Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-215037
PROSPECTUS
SUPPLEMENT
(to
Prospectus dated December 14, 2016)
2,431,746
American Depositary Shares Representing 48,634,920 Ordinary Shares
Kitov
Pharmaceuticals Holdings Ltd.
We are offering 2,431,746 American
Depositary Shares (“ADSs”) representing 48,634,920 of our ordinary shares, no par value (“Ordinary Shares”).
Each ADS represents 20 Ordinary Shares. In a concurrent private placement, we are selling to such investors warrants to purchase
up to 1,215,873 ADSs (the "Warrants"). The Warrants and the ordinary shares issuable upon the exercise of the Warrants
are not being registered under the Securities Act of 1933, as amended, (the "Securities Act"), are not being offered
pursuant to this prospectus supplement and are being offered pursuant to the exemption provided in Section 4(a)(2) under the
Securities Act and Rule 506(b) promulgated thereunder and Regulation S under the Securities Act.
The ADSs are listed on The NASDAQ Capital
Market (“NASDAQ”) under the symbol “KTOV.” The Warrants being issued in the concurrent private placement
are not listed on any securities exchange and we do not expect to list the Warrants on any national securities exchange or other
trading market. On July 12, 2017, the last reported sale price of our ADSs on NASDAQ was $1.29 per ADS. Our Ordinary Shares
are also listed on the Tel Aviv Stock Exchange (the “TASE”) under the symbol “KTOV.” On July 11, 2017,
the last reported sale price of our Ordinary Shares on the TASE was NIS 0.24, or $0.067 per Ordinary Share (based on the exchange
rate reported by the Bank of Israel on such date).
We
are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such,
we have elected to comply with certain reduced public company reporting requirements for this prospectus and may elect to comply
with certain reduced public company reporting requirements for future filings.
Pursuant to General Instruction I.B.5
of Form F-3, the aggregate market value of our outstanding ordinary shares held by non-affiliates on July 11, 2017 was
approximately $10.89 million based on 162,291,571 ordinary shares outstanding and held by non-affiliates. We have not offered
any securities pursuant to General Instruction I.B.5 of Form F-3 during the 12 calendar months prior to the date of this
prospectus supplement.
Investing
in these securities involves a high degree of risk. Please read “Risk Factors” beginning on page S-9 of this
prospectus supplement, on page 7 of the accompanying prospectus and in the documents incorporated by reference into this
prospectus supplement.
None
of the United States Securities and Exchange Commission, the Israeli Securities Authority, any state securities commission or
any other regulatory body, has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus
supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.
We have retained H.C. Wainwright &
Co., LLC to act as our exclusive placement agent. The placement agent has agreed to use its “reasonable best efforts”
to arrange for the sale of the securities offered by this prospectus supplement. The placement agent has no obligation to buy
any of the securities from us or to arrange for the purchase or sale of any specific number or dollar amount of the securities.
There is no required minimum number of securities that must be sold as a condition to completion of this offering. We have
agreed to pay the placement agent fees set forth in the table below, which assumes that we sell all of the securities we are offering.
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PER ADS
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TOTAL
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Offering price
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$
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1.45
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$
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3,526,032
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Placement agent fees (1)
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0.087
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211,562
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Proceeds to us, before expenses (2)
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$
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1.363
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$
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3,314,470
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(1)
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We
will pay the placement agent a cash commission fee equal to 6% of the aggregate gross proceeds to us from the sale of the
securities in the offering and a management fee equal to 1% of the aggregate gross proceeds. We will pay the placement agent
a non-accountable expense allowance of up to $35,000 and up to $40,000 for legal counsel fees and expenses and other
out-of-pocket expenses. In addition, we have agreed to issue to the placement agent unregistered warrants to
purchase up to 170,222 ADSs (which represents 7% of the aggregate number of ADSs sold in this offering) at an exercise
price of $1.8125 per ADS (which represents 125% of the offering price per ADS sold in this offering). See “Plan
of Distribution” on page S-55 of this prospectus supplement for more information regarding the placement
agent’s compensation.
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(2)
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Does
not include proceeds from the exercise of the Warrants in cash, if any.
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We
anticipate that delivery of the ADS will be made on or about July 14, 2017.
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Rodman &
Renshaw
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a
unit of H.C. Wainwright & Co.
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Prospectus
Supplement dated July 11, 2017.
Table
Of Contents
ABOUT
THIS PROSPECTUS SUPPLEMENT
You
should rely only on the information provided in this prospectus supplement and the accompanying prospectus, all information incorporated
by reference herein and therein, as well as the additional information described under “Incorporation by
Reference” on page S-59 of this prospectus supplement. We have not authorized anyone to provide you with different information.
If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the
accompanying prospectus do not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered
by this prospectus supplement and the accompanying prospectus in any jurisdiction where it is unlawful to make such offer or solicitation.
You should not assume that the information contained in this prospectus supplement or the accompanying prospectus, or any document
incorporated by reference in this prospectus supplement or the accompanying prospectus, is accurate as of any date other than
the date on the front cover of the applicable document. Neither the delivery of this prospectus supplement nor any distribution
of securities pursuant to this prospectus supplement shall, under any circumstances, create any implication that there has been
no change in the information set forth or incorporated by reference into this prospectus supplement or in our affairs since the
date of this prospectus supplement. Our business, financial condition, results of operations and prospects may have changed since
that date.
This
prospectus supplement and the accompanying prospectus are part of a registration statement (No. 333-215037) that we filed with
the Securities and Exchange Commission, or the SEC, using a “shelf” registration process. This document comprises
two parts. The first part is this prospectus supplement, which describes the specific terms of this offering and also adds to
and updates information contained in the accompanying prospectus and the documents incorporated by reference herein. The second
part, the accompanying prospectus, gives more general information, some of which may not apply to this offering. Generally, when
we refer to this prospectus, we are referring to both parts of this document combined. If the description of the offering varies
between this prospectus supplement and the accompanying prospectus or the documents incorporated herein by reference filed prior
to the date of this prospectus supplement, you should rely on the information contained in this prospectus supplement. However,
if any statement in one of these documents is inconsistent with a statement in another document having a later date — for
example, a document incorporated by reference in the accompanying prospectus — the statement in the document having the
later date modifies or supersedes the earlier statement.
Before
purchasing any securities, you should carefully read both this prospectus supplement and the accompanying prospectus, together
with the additional information described under the headings, “Where You Can Find More Information” and “Incorporation by Reference,” on
page S-59 of
this prospectus supplement.
Unless
the context otherwise requires, all references to:
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the
terms “Company,” “we,” “us,” “our,” and
similar designations refer to Kitov Pharmaceuticals Holdings Ltd., together with its
wholly-owned subsidiary, Kitov Pharmaceuticals, and its majority owned subsidiary, TyrNovo
except where otherwise stated or where it is clear that the terms mean only Kitov Pharmaceuticals
Holdings Ltd. exclusive of its subsidiaries,
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“Kitov”
refers to the Registrant, together with its wholly-owned subsidiary, Kitov Pharmaceuticals,
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“Kitov
Parent”, refers to the Registrant, exclusive of its subsidiaries,
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“Kitov
Pharmaceuticals” refers to Kitov Pharmaceuticals Ltd., the wholly owned subsidiary
of the Registrant,
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“TyrNovo”
refers to TyrNovo Ltd., the majority owned subsidiary of the Registrant,
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the
terms “shekels”, “Israeli shekels” and “NIS” refer
to New Israeli Shekels, the lawful currency of the State of Israel,
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the
terms “dollar”, “US$” or “$” refer to U.S. dollars,
the lawful currency of the United States of America,
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“ordinary
shares,” “our shares” and similar expressions refer to the Registrant’s
Ordinary Shares, no par value per share, and
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“ADS”
refer to the Registrant’s American Depositary Shares.
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“public
warrants” or “Series A warrants” refer to the Registrant’s warrants
listed on NASDAQ under the symbol KTOVW,
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the
“Companies Law” are to Israel’s Companies Law, 5759-1999, as amended,
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the
“SEC” are to the United States Securities and Exchange Commission,
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“NASDAQ”
are to the NASDAQ Capital Market, and
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the
“TASE” are to the Tel Aviv Stock Exchange.
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Glossary of Industry
Terms
Additionally, for convenience, the following
terms used in this prospectus supplement are defined as follows:
“
CMC
”
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Chemistry Manufacturing and Controls
– The methods by which a drug substance and product are synthesized, purified, assayed, and packaged.
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“
cGMP
”
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Current Good Manufacturing Practice
- minimum requirements of the FDA and other regulatory authorities for the methods, facilities, and controls used in the manufacturing, processing, and packing of a drug product that is intended for human use to ensure that the product is safe for use and has the ingredients and strength that it claims to have.
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“FDA”
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United States Food and Drug Administration.
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“
IND
”
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Investigational New Drug
(Application) – an application to test an experimental drug in human beings and that requires clearance by the FDA for clinical trials to be initiated.
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“NCE”
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New Chemical Entity
- a drug that contains no active moiety that has been approved by the FDA in any other application submitted under section 505(b) of the Federal Food, Drug, and Cosmetic Act.
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“NDA”
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New Drug Application -
an application submitted to the FDA to approve marketing a new drug.
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“PDX”
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An animal model in which patient-derived tumor tissue at low passage are implanted in animals, used to conserve original tumor characteristics and to provide relevant predictive insights into clinical outcomes when evaluating new cancer therapies.
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“PK”
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The study of the absorption, distribution, metabolism and excretion of a drug from the body; the pharmacokinetic indices provide, among other things, information on the extent and time of the patient’s exposure to the material. It is the study of how the body affects the drug.
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We
further note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to any
document that is incorporated by reference herein were made solely for the benefit of the parties to such agreement, including,
in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation,
warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made.
Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state
of our affairs.
We are offering to sell, and seeking offers to buy, ADSs representing our Ordinary Shares only in jurisdictions
where offers and sales are permitted. The distribution of this prospectus supplement and the accompanying prospectus and the offering
of the ADSs in certain jurisdictions may be restricted by law. Persons outside the U.S. who come into possession of this prospectus
supplement and the accompanying prospectus must inform themselves about, and observe any restrictions relating to, the offering
of the ADSs and the distribution of this prospectus supplement and the accompanying prospectus outside the U.S. This prospectus
supplement do not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy,
any securities offered by this prospectus supplement by any person in any jurisdiction in which it is unlawful for such person
to make such an offer or solicitation.
PROSPECTUS
SUPPLEMENT SUMMARY
This
summary highlights selected information about us, this offering and information contained in greater detail elsewhere in this
prospectus supplement, the accompanying prospectus, and in the documents incorporated by reference. This summary is not complete
and does not contain all of the information that you should consider before investing in our ADSs. You should carefully read and
consider this entire prospectus supplement, the accompanying prospectus and the documents, including financial statements and
related notes, and information incorporated by reference into this prospectus supplement, including the financial statements and
“Risk Factors” starting
on page S-9 of
this prospectus supplement,
before making an investment decision. If you invest in our securities, you are assuming a high degree of risk.
Overview
We
are a development stage biopharmaceutical company currently focused on the development of:
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(i)
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KIT-302,
a combination drug for the simultaneous treatment of two clinical conditions: pain caused by osteoarthritis and hypertension
(high blood pressure), which can be pre-existing or caused by the treatment for osteoarthritis; and
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(ii)
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NT219,
a small molecule that uniquely targets two pathways highly involved in cancer drug resistance.
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In
the past, we had an additional combination drug in our pipeline, KIT-301, for which we had an active IND. Kitov Parent’s
board of directors, following the recommendation of its science & technology committee recently determined not to continue
the further development of KIT-301. In the board’s view, KIT-301 can be categorized as an inferior earlier generation combination
drug, as compared to KIT-302, and taking into account the progress we have made with KIT-302’s development and in preparing
our anticipated NDA, to be submitted to the FDA, for KIT-302, the board determined to remove KIT-301 from our development pipeline,
and has directed management to update the FDA about such discontinuation of development of KIT-301.
In
addition, we may consider the acquisition of therapeutic candidates at various stages of development in various therapeutic areas
or currently approved drug products. We currently have no binding agreements or commitments to complete any transaction for the
possible acquisition of new therapeutic candidates or approved drug products. There is no certainty that we will be able to complete
any additional transactions for the possible acquisition of new therapeutic candidates or approved drug products. We may not be
able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully. In this regard,
acquisitions involve numerous risks, including difficulties in the integration of the acquired therapeutic candidates and the
diversion of management’s attention from other business concerns. Although we will endeavor to evaluate the risks inherent
in any particular transaction, there can be no assurance that we will properly ascertain all such risks. In addition, acquisitions
could result in the incurrence of substantial additional indebtedness and other expenses or in potentially dilutive issuances
of equity securities. There can be no assurance that difficulties encountered with acquisitions will not have a material adverse
effect on our business, financial condition and results of operations.
We
intend to seek FDA approval for the commercialization of our therapeutic candidates, and where applicable through the Section
505(b)(2) regulatory path under the Federal Food, Drug, and Cosmetic Act of 1938, as amended. Where applicable, we also intend
to seek corresponding regulatory paths for approval in other foreign jurisdictions. Our current pipeline consists of two therapeutic
candidates: (i) KIT-302, which has recently successfully completed its Phase III clinical trial and which will be subject to review
and approval by the FDA, upon filing a completed 505(b)(2) NDA and (ii) NT219, which is in a preclinical stage but will likely
be subject to review and approval by the FDA upon filing a completed 505(b)(1) NDA, if at all. Upon and subject to receipt of
the requisite approvals, we intend to commercialize our therapeutic candidates through licensing and other commercialization arrangements
with pharmaceutical companies on a global and/or territorial basis. We may also evaluate, on a case by case basis, co-development
and similar arrangements, as well as independent commercialization of our therapeutic candidates.
Our
competitive strengths
The
pharmaceutical market is characterized by large international pharmaceutical companies that develop a wide range of products,
both generic and NCEs, which operate alongside smaller companies, such as ours, that develop a specific drug or a combination
of drugs. Therefore, many small companies enter into agreements with such global companies during the drug development stage in
order to continue the development or marketing of the drug, taking advantage of the financial, marketing and/or other resources
available to such global companies. At the same time, the global companies tend to enter into agreements with smaller companies
in order to save development time and resources. The global drug sector is a highly developed market with a turnover of hundreds
of billions of U.S. dollars and intense competition. Most of the drugs we intend to develop have or are expected to have competing
drugs or other therapies, developed at the same time by other companies and organizations. We are therefore exposed to competition
in our field of operation. Although we believe our therapeutic candidates have advantages which our competitors’ products
lack, there is a constant risk in the drug development field that a competing party will complete the development stages before
we are able to develop our therapeutic candidates intended for the same disease. Moreover, a constant threat in our market is
presented by new drugs that have already completed all the development stages and have already entered the market and are competing
with the treatments and drugs previously available on the market.
We
believe there are several advantages to the therapeutic candidates we are developing, such as:
For
KIT-302
:
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providing
a solution to the concerns of physicians who avoid prescribing an NSAID treatment for
pain caused by osteoarthritis due to its cardiovascular side effects;
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reassuring
physicians who are concerned that their patients who are treated for osteoarthritis will
also be treated for hypertension, which is a known side effect of NSAID treatments for
pain caused by osteoarthritis. This is a particular concern, as hypertension is usually
not accompanied by tangible symptoms, and therefore patients may not be aware of their
condition or the need to treat it;
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using
one drug that also includes an active ingredient that treats hypertension either as an
existing condition or as a side effect of using other drugs, ensures that the patient
receives the suitable treatment for their disease and for its side effect;
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purchasing
one drug as opposed to purchasing two separate drugs may lead to financial savings for
patients in the U.S. by requiring payment of just one co-payment and prescription fee
as opposed to a double co-payment and prescription fee. In addition, the use of one combination
drug reduces the patient’s discretion with respect to whether to purchase and use
only one of the drugs and provides a comprehensive dual medical treatment in one combined
drug; and
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using
calcium channel blockers in our therapeutic candidates as an antihypertensive. Calcium
channel blockers are not included in the FDA Safety Information Release for NSAIDs co-administered
with angiotensin converting enzyme inhibitors, or ACE inhibitors, or with angiotensin
II receptor antagonists.
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In
addition to the aforementioned medical and economic advantages of KIT-302, we believe that KIT-302 has several commercial advantages,
such as reduced development time compared to the development time of new chemical entities (NCEs) and decreased risk factors in
the development process. These commercial advantages derive from the fact that combination drugs are based on known materials
already approved for use by the FDA. The FDA offers a shortened regulatory procedure referred to as a “505(b)(2) NDA”
to approve combination drugs. This procedure may be used to file a request to approve a product that relies on the results of
the safety and effectiveness trials performed for the components of the combination in the past by others and not by the submitters
of the request for approval. Accordingly, the approval process in a 505(b)(2) NDA is shorter and less expensive compared to the
approval process for NCEs. In addition, the use of known, proven and safe components recognized by physicians and medical organizations,
and the enhanced medical effect of concurrently treating and preventing hypertension, may shorten the time and decrease the costs
usually required for the acceptance of the new product in the drug marketplace.
For
NT219
:
NT219
is a small molecule, and small molecules typically are less expensive to develop and have less onerous CMC as compared to large
proteins or antibodies. In addition, NT219 has the potentially advantageous effect of:
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overcoming
drug resistance acquired by cancer; and
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working
in combination with multiple approved cancer therapies.
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Our
strategy
Our
goal is to become a significant player in the development of innovative chemical drugs with a clinical and commercial added value.
Key elements of our strategy are to:
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develop
our therapeutic candidates with clinical and commercial advantages and obtain approval thereof from the FDA and other foreign
regulatory authorities;
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expand
our line of therapeutic candidates through the acquisition or in-licensing of technologies, products and drugs intended to
meet clinical needs, thereby utilizing the skills, knowledge and experience of our personnel to develop and enhance the value
of additional products, and bring them to market efficiently;
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capitalize
on the FDA’s 505(b)(2) regulatory pathway, or other pathways that simplify the road to an NDA submission, to obtain
more timely and efficient approval of our formulations of previously approved products, when applicable;
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cooperate with third parties to both develop and commercialize therapeutic candidates in order to share costs and leverage the expertise of others; and
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enter into sub-license agreements with international companies for potential or future therapeutic candidates based on potential upfront and milestone payments, royalties and/or other marketing arrangements, depending on product and market conditions.
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Recent
Developments
Update
on NDA for KIT-302
On
June 26, 2017, we announced that we have begun the process of digitizing our New Drug Application (NDA) for KIT-302, our lead
drug candidate, through Parexel International Corporation, a clinical research organization, which has been engaged by us for
the preparation of the NDA into the standard, accepted electronic format of the U.S. Food and Drug Administration (FDA). In accordance
with the FDA’s usual practice, within 60 days of its receipt of the electronic submission of the complete set of NDA modules,
the FDA is expected to determine whether the NDA is complete and acceptable for filing. As such, we expect that the formal filing
of the NDA by the FDA will occur by the end of the third quarter of 2017.
Acquisition
of TyrNovo
In
January 2017, we acquired a majority of the shares in TyrNovo, a privately held Israeli developer of novel small molecules in
the oncology therapeutic field. TyrNovo has developed NT219, a small molecule that presents what we believe to be a new concept
in cancer therapy by affecting two key oncology-related mechanisms, Insulin Receptor Substrates (IRS) 1 and 2, as well as the
signal transducer and activator of transcription 3 (STAT3). In
in-vivo
pre-clinical trials in PDX models, NT219, administered
concomitantly with several approved oncology drugs, displayed potent anti-tumor effects in various cancers by preventing the tumors
from developing resistance to the approved drug treatments and re-sensitizing tumors to the approved drugs even after resistance
is acquired.
Corporate
information
Kitov
Holdings was incorporated under the laws of the State of Israel (under a previous name) on August 12, 1968 and its ordinary shares
were originally listed for trading on the TASE in 1978. In November 2015, we completed an initial public offering of our ADSs
and Series A warrants on NASDAQ. Our principal executive offices are located at One Azrieli Center, Round Tower,
23
rd
Floor, 132 Menachem Begin Road, Tel Aviv 6701101, Israel, and our telephone number is 972-3-933-3121. Our website
is
www.kitovpharma.com.
The information contained therein or connected thereto shall not be deemed to be incorporated into
this prospectus supplement and the accompanying prospectus.
THE
OFFERING
ADSs
offered by us in the offering
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2,431,746
ADSs representing 48,634,920 Ordinary Shares
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Total
Ordinary Shares outstanding immediately after this offering
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10,658,232 ADSs.
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The
ADSs
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Each
ADS represents 20 Ordinary Shares. The ADSs initially will be evidenced by American Depositary Receipts (“ADRs”),
executed and delivered by The Bank of New York Mellon, as depositary (the “Depositary”).
The
Depositary, as depositary, will be the holder of the Ordinary Shares underlying your ADSs and you will have rights as
provided in the Deposit Agreement dated as of November 25, 2015, among us, The Bank of New York Mellon, as Depositary,
and all owners and holders from time to time of ADSs issued thereunder (the “Deposit Agreement”), a form of
which has been filed as Exhibit 1 to the Registration Statement on Form F-6 filed by the Depositary with the SEC on November
6, 2015.
Subject
to compliance with the relevant requirements set out in the prospectus, you may turn in your ADSs to the Depositary in
exchange for Ordinary Shares underlying your ADSs.
The
Depositary will charge you fees for such exchanges pursuant to the Deposit Agreement.
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Offering
Price
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The
offering price is $1.45 per one ADS.
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Use
of Proceeds
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We
intend to use the net proceeds of this offering to fund the possible acquisition of new therapeutic candidates and for
general working capital purposes. We currently have no binding agreements or commitments to complete any transaction
for the possible acquisition of new therapeutic candidates, though we are currently exploring possible candidates.
See
“Use of Proceeds” for additional information.
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Listing
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Our ADSs are listed on NASDAQ under the symbol “KTOV” and our Ordinary Shares currently trade
on the TASE in Israel under the symbol “KTOV”. The Warrants being issued in the concurrent private placement are not
listed on any securities exchange and we do not expect to list the Warrants, and we do not expect a market to develop. In addition,
we do not intend to list the warrants on NASDAQ, the TASE or any other national securities exchange or any other recognized trading
system.
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Risk
factors
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Before
deciding to invest in our ADSs, you should carefully consider the risks related to our business, the offering and our securities,
and our location in Israel. See “Risk Factors” on
page S-9 of this
prospectus supplement.
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Concurrent
private placement
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In
a concurrent private placement, we are selling to the purchasers of our ADSs in this offering warrants to purchase one-half
the number of the ADSs purchased by such investors in this offering, or up to 1,215,873 ADSs. We will receive gross proceeds
from the concurrent private placement transaction solely to the extent such warrants are exercised for cash. The warrants
will be exercisable on the six month anniversary of the issuance date at an exercise price of $1.50 per ADS and will expire
five years from the date on which first exercisable. The warrants and the ADSs issuable upon the exercise of the warrants
are not being offered pursuant to this prospectus supplement and are being offered pursuant to the exemption provided in Section 4(a)(2)
under the Securities Act and Rule 506(b) promulgated thereunder and Regulation S under the Securities Act. See "Concurrent
Private Placement of Warrants."
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Dividend
Policy
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We
have never declared or paid any cash dividends to our shareholders, and we currently do not expect to declare or pay any cash
dividends in the foreseeable future. See “Dividend Policy.”
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Depositary
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The
Bank of New York Mellon.
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The
number of ADSs to be outstanding after this offering excludes:
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9,750,130
ordinary shares issuable at a weighted average exercise price of NIS 0.98 (approximately $0.28) per share issuable to holders
of our options issued, as applicable, under our 2013 Option Plan, as amended, or our 2016 Equity Incentive Plan, (such number
of ordinary shares would be represented by 487,506 of our ADSs);
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142,695,863
ordinary shares underlying the ADSs issuable upon exercise of the Series A warrants and the representative's warrants issued
in our initial public offering, and the Series A warrants and the placement agent warrants issued as part of our
offering in July 2016 (such number of ordinary shares would be represented by 7,134,790 of our ADSs); and
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24,317,460
ordinary shares underlying ADSs issuable upon exercise of the warrants issued in connection with the concurrent private placement
and 3,404,440 ordinary shares underlying ADSs issuable upon exercise of placement agent warrants issued as part of that offering.
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Unless
otherwise stated, outstanding share information throughout this prospectus supplement excludes such outstanding securities.
RISK
FACTORS
You
should carefully consider the risks described below and in our annual report on Form 20-F for the year ended December 31,
2016, as well as the other information included or incorporated by reference in this prospectus supplement, including our financial
statements and the related notes, before you decide to buy our securities. The risks and uncertainties described below and incorporated
by reference in this prospectus supplement are not the only risks facing us. We may face additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial. Any of the risks described below or incorporated by reference
in this prospectus supplement, and any such additional risks, could materially adversely affect our business, financial condition
or results of operations. In such case, you may lose all or part of your original investment.
Risks
Related to Our Financial Condition and Capital Requirements
We
are a development stage biopharmaceutical company with a history of operating losses. We expect to incur significant additional
losses in the future and may never be profitable.
We
are a development stage biopharmaceutical company, and we are focused on the development of innovative pharmaceutical products.
Our current therapeutic candidates are in the preclinical and clinical development stages, and have not been approved for marketing
and are not being sold, marketed or commercialized. Our therapeutic candidates may require additional preclinical and/or clinical
trials or other testing before we can obtain regulatory approval, if we are able to obtain regulatory approval at all. We must
have regulatory approval for each product that we develop before we can sell such product. We have incurred losses from commencement
of our pharmaceutical research and development activities through December 31, 2016 of approximately $26.2 million as a result
of research and development activities, clinical trial related activities, investment/acquisition activities, listing for trading
and fund raising related activities, general administrative and other expenses. We may incur significant additional losses as
we continue to focus our resources on advancing our therapeutic candidates, including those we may acquire. Our ability to generate
revenue and achieve profitability depends mainly upon our ability, alone or with others, to successfully develop our therapeutic
candidates and obtain the required regulatory approvals in various territories and then commercialize our therapeutic candidates.
We may be unable to achieve any or all of these goals with regard to our therapeutic candidates. As a result, we may never be
profitable or achieve significant or sustained revenues.
Our
limited operating history as a pharmaceutical research and development company makes it difficult to evaluate our business and
prospects.
We
have a limited operating history as a pharmaceutical research and development company, and our operations to date have been limited
primarily to acquiring therapeutic candidates, research and development, raising capital and recruiting scientific and management
personnel and third party partners. We have not yet demonstrated an ability to commercialize or obtain regulatory approval for
any of our therapeutic candidates. Consequently, any predictions about our future performance may not be accurate, and you may
not be able to fully assess our ability to complete development or commercialize our therapeutic candidates, obtain regulatory
approvals, or achieve market acceptance or favorable pricing for our therapeutic candidates.
We
will need to raise additional capital to achieve our strategic objectives of developing and commercializing additional therapeutic
candidates, and our failure to raise sufficient capital would significantly impair our ability to fund our future operations,
develop our therapeutic candidates, seek regulatory approval that is a prerequisite to selling any product, attract development
or commercial partners and retain key personnel.
Our
business presently generates no revenues, and we plan to continue expending substantial funds in research and development, including
CMC, preclinical and clinical trials. We plan to fund our future operations through commercialization and out-licensing of our
therapeutic candidates and either debt or equity financing. However, we cannot be certain that we will be able to raise capital
on commercially reasonable terms or at all, or that our actual cash requirements will not be greater than anticipated. We may
have difficulty raising needed capital or securing a development or commercialization partner in the future as a result of, among
other factors, our lack of revenues from commercialization of the therapeutic candidates, as well as the inherent business risks
associated with our company and present and future market conditions. In addition, global and local economic and geopolitical
conditions may make it more difficult for us to raise needed capital or secure a development or commercialization partner in the
future and may impact our liquidity. If we are unable to obtain future financing, we may be forced to delay, reduce the scope
of, or eliminate one or more of our research, development or commercialization programs related to our therapeutic candidates,
any of which may have a material adverse effect on our business, financial condition and results of operations. Moreover, to the
extent we are able to raise capital through the issuance of debt or equity securities, it could result in substantial dilution
to existing shareholders.
Our
long term capital requirements are uncertain and subject to numerous risks.
We
estimate that so long as no significant revenues are generated from our therapeutic candidates, we will need to raise substantial
additional funds to acquire, develop and/or commercialize our current therapeutic candidates and any additional therapeutic candidates,
as our current cash and short-term investments are not sufficient to complete the research and development of our current therapeutic
candidates and any additional therapeutic candidates, and to fund our related expenses. Our long term capital requirements are
expected to depend on many potential factors, including, among others:
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the regulatory path of each of our therapeutic candidates;
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our
ability to successfully complete the required CMC development for our therapeutic candidates;
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our
ability to successfully commercialize our therapeutic candidates, including securing commercialization agreements with third
parties and favorable pricing and market share;
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the
progress, success and cost of our preclinical and/or clinical trials and research and development programs;
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the
costs, timing and outcome of regulatory review and obtaining regulatory approval of our therapeutic candidates and addressing
regulatory and other issues that may arise post-approval;
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the
costs of obtaining and enforcing our issued patents and defending intellectual property-related claims;
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the
costs of developing sales, marketing and distribution channels; and
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our
consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner
than anticipated.
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If
we are unable to obtain approval, commercialize or out-license our therapeutic candidates or obtain future financing, we may be
forced to delay, reduce the scope of, or eliminate one or more of our research and development programs related to the therapeutic
candidates, which may have a material adverse effect on our business, financial condition and results of operations.
Risks
Related to Our Business and Regulatory Matters
If
we and/or our potential commercialization partners are unable to obtain FDA and/or other foreign regulatory authority approval
for our therapeutic candidates, we and/or our potential commercialization partners will be unable to commercialize our therapeutic
candidates.
To
date, we have not marketed, distributed or sold any therapeutic candidate or other product. We have entered into only one out-licensing
agreement for manufacturing and distribution of our KIT-302 therapeutic candidate in South Korea, which is dependent upon achieving
regulatory clearance for the therapeutic candidate in South Korea. Our therapeutic candidates are subject to extensive governmental
laws, regulations and guidelines relating to development, preclinical and clinical trials, manufacturing and commercialization
of drugs. We may not be able to obtain regulatory approval for any of our therapeutic candidates in a timely manner or at all.
Any
material delay in obtaining, or the failure to obtain, required regulatory approvals will increase our costs and materially and
adversely affect our ability to generate future revenues. Any regulatory approval to market a therapeutic candidate may be subject
to limitations on the indicated uses for marketing the therapeutic candidate or may impose restrictive conditions of use, including
cautionary information, thereby limiting the size of the market for the therapeutic candidate. We also are, and will be, subject
to numerous regulatory requirements from both the FDA and foreign state agencies that govern the conduct of preclinical and clinical
trials, manufacturing and marketing authorization, pricing and third-party reimbursement. Moreover, approval by one regulatory
authority does not ensure approval by other regulatory authorities in separate jurisdictions. Each jurisdiction may have different
approval processes and may impose additional testing requirements for our therapeutic candidates than other jurisdictions. For
example, even if the FDA grants its approval to market KIT-302 for certain indications of use, the South Korean regulatory authorities
may impose additional requirements or place other limitations on the indications for use in South Korea, before our licensee and
distributor in South Korea may commence manufacturing and selling KIT-302. Additionally, the FDA or other foreign regulatory bodies
may change their approval policies or adopt new laws, regulations or guidelines in a manner that delays or impairs our ability
to obtain the necessary regulatory approvals to commercialize our therapeutic candidates.
Pre-clinical,
CMC, and clinical trials may involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies
and trials may not be predictive of future trial results. We and/or our potential commercialization partners will not be able
to commercialize our therapeutic candidates without completing such trials.
We
have limited experience in conducting and managing the CMC, preclinical and clinical trials that are required to commence commercial
sales of our therapeutic candidates. CMC, preclinical and clinical trials are expensive, complex, can take many years to complete
and have uncertain outcomes. We cannot predict whether we, independently or through third parties, will encounter problems with
any of the completed, ongoing or planned CMC, preclinical and/or clinical trials that will cause delays, including suspension
of preclinical and/or clinical trials, delays in recruiting patients into the preclinical and/or clinical trials, or delay of
data analysis or release of the final report. The CMC, preclinical and clinical trials of our therapeutic candidates may take
significantly longer to complete than is estimated. Failure can occur at any stage of the testing, and we may experience numerous
unforeseen events during, or as a result of, the CMC, preclinical and/or clinical trial process that could delay or prevent commercialization
of our current or future therapeutic candidates.
In
connection with the CMC, preclinical and clinical trials for our therapeutic candidates and other therapeutic candidates that
we may seek to develop in the future, either on our own or through licensing or partnering agreements, we face various risks,
including but not limited to:
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delays
in manufacturing the drug substance and drug product for preclinical and clinical trials;
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delays
in manufacturing the drug substance and drug product following NDA approval, if we receive such approval all;
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delays
in securing clinical investigators or trial sites for clinical trials that must be completed for us to obtain any approval
that we seek;
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delays
in receiving import or other government approvals to ensure appropriate drug supply;
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delays
in obtaining institutional review board (human ethics committee) and other regulatory approvals to commence a clinical trial;
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negative
or inconclusive results from clinical trials;
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the
FDA or other foreign regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical
studies and may not approve initiation of certain clinical trials;
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an
inability to monitor patients adequately during or after treatment;
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problems
with investigator or patient compliance with the trial protocols;
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a
therapeutic candidate may not prove safe or efficacious;
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there
may be unexpected or even serious adverse events and side effects from the use of a therapeutic candidate;
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the
results with respect to any therapeutic candidate may not confirm the positive results from earlier preclinical studies or
clinical trials;
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the
results may not meet the level of statistical significance required by the FDA or other foreign regulatory authorities;
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the
results will leave only limited and/or restrictive uses, including the inclusion of warnings and contraindications, which
could significantly limit the marketability and profitability of the therapeutic candidate;
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the
clinical trials may be delayed or not completed due to the failure to recruit suitable candidates or if there is a lower rate
of suitable candidates than anticipated or if there is a delay in recruiting suitable candidates; and
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changes
to the current regulatory requirements related to clinical trials which can delay, hinder or lead to unexpected costs in connection
with our receiving the applicable regulatory approvals.
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A
number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience
than us, have suffered significant setbacks in advanced clinical trials, even after seeing promising results in earlier preclinical
and/or clinical trials. As such, we do not know whether any clinical trials we may conduct will demonstrate adequate efficacy
and safety sufficient to obtain regulatory approval to market our therapeutic candidates. If any of the preclinical and/or clinical
trials of any therapeutic candidate do not produce favorable results, our ability to obtain regulatory approval for the therapeutic
candidate may be adversely impacted, which will have a material adverse effect on our business, financial condition and results
of operations.
If
we do not establish collaborations for our therapeutic candidates or otherwise raise substantial additional capital, we will likely
need to alter our development and any commercialization plans.
Our
drug development programs and the potential commercialization of our therapeutic candidates will require additional cash to fund
expenses. As such, our strategy includes selectively partnering or collaborating with multiple pharmaceutical and biotechnology
companies to assist us in furthering development and potential commercialization of our therapeutic candidates, in some or all
jurisdictions. While we have entered into an out-licensing agreement for manufacturing and distribution of our KIT-302 therapeutic
candidate in South Korea, we may not be successful in collaborations with other third parties on acceptable terms, or at all.
In addition, if we fail to negotiate and maintain suitable development or commercialization agreements, we may have to limit the
size or scope of our activities or we may have to delay one or more of our development or commercialization programs. Any failure
to enter into or maintain development or commercialization agreements with respect to the development, marketing and commercialization
of any therapeutic candidate or failure to develop, market and commercialize such therapeutic candidate independently will have
an adverse effect on our business, financial condition and results of operation.
Any
collaborative arrangements that we establish may not be successful or we may otherwise not realize the anticipated benefits from
these collaborations. We do not control third parties with whom we have or may have collaborative arrangements, and we rely on
them to achieve results which may be significant to us. In addition, any future collaboration arrangements may place the development
and commercialization of our therapeutic candidates outside our control, may require us to relinquish important rights or may
otherwise be on terms unfavorable to us.
Our
collaborative arrangements require us to rely on external consultants, advisors, and experts for assistance in several key functions,
including preclinical and clinical development, manufacturing, regulatory, market research, and intellectual property. We do not
control these third parties, but we rely on them to achieve results, which may be significant to us. Additionally, we are responsible
for any quality or regulatory issue that a collaborator may have that affects one or more of our therapeutic candidates. Relying
upon collaborative arrangements to develop and commercialize our therapeutic candidates subjects us to a number of risks, including:
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we
may not be able to control the amount and timing of resources that our collaborators may devote to our therapeutic candidates;
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should
a collaborator fail to comply with applicable laws, rules, or regulations when performing services for us, we could be held
liable for such violations;
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our
collaborators may experience financial difficulties or changes in business focus;
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our
collaborators may experience quality or regulatory issues that negatively affect our therapeutic candidates;
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our
collaborators may fail to secure adequate commercial supplies of our therapeutic candidates upon marketing approval, if at
all;
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our
collaborators may have a shortage of qualified personnel;
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we
may be required to relinquish important rights, such as local trademark, marketing and distribution rights;
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business
combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s
willingness or ability to complete its obligations under any arrangement;
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under
certain circumstances, a collaborator could move forward with a competing therapeutic candidate developed either independently
or in collaboration with others, including our competitors; and
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collaborative
arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing
our therapeutic candidates.
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If
any of these scenarios materialize, they could have an adverse effect on our business, financial condition or results of operations.
Our
current business model is based largely upon the combination of drugs that have not been previously combined, as well as on new
chemical entities (NCEs) that have not yet been administered to humans. Unexpected difficulties or delays in successfully developing
or marketing such combination, and new drugs could have an adverse effect on our business, financial condition and results of
operations.
We
are currently focused on the combination of drugs that have not been previously combined as well as on new chemical entities that
have not yet been administered to humans. Since KIT-302 has APIs that have not previously been combined into one FDA-approved
drug product or used at all in a clinical setting outside the scope of a clinical trial, and our new chemical entity NT219 has
never been used in a clinical setting, we cannot be certain whether KIT-302 and/or NT219 will be safe and efficacious. In addition,
we cannot be certain that the market will consider our KIT-302 combination therapeutic candidate, our new chemical entity NT219,
or any other therapeutic candidate that we may develop in the future to be superior to the current gold standard of care or to
treatment with the separate drug components. Any delays in perfecting the combination, the production of the combination, or in
market acceptance of the combination or new chemical entities could have an adverse effect on our business, financial condition
and results of operations.
In addition, as part
of our strategy for growth, we may consider the acquisition of therapeutic candidates at various stages of development and in a
variety of therapeutic areas. For example, on January 13, 2017, we announced that we had acquired a controlling interest in TyrNovo
Ltd., a privately held Israeli developer of novel small molecules in the oncology therapeutic field. TyrNovo’s NT219 therapeutic
candidate is intended to work by overcoming tumors’ cancer drug resistance and is expected to be developed to be used in
combination with cancer drugs that are already approved and marketed
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For more information, see “Item 4.B. Business
Overview – NT219” in our Annual Report on Form 20-F for the year ended December 31, 2016. We may also consider the
acquisition or marketing rights of approved drug products as well. However, we may not be able to identify additional suitable
acquisition candidates, complete acquisitions or integrate acquisitions successfully. In this regard, acquisitions involve numerous
risks, including difficulties in the integration of the acquired therapeutic candidates and the diversion of management’s
attention from other business concerns. Although we will endeavor to evaluate the risks inherent in any particular transaction,
there can be no assurance that we will properly ascertain all such risks. In addition, acquisitions could result in the incurrence
of substantial additional indebtedness and other expenses or in potentially dilutive issuances of equity securities. There can
be no assurance that difficulties encountered with acquisitions will not have a material adverse effect on our business, financial
condition and results of operations.
We
rely on third parties to conduct our CMC, preclinical and clinical trials, and those third parties may not perform satisfactorily,
including, but not limited to, failing to meet established deadlines for the completion of such clinical trials.
We do not have the ability
independently to conduct CMC, preclinical or clinical trials for our product candidates, and we rely on third parties, such as
contract manufacturing organizations, contract research organizations, medical institutions, contract laboratories, current and
potential development or commercialization partners, clinical investigators and independent study monitors, to perform these functions.
Our reliance on these third parties for development activities reduces our control over these activities. For example on March
28, 2017, we announced that due to a delay in the provision of technical documentation from an external service provider, the Company’s
New Drug Application for KIT-302 for the FDA is now expected to be submitted to the FDA only later than initially anticipated by
the Company.
Furthermore,
these third parties may also have relationships with other entities, some of which may be our competitors. Although we have, in
the ordinary course of business, entered into agreements with these third parties, we continue to be responsible for confirming
that each of our preclinical and clinical trials is conducted in accordance with its general investigational plan and protocol.
Moreover, the FDA requires us to comply with regulations and standards, commonly referred to as good laboratory, manufacturing,
and clinical practices (GCP), for conducting, recording and reporting the results of preclinical and clinical trials to assure
that data and reported results are credible and accurate and that the clinical trial participants are adequately protected. Regulatory
authorities in other jurisdictions may have similar responsibilities and requirements. Our reliance on third parties does not
relieve us of these responsibilities and requirements.
To
date, we believe our contract manufacturing organizations, contract research organizations and other similar entities with which
we are working have generally performed well. However, if these third parties do not successfully carry out their contractual
duties or meet expected deadlines, we may be required to replace them. Although we believe that there are a number of other third-party
contractors we could engage to continue these activities, it may result in a delay of the affected trial and additional costs.
Accordingly, we may be delayed in obtaining regulatory approvals for our therapeutic candidates and may be delayed in our efforts
to successfully commercialize our therapeutic candidates for targeted diseases.
In
addition, we rely substantially on third-party data managers for the CMC, preclinical and clinical trial data that we present
to regulatory authorities in order to obtain marketing authorizations. Although we attempt to audit and control the quality of
third party data, we cannot guarantee the authenticity or accuracy of such data, nor can we be certain that such data has not
been fraudulently generated. There is no assurance that these third parties will pass FDA or regulatory audits, which could delay
or prohibit regulatory approval.
If
third parties do not manufacture our therapeutic candidates in sufficient quantities, in the required timeframe, and at an acceptable
cost, clinical development and commercialization of our therapeutic candidates would be delayed.
We
do not currently own or operate manufacturing facilities, and we rely, and expect to continue to rely, on third parties to manufacture
preclinical, clinical and commercial quantities of our therapeutic candidates. Our reliance on third parties includes our reliance
on them for quality assurance related to regulatory compliance. Our current and anticipated future reliance upon others for the
manufacture of our therapeutic candidates may adversely affect our future profit margins, if any, and our ability to develop therapeutic
candidates and commercialize any therapeutic candidates on a timely and competitive basis.
We
may not be able to maintain our existing or future third party manufacturing arrangements on acceptable terms, if at all. If for
some reason our existing or future manufacturers do not perform as agreed or expected, or our existing or future manufacturers
otherwise terminate their arrangements with us, we may be required to replace them. Although we are not substantially dependent
upon our existing manufacturing agreements since we could replace them with other third party manufacturers, we may incur added
costs and delays in identifying, engaging, qualifying and training any such replacements.
We
rely on third party contract vendors to manufacture and supply us with active pharmaceutical ingredients, or “APIs”,
compliant with the International Conference of Harmonization Q7 guidance and applicable law, in the quantities we require on a
timely basis
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We
currently do not manufacture any API ourselves. Instead, we rely on third-party vendors for the manufacture and supply of our
APIs that are used to formulate our therapeutic candidates. While there are many potential API suppliers in the market, if these
suppliers are incapable or unwilling to meet our current or future needs on acceptable terms or at all, we could experience delays
in conducting additional clinical trials of our therapeutic candidates and incur additional costs.
While
there may be several alternative suppliers of API in the market, we have not conducted extensive audits and investigations into
the quality or availability of their APIs. In addition we may acquire therapeutic candidates which already have long term commitments
to a specific API supplier. As a result, we can provide no assurances that supply sources will not be interrupted from time to
time. Changing API suppliers or finding and qualifying new API suppliers can be costly and take a significant amount of time.
Many APIs require significant lead time to manufacture. There can also be challenges in maintaining similar quality or technical
standards from one manufacturing batch to the next.
If
we are not able to find stable, reliable supplies of our APIs, we may not be able to produce enough supplies of our therapeutic
candidates, which could affect our business, financial condition and results of operation.
We
anticipate continued reliance on third-party manufacturers if we are successful in obtaining marketing approval from the FDA and
other regulatory agencies for any of our therapeutic candidates.
To
date, our therapeutic candidates have been manufactured in relatively small quantities by third-party manufacturers.
To
date, our third-party manufacturers have manufactured sufficient quantities of KIT-302 for formulation development, PK studies,
clinical trials, and the required large scale production in support of our NDA package that we intend to submit to the FDA for
the purposes of approving KIT-302 for marketing and commercial sale in the United States. We are also in discussions with third-party
manufacturers for the manufacture of cGMP-grade NT219. If the FDA or other regulatory agencies approve for marketing and commercial
sale, KIT-302 and/or any other therapeutic candidate that we may develop in the future, we expect that we would continue to rely,
at least initially, on third-party manufacturers to produce commercial quantities of our approved therapeutic candidates. These
manufacturers may not be able to successfully increase the manufacturing capacity for any of our therapeutic candidates that may
be approved in the future in a timely or economic manner, or at all. Significant scale-up of manufacturing may require additional
validation studies, which the FDA must review and approve. If they are unable to successfully increase the manufacturing capacity
for KIT-302 or any therapeutic candidate that we may develop in the future, or we are unable to establish alternative manufacturing
capabilities, the commercial launch of any therapeutic candidates that are approved in the future may be delayed or there may
be a shortage in supply.
We
and our third-party manufacturers are, and will be, subject to regulations of the FDA and other foreign regulatory authorities.
We
and our contract manufacturers are, and will be, required to adhere to laws, regulations and guidelines of the FDA and other foreign
regulatory authorities setting forth cGMPs. These laws, regulations and guidelines cover all aspects of the manufacturing, testing,
quality control and recordkeeping relating to our therapeutic candidates or drugs that may be approved in the future. We and our
manufacturers may not be able to comply with applicable laws, regulations and guidelines. We and our manufacturers are and will
be subject to unannounced inspections by the FDA, state regulators and similar foreign regulatory authorities outside the U.S.
Our failure, or the failure of our third-party manufacturers, to comply with applicable laws, regulations and guidelines could
result in the imposition of sanctions on us, including fines, injunctions, civil penalties, failure of regulatory authorities
to grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of our therapeutic candidates, operating restrictions and criminal prosecutions, any of which could significantly
and adversely affect regulatory approval and supplies of our therapeutic candidates and materially and adversely affect our business,
financial condition and results of operations.
Even
if we obtain regulatory approvals, our therapeutic candidates will be subject to ongoing regulatory review. If we fail to comply
with continuing U.S. and applicable foreign laws, regulations and guidelines, we could lose those approvals, and our business
would be seriously harmed.
Even
if our therapeutic candidates receive regulatory approval, we or our potential commercialization partners, as applicable, will
be subject to ongoing reporting obligations, including pharmacovigilance, and the therapeutic candidates and the manufacturing
operations will be subject to continuing regulatory review, including inspections by the FDA and other foreign regulatory authorities.
The results of this ongoing review may result in the withdrawal of a therapeutic candidate from the market, the interruption of
the manufacturing operations or the imposition of labeling or marketing limitations. Since many more patients are exposed to drugs
following their marketing approval, unanticipated adverse reactions or serious adverse reactions that were not observed in preclinical
and/or clinical trials may be observed during the commercial marketing of a therapeutic candidate that may be approved in the
future.
As
we develop our therapeutic candidates or commercialize our products that may be approved in the future, we may also periodically
discuss with the FDA and other regulatory authorities certain clinical, regulatory and manufacturing matters and, our views may,
at times, differ from those of the FDA and other regulatory authorities. For example, the FDA may seek to regulate our combination
therapeutic candidates, like KIT-302, or any product we may sell or market that consist of two or more active ingredients as combination
drugs under its Combination Drug Policy. The Combination Drug Policy requires that we demonstrate that each active ingredient
in a drug product contributes to the product’s claimed effect. If the FDA raises questions regarding whether available data
and information provided to the FDA demonstrate the contribution of each active ingredient in such combination drug products,
we may be required to provide additional data, which may require us to conduct additional preclinical studies or clinical trials.
If we are required to conduct additional clinical trials or other testing of our therapeutic candidates or drug products that
may be approved in the future, we may face substantial additional expenses, be delayed in obtaining marketing approval or may
never obtain marketing approval for such therapeutic candidate or drug products we may sell or market.
In
addition, the manufacturer and the manufacturing facilities that we or our potential commercialization partners use or will use
to manufacture any therapeutic candidate will be subject to periodic and unannounced review and inspection by the FDA and other
foreign regulatory authorities. Later discovery of previously unknown problems with any therapeutic candidate, manufacturer or
manufacturing process, or failure to comply with rules and regulatory requirements, may result in actions such as:
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restrictions
on such therapeutic candidate, manufacturer or manufacturing process;
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warning
letters from the FDA or other foreign regulatory authorities;
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withdrawal
of the therapeutic candidate from the market;
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suspension
or withdrawal of regulatory approvals;
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refusal
to approve pending applications or supplements to approved applications that we or our potential commercialization partners
submit;
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voluntary
or mandatory recall;
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fines;
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refusal
to permit the import or export of our therapeutic candidates;
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product
seizure or detentions;
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injunctions
or the imposition of civil or criminal penalties; or
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adverse
publicity or changes to the drug’s labeling.
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If
we, or our current or potential commercialization partners, suppliers, third party contractors or clinical investigators are slow
to adapt, or are unable to adapt, to changes in existing regulatory requirements or the adoption of new regulatory requirements
or policies, we or our potential commercialization partners may lose marketing approval for any of our therapeutic candidates
if any of our therapeutic candidates are approved, resulting in decreased or lost revenue from milestones, product sales or royalties.
Modifications
to our therapeutic candidates, or to any other therapeutic candidates that we may acquire or develop in the future, are likely
require new regulatory clearances or approvals before promotion or sale or may require us or our current or potential development
and commercialization partners, as applicable, to recall or cease marketing these therapeutic candidates until clearances are
obtained
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Modifications
to our therapeutic candidates, after they have been approved for marketing, if at all, or to any other therapeutic candidate that
we may develop in the future, may require new regulatory clearance or approvals, and, if necessitated by a problem with a marketed
product, may result in the recall or suspension of marketing of the previously approved and marketed product until clearances
or approvals of the modified product are obtained. The FDA and other foreign regulatory authorities require manufacturers of approved
drugs to make and document a determination of whether or not a modification requires a new approval, supplemental application
or clearance. A manufacturer may determine in conformity with applicable laws, regulations and guidelines that a modification
may be implemented without pre-clearance by the FDA or other foreign regulatory authorities; however, the FDA or other foreign
regulatory authorities may disagree with the manufacturer’s decision. The FDA or other foreign regulatory authorities may
also on their own initiative determine that a new clearance or approval is required. If the FDA or other foreign regulatory authorities
require new clearances or approvals of any drug product for which we or our current or potential development and commercialization
partners previously received marketing approval, we or our current or potential development and commercialization partners may
be required to recall such drug product and to stop marketing the drug product as modified, which could require us or our current
or potential development and commercialization partners to redesign the therapeutic candidate and cause a material adverse effect
on our business, financial condition and results of operations.
While
we have negotiated a special protocol assessment, or SPA, agreement with the FDA relating to the Phase III clinical trial protocol
for KIT-302, and have received minutes of a pre-NDA submission meeting with the FDA, this agreement and these minutes do not guarantee
approval of KIT-302 or any other particular outcome from the final regulatory review of the study or the therapeutic candidate.
