PART
I
ITEM
1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
A.
|
Directors
and Senior Management
|
Not
applicable
Not
applicable
Not
applicable
ITEM
2.
|
OFFER
STATISTICS AND EXPECTED TIMETABLE
|
Not
applicable.
A.
|
Selected
Financial Data
|
SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA
The
following table sets forth our selected consolidated financial data for the periods ended and as of the dates indicated. The following
selected historical consolidated financial data should be read in conjunction with “Item 5. Operational and Financial Review
and Prospects” and other information provided elsewhere in this Annual Report on Form 20-F and our consolidated financial
statements and related notes. The selected consolidated financial data in this section is not intended to replace the consolidated
financial statements and is qualified in its entirety thereby.
The
selected consolidated statements of operations for the three years ended December 31, 2019, 2018, and 2017, and our selected consolidated
statements of financial position as of December 31, 2019 and 2018 have been derived from our audited consolidated financial statements
included elsewhere in this Annual Report on Form 20-F. The selected consolidated statements of operations data for the years ended
December 31, 2016 and 2015, and the selected consolidated statements of financial position data as of December 31, 2017, 2016
and 2015, have been derived from Kitov’s audited consolidated financial statements not included in this Annual Report on
Form 20-F. We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. Our historical results
are not necessarily indicative of results to be expected in any future periods. You should read this information together with
the section of this Annual Report on Form 20-F entitled “Item 5. Operating and Financial Review and Prospects” and
our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 20-F.
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(U.S. Dollars in thousands, except per share and
weighted average shares
data)
|
|
Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
Research and development expenses
|
|
|
2,674
|
|
|
|
5,268
|
|
|
|
4,640
|
|
|
|
4,180
|
|
|
|
2,560
|
|
General and administrative expenses
|
|
|
6,078
|
|
|
|
5,195
|
|
|
|
6,397
|
|
|
|
3,003
|
|
|
|
1,509
|
|
Reimbursement of legal fees
|
|
|
(596
|
)
|
|
|
(743
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other expenses (income)
|
|
|
-
|
|
|
|
(894
|
)
|
|
|
1,029
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
7,156
|
|
|
|
7,826
|
|
|
|
11,966
|
|
|
|
7,183
|
|
|
|
4,069
|
|
Financing expense (income), net
|
|
|
(1,479
|
)
|
|
|
(2,257
|
)
|
|
|
947
|
|
|
|
4,942
|
|
|
|
133
|
|
Tax expenses
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
|
5,893
|
|
|
|
5,569
|
|
|
|
12,913
|
|
|
|
12,125
|
|
|
|
4,202
|
|
Loss attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the Company
|
|
|
5,850
|
|
|
|
5,200
|
|
|
|
12,177
|
|
|
|
12,125
|
|
|
|
4,202
|
|
Non - Controlling interests
|
|
|
43
|
|
|
|
369
|
|
|
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per ordinary share:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
(0.30
|
)
|
|
|
(0.39
|
)
|
|
|
*(1.37
|
)
|
|
|
*(2.11
|
)
|
|
|
*(4.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares used in computing
basic and diluted loss per share (in thousands):
|
|
|
19,368
|
|
|
|
14,205
|
|
|
|
*9,457
|
|
|
|
*5,756
|
|
|
|
*963
|
|
(1)
|
Basic
loss per ordinary share is calculated by dividing the loss attributable to shareholders by the weighted average number of
ordinary shares outstanding during the period. There are no differences between basic and diluted loss per ordinary share
since there are no dilutive potential ordinary shares.
|
*
|
Unless
otherwise indicated, all information contained in this Annual Report on Form 20-F gives retrospective effect to:
|
(i)
a consolidation of Kitov Pharma’s share capital at a ratio of 1:20, which was effected on January 4, 2019, or the 2019 Consolidation,
so that: (A) each 20 ordinary shares of Kitov Pharma were consolidated into one ordinary share of Kitov Pharma and (B) each 20
Kitov Pharma’s options (tradable and non-tradable) exercisable into ordinary shares outstanding immediately prior to the
2019 Consolidation were consolidated into one option exercisable into one ordinary share of Kitov Pharma at an exercise price
equal to the pre-2019 Consolidation exercise price multiplied by 20.
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(U.S. Dollars, in thousands)
|
|
Statement of Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
4,385
|
|
|
|
5,163
|
|
|
|
3,947
|
|
|
|
6,758
|
|
|
|
10,558
|
|
Working capital (*)
|
|
|
4,756
|
|
|
|
5,200
|
|
|
|
4,010
|
(**)
|
|
|
13,625
|
|
|
|
9,606
|
|
Total assets
|
|
|
14,718
|
|
|
|
14,723
|
|
|
|
14,183
|
|
|
|
14,914
|
|
|
|
10,812
|
|
Total liabilities
|
|
|
(3,859
|
)
|
|
|
(3,719
|
)
|
|
|
(5,495
|
)(**)
|
|
|
(1,529
|
)
|
|
|
(1,383
|
)
|
Accumulated loss
|
|
|
(49,522
|
)
|
|
|
(43,672
|
)
|
|
|
(38,472
|
)(**)
|
|
|
(26,200
|
)
|
|
|
(14,054
|
)
|
Total equity
|
|
|
10,859
|
|
|
|
11,004
|
|
|
|
8,688
|
(**)
|
|
|
13,385
|
|
|
|
9,429
|
|
(*)
|
Working capital is defined as current assets
less current liabilities
|
Adjusted
operating loss
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(U.S. Dollars, in thousands)
|
|
Operating loss for the year
|
|
|
7,156
|
|
|
|
7,826
|
|
|
|
11,966
|
|
|
|
7,183
|
|
|
|
4,069
|
|
Less ESOP expenses
|
|
|
(1,273
|
)
|
|
|
(773
|
)
|
|
|
(2,308
|
)
|
|
|
(400
|
)
|
|
|
(59
|
)
|
Adjusted Operating Loss
|
|
|
5,883
|
|
|
|
7,053
|
|
|
|
9,658
|
|
|
|
6,783
|
|
|
|
4,010
|
|
Adjusted
operating loss is defined as operating loss, plus non-cash share-based compensation expenses. Our management believes that excluding
non-cash charges related to share-based compensation provides useful information to investors because of its non-cash nature,
varying available valuation methodologies among companies and the subjectivity of the assumptions and the variety of award types
that a company can use under the relevant accounting guidance, which may obscure trends in our core operating performance. We
present adjusted operating loss because we use this non-IFRS financial measures to assess our operational performance, for financial
and operational decision-making, and as a means to evaluate period-to-period comparisons on a consistent basis. Management believes
this non-IFRS financial measure is useful to investors because: (1) it allows for greater transparency with respect to key metrics
used by management in its financial and operational decision-making; and (2) it exclude the impact of non-cash item that is not
directly attributable to our core operating performance and that may obscure trends in the core operating performance of the business.
Non-IFRS financial measures have limitations as an analytical tool and should not be considered in isolation from, or as a substitute
for, our IFRS results. We expect to continue reporting non-IFRS financial measures, adjusting for the item described above, and
we expect to continue to incur expenses similar to certain of the non-cash, non-IFRS adjustments described above. Accordingly,
unless otherwise stated, the exclusion of this and other similar items in the presentation of non-IFRS financial measures should
not be construed as an inference that these items are unusual, infrequent or non-recurring. Adjusted operating loss is not a recognized
term under IFRS and do not purport to be an alternative to IFRS net operating loss as an indicator of operating performance or
any other IFRS measure. Moreover, because not all companies use identical measures and calculations, the presentation of adjusted
operating loss may not be comparable to other similarly titled measures of other companies.
B.
|
Capitalization
and Indebtedness
|
Not
applicable.
C.
|
Reasons
for the Offer and Use of Proceeds
|
Not
applicable.
You
should carefully consider the risks we describe below, in addition to the other information set forth elsewhere in this Annual
Report on Form 20-F, including our consolidated financial statements and the related notes beginning on page F-1, which could
materially adversely affect our business, financial condition and future results. If any of the following risks actually occur,
our business, financial condition and results of operations could be materially and adversely affected. In that event, the trading
price of Kitov Pharma’s ordinary shares, American Depositary Shares and public warrants could decline.
Risks
Related to Our Financial Condition and Capital Requirements
We
are a pharmaceutical company with a history of operating losses. We expect to incur significant additional losses in the future
and may never be profitable.
We
are a pharmaceutical company, and we are focused on the development and commercialization of innovative pharmaceutical drugs.
We have one FDA-approved drug, Consensi™ for which we have entered into commercialization agreements with respect to the
United States and in several territories in Asia (subject to regulatory approval in such territories) but we have not commenced
drug sales in such territories. Additionally, we currently have two oncology therapeutic candidates, NT219 and CM-24. NT219 is
in the preclinical development stage, and CM-24 has previously had a Phase 1 clinical trial. Neither has been approved for marketing
and they are not being sold, marketed or commercialized. Each will require preclinical and/or clinical trials or other testing
before we can obtain regulatory approval, if we are able to obtain regulatory approval at all. We must obtain regulatory approval
for NT219, CM-24 or any other therapeutic candidate that we may develop or acquire in the future, before we can sell such therapeutic
candidates. We have incurred losses from commencement of our pharmaceutical research and development activities through December
31, 2019 of approximately $49.5 million as a result of research and development activities, clinical trial related activities,
investment/acquisition activities, listing for trading and fund raising related activities, selling general administrative and
other expenses. We may incur significant additional losses as we continue to focus our resources on advancing NT219, CM-24 or
other therapeutic candidates that we may develop or acquire in the future. Our ability to generate revenue and achieve profitability
depends mainly upon our ability, alone or with others, to successfully develop, and obtain the required regulatory approvals for,
our oncology therapeutic candidates in the United States and various other territories and then to successfully commercialize
our oncology therapeutic candidates; to successfully market and sell our FDA-approved drug Consensi™ in the United States
through our U.S. commercialization partner; and to obtain, either by us or by our commercialization partners, the required regulatory
approvals in various territories other than the United States and then commercialize and sell Consensi™ in such other territories.
We may be unable to achieve any or all of these goals with regard to NT219, CM-24 or any other therapeutic candidates that we
may develop in the future and our FDA-approved drug Consensi™. As a result, we may never be profitable or achieve significant
or sustained revenues.
Our
limited operating history as a pharmaceutical research and development company makes it difficult to evaluate our business and
prospects, and we depend on the success of a limited portfolio of products for our revenue, which could impair our ability to
achieve profitability
We
have a limited operating history as a pharmaceutical research and development company, and our operations to date have been limited
primarily to developing, gaining regulatory approval, and commercializing Consensi™; developing our NT219 and CM-24 therapeutic
candidates; research and development; raising capital; and recruiting scientific and management personnel and third party partners.
Though we have plans for the development of additional therapeutic candidate products, to date, the only revenue we have
received has been the initial milestone payments in connection with commercialization agreements for Consensi™. We have
not yet demonstrated an ability to successfully sell our FDA-approved drug, Consensi™, which was approved on May 31, 2018.
We have not yet demonstrated an ability to commercialize or obtain regulatory approval for our NT219 and CM-24 therapeutic candidates.
Our future growth and success depend upon the successful commercialization of Consensi™ and our oncology therapeutic candidates. If
we are unable to achieve increased commercial acceptance of our products, obtain regulatory clearances or approvals for our therapeutic
candidates and future products, or experience a decrease in the utilization of our products, our revenue would be adversely affected.
Consequently, any predictions about our future performance may not be accurate, and you may not be able to fully assess our ability
to complete development or commercialize our therapeutic candidates, obtain regulatory approvals, or achieve market acceptance
or favorable pricing for our therapeutic candidates.
We
will need to raise additional capital to achieve our strategic objectives of developing and commercializing additional therapeutic
candidates, and our failure to raise sufficient capital would significantly impair our ability to fund our future operations,
develop our therapeutic candidates, seek regulatory approval that is a prerequisite to selling any product, attract development
or commercial partners and retain key personnel.
Our
business presently generates limited revenues, and we plan to continue expending substantial funds in research and development,
including CMC, preclinical and clinical trials of our NT219 and CM-24 therapeutic candidates, and for manufacturing of our FDA-approved
drug Consensi™. We plan to fund our future operations through commercialization and out-licensing of our products and therapeutic
candidates and by either debt or equity financing. However, we cannot be certain that we will be able to raise capital on commercially
reasonable terms or at all, or that our actual cash requirements will not be greater than anticipated. We may have difficulty
raising needed capital or securing a development or commercialization partner in the future as a result of, among other factors,
our lack of revenues from commercialization of the therapeutic candidates, as well as the inherent business risks associated with
our company and present and future market conditions. In addition, global and local economic and geopolitical conditions may make
it more difficult for us to raise needed capital or secure a development or commercialization partner in the future and may impact
our liquidity. If we are unable to obtain future financing, we may be forced to delay, reduce the scope of, or eliminate one or
more of our research, development or commercialization programs related to our therapeutic candidates, any of which may have a
material adverse effect on our business, financial condition and results of operations. Moreover, to the extent we are able to
raise capital through the issuance of debt or equity securities, it could result in substantial dilution to existing shareholders.
Our
long term capital requirements are uncertain and subject to numerous risks.
We
estimate that so long as no significant revenues are generated from our oncology therapeutic candidates and our FDA-approved drug
Consensi™, we will need to raise substantial additional funds to develop and/or commercialize our therapeutic candidates
and to acquire or in-license any additional therapeutic candidates, as our current cash and short-term investments are not sufficient
to complete the research and development of our therapeutic candidates in their current phase of development and any additional
therapeutic candidates that we may acquire, in-license or develop in the future, and to fund our related expenses. Our long term
capital requirements are expected to depend on many potential factors, including, among others:
|
●
|
the
regulatory path of our oncology therapeutic candidates or any other therapeutic candidates that we may develop in the future;
|
|
|
|
|
●
|
our
ability to successfully complete the required CMC development for our oncology therapeutic candidates or any other therapeutic
candidates that we may develop in the future;
|
|
|
|
|
●
|
our
ability to successfully commercialize our oncology therapeutic candidates, or any other therapeutic candidates
that we may develop in the future, including securing commercialization agreements with third parties and favorable pricing
and market share;
|
|
|
|
|
●
|
the
ability of our U.S. partner to successfully launch and commercialize Consensi™;
|
|
●
|
our
ability to successfully meet our post marketing commitments to FDA for Consensi™ and to obtain approvals for marketing
of Consensi™ in other territories than the U.S.;
|
|
|
|
|
●
|
the
progress, success and cost of our preclinical and/or clinical trials and research and development programs;
|
|
|
|
|
●
|
the
costs, timing and outcome of regulatory review and obtaining regulatory approval of our oncology therapeutic candidates or
any other therapeutic candidates that we may develop in the future and addressing regulatory and other issues that may arise
post-approval for such oncology therapeutic candidates or from commercializing Consensi™;
|
|
|
|
|
●
|
the
costs of obtaining and enforcing our issued patents and defending intellectual property-related claims;
|
|
|
|
|
●
|
the
costs of developing and maintaining our third parties’ cGMP commercial manufacturing standards and our sales, marketing
and distribution channels;
|
|
●
|
our
consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner
than anticipated;
|
|
|
|
|
●
|
our
ability to obtain recommendations and publish studies regarding the efficacy and/or safety of our approved products, or our
oncology therapeutic candidates or any other therapeutic candidates that we may develop in the future that may be published
by government agencies, professional organizations, academic or medical journals or other key opinion leaders;
|
|
|
|
|
●
|
patient
acceptance of and demand for Consensi™;
|
|
|
|
|
●
|
sufficient
coverage and reimbursement by third-party payers; and
|
|
|
|
|
●
|
maintaining
FDA marketing approval of Consensi™.
|
If
we are unable to obtain approval, commercialize or out-license our oncology therapeutic candidates, or any other therapeutic candidates
that we may acquire, in-license or develop in the future; maintain approval; or obtain future financing, we may be forced to delay,
reduce the scope of, or eliminate one or more of our research and development programs related to the therapeutic candidates,
which may have a material adverse effect on our business, financial condition and results of operations.
Risks
Related to Our Business and Regulatory Matters
If
we and/or our potential commercialization partners are unable to obtain FDA and/or other foreign regulatory authority approval
for our therapeutic candidates, we and/or our potential commercialization partners will be unable to commercialize our therapeutic
candidates.
