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¨
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The approximate aggregate market value of the voting and non-voting
common equity held by non-affiliates of the issuer as of June 30, 2018 (the last business day of the registrant’s most
recently completed second fiscal quarter), was $71,031,012.
As of March 28, 2019, the number of shares outstanding of the
registrant's Common Stock, $0.00005 par value per share, was 29,490,610.
PART I
SPECIAL NOTE
Unless otherwise specified in this Annual Report on Form
10-K, all references to currency, monetary values and dollars set forth herein shall mean United States (U.S.) dollars.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Annual Report contains numerous
statements, descriptions, forecasts and projections, regarding Brainstorm Cell Therapeutics Inc. (together with its consolidated
subsidiaries, the “Company,” “Brainstorm,” “we,” “us” or “our”) and
its potential future business operations and performance, including statements regarding the market potential for treatment of
neurodegenerative disorders such as ALS, the sufficiency of our existing capital resources for continuing operations in 2019, the
safety and clinical effectiveness of our NurOwn® technology, our clinical trials of NurOwn® and its related clinical development,
and our ability to develop collaborations and partnerships to support our business plan. In some cases you can identify such “forward-looking
statements” by the use of words like “may,” “will,” “should,” “could,” “expects,”
“hopes,” “anticipates,” “believes,” “intends,” “plans,” “projects,”
“targets,” “goals,” “estimates,” “predicts,” “likely,” “potential,”
or “continue” or the negative of any of these terms or similar words. These statements, descriptions, forecasts and
projections constitute “forward-looking statements,” and as such involve known and unknown risks, uncertainties, and
other factors that may cause our actual results, levels of activity, performance and achievements to be materially different from
any results, levels of activity, performance and achievements expressed or implied by any such “forward-looking statements.”
These risks and uncertainties include, but are not limited to our need to raise additional capital, our ability to continue as
a going concern, regulatory approval of our NurOwn® treatment candidate, the success of our product development programs and
research, regulatory and personnel issues, development of a global market for our services, the ability to secure and maintain
research institutions to conduct our clinical trials, the ability to generate significant revenue, the ability of our NurOwn®
treatment candidate to achieve broad acceptance as a treatment option for ALS or other neurodegenerative diseases, our ability
to manufacture and commercialize our NurOwn® treatment candidate, obtaining patents that provide meaningful protection, competition
and market developments, our ability to protect our intellectual property from infringement by third parties, heath reform legislation,
demand for our services, currency exchange rates and product liability claims and litigation, and other factors described under
“Risk Factors” in this annual report on Form 10-K for the fiscal year ended December 31, 2018. These “forward-looking
statements” are based on certain assumptions that we have made as of the date hereof. To the extent these assumptions are
not valid, the associated “forward-looking statements” and projections will not be correct. Although we believe that
the expectations reflected in these “forward-looking statements” are reasonable, we cannot guarantee any future results,
levels of activity, performance or achievements. It is routine for our internal projections and expectations to change as the year
or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections and beliefs
upon which we base our expectations may change prior to the end of each quarter or the year. Although these expectations may change,
we may not inform you if they do and we undertake no obligation to do so, except as required by applicable securities laws and
regulations. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.
In evaluating our business, prospective investors should carefully consider the information set forth under the caption “Risk
Factors” in this report, in addition to the other information set forth herein and elsewhere in our other public filings
with the Securities and Exchange Commission (“SEC”).
Company Overview
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Brainstorm Cell Therapeutics Inc. is a leading biotechnology
company committed to the development and commercialization of best-in-class autologous cellular therapies for the treatment of
neurodegenerative diseases including: Amyotrophic Lateral Sclerosis (“ALS”, also known as Lou Gehrig’s disease);
Progressive Multiple Sclerosis (“PMS”); and Parkinson’s disease (“PD”).
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NurOwn® leverages proprietary cell culture methods
to induce autologous bone marrow-derived mesenchymal stem cells (MSCs) to secrete high levels of neurotrophic factors (NTFs),
modulate neuroinflammatory and neurodegenerative disease processes, promote neuronal survival and improve neurological function.
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Our wholly-owned Israeli subsidiary, Brainstorm Cell
Therapeutics Ltd. (“Israeli Subsidiary”), holds exclusive rights to commercialize NurOwn® technology through a
licensing agreement with Ramot (“Ramot”), the technology transfer company of Tel Aviv University, Israel.
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NurOwn® has a strong and comprehensive intellectual
property portfolio.
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NurOwn® was granted Fast Track designation by
the U.S. Food and Drug Administration (FDA) and Orphan Drug status by the FDA and the European Medicines Agency (EMA) for ALS.
For more information, visit BrainStorm's website at
www.brainstorm-cell.com
.
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Brainstorm Cell Therapeutics Inc. currently employs
31 employees in the United States and in Israel.
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2018 and Recent Highlights
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The Company has made significant progress in 2018,
advancing the NurOwn
®
ALS Phase 3 clinical trial at all 6 U.S. investigative sites (Mass General Hospital, UMass,
Mayo Clinic, CPMC, Cedars Sinai and UC Irvine). Approximately 50% of the participants in this randomized, double-blind, placebo-controlled,
repeat-dose clinical trial are currently enrolled. This clinical trial builds upon promising efficacy seen in 3 prior early-stage
ALS clinical trials, including a U.S. randomized placebo-controlled Phase 2 trial. We expect to complete NurOwn® ALS Phase
3 study enrollment of US & Canadian ALS trial participants by mid-2019 and the trial is expected to generate data for a BLA
filing to support FDA approval of NurOwn® in ALS.
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The Phase 3 ALS trial pre-specified interim safety
analysis by an independent Data Safety Monitoring Board (DSMB) was successfully completed in August 2018.
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We effectively doubled
our manufacturing capabilities by contracting the (Connell and O'Reilly Families) Cell Manipulation Core Facility (CMCF), at the
Dana-Farber Cancer Institute (DFCI) in Boston as a second U.S. manufacturing site to supply NurOwn
®
and placebo
for the ongoing Phase 3 ALS trial (
www.clinicalTrials.gov
Identifier: NCT03280056) and to support additional clinical indications.
DFCI has decades of cell therapy manufacturing experience and a proven track record of manufacturing NurOwn® for the Company’s
U.S. Phase 2 ALS trial
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The Company was granted FDA approval for its NurOwn
®
IND Application for Progressive Multiple Sclerosis indication (
www.clinicalTrials.gov
Identifier
NCT03799718)
.
In March, 2019, we enrolled the first patient in a Phase 2 open-label, multicenter study of repeated intrathecal administration
of autologous MSC-NTF cells in participants with progressive Multiple Sclerosis (MS), and plan to continue enrolling at 5 leading
U.S. MS centers in the second quarter of 2019.
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The Company received gross cash proceeds of approximately
$12.3 million in a warrant exercise transaction with certain existing Company warrant holders.
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We strengthened our operational and executive teams
in 2018 with the appointment of Susan Ward Ph.D. as Head of Clinical Operations (from Pfizer); Joseph Petroziello as Vice President
of Scientific and Corporate Communications (from Juno); and Arturo Araya in the capacity of Chief Commercial Officer (previously
at Novartis). Mr. Araya served as a member of the Company’s Board of Directors (the “Board”) from February 2017
through November 2018. These individuals were chosen for their deep neuroscience and/or cell therapy experience, significant industry
expertise and long track record of industry achievements.
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Our Board was also strengthened in 2018 with the addition
of Anthony Polverino, Ph.D. Dr. Polverino is EVP, Early Development and Chief Scientific Officer of Zymeworks Inc. Dr. Polverino
is a highly accomplished senior biopharmaceutical executive with more than 25 years' industry experience in drug research and
development. Dr. Polverino replaced Dr. Robert Shorr who left the Board.
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We received Good Manufacturing Practice (GMP) approval
from the Israel Ministry of Health (MoH) for our Israeli contract manufacturing facility at the Hadassah Medical Center in Jerusalem.
The GMP certificate confirms the Company's manufacturing site compliance with Israeli GMPs which are in line with EU standards.
This approval also supports an application to the Israel Ministry of Health (MoH) for the treatment of ALS patients under the
Hospital Exemption regulation. The GMP certificate was granted after a thorough review of the Company’s contract manufacturing
facilities.
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NurOwn
®
Proprietary Technology
NurOwn® technology is based on an innovative
manufacturing protocol, which induces the differentiation of purified and expanded bone marrow-derived mesenchymal stem cells (“MSC”)
and consistently generates cells that release high levels of multiple neurotrophic factors (“MSC-NTF” cells) to modulate
neuroinflammatory and neurodegenerative disease processes, promote neuronal survival and improve neurological function. These factors
are known to be critical for the growth, survival and differentiation of neurons, including: glial-derived neurotrophic factor
(“GDNF”); brain-derived neurotrophic factor (“BDNF”); vascular endothelial growth factor (“VEGF”);
and hepatocyte growth factor (“HGF”), among others. GDNF is one of the most potent survival factors for peripheral
motorneurons. VEGF and HGF have demonstrated important neuroprotective effects in ALS and other neurodegenerative diseases.
NurOwn® manufacturing involves a multi-step
process that includes: harvesting and isolating undifferentiated stem cells from the patient's own bone marrow; processing of cells
at the manufacturing site; cryopreservation to enable multiple treatments from a single bone marrow sample; and intrathecal (“IT”)
injection of MSC-NTF cells into the same patient by standard lumbar puncture. This administration procedure does not require hospitalization
and has been shown to be safe and well tolerated in multiple CNS clinical trials to date. The ongoing NurOwn® U.S. Phase 3
ALS study is evaluating the therapeutic potential of repeated dosing (three doses at bi-monthly intervals).
The proprietary technology and manufacturing
processing of NurOwn® (MSC-NTF cells) for clinical use is conducted in full compliance with current Good Manufacturing Practice
(“cGMP”). The NurOwn® proprietary technology is fully licensed to and developed by Brainstorm Cell Therapeutics
Ltd., our wholly-owned subsidiary (the “Israeli Subsidiary”).
The NurOwn® Transplantation Process
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Bone marrow aspiration from the patient;
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MSC Isolation and propagation;
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MSC Cryopreservation;
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MSC thawing and differentiation into neurotrophic-factor secreting (MSC-NTF; NurOwn®) cells; and
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Autologous transplantation into the patient’s cerebrospinal fluid by IT injection (standard lumbar puncture).
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Differentiation before Transplantation
The ability to induce autologous adult
mesenchymal stem cells into differentiated MSC-NTF cells makes NurOwn® uniquely suited for the treatment of neurodegenerative
diseases.
The specialized MSC-NTF cells secrete multiple
neurotrophic factors and immunomodulatory cytokines that may result in:
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Protection of existing neurons;
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Promotion of neuronal repair;
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Neuronal functional improvement; and
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Immunomodulation and reduced neuroinflammation.
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Autologous (Self-transplantation)
The NurOwn® technology platform is
autologous, using the patient’s own bone-marrow derived stem cells for “self-transplantation.” In autologous
transplantation, there is no introduction of unrelated donor antigens that may lead to alloimmunity, no risk of rejection and no
need for treatment with immunosuppressive agents, which can cause severe and/or long-term side effects. In addition, the use of
adult stem cells is free of several ethical concerns associated with the use of embryonic-derived stem cells in some countries.
The ALS Clinical Program
NurOwn® is currently in a Phase 3 late
stage clinical development program for the treatment of ALS. It has been granted Fast Track designation by the U.S. Food and Drug
Administration (“FDA”) for this indication, and has been granted Orphan Drug Status, in the U.S. and Europe, which
provides the potential for an extended period of exclusivity. We have completed two early stage Phase 1/2 and 2 open-label clinical
trials of NurOwn® in patients with ALS at the Hadassah Medical Center (“Hadassah”) in Jerusalem as well as a Phase 2
double-blind, placebo-controlled, clinical trial at three prestigious U.S. Medical centers, all highly experienced in the management
and investigation of ALS.
Phase 1/2 ALS Open Label Trials
The first two open-label trials were approved
by the Israeli Ministry of Health (“MoH”). The first-in-human trial, a Phase 1 safety and efficacy trial of NurOwn®
administered either intramuscularly or intrathecally in 12 ALS patients, was initiated in June 2011. In the Phase 2 dose-escalating
study, 14 ALS patients were administered NurOwn® by a combined route of intramuscular and intrathecal administration. These
studies demonstrated the safety of NurOwn® by both routes of administration and showed preliminary signs of efficacy.
In January 2016, the results of the two
completed Phase 1/2 study and Phase 2 open label trials were published in JAMA Neurology. This demonstrated a slower rate
of disease progression following MSC-NTF cell transplantation as measured by the ALS Functional Rating Score (“ALSFRS-R”),
the gold standard for the evaluation of ALS functional status, and Forced Vital Capacity (“FVC”), a measure of pulmonary
function, as well as positive trends in the rate of decline of muscle volume and the compound motor axon potential (“CMAPs”).
This was the first published clinical data using autologous mesenchymal stem cells, induced under culture conditions to produce
NTFs, with the potential to deliver a
combined
neuroprotective and immunomodulatory therapeutic effect in ALS and potentially
modify the course of this disease.
Phase 2 ALS Randomized Trial
The Phase 2 U.S. study was conducted under
an FDA Investigational New Drug (“IND”) application. This randomized, double-blind, placebo-controlled multi-center
U.S. Phase 2 clinical trial evaluating NurOwn® in ALS patients was conducted at three clinical sites: (i) the Massachusetts
General Hospital (MGH) in Boston, (ii) Massachusetts Memorial Hospital in Worcester, Massachusetts, and (iii) Mayo Clinic in Rochester,
Minnesota. For this trial, NurOwn® was manufactured at the Connell and O’Reilly Cell Manipulation Core Facility at the
Dana Farber Cancer Institute in Boston and at the Human Cellular Therapy Lab at the Mayo Clinic. In this study, 48 patients were
randomized 3:1 to receive NurOwn® or placebo.
Topline data from this Phase 2 Study were
announced by the Company in July 2016. Further details were presented by investigators Dr. Robert Brown and Dr. James Berry, at
the 15th Annual Meeting of the Northeast ALS Consortium (NEALS) in October 2016 and by Dr. Berry at the 27th International
Symposium on ALS/MND, in Dublin, Ireland, in December 2016. Key findings from the trial were as follows:
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The study achieved its primary objective, demonstrating
that NurOwn® transplantation was safe and well-tolerated. There were no discontinuations from the trial due to AEs and there
were no deaths in the study. The most common adverse events (of mild or moderate severity), were transient procedure-related AEs
such as headache, back pain, pyrexia arthralgia and injection-site discomfort, which were more commonly seen in the NurOwn®-treated
participants compared to placebo.
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NurOwn® achieved multiple secondary efficacy endpoints,
showing evidence of a clinically meaningful benefit. Notably, response rates in the ALS functional rating scale (48-point
ALSFRS-R outcome measure) were higher in NurOwn®-treated participants, compared to placebo, at all study timepoints over 24
weeks.
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A pre-specified
responder analysis
examined percentage
improvements in the post treatment ALSFRS-R slope (change/month) compared to pre-treatment slope and demonstrated that a higher
proportion of NurOwn® treated participants achieved a 100% improvement in the post-treatment vs. pre-treatment slope,
compared to the placebo group. This analysis also demonstrated that a higher proportion of the NurOwn® treated participants
achieved a 1.5 point per month or greater improvement in the post-treatment vs. pre-treatment ALSFRS-R slope, compared to the
placebo group.
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The beneficial treatment effects were greater in the
rapid
progressor subgroup
(in which pretreatment ALSFRS-R declined by 2 or more points in the three months pre-treatment).
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As an important confirmation of NurOwn®’s mechanism
of action, levels of neurotrophic factors and inflammatory markers were measured in the cerebrospinal fluid (“CSF”)
samples collected from participants pre and two weeks post treatment. In the samples of those participants treated with NurOwn®,
statistically significant increases in levels of neurotrophic factors VEGF, HGF and LIF and a statistically significant reduction
in inflammatory markers MCP-1, SDF-1 and CHIT-1 were observed post-transplantation. Furthermore, the observed reduction in inflammatory
markers correlated with ALS functional improvements. These clinical-biomarker correlations were not seen in placebo-treated
participants, consistent with the proposed combined neuroprotective and immunomodulatory mechanism of action of NurOwn® in
ALS.
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In summary, a higher proportion of NurOwn® treated
participants, particularly those with more rapid disease progression, experienced stabilization or improvement in ALS function,
as measured by the post-treatment vs. pre-treatment ALSFRS-R slope change.
These are new and meaningful ALS clinical
observations that are being evaluated in the ongoing Phase 3 study using repeat dosing in ALS rapid progressors.
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Phase 3 ALS Clinical Trial
Following successful completion of the
Phase 2 study, the Company is currently enrolling a Phase 3 trial (a multi-dose double-blind, placebo-controlled, multicenter trial
protocol) that has been designed to generate data to support a Biologic License Application (“BLA”) for NurOwn® in
ALS. The clinical trial is actively enrolling an enriched patient population of rapid progressors (~50% of ALS patients) based
on superior outcomes observed in the Phase-2 pre-specified sub-group.
The primary clinical efficacy outcome measure
is the ALSFRS-R score responder analysis, an outcome that evaluates the proportion of treated participants who achieve a prespecified
level of improvement in the ALSFRS-R post-treatment slope. The Phase 3 trial expands biomarker evaluations to further understand
their potential to predict ALS disease progression, treatment response and confirm the biology of NurOwn® in a larger study
population. The study is being conducted at 6 leading U.S. medical centers, 3 of which participated in the prior Phase 2 study.
Patient enrollment commenced in October 2017, at Massachusetts General Hospital followed by the other 5 study sites, including
University of California Irvine Medical Center, University of Massachusetts Medical Center, Mayo Clinic in Rochester, Minnesota,
the California Pacific Medical Center in San Francisco, and Cedars Sinai Medical Center in Los Angeles. All 6 sites are actively
enrolling study participants.
The independent Data Safety Monitoring
Board (“DSMB”) for the study completed its pre-specified interim analysis of safety outcomes for the first 31 participants
treated with NurOwn® in the Phase 3 trial in ALS (NCT03280056) in August. The DSMB indicated there were no significant
safety concerns and recommended that the trial continue, as planned without any modifications to the study protocol.
Top-line efficacy data is expected in the
first half of 2020. The study is registered at
www.clinicaltrials.gov
(ClinicalTrials.gov Identifier: NCT03280056).
The Company has developed a validated cryopreservation
process for the long-term storage of MSC, that allows multiple doses of NurOwn® to be created from a single bone marrow
harvest procedure in the multi-dose clinical trial and to avoid the need for patients to undergo repeated bone marrow aspiration.
A validation study was conducted in 2017 comparing NurOwn® derived from fresh MSC to those derived from cryopreserved MSC.
Company scientists were successful in showing that the MSC can be stored in the vapor phase of liquid nitrogen for prolonged periods
of time, while maintaining their characteristics. Cryopreserved MSC are capable of differentiating into NurOwn®, similar to
the NurOwn® derived from fresh MSC from the same patient/donor, prior to cryopreservation and maintain their key functional
properties including immunomodulation and neurotrophic factor secretion.
The Company has contracted with City of Hope's Center for Biomedicine and Genetics to produce clinical supplies of NurOwn®
adult stem cells for the ongoing Phase 3 clinical study. City of Hope is currently supporting the production of NurOwn®
and placebo for the participants treated in the Phase 3 trial. The Connell and O’Reilly Cell Manipulation Core Facility at
the Dana Farber Cancer Institute in Boston has also been contracted to manufacture NurOwn® and placebo for Phase 3 clinical
study participants, and commenced manufacturing in October 2018.
Patient Access Programs (ALS)
The Company collaboratively with the Tel
Aviv Sourasky Medical Center (Ichilov Hospital), received an approval for Israel Hospital Exemption regulatory pathway, which was
adopted by the Ministry of Health (MoH) from the European Union regulation, for NurOwn® treatment of ALS. This pathway will
enable the Company to make NurOwn® potentially accessible for ALS patients in Israel, for a fee.
NurOwn in Progressive Multiple Sclerosis
On December 15, 2018 the FDA approved the
Company's IND to conduct a Phase 2 open label trial of repeated intrathecal administration of NurOwn® in progressive MS (www.clinicaltrials.gov
Identifier NCT03799718). This clinical trial will be conducted at 5 leading US MS centers. The trial enrolled the first study participant
in the first quarter of 2019 and is expected to generate top line data in mid-2020.
Non-Dilutive Funding
In July 2017, the Company was awarded a
grant in the amount of $15,912,000 from CIRM to aid in funding the Company’s pivotal Phase 3 study of NurOwn®, for the
treatment of ALS. To date, the Company has received $12,550,000 of the CIRM grant: $7,050,000 was received in 2017 and an
additional $5.5 million was received during 2018. The grant does not bear a royalty payment commitment nor is the grant otherwise
refundable.
In 2017 and 2018, the Company was awarded
aggregate grants of approximately $3.2 million from the Israel Innovation Authority (“IIA”). To date the Company has
received approximately $2 million from IIA, made under the 2018 as well as under previous IIA grants.
Intellectual Property
A key element of the Company’s overall
strategy is to establish a broad portfolio of patents and other methods described below to protect its proprietary technologies
and products. Brainstorm is the sole licensee or assignee of 12 granted patents 2 allowed patents and 19 patent applications
in the United States, Europe, and Israel, as well as in additional countries worldwide, including countries in the Far East and
South America (in calculating the number of granted patents, each European patent validated in multiple jurisdictions was counted
as a single patent).
On January 30, 2018, the U.S. Patent and
Trademark Office (“USPTO”) granted U.S. patent, No. 9,879,225 which claims priority from this same PCT application.
This patent relates to methods of treating ALS and Parkinson's disease using mesenchymal stem cells that secrete neurotrophic factors,
specifically glial derived neurotrophic factor (GDNF).
On June 19, 2018, the Japanese Patent Office
("JPO") issued a decision to Grant notice to a Japanese patent entitled: 'Methods of Generating Mesenchymal Stem Cells
which Secrete Neurotrophic Factors” (Japanese Patent Application number 2015-526006). The Decision to Grant notice
is the final approval stage and precedes actual granting which is expected shortly. When granted, this patent is expected to provide
protection for MSC-NTF cells (NurOwn®) in Japan until 2033. The allowed claims cover a method of generating cells which secrete
brain derived neurotrophic factor (BDNF), glial derived neurotrophic factor (GDNF), hepatocyte growth factor (HGF) and vascular
endothelial growth factor (VEGF).
In July, 2018, the European Patent Office
("EPO") granted a Europe-wide patent for Patent No 2285951, which claims priority from WO 2009/144718. The allowed claims
cover methods of treating ALS using mesenchymal stem cells that secrete neurotrophic factors, including brain derived neurotrophic
factor (BDNF). This patent will provide protection for MSC-NTF cells (NurOwn®) in the EU validated states until 2029.
The Japanese Patent Office ("JPO")
has granted Japanese patent No. 6,362,596, entitled: 'Methods of Generating Mesenchymal Stem Cells which Secrete Neurotrophic Factors”
(sealing date July 6, 2018). This patent will provide protection for MSC-NTF cells (NurOwn®) in Japan until 2033.The allowed
claims cover a method of generating cells which secrete brain derived neurotrophic factor (BDNF), glial derived neurotrophic factor
(GDNF), hepatocyte growth factor (HGF) and vascular endothelial growth factor (VEGF).
In August 2018 the U.S. Patent and Trademark
Office (“USPTO”) granted the following two U.S. patents:
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1.
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US Patent No. 10,046,010 titled 'Methods of Generating
Mesenchymal Stem Cells which Secrete Neurotrophic Factors'. Allowed claims cover the method for generating MSC-NTF cells (NurOwn®)
in industrial amounts for clinical practice. This patent will provide protection for MSC-NTF cells (NurOwn®) in the US until
2033.