We have reached an agreement
with the FDA to conduct the Phase III clinical trial for KIT-302 pursuant to an SPA agreement. The FDA’s SPA process is designed
to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase
III trials that are intended to form the primary basis for determining a therapeutic candidate’s efficacy. Upon specific
request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among
other things, primary efficacy endpoints, trial design and data analysis plans, within 45 days of receipt of the request. The FDA
ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval
of the therapeutic candidate with respect to its effectiveness and safety against the indication studied. All agreements and disagreements
between the FDA and the sponsor regarding an SPA agreement must be clearly documented in an SPA letter or the minutes of a meeting
between the sponsor and the FDA. Nevertheless, an SPA agreement does not guarantee approval of a therapeutic candidate, and approval
will require that the data will convince the FDA of the safety, efficacy and need for the therapeutic candidate for each of its
intended use(s). Even if the FDA agrees to the design, execution and analysis proposed in protocols reviewed under the SPA process,
the FDA may revoke or alter its agreement in certain circumstances. In particular, an SPA agreement is not binding on the FDA if
public health concerns emerge that were unrecognized at the time of the SPA agreement, other new scientific concerns regarding
product safety or efficacy arise, the sponsor company fails to comply with the agreed upon trial protocols, or the relevant data,
assumptions or information provided by the sponsor in a request for the SPA change or are found to be false or omit relevant facts.
In addition, even after an SPA agreement is finalized, the SPA agreement may be modified, and such modification will be deemed
binding on the FDA review division, except under the circumstances described above, if the FDA and the sponsor agree in writing
to modify the protocol and such modification is intended to improve the study. The FDA retains significant latitude and discretion
in interpreting the terms of the SPA agreement and the data and results from any study that is the subject of the SPA agreement.
A revocation or alteration in our existing SPA agreement could significantly delay or prevent approval of our application.
Our SPA agreement with
the FDA does not ensure that KIT-302 will receive marketing approval or that the approval process will be faster than conventional
regulatory procedures. Further, we cannot make assurances that the reported results of our Phase III clinical trial of KIT-302,
and the minutes of a pre-NDA submission meeting with the FDA which we received in May 2016, will result in any FDA approval for
KIT-302. We also cannot make assurances that the uncertainty surrounding an investigation by the Israeli Securities Authority into
our historical public disclosures concerning certain aspects of our Phase III clinical trial of KIT-302, will not have an impact
on the FDA approval process for KIT-302 nor what impact such might be. See “Item 8. Financial Information – Legal Proceedings”
in our Annual Report on Form 20-F for the year ended December 31, 2016. Further, our on-going renal clinical trial (see “Item
4. Information on the Company – A. History and Development of the Company – Recent Developments – Renal Clinical
Trial” in our Annual Report on Form 20-F for the year ended December 31, 2016), whose primary efficacy endpoint is comparable
to that of our Phase III Clinical Trial, may produce results that are inconsistent with those of our Phase III Clinical Trial.
While we believe that our Phase III clinical trial has been completed in accordance with the SPA agreement and that the data generated
met the endpoints that have been agreed in the SPA agreement to represent adequate evidence of effectiveness, and while we anticipate
that we will be able to satisfactorily provide the additional information requested by the FDA as part of the minutes we received
following the pre-NDA submission meeting, and we believe that the investigation by the Israeli Securities Authority will not have
any material impact on the FDA approval process, and while we have no reason to believe that our renal clinical trial will produce
results that are inconsistent with those of our Phase III Clinical Trial, if the FDA revokes or alters its agreement under the
SPA agreement, or if the FDA interprets the data collected from the clinical trial differently than we do, or if the FDA is not
satisfied with the additional information we submit to them, or if the results of our renal clinical trial are inconsistent with
those of our Phase III Clinical Trial, or if the Israeli Securities Authority investigation negatively impacts the NDA review process
or causes questions to be raised about the validity of the data collected from the clinical trial, the FDA may not deem the data
sufficient to support an application for regulatory approval, which could materially adversely affect our business, financial condition
and results of operations.
We
depend on our ability to identify and acquire or in-license therapeutic candidates to achieve commercial success.
Our
therapeutic candidates, and our subsidiaries which own the rights to therapeutic candidates, were all acquired by us from third
parties. We evaluate internally and with external consultants each potential therapeutic candidate. However, there can be no assurance
as to our ability to accurately or consistently select therapeutic candidates that have the highest likelihood to achieve commercial
success.
If
we cannot meet our obligations under our in-license agreement with Yissum, or if other events occur that are not within our control,
we could lose our rights to our NT219 therapeutic candidate, experience delays in developing or commercializing our NT219 therapeutic
candidate or incur additional costs, which could have a material adverse effect on our business, financial condition and results
of operations.
We
acquired rights to our NT219 therapeutic candidate from Yissum Research and Development Company of the Hebrew University of Jerusalem
Ltd. (“Yissum”), the Hebrew University Technology Transfer Company pursuant to a license agreement. If we do not meet
our obligations under this license agreement, or if other events occur that are not within our control we could lose the rights
to our NT219 therapeutic candidate, experience delays in developing or commercializing our NT219 therapeutic candidate or incur
additional costs, any of which could have a material adverse effect on our business, financial condition and results of operations.
In
addition, Yissum is responsible under the license agreement for the filing and prosecuting certain patent applications and
maintaining certain issued patents licensed to us. If Yissum does not meet its obligations in a timely manner or if other
events occur that are not within Yissum’s control, which impact Yissum’s ability to prosecute certain patent
applications and maintain certain issued patents licensed to us, our success of developing and commercializing the NT219
therapeutic candidate, could be jeopardized, which could have a material adverse effect on our business, financial condition
and results of operations. Additionally, Yissum may decide to discontinue maintaining certain patents in certain territories
for various reasons, such as a current belief that the commercial market for the therapeutic candidate will not be large or
that there is a near-term patent expiration that may reduce the value of the therapeutic candidate. In the event Yissum
discontinues maintaining such patents, we may not be able to enforce rights for our therapeutic candidates or protect our
therapeutic candidates from competition in those territories.
Our
business could suffer if we are unable to attract and retain key employees or directors.
The
loss of the services of members of senior management or other key personnel could delay or otherwise adversely impact the successful
completion of our planned CMC, preclinical and/or clinical trials or the commercialization of our therapeutic candidates or otherwise
affect our ability to manage our company effectively and to carry out our business plan. We do not maintain key-man life insurance
for any of our personnel. Although we have entered into employment or consultancy agreements with all of the members of our senior
management team, members of our senior management team may resign at any time. High demand exists for senior management and other
key personnel in the pharmaceutical industry. There can be no assurance that we will be able to continue to retain and attract
such personnel.
Our
growth and success also depend on our ability to attract and retain additional highly qualified scientific, technical, business
development, marketing, managerial and finance personnel. We experience intense competition for qualified personnel, and the existence
of non-competition agreements between prospective employees and their former employers may prevent us from hiring those individuals
or subject us to liability from their former employers. In addition, if we elect to independently commercialize any therapeutic
candidate, we will need to expand our marketing and sales capabilities. While we attempt to provide competitive compensation packages
to attract and retain key personnel, many of our competitors are likely to have greater resources and more experience than we
have, making it difficult for us to compete successfully for key personnel. Compensation packages for certain of our senior office
holders are subject to approval of our compensation committee and board of directors and in certain instances of our shareholders
as well. We may not be able to achieve the required corporate approvals for proposed compensation packages, further making it
difficult for us to compete successfully with privately owned companies in order to attract and retain key personnel. If we cannot
attract and retain sufficiently qualified technical employees on acceptable terms, we may not be able to develop and commercialize
competitive therapeutic candidates. Further, any failure to effectively integrate new personnel could prevent our business from
successfully growing.
We
are an international business, and we are exposed to various global and local risks that could have an adverse effect on our business
.
We
operate our business in multiple international jurisdictions. Such operations could be affected by changes in foreign exchange
rates, capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property
legal protections and remedies, trade regulations and procedures and actions affecting approval, production, pricing, and marketing
of, reimbursement for and access to, our products, as well as by political unrest, unstable governments and legal systems and
inter-governmental disputes. Any of these changes could adversely affect our business.
Kitov
Parent’s subsidiary, TyrNovo, has received and may continue to receive Israeli governmental grants to assist in the funding
of its research and development activities. If TyrNovo loses funding from these research and development grants, we may encounter
difficulties in the funding of future research and development projects and implementing technological improvements, which would
harm our operating results and may restrict the activities of our subsidiary, TyrNovo. We may encounter difficulties in securing
a commercialization partner for TyrNovo’s therapeutic candidates as the grants received from the Israeli government need
to be repaid from future royalties.
Through
December 31, 2016, Kitov Parent’s newly-acquired subsidiary, TyrNovo had obligations to the National Authority for Technological
Innovation, or the Innovation Authority (formerly known as the Office of the Chief Scientist of the Ministry of Economy and Industry,
or the OCS) with respect to an aggregate of approximately NIS 5.5 million with respect to grants from the OCS in connection with
TyrNovo’s technology. The requirements and restrictions for such grants are found in the Encouragement of Research, Development
and Technological Innovation in the Industry Law 5744-1984 (formerly known as the Law for the Encouragement of Research and Development
in Industry 5744-1984), or the Innovation Law, and the regulations and guidelines thereunder. Under the Innovation Law and the
regulations thereunder, royalties of 3% to 6% on the income generated from sales of products and related services developed in
whole or in part under OCS programs are payable to the OCS, up to the total amount of grants received, linked to the U.S. dollar
and bearing annual interest.
The
technologies licensed to TyrNovo by Yissum were developed, at least in part, with funds from these grants, and accordingly is
obligated to pay these royalties on sales of any of its OCS funded products that achieve regulatory approval. In addition, the
Government of Israel may from time to time audit sales of products which it claims incorporate technology funded via OCS programs
and this may lead to additional royalties being payable on additional products. As of December 31, 2016, the maximum royalty amount
that in general would be payable by TyrNovo, excluding interest, is approximately NIS 5.5 million, and as of such date TyrNovo
has not paid any royalties to the OCS. We may encounter difficulties in securing a commercialization partner for TyrNovo’s
therapeutic candidates due to the requirement to pay future royalties
.
Following
the full payment of such royalties and interest, there is generally no further liability for royalty payments; however, other
restrictions under the Innovation Law, described in the risk factor below under “The OCS grants TyrNovo’s technology
has received for research and development expenditures restrict its ability to manufacture products and transfer (including by
a way of license for R&D purposes) know-how outside of Israel and require it to satisfy specified conditions. In addition,
we may encounter difficulties partnering TyrNovo’s therapeutic candidates with entities outside Israel due to certain restrictions
regarding manufacturing and transferring of know-how (including by a way of license for R&D purposes) outside of Israel imposed
through the Israeli Government grants”, will continue to apply even after TyrNovo has repaid the full amount of royalties
on the grants.
These
grants have funded some of the personnel, development activities with subcontractors, and other research and development costs
and expenses incurred in connection with the development of the technologies licensed to TyrNovo by Yissum. However, if these
grants are not funded in their entirety or if new grants are not awarded in the future, due to, for example, OCS budget constraints
or governmental policy decisions, TyrNovo’s ability to fund future research and development and implement technological
improvements would be impaired, which would negatively impact our ability to develop NT219.
The
OCS grants which TyrNovo’s technology has received for research and development expenditures restrict its ability to manufacture
products and transfer (including by a way of license for R&D purposes) know-how outside of Israel and require it to satisfy
specified conditions. In addition, we may encounter difficulties partnering TyrNovo’s therapeutic candidates with entities
outside Israel due to certain restrictions regarding manufacturing and transferring of know-how (including by a way of license
for R&D purposes) outside of Israel imposed through the Israeli Government grants.
The
research and development efforts underlying TyrNovo’s technology have been financed, in part, through the grants received
from the OCS with respect to TyrNovo’s technology. TyrNovo, therefore, must comply with the requirements of the Innovation
Law.
Under
the Innovation Law, TyrNovo is generally prohibited from manufacturing products developed under OCS funding outside of the State
of Israel without the prior approval of the OCS and subject to payment of increased royalties. TyrNovo may not receive the required
approvals for any proposed transfer of manufacturing activities. This restriction may impair TyrNovo’s ability to outsource
manufacturing rights abroad.
Additionally,
under the Innovation Law, TyrNovo is prohibited from transferring, including by way of license for R&D purposes, the OCS-funded
know-how and related intellectual property rights outside of the State of Israel, except under limited circumstances and only
with the prior approval of the OCS. TyrNovo may not receive the required approvals for any proposed transfer, and even if received,
TyrNovo may be required to pay the OCS a redemption fee, which may result in significant amounts, in accordance with the formulae
stipulated under the Innovation Law and related regulations, while such fee will not exceed 600% of the grant amounts plus interest.
Approval
of the transfer of know-how to an Israeli company is required, and may be granted if the recipient abides by the provisions of
applicable laws, including the restrictions on the transfer of know-how and the manufacturing rights outside of Israel and the
obligation to pay royalties, and there will be an obligation to pay royalties to the OCS from the income of such sale transaction
as part of the royalty payment obligation. No assurance can be given that approval to any such transfer, if requested, will be
granted.
These
restrictions may impair our ability to perform or outsource manufacturing outside of Israel, or otherwise transfer or sell TyrNovo’s
OCS funded know-how outside of Israel. It may also require TyrNovo to obtain the approval of the OCS for certain actions and transactions
and pay additional royalties and other amounts to the OCS. Furthermore, the consideration available to TyrNovo’s and/or
our shareholders in a transaction involving the transfer outside of Israel of know-how developed with OCS funding (such as a merger
or similar transaction) may be reduced by any amounts that TyrNovo is required to pay to the OCS. If TyrNovo fails to comply with
the requirements of the Innovation Law, TyrNovo may be required to refund certain grants previously received along with interest
and penalties, and may become subject to criminal proceedings.
Pursuant to Amendment
No. 7, the Innovation Authority, a statutory corporation, was established on January 1, 2016 and has replaced the OCS. The Innovation
Authority is authorized to change the current restrictions imposed on recipients of grants under the R&D Law with a new set
of arrangements in connection with ownership obligations of know-how (including with respect to restrictions on transfer of know-how
and manufacturing activities outside of Israel), as well as royalties obligations associated with approved programs. In addition,
the Innovation Authority has recently published new rules and guidelines for the granting of licenses to use know-how developed
as a result of research financed by the Innovation Authority to foreign entities. According to such rules, we will be required
to receive the Innovation Authority's prior approval for the grant of such use rights, and we will be subject to a payment to the
Innovation Authority in accordance with the formula stipulated under these rules and guidelines.
Risks
Related to Our Industry
Even
if our therapeutic candidates receive regulatory approval or do not require regulatory approval, they may not become commercially
viable products.
Even
if KIT-302, NT219, or any other therapeutic candidate that we may develop in the future, are approved for commercialization, they
may not be commercially viable products. For example, if we or our potential commercialization partners receive regulatory approval
to market a therapeutic candidate, approval may be subject to limitations on the indicated uses or subject to labeling or marketing
restrictions which could materially and adversely affect the marketability and profitability of the therapeutic candidate. In
addition, a new therapeutic candidate may appear promising at an early stage of development or after preclinical and/or clinical
trials but never reach the market, or it may reach the market but not result in sufficient product sales, if any. A therapeutic
candidate may not result in commercial success for various reasons, including:
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difficulty
in large-scale manufacturing, including yield and quality;
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low
market acceptance by physicians, healthcare payers, patients and the medical community as a result of lower demonstrated clinical
safety or efficacy compared to other products, prevalence and severity of adverse side effects, or other potential disadvantages
relative to alternative treatment methods;
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insufficient
or unfavorable levels of reimbursement from government or third-party payers, such as insurance companies, health maintenance
organizations and other health plan administrators;
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infringement
on proprietary rights of others for which we or our potential commercialization partners have not received licenses;
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incompatibility
with other therapeutic candidates;
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other
potential advantages of alternative treatment methods and competitive forces that may make it more difficult for us to penetrate
a particular market segment;
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ineffective
marketing and distribution support;
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lack
of significant competitive advantages over existing products on the market;
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lack
of cost-effectiveness; or
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timing
of market introduction of competitive products.
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Physicians,
various other health care providers, patients, payers or the medical community in general may be unwilling to accept, utilize
or recommend any of our approved therapeutic candidates. If we are unable, either on our own or through third parties, to manufacture,
commercialize and market our proposed therapeutic candidates when planned, or develop commercially viable therapeutic candidates,
we may not achieve any market acceptance or generate revenue.
The
market for our therapeutic candidates is rapidly changing and competitive, and new drug delivery mechanisms, drug delivery technologies,
new drugs and new treatments which may be developed by others could impair our ability to maintain and grow our business and remain
competitive.
The
pharmaceutical and biotechnology industry is highly competitive, and we face significant competition from many pharmaceutical,
biopharmaceutical and biotechnology companies that are researching and marketing products designed to address the indications
for which we are currently developing therapeutic candidates or for which we may develop therapeutic candidates in the future.
There are various other companies that currently market or are in the process of developing products that address all of the indications
or diseases treated by our therapeutic candidates.
New
drug delivery mechanisms, drug delivery technologies, new drugs and new treatments that have been developed or that are in the
process of being developed by others may render our therapeutic candidates noncompetitive or obsolete, or we may be unable to
keep pace with technological developments or other market factors. Some of these technologies may have an entirely different platform
or means of treating the same indications as KIT-302, NT219, or other therapeutic candidates that we may develop in the future.
Technological competition from pharmaceutical and biotechnology companies, universities, governmental entities and others is intense
and is expected to increase. Many of these entities have significantly greater research and development capabilities, human resources
and budgets than we do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities
represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies
by large corporations could increase such competitors’ financial, marketing, manufacturing and other resources.
The
potential widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our formulations or
therapeutic candidates, even if commercialized. Many of our targeted diseases and conditions can also be treated by other medications
or drug delivery technologies. These treatments may be widely accepted in medical communities and have a longer history of use.
The established use of these competitive drugs may limit the potential for our therapeutic candidates to receive widespread acceptance
if commercialized.
If
third-party payers do not adequately reimburse customers for any of our therapeutic candidates that are approved for marketing,
they might not be purchased or used, and our revenues and profits will not develop or increase.
Our
revenues and profits will depend heavily upon the availability of adequate reimbursement for the use of our approved therapeutic
candidates, if any, from governmental or other third-party payers, both in the U.S. and in foreign markets. Reimbursement by a
third-party payer may depend upon a number of factors, including the third-party payer’s determination that the use of an
approved therapeutic candidate is, among others:
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a
covered benefit under its health plan;
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safe,
effective and medically necessary;
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appropriate
for the specific patient;
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cost-effective,
including compared to approved alternate therapies; and
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neither
experimental nor investigational.
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Obtaining
reimbursement approval for a therapeutic candidate from each government or other third-party payer is a time-consuming and costly
process that could require us or our current or potential development and commercialization partners to provide supporting scientific,
clinical and cost-effectiveness data for the use of our therapeutic candidates to each payer. Even when a payer determines that
a therapeutic candidate is eligible for reimbursement, the payer may impose coverage limitations that preclude payment for some
uses that are approved by the FDA or other foreign regulatory authorities. Reimbursement rates may vary according to the use of
the therapeutic candidate and the clinical setting in which it used, may be based on payments allowed for lower-cost products
that are already reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary
constraints or imperfections in Medicare, Medicaid or other data used to calculate these rates.
In
the U.S., there have been, and we expect that there will continue to be, federal and state proposals to constrain expenditures
for medical products and services which may affect payments for our therapeutic candidates in the U.S. We believe that legislation
that reduces reimbursement for our therapeutic candidates could adversely impact how much or under what circumstances healthcare
providers will prescribe or administer our therapeutic candidates, if approved. This could materially and adversely impact our
business by reducing our ability to generate revenue, raise capital, obtain additional collaborators and market our therapeutic
candidates, if approved. At this stage, we are unable to estimate the extent of the direct or indirect impact of any such federal
and state proposals.
Further,
the Centers for Medicare and Medicaid Services (CMS) frequently change product descriptors, coverage policies, product and service
codes, payment methodologies and reimbursement values. Third-party payers often follow Medicare coverage policy and payment limitations
in setting their own reimbursement rates, and both the CMS and other third-party payers may have sufficient market power to demand
significant price reductions.
Legislative
or regulatory reform of the healthcare system in the United States may harm our future business.
On
March 23, 2010, President Obama signed the “Patient Protection and Affordable Care Act” (P.L. 111-148) and on March
30, 2010, the President signed the “Health Care and Education Reconciliation Act” (P.L. 111-152), collectively commonly
referred to as the “Healthcare Reform Law.” The Health Reform Law included a number of new rules regarding health
insurance, the provision of health care, and conditions to reimbursement for healthcare services provided to Medicare and Medicaid
patients. Through the rule making process, substantial changes have been and continue to be made to the current system for paying
for healthcare in the United States, including changes made in order to extend medical benefits to tens of millions of Americans
who lacked insurance coverage and to contain healthcare costs. Extending coverage to a large population could substantially change
the structure of the health insurance system and the methodology for reimbursing medical services and drugs. This legislation
has been one of the most comprehensive and significant reforms ever experienced by the United States in the healthcare industry,
and it has significantly changed the way healthcare is financed by both governmental and private insurers. This legislation has
impacted the scope of healthcare insurance and incentives for consumers and insurance companies, among others. Additionally, the
Healthcare Reform Law’s provisions are designed to encourage providers to find cost savings in their clinical operations.
Pharmaceuticals represent a significant portion of the cost of providing care. Through modified reimbursement rates and other
incentives, the United States government is requiring that providers identify the most cost-effective services, supplies and pharmaceuticals.
This environment has caused changes in the purchasing habits of providers and resulted in specific attention to the pricing negotiation,
product selection and utilization review surrounding pharmaceuticals. To the extent that our therapeutic candidates are at some
point reimbursable by U.S federal government programs, this attention may result in our therapeutic candidates being chosen less
frequently or the pricing being substantially lowered. Some of the provisions of the Healthcare Reform Law have not yet been fully
implemented and the continued effect of the legislation is difficult to predict and, at this stage, we are unable to estimate
the full extent of the direct and/or indirect impact of the legislation on us.
These
structural changes could entail further modifications to the existing system of private payors and government programs (such as
Medicare, Medicaid and state Children’s Health Insurance Program), creation of a government-sponsored healthcare insurance
source, or some combination of both, as well as other changes. Restructuring the coverage of medical care in the United States
could impact the reimbursement for prescribed drugs and pharmaceuticals, such as those we and our development and/or commercialization
partners are currently developing. If reimbursement for our approved therapeutic candidates, if any, is substantially reduced
in the future, or rebate obligations associated with them are substantially increased, our business could be materially and adversely
impacted.
Extending
medical benefits to those who previously lacked coverage may, in the long term, result in substantial cost to the United States
federal government, which may force significant additional changes to the healthcare system in the United States. Much of the
funding for expanded healthcare coverage may be sought through cost savings. While some of these savings may come from realizing
greater efficiencies in delivering care, improving the effectiveness of preventive care and enhancing the overall quality of care,
much of the cost savings may come from reducing the cost of care and increased enforcement activities. Cost of care could be reduced
by decreasing the level of reimbursement for medical services or products (including those pharmaceuticals currently being developed
by us or our development and/or commercialization partners), or by restricting coverage (and, thereby, utilization) of medical
services or products. In either case, a reduction in the utilization of, or reimbursement for, any therapeutic candidate for which
we receive marketing approval in the future could have a materially adverse effect on our financial performance.
Several States and
private entities initially mounted legal challenges to the healthcare reform legislation, and they continue to litigate various
aspects of the legislation. On July 26, 2012, the United States Supreme Court generally upheld the healthcare reform legislation
as constitutional. However, the Supreme Court held that the legislation improperly required the States to expand their Medicaid
programs to cover more individuals. As a result, the States have a choice as to whether they will expand the numbers of individuals
covered by their respective State Medicaid programs. Some States have determined that they will not expand their Medicaid programs
and will develop other cost saving and coverage measures to provide care to currently uninsured residents. Many of these efforts
to date have included the institution of Medicaid managed care programs. The manner in which these cost saving measures are implemented
could have a materially adverse effect on our financial performance. Further, the healthcare regulatory environment has seen significant
changes in recent years and is still in flux. Legislative initiatives to modify or repeal the Healthcare Reform Law and judicial
challenges continue, including a recent executive order issued by the recently-elected U.S. President directing government agencies
and departments to minimize the economic burden of the Healthcare Reform Law to the extent permitted by law, and, notwithstanding
the recent failure of the Congress to abolish much of the Healthcare Reform Law, may continue or even increase in light of the
change in administrations following the most recent presidential election. We cannot predict the impact on our business of future
legal challenges to the Healthcare Reform Legislation or other changes to the current laws and regulations.
We are subject
to additional federal and state laws and regulations relating to our business, and our failure to comply with those laws could
have a material adverse effect on our results of operations and financial conditions.
Upon the commencement
of marketing products in the United States, we will become subject to additional healthcare regulation and enforcement by the federal
government and the states in which we conduct or will conduct our business. The laws that may affect our ability to operate include,
but are not limited to, the following:
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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, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under government healthcare programs such as the Medicare and Medicaid programs;
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the federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person from offering or transferring remuneration to a Medicare or State health care program beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a State health care program;
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the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, which prohibits physicians from referring Medicare or Medicaid patients for certain designated health services where that physician or its family member has a financial relationship with the entity providing the designated health service, unless an exception applies;
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federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government healthcare programs that are false or fraudulent;
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the so-called federal “Sunshine Act”, which requires certain pharmaceutical and medical device companies to monitor and report certain financial relationships with physicians and other healthcare providers to CMS for disclosure to the public;
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the Federal Food, Drug, and Cosmetic Act, which, among other things, strictly regulates drug product and medical device marketing, prohibits manufacturers from marketing such products for off-label use, and regulates the distribution of samples;
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federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; and
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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.
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Further, the Healthcare
Reform Law, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes.
A person or entity can now be found guilty of fraud or an anti-kickback violation without actual knowledge of the statute or specific
intent to violate it. In addition, the Healthcare Reform Law provides that the government may assert that a claim including items
or services resulting from a violation of the federal Anti-Kickback Statue constitutes a false or fraudulent claim for purposes
of the False Claims Act (31 U.S.C. 3729–3733). Possible sanctions for violation of these anti-kickback laws include monetary
fines, civil and criminal penalties, exclusion from Medicare, Medicaid and other government programs and forfeiture of amounts
collected in violation of such prohibitions. Any violations of these laws, or any action against us for violation of these laws,
even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations
and financial condition.
The Healthcare Reform
Law also imposes reporting requirements on certain medical devices and pharmaceutical manufacturers, among others, to make annual
public disclosures of certain payments or other transfers of value to physicians and teaching hospitals and ownership or investment
interests held by physicians or their immediate family members. Failure to submit required information may result in civil monetary
penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”),
for all payments, transfers of value or ownership or investment interests that are not reported. Manufacturers were required to
begin data collection on August 1, 2013 and report such data to the CMS by March 31 each year. CMS made the data publicly available
on its searchable database beginning in September 2014.
In addition, there has
been a recent trend of increased federal and state regulation of payments made to physicians for marketing, medical directorships,
and other purposes. Some states, such as California, Massachusetts and Vermont, mandate implementation of corporate compliance
programs, along with the tracking and reporting of gifts, compensation and other remuneration to physicians, and some states limit
or prohibit such gifts.
Most
recently, there has been a trend in federal and state legislation aimed at requiring pharmaceutical companies to disclose information
about their production and marketing costs, and ultimately in lowering costs for drug products. Several states have introduced
bills that would require disclosure of certain pricing information for prescription drugs that have no threshold amount or are
above a certain annual wholesale acquisition cost, and in June 2016 Vermont became the first state to pass legislation requiring
certain drug companies to disclose information relating to justification of certain price increases. The U.S. Congress has also
introduced bills targeting prescription drug price transparency.
Any
such implementation of this type of legislation requiring publication of drug costs could materially and adversely impact our business
by promoting a reduction in drug prices. As such, patients may choose to use other low-cost, established drugs or therapies.
The scope and enforcement
of these laws is uncertain and subject to change in the current environment of healthcare reform, especially in light of the lack
of applicable precedent and regulations. We cannot predict the impact on our business of any changes in these laws. Federal or
state regulatory authorities may challenge our current or future activities under these laws. Any such challenge could have a material
adverse effect on our reputation, business, results of operations, and financial condition. Any state or federal regulatory review
of us, regardless of the outcome, would be costly and time-consuming.
We could be exposed
to significant drug product liability claims, which could be time consuming and costly to defend, divert management attention and
adversely impact our ability to obtain and maintain insurance coverage.
The clinical trials
that we conduct, and the testing, manufacturing, marketing and commercial sale of our therapeutic candidates, involve and will
involve an inherent risk that significant liability claims may be asserted against us. We currently have a clinical trial liability
policy that includes coverage for our clinical trials. Should we decide to seek additional insurance against such risks before
our product sales commence, there is a risk that such insurance will be unavailable to us, or if it can be obtained at such time,
that it will be available only at an unaffordable cost. Even if we obtain insurance, it may prove inadequate to cover claims or
litigation costs, especially in the case of wrongful death claims. Product liability claims or other claims related to our therapeutic
candidates, regardless of their outcome, could require us to spend significant time and money in litigation or to pay significant
settlement amounts or judgments. Any successful product liability or other claim may prevent us from obtaining adequate liability
insurance in the future on commercially desirable or reasonable terms. An inability to obtain sufficient insurance coverage at
an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization
of our products and therapeutic candidates. A product liability claim could also significantly harm our reputation and delay market
acceptance of our therapeutic candidates.
Unfavorable global
economic conditions could adversely affect our business, financial condition or results of operations.
Our results of operations
could be adversely affected by general conditions in the global economy and in the global financial markets. An economic downturn
could result in a variety of risks to our business, including weakened demand for our therapeutic candidates and our inability
to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our partners
and suppliers, possibly resulting in supply disruption, or cause future customers to delay making payments for our products. Any
of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial
market conditions could adversely impact our business.
Our business involves
risks related to handling regulated substances which could severely affect our ability to conduct research and development of our
therapeutic candidates.
In connection with our
current or potential development and commercialization partners’ research and clinical development activities, as well as
the manufacture of materials and therapeutic candidates, we and our current or potential development and commercialization partners
are subject to foreign, federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture,
storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. We and
our current or potential development and commercialization partners may be required to incur significant costs to comply with environmental
and health and safety regulations in the future. Our research and clinical development, as well as the activities of our manufacturing
and current or potential development and commercialization partners, both now and in the future, may involve the controlled use
of hazardous materials, including but not limited to certain hazardous chemicals. We cannot completely eliminate the risk of accidental
contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that
result and any such liability could exceed our resources.
Risks Related to Legal Proceedings and
Intellectual Property
Legal proceedings
or third-party claims of intellectual property infringement and other legal challenges may require us to spend substantial time
and money and could prevent us from developing or commercializing our therapeutic candidates. An adverse result in these infringements
and other legal challenges could have a material adverse effect on our business, results of operations and financial condition.
The development, manufacture,
use, offer for sale, sale or importation of our therapeutic candidates may infringe on the claims of third-party patents or other
intellectual property rights. The nature of claims contained in unpublished patent filings around the world is unknown to us, and
it is not possible to know which countries patent holders may choose for the extension of their filings under the Patent Cooperation
Treaty, or other mechanisms. We may also be subject to claims based on the actions of employees and consultants with respect to
the usage or disclosure of intellectual property learned at other employers. The cost to us of any intellectual property litigation
or other infringement proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain
the costs of such litigation or proceedings more effectively because of their substantially greater financial resources. Uncertainties
resulting from the initiation and continuation or defense of intellectual property litigation or other proceedings could have a
material adverse effect on our ability to compete in the marketplace. Intellectual property litigation and other proceedings may
also absorb significant management time. Consequently, we are unable to guarantee that we will be able to manufacture, use, offer
for sale, sell or import our therapeutic candidates in the event of an infringement action.
In the event of patent
infringement claims, or to avoid potential claims, we may choose or be required to seek a license from a third party and would
most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at
all. Even if we were able to obtain a license, the rights may be non-exclusive, which could potentially limit our competitive advantage.
Ultimately, we could be prevented from commercializing a therapeutic candidate or be forced to cease some aspect of our business
operations if, as a result of actual or threatened patent infringement or other claims, we are unable to enter into licenses on
acceptable terms. This inability to enter into licenses could harm our business significantly.
From time to time, we
may also be involved in various lawsuits and legal proceedings other than intellectual property infringement actions, concerning
such laws as corporate and securities laws, business laws, product liability laws, and environmental laws. On December 3, 2015,
we announced that we received a lawsuit and motion to approve the lawsuit as a class action lawsuit pursuant to the Class Action
Lawsuits Law 5766-2006 (which was filed against us and our directors at the Tel Aviv District Court (Economic Division). The Motion
asserts claims for damages to the holders of our securities listed on the TASE, arising due to the initial public offering of our
securities in the U.S. during November 2015. Additionally, on February 16, 2017, we announced that four lawsuits and motions to
approve the lawsuits as a class action lawsuit were filed against us and certain of our office holders at the Tel Aviv District
Court (Economic Division), and served on us, with each such motion relating to the formal investigation by the Israeli Securities
Authority (ISA) into our public disclosures. In addition, class actions lawsuits largely relating to the same matters were filed
in the State of California and in the U.S. federal courts against us, our CEO and CFO, and in the California lawsuits, against
the underwriters of our November 2015 initial public offering in the U.S.A. (collectively, “Investigation Motions”).
The above noted motions
and class actions could result in significant legal defense costs and high punitive damage payments. Although we maintain directors’
and officers’ liability insurance, with an extension to cover the Company as well, the insurance companies may reject our
claims for coverage under the policy or the coverage may not be adequate to cover future claims. Furthermore, to the extent that
we may be required to indemnify our underwriters for their legal defense costs or any other damages, such indemnification would
not be covered under the policy. Additionally, we may be unable to maintain our existing directors’ and officers’ liability
insurance in the future at satisfactory rates or adequate amounts. With respect to the motion from December 2015, we have been
advised by our attorneys that the likelihood of the Company not incurring any financial obligation as a result of such class action
exceeds the likelihood that the Company will incur a financial obligation. At this preliminary stage however, we are unable, with
any degree of certainty, to make any other evaluations or any other assessments with respect to the probability of success or the
scope of potential exposure, if any, of any of the Investigation Motions. For more information, see “Item 8. Prospectus –
Legal Proceedings” in our Annual Report on Form 20-F for the year ended December 31, 2016.
It is difficult to foresee
the results of legal actions and proceedings currently involving us or those which may arise in the future, and an adverse result
in these matters could have a material adverse effect on our business, results of operations and financial condition. In addition,
any legal or administrative proceedings which we are subject to could require the significant involvement of our senior management,
and may divert management attention from our business and operations.
We may be subject
to material fines, penalties and other sanctions and other adverse consequences arising out of the Company’s ongoing Israeli
Securities Authority investigation, related class action lawsuits and related matters.
We operate in a complex
legal and regulatory environment, and any failure or possible failure to comply with applicable laws, rules and regulations may
result in civil and/or criminal legal proceedings. In Israel, the Company is currently subject to a formal investigation by the
Israeli Securities Authority (the “ISA” and the “Investigation,” respectively) into its public disclosures
around certain aspects of the studies related to its lead therapeutic candidate, KIT-302. The Company has not yet been advised
by the ISA of the full scope and focus of the Investigation. However, in order to provide additional information regarding the
investigation to the Company’s investors and the public, the Company has had discussions with the ISA in order to obtain
certain additional information which may be disclosed to the Company’s shareholders. Based on these discussions with the
ISA, the Company believes that the Investigation with respect to the Company relates to the Data Monitoring Committee (“DMC”)
appointed in connection with the Company’s Phase III trial of KIT-302.
We cannot predict at
this time the impact on us as a result of the Investigation and accordingly cannot assure you that we will not be materially and
adversely affected. Responding to such an investigation is costly and involves a significant diversion of management’s attention.
Such proceedings are unpredictable and may develop over lengthy periods of time. Future settlements may involve large cash penalties.
The ISA has a broad range of civil and criminal penalties it may seek to impose (on the Company and/or individuals), and the Company
and/or officer holders may be required to pay material fines and/or penalties. The Company and/or office holders may be subject
to injunctions or limitations on future conduct, or suffer other criminal or civil penalties or adverse impacts, including additional
lawsuits by private litigants. Any one or more of the foregoing could have a material adverse effect on our reputation and our
business, financial condition or results of operations. For more information on the investigation, see “Item 8. Financial
Information – Legal Proceedings” in our Annual Report on Form 20-F for the year ended December 31, 2016.
We may be unable
to adequately protect or enforce our rights to intellectual property, causing us to lose valuable rights. Loss of patent rights
may lead us to lose market share and potential profits.
Our success depends,
in part, on our ability, and the ability of our current or potential development and commercialization partners to obtain patent
protection for our therapeutic candidates, maintain the confidentiality of our trade secrets and know-how, operate without infringing
on the proprietary rights of others and prevent others from infringing our proprietary rights.
We try to protect our
proprietary position by, among other things, filing U.S., European, and other patent applications related to our therapeutic candidates,
inventions and improvements that may be important to the continuing development of our therapeutic candidates.
Because the patent position
of pharmaceutical companies involves complex legal and factual questions, we cannot predict the validity and enforceability of
any patents we may obtain with certainty. Our competitors may independently develop drug delivery technologies or products similar
to ours or design around or otherwise circumvent any patents that may be issued to or licensed by us. Our pending patent applications,
and those that we may file in the future or those we may license from third parties may not result in patents being issued. If
these patents are issued, they may not provide us with proprietary protection or competitive advantages. The degree of future protection
to be afforded by our proprietary rights is uncertain because legal means afford only limited protection and may not adequately
protect our rights or permit us to gain or keep our competitive advantage.
Patent rights are territorial;
thus, the patent protection we have sought will only extend, if issued, to those countries, if any, in which we will be issued
patents. Even so, the laws of certain countries do not protect our intellectual property rights to the same extent as do the laws
of the U.S. and the European Union. Competitors may successfully challenge any of our patents, produce similar drugs or products
that do not infringe such patents, or produce drugs in countries where we have not applied for patent protection or that do not
respect such patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications
and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law.
After the completion
of development and registration of any future patents, third parties may still act to manufacture or market our therapeutic candidates
in infringement of our patent protected rights. Such manufacture or marketing of our therapeutic candidates in infringement of
any patent-protected rights is likely to cause us damage and lead to a reduction in the prices of our therapeutic candidates, thereby
reducing our potential profits.
We may invest a significant
amount of time and expense in the development of our therapeutic candidates only to be subject to significant delay and patent
litigation before they may be commercialized. In addition, due to the extensive time needed to develop, test and obtain regulatory
approval for our therapeutic candidates, any patents that may be issued that protect our therapeutic candidates may expire early
during commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration,
we may face increased competition through the entry of generic products into the market and a subsequent decline in market share
and profits.
We are developing some
of our therapeutic candidates in collaboration with academic and other research institutes. While we attempt to ensure that our
intellectual property is protected under the terms of our collaboration agreements with such institutes, these institutes may have
claims to our intellectual property.
If we are unable
to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete
against us.
In addition to filing
patents, we generally try to protect our trade secrets, know-how and technology by entering into confidentiality or non-disclosure
agreements with parties that have access to it, such as our current or potential development and commercialization partners, employees,
contractors and consultants. We also enter into agreements that purport to require the disclosure and assignment to us of the rights
to the ideas, developments, discoveries and inventions of our employees, advisors, research collaborators, contractors and consultants
while we employ or engage them. However, these agreements can be difficult and costly to enforce or may not provide adequate remedies.
Any of these parties may breach the confidentiality agreements and willfully or unintentionally disclose our confidential information,
or our competitors might learn of the information in some other way. The disclosure to, or independent development by, a competitor
of any trade secret, know-how or other technology not protected by a patent could materially adversely affect any competitive advantage
we may have over any such competitor.
To the extent that any
of our employees, advisors, research collaborators, contractors or consultants independently develop, or use independently developed,
intellectual property in connection with any of our projects, disputes may arise as to the proprietary rights to this type of information.
If a dispute arises with respect to any proprietary right, enforcement of our rights can be costly and unpredictable and a court
may determine that the right belongs to a third party.
We may be subject
to other patent-related litigation or proceedings that could be costly to defend and uncertain in their outcome.
In addition to infringement
claims against us, we may in the future become a party to other patent litigation or proceedings before regulatory agencies, including
interference or re-examination proceedings filed with the U.S. Patent and Trademark Office (USPTO) or opposition proceedings in
other foreign patent offices regarding intellectual property rights with respect to our therapeutic candidates, as well as other
disputes regarding intellectual property rights with our current and potential development and commercialization partners, or others
with whom we have contractual or other business relationships. Post-issuance oppositions are not uncommon and we and our current
and potential development and commercialization partners will be required to defend these opposition procedures as a matter of
course. Opposition procedures may be costly, and there is a risk that we may not prevail.
Risks Related to our Operations in Israel
It may be difficult
to enforce a U.S. judgment against us and our officers and directors in Israel or the U.S., or to serve process on our officers
and directors.
We are incorporated
in Israel. Most of our executive officers and directors reside outside of the U.S., and all of our assets and most of the assets
of our executive officers and directors are located outside of the U.S. Therefore, a judgment obtained against us or such executive
officers and our directors in the U.S., including one based on the civil liability provisions of the U.S. federal securities laws,
may not be collectible in the U.S. and may not be enforced by an Israeli court. It may also be difficult for you to affect service
of process on these persons in the U.S. or to assert U.S. securities law claims in original actions instituted in Israel. 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, it may be impossible to collect any damages awarded by either a U.S. or foreign
court.
Claims for indemnification
by our directors and officers may reduce our available funds to satisfy successful shareholder claims against us and may reduce
the amount of money available to us.
The Companies Law and
our amended and restated articles of association permit us to indemnify our directors and officers for acts performed by them in
their capacity as directors and officers. The Companies Law and our amended and restated articles of association provide that a
company may not exempt or indemnify a director or an office holder nor enter into an insurance contract, which would provide coverage
for any monetary liability incurred as a result of (a) a breach by the director or officer of his duty of loyalty, except for insurance
and indemnification where the director or officer acted in good faith and had a reasonable basis to believe that the act would
not prejudice the company; (b) a breach by the director or officer of his duty of care if the breach was done intentionally or
recklessly, except if the breach was solely as a result of negligence; (c) any act or omission done with the intent to derive an
illegal personal benefit; or (d) any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director. See “Item
6. Directors, Senior Management and Employees – C. Board Practices – Exculpation, Insurance and Indemnification of
Directors and Officers” in our Annual Report on Form 20-F for the year ended December 31, 2016.
Kitov Parent has issued
letters of indemnification to our directors and officers, pursuant to which we have agreed to indemnify them in advance for any
liability or expense imposed on or incurred by them in connection with acts they perform in their capacity as a director or officer,
subject to applicable law. The amount of the advance indemnity will not exceed 25% of Kitov Parent’s then consolidated shareholders’
equity, per its most recent consolidated annual financial statements.
Our indemnification
obligations limit the personal liability of our directors and officers for monetary damages for breach of their duties as directors
by shifting the burden of such losses and expenses to us. Although we have obtained directors’ and officers’ liability
insurance, certain liabilities or expenses covered by our indemnification obligations may not be covered by such insurance or the
coverage limitation amounts may be exceeded.
As a result of the class
action motions and lawsuits or other claims which may be filed against our directors and officers, we may need to use a significant
amount of our funds to satisfy our indemnification obligations, which could severely harm our business and financial condition
and limit the funds available to shareholders who may choose to bring a claim against our company. See the risk factor titled “Legal
proceedings or third-party claims of intellectual property infringement and other legal challenges may require us to spend substantial
time and money and could prevent us from developing or commercializing our therapeutic candidates. An adverse result in these infringements
and other legal challenges could have a material adverse effect on our business, results of operations and financial conditions”
under the risk factor section titled “Risks Related to Legal Proceedings and Intellectual Property”.
These provisions and
resultant costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their duties, and
may similarly discourage the filing of derivative litigation by our shareholders against the directors and officers even though
such actions, if successful, might otherwise benefit our shareholders.
In
the event we do not satisfy the requirements for a tax-free merger of Kitov Pharmaceuticals with and into Kitov Parent, Kitov Pharmaceuticals
may be subject to a material tax liability.
The
board of directors of each of Kitov Parent and Kitov Pharmaceuticals has approved the merger of Kitov Pharmaceuticals with and
into Kitov Parent, with Kitov Parent as the surviving company. Based on our analysis, the merger satisfies the requirements for
a tax-free merger under Israeli tax law, which includes amongst other requirements, which are applicable to Kitov: that the merger
is being considered for business and economic purposes and that the primary goal of the merge is not tax avoidance or tax reduction;
compliance with certain limitations on selling off most of each of the companies’ assets should not be sold during the period
two years after the end of the tax year in which the change in the structure occurs; the merged company will continue its main
business activity in the same way it did prior to the merger; and operating losses carried forward (of both the participating companies)
may be deducted in the reports of the merged company, at the lower of a rate of 20% of the losses transferred each year, or up
to 50% of the taxable income of the merged company. In the event the Israel Tax Authority does not agree with our analysis, Kitov
Pharmaceuticals may be subject to a material tax amount on account of the sale equal to the value of its assets on the date of
transfer minus the cost basis for such assets. Such a tax liability may have a material adverse effect on our financial results.
We conduct our
operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel
and its region.
We are incorporated
under the laws of the State of Israel, our principal offices are located in central Israel and some of our officers, employees,
consultants and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding
region 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 Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade
within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and could
make it more difficult for us to raise capital. In 2008, 2012, and again in the summer of 2014, Israel was engaged in an armed
conflict with Hamas, a militia group and political party operating in the Gaza Strip, and during the summer of 2006, Israel was
engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These conflicts involved
missile strikes against civilian targets in various parts of Israel, and negatively affected business conditions in Israel. Political
uprisings and civil resistance demonstrations in various countries in the Middle East, including Egypt, Iraq and Syria, have affected
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 may lead to deterioration of the political relationships that exist
between Israel and these countries, and have raised concerns regarding security in the region and the potential for armed conflict.
The tension between Israel and Iran or extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon, may escalate
in the future and turn violent, which could affect the Israeli economy generally and us in particular. Any armed conflicts, terrorist
activities or political instability in the region could adversely affect business conditions and could harm our results of operations.
Parties with whom we may do business have sometimes declined to travel to Israel during periods of heightened unrest or tension,
forcing us to make alternative arrangements when necessary. The conflict situation in Israel could cause situations where medical
product certifying or auditing bodies could not be able to visit manufacturing facilities of our subcontractors in Israel in order
to review our certifications or clearances, thus possibly leading to temporary suspensions or even cancellations of our product
clearances or certifications. The conflict situation in Israel could also 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 events associated with the security situation in the Middle East. Although
the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts
of war, we cannot assure you that this government coverage will be maintained. 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 and could harm our results of operations.
Further, in the past,
the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business
and trade activity with the State of Israel and with Israeli companies, and additional countries may impose restrictions on doing
business with Israel and Israeli companies if hostilities in the region continue or intensify. Such restrictions may seriously
limit our ability to sell our products to customers in those countries.
Any of the factors set
forth above may have an adverse impact on our operating results, financial condition or the expansion of our business.
Kitov Parent owns
a majority interest in its subsidiary, TyrNovo. As a majority shareholder under the Israeli Companies Law Kitov Parent owes certain
fiduciary duties to the non-controlling shareholders of TyrNovo and must share dividends and distributions with these non-controlling
shareholders. In addition, in a stay of proceedings, reorganization or bankruptcy scenario, certain controlling shareholder loans
may become subordinated to other obligations of TyrNovo.
Kitov Parent presently
owns a controlling majority stake in TyrNovo, as well as the majority of TyrNovo’s presently outstanding debt obligations.
All the ordinary shares of TyrNovo that are not owned by Kitov Parent are privately held. In order to satisfy whatever fiduciary
obligations Kitov Parent may have under applicable law or other governing documents to the non-controlling shareholders of TyrNovo,
Kitov Parent endeavors to deal with TyrNovo at “arm’s-length.” Some transactions between Kitov Parent and TyrNovo,
including any cancellation of such transactions, may require the approval of the boards of directors of TyrNovo and/or Kitov Parent,
and, under certain circumstances, approval of the shareholders of TyrNovo and/or Kitov Parent by special vote and are subject to
the receipt of applicable permits and approvals, and therefore Kitov Parent’s ability to control TyrNovo may be limited.
For example, the
current articles of association of TyrNovo require that any loans taken by TyrNovo receive unanimous consent of all shareholders
present at a shareholders meeting called in order to approve such loan. The same special majority would be required in order to
amend such provision in the articles of association. It is unclear if these provision apply to the Convertible Loans to be provided
to TyrNovo by the Company and/or Taoz, a minority shareholder of TyrNovo, pursuant to a Binding Term Sheet between TyrNovo, Taoz
and Kitov Parent which was confirmed under a final judgment entered into by the Economic Division of the Tel Aviv District Court
on February 9, 2017. As such, it is presently unclear if Kitov Parent and/or Taoz can make investments into TyrNovo in the form
of such Convertible Loans, nor what might be the terms of any equity investments into TyrNovo in place of such Convertible Loans. For
more information
on the Convertible Loans and the Court approved settlement, see
“
Item
7. Major Shareholders and Related Party Transactions B. – Related Party Transactions – TyrNovo Ltd.
” in
our Annual Report on Form 20-F for the year ended December 31, 2016.
In addition, any
dividend or distribution from TyrNovo requires the approval of the directors of TyrNovo and may be subject to restrictions imposed
other agreements to which they are party, and therefore there may be limits on the dividends or distributions Kitov Parent receives
from TyrNovo and from any commercialization of NT219. In addition, in a stay of proceedings, reorganization or bankruptcy scenario,
certain controlling shareholder loans may become subordinated to other obligations of the subsidiary, and Kitov Parent’s
priority rights over loans it has made to TyrNovo may be pushed back in such proceedings.
Provisions of
Israeli law and Kitov Parent’s amended and restated articles of association or TyrNovo’s articles of association may
delay, prevent or otherwise impede a merger with, or an acquisition of, the Company or TyrNovo, or an acquisition of a significant
portion of Kitov Parent’s or TyrNovo’s shares, which could prevent a change of control, and negatively affect the market
price of Kitov Parent’s ordinary shares.
Israeli corporate
law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals
for certain transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant
to these types of transactions. These provisions of Israeli law may delay, prevent or make difficult an acquisition of us, which
could prevent a change of control and therefore depress the price of our shares. See “Item 10. Additional Information –
B. Memorandum and Articles of Association – Provisions restricting change in control of our company” in our Annual
Report on Form 20-F for the year ended December 31, 2016 for more information.
Furthermore, Israeli
tax considerations may make potential transactions unappealing to us or to our shareholders, especially for those shareholders
whose country of residence does not have a tax treaty with Israel which exempts such shareholders from Israeli tax. For example,
Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli
tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions,
including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of
shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions,
the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has
occurred.
Kitov Parent’s
amended and restated articles of association also contain provisions that could delay or prevent changes in control or changes
in our management. These provisions include matters in connection with the election and removal of directors, such as Kitov Parent’s
staggered board of directors, the appointment by Kitov Parent’s board of directors of additional directors to fill vacancies
on the board of directors, the size of the Kitov Parent’s board of directors, the terms of office of Kitov Parent’s
directors and the special majority of Kitov Parent’s voting rights required to amend such provision in its amended and restated
articles of association. See “Item 6. Directors, Senior Management and Employees – C. Board Practices - Board of Directors
and Officers” and “Item 10. Additional Information – B. Memorandum and Articles of Association – Provisions
restricting change in control of our company” in our Annual Report on Form 20-F for the year ended December 31, 2016 for
more information.