Although
we recently entered into an exclusive marketing and distribution agreement with respect to the commercialization of Consensi™
in the U.S. market, to date, we have not marketed, distributed or sold any therapeutic candidate or drug product. In addition
to that agreement, we have entered into only two other out-licensing agreements for marketing, manufacturing and distribution
of Consensi™ in South Korea and China, which are dependent upon achieving regulatory clearance or approval for Consensi™
in each of those respective countries. Our oncology therapeutic candidates are each subject to extensive governmental laws, regulations
and guidelines relating to development, preclinical and clinical trials, manufacturing and commercialization of drugs. We may
not be able to obtain regulatory approval for any of our therapeutic candidates in a timely manner or at all.
Any
material delay in obtaining, or the failure to obtain, required regulatory approvals will increase our costs and materially and
adversely affect our ability to generate future revenues. Any regulatory approval to market a therapeutic candidate may be subject
to restrictive conditions of use, including cautionary information, thereby limiting the size of the market for the therapeutic
candidate. We also are, and will be, subject to numerous regulatory requirements from both the FDA and foreign state agencies
that govern the conduct of preclinical and clinical trials, manufacturing and marketing authorization, pricing and third-party
reimbursement. Moreover, approval by one regulatory authority does not ensure approval by other regulatory authorities in separate
jurisdictions. Each jurisdiction may have different approval processes and may impose additional testing requirements for our
therapeutic candidates than other jurisdictions. For example, even though the FDA has granted its approval to market Consensi™
for certain indications of use, the South Korean and/or the Chinese regulatory authorities may impose additional requirements
or place other limitations on the indications for use in such countries, before our licensee and distributors in such countries
may commence manufacturing and selling Consensi™. Additionally, the FDA or other foreign regulatory bodies may change their
approval policies or adopt new laws, regulations or guidelines in a manner that delays or impairs our ability to obtain the necessary
regulatory approvals to commercialize our therapeutic candidates.
Pre-clinical
studies, CMC, and clinical trials may involve a lengthy and expensive process with an uncertain outcome, and results of earlier
studies and trials may not be predictive of future results. We and/or our potential commercialization partners will not be able
to commercialize our therapeutic candidates without developing CMC satisfactory to regulatory authorities, completing preclinical
studies and clinical trials and then seeking to obtain regulatory approval if such trials show that our therapeutic candidates
are safe and effective.
We
have limited experience in conducting and managing the CMC, preclinical studies and clinical trials that are required to commence
commercial sales of our therapeutic candidates. Developing and implementing CMC, and planning and conducting preclinical studies
and clinical trials are expensive, complex, can take many years to complete and have uncertain outcomes. We cannot predict whether
we, independently or through third parties, will encounter problems with any of the completed, ongoing or planned CMC, preclinical
studies and/or clinical trials that will cause delays, including suspension of preclinical studies and/or clinical trials, delays
in recruiting patients into the clinical trials, or delay of data analysis or release of the final report in our preclinical studies
or clinical studies. The CMC, preclinical studies and clinical trials of our therapeutic candidates may take significantly longer
to complete than is estimated. Failure can occur at any stage of the testing, and we may experience numerous unforeseen events
during, or as a result of, the CMC, preclinical studies, and/or clinical trial process that could delay or prevent commercialization
of our current or future therapeutic candidates.
In
connection with the CMC, preclinical studies and clinical trials for our therapeutic candidates and other therapeutic candidates
that we may seek to develop in the future, either on our own or through licensing or partnering agreements, we face various risks,
including but not limited to:
|
●
|
delays
in manufacturing the drug substance and drug product for preclinical studies and clinical trials;
|
|
|
|
|
●
|
delays
in manufacturing the drug substance and drug product following NDA or BLA approval, if we receive such approval at all;
|
|
|
|
|
●
|
delays
in securing clinical investigators or trial sites for clinical trials that must be completed for us to obtain any approval
that we seek;
|
|
●
|
delays
in receiving import or other government approvals to ensure appropriate drug supply;
|
|
|
|
|
●
|
delays
in obtaining institutional review board (human ethics committee) and other regulatory approvals to commence a clinical trial;
|
|
|
|
|
●
|
negative
or inconclusive results from preclinical and/or clinical trials;
|
|
|
|
|
●
|
the
FDA or other foreign regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical
studies and may not approve initiation of certain clinical trials;
|
|
|
|
|
●
|
failure
to manufacture our drug product, to maintain the drug product, or contamination to our drug product;
|
|
|
|
|
●
|
an
inability to monitor patients adequately during or after treatment;
|
|
●
|
problems
with investigator or patient compliance with the trial protocols;
|
|
|
|
|
●
|
a
therapeutic candidate may not prove safe or efficacious;
|
|
|
|
|
●
|
there
may be unexpected or even serious adverse events and side effects from the use of a therapeutic candidate;
|
|
|
|
|
●
|
the
results with respect to any therapeutic candidate may not confirm the positive results from earlier preclinical studies or
clinical trials;
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the
results may not meet the level of statistical significance required by the FDA or other foreign regulatory authorities;
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the
results will leave only limited and/or restrictive uses, including the inclusion of warnings and contraindications, which
could significantly limit the marketability and profitability of the therapeutic candidate;
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the
clinical trials may be delayed or not completed due to the failure to recruit suitable candidates or if there is a lower rate
of suitable candidates than anticipated or if there is a delay in recruiting suitable candidates; and
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changes
to the current regulatory requirements related to clinical trials which can delay, hinder or lead to unexpected costs in connection
with our receiving the applicable regulatory approvals.
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A
number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience
than us, have suffered significant setbacks in advanced clinical trials, even after seeing promising results in earlier preclinical
studies and/or clinical trials. As such, we do not know whether any clinical trials we may conduct will demonstrate adequate efficacy
and safety sufficient to obtain regulatory approval to market our therapeutic candidates. If any of the preclinical studies and/or
clinical trials of any therapeutic candidate do not produce favorable results, our ability to obtain regulatory approval for the
therapeutic candidate may be adversely impacted, which will have a material adverse effect on our business, financial condition
and results of operations.
If
we do not establish collaborations for our oncology therapeutic candidates or any other therapeutic candidates that we may develop
in the future, or otherwise raise substantial additional capital, we will likely need to alter our development and any commercialization
plans.
Our
drug development programs, including our commercialization of Consensi™ and the potential commercialization of our oncology
therapeutic candidates, or any other therapeutic candidates that we may develop in the future, will require additional cash to
fund expenses. As such, our strategy includes selectively partnering or collaborating with multiple pharmaceutical and biotechnology
companies to assist us in furthering development and potential commercialization of our therapeutic candidates, in some or all
jurisdictions. While we have entered into an exclusive marketing and distribution agreement with respect to the commercialization
of Consensi™ in the U.S. and market and out-licensing agreements for marketing, manufacturing and distribution of Consensi™
in South Korea and China, we may not be successful in collaborations with other third parties on acceptable terms, or at all.
In addition, if we fail to negotiate and maintain suitable development or commercialization agreements, we may have to limit the
size or scope of our activities or we may have to delay one or more of our development or commercialization programs. Any failure
to enter into or maintain development or commercialization agreements with respect to the development, marketing and commercialization
of our therapeutic candidates or Consensi™ in foreign jurisdictions where we do not have approval for commercialization,
or any other therapeutic candidates that we may develop in the future or failure to develop, market and commercialize such therapeutic
candidates; or failure to market and commercialize our Consensi™ drug product in the U.S. market will have an adverse effect
on our business, financial condition and results of operation.
Any
collaborative arrangements that we establish may not be successful or we may otherwise not realize the anticipated benefits from
these collaborations. We do not control third parties with whom we have or may have collaborative arrangements, and we rely on
them to achieve results which may be significant to us. In addition, any future collaboration arrangements may place the development,
manufacturing and commercialization of our Consensi™ drug product, our oncology therapeutic candidates or any other therapeutic
candidates that we may develop in the future, outside our control, and may require us to relinquish important rights or may otherwise
be on terms unfavorable to us.
Our
collaborative arrangements require us to rely on external consultants, advisors, and experts for assistance in several key functions,
including preclinical and clinical development, manufacturing, regulatory, market research, and intellectual property. We do not
control these third parties, but we rely on them to achieve results, which may be significant to us. Additionally, we are responsible
for any quality or regulatory issue that a collaborator may have that affects one or more of our therapeutic candidates. Relying
upon collaborative arrangements to develop and/or commercialize our Consensi™ drug product, our oncology therapeutic candidates
or any other therapeutic candidates that we may develop in the future subjects us to a number of risks, including:
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we
may not be able to control the amount and timing of resources that our collaborators may devote to our drug product or therapeutic
candidates;
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we
may be held liable should a collaborator fail to comply with applicable laws, rules, or regulations when performing services
for us;
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our
collaborators may experience financial difficulties or changes in business focus;
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our
collaborators may experience quality or regulatory issues that negatively affect our therapeutic candidates;
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our
collaborators may fail to secure adequate commercial supplies in a timely manner for our drug products upon marketing approval,
if at all;
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our
collaborators may have a shortage of qualified personnel;
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we
may be required to relinquish important rights, such as local trademark, marketing and distribution rights;
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business
combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s
willingness or ability to complete its obligations under any arrangement;
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under
certain circumstances, a collaborator could move forward with a competing therapeutic candidate developed either independently
or in collaboration with others, including our competitors; and
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collaborative
arrangements are often terminated or allowed to expire, which could delay and increase the cost of development of our therapeutic
candidates.
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If
any of these or other scenarios materialize, they could have an adverse effect on our business, financial condition or results
of operations.
Our
current business model is based largely upon the development and commercialization of new combination products and new drug candidates
that have mostly not yet been administered to humans. Unexpected difficulties or delays in successfully developing or commercializing
such combination and new drugs could have an adverse effect on our business, financial condition and results of operations.
We
are currently focused on combination products and drug candidates that have mostly not yet been administered to humans. Consensi™
has the combination of APIs celecoxib and amlodipine besylate that had not previously been combined into one FDA-approved drug
product or used at all in a clinical setting outside the scope of the clinical trials before we obtained FDA-approval to commercialize
Consensi™ on May 31, 2018. We cannot guarantee that Consensi™ will be safe and efficacious when administered outside
of a clinical trial setting. In addition, we cannot be certain that the market will consider our Consensi™ drug product
to be superior to the current gold standard of care or to treatment with the separate drug components rather than in combination.
The
previous owners of the CM-24 conducted the first human clinical trials for this therapeutic candidate, which were initiated in
2015, and discontinued in 2017. Our NT219 therapeutic candidate has never been used in a clinical setting. We cannot be certain
whether NT219 or CM-24 will be safe and efficacious when used in either monotherapy settings or in combination with other known
cancer treatments.
In
addition, we cannot be certain that the FDA or any foreign regulatory body will consider our oncology therapeutic candidates,
whether alone or combined with a particular cancer treatment, or any other therapeutic candidate that we may develop or acquire
in the future to be superior to the current gold standard of care. Any delays in perfecting the combination, the production of
the combination, or in market acceptance of the combination or new drug candidates could have an adverse effect on our business,
financial condition and results of operations.
In
addition, as part of our strategy for growth, we may consider the acquisition of therapeutic candidates at various stages of development
and in a variety of therapeutic areas, and we may also consider the acquisition or marketing rights of approved drug products
as well. However, we may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions
successfully into our business. In this regard, acquisitions involve numerous risks, including difficulties in the integration
of the acquired therapeutic candidates and/or drug product and the diversion of management’s attention from other business
concerns. Although we will endeavor to evaluate the risks inherent in any particular transaction, there can be no assurance that
we will properly ascertain all such risks. In addition, acquisitions could result in the incurrence of substantial additional
indebtedness and other expenses or in potentially dilutive issuances of equity securities. There can be no assurance that difficulties
encountered with acquisitions will not have a material adverse effect on our business, financial condition and results of operations.
We
rely mainly on third parties to conduct our CMC, preclinical studies and clinical trials, and those third parties may not perform
satisfactorily, including, but not limited to, failing to meet established deadlines for the completion of such clinical trials.
We
do not have the ability independently to conduct CMC, preclinical studies or clinical trials for our product candidates, and we
rely mainly on third parties, such as contract manufacturing organizations, contract research organizations, medical institutions,
contract laboratories, current and potential development or commercialization partners, clinical investigators and independent
study monitors, to perform these functions. Our reliance on these third parties for development activities reduces our control
over these activities.
Furthermore,
these third parties may also have relationships with other entities, some of which may be our competitors. Although we have, in
the ordinary course of business, entered into agreements with these third parties, we continue to be responsible for confirming
that each of our preclinical studies and clinical trials is conducted in accordance with its general investigational plan and
protocol. Moreover, the FDA requires us and our applicable third-party collaborators, to comply with regulations and standards,
commonly referred to as current good laboratory practices (cGLP), current good manufacturing practices (cGMP), and current good
clinical practices (cGCP), for manufacturing and conducting, recording and reporting the results of preclinical and clinical trials
to assure that data and reported results are credible and accurate and that the clinical trial participants are adequately protected.
We cannot guarantee that our third-party collaborators will remain compliant with the applicable regulations. Regulatory authorities
in other jurisdictions may have similar responsibilities and requirements. Our reliance on third parties does not relieve us of
these responsibilities and requirements.
To
date, we believe our contract manufacturing organizations, contract research organizations and other third party entities that
support our manufacturing, preclinical or clinical practices with which we are working have generally performed well. However,
if these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not meet our
deadlines or we may be required to replace them. Although we believe that there are a number of other third-party contractors
we could engage to continue these activities, finding replacements may result in a delay of clinical trials, meeting post marketing
commitments to the FDA and/or commercialization of products and additional costs. Accordingly, we may be delayed in obtaining
regulatory approvals for our oncology therapeutic candidate or any therapeutic candidate that we may develop in the future and
we may be delayed in our efforts to successfully commercialize such therapeutic candidates for targeted diseases or fail to maintain
marketing authorization to our drug products.
In
addition, we rely substantially on third-party data managers for the CMC, preclinical study and clinical trial data that we present
to regulatory authorities in order to obtain marketing authorizations. Although we attempt to audit and control the quality of
third party data, we cannot guarantee the authenticity or accuracy of such data, nor can we be certain that such data has not
been fraudulently generated. There is no assurance that these third parties will pass FDA or regulatory audits, which could delay
or prevent regulatory approval or cause revocation of already approved marketing authorization.
If
third parties do not manufacture our current therapeutic candidates or any other therapeutic candidate that we may develop in
the future in sufficient quantities in the required timeframe, at the required quality standards and at an acceptable cost, clinical
development and commercialization of our therapeutic candidates would be delayed.
We
do not currently own or operate manufacturing facilities, and we rely, and expect to continue to rely, on third parties to manufacture
preclinical, clinical and commercial quantities of our oncology therapeutic candidates or any other therapeutic candidate that
we may develop in the future. Our reliance on third parties includes our reliance on them for quality assurance related to regulatory
compliance. Our current and anticipated future reliance upon others for the manufacture of our oncology therapeutic candidates
or any other therapeutic candidate that we may develop in the future may adversely affect our future profit margins, if any, and
our ability to develop such therapeutic candidates and commercialize any such therapeutic candidates on a timely and competitive
basis.
We
may not be able to maintain our existing or future third party manufacturing arrangements on acceptable terms, if at all. If for
some reason our existing or future manufacturers do not perform as agreed or expected, or our existing or future manufacturers
otherwise terminate their arrangements with us, we may be required to replace them. Although we are not completely dependent upon
our existing manufacturing agreements since we could replace them with other third party manufacturers, we may incur added costs
and delays in identifying, engaging, qualifying and training any such replacements, and in receiving regulatory approval for such
replacements.
We
rely on third party contract vendors to manufacture and supply us with APIs to be compliant with the International Conference
of Harmonization Q7 guidance and applicable laws and regulations, in the quantities we require on a timely basis.
We
currently do not manufacture any API ourselves. Instead, we rely on third-party vendors for the manufacture and supply of our
APIs that are used to formulate our Consensi™ drug product and our oncology therapeutic candidates. While there are many
potential API manufacturers and suppliers in the market, if these manufacturers or suppliers are incapable or unwilling to meet
our current or future needs on acceptable terms or at all, or the current or future demand of the public, if any, we could experience
delays in conducting additional clinical trials of our Consensi™ drug product, NT219 and CM-24 and incur additional costs.