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2.
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US Patent No 10,052,363 relates to methods of treating ALS, Parkinson's disease and Huntington
Disease with NurOwn®. This patent will provide protection for MSC-NTF cells (NurOwn®) in the US until 2029.
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On October 10
th
2018 the European
Patent Office allowed the European Patent Application No. 13164650.7 titled “Mesenchymal stem cells for the treatment of
CNS diseases" which claims priority from WO 2009/144718. The allowed claims cover the isolated cells as well as their use
in the manufacture of a medicament for treating a CNS disease or disorder (selected from the group consisting of Parkinson's, multiple
sclerosis, epilepsy, amyotrophic lateral sclerosis, stroke, autoimmune encephalomyelitis, diabetic neuropathy, glaucomatous neuropathy,
Alzheimer's disease and Huntingdon's disease)
In December 2018, the Israel Patent Office
granted a patent titled “Methods of Generating Mesenchymal Stem Cells which Secrete Neurotrophic Factors.” The allowed
claims cover the method of generating the cells, the cells generated according to the method of manufacturing, and the use of the
cells for preparation of a medicament for treating a disease (including a neurodegenerative disease, a neurological and an immune
disease)
Scientific presentations in 2018
On January 19
th
, at the 8
th
Annual California Research Summit at Stanford University in Palo Alto, CA, Brainstorm's Chief Medical Officer, Dr. Ralph Kern,
made an oral presentation entitled, “NurOwn ALS Phase 3 Study Update”.
At the 70
th
Annual American
Academy of Neurology Meeting in Los Angeles CA, Dr. Merit Cudkowicz, Neurology Chair at the Massachusetts General Hospital and
Brainstorm's Chief Operating & Chief Medical Officer, Dr. Ralph Kern made oral scientific presentations on the Phase 2 ALSFRS-R
subscale responder analyses and CSF micro-RNA biomarker analyses, respectively.
On April 29
th
, at the 14
th
Annual ALS Canada Research Forum, Brainstorm's Chief Medical Officer, Dr. Ralph Kern, made a scientific presentation entitled,
“BrainStorm Phase 2 results & Phase 3 setup”.
On August 8
th
, at the Role of
Innate Immunity, Glia, Neurons, and the Blood-Brain Barrier in the Pathogenesis of Neurodegeneration, Gordon Research Conference
in Castelldefels, Spain, Brainstorm's Chief Medical Officer, Dr. Ralph Kern, made a scientific presentation entitled, “Development
of MSC-NTF Cell Exosomes for the Treatment of Neurodegenerative Disease”.
On September 12
th
, Brainstorm's
Chief Medical Officer, Dr. Ralph Kern, presented at the FDA Rare disease workshop in Washington, D.C. Presentation entitled: “ALS
Case Study: Clinical Trial Designs for Small Patient Populations”.
On October 3
rd
, Dr. James Berry
(MGH, Boston) presented a clinical poster entitled, “MicroRNA Changes in the NurOwn® Phase 2 ALS Randomized Clinical
Trial: Relationship to Neuroprotection and Innate Immunity” at the Annual Northeast Amyotrophic Lateral Sclerosis (NEALS)
Conference. The poster won the NEALS' conference 'Best Clinical Poster' award.
On November 7
th
, Brainstorm's Chief Medical Officer,
Dr. Ralph Kern, presented a scientific abstract at the Society for Neuroscience in San Diego CA, entitled ‘Development of
MSC-NTF cell exosomes for the treatment of neurodegenerative diseases’.
On December 7
th
, Dr. Namita Goyal, Associate Clinical
Professor and Director of the Neuromuscular Medicine Fellowship Program for the Department of Neurology at UCI Health, Irvine CA,
presented a scientific abstract entitled, “A Systematic Review of Enrichment Strategies for Current Clinical Trials in ALS,”
in the Clinical Trials and Clinical Designs poster session.
Research and Development
In addition to its active clinical program
in ALS, the Company is focusing on further in-depth molecular and functional characterization of NurOwn®. A study profiling
NurOwn
®
's unique miRNA signature was published in 2017 in
Stem Cell Research & Therapy
. The publication,
entitled "miRNA profiling of NurOwn®: mesenchymal stem cells secreting neurotrophic factors" shows that NurOwn® MSC-NTF
cells induced to secrete neurotrophic factors have both an enhanced secretion of NTFs as well as a distinct miRNA expression profile
that distinguishes them from their MSC of origin. miRNAs have been shown to play critical roles in neuronal and glial cell biological
processes. These findings may form the basis for the development of sensitive identity release assays for clinical trials, in
vivo cell identification assays, and to elucidate MSC-NTF cells' mechanism of action in ALS and other neurodegenerative diseases.
On August 23, 2018 the Company announced a positive Phase 3 interim safety analysis by the Data Safety Monitoring Board (DSMB).
There were no significant safety issues and the DSMB recommended that the trial continue as planned. Confirmation of the safety
of repeated injections in the first cohort of 62 active study subjects is an important milestone for the Company.
The Company is also reviewing the potential
for clinical development of NurOwn® in other neurodegenerative disorders, such as Parkinson’s disease, Huntington’s
disease and Rett syndrome. Research is currently ongoing to develop additional derivative cell products which might be suitable
for multiple neurodegenerative diseases.
For the Phase 3 study in ALS, the Company
has improved the efficiency of NurOwn® production and improved its stability, allowing manufacturing to take place at centralized
clean room facilities from which it is distributed to the clinical trial sites, where the cells are then administered to patients.
The Company is also engaged in several research initiatives to further improve and scale-up manufacturing capacity and extend the
shelf life of NurOwn®.
Corporate Information
We are incorporated under the laws of the
State of Delaware. Our principal executive offices are located at 1325 Avenue of Americas, 28
th
Floor, New York, NY
10019, and our telephone number is (201) 488-0460. We maintain an Internet website at
http://www.brainstorm-cell.com
.
The information on our website is not incorporated into this Annual Report on Form 10-K.
History
In 2004, the Company entered into a research
and license agreement with Ramot to acquire certain stem cell technology, commenced development of novel cell therapies for neurodegenerative
diseases, and discontinued its previous business selling digital data recorders. The Company was incorporated in the State of Delaware
on November 15, 2006, and previously was incorporated in the State of Washington. In October 2004, the Company formed its wholly-owned
subsidiary, Brainstorm Cell Therapeutics Ltd. In Israel. On February 19, 2013, the Israeli Subsidiary formed its wholly-owned subsidiary,
Brainstorm Cell Therapeutics UK Ltd., in the United Kingdom and on June 21, 2018, the Israeli Subsidiary formed its wholly-owned
subsidiary, Advanced Cell Therapies Ltd. A reverse stock split of the Company’s shares of Common Stock by a ratio of 1-for-15
was effected after market close on September 15, 2014, in connection with the September 30, 2014 listing of the Company’s
Shares of Common Stock on the NASDAQ Capital Market. Unless otherwise indicated, all share numbers and exercise prices in this
Annual Report on Form 10-K are split-adjusted.
The Company’s Common Stock trades
on the NASDAQ Capital Market under the ticker symbol “BCLI.”
Company Business Strategy
Our business strategy is to develop and
commercialize NurOwn® for the treatment of neurodegenerative disease. The highest company priority is rapid execution of the
U.S. randomized, double-blind, placebo-controlled ALS Phase 3 trial and initiation of the Phase 2 clinical trial in progressive
MS. Both clinical programs are expected to read out in mid-2020.
We are also leveraging strong existing
pre-clinical data in several neurodegenerative diseases, to advance innovative IND-enabling pre-clinical programs in several neurodegenerative
disease and we are engaging scientific and regulatory experts and our scientific advisory board to identify and pursue the most
attractive scientific, clinical and business opportunities. The Company is actively engaged in several ongoing development projects
with the goal of increasing the scale and efficiency of NurOwn® manufacturing. We are also preparing our manufacturing and
supply chain systems for commercial launch.
Therefore, our core business strategy is
to fully execute the Phase 3 Clinical Trial, generate the highest quality clinical trial data and submit a BLA for NurOwn®
in ALS. We may also choose to seek a strategic partnership with a pharmaceutical or biotechnology company for the global commercialization
of NurOwn® for ALS, or to support the execution of additional BLA-enabling clinical programs in other neurodegenerative diseases.
NurOwn
®
in CNS Disease
We are strategically focused on fully executing the clinical
development of NurOwn® in ALS and progressive MS as well as continuing our pre-clinical evaluation of the NurOwn® technology
platform in other CNS disorders based on a broad preclinical experience in ALS, Parkinson’s Disease, Huntington’s Disease,
MS and Autism.
Amyotrophic Lateral Sclerosis (ALS)
ALS, often referred to as “Lou Gehrig's
disease,” is a progressive neurodegenerative disease that primarily affects motor nerve cells in the brain and the spinal
cord. Motor neurons reach from the brain to the spinal cord and from the spinal cord to the muscles throughout the body. The progressive
degeneration of the motor neurons in ALS patients lead to progressive weakness, respiratory failure and eventually, death. The
median survival for ALS patients is between 2 and 5 years from the onset of symptoms. Across the world, the prevalence of ALS is
approximately 4-7 per 100,000. It is estimated that as many as 30,000 Americans have the disease at any given time, with about
51,000 individuals affected in the territory of the European Single Market. Estimated annual treatment and health care costs for
advanced stage patients can be as high as $100,000-$200,000 per annum.
Treatment decisions are typically determined
by the patient's symptoms, preferences and the stage of the disease. Approved disease modifying medications include:
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Riluzole
–approved by the FDA to treat ALS. Riluzole extends the time to death or ventilation by several months; however, it has
not been shown to improve the daily functioning of ALS patients.
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Radicava
(Edaravone) – a free radical scavenger- recently approved by FDA (May 2017) based on a single Phase 3 study carried out
in Japan.
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Progressive Multiple Sclerosis (PMS)
Progressive Multiple
Sclerosis (PMS) is characterized by the relentless accumulation of central nervous system injury due to peripheral and compartmentalized
inflammation, demyelination, axonal damage, and neuronal degeneration and results in increasing motor, visual, and cognitive impairment
and significant disability that impacts daily living, employment, and socioeconomic status. There is currently no effective regenerative
therapy for this disabling disease that affects approximately one million individuals in the US.
There are currently over 2.3 million
people with MS worldwide, with roughly 1 million of these patients located in the U.S. Over 10,000 new cases are diagnosed annually
in the U.S., mostly affecting women between the ages of 20 and 50. Annual drug treatment costs for MS can be as much as $80,000
a year per patient.
The lack of safe and effective therapies in progressive MS,
the intrinsic immunomodulatory properties of MSC-NTF cells and the potential of MSC-NTF secreted neurotrophic factors to promote
neuronal repair and remyelination makes NurOwn® an attractive treatment option to evaluate in PMS.
Parkinson’s Disease (PD)
PD is a chronic, progressive neurodegenerative disorder in which
dopamine-producing neurons residing in the Substantia Nigra region of the brain undergo degeneration and eventually die, resulting
in progressive impairment in movement and gait. Multiple other cell types throughout the central and peripheral autonomic nervous
system are also involved and the disease is associated with many non-motor symptoms that add to overall disability. The cause of
the disease is presently unknown.
PD is the second-most common neurodegenerative disorder.
Over 7 million people worldwide suffer from PD, of whom about one million are in the United States. Most people are diagnosed with
the disease between the ages of 55 and 65 and about 85% of people with PD are over the age of 65. Prevalence of PD is increasing
in line with the general aging of the population. The total economic burden of the disease has been estimated by the National Parkinson
Foundation to exceed $14 billion annually in the U.S. alone.
Treatment of PD primarily comprises symptomatic
treatment through dopamine replacement, either directly (Levodopa), with dopamine mimetics or by inhibition of its breakdown. These
treatments focus on treating the symptoms of the disease and are not a cure for PD. Levodopa has a propensity to cause serious
motor response complications with long-term use such as on-off phenomenon, motor fluctuations and involuntary movements. Moreover,
effective drug dosage often requires gradual increase, leading to more adverse side effects and eventual resistance to its therapeutic
action. This greatly limits patient benefit. Therefore, physicians and researchers have sought Levodopa-sparing strategies in patients
with early-stage disease to delay the need for Levodopa.
PD is also treated by Deep Brain Stimulation
(“DBS”), which consists of implanting electrodes deep into the brain to provide permanent electrical stimulation to
specific areas of the brain and to cause a delay in the activity in those areas. However, DBS is problematic as it may be associated
with significant treatment morbidity such as bleeding in the brain, infection and depression. In addition, similar to drug therapy,
DBS focuses on treating the symptoms of PD and does not provide a cure.
There is a great unmet need for novel approaches
towards the effective management of PD and the MSC-NTF cell technology platform represents a promising approach.
Intellectual Property
We are committed to the protection of our
technology and intellectual property with patents and other methods described below.
We are the sole licensee or assignee of
12 granted patents 2 allowed patents and 21 patent applications in the United States, Europe, and Israel, as well as in additional
countries worldwide, including countries in the Far East and South America (in calculating the number of granted patents, each
European patent validated in multiple jurisdictions was counted as a single patent).
On June 18, 2006, an International Patent
Application (Publication No. WO 2006/134602) was filed entitled "Isolated Cells and Populations Comprising Same for the Treatment
of CNS Diseases." National phase applications were filed in many jurisdictions including US and Europe. On February 11, 2014,
the U.S. Patent and Trademark Office (“USPTO”) granted US patent, 8,647,874 which claims priority from this PCT application.
This patent relates to the production method of the Company's proprietary stem cells induced to secrete large quantities of neurotrophic
factors.
On September 3, 2014, a European patent
was granted by the European Patent Office (“EPO”) which claims priority from WO 2006/134602. This patent (Pat.
No. 1893747), has been validated in the following European countries: CH, CZ, DE, DK, ES, FR, GB, IE, IT and NL. The granted
claims relate to the method of generating the cells.
On January 30, 2018, the U.S. Patent and
Trademark Office (“USPTO”) granted US patent, No. 9,879,225 which claims priority from this same PCT application This
patent relates to methods of treating amyotrophic lateral sclerosis (ALS) and Parkinson's disease using mesenchymal stem cells
that secrete neurotrophic factors, specifically glial derived neurotrophic factor (GDNF).
On May 26, 2009, an International Patent
Application (Publication No. WO 2009/144718) was filed entitled "Mesenchymal stem cells for the treatment of CNS diseases".
National phase applications were filed in US, Europe and Israel.
On March 4, 2014, we were granted U.S.
Patent (No. 8,663,987) which claims priority from WO 2009/144718. The claims of this granted patent relate to the composition of
cells.
A divisional patent application therefrom
was granted as US Patent No. 8,900,574 on December 2, 2014. The claims of this granted patent relate to a method of treating neurodegenerative
disorders by administering MSC-derived cells which secrete BDNF and do not secrete bNGF. The neurodegenerative diseases include
Parkinson’s disease, amyotrophic lateral sclerosis (ALS) and Huntingdon’s disease.
A subsequent divisional patent application
therefrom was granted on October 25, 2016 as United States Patent No. 9,474,787 titled "Mesenchymal Stem Cells for the
Treatment of CNS Diseases. The granted claims cover mesenchymal stem derived-cells that secrete neurotrophic factors, including
brain-derived neurotrophic factor (BDNF) and glial derived neurotrophic factor (GDNF), as well as pharmaceutical compositions comprising
these factors.
In September 2015, we were granted patent
No. 209604 by Israel’s Patent Office for our application titled “Mesenchymal stem cells for the treatment of CNS diseases
" which claims priority from WO 2009/144718. The claims cover the cell composition itself, the method of generating and the
use of the cells for treating any CNS disease or disorder.
In July, 2018, the European Patent Office
("EPO") granted a Europe-wide patent for Patent No 2285951, which claims priority from WO 2009/144718. The allowed claims
cover methods of treating ALS using mesenchymal stem cells that secrete neurotrophic factors, including brain derived neurotrophic
factor (BDNF). This patent will provide protection for MSC-NTF cells (NurOwn®) in the EU validated states until 2029.
In August, 2018, the USPTO granted US Patent
No 10,052,363 which relates to methods of treating ALS, Parkinson's disease and Huntington Disease with NurOwn®. This patent
will provide protection for MSC-NTF cells (NurOwn®) in the US until 2029.
On August 6, 2013, an International Patent
Application (Publication No. WO 2014/024183) was filed entitled "Methods of generating Mesenchymal stem cells which secrete
neurotrophic factors". National phase applications were filed in the US, Europe, Hong Kong, Canada, Brazil, Japan and Israel.
On July 6, 2018, the Japanese Patent Office
("JPO") granted Japanese patent No. 6,362,596, entitled: 'Methods of Generating Mesenchymal Stem Cells which Secrete
Neurotrophic Factors” which claims priority from WO 2014/024183. This patent will provide protection for MSC-NTF cells (NurOwn®)
in Japan until 2033.The allowed claims cover a method of generating cells which secrete brain derived neurotrophic factor (BDNF),
glial derived neurotrophic factor (GDNF), hepatocyte growth factor (HGF) and vascular endothelial growth factor (VEGF).
On August 24, 2018, the U.S. Patent and
Trademark Office (“USPTO”) granted US Patent No. 10,046,010 titled 'Methods of Generating Mesenchymal Stem Cells which
Secrete Neurotrophic Factors'. Allowed claims cover the method for generating MSC-NTF cells (NurOwn®) in industrial amounts
for clinical practice. This patent will provide protection for MSC-NTF cells (NurOwn®) in the US until 2033.
On October 10
th
2018 the European
Patent Office allowed the European Patent Application No. 13164650.7 titled “Mesenchymal stem cells for the treatment of
CNS diseases" which claims priority from WO 2009/144718. The allowed claims cover the isolated cells as well as their use
in the manufacture of a medicament for treating a CNS disease or disorder (selected from the group consisting of Parkinson's, multiple
sclerosis, epilepsy, amyotrophic lateral sclerosis, stroke, autoimmune encephalomyelitis, diabetic neuropathy, glaucomatous neuropathy,
Alzheimer's disease and Huntingdon's disease)
On December 21, 2018, the Israel Patent
Office granted patent No. 237124 titled 'Methods of Generating Mesenchymal Stem Cells which Secrete Neurotrophic Factors'. Allowed
claims cover the isolated population of cells, the method of manufacturing the cells, and the use of the isolated population of
cells for preparation of a medicament for treating a disease (consisting of a neurodegenerative disease, a neurological disease
and an immune disease etc.).
Additional PCT patent applications have
been filed and National phase applications are currently under examination in several jurisdictions worldwide. Specifically, International
Patent Application WO2015/121859 was filed on February 11, 2015, and WO 2018/015945 was filed on July 13, 2017.
The following table provides a description
of our key patents and patent applications and is not intended to represent an assessment of claims, limitations or scope. In some
cases, a jurisdiction is listed as both pending and granted for a single patent family. This is due to pending continuation or
divisional applications of the granted case.
Patent Name/ Int. App. No.
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Pending Jurisdictions
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Allowed
Jurisdictions
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Granted
Jurisdictions
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Expiry
Date
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Isolated Cells and Populations Comprising Same for the Treatment of CNS Diseases/PCT/IL2006/000699
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US
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Europe, US
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2030
|
Mesenchymal Stem Cells for The Treatment of CNS Diseases PCT/ IL2009/000525
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US, Hong Kong
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Europe, Hong Kong
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US, Israel,
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2032
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Methods of Generating Mesenchymal Stem Cells which Secrete Neurotrophic Factors / PCT/IL2013/050660
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US
,
Europe
,
Hong Kong, Israel, Canada, Brazil, Japan
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US
,
Japan
,
Israel, Europe
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2038
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Method of Qualifying Cells /PCT IL2015/050159
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US
,
Europe
,
Hong Kong, Israel, Canada, Brazil, Japan
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2040
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Methods of treating ALS PCT/IL2017/050801
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PCT
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2042
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Trademarks
NurOwn® is a registered trademark (application
no. 85154891, filed October 18, 2010) for use in connection with “compositions of cells derived from stem cells for medical
purposes; stem cells for medical purposes.” US Trademark No. 4641441 for NurOwn® was registered on November 18, 2014.
The patent applications, as well as relevant
know-how and research results are licensed from Ramot. We intend to work with Ramot to protect and enhance our mutual intellectual
property rights by filing continuations and divisional patent applications. New discoveries arising in the course of research and
development within the Company were and will be patented by us independently.
Research and License Agreement with
Ramot
The Company has maintained a commercial
relationship with Ramot, the technology transfer group within Tel Aviv University, since July 2004, when the Company and Ramot
entered into a Research and License Agreement (the “Original Agreement”). The Original Agreement was amended
in both March and May of 2006, when the parties signed, respectively, an Amended and Restated Research and License Agreement (the
“Amended and Restated Agreement”) and Amendment Number 1 to the Amended and Restated Agreement. Thereafter, the Company
and Ramot entered into a Letter Agreement in December 2009 which further amended the Amended and Restated Agreement by releasing
the Company from various duties and obligations (including the Company’s commitment to fund three (3) years of additional
Ramot research - a financial commitment of $1,140,000), while converting other payments due and owing to Ramot by the Company into
shares of Common Stock. In December 2011, the Company assigned the Amended and Restated Agreement (as amended) to its Israeli
Subsidiary with the consent of Ramot, provided the Company agreed to guaranty the performance obligations of its Israeli Subsidiary
thereunder. The Amended and Restated Agreement was amended in both April 2014 (Amendment Number 2) and March 2016 (Amendment
Number 3).
In addition to the foregoing, on April 30, 2014, the Israeli
Subsidiary executed a consulting agreement (the “Offen Consulting Agreement”) with Professor Offen of Tel Aviv University,
which expressly replaced their previous agreement (signed in July 2004). Pursuant to the Offen Consulting Agreement, Professor
Offen granted our Israeli Subsidiary exclusive rights, title and interest in and to all work product and deliverables resulting
from the provision of his services thereunder, except that any new intellectual property arising from this agreement would be deemed
a joint invention that is jointly owned by both our Israeli Subsidiary and Ramot. No joint inventions resulted from this consulting
agreement and it was terminated on January 18, 2018.
The primary focus of our agreements (and
subsequent amendments) with Ramot has and continues to be the commissioning of a group of scientists within Tel Aviv University
to carry out research in the area of the stem-cell technology referenced above, and the granting of rights to the Company (and
later our Israeli Subsidiary, after the assignment referenced above) in the inventions, know-how and results procured from such
research (the “Ramot IP”).
In consideration for the rights granted
to our Israeli Subsidiary in and to the Ramot IP, our Israeli Subsidiary is required to pay Ramot royalties ranging between three
percent (3%) and five percent (5%) of all net sales realized from the exploitation of the Ramot IP, as well as remittances of between
twenty percent (20%) and twenty-five percent (25%) on revenues received from the sub-licensing of the Ramot IP.
Pursuant to the third amendment of the
Amended and Restated Agreement referenced above, Ramot agreed to convert the exclusive licenses then-existing, to outright transfers
and assignments of the Ramot IP, thereby granting our Israeli Subsidiary ownership thereof.
Government Regulation and Product Approval
Once fully developed, we intend to market
our bone marrow derived differentiated neurotrophic-factor secreting cell products, NurOwn®, for autologous transplantation
in patients by neurosurgeons in medical facilities in the U.S., Europe, Japan and Israel.
In January 2013, the EMA Committee for
Advanced Therapies designated NurOwn® as an Advanced Therapy Medicinal Product.