In addition, Kitov Parent
has 1,000,000,000 shares of non-voting senior preferred shares authorized, which can be issued by its board of directors, who can
establish conversion, redemption, optional and other special rights, qualifications, limitations or restrictions, if any, of the
non-voting senior preferred shares, without further actions by Kitov Parent’s shareholders, unless shareholder approval is
otherwise required by applicable law, the rules of any exchange or other market on which its securities may then be listed or traded,
its articles of association then in effect, or any other applicable rules and regulations. Furthermore, in a merger between Israeli
corporations, if the non-surviving entity has more than one class of shares, the merger may need to be approved by each class of
shareholders, including any classes of otherwise non-voting shares, such as the non-voting senior preferred shares authorized in
Kitov Parent’s share capital.
Kitov Parent’s
subsidiary, TyrNovo, has obligations to the OCS with respect to grants from the OCS for certain research and development expenditures
in connection with TyrNovo’s technology. The terms of these grants may require us to satisfy specified conditions in order
to manufacture products and transfer technologies outside of Israel, which may impede our acquisition by, or a merger with, a foreign
company. For more information, see the risk factors in connection with OCS funding found under “Risks Related to Our Financial
Condition and Capital Requirements.”
These and other similar
provisions could delay, prevent or impede an acquisition of us or our merger with another company, or an acquisition of a significant
portion of our shares, even if such an acquisition or merger would be beneficial to us or to our shareholders. See “Item
10. Additional Information – B. Memorandum and Articles of Association – Provisions Restricting Change in Control of
Our Company” and “Item 10. Additional Information – E. Taxation—Israeli Tax Considerations and Government
Programs” in our Annual Report on Form 20-F for the year ended December 31, 2016 for additional information.
Because a certain
portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency
fluctuations and inflation.
Our reporting and functional
currency is the U.S. dollar. Most of the royalty payments from potential development and commercialization partners are expected
to be payable in U.S. dollars, and we expect our revenues from future licensing agreements to be denominated mainly in U.S. dollars
or in Euros. We pay a portion of our expenses in U.S. dollars; however, a portion of our expenses, related to salaries of the employees
in Israel and payment to part of the service providers in Israel, are paid in NIS and in other currencies. In addition, a portion
of our financial assets is held in NIS. As a result, we are exposed to currency fluctuation risks. For example, if the NIS strengthens
against the U.S. dollar, our reported expenses in U.S. dollars may be higher than anticipated. In addition, if the NIS weakens
against the U.S. dollar, the U.S. dollar value of our financial assets held in NIS will decline.
Your obligations
and responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the obligations and
responsibilities of shareholders of U.S. companies. Israeli law may impose obligations and responsibilities on a shareholder of
an Israeli company that are not imposed upon shareholders of corporations in the U.S.
We are incorporated
under Israeli law. The obligations and responsibilities of the holders of our ordinary shares are governed by our amended and restated
articles of association and Israeli law. These obligations and responsibilities differ in some respects from the obligations and
responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty
to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including,
among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles
of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions
requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a
shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness
toward the company. There is limited case law available to assist us in understanding the implications of these provisions that
govern shareholders’ actions. These provisions may be interpreted to impose additional obligations and responsibilities on
holders of our ordinary shares and/or ADSs that are not typically imposed on shareholders of U.S. corporations.
Risks primarily related to our ADSs
and ordinary shares and other listed securities
We have identified
a material weakness in our internal control over financial reporting which, if not remediated, could adversely affect our reputation,
business or stock price.
As described under “Item
15 - Controls and Procedures” in our Annual Report on Form 20-F for the year ended December 31, 2016, based on our evaluation
of whether our existing internal controls over financial reporting systems are compliant with Section 404 and whether there are
any material weaknesses or significant deficiencies in our existing internal controls, our management, including the chief executive
officer and chief financial officer, has concluded that our disclosure controls and procedures as of the end of the period covered
by this annual report, reflected a material weakness in internal control over financial reporting that would require us to enhance
our procedures and systems relating to financial reporting, primarily due to the factor described below. A material weakness is
a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility
that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a
timely basis.
A deficiency was identified
in our internal control over financial reporting related to the operation of the control to review the accounting for significant
non-routine and complex transactions to ensure proper application of IFRS. This control did not operate effectively due to the
lack of timely involvement of the qualified technical resources to perform the required management review. As a result, during
the audit process, an error was detected in the accounting for equity and derivative instruments, which was corrected prior to
filing our audited financial statements for 2016.
Although we have developed
and are implementing a plan to remediate this material weakness and believe, based on our evaluation to date, that this material
weakness will be remediated during 2017, we cannot assure you that this will occur within the contemplated timeframe. Moreover,
we cannot assure you that we will not identify additional material weaknesses in our internal control over financial reporting
in the future, nor that our disclosure controls and procedures will detect or uncover all failures of persons within the Company
to disclose material information otherwise required to be set forth in our reports. If we are unable to remediate the material
weakness, our ability to record, process and report financial information accurately, and to prepare financial statements within
the time periods specified by the rules and forms of SEC, could be adversely affected. The occurrence of or failure to remediate
the material weakness may adversely affect our reputation and business and the market price of our ordinary shares, public warrants
and any other securities we may issue.
We incur increased
costs as a result of operating as a public company in the U.S, and our management will be required to devote substantial time to
new compliance initiatives.
Kitov Parent’s
ADSs and public warrants have been traded on NASDAQ since November 20, 2015. As a public company whose securities are listed in
the United States, we incur accounting, legal and other expenses that we did not incur as a public company listed on the TASE,
including costs associated with our reporting requirements under the Exchange Act. We also anticipate that we will incur costs
associated with corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley
Act, as well as rules implemented by the SEC and NASDAQ, and provisions of Israeli corporate law applicable to public companies.
We expect that these rules and regulations will increase our legal and financial compliance costs, introduce new costs such as
investor relations and stock exchange listing fees, and will make some activities more time-consuming and costly. We are currently
evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional
costs we may incur or the timing of such costs.
As an “emerging
growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, we may take advantage of certain temporary
exemptions from various reporting requirements, including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations of the SEC thereunder). When these exemptions
cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them.
We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing
of such costs.
Pursuant to Section
404 of the Sarbanes-Oxley Act and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, starting
with our 2016 annual report on Form 20-F, and each subsequent annual report thereafter that we file with the SEC, our management
is required to report on the effectiveness of our internal control over financial reporting. In addition, once we no longer qualify
as an “emerging growth company” under the JOBS Act and lose the ability to rely on the exemptions related thereto discussed
above and depending on our status as per Rule 12b-2 of the Exchange Act, our independent registered public accounting firm may
also need to attest to the effectiveness of our internal control over financial reporting under Section 404.
We have only very recently
commenced the process of determining whether our existing internal controls over financial reporting systems are compliant with
Section 404 and whether there are any material weaknesses or significant deficiencies in our existing internal controls. This process
requires the investment of substantial time and resources, including by our chief financial officer and other members of our senior
management. As a result, this process may divert internal resources and take a significant amount of time and effort to complete.
We cannot predict the
outcome of evaluations we will conduct, and whether we will need to implement additional remedial actions in order to implement
effective controls over financial reporting. The determination and any remedial actions required could result in us incurring additional
costs that we did not anticipate, including the hiring of outside consultants. Irrespective of compliance with Section 404, any
failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation.
As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and
after the implementation of these changes. If we are unable to implement any of the required changes to our internal control over
financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our
operations, financial reporting and/or results of operations and could result in an adverse opinion on internal controls from our
independent auditors and cause the market price of Kitov Parent’s ordinary shares, ADSs and public warrants to decline.
Changes in the laws
and regulations affecting public companies will result in increased costs to us as we respond to their requirements. These laws
and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and
officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs
to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and
retain qualified persons to serve on our board of directors, our board committees or as executive officers. We cannot predict or
estimate the amount or timing of additional costs we may incur in order to comply with such requirements.
We will likely
be classified as a Passive Foreign Investment Company, or PFIC, for U.S. federal income tax purposes in 2017 and may continue to
be a PFIC in future years, which may have negative tax consequences for U.S. investors.
We will be treated as a PFIC for U.S. federal
income tax purposes in any taxable year in which either (i) at least 75% of our gross income is “passive income” or
(ii) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Based
on our estimated gross income, the average value of our gross assets, and the nature of our business, we believe that we likely
will be classified as a PFIC in the current taxable year and may be classified as a PFIC in future years. If we are treated as
a PFIC for any taxable year during which a U.S. investor held our ADSs, certain adverse U.S. federal income tax consequences could
apply to the U.S. investor. See “Taxation and Government Programs – Passive Foreign Investment Company Consequences.”
in our Annual Report on Form 20-F for the year ended December 31, 2016.
The market price
of Kitov Parent’s ordinary shares, ADSs and public warrants is subject to fluctuation, which could result in substantial
losses by investors.
The stock market in
general, and the market price of Kitov Parent’s ordinary shares on the TASE and its ADSs and Series A warrants on NASDAQ
in particular, are subject to fluctuation, and changes in the price of its listed securities may be unrelated to our operating
performance. The market prices of Kitov Parent’s ordinary shares on the TASE and its ADSs and public warrants on NASDAQ have
fluctuated in the past, and we expect it will continue to do so. The market price of Kitov Parent’s ordinary shares, ADSs
and public warrants are and will be subject to a number of factors, including:
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announcements of technological
innovations or new therapeutic candidates by us or others;
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announcements by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, joint ventures or capital commitments;
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expiration or terminations of licenses, research contracts or other development or commercialization agreements;
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public concern as to the safety of drugs that we, our current or potential development and commercialization partners or others develop;
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the volatility of market prices for shares of biotechnology companies generally;
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success or failure of research and development projects;
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departure of key personnel;
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developments concerning intellectual property rights or regulatory approvals;
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variations in our and our competitors’ results of operations;
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changes in earnings estimates or recommendations by securities analysts, if Kitov Parent’s ordinary shares or ADSs or public warrants are covered by analysts;
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changes in government regulations or patent decisions;
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developments by our current or potential development and commercialization partners; and
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general market conditions and other factors, including factors unrelated to our operating performance.
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These factors and any
corresponding price fluctuations may materially and adversely affect the market price of Kitov Parent’s ordinary shares and
ADSs and public warrants and result in substantial losses by investors.
Additionally, market
prices for listed securities of biotechnology and pharmaceutical companies historically have been very volatile. The market for
these listed securities has from time to time experienced significant price and volume fluctuations for reasons unrelated to the
operating performance of any one company. In the past, following periods of market volatility, shareholders have often instituted
securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources
and attention of management from our business, even if we are successful.
Future sales of
Kitov Parent’s ordinary shares or ADSs or other warrants or convertible securities could reduce the market price of its ordinary
shares and ADSs and other listed securities.
As of July 10, 2017,
we had an aggregate of 164,529,717 issued and outstanding ordinary shares (including 21 dormant ordinary shares held in treasury)
(such number of ordinary shares would be represented by 8,226,486 of Kitov Parent’s ADSs), no non-voting senior preferred
shares, 6,835,669 Series A or public warrants, representative’s warrants to purchase 157,945 of its ADSs, which were granted
to the underwriters as part of Kitov Parent’s initial U.S. offering in November 2015, placement agent’s warrants to
purchase 141,176 of its ADSs, which were granted to the placement agent as part of its follow-on U.S. offering in July 2016, and
11,583,883 non-tradable options to purchase 9,932,523 ordinary shares, (such number of non-tradable options and their underlying
ordinary shares would be represented by 496,626 of its ADSs). We may also issue additional ordinary shares or ADSs of Kitov Parent
to the remaining shareholders of TyrNovo with whom we are in discussions concerning a possible acquisition of the remaining shares
of TyrNovo not currently held by us. Substantial sales of Kitov Parent’s ordinary shares or ADSs or other warrants or securities
convertible into ordinary shares or ADSs, or the perception that such sales may occur in the future, including sales of ordinary
shares or ADSs issuable upon the exercise of options or the conversion of convertible securities, may cause the market price of
Kitov Parent’s ordinary shares or ADSs or other listed securities to decline. Moreover, the issuance of shares or ADSs in
connection with the future acquisition of additional shares of TyrNovo or pursuant to the conversion or exercise of options, warrants
or any other convertible securities Kitov Parent and/or TyrNovo may issue will also have a dilutive effect on Kitov Parent’s
shareholders, which could further reduce the price of its ordinary shares and ADSs and other listed securities on their respective
exchanges.
Future sales of
TyrNovo’s ordinary shares or other warrants or convertible securities could dilute our holdings in TyrNovo, and reduce the
value of TyrNovo reflected in our holdings of TyrNovo and also reduce the market price of Kitov Parent’s ordinary shares
and ADSs and other listed securities.
As of July 10, 2017,
Kitov Parent held a controlling equity interest in TyrNovo representing approximately 65% of its issued and outstanding share capital.
In addition we held a loan to TyrNovo of $101,157, the repayment date and other terms of such which have not been determined. In
addition Kitov Parent and TyrNovo entered into a Revolving Secured Facility and Pledge Agreement on March 1, 2017, pursuant to
which Kitov Parent has made loans to TyrNovo in an aggregate amount of $750,000. As part of our settlement arrangements with Taoz
– Company for Management and Holdings of Companies Ltd. (“Taoz”), a minority shareholder in TyrNovo, Taoz is
entitled for a certain period of time to invest up to an additional $1,750,000 in TyrNovo by way of loans which are convertible
into TyrNovo equity. Furthermore, in the event that Kitov Parent increases its shareholdings in TyrNovo, through the purchase of
additional shares from TyrNovo’s other current shareholders, then for a certain period of time Taoz shall have the option
to purchase from Kitov Parent up to 30% of such newly acquired shares in TyrNovo. Such arrangements could serve to dilute Kitov
Parent’s holdings in TyrNovo. Substantial sales of TyrNovo’s ordinary shares or other warrants or securities convertible
into ordinary shares of TyrNovo, may cause the holdings of Kitov Parent in TyrNovo to be diluted, and such dilution, or the perception
that such sales may occur in the future, including sales of ordinary shares of TyrNovo issuable upon the exercise of options or
the conversion of convertible securities into shares of TyrNovo may cause the market price of Kitov Parent’s ordinary shares
or ADSs or other listed securities to decline.
As a foreign private
issuer, we are permitted to follow certain home country corporate governance practices instead of applicable Securities and Exchange
Commission and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to
U.S domestic issuers.
As a foreign private
issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under
NASDAQ Listing Rules for U.S domestic issuers. We will follow home country practice in Israel with regard to (1) director nomination
procedures, as permitted by the Companies Law, under which either our board of directors, a group of directors, or shareholder(s)
holding sufficient portion of our share capital selects director nominees, subject to the terms of our amended and restated articles
of association. Directors are not selected, or recommended for board of director selection, as required by NASDAQ Listing Rules,
by independent directors constituting a majority of the board’s independent directors or by a nominations committee comprised
solely of independent directors, and (2) quorum requirement at shareholders’ meetings, as permitted under the Companies Law,
under which and pursuant to our amended and restated articles of association, the quorum required for an ordinary meeting of shareholders
consists of at least two shareholders present in person or by proxy who hold or represent at least 25% of the voting rights of
our shares (and in an adjourned meeting, with some exceptions, any number of shareholders), instead of 33 1/3% of the issued share
capital required under NASDAQ Listing Rules. In addition, we will follow our home country law, instead of NASDAQ Listing Rules,
which require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain
equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other
than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets
of another company.
In the future we may
elect to follow additional home country corporate governance practices instead of those otherwise required under NASDAQ Listing
Rules for U.S domestic issuers. Following our home country governance practices as opposed to the requirements that would otherwise
apply to a U.S. company listed on NASDAQ may provide less protection than is accorded to investors under NASDAQ Listing Rules applicable
to domestic issuers.
In addition, as a foreign
private issuer, we will be exempt from the rules and regulations under the U.S. Securities Exchange Act of 1934, as amended or
the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders
will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
In addition, we will
not be required under the Exchange Act, to file annual, quarterly and current reports and financial statements with the SEC as
frequently or as promptly as domestic companies whose securities are registered under the Exchange Act. As our ordinary shares
are traded on the Tel Aviv Stock Exchange (“TASE”), while our ADSs and Series A warrants are traded on NASDAQ, we currently
also report to the ISA and the TASE in accordance with the provisions of Section 35XXXIII of the Israel Securities Law, 5728-1968
and the Securities Regulations (Periodic and Immediate Reports of a Foreign Body Corporate) 5761-2000, promulgated thereunder (the
“Dual-Listed Reporting Requirements”). Pursuant to the Dual-Listed Reporting Requirements, we prepare our periodic
and immediate reports in accordance with U.S. securities laws and reporting requirements, as applicable to a foreign private issuer.
We intend to file with the SEC, within 120 days after the end of each fiscal year ending December 31, an annual report on Form
20-F containing financial statements which will be examined and reported on, with an opinion expressed, by an independent registered
public accounting firm. In accordance with NASDAQ Listing Rules, as a foreign private issuer we are required to submit on a Form
6-K an interim balance sheet and income statement as of the end of the second quarter of each fiscal year. Furthermore, we have
committed to the underwriters of our initial U.S public offering which was completed in November 2015 that for a period of three
(3) years from November 25, 2015, we, at our expense, will announce its financial information for each of the first three fiscal
quarters consistent with the practices of companies which are dual-listed on both the Tel Aviv Stock Exchange and a domestic U.S.
securities exchange and report in accordance with the Dual-Listed Reporting Requirements; provided that the foregoing shall not
apply in the event we enter into a merger transaction in which we are the non-surviving entity that would cause our ADSs and warrants
to no longer be registered under the Exchange Act. The Representative of the underwriters of our initial U.S public offering which
was completed in November 2015 has previously waived the announcement by us with respect to the filing of quarterly financial information,
and may issue such waivers to us in the future. It is noted that recent amendments to the Israel Securities Law and regulations
enacted thereunder, dispense with the requirement for the announcement of financial results for each of the first and third fiscal
quarters of a calendar year for certain smaller sized TASE listed companies which report under TASE only listed reporting requirements.
We believe that, were we reporting under the TASE only listed reporting requirements (and not the Dual Listed Reporting Requirements),
we would qualify for such dispensation based on our company size as set forth in the regulation. In addition the SEC has recently
announced that it is seeking comment for the dispensation of the requirement for the announcement of financial results for each
of the first and third fiscal quarters for certain U.S. domestic issuers. Thus it remains uncertain as to how companies dual-listed
on both the Tel Aviv Stock Exchange and a domestic U.S. securities exchange, and report in accordance with the in accordance with
the Dual-Listed Reporting Requirements, will continue their practices with respect to the announcements of financial information
for each of the first and third fiscal quarters, and it is possible that we may adopt practices for the announcement (if any) of
financial information for each of the first and third fiscal quarters which are different than what we have provided in the past.
The depositary
for the ADSs will give us a discretionary proxy to vote our ordinary shares underlying ADSs if a holder of ADSs does not provide
voting instructions, except in limited circumstances, which could adversely affect their interests.
Under the deposit agreement
for the ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares underlying ADSs at shareholders’
meetings if a holder of our ADSs does not provide voting instructions, unless:
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we have instructed the depositary that we do not wish a discretionary proxy to be given;
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we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or
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a matter to be voted on at the meeting would have a material adverse impact on shareholders.
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The effect of this discretionary
proxy is that a holder of our ADSs cannot prevent our ordinary shares underlying such ADSs from being voted, absent the situations
described above, and it may make it more difficult for shareholders to influence the management of our company. Holders of our
ordinary shares listed for trading on the TASE are not subject to this discretionary proxy.
We currently do
not anticipate paying cash dividends, and accordingly, shareholders must rely on the appreciation in our ADSs for any return on
their investment.
We currently anticipate
that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring
or paying any cash dividends for the foreseeable future. Therefore, the success of an investment in our ADSs will depend upon any
future appreciation in their value. There is no guarantee that our ADSs will appreciate in value or even maintain the price at
which our holders have purchased their ADSs.
The ability of
any Israeli company to pay dividends or repurchase its shares is subject to Israeli law, and the amount of cash dividends payable
may be subject to devaluation in the Israeli currency.
The ability of an Israeli
company to pay dividends or repurchase its shares is governed by Israeli law, which provides that distributions, including cash
dividends and share repurchases, may be made only out of retained earnings as determined for statutory purposes. Since we do not
have earnings, we currently do not have any ability to pay dividends or repurchase our shares.
Investors in our
ADSs may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited
circumstances, investors in our ADSs may not receive any value for them, if it is illegal or impractical to make them available
to investors in our ADSs.
The depositary for the
ADSs has agreed to pay investors in our ADSs the cash dividends or other distributions it or the custodian receives on ordinary
shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. Investors in our ADSs will receive
these distributions in proportion to the number of ordinary shares their ADSs represent. However, the depositary is not responsible
if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would
be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities
Act of 1933, as amended or the Securities Act, but that are not properly registered or distributed under an applicable exemption
from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend which was distributed
in foreign currency made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any
government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property
and hold it as “deposited securities” or may seek to affect a substitute dividend or distribution, including net cash
proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation
to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions.
We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else
to holders of ADSs. In addition, the depositary may withhold from such dividends or distributions its fees and an amount on account
of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means
that investors in our ADSs may not receive the same distributions or dividends as those we make to the holders of our ordinary
shares, and, in some limited circumstances, investors in our ADSs may not receive any value for such distributions or dividends
if it is illegal or impractical for us to make them available to investors in our ADSs. These restrictions may cause a material
decline in the value of the ADSs.
Holders of ADSs
must act through the depositary to exercise rights of shareholders of our company.
Holders of our ADSs
do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying ordinary
shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required
to convene a shareholders’ meeting is no less than 35 or 21 calendar days, depending on the proposals on the agenda for the
shareholders’ meeting. When a shareholder meeting is convened, holders of our ADSs may not receive sufficient notice of the
meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respect to any specific matter.
In addition, the depositary and its agents may not be able to send notice to holders of our ADSs or carry out their voting instructions
in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of our ADSs
in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct
the depositary to vote the ordinary shares underlying their ADSs. Furthermore, the depositary and its agents will not be responsible
for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote.
As a result, holders of our ADSs may not be able to exercise their right to vote and they may lack recourse if the ordinary shares
underlying their ADSs are not voted as they requested. In addition, ADS holders will not be able to call a shareholders’
meeting unless they first withdraw their ordinary shares from the ADS program and receive delivery of the underlying ordinary shares
held in the Israeli market in order to allow them to submit to us a request to call a meeting with respect to any specific matter,
in accordance with the applicable provisions of the Companies Law and our amended and restated articles of association.
Our ordinary shares
and our ADSs and Series A warrants are traded on different markets and this may result in price variations.
Our ordinary shares
trade on the TASE, and our ADSs and Series A warrants trade on NASDAQ. Trading on these markets take place in different currencies
(U.S. dollars on NASDAQ and New Israeli Shekels, or NIS, on the TASE), and at different times (resulting from different time zones,
different trading days and different public holidays in the U.S. and Israel). The trading prices of our securities on these two
markets may differ due to these and other factors. Any decrease in the price of our securities on one of these markets could cause
a decrease in the trading price of our securities on the other market.
Our ADSs and Series
A warrants have little prior trading history in the U.S., and present level of market activity may not be sustained, which may
limit the ability of our investors to sell our ADSs in the U.S.
Although our ADSs and
Series A warrants have been traded on NASDAQ since November 20, 2015, the present level of market activity for our ADSs and Series
A warrants may not be sustained. If an active market for our ADSs and Series A warrants is not sustained, it may be difficult for
an investor to sell its ADSs, Series A warrants or the ADSs underlying the warrants being issued in this offering.
We can issue non-voting
senior preferred shares without shareholder approval, which could adversely affect the rights of holders of ordinary shares.
Our amended and restated
articles of association permit us to establish the rights, privileges, preferences and restrictions of future series of our non-voting
senior preferred shares, which contain superior liquidation and dividend rights, and may contain other rights, including conversion,
redemption, optional and other special rights, qualifications, limitations or restrictions, equivalent or superior to our ordinary
shares and to issue such non-voting senior preferred shares without further approval from our shareholders. The rights of holders
of our ordinary shares may suffer as a result of the rights granted to holders of non-voting senior preferred shares that we may
issue in the future. In addition, we could issue non-voting senior preferred shares containing rights that prevent a change in
control or merger, thereby depriving holders of our ordinary shares of an opportunity to sell their shares at a price in excess
of the prevailing market price.
If equity research
analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ADSs or
Series A warrants, the price of our ADSs or Series A warrants could decline.
The trading market for
our ADSs and Series A warrants will rely in part on the research and reports that equity research analysts publish about us and
our business. The price of our ADSs or Series A warrants could decline if such research or reports are not published or if one
or more securities analysts downgrade our ADSs or Series A warrants or if those analysts issue other unfavorable commentary or
cease publishing reports about us or our business.
We have broad
discretion as to the use of the net proceeds from our November 2015 initial public offering in the U.S., and from our July 2016
follow-on public offering in the U.S., and may not use them effectively.
We currently intend
to use the net proceeds from our November 2015 initial public offering on NASDAQ and our July 2016 follow-on public offering to
expand our clinical development program, specifically with respect to our Phase III clinical trial for our leading therapeutic
candidate, KIT-302, finance the CMC activities required for submitting a New Drug Application to the FDA, perform the final PK
(pharmacokinetic) trial for the selected formulation of KIT-302, finance our business development activities to enable out-licensing
of our leading therapeutic candidate, KIT-302, expand our clinical development pipeline for additional drug products; and for general
corporate purposes, including working capital requirements. For more information, see “Item 14 Material Modifications to
the Rights of Security Holders and Use of Proceeds – E. Use of Proceeds” in our Annual Report on Form 20-F for the
year ended December 31, 2016. In addition, we intend to continue to use the net proceeds of our July 2016 follow-on public offering
to fund the possible acquisition of new therapeutic candidates and for general working capital purposes. We currently have no binding
agreements or commitments to complete any transaction for the possible acquisition of new therapeutic candidates. There is no certainty
that we will be able to complete any transactions for the possible acquisition of new therapeutic candidates. However, our management
will have broad discretion in the application of the net proceeds from the public offerings. Our shareholders may not agree with
the manner in which our management chooses to allocate the net proceeds from the public offerings. The failure by our management
to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation.
Pending their use, we may invest the net proceeds from the public offerings in a manner that does not produce income.
We are an “emerging
growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our ordinary shares
less attractive to investors.
We are an “emerging
growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements that
are applicable to other public companies that are not “emerging growth companies.” Most of such requirements relate
to disclosures that we would only be required to make if we also ceased to be a foreign private issuer in the future, for example,
the requirement to hold shareholder advisory votes on executive and severance compensation and executive compensation disclosure
requirements for U.S. companies. However, as a foreign private issuer, we would still be required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act. We are exempt from such requirement for as long as we remain an emerging
growth company, which may be up to five fiscal years after the date of this offering. We will remain an emerging growth company
until the earliest of: (a) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion;
(b) the last day of our fiscal year following the fifth anniversary of the closing of our initial U.S. offering; (c) the date on
which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on
which we are deemed to be a “large accelerated filer” under the Exchange Act. When we are no longer deemed to be an
emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. We cannot predict
if investors will find our ordinary shares, ADSs, or warrants less attractive as a result of our reliance on exemptions under the
JOBS Act. If some investors find our ordinary shares, ADS, or warrants less attractive as a result, there may be a less active
trading market for our ordinary shares, ADS, and warrants and our share price may be more volatile.
Risks related to the offering
ADSs representing
a substantial percentage of our outstanding shares may be sold in this offering and in the concurrent private placement, which
could cause the price of our ADSs and Ordinary Shares
to
decline
.
Pursuant to this offering,
we will sell 2,431,746 ADSs representing 48,634,920 Ordinary Shares, or approximately 29.6% of our outstanding Ordinary
Shares as of July 10, 2017. In addition, pursuant to the concurrent private placement, we will sell warrants to purchase up
to an additional 1,215,873 ADSs, representing approximately 14.8% of our outstanding Ordinary Shares as of July 10, 2017. These
sales and any future sales of a substantial number of ADSs and/or warrants in the public market, or the perception that such sales
may occur, could materially adversely affect the price of our ADSs and Ordinary Shares. We cannot predict the effect, if any, that
market sales of those ADSs and warrants to purchase ADSs or the availability of those ADSs and warrants for sale will have on the
market price of our ADSs and Ordinary Shares.
Our management
team will have immediate and broad discretion over the use of the net proceeds from this offering and may not use them effectively.
We currently intend
to use the net proceeds of this offering to fund the possible acquisition of new therapeutic candidates and for general working
capital purposes. See “Use of Proceeds.” However, our management will have broad discretion in the application of
the net proceeds. Our shareholders may not agree with the manner in which our management chooses to allocate the net proceeds
from this offering. The failure by our management to apply these funds effectively could have a material adverse effect on our
business, financial condition and results of operation. Pending their use, we may invest the net proceeds from this offering in
a manner that does not produce income. The decisions made by our management may not result in positive returns on your investment
and you will not have an opportunity to evaluate the economic, financial or other information upon which our management bases
its decisions.
The offering may
not be fully subscribed, and, even if the offering is fully subscribed, we will need additional capital in the future. If additional
capital is not available, we may not be able to continue to operate our business pursuant to our business plan or we may have to
discontinue our operations entirely.
The placement agent
in this offering will offer the securities on a “best-efforts” basis, meaning that we may raise substantially less
than the total maximum offering amount. We will not provide any refund to investors if less than all of the securities are sold.
We have incurred losses in each year since our inception. If we continue to use cash at our historical rates of use and proceed
with potential acquisitions or in-licensing transactions we will need significant additional financing, which we may seek to raise
through, among other things, public and private equity offerings and debt financing. Any equity financings will likely be dilutive
to existing shareholders, and any debt financings will likely involve covenants restricting our business activities. Additional
financing may not be available on acceptable terms, or at all.
CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying
prospectus, and the information incorporated by reference herein and therein may include forward looking statements. These statements
involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements
to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms including “anticipates,” “believes,”
“could,” “estimates,” “expects,” “intends,” “may,” “plans,”
“potential,” “predicts,” “projects,” “should,” “will,” “would,”
and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and uncertainties. In addition, certain sections of
this prospectus supplement, the accompanying prospectus, and the information incorporated by reference herein contain information
obtained from independent industry and other sources that we have not independently verified. You should not put undue reliance
on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws,
we do not intend to update or revise any forward-looking statements.
Our ability to predict our operating results
or the effects of various events on our operating results is inherently uncertain. Therefore, we caution you to consider carefully
the matters described under the caption “Risk Factors” on
page S-9
of
this prospectus supplement, and certain other matters discussed in this prospectus supplement, the accompanying prospectus,
and the information incorporated by reference herein and therein, and other publicly available sources. Such factors and many other
factors beyond our control could cause our actual results, performance or achievements to be materially different from any future
results, performance or achievements that may be expressed or implied by the forward-looking statements.
Factors that could cause our actual results
to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:
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the initiation, timing, progress and results of our research, manufacturing, preclinical studies, clinical trials, and other therapeutic candidate development efforts, as well as the extent and number of additional studies that we may be required to conduct;
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our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinical studies or clinical trials;
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our receipt of regulatory clarity and approvals for our therapeutic candidates and the timing of other regulatory filings and approvals;
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a delay or rejection of an NDA for one or more of our therapeutic candidates;
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the regulatory environment and changes in the health policies and regimes in the countries in which we operate including the impact of any change in regulation and legislation that could affect the pharmaceutical industry, and the difficulty of predicting actions of the FDA or any other applicable regulator of pharmaceutical products;
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the research, manufacturing, preclinical and clinical development, commercialization, and market acceptance of our therapeutic candidates;
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our ability to successfully acquire, develop or commercialize our pharmaceutical products;
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our ability to establish and maintain corporate collaborations;
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the interpretation of the properties and characteristics of our therapeutic candidates and of the results obtained with our therapeutic candidates in preclinical studies or clinical trials;
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the implementation of our business model, strategic plans for our business and therapeutic candidates;
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the scope of protection we are able to establish and maintain for intellectual property rights covering our therapeutic candidates and our ability to operate our business without infringing the intellectual property rights of others;
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estimates of our expenses, future revenues capital requirements and our needs for additional financing;
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the uncertainty surrounding an investigation by the Israel Securities Authority into our historical public disclosures and the potential impact of such investigation on the trading and price of the Company’s securities or on our clinical, commercial and other business relationships, or on receiving the regulatory approvals necessary in order to commercialize our products;
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the impact of competitive companies, technologies and our industry; and
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the impact of the political and security situation in Israel, the U.S. and other countries we may obtain approvals for our products on our business.
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USE OF PROCEEDS
We estimate that our
net proceeds from this offering will be approximately $3.061 million, after deducting the placement agent fees and estimated offering
expenses payable by us.
We intend to use the
net proceeds of this offering to fund the possible acquisition of new therapeutic candidates and for general working capital purposes.
We currently have no binding agreements or commitments to complete any transaction for the possible acquisition of new therapeutic
candidates, though we are currently exploring possible candidates. There is no certainty that we will be able to complete any transactions
for the possible acquisition of new therapeutic candidates.
Our expected use of net proceeds from the
offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus
supplement, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion
of the offering, or the amounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our
actual use of the net proceeds will vary depending on numerous factors, including, our ability to identify additional therapeutic
candidates to be acquired or developed, and our ability to finalize any negotiations and enter into definitive agreements in connection
with the possible acquisition of new therapeutic candidates, and to close such transactions. As a result, our management will have
broad discretion in the application of the net proceeds, which may include uses not set forth above, and investors in our securities
will be relying on our judgment regarding the application of the net proceeds from the offering.
CAPITALIZATION AND INDEBTEDNESS
The following table sets forth our total capitalization as of
December 31, 2016:
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on an actual basis;
and
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on an as-adjusted
basis to reflect the sale of 2,431,746 ADSs representing 48,634,920 Ordinary Shares
in this offering at the offering price of $1.45 per ADS and the receipt by us of net proceeds of approximately $3.061 million,
after deducting placement agent fees and estimated offering expenses payable by us in connection with this offering and the
concurrent private placement (assuming no exercise of the warrants offered in the concurrent private placement and no proceeds,
if any, from the exercise of warrants issued in the concurrent private placement).
|
The information set forth in the following
table should be read in conjunction with and is qualified in its entirety by reference to the audited and unaudited financial statements
and notes thereto incorporated by reference in this prospectus supplement and the accompanying prospectus.
|
|
As of December 31, 2016
|
|
(In thousands, except share data)
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
|
|
Cash and cash equivalents and short-term deposits
|
|
|
14,657
|
|
|
|
17,718
|
|
|
|
|
|
|
|
|
|
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Shareholders' equity:
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
|
|
|
|
|
|
Share premium
|
|
|
30,826
|
|
|
|
33,887
|
|
Capital reserves
|
|
|
8,759
|
|
|
|
8,759
|
|
Accumulated deficit
|
|
|
(26,200
|
)
|
|
|
(26,200
|
)
|
|
|
|
|
|
|
|
|
|
Total Shareholders' equity
|
|
|
13,385
|
|
|
|
16,446
|
|
Total capitalization
|
|
|
13,385
|
|
|
|
16,446
|
|
The number of ADSs to
be outstanding after this offering excludes:
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●
|
9,750,130
ordinary shares issuable at a weighted average exercise price of NIS 0.98 (approximately $0.28) per share issuable to holders
of our options issued, as applicable, under our 2013 Option Plan, as amended, or our 2016 Equity Incentive Plan, (such number
of ordinary shares would be represented by 487,506 of our ADSs);
|
|
|
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●
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142,695,863
ordinary shares underlying the ADSs issuable upon exercise of the Series A warrants and the representative's warrants issued
in our initial public offering, and the Series A warrants and the placement agent warrants issued as part of our
offering in July 2016 (such number of ordinary shares would be represented by 7,134,790 of our ADSs); and
|
|
|
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●
|
24,317,460
ordinary shares underlying ADSs issuable upon exercise of the warrants issued in connection
with the concurrent private placement and 3,404,440 ordinary shares underlying ADSs issuable
upon exercise of placement agent warrants issued as part of that offering.
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PRICE
RANGE OF OUR ORDINARY SHARES
Our ordinary shares
are currently traded on the TASE under the symbol “KTOV”. Our ADSs and public warrants are currently traded on NASDAQ
under the symbols “KTOV” and “KTOVW”, respectively.
The following table sets forth, for the periods
indicated, the reported high and low sales prices of our ADSs on NASDAQ.
|
|
$ U.S.
|
|
|
|
Price Per ADS
|
|
|
|
High
|
|
|
Low
|
|
Most Recent Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 2017
|
|
|
1.88
|
|
|
|
1.53
|
|
May 2017
|
|
|
1.94
|
|
|
|
1.70
|
|
April 2017
|
|
|
2.04
|
|
|
|
1.85
|
|
March 2017
|
|
|
2.16
|
|
|
|
1.93
|
|
February 2017
|
|
|
2.88
|
|
|
|
1.69
|
|
January 2017
|
|
|
3.35
|
|
|
|
2.70
|
|
|
|
|
|
|
|
|
|
|
Quarterly
|
|
|
|
|
|
|
|
|
Second Quarter 2017
|
|
|
2.04
|
|
|
|
1.53
|
|
First Quarter 2017
|
|
|
3.35
|
|
|
|
1.69
|
|
Fourth Quarter 2016
|
|
|
4.32
|
|
|
|
2.93
|
|
Third Quarter 2016
|
|
|
3.62
|
|
|
|
2.77
|
|
Second Quarter 2016
|
|
|
6.68
|
|
|
|
3.11
|
|
First Quarter 2016
|
|
|
4.60
|
|
|
|
2.33
|
|
Fourth Quarter 2015 (commencing November 20)
|
|
|
4.47
|
|
|
|
2.43
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
|
|
|
|
|
|
|
2017 (through June 30)
|
|
|
3.35
|
|
|
|
1.53
|
|
2016
|
|
|
6.68
|
|
|
|
2.33
|
|
2015 (commencing November 20)
|
|
|
4.47
|
|
|
|
2.43
|
|
DIVIDEND POLICY
We have never declared or paid any cash
dividends to our shareholders. We currently anticipate that we will retain future earnings for the development, operation and expansion
of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.
MATERIAL
TAX CONSIDERATIONS
Taxation
Israeli
Tax Considerations
General
The
following is a summary of the material tax consequences under Israeli law concerning the purchase, ownership and disposition of
Ordinary Shares and ADSs of our company.
This
discussion does not purport to constitute a complete analysis of all potential tax consequences applicable to investors upon purchasing,
owning or disposing of Ordinary Shares and ADSs of our company. In particular, this discussion does not take into account the
specific circumstances of any particular investor (such as tax-exempt entities, financial institutions, certain financial companies,
broker-dealers, investors that own, directly or indirectly, 10% or more of our outstanding voting rights, all of whom are subject
to special tax regimes not covered under this discussion). To the extent that issues discussed herein are based on legislation,
which has yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein
will accord with any such interpretation in the future.
Potential
investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and
disposition of the Ordinary Shares or ADSs being offered hereby, including, in particular, the effect of any foreign, state or
local taxes.
General
Corporate Tax Structure in Israel
The
Israeli corporate tax rate applicable to Israeli resident companies is 24% in 2017 (to be reduced to 23% in 2018 and thereafter).
Taxation
of Shareholders
Capital
Gains
Capital
gains tax is imposed on the disposal of capital assets by an Israeli resident and on the disposal of such assets by a non-Israeli
resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation,
or (iii) represent, directly or indirectly, rights to assets located in Israel, unless an exemption is available or unless an
applicable double tax treaty between Israel and the seller’s country of residence provides otherwise. The Israeli Income
Tax Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus.” Real Gain is the excess
of the total capital gain over Inflationary Surplus computed generally on the basis of the increase in the Israeli Consumer Price
Index between the date of purchase and the date of disposal. Inflationary Surplus is not subject to tax.
Real
Gain accrued by individuals on the sale of the Ordinary Shares or ADSs will be taxed at the rate of 25%. However, if the individual
shareholder is a “Controlling Shareholder” (
i.e
., a person who holds, directly or indirectly, alone or together
with another, 10% or more of one of the Israeli resident company’s means of control) 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%.
Corporate
and individual shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income which is
24% in 2017 for corporations (to be reduced to 23% in 2018 and thereafter), and a marginal tax rate of up to 47% for individuals.
Notwithstanding
the foregoing, capital gains generated from the sale of our Ordinary Shares or ADSs by a non-Israeli shareholder may be exempt
from Israeli tax under the Israeli Income Tax Ordinance provided that the following cumulative conditions are met: (i) the Ordinary
Shares or ADSs were purchased upon or after the registration of the Ordinary Shares or ADSs on the stock exchange and (ii) the
seller does not have a permanent establishment in Israel to which the generated capital gain is attributed. However, non-Israeli
resident corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a 25% or more interest
in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the income or profits
of such non-Israeli corporation, whether directly or indirectly. In addition, such exemption would not be available to a person
whose gains from selling or otherwise disposing of the Ordinary Shares or ADSs are deemed to be business income.
In
addition, the sale of the Ordinary Shares or ADSs may be exempt from Israeli capital gains tax under the provisions of an applicable
double tax treaty. For example, the Convention between the Government of the U.S. and the Government of the State of Israel with
respect to Taxes on Income (the “U.S.- Israel Double Tax Treaty”) exempts a U.S. resident (for purposes of the treaty)
from Israeli capital gains tax in connection with the sale of the Ordinary Shares or ADSs, provided that: (i) the U.S. resident
owned, directly or indirectly, less than 10% of the voting power of the company at any time within the 12 month period preceding
such sale; (ii) the U.S. resident, being an individual, is present in Israel for a period or periods of less than 183 days during
the taxable year; and (iii) the capital gain from the sale was not derived through a permanent establishment of the U.S. resident
in Israel; however, under the U.S-Israel Double Tax Treaty, the taxpayer would be permitted to claim a credit for such taxes against
the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S.
law applicable to foreign tax credits. The U.S-Israel Double Tax Treaty does not relate to U.S. state or local taxes.
Payers
of consideration for the Ordinary Shares or ADSs, including the purchaser, the Israeli stockbroker or the financial institution
through which the Ordinary Shares or ADSs are held, are obligated, subject to certain exemptions, to withhold tax at a rate of
25% upon the sale of Ordinary Shares or ADSs.
Upon
the sale of traded securities, a detailed return, including a computation of the tax due, must be filed and an advanced payment
must be paid to the Israeli Tax Authority on January 31 and July 31 of every tax year in respect of sales of traded securities
made within the previous six months. However, if all tax due was withheld at source according to applicable provisions of the
Israeli Income Tax Ordinance and regulations promulgated thereunder, such return need not be filed and no advance payment must
be paid. Capital gains are also reportable on annual income tax returns.
Dividends
Dividends
distributed by a company from income, which is not attributed to a Preferred Enterprise as defined in the Israel's Encouragement
of Capital Investment Law (1959), to a shareholder who is an Israeli resident individual will be generally subject to income tax
at a rate of 25%. However, a 30% tax rate will generally apply if the dividend recipient is a Controlling Shareholder, as defined
above, at the time of distribution or at any time during the preceding 12 month period. If the recipient of the dividend is an
Israeli resident corporation, such dividend will generally not be subject to tax provided that the income from which such dividend
is distributed, derived or accrued within Israel.
A distribution of dividend
by a company from income attributed to a Preferred Enterprise will generally be subject to withholding tax in Israel at the following
tax rates: Israeli resident individuals - 20% with respect to dividends to be distributed as of 2014; and Israeli resident companies
– 0%.
Dividends
distributed by an Israeli resident company from income, which is not attributed to a Preferred Enterprise, to a non-Israeli resident
(either an individual or a corporation) are generally subject to Israeli withholding tax on the receipt of such dividends at the
rate of 25% (30% if the dividend recipient is a Controlling Shareholder at the time of distribution or at any time during the
preceding 12 month period). Dividends distributed by an Israeli resident company from income, which is attributed to a Preferred
Enterprise, to a non-Israeli resident (either an individual or a corporation) are generally subject to withholding tax at a rate
of 20%. These rates may be reduced under the provisions of an applicable double tax treaty. For example, under the U.S.-Israel
Double Tax Treaty, the following tax rates will apply in respect of dividends distributed by an Israeli resident company to a
U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the
date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares
of the voting stock of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident
paying corporation for such prior taxable year (if any) consists of certain types of interest or dividends the tax rate is 12.5%;
(ii) if both the conditions mentioned in clause (i) above are met and the dividend is paid from an Israeli resident company’s
income which was entitled to a reduced tax rate under The Law for the Encouragement of Capital Investments, 1959, the tax rate
is 15%; and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the U.S.-Israel Double Tax Treaty will
not apply if the dividend income is attributed to a permanent establishment of the U.S. resident in Israel.
Excess
Tax
Individual holders
who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) and who have taxable
income that exceeds a certain threshold in a tax year NIS 640,000, linked to the Israeli Consumer Price Index), which is approximately
$178,970, based on the representative U.S. dollar – NIS rate of exchange of 3.576 on July 11, 2017), will be subject to
an additional tax at the rate of 3% on his or her taxable income for such tax year that is in excess of such amount. For this
purpose, taxable income includes taxable capital gains from the sale of securities and taxable income from interest and dividends,
subject to the provisions of an applicable double tax treaty.
U.S.
Federal Income Tax Considerations
The
following is a description of certain U.S. federal income tax consequences relating to the acquisition, ownership and disposition
of our ADSs by a holder. This description addresses only the U.S. federal income tax consequences to holders that are initial
purchasers of our ADSs pursuant to this offering and that will hold such ADSs as capital assets. This description does not address
tax considerations applicable to holders that may be subject to special tax rules, including, without limitation:
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banks,
financial institutions or insurance companies;
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real
estate investment trusts, regulated investment companies or grantor trusts;
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dealers
or traders in securities, commodities or currencies;
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tax
exempt entities or organizations;
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certain
former citizens or residents of the United States;
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persons
that received our ADSs as compensation for the performance of services;
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persons
that will hold our ADSs or as part of a “hedging,” “integrated” or “conversion” transaction
or as a position in a “straddle” for U.S. federal income tax purposes;
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partnerships
(including entities classified as partnerships for U.S. federal income tax purposes) or other pass- through entities, or holders
that will hold our ADSs or through such an entity;
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U.
S. Holders (as defined below) whose “functional currency” is not the U.S. dollar; or
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holders
that own directly, indirectly or through attribution 10% or more of the voting power or value of our shares.
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Moreover,
this description does not address the U.S. federal estate, gift, or alternative minimum tax consequences, or any U.S. state, local
or non-U.S. tax consequences of the acquisition, ownership and disposition of our ADSs.
This
description is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, existing, proposed and temporary U.S.
Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, in each case as in effect
and available on the date hereof. All the foregoing is subject to change, which change could apply retroactively and could affect
the tax consequences described below. There can be no assurances that the U.S. Internal Revenue Service, or IRS, will not take
a different position concerning the tax consequences of the acquisition, ownership and disposition of our ADSs or that such a
position would not be sustained. Holders should consult their own tax advisers concerning the U.S. federal, state, local and foreign
tax consequences of acquiring, owning and disposing of our ADSs in their particular circumstances.
For
purposes of this description, the term “U.S. Holder” means a beneficial owner of our ADSs that, for U.S. federal income
tax purposes, is (i) a citizen or resident of the United States, (ii) a corporation (or entity treated as a corporation for U.S.
federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District
of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source or (iv) a trust
(x) with respect to which a court within the United States is able to exercise primary supervision over its administration and
one or more U.S. persons have the authority to control all of its substantial decisions or (y) that has elected to be treated
as a domestic trust for U.S. federal income tax purposes.
A
“Non-U.S. Holder” is a beneficial owner of our ADSs that is neither a U.S. Holder nor a partnership (or other entity
treated as a partnership for U.S. federal income tax purposes).
If
a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our ADSs, the U.S. federal
income tax consequences relating to an investment in our ADSs will depend in part upon the status of the partner and the activities
of the partnership. Such a partner or partnership should consult its tax advisor regarding the U.S. federal income tax consequences
of acquiring, owning and disposing of our ADSs in its particular circumstances.
In
general, if you hold ADSs, you will be treated as the holder of the underlying ordinary shares represented by those ADSs for U.S.
federal income tax purposes. Accordingly, gain or loss generally will not be recognized if you exchange ADSs for the underlying
ordinary shares represented by those ADSs.
Persons
considering an investment in our ADSs should consult their own tax advisors as to the particular tax consequences applicable to
them relating to the acquisition, ownership and disposition of our ADSs, including the applicability of U.S. federal, state and
local tax laws and non-U.S. tax laws.
Exchange
of ADSs for Ordinary Shares
In
general, if you hold ADSs, you will be treated as the holder of the underlying ordinary shares represented by those ADSs for U.S.
federal income tax purposes. Accordingly, gain or loss generally will not be recognized if you exchange ADSs for the underlying
ordinary shares represented by those ADSs.
Taxation
of Dividends and Other Distributions on Our ADSs
Subject
to the discussion below under “Passive Foreign Investment Company Consequences,” if you are a U.S. Holder, the gross
amount of any distribution made to you with respect to our ADSs before reduction for any Israeli taxes withheld therefrom, generally
will be includible in your income as dividend income to the extent such distribution is paid out of our current or accumulated
earnings and profits as determined under U.S. federal income tax principles. Non-corporate U.S. Holders may qualify for the lower
rates of taxation with respect to dividends on ADSs applicable to long-term capital gains (i.e., gains from the sale of capital
assets held for more than one year), provided that certain conditions are met, including certain holding period requirements and
the absence of certain risk reduction transactions. Moreover, such lower rate of taxation shall not apply if we are a PFIC for
the taxable year in which it pays a dividend, or was a PFIC for the preceding taxable year. However, such dividends will not be
eligible for the dividends received deduction generally allowed to corporate U.S. Holders. To the extent that the amount of any
distribution by us exceeds our current and accumulated earnings and profits as determined under U.S. federal income tax principles,
it will be treated first as a tax-free return of your adjusted tax basis in our ADSs and thereafter as either long-term or short-term
capital gain depending upon whether the U.S. Holder has held our ADSs for more than one year as of the time such distribution
is received.
If
you are a U.S. Holder, dividends paid to you with respect to our ADSs will be foreign source income for foreign tax credit purposes.
Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited
against your U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. For this purpose, dividends generally constitute “passive category income.”
A foreign tax credit for foreign taxes imposed on distributions may be denied if you do not satisfy certain minimum holding period
requirements. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor
to determine whether and to what extent you will be entitled to this credit.
The
amount of a distribution paid to a U.S. Holder in a foreign currency will be the dollar value of the foreign currency calculated
by reference to the spot exchange rate on the day the U.S. Holder receives the distribution, regardless of whether the foreign
currency is converted into U.S. dollars at that time. Any foreign currency gain or loss a U.S. Holder realizes on a subsequent
conversion of foreign currency into U.S. dollars will be U.S. source ordinary income or loss. If dividends received in foreign
currency are converted into U.S. dollars on the day they are received, a U.S. Holder generally should not be required to recognize
foreign currency gain or loss in respect of the dividend.
Subject
to the discussion below under “Backup Withholding Tax and Information Reporting Requirements,” if you are a Non-U.S.
Holder, you generally will not be subject to U.S. federal income (or withholding) tax on dividends received by you on your ADSs,
unless:
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you
conduct a trade or business in the U.S. and such income is effectively connected with that trade or business (and, if required
by an applicable income tax treaty, the dividends are attributable to a permanent establishment or fixed base that such holder
maintains in the U.S.); or
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you
are an individual and have been present in the U.S. for 183 days or more in the taxable year of such sale or exchange and
certain other conditions are met.
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Sale,
Exchange or Other Disposition of Our ADSs
Subject
to the discussion below under “Passive Foreign Investment Company Consequences,” if you are a U.S. Holder, you generally
will recognize gain or loss on the sale, exchange or other disposition of our ADSs equal to the difference between the amount
realized on such sale, exchange or other disposition and your adjusted tax basis in our ADSs, and such gain or loss will be capital
gain or loss. The adjusted tax basis in an ADS generally will be equal to the cost of such ADS. If you are a non-corporate U.S.