While
there may be several alternative manufacturers or suppliers of API in the market, we have not conducted extensive audits and investigations
into the quality or availability of their APIs. In addition, we may acquire therapeutic candidates which already have long term
commitments to a specific API supplier. As a result, we can provide no assurances that supply sources will not be interrupted
from time to time. Changing API manufacturers or suppliers or finding and qualifying new API manufacturers or suppliers can be
costly and take a significant amount of time. Many APIs require significant lead time to manufacture. There can also be challenges
in maintaining similar quality or technical standards from one manufacturing batch to the next.
If
we are not able to find stable, reliable manufacturers or suppliers of our APIs, we may not be able to produce enough supplies
of our Consensi™ drug product to meet the current or future demands of the public, or produce enough supplies of our oncology
therapeutic candidates to meet our needs for further development and/or to conduct clinical trials, which could affect our business,
financial condition and results of operation.
We
anticipate continued reliance on third-party manufacturers if we are successful in obtaining marketing approval from the FDA and/or
other regulatory agencies for NT219, CM-24 or any other therapeutic candidates we may develop in the future.
To
date, our NT219 and CM-24 therapeutic candidates has been manufactured in relatively small quantities by third-party manufacturers.
Once our oncology therapeutic candidates and/or any other therapeutic candidate that we may develop or acquire in the future is
approved for marketing and commercial sale, if at all, we still expect that we would continue to rely, at least initially, on
third-party manufacturers to produce commercial quantities of such approved therapeutic candidates. These manufacturers may not
be able successfully to increase the manufacturing capacity for any such therapeutic candidates that may be approved in the future
in a timely or economic manner, or at all. Significant scale-up of manufacturing may require additional validation studies, which
the FDA must review and approve. If we are unable successfully to increase the manufacturing capacity for our oncology therapeutic
candidates or any therapeutic candidate that we may develop or acquire in the future, or we are unable to establish alternative
manufacturing capabilities and in a timely manner, the commercial launch of any such therapeutic candidates that are approved
in the future may be delayed or there may be a shortage in supply.
We
anticipate continued reliance on third-party manufacturers to manufacture our Consensi™ drug product at commercial scale
to meet the demand in the United States or any foreign jurisdiction in which we may commercialize our Consensi™ drug product
in the future.
Before
our Consensi™ drug product was approved on May 31, 2018, our third-party manufacturer produced sufficient quantities of
Consensi™ for formulation development, PK studies, and the required scale production in support of our NDA package that
we submitted to the FDA for the purposes of approving Consensi™ for marketing and commercial sale in the United States.
We have recently engaged such a third party supplier for the manufacturing of sufficient quantities of Consensi™ in order
to comply with FDA post-marketing approval requirements and at commercial scale in anticipation of the upcoming U.S. launch of
Consensi™ by our commercialization partner in the United States. We anticipate that we will continue to rely on our third-party
manufacturer to manufacture our Consensi™ drug product at commercial scale under cGMP conditions. Our third party supplier
may not be able to successfully increase the manufacturing capacity for our Consensi™ drug product to meet the demand in
the United States. Though we can attempt to ensure the availability of suppliers or manufacturers for Consensi™, the number
of suppliers with suitable manufacturing capacity and capability is often very limited, and therefore we may be dependent on one
or a few such suppliers. Furthermore, any changes to the manufacturing process to increase the manufacturing capacity for Consensi™,
including changing or including additional manufacturers, or any other changes with respect to manufacturing may require additional
validation studies, which the FDA must review and approve. If third-party manufacturers are unable to successfully increase the
manufacturing capacity for Consensi™ or we are unable to establish alternative manufacturing capabilities, our efforts to
meet the demand for our Consensi™ drug product in the United States may be delayed or there may be a shortage in supply.
We
and our third-party manufacturers are, and will be, subject to regulations of the FDA and other foreign regulatory authorities.
We
and our third-party contract manufacturers are, and will be, required to adhere to laws, regulations and guidelines of the FDA
and other foreign regulatory authorities setting forth cGMPs. These laws, regulations and guidelines cover all aspects of the
manufacturing, testing, quality control and recordkeeping relating to our Consensi™ drug product and our oncology therapeutic
candidates when we initiate their clinical trials. We and our manufacturers may not be able to comply with applicable laws, regulations
and guidelines. We and our manufacturers are and will be subject to unannounced inspections by the FDA, state regulators and similar
foreign regulatory authorities outside the U.S. Our failure, or the failure of our third-party manufacturers, to comply with applicable
laws, regulations and guidelines could result in the imposition of sanctions on us, including fines, injunctions, civil penalties,
failure of regulatory authorities to grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal
of approvals, license revocation, seizures or recalls of our therapeutic candidates, operating restrictions and criminal prosecutions,
any of which could significantly and adversely affect regulatory approval and supplies of our therapeutic candidates and materially
and adversely affect our business, financial condition and results of operations.
Our
FDA-approved Consensi™ drug product and our oncology therapeutic candidates and/or any other therapeutic candidate that
we may develop in the future, if approved, will be subject to ongoing regulatory review. If we fail to comply with continuing
U.S. and applicable foreign laws, regulations and guidelines, we could lose the FDA approval(s) we have obtained (or will obtain,
if any), and our business would be seriously harmed.
Our
FDA-approved Consensi™ drug product is subject to ongoing post-marketing surveillance programs and regulatory review. In
addition, if our oncology therapeutic candidates and/or any other therapeutic candidate that we may develop in the future, receives
regulatory approval to commercialize, such therapeutic candidate will be subject to ongoing post-marketing surveillance programs
and regulatory review. We and our commercialization partners, as applicable, are subject to ongoing reporting obligations, including
pharmacovigilance, or drug safety, and our manufacturing operations, and those of contract manufacturers that we select, will
be subject to continuing regulatory review, including inspections by the FDA and other foreign regulatory authorities if a product
is approved for commercialization in such foreign jurisdictions. The results of this ongoing review may result in the withdrawal
of an approved product from the market, the interruption of manufacturing operations or the imposition of labeling or marketing
limitations. In addition, since many more patients are exposed to drugs following their marketing post-approval, unanticipated
adverse reactions or serious adverse reactions that were not observed in preclinical and/or clinical trials may be observed during
the commercial marketing of a drug product.
As
we move forward with commercializing drug products, we may also periodically discuss with the FDA and other regulatory authorities
certain clinical, regulatory and manufacturing matters and, our views may, at times, differ from those of the FDA and other regulatory
authorities. If we are required to conduct additional clinical trials or other testing of an approved drug product, we may face
substantial additional expenses, and/or we have our approval to commercialize a drug product revoked by the FDA or a foreign regulatory
body, should we obtain approval to commercialize in such foreign jurisdiction.
In
addition, the manufacturer and the facilities that we or our commercialization partners use or may use to manufacture drug products
will be subject to periodic and unannounced review and inspection by the FDA and other foreign regulatory authorities. Later discovery
of previously unknown problems with a drug product or a therapeutic candidate, the manufacturer or manufacturing process, or failure
to comply with our post-approval requirements, rules and regulatory requirements, may result in actions such as:
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restrictions
on such drug product, therapeutic candidate, manufacturer or manufacturing process;
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Form
483 observations, untitled letters, warning letters from the FDA or other foreign regulatory authorities;
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withdrawal
of the product or therapeutic candidate from the market;
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suspension
or withdrawal of regulatory approvals;
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refusal
to approve pending applications or supplements to approved applications that we or our potential commercialization partners
submit;
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voluntary
or mandatory recall;
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refusal
to permit the import or export of our therapeutic candidates;
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product
seizure or detentions;
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injunctions
or the imposition of civil or criminal penalties and fines; or
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adverse
publicity or changes to the drug’s labeling.
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The
FDA or foreign regulatory authorities’ policies may change, or additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our oncology therapeutic candidates or regulations may be enacted or changed that
could hinder our ability to commercialize our Consensi™ drug product. If we, or our current or potential commercialization
partners, suppliers, third party contractors or clinical investigators are slow to adapt, or are unable to adapt, to changes in
existing regulatory requirements or the adoption of new regulatory requirements or policies, we or our potential commercialization
partners may lose marketing approval for our Consensi™ drug product and/or our oncology therapeutic candidates or any other
therapeutic candidate that we may develop in the future that obtain regulatory approval, resulting in decreased or lost revenue
from milestones, product sales or royalties and could also result and other civil or criminal sanctions, including fines and penalties.
Regulatory
approval of our Consensi™ drug product is limited by the FDA and similar foreign authorities to those specific indications
and conditions for which clinical safety and efficacy have been demonstrated, and the promotion of Consensi™ (or other products
or product candidates, as applicable) for off-label uses, or in a manner that otherwise violates applicable FDA regulations, could
adversely affect our business.
Any
regulatory approval of therapeutic candidates is limited to those specific diseases and indications for which such therapeutic
candidates have been deemed safe and effective by the FDA or similar foreign authorities. We received FDA approval on May 31,
2018 to commercialize Consensi™ only for the simultaneous treatment of two clinical conditions: pain caused by osteoarthritis
and hypertension, or high blood pressure. Marketing or commercializing Consensi™ to treating a new symptom, or indication
that is not pain caused by osteoarthritis and hypertension would be considered promotion of off-label, or unapproved use, and
would require us to file a supplemental new drug application and obtain regulatory approval. We rely on physicians to prescribe
and administer Consensi™ as the product labeling directs and for the indications described on the labeling. To the extent
any physicians prescribe Consensi™ to patients for off-label uses, or the use of Consensi™ departs from the approved
uses, this may increase the risk of injury or other adverse events to the patients and product liability claims brought against
us. Product liability claims are expensive to defend regardless of merit and could result in substantial damage awards against
us or harm our reputation. Furthermore, the use of Consensi™ for indications other than those approved by the FDA or foreign
authorities, if any, may not effectively treat the conditions associated with the off-label use, which could harm our reputation
in the marketplace among physicians and patients, adversely affecting our operations.
While
physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ
from those approved by regulatory authorities, our ability to promote Consensi™ is limited to those indications that are
specifically approved by the FDA or other regulatory authorities. Although regulatory authorities generally do not regulate the
behavior of physicians, they do restrict communications by companies on the subject of off-label use. If the promotional activities
related to Consensi™ fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement
action by, the FDA or other regulatory authorities. In addition, failure to follow FDA rules and guidelines relating to promotion
and advertising can lead to other negative consequences that could adversely affect our operations, such as the suspension or
withdrawal of Consensi™ from the market, enforcement letters, and corrective actions. Other regulatory authorities may impose
separately penalties including, but not limited to, fines, disgorgement of money, operating restrictions, or criminal prosecution.
The
FDA also requires that our sales and marketing efforts, as well as promotions, comply with various laws and regulations. Prescription
drug promotions must be consistent with and not contrary to labeling, present “fair balance” between risks and benefits,
be truthful and not false or misleading, be adequately substantiated (when required), and include adequate directions for use.
In addition to the requirements applicable to approved drug products, we may also be subject to enforcement action in connection
with any promotion of an investigational new drug. A sponsor or investigator, or any person acting on behalf of a sponsor or investigator,
may not represent in a promotional context that an investigational new drug is safe or effective for the purposes for which it
is under investigation or otherwise promote the drug candidate.
If
the FDA investigates the marketing and promotional materials or other communications for our current or future commercial products
and finds that any of our commercial products are being marketed or promoted in violation of the applicable regulatory restrictions,
we could be subject to FDA enforcement action. Any enforcement action (or related lawsuit, which could follow such action) brought
against us in connection with alleged violations of applicable drug promotion requirements, or prohibitions, could harm our business
and our reputation, as well as the reputation of any approved drug products we may promote or commercialize.
Modifications
to our Consensi™ drug product or to our oncology therapeutic candidates or any other therapeutic candidate(s) that we may
acquire or develop in the future, if approved, will likely require new regulatory approvals before we may continue marketing such
product or may require us, or our current or potential development and commercialization partners, as applicable, to recall or
cease marketing our Consensi™ drug product or such therapeutic candidates until approvals are obtained.
Modifications
to our Consensi™ drug product, our oncology therapeutic candidates or any other therapeutic candidate(s) that we may acquire
or develop in the future, after they have been approved for marketing, if at all, may require new regulatory approvals, and may
result in the recall or suspension of marketing of the product until clearances or approvals of the modified product are obtained.
The FDA and other foreign regulatory authorities require manufacturers of approved drugs to make and document a determination
of whether or not a modification requires a Prior Approval Supplement, a Changes Being Effected in 30 Days Supplement, or a report
in the subsequent Annual Report depending on the impact of the change to the identity, strength, quality, purity, or potency of
the approved drug product. A manufacturer may determine in conformity with applicable laws, regulations and guidelines that a
modification may be implemented without approval of a Prior Approval Supplement by the FDA or a similar supplement submitted to
other foreign regulatory authorities; however, the FDA or other foreign regulatory authorities may disagree with the manufacturer’s
decision. The FDA or other foreign regulatory authorities may also on their own initiative determine that an approval is required
before commencing commercialization of the modified drug product. If the FDA or other foreign regulatory authorities require an
approval of any drug product for which we or our current or potential development and commercialization partners previously received
marketing approval, we or our current or potential development and commercialization partners may be required to recall such drug
product and to stop marketing the drug product as modified, which could require us or our current or potential development and
commercialization partners to redesign the therapeutic candidate and cause a material adverse effect on our business, financial
condition and results of operations.
CM-24
and NT219 may encounter substantial delays in its clinical trials or may not be able to conduct its trials on the timelines it
expects.
Clinical
testing is expensive, time-consuming, and subject to uncertainty. We cannot guarantee that any CM-24 and/or NT219 clinical studies
will be conducted as planned or completed on schedule, if at all. We intend to resume clinical testing of CM-24 and initiate clinical
testing for NT219 but issues may yet arise that could delay or prevent future clinical trials. A failure of one or more clinical
studies can occur at any stage of testing, and CM-24’s or NT219’s future clinical studies may not be successful. Events
that may prevent successful or timely completion of clinical development include:
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delays
in reaching a consensus with regulatory agencies on study design;
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delays
in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical study sites,
the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study
sites;
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delays
in obtaining required Institutional Review Board, or IRB, approval at each clinical study site;
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the
departure of a principal investigator from a clinical site, which could cause delays in conducting the clinical trial at a
particular clinical site;
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imposition
of a temporary or permanent clinical hold by regulatory agencies;
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delays
in recruiting suitable patients to participate in NT219’s or CM-24’s clinical studies;
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failure
by us or our CROs, or third parties, to adhere to clinical study requirements;
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failure
to perform in accordance with the FDA’s current good clinical practices, or cGCPs, requirements, or applicable regulatory
guidelines in other countries;
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patients
dropping out of a study;
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occurrence
of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
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changes
in regulatory requirements and guidance that require amending or submitting new clinical protocols;
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changes
in the standard of care on which a clinical development plan was based, which may require new or additional trials;
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the
cost of clinical studies of CM-24 and NT219 being greater than we anticipates;
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clinical
studies of CM-24 and/or NT219 producing negative or inconclusive results, which may result in us deciding, or regulators requiring,
conduct of additional clinical studies or abandon product development programs;
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delays
in manufacturing, testing, release, validating, or import/export of sufficient stable quantities of CM-24 and/or NT219 for
use in clinical studies or the inability to do any of the foregoing, including any quality issues associated with contract
manufacturers.
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There
is also an as of yet unknown impact of the Coronavirus (COVID-19) pandemic on the conduct of clinical trials of investigational
therapeutic candidates, and any challenges which may arise, for example, from quarantines, site closures, travel limitations,
interruptions to the supply chain for our therapeutic candidates, or other considerations if site personnel or trial subjects
become infected with COVID-19, which may lead to difficulties in meeting protocol-specified procedures, including administering
or using the therapeutic candidate or adhering to protocol-mandated visits and laboratory/diagnostic testing, unavoidable protocol
deviations due to COVID-19 illness and/or COVID-19 control measures, which will likely vary depending on many factors, including
the nature of disease under study, the trial design, and in what region(s) the study is being conducted.
We
also may conduct clinical research in collaboration with other biotechnology and biologics entities in which we combine CM-24
and/or NT219 with the technologies of such collaborators. Such collaborations may be subject to additional delays because of the
management of the trials or the necessity of obtaining additional approvals for therapeutics used in the combination trials. These
combination therapies will require additional testing and clinical trials will require additional FDA regulatory approval and
will increase our future expenses.