U.S. Drug Development Process
The FDA regulates drugs under the Federal
Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. Drugs are also subject to other federal, state and local statutes
and regulations. Biologics are subject to regulation by the FDA under the FDCA, the Public Health Service Act, or the PHSA, and
related regulations and other federal, state and local laws and regulations. Biological products include a wide variety of products
including vaccines, blood and blood components, gene therapies, tissue and proteins. Unlike most prescription products made through
chemical processes, biological products generally are made from human and/or animal materials. To be lawfully marketed in interstate
commerce, a biologic product must be the subject of a Biological License Application (“BLA”), issued by the FDA on
the basis of a demonstration that the product is safe, pure and potent, and that the facility in which the product is manufactured
meets standards to assure that it continues to be safe, pure and potent. The FDA has developed and is continuously updating the
requirements with respect to cell and gene therapy products and has issued documents concerning the regulation of cellular and
tissue-based products. Manufacturers of cell and tissue-based products must comply with the FDA’s current good tissue practices,
or cGTP, which are FDA regulations that govern the methods used in, and the facilities and controls used for, the manufacture of
such products. The primary intent of the cGTP requirements is to ensure that cell and tissue-based products are manufactured in
a manner designed to prevent the introduction, transmission and spread of communicable disease.
The process of obtaining regulatory approvals
and ensuring compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of
substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product
development process, approval process, or after approval, may subject an applicant to administrative or judicial sanctions. These
sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning
letters, product recalls, product seizures, product detention, total or partial suspension of production or distribution, injunctions,
fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. The process required by the
FDA before a biological product or drug may be marketed in the United States generally involves the following:
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Completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices or other regulations;
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Submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;
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Performance of adequate and well-controlled clinical trials according to Good Clinical Practices, or GCP, to establish the safety and efficacy of the proposed biological product or drug for its intended use;
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Submission to the FDA of a new drug application, or NDA, for a new drug; or a biologic license application for a new biological product;
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Satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with Good Manufacturing Practices, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the drug’s or biologic’s identity, strength, quality and purity; and
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FDA review and approval of the BLA or NDA.
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The testing and approval process require
substantial time, effort and financial resources and we cannot be certain that any approvals for our stem cell therapies will be
granted on a timely basis, if at all.
All clinical trials must be conducted under
the supervision of one or more qualified investigators in accordance with GCP regulations. These regulations include the requirement
that all research subjects provide informed consent. Further, an institutional review board, or IRB, must review and approve the
plan for any clinical trial before it commences at any institution. An IRB considers, among other things, whether the risks to
individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves
the information regarding the clinical trial and the consent form that must be provided to each clinical trial subject or his or
her legal representative and must monitor the clinical trial until completed. Once an IND is in effect, each new clinical protocol
and any amendments to the protocol must be submitted to the IND for FDA review, and to the IRBs for approval.
Human clinical trials are typically conducted
in three sequential phases that may overlap or be combined:
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Phase 1.
The product is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing may be conducted in patients having the specific disease.
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Phase 2.
Phase 2 trials involve investigations in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and the optimal dosage and schedule.
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Phase 3.
Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for regulatory approval and product labeling.
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Post-approval studies, also called Phase
4 trials, may be conducted after initial marketing approvals. These studies are used to obtain additional experience from the treatment
of patients in the intended therapeutic indication and may be required by the FDA as part of the approval process.
Progress reports detailing the results
of the clinical trials must be submitted at least annually to the FDA and safety reports must be submitted to the FDA and the investigators
for serious and unexpected side effects. Phase 1, Phase 2 and Phase 3 testing may not be completed successfully within any specified
period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a
finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend
or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the
IRB’s requirements or if the stem cell therapy has been associated with unexpected serious harm to patients.
Concurrent with clinical trials, companies
usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics
of the product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements.
The manufacturing process must be capable of consistently producing quality batches of the stem cell therapy and, among other things,
the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally,
appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the stem cell therapy
does not undergo unacceptable deterioration over its shelf life.
The results of product development, preclinical
studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the stem cell
therapy, proposed labeling and other relevant information, are submitted to the FDA as part of an NDA or BLA, requesting approval
to market the product. The submission of an NDA or BLA is subject to the payment of substantial user fees which may be waived under
certain limited circumstances.
The approval process is lengthy and difficult
and the FDA may refuse to approve a BLA or NDA if the applicable regulatory criteria are not satisfied or may require additional
clinical data or other data and information.
If a product receives regulatory approval,
the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited,
which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings
or precautions be included in the product labeling. In addition, the FDA may require Phase 4 testing which involves clinical trials
designed to further assess a drug’s or biologic’s safety and effectiveness after BLA or NDA approval and may require
testing and surveillance programs to monitor the safety of approved products that have been commercialized.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may
grant orphan designation to a stem cell therapy intended to treat a rare disease or condition, which is generally a disease or
condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States
and for which there is no reasonable expectation that the cost of developing and making a stem cell therapy available in the United
States for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested
before submitting an NDA or BLA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its
potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten
the duration of the regulatory review and approval process. However, orphan product designation does provide the potential for
a period of exclusivity and we may be eligible for grant funding of up to $400,000 per year for four years to defray costs of clinical
trial expenses, tax credits for clinical research expenses and potential exemption from the FDA application user fee.
If a product that has orphan designation
subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled
to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same stem cell therapy
for the same indication for seven years, except in limited circumstances, such as (i) the drug’s orphan designation is revoked;
(ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval of another applicant’s
product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient quantity of drug; or (v) a showing
of clinical superiority to the product with orphan exclusivity by a competitor product. Competitors, however, may receive approval
of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but
for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval
of one of our products for seven years if a competitor obtains approval of the same stem cell therapy as defined by the FDA or
if our stem cell therapy is determined to be contained within the competitor's product for the same indication or disease. If a
stem cell therapy designated as an orphan product receives marketing approval for an indication broader than what is designated,
it may not be entitled to orphan product exclusivity. Orphan drug status in the European Union has similar but not identical benefits
in the European Union.
In February 2011, we received Orphan Drug
Designation for NurOwn® for the treatment of ALS in the United States. In July 2013, we received Orphan Medicinal Product Designation
for NurOwn® for the treatment of ALS from the European Commission. Orphan designation grants a 10-year marketing exclusivity
in the EU for the designated indication, as well as several other regulatory incentives.
Patent Term Restoration and Marketing
Exclusivity
Depending upon the timing, duration and
specifics of FDA marketing approval of our stem cell therapies, some of our U.S. patents may be eligible for limited patent term
extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments.
The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product
development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent
beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the
time between (a) the effective date of an IND and the submission date of a BLA or an NDA plus (b) the time between the submission
date of a BLA or an NDA and the approval of that application. Only one patent applicable to an approved stem cell therapy is eligible
for the extension and the application for the extension must be submitted prior to the expiration of the patent and within 60 days
of approval of the stem cell therapy. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves
the application for any patent term extension or restoration.
Post-Approval Requirements
Any drugs for which we receive FDA approval
are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse
effects with the product, reporting of changes in distributed products which would require field alert reports (“FARs”)
for drugs and biological product deviation reports (“BPDRs”), providing the FDA with updated safety and efficacy information,
product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying
with FDA promotion and advertising requirements. In September 2007, the Food and Drug Administration Amendments Act of 2007 was
enacted, giving the FDA enhanced post-marketing authority, including the authority to require post marketing studies and clinical
trials, labeling changes based on new safety information, and compliance with risk evaluations and mitigation strategies, or REMS,
approved by the FDA. The FDA strictly regulates labeling, advertising, promotion and other types of information on products that
are placed on the market. Drugs and biologics may be promoted only for the approved indications and in accordance with the provisions
of the approved label. Further, manufacturers of drugs and biologics must continue to comply with cGMP requirements, which are
extensive and require considerable time, resources and ongoing investment to ensure compliance. In addition, changes to the manufacturing
process generally require prior FDA approval before being implemented and other types of changes to the approved product, such
as adding new indications and additional labeling claims, are also subject to further FDA review and approval.
Drug and biologic manufacturers and other
entities involved in the manufacturing and distribution of approved drugs and biologics are required to register their establishments
with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies
for compliance with cGMP, GTP applicable to biologics, and other laws. The cGMP requirements apply to all stages of the manufacturing
process, including the production, processing, sterilization, packaging, labeling, storage and shipment of the drug. Manufacturers
must establish validated systems to ensure that products meet specifications and regulatory standards, and test each product batch
or lot prior to its release.
The FDA may withdraw a product approval
if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Discovery
of previously unknown problems with a product subsequent to its approval may result in restrictions on the product or even complete
withdrawal of the product from the market. Further, the failure to maintain compliance with regulatory requirements may result
in administrative or judicial actions, such as fines, warning letters, holds on clinical trials, product recalls or seizures, product
detention or refusal to permit the import or export of products, refusal to approve pending applications or supplements, restrictions
on marketing or manufacturing, injunctions or civil or criminal penalties.
From time to time, legislation is drafted,
introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing
and marketing of products regulated by the FDA. In addition to new legislation, the FDA regulations and policies are often revised
or reinterpreted by the agency in ways that may significantly affect our business and our stem cell therapies. It is impossible
to predict whether further legislative or FDA regulation or policy changes will be enacted or implemented and what the impact of
such changes, if any, may be.
Foreign Regulation
In addition to regulations in the United
States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution
of our stem cell therapies to the extent we choose to clinically evaluate or sell any products outside of the United States. Whether
or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign
countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from
country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. As in the United States,
post-approval regulatory requirements, such as those regarding product manufacture, marketing, or distribution would apply to any
product that is approved outside the United States.
Third Party Payor Coverage and Reimbursement
Coverage and reimbursement status of any
approved therapy carries uncertainty and risk. In both the United States and foreign markets, our ability to commercialize our
stem cell therapies successfully, and to attract commercialization partners for our stem cell therapies, depends in significant
part on the availability of adequate financial coverage and reimbursement from third party payors, including, in the United States,
governmental payors such as the Medicare, Medicaid and the Ventrans Affairs Health programs. and private health insurers. Medicare
is a federally funded program managed by the Centers for Medicare and Medicaid Services, or CMS, through local fiscal intermediaries
and carriers that administer coverage and reimbursement for certain healthcare items and services furnished to the elderly and
disabled. Medicaid is an insurance program for certain categories of patients whose income and assets fall below state defined
levels and who are otherwise uninsured that is both federally and state funded and managed by each state. The federal government
sets general guidelines for Medicaid and each state creates specific regulations that govern its individual program. Each payor
has its own process and standards for determining whether it will cover and reimburse a procedure or particular product. Private
payors often rely on the lead of the governmental payors in rendering coverage and reimbursement determinations. Therefore, achieving
favorable CMS coverage and reimbursement is usually a significant gating issue for successful introduction of a new product. The
competitive position of some of our products will depend, in part, upon the extent of coverage and adequate reimbursement for such
products and for the procedures in which such products are used. Prices at which we or our customers seek reimbursement for our
stem cell therapies can be subject to challenge, reduction or denial by the government and other payors.
Possible legislation at the Federal and
State levels in the United States focused on cost containment and price transparency may impact our ability to sell our stem cell
therapies for maximum profitably. It appears likely that the pressure on pharmaceutical pricing will continue, especially under
the Medicare program, which may also increase our regulatory burdens and operating costs. Moreover, additional changes could be
made to governmental healthcare programs that could significantly impact the success of our stem cell therapies.
The 21st Century Cures Act and its regenerative
medicine provisions may be beneficial to the development of our stem cell therapy. The 21st Century Cures Act was signed
into law on Dec. 13, 2016. The goal of this landmark legislation is to accelerate the discovery, development, and delivery
of new treatments. It includes regenerative medicines provisions aimed at bringing new innovations and advances to patients
quicker and more efficiently. On Nov. 16, 2017, the US Food and Drug Administration (FDA) issued a comprehensive regenerative
medicine policy framework. The draft guidance issued by the FDA defines the regenerative medicine provisions in the 21st
Century Cures Act by providing additional information to further the development and access to innovative regenerative medicine
therapies.
The cost of pharmaceuticals continues to
generate substantial governmental and third-party payor interest. We expect that the pharmaceutical industry will experience pricing
pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative
proposals. Our results of operations could be adversely affected by current and future healthcare reforms.
Some third-party payors also require pre-approval
of coverage for new or innovative devices, biologics or drug therapies before they will reimburse healthcare providers that use
such therapies. While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented
in the future, the announcement or adoption of these proposals could have a material adverse effect on our ability to obtain adequate
prices for our stem cell therapies and operate profitably.
Different pricing and reimbursement schemes
exist in other countries. In the European Union, governments influence the price of pharmaceutical products through their pricing
and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers.
Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price
has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials
that compare the cost-effectiveness of a particular stem cell therapy to currently available therapies. Other member states allow
companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care
costs in general, particularly prescription drugs and biologics, has become very intense. As a result, increasingly high barriers
are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert
a commercial pressure on pricing within a country.
Other Healthcare Laws and Compliance
Requirements
In the United States, our activities are
potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers
for Medicare and Medicaid Services, other divisions of the United States Department of Health and Human Services (e.g., the Office
of Inspector General), the United States Department of Justice and individual United States Attorney offices within the Department
of Justice, and state and local governments. These regulations include:
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the federal healthcare program anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
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federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other government reimbursement programs that are false or fraudulent;
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the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
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the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs, devices, biologics, and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests;
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the FDCA, which among other things, strictly regulates drug and biologic product marketing, prohibits manufacturers from marketing stem cell therapies for off-label use and regulates the distribution of drug samples; 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 payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts.
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Compliance with Environmental, Health
and Safety Laws
In addition to FDA regulations, we are
also subject to evolving federal, state and local environmental, health and safety laws and regulations. In the past, compliance
with environmental, health and safety laws and regulations has not had a material effect on our capital expenditures. We believe
that we comply in all material respects with existing environmental, health and safety laws and regulations applicable to us. Compliance
with environmental, health and safety laws and regulations in the future may require additional capital expenditures.
Sales and Marketing
We intend to establish and maintain fully-equipped
cGMP-certified Cell-Processing Centers in strategic locations to conduct NurOwn® production and distribution over the broadest
geographic area. Each Cell-Processing Center would receive an initial bone marrow sample of the patient, harvested at a medical
center. The patient’s MSC cells would be isolated and expanded, in order to produce an initial dose of NurOwn® cells.
A master cell bank for each individual patient would be cryopreserved and maintained for production of subsequent, future NurOwn®
doses on a long-term basis for future treatments. These doses would be produced as needed and transported to the medical centers,
where they would then be transplanted back into the patient.
We intend to seek partnering opportunities
with a strategic partner as we progress towards advanced clinical development and commercialization. We are also initiating activities
to support commercial launch post approval by regulatory authorities. These activities include scaling out production capacity,
logistics and supply. In support of commercialization we are actively pursuing strategic partnerships.
Competition
There are several clinical trials underway
evaluating experimental treatments for ALS, of which only two are stem cell-based trials being conducted by other commercial entities.
US-based Neuralstem (CUR) completed a Phase 2 intraspinal transplantation trial for its allogeneic, human (fetal) spinal cord derived
neural stem cells. Data presented in 2015 this product to be safe and well-tolerated with no acceleration in disease progression
due to the therapeutic intervention. Neuralstem has discussed plans for a for a larger, controlled, registration directed clinical
trial but it is not clear if it will proceed with this trial. Q Therapeutics has gained FDA approval for a Phase 1/2 intraspinal
transplantation study with its Q-Cells®, purified human glial progenitor cells isolated from brain tissue. Corestem, a
Korean company, recently completed a Phase 1 trial in ALS showing that repeated intrathecal administration of autologous, bone
marrow-derived mesenchymal stem cells was safe. No details about clinical benefit was reported and there is little public information
available about Corestem.
Several experimental ALS therapies such
as Masitinib (AB Science), NP-001 (Neuraltus), and Actemra (Tocilizimab, Genentech) are selectively targeting neuroinflammation.
AB Science completed a Phase 3 trial for masitinib in ALS. However, a regulatory filing for masitinib in another indication, indolent
systemic mastocytosis, was rejected by the EU's Committee for Medicinal Products for Human Use (CHMP) because of concerns about
its adherence to good clinical practices. Neuraltus Pharma is developing NP001, is a small molecule that modulates macrophages
to promote an anti-inflammatory state in order to reduce the rate of motoneuron loss. NP001 is currently being tested in a Phase
2 trial that was launched in September 2016, and topline results are expected in 2018. A previous Phase 2 study failed to show
statistically significant benefit. Cytokinetics is a late stage biopharmaceutical company that recently completed a Phase 3 clinical
trial with tirasemtiv, a muscle troponin sensitizer. This study failed to demonstrate an improvement in slow vital capacity, a
measure of breathing strength or other functional improvement, and as a consequence, Cytokinetics has suspended the development
of tirasemtiv. Amylyx Pharmaceuticals is developing AMX0035, a combination of two compounds, sodium phenylbutyrate and
tauroursodeoxycholic acid, that are proposed to have a synergistic effect when administered together. Amylyx recently initiated
a Phase 2 trial in ALS patients and topline results are expected in 2019. Therapies specifically targeting genetic mutations in
a small subset of ALS patents, such as SOD1 and C9ORF72, are being evaluated using antisense oligonucleotide technology (Biogen,
IONIS, and WAVE Therapeutics). In addition, academic institutions are also developing treatment candidates for ALS, including mesenchymal
stem cells genetically modified to increase GDNF expression.
Currently, there are two approved ALS therapies,
Riluzole and Radicava, that have demonstrated mild improvements in survival and ALS function, respectively. Riluzole, approved
by the FDA in 1995, extends the time to death or ventilation by several months; however, it has not been shown to improve the daily
functioning of ALS patients. Radicava (Edaravone) is a free radical scavenger recently approved by FDA (May 2017) based on a single
Phase 3 study carried out in Japan
Employees
We currently have 31 employees, all of
whom are full-time. None of our employees is represented by a labor union.
Additional Information
We maintain a website at
www.brainstorm-cell.com
.
We make available through our website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file those
reports with, or furnish them to, the SEC. We also similarly make available, free of charge through our website, the reports filed
with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act. We are not
including the information contained at
www.brainstorm-cell.com
or at any other Internet address as part of, or incorporating
it by reference into, this Annual Report on Form 10-K.
Risks Related to our Financial Condition
and Capital Requirements
We need to raise additional capital.
If we are unable to raise additional capital in favorable terms and a timely manner, we will not be able to execute our business
plan and we could be forced to restrict or cease our operations.
We will need to raise additional funds
to meet our anticipated expenses so that we can execute our business plan. We expect to incur substantial and increasing net losses
for the foreseeable future as we increase our spending to execute our development programs.
The amount of financing required will depend
on many factors including our financial requirements to fund our research and clinical trials, and our ability to secure partnerships
and achieve partnership milestones as well as to fund other working capital requirements. Our ability to access the capital markets
or to enlist partners is mainly dependent on the progress of our research and development and regulatory approval of our products.
To date, the Company has not generated
revenues from its activities and has incurred substantial operating losses. Management expects the Company to continue to generate
substantial operating losses and to continue to fund its operations primarily through utilization of its current financial resources
and through additional raises of capital.
Management’s plan includes raising
funds from outside potential investors. However, there is no assurance such funding will be available to the Company or that it
will be obtained on terms favorable to the Company or will provide the Company with sufficient funds to meet its objectives. Should
we raise additional funds through the issuance of equity, equity-related or debt securities, these securities may have rights,
preferences or privileges (including registrations rights) senior to those of the rights of our Common Stock and our stockholders
will experience additional dilution.
Our independent registered public
accounting firm has expressed substantial doubt about our ability to continue as a going concern.
As described in Note 1 of our 2018 financial
statements incorporated herein by reference, our auditors in their audit opinion have expressed concern with respect to our ability
to continue as a going concern. Our financial statements do not include any adjustments that may result from the outcome
of this uncertainty. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in Brainstorm.
Our Company has a history of losses
and we expect to incur losses for the foreseeable future.
As a development stage company, we are
in the early stages of executing our business plan. We had no operational revenues for the fiscal years ended December 31, 2018
or December 31, 2017. Our ability to operate successfully is materially uncertain and our operations are subject to significant
risks inherent in a developing business enterprise. We are currently in the process of introducing the Company to strategic partners.
In the upcoming three years, the Company will focus on clinical trials. We are unable, at this time, to foresee when we will generate
operational revenues from strategic partnerships or otherwise. Furthermore, we expect to incur substantial and increasing operating
losses for the next several years as we increase our spending to execute our development programs. These losses are expected to
have an adverse impact on our working capital, total assets and stockholders’ equity, and we may never achieve profitability.
We are exposed to fluctuations in
currency exchange rates.
A significant portion of our business,
particularly our research and development, is conducted outside the United States. Therefore, we are exposed to currency exchange
fluctuations in other currencies such as the New Israeli Shekels (“NIS”) and the Euro. Moreover, a portion of our expenses
in Israel and Europe are paid in NIS and Euros, respectively, which subjects us to the risks of foreign currency fluctuations.
Our primary expenses paid in NIS are employee salaries, fees for consultants and subcontractors and lease payments on our Israeli
facilities.
The dollar cost of our operations
in Israel will increase to the extent increases in the rate of inflation in Israel are not offset by a devaluation of the NIS in
relation to the dollar, which would harm our results of operations.
Since a considerable portion of our expenses
such as employees' salaries are linked to an extent to the rate of inflation in Israel, the dollar cost of our operations is influenced
by the extent to which any increase in the rate of inflation in Israel is or is not offset by the devaluation of the NIS in relation
to the dollar. As a result, we are exposed to the risk that the NIS, after adjustment for inflation in Israel, will appreciate
in relation to the dollar. In that event, the dollar cost of our operations in Israel will increase and our dollar-measured results
of operations will be adversely affected. During the past few years inflation-adjusted NIS appreciated against the dollar, which
raised the dollar cost of our Israeli operations. We cannot predict whether the NIS will appreciate against the dollar or vice
versa in the future. Any increase in the rate of inflation in Israel, unless the increase is offset on a timely basis by a devaluation
of the NIS in relation to the dollar, will increase labor and other costs, which will increase the dollar cost of our operations
in Israel and harm our results of operations.
Risks Related to our Cell Therapy Product
Development Efforts
If our NurOwn® stem cell therapy
does not demonstrate safety and efficacy sufficient to obtain regulatory approval, it may not receive regulatory approval and we
will be unable to market it.
The therapeutic treatment development and
regulatory approval process is expensive, uncertain and time-consuming. The timing of any future regulatory approval, if any, for
our NurOwn® stem cell therapy cannot be accurately predicted. We do not expect to receive regulatory approval for any of our
stem cell therapies until the end of 2020 if ever. If we fail to obtain regulatory approval for our NurOwn® stem cell therapy,
we will be unable to market and sell it and we may never be profitable.
As part of the regulatory process, we are
conducting Phase 3 clinical trials, for our NurOwn® stem cell therapy to demonstrate safety and efficacy in humans to meet
the requirements of the FDA and regulatory authorities in other countries. If successful, this could be the basis for market authorization
by the FDA and other jurisdictions.
A failure of one or more of our clinical
trials can occur at any stage of testing. Results of later stage clinical trials may fail to show the desired safety and efficacy
despite acceptable results in earlier clinical trials. Moreover, preclinical and clinical data are often susceptible to varying
interpretations and analyses and many companies that have believed their product candidates performed satisfactorily in preclinical
and clinical trials have nonetheless failed to obtain marketing approval of their treatments.
Specifically, we are currently comparing
NurOwn® stem cell therapy against placebo. Comparisons of outcomes of other reported clinical trials may provide some insight
into the efficacy of NurOwn® stem cell therapy, however, these studies may be of limited comparative value due to the many
factors that affect the outcome of clinical trials, some of which are not apparent in published reports.
Our product development programs
are based on novel technologies and are inherently risky.