Holder, capital gain from the sale, exchange or other disposition of an ADS is generally eligible for a preferential rate of taxation
applicable to capital gains, if your holding period determined at the time of such sale, exchange or other disposition for such
ADS exceeds one year (i.e., such gain is long-term capital gain). The deductibility of capital losses is subject to limitations.
Any such gain or loss generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes. A foreign
tax credit for foreign taxes imposed on capital gains may be denied if you do not satisfy certain minimum holding period requirements.
The rules relating to the determination of the foreign tax credit are complex, and it is possible that the ability of a U.S. Holder
to claim a foreign tax credit for any such Israeli tax will be limited. You should consult your tax advisor to determine whether,
and to what extent, you will be entitled to this credit.
Subject
to the discussion below under “Backup Withholding Tax and Information Reporting Requirements,” if you are a Non-U.S.
Holder, you generally will not be subject to U.S. federal income or withholding tax on any gain realized on the sale or exchange
of such ADSs unless:
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such
gain is effectively connected with your conduct of a trade or business in the United States (and, if required by an applicable
income tax treaty, the gain is attributable to a permanent establishment or fixed base that you maintain in the United States);
or
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you
are an individual and have been present in the United States for 183 days or more in the taxable year of such sale or exchange
and certain other conditions are met.
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Passive
Foreign Investment Company Consequences
We
believe, and the following discussion assumes, that we will likely be classified as a Passive Foreign Investment Company (PFIC)
for the 2017 tax year. If we are indeed so classified for 2017 or in any other taxable year, a U.S. Holder would be subject to
special rules generally intended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that a U.S.
Holder could derive from investing in a non-U.S. company that does not distribute all of its earnings on a current basis.
A
non-U.S. corporation will be classified as a PFIC for federal income tax purposes in any taxable year in which, after applying
certain look-through rules with respect to the income and assets of subsidiaries, either:
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at
least 75% of its gross income is “passive income”; or
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at
least 50% of the average quarterly value of its total gross assets (which may be determined in part by the market value of
our ADSs, which is subject to change) is attributable to assets that produce “passive income” or are held for
the production of passive income.
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Passive
income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions,
the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason
of the temporary investment of funds raised in offerings of our ADSs. If a non-U.S. corporation owns at least 25% by value of
the stock of another corporation, the non-U.S. corporation is treated for purposes of the PFIC tests as owning its proportionate
share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s
income. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns our ADSs, we will generally continue
to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns our ADSs, regardless
of whether we continue to meet the tests described above.
Although
not free from doubt, we expect that we will likely be classified as a PFIC for the taxable year ending December 31, 2017. However,
because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine
whether we will be characterized as a PFIC for the 2017 taxable year until after the close of the year. In addition, our status
as a PFIC may depend on how quickly we utilize the cash proceeds from this offering in our business, which we cannot currently
determine with certainty.
If
we are indeed properly classified as a PFIC, and you are a U.S. Holder, then unless you make one of the elections described below,
a special tax regime will apply to both (a) any “excess distribution” by us to you (generally, your ratable portion
of distributions in any year which are greater than 125% of the average annual distribution received by you in the shorter of
the three preceding years or your holding period for our ADSs) and (b) any gain realized on the sale or other disposition of the
ADSs. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax
as if (i) the excess distribution or gain had been realized ratably over your holding period, (ii) the amount deemed realized
in each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than
income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax, at the U.S.
Holder’s regular ordinary income rate for the current year and would not be subject to the interest change discussed below),
and (iii) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable
in those years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation applicable to
long-term capital gains discussed above under “Distributions.” Certain elections may be available that would result
in an alternative treatment (such as mark-to-market treatment) of our ADSs.
If
a U.S. Holder makes the mark-to-market election, then, in lieu of being subject to the tax and interest charge rules discussed
above, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of the ADSs at the end
of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted
tax basis of the ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of
income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder’s
tax basis in its ADSs will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition
of ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but
only to the extent of the net amount of income previously included as a result of the mark-to-market election).
The
mark-to-market election is available only if we are a PFIC and our ADSs are “regularly traded” on a “qualified
exchange.” Our ADSs will be treated as “regularly traded” in any calendar year in which more than a de minimis
quantity of our ADSs are traded on a qualified exchange on at least 15 days during each calendar quarter. NASDAQ is a qualified
exchange for this purpose. Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder
may continue to be subject to the tax and interest charge rules discussed above with respect to such holder’s indirect interest
in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes, including
stock in any of our subsidiaries that are treated as PFICs. If a U.S. Holder makes a mark-to market election, it will be effective
for the taxable year for which the election is made and all subsequent taxable years unless our ADSs are no longer regularly traded
on a qualified exchange or the IRS consents to the revocation of the election.
We
do not intend to provide the information necessary for U.S. Holders to make qualified electing fund elections if we are classified
as a PFIC. U.S. Holders should consult their tax advisors to determine whether any of these elections would be available and if
so, what the consequences of the alternative treatments would be in their particular circumstances.
If
we are determined to be a PFIC, the general tax treatment for U.S. Holders described in this section would apply to indirect distributions
and gains deemed to be realized by U.S. Holders in respect of any of our subsidiaries that also may be determined to be PFICs.
A
U.S. Holder who owns ADSs during any year in which we are a PFIC, will be required to file an IRS Form 8621 (Information Return
by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with respect to us, generally with the U.S.
Holder’s federal income tax return for that year.
U.S.
Holders should consult their tax advisors regarding application of the PFIC rules.
Medicare
Tax
Certain
U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment
income,” which may apply to a portion of their “excess distribution” income arising from distributions from,
or from the disposition of ADSs. Each U.S. Holder that is an individual, estate or trust is urged to consult its tax advisors
regarding the applicability of the Medicare tax to its income and gains in respect of its investment in our ADSs.
Certain
Reporting Requirements with Respect to Payments of Offer Price
U.S.
Holders paying more than $100,000 for our ADSs generally will be required to file IRS Form 926 reporting the payment of the Offer
Price for our ADSs to us. Substantial penalties may be imposed upon a U.S. Holder that fails to comply. Each U.S. Holder should
consult its own tax advisor as to the possible obligation to file IRS Form 926.
Backup
Withholding Tax and Information Reporting Requirements
U.S.
backup withholding tax and information reporting requirements may apply to certain payments to certain holders of our ADSs. Information
reporting generally will apply to payments of dividends on our ADSs, and to proceeds from the sale or redemption of our ADSs made
within the United States, or by a U.S. payer or U.S. middleman, to a holder of our ADSs, other than an exempt recipient (including
a payee that is not a U.S. person that provides an appropriate certification and certain other persons). A payer may be required
to withhold backup withholding tax from any payments of dividends on our ADSs, or the proceeds from the sale or redemption of
our ADSs within the United States, or by a U.S. payer or U.S. middleman, to a holder, other than an exempt recipient, if such
holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption
from, such backup withholding tax requirements. Any amounts withheld under the backup withholding rules will be allowed as a credit
against the beneficial owner’s U.S. federal income tax liability, if any, and any excess amounts withheld under the backup
withholding rules may be refunded, provided that the required information is timely furnished to the IRS.
Foreign
Asset Reporting
Certain
U.S. Holders who are individuals are required to report information relating to an interest in our ADSs, subject to certain exceptions
(including an exception for shares held in accounts maintained by financial institutions) by filing IRS Form 8938 (Statement of
Specified Foreign Financial Assets) with their federal income tax return. U.S. Holders are urged to consult their tax advisors
regarding their information reporting obligations, if any, with respect to their ownership and disposition of our ADSs.
THE
DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN OUR ADSs
IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
PLAN
OF DISTRIBUTION
Pursuant
to an engagement letter dated as of July 6, 2017, we have engaged Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC
("Rodman"), as our exclusive placement agent for this offering. Rodman is not purchasing or selling any shares, nor
are they required to arrange for the purchase and sale of any specific number or dollar amount of shares other than the use their
“best efforts” to arrange for the sale of share by us. Therefore, we may not sell the entire amount of shares being
offered.
Upon the closing of
this offering, we will pay the placement agent a cash commission fee equal to 6% of the aggregate gross proceeds to us from the
sale of the securities in the offering and a management fee equal to 1% of the aggregate gross proceeds. We will pay the placement
agent a non-accountable expense allowance of up to $35,000 and up to $40,000 for legal counsel fees and expenses and other out-of-pocket
expenses. We estimate the total expenses of this offering, excluding the placement agent fees, will be approximately $143,750.
In addition, we agreed
to issue to the placement agent compensation warrants to purchase up to 170,222 ADSs (which represent 7% of the ADSs sold
to the investors in this offering). The compensation warrants will have an exercise price of $1.8125 per ADS (which represents
125% of the offering price per ADS) and shall be exercisable on the six month anniversary of this prospectus and have a term of
five years from the date of this prospectus. Pursuant to FINRA Rule 5110(g), the compensation warrants and any shares issued upon
exercise of the compensation warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of
any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities
by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of this offering,
except the transfer of any security:
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by
operation of law or by reason of reorganization of our company;
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to
any FINRA member firm participating in the offering and the officers or partners thereof, if all securities so transferred
remain subject to the lock-up restriction set forth above for the remainder of the time period;
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if
the aggregate amount of securities of our company held by the holder of the compensation warrants or related persons do not
exceed 1% of the securities being offered;
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that
is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member
manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10%
of the equity in the fund; or
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the
exercise or conversion of any security, if all securities received remain subject to the lock-up restriction set forth above
for the remainder of the time period.
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In
addition, we have agreed to give the Placement Agent a right of first refusal to act as our sole book-running manager, underwriter
or placement agent during the six-month period following consummation of this offering if we or any of our subsidiaries decides
to raise funds by means of a public offering or a private placement of equity or debt securities outside Israel using an underwriter
or placement agent. In addition, the Placement Agent has a right to a tail fee equal to the compensation in this offering if certain
investors whom the Placement Agent contacted with respect to this offering or introduced, directly or indirectly, to us during
the term of the Placement Agent's engagement, provides us with further capital during the nine-month period following consummation
of this offering.
We
and our executive officers and directors have agreed, subject to certain exceptions, not to offer, sell, agree to sell, directly
or indirectly, or otherwise dispose of any ordinary shares, ADSs or warrants or any other securities convertible into or exchangeable
for ordinary shares for a period of 90 days after the consummation of this offering.
The
placement agent may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act and any commissions
received by it and any profit realized on the sale of the securities by it while acting as principal might be deemed to be underwriting
discounts or commissions under the Securities Act. The placement agent will be required to comply with the requirements of the
Securities Act and the Exchange Act, including, without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These
rules and regulations may limit the timing of purchases and sales of our securities by the placement agent. Under these rules
and regulations, the placement agent may not (i) engage in any stabilization activity in connection with our securities;
and (ii) bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other
than as permitted under the Exchange Act, until they have completed their participation in the distribution.
The
engagement letter agreement provides that we will indemnify the placement agent against specified liabilities, including liabilities
under the Securities Act.
The
foregoing description of the engagement agreement is only a summary, does not purport to be complete and is qualified in its entirety
by reference to such, a copy of which will be attached as an exhibit to our Report on Form 6-K being filed with the SEC in connection
with this offering and is incorporated herein by reference.
From
time to time, the placement agent has provided or 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 placement agent
for any further services.
The
depositary for the ADSs to be issued in this offering is The Bank of New York Mellon.
CONCURRENT
PRIVATE PLACEMENT OF WARRANTS
Concurrently with the
closing of the sale of ADSs in this offering, we also expect to issue and sell to the investors warrants to purchase an aggregate
of up to 1,215,873 ADSs, at an initial exercise price equal to $1.50 per ADS (the "Warrants"), subject to certain adjustments.
Each
Warrant shall be first exercisable on the six month anniversary of the issuance date and have a term of exercise equal to five
(5) years from the date on which first exercisable. Subject to limited exceptions, a holder of Warrants will not have the
right to exercise any portion of its warrants if the holder, together with its affiliates, would beneficially own in excess of
4.99% of the number of shares of our common stock outstanding immediately after giving effect to such exercise.
Such
securities will be issued and sold without registration under the Securities Act, or state securities laws, in reliance on the
exemptions provided by Section 4(a)(2) of the Act and/or Regulation D and/or Regulation S promulgated thereunder and
in reliance on similar exemptions under applicable state laws. Accordingly, the investors may exercise those warrants and sell
the underlying shares only pursuant to an effective registration statement under the Securities Act covering the resale of those
shares, an exemption under Rule 144 under the Securities Act, or another applicable exemption under the Securities Act.
LEGAL
MATTERS
Certain
matters concerning this offering will be passed upon for us by Haynes and Boone, LLP, New York, New York. The validity of
the securities being offered by this prospectus will be passed upon for us by Gross, Kleinhendler, Hodak, Halevy, Greenberg &
Co., Tel Aviv, Israel.
EXPERTS
The
consolidated financial statements of Kitov Pharmaceuticals Holdings Ltd. as of December 31, 2015 and 2014 and for each of the
years in the three-year period ended December 31, 2015, have been incorporated by reference herein in reliance upon the report
of Somekh Chaikin, a Member Firm of KPMG International, independent registered public accounting firm, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and auditing.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We
have filed with the SEC a registration statement on Form F-3 under the Securities Act relating to the offering of our securities
offered hereby. 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.
We
are required to file reports and other information with the SEC under the Exchange Act, and the regulations thereunder applicable
to foreign private issuers. We also furnish to the SEC under cover of Form 6-K material information required to be made public
in Israel, filed with and made public by any stock exchange or distributed by us to our shareholders. 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, D.C. 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., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an Internet
site 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 this web site at http://www.sec.gov.
In addition, since our
ordinary shares are traded on the TASE, in the past we filed Hebrew language periodic and immediate reports with, and furnished
information to, the TASE and the Israel Securities Authority, or the ISA, as required under Chapter F of the Israel Securities
Law, 1968. In accordance with Section 35XXXIII of the Israel Securities Law, and pursuant to the prior approvals of our securities
holders to change to reporting in accordance with the U.S. securities laws and regulations, we presently report to ISA and the
TASE in accordance with the Securities Regulations (Periodic and Immediate Reports of a Foreign Body Corporate)
5761-2000, promulgated thereunder (the “Dual-Listed Reporting Requirements”). Pursuant to the Dual-Listed Reporting
Requirements, we prepare our periodic and immediate reports in accordance with U.S. securities laws and reporting requirements.
Our major shareholders are required to make applicable ownership disclosures in accordance with U.S. securities laws and reporting
requirements. We generally initially file or furnish our reports, as applicable, to the SEC. We then submit copies of the SEC filings
and submissions to ISA and TASE, including any filings made by our major shareholders with respect to their holdings in Kitov Parent,
in accordance with the Dual-Listed Reporting Requirements. Such copies can be retrieved electronically through the websites for
listed company reports of ISA (www.magna.isa.gov.il) and TASE (www.maya.tase.co.il).
As a foreign private
issuer, we will be exempt from the rules under the Exchange Act relating to the furnishing and content of proxy statements, and
our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. As permitted under the Companies Law, and the Notice Regulations which were enacted
pursuant to such law, and as set forth in Parent’s amended and restated articles of association, Kitov Parent is not required
to physically deliver a notice of a shareholders meeting, a proxy statement or a voting slip. Kitov Parent prepares notices of
general meetings of its shareholders, as well as the accompanying proxy statements, voting slips and voting instruction forms,
(collectively, the “Proxy Materials”) in accordance with applicable laws, rules and regulations and disclosure requirements
in the State of Israel, as such are applicable to a company whose shares are traded on both the TASE and the NASDAQ, and which
reports to the SEC as a foreign private issuer and to ISA and the TASE in accordance with the Dual-Listed Reporting Requirements.
Our Proxy Materials may not necessarily be mailed to our beneficial shareholders in Israel, or to our beneficial ADS holders in
the U.S. We will furnish to the SEC on Form 6-K the forms of our Proxy Materials, and they will be made available to the public
on the SEC’s website at www.sec.gov. We will also submit the Proxy Materials to ISA and TASE and they will be made available
to the public on their respective websites for listed company reports: www.magna.isa.gov.il and www.maya.tase.co.il. We will also
include the Proxy Materials on our corporate website, to the extent required under the Companies Law and the applicable regulations
enacted thereunder governing publication of notices of general meetings of our shareholders and the distribution of the Proxy Materials.
The circulation of by us of any Proxy Materials should not be taken as an admission that we are subject to the proxy rules under
the Exchange Act.
In addition, we will
not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly
as U.S. companies whose securities are registered under the Exchange Act. However, we intend to file with the SEC, within 120 days
after the end of each fiscal year ending December 31, an annual report on Form 20-F containing financial statements which will
be examined and reported on, with an opinion expressed, by an independent registered public accounting firm. In accordance with
the NASDAQ Listing Rules, as a foreign private issuer we are required to submit on a Form 6-K an interim balance sheet and income
statement as of the end of the second quarter of each fiscal year. Furthermore, we have committed to the underwriters of our initial
U.S public offering which was completed in November 2015 that for a period of three (3) years from November 25, 2015, the Company,
at its expense, will announce its financial information for each of the first three fiscal quarters consistent with the practices
of companies which are dual-listed on both the TASE and a domestic U.S. securities exchange and report in accordance with the Dual-Listed
Reporting Requirements; provided that the foregoing shall not apply in the event the Company enters into a merger transaction in
which the Company is the non-surviving entity that would cause our ADSs and warrants to no longer be registered under the Exchange
Act. We will furnish this periodic information with the SEC under cover of Form 6-K. The Representative of the underwriters of
our initial U.S public offering which was completed in November 2015 has previously waived any announcement by us with respect
to the filing of quarterly financial information, and may issue such waivers to us in the future. It is noted that recent amendments
to the Israel Securities Law and Regulations enacted thereunder, dispense with the requirement for the announcement of financial
results for each of the first and third fiscal quarters of a calendar year for certain smaller sized TASE listed companies which
report under TASE only listed reporting requirements. We believe that, were we reporting under the TASE only listed reporting requirements
(and not the Dual Listed Reporting Requirements), we would qualify for such dispensation based on our company size as set forth
in the regulation. In addition the SEC has recently announced that it is seeking comment for the dispensation of the requirement
for the announcement of financial results for each of the first and third fiscal quarters for certain U.S. domestic issuers. Thus
it remains uncertain as to how companies dual-listed on both the TASE and a domestic U.S. securities exchange, and report in accordance
with the Dual-Listed Reporting Requirements, will continue their practices with respect to the announcements of financial information
for each of the first and third fiscal quarters, and it is possible that we may adopt practices for the announcement (if any) of
financial information for each of the first and third fiscal quarters which are different than what we have provided in the past.
We
maintain a corporate website at www.kitovpharma.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 will post on our website any materials required to be posted on such website under applicable corporate or securities
laws and regulations, including posting any notices of general meetings of our shareholders.
INCORPORATION
BY REFERENCE
The
SEC allows us to incorporate by reference the information we file with or furnish to the SEC, which means that we can disclose
important information to you by referring you to another document filed or furnished separately with the SEC. The information
incorporated by reference is considered to be part of this prospectus. Any information that we file or furnish later with the
SEC and that is deemed incorporated by reference will also be considered to be part of this prospectus and will automatically
update and supersede the information in this prospectus. In all cases, you should rely on the later information over different
information included in this prospectus. This prospectus incorporates by reference the documents listed below, and any future
Annual Reports on Form 20-F that we file with the SEC and certain Reports on Form 6-K that we furnish to the SEC (but only to
that extent that such Form 6-K states that it is incorporated by reference herein), in each case, between the date of the initial
registration statement and the effectiveness of the registration statement and following the effectiveness of the registration
statement until the offering of the securities under the registration statement is terminated:
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The
description of our ordinary shares, no par value per share, and the American Depositary Shares representing the ordinary shares,
contained in Item 1 of the Registration Statement on Form 8-A (File No. 001-37643) filed with the Commission on
November 18, 2015;
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our
Annual Report on Form 20-F for the fiscal year ended on December 31, 2016, filed with the SEC on May 1, 2017; and
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our reports on Form 6-K furnished to the SEC on June 1, 2017, June 8, 2017, June 1, 2017, June
12, 2017 (2 reports), July 7, 2017 and July 11, 2017.
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We
will provide, free of charge, to each person, including any beneficial owner, to whom this prospectus is delivered, a copy of
any or all information that has been incorporated by reference into this prospectus, but which has not been delivered with the
prospectus, upon written or oral request to us at the following address:
Kitov
Pharmaceuticals Holdings Ltd.
One
Azrieli Center, Round Tower, 23
rd
Floor
132
Menachem Begin Rd.
Tel
Aviv 6701101, Israel
Tel:
+972-3-9333121
Attention:
Company Secretary
PROSPECTUS
$200,000,000
American Depositary Shares representing
Ordinary Shares,
Ordinary Shares, Preferred Shares,
Warrants, Overallotment Purchase Rights,
Subscription Rights, Units, Capital
Notes, and/or Debt Securities
KITOV
PHARMACEUTICALS HOLDINGS LTD.
We may offer to the public
from time to time in one or more series or issuances American Depositary Shares, or ADSs, ordinary shares, preferred shares, warrants,
overallotment purchase rights, subscription rights, units, capital notes and/or debt securities consisting of two or more of these
classes or series of securities. Each ADS represents 20 of our ordinary shares.
We refer to the
ADSs, ordinary shares, preferred shares, warrants, overallotment purchase rights, subscription rights, units, capital notes and
debt securities collectively as “securities” in this prospectus.
Each time we sell securities
pursuant to this prospectus, we will provide a supplement to this prospectus that contains specific information about the offering
and the specific terms of the securities offered. This prospectus may not be used to consummate a sale of securities by us unless
accompanied by the applicable prospectus supplement. You should read this prospectus and the applicable prospectus supplement
carefully before you invest in our securities.
We may, from time to
time, offer to sell the securities, through public or private transactions, directly or through underwriters, agents or dealers,
on or off The NASDAQ Capital Market or Tel Aviv Stock Exchange Ltd., or the TASE, as applicable, at prevailing market prices or
at privately negotiated prices. If any underwriters, agents or dealers are involved in the sale of any of these securities, the
applicable prospectus supplement will set forth the names of the underwriter, agent or dealer and any applicable fees, commissions
or discounts.
Our
ordinary shares are currently traded on the TASE under the symbol “KTOV.” The last reported sale price of our ordinary
shares on the TASE on December 11, 2016, was NIS 0.651, or $0.171, per share (based on the exchange rate reported by the
Bank of Israel on that date, which was NIS 3.818 = $1.00).
Our
ADSs and Series A warrants (issued to public investors in connection with our November 2015 initial public offering and our July
2015 follow-on public offering) are currently listed on The NASDAQ Capital Market under the symbols “KTOV” and “KTOVW”,
respectively. The last reported sale price of our ADSs and public warrants on The NASDAQ Capital Market on December 9, 2016 was
$3.44 and $1.47, respectively.
On
December 11, 2016, the aggregate market value worldwide of our outstanding voting and non-voting common equity held by
non-affiliates was approximately $25.7 million, based on 150,954,226 ordinary shares outstanding and a per ordinary share
price of $0.171 based on the closing sale price of our ordinary shares on the TASE, and the exchange rate reported by the
Bank of Israel, on December 11, 2016.
We have not
offered any securities pursuant to General Instruction I.B.5 on Form F-3 during the prior 12 calendar month period that ends
on and includes the date of this prospectus.
We are an “emerging
growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act) and will be subject to reduced
public company reporting requirements.
Investing in these securities
involves a high degree of risk. Please carefully consider the risks discussed in this prospectus under “Risk Factors”
beginning on page 7 and in any applicable prospectus supplement for a discussion of the factors you should consider carefully
before deciding to purchase these securities.
Neither the Securities and Exchange Commission,
or the SEC, the Israeli Securities Authority, or ISA, nor any state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2016
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part
of a registration statement that we filed with the Securities and Exchange Commission, or SEC, utilizing a “shelf”
registration process. Under this process, we may offer and sell our securities under this prospectus.
Under this shelf registration
process, we may sell the securities described in this prospectus in one or more offerings up to a total price to the public of
$200,000,000. Furthermore, so long as the aggregate market value worldwide of our outstanding voting and nonvoting common equity
held by non-affiliates (the “public float”) is less than $75 million, the aggregate market value of securities sold
by us pursuant to this shelf registration statement during the period of 12 calendar months immediately prior to, and including,
the sale shall be no more than one-third of the public float. The offer and sale of securities under this prospectus may be made
from time to time, in one or more offerings, in any manner described under the section in this prospectus entitled “Plan
of Distribution.” This shelf registration statement is not being filed by us in connection with any presently contemplated
securities offering. We note that in connection with our follow-on public offering which we completed on July 5, 2016, we agreed
with our placement agent for the offering, H.C. Wainwright & Co., LLC (the “placement agent”), that during a period
ending 180 days following July 5, 2016, we will not sell or transfer any ADSs or ordinary shares or securities convertible into,
or exchangeable or exercisable for, ADSs or ordinary shares, in a transaction in which the primary purpose is raising capital
or a transaction which results in the issuing of securities to an entity whose primary business is investing in securities, without
first obtaining the written consent of the placement agent.
This prospectus provides
you with a general description of the securities we may offer. Each time we sell securities we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change
information contained in this prospectus, and may also contain information about any material federal income tax considerations
relating to the securities covered by the prospectus supplement. You should read both this prospectus and any prospectus supplement
together with additional information under the headings “Where You Can Find More Information” and “Incorporation
of Certain Documents by Reference.”
When used herein, unless
the context requires otherwise, all references to (i) “Kitov Holdings,” refers to Kitov Pharmaceuticals Holdings Ltd.
and (ii) “we,” “us,” “our,” and similar designations refer to Kitov Pharmaceuticals Holdings
Ltd., together with its wholly-owned subsidiary, Kitov Pharmaceuticals Ltd.
Unless otherwise indicated,
all information contained in this prospectus (i) gives retrospective effect to a consolidation of our share capital at a ratio
of 1:13, which was effected on November 30, 2014, or the Consolidation, so that: (A) each 13 ordinary shares of Kitov Holdings
was consolidated into one ordinary share of Kitov Holdings; and (B) each option (tradable and non-tradable) outstanding immediately
prior to the Consolidation was adjusted by multiplying the number of ordinary shares into which such option was exercisable by
1/13 (rounded to 0.07692).
KITOV PHARMACEUTICALS
HOLDINGS LTD.
This summary does not contain
all of the information you should consider before investing in our securities. Before making an investment decision, you should
carefully read the entire prospectus and our other filings with the SEC. This summary contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking
statements. Factors that may cause or contribute to such differences include those discussed in “Risk Factors” and
“Forward-Looking Statements” below.
Overview
We are a biopharmaceutical
company currently focused on the development of therapeutic candidates for the simultaneous treatment of two clinical conditions:
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pain
caused by osteoarthritis; and
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hypertension
(high blood pressure), which can be pre-existing or caused by the treatment for osteoarthritis.
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In particular,
we are currently focusing on developing combinations of existing drugs in advanced stages of development. We currently have two
combinations in our pipeline, KIT-301, based on the generic drugs naproxen and isradipine, and KIT-302, based on the generic drugs
celecoxib and amlodipine besylate. Both naproxen and celecoxib are active ingredients of known and approved-for-use drugs designed
primarily to relieve pain caused by osteoarthritis. Celecoxib is the active ingredient in the branded drug “Celebrex®”.
These combinations are designed to simultaneously relieve pain caused by osteoarthritis and treat hypertension, which is one of
the side effects of using non-steroidal anti-inflammatory drugs, or NSAIDs, for treating pain caused by osteoarthritis.
We are currently
focusing on our development efforts for KIT-302, which has recently completed its Phase III clinical study. We are currently not
developing KIT-301, for which we have an active IND, due to our need to allocate resources for advancing the development of KIT-302.
The Science and Technology Committee of our Board of Directors has recently considered whether we should continue the further
development of KIT-301. In the Committee’s view, KIT-301 can be categorized as an inferior earlier generation combination
drug, as compared to KIT-302, and taking into account the progress we have made with KIT-302’s development and in preparing
our anticipated New Drug Application, or NDA, to be submitted to the U.S. Food and Drug Administration, or the FDA, for KIT-302,
the Committee determined to recommend to our Board of Directors to consider removing KIT-301 from our development pipeline, and
if so determined, to also to consider directing management to update the FDA at an appropriate time about any such discontinuation
of development of KIT-301.
In
addition, we may consider the acquisition of therapeutic candidates or existing drug products, at various stages of
development, which are not necessarily related to the treatment of pain caused by osteoarthritis or treatment of
hypertension. We currently have no binding agreements or commitments to complete any transaction for the possible acquisition
of new therapeutic candidates, though we are involved in negotiations with a number of possible candidates. There is no
certainty that we will be able to complete any transactions for the possible acquisition of new therapeutic candidates. We
may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully. In
this regard, acquisitions involve numerous risks, including difficulties in the integration of the acquired therapeutic
candidates and the diversion of management’s attention from other business concerns. Although we will endeavor to
evaluate the risks inherent in any particular transaction, there can be no assurance that we will properly ascertain all such
risks. In addition, acquisitions could result in the incurrence of substantial additional indebtedness and other expenses or
in potentially dilutive issuances of equity securities. There can be no assurance that difficulties encountered with
acquisitions will not have a material adverse effect on our business, financial condition and results of
operations.
We intend to
seek FDA approval for the commercialization of our therapeutic candidates, and where applicable through the Section 505(b)(2)
regulatory path under the Federal Food, Drug, and Cosmetic Act of 1938, as amended. Where applicable, we also intend to seek corresponding
regulatory paths for approval in other foreign jurisdictions. Our current pipeline consists of two clinical development therapeutic
candidates, KIT-301, which has been cleared for Phase III clinical trials and KIT-302, which has recently successfully completed
its Phase III clinical trial, both of which will be subject to review and approval by the FDA. Upon and subject to receipt of
the requisite approvals, we intend to commercialize our therapeutic candidates through licensing and other commercialization arrangements
with pharmaceutical companies on a global and/or territorial basis. We may also evaluate, on a case by case basis, co-development
and similar arrangements, as well as independent commercialization of our therapeutic candidates.
Developments Since Our NASDAQ Listing
Initial Public Offering
on The NASDAQ Capital Market
On November 25, 2015, we
completed an underwritten public offering of 3,158,900 ADSs, each representing 20 of our ordinary shares, and public warrants
to purchase up to 3,158,900 ADSs. The ADSs and public warrants were issued in a fixed combination of one ADS and one warrant to
purchase one ADS for a combined price to the public of $4.13. In addition, the underwriters of the offering partially exercised
their option to purchase an additional 220,074 warrants to purchase 220,074 ADSs. The public warrants had an initial
per ADS exercise price of $4.13, were exercisable immediately, and have a term of five years from the date of issuance. The gross
proceeds to us from this offering were approximately $13 million, prior to deducting underwriting discounts, commissions and other
offering expenses. The public warrants were subject to “weighted average” ratchet anti-dilution provisions as set
forth in the Warrant Agent Agreement, providing that until November 25, 2016, upon issuances of our ADSs or an equivalent number
of ordinary shares (or securities convertible or exercisable into ADSs or an equivalent number of ordinary shares), subject to
specified exceptions, at a price less than the exercise price then in effect, the exercise price would be reduced based on the
“weighted average” formula set forth in the Warrant Agent Agreement. The “weighted average” ratchet provision
of the public warrants was triggered by our July 5, 2016 follow-on public offering (described below), and upon closing of the
follow-on public offering on July 5, 2016, the exercise price of all the public warrants was reduced in accordance with its terms
to $3.78.
Phase III Clinical Trial Results
On December 15, 2015, we
announced that the Phase III, double-blind, placebo-controlled clinical trial for our leading drug candidate, KIT-302, successfully
met the primary efficacy endpoint of the trial protocol as approved by the FDA. Data from the trial further revealed that KIT-302
tended to reduce blood pressure more than the widely used hypertension drug amlodipine besylate when administered alone. We plan
to submit our NDA for marketing approval of KIT-302 with the FDA in the coming months.
The trial protocol, approved
by the FDA through the Special Protocol Assessment process, was designed to quantify the decrease of hypertension in patients
receiving KIT-302. The trial was performed in the U.K. in four groups of twenty-six (26) to forty-nine (49) patients, with a total
of 152 patients. Each patient was treated over a total period of two weeks. Group One was treated with KIT-302, comprised of celecoxib
and amlodipine besylate. Group Two was treated with amlodipine besylate only, one of the components of KIT-302. Group Three was
treated with celecoxib only, the other component of KIT-302. Group Four was treated with a double placebo. The trial began in
June 2014 and was completed in November 2015.
The primary efficacy end-point
of the trial was to show that a combination of the two components of KIT-302, as demonstrated in Group One, lowers daytime systolic
blood pressure by at least 50% of the reduction in blood pressure achieved in patients in Group Two, who were treated with amlodipine
besylate only.
The trial results showed
that in patients treated with amlodipine besylate only, there was a mean reduction in daytime systolic blood pressure of 8.8 mm
Hg. In patients treated with KIT-302, there was a mean reduction in daytime systolic blood pressure of 10.6 mm Hg. Therefore,
the primary efficacy endpoint of the study has been successfully achieved with a p value of 0.001.
Additional data from the
trial results showed that favorable blood pressure effects of KIT-302 were present in all blood pressure variables measured in
the study. The data indicated that the blood pressure reduction synergy seen with combining celecoxib and amlodipine, is seen
not only in the study’s primary efficacy endpoint of daytime systolic blood pressure, but was also seen from daytime diastolic
blood pressure measurements and in all other blood pressure variables. After two weeks of treatment, the reduction with daytime
diastolic blood pressure measurements with amlodipine alone was 5.5 mm Hg, while for patients treated with KIT-302's components
the reduction was 7.6 mm Hg. For nighttime systolic blood pressure after two weeks of treatment, the reduction with amlodipine
therapy alone was 6.3 mm Hg, while for patients treated with KIT-302's components the reduction was 10.7 mm Hg. For nighttime
diastolic blood pressure after two weeks of treatment, the reduction with amlodipine besylate alone was 3.1 mm Hg, while for patients
treated with KIT-302's components the reduction was 7.2 mm Hg. Thus, the synergy in blood pressure reduction demonstrated with
KIT-302’s two components was present at all times of day and with both blood pressure measures. Although celecoxib when
combined with amlodipine appears to have a synergistic effect in lowering blood pressure, it appears to have the opposite effect
when administered by itself. While not conclusive, we believe the medical community may take great interest in this study’s
findings and its implications for pain management and hypertension.
On May 12, 2016, we announced
that we received the minutes from the FDA for the pre-NDA submission meeting held during April 2016. The FDA requested that the
clinical study results be reviewed to check and make sure no patients suffered adverse consequences from the enhanced blood pressure
reduction resulting from the synergy of celecoxib and amlodipine. We are unaware of any such events occurring and intend to include
a detailed review in the safety section of our NDA. In addition, to further establish safety, the FDA requested a literature search
related to animal studies of celecoxib and amlodipine be included in the NDA. The FDA also requested documentation of a clinical
need for KIT-302, such as by identifying how many patients receive celecoxib on a chronic basis. We intend to provide this documentation
by using one or more of the various computerized patient care databases or pharmacy benefit managers. Finally, the FDA requested
that the statistical calculation for the primary efficacy endpoint be performed using an alternate mathematical technique. Our
statistician has already conducted this calculation and determined that the primary efficacy endpoint was successfully met with
the new calculation method.
The final and complete
analyses, including the clinical study report, are expected to be completed during the first quarter of 2017. We plan to submit
our NDA for marketing approval of KIT-302 with the FDA in the coming months.
In addition, in connection
with our Development Services Agreement with Dexcel, pursuant to which Dexcel developed the formulation for KIT-302 and is performing
the subsequent stability testing and manufacturing scale-up in quantities adequate for submission of an NDA to the FDA, Dexcel
performed a pilot clinical bioequivalence trial, or the Pilot PK Study, and subsequently performed a final conclusive pharmacokinetic
(PK) bioequivalence (BE) study, or the Final PK Study. The objective of these two studies was to check the pharmacokinetics of
the combination drug in order to show that the blood levels achieved with our combination are equivalent to those obtained with
the individual components. The Pilot PK Study was performed during April and May 2015, after completion of the formulation of
two prototypes of KIT-302; during June 2015, we obtained the successful results of the Pilot PK Study. The Final PK Study was
performed during March and April 2016, and on May 10, 2016 we announced that we, together with Dexcel, had successfully completed
the Final PK Study. The Final PK Study compared the PK of KIT-302 which is a fixed dose combination consisting of celecoxib (200
mg), indicated for osteoarthritis pain, and amlodipine (10 mg), indicated for high blood pressure, to off-the-shelf branded 200
mg celecoxib capsules and 10 mg amlodipine tablets. These evaluations were conducted under both fed and fasted conditions. The
results demonstrated that for both the Cmax (the maximum blood level achieved) and Area Under the Curve (the area under the concentration-time
curve for drug levels), the 90% confidence intervals for both the amlodipine and celecoxib components of KIT-302 were documented
to be between 80% and 125% of the values obtained with the off-the-shelf drugs, thus meeting the FDA’s standard for establishing
bioequivalence. A similar PK bioequivalence study for KIT-302, containing a lower dosage (2.5 mg) of amlodipine, was completed
during the third quarter of 2016, and showed similar bioequivalence results to those found in the Final PK Study.
On June 28, 2016, we announced that Dexcel had successfully
completed an initial stability study for KIT-302. On December 7, 2016, we announced that Dexcel completed a study of nine pivotal
batches of KIT-302 demonstrating stability for 6 months, which is required to submit our NDA to the FDA.
The Phase III clinical trial
for KIT-302 was conducted in medical centers in the United Kingdom on the basis of approvals received from the British Regulatory
Authority (MHRA) and the U.K. ethics committees. It is not currently known whether the European regulatory authorities will require
additional studies in order to grant their approval to market KIT-302 in Europe.
Issuance of Patent by
USPTO
On May 12, 2016, we announced
that our patent application to approve a patent relating to a drug for treating hypertension has received a notice of allowance
for ameliorating the elevation of blood pressure caused by a specific NSAID by the co-administration of a specific calcium channel
blocker. It is possible to pursue claims to additional inventions based on the patent application by making patent filings prior
to issuance of a patent on this patent application, and we have proceeded accordingly. On August 10, 2016, we announced that the
United States Patent and Trademark Office (USPTO) issued patent #9,408,837 covering KIT-302. The patent, entitled “Ameliorating
Drug-Induced Elevations In Blood Pressure By Adjunctive Use Of Antihypertensive Drugs,” was issued on August 9, 2016 and
will have a term that can extend to February 28, 2030. We are pursuing additional claims to inventions described in U.S. Patent
#9,408,837.
July 2016 Follow-on Public
Offering
On July 5, 2016, we completed
a follow-on public offering of 2,378,823 Class A units, with each Class A unit consisting of one ADS and a public warrant, as
well as 1,150,589 Class B units, with each Class B unit consisting of a non-listed, pre-funded warrant to purchase one ADS, or
a pre-funded warrant, and a public warrant. Each Class A unit was sold at a negotiated price of $3.40 per unit, including the
ADS issuance fee of $0.01 per ADS, and each Class B unit was sold at a negotiated price of $3.40 per unit, including the pre-funded
warrant exercise price of $0.01 per full ADS and the ADS issuance fee of $0.01 per ADS. The pre-funded warrants were exercisable
at any time after the date of issuance upon payment of the exercise price and the ADS issuance fee, and all of these pre-funded
warrants have been exercised to-date. The gross proceeds to us from this offering were approximately $12,000,000, prior to deducting
placement agent fees and other estimated offering expenses.
Renal Function Clinical
Trial
Additional data from the Phase III clinical trial
of KIT-302 also suggest beneficial effects on renal (kidney) function, as compared to negative effects on renal function caused
by other NSAIDS. Greater reduction in plasma levels of creatinine was observed in patients in the KIT-302 arm (-3.22 umol/L) compared
to creatinine reduction observed in patients in the amlodipine arm (-2.55 umol/L), suggesting better renal function. In addition,
peripheral edema, a known side effect of calcium channel blockers such as amlodipine, was reported in 15.6% of patients receiving
amlodipine alone, but in only 8.2% of patients receiving KIT-302, suggesting that KIT-302 may protect against the amlodipine side
effect of causing fluid retention by the kidneys. It is recognized that such an effect could explain the synergistic blood pressure
reducing effect of KIT-302 over therapy with amlodipine alone.
Although not intended as part of the information
to be included in our new drug application that we expect to submit for the marketing clearance by the FDA of KIT-302 in early
2017, we have commenced conducting a clinical trial designed to validate and better quantify these potential beneficial renal
effects. The trial analysis may further explain the synergistic antihypertensive effect, where the reduction in blood pressure
demonstrated with KIT-302 was greater than that observed with amlodipine alone. Accordingly, we intend to conduct a double blind,
placebo controlled, clinical trial intended to statistically demonstrate KIT-302’s effects on renal and vascular function,
while providing us with data with respect to KIT-302 in addition to the data of the Phase III clinical trial, by utilizing a primary
efficacy end-point in the renal function clinical trial comparable to that of the Phase III clinical trial. The trial is expected
to be performed in the U.K. in three groups of 15 to 45 patients (and a total of 105 patients), with each patient treated over
a total period of two weeks. Group One is receiving a placebo, Group Two is being treated with a standard drug available in the
market for treating hypertension (amlodipine besylate, one of the components of KIT-302), and Group Three is being treated with
the two components of KIT-302 (celecoxib and amlodipine besylate). We expect to complete recruitment of the patients during the
second calendar quarter of 2017 and to receive the interim results of the trial approximately eight weeks after completion of
patient recruitment.
The renal function clinical
trial for KIT-302 will be conducted in medical centers in the United Kingdom on the basis of the approval of the British Regulatory
Authority (MHRA), as well as the approvals of the relevant U.K. ethics committees, which we have already received.
On September 7, 2016, we entered into
an additional Work Order with Java Clinical Research Ltd., or Java, a contract research organization based in Dublin, Ireland,
under our Master Research Services Agreement with Java, the term of which was extended by such Work Order. Pursuant to the Work
Order Java will manage the renal function clinical trial for KIT-302, including preparation and filing of the requests to the ethics
boards and the necessary regulatory bodies of the U.K., recruiting the trial participants, employment of the primary researchers,
identification and evaluation of the medical centers and their subsequent management throughout the trial period and overall management
of the trial process through its completion. We also have directly engaged with third party medical centers for the performance
of our renal function clinical trial being managed by Java. The Master Research Services Agreement will remain in effect until
Java has provided all services through the completion of our renal function clinical trial. The parties have customary termination
rights and either party may terminate the Master Research Services Agreement (or any work thereunder) upon 60 days’ notice.
In addition, on July 26, 2016, we entered into a new services agreement with DABL Limited, or DABL, an Irish company based in Dublin,
Ireland, in the ambulatory blood pressure monitoring technologies field, in connection with the renal function clinical trial.
According to the agreement, DABL will provide protocol consultation services and coordinate the ambulatory blood pressure
monitoring (ABPM) procedures and the analysis of the blood pressure tests during and after our renal function clinical trial. The
services agreement will remain in effect until DABL has provided all services provided for in the agreement. However, we may terminate
the agreement at any time upon 90 days’ notice, and both parties have customary termination rights. We estimate that the
total cost of the agreement with Java, as well the cost of all other service providers with respect to the renal function clinical
trial, will amount to approximately $1.8 million, assuming completion of the clinical trial as anticipated.
Corporate information
Kitov Holdings was incorporated
under the laws of the State of Israel (under a previous name) on August 12, 1968 and its ordinary shares were originally listed
for trading on the TASE in 1978. In November 2015, we completed an initial public offering of our ADSs and Series A warrants on
The NASDAQ Capital Market. Our principal executive offices are located at One Azrieli Center, Round Tower, 23
rd
Floor,
132 Menachem Begin Road, Tel Aviv 6701101, Israel, and our telephone number is 972-3-933-3121. Our website is
www.kitovpharma.com.
The information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the
registration statement of which it forms a part.
RISK FACTORS
Investment
in our securities involves a high degree of risk. Prior to making a decision about investing in our securities, you should carefully
consider the risks described below and all other information contained in this prospectus and in any other filing we make with
the SEC subsequent to the date of this prospectus, each of which is incorporated herein by reference, and in any supplement to
this prospectus, before you decide to buy our securities. If any of the following risks actually occur, our business, financial
condition and results of operations could be materially and adversely affected. In that event, the trading price of our listed
securities would likely decline and you might lose all or part of your investment. This prospectus and statements that we may
make from time to time may contain forward-looking information. Please read carefully the section below entitled “Forward-Looking
Statements.” The information in this prospectus is complete and accurate as of the date of this prospectus, but the information
may change thereafter.
Risks Related to Our Financial Condition
and Capital Requirements
We are a clinical
development stage biopharmaceutical company with a history of operating losses. We expect to incur significant additional losses
in the future and may never be profitable.
We are a clinical
development stage biopharmaceutical company, and we are focused on the development of innovative pharmaceutical products. Our
current therapeutic candidates are in the clinical development stage, and have not been approved for marketing nor are any
being marketed or commercialized. Our therapeutic candidates may require additional clinical trials or other testing before
we can obtain the regulatory approvals in order to initiate commercial sales. For professional considerations and in order to
manage our financial and human resources, we are currently advancing the development of our primary therapeutic candidate,
KIT-302. We have incurred losses from commencement of our pharmaceutical research and development activities through June 30,
2016 of approximately $17.0 million as a result of research and development activities, clinical trial related activities,
listing for trading and fund raising related activities, general administrative and other expenses. We may incur significant
additional losses as we continue to focus our resources on advancing our therapeutic candidates, including those we may
acquire. Our ability to generate revenue and achieve profitability depends mainly upon our ability, alone or with others, to
successfully develop our therapeutic candidates and obtain the required regulatory approvals in various territories and then
commercialize our therapeutic candidates. We may be unable to achieve any or all of these goals with regard to our
therapeutic candidates. As a result, we may never be profitable or achieve significant or sustained revenues.
Our limited operating
history as a pharmaceutical research and development company makes it difficult to evaluate our business and prospects.
We have a limited operating
history as a pharmaceutical research and development company, and our operations to date have been limited primarily to acquiring
therapeutic candidates, research and development, raising capital and recruiting scientific and management personnel and third
party partners. We have not yet demonstrated an ability to commercialize or obtain regulatory approval for any of our therapeutic
candidates. Consequently, any predictions about our future performance may not be accurate, and you may not be able to fully assess
our ability to complete development or commercialize our therapeutic candidates, obtain regulatory approvals, or achieve market
acceptance or favorable pricing for our therapeutic candidates.
We will need to
raise additional capital to achieve our strategic objectives of developing and commercializing additional therapeutic candidates,
and our failure to raise sufficient capital would significantly impair our ability to fund our future operations, develop our
therapeutic candidates, attract development or commercial partners and retain key personnel.
Our
financial statements for the years ended December 31, 2014 and 2013 contained an explanatory paragraph in the footnotes as to
our ability to continue as a going concern. In November 2015, we closed a public offering of our ADSs and Series A warrants for
an aggregate of approximately $13 million. Prior to this offering we funded our operations primarily through offerings of
our securities on the TASE and private loans. In July 2016, we completed a follow-on public offering of ADSs, non-listed Series
B pre-funded warrants, and Series A warrants, for an aggregate of approximately $12,000,000. We believe our existing cash and
cash equivalents will be sufficient to meet our anticipated cash requirements through at least the next twelve months. Our business
presently generates no revenues, and we plan to continue expending substantial funds in research and development, including clinical
trials. We plan to fund our future operations through commercialization and out-licensing of our therapeutic candidates and either
debt or equity financing. However, we cannot be certain that we will be able to raise capital on commercially reasonable terms
or at all, or that our actual cash requirements will not be greater than anticipated. We may have difficulty raising needed capital
or securing a development or commercialization partner in the future as a result of, among other factors, our lack of revenues
from commercialization of the therapeutic candidates, as well as the inherent business risks associated with our company and present
and future market conditions. In addition, global and local economic and geopolitical conditions may make it more difficult for
us to raise needed capital or secure a development or commercialization partner in the future and may impact our liquidity. If
we are unable to obtain future financing, we may be forced to delay, reduce the scope of, or eliminate one or more of our research,
development or commercialization programs related to our therapeutic candidates, any of which may have a material adverse effect
on our business, financial condition and results of operations. Moreover, to the extent we are able to raise capital through the
issuance of debt or equity securities, it could result in substantial dilution to existing shareholders.
Our long term capital
requirements are uncertain and subject to numerous risks.
We estimate that so long
as no significant revenues are generated from our therapeutic candidates, we will need to raise substantial additional funds to
acquire, develop and/or commercialize both of our current therapeutic candidates and any additional therapeutic candidates, as
our current cash and short-term investments are not sufficient to complete the research and development of both of our current
therapeutic candidates and any additional therapeutic candidates and fund our related expenses. Our long term capital requirements
are expected to depend on many potential factors, including, among others:
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the
regulatory path of each of our therapeutic candidates;
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our
ability to successfully commercialize our therapeutic candidates, including securing commercialization agreements with third
parties and favorable pricing and market share;
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the
progress, success and cost of our clinical trials and research and development programs;
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the
costs, timing and outcome of regulatory review and obtaining regulatory approval of our therapeutic candidates and addressing
regulatory and other issues that may arise post-approval;
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the
costs of obtaining and enforcing our issued patents and defending intellectual property-related claims;
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the
costs of developing sales, marketing and distribution channels; and
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our
consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner
than anticipated.
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If we are unable to commercialize
or out-license our therapeutic candidates or obtain future financing, we may be forced to delay, reduce the scope of, or eliminate
one or more of our research and development programs related to the therapeutic candidates, which may have a material adverse
effect on our business, financial condition and results of operations.
Risks Related to Our Business and Regulatory
Matters
If we and/or our potential
commercialization partners are unable to obtain FDA or other foreign regulatory authority approval for our therapeutic candidates,
we and/or our potential commercialization partners will be unable to commercialize our therapeutic candidates.
To date, we have
not marketed, distributed or sold any therapeutic candidate or other product. Our therapeutic candidates are subject to extensive
governmental laws, regulations and guidelines relating to development, clinical trials, manufacturing and commercialization of
drugs. We may not be able to obtain regulatory approval for any of our therapeutic candidates in a timely manner or at all.
Any material
delay in obtaining, or the failure to obtain, required regulatory approvals will increase our costs and materially and adversely
affect our ability to generate future revenues. Any regulatory approval to market a therapeutic candidate may be subject to limitations
on the indicated uses for marketing the therapeutic candidate or may impose restrictive conditions of use, including cautionary
information, thereby limiting the size of the market for the therapeutic candidate. We also are, and will be, subject to numerous
regulatory requirements from both the FDA and foreign state agencies that govern the conduct of clinical trials, manufacturing
and marketing authorization, pricing and third-party reimbursement. Moreover, approval by one regulatory authority does not ensure
approval by other regulatory authorities in separate jurisdictions. Each jurisdiction may have different approval processes and
may impose additional testing requirements for our therapeutic candidates than other jurisdictions. Additionally, the FDA or other
foreign regulatory bodies may change their approval policies or adopt new laws, regulations or guidelines in a manner that delays
or impairs our ability to obtain the necessary regulatory approvals to commercialize our therapeutic candidates.
Clinical
trials may involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not
be predictive of future trial results. We and/or our potential commercialization partners will not be able to commercialize our
therapeutic candidates without completing such trials.
We have limited
experience in conducting and managing the clinical trials that are required to commence commercial sales of our therapeutic candidates.
Clinical trials are expensive, complex, can take many years to complete and have uncertain outcomes. We cannot predict whether
we, independently or through third parties, will encounter problems with any of the completed, ongoing or planned clinical trials
that will cause delays, including suspension of clinical trials, delays in recruiting patients into the clinical trials, or delay
of data analysis or release of the final report. The clinical trials of our therapeutic candidates may take significantly longer
to complete than is estimated. Failure can occur at any stage of the testing, and we may experience numerous unforeseen events
during, or as a result of, the clinical trial process that could delay or prevent commercialization of our current or future therapeutic
candidates.