Any
inability to successfully complete clinical development could result in additional costs to us or impair our ability to generate
revenue from our acquisition of CM-24. In addition, if we make manufacturing or formulation changes to CM-24, we may be required,
or may elect, to conduct additional studies to bridge the modified therapeutic candidates to earlier versions. Clinical study
delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring
products to market before we do, which could impair our ability to commercialize these therapeutic candidates successfully and
may harm our business and the results of our operations.
It
may take longer and cost more to complete CM-24 and/or NT219 clinical trials than initially projected, or we may not be able to
complete them at all.
A
number of factors, including scheduling conflicts with participating clinicians and clinical institutions, and difficulties in
identifying and enrolling patients who meet trial eligibility criteria, may cause significant delays in clinical studies. We may
not commence or complete clinical trials involving any of our products as projected or may not conduct them successfully.
We
may experience difficulties in patient enrollment in our future clinical trials for a variety of reasons. The timely completion
of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number
of patients who remain in the study until its conclusion. In addition, our clinical trials will compete with other clinical trials
for therapeutic candidates that are in the same therapeutic areas as our therapeutic candidates, and this competition will reduce
the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead
opt to enroll in a trial being conducted by one of our competitors. Accordingly, we cannot guarantee that the trials will progress
as planned or as scheduled. Delays in patient enrollment may result in increased costs or may affect the timing or outcome of
our ongoing clinical trial and planned clinical trials, which could prevent completion of these trials and adversely affect our
ability to advance the development of our therapeutic candidates.
We
expect to rely on medical institutions, academic institutions, or clinical research organizations to conduct, supervise, or monitor
some or all aspects of clinical trials involving our products. If we fail to commence or complete, or experience delays in, any
of its planned clinical trials, we may experience delays in its clinical development and/or commercialization plans.
Our
clinical trials may fail to demonstrate adequately the safety and efficacy of our therapeutic candidates, which would prevent
or delay regulatory approval and commercialization.
The
clinical trials of our therapeutic candidates are, and the manufacturing and marketing of its products will be, subject to extensive
and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend
to test and market its therapeutic candidates. Before obtaining regulatory approvals for the commercial sale of any of our therapeutic
candidates, we must demonstrate through lengthy, complex, and expensive preclinical testing and clinical trials that its therapeutic
candidates are both safe and effective for use in each target indication. In particular, because some of our therapeutic candidates
are subject to regulation as biological drug products, we will need to demonstrate that they are safe, pure and potent for use
in their target indications. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient
population and for its intended use. The risk/benefit profile required for product licensure will vary depending on these factors
and may include not only the ability to show tumor shrinkage, but also adequate duration of response, a delay in the progression
of the disease, and/or an improvement in survival. For example, response rates from the use of our therapeutic candidates may
not be sufficient to obtain regulatory approval unless we can also show an adequate duration of response. Clinical testing is
expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the
clinical trial process. The results of preclinical studies and early clinical trials of our therapeutic candidates may not be
predictive of the results of later-stage clinical trials. The results of studies in one set of patients or line of treatment may
not be predictive of those obtained in another. We expect that there may be greater variability in results for products processed
and administered on a patient-by-patient basis, as anticipated for our therapeutic candidates, than for “off-the-shelf”
products, like many other drugs. There is typically an extremely high rate of attrition from the failure of therapeutic candidates
proceeding through clinical trials. Therapeutic candidates in later stages of clinical trials may fail to show the desired safety
and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies
in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable
safety issues, notwithstanding promising results in earlier trials. Most therapeutic candidates that begin clinical trials are
never approved by regulatory authorities for commercialization.
In
addition, even if such trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will
interpret the results as we do, and more trials could be required before we submits its therapeutic candidates for approval. To
the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing
application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials
in support of potential approval of its therapeutic candidates.
If
we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise
adversely affected.
The
timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll
a sufficient number of patients who remain in the trial until its conclusion. We may experience difficulties in patient enrollment
in our clinical trials for a variety of reasons, including:
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size and nature of the patient population;
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the
patient eligibility criteria defined in the protocol;
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the
size of the study population required for analysis of the trial’s endpoints;
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the
proximity of patients to trial sites;
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the
design of the trial;
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Our
ability to recruit clinical trial investigators with the appropriate competencies and experience;
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competing
clinical trials for similar therapies or other new therapeutics;
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clinicians’
and patients’ perceptions of the potential advantages and side effects of the product candidate being studied in relation
to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating;
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ability to obtain and maintain patient consents; and
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the
risk that patients enrolled in clinical trials will not complete a clinical trial.
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Even
if we can enroll a sufficient number of patients in our clinical trials, delays in patient enrollment may result in increased
costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely
affect our ability to advance the development of its therapeutic candidates.
We
will depend on a joint collaboration partner to conduct clinical trials with CM-24, and we may enter into future collaboration
agreements with collaboration partners to develop and conduct clinical trials with, obtain regulatory approvals for, and market
and sell the CM-24 or other therapeutic candidates. If such collaboration fails to perform as expected, our clinical trials and/or
development plans will be delayed and we will be required to seek other collaboration partners, which we may not be able to engage
in a timely manner, or at all, and which may delay our development plan and therefore the potential for us to generate future
revenue from our therapeutic candidates would be significantly reduced and our business would be significantly harmed.
We
has entered into a joint clinical collaboration agreement, with Bristol Myers Squibb Company (NYSE:BMY), for a planned Phase 1/2
study of CM-24 in combination with a PD-1 antibody nivolumab (Opdivo®). We expect to initiate that study in late 2020. We,
and may in the future continue to, rely on our collaboration partners to develop, conduct clinical trials of, and commercialize
its therapeutic candidates and approved products. We may also enter into collaboration agreements with other parties in the future
relating to such therapeutic candidates. Ultimately, if such therapeutic candidates are advanced through clinical trials, certain
of the collaboration partners may have certain rights in connection with the commercialization of the therapeutic candidate, such
as rights of first offer to be responsible for commercialization of these therapeutic candidates. If these collaboration partners
do not perform in the manner we expect or fail to fulfill their responsibilities in a timely manner or at all, if the agreements
with them terminate or if the quality or accuracy of the clinical data they obtain is compromised, the clinical development, regulatory
approval and commercialization efforts related to our therapeutic candidates could be delayed or terminated, and it could become
necessary for us to assume the responsibility at our own expense for the clinical development of such therapeutic candidates and
seek replacement collaboration and/or development partners. In that event, we would likely be required to limit the size and scope
of efforts for the development and commercialization of such product candidate; we would likely be required to seek additional
financing to fund further development or identify alternative strategic collaboration partners; our potential to generate future
revenue from such therapeutic candidates would be significantly reduced or delayed; and it could have a material adverse effect
on our business, financial position, results of operations and future growth prospects.
Collaborations
involving our therapeutic candidates pose a number of risks, including the following:
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collaboration
partners have significant discretion in determining the efforts and resources that they will apply to these partnerships;
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collaboration
partners may have limited supply of products, such as a PD-1 antibody, which we require for the development of its therapeutic
candidates;
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collaboration
partners may not perform their obligations as expected;
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collaboration
partners may not pursue development of our therapeutic candidates or may elect not to continue or renew development programs,
based on clinical trial results, changes in the collaboration partners' strategic focus or available funding or external factors,
such as an acquisition, that divert resources or create competing priorities;
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collaboration
partners may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon
a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical
testing;
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collaboration
partners may have or could independently develop, or develop with third parties, products that compete directly or indirectly
with our out-licensed therapeutic candidates;
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disagreements
with collaboration partners, including disagreements over proprietary rights, contract interpretation or the conduct of product
research, development or commercialization programs, may cause delays or lead to termination of such programs, or require
us to assume unplanned expenditures, responsibilities or liabilities with respect to therapeutic candidates we have out licensed,
or may result in costly and time-consuming litigation or arbitration;
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collaboration
partners may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
and
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collaboration
agreements may be terminated and, if terminated, may result in a need for additional capital to pursue further development
or commercialization of the applicable therapeutic candidates.
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In
addition, collaboration agreements may provide the collaboration partners with rights to terminate such agreements and licenses
granted under such agreements under various conditions, which, if exercised, would adversely affect our product development efforts,
could make it difficult for us to attract new collaboration partners and may adversely affect our reputation. A collaboration
partner may have the right to terminate its collaboration agreements. Any such termination of any agreement or any future agreement
that we may enter into with collaboration partners could have a material adverse effect on our business, financial position and
results of operations.
Our
drug candidates may cause undesirable side effects or have other properties that could halt clinical development, prevent regulatory
approval, limit commercial potential, or result in significant negative consequences.
Undesirable
side effects or adverse events caused by our drug candidates, or related to the combination therapies, could cause us or regulatory
authorities to interrupt, delay, or halt clinical trials and could result in a more restrictive label or the delay or denial of
regulatory approval by the FDA or other comparable foreign regulatory authorities. Results of our trials could reveal a high and
unacceptable severity and prevalence of side effects or unexpected characteristics.
If
unacceptable toxicities arise in the development of our drug candidates, the FDA or comparable foreign regulatory authorities
could order us to cease clinical trials or deny approval of its therapeutic candidates for any or all targeted indications. Treatment-related
side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential
product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical
staff. Any of these occurrences may harm our business, financial condition and prospects significantly.
The
manufacture of our drug candidates is complex, and we may encounter difficulties in production, particularly with respect to process
development or scaling-up of our manufacturing capabilities. If we, or any of our third-party manufacturers encounter such difficulties,
our ability to supply drugs for clinical trials, or its products for patients, if approved, could be delayed or stopped, or we
may be unable to maintain a commercially viable cost structure.
CM-24
is a biologic, and the process of manufacturing such is complex, highly regulated and subject to multiple risks. The manufacture
of CM-24 involves complex processes, and ultimately infusing the product into a patient. As a result of the complexities, the
cost to manufacture biologics is generally higher than traditional small molecule chemical compounds, and the manufacturing process
is less reliable and is more difficult to reproduce. Even minor deviations from normal manufacturing processes could result in
reduced production yields, product defects, and other supply disruptions.
Developing
commercially viable processes is a difficult and uncertain task, and there are risks associated with scaling to the level required
for advanced clinical trials or commercialization, including, among others, cost overruns, potential problems with process scale-out,
process reproducibility, stability issues, lot consistency, and timely availability of raw materials. As a result of these challenges,
we may experience delays in CM-24’s clinical development and/or commercialization plans. We may ultimately be unable to
reduce the cost of goods for CM-24 to levels that will allow for an attractive return on investment if and when those therapeutic
candidates are commercialized.
Because
CM-24 and NT219 represent a novel approach to the treatment of disease, there are many uncertainties regarding the development,
the market acceptance, third-party reimbursement coverage and the commercial potential of CM-24 and NT219.
There
is no assurance that the approaches offered by CM-24 and NT219 will gain broad acceptance among physicians or patients or that
governmental agencies or third-party medical insurers will be willing to provide reimbursement coverage for proposed therapeutic
candidates. Since CM-24 and NT219 represents new approaches to treating various conditions, it may be difficult, in any event,
to accurately estimate the potential revenues from these therapeutic candidates. Accordingly, we may spend large amounts of money
trying to obtain approval for therapeutic candidates that have an uncertain commercial market. The market for any products that
we may successfully develop utilizing CM-24 or NT219 will also depend on the cost of the product. We do not yet have sufficient
information to reliably estimate what it will cost to commercially manufacture CM-24 and NT219, and the actual cost to manufacture
these products could materially and adversely affect the commercial viability of these products. Our goal is to reduce the cost
of manufacturing CM-24 and NT219. However, unless we are able to reduce those costs to an acceptable amount, we may never be able
to develop a commercially viable product. If we do not successfully develop and commercialize CM-24 and NT219 based upon this
approach, or find suitable and economical sources for materials used in the production of these therapeutic candidates, the CM-24
and Nt219 therapeutic candidate will not become profitable.
The
CM-24 and NT219 therapeutic candidates may be provided to patients in combination with other agents provided by third parties.
The cost of such combination therapy may increase the overall cost of CM-24 and NT219 based therapy and may result in issues regarding
the allocation of reimbursements between our therapeutic candidates and the other agents, all of which may adversely affect the
ability to obtain reimbursement coverage for the combination therapy from third-party medical insurers.
If
we fail to comply with any obligations under our license agreements, or disputes arise with respect to those agreements, it could
have a negative impact on its business and its intellectual property rights.
We
are a party to a license agreement with Tel Hashomer – Medical Research Infrastructure and Services Ltd. (“THM”)
that imposes, and we may enter into additional licensing arrangements with third parties that may impose, diligence, development
and commercialization timelines, milestone payment, royalty, insurance and other obligations on it. Our rights to use the licensed
intellectual property are subject to the continuation of and our compliance with the terms of these agreements. Disputes may arise
regarding our rights to intellectual property licensed to it from a third party, including but not limited to:
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the
scope of rights granted under the license agreement and other interpretation-related issues;
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the
extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
licensing agreement;
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the
sublicensing of patent and other rights;
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Ours
diligence obligations under the license agreement and what activities satisfy those diligence obligations;
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the
ownership of inventions and know-how resulting from the creation or use of intellectual property by us, alone or with its
licensors and collaborators;
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the
scope and duration of our payment obligations;
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Our
rights upon termination of such agreement; and
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the
scope and duration of exclusivity obligations of each party to the agreement.
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If
disputes over intellectual property and other rights that hawse have licensed or acquired from third parties prevent or impair
its ability to maintain its current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize
the affected therapeutic candidates. If we fail to comply with its obligations under current or future licensing agreements, these
agreements may be terminated or the scope of our rights under them may be reduced and we might be unable to develop, manufacture
or market any product that is licensed under these agreements.
Our
shareholders may not realize a benefit from our acquisitions of therapeutic candidates commensurate with the ownership dilution
they experienced in connection with the transactions.
If
we are unable to realize the strategic and financial benefits currently anticipated from an acquisition, our shareholders will
have experienced substantial dilution of their ownership interest without receiving any commensurate benefit. Due to the substantial
number of the ADSs (including ADSs issuable upon exercise of the warrants to purchase ADSs) which were issued to shareholders
in the acquisitions and the private placements we completed and may complete in the future in order to acquire our therapeutic
candidates, the ownership stake and relative voting power of each ordinary share held by our previous shareholders was and may
in the future be significantly reduced. However, significant management attention and resources will be required to integrate
and operate the combined company. Delays in this process could adversely affect the combined company’s business, financial
results, financial condition and price of our ordinary shares and/or ADSs following this acquisition. Even if the combined company
is able to integrate the business operations successfully, there can be no assurance that this integration will result in the
realization of the full benefits of synergies, innovation, and operational efficiencies that may be possible from this integration
and that these benefits will be achieved within a reasonable period of time.
We
may be subject to additional risks because Consensi™ is a combination of two FDA-approved drugs.
Consensi™
is comprised of two FDA-approved drugs, celecoxib (the active ingredient in Pfizer’s Celebrex®) and amlodipine besylate
(the active ingredient in Pfizer’s Norvasc®). Either of these two drugs could independently be found defective or, for
a number of other reasons beyond our control, removed from the market and, thus, become unavailable for commercial use as a component
of Consensi™. Additionally, adverse action of any kind against one of the companies responsible for the drugs of which Consensi™
is comprised could affect our ability to obtain the applicable drug and/or public perception of us and/or Consensi™ based
on our association with the company at-issue or the use of the applicable drug as a component of Consensi™. The outcome
and cost of developing a product comprised of existing FDA-approved compounds is difficult to predict and dependent on a number
of factors that are beyond our reasonable control.
We
depend on our ability to identify and acquire or in-license therapeutic candidates to achieve commercial success.
We
own the rights to FDA-approved drug Consensi™ which we acquired as a therapeutic candidate in 2013, our NT219 therapeutic
candidate which we acquired in 2017, and our CM-24 therapeutic candidate which we acquired in 2020, each of which was acquired
by us from a third party. We evaluate internally and with external consultants each potential therapeutic candidate. However,
there can be no assurance as to our ability to accurately or consistently select therapeutic candidates that have the highest
likelihood to achieve commercial success.
If
we cannot meet our obligations under our in-license agreement with Yissum, or if other events occur that are not within our control,
we could lose our rights to our NT219 therapeutic candidate, experience delays in developing or commercializing our NT219 therapeutic
candidate or incur additional costs, which could have a material adverse effect on our business, financial condition and results
of operations.