We are subject to the risks of failure
inherent in the development of products based on new technologies. The novel nature of our stem cell therapy creates significant
challenges with regard to product development and optimization, manufacturing, government regulations, and market acceptance. For
example, the FDA has relatively limited experience with stem cell therapies. None have been approved by them for commercial sale,
and the pathway to regulatory approval for our stem cell therapies may accordingly be more complex and lengthy. As a result, the
development and commercialization pathway for our therapies may be subject to increased uncertainty, as compared to the pathway
for new conventional drugs.
We are faced with uncertainties related
to our research.
Our research programs are based on scientific
hypotheses and experimental approaches that may not lead to desired results. In addition, the timeframe for obtaining proof of
principle and other results may be considerably longer than originally anticipated, or may not be possible given time, resource,
financial, strategic and collaborator scientific constraints. Success in one stage of testing is not necessarily an indication
that the particular program will succeed in later stages of testing and development. It is not possible to predict, based upon
studies in in-vitro models and in animals, whether any of the therapies designed for these programs will prove to be safe, effective,
and suitable for human use. Each therapy will require additional research and development, scale-up, formulation and extensive
clinical testing in humans. Unsatisfactory results obtained from a particular study relating to a program may cause the Company
to abandon its commitment to that program or to the stem cell therapies being tested. The discovery of unexpected toxicities, lack
of sufficient efficacy, unacceptable pharmacology, inability to increase scale of manufacture, market attractiveness, regulatory
hurdles, competition, as well as other factors, may make our targets or stem cell therapies unattractive or unsuitable for human
use, and we may abandon our commitment to that program, target or stem cell therapy. In addition, preliminary results seen in animal
and/or limited human testing may not be substantiated in larger controlled clinical trials.
If serious or unexpected adverse
side effects are identified during the development of our NurOwn® stem cell therapy, we may need to abandon or limit its development.
If patients treated with our NurOwn®
stem cell therapy suffer serious or unexpected adverse effects, we may need to abandon its development or limit development to
certain uses or subpopulations in which these effects are less prevalent, less severe or more acceptable from a risk-benefit perspective.
We have limited experience in conducting
and managing clinical trials and the application process necessary to obtain regulatory approvals
.
Our limited experience in conducting and
managing clinical trials and the application process necessary to obtain regulatory approvals might prevent us from successfully
designing or implementing a preclinical study or clinical trial. Many companies in the industry have suffered significant setbacks
in advanced clinical trials, despite promising results in earlier trials. If our clinical trials are unsuccessful, or if we do
not complete our clinical trials, we may not receive regulatory approval for or be able to commercialize our stem cell therapies.
If we do not succeed in conducting and
managing our preclinical development activities or clinical trials, or in obtaining regulatory approvals, we might not be able
to commercialize our stem cell therapies, or might be significantly delayed in doing so, which will materially harm our business.
Our ability to generate revenues from any
of our stem cell therapies will depend on a number of factors, including our ability to successfully complete clinical trials,
obtain necessary regulatory approvals and implement our commercialization strategy. We may, and anticipate that we will need to,
transition from a company with a research and development focus to a company capable of supporting commercial activities and we
may not succeed in such a transition.
We may not be able to secure and
maintain research institutions to conduct our clinical trials.
We rely on research institutions to conduct
our clinical trials. Our reliance upon research institutions, including hospitals and clinics, provides us with less control over
the timing and cost of clinical trials and the ability to recruit subjects. If we are unable to reach agreements with suitable
research institutions on acceptable terms, or if any resulting agreement is terminated, we may be unable to quickly replace the
research institution with another qualified institution on acceptable terms. Furthermore, we may not be able to secure and maintain
suitable research institutions to conduct our clinical trials.
Risks Related to Our Business Operations
and Commercialization of Stem Cell Therapies
The field of stem cell therapy is
relatively new and our development efforts may not yield an effective treatment of human diseases.
Our intended cell therapeutic treatment
for ALS involve a new approach that is yet to be proven in a Phase 3 powered for efficacy trial. We are currently conducting a
Phase 3 placebo-controlled clinical trial for ALS, which, together with other stem cell therapies, may ultimately prove ineffective.
If we cannot successfully implement our NurOwn® stem cell therapy in human testing, we would need to change our business strategy
and we may be forced to cease our operations.
Our NurOwn® stem cell therapy,
even if approved, may not be accepted in the marketplace; therefore, we may not be able to generate significant revenue, if any.
Even if our NurOwn® stem cell therapy
is approved for sale, physicians and the medical community may not ultimately use it or may use it only in applications more restricted
than we anticipate. Our NurOwn® stem cell therapy, if successfully developed, will compete with a number of traditional products
manufactured and marketed by major pharmaceutical and biotechnology companies. Our NurOwn® stem cell therapy may also compete
with new products currently under development by such companies and others. Physicians will prescribe a treatment only if they
determine, based on experience, clinical data, side effect profiles and other factors, that it is beneficial as compared to other
products currently available and in use. Physicians also will prescribe a product based on their traditional preferences. Many
other factors influence the adoption of new products, including patient perceptions and preferences, marketing and distribution
restrictions, adverse publicity, product pricing, views of thought leaders in the medical community and reimbursement by government
and private payers. Any of these factors could have a material adverse effect on our business, financial condition, and results
of operations.
Adoption of our NurOwn® stem
cell therapy for the treatment of patients with ALS, or other neurodegenerative diseases, even if approved, may be slow or limited.
If our NurOwn® stem cell therapy does not achieve broad acceptance as a treatment option for ALS, or other neurodegenerative
diseases, our business would be negatively impact our revenue forecast.
If approved, the rate of adoption of our
NurOwn® stem cell therapy as a treatment for ALS, or other neurodegenerative diseases, and the ultimate sales volume for our
treatment, will depend on several factors, including educating treating physicians on how to use our NurOwn® stem cell therapy.
Our NurOwn® stem cell therapy utilizes individualized stem cell therapy, which is significantly different from the pharmacological
approach currently used to treat neurodegenerative diseases. Acceptance of our NurOwn® stem cell therapy by treating physicians
may require us to provide them with extensive education regarding the mechanism of action of our treatment, the method of delivery
of the treatment, expected side effects and the method of monitoring patients for efficacy and follow-up. In addition, the manufacturing
and delivery processes associated with our treatment will require treating physicians to adjust their current treatment of patients,
which may delay or prevent market adoption of our NurOwn® stem cell therapy as a preferred therapy, even if approved.
Our success will depend in part on
establishing and maintaining effective strategic partnerships and collaborations, which may impose restrictions on our business
and subject us to additional regulation.
A key aspect of our business strategy is
to establish strategic relationships in order to expand or complement our research and development or commercialization capabilities,
and to reduce the cost of research and development. There can be no assurance that we will enter into such relationships, that
the arrangements will be on favorable terms or that such relationships will be successful. If we are ultimately successful in executing
our strategy of securing collaborations with companies that would undertake advanced clinical development and commercialization
of our products, we may not have day-to-day control over their activities. Any such collaborator may adhere to criteria for determining
whether to proceed with a clinical development program under circumstances where we might have continued such a program. Potential
collaborators may have significant discretion in determining the efforts and amount of resources that they dedicate to our collaborations
or may be unwilling or unable to fulfill their obligations to us, including their development and commercialization. Potential
collaborators may underfund or not commit sufficient resources to the testing, marketing, distribution or other development of
our products. They may also not properly maintain or defend our intellectual property rights or they may utilize our proprietary
information in such a way as to invite litigation that could jeopardize or potentially invalidate our proprietary information or
expose us to potential liability. Potential collaboration partners may have the right to terminate the collaboration on relatively
short notice and if they do so or if they fail to perform or satisfy their obligations to us, the development or commercialization
of products would be delayed and our ability to realize any potential milestone payments and royalty revenue would be adversely
affected.
We will need to develop or acquire
additional capabilities in order to commercialize our NurOwn® stem cell therapy, if approved for sale, and we may encounter
unexpected costs or difficulties in doing so.
We will need to acquire additional capabilities
and effectively manage our operations and facilities to successfully pursue and complete future research, development and, if our
NurOwn® stem cell therapy receives regulatory approval, commercialization efforts. Currently, we have no experience in preparing
applications for marketing approval, commercial-scale manufacturing, managing of large-scale information technology systems or
managing a large-scale distribution system. We will need to add personnel and expand our capabilities, which may strain our existing
managerial, operational, regulatory compliance, financial and other resources. To do this effectively, we must:
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train, manage and motivate a growing employee base;
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accurately forecast demand for our treatment; and
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expand existing operational, financial and management information systems.
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We will need to increase our manufacturing
capacity prior to seeking approval for the sale of our products. If we are not successful in establishing a regulatory compliant
manufacturing process, we may not obtain approval of products or our ability to obtain regulatory approval for sale could be delayed,
which would further delay the period of time when we would be able to generate revenues from the sale of such products, if we are
even able to generate revenues at all.
We expect to expand our development,
regulatory, manufacturing and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our
growth, which could disrupt our operations.
We expect to experience significant growth
in the number of our employees and the scope of our operations, particularly in the areas of product development, regulatory affairs,
manufacturing and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial,
operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due
to our limited financial resources and the limited experience of our management team in managing a company with such anticipated
growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel.
The physical expansion of our operations may lead to significant costs and may divert our management and business development resources.
Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
We have never manufactured our NurOwn®
stem cell therapy at commercial scale and there can be no assurance that it can be manufactured in compliance with regulations
at a cost or in quantities necessary to make it commercially viable.
We have no experience in commercial-scale
manufacturing, the management of large-scale information technology systems or the management of a large-scale distribution system.
We may develop our manufacturing capacity in part by expanding our current facilities and/or by setting up additional facilities
in other regions of the country. These activities would require substantial additional funds and we would need to hire and train
significant numbers of qualified employees to staff these facilities. We may not be able to develop commercial-scale facilities
that are sufficient to produce the stem cell therapies or their components for later-stage clinical trials or commercial use.
Furthermore, we must supply all necessary
documentation, including product characterization and process validation, to regulatory authorities in support of our BLA on a
timely basis and must adhere to cGMP regulations and current Good Tissue Practices (“GTP”) enforced by the regulatory
authority through its facilities inspection program. We have not fully characterized our NurOwn® stem cell therapy and have
not validated our manufacturing process. If the FDA determines that the products used in our clinical trials are not sufficiently
characterized, we may be required to repeat all or a portion of our clinical trials. If our facilities cannot pass a pre-approval
plant inspection, the regulatory approval of the stem cell therapies will not be granted.
Lack of coordination internally among
our employees and externally with physicians, hospitals and third-party suppliers and carriers, could cause manufacturing difficulties,
disruptions or delays and cause us to not meet our expected clinical trial requirements or potential commercial requirements.
Manufacturing our NurOwn® stem cell
therapy requires coordination internally among our employees and externally with physicians, hospitals and third-party suppliers
and carriers. For example, a patient’s physician or clinical site will need to coordinate with us for the shipping of a patient’s
bone marrow to our manufacturing facility, and we will need to coordinate with them for the shipping of the treatment components
to them. Such coordination involves a number of risks that may lead to failures or delays in manufacturing our NurOwn® stem
cell therapy, including:
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failure to obtain a sufficient supply of key raw materials of suitable quality;
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difficulties in manufacturing our stem cell therapies for multiple patients simultaneously;
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difficulties in obtaining adequate patient-specific material, such as bone marrow samples, from physicians;
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difficulties in completing the development and validation of the harvested cells required to ensure the consistency of our NurOwn® stem cell therapy;
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failure to ensure adequate quality control and assurances in the manufacturing process as we increase production quantities;
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difficulties in the timely shipping of patient-specific materials to us or in the shipping of the stem cell therapies to the treating physicians due to errors by third-party carriers, transportation restrictions or other reasons;
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loss or destruction of, or damage to, patient-specific materials or our NurOwn® stem cell therapy during the shipping process due to improper handling by third-party carriers, hospitals, physicians or us;
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loss or destruction of, or damage to, patient-specific materials or our NurOwn® stem cell therapy during storage at our facilities; and
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loss or destruction of, or damage to, patient-specific materials or our NurOwn® stem cell therapy stored at clinical and future commercial sites due to improper handling or holding by clinicians, hospitals or physicians.
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If we are unable to coordinate appropriately,
we may encounter delays or additional costs in achieving our clinical and commercialization objectives, including in obtaining
regulatory approvals of our stem cell therapies and supplying products, which could materially damage our business and financial
position.
We face competition in our efforts
to develop cell therapies for ALS and other neurodegenerative diseases.
We face competition in our efforts to develop
cell therapies and other treatment or procedures to cure or slow the effects of ALS and other neurodegenerative diseases. Among
our competitors are companies that are involved in the fetal-derived cell transplants or embryonic stem cell derived cell therapy
and companies developing adult stem cells. Other companies are developing traditional chemical compounds, new biological drugs,
cloned human proteins and other treatments, which are likely to impact the markets that we intend to target. Some of our competitors
possess longer operating histories and greater financial, managerial, scientific and technical resources than we do and some possess
greater name recognition and established customer bases. Some also have significantly more experience in preclinical testing, human
clinical trials, product manufacturing, the regulatory approval process and marketing and distribution than we do.
The trend towards consolidation in
the pharmaceutical and biotechnology industries may adversely affect us.
There is a trend towards consolidation
in the pharmaceutical and biotechnology industries. This consolidation trend may result in the remaining companies having greater
financial resources and discovery technological capabilities, thus intensifying competition in these industries. This trend may
also result in fewer potential collaborators or licensees for our stem cell therapies. Also, if a consolidating company is already
doing business with our competitors, we may lose existing licensees or collaborators as a result of such consolidation.
There is a scarcity of experienced
professionals in the field of cell therapy and we may not be able to retain key personnel or hire new key personnel needed to implement
our business strategy and develop our products and businesses. If we are unable to retain or hire key personnel, we may be unable
to continue to grow our business or to implement our business strategy, and our business may be materially and adversely affected.
Given the specialized nature of cell therapy
and the fact that it is a young field, there is an inherent scarcity of experienced personnel in the field. Our success depends
on a significant extent to the continued services of certain highly qualified scientific and management personnel. We face competition
for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to attract and retain
qualified personnel on acceptable terms. The loss of service of any of our key personnel could have a material adverse effect on
our operations or financial condition. In the event of the loss of services of such personnel, no assurance can be given that we
will be able to obtain the services of adequate replacement personnel. We do not have key person life insurance on our key personnel.
The future success of the Company also depends upon our ability to attract and retain additional qualified personnel (including
medical, scientific, technical, commercial, business and administrative personnel) necessary to support our anticipated growth,
develop our business, and maintain appropriate licensure, on acceptable terms. There can be no assurance that we will be successful
in attracting or retaining personnel required by us to continue and grow our operations. The loss of a key employee, the failure
of a key employee to perform in his or her current position or our inability to attract and retain skilled employees, as needed,
could result in our inability to continue to grow our business or to implement our business strategy, or may have a material adverse
effect on our business, financial condition and results of operations.
Technological and medical developments
or improvements in conventional therapies could render the use of stem cells and our services and planned products obsolete.
The pharmaceutical industry is characterized
by rapidly changing markets, technology, emerging industry standards and frequent introduction of new products. The introduction
of new products embodying new technologies, including new manufacturing processes, and the emergence of new industry standards
may render our technologies obsolete, less competitive or less marketable. Advances in other treatment methods or in disease prevention
techniques could significantly reduce or entirely eliminate the need for our stem cell services, planned products and therapeutic
efforts. Additionally, technological or medical developments may materially alter the commercial viability of our technology or
services, and require us to incur significant costs to replace or modify equipment in which we have a substantial investment. In
either event, we may experience a material adverse effect on our business, results of operations and financial condition.
We may expend our limited resources
to pursue our NurOwn® stem cell therapy or a specific indication for its use and fail to capitalize on stem cell therapies
or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial
resources, we have focused development of our NurOwn® stem cell therapy for use in patients with ALS. As a result, we may forego
or delay pursuit of opportunities with other stem cell therapies or for other indications that later prove to have greater commercial
potential. Our spending on current and future research and development efforts on our NurOwn® stem cell therapy for this indication
may not yield a commercially viable treatment. Our resource allocation decisions also may cause us to fail to capitalize on a viable
commercial treatment, a more viable indication or profitable market opportunities.
We have based our research and development
efforts on our NurOwn® stem cell therapy. Notwithstanding our large investment to date and anticipated future expenditures
in our NurOwn® stem cell therapy, we have not yet developed, and may never successfully develop, any marketed treatments using
this approach. As a result of pursuing the development of our NurOwn® stem cell therapy, we may fail to develop stem cell therapies
or address indications based on other scientific approaches that may offer greater commercial potential or for which there is a
greater likelihood of success.
Our NurOwn® stem cell therapy
is based on a novel technology, which may raise development issues that we may not be able to resolve, regulatory issues that could
delay or prevent approval or personnel issues that may keep us from being able to develop our treatments.
Regulatory approval of stem cell therapies
that utilize novel technology such as ours can be more expensive and take longer than for other treatments that are based on more
well-known or more extensively studied technology, due to our and the regulatory agencies’ lack of experience with them.
This may lengthen the regulatory review process, require us to perform additional studies, including clinical trials, increase
our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization
of these stem cell therapies or lead to significant post-approval limitations or restrictions. For example, the differentiated
cell component of our NurOwn® stem cell therapy is a complex biologic product that is manufactured from the patient’s
own bone marrow that must be appropriately harvested, isolated, expanded and differentiated so that its identity, strength, quality,
purity and potency may be characterized prior to release for treatment. No differentiated cell treatment for ALS has yet been approved
for marketing by the FDA or any other regulatory agency. The tests that we use to make identity, strength, quality, purity and
potency determinations on our NurOwn® stem cell therapy may not be sufficient to satisfy the FDA’s expectations regarding
the criteria required for release of products for patient treatment and the regulatory agency may require us to employ additional
testing measures for this purpose, which could require us to undertake additional testing and/or additional clinical trials.
The novel nature of our NurOwn® stem
cell therapy also means that fewer people are trained in or experienced with treatments of this type, which may make it difficult
to recruit, hire and retain capable personnel for the research, development and manufacturing positions that will be required to
continue our development and commercialization efforts.
A significant global market for our
services has yet to emerge.
Very few companies have been successful
in their efforts to develop and commercialize a stem cell product. Some stem cell products in general may be susceptible to various
risks, including undesirable and unintended side effects, unintended immune system responses, inadequate therapeutic efficacy,
or other characteristics that may prevent or limit their approval or commercial use. The demand for stem cell processing and the
number of people who may use cell or tissue-based therapies is difficult to forecast. Physicians, patients, formularies, third
party payers or the medical community in general may not accept or utilize any products that the Company or its collaborative partners
may develop. Our success is dependent on the establishment of a large global market for our products and services and our ability
to capture a share of this market.
It is uncertain to what extent the
government, private health insurers and third-party payers will approve coverage or provide reimbursement for the therapies and
products to which our services relate. Availability for such reimbursement may be further limited by an increasing uninsured population
and reductions in Medicare and Medicaid funding in the United States.
Our ability to successfully commercialize
our human therapeutic products will depend significantly on our ability to obtain acceptable prices and the availability of reimbursement
to the patient from third-party payers, such as government and private insurance plans. While we have not commenced discussions
with any such parties, these third-party payers frequently require companies to provide predetermined discounts from list prices,
and they are increasingly challenging the prices charged for pharmaceuticals and other medical products. Our human therapeutic
products may not be considered cost-effective, and reimbursement to the patient may not be available or sufficient to allow us
to sell our products on a competitive basis. Further, as cost containment pressures are increasing in the health care industry,
government and private payers adopt strategies designed to limit the amount of reimbursement paid to health care providers. Such
cost containment measures may include:
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Reducing reimbursement rates;
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Challenging the prices charged for medical products and services;
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Limiting services covered;
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Decreasing utilization of services;
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Negotiating prospective or discounted contract pricing;
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Adopting capitation strategies; and
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Seeking competitive bids.
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Similarly, the trend toward managed health
care and bundled pricing for health care services in the United States could significantly influence the purchase of healthcare
services and products, resulting in lower prices and reduced demand for our therapies.
We may not be able to negotiate favorable
reimbursement rates for our human therapeutic products. If we fail to obtain acceptable prices or an adequate level of reimbursement
for our products, the sales of our products would be adversely affected or there may be no commercially viable market for our products.
Unintended consequences of recently
adopted health reform legislation in the U.S. may adversely affect our business.
The healthcare industry is undergoing fundamental
changes resulting from political, economic and regulatory influences. In the U.S., comprehensive programs are under consideration
that seek to, among other things, increase access to healthcare for the uninsured and control the escalation of healthcare expenditures
within the economy. On March 23, 2010, health reform legislation was approved by Congress and has been signed into law. While we
do not believe this legislation will have a direct impact on our business, the legislation has only recently been enacted and requires
the adoption of implementing regulations, which may have unintended consequences or indirectly impact our business. For instance,
the scope and implications of the recent amendments pursuant to the Fraud Enforcement and Recovery Act of 2009 have yet to be fully
determined or adjudicated and as a result it is difficult to predict how future enforcement initiatives may impact our business.
Also, in some instances our clients may be health insurers that will be subject to limitations on their administrative expenses
and new federal review of “unreasonable” rate increases which could impact the prices they pay for our services. If
the legislation causes such unintended consequences or indirect impact, it could have a material adverse effect on our business,
financial condition and results of operations.
Ethical and other concerns surrounding
the use of stem cell therapy may negatively impact the public perception of our stem cell services, thereby suppressing demand
for our services.
Although our stem cell business pertains
to adult stem cells only, and does not involve the more controversial use of embryonic stem cells, the use of adult human stem
cells for therapy could give rise to similar ethical, legal and social issues as those associated with embryonic stem cells, which
could adversely affect its acceptance by consumers and medical practitioners. Additionally, it is possible that our business could
be negatively impacted by any stigma associated with the use of embryonic stem cells if the public fails to appreciate the distinction
between adult and embryonic stem cells. Delays in achieving public acceptance may materially and adversely affect the results of
our operations and profitability.
We may be subject to significant
product liability claims and litigation which could adversely affect our future earnings and financial condition.
Our business exposes us to potential product
liability risks inherent in the testing, processing and marketing of stem cell therapy products. Specifically, the conduct of clinical
trials in humans involves the potential risk that the use of our stem cell therapy products will result in adverse effects. Such
liability claims may be expensive to defend and result in large judgments against us. We currently maintain liability insurance
for our clinical trials; however, such liability insurance may not be adequate to fully cover any liabilities that arise from clinical
trials of our stem cell therapy products. We also maintain errors and omissions, directors and officers, workers’ compensation
and other insurance appropriate to our business activities. If we were to be subject to a claim in excess of this coverage or to
a claim not covered by our insurance and the claim succeeded, we would be required to pay the claim from our own limited resources,
which could have a material adverse effect on our financial condition, results of operations and business. Additionally, liability
or alleged liability could harm our business by diverting the attention and resources of our management and damaging our reputation
and that of our subsidiaries.
Political, economic and military
instability in Israel may impede our ability to execute our plan of operations.
Our principal operations and the research
and development facilities of the scientific team funded by us under the Second Ramot Agreement are located in Israel. Accordingly,
political, economic and military conditions in Israel may affect our business. Since the establishment of the State of Israel in
1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. Acts of random terrorism periodically occur
which could affect our operations or personnel. Ongoing or revived hostilities or other factors related to Israel could harm our
operations and research and development process and could impede our ability to execute our plan of operations.
In addition, Israeli-based companies and
companies doing business with Israel have been the subject of an economic boycott by members of the Arab League and certain other
predominantly Muslim countries since Israel's establishment. Although Israel has entered into various agreements with certain Arab
countries and the Palestinian Authority, and various declarations have been signed in connection with efforts to resolve some of
the economic and political problems in the Middle East, we cannot predict whether or in what manner these problems will be resolved.