In connection
with the clinical trials for our therapeutic candidates and other therapeutic candidates that we may seek to develop in the future,
either on our own or through licensing or partnering agreements, we face various risks, including but not limited to:
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delays
in securing clinical investigators or trial sites for the clinical trials;
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delays
in receiving import or other government approvals to ensure appropriate drug supply;
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delays
in obtaining institutional review board (human ethics committee) and other regulatory approvals to commence a clinical trial;
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negative
or inconclusive results from clinical trials;
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the
FDA or other foreign regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical
studies;
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an
inability to monitor patients adequately during or after treatment;
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problems
with investigator or patient compliance with the trial protocols;
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a
therapeutic candidate may not prove safe or efficacious;
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there
may be unexpected or even serious adverse events and side effects from the use of a therapeutic candidate;
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the
results with respect to any therapeutic candidate may not confirm the positive results from earlier preclinical studies or
clinical trials;
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the
results may not meet the level of statistical significance required by the FDA or other foreign regulatory authorities;
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the
results will justify only limited and/or restrictive uses, including the inclusion of warnings and contraindications, which
could significantly limit the marketability and profitability of the therapeutic candidate;
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the
clinical trials may be delayed or not completed due to the failure to recruit suitable candidates or if there is a lower rate
of suitable candidates than anticipated or if there is a delay in recruiting suitable candidates; and
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changes
to the current regulatory requirements related to clinical trials which can delay, hinder or lead to unexpected costs in connection
with our receiving the applicable regulatory approvals.
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A number of companies
in the pharmaceutical and biotechnology industries, including those with greater resources and experience than us, have suffered
significant setbacks in advanced clinical trials, even after seeing promising results in earlier clinical trials. As such, we
do not know whether any clinical trials we may conduct will demonstrate adequate efficacy and safety sufficient to obtain regulatory
approval to market our therapeutic candidates. If any of the clinical trials of any therapeutic candidate do not produce favorable
results, our ability to obtain regulatory approval for the therapeutic candidate may be adversely impacted, which will have a
material adverse effect on our business, financial condition and results of operations.
If we do
not establish collaborations for our therapeutic candidates or otherwise raise substantial additional capital, we will likely
need to alter our development and any commercialization plans.
Our drug development
programs and the potential commercialization of our therapeutic candidates will require additional cash to fund expenses. As such,
our strategy includes selectively partnering or collaborating with multiple pharmaceutical and biotechnology companies to assist
us in furthering development and potential commercialization of our therapeutic candidates, in some or all jurisdictions. We may
not be successful in collaborations with third parties on acceptable terms, or at all. In addition, if we fail to negotiate and
maintain suitable development or commercialization agreements, we may have to limit the size or scope of our activities or we
may have to delay one or more of our development or commercialization programs. Any failure to enter into development or commercialization
agreements with respect to the development, marketing and commercialization of any therapeutic candidate or failure to develop,
market and commercialize such therapeutic candidate independently will have an adverse effect on our business, financial condition
and results of operation.
Any collaborative arrangements
that we establish may not be successful or we may otherwise not realize the anticipated benefits from these collaborations. We
do not control third parties with whom we have or may have collaborative arrangements, and we rely on them to achieve results
which may be significant to us. In addition, any future collaboration arrangements may place the development and commercialization
of our therapeutic candidates outside our control, may require us to relinquish important rights or may otherwise be on terms
unfavorable to us.
Our collaborative arrangements
require us to rely on external consultants, advisors, and experts for assistance in several key functions, including clinical
development, manufacturing, regulatory, market research, and intellectual property. We do not control these third parties, but
we rely on them to achieve results, which may be significant to us. Relying upon collaborative arrangements to develop and commercialize
our therapeutic candidates subjects us to a number of risks, including:
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we
may not be able to control the amount and timing of resources that our collaborators may devote to our therapeutic candidates;
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should
a collaborator fail to comply with applicable laws, rules, or regulations when performing services for us, we could be held
liable for such violations;
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our
collaborators may experience financial difficulties or changes in business focus;
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our
collaborators partners may fail to secure adequate commercial supplies of our therapeutic candidates upon marketing approval,
if at all;
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our
collaborators partners may have a shortage of qualified personnel;
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we
may be required to relinquish important rights, such as marketing and distribution rights;
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business
combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s
willingness or ability to complete its obligations under any arrangement;
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under
certain circumstances, a collaborator could move forward with a competing therapeutic candidate developed either independently
or in collaboration with others, including our competitors; and
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collaborative
arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing
our therapeutic candidates.
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If any of these scenarios
materialize, they could have an adverse effect on our business, financial condition or results of operations.
Our current business
model is based largely upon the combination of drugs that have not been previously combined. Unexpected difficulties or delays
in perfecting the combination of such drugs or in successfully marketing such combination drugs could have an adverse effect on
our business, financial condition and results of operations.
We are currently focused
on the development of combinations of existing drugs for the simultaneous treatment of pain caused by osteoarthritis and hypertension.
Since these existing drugs have not previously been combined into one therapeutic agent, we cannot be certain whether the combination
will work as intended. In particular, we do not know whether the combination will be bio-equivalent to the separate component
drugs, and we cannot be certain that the formulation and manufacturing process for the combination drugs will develop as planned.
In addition, we cannot be certain that the market will consider our combination drug to be superior to treatment with the separate
drug components. Any delays in perfecting the combination, the production of the combination, or in market acceptance of the combination
could have an adverse effect on our business, financial condition and results of operations.
In addition, as part of
our strategy for growth, we may consider the acquisition of therapeutic candidates or existing drug products, at various
stages of development, which are not necessarily related to the simultaneous treatment of pain caused by osteoarthritis and
hypertension. However, we may not be able to identify suitable acquisition candidates, complete acquisitions or integrate
acquisitions successfully. In this regard, acquisitions involve numerous risks, including difficulties in the integration of
the acquired therapeutic candidates and the diversion of management’s attention from other business concerns. Although
we will endeavor to evaluate the risks inherent in any particular transaction, there can be no assurance that we will
properly ascertain all such risks. In addition, acquisitions could result in the incurrence of substantial additional
indebtedness and other expenses or in potentially dilutive issuances of equity securities. There can be no assurance that
difficulties encountered with acquisitions will not have a material adverse effect on our business, financial condition and
results of operations.
We rely on third parties
to conduct our clinical trials, and those third parties may not perform satisfactorily, including, but not limited to, failing
to meet established deadlines for the completion of such clinical trials.
We do not have the ability
independently to conduct clinical trials for our product candidates, and we rely on third parties, such as contract research organizations,
medical institutions, contract laboratories, current and potential development or commercialization partners, clinical investigators
and independent study monitors, to perform this function. Our reliance on these third parties for clinical development activities
reduces our control over these activities. Furthermore, these third parties may also have relationships with other entities, some
of which may be our competitors. Although we have, in the ordinary course of business, entered into agreements with these third
parties, we continue to be responsible for confirming that each of our clinical trials is conducted in accordance with its general
investigational plan and protocol. Moreover, the FDA requires us to comply with regulations and standards, commonly referred to
as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported
results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does
not relieve us of these responsibilities and requirements. To date, we believe our contract research organizations and other similar
entities with which we are working have performed well. However, if these third parties do not successfully carry out their contractual
duties or meet expected deadlines, we may be required to replace them. Although we believe that there are a number of other third-party
contractors we could engage to continue these activities, it may result in a delay of the affected trial and additional costs.
Accordingly, we may be delayed in obtaining regulatory approvals for our therapeutic candidates and may be delayed in our efforts
to successfully commercialize our therapeutic candidates for targeted diseases.
In addition, we rely substantially
on third-party data managers for the clinical trial data that we present to regulatory authorities in order to obtain marketing
authorizations. Although we attempt to audit and control the quality of third party data, we cannot guarantee the authenticity
or accuracy of such data, nor can we be certain that such data has not been fraudulently generated. There is no assurance that
these third parties will pass FDA or regulatory audits, which could delay or prohibit regulatory approval.
If third parties do
not manufacture our therapeutic candidates in sufficient quantities, in the required timeframe, and at an acceptable cost, clinical
development and commercialization of our therapeutic candidates would be delayed.
We do not currently own or
operate manufacturing facilities, and we rely, and expect to continue to rely, on third parties to manufacture clinical and commercial
quantities of our therapeutic candidates. Our reliance on third parties includes our reliance on them for quality assurance related
to regulatory compliance. Our current and anticipated future reliance upon others for the manufacture of our therapeutic candidates
may adversely affect our future profit margins, if any, and our ability to develop therapeutic candidates and commercialize any
therapeutic candidates on a timely and competitive basis.
We may not be able to maintain
our existing or future third party manufacturing arrangements on acceptable terms, if at all. If for some reason our existing
or future manufacturers do not perform as agreed or expected, or our existing or future manufacturers otherwise terminate their
arrangements with us, we may be required to replace them. Although we are not substantially dependent upon our existing manufacturing
agreements since we could replace them with other third party manufacturers, we may incur added costs and delays in identifying,
engaging, qualifying and training any such replacements.
We rely on third party
contract vendors to manufacture and supply us with high quality active pharmaceutical ingredients, or API, in the quantities we
require on a timely basis
.
We currently do not manufacture
any API ourselves. Instead, we rely on third-party vendors for the manufacture and supply of our APIs that are used to formulate
our therapeutic candidates. While there are many potential API suppliers in the market, if these suppliers are incapable or unwilling
to meet our current or future needs on acceptable terms or at all, we could experience a delay in conducting additional clinical
trials of our therapeutic candidates and incur additional costs.
While there may be several
alternative suppliers of API in the market, we have not conducted extensive investigation into the quality or availability of
their APIs. In addition we may acquire therapeutic candidates which already have long term commitments to a specific API supplier.
As a result, we can provide no assurances that supply sources will not be interrupted from time to time. Changing API suppliers
or finding and qualifying new API suppliers can be costly and take a significant amount of time. Many APIs require significant
lead time to manufacture. There can also be challenges in maintaining similar quality or technical standards from one manufacturing
batch to the next.
If we are not able to find
stable, reliable supplies of our API, we may not be able to produce enough supplies of our therapeutic candidates, which could
affect our business, financial condition and results of operation.
We anticipate continued
reliance on third-party manufacturers if we are successful in obtaining marketing approval from the FDA and other regulatory agencies
for any of our therapeutic candidates.
To date, our therapeutic
candidates have been manufactured in relatively small quantities by third-party manufacturers for formulation development, clinical
trials, for purposes of submission to the FDA of our NDA for KIT-302, and for other therapeutic candidates which may be developed
in the future for preclinical and clinical trials, as may be required. If the FDA or other regulatory agencies approve any of
our therapeutic candidates for commercial sale, we expect that we would continue to rely, at least initially, on third-party manufacturers
to produce commercial quantities of our approved therapeutic candidates. These manufacturers may not be able to successfully increase
the manufacturing capacity for any of our approved therapeutic candidates in a timely or economic manner, or at all. Significant
scale-up of manufacturing may require additional validation studies, which the FDA must review and approve. If they are unable
to successfully increase the manufacturing capacity for a therapeutic candidate, or we are unable to establish alternative manufacturing
capabilities, the commercial launch of any approved therapeutic candidates may be delayed or there may be a shortage in supply.
We and our third-party
manufacturers are, and will be, subject to regulations of the FDA and other foreign regulatory authorities.
We and our contract manufacturers
are, and will be, required to adhere to laws, regulations and guidelines of the FDA and other foreign regulatory authorities setting
forth Current Good Manufacturing Practices. These laws, regulations and guidelines cover all aspects of the manufacturing, testing,
quality control and recordkeeping relating to our therapeutic candidates. We and our manufacturers may not be able to comply with
applicable laws, regulations and guidelines. We and our manufacturers are and will be subject to unannounced inspections by the
FDA, state regulators and similar foreign regulatory authorities outside the U.S. Our failure, or the failure of our third-party
manufacturers, to comply with applicable laws, regulations and guidelines could result in the imposition of sanctions on us, including
fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our therapeutic candidates,
delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of our therapeutic candidates, operating
restrictions and criminal prosecutions, any of which could significantly and adversely affect regulatory approval and supplies
of our therapeutic candidates and materially and adversely affect our business, financial condition and results of operations.
Even if we obtain regulatory
approvals, our therapeutic candidates will be subject to ongoing regulatory review. If we fail to comply with continuing U.S.
and applicable foreign laws, regulations and guidelines, we could lose those approvals, and our business would be seriously harmed.
Even if our therapeutic candidates
receive regulatory approval, we or our potential commercialization partners, as applicable, will be subject to ongoing reporting
obligations, including pharmacovigilance, and the therapeutic candidates and the manufacturing operations will be subject to continuing
regulatory review, including inspections by the FDA and other foreign regulatory authorities. The results of this ongoing review
may result in the withdrawal of a therapeutic candidate from the market, the interruption of the manufacturing operations or the
imposition of labeling or marketing limitations. Since many more patients are exposed to drugs following their marketing approval,
serious but infrequent adverse reactions that were not observed in clinical trials may be observed during the commercial marketing
of the therapeutic candidate. In addition, the manufacturer and the manufacturing facilities that we or our potential commercialization
partners use or will use to produce any therapeutic candidate will be subject to periodic review and inspection by the FDA and
other foreign regulatory authorities. Later discovery of previously unknown problems with any therapeutic candidate, manufacturer
or manufacturing process, or failure to comply with rules and regulatory requirements, may result in actions such as:
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restrictions
on such therapeutic candidate, manufacturer or manufacturing process;
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warning
letters from the FDA or other foreign regulatory authorities;
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withdrawal
of the therapeutic candidate from the market;
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suspension
or withdrawal of regulatory approvals;
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refusal
to approve pending applications or supplements to approved applications that we or our potential commercialization partners
submit;
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voluntary
or mandatory recall;
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fines;
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refusal
to permit the import or export of our therapeutic candidates;
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product
seizure or detentions;
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injunctions
or the imposition of civil or criminal penalties; or
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adverse
publicity.
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If we, or our current or
potential commercialization partners, suppliers, third party contractors or clinical investigators are slow to adapt, or are unable
to adapt, to changes in existing regulatory requirements or the adoption of new regulatory requirements or policies, we or our
potential commercialization partners may lose marketing approval for any of our therapeutic candidates if any of our therapeutic
candidates are approved, resulting in decreased or lost revenue from milestones, product sales or royalties.
Modifications to our
therapeutic candidates, or to any other therapeutic candidates that we may acquire or develop in the future, may require new regulatory
clearances or approvals or may require us or our current or potential development and commercialization partners, as applicable,
to recall or cease marketing these therapeutic candidates until clearances are obtained
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Modifications to our therapeutic
candidates, after they have been approved for marketing, if at all, or to any other pharmaceutical product or medical device that
we may develop in the future, may require new regulatory clearance or approvals, and, if necessitated by a problem with a marketed
product, may result in the recall or suspension of marketing of the previously approved and marketed product until clearances
or approvals of the modified product are obtained. The FDA and other foreign regulatory authorities require pharmaceutical product
and device manufacturers initially to make and document a determination of whether or not a modification requires a new approval,
supplement or clearance. A manufacturer may determine in conformity with applicable laws, regulations and guidelines that a modification
may be implemented without pre-clearance by the FDA or other foreign regulatory authorities; however, the FDA or other foreign
regulatory authorities can review a manufacturer’s decision and may disagree. The FDA or other foreign regulatory authorities
may also on their own initiative determine that a new clearance or approval is required. If the FDA or other foreign regulatory
authorities require new clearances or approvals of any pharmaceutical product for which we or our current or potential development
and commercialization partners previously received marketing approval, we or our current or potential development and commercialization
partners may be required to recall such therapeutic candidate and to stop marketing the therapeutic candidate as modified, which
could require us or our current or potential development and commercialization partners to redesign the therapeutic candidate
and cause a material adverse effect on our business, financial condition and results of operations.
While we have negotiated
a special protocol assessment, or SPA, agreement with the FDA relating to the Phase III clinical trial protocol for KIT-302, and
have received minutes of a pre-NDA submission meeting with the FDA, this agreement and these minutes do not guarantee approval
of KIT-302 or any other particular outcome from the final regulatory review of the study or the drug candidate.
We have reached an agreement
with the FDA to conduct the Phase III clinical trial for KIT-302 pursuant to an SPA agreement. The FDA’s SPA process is
designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size
of Phase III trials that are intended to form the primary basis for determining a therapeutic candidate’s efficacy. Upon
specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding,
among other things, primary efficacy endpoints, trial design and data analysis plans, within 45 days of receipt of the request.
The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory
approval of the therapeutic candidate with respect to its effectiveness and safety against the indication studied. All agreements
and disagreements between the FDA and the sponsor regarding an SPA agreement must be clearly documented in an SPA letter or the
minutes of a meeting between the sponsor and the FDA. Nevertheless, an SPA agreement does not guarantee approval of a therapeutic
candidate, and approval will require that the data will convince the FDA of the safety, efficacy and need for the therapeutic
candidate. Even if the FDA agrees to the design, execution and analysis proposed in protocols reviewed under the SPA process,
the FDA may revoke or alter its agreement in certain circumstances. In particular, an SPA agreement is not binding on the FDA
if public health concerns emerge that were unrecognized at the time of the SPA agreement, other new scientific concerns regarding
product safety or efficacy arise, the sponsor company fails to comply with the agreed upon trial protocols, or the relevant data,
assumptions or information provided by the sponsor in a request for the SPA change or are found to be false or omit relevant facts.
In addition, even after an SPA agreement is finalized, the SPA agreement may be modified, and such modification will be deemed
binding on the FDA review division, except under the circumstances described above, if the FDA and the sponsor agree in writing
to modify the protocol and such modification is intended to improve the study. The FDA retains significant latitude and discretion
in interpreting the terms of the SPA agreement and the data and results from any study that is the subject of the SPA agreement.
A revocation or alteration in our existing SPA agreement could significantly delay or prevent approval of our application. Our
SPA agreement with the FDA does not ensure that KIT-302 will receive marketing approval or that the approval process will be faster
than conventional regulatory procedures. Further, we cannot assure you that the reported results of our Phase III clinical
trial of KIT-302, and the minutes of a pre-NDA submission meeting with the FDA which we received in May 2016, will result in any
FDA approval for KIT-302. While we believe that our Phase III clinical trial has been completed in accordance with the SPA
agreement, and that the data generated met the endpoints that have been agreed in the SPA agreement to represent adequate evidence
of effectiveness, and while we anticipate that we will be able to satisfactorily provide the additional information requested
by the FDA as part of the minutes we received following the pre-NDA submission meeting, if the FDA revokes or alters its agreement
under the SPA agreement, or if the FDA interprets the data collected from the clinical trial differently than we do, or if the
FDA is not satisfied with the additional information we submit to them, the FDA may not deem the data sufficient to support an
application for regulatory approval, which could materially adversely affect our business, financial condition and results of
operations.
We depend on our ability
to identify and acquire or in-license therapeutic candidates to achieve commercial success.
Our therapeutic candidates
were all acquired by us from third parties. We evaluate internally and with external consultants each potential therapeutic candidate.
However, there can be no assurance as to our ability to accurately or consistently select therapeutic candidates that have the
highest likelihood to achieve commercial success.
Our business could
suffer if we are unable to attract and retain key employees or directors.
The loss of the services
of members of senior management or other key personnel could delay or otherwise adversely impact the successful completion of
our planned clinical trials or the commercialization of our therapeutic candidates or otherwise affect our ability to manage our
company effectively and to carry out our business plan. We do not maintain key-man life insurance for any of our personnel. Although
we have entered into employment or consultancy agreements with all of the members of our senior management team, members of our
senior management team may resign at any time. High demand exists for senior management and other key personnel in the pharmaceutical
industry. There can be no assurance that we will be able to continue to retain and attract such personnel.
Our growth and success also
depend on our ability to attract and retain additional highly qualified scientific, technical, business development, marketing,
managerial and finance personnel. We experience intense competition for qualified personnel, and the existence of non-competition
agreements between prospective employees and their former employers may prevent us from hiring those individuals or subject us
to liability from their former employers. In addition, if we elect to independently commercialize any therapeutic candidate, we
will need to expand our marketing and sales capabilities. While we attempt to provide competitive compensation packages to attract
and retain key personnel, many of our competitors are likely to have greater resources and more experience than we have, making
it difficult for us to compete successfully for key personnel. Compensation packages for certain of our senior office holders
are subject to approval of our compensation committee and board of directors and in certain instances of our shareholders as well.
We may not be able to achieve the required corporate approvals for proposed compensation packages, further making it difficult
for us to compete successfully with privately owned companies in order to attract and retain key personnel. If we cannot attract
and retain sufficiently qualified technical employees on acceptable terms, we may not be able to develop and commercialize competitive
therapeutic candidates. Further, any failure to effectively integrate new personnel could prevent our business from successfully
growing.
We are an international
business, and we are exposed to various global and local risks that could have an adverse effect on our business
.
We operate our business in
multiple international jurisdictions. Such operations could be affected by changes in foreign exchange rates, capital and exchange
controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies,
trade regulations and procedures and actions affecting approval, production, pricing, and marketing of, reimbursement for and
access to, our products, as well as by political unrest, unstable governments and legal systems and inter-governmental disputes.
Any of these changes could adversely affect our business.
Risks Related to Our
Industry
Even if our therapeutic
candidates receive regulatory approval or do not require regulatory approval, they may not become commercially viable products.
Even if our therapeutic candidates
are approved for commercialization, they may not become commercially viable products. For example, if we or our potential commercialization
partners receive regulatory approval to market a therapeutic candidate, approval may be subject to limitations on the indicated
uses or subject to labeling or marketing restrictions which could materially and adversely affect the marketability and profitability
of the therapeutic candidate. In addition, a new therapeutic candidate may appear promising at an early stage of development or
after clinical trials but never reach the market, or it may reach the market but not result in sufficient product sales, if any.
A therapeutic candidate may not result in commercial success for various reasons, including:
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difficulty
in large-scale manufacturing, including yield and quality;
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low
market acceptance by physicians, healthcare payers, patients and the medical community as a result of lower demonstrated clinical
safety or efficacy compared to other products, prevalence and severity of adverse side effects, or other potential disadvantages
relative to alternative treatment methods;
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insufficient
or unfavorable levels of reimbursement from government or third-party payers, such as insurance companies, health maintenance
organizations and other health plan administrators;
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infringement
on proprietary rights of others for which we or our potential commercialization partners have not received licenses;
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incompatibility
with other therapeutic candidates;
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other
potential advantages of alternative treatment methods and competitive forces that may make it more difficult for us to penetrate
a particular market segment;
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ineffective
marketing and distribution support;
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lack
of significant competitive advantages over existing products on the market;
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lack
of cost-effectiveness; or
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timing
of market introduction of competitive products.
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Physicians, various other
health care providers, patients, payers or the medical community in general may be unwilling to accept, utilize or recommend any
of our approved therapeutic candidates. If we are unable, either on our own or through third parties, to manufacture, commercialize
and market our proposed formulations or therapeutic candidates when planned, or develop commercially viable therapeutic candidates,
we may not achieve any market acceptance or generate revenue.
The market for our
therapeutic candidates is rapidly changing and competitive, and new drug delivery mechanisms, drug delivery technologies, new
drugs and new treatments which may be developed by others could impair our ability to maintain and grow our business and remain
competitive.
The pharmaceutical and biotechnology
industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology
companies that are researching and marketing products designed to address the indications for which we are currently developing
therapeutic candidates or for which we may develop therapeutic candidates in the future. There are various other companies that
currently market or are in the process of developing products that address all of the indications or diseases treated by our therapeutic
candidates.
New drug delivery mechanisms,
drug delivery technologies, new drugs and new treatments that have been developed or that are in the process of being developed
by others may render our therapeutic candidates noncompetitive or obsolete, or we may be unable to keep pace with technological
developments or other market factors. Some of these technologies may have an entirely different approach or means of accomplishing
similar therapeutic effects compared to our therapeutic candidates. Technological competition from pharmaceutical and biotechnology
companies, universities, governmental entities and others is intense and is expected to increase. Many of these entities have
significantly greater research and development capabilities, human resources and budgets than we do, as well as substantially
more marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. Acquisitions
of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors’
financial, marketing, manufacturing and other resources.
The potential widespread
acceptance of therapies that are alternatives to ours may limit market acceptance of our formulations or therapeutic candidates,
even if commercialized. Many of our targeted diseases and conditions can also be treated by other medications or drug delivery
technologies. These treatments may be widely accepted in medical communities and have a longer history of use. The established
use of these competitive drugs may limit the potential for our therapeutic candidates to receive widespread acceptance if commercialized.
If third-party payers
do not adequately reimburse customers for any of our therapeutic candidates that are approved for marketing, they might not be
purchased or used, and our revenues and profits will not develop or increase.
Our revenues and profits
will depend heavily upon the availability of adequate reimbursement for the use of our approved therapeutic candidates, if any,
from governmental or other third-party payers, both in the U.S. and in foreign markets. Reimbursement by a third-party payer may
depend upon a number of factors, including the third-party payer’s determination that the use of an approved therapeutic
candidate is:
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a
covered benefit under its health plan;
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safe,
effective and medically necessary;
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appropriate
for the specific patient;
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cost-effective,
including compared to approved alternate therapies; and
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neither
experimental nor investigational.
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Obtaining reimbursement approval
for a therapeutic candidate from each government or other third-party payer is a time-consuming and costly process that could
require us or our current or potential development and commercialization partners to provide supporting scientific, clinical and
cost-effectiveness data for the use of our therapeutic candidates to each payer. Even when a payer determines that a therapeutic
candidate is eligible for reimbursement, the payer may impose coverage limitations that preclude payment for some uses that are
approved by the FDA or other foreign regulatory authorities. Reimbursement rates may vary according to the use of the therapeutic
candidate and the clinical setting in which it used, may be based on payments allowed for lower-cost products that are already
reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary constraints or
imperfections in Medicare, Medicaid or other data used to calculate these rates.
In the U.S., there have been,
and we expect that there will continue to be, federal and state proposals to constrain expenditures for medical products and services
which may affect payments for our therapeutic candidates in the U.S. We believe that legislation that reduces reimbursement for
our therapeutic candidates could adversely impact how much or under what circumstances healthcare providers will prescribe or
administer our therapeutic candidates, if approved. This could materially and adversely impact our business by reducing our ability
to generate revenue, raise capital, obtain additional collaborators and market our therapeutic candidates, if approved. At this
stage, we are unable to estimate the extent of the direct or indirect impact of any such federal and state proposals.
Further, the Centers for
Medicare and Medicaid Services frequently change product descriptors, coverage policies, product and service codes, payment methodologies
and reimbursement values. Third-party payers often follow Medicare coverage policy and payment limitations in setting their own
reimbursement rates, and both the Centers for Medicare and Medicaid Services and other third-party payers may have sufficient
market power to demand significant price reductions.
Legislative or regulatory
reform of the healthcare system in the United States may harm our future business
.
On March 23, 2010, President
Obama signed the “Patient Protection and Affordable Care Act” (P.L. 111-148) and on March 30, 2010, the President
signed the “Health Care and Education Reconciliation Act” (P.L. 111-152), collectively commonly referred to as the
“Healthcare Reform Law.” The Health Reform Law included a number of new rules regarding health insurance, the provision
of health care, and conditions to reimbursement for healthcare services provided to Medicare and Medicaid patients. Through the
rule making process, substantial changes have been and continue to be made to the current system for paying for healthcare in
the United States, including changes made in order to extend medical benefits to those who lack insurance coverage. Extending
coverage to a large population could substantially change the structure of the health insurance system and the methodology for
reimbursing medical services and drugs. This legislation is one of the most comprehensive and significant reforms ever experienced
by the United States in the healthcare industry and is expected to have meaningful ramifications on tens of millions of citizens
in the United States. This legislation is expected to impact the scope of healthcare insurance, the insurance refunds from the
insurance companies and possibly also the costs of medical products. Additionally, the Healthcare Reform Law’s provisions
are designed to encourage providers to find cost savings in their clinical operations. Pharmaceuticals represent a significant
portion of the cost of providing care. Through modified reimbursement rates and other incentives, the United States government
is requiring that providers identify the most cost-effective services, supplies and pharmaceuticals. This environment has caused
changes in the purchasing habits of providers and resulted in specific attention to the pricing negotiation, product selection
and utilization review surrounding pharmaceuticals. To the extent that our therapeutic candidates are at some point reimbursable
by U.S. federal government programs, this attention may result in our therapeutic candidates being chosen less frequently or the
pricing being substantially lowered. However, the effect of the legislation is difficult to predict and, at this stage, we are
unable to estimate the full extent of the direct and/or indirect impact of the legislation on us.
These structural changes
could entail modifications to the existing system of private payors and government programs (such as Medicare, Medicaid and State
Children’s Health Insurance Program), creation of a government-sponsored healthcare insurance source, or some combination
of both, as well as other changes. Restructuring the coverage of medical care in the United States could impact the reimbursement
for prescribed drugs and pharmaceuticals, such as those we and our development and/or commercialization partners are currently
developing. If reimbursement for our approved therapeutic candidates, if any, is substantially reduced in the future, or rebate
obligations associated with them are substantially increased, our business could be materially and adversely impacted.
Extending medical benefits
to those who currently lack coverage will likely result in substantial cost to the United States federal government, which may
force significant additional changes to the healthcare system in the United States. Much of the funding for expanded healthcare
coverage may be sought through cost savings. While some of these savings may come from realizing greater efficiencies in delivering
care, improving the effectiveness of preventive care and enhancing the overall quality of care, much of the cost savings may come
from reducing the cost of care. Cost of care could be reduced by decreasing the level of reimbursement for medical services or
products (including those pharmaceuticals currently being developed by us or our development and/or commercialization partners),
or by restricting coverage (and, thereby, utilization) of medical services or products. In either case, a reduction in the utilization
of, or reimbursement for, any therapeutic candidate for which we receive marketing approval in the future could have a materially
adverse effect on our financial performance.
Several States and private
entities initially mounted legal challenges to the healthcare reform legislation, and they continue to litigate various aspects
of the legislation. On July 26, 2012, the United States Supreme Court generally upheld the healthcare reform legislation as constitutional.
However, the Supreme Court held that the legislation improperly required the States to expand their Medicaid programs to cover
more individuals. As a result, the States have a choice as to whether they will expand the numbers of individuals covered by their
respective State Medicaid programs. Some States have determined that they will not expand their Medicaid programs and will develop
other cost saving and coverage measures to provide care to currently uninsured residents. Many of these efforts to date have included
the institution of Medicaid managed care programs. The manner in which these cost saving measures are implemented could have a
materially adverse effect on our financial performance. Further, the healthcare regulatory environment has seen significant changes
in recent years and is still in flux. Following the recent elections in the United States of America, the presumptive President-Elect,
a Republican, has indicated that he, working together with Congress, the majority members of both houses of which will be from
the Republican Party, will promote the repeal of all or part of Healthcare Reform Law. We cannot predict the impact on our business
of future legal challenges to the healthcare reform legislation, as currently enacted, or other changes to the current laws and
regulations which may be revised in the future.
We are subject to additional
federal and state laws and regulations relating to our business, and our failure to comply with those laws could have a material
adverse effect on our results of operations and financial conditions.
In the event that we were
to market products in the United States, we would be subject to additional healthcare regulation and enforcement by the federal
government and the states in which we conduct or will conduct our business. The laws that may affect our ability to operate include,
but are not limited to, the following:
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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, in exchange for or to induce either the referral of an individual
for, or the purchase, order or recommendation of, any good or service for which payment may be made under government healthcare
programs such as the Medicare and Medicaid programs;
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the
federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person from offering or transferring
remuneration to a Medicare or State health care program beneficiary that the person knows or should know is likely to influence
the beneficiary’s selection of a particular provider, practitioner or supplier of any item or service for which payment
may be made, in whole or in part, by Medicare or a State health care program;
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the
Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, which prohibits physicians from referring
Medicare or Medicaid patients for certain designated health services where that physician or its family member has a financial
relationship with the entity providing the designated health service, unless an exception applies;
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federal
false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented,
claims for payment from Medicare, Medicaid or other government healthcare programs that are false or fraudulent;
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federal
criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating
to healthcare matters; and
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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.
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Further, the recently enacted
Healthcare Reform Law, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare
fraud statutes. A person or entity can now be found guilty of fraud or an anti-kickback violation without actual knowledge of
the statute or specific intent to violate it. In addition, the Healthcare Reform Law provides that the government may assert that
a claim including items or services resulting from a violation of the federal Anti-Kickback Statue constitutes a false or fraudulent
claim for purposes of the False Claims Act (
31 U.S.C. 3729
–
3733
). Possible sanctions for violation of these
anti-kickback laws include monetary fines, civil and criminal penalties, exclusion from Medicare, Medicaid and other government
programs and forfeiture of amounts collected in violation of such prohibitions. Any violations of these laws, or any action against
us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation,
business, results of operations and financial condition.
The Healthcare Reform Law
also imposes reporting requirements on certain medical devices and pharmaceutical manufacturers, among others, to make annual
public disclosures of certain payments or other transfers of value to physicians and teaching hospitals and ownership or investment
interests held by physicians or their immediate family members. Failure to submit required information may result in civil monetary
penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”),
for all payments, transfers of value or ownership or investment interests that are not reported. Manufacturers were required to
begin data collection on August 1, 2013 and report such data to the Centers for Medicare & Medicaid Services (CMS) by March
31 each year. CMS made the data publicly available on its searchable database beginning in September 2014.
In addition, there has been
a recent trend of increased federal and state regulation of payments made to physicians for marketing, medical directorships,
and other purposes. Some states, such as California, Massachusetts and Vermont, mandate implementation of corporate compliance
programs, along with the tracking and reporting of gifts, compensation and other remuneration to physicians, and some states limit
or prohibit such gifts.
The scope and enforcement
of these laws is uncertain and subject to change in the current environment of healthcare reform, especially in light of the lack
of applicable precedent and regulations. We cannot predict the impact on our business of any changes in these laws. Federal or
state regulatory authorities may challenge our current or future activities under these laws. Any such challenge could have a
material adverse effect on our reputation, business, results of operations, and financial condition. Any state or federal regulatory
review of us, regardless of the outcome, would be costly and time-consuming.
We could be exposed
to significant drug product liability claims, which could be time consuming and costly to defend, divert management attention
and adversely impact our ability to obtain and maintain insurance coverage.
The clinical trials that
we conduct, and the testing, manufacturing, marketing and commercial sale of our therapeutic candidates, involve and will involve
an inherent risk that significant liability claims may be asserted against us. We currently have a clinical trial liability policy
that includes coverage for our clinical trials. Should we decide to seek additional insurance against such risks before our product
sales commence, there is a risk that such insurance will be unavailable to us, or if it can be obtained at such time, that it
will be available only at an unaffordable cost. Even if we obtain insurance, it may prove inadequate to cover claims or litigation
costs, especially in the case of wrongful death claims. Product liability claims or other claims related to our therapeutic candidates,
regardless of their outcome, could require us to spend significant time and money in litigation or to pay significant settlement
amounts or judgments. Any successful product liability or other claim may prevent us from obtaining adequate liability insurance
in the future on commercially desirable or reasonable terms. An inability to obtain sufficient insurance coverage at an acceptable
cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our
products and therapeutic candidates. A product liability claim could also significantly harm our reputation and delay market acceptance
of our therapeutic candidates.
Unfavorable global
economic conditions could adversely affect our business, financial condition or results of operations.
Our results of operations
could be adversely affected by general conditions in the global economy and in the global financial markets. An economic downturn
could result in a variety of risks to our business, including weakened demand for our therapeutic candidates and our inability
to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our partners
and suppliers, possibly resulting in supply disruption, or cause future customers to delay making payments for our products. Any
of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial
market conditions could adversely impact our business.
Our business involves
risks related to handling regulated substances which could severely affect our ability to conduct research and development of
our therapeutic candidates.
In connection with our current
or potential development and commercialization partners’ research and clinical development activities, as well as the manufacture
of materials and therapeutic candidates, we and our current or potential development and commercialization partners are subject
to foreign, federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage,
air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. We and our current
or potential development and commercialization partners may be required to incur significant costs to comply with environmental
and health and safety regulations in the future. Our research and clinical development, as well as the activities of our manufacturing
and current or potential development and commercialization partners, both now and in the future, may involve the controlled use
of hazardous materials, including but not limited to certain hazardous chemicals. We cannot completely eliminate the risk of accidental
contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that
result and any such liability could exceed our resources.
Risks Related to Intellectual Property and
Legal Proceedings
We may be unable to
adequately protect or enforce our rights to intellectual property, causing us to lose valuable rights. Loss of patent rights may
lead us to lose market share and potential profits.
Our success depends, in part,
on our ability, and the ability of our current or potential development and commercialization partners to obtain patent protection
for our therapeutic candidates, maintain the confidentiality of our trade secrets and know how, operate without infringing on
the proprietary rights of others and prevent others from infringing our proprietary rights.
We try to protect our proprietary
position by, among other things, filing U.S., European, and other patent applications related to our therapeutic candidates, inventions
and improvements that may be important to the continuing development of our therapeutic candidates.
Because the patent position
of pharmaceutical companies involves complex legal and factual questions, we cannot predict the validity and enforceability of
any patents we may obtain with certainty. Our competitors may independently develop drug delivery technologies or products similar
to ours or design around or otherwise circumvent any patents that may be issued to or licensed by us. Our pending patent applications,
and those that we may file in the future or those we may license from third parties may not result in patents being issued. If
these patents are issued, they may not provide us with proprietary protection or competitive advantages. The degree of future
protection to be afforded by our proprietary rights is uncertain because legal means afford only limited protection and may not
adequately protect our rights or permit us to gain or keep our competitive advantage.
Patent rights are territorial;
thus, the patent protection we have sought will only extend, if issued, to those countries, if any, in which we will be issued
patents. Even so, the laws of certain countries do not protect our intellectual property rights to the same extent as do the laws
of the U.S. and the European Union. Competitors may successfully challenge any of our patents, produce similar drugs or products
that do not infringe such patents, or produce drugs in countries where we have not applied for patent protection or that do not
respect such patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications
and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law.
After the completion of development
and registration of any future patents, third parties may still act to manufacture or market our therapeutic candidates in infringement
of our patent protected rights. Such manufacture or marketing of our therapeutic candidates in infringement of any patent-protected
rights is likely to cause us damage and lead to a reduction in the prices of our therapeutic candidates, thereby reducing our
potential profits.
We may invest a significant
amount of time and expense in the development of our therapeutic candidates only to be subject to significant delay and patent
litigation before they may be commercialized. In addition, due to the extensive time needed to develop, test and obtain regulatory
approval for our therapeutic candidates, any patents that may be issued that protect our therapeutic candidates may expire early
during commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration,
we may face increased competition through the entry of generic products into the market and a subsequent decline in market share
and profits.
If we are unable to
protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against
us.
In addition to filing patents,
we generally try to protect our trade secrets, know-how and technology by entering into confidentiality or non-disclosure agreements
with parties that have access to it, such as our current or potential development and commercialization partners, employees, contractors
and consultants. We also enter into agreements that purport to require the disclosure and assignment to us of the rights to the
ideas, developments, discoveries and inventions of our employees, advisors, research collaborators, contractors and consultants
while we employ or engage them. However, these agreements can be difficult and costly to enforce or may not provide adequate remedies.
Any of these parties may breach the confidentiality agreements and willfully or unintentionally disclose our confidential information,
or our competitors might learn of the information in some other way. The disclosure to, or independent development by, a competitor
of any trade secret, know-how or other technology not protected by a patent could materially adversely affect any competitive
advantage we may have over any such competitor.
To the extent that any of
our employees, advisors, research collaborators, contractors or consultants independently develop, or use independently developed,
intellectual property in connection with any of our projects, disputes may arise as to the proprietary rights to this type of
information. If a dispute arises with respect to any proprietary right, enforcement of our rights can be costly and unpredictable
and a court may determine that the right belongs to a third party.
Legal proceedings or
third-party claims of intellectual property infringement and other legal challenges may require us to spend substantial time and
money and could prevent us from developing or commercializing our therapeutic candidates. An adverse result in these infringements
and other legal challenges could have a material adverse effect on our business, results of operations and financial condition.
The development, manufacture,
use, offer for sale, sale or importation of our therapeutic candidates may infringe on the claims of third-party patents or other
intellectual property rights. The nature of claims contained in unpublished patent filings around the world is unknown to us,
and it is not possible to know which countries patent holders may choose for the extension of their filings under the Patent Cooperation
Treaty, or other mechanisms. We may also be subject to claims based on the actions of employees and consultants with respect to
the usage or disclosure of intellectual property learned at other employers. The cost to us of any intellectual property litigation
or other infringement proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to
sustain the costs of such litigation or proceedings more effectively because of their substantially greater financial resources.
Uncertainties resulting from the initiation and continuation or defense of intellectual property litigation or other proceedings
could have a material adverse effect on our ability to compete in the marketplace. Intellectual property litigation and other
proceedings may also absorb significant management time. Consequently, we are unable to guarantee that we will be able to manufacture,
use, offer for sale, sell or import our therapeutic candidates in the event of an infringement action.
In the event of patent infringement
claims, or to avoid potential claims, we may choose or be required to seek a license from a third party and would most likely
be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even
if we were able to obtain a license, the rights may be non-exclusive, which could potentially limit our competitive advantage.
Ultimately, we could be prevented from commercializing a therapeutic candidate or be forced to cease some aspect of our business
operations if, as a result of actual or threatened patent infringement or other claims, we are unable to enter into licenses on
acceptable terms. This inability to enter into licenses could harm our business significantly.
From time to time, we may
be involved in various lawsuits and legal proceedings other than intellectual property infringement actions, concerning such laws
as corporate and securities laws, business laws, product liability laws, and environmental laws. On December 3, 2015, we announced
that we received a lawsuit and motion to approve the lawsuit as a class action lawsuit pursuant to the Class Action Lawsuits Law
5766-2006 (Motion) which was filed against us and our directors at the Tel Aviv District Court (Economic Division). The Motion
asserts claims for damages to the holders of our securities listed on the TASE, arising due to the initial public offering of
our securities in the U.S. during November 2015. This Motion could result in significant legal defense costs and high punitive
damage payments. Although we maintain directors’ and officers’ liability insurance, with an extension to cover the
Company as well, the insurance companies may reject our claims for coverage under the policy or the coverage may not be adequate
to cover future claims. Additionally, we may be unable to maintain our existing directors’ and officers’ liability
insurance in the future at satisfactory rates or adequate amounts. We have been advised by our attorneys that the likelihood of
the Company not incurring any financial obligation as a result of the class action exceeds the likelihood that the Company will
incur a financial obligation. At this preliminary stage however, we are unable, with any degree of certainty, to make any other
evaluations or any other assessments with respect to the Motion's probability of success or the scope of potential exposure, if
any. For more information see "Legal Proceedings" below.
It is difficult to foresee
the results of legal actions and proceedings currently involving us or those which may arise in the future, and an adverse result
in these matters could have a material adverse effect on our business, results of operations and financial condition. In addition,
any legal or administrative proceedings which we are subject to could require the significant involvement of our senior management,
and may divert management attention from our business and operations.
We may be subject to
other patent-related litigation or proceedings that could be costly to defend and uncertain in their outcome.
In addition to infringement
claims against us, we may in the future become a party to other patent litigation or proceedings before regulatory agencies, including
interference or re-examination proceedings filed with the U.S. Patent and Trademark Office (USPTO) or opposition proceedings in
other foreign patent offices regarding intellectual property rights with respect to our therapeutic candidates, as well as other
disputes regarding intellectual property rights with our current and potential development and commercialization partners, or
others with whom we have contractual or other business relationships. Post-issuance oppositions are not uncommon and we and our
current and potential development and commercialization partners will be required to defend these opposition procedures as a matter
of course. Opposition procedures may be costly, and there is a risk that we may not prevail.
Risks Related to our Operations in Israel
We conduct our operations
in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and its
region.
We are incorporated under
the laws of the State of Israel, our principal offices are located in central Israel and some of our officers, employees, consultants
and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding
region 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 Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade
within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and could
make it more difficult for us to raise capital. In 2008, 2012, and again in the summer of 2014, Israel was engaged in an armed
conflict with Hamas, a militia group and political party operating in the Gaza Strip, and during the summer of 2006, Israel was
engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These conflicts involved
missile strikes against civilian targets in various parts of Israel, and negatively affected business conditions in Israel. Political
uprisings and civil resistance demonstrations in various countries in the Middle East, including Egypt and Syria, have affected
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 may lead to deterioration of the political relationships that exist
between Israel and these countries, and have raised concerns regarding security in the region and the potential for armed conflict.
The tension between Israel and Iran or extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon, may escalate
in the future and turn violent, which could affect the Israeli economy generally and us in particular. Any armed conflicts, terrorist
activities or political instability in the region could adversely affect business conditions and could harm our results of operations.
Parties with whom we may do business have sometimes declined to travel to Israel during periods of heightened unrest or tension,
forcing us to make alternative arrangements when necessary. The conflict situation in Israel could cause situations where medical
product certifying or auditing bodies could not be able to visit manufacturing facilities of our subcontractors in Israel in order
to review our certifications or clearances, thus possibly leading to temporary suspensions or even cancellations of our product
clearances or certifications. The conflict situation in Israel could also 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 events associated with the security situation in the Middle East. Although
the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts
of war, we cannot assure you that this government coverage will be maintained. 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 and could harm our results of operations.
Further, in the past, the
State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business and
trade activity with the State of Israel and with Israeli companies, and additional countries may impose restrictions on doing
business with Israel and Israeli companies if hostilities in the region continue or intensify. Such restrictions may seriously
limit our ability to sell our products to customers in those countries.
Any of the factors set forth
above may have an adverse impact on our operating results, financial condition or the expansion of our business.
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, or an acquisition of a significant portion of our shares, which could prevent a change of control, and negatively
affect the price of our ordinary shares.
Israeli corporate law regulates
mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for certain
transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these
types of transactions. These provisions of Israeli law may delay, prevent or make difficult an acquisition of us, which could
prevent a change of control and therefore depress the price of our shares, See –the section titled “Merger”
under the description of our Ordinary Shares for more information.
Furthermore, Israeli tax
considerations may make potential transactions unappealing to us or to our shareholders, especially for those shareholders whose
country of residence does not have a tax treaty with Israel which exempts such shareholders from Israeli tax. For example, Israeli
tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law
allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions,
including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of
shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions,
the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares
has occurred.
Our amended and restated articles
of association also contain provisions that could delay or prevent changes in control or changes in our management. These provisions
include matters in connection with the election and removal of directors, such as our staggered board of directors, the appointment
by our board of directors of additional directors to fill vacancies on the board of directors, the size of the our board of directors,
the terms of office of our directors and the special majority of our voting rights required to amend such provision in our amended
and restated articles of association. See the sections titled “Board of Directors” and “Acquisitions under Israeli
Law” for additional information.
In addition, we have 1,000,000,000
shares of non-voting senior preferred shares authorized, which can be issued by our board of directors, who can establish conversion,
redemption, optional and other special rights, qualifications, limitations or restrictions, if any, of the non-voting senior preferred
shares, without further actions by our shareholders, unless shareholder approval is otherwise required by applicable law, the
rules of any exchange or other market on which our securities may then be listed or traded, our articles of association then in
effect, or any other applicable rules and regulations. Furthermore, in a merger between Israeli corporations, if the non-surviving
entity has more than one class of shares, the merger may need to be approved by each class of shareholders, including any classes
of otherwise non-voting shares, such as the non-voting senior preferred shares authorized in our share capital.
These and other similar provisions
could delay, prevent or impede an acquisition of us or our merger with another company, or an acquisition of a significant portion
of our shares, even if such an acquisition or merger would be beneficial to us or to our shareholders.
Because a certain portion
of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuations
and inflation.
Our reporting and functional
currency is the U.S. dollar. Most of the royalty payments from potential development and commercialization partners are expected
to be payable in U.S. dollars, and we expect our revenues from future licensing agreements to be denominated mainly in U.S. dollars
or in Euros. We pay a portion of our expenses in U.S. dollars; however, a portion of our expenses, related to salaries of the
employees in Israel and payment to part of the service providers in Israel, are paid in NIS and in other currencies. In addition,
a portion of our financial assets is held in NIS. As a result, we are exposed to currency fluctuation risks. For example, if the
NIS strengthens against the U.S. dollar, our reported expenses in U.S. dollars may be higher than anticipated. In addition, if
the NIS weakens against the U.S. dollar, the U.S. dollar value of our financial assets held in NIS will decline.
It may be difficult
to enforce a U.S. judgment against us and our officers and directors in Israel or the U.S., or to serve process on our officers
and directors.
We are incorporated in Israel.
Most of our executive officers and directors reside outside of the U.S., and all of our assets and most of the assets of our executive
officers and directors are located outside of the U.S. Therefore, a judgment obtained against us or such executive officers and
our directors in the U.S., including one based on the civil liability provisions of the U.S. federal securities laws, may not
be collectible in the U.S. and may not be enforced by an Israeli court. It may also be difficult for you to affect service of
process on these persons in the U.S. or to assert U.S. securities law claims in original actions instituted in Israel. 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, it may be impossible to collect any damages awarded by either a U.S.
or foreign court.
Your obligations and
responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the obligations and responsibilities
of shareholders of U.S. companies. Israeli law may impose obligations and responsibilities on a shareholder of an Israeli company
that are not imposed upon shareholders of corporations in the U.S.
We are incorporated under
Israeli law. The obligations and responsibilities of the holders of our ordinary shares are governed by our amended and restated
articles of association and Israeli law. These obligations and responsibilities differ in some respects from the obligations and
responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a
duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including,
among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles
of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions
requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a
shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness
toward the company. There is limited case law available to assist us in understanding the implications of these provisions that
govern shareholders’ actions. These provisions may be interpreted to impose additional obligations and responsibilities
on holders of our ordinary shares and/or ADSs that are not typically imposed on shareholders of U.S. corporations.
Claims for indemnification
by our directors and officers may reduce our available funds to satisfy successful shareholder claims against us and may reduce
the amount of money available to us.
The Companies Law and our
amended and restated articles of association permit us to indemnify our directors and officers for acts performed by them in their
capacity as directors and officers. The Companies Law and our amended and restated articles of association provide that a company
may not exempt or indemnify a director or an office holder nor enter into an insurance contract, which would provide coverage
for any monetary liability incurred as a result of (a) a breach by the director or officer of his duty of loyalty, except for
insurance and indemnification where the director or officer acted in good faith and had a reasonable basis to believe that the
act would not prejudice the company; (b) a breach by the director or officer of his duty of care if the breach was done intentionally
or recklessly, except if the breach was solely as a result of negligence; (c) any act or omission done with the intent to derive
an illegal personal benefit; or (d) any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director.
We have issued letters of
indemnification to our directors and officers, pursuant to which we have agreed to indemnify them in advance for any liability
or expense imposed on or incurred by them in connection with acts they perform in their capacity as a director or officer, subject
to applicable law. The amount of the advance indemnity will not exceed 25% of our then consolidated shareholders’ equity,
per our most recent consolidated annual financial statements.
Our indemnification obligations
limit the personal liability of our directors and officers for monetary damages for breach of their duties as directors by shifting
the burden of such losses and expenses to us. Although we have obtained directors’ and officers’ liability insurance,
certain liabilities or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage
limitation amounts may be exceeded.
As a result of the Motion
or other claims which may be filed against our directors and officers, we may need to use a significant amount of our funds to
satisfy our indemnification obligations, which could severely harm our business and financial condition and limit the funds available
to shareholders who may choose to bring a claim against our company. See the risk factor titled “Legal proceedings or third-party
claims of intellectual property infringement and other legal challenges may require us to spend substantial time and money and
could prevent us from developing or commercializing our therapeutic candidates. An adverse result in these infringements and other
legal challenges could have a material adverse effect on our business, results of operations and financial conditions” under
the risk factor section titled “Risks Related to Intellectual Property and Legal Proceedings”.
