfeit levied against the office holder.
|
The Israeli Securities Law provides that
a company cannot obtain insurance against or indemnify a third party (including its officers and/or employees) for any administrative
procedure conducted by the Israeli Securities Authority and/or monetary fine (other than for certain legal expenses and payments
of damages to an injured party). The Israeli Securities Law permits insurance coverage and/or indemnification for certain liabilities
incurred in connection with an administrative procedure, such as reasonable legal fees and certain compensation payable to injured
parties for damages suffered by them, provided that such insurance and/or indemnification is permitted under the company’s
articles of association. Our amended and restated articles of association contain such a provision.
Under the Companies Law, exculpation, indemnification
and insurance of office holders require the approval of our Compensation Committee, our Board of Directors and, in certain circumstances,
by our shareholders.
Our amended and restated articles of association
permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted by the Companies Law and Israeli
Securities Law.
We have obtained directors’ and officers’
liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay all premiums
thereunder to the fullest extent permitted by the Companies Law, the Israeli Securities Law and our amended and restated articles
of association. In addition, we have entered into agreements with each of our office holders undertaking to indemnify them to
the fullest extent permitted by Israeli law, including with respect to liabilities resulting from this offering to the extent
that these liabilities are not covered by insurance. In the opinion of the SEC, however, indemnification of directors and office
holders for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, is against public policy
and therefore unenforceable.
It is our intention to include in our office
holders compensation policy to be brought for approval of the shareholders following the initial issuance of the securities hereunder
(and as required under the Companies Law) applicable provisions with respect to directors’ and officers’ liability
insurance for the benefit of our office holders, as well as with respect to indemnification of office holders.
Item 7.
|
Recent Sales of Unregistered
Securities
|
Set forth below are the
sales of all securities by the Company during the three years preceding this offering, which were not registered under the Securities
Act. We believe that each of such issuances was exempt from registration under the Securities Act in reliance on Section 4(a)(2)
of the Securities Act.
|
·
|
In
March 2016, in connection with a registered direct offering, we issued unregistered warrants
to purchase up to approximately 1.08 million Ordinary Shares with an exercise price of
$4.50. The warrants are initially exercisable six months following issuance and have
a term of five and one-half years following issuance. Roth Capital Partners and Rodman
& Renshaw, a unit of H.C. Wainwright & Co., acted as the exclusive placement
agents for this transaction.
|
|
·
|
From time to time we have issued options to purchase Ordinary
Shares under our 2013 Incentive Option Plan, as amended, or our 2013 Plan, for which we have not yet filed a registration
statement on Form S-8. In the past three years we have issued options to purchase an aggregate of 253,321 Ordinary Shares
under our 2013 Plan, with a weighted average exercise price of $1.65 per share, for which no registration statement has been
filed. We may in the future register the Ordinary Shares underlying these options.
|
Item 8.
|
Exhibits and Financial
Statement Schedules
|
Exhibits:
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
1.1*
|
|
Form of Underwriting Agreement by and among Bioblast Pharma Ltd. and the underwriters named therein.
|
3.1
|
|
Amended and Restated Articles of Association of the Company, filed as Exhibit 3.2 to Form F-1/A filed on July 8, 2014 (File No. 333-193824), and incorporated herein by reference.
|
4.1*
|
|
Form of Series A Warrant.
|
4.2*
|
|
Form of Pre-Funded Series B Warrant.
|
4.3
|
|
Form of Ordinary Share Purchase Warrant issued to investors on March 22, 2016, filed
as Exhibit 4.1 to Form 6-K filed on March 18, 2016 (File No. 001-36578), and incorporated herein by reference.
|
5.1*
|
|
Opinion of Zysman, Aharoni, Gayer & Co., Israeli counsel to Bioblast Pharma Ltd., as to the validity of the Ordinary Shares being offered (including consent).
|
5.2*
|
|
Form of Opinion of Zysman, Aharoni, Gayer and Sullivan & Worcester LLP, U.S. counsel to Bioblast Pharma Ltd.
|
10.1
|
|
Bioblast Pharma Ltd. 2013 Incentive Option Plan, as amended, filed as Exhibit 4.1 to Form 20-F filed on March 29, 2016 (File No. 001-36578), and incorporated herein by reference.
|
10.2
|
|
Bioblast Pharma Ltd. Compensation Policy for Company Office Holders, included in Exhibit 99.1 to Form 6-K filed on March 31, 2015 (File No. 001-36578), and incorporated herein by reference.
|
10.3
|
|
Form of Indemnification Agreement, filed as Exhibit 10.4 to Form F-1/A filed on April 8, 2014 (File No. 333-193824) and incorporated herein by reference.
|
23.1
|
|
Consent of Kost Forer Gabbay & Kasierer (a Member of EY Global).
|
23.2
|
|
Consent of Zysman, Aharoni, Gayer & Co. (included in Exhibit 5.1).
|
23.3
|
|
Consent of Zysman, Aharoni, Gayer and Sullivan & Worcester LLP (included in Exhibit 5.2).
|
24.1**
|
|
Power of Attorney (included on the signature page of the Registration Statement).
|
101
|
|
The following materials from our registration statement on Form F-1 formatted in XBRL
(eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations,
(iii) the Consolidated Statements of Changes in Shareholders' Equity, (iv) the Consolidated Statements of Cash Flows and (v)
the Consolidated Notes to Financial Statements, tagged as blocks of text and in detail.
|
|
*
|
To be filed by amendment.
|
|
**
|
Previously filed and filed again herewith with respect
to an additional director.
|
Financial Statement Schedules:
All financial statement schedules have
been omitted because either they are not required, are not applicable or the information required therein is otherwise set forth
in our financial statements and related notes thereto.