Wars and acts of terrorism have resulted in damage to the Israeli economy, including reducing the level of foreign and local investment.
Furthermore, certain of our officers and
employees may be obligated to perform annual reserve duty in the Israel Defense Forces and are subject to being called up for active
military duty at any time. Israeli citizens who have served in the army may be subject to an obligation to perform reserve duty
until they are between 40 and 49 years old, depending upon the nature of their military service.
Man-Made Problems Such as Computer
Viruses or Terrorism May Disrupt Our Operations and Harm Our Operating Results
Despite our implementation of network security
measures our servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our
computer systems. Any such event could have a material adverse effect on our business, operating results, and financial condition.
Efforts to limit the ability of malicious third parties to disrupt the operations of the internet or undermine our own security
efforts may meet with resistance. In addition, the continued threat of terrorism and heightened security and military action in
response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of the United States,
Israel and other countries and create further uncertainties or otherwise materially harm our business, operating results, and financial
condition. Likewise, events such as widespread blackouts could have similar negative impacts. To the extent that such disruptions
or uncertainties result in delays or access to data or personal information, our business, operating results, and financial condition
could be materially and adversely affected.
Risks Related to Government Regulation
We are subject to a strict regulatory
environment. If we fail to obtain and maintain required regulatory approvals for our potential cell therapy products, our ability
to commercialize our potential cell therapy products will be severely limited.
None of our stem cell therapies have received
regulatory approval for commercial sale yet. We do not expect to receive regulatory approval for any of our stem cell therapies
until at least the end of 2020, if ever.
Numerous statutes and regulations govern
human testing and the manufacture and sale of human therapeutic products in the United States and other countries where we intend
to market our products. Such legislation and regulation bears upon, among other things, the approval of protocols and human testing,
the approval of manufacturing facilities, testing procedures and controlled research, review and approval of manufacturing, preclinical
and clinical data prior to marketing approval including adherence to GMP during production and storage as well as regulation of
marketing activities including advertising and labeling.
The completion of the clinical testing
of our stem cell therapies and the obtaining of required approvals are expected to take several years and require the expenditure
of substantial resources. We may experience numerous unforeseen events during, or as a result of, the clinical trial process that
could delay or prevent regulatory approval and/or commercialization of our stem cell therapies, including the following:
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The FDA or similar foreign regulatory authorities may find that our stem cell therapies are not sufficiently safe or effective or may find our processes or facilities unsatisfactory;
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Officials at the Israeli MoH, the FDA or similar foreign regulatory authorities may interpret data from preclinical studies and clinical trials differently than we do;
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Our clinical trials may produce negative or inconclusive results or may not meet the level of statistical significance required by the Israeli MoH, the FDA or other regulatory authorities, and we may decide, or regulators may require us, to conduct additional preclinical studies and/or clinical trials or to abandon one or more of our development programs;
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The Israeli MoH, the FDA or similar foreign regulatory authorities may change their approval policies or adopt new regulations;
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There may be delays or failure in obtaining approval of our clinical trial protocols from the Israeli MoH, the FDA or other regulatory authorities or obtaining institutional review board approvals or government approvals to conduct clinical trials at prospective sites;
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We, or regulators, may suspend or terminate our clinical trials because the participating patients are being exposed to unacceptable health risks or undesirable side effects;
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We may experience difficulties in managing multiple clinical sites;
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Enrollment in our clinical trials for our stem cell therapies may occur more slowly than we anticipate, or we may experience high drop-out rates of subjects in our clinical trials, resulting in significant delays; and
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We may be unable to manufacture or obtain from third party manufacturers sufficient quantities of our stem cell therapies for use in clinical trials.
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Investors should be aware of the risks,
problems, delays, expenses and difficulties which may be encountered by us in light of the extensive regulatory environment in
which our business operates. In particular, our development costs will increase if we have material delays in our clinical trials,
or if we are required to modify, suspend, terminate or repeat a clinical trial. If we are unable to conduct our clinical trials
properly and on schedule, marketing approval may be delayed or denied by the Israeli MoH or the FDA.
Even if a stem cell therapy is approved
by the Israeli MoH, the FDA or any other regulatory authority, we may not obtain approval for an indication whose market is large
enough to recoup our investment in that stem cell therapy. We may never obtain the required regulatory approvals for any of our
stem cell therapies. Later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions
on the product or manufacturer, including a withdrawal of the product from the market.
Even if regulatory approvals are
obtained for our stem cell therapies, we will be subject to ongoing government regulation. If we or one or more of our partners
or collaborators fail to comply with applicable current and future laws and government regulations, our business and financial
results could be adversely affected.
The healthcare industry is one of the most
highly regulated industries in the United States. The federal government, individual state and local governments and private accreditation
organizations all oversee and monitor the activities of individuals and businesses engaged in the delivery of health care products
and services. Even if regulatory authorities approve any of our human stem cell therapies, current laws, rules and regulations
that could directly or indirectly affect our ability and the ability of our strategic partners and customers to operate each of
their businesses could include, without limitation, the following:
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State and local licensing, registration and regulation of laboratories, the collection, processing and storage of human cells and tissue, and the development and manufacture of pharmaceuticals and biologics;
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The federal Clinical Laboratory Improvement Act and amendments of 1988;
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Laws and regulations administered by the FDA, including the Federal Food Drug and Cosmetic Act and related laws and regulations;
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The Public Health Service Act and related laws and regulations;
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Laws and regulations administered by the United States Department of Health and Human Services, including the Office for Human Research Protections;
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State laws and regulations governing human subject research;
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Occupational Safety and Health requirements; and
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State and local laws and regulations dealing with the handling and disposal of medical waste.
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Compliance with such regulation may be
expensive and consume substantial financial and management resources. If we, or any future marketing collaborators or contract
manufacturers, fail to comply with applicable regulatory requirements, we may be subject to sanctions including fines, product
recalls or seizures, injunctions, total or partial suspension of production, civil penalties, withdrawal of regulatory approvals
and criminal prosecution. Any of these sanctions could delay or prevent the promotion, marketing or sale of our products.
We are subject to environmental,
health and safety laws.
We are subject to various laws and regulations
relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and humans, emissions
and wastewater discharges, and the use and disposal of hazardous or potentially hazardous substances used in connection with our
research. We also cannot accurately predict the extent of regulations that might result from any future legislative or administrative
action. Any of these laws or regulations could cause us to incur additional expense or restrict our operations.
Compliance with environmental laws and
regulations may be expensive, and current or future environmental regulations may impair our research, development or production
efforts.
We are subject to significant regulation
with respect to manufacturing of our NurOwn® stem cell therapy.
All entities involved in the preparation
of a therapeutic biological for clinical trials or commercial sale are subject to extensive regulation. Our NurOwn® stem cell
therapy must be manufactured in accordance with cGMP and GTP before it can be used in our clinical trials or approved for commercial
sale. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to
control and assure the quality of investigational stem cell therapies and treatments, including treatment component characterization
and process validation, approved for sale. Our facilities and quality systems and the facilities and quality systems of some or
all of our third party suppliers must pass a pre-approval inspection for compliance with the applicable regulations as a condition
of regulatory approval of our NurOwn® stem cell therapy. If any inspection or audit of our manufacturing facilities identifies
a failure to comply with applicable regulations, or if a violation of applicable regulations occurs independent of an inspection
or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us
or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales
or the temporary or permanent closure of a facility. Any such remedial measures imposed on us or third parties with whom we contract
could materially harm our business.
Our long-term business plan is to develop
our NurOwn® stem cell therapy for the treatment of neurodegenerative diseases, such as ALS, MS and PD. Even if we successfully
develop our NurOwn® stem cell therapy for use in one indication, we may not be successful in our efforts to identify or discover
additional indications for it. Clinical programs to develop new indications for our NurOwn® stem cell therapy will require
substantial technical, financial and human resources. These development programs may initially show promise in identifying potential
treatment indications, yet fail to obtain regulatory approval for commercial sale.
If we do not accurately evaluate the commercial
potential or target market for our NurOwn® stem cell therapy, we may relinquish valuable rights to that treatment through collaboration,
licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development
and commercialization rights.
Risks Related to Our Intellectual Property
Part of our business in the foreseeable
future will be based on technology licensed from Ramot and if this license were to be terminated upon failure to make required
royalty payments in the future, we would need to change our business strategy and we may be forced to cease our operations.
Agreements we and our Israeli Subsidiary
have with Ramot impose on us royalty payment obligations. If we fail to comply with these obligations, Ramot may have the right
to terminate the license under certain circumstances. If Ramot elects to terminate our license, we would need to change our business
strategy and we may be forced to cease our operations. We currently do not owe Ramot any overdue payments. Royalties are due upon
commencement of revenues by the Company.
If
Ramot is unable to obtain patents on the patent applications and technology licensed to our Israeli Subsidiary or if patents are
obtained but do not provide meaningful protection, we may not be able to successfully market our proposed products.
We
rely upon the patent applications filed by Ramot, the technology licensing company of Tel Aviv University, and the license granted
to us by Ramot, all in accordance with the Second Ramot Agreement dated as of July 26, 2007. We further agreed under the Second
Ramot Agreement that Ramot, in consultation with us, is responsible for obtaining patent protection for technology owned by Ramot
and licensed to us. No assurance can be given that any of our pending or future patent applications will be approved, that the
scope of any patent protection granted will exclude competitors or provide us with competitive advantages, that any of the patents
that may be issued to us will be held valid if subsequently challenged, or that other parties will not claim rights to or ownership
of our patents or other proprietary rights that we hold license to. Furthermore, there can be no assurance that others have not
developed or will not develop similar products, duplicate any of our technology or products or design around any patents that
have been or may be issued to us or any future licensors. Since patent applications in the United States and in Europe are not
disclosed until applications are published, there can be no assurance that others did not first file applications for products
covered by our pending patent applications, nor can we be certain that we will not infringe any patents that may be issued to
others. Also, we have abandoned our rights to certain patents of Ramot in certain countries in connection with the Letter Agreement
by and between us and Ramot dated December 24, 2009, which may limit our ability to fully market our proposed products.
We
also rely upon unpatented proprietary technology, know-how and trade secrets and seek to protect them through confidentiality
agreements with employees, consultants and advisors. If these confidentiality agreements are breached, we may not have adequate
remedies for the breach. In addition, others may independently develop or otherwise acquire substantially the same proprietary
technology as our technology and trade secrets.
We
may be unable to protect our intellectual property from infringement by third parties.
Despite
our efforts to protect our intellectual property, third parties may infringe or misappropriate our intellectual property. Our
competitors may also independently develop similar technology, duplicate our processes or services or design around our intellectual
property rights. We may have to litigate to enforce and protect our intellectual property rights to determine their scope, validity
or enforceability. Intellectual property litigation is costly, time-consuming, diverts the attention of management and technical
personnel and could result in substantial uncertainty regarding our future viability. The loss of intellectual property protection
or the inability to secure or enforce intellectual property protection would limit our ability to develop or market our services
in the future. This would also likely have an adverse effect on the revenues generated by any sale or license of such intellectual
property. Furthermore, any public announcements related to such litigation or regulatory proceedings could adversely affect the
price of our Common Stock.
Third
parties may claim that we infringe on their intellectual property.
We
may be subject to costly litigation in the event our technology is claimed to infringe upon the proprietary rights of others.
Third parties may have, or may eventually be issued, patents that would be infringed by our technology. Any of these third parties
could make a claim of infringement against us with respect to our technology. We may also be subject to claims by third parties
for breach of copyright, trademark or license usage rights. Litigation and patent interference proceedings could result in substantial
expense to us and significant diversion of efforts by our technical and management personnel. An adverse determination in any
such proceeding or in patent litigation could subject us to significant liabilities to third parties or require us to seek licenses
from third parties. Such licenses may not be available on acceptable terms or at all. Adverse determinations in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent us from commercializing our products, which would
have a material adverse effect on our business, results of operations and financial condition.
As
a result of our reliance on consultants, we may not be able to protect the confidentiality of our technology, which, if disseminated,
could negatively impact our plan of operations.
We
currently have relationships with academic and industry consultants and subcontractors who are not directly employed by us, and
we may enter into additional relationships of such nature in the future. We have limited control over the activities of these
consultants and can expect only limited amounts of their time to be dedicated to our activities. These persons may have consulting,
employment or advisory arrangements with other entities that may conflict with or compete with their obligations to us. Our consultants
typically sign agreements that provide for confidentiality of our proprietary information and results of studies. However, in
connection with every relationship, we may not be able to maintain the confidentiality of our technology, the dissemination of
which could hurt our competitive position and results of operations. To the extent that our scientific consultants develop inventions
or processes independently that may be applicable to our proposed products, disputes may arise as to the ownership of the proprietary
rights to such information, we may expend significant resources in such disputes and we may not win those disputes.
We
received grants from the Israel Innovation Authority, or IIA, we are subject to on-going restrictions.
We
have received royalty-bearing grants from the IIA, for research and development programs that meet specified criteria. The terms
of the IIA’s grants may limit various technology transfer know-how developed under an approved research and development
program outside of Israel.
Risks
related to our Common Stock
The
price of our stock is expected to be volatile.
The
market price of our Common Stock has fluctuated significantly, and is likely to continue to be highly volatile. To date, the trading
volume in our stock has been relatively low and significant price fluctuations can occur as a result. An active public market
for our Common Stock may not continue to develop or be sustained. If the low trading volumes experienced to date continue, such
price fluctuations could occur in the future and the sale price of our Common Stock could decline significantly. Investors may
therefore have difficulty selling their shares.
Your
percentage ownership will be diluted by future issuances of our securities.
In
order to meet our financing needs, we may issue additional significant amounts of our Common Stock and warrants to purchase shares
of our Common Stock. The precise terms of any future financings will be determined by us and potential investors and such future
financings may also significantly dilute your percentage ownership in the Company.
ACCBT
holds equity participation rights and other rights that could affect our ability to raise funds.
Pursuant
to the Subscription Agreement with ACCBT Corp. (“ACCBT”), a company under the control of Mr. Chaim Lebovits, our President
and Chief Executive Officer, we granted ACCBT the right to acquire additional shares of our Common Stock whenever we issue additional
shares of Common Stock or other securities of the Company, or options or rights to purchase shares of the Company or other securities
directly or indirectly convertible into or exercisable for shares of the Company (including shares of any newly created class
or series). This participation right could limit our ability to enter into equity financings and to raise funds from third parties.
ACCBT is entitled to purchase its pro rata share of any additional securities we offer, so that its percentage ownership of the
Company remains the same after any such issuance of additional securities. Such additional securities will be offered to ACCBT
at the same price and on the same terms as the other investors in the transaction. ACCBT will have 30 days from the date of our
notice to ACCBT of any intended transaction, to decide whether it wishes to exercise its participation rights in the transaction.
We also are prohibited from taking certain corporate actions without the consent of ACCBT, including entering into transactions
greater than $500,000. Further, ACCBT also has the right to appoint 30% of our Board. In connection with the Subscription Agreement,
we entered into a registration rights agreement with ACCBT pursuant to which we granted piggyback registration rights to ACCBT.
In addition, we issued ACCBT warrants to purchase up to 2,016,666 shares of Common Stock, of which 2,016,666 warrants are presently
outstanding. The outstanding warrants contain cashless exercise provisions, which permit the cashless exercise of up to 50% of
the underlying shares of Common Stock. 672,222 of such warrants have an exercise price of $3.00 and the remainder have an exercise
price of $4.35. We registered 1,920,461 shares of Common Stock and 2,016,666 shares of Common Stock underlying the ACCBT Warrants
on registration statement No. 333-201705 dated January 26, 2015 pursuant to ACCBT’s registration rights. ACCBT has waived
its participation rights and anti-dilution rights with respect to issuances that were made on or prior to November 2, 2017. In
March 2014, we entered into an agreement with ACCBT according to which ACCBT waived certain anti-dilution rights. On November
2, 2017, the Company entered into a Warrant Amendment Agreement with ACCBT, pursuant to which the expiration date of each Warrant
held by ACCBT was extended until November 5, 2022, in consideration of ACCBT having provided a series of waivers of their rights
and reduction of rights.
You
may experience difficulties in attempting to enforce liabilities based upon U.S. federal securities laws against us and our non-U.S.
resident directors and officers.
Our
principal operations are located through our subsidiary in Israel and our principal assets are located outside the U.S. Our Chief
Financial Officer and Chief Business Officer and some of our directors are foreign citizens and do not reside in the U.S. It may
be difficult for courts in the U.S. to obtain jurisdiction over our foreign assets or these persons and as a result, it may be
difficult or impossible for you to enforce judgments rendered against us or our directors or executive officers in U.S. courts.
Thus, should any situation arise in the future in which you have a cause of action against these persons or entities, you are
at greater risk in investing in our Company rather than a domestic company because of greater potential difficulties in bringing
lawsuits or, if successful, collecting judgments against these persons or entities as opposed to domestic persons or entities.
If
we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results
of operations or prevent fraud, and investor confidence and the market price of our Common Stock may be materially and adversely
affected.
As
a public company in the United States, we are subject to the reporting obligations under the U.S. securities laws. The SEC, as
required under Section 404 of the Sarbanes-Oxley Act of 2002, has adopted rules requiring every public company to include a report
of management on the effectiveness of such company’s internal control over financial reporting in its annual report. In
prior years, management has identified material weaknesses in our internal control over financial reporting. If any of our prior
material weaknesses recurs, or if we identify additional weaknesses or fail to timely and successfully implement new or improved
controls, our ability to assure timely and accurate financial reporting may be adversely affected, and we could suffer a loss
of investor confidence in the reliability of our financial statements, which in turn could negatively impact the trading price
of our shares of Common Stock, result in lawsuits being filed against us by our stockholders, or otherwise harm our reputation.
If material weaknesses are identified in the future, it could be costly to remediate such material weaknesses, which may adversely
affect our results of operations. In addition, our auditor is not required to attest to the effectiveness of our internal controls
over financial reporting due to our status of qualifying as a smaller reporting company. As a result, current and potential investors
could lose confidence in our financial reporting, which could harm our business and have an adverse effect on our share price.
Delaware
law could discourage a change in control, or an acquisition of us by a third party, even if the acquisition would be favorable
to you, and thereby adversely affect existing stockholders.
The
Delaware General Corporation Law contain provisions that may have the effect of making more difficult or delaying attempts by
others to obtain control of our Company, even when these attempts may be in the best interests of stockholders. Delaware law imposes
conditions on certain business combination transactions with “interested stockholders.” These provisions and others
that could be adopted in the future could deter unsolicited takeovers or delay or prevent changes in our control or management,
including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices.
These provisions may also limit the ability of stockholders to approve transactions that they may deem to be in their best interests.
We
do not expect to pay dividends in the foreseeable future, and accordingly you must rely on stock appreciation for any return on
your investment.
We
have paid no cash dividends on our Common Stock to date, and we currently intend to retain our future earnings, if any, to fund
the continued development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable
future. Further, any payment of cash dividends will also depend on our financial condition, results of operations, capital requirements
and other factors, including contractual restrictions to which we may be subject, and will be at the discretion of our Board.
|
Item
1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
Corporate
Headquarters and other office space
Our
United States corporate headquarters are located at 1325 Avenue of Americas, 28
th
Floor, New York, NY 10019. The Company
is party to an office service agreement for the license of this space.
Our
Israeli Subsidiary is party to a lease agreement (the Lease Agreement) for the lease of premises in 12 Basel Street, Petach Tikva,
Israel, which include approximately 600 square meters of office and laboratory space, including an animal research facility. The
lease term is from December 1, 2004 through December 31, 2021, with a right to terminate the agreement on December 31, 2019 with
4 months’ notice. Rent is paid on a monthly basis in the amount of NIS 42,000 (approximately U.S. $11,500).
As
part of the clinical trials with Hadassah, we pay approximately $41,000 per month per clean room for rental and operation of 2
clean room facilities at Hadassah facilities in Jerusalem.
We
believe that the current office and laboratory space is adequate to meet our needs or will be available in the U.S. to meet the
needs of U.S. clinical trials.
|
Item
3.
|
LEGAL
PROCEEDINGS
|
From
time to time, we may become involved in litigation relating to claims arising out of operations in the normal course of business,
which we consider routine and incidental to our business. We currently are not a party to any legal proceedings the adverse outcome
of which, in management’s opinion, would have a material adverse effect on our business, results of operation or financial
condition.
|
Item
4.
|
MINE
SAFETY DISCLOSURES.
|
Not
required.
PART
III
|
Item
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|
Executive
Officers and Directors
The
following table lists our current executive officers and directors. Our executive officers are elected annually by our Board of
Directors (“Board”) and serve at the discretion of the Board. Each current director is serving a term that will expire
at our Company’s next annual meeting. There are no family relationships among any of our directors or executive officers.
Name
|
|
Age
|
|
Position
|
Chaim
Lebovits
|
|
48
|
|
President
and Chief Executive Officer
|
Dr.
Ralph Kern
|
|
61
|
|
Chief
Operating Officer and Chief Medical Officer
|
Eyal
Rubin
|
|
43
|
|
Chief
Financial Officer
|
Arturo
O. Araya
|
|
48
|
|
Chief
Commercial Officer
|
Uri
Yablonka
|
|
42
|
|
Executive
Vice President, Chief Business Officer and Director
|
Dr.
Irit Arbel
|
|
59
|
|
Chairperson
and Director
|
Dr.
June S. Almenoff
|
|
62
|
|
Director
|
Chen
Schor
|
|
46
|
|
Director
|
Dr.
Anthony Polverino
|
|
56
|
|
Director
|
Malcolm
Taub
|
|
73
|
|
Director
|
Chaim
Lebovits
joined the Company in July 2007 as President. On August 1, 2013, the Company appointed Mr. Lebovits as its Principal
Executive Officer, and to assume the duties and responsibilities of the Chief Executive Officer on an interim basis until June
2014. On September 22, 2015, the Company appointed Chaim Lebovits as its Chief Executive Officer. Mr. Lebovits controls ACC Holdings
International, and its subsidiaries ACC Resources, specializing in the mining, oil and energy industries, and ACC BioTech, which
is focused on biotechnology. He has been at the forefront of mining and natural resource management in the African region for
over a decade and has spent years leading the exploration and development of resources in West Africa and Israel and served as
a member of the board of directors of several companies in the industry. Mr. Lebovits has also held senior positions for the worldwide
Chabad Lubavitch organization, the largest Jewish organization in the world today.
Dr.
Ralph Kern
joined the Company on March 6, 2017 as Chief Operating Officer and Chief Medical Officer. Prior to joining the
Company, Dr. Kern was Senior Vice President, Head Worldwide Medical at Biogen Inc. since 2016. Prior positions at Biogen Inc.
include Vice President, Head of Global Therapeutic Areas from 2015 to 2016 and Vice President, Head of Global Medical Neurology
in 2015. Dr. Kern has also served Novartis Pharmaceuticals Corporation as Vice President, Head Neuroscience Medical Unit from
2014 to 2015 and as Vice President, Head MS Medical Unit from 2011 to 2014. He also worked for Genzyme Corporation from 2006 to
2011 where he served as Global Medical Director, Personalized Genetic Health (2010-2011), Head of Medical Affairs, Canada (2006-2008),
General Manager, Fabry Disease (2008-2010) and Head of Medical Affairs, Canada (2006-2008). He also served as University Neurology
Program Director at the University of Toronto (2003-2006), Consultant Neurologist at Mount Sinai Hospital (2001-2006) and Director,
EMG, EEG and Evoked Potential Laboratory at The Credit Valley Hospital (1988-2001).