These provisions and resultant
costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their duties, and may similarly
discourage the filing of derivative litigation by our shareholders against the directors and officers even though such actions,
if successful, might otherwise benefit our shareholders.
Risks related to the offering
Our management team
will have immediate and broad discretion over the use of the net proceeds from this offering and may not use them effectively.
Unless otherwise indicated
in an accompanying prospectus supplement, we intend to use the net proceeds from the sale of securities to fund the possible acquisition
of new therapeutic candidates and for general working capital purposes. See “Use of Proceeds.” However, our management
will have broad discretion in the application of the net proceeds. Our shareholders may not agree with the manner in which our
management chooses to allocate the net proceeds from this offering. The failure by our management to apply these funds effectively
could have a material adverse effect on our business, financial condition and results of operation. Pending their use, we may
invest the net proceeds from this offering in a manner that does not produce income. The decisions made by our management may
not result in positive returns on your investment and you will not have an opportunity to evaluate the economic, financial or
other information upon which our management bases its decisions.
Risks primarily related to our ADSs, ordinary
shares, and other securities
We will likely be classified
as a Passive Foreign Investment Company, or PFIC, for U.S. federal income tax purposes in 2016 and may continue to be a PFIC in
future years, which may have negative tax consequences for U.S. investors.
We will be treated as a PFIC
for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of our gross income is “passive
income” or (ii) on average at least 50% of our assets by value produce passive income or are held for the production of
passive income. Based on our estimated gross income, the average value of our gross assets, and the nature of our business, we
believe that we will likely be classified as a PFIC in the current taxable year and in future years. If we are treated as a PFIC
for any taxable year during which a U.S. investor held our ordinary shares or ADSs, certain adverse U.S. federal income tax consequences
could apply to the U.S. investor.
The market price of
our ordinary shares, ADSs and Series A warrants is subject to fluctuation, which could result in substantial losses by our investors.
The stock market in general, and the
market price of our ordinary shares on the TASE and our ADSs and Series A warrants on The NASDAQ Capital Market in particular,
are subject to fluctuation, and changes in the price of our listed securities may be unrelated to our operating performance. The
market prices of our ordinary shares on the TASE and our ADSs and Series A warrants on The NASDAQ Capital Market have fluctuated
in the past, and we expect it will continue to do so. The market price of our ordinary shares, ADSs and Series A warrants are and
will be subject to a number of factors, including:
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announcements
of technological innovations or new therapeutic candidates by us or others;
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announcements
by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing,
joint ventures or capital commitments;
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expiration
or terminations of licenses, research contracts or other development or commercialization agreements;
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public
concern as to the safety of drugs that we, our current or potential development and commercialization
partners or others develop;
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the
volatility of market prices for shares of biotechnology companies generally;
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success
or failure of research and development projects;
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departure
of key personnel;
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developments
concerning intellectual property rights or regulatory approvals;
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variations
in our and our competitors’ results of operations;
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changes
in earnings estimates or recommendations by securities analysts, if our ordinary shares or ADSs or Series A warrants are covered
by analysts;
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changes
in government regulations or patent decisions;
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developments
by our current or potential development and commercialization partners; and
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general
market conditions and other factors, including factors unrelated to our operating performance.
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These factors and any corresponding
price fluctuations may materially and adversely affect the market price of our ordinary shares and ADSs and Series A warrants
and result in substantial losses by our investors.
Additionally, market prices
for listed securities of biotechnology and pharmaceutical companies historically have been very volatile. The market for these
listed securities has from time to time experienced significant price and volume fluctuations for reasons unrelated to the operating
performance of any one company. In the past, following periods of market volatility, shareholders have often instituted securities
class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and
attention of management from our business, even if we are successful.
Future sales of our ordinary
shares or ADSs or other warrants or convertible securities could reduce the market price of our ordinary shares and ADSs and other
listed securities.
As
of December 11, 2016, we had an aggregate of 153,237,209 issued and outstanding ordinary shares (including 21 dormant
ordinary shares held in treasury) (such number of ordinary shares would be represented by 7,661,860 of our ADSs), no
non-voting senior preferred shares, 6,835,669 Series A warrants, representative's warrants to purchase 157,945 of our ADSs,
which were granted to the underwriters as part of our initial U.S. offering in November 2015, placement agent's warrants to
purchase 141,176 of our ADSs, which were granted to the placement agent as part of our follow-on U.S. offering in July 2016,
and 11,583,883 non-tradable options to purchase 9,932,523 ordinary shares, (such number of non-tradable options and their
underlying ordinary shares would be represented by 496,626 of our ADSs).
Substantial
sales of our ordinary shares or ADSs or other warrants or securities convertible into ordinary shares of ADSs, or the
perception that such sales may occur in the future, including sales of ordinary shares or ADSs issuable upon the exercise of
options or the conversion of convertible securities, may cause the market price of our ordinary shares or ADSs or other
listed securities to decline. Moreover, the issuance of shares or ADSs underlying our options and warrants or any convertible
securities we may issue will also have a dilutive effect on our shareholders, which could further reduce the price of our
ordinary shares and ADSs and other listed securities on their respective exchanges.
As a foreign private issuer, we
are permitted to follow certain home country corporate governance practices instead of applicable Securities and Exchange Commission
and The NASDAQ Capital Market requirements, which may result in less protection than is accorded to investors under rules applicable
to U.S domestic issuers.
As a foreign private issuer,
we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the NASDAQ
Listing Rules for U.S domestic issuers. We will follow home country practice in Israel with regard to (1) director nomination
procedures, as permitted by the Companies Law, under which either our board of directors, a group of directors, or shareholder(s)
holding sufficient portion of our share capital selects director nominees, subject to the terms of our amended and restated articles
of association. Directors are not selected, or recommended for board of director selection, as required by the NASDAQ Listing
Rules, by independent directors constituting a majority of the board’s independent directors or by a nominations committee
comprised solely of independent directors, and (2) quorum requirement at shareholders’ meetings, as permitted under the
Companies Law, under which and pursuant to our amended and restated articles of association, the quorum required for an ordinary
meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent at least 25%
of the voting rights of our shares (and in an adjourned meeting, with some exceptions, any number of shareholders), instead of
33 1/3% of the issued share capital required under the NASDAQ Listing Rules. In addition, we will follow our home country
law, instead of the NASDAQ Listing Rules, which require that we obtain shareholder approval for certain dilutive events, such
as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of
control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the
company and certain acquisitions of the stock or assets of another company.
In the future we may elect
to follow additional home country corporate governance practices instead of those otherwise required under the NASDAQ Listing
Rules for U.S domestic issuers. Following our home country governance practices as opposed to the requirements that would otherwise
apply to a U.S. company listed on The NASDAQ may provide less protection than is accorded to investors under the NASDAQ Listing
Rules applicable to domestic issuers.
In addition, as a foreign
private issuer, we will be exempt from the rules and regulations under the U.S. Securities Exchange Act of 1934, as amended or
the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders
will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
In addition, we will not
be required under the Exchange Act, to file annual, quarterly and current reports and financial statements with the SEC as frequently
or as promptly as domestic companies whose securities are registered under the Exchange Act. As our ordinary shares are traded
on the Tel Aviv Stock Exchange (“TASE”), while our ADSs and Series A warrants are traded on The NASDAQ Capital Market,
we currently also report to the Israel Securities Authority (“ISA”) and the TASE in accordance with the provisions
of Section 35XXXIII of the Israel Securities Law, 5728-1968 and the Securities Regulations (Periodic and Immediate Reports of
a Foreign Body Corporate) 5761-2000, promulgated thereunder (the “Dual-Listed Reporting Requirements”). Pursuant
to the Dual-Listed Reporting Requirements, we prepare our periodic and immediate reports in accordance with U.S. securities laws
and reporting requirements, as applicable to a foreign private issuer. We intend to file with the SEC, within 120 days after the
end of each fiscal year ending December 31, an annual report on Form 20-F containing financial statements which will be examined
and reported on, with an opinion expressed, by an independent registered public accounting firm. Furthermore, we have committed
to the underwriters of our initial U.S public offering which was completed in November 2015 that for a period of three (3) years
from November 25, 2015, we, at our expense, will announce its financial information for each of the first three fiscal quarters
consistent with the practices of companies which are dual-listed on both the Tel Aviv Stock Exchange and a domestic U.S. securities
exchange and report in accordance with the Dual-Listed Reporting Requirements; provided that the foregoing shall not apply in
the event we enter into a merger transaction in which we are the non-surviving entity that would cause our ADSs and warrants to
no longer be registered under the Exchange Act. The Representative of the underwriters of our initial U.S public offering which
was completed in November 2015 previously waived any announcement by us with respect to the filing of financial information for
the first quarter of 2016, and may issue such waivers to us in the future. It is noted that the Israel Securities Authority (“ISA”)
has recently proposed draft legislation which would dispense with the requirement for the announcement of financial results for
each of the first and third fiscal quarters of a calendar year. We would qualify for such dispensation based on our company size
as set forth in the proposed draft legislation. In addition the SEC has recently announced that it is seeking comment for the
dispensation of the requirement for the announcement of financial results for each of the first and third fiscal quarters for
certain U.S. domestic issuers. Thus it remains uncertain as to how companies dual-listed on both the Tel Aviv Stock Exchange and
a domestic U.S. securities exchange, and report in accordance with the in accordance with the Dual-Listed Reporting Requirements),
will continue their practices with respect to the announcements of financial information for each of the first and third fiscal
quarters, and it is possible that we may adopt practices for the announcement (if any) of financial information for each of the
first and third fiscal quarters which are different than what we have provided in the past.
The depositary for
our ADSs will give us a discretionary proxy to vote our ordinary shares underlying ADSs if a holder of our ADSs does not vote
at shareholders’ meetings, except in limited circumstances, which could adversely affect their interests.
Under the deposit agreement
for the ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares underlying ADSs at shareholders’
meetings if a holder of our ADSs does not vote, unless:
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we
have instructed the depositary that we do not wish a discretionary proxy to be given;
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we
have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or
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a
matter to be voted on at the meeting would have a material adverse impact on shareholders.
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The effect of this discretionary
proxy is that a holder of our ADSs cannot prevent our ordinary shares underlying such ADSs from being voted, absent the situations
described above, and it may make it more difficult for shareholders to influence the management of our company. Holders of our
ordinary shares listed for trading on the TASE are not subject to this discretionary proxy.
We currently do not
anticipate paying cash dividends, and accordingly, shareholders must rely on the appreciation in our ADSs for any return on their
investment.
We currently anticipate that
we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or
paying any cash dividends for the foreseeable future. Therefore, the success of an investment in our ADSs will depend upon any
future appreciation in their value. There is no guarantee that our ADSs will appreciate in value or even maintain the price at
which our holders have purchased their ADSs.
The ability of any
Israeli company to pay dividends or repurchase its shares is subject to Israeli law, and the amount of cash dividends payable
may be subject to devaluation in the Israeli currency.
The ability of an Israeli
company to pay dividends or repurchase its shares is governed by Israeli law, which provides that distributions, including cash
dividends and share repurchases, may be made only out of retained earnings as determined for statutory purposes. Since we do not
have earnings, we currently do not have any ability to pay dividends or repurchase our shares.
Investors in our ADSs
may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited
circumstances, investors in our ADSs may not receive any value for them, if it is illegal or impractical to make them available
to investors in our ADSs.
The depositary for the
ADSs has agreed to pay investors in our ADSs the cash dividends or other distributions it or the custodian receives on ordinary
shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. Investors in our ADSs will receive
these distributions in proportion to the number of ordinary shares their ADSs represent. However, the depositary is not responsible
if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would
be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities
Act of 1933, as amended or the Securities Act, but that are not properly registered or distributed under an applicable exemption
from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend which was distributed
in foreign currency made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any
government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property
and hold it as “deposited securities” or may seek to affect a substitute dividend or distribution, including net cash
proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation
to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions.
We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else
to holders of ADSs. In addition, the depositary may withhold from such dividends or distributions its fees and an amount on account
of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means
that investors in our ADSs may not receive the same distributions or dividends as those we make to the holders of our ordinary
shares, and, in some limited circumstances, investors in our ADSs may not receive any value for such distributions or dividends
if it is illegal or impractical for us to make them available to investors in our ADSs. These restrictions may cause a material
decline in the value of the ADSs.
Holders of ADSs must
act through the depositary to exercise rights of shareholders of our company.
Holders of our ADSs do not
have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares
in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required
to convene a shareholders’ meeting is no less than 35 or 21 calendar days, depending on the proposals on the agenda for
the shareholders’ meeting. When a shareholder meeting is convened, holders of our ADSs may not receive sufficient notice
of the meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respect to any specific
matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of our ADSs or carry
out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting
rights to holders of our ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in
time to ensure that they can instruct the depositary to vote the ordinary shares underlying their ADSs. Furthermore, the depositary
and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote
is cast or for the effect of any such vote. As a result, holders of our ADSs may not be able to exercise their right to vote and
they may lack recourse if the ordinary shares underlying their ADSs are not voted as they requested. In addition, ADS holders
will not be able to call a shareholders’ meeting unless they first withdraw their ordinary shares from the ADS program and
convert them into the underlying ordinary shares held in the Israeli market in order to allow them to submit to us a request to
call a meeting with respect to any specific matter, in accordance with the applicable provisions of the Companies Law and our
amended and restated articles of association.
Our ordinary shares
and our ADSs and Series A warrants are traded on different markets and this may result in price variations.
Our ordinary shares trade on the TASE,
and our ADSs and Series A warrants trade on The NASDAQ Capital Market. Trading on these markets take place in different currencies
(U.S. dollars on NASDAQ and New Israeli Shekels, or NIS, on the TASE), and at different times (resulting from different time zones,
different trading days and different public holidays in the U.S. and Israel). The trading prices of our securities on these two
markets may differ due to these and other factors. Any decrease in the price of our securities on one of these markets could cause
a decrease in the trading price of our securities on the other market.
Our ADSs and Series
A warrants have little prior trading history in the U.S., and present level of market activity may not be sustained, which may
limit the ability of our investors to sell our ADSs in the U.S.
Although our ADSs and Series
A warrants have been traded on The NASDAQ Capital Market since November 20, 2015, the present level of market activity for our
ADSs and Series A warrants may not be sustained. If an active market for our ADSs and Series A warrants is not sustained, it may
be difficult for an investor to sell its ADSs, Series A warrants or the ADSs underlying the warrants being issued in this offering.
We can issue non-voting senior preferred shares
without shareholder approval, which could adversely affect the rights of holders of ordinary shares.
Our amended and restated articles
of association permit us to establish the rights, privileges, preferences and restrictions of future series of our non-voting
senior preferred shares, which contain superior liquidation and dividend rights, and may contain other rights, including conversion,
redemption, optional and other special rights, qualifications, limitations or restrictions, equivalent or superior to our ordinary
shares and to issue such non-voting senior preferred shares without further approval from our shareholders. The rights of holders
of our ordinary shares may suffer as a result of the rights granted to holders of non-voting senior preferred shares that we may
issue in the future. In addition, we could issue non-voting senior preferred shares containing rights that prevent a change in
control or merger, thereby depriving holders of our ordinary shares of an opportunity to sell their shares at a price in excess
of the prevailing market price.
If equity research
analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ADSs or
Series A warrants, the price of our ADSs or Series A warrants could decline.
The trading market for our
ADSs and Series A warrants will rely in part on the research and reports that equity research analysts publish about us and our
business. The price of our ADSs or Series A warrants could decline if such research or reports are not published or if one or
more securities analysts downgrade our ADSs or Series A warrants or if those analysts issue other unfavorable commentary or cease
publishing reports about us or our business.
We incur increased
costs as a result of operating as a public company in the U.S, and our management will be required to devote substantial time
to new compliance initiatives.
Our ADSs and Series A warrants
have been traded on The NASDAQ Capital Market since November 20, 2015. As a public company whose securities are listed in the
United States, we incur accounting, legal and other expenses that we did not incur as a public company listed on the TASE, including
costs associated with our reporting requirements under the Exchange Act. We also anticipate that we will incur costs associated
with corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act,
as well as rules implemented by the SEC and NASDAQ, and provisions of Israeli corporate law applicable to public companies. We
expect that these rules and regulations will increase our legal and financial compliance costs, introduce new costs such as investor
relations and stock exchange listing fees, and will make some activities more time-consuming and costly. We are currently evaluating
and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may
incur or the timing of such costs.
As an “emerging growth
company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, we may take advantage of certain temporary
exemptions from various reporting requirements, including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations of the SEC thereunder). When these exemptions
cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with
them. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the
timing of such costs.
Pursuant to Section 404 of
the Sarbanes-Oxley Act and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, starting with
the second annual report that we file with the SEC after the closing of our initial U.S. offering in November 2015, our management
will be required to report on the effectiveness of our internal control over financial reporting. In addition, once we no longer
qualify as an “emerging growth company” under the JOBS Act and lose the ability to rely on the exemptions related
thereto discussed above and depending on our status as per Rule 12b-2 of the Exchange Act, our independent registered public accounting
firm may also need to attest to the effectiveness of our internal control over financial reporting under Section 404. We have
only very recently commenced the process of determining whether our existing internal controls over financial reporting systems
are compliant with Section 404 and whether there are any material weaknesses or significant deficiencies in our existing internal
controls. This process will require the investment of substantial time and resources, including by our chief financial officer
and other members of our senior management. As a result, this process may divert internal resources and take a significant amount
of time and effort to complete. In addition, we cannot predict the outcome of this determination and whether we will need to implement
remedial actions in order to implement effective controls over financial reporting. The determination and any remedial actions
required could result in us incurring additional costs that we did not anticipate, including the hiring of outside consultants.
Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our
stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses,
as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to implement
any of the required changes to our internal control over financial reporting effectively or efficiently or are required to do
so earlier than anticipated, it could adversely affect our operations, financial reporting and/or results of operations and could
result in an adverse opinion on internal controls from our independent auditors and cause the market price of our ordinary shares,
ADSs and warrants to decline.
Changes in the laws and regulations
affecting public companies will result in increased costs to us as we respond to their requirements. These laws and regulations
could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability
insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the
same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified
persons to serve on our board of directors, our board committees or as executive officers. We cannot predict or estimate the amount
or timing of additional costs we may incur in order to comply with such requirements.
We are an “emerging
growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our ordinary shares
less attractive to investors.
We are an “emerging
growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements that
are applicable to other public companies that are not “emerging growth companies.” Most of such requirements relate
to disclosures that we would only be required to make if we also ceased to be a foreign private issuer in the future, for example,
the requirement to hold shareholder advisory votes on executive and severance compensation and executive compensation disclosure
requirements for U.S. companies. However, as a foreign private issuer, we would still be required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act. We are exempt from such requirement for as long as we remain an emerging
growth company, which may be up to five fiscal years after the date of this offering. We will remain an emerging growth company
until the earliest of: (a) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion;
(b) the last day of our fiscal year following the fifth anniversary of the closing of our initial U.S. offering; (c) the date
on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date
on which we are deemed to be a “large accelerated filer” under the Exchange Act. When we are no longer deemed to be
an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. We cannot predict
if investors will find our ordinary shares, ADSs, or warrants less attractive as a result of our reliance on exemptions under
the JOBS Act. If some investors find our ordinary shares, ADS, or warrants less attractive as a result, there may be a less active
trading market for our ordinary shares, ADS, and warrants and our share price may be more volatile.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Some of the statements in
this prospectus may include forward looking statements. These statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements
by terms including “anticipates”, “believes”, “could”, “estimates”, “expects”,
“intends”, “may”, “plans”, “potential”, “predicts”, “projects”,
“should”, “will”, “would”, and similar expressions intended to identify forward-looking statements.
Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to
risks and uncertainties. In addition, certain sections of this prospectus contain information obtained from independent industry
and other sources. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under
U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.
Factors that could cause
our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not
limited to:
|
●
|
the
initiation, timing, progress and results of our preclinical and clinical trials, and other development efforts;
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|
|
|
●
|
our
ability to successfully complete our clinical trials;
|
|
|
|
|
●
|
our
receipt of regulatory approvals for our therapeutic candidates, and the timing of other regulatory filings and approvals;
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|
|
|
|
●
|
the
clinical development, commercialization, and market acceptance of our therapeutic candidates;
|
|
|
|
|
●
|
our
ability to establish and maintain corporate collaborations;
|
|
|
|
|
●
|
the
interpretation of the properties and characteristics of our therapeutic candidates and of the results obtained with our therapeutic
candidates in preclinical studies or clinical trials;
|
|
|
|
|
●
|
the
implementation of our business model, strategic plans for our business and therapeutic candidates;
|
|
|
|
|
●
|
the
scope of protection we are able to establish and maintain for intellectual property rights covering our therapeutic candidates
and our ability to operate our business without infringing the intellectual property rights of others;
|
|
|
|
|
●
|
estimates
of our expenses, future revenues capital requirements and our needs for additional financing;
|
|
|
|
|
●
|
competitive
companies, technologies and our industry; and
|
|
|
|
|
●
|
the
political and security situation in Israel on our business.
|
You should review carefully
the risks and uncertainties described under the heading “Risk Factors” in this prospectus for a discussion of these
and other risks that relate to our business and investing in our securities. The forward-looking statements contained in this
prospectus are expressly qualified in their entirety by this cautionary statement.
CAPITALIZATION
The following table sets
forth our capitalization as of June 30, 2016.
The amounts shown below are
unaudited and represent management’s estimate. The information in this table should be read in conjunction with and is qualified
by reference to the financial statements and notes thereto and other financial information incorporated by reference into this
prospectus.
|
|
As of
June 30,
2016
|
|
|
|
(in thousand USD)
|
|
|
|
Actual
|
|
|
|
|
|
Cash and cash equivalents and short-term
deposits
|
|
|
8,433
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
Ordinary shares
|
|
|
|
|
Share premium
|
|
|
23,052
|
|
Capital reserves
|
|
|
1,111
|
|
Accumulated deficit
|
|
|
(17,091
|
)
|
Total shareholders’ equity
|
|
|
7,072
|
|
Total capitalization
|
|
|
7,072
|
|
PRICE RANGE OF OUR
ORDINARY SHARES
Our ordinary shares were
originally listed for trading on the TASE in 1978, and are currently traded under the symbol “KTOV”. The following
table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on the TASE
in NIS and U.S. dollars. U.S. dollar per ordinary share amounts are calculated using the U.S. dollar representative rate of exchange
on the date for which the high or low market price is applicable, as reported by the Bank of Israel.
|
|
NIS
|
|
|
U.S.
$
|
|
|
|
Price
per Ordinary Share*
|
|
|
Price
per Ordinary Share*
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
Annual:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
4.13
|
|
|
|
0.50
|
|
|
|
1.05
|
|
|
|
0.13
|
|
2014
|
|
|
18.06
|
|
|
|
1.34
|
|
|
|
5.16
|
|
|
|
0.34
|
|
2013
|
|
|
33.27
|
|
|
|
3.04
|
|
|
|
9.41
|
|
|
|
0.83
|
|
2012
|
|
|
9.31
|
|
|
|
3.29
|
|
|
|
2.43
|
|
|
|
0.83
|
|
2011
|
|
|
15.01
|
|
|
|
4.76
|
|
|
|
4.21
|
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2016
|
|
|
0.66
|
|
|
|
0.54
|
|
|
|
0.18
|
|
|
|
0.14
|
|
Second Quarter 2016
|
|
|
1.29
|
|
|
|
0.62
|
|
|
|
0.34
|
|
|
|
0.16
|
|
First Quarter 2016
|
|
|
0.92
|
|
|
|
0.46
|
|
|
|
0.24
|
|
|
|
0.12
|
|
Fourth Quarter 2015
|
|
|
2.07
|
|
|
|
0.50
|
|
|
|
0.54
|
|
|
|
0.13
|
|
Third Quarter 2015
|
|
|
1.82
|
|
|
|
1.19
|
|
|
|
0.48
|
|
|
|
0.31
|
|
Second Quarter 2015
|
|
|
1.84
|
|
|
|
1.38
|
|
|
|
0.47
|
|
|
|
0.35
|
|
First Quarter 2015
|
|
|
4.13
|
|
|
|
1.51
|
|
|
|
1.05
|
|
|
|
0.38
|
|
Fourth Quarter 2014
|
|
|
3.35
|
|
|
|
1.34
|
|
|
|
0.90
|
|
|
|
0.34
|
|
Third Quarter 2014
|
|
|
6.89
|
|
|
|
3.25
|
|
|
|
2.01
|
|
|
|
0.88
|
|
Second Quarter 2014
|
|
|
8.35
|
|
|
|
6.01
|
|
|
|
2.41
|
|
|
|
1.75
|
|
First Quarter 2014
|
|
|
18.06
|
|
|
|
8.10
|
|
|
|
5.16
|
|
|
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Most
Recent Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2016 (through
December 11, 2016)
|
|
|
0.68
|
|
|
|
0.63
|
|
|
|
0.18
|
|
|
|
0.17
|
|
November 2016
|
|
|
0.69
|
|
|
|
0.61
|
|
|
|
0.18
|
|
|
|
0.16
|
|
October 2016
|
|
|
0.74
|
|
|
|
0.66
|
|
|
|
0.20
|
|
|
|
0.17
|
|
September 2016
|
|
|
0.66
|
|
|
|
0.56
|
|
|
|
0.18
|
|
|
|
0.15
|
|
August 2016
|
|
|
0.66
|
|
|
|
0.57
|
|
|
|
0.17
|
|
|
|
0.15
|
|
July 2016
|
|
|
0.63
|
|
|
|
0.54
|
|
|
|
0.16
|
|
|
|
0.14
|
|
June 2016
|
|
|
0.91
|
|
|
|
0.62
|
|
|
|
0.24
|
|
|
|
0.16
|
|
* Price adjusted due to the distribution of dividends in October
2012 in connection with the sale by Kitov Holdings (then known as Mainrom Line Logistics Ltd.) of all of its activities, assets,
rights, obligations and liabilities to a private company held by its then controlling shareholders.
On
December 11, 2016, the last reported sales price of our ordinary shares on the TASE was NIS 0.651 per share, or $0.171 per share
(based on the exchange rate reported by the Bank of Israel for such date). On December 9, 2016 the exchange rate of
the NIS to the U.S. dollar was $1.00 = NIS 3.818, as reported by the Bank of Israel.
PRICE
RANGES OF OUR AMERICAN DEPOSITARY SHARES AND PUBLIC WARRANTS
Our ADSs and Series A warrants are currently
traded on The NASDAQ Capital Market under the symbols “KTOV” and “KTOVW”, respectively. The following table
sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs on The NASDAQ Capital Market in
U.S. dollars.
|
|
U.S.
$
|
|
|
|
Price
per ADS
|
|
|
|
High
|
|
|
Low
|
|
Annual:
|
|
|
|
|
|
|
2015 (commencing November 20, 2015)
|
|
|
4.47
|
|
|
|
2.43
|
|
|
|
|
|
|
|
|
|
|
Quarterly:
|
|
|
|
|
|
|
|
|
Third Quarter 2016
|
|
|
3.62
|
|
|
|
2.77
|
|
Second Quarter 2016
|
|
|
6.68
|
|
|
|
3.11
|
|
First Quarter 2016
|
|
|
4.60
|
|
|
|
2.33
|
|
Fourth Quarter 2015 (commencing November 20, 2015)
|
|
|
4.47
|
|
|
|
2.43
|
|
|
|
|
|
|
|
|
|
|
Most
Recent Six Months
|
|
|
|
|
|
|
|
|
December 2016 (through December 9, 2016)
|
|
|
3.51
|
|
|
|
3.23
|
|
November 2016
|
|
|
3.75
|
|
|
|
3.12
|
|
October 2016
|
|
|
3.54
|
|
|
|
2.46
|
|
September 2016
|
|
|
3.62
|
|
|
|
2.87
|
|
August 2016
|
|
|
3.40
|
|
|
|
2.96
|
|
July 2016
|
|
|
3.13
|
|
|
|
2.77
|
|
June 2016
|
|
|
4.84
|
|
|
|
3.11
|
|
On December 9, 2016, the last reported sales price
of our ADSs on The NASDAQ Capital Market was $3.44 per ADS.
The following table sets forth, for the
periods indicated, the reported high and low closing sale prices of our Series A warrants on The NASDAQ Capital Market in U.S.
dollars.
|
|
U.S.
$
|
|
|
|
Price
per Series A Warrant
|
|
|
|
High
|
|
|
Low
|
|
Annual:
|
|
|
|
|
|
|
2015 (commencing November 20,
2015)
|
|
|
0.75
|
|
|
|
0.49
|
|
|
|
|
|
|
|
|
|
|
Quarterly:
|
|
|
|
|
|
|
|
|
Third Quarter 2016
|
|
|
1.10
|
|
|
|
0.73
|
|
Second Quarter 2016
|
|
|
2.50
|
|
|
|
0.76
|
|
First Quarter 2016
|
|
|
1.10
|
|
|
|
0.50
|
|
Fourth Quarter 2015 (commencing November
20, 2015)
|
|
|
0.75
|
|
|
|
0.49
|
|
|
|
|
|
|
|
|
|
|
Most
Recent Six Months
|
|
|
|
|
|
|
|
|
December 2016 (through
December 9, 2016)
|
|
|
1.47
|
|
|
|
1.27
|
|
November 2016
|
|
|
1.68
|
|
|
|
1.30
|
|
October 2016
|
|
|
2.38
|
|
|
|
1.22
|
|
September 2016
|
|
|
1.10
|
|
|
|
0.73
|
|
August 2016
|
|
|
0.85
|
|
|
|
0.73
|
|
July 2016
|
|
|
0.81
|
|
|
|
0.75
|
|
June 2016
|
|
|
1.49
|
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USE OF PROCEEDS
Unless otherwise indicated
in an accompanying prospectus supplement, we intend to use the net proceeds from the sale of securities to fund possible acquisitions
of new therapeutic candidates and for general working capital purposes.
DESCRIPTION OF ORDINARY SHARES
Authorized Share Capital
.
Our
authorized share capital is 5,000,000,000 ordinary shares, with no par value, and 1,000,000,000 non-voting senior preferred
shares, with no par value, divided into 5 classes of 200,000,000 preferred shares in each class. As of December 11, 2016, we
had 153,237,209 ordinary shares outstanding (which would be represented by 7,661,860 of our ADSs) and no non-voting
senior preferred shares outstanding, and as of June 30, 2016, we had 82,488,969 ordinary shares outstanding (which would be
represented by 4,124,448 of our ADSs) and no non-voting senior preferred shares outstanding. The above amounts include 21
dormant ordinary shares held in treasury.
Ordinary Shares.
The following is a description of our ordinary shares.
The ordinary shares do
not have preemptive rights, preferred rights or any other right to purchase our securities. Neither our amended and restated articles
of association nor the laws of the State of Israel restrict the ownership or voting of ordinary shares by non-residents of Israel,
except under certain circumstances for ownership by nationals of certain countries that are, or have been, in a state of war with
Israel.
Transfer of Shares
.
Our fully paid ordinary shares may generally 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 the stock exchange on which the shares are traded.
Notices
. Under
the Companies Law, and regulations promulgated thereunder, and our amended and restated articles of association, we are required
to publish notices on our website, at least 21 days’ prior notice of a shareholders’ meeting. However, under regulations
promulgated under the Companies Law, we are required to publish notices on our website at least 35 calendar days prior any shareholders’
meeting in which the agenda includes matters which may be voted on by voting instruments. Regulations under the Companies Law
exempt companies whose shares are listed for trading both on a stock exchange in and outside of Israel, from some provisions of
the Companies Law. These regulations exempt us from some of the requirements of the Israeli proxy regulations, under certain circumstances.
According to the Companies
Law and the regulations promulgated thereunder, as applicable to the Company, for purposes of determining the shareholders entitled
to notice and to vote at such meeting, the board of directors may fix the record date not more than 40 nor less than four calendar
days prior to the date of the meeting, provided that an announcement regarding the general meeting shall be given prior to the
record date.
Election of Directors
. Under our amended and
restated articles of association, the number of directors on our Board will be no less than four and no more than nine (including
any external directors, to the extent that we may be required to appoint external directors in accordance with the Companies Law
and any Regulations enacted thereunder) (“Maximum Number”). The majority of the members of the Board shall be residents
of Israel, unless our center of management shall have been transferred to another country in accordance with a resolution of our
Board by a majority of three quarters (75%) of the participating director votes. The number of directors may be changed, at any
time and from time to time, by our shareholders with a majority of (a) 75% of the voting rights participating and voting on the
matter in the applicable general meeting of our shareholders and (b) more than 47.9% of all of the voting rights in the Company
as of the record date established for the applicable general meeting of our shareholders (“Special Majority”). Our
directors shall generally be nominated by our Board of Directors, and then appointed at our general meeting of shareholders with
a regular majority. In accordance with our amended and restated articles of association, the directors elected to serve are divided
into three classes, with each class comprising one-third of the members of our Board of Directors (the “Board”) (who
are not external directors, if any were appointed), (hereinafter the “first class”; the “second class”;
and the “third class"). If the number of directors is not equally divisible by three, each of the first class and the
second class will be comprised of a different number, the closest and lowest to one-third, while the third class will be comprised
of the remaining directors (who are not external directors, if any were appointed). If the number of directors changes, the number
of directors in each class will change in accordance with the aforesaid rule. In the annual general meeting of our shareholders
that will take place each year, the shareholders shall be entitled to elect directors who shall be elected for a Three-Year Term
to replace the class of directors whose term in office has expired as of such annual general meeting of our shareholders, and
so on ad infinitum, so that the directors who shall be elected as stated above shall enter office at the end of the annual general
meeting of our shareholders at which they were elected, unless a later date for commencement of the term was decided at the time
of the appointment, and shall serve for Three-Year Terms (unless their appointment will be terminated in accordance with the provisions
of our amended and restated articles of association), and so that each year, the terms in office of one of the classes of directors
shall expire at the annual general meeting of our shareholders for such year. A “Three-Year Term” means a term of
office of a director until the third annual general meeting of our shareholders which shall be held following the date of their
election as director, provided that each director shall continue to serve in office until his or her successor is duly elected
and qualified, or until his or her retirement, death, resignation or removal. Our Board may appoint a director at any time to
fill any vacancies until the annual meeting of our shareholders set to take place at the end of the Three-Year Term for the class
of directors to which such director is so appointed by the Board, provided that the total number of the members of the Board serving
at such time will not exceed the Maximum Number. The shareholders may at all times, by a Special Majority vote of the shareholders,
replace or dismiss a director (in the case of replacement, only if the appointed director is not a corporation). A director to
be replaced shall be given a reasonable opportunity to address the shareholders at their meeting. The tenure of a director expires
pursuant to the provisions of our amended and restated articles of association and the Companies Law, upon death or if s/he becomes
incompetent, unless removed from office as described above.
Dividend and Liquidation
Rights
. Subject to preferences that may be applicable to any then outstanding preferred shares, our profits, in respect of
which a resolution was passed to distribute them as dividend or bonus shares, shall be paid pro rata to the amount of shares held
by the shareholders. In the event of our liquidation, the liquidator may, with the general meeting’s approval, and subject
to any preferences that may be applicable to any then outstanding preferred shares, distribute parts of our property in specie
among the shareholders and he or she may, with similar approval, deposit any part of our property with trustees in favor of the
shareholders as the liquidator, with the approval mentioned above, deems fit.
Voting, Shareholders’ Meetings and Resolutions
.
Holders of ordinary shares are entitled to one vote for each ordinary share held on all matters submitted to a vote of shareholders.
The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present, in person or by proxy,
or who has sent us a voting instrument indicating the way in which he or she is voting, who hold or represent, in the aggregate,
at least 25% of the voting rights of our outstanding share capital. A meeting adjourned for lack of a quorum is adjourned to the
same day in the following week at the same time and place or any time and place as prescribed by the board of directors in notice
to the shareholders. At the reconvened meeting one shareholder at least, present in person or by proxy constitutes a quorum except
where such meeting was called at the demand of shareholders. With the agreement of a meeting at which a quorum is present, the
chairman may, and on the demand of the meeting he must, adjourn the meeting from time to time and from place to place, as the
meeting resolves. Annual general meetings of our shareholders are to be held once every year within a period of not more than
15 months after the last preceding annual general shareholders’ meeting. Our board of directors may call special general
meetings of shareholders. The Companies Law provides that a special general meeting of shareholders may be called by the board
of directors or by a request of two directors or 25% of the directors in office, whichever is the lower, or by shareholders holding
at least 5% of our issued share capital and at least 1% of the voting rights, or of shareholders holding at least 5% of our voting
rights, subject to the provisions set forth in our amended and restated articles of association.
An ordinary resolution
requires approval by the holders of a majority of the voting rights present, in person or by proxy, at the meeting and voting
on the resolution.
Allotment of Shares.
Our board of directors has the power to allot or to issue shares to any person, with restrictions and condition as it deems
fit.
Board of Directors
Under our amended
and restated articles of association, resolutions by the board of directors shall be decided by a majority of votes of the directors
present, or participating, in the case of voting by media, and voting, each director having one vote. In the event of a tie, the
chairman of the board does not hold a casting vote.
Under the Companies Law,
except as provided below, companies incorporated under the laws of the State of Israel that are “public companies,”
including Israeli companies with shares listed on NASDAQ, are required to appoint at least two external directors who meet the
qualification requirements set forth in the Companies Law. On July 13, 2016, our Board of Directors resolved to adopt the corporate
governance exception set forth in Regulation 5D of the Israeli Companies Regulations (Relief for Public Companies with Shares
Listed for Trading on a Stock Market Outside of Israel), 5760-2000. In accordance with such Regulation, a public company with
securities listed on certain foreign exchanges, including NASDAQ, that satisfies the applicable foreign country laws and regulations
that apply to companies organized in that country relating to the appointment of independent directors and composition of audit
and compensation committees and have no controlling shareholder are exempt from the requirement to appoint external directors
or comply with the audit committee and compensation committee composition requirements under the Companies Law. In accordance
with our Board’s resolution, for so long as the Company does not have a controlling shareholder as defined in Section 1
of the Companies Law, the Company intends to comply with the NASDAQ Listing Rules in connection with a majority of independent
directors on the Board and in connection with the composition of each of the Audit Committee and the Compensation Committee, in
lieu of such requirements set forth under the Companies Law. A majority of our Board members are independent as required by the
NASDAQ Listing Rules. Furthermore, our Audit Committee consists of at least three independent directors, and our Compensation
Committee consists of at least two independent directors. Should any person or entity become deemed to be a controlling shareholder
as defined in Section 1 of the Companies Law, then in accordance with Section 248(a) of the Companies Law, we will be required
to convene a special general meeting of the shareholders at the earliest possible date, the agenda of which shall include the
appointment of at least two external directors. Following such appointment, all of the external directors shall be appointed to
each of our Audit Committee and Compensation Committee, and at least one external director shall be appointed to each committee
of the Board of Directors authorized to exercise any of the powers of the board of directors.
The Companies Law requires
that certain transactions, actions and arrangements be approved as provided for in a company’s articles of association and
in certain circumstances by the audit committee or the compensation committee and by the board of directors itself. Those transactions
that require such approval pursuant to a company’s articles of association must be approved by its board of directors. In
certain circumstances, audit committee and shareholder approval is also required. The vote required by the audit committee and
the board of directors for approval of such matters, in each case, is a majority of the directors participating in a duly convened
meeting. Under the Companies Law, except as to certain companies listed on foreign stock exchanges, including NASDAQ, as described
above, the audit committee is to be comprised of at least three members appointed by the board of directors, which members must
include all of the external directors. The majority of members of the audit committee must be independent directors (as defined
in the Companies Law), and the chairman of the audit committee must be an external director.
The Companies Law requires
that a member of the board of directors or senior management of the company promptly and, in any event, not later than the first
board meeting at which the transaction is discussed, disclose any personal interest that he or she may have, either directly or
by way of any corporation in which he or she is, directly or indirectly, 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, as well as all related material information
known to him or her, in connection with any existing or proposed transaction by the company. In addition, if the transaction is
an extraordinary transaction, (that is, a transaction other than in the ordinary course of business, otherwise than on market
terms, or is likely to have a material impact on the company’s profitability, assets or liabilities), the member of the
board of directors or senior management must also disclose any personal interest held by his or her spouse, siblings, parents,
grandparents, descendants, spouse’s descendants, siblings and parents, and the spouses of any of the foregoing.
Once the member of the
board of directors or senior management complies with the above disclosure requirement, a company may approve the transaction
in accordance with the provisions of its articles of association. Under the provisions of the Companies Law, whoever 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
this meeting or vote on this matter, unless it is not an extraordinary transaction as defined in the Companies Law. However, if
the chairman of the board of directors or the chairman of the audit committee has determined that the presence of an office holder
with a personal interest is required for the presentation of a matter, such officer holder may be present at the meeting. Notwithstanding
the foregoing, if the majority of the directors have a personal interest in a matter, they shall be allowed to participate and
vote on this matter, but the approval of the transaction by the shareholders in the general meeting is required.
Our amended and restated
articles of association provide that, subject to the Companies Law, all actions executed in good faith by the board of directors
or by a committee thereof or by any person acting as a director or a member of a committee of the board of directors, will be
deemed to be valid even if, after their execution, it is discovered that there was a flaw in the appointment of these persons
or that any one of these persons was disqualified from serving at his or her office.
Our amended and restated
articles of association provide that, subject to the provisions of the Companies Law, the board of directors may appoint board
of directors’ committees. The committees of the board of directors shall report to the board of directors their resolutions
or recommendations on a regular basis, as shall be prescribed by the board of directors. The board of directors may cancel the
resolution of a committee that has been appointed by it; however, such cancellation shall not affect the validity of any resolution
of a committee, pursuant to which we acted, vis-à-vis another person, who was not aware of the cancellation thereof. Decisions
or recommendations of the committee of the board which require the approval of the board of directors will be brought to the directors’
attention a reasonable time prior to the discussion at the board of directors.
According to the Companies
Law, a contract of a company with its directors, regarding their conditions of service, including the grant to them of exemption
from liability from certain actions, insurance, and indemnification as well as the company’s contract with its directors
on conditions of their employment, in other capacities, generally requires the approval of the compensation committee (or the
audit committee acting in lieu of a compensation committee pursuant to the Companies Law), the board of directors, and the shareholders.
Under the Companies Regulations
(Relief from Related Party Transactions), 5760-2000, promulgated under the Companies Law, as amended, certain extraordinary transactions
between a public company and its controlling shareholder(s) do not require shareholder approval. Such extraordinary transactions
must be approved by both the board of directors and the audit committee and (i) must involve the extension of an existing transaction
that was duly approved and does not involve any significant change in the terms of the existing transaction or the change is solely
for the benefit of the company; (ii) is solely for the benefit of the company; (iii) is with the controlling shareholder or another
person in which the controlling shareholder has an interest and the transaction is in accordance with the terms of a framework
agreement that was duly approved; (iv) is with the controlling shareholder or another person in which the controlling shareholder
has an interest, the purpose of which is a transaction of theirs with a third party or a joint proposal to enter into a transaction
with a third party, and the terms of the transaction that apply to the controlling shareholder are not significantly different
from the terms that apply to the controlling shareholder or an entity controlled by him or her (while taking into account the
extent of their respective involvement in the transaction); (v) is among companies controlled by the controlling shareholder,
or between the public company and the controlling shareholder or another person in which the controlling shareholder has a personal
interest, and the transaction is on market terms, within the ordinary course of business and does not harm the company; or (vi)
on the date of approval of the extraordinary transaction by the board of directors and audit committee, the shareholders who do
not have personal interest in the approval of the said transactions do not hold more than 2% of the voting rights in the company.
In addition, under such regulations, directors’ compensation and employment arrangements in a public company do not require
the approval of the shareholders if both the compensation committee (or the audit committee acting in lieu of a compensation committee
pursuant to the Companies Law) and the board of directors agree that such arrangements are solely for the benefit of the company.
Employment and compensation arrangements for an office holder that is a controlling shareholder of a public company, or the provision
of directors and officers insurance for the chief executive officer, do not require shareholder approval if certain criteria are
met. The Board, following the prior determination of the Audit Committee or Compensation Committee, as applicable, may also determine
that the compensation being offered to certain office holders (including directors) is an engagement which, pursuant to the leniencies
set forth in the Relief Regulations, can be entered into by a company immediately, with the approval by the shareholders being
deferred to the next shareholder meeting to be called by the Company, is such compensation is consistent with compensation policy
of the company which was approved by the shareholders of the company in accordance with the Companies Law, and are no more beneficial
to the recipient as such similar compensation previously granted to other holders of the same office.
Acquisitions under Israeli Law
Full Tender Offer
A person wishing to acquire
shares of an Israeli public company and who would as a result hold over 90% of the target company’s issued and outstanding
share capital 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 an Israeli public company and who would as a result hold over 90% of the issued and outstanding share capital of a certain
class of shares is required to make a tender offer to all of the shareholders who hold shares of the same class for the purchase
of all of the issued and outstanding shares of the same class.
If the shareholders who
do not respond to or accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable
class of the shares, and more than half of the shareholders who do not have a personal interest in the offer accept the offer,
all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a tender
offer will be accepted if the shareholders who do not accept it hold less than 2% of the issued and outstanding share capital
of the company or of the applicable class of the shares.
Upon a successful completion
of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such shareholder accepted the tender
offer or not, may, within six months from the date of acceptance of the tender offer, petition the Israeli court to determine
whether the tender offer was for less than fair value and that the fair value should be paid as determined by the court. However,
under certain conditions, the offeror may determine in the terms of the tender offer that an offeree who accepted the offer will
not be entitled to petition the Israeli court as described above.
If the shareholders who
did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital 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 of the applicable class from shareholders who accepted the tender offer.
The description above
regarding a full tender offer shall also apply, with necessary changes, when a full tender offer is accepted and the offeror has
also offered to acquire all of the company’s securities.
Special Tender Offer
The Companies Law provides
that an acquisition of shares of an Israeli public company must be made by means of a special tender offer if as a result of the
acquisition the purchaser would become a holder of at least 25% of the voting rights in the company. 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 in a public company must be made by means of a special tender offer if as a result
of the acquisition the purchaser would 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.
These requirements do
not apply if the acquisition (i) occurs in the context of a private offering, on the condition that the shareholders’ meeting
approved the acquisition as a private offering whose purpose is to give the acquirer at least 25% of the voting rights in the
company if there is no person who holds at least 25% of the voting rights in the company, or as a private offering whose purpose
is to give the acquirer 45% of the voting rights in the company, if there is no person who holds 45% of the voting rights in the
company; (ii) was from a shareholder holding at least 25% of the voting rights in the company and resulted in the acquirer becoming
a holder of at least 25% of the voting rights in the company; or (iii) was from a holder of more than 45% of the voting rights
in the company and resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company.
The 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 special tender offer is accepted by a majority of the votes of those offerees who gave notice of their
position in respect of the offer; in counting the votes of offerees, the votes of a holder in control of the offeror, a person
who has personal interest in acceptance of the special tender offer, a holder of at least 25% of the voting rights in the company,
or any person acting on their or on the offeror’s behalf, including their relatives or companies under their control, are
not taken into account.
In the event that a special
tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer
or shall abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for its abstention.
An office holder in a
target company who, in his or her capacity as an office holder, performs an action the purpose of which is to cause the failure
of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser
and shareholders for damages resulting from his or her acts, unless such office holder acted in good faith and had reasonable
grounds to believe he or she was acting for the benefit of the company. However, office holders of the target company may negotiate
with the potential purchaser in order to improve the terms of the special tender offer, and may further negotiate with third parties
in order to obtain a competing offer.
If a special tender offer
was accepted by a majority of the shareholders who announced their stand on such offer, then shareholders who did not respond
to the special offer or had objected to the special tender offer may accept the offer within four days of the last day set for
the acceptance of the offer. In the event that a special tender offer is accepted, then the purchaser or any person or entity
controlling it and any corporation controlled by them shall refrain from making a subsequent tender offer for the purchase of
shares of the target company and may not execute 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.
Under the Companies Regulations
(Relief for Public Companies whose Shared are Traded on Exchanges Outside of Israel), 5760-2000 (the “Foreign Listing Relief
Regulations”), the above requirements for a special tender offer do not apply in instances whereby according to the laws
of the foreign jurisdiction there are limitations regarding the acquisition of a controlling interest in the company of any specified
portion or the acquisition of a controlling interest of any specified portion necessitates an offer by the potential acquirer
of a controlling interest to acquire shares from amongst the publicly traded shares. The Israeli Securities Authority is of the
view that US securities laws and exchange regulations of various exchanges do not purport to limit the acquisition of controlling
interests in a company, do not require the potential acquirer of a controlling interest to make an offer to acquire shares from
the public, and as such Israeli companies that are publicly traded in the United States of America cannot benefit from the special
tender offer waiver pursuant to the Foreign Listing Relief Regulations and are thus subject to the general provisions of the Companies
Law which require a special tender offer as outlined above.
Merger
The Companies Law permits
merger transactions if approved by each party’s board of directors and, unless certain requirements described under the
Companies Law are met, a majority of each party’s shareholders, by a majority of each party’s shares that are voted
on the proposed merger at a shareholders’ meeting.
The board of directors
of a merging company is required pursuant to the Companies Law to discuss and determine whether in its opinion there exists a
reasonable concern that, as a result of a proposed merger, the surviving company will not be able to satisfy its obligations towards
its creditors, taking into account the financial condition of the merging companies. If the board of directors has determined
that such a concern exists, it may not approve a proposed merger. Following the approval of the board of directors of each of
the merging companies, the boards of directors must jointly prepare a merger proposal for submission to the Israeli Registrar
of Companies.
For purposes of the shareholder
vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares voting at the shareholders’
meeting (excluding abstentions) that are held by parties other than the other party to the merger, any person who holds 25% or
more of the means of control of the other party to the merger or any one on their behalf including their relatives or corporations
controlled by any of them, vote against the merger.
In addition, if the non-surviving
entity of the merger has more than one class of shares, the merger must be approved by each class of shareholders, and such separate
class voting may also include any classes of otherwise non-voting shares.
If the transaction would
have been approved but for the separate approval of each class of shares or the exclusion of the votes of certain shareholders
as provided above, a court may still rule that the company has approved 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 appraisal
of the merging companies’ value and the consideration offered to the shareholders.
Under the Companies Law,
each merging company must send a copy of the proposed merger plan to its secured creditors. Unsecured creditors are entitled to
receive notice of the merger, as provided by the regulations promulgated under the Companies Law. 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 the target company.
The court may also give instructions in order to secure the rights of creditors.
In addition, a merger
may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed with
the Israeli Registrar of Companies and 30 days from the date that shareholder approval of both merging companies was obtained.
Private Placements
Under the Companies Law,
if (i) as a result of a private placement a person would become a controlling shareholder or (ii) a private placement will entitle
investors to receive 20% or more of the voting rights of a company as calculated before the private placement, and all or part
of the private placement consideration is not in cash or in public traded securities or is not in market terms and if as a result
of the private placement the holdings of a substantial shareholder shall increase or as a result of it a person shall become a
substantial shareholder, then in either case, the allotment must be approved by the board of directors and by the shareholders
of the company. A “substantial shareholder” in connection with a private placement as set forth above, is defined
as a shareholder who holds five percent or more of the company’s outstanding share capital or voting rights, and which assumes
the exercise of all of the securities convertible into shares either held by that person prior to such private placement or offered
to such person under the private placement. In order for the private placement to be on “market terms” the board of
directors has to determine, on the base of detailed explanation, that the private placement is on market terms, unless proven
otherwise. Otherwise, under the Companies Law and the regulations promulgated thereunder, a private placement of securities does
not require approval at a general meeting of the shareholders of a company; provided however, that in other special circumstances,
such as a private placement completed in lieu of a special tender offer, or a private placement under circumstances which qualifies
as a related party transaction requiring shareholder approval, approval at a general meeting of the shareholders of a company
is then also required. A Registered Direct Offering in the United States is generally considered a private placement under the
Companies Law.