We
license rights to our NT219 therapeutic candidate from Yissum Research and Development Company of the Hebrew University of Jerusalem
Ltd. (“Yissum”), the technology transfer company of the Hebrew University of Jerusalem, pursuant to a license agreement.
If we do not meet our obligations under this license agreement, or if other events occur that are not within our control we could
lose the rights to our NT219 therapeutic candidate, experience delays in developing or commercializing our NT219 therapeutic candidate
or incur additional costs, any of which could have a material adverse effect on our business, financial condition and results
of operations.
In
addition, Yissum is responsible under the license agreement for the filing and prosecuting certain patent applications and maintaining
certain issued patents licensed to us. If Yissum does not meet its obligations in a timely manner or if other events occur that
are not within Yissum’s control, which impact Yissum’s ability to prosecute certain patent applications and maintain
certain issued patents licensed to us, our success of developing and commercializing the NT219 therapeutic candidate could be
jeopardized, which could have a material adverse effect on our business, financial condition and results of operations. Additionally,
Yissum may decide to discontinue maintaining certain patents in certain territories for various reasons, such as a current belief
that the commercial market for the therapeutic candidate will not be large or that there is a near-term patent expiration that
may reduce the value of the therapeutic candidate. In the event Yissum discontinues maintaining such patents, we may not be able
to enforce rights for our therapeutic candidates or protect our therapeutic candidates from competition in those territories.
Our
business could suffer if we are unable to attract and retain key employees or directors.
The
loss of the services of members of senior management or other key personnel could delay or otherwise adversely impact the successful
completion of our planned CMC, preclinical studies and/or clinical trials or the commercialization of our therapeutic candidates
or otherwise affect our ability to manage our company effectively and to carry out our business plan. We do not maintain key-man
life insurance for any of our personnel. Although we have entered into employment or consultancy agreements with all of the members
of our senior management team, members of our senior management team may resign at any time. High demand exists for senior management
and other key personnel in the pharmaceutical industry. There can be no assurance that we will be able to continue to retain and
attract such personnel.
Our
growth and success also depend on our ability to attract and retain additional highly qualified scientific, technical, business
development, marketing, managerial and finance personnel. We experience intense competition for qualified personnel, and the existence
of non-competition agreements between prospective employees and their former employers may prevent us from hiring those individuals
or subject us to liability from their former employers. In addition, if we elect to independently commercialize any therapeutic
candidate, we will need to expand our marketing and sales capabilities. While we attempt to provide competitive compensation packages
to attract and retain key personnel, many of our competitors are likely to have greater resources and more experience than we
have, making it difficult for us to compete successfully for key personnel. Compensation packages for our senior office holders
are subject to approval of our compensation committee and board of directors and in certain instances of our shareholders as well.
We may not be able to achieve the required corporate approvals for proposed compensation packages, further making it difficult
for us to compete successfully with other companies in order to attract and retain key personnel. If we cannot attract and retain
sufficiently qualified technical employees on acceptable terms, we may not be able to develop and commercialize competitive therapeutic
candidates. Further, any failure to effectively integrate new personnel could prevent our business from successfully growing.
We
are an international business, and we are exposed to various global and local risks that could have an adverse effect on our business.
We
operate our business in multiple international jurisdictions. Such operations could be affected by changes in foreign exchange
rates, capital and exchange controls, travel restrictions, public health restrictions, expropriation and other restrictive government
actions, changes in intellectual property legal protections and remedies, trade regulations and procedures and actions affecting
approval, production, pricing, and marketing of, reimbursement for and access to, our products, as well as by political unrest,
unstable governments and legal systems and inter-governmental disputes. Any of these changes could adversely affect our business.
The
recent coronavirus outbreak may adversely affect our revenues, results of operations and financial condition.
In
December 2019, a strain of coronavirus was reported to have surfaced in Wuhan, China, and has reached multiple other countries,
resulting in government-imposed quarantines, travel restrictions and other public health safety measures in China, the USA, Israel,
and other affected countries. The various precautionary measures taken by many governmental authorities around the world in order
to limit the spread of the Coronavirus, which could have an adverse effect on the global markets and its economy, including on
the availability and pricing of employees, resources, materials, manufacturing and delivery efforts and other aspects of the global
economy.
The
impact of the Coronavirus (COVID-19) pandemic on the conduct of clinical trials of our therapeutic candidates, and any challenges
which may arise, for example, from quarantines, site closures, travel limitations, interruptions to the supply chain for our therapeutic
candidates, or other considerations if site personnel or trial subjects become infected with COVID-19, is as of yet unknown. The
impact of the pandemic may lead to difficulties in meeting protocol-specified procedures, including administering or using the
therapeutic candidate or adhering to protocol-mandated visits and laboratory/diagnostic testing, unavoidable protocol deviations
due to COVID-19 illness and/or COVID-19 control measures, which will likely vary depending on many factors, including the nature
of disease under study, the trial design, and in what region(s) the study is being conducted.
The
U.S. Food and Drug Administration (FDA) recently provided an update on inspections outside of the U.S. in response to the COVID-19
outbreak. The FDA is now postponing most foreign inspections, and this action may also impact other FDA responsibilities, including
product application reviews. As an interim measure the FDA is employing additional tools to ensure the safety of products imported
to the U.S., including denying entry of unsafe products into the U.S., physical examinations and/or product sampling at our borders,
reviewing a firm’s previous compliance history, using information sharing from foreign governments and requesting records
“in advance of or in lieu of” on-site drug inspections, and predictive screening which continues to adjust risk scores
as necessary throughout the COVID-19 outbreak. The FDA can refuse admission of products that fail sample testing or may violate
other applicable legal requirements. The lack of foreign inspections coupled with changing import inspections or requirements
may impact the ability of our therapeutic candidate and product suppliers, all of whom are located outside the U.S. to provide
products needed for our clinical trials or product distribution in the U.S.
Therefore,
the Coronavirus could disrupt, production and cause delays in the supply and delivery of products used in our operations, may
affect our operation, including the conduct of clinical studies, or the ability of regulatory bodies to grant approvals or supervise
our candidates and products, may further divert the attention and efforts of the medical community to coping with the Coronavirus
and disrupt the marketplace in which we operate and may have a material adverse effects on our operations.
The
extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot
be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain
the coronavirus or treat its impact, among others. The development of the coronavirus outbreak could materially disrupt our business
and operations, slow down the overall economy, curtail consumer spending, interrupt our sources of supply, and make it hard to
adequately staff our operations.
The
pharmaceutical industry in China is highly regulated and such regulations are subject to change which may affect approval and
commercialization of our drug candidate, Consensi™.
The
pharmaceutical industry in China is subject to comprehensive government regulation and supervision, encompassing the approval,
registration, manufacturing, packaging, licensing and marketing of new drugs. In recent years, the regulatory framework in China
regarding the pharmaceutical industry has undergone significant changes, and we expect that it will continue to undergo significant
changes in the future. There is uncertainty as to the regulatory approach in China with respect to combination drug products.
Any such uncertainty, changes or amendments may cause delays in or prevent the market authorization or the successful commercialization
of our Consensi™ drug product in China and reduce the current benefits we believe are available to us from our commercialization
agreement with Hebei Changshan Biochemical Pharmaceutical Co., Ltd. (Changshan Pharma). Chinese authorities have become increasingly
vigilant in enforcing laws in the pharmaceutical industry and any failure by Changshan Pharma to maintain compliance with applicable
laws and regulations or obtain and maintain required licenses and permits may prevent the receipt of market authorization for
Consensi™ in China or otherwise result in the suspension of the commercialization of Consensi™ in China.
Changes
in the political and economic policies of the Chinese government may materially and adversely affect the commercialization of
Consensi™ in China.
The
Chinese economy differs from the economies of most developed countries in many respects, including the extent of government involvement,
level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has
implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive
assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets
in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating
industrial development by imposing industrial policies. The Chinese government also exercises significant control over China’s
economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy,
regulating financial services and institutions and providing preferential treatment to particular industries or companies.
While
the Chinese economy has experienced significant growth in the past three decades, growth has been uneven, both geographically
and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth
and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy but may also have a negative
effect on us and our products. For example, our commercialization of Consensi™ in China could be materially and adversely
affected by government control over capital investments, changes in tax regulations, or as of yet unknown impacts of the coronavirus
outbreak.
Our
subsidiary, TyrNovo, has received and may continue to receive Israeli governmental grants to assist in the funding of its research
and development activities. We may encounter difficulties in securing a commercialization partner for TyrNovo’s therapeutic
candidates as the grants received from the Israeli government need to be repaid as royalties from future revenue from the sale
of products (and related services) developed (in whole or in part) as a result of such grants.
Our
subsidiary, TyrNovo, has obligations to the Israel Innovation Authority, or IIA (formerly known as the Office of the Chief Scientist
of the Ministry of Economy and Industry) with respect to grants it received from the IIA connection with NT219 and other TyrNovo’s
technology, in an aggregate amount of approximately NIS 5.5 million (or approximately $1.6 million). The requirements and restrictions
for such grants are found in the Encouragement of Research, Development and Technological Innovation in Industry Law 5744-1984
(formerly known as the Law for the Encouragement of Research and Development in Industry 5744-1984), or the Innovation Law, the
IIA’s rules and guidelines and the terms of these grants.
In
general, the recipients of grants, or Recipient Company(ies), are obligated to pay the IIA royalties from the revenues generated
from the sale of products and related services developed in whole or in part as a result of a research and development program
funded by the IIA at rates which are determined under the IIA’s rules and guidelines (currently a yearly rate of 3% to 6%
on sales of products or services developed under the approved programs, depending on the type of the Recipient Company, up to
the aggregate amount of the total grants received by the IIA, plus annual interest, as determined in the IIA’s rules and
guidelines).
TyrNovo’s
technologies, including NT219, were developed, at least in part, with funds from IIA grants, and accordingly TyrNovo is obligated
to pay royalties on sales of any of its IIA funded products and related services. In addition, the Government of Israel may from
time to time audit sales of products which it claims incorporate technology and know-how funded via IIA programs and this may
lead to additional royalties being payable on additional products. As of December 31, 2019, the maximum royalty amount that would
be payable by TyrNovo, excluding interest, is approximately NIS 5.5 million (USD 1.6 million), and as of such date TyrNovo
had not paid any royalties to the IIA. We may encounter difficulties in securing a commercialization partner for TyrNovo’s
therapeutic candidates due to the requirement to pay royalties to the IIA.
Following
the full payment of such royalties and interest, there is generally no further liability for royalty payments; however, other
restrictions under the Innovation Law continue to apply.
The
IIA grants which TyrNovo’s technology, including NT219, has received for research and development expenditures restrict
its ability to manufacture products and transfer (including by way of license for R&D purposes) know-how outside of Israel
and require it to satisfy specified conditions. In addition, we may encounter difficulties partnering TyrNovo’s therapeutic
candidates with entities outside of Israel due to certain restrictions regarding manufacturing and transferring of know-how (including
by a way of license for R&D purposes) outside of Israel imposed due to the receipt of the IIA grants.
The
research and development efforts underlying TyrNovo’s technology including NT219 have been financed, in part, through the
grants received from the IIA. TyrNovo, therefore, must comply with the requirements of the Innovation Law and the IIA’s
rules and guidelines.
Under
the IIA’s rules and guidelines, TyrNovo is generally prohibited from manufacturing products developed using the IIA funding
outside of the State of Israel without the prior approval of the IIA and subject to payment of increased royalties. TyrNovo may
not receive the required approvals for any proposed transfer of manufacturing activities. This restriction may impair TyrNovo’s
ability to outsource manufacturing rights abroad.
Additionally,
under the IIA’s rules and guidelines, TyrNovo is prohibited from transferring the IIA-funded know-how and related intellectual
property rights outside of the State of Israel, except under limited circumstances and only with the prior approval of the IIA.
TyrNovo may not receive the required approvals for any proposed transfer, and even if received, TyrNovo may be required to pay
the IIA a redemption fee of up to 600% of the grant amounts plus interest.
Approval
of the transfer of know-how to an Israeli company is required, and may be granted if the recipient assumes all of our responsibilities
towards the IIA including the restrictions on the transfer of know-how and the manufacturing rights outside of Israel and the
obligation to pay royalties, and, although such transfer will not be subject to the payment of a redemption fee, there will be
an obligation to pay royalties to the IIA from the income of such sale transaction as part of the royalty payment obligation.
No assurance can be given that approval to any such transfer, if requested, will be granted.
These
restrictions may impair our ability to perform or outsource manufacturing outside of Israel, or otherwise transfer or sell TyrNovo’s
IIA funded know-how outside of Israel. It may also require TyrNovo to obtain the approval of the IIA for certain actions and transactions
and pay additional royalties and other amounts to the IIA. Furthermore, the consideration available to TyrNovo’s and/or
our shareholders in a transaction involving the transfer outside of Israel of know-how developed with IIA funding (such as a merger
or similar transaction) may be reduced by any amounts that TyrNovo is required to pay to the IIA. If TyrNovo fails to comply with
the requirements of the Innovation Law and the IIA’s rules and guidelines, TyrNovo may be required to return certain grants
previously received along with interest and penalties and may become subject to criminal proceedings.
In
August 2015, an amendment to the Innovation Law, or Amendment No. 7, was enacted and which came into effect on January 1,
2016. Pursuant to Amendment No. 7, the IIA became responsible for the activity which was previously under the OCS’s
responsibility. The IIA is authorized to amend the requirements and restrictions which were specified in the Innovation Law before
Amendment No. 7 became effective, inter alia, with respect to ownership obligations of IIA funded know-how (including
with respect to restrictions on transfer of IIA funded know-how and manufacturing activities outside of Israel), as well as royalty
obligations which apply to companies that received grants from the IIA. Although the rules which were published by the IIA as
of the date of this annual report generally adopted the principal provisions and restrictions specified in the Innovation Law
prior to the effectiveness of Amendment No. 7, as of the date of this annual report, we are unable to assess the effect on
our business of any future rules which may be published by the IIA.
In
addition, the IIA in 2017 published rules and guidelines for the granting of licenses to use know-how developed as a result of
research financed by the IIA to foreign entities. According to such rules, we will be required to receive the IIA’s prior
approval for the grant of such use rights, and we will be required to pay the IIA certain amounts in accordance with the formula
stipulated under these rules and guidelines. In August 2018, the IIA updated the abovementioned rules and established a new mechanism
with respect to the grant of a license by a company (which is part of a multinational corporation) that received grants from the
IIA to its group entities to use its funded know-how. Such license is subject to the IIA’s prior approval and to the payment
of 5% royalties from the income deriving from such license. Such mechanism includes certain restrictions which must be met in
order to be able to enjoy such lower royalty payment.
Risks
Related to Our Industry
Even
though Consensi™ received regulatory approval in the United States and even if our oncology therapeutic candidates or any
other therapeutic candidate that we develop in the future receive regulatory approval or do not require regulatory approval, they
may not become or remain commercially viable products.
Even
though Consensi™ is approved by the FDA for marketing in the United States, it may not be a commercially viable product
that is accepted by physicians and patients in the United States. Even though we believe that the FDA approved Consensi™
for a commercially viable purpose in the simultaneous treatment of pain caused by osteoarthritis and hypertension, we cannot predict
whether the FDA may limit the use of Consensi™ to treatments that are not commercially viable, which would severely affect
our operations and revenue.
Likewise,
even if our oncology therapeutic candidates and/or any other therapeutic candidate that we may develop in the future are approved
for commercialization by the FDA or a foreign authority in the future, they may not be commercially viable products. For example,
if we or our potential commercialization partners receive regulatory approval to market a therapeutic candidate, approval may
be subject to limitations on the indicated uses or subject to labeling or marketing restrictions which could materially and adversely
affect the marketability and profitability of the therapeutic candidate. In addition, a new therapeutic candidate may appear promising
at an early stage of development or after preclinical studies and/or clinical trials but never reach the market, or it may reach
the market but not result in sufficient product sales, if any. A therapeutic candidate may not result in commercial success for
various reasons, including:
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difficulty
in large-scale manufacturing, including yield and quality;
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low
market acceptance by physicians, healthcare payers, patients and the medical community as a result of lower demonstrated clinical
safety or efficacy compared to other products, prevalence and severity of adverse side effects, or other potential disadvantages
relative to alternative treatment methods;
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insufficient
or unfavorable levels of reimbursement from government or third-party payers, such as insurance companies, health maintenance
organizations and other health plan administrators;
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infringement
on proprietary rights of others for which we or our potential commercialization partners have not received licenses;
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incompatibility
with other therapeutic candidates;
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other
potential advantages of alternative treatment methods and competitive forces that may make it more difficult for us to penetrate
a particular market segment;
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ineffective
marketing and distribution support;
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lack
of significant competitive advantages over existing products on the market;
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lack
of cost-effectiveness; or
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timing
of market introduction of competitive products.