Eyal
Rubin
joined the Company on November 20, 2017 as Chief Financial Officer and Treasurer. Prior to joining the Company, Eyal
Rubin served since January, 2015 as Vice President, Head of Corporate Treasury for Teva Pharmaceutical Industries Ltd. (symbol:
TEVA), a multinational pharmaceutical company. From March, 2013 to January, 2015, Mr. Rubin worked as Teva Pharmaceutical Industries
Ltd.’s Regional Treasurer for ASIA and EMIA. From January, 2010 to March, 2013, he served as Head of the Finance & Banking
department at Cellcom Israel LTD (NASDAQ:CEL), an Israeli telecommunications company.
Arturo
O. Araya
has served as the Chief Commercial Officer of the Company since August, 2018. He also served as a director of the
Company from February, 2017 to November, 2018. From 2002 to 2016, Mr. Araya worked for Novartis Pharmaceutical Corporation, where
he served as the Vice President and Head of Global Commercial for Novartis’ Cell and Gene Therapies Unit (June 2014 to July
2016), where he led a cross-functional team to globally commercialize a portfolio of cell and gene therapies. In his prior role
as Novartis’ Global Brand Leader for CTL019 (September 2012-May 2014), a CAR-T therapy, he was responsible for developing
early launch plans, including worldwide and multiple indication forecasts and resource modeling. He has lead the Oncology Unit
for Novartis in seven countries (March 2002-August 2012). Prior to his tenure at Novartis, Mr. Araya was with Bristol-Myers Squibb
Company (1999-2002), most recently as Associate Director of Marketing Intelligence, Business Development & Licensing. He earned
an M.B.A. from the University of Michigan, and an M.A. and B.S. in Engineering from the University of Connecticut. We believe
that Mr. Araya possesses specific attributes that qualify him to serve on our Board including his extensive experience in biotechnology
and valuable leadership skills.
Uri
Yablonka
joined the Company on June 6, 2014 as Chief Operating Officer and as a member of the Board. On March 6, 2017
he was appointed Executive Vice President, Chief Business Officer and ceased to serve as the Company’s Chief Operating Officer.
Prior to joining the Company, Mr. Yablonka served since December 2010 as owner and General Manager of Uri Yablonka Ltd., a business
consulting firm. He also served since January 2011 as Vice President, Business Development at ACC International Holdings Ltd.
(Holdings). Holdings is also an affiliate of ACCBT Corp. Prior to serving with Holdings, Mr. Yablonka served as Senior Partner
of PM-PR Media Consulting Ltd. From 2008 to January 2011, Mr. Yablonka was Senior Partner at PM-PR Media Consulting Ltd., where
he led public relations and strategy consulting for a wide range of governmental and private organizations. From 2002 to
2008, he served as a correspondent at the Maariv Daily News Paper, including extensive service as a Diplomatic Correspondent.
We believe that Mr. Yablonka’s skills and experience provide the variety and depth of knowledge, judgment and vision necessary
for the effective oversight of the Company. His experience in business consulting and development and media experience are
expected to be valuable to the Company in its current stage of growth and beyond, and his governmental experience can provide
valuable insight into issues faced by companies in regulated industries such as ours. We believe that these skills and experiences
qualify Mr. Yablonka to serve as a director of the Company.
Dr.
Irit Arbel
, one of the Company's co-founders, joined the Company in May 2004 as a director and served as President of the
Company for six months. Currently, Dr. Arbel is the Chairperson of the Board and the Chair of the Governance, Nominating and Compensation
Committee. Dr. Arbel serves as CEO of Neurchords, a biotechnology firm developing graphene- based scaffold for nerve reconstruction
in acute spinal cord and peripheral nerve injury. Dr. Arbel served as Executive Vice President, Research and Development at Savicell
Diagnostic Ltd until August 2018. From 2009 through 2011, Dr. Arbel served as Chairperson of Real Aesthetics Ltd., a company specializing
in cellulite ultrasound treatment, and BRH Medical, developer of medical devices for wound healing. She was also Director of M&A
at RFB Investment House, a private investment firm focusing on early stage technology related companies. Previously, Dr. Arbel
was President and Chief Executive Officer of Pluristem Life Systems, a biotechnology company, and prior to that, Israeli Sales
Manager of Merck, Sharp & Dohme, a pharmaceutical company. Dr. Arbel earned her Post Doctorate degree in 1997 in Neurobiology,
after performing research in the area of Multiple Sclerosis. Dr. Arbel also holds a Chemical Engineering degree from the Technion,
Israel's Institute of Technology. We believe that Dr. Arbel possesses specific attributes that qualify her to serve on our Board
including Dr. Arbel’s extensive experience in the biotechnology field and significant leadership skills as a chief executive
officer. Dr. Arbel previously served as our President, which service has given her a deep knowledge of the Company and its business
and directly relevant management experience.
Dr.
Anthony Polverino
joined the Company on February 5, 2018 as a director. Dr. Polverino is currently Executive Vice President
Early Development and Chief Scientific Officer of Zymeworks Inc., which he joined in September of 2018, and where he is responsible
for establishing the vision, strategy, and general management of the organization and overseeing the advancement of products from
discovery research through translational research/early development to create a seamless link to clinical development. Prior to
Zymeworks Dr. Polverino was the interim chief scientific officer of Kite (now a wholly-owned subsidiary of Gilead Sciences), which
he joined in 2015, and where he was responsible for establishing Kite's strategic non-clinical R&D roadmap to support its
current and future portfolio. Prior to this, he was the Vice President of research at Kite, where his responsibilities included
corporate goal setting, budget allocation, scientific and investor interactions, business development in-licensing and partnership
deals. Dr. Polverino spent 20 years in positions of increasing responsibilities at Amgen, Inc., most recently as executive director
of its Therapeutic Innovation Unit, where he managed research programs in oncology, metabolic disease, inflammatory disease and
schizophrenia. Prior to Amgen, he was a postdoctoral scientist at Cold Spring Harbor Laboratory, where he worked primarily on
oncology research. Dr. Polverino is an author of several patents, and has been published in nearly 40 scientific and peer-reviewed
journals. He earned a B.Sc. in Biochemistry/Physiology and a B.Sc. (Honors) in Pharmacology, both from Adelaide University in
Adelaide, Australia and a Ph.D. in Biochemistry from Flinders University, also in Adelaide.
Dr.
June S. Almenoff
joined the Company on February 26, 2017 as a director. Dr. June Almenoff is an accomplished executive with
20+ years of experience in the pharmaceutical industry. She has broad therapeutic development and strategic experience including
gastroenterology, rare disease, immune-inflammation, infectious diseases, CNS. She served as President and CMO of Furiex Pharmaceuticals
(from 2010 to 2014). During her 4-year tenure, the company’s valuation increased ~10-fold, culminating in its acquisition
by Actavis plc for ~$1.2B in 2014. Furiex’s lead product, eluxadoline (Viberzi TM), a novel gastrointestinal drug, is approved
and marketed in US and EU. Prior to joining Furiex, Dr. Almenoff was at GlaxoSmithKline (GSK) from 1997 to 2010, where she held
various positions of increasing responsibility in the R&D organization. During her 12 years at GSK, she was a Vice President
in the Clinical Safety organization, chaired a PhRMA-FDA working group and worked in the area of scientific licensing. Dr. Almenoff
also led the development of pioneering systems for minimizing risk in drug development which have been widely adapted by industry
and regulators. Dr. Almenoff also served as CMO and COO of Innovate Biopharmaceuticals (2018). Dr. Almenoff is currently an independent
Board Director and drug development consultant with broad therapeutic expertise. She has served as Executive Chair of RDD Pharma,
a private, GI clinical stage biopharma company (2015-18) where she helped the company secure Series B as well as US Govt. Dept
of Defense funding and currently serves as an independent director (since 2015). She was a Director of Tigenix NV (Nasdaq: TIG)
from 2016-18, until its acquisition for ~$600M. Dr. Almenoff has served on the Board of Ohr Pharmaceuticals (Nasdaq: OHRP) since
2013, and serves on the investment advisory board of the Harrington Discovery Institute, a venture philanthropy, and the Scientific
Advisory Board of Redhill Biopharma (RDHL). She is a consultant and advisor to numerous biopharma companies and investors in the
areas of translational medicine, clinical development, and commercial strategy in product development. Dr. Almenoff received her
B.A. cum laude from Smith College and graduated with AOA honors from the M.D.-Ph.D. program at the Icahn (Mt. Sinai) School of
Medicine. She completed post-graduate medical training at Stanford University Medical Center (Internal Medicine, Infectious Diseases)
and served on the faculty of Duke University School of Medicine. She is an adjunct Professor at Duke and a Fellow of the American
College of Physicians (FACP) and has authored more than 50 publications. We believe that Dr. Almenoff possesses specific attributes
that qualify her to serve on our Board including her valuable leadership skills and her deep knowledge of pharmaceutical product
development.
Chen
Schor
joined the Company as a director on August 22, 2011. Mr. Schor is a global industry leader with vast experience
in biotechnology, medical devices, business development and private equity. Mr. Schor led multiple licensing and M&A transactions
valued at over $8 billion with companies such as GlaxoSmithKline, Amgen, Pfizer, Bayer, Merck-Serono and OncoGeneX Pharmaceuticals,
and raised significant funds from reputable investors. Mr. Schor has a broad range of experience in multiple therapeutic areas
including Neurology, Respiratory, Oncology, Auto-Immune, Genetic Diseases, and Women’s Health. In addition to leading the
global business development at Teva Pharmaceuticals, Mr. Schor played a key role in building early stage companies to regulatory
approvals, IPOs and M&As. In July 2016, Mr. Schor joined resTORbio, Inc and is currently serving as Co-Founder, President,
and CEO. From December 2014 to July 2016, Mr. Schor was an officer with Synta Pharmaceuticals Corp., a NASDAQ listed biopharmaceutical
company. From October 2012 to December 2014, Mr. Schor served as President and CEO of Novalere, Inc. From March 2009 until September
2011, Mr. Schor served as Vice President of Business Development, global branded products at Teva Pharmaceuticals. Prior to joining
Teva, Mr. Schor was Chief Business Officer at Epix Pharmaceuticals, Inc. (formerly known as Predix Pharmaceuticals, Inc.) from
December 2003 until March 2009, leading the formation of more than $1.5 billion in collaborations with GlaxoSmithKline, Amgen
and additional pharmaceutical companies. Prior to joining Epix, Mr. Schor was a Partner at Yozma Venture Capital from September
1998 until December 2003, managing the fund’s investments in biotechnology and medical device companies. Mr. Schor previously
held positions at Arthur Anderson and BDO Consulting, an advisory firm. Mr. Schor holds an M.B.A., a B.A. in Biology, a B.A. in
Economics and is a Certified Public Accountant. We believe that Mr. Schor possesses specific attributes that qualify him to serve
on our Board including Mr. Schor’s extensive experience in biotechnology and significant leadership skills from his service
as a partner of a venture capital firm.
Malcolm
Taub
joined the Company in March 2009 as a director. Since October 2010, Mr. Taub has been a Partner at Davidoff Malito &
Hutcher LLP, a full service law and government relations firm. From 2001 to September 30, 2010, Mr. Taub was the Managing Member
of Malcolm S. Taub LLP, a law firm which practiced in the areas of commercial litigation, among other practice areas. Mr. Taub
also works on art transactions, in the capacity as an attorney and a consultant. Mr. Taub has also served as a principal of a
firm which provides consulting services to private companies going public in the United States. Mr. Taub has acted as a consultant
to the New York Stock Exchange in its Market Surveillance Department. Mr. Taub acts as a Trustee of The Gateway Schools of New
York and The Devereux Glenholme School in Washington, Connecticut. Mr. Taub has served as an adjunct professor at Long Island
University, Manhattan Marymount College and New York University Real Estate Institute. Mr. Taub holds a B.A. from Brooklyn College
and a J.D. from Brooklyn Law School. Mr. Taub formerly served on the Board of Directors of Safer Shot, Inc. (formerly known as
Monumental Marketing Inc.). We believe that Mr. Taub possesses specific attributes that qualify him to serve on our Board
including Mr. Taub’s vast law experience and his demonstrated leadership skills as a managing member of a law firm.
Qualifications
of Directors
The
Board believes that each director has valuable individual skills and experiences that, taken together, provide the variety and
depth of knowledge, judgment and vision necessary for the effective oversight of the Company. As indicated in the foregoing biographies,
the directors have extensive experience in a variety of fields, including biotechnology (Drs. Arbel, Almenoff and Polverino and
Mr. Schor), accounting (Mr. Schor), business consulting and development (Dr. Polverino and Mr. Yablonka), media (Mr. Yablonka)
and law (Mr. Taub. Mr. Yablonka), each of which the Board believes provides valuable knowledge about important elements of our
business. Most of our directors have leadership experience at major companies or firms with operations inside and outside the
United States and/or experience on other companies’ boards, which provides an understanding of ways other companies address
various business matters, strategies and issues. As indicated in the foregoing biographies, the directors have each demonstrated
significant leadership skills, including as a chief executive officer (Drs. Arbel and Mr. Schor), executive officer (Drs. Almenoff
and Polverino, and Mr. Yablonka), as a managing member of a law firm (Mr. Taub), as general manager of a business consulting firm
(Mr. Yablonka) or as a partner of a venture capital firm (Mr. Schor). A number of the directors have extensive public policy,
government or regulatory experience, which can provide valuable insight into issues faced by companies in regulated industries
such as the Company. One of the directors (Dr. Arbel) has served as the President of the Company and one is currently serving
as Chief Business Officer (Mr. Yablonka), which service has given each a deep knowledge of the Company and its business and directly
relevant management experience. The Board believes that these skills and experiences qualify each individual to serve as a director
of the Company.
Certain
Arrangements
On
August 22, 2011, we entered into an agreement with Chen Schor, which was amended and restated on November 11, 2011 to clarify
vesting terms (as amended and restated, the “Executive Director Agreement”) pursuant to which we paid $15,000 per
quarter to Mr. Schor for his services as an Executive Board Member. In accordance with the terms of the Executive Director Agreement,
the Company and Mr. Schor have also entered into an amended and restated Restricted Stock Agreement on November 11, 2011, pursuant
to which Mr. Schor received 61,558 shares of our restricted Common Stock under our 2005 U.S. Stock Option and Incentive Plan.
The shares vested over 3 years – 20,519 shares on August 22, 2012, 20,519 shares on August 22, 2013 and 20,519 shares on
August 22, 2014. On May 3, 2015, we entered into a Restricted Stock Agreement with Mr. Schor, pursuant to which Mr. Schor received
a grant of 60,000 shares of our restricted Common Stock under our 2014 Stock Incentive Plan in consideration for Mr. Schor’s
ongoing services as an Executive Director of the Company. The shares of restricted stock vested as follows: 20,000 on August 22,
2015, 20,000 on August 22, 2016 and 20,000 on August 22, 2017. On February 26, 2017 the Executive Director Agreement was terminated
by mutual agreement of Chen Schor and the Company, and the Board approved that Chen Schor will receive the following compensation
for his service on the Board: an annual cash award in the amount of $30,000, paid in biannual installments, that Mr. Schor will
not receive annual director awards under the Director Compensation Plan, but in the event that Mr. Schor serves as a member of
any committee of the Board he will be entitled to committee compensation under the Director Compensation Plan. Mr. Schor serves
as a member of the Audit Committee.
On
June 1, 2015 pursuant to the Company’s First Amendment to the Second Amended and Restated Director Compensation Plan, we
granted a stock option to Irit Arbel, the Company’s Chair of the Board of Directors, to purchase up to 6,667 shares of Common
Stock at a purchase price of $0.75 per share. On February 26, 2017 pursuant to the Company’s Second Amendment to the
Second Amended and Restated Director Compensation Plan, we granted a stock option to Dr. Arbel to purchase up to 6,667 shares
of Common Stock at a purchase price of $0.75 per share. On July 13, 2017 pursuant to the Company’s Third Amendment to the
Second Amended and Restated Director Compensation Plan, we granted a stock option to Dr. Arbel to purchase up to 12,000 shares
of Common Stock at a purchase price of $0.75 per share. Each option was fully vested and exercisable on the date of grant.
Pursuant
to a February 26, 2017 resolution of the Board, Dr. Almenoff receives the following compensation for her service on the Board:
an annual cash award in the amount of $30,000, paid in biannual installments. Dr. Almenoff will not receive annual director awards
under the Director Compensation Plan, but in the event that Dr. Almenoff serves as a member of any committee of the Board she
will be entitled to committee compensation under the Director Compensation Plan. Dr. Almenoff has not been appointed to any Board
committee at this time.
Pursuant
to a February 26, 2017 resolution of the Board, Mr. Araya received the following compensation for his service on the Board: an
annual cash award in the amount of $12,500, paid in biannual installments, and an annual restricted stock award (each, an “Araya
Grant”) valued at $12,500 on the date of grant, as determined based on the closing price of the Company’s common stock
at the end of normal trading hours on the date of grant, or the previous closing price in the event the grant date does not fall
on a business day. Mr. Araya also received a grant of 1,249 shares of restricted stock for his service on the GNC Committee. All
grants ceased vesting and Mr. Araya resigned as a member of the GNC effective August 28, 2018, in connection with Mr. Araya commencing
employment with the Company as its Chief Commercial Officer.
Uri
Yablonka serves as the Company’s EVP & Chief Business Officer and is compensated for all services as an officer and
director of the Company pursuant to an employment agreement with the Company and related compensation described under “Executive
Employment Agreements” in the Executive Compensation section below.
Involvement
in Certain Legal Proceedings
None
of our directors or executive officers has during the past ten years:
|
·
|
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
·
|
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
|
|
·
|
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
|
|
·
|
been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
|
·
|
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
·
|
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
Committees
of the Board of Directors
Audit
Committee
On
February 7, 2008, the Board of Directors (“Board”) established a standing Audit Committee in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934, which assists the Board in fulfilling its responsibilities to stockholders
concerning our financial reporting and internal controls, and facilitates open communication among the Audit Committee, Board,
outside auditors and management. The Audit Committee discusses with management and our outside auditors the financial information
developed by us, our systems of internal controls and our audit process. The Audit Committee is solely and directly responsible
for appointing, evaluating, retaining and, when necessary, terminating the engagement of the independent auditor. The independent
auditors meet with the Audit Committee (both with and without the presence of management) to review and discuss various matters
pertaining to the audit, including our financial statements, the report of the independent auditors on the results, scope and
terms of their work, and their recommendations concerning the financial practices, controls, procedures and policies employed
by us. The Audit Committee preapproves all audit services to be provided to us, whether provided by the principal auditor or other
firms, and all other services (review, attest and non-audit) to be provided to us by the independent auditor. The Audit Committee
coordinates the Board’s oversight of our internal control over financial reporting, disclosure controls and procedures and
code of conduct. The Audit Committee is charged with establishing procedures for (i) the receipt, retention and treatment of complaints
received by us regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission
by employees of the Company of concerns regarding questionable accounting or auditing matters. The Audit Committee reviews all
related party transactions on an ongoing basis, and all such transactions must be approved by the Audit Committee. The Audit Committee
is authorized, without further action by the Board, to engage such independent legal, accounting and other advisors as it deems
necessary or appropriate to carry out its responsibilities. The Board has adopted a written charter for the Audit Committee, which
is available in the corporate governance section of our website at
www.brainstorm-cell.com
. The Audit Committee currently
consists of Mr. Taub (Chair) and Dr. Arbel, each of whom is independent within the meaning of The NASDAQ Marketplace Rules and
Rule 10A-3 under the Exchange Act, as well as Mr. Schor, who is not currently independent but serves on the Audit Committee in
accordance with Nasdaq Rule 5605(c)(2)(B). The Board of Directors has determined that Mr. Schor is an “audit committee financial
expert” as defined in Item 407(d)(5) of Regulation S-K. The Audit Committee held four meetings during the fiscal year ended
December 31, 2018.
GNC
Committee
On
June 27, 2011, the Board established a standing Governance, Nominating and Compensation Committee (the “GNC Committee”),
which assists the Board in fulfilling its responsibilities relating to (i) compensation of the Company’s executive officers,
(ii) the director nomination process and (iii) reviewing the Company’s compliance with SEC corporate governance requirements.
The Board has adopted a written charter for the GNC Committee, which is available in the corporate governance section of our website
at
www.brainstorm-cell.com
. The GNC Committee currently consists of Dr. Arbel (Chair), Dr. Polverino and Mr. Taub, each
of whom is independent as defined under applicable NASDAQ listing standards. The GNC Committee held four meetings during the fiscal
year ended December 31, 2018.
The
GNC Committee determines salaries, incentives and other forms of compensation for the Chief Executive Officer and the executive
officers of the Company and reviews and makes recommendations to the Board with respect to director compensation. The GNC Committee
meets without the presence of executive officers when approving or deliberating on executive officer compensation, but may invite
the Chief Executive Officer to be present during the approval of, or deliberations with respect to, other executive officer compensation.
In addition, the GNC Committee administers the Company’s stock incentive compensation and equity-based plans.
The
GNC Committee makes recommendations to the Board concerning all facets of the director nominee selection process. Generally, the
GNC Committee identifies candidates for director nominees in consultation with management and the independent members of the Board,
through the use of search firms or other advisers, through the recommendations submitted by stockholders or through such other
methods as the GNC Committee deems to be helpful to identify candidates. Once candidates have been identified, the GNC Committee
confirms that the candidates meet the independence requirements and qualifications for director nominees established by the Board.
The GNC Committee may gather information about the candidates through interviews, questionnaires, background checks, or any other
means that the GNC Committee deems to be helpful in the evaluation process. The GNC Committee meets to discuss and evaluate the
qualities and skills of each candidate, both on an individual basis and taking into account the overall composition and needs
of the Board. Upon selection of a qualified candidate, the GNC Committee would recommend the candidate for consideration by the
full Board.
In
considering whether to include any particular candidate in the Board’s slate of recommended director nominees, the Board
will consider the candidate’s integrity, education, business acumen, knowledge of the Company’s business and industry,
age, experience, diligence, conflicts of interest and the ability to act in the interests of all stockholders. The Board believes
that experience as a leader of a business or institution, sound judgment, effective interpersonal and communication skills, strong
character and integrity, and expertise in areas relevant to our business are important attributes in maintaining the effectiveness
of the Board. As a matter of practice, the Board considers the diversity of the backgrounds and experience of prospective directors
as well as their personal characteristics (e.g., gender, ethnicity, age) in evaluating, and making decisions regarding, Board
composition, in order to facilitate Board deliberations that reflect a broad range of perspectives. The Board does not assign
specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. The Company
believes that the backgrounds and qualifications of its directors, considered as a group, should provide a significant breadth
of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities.
Stockholder
Nominations
During
the fourth quarter of fiscal year 2018, we made no material changes to the procedures by which stockholders may recommend nominees
to our Board, as described in our most recent proxy statement.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our Common
Stock (collectively, the “Reporting Persons”), to file reports regarding ownership of, and transactions in, our securities
with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the
copies of such forms received by us, or written representations from the Reporting Persons, we believe that during the fiscal
year ended December 31, 2018 all Reporting Persons complied with the applicable requirements of Section 16(a) of the Exchange
Act other than one late Form 4 filed by Ralph Kern on March 26, 2018, reporting one transaction late. There are no known failures
to file a required Form 3, Form 4 or Form 5.
Code
of Ethics
On
May 27, 2005, our Board adopted a Code of Ethics that applies to, among other persons, members of our Board, officers and employees.