Exchange Controls
There are currently no
material Israeli currency control restrictions on payments of dividends or other distributions with respect to our securities
or the proceeds from the sale of our securities, except under certain circumstances, for shareholders who are subjects of countries
that are, or have been, in a state of war with Israel or otherwise as set forth in this section. However, legislation remains
in effect pursuant to which currency controls can be imposed by administrative action at any time. Israeli residents have an obligation
to file reports with the Bank of Israel regarding certain transactions.
Access to corporate records
Under the Companies Law,
shareholders are provided access to minutes of our general meetings, our shareholders register and principal shareholders register,
our amended and restated articles of association, our 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 request to be
provided with any document related to an action or transaction requiring shareholder approval under the related party transaction
provisions of the Companies Law. We may deny this request if we believe it has not been made in good faith or if such denial is
necessary to protect our interest or protect a trade secret or patent.
Modification of class rights
Under
the Companies Law and our amended and restated articles of association, the rights attached to any class of share, such as voting,
liquidation and dividend rights, may be amended by adoption of a resolution by the holders of a majority 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. The enlargement of an existing class of shares or the issuance of additional
shares thereof, shall not be deemed to modify the rights attached to the previously issued shares of such class or of any other
class, unless otherwise provided by the terms of the shares.
Establishment
We were incorporated
under the laws of the State of Israel. We are registered with the Israeli Registrar of Companies in Jerusalem, Israel.
Listing
Our ordinary shares are
traded on the TASE under the symbol “KTOV.”
Share History
The following is a summary of the history
of our share capital for the last three years.
Ordinary Share Issuances
On January 3, 2014, we issued a holder of options,
18,047 ordinary shares upon the exercise of options.
On March 3, 2014, we issued 2,211,450 ordinary
shares, in exchange for NIS 17.25 million (approximately $4.9 million based on the representative rate of exchange on the date
of closing, March 3, 2014) in a public offering on the Tel Aviv Stock Exchange pursuant to a prospectus we filed with the Israel
Securities Authority. As part of the offering, we committed to our shareholders that we would initiate a rights offering to all
existing shareholders. The specific terms of the rights offering were not described in the prospectus.
On April 1, 2014, we issued in Israel 157,783
ordinary shares to Dexcel for services provided pursuant to the Development Services Agreement with Dexcel.
On May 28, 2014, we published a prospectus for
a rights offering under which each shareholder received, at no cost, one Series 1 TASE traded warrant for each ten ordinary shares
held by such shareholder. No consideration was received by us in connection with the issuance of the warrants. The aggregate number
of Series 1 TASE traded warrants issued was 5,717,074 exercisable into 439,757 ordinary shares. During June 2015 we issued, in
aggregate, 352 of our ordinary shares upon exercises of 4,571 Series 1 TASE traded warrants, and the remainder of the Series 1
Traded warrants expired unexercised on June 30, 2015.
On September 3, 2014 we issued 1,548,015
ordinary shares, and 25,156,250 Series 2 TASE traded warrants exercisable into 1,935,019 ordinary shares in exchange for NIS 8.05
million (approximately $2.2 million based on the representative rate of exchange on the date of closing, September 3, 2014) in
a public offering on the Tel Aviv Stock Exchange, and on March 31, 2015 we issued an additional 24,913,200 Series 2 TASE traded
warrants exercisable into 1,916,323 ordinary shares under the same terms and conditions. The Series 2 TASE traded warrants were
exercisable any time until September 2, 2015 at an exercise price of NIS 5.20 (approximately $1.38). On August 30, 2015, following
approval of the extension by special meetings of our shareholders and our holders of our Series 2 TASE traded warrants on August
16, 2015, the Tel Aviv District courts approved, under Section 350 of the Israeli Companies Law, the extension of the exercise
period of the Series 2 TASE traded warrants until March 1, 2016. During September 2015 we issued, in aggregate, 1,231 of our ordinary
shares upon exercises of 16,000 Series 2 TASE traded warrants, and the remainder of the Series 2 TASE traded warrants expired unexercised
on March 1, 2016.
On March 31, 2015 we issued 6,388,000 ordinary
shares and 3,194,000 Series 3 TASE traded warrants exercisable into 3,194,000 ordinary shares, as well as the additional 24,913,200
Series 2 TASE traded warrants exercisable into 1,916,323 ordinary shares as noted above, all in exchange for NIS 8.304 million
(approximately $2.1 million based on the representative rate of exchange on the date of closing, March 31, 2015) in a public offering
on the Tel Aviv Stock Exchange. No Series 3 TASE traded warrants were exercised and they expired on April 30, 2015.
In May 2015, we issued in Israel 597,511 ordinary
shares to Dexcel for services provided pursuant to the Development Services Agreement with Dexcel.
On November 25, 2015, we completed an underwritten
public offering of 3,158,900 ADSs, each representing 20 of our ordinary shares, and public warrants to purchase up to 3,158,900
ADSs. The ADSs and public warrants were issued in a fixed combination of one ADS and one warrant to purchase one ADS for a combined
price to the public of $4.13. In addition, the underwriters of the offering partially exercised their option to purchase an additional
220,074 warrants to purchase 220,074 ADSs. At closing of the offering we issued 63,178,000 of our ordinary shares, represented
by 3,158,900 of our ADSs. The public warrants had an initial per ADS exercise price of $4.13, were exercisable immediately, and
have a term of five years from the date of issuance. The gross proceeds to us from this offering were approximately $13 million,
prior to deducting underwriting discounts, commissions and other offering expenses. Between December 2015 and May 2016, we issued
in, aggregate, 1,454,340 of our ordinary shares, represented by 72,717 ADSs which were issued upon exercises of 72,717 public warrants.
The public warrants were subject to “weighted average” ratchet anti-dilution provisions as set forth in the Warrant
Agent Agreement, providing that until November 25, 2016, upon issuances of our ADSs or an equivalent number of ordinary shares
(or securities convertible or exercisable into ADSs or an equivalent number of ordinary shares), subject to specified exceptions,
at a price less than the exercise price then in effect, the exercise price would be reduced based on the “weighted average”
formula set forth in the Warrant Agent Agreement. The “weighted average” ratchet provision of the public warrants was
triggered by our July 5, 2016 follow-on public offering (described below), and upon closing of the follow-on public offering on
July 5, 2016, the exercise price of all the public warrants was reduced in accordance with its terms to $3.78.
On December 24, 2015 we issued in Israel
1,379,060 of our ordinary shares to the former shareholders of Kitov Pharmaceuticals Ltd. as a result of the attainment of milestones
as set forth in the 2013 Share Transfer Agreement, and the termination of the non-listed share purchase rights reflecting
such milestone shares. For more information on this agreement see “Certain Relationships and Related Party Transactions –
Share Transfer Agreement with Kitov Pharmaceuticals" in our 2015 Annual Report on Form 20-F. One of the recipients, Dr. J.
Paul Waymack, the chairman of our board of directors, who is the beneficial holder of 1,103,248 shares issued to a trustee in Israel,
is a U.S. resident.
On each of January 20, 2016 and on March 7, 2016,
we issued 160,000 of our ordinary shares represented by 8,000 of our ADSs issued on such dates to a vendor of ours located in the
U.S. in consideration for services provided to us, and on May 2, 2016, we issued 189,100 of our ordinary shares, represented by
9,455 ADSs issued to a vendor of ours located in the U.S. in consideration for services provided to us.
In June 2016, we issued in Israel 3,009,888 ordinary
shares to Dexcel for services provided pursuant to the Development Services Agreement with Dexcel.
On July 5, 2016, we completed a follow-on public
offering of 2,378,823 Class A units, with each Class A unit consisting of one ADS and a public warrant, as well as 1,150,589 Class
B units, with each Class B unit consisting of a non-listed, pre-funded warrant to purchase one ADS, or a pre-funded warrant, and
a public warrant. At closing of the offering we issued 47,576,460 of our ordinary shares, represented by 2,378,823 of our ADSs.
Each Class A unit was sold at a negotiated price of $3.40 per unit, including the ADS issuance fee of $0.01 per ADS, and each
Class B unit was sold at a negotiated price of $3.40 per unit, including the pre-funded warrant exercise price of $0.01 per full
ADS and the ADS issuance fee of $0.01 per ADS. The pre-funded warrants were exercisable at any time after the date of issuance
upon payment of the exercise price and the ADS issuance fee. The gross proceeds to us from this offering were approximately $12,000,000,
prior to deducting placement agent fees and other estimated offering expenses. Between July and September 2016 we issued, in aggregate,
23,011,780 of our ordinary shares represented by 1,150,589 ADSs which were issued upon exercises of all 1,150,589 of the pre-funded
warrants.
As
of December 11, 2016, we had an aggregate of 153,237,209 issued and outstanding ordinary shares (including 21 dormant
ordinary shares held in treasury) (such number of ordinary shares would be represented by 7,661,860 of our ADSs), no
non-voting senior preferred shares issued and outstanding, 6,835,669 Series A warrants, representative's warrants to purchase
157,945 of our ADSs, which were granted to the underwriters as part of our initial U.S. offering in November 2015, placement
agent's warrants to purchase 141,176 of our ADSs, which were granted to the placement agent as part of our follow-on U.S.
offering in July 2016, and 11,583,883 non-tradable options to purchase 9,932,523 ordinary shares (such number of non-tradable
options and their underlying ordinary shares would be represented by 496,626 of our ADSs).
Authorized Share Capital
On November 20, 2014,
our shareholders approved an increase in our authorized share capital from 38,461,538 ordinary shares with no par value, to 500,000,000
ordinary shares with no par value.
On November 30, 2014 we effected
a consolidation of our share capital at a ratio of 1:13, so that: (A) each 13 ordinary shares of Kitov Holdings was consolidated
into one ordinary share of Kitov Holdings; and (B) each option (tradable and non-tradable) outstanding immediately prior to the
Consolidation was adjusted by multiplying the number of ordinary shares into which such option was exercisable by 1/13 (rounded
to 0.07692).
On December
5, 2016, our shareholders approved the proposals to increase our authorized ordinary share capital to 5,000,000,000 ordinary shares,
with no par value, and to add to our authorized share capital 1,000,000,000 non-voting senior preferred shares, with no par value,
divided into 5 classes of 200,000,000 preferred shares in each class.
Our present
authorized share capital is 5,000,000,000 ordinary shares, with no par value, and 1,000,000,000 non-voting senior preferred
shares, with no par value, divided into 5 classes of 200,000,000 preferred shares in each class.
DESCRIPTION OF
AMERICAN DEPOSITARY SHARES
The
Bank of New York Mellon, as depositary, will register and deliver American Depositary Shares, also referred to as ADSs. Each ADS
will represent 20 shares (or a right to receive 20 shares) deposited with Bank Hapoalim or Bank Leumi, as custodian for the depositary
in Israel. Each ADS will also represent any other securities, cash or other property which may be held by the depositary. The
depositary’s office at which the ADSs will be administered is located at 101 Barclay Street, New York, New York 10286. The
Bank of New York Mellon’s principal executive office is located at One Wall Street, New York, New York 10286.
You
may hold ADSs either (A) directly (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate
evidencing a specific number of ADSs, registered in your name, or (ii) by having uncertificated ADSs registered in your name,
or (B) indirectly by holding a security entitlement in ADSs through your broker or other financial institution that is a direct
or indirect participant in The Depository Trust Company, also called DTC. If you hold ADSs directly, you are a registered ADS
holder, also referred to as an ADS holder. This description assumes you are an ADS holder. If you hold the ADSs indirectly, you
must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this
section. You should consult with your broker or financial institution to find out what those procedures are.
Registered
holders of uncertificated ADSs will receive statements from the depositary confirming their holdings.
As
an ADS holder, we will not treat you as one of our shareholders and you will not have shareholder rights. Israeli law governs
shareholder rights. The depositary will be the holder of the shares underlying your ADSs. As a registered holder of ADSs, you
will have ADS holder rights. A deposit agreement among us, the depositary, ADS holders and all other persons indirectly or beneficially
holding ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit
agreement and the ADSs.
The
following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the
entire deposit agreement and the form of ADR. Directions on how to obtain copies of those documents are provided under the heading
“Where You Can Find Additional Information”.
Dividends and Other Distributions
How will you receive
dividends and other distributions on the shares?
The depositary has agreed
to pay or distribute to ADS holders the cash dividends or other distributions it or the custodian receives on shares or other
deposited securities, upon payment or deduction of its fees and expenses. You will receive these distributions in proportion to
the number of shares your ADSs represent.
Cash.
The depositary
will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a reasonable
basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed
and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders
to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADS holders who have
not been paid. It will not invest the foreign currency and it will not be liable for any interest.
Before making a distribution,
any withholding taxes, or other governmental charges that must be paid will be deducted. See “Taxation and Government Programs
- Taxation of our Shareholders" for more detail. It will distribute only whole U.S. dollars and cents and will round fractional
cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign
currency, you may lose some of the value of the distribution.
Shares.
The depositary
may distribute additional ADSs representing any shares we distribute as a dividend or free distribution. The depositary will only
distribute whole ADSs. It will sell shares which would require it to deliver a fraction of an ADS (or ADSs representing those
shares) and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional
ADSs, the outstanding ADSs will also represent the new shares. The depositary may sell a portion of the distributed shares (or
ADSs representing those shares) sufficient to pay its fees and expenses in connection with that distribution.
Rights to purchase
additional shares.
If we offer holders of our securities any rights to subscribe for additional shares or any other rights,
the depositary may (i) exercise those rights on behalf of ADS holders, (ii) distribute those rights to ADS holders or (iii) sell
those rights and distribute the net proceeds to ADS holders, in each case after deduction or upon payment of its fees and expenses.
To the extent the depositary does not do any of those things, it will allow the rights to lapse. In that case, you will receive
no value for them. The depositary will exercise or distribute rights only if we ask it to and provide satisfactory assurances
to the depositary that it is legal to do so. If the depositary will exercise rights, it will purchase the securities to which
the rights relate and distribute those securities or, in the case of shares, new ADSs representing the new shares, to subscribing
ADS holders, but only if ADS holders have paid the exercise price to the depositary. U.S. securities laws may restrict the ability
of the depositary to distribute rights or ADSs or other securities issued on exercise of rights to all or certain ADS holders,
and the securities distributed may be subject to restrictions on transfer.
Other Distributions.
The depositary will send to ADS holders anything else we distribute on deposited securities by any means it thinks is legal,
fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what we
distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed,
in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any
securities (other than ADSs) to ADS holders unless it receives satisfactory evidence from us that it is legal to make that distribution.
The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection
with that distribution. U.S. securities laws may restrict the ability of the depositary to distribute securities to all or certain
ADS holders, and the securities distributed may be subject to restrictions on transfer.
The depositary is not
responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation
to register ADSs, shares, rights or other securities under the Securities Act of 1933, as amended, or the Securities Act. We also
have no obligation to take any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders.
This means that you may not receive the distributions we make on our shares or any value for them if it is illegal or impractical
for us to make them available to you.
Deposit, Withdrawal and Cancellation
How are ADSs issued?
The depositary will deliver
ADSs if you or your broker deposits shares or evidence of rights to receive shares with the custodian. Upon payment of its fees
and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the
appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons that
made the deposit.
How can ADS holders withdraw the deposited securities?
You may surrender your
ADSs for the purpose of withdrawal at the depositary’s office. Upon payment of its fees and expenses and of any taxes or
charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the shares and any other deposited
securities underlying the ADSs to the ADS holder or a person the ADS holder designates at the office of the custodian. Or, at
your request, risk and expense, the depositary will deliver the deposited securities at its office, if feasible. The depositary
may charge you a fee and its expenses for instructing the custodian regarding delivery of deposited securities.
How do ADS holders interchange between
certificated ADSs and uncertificated ADSs?
You may surrender your
ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and
will send to the ADS holder a statement confirming that the ADS holder is the registered holder of uncertificated ADSs. Alternatively,
upon receipt by the depositary of a proper instruction from a registered holder of uncertificated ADSs requesting the exchange
of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to the ADS holder an ADR evidencing those
ADSs.
Voting Rights
How do you vote?
ADS holders may instruct
the depositary how to vote the number of deposited shares their ADSs represent. If we request the depositary to solicit your voting
instructions (and we are not required to do so), the depositary will notify you of a shareholders’ meeting and send or make
voting materials available to you. Those materials will describe the matters to be voted on and explain how ADS holders may instruct
the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary. The
depositary will try, as far as practical, subject to the laws of Israel and the provisions of our articles of association or similar
documents, to vote or to have its agents vote the shares or other deposited securities as instructed by ADS holders. If we do
not request the depositary to solicit your voting instructions, you can still send voting instructions, and, in that case, the
depositary may try to vote as you instruct, but it is not required to do so.
Except by instructing
the depositary as described above, you won’t be able to exercise voting rights unless you surrender your ADSs and withdraw
the shares. However, you may not know about the meeting enough in advance to withdraw the shares.
In any event, the depositary
will not exercise any discretion in voting deposited securities and it will only vote or attempt to vote as instructed by the
holder of the ADSs or as described in the following sentence. If we asked the depositary to solicit your instructions at
least 30 days before the meeting date but the depositary does not receive voting instructions from you by the specified date,
it will consider you to have authorized and directed it to give a discretionary proxy to a person designated by us to vote the
number of deposited securities represented by your ADSs. The depositary will give a discretionary proxy in those circumstances
to vote on all questions at to be voted upon unless we notify the depositary that:
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we
do not wish to receive a discretionary proxy;
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there
is substantial shareholder opposition to the particular question; or
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the
particular question would have an adverse impact on our shareholders.
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We are required to notify
the depositary if one of the conditions specified above exists.
We cannot assure you
that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition,
the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out
voting instructions.
This means that you may not be able to exercise voting rights and there may be nothing you can do if your
shares are not voted as you requested.
In order to give you
a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we
request the depositary to act, we agree to give the depositary notice of any such meeting and details concerning the matters to
be voted upon at least 30 days in advance of the meeting date.
Fees and Expenses
Persons
depositing or withdrawing shares or ADS holders must pay
:
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For
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$5.00
(or less) per 100 ADSs (or portion of 100 ADSs)
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●Issuance
of ADSs, including issuances resulting from a distribution of shares or rights or other property
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●Cancellation
of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
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$.05
(or less) per ADS
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●Any
cash distribution to ADS holders
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A
fee equivalent to the fee that would be payable if securities distributed to you had
been shares and the shares had been deposited for issuance of ADSs
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●Distribution
of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders
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$.05
(or less) per ADS per calendar year
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●Depositary
services
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Registration
or transfer fees
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●Transfer
and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw
shares
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Expenses
of the depositary
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●Cable,
telex and facsimile transmissions (when expressly provided in the deposit agreement)
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●converting
foreign currency to U.S. dollars
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Taxes
and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock
transfer taxes, stamp duty or withholding taxes
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●As
necessary
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Any
charges incurred by the depositary or its agents for servicing the deposited securities
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●As
necessary
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The depositary collects
its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of
withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting
those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may
collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging
the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any
cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated
to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are
paid.
From time to time, the
depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance
of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected
from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency
or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads or commissions.
The depositary may convert
foreign currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as
an agent, fiduciary or broker on behalf of any other person and earns revenue, including, without limitation, fees and spreads
that it will retain for its own account. The spread is the difference between the exchange rate assigned to the currency
conversion made under the deposit agreement and the rate that the depositary or its affiliate receives in an offsetting foreign
currency trade. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under
the deposit agreement will be the most favorable rate that could be obtained at the time or as to the method by which that rate
will be determined, subject to its obligations under the deposit agreement.
Payment of Taxes
You will be responsible
for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs.
The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented
by your ADSs until those taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented
by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities,
it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders
any property, remaining after it has paid the taxes.
Tender and Exchange Offers; Redemption,
Replacement or Cancellation of Deposited Securities
The depositary will not
tender deposited securities in any voluntary tender or exchange offer unless instructed to do by an ADS holder surrendering ADSs
and subject to any conditions or procedures the depositary may establish.
If deposited securities
are redeemed for cash in a transaction that is mandatory for the depositary as a holder of deposited securities, the depositary
will call for surrender of a corresponding number of ADSs and distribute the net redemption money to the holders of called ADSs
upon surrender of those ADSs.
If there is any change
in the deposited securities such as a sub-division, combination or other reclassification, or any merger, consolidation, recapitalization
or reorganization affecting the issuer of deposited securities in which the depositary receives new securities in exchange for
or in lieu of the old deposited securities, the depositary will hold those replacement securities as deposited securities under
the deposit agreement. However, if the depositary decides it would not be lawful to hold the replacement securities because those
securities could not be distributed to ADS holders or for any other reason, the depositary may instead sell the replacement securities
and distribute the net proceeds upon surrender of the ADSs.
If there is a replacement
of the deposited securities and the depositary will continue to hold the replacement securities, the depositary may distribute
new ADSs representing the new deposited securities or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying
the new deposited securities.
If there are no deposited
securities underlying ADSs, including if the deposited securities are cancelled, or if the deposited securities underlying ADSs
have become apparently worthless, the depositary may call for surrender or of those ADSs or cancel those ADSs upon notice to the
ADS holders.
Amendment and Termination
How may the deposit agreement be amended?
We may agree with the
depositary to amend the deposit agreement and the ADRs without your consent for any reason. If an amendment adds or increases
fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile
costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding
ADSs until 30 days after the depositary notifies ADS holders of the amendment.
At the time an amendment becomes effective,
you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement
as amended.
How may the deposit agreement be terminated?
The depositary will initiate
termination of the deposit agreement if we instruct it to do so. The depositary may initiate termination of the deposit agreement
if:
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60
days have passed since the depositary told us it wants to resign but a successor depositary has not been appointed and accepted
its appointment;
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we
delist our shares from an exchange on which they were listed and do not list the shares on another exchange;
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we
appear to be insolvent or enter insolvency proceedings;
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all
or substantially all the value of the deposited securities has been distributed either in cash or in the form of securities;
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there
are no deposited securities underlying the ADSs or the underlying deposited securities have become apparently worthless; or
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there
has been a replacement
of deposited securities.
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If
the deposit agreement will terminate, the depositary will notify ADS holders at least 90 days before the termination date. At
any time after the termination date, the depositary may sell the deposited securities. After that, the depositary will hold the
money it received on the sale, as well as any other cash it is holding under the deposit agreement, unsegregated and without liability
for interest, for the
prorata
benefit of the ADS holders that have not surrendered their ADSs. Normally, the depositary
will sell as soon as practicable after the termination date.
After
the termination date and before the depositary sells, ADS holders can still surrender their ADSs and receive delivery of deposited
securities, except that the depositary may refuse to accept a surrender for the purpose of withdrawing deposited securities if
it would interfere with the selling process. The depositary may refuse to accept a surrender for the purpose of withdrawing sale
proceeds until all the deposited securities have been sold. The depositary will continue to collect distributions on deposited
securities,
but
, after the termination date, the depositary is not required to register any transfer of ADSs or distribute
any dividends or other distributions on deposited securities to the ADSs holder (until they surrender their ADSs) or give any
notices or perform any other duties under the deposit agreement except as described in this paragraph.
Limitations
on Obligations and Liability
Limits on
our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs
The
deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability
and the liability of the depositary. We and the depositary:
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are
only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
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are
not liable if we are or it is prevented or delayed by law or circumstances beyond our or its control from performing our or
its obligations under the deposit agreement;
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are
not liable if we or it exercises discretion permitted under the deposit agreement;
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are
not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made
available to holders of ADSs under the terms of the deposit agreement, or for any special, consequential or punitive damages
for any breach of the terms of the deposit agreement;
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have
no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf
or on behalf of any other person;
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are
not liable for the acts or omissions of any securities depository, clearing agency or settlement system; and
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may
rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the
proper person.
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In
the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.
Requirements
for Depositary Actions
Before
the depositary will deliver or register a transfer of ADSs, make a distribution on ADSs, or permit withdrawal of shares, the depositary
may require:
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payment
of stock transfer or other taxes or other governmental charges and transfer or registration
fees charged by third parties for the transfer of any shares or other deposited securities;
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satisfactory
proof of the identity and genuineness of any signature or other information it deems necessary; and
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compliance
with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer
documents.
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The
depositary may refuse to deliver ADSs or register transfers of ADSs when the transfer books of the depositary or our transfer
books are closed or at any time if the depositary or we think it advisable to do so.
Right to
Receive the Shares Underlying your ADSs
ADS
holders have the right to cancel their ADSs and withdraw the underlying shares at any time except:
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when
temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer
books; (ii) the transfer of shares is blocked to permit voting at a shareholders' meeting; or (iii) we are paying a dividend
on our shares;
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when
you owe money to pay fees, taxes and similar charges; or
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when
it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or
to the withdrawal of shares or other deposited securities.
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This
right of withdrawal may not be limited by any other provision of the deposit agreement.
Pre-release
of ADSs
The
deposit agreement permits the depositary to deliver ADSs before deposit of the underlying shares. This is called a pre-release
of the ADSs. The depositary may also deliver shares upon cancellation of pre-released ADSs (even if the ADSs are canceled before
the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying shares are delivered to
the depositary. The depositary may receive ADSs instead of shares to close out a pre-release. The depositary may pre-release ADSs
only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being
made represents to the depositary in writing that it or its customer owns the shares or ADSs to be deposited; (2) the pre-release
is fully collateralized with cash or other collateral that the depositary considers appropriate; and (3) the depositary must be
able to close out the pre-release on not more than five business days' notice. In addition, the number of ADSs that may be outstanding
at any time as a result of pre-release will not normally exceed 30% of the total number of ordinary shares deposited under the
deposit agreement, although the depositary may disregard the limit from time to time if it thinks it is appropriate to do so.
The depositary has full discretion as to how and to what extent it may disregard the limit for the amount of ADSs that may be
outstanding at any time as a result of the pre-release.
Direct Registration
System
In
the deposit agreement, all parties to the deposit agreement acknowledge that the Direct Registration System, also referred to
as DRS, and Profile Modification System, also referred to as Profile, will apply to the ADSs. DRS is a system administered by
DTC that facilitates interchange between registered holding of uncertificated ADSs and holding of security entitlements in ADSs
through DTC and a DTC participant. Profile is a feature of DRS that allows a DTC participant, claiming to act on behalf of a registered
holder of uncertificated ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver
those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder
to register that transfer.
In
connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement
understand that the depositary will not determine whether the DTC participant that is claiming to be acting on behalf of an ADS
holder in requesting registration of transfer and delivery as described in the paragraph above has the actual authority to act
on behalf of the ADS holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the
parties agree that the depositary’s reliance on and compliance with instructions received by the depositary through the
DRS/Profile system and in accordance with the deposit agreement will not constitute negligence or bad faith on the part of the
depositary.
Shareholder
communications; inspection of register of holders of ADSs
The
depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited
securities that we make generally available to holders of deposited securities. The depositary will send you copies of those communications
or otherwise make those communications available to you if we ask it to. You have a right to inspect the register of holders of
ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs.
Transfer agent and registrar
Our
transfer agent and registrar will be the depositary for our ADSs, Bank of New York Mellon, and its address is 101 Barclay Street,
New York, NY.
Listing
Our
ADSs are listed on The NASDAQ Capital Market under the symbol “KTOV.”
DESCRIPTION
OF PREFERRED SHARES
Pursuant
to Israel’s securities laws, a company whose ordinary shares are registered for trade on the TASE may not have more than
one class of shares for a period of one year following initial registration of the company on the TASE. After a period of one
year, it is permitted to issue preferred shares if the preference of those shares is limited to a preference in the distribution
of dividends and these preferred shares have no voting rights, and if such issuance is otherwise in accordance with any then applicable
TASE regulations or directives with respect to the issuance of preferred shares by a company whose ordinary shares are listed
on the TASE.
We presently do not have any issued and
outstanding preferred shares. On December 5, 2016, our shareholders approved the amendment to our amended and restated
articles of association, as well as to our memorandum of association, for the addition to the Company’s registered
share capital of 1,000,000,000 non-voting senior preferred shares, with no par value, divided into 5 classes of 200,000,000
preferred shares in each class (the “Preferred Shares”).
Pursuant to our amended and restated articles of
association, our board of directors is authorized to fix, by resolution of the board of directors, (i) the number of issued Preferred
Shares (subject to the maximum number of Preferred Shares authorized in such class), (ii) the designation of such class of Preferred
Shares, and (iii) the conversion, redemption, optional and other special rights, qualifications, limitations or restrictions,
if any, of the shares of such class of Preferred Shares. Consequently, the issuance of Preferred Shares would be available for
issuance without further actions by the Company’s shareholders, unless shareholder approval is required by Israeli law,
the rules of any exchange or other market on which the Company’s securities may then be listed or traded, the Company’s
Articles of Association then in effect, or any other applicable rules and regulations. For so long as we are also listed on the
TASE, the issuance of any Preferred Shares will also be subject to the requirements of any TASE regulations or directives governing
the issuance of preferred shares by companies whose ordinary shares are listed on the TASE. The TASE has not yet issued any directives
in connection with the issuance of preferred shares by a company whose ordinary shares are listed on TASE, other than a recently
issued temporary directive which is currently scheduled to expire in November 2017.
Subject to the actual terms of issuance determined
by our Board of Directors for any Preferred Shares when issued, our Preferred Shares may be convertible into our ordinary shares
or another series of Preferred Shares. Each such series of Preferred Shares shall have such number of shares, designations, preferences,
voting powers, qualifications, and special or relative rights or privileges as shall be determined by the board of directors,
which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights,
rights, qualifications, limitations and/or restrictions determined by our board of directors in accordance with our articles of
association in effect at the time of any such issuance, including, but not limited to, some or all of the following: (i) the number
of Preferred Shares constituting that series and the distinctive designation of that series, which number may be increased or
decreased (but not below the number of Preferred Shares then outstanding) from time to time by action of the board of directors;
(ii) the dividend rate and the manner and frequency of payment of dividends on the Preferred Shares of that series, whether dividends
will be cumulative, and, if so, from which date; (iii) subject to applicable law, whether that series will have voting rights,
in addition to any voting rights provided by law, and, if so, the terms of such voting rights; (iv) the terms and conditions of
any conversion privilege of the series, including provision for adjustment of the conversion rate in such events as the board
of directors may determine; (iv) whether or not the shares of that series will be redeemable, and, if so, the terms and conditions
of such redemption; (vi) whether that series will have a sinking fund for the redemption or purchase of Preferred Shares of that
series, and, if so, the terms and amount of such sinking fund; (vii) whether or not the Preferred Shares of the series will have
priority over or be on a parity with or be junior to the Preferred Shares of any other series or class in any respect; (viii)
the rights of the Preferred Shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding
up of the corporation, and the relative rights or priority, if any, of payment of Preferred Shares of that series; and any other
relative rights, preferences and limitations of that series.
Issuance
of Preferred Shares by our board of directors may result in such shares having dividend or liquidation preferences senior to the
rights of the holders of our ordinary shares and, Preferred Shares which are convertible into our ordinary shares could potentially
dilute the voting rights of the holders of our ordinary shares.
Once
designated by our board of directors, and offered hereby, each series of Preferred Shares may have specific financial and other
terms that will be described in a prospectus supplement. The description of the Preferred Shares that is set forth in any prospectus
supplement is not complete without reference to the documents that govern the Preferred Shares.
All
Preferred Shares offered hereby will, when issued, be fully paid and nonassessable, including Preferred Shares issued upon the
exercise of Preferred Share warrants or subscription rights, if any.
Each
Preferred Share shall be entitled to receive upon distribution, and in preference to our ordinary shares, (i) dividends in excess
of the general dividends issued to all shareholders including holders of Ordinary Shares, and/or (ii) amounts paid in a distribution
of our surplus assets on winding up, in an amount equal to the original issue price for such Preferred Shares as set forth in
the Company’s share registrar (adjusted for share combinations or subdivisions or other recapitalizations of the Company’s
shares), and less the amount of any dividend previously paid in preference, all pro rata to the number of the Company’s
Preferred Shares of each specific class of Preferred Shares issued and outstanding at such time, without having regard to any
premium paid or discount thereon, and all subject to the provisions hereof.
Furthermore,
and after payment of the Preferred Shares’ dividend preferences or liquidation preferences as aforesaid, each Preferred
Share in the Company’s capital shall be entitled to receive upon distribution, (i) a general dividend issued to all Shareholders,
(ii) bonus shares, and (iii) amounts paid in a distribution of the Company’s surplus assets on winding up, all pro rata
to the number of the Company’s Shares (Ordinary Shares and Preferred Shares) issued and outstanding at such time, without
having regard to any premium paid thereon or discount, and all subject to the provisions hereof.
All
Preferred Shares shall be non-voting shares and shall not vest the holder thereof with any right to participate in the Company‘s
general meetings, to receive notice thereof and/or to vote thereat. Without limitation to the above, the Preferred Shares shall
not confer upon the holders thereof any voting rights or any right to appoint directors or any other right with respect to general
meetings, including without limitation, attending, voting at or requesting to convene, such general meetings or proposing matters
for the agenda of such general meetings, except as expressly set forth below or as otherwise specifically provided by Israeli
law.
So
long as any Preferred Shares are outstanding, the provisions of the section below titled “Modification of class rights”,
and the provisions of this section shall apply, such that the adoption of a resolution, by a regular majority in voting power
of the Preferred Shares who are present, entitled to vote thereon (if any) and voting thereon, voting together as a single class,
given in person or by proxy or by an authorized proxy holder, at a meeting of holders of Preferred Shares shall be necessary for
effecting or validating:
(i) Authorization
of Senior Shares. Any amendment or alteration of the Memorandum of Association or Articles of Association of the Company so as
to authorize or create, or increase the authorized amount of, any class or series of shares to be so authorized, created or increased
after the initial issuance of any class of Preferred Shares, the terms of which expressly provide that such class or series will
rank senior to the outstanding class or classes of Preferred Shares as to dividend rights and distribution rights upon the liquidation,
winding up or dissolution of the Company (collectively, “Senior Shares”);
(ii) Amendment
of the Preferred Shares. Any amendment, alteration or repeal of any provision of the Articles of Association so as to adversely
affect the special rights, preferences, privileges or voting powers of the Preferred Shares.
(iii) Share
Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving
the Preferred Shares, or of a merger or consolidation of the Company with or into another entity, unless in each case (x) the
Preferred Shares remain outstanding or, in the case of any such merger or consolidation with respect to which the Company is not
the surviving or resulting entity (or the Preferred Shares are otherwise exchanged or reclassified), are converted or reclassified
into or exchanged for preferred shares of the surviving or resulting entity or its ultimate parent, and (y) such Preferred Shares
that remain outstanding or such preferred shares, as the case may be, have rights, preferences, privileges and voting powers of
the surviving or resulting entity or its ultimate parent that, taken as a whole, are not materially less favorable to the holders
thereof than the rights, preferences, privileges and voting powers, taken as a whole, of the Preferred Shares immediately prior
to the consummation of such transaction;
provided,
however, that (A) for all purposes of this section, (1) any increase in the amount of the Company’s authorized Ordinary
Shares or Preferred Shares or the issuance of any additional Ordinary Shares or Preferred Shares or (2) the authorization or creation
of any class or series of shares established after the initial issuance of any class of Preferred Shares, the terms of which do
not expressly provide that such class or series ranks senior to or on a parity with the previously issued and outstanding Preferred
Shares as to dividend rights and distribution rights upon any liquidation, winding up or dissolution of the Company (collectively,
“Junior Shares”); or the authorization or creation of any class or series of shares established after the initial
issuance of any class of Preferred Shares the terms of which expressly provide that such class or series will rank on a parity
with the previously issued and outstanding Preferred Shares as to dividend rights and distribution rights upon any liquidation,
winding up or dissolution of the Company (collectively, “Parity Shares”); and, any increase in the amount of authorized
but unissued shares of such class or series of Parity Shares or Junior Shares or the issuance of additional shares of such class
or series of Parity Shares or Junior Shares, will be deemed not to adversely affect (or to otherwise cause to be materially less
favorable) the rights, preferences, privileges or voting powers of the previously issued and outstanding Preferred Shares and
shall not require the consent or the adoption of a resolution by the holders of the previously issued and outstanding Preferred
Shares; (B) in the event of a binding share exchange or reclassification involving the Preferred Shares, or of a merger or consolidation
of the Company with or into another entity, as described above in which the provisions of sub-section (b)(iii)(x) and (y) above
are complied with, the consent or the adoption of a resolution by the holders of the previously issued Preferred Shares shall
not be required in order to effect, validate or approve such share exchange, reclassification, merger or consolidation; and (C)
to the extent that, notwithstanding the provisions of immediately preceding clauses (A) and (B), the consent or approval of the
holders of Preferred Shares, voting together as a single class, is nonetheless required by applicable law or the Articles of Association
in such circumstances, or such consent or approval is otherwise required by applicable law or the Articles of Association with
respect to any matter that is not set forth in the provisions of items (i)-(iii) of this section above, such approval or consent
may be given by the adoption of a resolution, by a simple majority of the voting power of the Preferred Shares who are present,
entitled to vote thereon (if any) and voting thereon, voting together as a single class, given in person or by proxy or by an
authorized person, at a meeting of holders of Preferred Shares and the legal quorum for any such meeting shall be as set forth
above with respect to meeting of holders of our Ordinary Shares.
The rules and procedures for calling and conducting
any meeting of the holders of Preferred Shares (including, without limitation, the fixing of a record date in connection therewith),
the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other procedural aspect or matter
with regard to such a meeting or such consents shall be governed by any rules the Board of Directors, in its discretion, may adopt
from time to time, which rules and procedures shall conform to the requirements of our amended and restated articles of association
(including the provisions set forth above), applicable law and, if applicable, the rules of any national securities exchange or
other trading facility on which the Preferred Shares are listed or traded at the time.
Although
our board of directors has no intention at the present time of doing so, it could authorize the issuance of a series of Preferred
Shares that could, depending on the terms of such series, impede the completion of a merger, tender offer, change of control or
other takeover attempt.
DESCRIPTION
OF WARRANTS
We
may issue warrants to purchase ADSs and/or ordinary shares and/or Preferred Shares and/or debt securities. Warrants may be issued
independently or together with any other securities and may be attached to, or separate from, such securities. Each series of
warrants will be issued under a separate warrant agreement to be entered into between us and a warrant agent and/or the warrant
holder. Any warrant agent will act solely as our agent and will not assume any obligation or relationship of agency for or with
holders or beneficial owners of warrants. The terms of any warrants to be issued and a description of the material provisions
of the applicable warrant agreement will be set forth in the applicable prospectus supplement.
The
applicable prospectus supplement will describe the following terms of any warrants in respect of which this prospectus is being
delivered:
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the
title of such warrants;
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the
aggregate number of such warrants;
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the
price or prices at which such warrants will be issued and exercised;
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the
currency or currencies in which the price of such warrants will be payable;
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the
securities purchasable upon exercise of such warrants;
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the
date on which the right to exercise such warrants shall commence and the date on which
such right shall expire;
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if
applicable, the minimum or maximum amount of such warrants which may be exercised at
any one time;
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if
applicable, the designation and terms of the securities with which such warrants are
issued and the number of such warrants issued with each such security;
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if
applicable, the date on and after which such warrants and the related securities will
be separately transferable;
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if
applicable, any provisions for cashless exercise of the warrants;
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if
applicable; any exercise limitations with respect to the ownership limitations by the
holder exercising the warrant;
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information
with respect to book-entry procedures, if any;
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any
material Israeli and United States federal income tax consequences;
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the
anti-dilution provisions of the warrants, if any; and
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any
other terms of such warrants, including terms, procedures and limitations relating to
the exchange and exercise of such warrants.
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Series A
Warrants
We
may also expand the existing Series A warrants series currently listed on The NASDAQ Capital Market under the symbol “KTOVW,”
and issue additional Series A warrants.
The
following summary of certain terms and provisions of the outstanding Series A warrants is not complete and is subject to, and
qualified in its entirety by the provisions of the Warrant Agent Agreement and form of Warrant Certificate, which is filed as
an exhibit to the registration statement filed with the SEC on Form F-1 (Registration No. 333-207117) on November 18, 2015, as
amended by the Letter Amendment to Warrant Agent Agreement which is filed as an exhibit to our Report on Form 6-K submitted
to the SEC on June 29, 2016, as subsequently amended and supplemented. Prospective investors should carefully review the terms
and provisions set forth in the Warrant Agent Agreement and form of Warrant Certificate, as amended. Series A warrants are administered
by the Bank of New York Mellon, as warrant agent.
Exercisability.
The Series A warrants are exercisable immediately upon issuance and at any time up to November 25, 2020. 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 ADSs purchased upon such exercise (except in the case of a cashless exercise as discussed
below), together with the ADS issuance fee of $0.05 per ADS 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.
Cashless
Exercise.
In the event that a registration statement covering ordinary shares underlying the Series A warrants is not effective,
and an exemption from registration is not available for the resale of such ordinary shares underlying the Series A warrants, the
holder may, in its sole discretion, exercise 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 ADSs determined according to the formula set forth in the Warrant Agent Agreement. The issuance fee of $0.05 per
ADS, as well as other applicable charges and taxes, are due and payable upon any cashless exercise.
Exercise
Price.
The initial exercise price per ADS purchasable upon exercise of the Series A warrants is equal to $3.78 per full ADS
(which may be adjusted as set forth below). In addition to the exercise price per ADS, the $0.05 issuance fee per ADS and other
applicable charges and taxes are due and payable upon exercise.
Adjustment
Provisions.
The exercise price and the number of ADSs issuable upon exercise are subject to appropriate adjustment in the
event of certain stock dividends and distributions, stock splits, stock subdivisions and combinations, reclassifications or similar
events affecting our ADSs or ordinary shares.
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 the warrant agent, together with the appropriate instruments of transfer.
Warrant
Agent and Exchange Listing.
The Series A warrants will be issued in registered form under the Warrant Agent Agreement between
us and the warrant agent.
Fundamental
Transaction
. If, at any time while the Series A warrants are outstanding, (1) we consolidate or merge with or into another
person, (2) we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets,
(3) any purchase offer, tender offer or exchange offer (whether by us or another person) is completed pursuant to which holders
of our ordinary shares are permitted to sell, tender or exchange their ordinary shares for other securities, cash or property
and has been accepted by the holders of 50% or more of our outstanding shares of ordinary shares, (4) we effect any reclassification
or recapitalization of our ADSs or ordinary shares or any compulsory share exchange pursuant to which our ordinary shares are
converted into or exchanged for other securities, cash or property, or (5) we consummate a stock or share purchase agreement or
other business combination with another person whereby such other person acquires more than 50% of our outstanding ordinary shares,
each, a “Fundamental Transaction”, then upon any subsequent exercise of the Series A warrants, the holders thereof
will have the right to receive the same amount and kind of securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder
of the number of ADSs then issuable upon exercise of the Series A warrant, and any additional consideration payable as part of
the Fundamental Transaction.
Rights
as a Shareholder.
Except as otherwise provided in the Warrant Agent Agreement or by virtue of such holder’s ownership
of ADSs or ordinary shares, the holder of Series A warrants does not have rights or privileges of a holder of ADSs or ordinary
shares, including any voting rights, until the holder exercises the Series A warrants.
Outstanding Series A warrants.
As of
December 11, 2016, there were 6,835,669 Series A warrants issued to public investors in our initial public offering in
November 2015 and our follow-on public offering in July 2016, pursuant to prospectuses dated November 23, 2015 and June 30,
2016.
Representative's
Warrants
We
issued to the representative of the underwriters in our November 2015 initial public offering 157,945 representative's warrants
to purchase up to 157,945 ADSs. The ADSs issuable upon exercise of these representative's warrants are identical to those offered
to investors in our initial public offering in the U.S., except that such representative's warrants are in certificate form and
have an exercise price equal to $4.956. We have registered the representative’s warrants and the ADSs issuable upon exercise
of the representative's warrants. The representative’s warrants are exercisable for cash or on a cashless basis at per share
exercise price equal of $4.956 and expire on the fifth anniversary of the issuance date. In addition, the representative’s
warrants provide for registration rights upon request, in certain cases, at our expense. The exercise price and number of ADSs
issuable upon exercise of the representative's warrants may be adjusted in certain circumstances including in the event of a stock
dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise
price or underlying shares will not be adjusted for issuances of ADSs at a price below the warrant exercise price.
Placement
Agent’s Warrants
On July 5, 2016, we issued to the placement
agent for our July 2016 follow-on public offering 141,176 warrants to purchase 141,176 ADSs, or the “placement agent’s
warrants”. The ADSs issuable upon exercise of the placement agent’s warrants are identical to the ADSs issuable upon
exercise of the public warrants. The placement agent’s warrants are exercisable for cash or on a cashless basis at a per
ADS exercise price equal to $4.08 and expire on June 28, 2021. The placement agent’s warrants and the ADSs underlying the
placement agent’s warrants have been deemed compensation by FINRA and are, therefore, subject to a 180-day lock-up pursuant
to Rule 5110(g)(1) of FINRA. The placement agent (or permitted assignees under the Rule) will not sell, transfer, assign, pledge
or hypothecate the placement agent’s warrants or the securities underlying the placement agent’s warrants, nor will
it engage in any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition
of these warrants or the underlying securities for a period of 180 days after the effective date. The exercise price and number
of ADSs issuable upon exercise of the placement agent’s warrants may be adjusted in certain circumstances including in the
event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation.
The description in the applicable prospectus supplement
of any warrants we offer, including, without limitation, any additional Series A warrants, will not necessarily be complete and
will be qualified in its entirety by reference to the applicable warrant agreement, which will be filed with the SEC if we offer
warrants, or to the Warrant Agent Agreement, as amended, and form of Warrant Certificate, as subsequently amended and supplemented,
if we offer Series A warrants without amending its terms. For more information on how you can obtain copies of the applicable
warrant agreement if we offer warrants, see “Where You Can Find More Information” beginning on page 74 and “Incorporation
of Information by Reference” beginning on page 76. We urge you to read any applicable prospectus supplement and the applicable
warrant agreement, or the Warrant Agent Agreement, as amended, and form of Warrant Certificate, as subsequently amended and supplemented,
if we offer Series A warrants without amending its terms, in their entirety.
OVERALLOTMENT
PURCHASE RIGHTS
We
may issue overallotment purchase rights to purchase ADSs and/or ordinary shares and/or Preferred Shares and/or warrants and/or
subscription rights and/or units and/or debt securities. Overallotment purchase rights may be issued independently or together
with any other securities and may be attached to, or separate from, such securities. Any overallotment purchase rights will be
issued under a form of overallotment purchase right and/or overallotment purchase agreement to be filed with the SEC. The terms
of any overallotment purchase rights to be issued and a description of the material provisions of the applicable form of overallotment
purchase right will be set forth in the applicable prospectus supplement.
The
applicable prospectus supplement relating to any overallotment purchase rights we offer, if any, will, to the extent applicable,
include specific terms relating to the offering, including some or all of the following:
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form of such overallotment purchase rights;
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aggregate number of such overallotment purchase rights;
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the
price or prices at which such overallotment purchase rights will be issued and exercised;
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the
currency or currencies in which the price of such overallotment purchase rights will
be payable;
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the
securities purchasable upon exercise of such overallotment purchase rights;
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the
date on which the right to exercise such overallotment purchase rights shall commence
and the date on which such right shall expire;
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if
applicable, the minimum or maximum amount of such overallotment purchase rights which
may be exercised at any one time;
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if
applicable, the designation and terms of the securities with which such overallotment
purchase rights are issued and the number of such overallotment purchase rights issued
with each such security;
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if
applicable, the date on and after which such overallotment purchase rights and the related
securities will be separately transferable;
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if
applicable, any provisions for cashless exercise of the overallotment purchase rights;
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if
applicable; any exercise limitations with respect to the ownership limitations by the
holder exercising the overallotment purchase rights;
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information
with respect to book-entry procedures, if any;
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the
anti-dilution provisions of the overallotment purchase rights, if any; and
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any
other terms of such warrants, including terms, procedures and limitations relating to
the exchange and exercise of such warrants.
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The description in the applicable prospectus supplement
of any overallotment purchase rights we offer will not necessarily be complete and will be qualified in its entirety by reference
to the applicable form of overallotment purchase right, which will be filed with the SEC if we offer overallotment purchase rights.
For more information on how you can obtain copies of the applicable form of overallotment purchase right if we offer overallotment
purchase rights, see “Where You Can Find More Information” beginning on page 74 and “Incorporation of Information
by Reference” beginning on page 76. We urge you to read the applicable form of overallotment purchase right and any applicable
prospectus supplement in their entirety.
DESCRIPTION
OF SUBSCRIPTION RIGHTS
We
may issue subscription rights to purchase our ordinary shares, and/or Preferred Shares, and/or our ADSs and/or debt securities.
These subscription rights may be issued independently or together with any other security offered hereby and may or may not be
transferable by the shareholder receiving the subscription rights in such offering. In connection with any offering of subscription
rights, we may enter into a standby arrangement with one or more underwriters or other purchasers pursuant to which the underwriters
or other purchasers may be required to purchase any securities remaining unsubscribed for after such offering.
The
prospectus supplement relating to any subscription rights we offer, if any, will, to the extent applicable, include specific terms
relating to the offering, including some or all of the following:
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the
price, if any, for the subscription rights;
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the
exercise price payable for each ordinary share, and/or preferred share, and/or ADS and/or
debt security upon the exercise of the subscription rights;
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the
number of subscription rights to be issued to each shareholder;
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the
number and terms of the ordinary shares, and/or Preferred Shares, and/or ADSs and/or
debt securities which may be purchased per each subscription right;
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the
extent to which the subscription rights are transferable;
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any
other terms of the subscription rights, including the terms, procedures and limitations
relating to the exchange and exercise of the subscription rights;
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the
date on which the right to exercise the subscription rights shall commence, and the date
on which the subscription rights shall expire;
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the
extent to which the subscription rights may include an over-subscription privilege with
respect to unsubscribed securities; and
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if
applicable, the material terms of any standby underwriting or purchase arrangement which
may be entered into by us in connection with the offering of subscription rights.
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The description in the applicable prospectus supplement
of any subscription rights we offer will not necessarily be complete and will be qualified in its entirety by reference to the
applicable subscription right agreement, which will be filed with the SEC if we offer subscription rights. For more information
on how you can obtain copies of the applicable subscription right agreement if we offer subscription rights, see “Where
You Can Find More Information” beginning on page 74 and “Incorporation of Information by Reference” beginning
on page 76. We urge you to read the applicable subscription right agreement and any applicable prospectus supplement in their
entirety.
DESCRIPTION
OF UNITS
We
may issue units comprised of one or more of the other securities that may be offered under this prospectus, in any combination.
Each unit will be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder
of a unit will have the rights and obligations of a holder of each included security. The unit agreement under which a unit is
issued may provide that the securities included in the unit may not be held or transferred separately at any time, or at any time
before a specified date.
The
prospectus supplement relating to any units we offer, if any, will, to the extent applicable, include specific terms relating
to the offering, including some or all of the following:
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the
material terms of the units and of the securities comprising the units, including whether
and under what circumstances those securities may be held or transferred separately;
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any
material provisions relating to the issuance, payment, settlement, transfer or exchange
of the units or of the securities comprising the units; and
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any
material provisions of the governing unit agreement that differ from those described
above.
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The description in the applicable prospectus supplement
of any units we offer will not necessarily be complete and will be qualified in its entirety by reference to the applicable unit
agreement, which will be filed with the SEC if we offer units. For more information on how you can obtain copies of the applicable
unit agreement if we offer units, see “Where You Can Find More Information” beginning on page 74 and “Incorporation
of Information by Reference” beginning on page 76. We urge you to read the applicable unit agreement and any applicable
prospectus supplement in their entirety.
DESCRIPTION
OF CAPITAL NOTES
We
may from time to time offer and sell under this prospectus capital notes, referred to herein as equity equivalent capital notes.