(a) The
undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each
purchaser.
(b) The
undersigned registrant hereby undertakes:
|
1.
|
To file, during
any period in which offers or sales are being made, a post-effective amendment to this
registration statement:
|
|
i.
|
to include any prospectus
required by section 10(a)(3) of the Securities Act;
|
ii. to
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
iii. To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
|
2.
|
That, for the purpose
of determining any liability under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
|
|
3.
|
To remove from registration
by means of a post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
|
|
4.
|
To file a post-effective
amendment to the registration statement to include any financial statements required
by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous
offering. Financial statements and information otherwise required by Section 10(a)(3)
of the Act need not be furnished, provided that the registrant includes in the prospectus,
by means of a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other information
in the prospectus is at least as current as the date of those financial statements.
|
|
5.
|
That, for the purpose
of determining liability under the Securities Act to any purchaser, each prospectus filed
by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration
statement as of the date the filed prospectus was deemed part of and included in the
registration statement; and each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating
to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing
the information required by section 10(a) of the Securities Act of 1933 shall be deemed
to be part of and included in the registration statement as of the earlier of the date
such form of prospectus is first used after effectiveness or the date of the first contract
of sale of securities in the offering described in the prospectus. As provided in Rule
430B, for liability purposes of the issuer and any person that is at that date an underwriter,
such date shall be deemed to be a new effective date of the registration statement relating
to the securities in the registration statement to which that prospectus relates, and
the offering of such securities at that time shall be deemed to be the initial bona fide
offering thereof. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated
or deemed incorporated by reference into the registration statement or prospectus that
is part of the registration statement will, as to a purchaser with a time of contract
of sale prior to such effective date, supersede or modify any statement that was made
in the registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such effective date.
|
|
6.
|
That, for the purpose
of determining liability of the registrant under the Securities Act of 1933 to any purchaser
in the initial distribution of the securities: The undersigned registrant undertakes
that in a primary offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell the securities
to the purchaser, if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
i.
|
Any preliminary prospectus
or prospectus of the undersigned registrant relating to the offering required to be filed
pursuant to Rule 424;
|
|
ii.
|
Any free writing prospectus
relating to the offering prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
|
|
iii.
|
The portion of any
other free writing prospectus relating to the offering containing material information
about the undersigned registrant or its securities provided by or on behalf of the undersigned
registrant; and
|
|
iv.
|
Any other communication
that is an offer in the offering made by the undersigned registrant to the purchaser.
|
|
(c)
|
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers
and controlling persons of the registrant pursuant to the provisions described in Item 6
hereof, or otherwise, the registrant has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such issue.
|
|
(d)
|
The undersigned
registrant hereby undertakes that:
|
|
1.
|
For purposes of determining
any liability under the Securities Act, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4),
or 497(h) under the Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
|
|
2.
|
For the purpose of
determining any liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial
bona fide
offering thereof.
|
SIGNATURES
Pursuant to the requirements of the
Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing
on Form F-1 and has duly caused this registration statement on Form F-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in Tel Aviv, Israel on April 4, 2017.
|
|
BIOBLAST PHARMA LTD.
|
|
|
|
|
By:
|
/s/ Fredric
Price
|
|
|
Fredric Price,
|
|
|
Executive Chairman of the Board of Directors and Chief Executive Officer
|
POWER
OF ATTORNEY
Director Ron Nussbaum of Bioblast Pharma
Ltd. hereby constitutes and appoints Fredric Price and Chaime Orlev and each of them singly, with full power of substitution,
my true and lawful attorneys-in-fact and agents to take any actions to enable Bioblast Pharma Ltd. to comply with the Securities
Act, and any rules, regulations and requirements of the SEC, in connection with this registration statement on Form F-1, including
the power and authority to sign for me in my name in the capacities indicated below any and all further amendments to this registration
statement and any other registration statement filed pursuant to the provisions of Rule 462 under the Securities Act.
Pursuant to the requirements of the Securities
Act, this registration statement on Form F-1 has been signed by the following persons in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Fredric Price
|
|
Executive Chairman of the Board of Directors, Chief Executive
Officer
|
|
April 4, 2017
|
Fredric Price
|
|
|
|
|
|
|
|
|
|
/s/ Chaime Orlev
|
|
Chief Financial Officer, Vice President of Finance and Administration
|
|
April 4, 2017
|
Chaime Orlev
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/s/ *
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Director
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April 4, 2017
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Michael Burshtine
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/s/ *
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Director
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April 4, 2017
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Thomas I.H. Dubin
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/s/ *
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Director
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April 4, 2017
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Colin Foster
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/s/ *
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Director
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April 4, 2017
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Robert Friedman
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/s/ *
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Director
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April 4, 2017
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Marlene Haffner
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/s/ *
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Director
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April 4, 2017
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Dr. Dalia Megiddo
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/s/ Ran Nussbaum
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April 4, 2017
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Ran Nussbaum
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Director
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/s/ *
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Director
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April 4, 2017
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Dr. Ralf Rosskamp
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*By:
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/s/ Fredric Price
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Fredric Price
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Attorney-in-fact
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SIGNATURE
OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act, as amended,
the undersigned, Zysman, Aharoni, Gayer and Sullivan & Worcester LLP, the duly authorized representative in the United States
of Bioblast Pharma Ltd. has signed this registration statement on April 4, 2017.
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/s/ ZYSMAN, AHARONI, GAYER
AND
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SULLIVAN & WORCESTER LLP
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