A copy of our Code of Ethics is posted on our website at
www.brainstorm-cell.com
. We intend to satisfy the disclosure
requirement regarding any amendment to, or waiver of, a provision of the Code of Ethics applicable to our Principal Executive
Officer or our senior financial officers (Principal Financial Officer and Controller or Principal Accounting Officer, or persons
performing similar functions) by posting such information on our website.
|
Item
11.
|
EXECUTIVE
COMPENSATION.
|
Summary
Compensation
The
following table sets forth certain summary information with respect to the compensation paid during the fiscal years ended December
31, 2018 and 2017 earned by our President and Chief Executive Officer, Chief Financial Officer, and our Chief Operating Officer
(the “Named Executive Officers”). In the table below, columns required by the regulations of the SEC have been omitted
where no information was required to be disclosed under those columns.
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
Option
and Stock
|
|
|
All Other
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Compensation
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
|
($)
|
|
|
($) (1) (2)
|
|
|
($)(3)
|
|
|
Total ($)
|
|
Chaim Lebovits (*)
|
|
2018
|
|
|
500,000
|
|
|
|
750,000
|
(6)
|
|
|
133,472
|
(8)
|
|
|
195,398
|
|
|
|
1,578,870
|
|
President and CEO (4)
|
|
2017
|
|
|
391,250
|
|
|
|
250,000
|
(5)
|
|
|
193,500
|
(7)
|
|
|
170,600
|
|
|
|
1,005,350
|
|
Ralph Kern, Chief
|
|
2018
|
|
|
500,000
|
|
|
|
150,000
|
(10)
|
|
|
119,000
|
(12)
|
|
|
72,650
|
|
|
|
841,650
|
|
Operating Officer (9)
|
|
2017
|
|
|
417,000
|
|
|
|
-
|
|
|
|
200,000
|
(11)
|
|
|
59,000
|
|
|
|
676,000
|
|
Eyal Rubin
(*),
Chief
|
|
2018
|
|
|
197,000
|
|
|
|
49,000
|
|
|
|
|
|
|
|
105,000
|
|
|
|
351,000
|
|
Financial Officer (13)
|
|
2017
|
|
|
20,200
|
|
|
|
5,000
|
|
|
|
347,843
|
(14)
|
|
|
9,207
|
|
|
|
382,250
|
|
(*)
These Named Executive Officers were paid in NIS; the amounts above are the U.S. dollar equivalent. The conversion rate used was
the average of the 2018 daily rates between the U.S. dollar and the NIS as published by the Bank of Israel, the central bank of
Israel.
|
(1)
|
The amounts shown in the
“Option and Stock Awards” column represent the aggregate grant date fair value of awards computed in accordance with
ASC 718, not the actual amounts paid to or realized by the Named Executive Officer during fiscal 2018 and fiscal 2017. ASC 718
fair value amount as of the grant date for stock options generally is spread over the number of months of service required for
the grant to vest.
|
|
(2)
|
The fair value of each stock
option award is estimated as of the date of grant using the Black-Scholes valuation model. Additional information regarding the
assumptions used to estimate the fair value of all stock option awards is included in Note 10 to Consolidated Financial Statements.
|
|
(3)
|
Includes management insurance
(which includes pension, disability insurance and severance pay), payments towards such employee’s education fund, Israeli
social security and amounts paid for use of a Company car. Each Named Executive Officer also receives gross-up payments for the
taxes on these benefits.
|
|
(4)
|
On September 22, 2015, the
Company appointed Chaim Lebovits as its Chief Executive Officer.
|
|
(5)
|
In July 2017, the Company
paid Mr. Lebovits a discretionary cash bonus payment of $250,000 in recognition of his contributions to the Company’s performance
in fiscal year 2017.
|
|
(6)
|
In April and in July 2018,
the Company paid Mr. Lebovits a discretionary cash bonus payment of $250,000 and $500,000 in recognition of his contributions
to the Company’s performance in fiscal year 2018.
|
|
(7)
|
On July 26, 2017 Mr. Lebovits
received a grant of an option to purchase up to 41,580 shares of Common Stock at an exercise price of $4.81 per share, and a grant
of 31,185 shares of restricted Common Stock.
|
|
(8)
|
On July 26, 2018 Mr. Lebovits
received a grant of 31,185 shares of restricted Common Stock.
|
|
(9)
|
Dr. Kern’s employment
with the Company began on March 6, 2017.
|
|
(10)
|
In March 2018, the Company
paid Mr. Kern a discretionary cash bonus payment of $150,000 in recognition of his contributions to the Company’s performance
in fiscal year 2018.
|
|
(11)
|
On March 6, 2017 Dr. Kern
received a grant of an option to purchase up to 47,847 shares of Common Stock at an exercise price of $4.18 per share, and a grant
of 35,885 shares of restricted Common Stock.
|
|
(12)
|
On March 6, 2018 Dr. Kern
received a grant of 35,885 shares of restricted Common Stock.
|
|
(13)
|
Mr. Rubin’s employment
with the Company began on November 20, 2017.
|
|
(14)
|
On November 20, 2017, Mr.
Rubin received a grant of 25,000 shares of restricted Common Stock and also an option to purchase up to 93,686 shares of Common
Stock under the 2014 Global Plan, at an exercise price per share equal to $4.30 per share.
|
Executive
Employment Agreements
Chaim
Lebovits
On
September 28, 2015, Chaim Lebovits, the Company’s Chief Executive Officer and President, and the Company’s wholly
owned subsidiary Brainstorm Cell Therapeutics Ltd. (the “Subsidiary”), entered into an employment agreement, which
was amended July 26, 2017 (as amended, the “Lebovits Employment Agreement”). Pursuant to the Lebovits Employment Agreement,
Chaim Lebovits is paid a salary at the annual rate of $500,000 (the “Base Salary”). Mr. Lebovits also receives
other benefits that are generally made available to the Subsidiary’s employees. In addition, he is provided with a
cellular phone and a company car, with all costs including taxes borne by the Subsidiary.
Pursuant
to the Lebovits Employment Agreement, Mr. Lebovits was granted a stock option under the Company’s 2014 Global Share Option
Plan on September 28, 2015 for the purchase of up to 369,619 shares of the Company’s Common Stock at a per share exercise
price of $2.45, which grant is fully vested and exercisable and shall be exercisable for a period of two years after termination
of employment. Pursuant to the Lebovits Employment Agreement, Mr. Lebovits was granted on July 26, 2017, and will also be eligible
to receive in the future, an annual cash bonus equal to 50% of his base salary, subject to his satisfaction of pre-established
performance goals to be mutually agreed upon by the Board and Mr. Lebovits. Performance shall be evaluated through a performance
management framework and a bonus range based on the target bonus.
Pursuant
to the Lebovits Employment Agreement, Mr. Lebovits received on July 26, 2017, and is entitled to receive on each anniversary thereafter
(provided he remains Chief Executive Officer), a grant of restricted stock under the Company’s 2014 Global Share Option
Plan (or any successor or other equity plan then maintained by the Company) comprised of a number of shares of Common Stock with
a fair market value (determined based on the price of the Common Stock at the end of normal trading hours on the business day
immediately preceding the Effective Date according to Nasdaq) equal to 30% of Mr. Lebovits’ Base Salary. Each grant shall
vest as to twenty-five percent (25%) of the award on each of the first, second, third and fourth anniversary of the date of grant,
provided Mr. Lebovits remains continuously employed by the Company from the date of grant through each applicable vesting date.
Each grant shall be subject to accelerated vesting upon a Change of Control (as defined in the Lebovits Employment Agreement)
of the Company. In the event of Mr. Lebovits’ termination of employment, any portion of a grant that is not yet vested (after
taking into account any accelerated vesting) shall automatically be immediately forfeited to the Company, without the payment
of any consideration to Mr. Lebovits.
Pursuant
to the Lebovits Employment Agreement, on July 26, 2017, Mr. Lebovits also received a fully vested and exercisable option (the
“Option”) under the Company’s 2014 Global Share Option Plan to purchase up to 41,580 shares of Common Stock,
which shall remain exercisable until the 2
nd
anniversary of the date of grant, regardless of whether Mr. Lebovits
remains employed by the Company. The exercise price per share is $4.81.
The
Lebovits Employment Agreement contains termination provisions, pursuant to which if the Company terminates the Employment Agreement
or Mr. Lebovits’ employment without Cause (as defined in the agreement) or if Mr. Lebovits terminates the employment agreement
or his employment thereunder with Good Reason (as defined in the agreement), the Company shall: (i) within 90 days pay Mr. Lebovits,
as severance pay, a lump sum equal to six (6) months of Base Salary (which shall increase to nine (9) months after July 26, 2019
and twelve (12) months after July 26, 2020) (provided Mr. Lebovits is actively employed by the Company on such dates) (the “Payment
Period”); (ii) pay Mr. Lebovits within 30 days of his termination of employment any bonus compensation that Mr. Lebovits
would be entitled to receive during the Payment Period in the absence of his termination without Cause or for Good Reason; (iii)
immediately vest such number of equity or equity based awards that would have vested during the six (6) months following the date
of termination of employment; and (iv) shall continue to provide to Mr. Lebovits health insurance benefits during the Payment
Period, unless otherwise provided by a subsequent employer. The foregoing severance payments are conditional upon Mr. Lebovits
executing a waiver and release in favor of the Company in a form reasonably acceptable to the Company.
Dr.
Ralph Kern
On
February 28, 2017, the Company and Dr. Ralph Kern entered into an employment agreement, effective March 6, 2017, which sets forth
the terms of Dr. Kern’s employment (as amended by Amendment No. 1 dated March 3, 2017, the “Agreement”). Pursuant
to the Agreement, Dr. Kern is paid an annual salary of $500,000 (the “Base Salary”), which may be increased (but not
decreased) at the sole discretion of the Board. Dr. Kern will also be eligible to receive an annual cash bonus equal to 30%
of his base salary, subject to his satisfaction of pre-established performance goals to be mutually agreed upon by the Board and
Dr. Kern. Performance shall be evaluated through a performance management framework and a bonus range based on the target bonus.
Dr. Kern will also receive other benefits that are generally made available to the Company’s employees.
Pursuant
to the Agreement, Dr. Kern received on March 6, 2017, and is entitled to receive on each anniversary thereafter (provided he remains
employed by the Company), a grant of restricted stock under the Company’s 2014 Stock Incentive Plan (or any successor or
other equity plan then maintained by the Company) comprised of a number of shares of common stock of the Company, $0.00005 par
value (“Common Stock”) with a fair market value (determined based on the price of the Common Stock at the end of normal
trading hours on the business day immediately preceding March 6, 2017 according to Nasdaq) equal to 30% of Dr. Kern’s Base
Salary. Each equity grant shall vest as to twenty-five percent (25%) of the award on each of the first, second, third and fourth
anniversary of the date of grant, provided Dr. Kern remains continuously employed by the Company from the date of grant through
each applicable vesting date. Each equity grant shall be subject to accelerated vesting upon a Change of Control (as defined in
the Agreement) of the Company. In the event of Dr. Kern’s termination of employment, any portion of an equity grant that
is not yet vested (after taking into account any accelerated vesting) shall automatically be immediately forfeited to the Company,
without the payment of any consideration to Dr. Kern.
Pursuant
to the Agreement, on March 6, 2017, Dr. Kern also received an option under the Company’s 2014 Stock Incentive Plan to purchase
up to 47,847 shares of Common Stock with an exercise price per share of $4.18. The option was fully vested and exercisable and
shall remain exercisable until the 2
nd
anniversary of the date of grant, regardless of whether Dr. Kern remains
employed by the Company.
The
Agreement contains termination provisions, pursuant to which if the Company terminates the Agreement or Dr. Kern’s employment
without Cause (as defined in the Agreement) or if Dr. Kern terminates the Agreement or his employment thereunder with Good Reason
(as defined in the Agreement), the Company shall: (i) within 90 days pay Dr. Kern, as severance pay, a lump sum equal to six (6)
months of Base Salary (which shall increase to nine (9) months after the second anniversary of March 6, 2017 and twelve (12) months
after the third anniversary of March 6, 2017) (provided Dr. Kern is actively employed by the Company on such dates) (the “Payment
Period”); (ii) pay Dr. Kern within 30 days of his termination of employment any bonus compensation that Dr. Kern would be
entitled to receive during the Payment Period in the absence of his termination without Cause or for Good Reason; (iii) immediately
vest such number of equity or equity based awards that would have vested during the six (6) months following the date of termination
of employment; and (iv) shall continue to provide to Dr. Kern health insurance benefits during the Payment Period, unless otherwise
provided by a subsequent employer. The foregoing severance payments are conditional upon Dr. Kern executing a waiver and release
in favor of the Company in a form reasonably acceptable to the Company.
Eyal
Rubin
On
October 31, 2017, the Subsidiary and Eyal Rubin, the Company’s EVP and Chief Financial Officer, entered into an employment
agreement which sets forth the terms of Mr. Rubin’s employment, starting on November 20, 2017 (the “Commencement Date”).
Pursuant to the employment agreement, Eyal Rubin is paid a gross monthly salary of NIS 59,000 (approximately $16,200 per month),
and is entitled to an annual cash bonus equal to 25% of his annual base salary, paid pro-rata on a quarterly basis. Mr. Rubin
also receives other benefits that are generally made available to the Subsidiary’s employees. The employment
agreement provides that if the Subsidiary terminates the employment agreement or Mr. Rubin’s employment without Cause (as
defined in the employment agreement), the Subsidiary shall pay Mr. Rubin, as a special severance pay, an amount equal to six (6)
months of his then-current salary, as well as any portion of the bonus compensation that Mr. Rubin would otherwise be entitled
to receive during the six (6) month period following the termination if his employment would not have been terminated, subject
to execution of a full and general waiver and release.
On
November 20, 2017, the Company granted to Mr. Rubin 25,000 shares of restricted Common Stock under the Company’s 2014 Global
Share Option Plan, which shall vest as to 100% of the award on April 1, 2018, provided Mr. Rubin remains continuously employed
by the Subsidiary from the date of grant through the vesting date. In the event of Mr. Rubin’s termination of employment
prior to April 1, 2018, the restricted stock grant shall automatically be immediately forfeited in its entirety to the Company,
without the payment of any consideration to Mr. Rubin.
Uri
Yablonka
Uri
Yablonka, the Company’s Executive Vice President, Chief Business Officer and director, is party to a June 6, 2014 employment
agreement with the Subsidiary, which was amended
July 26, 2017
. Pursuant to the agreement,
Uri Yablonka is paid a monthly salary of
41,000 NIS (approximately $11,300 per month)
.
Mr. Yablonka also receives other benefits that are generally made available to the Company’s employees, including pension
and education fund benefits. The Company provides Mr. Yablonka with a Company car and cellular phone, and a gross-up payment for
any taxes relating thereto. Pursuant to the agreement, Mr. Yablonka also was granted a stock option on June 6, 2014 under the
Company’s Amended and Restated 2004 Global Share Option Plan (the “Global Plan”) for the purchase of 33,333
shares of the Company’s Common Stock, which was fully vested and exercisable upon grant. The exercise price for the grant
is $2.70 per share. In addition, the Company agreed to grant Mr. Yablonka a stock option under the Global Plan (or the applicable
successor option plan) for the purchase of up to 13,333 shares of Common Stock (subject to appropriate adjustment in the case
of stock splits, reverse stock splits and the like) of the Company on the first business day after each annual meeting of stockholders
(or special meeting in lieu thereof) of the Company beginning with the 2014 annual meeting, and provided that Mr. Yablonka remains
an employee of the Company on each such date. The exercise price per share of the Common Stock subject to each additional option
shall be equal to $0.75 (subject to appropriate adjustment in the case of stock splits, reverse stock splits and the like, or
changes to the Israeli Annual Option Award under the Company’s Director Compensation Plan as amended from time to time).
Each additional option vests and becomes exercisable on each monthly anniversary date as to 1/12th the number of shares subject
to the option, over a period of twelve months from the date of grant, such that each additional option will be fully vested and
exercisable on the first anniversary of the date of grant, provided that Mr. Yablonka remains an employee of the Company on each
such vesting date. In addition, Mr. Yablonka was granted 5,543 shares of Common Stock under the 2014 Global Plan on July 13, 2017.
Arturo
Araya
Arturo
Araya, the Company’s Chief Commercial Officer, is party to an August 28, 2018 employment agreement with the Company, pursuant
to which Mr. Araya receives an annual base compensation of $300,000 and is eligible to receive an annual cash bonus equal to 20%
of his base salary, subject to satisfaction of pre-established performance goals. On August 28, 2018 he also received a one-time
grant of an option to purchase 200,000 shares of Common Stock under the Company’s 2014 Stock Incentive Plan, at an exercise
price of $3.98 per share. 25% of the grant shall vest and become exercisable on each of the first, second, third and fourth anniversaries
of the grant date, so that the grant becomes fully vested and exercisable on the fourth anniversary of the grant date. The grant
is subject to accelerated vesting upon a Change of Control, as defined in the agreement, and has a 10-year
term. Any unvested shares underlying the grant as of the date of the termination of his employment with the Company shall
automatically terminate. In connection with the employment agreement Mr. Araya resigned from the GNC Committee, and the
restricted stock previously granted to him in connection with his service on the Board and the GNC Committee ceased vesting.
Terms
of Option Awards
Stock
option grants to the Named Executive Officers are described in the summaries of their executive employment agreements above and
incorporated herein. Unless otherwise stated, option grants issued to Named Executive Officers prior to August 14, 2014 were made
pursuant to the Company’s 2004 Global Share Option Plan and grants issued to Named Executive Officers on or after August
14, 2014 were made pursuant to the Company’s 2014 Global Share Option Plan, and expire on the tenth anniversary of the grant
date.
Outstanding
Equity Awards
The
following table sets forth information regarding equity awards granted to the Named Executive Officers that are outstanding as
of December 31, 2018. In the table below, columns required by the regulations of the SEC have been omitted where no information
was required to be disclosed under those columns.
Outstanding
Equity Awards at December 31, 2018
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
Number
of Shares
or Units
of Stock
That Have
Not Vested
(#)
|
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(1)
|
|
Chaim Lebovits
|
|
|
369,619
|
|
|
|
-
|
|
|
|
2.45
|
|
|
9/28/2025
|
|
|
23,389
|
(2)
|
|
|
78,820
|
|
|
|
|
41,580
|
|
|
|
-
|
|
|
|
4.81
|
|
|
7/26/2019
|
|
|
31,185
|
(3)
|
|
|
105,093
|
|
Ralph Kern
|
|
|
47,847
|
|
|
|
-
|
|
|
|
4.18
|
|
|
3/6/2019
|
|
|
26,914
|
(4)
|
|
|
90,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,885
|
(5)
|
|
|
120,932
|
|
Eyal Rubin
|
|
|
23,421
|
|
|
|
70,264
|
(6)
|
|
|
4.30
|
|
|
11/20/2027
|
|
|
|
|
|
|
|
|
|
(1)
|
Based
on the fair market value of our Common Stock on December 28, 2018 ($3.37 per share).
|
|
(2)
|
Restricted
stock award vests 25% on each of the 1
st
, 2
nd,
3
rd
and 4
th
anniversary of date
of grant (July 26, 2017), provided that Chaim Lebovits remains continuously employed by the Company from the date of grant
through each applicable vesting date.
|
|
(3)
|
Restricted
stock award vests 25% on each of the 1
st
, 2
nd,
3
rd
and 4
th
anniversary of date
of grant (July 26, 2018), provided that Chaim Lebovits remains continuously employed by the Company from the date of grant
through each applicable vesting date.
|
|
(4)
|
Restricted
stock award vests 25% on each of the 1
st
, 2
nd,
3
rd
and 4
th
anniversary of date
of grant (March 6, 2017), provided that Ralph Kern remains continuously employed by the Company from the date of grant through
each applicable vesting date.
|
|
(5)
|
Restricted
stock award vests 25% on each of the 1
st
, 2
nd,
3
rd
and 4
th
anniversary of date
of grant (March 6, 2018), provided that Ralph Kern remains continuously employed by the Company from the date of grant through
each applicable vesting date.
|
|
(6)
|
Options
for the purchase of 23,422 shares were vested and exercisable on December 31, 2018. Options for the purchase of 23,422 shares
will vest and become exercisable yearly until the option is fully vested and exercisable on the fourth anniversary of the
date of grant.
|
Stock
Incentive Plans
During
the fiscal year ended December 31, 2018, the Company had outstanding awards for stock options under four plans: (i) the 2004 Global
Stock Option Plan and the Israeli Appendix thereto (the “2004 Global Plan”) (ii) the 2005 U.S. Stock Option and Incentive
Plan (the “2005 U.S. Plan,” and together with the 2004 Global Plan, the “Prior Plans”); (iii) the 2014
Global Share Option Plan and the Israeli Appendix thereto (which applies solely to participants who are residents of Israel) (the
“2014 Global Plan”); and (iv) the 2014 Stock Incentive Plan (the “2014 U.S. Plan” and together with the
2014 Global Plan, the 2014 Plans).
The
2004 Global Plan and 2005 U.S. Plan expired on November 25, 2014 and March 28, 2015, respectively. Grants that were made under
the Prior Plans remain outstanding pursuant to their terms. The 2014 Plans were approved by the stockholders on August 14, 2014
(at which time the Company ceased to issue awards under each of the 2005 U.S. Plan and 2004 Global Plan) and amended on June 21,
2016 and November 29, 2018. Unless otherwise stated, option grants prior to August 14, 2014 were made pursuant to the Company’s
Prior Plans, and grants issued on or after August 14, 2014 were made pursuant to the Company’s 2014 Plans, and expire on
the tenth anniversary of the grant date.
The
2014 Plans have a shared pool of 4,400,000 shares of common stock available for issuance. The exercise price of the options granted
under the 2014 Plans may not be less than the nominal value of the shares into which such options are exercised. Any options under
the 2014 Plans that are canceled or forfeited before expiration become available for future grants.
Compensation
of Directors
The
following table sets forth certain summary information with respect to the compensation paid during the fiscal year ended December
31, 2018 earned by each of the directors of the Company. In the table below, columns required by the regulations of the SEC have
been omitted where no information was required to be disclosed under those columns.
Director
Compensation Table for Fiscal 2018
|
|
Fees
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
Earned or
|
|
|
Stock
|
|
|
Awards
|
|
|
|
|
|
|
Paid in
|
|
|
Awards
|
|
|
($)
|
|
|
Total
|
|
Name
|
|
Cash ($)
|
|
|
($)(1)
|
|
|
(1)(2)
|
|
|
($)
|
|
Dr. Irit Arbel
|
|
|
—
|
|
|
|
—
|
|
|
|
66,040
|
(3)
|
|
|
66,040
|
|
Dr. June S. Almenoff
|
|
|
30,000
|
(4)
|
|
|
—
|
|
|
|
|
|
|
|
30,000
|
|
Arturo O. Araya
|
|
|
12,500
|
(5)
|
|
|
7,944
|
|
|
|
|
|
|
|
20,444
|
|
Dr. Anthony Polverino
|
|
|
—
|
|
|
|
23,904
|
(6)
|
|
|
—
|
|
|
|
23,904
|
|
Mr. Chen Schor
|
|
|
30,000
|
(7)
|
|
|
6,220
|
(8)
|
|
|
—
|
|
|
|
36,220
|
|
Mr. Malcolm Taub
|
|
|
—
|
|
|
|
37,320
|
(9)
|
|
|
—
|
|
|
|
37,320
|
|
Uri Yablonka
|
|
|
-
|
|
|
|
-
|
|
|
|
34,758
|
(10)
|
|
|
34,758
|
|
|
(1)
|
The amounts shown in the
“Stock Awards” and “Option Awards” columns represent the aggregate grant date fair value of awards computed
in accordance with ASC 718, not the actual amounts paid to or realized by the directors during fiscal 2018.
|
|
(2)
|
The fair value of each stock
option award is estimated as of the date of grant using the Black-Scholes valuation model. Additional information regarding the
assumptions used to estimate the fair value of all stock option awards is included in Note 10 – Share-based compensation
to employees and to directors to Consolidated Financial Statements.
|
|
(3)
|
At December 31, 2018, Dr.