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Physicians,
various other health care providers, patients, payers or the medical community in general may be unwilling to accept, utilize
or recommend Consensi™, our oncology therapeutic candidates or any other therapeutic candidates that we may develop in the
future. If we are unable, either on our own or through third parties, to manufacture, commercialize and market such products when
planned, or develop commercially viable therapeutic candidates, we may not achieve any market acceptance or generate revenue.
The
markets for our Consensi™ drug product and our oncology therapeutic candidates are rapidly changing and competitive, and
new drug delivery mechanisms, drug delivery technologies, new drugs and new treatments which may be developed by others could
impair our ability to maintain and grow our business and remain competitive.
The
pharmaceutical and biotechnology industry is highly competitive, and we face significant competition from many pharmaceutical,
biopharmaceutical and biotechnology companies that are researching and marketing products designed to address the indications
treated by Consensi™ and for which we are currently developing our other oncology therapeutic candidates. There are various
other companies that currently market or are in the process of developing products that address all of the indications or diseases
treated by our Consensi™ drug product or our therapeutic candidates.
New
drug delivery mechanisms, drug delivery technologies, new drugs and new treatments that have been developed or that are in the
process of being developed by others may render our Consensi™ drug product or our oncology therapeutic candidates noncompetitive
or obsolete, or we may be unable to keep pace with technological developments or other market factors. Some of these technologies
may have an entirely different platform or means of treating the same indications as Consensi™, NT219, CM-24 or other therapeutic
candidates that we may develop in the future. Technological competition from pharmaceutical and biotechnology companies, universities,
governmental entities and others is intense and is expected to increase. Many of these entities have significantly greater research
and development capabilities, human resources and budgets than we do, as well as substantially more marketing, manufacturing,
financial and managerial resources. These entities represent significant competition for us. Acquisitions of, or investments in,
competing pharmaceutical or biotechnology companies by large corporations could increase such competitors’ financial, marketing,
manufacturing and other resources.
For
example, since 2010, the opioid epidemic in the United States has increasingly been recognized as a major cause of death. The
CDC estimates that from 2010 to 2016 over 600,000 Americans died from opioid overdoses, and that in 2017, this number reached
70,237. As a result, individuals, corporations, and the FDA have increasingly sought to decrease the over utilization of opioids.
One method for decreasing the use of opioids is to increase the use of other analgesics. We believe that Consensi™ could
potentially replace opioids for many types of chronic pain. However, it is possible that new drugs and new treatments that have
been developed or that are in the process of being developed by others in order to reduce the use of opioids may render Consensi™
noncompetitive in this market.
The
potential widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our formulations or
therapeutic candidates, even if commercialized. Many of our targeted diseases and conditions can also be treated by other medications
or drug delivery technologies. These treatments may be widely accepted in medical communities and have a longer history of use.
The established use of these competitive drugs may limit the potential for our Consensi™ drug product or our therapeutic
candidates to receive widespread acceptance.
If
third-party payers do not adequately reimburse customers for our Consensi™ drug product, or our oncology therapeutic candidates,
if approved, or any of other therapeutic candidates that may be approved for marketing in the future, they might not be purchased
or used, and our revenues and profits will not develop or increase.
Our
revenues and profits will depend heavily upon the availability of adequate coverage and reimbursement for the use of our Consensi™
drug product that is approved for commercialization, and of our oncology therapeutic candidates, if approved, or any of other
therapeutic candidates that may be approved for marketing in the future, if at all, from governmental and/or other third-party
payers, both in the U.S. and in foreign markets. Our Consensi™ drug product has not yet received reimbursement from government
or other third party payers. There may be significant delays in obtaining coverage for newly approved therapeutic candidates.
Moreover, eligibility for coverage does not necessarily signify that an approved product will be reimbursed in all cases or at
a sufficient rate, including one that covers our costs, such as research, development, manufacture, sale, and distribution costs.
Accordingly, even if we succeed in bringing one or more of our therapeutic candidates to the market, they may not be considered
cost-effective, and the amount reimbursed may be insufficient to allow us to sell our approved products on a competitive basis.
Reimbursement by a third-party payer may depend upon a number of factors, including the third-party payer’s determination
that the use of an approved product is, among others:
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a
covered benefit under its health plan;
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safe,
effective and medically necessary;
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appropriate
for the specific patient;
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cost-effective,
including compared to approved alternate therapies; and
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neither
experimental nor investigational.
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Obtaining
reimbursement approval for an approved product from each government or other third-party payer is a time-consuming and costly
process that could require us or our current or potential development and commercialization partners to provide supporting scientific,
clinical and cost-effectiveness data for the use of an approved product to each payer. Even when a payer determines that an approved
product is eligible for reimbursement, the payer may impose coverage limitations that preclude or restrict payment for some uses
that are approved by the FDA or other foreign regulatory authorities. Reimbursement rates may vary according to the use of the
approved product and the clinical setting in which it is used, may be based on payments allowed for lower-cost products that are
already reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary constraints
or imperfections in Medicare, Medicaid or other data used to calculate these rates.
Increasingly,
the third-party payers who reimburse patients or healthcare providers, such as government and private insurance plans, are seeking
greater upfront discounts, additional rebates, and other concessions to reduce the prices for approved products. If the price
we are able to charge for any approved product, or the reimbursement provided for such approved product, is inadequate or becomes
inadequate in light of our development and other costs, our return on investment could be adversely affected.
It
has been reported that generic drug prices have fallen for the past few years. As a result, profits of generic drug companies,
such as Teva Pharmaceuticals (NYSE:TEVA; TASE:TEVA), have been falling over time. With the decrease in profits, the stock prices
of publicly traded generic pharmaceutical companies have in the past often fallen in tandem. It is unclear to us what effect this
might have on the marketing of Consensi™ which, while patented, is comprised of two separate generic drug components.
In
the U.S., there have been, and we expect that there will continue to be, federal and state proposals to constrain expenditures
for medical products and services which may affect payments for our Consensi™ drug product in the U.S. or our oncology therapeutic
candidates, if approved. We believe that legislation that reduces reimbursement for our Consensi™ drug product or our oncology
therapeutic candidates, if approved, could adversely impact how much or under what circumstances healthcare providers will prescribe
or administer our Consensi™ drug product, or our oncology therapeutic candidates, if approved. This could materially and
adversely impact our business by reducing our ability to generate revenue, raise capital, obtain additional collaborators and
market our Consensi™ drug product, or our oncology therapeutic candidates, if approved. At this stage, we are unable to
estimate the extent of the direct or indirect impact of any such federal and state proposals.
Further,
coverage and reimbursement policies are subject to change and are not always consistent across different payers or even federal
healthcare programs. For example, the Centers for Medicare and Medicaid Services (CMS) frequently change product descriptors,
coverage policies, product and service codes, payment methodologies and reimbursement values which may be revised or interpreted
in ways that could significantly affect our business and products. Government and private third-party payers often follow Medicare
coverage policy and payment limitations in setting their own reimbursement rates. Moreover, both CMS and other third-party payers
may have sufficient market power to demand significant price reductions. Such price reductions and/or other significant coverage
policies or payment limitations could materially and adversely affect our business, financial condition and results of operations.
Legislative
or regulatory reform of the healthcare system in the United States may harm our future business.
A
number of legislative and regulatory changes in the healthcare system in the U.S. have been proposed and adopted in recent years,
and efforts of the legislature and third-party payers to contain or reduce the cost of healthcare and broaden the availability
of healthcare continue. These developments could, directly or indirectly, affect our ability to sell our Consensi™ drug
product or our oncology therapeutic candidates, if approved, in the U.S. On March 23, 2010, the Patient Protection and Affordable
Care Act (P.L. 111-148) was signed into law, followed by the Health Care and Education Reconciliation Act (P.L. 111-152) on March
30, 2010 (referred to, collectively, as the “Healthcare Reform Law.” The Healthcare Reform Law was enacted with the
intent to broaden access to health insurance, reduce or constrain the growth of health spending, enhance remedies against fraud
and abuse, add new transparency requirements for the healthcare industry, impose new taxes and fees, and impose additional policy
reforms, among others. In addition, the Healthcare Reform Law included a number of new rules regarding health insurance, the provision
of healthcare, and conditions to reimbursement for healthcare services provided to Medicare and Medicaid patients and other healthcare
policy reforms, largely designed to encourage providers to find cost savings in their clinical operations.
The
Healthcare Reform Law sparked one of the most comprehensive and significant reforms in the history of the U.S. healthcare industry,
has significantly changed the way healthcare is financed and has impacted the scope of healthcare insurance and incentives, among
others. Pharmaceuticals represent a significant portion of the cost of providing healthcare. The environment created by the Healthcare
Reform Law has caused changes in the purchasing habits of consumers and providers and resulted in specific attention to the pricing
negotiation, product selection and utilization review in relation to pharmaceuticals. This attention may result in our Consensi™
drug product or our oncology therapeutic candidates, if approved, being chosen less frequently or the pricing being substantially
lowered. Continued restructuring of medical care coverage in the U.S. could further impact the reimbursement for the types of
prescribed drugs and pharmaceuticals that we and our development or commercialization partners are developing. If reimbursement
for our Consensi™ drug product or our oncology therapeutic candidates, if approved, is substantially reduced or otherwise
adversely affected in the future, or rebate or similar obligations or fees associated with them are imposed or substantially increased,
it could have a material adverse effect on our business, financial condition, and operational success.
Certain
facets of the Healthcare Reform Law and subsequent legislation, such as the extension of medical benefits to those who previously
lacked coverage may, in the long term, result in substantial costs to the U.S. government, which may force significant additional
changes to the U.S. healthcare system. Much of the funding for expanded healthcare coverage may be sought through cost savings.
While some of these savings may come from realizing greater efficiencies in delivering care, improving the effectiveness of preventive
care and enhancing the overall quality of care, much of the cost savings may come from reducing the cost of care and increased
enforcement activities. Cost of care could be reduced further by decreasing the level of reimbursement for medical services or
products (including our Consensi™ drug product or those oncology therapeutic candidates currently being developed by us
or our development or commercialization partners, if approved), or by restricting coverage (and, thereby, utilization) of medical
services or products. In either case, a reduction in the utilization of, or reimbursement for, our Consensi™ drug product
or any therapeutic candidate for which we receive marketing approval in the future could have a material adverse effect on our
business, financial condition and results of operations.
Further,
the U.S. healthcare environment has seen significant changes in recent years and is still in flux. Judicial challenges as well
as legislative initiatives to modify, limit, or repeal the Healthcare Reform Law have been initiated and continue to evolve. Since
taking office, President Trump has continued to support the repeal of all or portions of the Healthcare Reform Law. President
Trump has also issued an executive order in which he stated that it is his administration’s policy to seek the prompt repeal
of the Healthcare Reform Law and in which he directed executive departments and federal agencies to waive, defer, grant exemptions
from, or delay the implementation of the provisions of the Healthcare Reform Law to the maximum extent permitted by law. Congress
has enacted legislation that repeals certain portions of the Healthcare Reform Law, including but not limited to the Tax Cuts
and Jobs Act, passed in December 2017, which included a provision that eliminates the penalty under the Healthcare Reform Law’s
individual mandate, effective January 1, 2019, as well as the Bipartisan Budget Act of 2018, passed in February 2018, which, among
other things, repealed the Independent Payment Advisory Board (which was established by the Healthcare Reform Law and was intended
to reduce the rate of growth in Medicare spending).
Additionally,
in December 2018, a district court in Texas held that the individual mandate is unconstitutional and that the rest of the Healthcare
Reform Law is, therefore, invalid. On appeal, the Fifth Circuit Court of Appeals affirmed the holding on the individual mandate
but remanded the case back to the lower court to reassess whether and how such holding affects the validity of the rest of the
Healthcare Reform Law. Substantial uncertainty remains as to the future of the Healthcare Reform Law after the U.S. Supreme Court
declined to expedite its review of the Fifth Circuit’s holding on January 21, 2020. It is, thus, unlikely that these issues
will be resolved before the next presidential election in November 2020. The current administration may seek to pass additional
reform measures before the upcoming election. We cannot predict the outcome of the election, nor can we predict the healthcare-reform-related
initiatives that the newly elected (or re-elected, as applicable) administration will put forth thereafter. There is no way to
know whether, and to what extent, if any, the Healthcare Reform Law will remain in-effect in the future, and it is unclear how
judicial decisions, subsequent appeals, election-related measures, or other efforts to repeal and replace or, possibly, to restore
the Healthcare Reform Law will impact the U.S. healthcare industry or our business.
We
are subject to additional federal and state healthcare laws and regulations relating to our business, and our failure to comply
with those laws could have a material adverse effect on our results of operations and financial conditions.
Upon
the commencement of marketing our first product in the United States, we became subject to additional healthcare regulation and
enforcement by the U.S. federal government and the states in which we conduct or will conduct our business. Healthcare providers,
physicians, and third-party payers play a primary role in the recommendation and prescription of any therapeutic candidates for
which we obtain marketing approval. Our current or future arrangements with healthcare providers, physicians, marketers or sales
personnel, third-party payers, patients, and others in a position to refer, recommend, purchase, or use our products may expose
us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial
arrangements and relationships through which we market, sell and distribute our approved products. The laws that may affect our
ability to operate include, but are not limited to, the following:
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the
federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual
for, or the purchase, order or recommendation of, any good or service for which payment may be made under government healthcare
programs such as the Medicare and Medicaid programs;
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the
federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person from offering or transferring
remuneration to a Medicare or State healthcare program beneficiary that the person knows or should know is likely to influence
the beneficiary’s selection of a particular provider, practitioner or supplier of any item or service for which payment
may be made, in whole or in part, by Medicare or a State healthcare program;
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the
Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, which prohibits physicians from referring
Medicare or Medicaid patients for certain designated health services where that physician or family member has a financial
relationship with the entity providing the designated health service, unless an exception applies;
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federal
false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented,
claims for payment from Medicare, Medicaid or other government healthcare programs that are false or fraudulent;
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the
so-called federal “Sunshine Act”, which requires certain pharmaceutical and medical device companies to monitor
and report certain payments and other transfers of value to physicians and teaching hospitals and ownership or investment
interests held by physicians or their immediate family members to CMS for disclosure to the public;
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the
federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) and its implementing regulations, which impose
obligations on certain covered entities and their business associates with respect to safeguarding the privacy, security,
and transmission of individually identifiable health information, and require notification to affected individuals, regulatory
authorities, and potentially the media of certain breaches of security of individually identifiable health information;
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HIPAA’s
fraud and abuse provisions, which impose criminal and civil liability for executing a scheme to defraud any healthcare benefit
program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement
in connection with the delivery of or payment for healthcare benefits, items or services;
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the
federal Food, Drug, and Cosmetic Act, which, among other things, strictly regulate drug product and medical device marketing,
prohibits manufacturers from marketing such products for off-label use, and regulates the distribution of samples;
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federal
criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating
to healthcare matters; and
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state
law equivalents of each of the above federal laws, such as anti-kickback, false claims, transparency and reporting laws which
may apply to items or services reimbursed by any third-party payor, including commercial insurers, many of which differ from
each other in significant ways, thus complicating compliance efforts.
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Compliance
efforts may involve substantial costs, and if our operations or business arrangements are found to be in violation of any such
requirements, we may be subject to penalties, including civil or criminal penalties, monetary damages, the curtailment or restructuring
of our operations, or exclusion from participation in government contracting, healthcare reimbursement or other government programs,
including Medicare and Medicaid, any of which could adversely affect our financial results. Any action against us for an alleged
or suspected violation could cause us to incur significant legal expenses and could divert our management’s attention from
the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable
laws and regulations may be costly to us in terms of money, time, and resources.