When we offer to sell a particular series of capital notes, we will describe the specific terms of the series in a prospectus
supplement. We will also indicate in the prospectus supplement whether the general terms and provisions described in this prospectus
apply to a particular series of capital notes.
The
capital notes are instruments of equity and not debt. Unless otherwise specified in a prospectus supplement, (i) the face amounts
of the capital notes will not bear interest nor will they be linked to any index, (ii) the face amounts of the capital notes will
only payable by us out of distributions made upon the winding-up, liquidation or dissolution of our company on a pari passu and
pro rata basis with the holders of our ordinary shares and (iii) we will have no right to prepay or redeem the equity equivalent
capital notes. In addition, the holder may at any time, convert the face amount of the equity equivalent capital notes, in whole
or in part, without payment of any additional consideration, into ADSs or ordinary shares, as set forth in the equity equivalent
capital note, at a conversion price agreed with the holder. Unless otherwise specified in a prospectus supplement, the equity
equivalent capital notes shall have no maturity date and the right to convert into ADSs or ordinary shares shall not expire.
The
terms of any particular series of equity equivalent capital notes will be set forth in the purchase agreement with the purchasers
and the governing capital note certificate, each of which will be incorporated by reference as an exhibit to the registration
statement of which this prospectus forms a part. The foregoing summary of the equity equivalent capital notes is not complete.
We encourage you to read the purchase agreement and capital note certificate, because they, and not this summary, will govern
your rights as a holder of equity equivalent capital notes.
DESCRIPTION
OF DEBT SECURITIES
The
following summary of the terms of the debt securities describes general terms that apply to the debt securities. The debt securities
offered pursuant to this prospectus will be unsecured obligations and will be either senior debt or subordinated debt. The debt
securities may be convertible into shares of our ordinary shares, ADSs or Preferred Shares. In addition, one or more of our subsidiaries
may be guarantors of our debt securities. The particular terms of any debt securities will be described more specifically in each
prospectus supplement relating to those debt securities. Where any provision in an accompanying prospectus supplement is inconsistent
with any provision in this summary, the prospectus supplement will control.
Senior
debt securities and subordinated debt securities will be issued under a debt indenture summarized below. Where we make no distinction
in our summary between senior debt securities and subordinated debt securities, the applicable information refers to any debt
securities. Since this is only a summary, it does not contain all of the information that may be important to you. A form of indenture
relating to the debt securities is an exhibit to the registration statement of which this prospectus is a part. The executed indenture
will be incorporated by reference from a report on Form 6-K. We encourage you to read those documents.
General
The
indenture does not limit the aggregate principal amount of debt securities we may issue and provides that we may issue debt securities
thereunder from time to time in one or more series. The indenture does not limit the amount of other indebtedness or debt securities
which we or our subsidiaries may issue. Under the indenture, the terms of the debt securities of any series may differ and we,
without the consent of the holders of the debt securities of any series, may reopen a previous series of debt securities and issue
additional debt securities of the series or establish additional terms of the series.
Unless
otherwise provided in a prospectus supplement, the senior debt securities will be our unsecured obligations and will rank equally
with all of our other unsecured and senior indebtedness, and the subordinated debt securities will be unsecured obligations of
ours and, as set forth below under “—Subordinated Debt Securities,” will be subordinated in right of payment
to all of our senior indebtedness.
If
any of our assets are held in subsidiaries established in connection with financing transactions, our rights and the rights of
our creditors (including the holders of debt securities) and shareholders to participate in any distribution of assets of any
subsidiary upon the subsidiary’s liquidation or reorganization or otherwise would be subject to the prior claims of the
subsidiary’s creditors, except to the extent that we may be a creditor with recognized claims against the subsidiary.
You
should refer to the prospectus supplement that accompanies this prospectus for a description of the specific series of debt securities
we are offering by that prospectus supplement. The terms may include:
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the
title and specific designation of the debt securities, including whether they are senior debt securities or subordinated debt
securities;
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any
limit on the aggregate principal amount of the debt securities or the series of which they are a part;
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whether
the debt securities are to be issuable as registered securities, as bearer securities or alternatively as bearer securities
and registered securities, and if as bearer securities, whether interest on any portion of a bearer security in global form
will be paid to any clearing organizations;
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the
date or dates on which we must pay principal;
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the
rate or rates at which the debt securities will bear interest or the manner in which interest will be determined, if any interest
is payable;
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the
date or dates from which any interest will accrue, the date or dates on which we must pay interest and the record date for
determining who is entitled to any interest payment;
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the
place or places where we must pay the debt securities and where any debt securities issued in registered form may be sent
for transfer, conversion or exchange;
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the
terms and conditions on which we may, or may be required to, redeem the debt securities;
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the
terms and conditions of any sinking fund;
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if
other than denominations of $1,000, the denominations in which we may issue the debt securities;
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the
terms and conditions upon which debt securities may be convertible into ordinary shares, ADSs or Preferred Shares, including
the conversion price, the conversion period and other conversion provisions;
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the
amount we will pay if the maturity of the debt securities is accelerated;
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whether
we will issue the debt securities in the form of one or more global securities and, if so, the identity of the depositary
for the global security or securities;
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any
addition to or changes in the events of default or covenants that apply to the debt securities;
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whether
the debt securities will be defeasible;
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whether
one or more of our subsidiaries will provide guarantees of the debt securities, and the terms of any subordination of such
guarantee; and
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any
other terms of the debt securities and any other deletions from or modifications or additions to the debt indenture in respect
of the debt securities, including those relating to the subordination of any debt securities.
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Unless
the applicable prospectus supplement specifies otherwise, the debt securities will not be listed on any securities exchange.
Unless
the applicable prospectus supplement specifies otherwise, we will issue the debt securities in fully registered form without coupons.
If we issue debt securities of any series in bearer form, the applicable prospectus supplement will describe the special restrictions
and considerations, including special offering restrictions and special income tax considerations, applicable to those debt securities
and to payment on and transfer and exchange of those debt securities. Debt securities issued in bearer form will be transferable
by delivery.
Unless
otherwise stated in the prospectus supplement, we will, subject to certain conditions, pay principal, premium, interest and additional
amounts, if any, on the debt securities at the office or agency we maintain for that purpose (initially the corporate trust office
of the trustee). We may, subject to certain conditions, pay interest on debt securities issued in registered form by check mailed
to the address of the persons entitled to the payments or we may pay by transfer to their U.S. or other bank accounts. Interest
on debt securities issued in registered form will be payable on any interest payment date to the registered owners of the debt
securities at the close of business on the regular record date for the interest payment. We will name in the prospectus supplement
all paying agents we initially designate for the debt securities. We may designate additional paying agents, rescind the designation
of any paying agent or approve a change in the office through which any paying agent acts, but we must maintain a paying agent
in each place where payments on the debt securities are payable.
Unless
otherwise stated in the prospectus supplement, the debt securities may be presented for transfer (duly endorsed or accompanied
by a written instrument of transfer, if we or the security registrar so requires) or exchanged for other debt securities of the
same series (containing identical terms and provisions, in any authorized denominations, and in the same aggregate principal amount)
at the office or agency we maintain for that purpose (initially the corporate trust office of the trustee). There will be no service
charge for any transfer or exchange, but we may require payment sufficient to cover any tax or other governmental charge or expenses
payable in connection with the transfer or exchange. We will not be required to:
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issue,
register the transfer of, or exchange, debt securities during a period beginning at the opening of business 15 days before
the day of mailing of a notice of redemption of any such debt securities and ending at the close of business on the day of
such mailing; or
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register
the transfer of or exchange any debt security selected for redemption in whole or in part, except the unredeemed portion of
any debt security being redeemed in part.
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We
shall appoint the trustee as security registrar. Any transfer agent (in addition to the security registrar) we initially designate
for any debt securities will be named in the related prospectus supplement. We may designate additional transfer agents, rescind
the designation of any transfer agent or approve a change in the office through which any transfer agent acts, but we must maintain
a transfer agent in each place where any payments on the debt securities are payable.
Unless
otherwise stated in the prospectus supplement, we will issue the debt securities only in fully registered form, without coupons,
in minimum denominations of $1,000 and integral multiples of $1,000. The debt securities may be represented in whole or in part
by one or more global debt securities. Each global security will be registered in the name of a depositary or its nominee and
the global security will bear a legend regarding the restrictions on exchanges and registration of transfer. Interests in a global
security will be shown on records maintained by the depositary and its participants, and transfers of those interests will be
made as described below. Provisions relating to the use of global securities are more fully described below in the section entitled
“Use of Global Securities.”
We
may issue the debt securities as original issue discount securities (bearing no interest or bearing interest at a rate which at
the time of issuance is below market rates) to be sold at a substantial discount below their principal amount. We will describe
certain special Israeli and U.S. federal income tax and other considerations applicable to any debt securities that are issued
as original issue discount securities in the applicable prospectus supplement.
We
will comply with Section 14(e) under the Exchange Act, and any other tender offer rules under the Exchange Act that may then
be applicable, in connection with any obligation to purchase debt securities at the option of the holders. Any such obligation
applicable to a series of debt securities will be described in the related prospectus supplement.
Unless
otherwise described in a prospectus supplement relating to any debt securities, the indenture does not limit our ability to incur
debt or give holders of debt securities protection in the event of a sudden and significant decline in our credit quality or a
takeover, recapitalization or highly leveraged or similar transaction involving us. Accordingly, we could in the future enter
into transactions that could increase the amount of indebtedness outstanding at that time or otherwise affect our capital structure
or credit quality. You should refer to the prospectus supplement relating to a particular series of debt securities for information
regarding any changes in the events of default described below or covenants contained in the debt indenture, including any addition
of a covenant or other provisions providing event risk or similar protection.
Conversion
Rights
The
applicable prospectus supplement may set forth the terms on which the debt securities of any series are convertible into ordinary
shares, ADSs or Preferred Shares. Those terms will address whether conversion is mandatory, at the option of the holder or at
our option. The terms may also provide that the number of ordinary shares or ADSs to be received by the holders of the debt securities
will be calculated according to the market price of our ADSs as of a time stated in the prospectus supplement or otherwise.
Subordinated
Debt Securities
Unless
otherwise provided in the applicable prospectus supplement, the following provisions will apply for subordinated debt securities.
Before
we pay the principal of, premium, if any and interest on, the subordinated debt securities, we must be current and not in default
on payment in full of all of our senior indebtedness. Senior indebtedness includes all of our indebtedness as described below,
except for:
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obligations
issued or assumed as the deferred purchase price of property;
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conditional
sale obligations;
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obligations
arising under any title retention agreements;
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indebtedness
relating to the applicable subordinated debt securities;
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indebtedness
owed to any of our subsidiaries; and
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indebtedness
that, by its terms, is subordinate in right of payment to or equal with the applicable subordinated debt securities.
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Generally,
indebtedness means:
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the
principal of, premium, if any, and interest on indebtedness for money borrowed;
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the
principal of, premium, if any, and interest on indebtedness evidenced by notes, debentures, bonds or other similar instruments;
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capitalized
lease obligations;
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obligations
issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations arising
under any title retention agreements;
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obligations
for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction (other
than obligations with respect to certain letters of credit securing obligations entered into in the ordinary course of business);
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obligations
of the type referred to in the bullet points above assumed for another party and dividends of another party for the payment
of which, in either case, one is responsible or liable as obligor, guarantor or otherwise; and
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obligations
assumed of the types referred to in the bullet points above for another party secured by any lien on any of one’s property
or assets.
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Indebtedness
does not include amounts owed pursuant to trade accounts arising in the ordinary course of business.
Generally,
we may not pay the principal of, premium, if any, or interest on the subordinated debt securities if, at the time of payment (or
immediately after giving effect to such payment):
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there
exists under any senior indebtedness, or any agreement under which any senior indebtedness is issued, any default, which default
results in the full amount of the senior indebtedness being declared due and payable; or
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the
trustee has received written notice from a holder of senior indebtedness stating that there exists under the senior indebtedness,
or any agreement under which the senior indebtedness is issued, a default, which default permits the holders of the senior
indebtedness to declare the full amount of the senior indebtedness due and payable,
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unless,
among other things, in either case:
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the
default has been cured or waived; or
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full
payment of amounts then due for principal and interest and of all other obligations then due on all senior indebtedness has
been made or duly provided for under the terms of any instrument governing senior indebtedness.
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Limited
subordination periods apply in the event of non-payment defaults relating to senior indebtedness in situations where there has
not been an acceleration of senior indebtedness.
A
failure to make any payment on the subordinated debt securities as a result of the foregoing provisions will not affect our obligations
to the holders of the subordinated debt securities to pay the principal of, premium, if any, and interest on the subordinated
debt securities as and when such payment obligations become due.
The
holders of senior indebtedness will be entitled to receive payment in full of all amounts due or to become due on senior indebtedness,
or provisions will be made for such payment, before the holders of the subordinated debt securities are entitled to receive any
payment or distribution of any kind relating to the subordinated debt securities or on account of any purchase or other acquisition
of the subordinated debt securities by us or any of our subsidiaries, in the event of:
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insolvency
or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case, relating to us or
our assets;
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any
liquidation, dissolution or other winding up of Kitov Holdings whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy; or
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any
assignment for the benefit of our creditors or any other marshaling of our assets and liabilities.
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In
addition, the rights of the holders of the subordinated debt securities will be subrogated to the rights of the holders of senior
indebtedness to receive payments and distributions of cash, property and securities applicable to the senior indebtedness until
the principal of, premium, if any, and interest on the subordinated debt securities are paid in full.
Because
of these subordination provisions, our creditors who hold senior indebtedness or other unsubordinated indebtedness may recover
a greater percentage of the debt owed to them than the holders of the subordinated debt securities.
The
debt indenture will not limit the aggregate amount of senior indebtedness that we may issue. If this prospectus is being delivered
in connection with the offering of a series of subordinated debt securities, the accompanying prospectus supplement or the information
incorporated in this prospectus by reference will set forth the approximate amount of senior debt outstanding as of a recent date.
Consolidation,
Merger and Sale of Assets
We
may not consolidate with or merge into any other person or convey or transfer or lease our properties and assets substantially
as an entirety to any person unless:
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if
we consolidate with or merge into another corporation or convey or transfer our properties and assets substantially as an
entirety to any person, the successor is organized under the laws of the United States, or any state, and assumes our obligations
under the debt securities;
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immediately
after the transaction, no event of default occurs and continues; and
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we
meet certain other conditions specified in the indenture.
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Modification
and Waiver
We
and the trustee may modify and amend the debt indenture without the consent of the holders of the outstanding debt securities
of each affected series, in order to, among other things:
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evidence
the succession of another corporation to us and the assumption of all of our obligations under the debt securities, any related
coupons and our covenants by a successor;
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add
to our covenants for the benefit of holders of debt securities or surrender any of our rights or powers;
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add
additional events of default for any series;
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add,
change or eliminate any provision affecting debt securities that are not yet issued;
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secure
certain debt securities;
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establish
the form or terms of debt securities not yet issued;
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make
provisions with respect to conversion or exchange rights of holders of debt securities;
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evidence
and provide for successor trustees;
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permit
payment in respect of debt securities in bearer form in the United States, if allowed without penalty under applicable laws
and regulations; or
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correct
or supplement any inconsistent provisions, cure any ambiguity or mistake, or add any other provisions, on the condition that
this action does not adversely affect the interests of any holder of debt securities of any series issued under the indenture
in any material respect.
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In
addition, we and the trustee may modify and amend the debt indenture with the consent of the holders of at least a majority in
aggregate principal amount of the outstanding debt securities of each affected series. However, without the consent of each holder,
we cannot modify or amend the debt indenture in a way that would:
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change
the stated maturity of the principal of, or any premium or installment of interest on, any debt security;
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reduce
the principal or interest on any debt security;
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change
the place of payment of principal or interest on any debt security;
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impair
the right to sue to enforce any payment on any debt security after it is due; or
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reduce
the percentage in principal amount of outstanding debt securities necessary to modify or amend the debt indenture, to waive
compliance with certain provisions of the debt indenture or to waive certain defaults.
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The
holders of at least a majority in aggregate principal amount of outstanding debt securities may waive our compliance with certain
restrictive covenants of the debt indenture. The holders of at least a majority in principal amount of the outstanding debt securities
of any series may waive any past default under the debt indenture with respect to outstanding debt securities of that series,
which will be binding on all holders of debt securities of that series, except a default in the payment of principal or interest
on any debt security of that series or in respect of a provision of the debt indenture that cannot be modified or amended without
each holder’s consent.
Events
of Default
Each
of the following will be an event of default:
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default
for 30 days in the payment of any interest;
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default
in the payment of principal;
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default
in the deposit of any sinking fund payment;
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default
in the performance of any other covenant in the debt indenture for 60 days after written notice; and
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certain
events in bankruptcy, insolvency or reorganization.
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We
are required to furnish the trustee annually a statement as to our fulfillment of our obligations under the debt indenture. The
trustee may withhold notice of any default to the holders of debt securities of any series (except for a default on principal
or interest payments on debt securities of that series) if it considers it in the interest of the holders to do so.
If
an event of default occurs and continues, either the trustee or the holders of not less than 25% in principal amount of the outstanding
debt securities of the series in default may declare the principal amount immediately due and payable by written notice to us
(and to the trustee if given by the holders). Upon any such declaration, the principal amount will become immediately due and
payable. However, the holders of a majority in principal amount of the outstanding debt securities of that series may, under certain
circumstances, rescind and annul the acceleration.
Except
for certain duties in case of an event of default, the trustee is not required to exercise any of its rights or powers at the
request or direction of any of the holders, unless the holders offer the trustee reasonable security or indemnity. If the holders
provide this security or indemnity, the holders of a majority in principal amount of the outstanding debt securities of a series
may direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or exercising any
trust or powers conferred on the trustee with respect to the debt securities of that series.
No
holder of a debt security may bring any lawsuit or other proceeding with respect to the indenture or for any remedy under the
indenture, unless:
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the
holder first gives the trustee written notice of a continuing event of default;
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the
holders of at least 25% in principal amount of the outstanding debt securities of the series in default give the trustee a
written request to bring the proceeding and offer the trustee reasonable security or indemnity; and
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the
trustee fails to institute the proceeding within 60 days of the written request and has not received from holders of a majority
in principal amount of the outstanding debt securities of the series in default a direction inconsistent with that request.
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However,
the holder of any debt security has the absolute right to receive payment of the principal of and any interest on the debt security
on or after the stated due dates and to take any action to enforce any such payment.
Discharge,
Defeasance and Covenant Defeasance
We
may discharge certain obligations to holders of any series of debt securities that have not already been delivered to the trustee
for cancellation and that either have become due and payable or will become due and payable within one year (or scheduled for
redemption within one year) by depositing with the trustee, in trust, funds in U.S. dollars an amount sufficient to pay the principal
and any premium, interest and additional amounts on such debt securities to the date of deposit (if the debt securities have become
due and payable) or to the maturity date, as the case may be.
Unless
a prospectus supplement states that the following provisions do not apply to the debt securities of that series, we may elect
either:
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to
defease and be discharged from any and all obligations with respect to such debt securities (except for, among other things,
the obligation to pay additional amounts, if any, upon the occurrence of certain events of taxation, assessment or governmental
charge with respect to payments on the debt securities and other obligations to provide for the conversion rights of the holders
of such debt securities, to register the transfer or exchange of such debt securities, to replace temporary or mutilated,
destroyed, lost or stolen debt securities, to maintain an office or agency with respect to such debt securities and to hold
moneys for payment in trust), such an action a “defeasance,” or
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to
be released from our obligations under the indenture with respect to the debt securities as may be further described in any
prospectus supplement, and our failure to comply with these obligations will not constitute an event of default with respect
to such debt securities, such an action a “covenant defeasance”.
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Defeasance
or covenant defeasance is conditioned on our irrevocable deposit with the trustee, in trust, of an amount in cash or government
securities, or both, sufficient to pay the principal of, any premium and interest on, and any additional amounts with respect
to, the debt securities on the scheduled due dates. Additional conditions to defeasance or covenant defeasance require that:
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the
applicable defeasance or covenant defeasance does not result in a breach or violation of, or constitute a default under, the
debt indenture or any other material agreement or instrument to which we are a party or by which we are bound,
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no
event of default has occurred and continues on the date the trust is established and, with respect to defeasance only, at
any time during the period ending on the 123rd day after that date, and
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we
have delivered to the trustee an opinion of counsel to the effect that the holders of such debt securities will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of the defeasance or covenant defeasance and will be
subject to U.S. federal income tax for the same amounts, in the same manner and at the same times as would have been the case
if the defeasance or covenant defeasance had not occurred. This opinion, in the case of defeasance, must refer to and be based
upon a letter ruling we have received from the Internal Revenue Service, a Revenue Ruling published by the Internal Revenue
Service, or a change in applicable U.S. federal income tax law occurring after the date of the debt indenture.
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If
we accomplish covenant defeasance on debt securities of certain holders, those holders can still look to us for repayment of their
debt securities in the event of any shortfall in the trust deposit. If one of the remaining events of default occurred, such as
our bankruptcy, and the debt securities became immediately due and payable, there may be a shortfall. Depending on the event causing
the default, such holders may not be able to obtain payment of the shortfall.
In
the case of subordinated debt securities, the subordination provisions described under “—Subordinated Debt Securities”
above are made subject to the provisions for defeasance and covenant defeasance. In other words, if we accomplish defeasance or
covenant defeasance on any subordinated debt securities, such securities would cease to be so subordinated.
Guarantee
One
or more subsidiary guarantors may fully and unconditionally guarantee on an unsecured basis the full and prompt payment of the
principal of and any premium and interest on the debt securities when and as the payment becomes due and payable, whether at maturity
or otherwise. The guarantee provides that in the event of a default in the payment of principal of or any premium or interest
on a debt security, the holder of that debt security may institute legal proceedings directly against the applicable subsidiary
guarantor to enforce the guarantee without first proceeding against Kitov Holdings. If senior debt securities are so guaranteed,
the guarantee will rank equally with all of the subsidiary guarantor’s other unsecured and unsubordinated debt from time
to time outstanding and senior to any subordinated debt of the subsidiary guarantor. If subordinated debt securities are so guaranteed,
the guarantee will be subordinated to all of the subsidiary guarantor’s other unsecured and unsubordinated debt from time
to time outstanding.
The
obligations of any subsidiary guarantor under the guarantee will be limited to the maximum amount that will not result in the
obligations of the subsidiary guarantor under the guarantee constituting a fraudulent conveyance or fraudulent transfer under
federal or state law, after giving effect to any other contingent and fixed liabilities of the subsidiary guarantor.
No
guarantor shall consolidate with or merge into any other person or sell, convey or transfer all or substantially all its properties
and assets to any person, unless:
(1) in
case such guarantor shall consolidate with or merge into another person or sell, convey, transfer or lease all or substantially
all its properties and assets to any person, the person formed by such transaction shall be a corporation, partnership or trust,
shall be organized and validly existing under the laws of the State of Israel and/or the United States, any state thereof or the
District of Columbia and shall expressly assume the performance or observance of every covenant of the indenture and any guarantees
on the part of such guarantor to be performed or observed;
(2) immediately
after giving effect to such transaction no event of default, and no event which, after notice or lapse of time or both, would
become an event of default, shall have happened and be continuing; and
(3) the
transaction meets certain other criteria described in the indenture.
The
guarantee may be released under certain circumstances. If Kitov Holdings exercises its legal or covenant defeasance option with
respect to debt securities of a particular series as described above in “—Discharge, Defeasance and Covenant Defeasance,”
then any subsidiary guarantor will be released with respect to that series. Further, if no default has occurred and is continuing
under the indentures, and to the extent not otherwise prohibited by the indentures, any subsidiary guarantor will be unconditionally
released and discharged from the guarantee:
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automatically
upon any sale, exchange or transfer, whether by way of merger or otherwise, to any person that is not an affiliate of Kitov
Holdings, of all of Kitov Holdings’ equity interests in the subsidiary guarantor;
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automatically
upon the merger of the subsidiary guarantor into Kitov Holdings or the liquidation and dissolution of the subsidiary guarantor;
or
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following
delivery of a written notice by Kitov Holdings to the trustee, upon the release of all guarantees by the subsidiary guarantor
of any debt of Kitov Holdings’ for borrowed money, except for any series of debt securities.
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Governing
Law
Unless
otherwise specified in a prospectus supplement, the debt indentures and the debt securities will be governed by and interpreted
under the laws of the State of Israel, without regard to conflict of law principles that would result in the application of any
law other than the laws of the State of Israel.
USE
OF GLOBAL SECURITIES
The
debt securities of any series may be issued in whole or in part in the form of one or more global debt securities that will be
deposited with a depositary or its nominee identified in the series prospectus supplement.
The
specific terms of the depositary arrangement covering debt securities will be described in the prospectus supplement relating
to that series. We anticipate that the following provisions or similar provisions will apply to depositary arrangements relating
to debt securities, although to the extent the terms of any arrangement differs from those described in this section, the terms
of the arrangement shall supersede those in this section as ultimately described in the applicable indenture and related documents.
Upon
the issuance of a global security, the depositary for the global security or its nominee will credit, to accounts in its book-entry
registration and transfer system, the principal amounts of the debt securities represented by the global security. These accounts
will be designated by the underwriters or agents with respect to such debt securities or by us if such debt securities are offered
and sold directly by us. Only institutions that have accounts with the depositary or its nominee, and persons who hold beneficial
interests through those participants, may own beneficial interests in a global security. Ownership of beneficial interests in
a global security will be shown only on, and the transfer of those ownership interests will be effected only through, records
maintained by the depositary, its nominee or any such participants. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. These laws may prevent you from transferring your beneficial
interest in a global security.
As
long as the depositary or its nominee is the registered owner of a global security, the depositary or nominee will be considered
the sole owner or holder of the debt securities represented by the global security. Except as described below, owners of beneficial
interests in a global security will not be entitled to have debt securities registered in their names and will not be entitled
to receive physical delivery of the debt securities in definitive form.
We
will make all payments of principal of, any premium and interest on, and any additional amounts with respect to, debt securities
issued as global securities to the depositary or its nominee. Neither we nor the trustee, any paying agent or the security registrar
assumes any responsibility or liability for any aspect of the depositary’s or any participant’s records relating to,
or for payments made on account of, beneficial interests in a global security.
We
expect that the depositary for a series of debt securities or its nominee, upon receipt of any payment with respect to such debt
securities, will credit immediately participants’ accounts with payments in amounts proportionate to their respective beneficial
interest in the principal amount of the global security for such debt securities as shown on the records of such depositary or
its nominee. We also expect that payments by participants to owners of beneficial interests in such global security held through
such participants will be governed by standing instructions and customary practices, as is now the case with securities held for
the accounts of customers registered in “street name,” and will be the responsibility of such participants.
The
applicable indenture provides that if:
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the
depositary notifies us that it is unwilling or unable to continue as depositary for a series of debt securities, or if the
depositary is no longer legally qualified to serve in that capacity, and we have not appointed a successor depositary within
90 days of written notice;
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we
determine that a series of debt securities will no longer be represented by global securities and we execute and deliver an
order to that effect to the trustee; or
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an
event of default with respect to a series of debt securities occurs and continues;
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the
global securities for that series will be exchanged for registered debt securities in definitive form. The definitive debt securities
will be registered in the name or names the depositary instructs the trustee. We expect that these instructions may be based upon
directions the depositary receives from participants with respect to ownership of beneficial interests in global securities.
TAXATION
The
material Israeli and U.S. federal income tax consequences relating to the purchase, ownership and disposition of any of the securities
offered by this prospectus will be set forth in the prospectus supplement offering those securities.
PLAN
OF DISTRIBUTION
The
securities being offered by this prospectus may be sold:
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through
agents;
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to
or through one or more underwriters on a firm commitment or agency basis;
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through
put or call option transactions relating to the securities;
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to
or through dealers, who may act as agents or principals, including a block trade (which
may involve crosses) in which a broker or dealer so engaged will attempt to sell as agent
but may position and resell a portion of the block as principal to facilitate the transaction;
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through
privately negotiated transactions;
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purchases
by a broker or dealer as principal and resale by such broker or dealer for its own account
pursuant to this prospectus;
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directly
to purchasers, including our affiliates , through a specific bidding or auction process,
on a negotiated basis or otherwise; to or through one or more underwriters on a firm
commitment or best efforts basis;
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exchange
distributions and/or secondary distributions;
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ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
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in “at-the-market” offerings, within the meaning of Rule 415(a)(4) of the Securities Act to or
through a market maker or into an existing trading market, on an exchange or otherwise;
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transactions
not involving market makers or established trading markets, including direct sales or
privately negotiated transactions;
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transactions
in options, swaps or other derivatives that may or may not be listed on an exchange or
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in
any combination of these methods of sale.
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through
any other method permitted pursuant to applicable law; or
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through
a combination of any such methods of sale.
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At
any time a particular offer of the securities covered by this prospectus is made, a revised prospectus or prospectus supplement,
if required, will be distributed which will set forth the aggregate amount of securities covered by this prospectus being offered
and the terms of the offering, including the name or names of any underwriters, dealers, brokers or agents, any discounts, commissions,
concessions and other items constituting compensation from us and any discounts, commissions or concessions allowed or re-allowed
or paid to dealers. Such prospectus supplement, and, if necessary, a post-effective amendment to the registration statement of
which this prospectus is a part, will be filed with the SEC to reflect the disclosure of additional information with respect to
the distribution of the securities covered by this prospectus. In order to comply with the securities laws of certain states,
if applicable, the securities sold under this prospectus may only be sold through registered or licensed broker-dealers. In addition,
in some states the securities may not be sold unless they have been registered or qualified for sale in the applicable state or
an exemption from registration or qualification requirements is available and is complied with.
The
distribution of securities may be effected from time to time in one or more transactions, including block transactions and transactions
on The NASDAQ Capital Market or any other organized market where the securities may be traded. The securities may be sold at a
fixed price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices relating to the prevailing
market prices or at negotiated prices. The consideration may be cash or another form negotiated by the parties. Agents, underwriters
or broker-dealers may be paid compensation for offering and selling the securities. That compensation may be in the form of discounts,
concessions or commissions to be received from us or from the purchasers of the securities. Any dealers and agents participating
in the distribution of the securities may be deemed to be underwriters, and compensation received by them on resale of the securities
may be deemed to be underwriting discounts. If any such dealers or agents were deemed to be underwriters, they may be subject
to statutory liabilities under the Securities Act.
Agents
may from time to time solicit offers to purchase the securities. If required, we will name in the applicable prospectus supplement
any agent involved in the offer or sale of the securities and set forth any compensation payable to the agent. Unless otherwise
indicated in the prospectus supplement, any agent will be acting on a best efforts basis for the period of its appointment. Any
agent selling the securities covered by this prospectus may be deemed to be an underwriter, as that term is defined in the Securities
Act, of the securities.
To the extent that we make sales to or
through one or more underwriters or agents in at-the-market offerings, we will do so pursuant to the terms of a distribution agreement
between us and the underwriters or agents. If we engage in at-the-market sales pursuant to a distribution agreement, we will sell
any of our listed securities to or through one or more underwriters or agents, which may act on an agency basis or on a principal
basis. During the term of any such agreement, we may sell any of our listed securities on a daily basis in exchange transactions
or otherwise as we agree with the underwriters or agents. The distribution agreement will provide that any of our listed securities
which are sold will be sold at prices related to the then prevailing market prices for our listed securities. Therefore, exact
figures regarding proceeds that will be raised or commissions to be paid cannot be determined at this time and will be described
in a prospectus supplement. Pursuant to the terms of the distribution agreement, we also may agree to sell, and the relevant underwriters
or agents may agree to solicit offers to purchase, blocks of our listed securities. The terms of each such distribution agreement
will be set forth in more detail in a prospectus supplement to this prospectus.
If
underwriters are used in a sale, securities will be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale, or under delayed delivery contracts or other contractual commitments. Securities may be offered
to the public either through underwriting syndicates represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. If an underwriter or underwriters are used in the sale of securities, an underwriting agreement
will be executed with the underwriter or underwriters, as well as any other underwriter or underwriters, with respect to a particular
underwritten offering of securities, and will set forth the terms of the transactions, including compensation of the underwriters
and dealers and the public offering price, if applicable. The prospectus and prospectus supplement will be used by the underwriters
to resell the securities.
If
a dealer is used in the sale of the securities, we or an underwriter will sell the securities to the dealer, as principal. The
dealer may then resell the securities to the public at varying prices to be determined by the dealer at the time of resale. To
the extent required, we will set forth in the prospectus supplement the name of the dealer and the terms of the transactions.
We
may directly solicit offers to purchase the securities and may make sales of securities directly to institutional investors or
others. These persons may be deemed to be underwriters within the meaning of the Securities Act with respect to any resale of
the securities. To the extent required, the prospectus supplement will describe the terms of any such sales, including the terms
of any bidding or auction process, if used.
Agents,
underwriters and dealers may be entitled under agreements which may be entered into with us to indemnification by us against specified
liabilities, including liabilities incurred under the Securities Act, or to contribution by us to payments they may be required
to make in respect of such liabilities. If required, the prospectus supplement will describe the terms and conditions of the indemnification
or contribution. Some of the agents, underwriters or dealers, or their affiliates may be customers of, engage in transactions
with or perform services for us or our subsidiaries.
Any
person participating in the distribution of securities registered under the registration statement that includes this prospectus
will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the applicable
SEC rules and regulations, including, among others, Regulation M, which may limit the timing of purchases and sales of any of
our securities by that person. Furthermore, Regulation M may restrict the ability of any person engaged in the distribution of
our securities to engage in market-making activities with respect to our securities. These restrictions may affect the marketability
of our securities and the ability of any person or entity to engage in market-making activities with respect to our securities.
Certain persons participating in an offering
may engage in over-allotment, stabilizing transactions, short-covering transactions, penalty bids and other transactions that stabilize,
maintain or otherwise affect the price of the offered securities. These activities may maintain the price of the offered securities
at levels above those that might otherwise prevail in the open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids, each of which is described below:
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A
stabilizing bid means the placing of any bid, or the effecting of any purchase, for the
purpose of pegging, fixing or maintaining the price of a security.
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A
syndicate covering transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created in connection
with the offering.
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A
penalty bid means an arrangement that permits the managing underwriter to reclaim a selling
concession from a syndicate member in connection with the offering when offered securities
originally sold by the syndicate member are purchased in syndicate covering transactions.
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These
transactions may be effected on an exchange or automated quotation system, if the securities are listed on that exchange or admitted
for trading on that automated quotation system, or in the over-the-counter market or otherwise.
If
so indicated in the applicable prospectus supplement, we will authorize agents, underwriters or dealers to solicit offers from
certain types of institutions to purchase offered securities from us at the public offering price set forth in such prospectus
supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. Such contracts
will be subject only to those conditions set forth in the prospectus supplement and the prospectus supplement will set forth the
commission payable for solicitation of such contracts.
In
addition, ordinary shares, Preferred Shares, or ADSs may be issued upon conversion of or in exchange for debt securities or other
securities.
Any
underwriters to whom offered securities are sold for public offering and sale may make a market in such offered securities, but
such underwriters will not be obligated to do so and may discontinue any market making at any time without notice. The offered
securities may or may not be listed on a national securities exchange. No assurance can be given that there will be a market for
the offered securities.
Any
securities that qualify for sale pursuant to Rule 144 or Regulation S under the Securities Act, may be sold under Rule 144 or
Regulation S rather than pursuant to this prospectus.
To the extent that we make sales to
or through one or more underwriters or agents in at-the-market offerings, we will do so pursuant to the terms of a distribution
agreement between us and the underwriters or agents. If we engage in at-the-market sales pursuant to a distribution agreement,
we will sell our ordinary shares, Preferred Shares, or ADSs to or through one or more underwriters or agents, which may act on
an agency basis or on a principal basis. During the term of any such agreement, we may sell ordinary shares, Preferred Shares,
or ADSs on a daily basis in exchange transactions or otherwise as we agree with the underwriters or agents. The distribution agreement
will provide that any ordinary shares, Preferred Shares, or ADSs sold will be sold at prices related to the then prevailing market
prices for our ordinary shares, Preferred Shares, or ADSs. Therefore, exact figures regarding proceeds that will be raised or
commissions to be paid cannot be determined at this time and will be described in a prospectus supplement. Pursuant to the terms
of the distribution agreement, we also may agree to sell, and the relevant underwriters or agents may agree to solicit offers
to purchase, blocks of our ordinary shares, Preferred Shares, ADSs or warrants. The terms of each such distribution agreement
will be set forth in more detail in a prospectus supplement to this prospectus.
In
connection with offerings made through underwriters or agents, we may enter into agreements with such underwriters or agents pursuant
to which we receive our outstanding securities in consideration for the securities being offered to the public for cash. In connection
with these arrangements, the underwriters or agents may also sell securities covered by this prospectus to hedge their positions
in these outstanding securities, including in short sale transactions. If so, the underwriters or agents may use the securities
received from us under these arrangements to close out any related open borrowings of securities.
We
may enter into derivative transactions with third parties or sell securities not covered by this prospectus to third parties in
privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, such
third parties (or affiliates of such third parties) may sell securities covered by this prospectus and the applicable prospectus
supplement, including in short sale transactions. If so, such third parties (or affiliates of such third parties) may use securities
pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of shares, and may
use securities received from us in settlement of those derivatives to close out any related open borrowings of shares. The third
parties (or affiliates of such third parties) in such sale transactions will be underwriters and will be identified in the applicable
prospectus supplement (or a post-effective amendment).
We
may loan or pledge securities to a financial institution or other third party that in turn may sell the securities using this
prospectus. Such financial institution or third party may transfer its short position to investors in our securities or in connection
with a simultaneous offering of other securities offered by this prospectus or in connection with a simultaneous offering of other
securities offered by this prospectus.
LEGAL
MATTERS
Certain
legal matters with respect to Israeli law and with respect to the validity of the offered securities under Israeli law will be
passed upon for us by Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co., Tel Aviv, Israel. Certain legal matters with respect
to U.S. federal securities law will be passed upon for us by Haynes and Boone LLP, New York, New York.
EXPERTS
The
consolidated financial statements of Kitov Pharmaceuticals Holdings Ltd. as of December 31, 2015 and 2014 and for each of the
years in the three-year period ended December 31, 2015, have been incorporated by reference herein in reliance upon the report
of Somekh Chaikin, a Member Firm of KPMG International, independent registered public accounting firm, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and auditing.
LEGAL
PROCEEDINGS
From
time to time, we may become party to legal proceedings and claims in the ordinary course of business, or otherwise. On December
3, 2015, we announced that we received a lawsuit and motion to approve the lawsuit as a class action lawsuit pursuant to the Class
Action Lawsuits Law 5766-2006 (the “Motion”) which was filed against us and our directors at the Tel Aviv District
Court (Economic Division). The Motion is with respect to asserted claims for damages to the holders of our securities listed on
the Tel Aviv Stock Exchange, arising due to the public offering of our initial public offering of our securities in the U.S. during
November 2015. In the Motion it was claimed that the class the petitioners are seeking to represent, namely, anyone holding our
shares at the start of trading on November 22, 2015 exclusive of the respondents and/or anyone acting on their behalf and/or any
affiliates thereof and excluding anyone whose rights to our shares derive from ADS certificates issued in the U.S to such extent
as derived therefrom; and any holders of our Series 2 TASE listed warrants as of the start of trading on November 22, 2015, exclusive
of the respondents and/or anyone acting on their behalf and/or any affiliates thereof (Purported Class). The total amount claimed
from all defendants, if the Motion is certified as a class action, as set forth in the motion is approximately NIS 16.4 million.
In addition to this amount, the petitioners in the motion are seeking remedies in order to redress discrimination against the
Purported Class owing to the dilution caused by the public offering, including the possibility that the Purported Class should
be awarded from the Company amounts reflecting the losses of the Purported Class from a possible price increase in the shares
of the Company following the announcement of the Phase III clinical trial results.
Under
applicable Israeli law, a motion to approve a lawsuit as a class action initially needs to be approved as such by the court. Only
after such approval is granted by the court, will the court proceed to the second stage of hearing the underlying claims of the
class action lawsuit. We announced that we reject the claims asserted in the Motion. We have delivered our response to the court
in accordance with applicable law, and a preliminary hearing was held by the court on September 12, 2016. At such hearing the
court determined that certain claims of the petitioners in connection with alleged personal interests by affiliates of the Company
in connection with the public offering of our initial public offering of our securities in the U.S. during November 2015 are not
part of the grounds for the Motion and no remedies shall be sought by the petitioners in connection therewith. The court set a
schedule for the submission by the petitioners of a motion for discovery, and any responses to such motion, which have already
been submitted by the parties to the Motion. An additional preliminary hearing was scheduled by the court for February 7,
2017. On November 8, 2016, a shareholder, submitted a request to the court in connection with the Motion to be excluded from the
Purported Class and claiming to have independent causes of action and claims of approximately NIS 1 million (the “Petition
to Exclude”). We responded to the court as required, and, amongst other arguments, we noted that pursuant to the Class Action
Lawsuits Law 5766-2006 and the Regulations enacted thereunder, at the current stage of the court proceedings with respect to the
Motion, such shareholder cannot petition to be excluded from the Purported Class. The court ordered the shareholder to respond
to our response and he has done so. The shareholder has not submitted any independent lawsuit against us, and we are of the view
that such shareholder’s claims are identical to the asserted claims for damages in the Motion.
We
have been advised by our attorneys that the likelihood of the Company not incurring any financial obligation as a result of the
class action (including the Motion and the Petition to Exclude) exceeds the likelihood that the Company will incur a financial
obligation. At this preliminary stage however, we are unable, with any degree of certainty, to make any other evaluations or any
other assessments with respect to the Motion's probability of success or the scope of potential exposure, if any.
Other
than the Motion (including the Petition to Exclude), we are not currently a party to any significant legal or arbitration proceedings
involving any third party, including governmental proceedings pending or known to be contemplated, which may have, or have had
in the recent past, significant effects on the company’s financial position or profitability.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We
have filed with the SEC a registration statement on Form F-3 under the Securities Act relating to the offering of our securities
offered hereby. 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.
We
are required to file reports and other information with the SEC under the Exchange Act, and the regulations thereunder applicable
to foreign private issuers. We also furnish to the SEC under cover of Form 6-K material information required to be made public
in Israel, filed with and made public by any stock exchange or distributed by us to our shareholders. 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, D.C. 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., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an Internet
site 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 this web site at http://www.sec.gov.
In
addition, since our ordinary shares are traded on the TASE, in the past we filed Hebrew language periodic and immediate reports
with, and furnished information to, the TASE and the Israel Securities Authority, or the ISA, as required under Chapter F of the
Israel Securities Law, 1968. In accordance with Section 35XXXIII of the Israel Securities Law, and pursuant to the prior
approvals of our securities holders to change to reporting in accordance with the U.S. securities laws and regulations, and in
accordance with the exemption from reporting under Chapter F of the Law which was received by us from ISA pursuant to Section
35XXXII(1A) of the Law, as of December 31, 2015, we commenced reporting to ISA and the TASE in accordance with the Securities
Regulations (Periodic and Immediate Reports of a Foreign Body Corporate) 5761-2000, promulgated thereunder
(the “Dual-Listed Reporting Requirements”). Pursuant to the Dual-Listed Reporting Requirements, we prepare our periodic
and immediate reports in accordance with U.S. securities laws and reporting requirements. Our major shareholders are required
to make applicable ownership disclosures in accordance with U.S. securities laws and reporting requirements. We generally initially
file or furnish our reports, as applicable, to the SEC. We then submit copies of the SEC filings and submissions to ISA and TASE,
including any filings made by our major shareholders with respect to their holdings in the Company, in accordance with the Dual-Listed
Reporting Requirements. Such copies can be retrieved electronically through the websites for listed company reports of ISA (www.magna.isa.gov.il)
and TASE (maya.tase.co.il).
As a foreign private issuer, we will be exempt from
the rules under the Exchange Act relating to the furnishing and content of proxy statements, and our officers, directors and principal
shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange
Act. As permitted under the Companies Law, and the Notice Regulations which were enacted pursuant to such law, and as set forth
in our amended and restated articles of association, we are not required to physically deliver a notice of a shareholders meeting,
a proxy statement or a voting slip. We prepare notices of general meetings of our shareholders, as well as the accompanying proxy
statements, voting slips and voting instruction forms, (collectively, the “Proxy Materials”) in accordance with applicable
laws, rules and regulations and disclosure requirements in the State of Israel, as such are applicable to a company whose shares
are traded on both the TASE and the NASDAQ, and which reports to the SEC as a foreign private issuer and to ISA and the TASE in
accordance with the Dual-Listed Reporting Requirements. Our Proxy Materials may not necessarily be mailed to our beneficial shareholders
in Israel, nor to our beneficial ADS holders in the U.S. We will furnish to the SEC on Form 6-K the forms of our Proxy Materials,
and they will be made available to the public on the SEC’s website at www.sec.gov. We will also submit the Proxy Materials
to ISA and TASE and they will be made available to the public on their respective websites for listed company reports: www.magna.isa.gov.il
and www.maya.tase.co.il. We will also include the Proxy Materials on our corporate website, to the extent required under the Companies
Law and the applicable regulations enacted thereunder governing publication of notices of general meetings of our shareholders
and the distribution of the Proxy Materials. The circulation of by us of any Proxy Materials should not be taken as an admission
that we are subject to the proxy rules under the Exchange Act.
In
addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently
or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to file with the SEC,
within 120 days after the end of each fiscal year ending December 31, an annual report on Form 20-F containing financial statements
which will be examined and reported on, with an opinion expressed, by an independent registered public accounting firm. Furthermore,
we have committed to the underwriters of our initial U.S public offering which was completed in November 2015 that for a period
of three (3) years from November 25, 2015, the Company, at its expense, will announce its financial information for each of the
first three fiscal quarters consistent with the practices of companies which are dual-listed on both the TASE and a domestic U.S.
securities exchange and report in accordance with the Dual-Listed Reporting Requirements; provided that the foregoing shall not
apply in the event the Company enters into a merger transaction in which the Company is the non-surviving entity that would cause
our ADSs and warrants to no longer be registered under the Exchange Act. We will furnish this periodic information with the SEC
under cover of Form 6-K. The Representative of the underwriters of our initial U.S public offering which was completed in November
2015 previously waived any announcement by us with respect to the filing of financial information for the first quarter of 2016,
and may issue such waivers to us in the future. It is noted that ISA has recently proposed draft legislation which would dispense
with the requirement for the announcement of financial results for each of the first and third fiscal quarters of a calendar year.
We would qualify for such dispensation based on our company size as set forth in the proposed draft legislation. In addition the
SEC has recently announced that it is seeking comment for the dispensation of the requirement for the announcement of financial
results for each of the first and third fiscal quarters for certain U.S. domestic issuers. Thus it remains uncertain as to how
companies dual-listed on both the TASE and a domestic U.S. securities exchange, and report in accordance with the Dual-Listed
Reporting Requirements, will continue their practices with respect to the announcements of financial information for each of the
first and third fiscal quarters, and it is possible that we may adopt practices for the announcement (if any) of financial information
for each of the first and third fiscal quarters which are different than what we have provided in the past.
We
maintain a corporate website at www.kitovpharma.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 will post on our website any materials required to be posted on such website under applicable corporate or securities
laws and regulations, including posting any notices of general meetings of our shareholders.
INCORPORATION
BY REFERENCE
The
SEC allows us to incorporate by reference the information we file with or furnish to the SEC, which means that we can disclose
important information to you by referring you to another document filed or furnished separately with the SEC. The information
incorporated by reference is considered to be part of this prospectus. Any information that we file or furnish later with the
SEC and that is deemed incorporated by reference will also be considered to be part of this prospectus and will automatically
update and supersede the information in this prospectus. In all cases, you should rely on the later information over different
information included in this prospectus. This prospectus incorporates by reference the documents listed below, and any future
Annual Reports on Form 20-F that we file with the SEC and certain Reports on Form 6-K that we furnish to the SEC (but only to
that extent that such Form 6-K states that it is incorporated by reference herein), in each case, between the date of the initial
registration statement and the effectiveness of the registration statement and following the effectiveness of the registration
statement until the offering of the securities under the registration statement is terminated:
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The
description of our ordinary shares, no par value per share, and the American Depositary
Shares representing the ordinary shares, contained in Item 1 of the Registration
Statement on Form 8-A (File No. 001-37643) filed with the Commission on November
18, 2015;
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our
Annual Report on Form 20-F for the fiscal year ended on December 31, 2015, filed with
the SEC on March 18, 2016; and
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our
reports on Form 6-K furnished to the SEC on May 20, 2016, May 24, 2016, May 26, 2016,
June 27, 2016 (2 reports), June 29, 2016, July 5, 2016, July 13, 2016, August 17, 2016
(limited to the text which is found under the headings entitled “Financial Results
for Six Months Ended June 30, 2016” and “Balance Sheet Highlights”,
respectively, in Exhibit 99.1 attached thereto; and, the entire Exhibit 99.2 attached
thereto), September 27, 2016 (film number 161903448 only), October 3, 2016, October 27,
2016, November 2, 2016, December 6, 2016, and December 7, 2016.
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We
will provide, free of charge, to each person, including any beneficial owner, to whom this prospectus is delivered, a copy of
any or all information that has been incorporated by reference into this prospectus, but which has not been delivered with the
prospectus, upon written or oral request to us at the following address:
Kitov
Pharmaceuticals Holdings Ltd.
One
Azrieli Center, Round Tower, 23
rd
Floor
132
Menachem Begin Rd.
Tel
Aviv 6701101, Israel
Tel:
+972-3-9333121
Attention:
Company Secretary
You
should rely only on the information contained or incorporated by reference in this prospectus or a prospectus supplement. We
have not authorized any other person to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus and
any accompanying prospectus supplement, as well as the information we previously filed with the SEC and incorporated by reference,
is accurate only as of the dates on the front cover of those documents, or such earlier date, that is indicated in such documents.
Our business, financial condition, results of operations and prospects may have changed since those dates.
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 prospectus, substantially all of whom reside outside 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 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.
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. If U.S. law
is applicable then it 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 United States 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:
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the
judgments are 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;
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the
prevailing law of the foreign state in which the judgments were rendered allows the enforcement
of judgments of Israeli courts (however, the Israeli courts may waive this requirement
following a request by the attorney general);
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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;
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the
judgments are not contrary to public policy, and the enforcement of the civil liabilities
set forth in the judgment does not impair the security or sovereignty of the State of
Israel;
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the
judgments were not obtained by fraud and do not conflict with any other valid judgment
in the same matter between the same parties;
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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
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the
obligations under the judgment are enforceable according to the laws of the State of
Israel and according to the law of the foreign state in which the relief was granted.
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We
have irrevocably appointed Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, DE 19715 Tel: +1 (302) 738-6680 as
our agent to receive service of process in any action against us in any United States federal or state court arising out of this
offering or any purchase or sale of securities in connection with this offering.
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.
OFFERING
EXPENSES
We
are paying all of the expenses of the registration of our securities under the Securities Act, including, to the extent applicable,
registration and filing fees, printing and duplication expenses, administrative expenses, accounting fees and the legal fees of
our counsel. The following is a statement of estimated expenses at the present time in connection with the distribution of the
securities registered hereby. All amounts shown are estimates except the SEC registration fee. The estimates do not include expenses
related to offerings of particular securities. Each prospectus supplement describing an offering of securities will reflect the
estimated expenses related to the offering of securities under that prospectus supplement.
SEC registration fees
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$
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23,180
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Legal fees and expenses
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$
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20,000
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Accountants fees and expenses
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$
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10,000
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Miscellaneous
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$
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40,000
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Total
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$
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93,180
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2,431,746
American Depositary Shares Representing 48,634,920 Ordinary Shares
Kitov
Pharmaceuticals Holdings Ltd.
PROSPECTUS
SUPPLEMENT
Rodman &
Renshaw
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a
unit of H.C. Wainwright & Co.
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July
11, 2017
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