Arbel had options (vested and unvested) to purchase 221,886 shares of Common Stock.
|
|
(4)
|
Represents amounts paid to
Dr. Almenoff for services as a director.
|
|
(5)
|
Represents amounts paid to
Mr. Araya for services as a director.
|
|
(6)
|
At December 31, 2018, Mr.
Polverino had 1,834 shares of unvested restricted Common Stock.
|
|
(7)
|
Represents the amount paid
to Mr. Schor pursuant to the Executive Director Agreement for his services as a director and consultant.
|
|
(8)
|
At December 31, 2018, Mr.
Schor had 1,834 shares of unvested restricted Common Stock.
|
|
(9)
|
At December 31, 2018, Mr.
Taub had 11,000 shares of unvested restricted Common Stock.
|
|
(10)
|
At December 31, 2018, Mr.
Yablonka had options (vested and unvested) to purchase 99,998 shares of Common Stock.
|
Director
Compensation Plan
We
review the level of compensation of our non-employee directors on a periodic basis. To determine how appropriate the current level
of compensation for our non-employee directors is, we have historically obtained data from a number of different sources, including
publicly available data describing director compensation in peer companies and survey data collected by an independent compensation
consultant. Those of our directors who are not employees of Brainstorm receive compensation for their services as directors as
follows:
The
Company’s Second Amended and Restated Director Compensation Plan was approved July 9, 2014 and amended on April 29, 2015,
February 26, 2017 and July 13, 2017 (as amended, the “Director Compensation Plan”). Under the Director Compensation
Plan, each eligible director is granted an annual award immediately following each annual meeting of stockholders beginning with
the 2014 annual meeting. For non-U.S. directors, this annual award consists of a nonqualified stock option to purchase 13,333
shares of Common Stock. For U.S. directors, at their option, this annual award is either (i) a nonqualified stock option to purchase
6,666 shares of Common Stock or (ii) 6,666 shares of restricted stock. Additionally, each member of the GNC Committee or Audit
Committee of the Board receives (i) a nonqualified stock option to purchase 2,000 shares of Common Stock or (ii) in the case of
U.S. directors and at their option, 2,000 shares of restricted stock. The chair of the GNC Committee or Audit Committee will instead
of the above committee award receive (i) a nonqualified stock option to purchase 3,333 shares of Common Stock or (ii) in the case
of U.S. directors and at their option, 3,333 shares of restricted stock. Any eligible participant who is serving as chairperson
of the Board shall also receive (i) a nonqualified stock option to purchase 6,666 shares of Common Stock or (ii) in the case of
U.S. directors and at their option, 6,666 shares of restricted stock. Awards are granted on a pro rata basis for directors serving
less than a year at the time of grant. The exercise price for options for U.S. directors will be equal to the closing price per
share of the Common Stock on the grant date as reported on the Over-the-Counter Bulletin Board or the national securities exchange
on which the Common Stock is then traded. The exercise price for options for non-U.S. directors is $0.75. Every option and restricted
stock award will vest monthly as to 1/12 the number of shares subject to the award over a period of twelve months from the date
of grant, provided that the recipient remains a member of the Board on each such vesting date, or, in the case of a committee
award, remains a member of the committee on each such vesting date. Every non-employee director of the Company is eligible to
participate in the Director Compensation Plan, except that Chen Schor, Dr. June S. Almenoff, Arturo O. Araya (until he commenced
service as an employee in August, 2018) and Dr. Anthony Polverino are not entitled receive annual director awards under the Director
Compensation Plan, but are entitled to committee compensation under the Director Compensation Plan in the event that they qualify
for and serve as a member of any committee of the Board. Chen Schor, Dr. Almenoff, Mr. Araya and Dr. Polverino’s director
compensation is further discussed below.
Pursuant
to a February 26, 2017 resolution of the Board, Dr. Almenoff receives the following compensation for her service on the Board:
an annual cash award in the amount of $30,000, paid in biannual installments. Dr. Almenoff will not receive annual director awards
under the Director Compensation Plan, but in the event that Dr. Almenoff serves as a member of any committee of the Board she
will be entitled to committee compensation under the Director Compensation Plan. Dr. Almenoff has not been appointed to any Board
committee at this time.
Pursuant
to resolutions of the Board, Dr. Polverino receives the following compensation for his service on the Board: an annual cash award
in the amount of $12,500, paid in biannual installments, and an annual restricted stock award (each, a “Grant”) valued
at $12,500 on the date of grant, as determined based on the closing price of the Company’s common stock at the end of normal
trading hours on the date of grant, or the previous closing price in the event the grant date does not fall on a business day.
The Grant vests in 12 consecutive, equal monthly installments commencing on the one-month anniversary of the date of grant, until
fully vested on the first anniversary of the date of grant. Dr. Polverino does not receive annual director awards under the Director
Compensation Plan, but in the event that he serves as a member of any committee of the Board he is entitled to committee compensation
under the Director Compensation Plan. Dr. Polverino serves on the GNC Committee. In November 2018 he received a grant of 1,667
shares of Common Stock for prior GNC Committee services.
Pursuant
resolution of the Board, Mr. Araya received the following compensation for his service on the Board: an annual cash award in the
amount of $12,500, paid in biannual installments, and an annual restricted stock award (each, an “Araya Grant”) valued
at $12,500 on the date of grant, as determined based on the closing price of the Company’s common stock at the end of normal
trading hours on the date of grant, or the previous closing price in the event the grant date does not fall on a business day.
Mr. Araya also received a grant of 1,249 shares of restricted stock for his service on the GNC Committee. All grants ceased vesting
and Mr. Araya resigned as a member of the GNC effective August 28, 2018, in connection with Mr. Araya commencing employment with
the Company as its Chief Commercial Officer. Mr. Araya ceased serving as a member of the Board on November 29, 2018.
On
February 26, 2017 the Amended and Restated Executive Director Agreement between the Company and Chen Schor dated November 11,
2011 was terminated by mutual agreement of Chen Schor and the Company, and the Board approved that Chen Schor will receive the
following compensation for his service on the Board: an annual cash award in the amount of $30,000, paid in biannual installments;
that Mr. Schor will not receive annual director awards under the Director Compensation Plan, but in the event that Mr. Schor serves
as a member of any committee of the Board he will be entitled to committee compensation under the Director Compensation Plan;
and that the restricted stock grant (the “Schor Grant”) of 60,000 shares of restricted Common Stock previously granted
to Mr. Schor under the Company’s 2014 Stock Incentive Plan will continue to vest as previously agreed: 20,000 on: (a) August
22, 2015 (b) 20,000 on August 22, 2016 and (c) 20,000 on August 22, 2017 (at which time the Grant was fully vested). Mr. Schor
has serves as a member of the audit committee since November 9, 2017.
On
July 13, 2017 pursuant to the Company’s Third Amendment to the Second Amended and Restated Director Compensation Plan, we
granted a stock option to Dr. Arbel to purchase up to 12,000 shares of Common Stock at a purchase price of $0.75 per share, which
was fully vested and exercisable on the date of grant.
On
November 30, 2018, the following grants were made under the Director Compensation Plan to the eligible directors: Dr. Arbel received
a stock option to purchase 25,333 shares of Common Stock for her service as a director, chairperson of the Board, chair of the
GNC Committee and a member of the Audit Committee; Mr. Schor received 2,000 shares of restricted stock for his service as a member
of the Audit Committee; Dr. Polverino received 2,000 shares of restricted stock for his service as a member of the GNC Committee;
and Mr. Taub received 12,000 shares of restricted stock for his service as a director, chair of the Audit Committee and a member
of the GNC Committee.
|
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth certain information as of March 7, 2019 with respect to the beneficial ownership of our Common Stock
by the following: (i) each of our current directors; (ii) the Named Executive Officers; (iii) all of the current executive officers
and directors as a group; and (iv) each person known by the Company to own beneficially more than five percent (5%) of the outstanding
shares of our Common Stock.
For
purposes of the following table, beneficial ownership is determined in accordance with the rules of the SEC and the information
is not necessarily indicative of beneficial ownership for any other purpose. Except as otherwise noted in the footnotes to the
table, we believe that each person or entity named in the table has sole voting and investment power with respect to all shares
of our Common Stock shown as beneficially owned by that person or entity (or shares such power with his or her spouse). Under
the SEC’s rules, shares of our Common Stock issuable under options that are exercisable on or within 60 days after March
7, 2019 (“Presently Exercisable Options”) or under warrants that are exercisable on or within 60 days after March
7, 2019 (“Presently Exercisable Warrants”) are deemed outstanding and therefore included in the number of shares reported
as beneficially owned by a person or entity named in the table and are used to compute the percentage of the Common Stock beneficially
owned by that person or entity. These shares are not, however, deemed outstanding for computing the percentage of the Common Stock
beneficially owned by any other person or entity. Unless otherwise indicated, the address of each person listed in the table is
c/o Brainstorm Cell Therapeutics Inc., 1325 Avenue of Americas, 28
th
Floor, New York, NY 10019.
The
percentage of the Common Stock beneficially owned by each person or entity named in the following table is based on 21,084,702
shares of Common Stock outstanding as of March 7, 2019, plus any shares issuable upon exercise of Presently Exercisable Options
and Presently Exercisable Warrants held by such person or entity.
|
|
Shares Beneficially Owned
(Includes Common Stock, Presently
Exercisable Options and Presently
Exercisable Warrants)
|
|
Name of Beneficial Owner
|
|
# of Shares
|
|
|
% of Class
|
|
Directors and Named Executive Officers
|
|
|
|
|
|
|
|
|
Chaim Lebovits
(1)
|
|
|
4,562,835
|
(1)
|
|
|
19.4
|
%
|
Ralph Kern
|
|
|
112,655
|
|
|
|
*
|
|
Eyal Rubin
|
|
|
48,421
|
(2)
|
|
|
*
|
|
Uri Yablonka
|
|
|
99,763
|
(3)
|
|
|
*
|
|
June Almenoff
|
|
|
7,175
|
(4)
|
|
|
*
|
|
Irit Arbel
|
|
|
362,941
|
(5)
|
|
|
1.7
|
%
|
Chen Schor
|
|
|
125,558
|
(6)
|
|
|
*
|
|
Anthony Polverino
|
|
|
10,791
|
|
|
|
*
|
|
Malcolm Taub
|
|
|
41,332
|
|
|
|
*
|
|
All current directors and executive officers as a group (10 persons)
|
|
|
5,377,079
|
(7)
|
|
|
22.6
|
%
|
5% Shareholders (other than listed above)
|
|
|
|
|
|
|
|
|
N/A (see FN1)
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes
(i) 1,933,794 shares of Common Stock owned by ACCBT Corp., (ii) 2,016,666 shares of Common Stock issuable to ACCBT Corp. upon
the exercise of Presently Exercisable Warrants, (iii) 138,806 shares of Common Stock owned by ACC International Holdings Ltd.,
(iv) 411,199 shares of Common Stock issuable upon the exercise of Presently Exercisable Options. Chaim Lebovits, our Chief Executive
Officer, may be deemed the beneficial owner of these shares. The address of ACCBT Corp. and ACC International Holdings Ltd.is
Morgan & Morgan Building, Pasea Estate, Road Town, Tortola, British Virgin Islands.
|
|
(2)
|
Includes
23,421 shares of Common Stock issuable upon the exercise of Presently Exercisable Options.
|
|
(3)
|
Includes
92,220 of shares of Common Stock issuable upon the exercise of Presently Exercisable Options.
|
|
(4)
|
Consists
of shares owned by Meadowlark Management LLC. Dr. Almenoff disclaims beneficial ownership of these shares except to
the extent of any pecuniary interest therein.
|
|
(5)
|
Includes
207,108 shares of Common Stock issuable upon the exercise of Presently Exercisable Options. Dr. Arbel’s address is 6
Hadishon Street, Jerusalem, Israel.
|
|
(6)
|
Includes
121,558 shares owned by The C. Schor Irrevocable Trust, an irrevocable trust for the benefit of Mr. Schor and other individuals. Mr.
Schor disclaims beneficial ownership of these shares except to the extent of any pecuniary interest therein.
|
|
(7)
|
Consists
of (i) 1,933,794 shares of Common Stock owned by ACCBT Corp., (ii) 2,016,666 shares of Common Stock issuable to ACCBT Corp. upon
the exercise of Presently Exercisable Warrants and (iii) 138,806 shares of Common Stock owned by ACC International Holdings Ltd.
|
Equity
Compensation Plan Information
The
following table summarizes certain information regarding our equity compensation plans as of December 31, 2018:
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
securities
|
|
|
Weighted-
|
|
|
securities
|
|
|
|
to be
|
|
|
average
|
|
|
remaining
|
|
|
|
issued upon
|
|
|
exercise
|
|
|
available for
|
|
|
|
exercise of
|
|
|
price of
|
|
|
future
|
|
|
|
outstanding
|
|
|
outstanding
|
|
|
issuance
|
|
|
|
options,
|
|
|
options,
|
|
|
under equity
|
|
|
|
warrants
|
|
|
warrants
|
|
|
compensation
|
|
Plan Category
|
|
and rights
|
|
|
and rights
|
|
|
plans
|
|
Equity compensation plans approved by security holders
|
|
|
1,496,287
|
|
|
$
|
3.0581
|
|
|
|
2,080,755
|
(1)
|
Equity compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
1,496,287
|
|
|
$
|
3.0581
|
|
|
|
2,080,755
|
(1)
|
|
(1)
|
A
total of 3,577,042 shares of our Common Stock are reserved for issuance in aggregate under the Plans and the Prior Plans. Any
awards granted under either the Global Plan or the U.S. Plan will reduce the total number of shares available for future issuance
under the other plan.
|
|
Item
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
|
Certain
Relationships and Related Transactions
The
Audit Committee of our Board reviews and approves all related-party transactions. A “related-party transaction” is
a transaction that meets the minimum threshold for disclosure under the relevant SEC rules (transactions involving amounts exceeding
the lesser of $120,000 or one (1) percent of the average of the smaller reporting company's total assets at year-end for the last
two fiscal years in which a “related person” or entity has a direct or indirect material interest). “Related
persons” include our executive officers, directors, 5% or more beneficial owners of our Common Stock, immediate family members
of these persons and entities in which one of these persons has a direct or indirect material interest. When a potential related-party
transaction is identified, management presents it to the Audit Committee to determine whether to approve or ratify it.
The
Audit Committee reviews the material facts of any related-party transaction and either approves or disapproves of the entry into
the transaction. If advance approval of a related-party transaction is not feasible, then the transaction will be considered and,
if the Audit Committee determines it to be appropriate, ratified by the Audit Committee. No director may participate in the approval
of a transaction for which he or she is a related party.
Research
and License Agreement with Ramot
The
Company has maintained a commercial relationship with Ramot, the technology transfer group within Tel Aviv University, since July
2004, when the Company and Ramot entered into a Research and License Agreement (the “Original Agreement”). The Original
Agreement was amended in both March and May of 2006, when the parties signed, respectively, an Amended and Restated Research and
License Agreement (the “Amended and Restated Agreement”) and Amendment Number 1 to the Amended and Restated Agreement.
Thereafter, the Company and Ramot entered into a Letter Agreement in December 2009 which further amended the Amended and Restated
Agreement by releasing the Company from various duties and obligations (including the Company’s commitment to fund three
(3) years of additional Ramot research - a financial commitment of $1,140,000), while converting other payments due and owing
to Ramot by the Company into shares of Common Stock. In December 2011, the Company assigned the Amended and Restated Agreement
(as amended) to its Israeli Subsidiary with the consent of Ramot, provided the Company agreed to guaranty the performance obligations
of its Israeli Subsidiary thereunder. The Amended and Restated Agreement was amended in both April 2014 (Amendment Number 2) and
March 2016 (Amendment Number 3).
In
addition to the foregoing, on April 30, 2014, the Israeli Subsidiary executed a consulting agreement (the “Offen Consulting
Agreement”) with Professor Offen of Tel Aviv University, which expressly replaced their previous agreement (signed in July
2004). Pursuant to the Offen Consulting Agreement, Professor Offen granted our Israeli Subsidiary exclusive rights, title and
interest in and to all work product and deliverables resulting from the provision of his services thereunder, except that any
new intellectual property arising from this agreement would be deemed a joint invention that is jointly owned by both our Israeli
Subsidiary and Ramot. No such joint inventions have resulted from this consulting agreement and it was terminated on January 18,
2018.
The
primary focus of our agreements (and subsequent amendments) with Ramot has and continues to be the commissioning of a group of
scientists within Tel Aviv University to carry out research in the area of the stem-cell technology referenced above, and the
granting of rights to the Company (and later our Israeli Subsidiary, after the assignment referenced above) in the inventions,
know-how and results procured from such research (the “Ramot IP”).
In
consideration for the rights granted to our Israeli Subsidiary in and to the Ramot IP, our Israeli Subsidiary is required to pay
Ramot royalties ranging between three percent (3%) and five percent (5%) of all net sales realized from the exploitation of the
Ramot IP, as well as remittances of between twenty percent (20%) and twenty-five percent (25%) on revenues received from the sub-licensing
of the Ramot IP.
Pursuant
to the third amendment of the Amended and Restated Agreement referenced above, Ramot agreed to convert the exclusive licenses
then-existing, to outright transfers and assignments of the Ramot IP, thereby granting our Israeli Subsidiary ownership thereof.
Investment
Agreement with ACCBT Corp.
We
are party to a July 2, 2007 subscription agreement and related registration rights agreement and warrants, amended July 31, 2009,
May 10, 2012, May 19, 2014 and November 2, 2017 (together as amended, the “ACCBT Documents”) with ACCBT, a company
under the control of Mr. Chaim Lebovits, our President and Chief Executive Officer, pursuant to which, for an aggregate purchase
price of approximately $5.0 million, we sold to ACCBT 1,920,461 shares of our Common Stock (the “Subscription Shares”)
and warrants to purchase up to 2,016,666 shares of our Common Stock (the “ACCBT Warrants”). The ACCBT Warrants contain
cashless exercise provisions, which permit the cashless exercise of up to 50% of the underlying shares of Common Stock. 672,222
of the ACCBT Warrants have an exercise price of $3.00 and the remainder have an exercise price of $4.35. All of the ACCBT Warrants
are presently outstanding.
Pursuant
to the terms of the ACCBT Documents, ACCBT has the following rights for so long as ACCBT or its affiliates hold at least 5% of
our issued and outstanding share capital:
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·
|
Board Appointment Right: ACCBT has the right to appoint 30% of the members of our Board and any of our committees and the Board of Directors of our subsidiaries.
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|
·
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Preemptive Right: ACCBT has the right to receive thirty days’ notice of, and to purchase a pro rata portion (or greater under certain circumstances where offered shares are not purchased by other subscribers) of, securities issued by us, including options and rights to purchase shares. This preemptive right does not include issuances under our equity incentive plans.
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|
·
|
Consent Right: ACCBT’s written consent is required for Brainstorm transactions greater than $500,000.
|
In
addition, ACCBT is entitled to demand and piggyback registration rights, whereby ACCBT may request, upon 15 days’ written
notice, that we file, or include within a registration statement to be filed, with the Securities and Exchange Commission for
ACCBT’s resale of the Subscription Shares, as adjusted, and the shares of our Common Stock issuable upon exercise of the
ACCBT Warrants. We registered 1,920,461 shares of Common Stock and 2,016,666 shares of Common Stock underlying the ACCBT Warrants
on registration statement No. 333-201705 dated January 26, 2015 pursuant to ACCBT’s registration rights.
The
foregoing description reflects the November 2, 2017 Warrant Amendment Agreement between the Company and ACCBT, pursuant to which
the rights and privileges of the ACCBT Entities relating to the management of the Company were reduced, in exchange for a five
(5) year extension of the expiration of the Company warrants held by the ACCBT Entities. Pursuant to the amendment, the ACCBT
Documents were amended as follows: (i) the ACCBT Entities existing right to appoint 50.1% of the Board of Directors of the Company
and its subsidiaries was reduced to 30%; (ii) the ACCBT Entities’ consent rights regarding Company matters pursuant to the
ACCBT Documents were limited to transactions greater than $500,000 (previous to the amendment the consent right was for transactions
of $25,000 or more); and (iii) the expiration date of each of the ACCBT Warrants was extended until November 5, 2022 (the previous
expiration date was November 5, 2017).
Mr.
Lebovits, the Company’s President and Chief Executive Officer, is deemed to control ACCBT. Mr. Lebovits employment agreement
with the Company and related employee compensation are described under “Executive Employment Agreements” in the Executive
Compensation section above.
Independence
of the Board of Directors
The
Board of Directors of the Company (the “Board”) has determined that each of Dr. Arbel, Dr. Almenoff, Dr. Polverino
and Mr. Taub satisfies the criteria for being an “independent director” under the standards of the Nasdaq Stock Market,
Inc. (“Nasdaq”) and has no material relationship with the Company other than by virtue of service on the Board. Mr.
Schor and Mr. Yablonka are not considered “independent directors.” Mr. Araya was considered an independent director
until he commenced service as Chief Commercial Officer of the Company in August, 2018, and he ceased serving as a director November
29, 2018
The
Board is comprised of a majority of independent directors and the Governance, Nominating and Compensation Committee (the “GNC
Committee”) is comprised entirely of independent directors. A majority of the Audit Committee is comprised of independent
directors. Since November 9, 2017 Chen Schor has served as the “audit committee financial expert” in accordance with
Nasdaq Rule 5605(c)(2)(B). Mr. Schor is not currently independent under Nasdaq Rule 5605(a)(2) due to his previous executive director
service to the Company provided pursuant to the Executive Director Agreement (described under “Executive Employment Agreements”
in the Executive Compensation section above) which terminated February 26, 2017. However, the Board has determined that due to
his financial expertise, Mr. Schor’s membership on the Audit Committee is in the best interests of the Company and its stockholders.
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Item
14.
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PRINCIPAL
ACCOUNTING FEES AND SERVICES.
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Independent
Registered Public Accounting Firm
Principal
Accountant Fees and Services
The
following table presents fees for professional audit services rendered by Brightman Almagor Zohar & Co., a member of Deloitte
Touche Tohmatsu (“Deloitte”) for the audit of our financial statements for the fiscal years ended December 31, 2018
and 2017 and fees billed for other services rendered by Deloitte during those periods.
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Audit Fees (1)
|
|
$
|
58,000
|
|
|
$
|
55,000
|
|
Audit-Related Fees
|
|
$
|
-
|
|
|
$
|
-
|
|
Tax Fees (2)
|
|
$
|
28,000
|
|
|
$
|
-
|
|
All Other Fees
|
|
$
|
-
|
|
|
$
|
-
|
|
Total Fees
|
|
$
|
86,000
|
|
|
$
|
55,000
|
|
(1)
|
Audit
fees are comprised of fees for professional services performed by Deloitte for the audit of our annual financial statements
and the review of our quarterly financial statements, as well as other services provided by Deloitte in connection with statutory
and regulatory filings or engagements.
|
(2)
|
Tax
fees are comprised of fees for preparation of tax returns to the Company and the services performed by Deloitte in connection
with Inter-Company matters.
|
We
did not use Deloitte for financial information system design and implementation. These services, which include designing or implementing
a system that aggregates source data underlying the financial statements and generates information that is significant to our
financial statements, are provided internally or by other service providers. We did not engage Deloitte to provide compliance
outsourcing services.
Pre-approval
Policies
Our
Audit Committee is responsible for pre-approving all services provided by our independent auditors. All of the above services
and fees were reviewed and approved by the Audit Committee before the services were rendered.
The
Board of Directors has considered the nature and amount of fees billed by Deloitte and believes that the provision of services
for activities unrelated to the audit is compatible with maintaining Deloitte’s independence.