Most
recently, there has been a trend in federal and state legislation aimed at lowering costs for drug products, including by requiring
pharmaceutical companies to disclose information about their pricing and production and marketing costs. Many states have passed
or introduced bills that require disclosure of certain pricing information for prescription drugs, and in June 2016 Vermont became
the first state to pass legislation requiring certain drug companies to disclose information relating to justification of certain
price increases. The U.S. Congress has also introduced bills targeting prescription drug price transparency. Many other states
have since-followed suit.
The
U.S. Congress has also introduced bills targeting prescription drug price transparency, and two such bills, the Patient Right
to Know Drug Prices Act (for private plans) and the Know the Lowest Price Act (for Medicare Parts C and D), were signed into law
on October 10, 2018. These laws and any other such legislation requiring publication of drug costs could materially and adversely
impact our business, financial condition, and results of operations by promoting a reduction in drug prices or encouraging purchasers
to use other low-cost, established drugs or therapies.
In
addition, there has been a trend of increased federal and state regulation of payments made to physicians or others in a position
to refer, purchase, or recommend drug products. For example, some states impose a legal obligation on companies to adhere to voluntary
industry codes of behavior (e.g., the PhRMA Code), which apply to pharmaceutical companies’ interactions with healthcare
providers, some mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation,
and other remuneration to physicians, and some states limit or prohibit such gifts. Further, the Healthcare Reform Law, among
other things, amended the intent requirement of the federal Anti-Kickback Statute so that a person or entity can now be found
guilty of fraud or an anti-kickback violation without actual knowledge of the statute or specific intent to violate it. In addition,
the Healthcare Reform Law provides that the government may assert that a claim including items or services resulting from a violation
of the federal Anti-Kickback Statue constitutes a false or fraudulent claim for purposes of the False Claims Act.
The
scope and enforcement of these laws are uncertain and subject to change in the current environment of healthcare reform, especially
in light of the lack of applicable precedent and guidance in many areas. We cannot predict the impact that new legislation or
any changes in existing legislation will have on our business, financial condition, or results of operations. Federal or state
regulatory authorities may challenge our current or future activities under these laws. Any such challenge could have a material
adverse effect on our reputation, business, results of operations, and financial condition. Any state or federal regulatory review
of us, regardless of the outcome, would be costly and time-consuming and could negatively and adversely affect our business and
results of operations.
We
could be exposed to significant drug product liability claims, which could be time consuming and costly to defend, divert management
attention and adversely impact our ability to obtain and maintain insurance coverage.
The
clinical trials that we conduct, conducted or may have to conduct, and the testing, manufacturing, marketing and commercial sale
of our Consensi™ drug product, or our oncology therapeutic candidates or any other therapeutic candidates that we may develop
in the future, involve and will involve an inherent risk that significant liability claims may be asserted against us. Should
we decide to seek additional insurance against such risks before we initiate clinical trials or commence our product sales, there
is a risk that such insurance will be unavailable to us, or if it can be obtained at such time, that it will be available only
at an unaffordable cost. Even if we obtain insurance, it may prove inadequate to cover claims or litigation costs, especially
in the case of wrongful death claims. Product liability claims or other claims related to our Consensi™ drug product, or
our therapeutic candidates or any other therapeutic candidate that we may develop in the future, regardless of their outcome and
merit, could require us to spend significant time and money in litigation or to pay significant settlement amounts or judgments.
Any successful product liability or other claim may prevent us from obtaining adequate liability insurance in the future on commercially
desirable or reasonable terms. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect
against potential product liability claims could prevent or inhibit the commercialization of our Consensi™ drug product,
or our therapeutic candidates or any other therapeutic candidates that we may develop in the future. A product liability claim
could also significantly harm our reputation and delay market acceptance of our Consensi™ drug product, or our therapeutic
candidates or any other therapeutic candidate that we may develop in the future.
Unfavorable
global economic conditions could adversely affect our business, financial condition or results of operations.
Our
results of operations could be adversely affected by general conditions in the global economy and in the global financial markets.
An economic downturn could result in a variety of risks to our business, including weakened demand for our therapeutic candidates
and our inability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also
strain our partners and suppliers, possibly resulting in supply disruption, or cause future customers to delay making payments
for our products. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic
climate and financial market conditions could adversely impact our business.
Our
business involves risks related to handling regulated substances which could severely affect our ability to conduct research and
development of our therapeutic candidates.
In
connection with our current or potential development and commercialization partners’ research and clinical development activities,
as well as the manufacture of materials and therapeutic candidates, we and our current or potential development and commercialization
partners are subject to foreign, federal, state and local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes.
We and our current or potential development and commercialization partners may be required to incur significant costs to comply
with environmental and health and safety regulations in the future. Our research and clinical development, as well as the activities
of our manufacturing and current or potential development and commercialization partners, both now and in the future, may involve
the controlled use of hazardous materials, including but not limited to certain hazardous chemicals. We cannot completely eliminate
the risk of accidental contamination or injury from these materials. In the event of such an occurrence, we could be held liable
for any damages that result and any such liability could exceed our resources.
Risks
Related to Legal Proceedings and Intellectual Property
Legal
proceedings or third-party claims of intellectual property infringement and other legal challenges may require us to spend substantial
time and money and could prevent us from or delay us in developing or commercializing our therapeutic candidates. An adverse result
in any infringement claim or other legal challenges could have a material adverse effect on our business, results of operations
and financial condition.
The
development, manufacture, use, offer for sale, sale or importation of our therapeutic candidates may infringe on the claims of
third-party patents or other intellectual property rights. The nature of claims contained in unpublished patent filings around
the world is unknown to us, and it is not possible to know which countries patent holders may choose for the extension of their
filings under the Patent Cooperation Treaty, or other mechanisms. We may also be subject to claims based on the actions of employees
and consultants with respect to the usage or disclosure of intellectual property learned at other employers. The cost to us of
any intellectual property litigation or other infringement proceeding, even if resolved in our favor, could be substantial. Some
of our competitors may be able to sustain the costs of such litigation or proceedings more effectively because of their substantially
greater financial resources. Uncertainties resulting from the initiation and continuation or defense of intellectual property
litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Intellectual
property litigation and other proceedings may also absorb significant management time. Consequently, we are unable to guarantee
that we will be able to manufacture, use, offer for sale, sell or import our therapeutic candidates in the event of an infringement
action.
In
the event of patent infringement claims, or to avoid potential claims, we may choose or be required to seek a license from a third
party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable
terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could potentially limit our
competitive advantage. Ultimately, we could be prevented from commercializing a therapeutic candidate or be forced to cease some
aspect of our business operations if, as a result of actual or threatened patent infringement or other claims, we are unable to
enter into licenses on acceptable terms. This inability to enter into licenses could harm our business significantly.
From
time to time, we may also be involved in various lawsuits and legal proceedings other than intellectual property infringement
actions, concerning such laws as corporate and securities laws, business laws, product liability laws, and environmental laws.
On December 3, 2015, we announced that we received a lawsuit and motion to approve the lawsuit as a class action lawsuit pursuant
to the Class Action Lawsuits Law 5766-2006 which was filed against us and our directors at the Tel Aviv District Court (Economic
Division). The Motion asserts claims for damages to the holders of our securities listed on the TASE, arising due to the initial
public offering of our securities in the U.S. during November 2015. A separate, similar claim in the amount of NIS 1.1 million
was filed against us in May 2018 by an individual shareholder seeking to separate from the purported class in the Motion. Additionally,
on February 16, 2017, we announced that four lawsuits and motions to approve the lawsuits as a class action lawsuit were
filed against us and certain of our office holders at the Tel Aviv District Court (Economic Division), and served on us, with
each such motion relating to the formal investigation by the Israeli Securities Authority (ISA) into our public disclosures. In
addition, in February 2017 class actions lawsuits largely relating to the same matters were filed in the State of California and
in the U.S. federal courts against us, our CEO and former CFO, and in the California lawsuits, against the underwriters of our
November 2015 initial public offering in the U.S.A. (collectively, “Investigation Motions”).
The
above proceedings could result in significant legal defense costs and high punitive damage payments. For instance, through December
31, 2019, we incurred legal expenses of approximately $2,086 thousands, in connection with the ISA Investigation and ongoing class
actions, and we received to date an aggregate amount of $1,403 thousands as reimbursement from our insurance carriers for legal
expenses in connection with such matters and there is no assurance that the entire expense will be reimbursed. Although we maintain
directors’ and officers’ liability insurance, with an extension to cover the Company as well, and which is expected
to cover much of our expected costs (legal and otherwise) in connection with the ISA Investigation and ongoing class actions and
related lawsuits after payment by us of the policy deductibles, the insurance companies may reject our claims for coverage under
the policy or the coverage may not be adequate to cover future claims. Furthermore, we were required to indemnify our underwriters
for their legal defense costs or any other damages in the California Investigation Motion, and such indemnification was not be
covered under the policy. To date we paid our underwriters to indemnify them for their legal costs in connection with the California
putative class actions in an aggregate amount of approximately $186,900,
We
finalized a settlement agreement with respect to the class actions lawsuits which were filed in the State of California and in
the U.S. federal courts against us, our CEO and former CFO, and in the California lawsuits, against the underwriters of our November
2015 initial public offering in the United States, which was approved by the court on March 22, 2019. Under the terms of the settlement,
the classes in all of the actions will receive aggregate consideration of $2.0 million (the “US Settlement”). The
settlement consideration, as well as ancillary expenses were funded by our insurance carriers. The US Settlement contains no admission
of wrongdoing and reiterates that we have always maintained and continue to believe that we did not engage in any wrongdoing or
otherwise commit any violation of federal or state securities laws or other laws, including, without limitation, vigorous denials
that our public statements were misleading; that we failed to disclose any material information from investors; that we acted
in any deceitful manner; that any investment losses sustained by the classes were caused by our or other defendants’ alleged
misconduct, and that they have any liability to the classes in these actions. The US Settlement also reiterates that our counsel
also has researched the applicable law and believes that we and other defendants can successfully defend against all claims in
the actions, and that they continue to believe that the claims asserted in the actions have no merit, and the classes have no
evidence to support their claims. We and the other defendants agreed to the settlement on the basis of the advice and recommendations
of our insurance carriers, who are indemnifying us for the expenses of conducting a defense in the actions, as well as paying
judgments which may be assessed as a result of the actions. As such, we and the other defendants believe that further litigation
of the actions would be protracted, burdensome, and expensive for us as well as our insurers, and that it is desirable and beneficial
that the claims asserted in the actions be fully and finally settled and terminated in the manner of the settlement, with no additional
costs to us or to the other defendants. Pursuant to the US Settlement, we and our directors and officers as well as the other
defendants named in the actions were released from the claims that were asserted or could have been asserted in the actions by
class members participating in the settlement.
In
Israel, we were previously subject to a formal investigation by the Israeli Securities Authority (respectively, the “Investigation”
and the “ISA”) into our public disclosures around certain aspects of the studies related to its therapeutic candidate,
Consensi™. On August 13, 2019, the Administrative Enforcement Committee (the “Committee”) of the Israel Securities
Authority (“ISA”) approved an administrative enforcement agreement, titled Enforcement Arrangement ("Enforcement
Arrangement"), entered into by and amongst ISA, Kitov Pharma, Isaac Israel, our chief executive officer, Paul Waymack, our
former chairman and Simcha Rock, our former chief financial officer, pursuant to which the Company and each of Messrs. Israel,
Waymack and Rock settled the ISA’s claims that under Israeli Securities Laws the Company made negligent disclosures in a
number of its historical reports filed with the ISA in 2014 and 2015, and the ISA decided to discontinue its criminal investigation
and to cease all proceedings us and our principals.
Specifically,
as part of the Enforcement Arrangement:
1)
The Company shall pay a fine of NIS 1,500,000 (approximately $430,000), payable in 24 consecutive monthly payments;
2)
Mr. Isaac Israel shall (i) pay a fine of NIS 200,000, (approximately $60,000) payable in 12 consecutive monthly payments, beginning
thirty days after the approval of the Enforcement Arrangement by the Committee; and, (ii) be subject to a conditional prohibition
to serve as a senior officer in a supervised body under the Israeli Securities Law for a period of 12 months, in the event that
Mr. Israel violates certain sections under the Israeli securities laws within two years.
3)
Dr. Paul Waymack shall pay a fine of NIS 100,000 (approximately $30,000), to be paid in one payment no later than sixty days after
the approval of the Enforcement Arrangement by the Committee.
4)
Mr. Simcha Rock shall (i) pay fine of 80,000 NIS (approximately $20,000), payable in 12 consecutive monthly payments, beginning
thirty days after the approval of the Enforcement Arrangement by the Committee; and (ii) be subject to a conditional prohibition
to serve as a senior officer in a supervised body under the Israeli Securities Law for a period of six months, in the event Mr.
Rock violates certain sections under the Israeli securities laws within two years.
In
order to put this matter to rest, remove uncertainty and focus on the future marketing of Consensi™ and on our other business,
the Company, by vote of a committee consisting of independent members of our Board of Directors, and the above mentioned principals,
agreed to the Enforcement Arrangement with the ISA.
We
will not indemnify the above noted principals for the fines they are paying to ISA under the Enforcement Arrangement; however,
we may have to indemnify them for certain legal expenses which are not covered by our insurance carriers, which we expect to be
immaterial.
Other
than the amounts to be paid by us to ISA, as well as amounts we may have to we do not expect the Enforcement arrangement to have
a material impact on the Company’s statement of operations. However, we do not yet know what impact the US Settlement and/or
the Enforcement Arrangement may have on the proceedings being conducted under the Israeli Investigation Motions which are still
continuing at the Tel Aviv District Court.
Additionally,
we may be unable to maintain our existing directors’ and officers’ liability insurance in the future at satisfactory
rates or adequate amounts and may have significant increase in insurance costs. With respect to the motion from December 2015,
we have been advised by our attorneys that the likelihood of the Company not incurring any financial obligation as a result of
such class action exceeds the likelihood that the Company will incur a financial obligation. At this stage, and other than with
respect to the settlement of the Investigation Motions in the U.S. and the Enforcement Arrangement with the ISA, however, we are
unable, with any degree of certainty, to make any other evaluations or any other assessments with respect to the probability of
success or the scope of potential exposure, if any, of any of the Investigation Motions.
It
is difficult to foresee the results of legal actions and proceedings currently involving us or those which may arise in the future,
and an adverse result in these matters could have a material adverse effect on our business, results of operations and financial
condition. In addition, any legal or administrative proceedings which we are subject to could require the significant involvement
of our senior management and may divert management attention from our business and operations.
We
may be unable to adequately protect or enforce our rights to intellectual property, causing us to lose valuable rights. Loss of
patent rights may lead us to lose market share and potential profits.
Our
success depends, in part, on our ability, and the ability of our current or potential development and commercialization partners
to obtain patent protection for our therapeutic candidates, maintain the confidentiality of our trade secrets and know-how, operate
without infringing on the proprietary rights of others and prevent others from infringing our proprietary rights.
We
try to protect our proprietary position by, among other things, filing U.S. and other patent applications related to our therapeutic
candidates, inventions and improvements that may be important to the continuing development of our therapeutic candidates.
Because
the patent position of pharmaceutical companies involves complex legal and factual questions, we cannot predict the validity and
enforceability of any patents we may obtain with certainty. Our competitors may independently develop drug delivery technologies
or products similar to ours or design around or otherwise circumvent any patents that may be issued to or licensed by us. Our
pending patent applications, and those that we may file in the future or those we may license from third parties may not result
in patents being issued. If these patents are issued, they may not provide us with proprietary protection or competitive advantages.
The degree of future protection to be afforded by our proprietary rights is uncertain because legal means afford only limited
protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.
Patent
rights are territorial; thus, the patent protection we have sought will only extend, if issued, to those countries, if any, in
which we will be issued patents. Even so, the laws of certain countries do not protect our intellectual property rights to the
same extent as do the laws of the U.S. Competitors may successfully challenge any of our patents, produce similar drugs or products
that do not infringe such patents, or produce drugs in countries where we have not applied for patent protection or that do not
respect such patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications
and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law.
After
the completion of development and registration of any future patents, third parties may still act to manufacture or market our
therapeutic candidates in infringement of our patent protected rights. Such manufacture or marketing of our therapeutic candidates
in infringement of any patent-protected rights is likely to cause us damage and lead to a reduction in the prices of our therapeutic
candidates, thereby reducing our potential profits.
We
may invest a significant amount of time and expense in the development of our therapeutic candidates only to be subject to significant
delay and patent litigation before they may be commercialized. In addition, due to the extensive time needed to develop, test
and obtain regulatory approval for our therapeutic candidates, any patents that may be issued that protect our therapeutic candidates
may expire early during commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following
patent expiration, we may face increased competition through the entry of generic products into the market and a subsequent decline
in market share and profits.
We
are developing some of our therapeutic candidates in collaboration with academic and other research institutes. While we attempt
to ensure that our intellectual property is protected under the terms of our collaboration agreements with such institutes, these
institutes may have claims to our intellectual property.
We
do not have patent protection in certain countries, and we may not be able to effectively enforce our intellectual property rights
in certain countries, which could significantly erode the market for our product candidates.
We
are seeking or intend to seek regulatory approval to market Consensi™ or our therapeutic candidates in a number of foreign
countries, including China and South Korea. Consensi™ and our therapeutic candidates are not protected by patents in certain
countries, including China where we are currently seeking patent protection and South Korea, which means that competitors may
be free to sell products that incorporate the same technology that is used in our products in those countries. In addition, the
laws and practices in some foreign countries may not protect intellectual property rights to the same extent as in the United
States. We or our licensors may not be able to effectively obtain, maintain or enforce rights with respect to the intellectual
property relating to our product candidates in those countries. In that regard, we believe that although China is one of the largest
potential markets for some of our products under development, some of our product candidates are not protected by patents in China
and it may be difficult to enforce intellectual property rights in China. Our lack of patent protection in one or more countries,
or the inability to obtain, maintain or enforce intellectual property rights in one or more countries, could adversely affect
our ability to commercialize our products in those countries and could otherwise have a material adverse effect on our business.
If
we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others
to compete against us.
In
addition to filing patents, we generally try to protect our trade secrets, know-how and technology by entering into confidentiality
or non-disclosure agreements with parties that have access to it, such as our current or potential development and commercialization
partners, employees, contractors and consultants. We also enter into agreements that purport to require the disclosure and assignment
to us of the rights to the ideas, developments, discoveries and inventions of our employees, advisors, research collaborators,
contractors and consultants while we employ or engage them. However, these agreements can be difficult and costly to enforce or
may not provide adequate remedies. Any of these parties may breach the confidentiality agreements and willfully or unintentionally
disclose our confidential information, or our competitors might learn of the information in some other way. The disclosure to,
or independent development by, a competitor of any trade secret, know-how or other technology not protected by a patent could
materially adversely affect any competitive advantage we may have over any such competitor. In addition, monitoring infringement
of intellectual property rights is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized
use of our know-how, particularly in China and other countries in which the laws may not protect our proprietary rights as fully
as the laws of the United States. Accordingly, other parties, including competitors, may improperly duplicate our products using
our proprietary technologies. Pursuing legal remedies against persons infringing our patents or otherwise improperly using our
proprietary information is a costly and time-consuming process that would divert management’s attention and other resources
from the conduct of our normal business.
To
the extent that any of our employees, advisors, research collaborators, contractors or consultants independently develop, or use
independently developed, intellectual property in connection with any of our projects, disputes may arise as to the proprietary
rights to this type of information. If a dispute arises with respect to any proprietary right, enforcement of our rights can be
costly and unpredictable, and a court may determine that the right belongs to a third party.
We
may be subject to other patent-related litigation or proceedings that could be costly to defend and uncertain in their outcome.
In
addition to infringement claims against us, we may in the future become a party to other patent litigation or proceedings before
regulatory agencies, including interference or re-examination proceedings filed with the U.S. Patent and Trademark Office (USPTO)
or opposition proceedings in other foreign patent offices regarding intellectual property rights with respect to our therapeutic
candidates, as well as other disputes regarding intellectual property rights with our current and potential development and commercialization
partners, or others with whom we have contractual or other business relationships. Post-issuance oppositions are not uncommon,
and we and our current and potential development and commercialization partners will be required to defend these opposition procedures
as a matter of course. Opposition procedures may be costly, and there is a risk that we may not prevail.
Risks
Related to our Operations in Israel
It
may be difficult to enforce a U.S. judgment against us and our officers and directors in Israel or the U.S., or to serve process
on our officers and directors.
We
are incorporated in Israel. Most of our executive officers and directors reside outside of the U.S., and all of our assets and
most of the assets of our executive officers and directors are located outside of the U.S. Therefore, a judgment obtained against
us or such executive officers and our directors in the U.S., including one based on the civil liability provisions of the U.S.
federal securities laws, may not be collectible in the U.S. and may not be enforced by an Israeli court. It may also be difficult
for you to affect service of process on these persons in the U.S. or to assert U.S. securities law claims in original actions
instituted in Israel. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not
United States law is applicable to the claim. If United States law is found to be applicable, the content of applicable United
States law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of
procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described
above. As a result of the difficulty associated with enforcing a judgment against us in Israel, it may be impossible to collect
any damages awarded by either a U.S. or foreign court.
Claims
for indemnification by our directors and officers may reduce our available funds to satisfy successful shareholder claims against
us and may reduce the amount of money available to us.
The
Companies Law and our amended and restated articles of association permit us to indemnify our directors and officers for acts
performed by them in their capacity as directors and officers. The Companies Law and our amended and restated articles of association
provide that a company may not exempt or indemnify a director or an office holder nor enter into an insurance contract, which
would provide coverage for any monetary liability incurred as a result of (a) a breach by the director or officer of his duty
of loyalty, except for insurance and indemnification where the director or officer acted in good faith and had a reasonable basis
to believe that the act would not prejudice the company; (b) a breach by the director or officer of his duty of care if the breach
was done intentionally or recklessly, except if the breach was solely as a result of negligence; (c) any act or omission done
with the intent to derive an illegal personal benefit; or (d) any fine, civil fine, monetary sanctions, or forfeit imposed on
the officer or director.
We
have issued letters of indemnification to our directors and officers, pursuant to which we have agreed to indemnify them in advance
for any liability or expense imposed on or incurred by them in connection with acts they perform in their capacity as a director
or officer, subject to applicable law. The amount of the advance indemnity will not exceed 25% of our then consolidated shareholders’
equity, per its most recent consolidated annual financial statements.
Our
indemnification obligations limit the personal liability of our directors and officers for monetary damages for breach of their
duties as directors by shifting the burden of such losses and expenses to us. Although we have obtained directors’ and officers’
liability insurance, certain liabilities or expenses covered by our indemnification obligations may not be covered by such insurance
or the coverage limitation amounts may be exceeded.
As
a result of the class action motions and lawsuits or other claims which may be filed against our directors and officers, as well
as the Investigation, we may need to use a significant amount of our funds to satisfy our indemnification obligations, which could
severely harm our business and financial condition and limit the funds available to shareholders who may choose to bring a claim
against our company. See the risk factor titled “Legal proceedings or third-party claims of intellectual property infringement
and other legal challenges may require us to spend substantial time and money and could prevent us from developing or commercializing
our therapeutic candidates. An adverse result in these infringements and other legal challenges could have a material adverse
effect on our business, results of operations and financial conditions” under the risk factor section titled “Risks
Related to Legal Proceedings and Intellectual Property”.
These
provisions and resultant costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their
duties and may similarly discourage the filing of derivative litigation by our shareholders against the directors and officers
even though such actions, if successful, might otherwise benefit our shareholders.
In
the event we do not satisfy the requirements for a tax-free merger of Kitov Pharmaceuticals with and into Kitov Pharma, Kitov
Pharmaceuticals may be subject to a material tax liability.
The
board of directors of each of Kitov Pharma and Kitov Pharmaceuticals approved the merger of Kitov Pharmaceuticals with and into
Kitov Pharma, with Kitov Pharma as the surviving company. The merger was completed in December 2017. Based on our analysis, we
notified the Israeli Tax Authority that the merger satisfied the requirements for a tax-free merger under Israeli tax law, which
includes amongst other requirements, which are applicable to Kitov: that the merger was considered for business and economic purposes
and that the primary goal of the merger was not tax avoidance or tax reduction; compliance with certain limitations on selling
off most of each of the companies’ assets should not be sold during the period two years after the end of the tax year in
which the change in the structure occurs; the merged company will continue its main business activity in the same way it did prior
to the merger; and operating losses carried forward (of both the participating companies) may be deducted in the reports of the
merged company, at the lower of a rate of 20% of the losses transferred each year, or up to 50% of the taxable income of the merged
company. In the event the Israel Tax Authority does not agree with our analysis, Kitov Pharmaceuticals may be subject to a material
tax amount on account of the sale equal to the value of its assets on the date of transfer minus the cost basis for such assets.
Such a tax liability may have a material adverse effect on our financial results.
We
conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability
in Israel and its region.
We
are incorporated under the laws of the State of Israel, our principal offices are located in central Israel and some of our officers,
employees, consultants and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel
and the surrounding region may directly affect our business. Since the establishment of the State of Israel in 1948, a number
of armed conflicts have taken place between Israel and its Arab neighbors. These conflicts have often involved missile strikes
against civilian targets in various parts of Israel, and negatively affected business conditions in Israel. The tension between
Israel and Iran or extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon, may escalate in the future
and turn violent, which could affect the Israeli economy generally and us in particular.
In
December 2019, a strain of coronavirus was reported to have surfaced in Wuhan, China, and has reached multiple other countries,
including Israel, resulting in government-imposed quarantines, travel restrictions and other public health safety measures in
in Israel. The Israeli Ministry of Health has already put in place various outbound travel restrictions, inbound quarantine requirements
for passengers arriving from certain countries and/or events in other countries, including not allowing certain foreign nationals
to disembark in Israel, as well as ordering curtailment of public gatherings, trade and other activities within Israel
Any
hostilities involving Israel, or pandemic related travel restrictions or quarantine, or the interruption or curtailment of trade
within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and could
make it more difficult for us to raise capital. Any armed conflicts, terrorist activities, political instability or pandemic related
travel restrictions in the region could adversely affect business conditions and could harm our results of operations. Parties
with whom we may do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing
us to make alternative arrangements when necessary. The conflict situation in Israel, or the coronavirus (or other pandemic) related
travel restrictions could cause situations where medical product certifying or auditing bodies could not be able to visit manufacturing
facilities of our subcontractors in Israel in order to review our certifications or clearances, thus possibly leading to temporary
suspensions or even cancellations of our product clearances or certifications. The conflict situation in Israel or the coronavirus
(or other pandemic) related travel restrictions, could also result in parties with whom we have agreements involving performance
in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions
in such agreements.
Our
commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the
Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist
attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred
by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely
negatively affect business conditions and could harm our results of operations.
Further,
in the past, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict
business and trade activity with the State of Israel and with Israeli companies, and additional countries may impose restrictions
on doing business with Israel and Israeli companies if hostilities in the region continue or intensify. Such restrictions may
seriously limit our ability to sell our products to customers in those countries.
If
the current coronavirus outbreak continues and results in a prolonged period of travel, commercial and other similar restrictions
to or from Israel could materially disrupt our business and operations, slow down the overall economy, and make it hard to adequately
staff our operations.
Any
of the factors set forth above may have an adverse impact on our operating results, financial condition or the expansion of our
business.
Provisions
of Israeli law and Kitov Pharma’s amended and restated articles of association may delay, prevent or otherwise impede a
merger with, or an acquisition of the Company, or an acquisition of a significant portion of Kitov Pharma’s shares, which
could prevent a change of control, and negatively affect the market price of Kitov Pharma’s ordinary shares.
Israeli
corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special
approvals for certain transactions involving directors, officers or significant shareholders and regulates other matters that
may be relevant to these types of transactions. These provisions of Israeli law may delay, prevent or make difficult an acquisition
of us, which could prevent a change of control and therefore depress the price of our shares,
Furthermore,
Israeli tax considerations may make potential transactions unappealing to us or to our shareholders, especially for those shareholders
whose country of residence does not have a tax treaty with Israel which exempts such shareholders from Israeli tax. For example,
Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli
tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions,
including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of
shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions,
the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares
has occurred.
Kitov
Pharma’s amended and restated articles of association also contain provisions that could delay or prevent changes in control
or changes in our management. These provisions include matters in connection with the election and removal of directors, such
as Kitov Pharma’s staggered board of directors, the appointment by Kitov Pharma’s board of directors of additional
directors to fill vacancies on the board of directors, the size of the Kitov Pharma’s board of directors, the terms of office
of Kitov Pharma’s directors and the special majority of Kitov Pharma’s voting rights required to amend such provision
in its amended and restated articles of association.
In
addition, Kitov Pharma has 50,000,000 shares of non-voting senior preferred shares authorized, which can be issued by its board
of directors, who can establish conversion, redemption, optional and other special rights, qualifications, limitations or restrictions,
if any, of the non-voting senior preferred shares, without further actions by Kitov Pharma’s shareholders, unless shareholder
approval is otherwise required by applicable law, the rules of any exchange or other market on which its securities may then be
listed or traded, its articles of association then in effect, or any other applicable rules and regulations. Furthermore, in a
merger between Israeli corporations, if the non-surviving entity has more than one class of shares, the merger may need to be
approved by each class of shareholders, including any classes of otherwise non-voting shares, such as the non-voting senior preferred
shares authorized in Kitov Pharma’s share capital.
Kitov
Pharma’s subsidiary, TyrNovo, has obligations to the IIA with respect to grants from the IIA for certain research and development
expenditures in connection with TyrNovo’s NT-219 technology. The terms of these grants may require us to satisfy specified
conditions in order to manufacture products and transfer technologies outside of Israel, which may impede our acquisition by,
or a merger with, a foreign company. For more information, see the risk factors in connection with IIA funding found under “Risks
Related to Our Financial Condition and Capital Requirements.”
These
and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, or an acquisition
of a significant portion of our shares, even if such an acquisition or merger would be beneficial to us or to our shareholders.
Because
a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed
by currency fluctuations and inflation.
Our
reporting and functional currency is the U.S. dollar. Most of the royalty payments from potential development and commercialization
partners are expected to be payable in U.S. dollars, and we expect our revenues from future licensing agreements to be denominated
mainly in U.S. dollars. We pay a portion of our expenses in U.S. dollars; however, a portion of our expenses, related to salaries
of the employees in Israel and payment to part of the service providers in Israel, are paid in NIS and in other currencies such
as euro to our suppliers in Europe. In addition, a portion of our financial assets is held in NIS. As a result, we are exposed
to currency fluctuation risks. For example, if the NIS strengthens against the U.S. dollar, our reported expenses in U.S. dollars
may be higher than anticipated. In addition, if the NIS weakens against the U.S. dollar, the U.S. dollar value of our financial
assets held in NIS will decline.
Your
obligations and responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the obligations
and responsibilities of shareholders of U.S. companies. Israeli law may impose obligations and responsibilities on a shareholder
of an Israeli company that are not imposed upon shareholders of corporations in the U.S.
We
are incorporated under Israeli law. The obligations and responsibilities of the holders of our ordinary shares are governed by
our amended and restated articles of association and Israeli law. These obligations and responsibilities differ in some respects
from the obligations and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of
an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power
in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments
to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions
and related party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power
to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in
the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the implications
of these provisions that govern shareholders’ actions. These provisions may be interpreted to impose additional obligations
and responsibilities on holders of our ordinary shares and/or ADSs that are not typically imposed on shareholders of U.S. corporations.
Our
Amended and Restated Articles of Association designate courts located either within the State of Israel, or the Federal District
Courts of the United States, as the exclusive forum for certain litigation that may be initiated by our shareholders, which could
limit our shareholders’ ability to bring a favorable or convenient judicial forum for disputes with us.
Our
Amended and Restated Articles of Association provide that, unless we consent in writing to the selection of an alternative forum,
the Tel Aviv District Court (Economic Division in the State of Israel (or, if the Tel Aviv District Court does not have jurisdiction,
and no other Israeli court has jurisdiction, the federal district court for the District of New York) shall be the sole and exclusive
forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary
duty owed by any of our directors, officers or other employees to us or our shareholders, and (3) any action asserting a claim
arising pursuant to any provision of the Companies Law or the Israeli Securities Law 5728-1968, in all cases subject to the court’s
having personal jurisdiction over the indispensable parties named as defendants. In addition, the federal district courts of the
United States for the District of New York shall be the exclusive forum for any complaint asserting a cause of action arising
under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital
stock shall be deemed to have notice of and consented to these provisions. This forum selection provision will limit shareholders’
choice in selecting a judicial forum for disputes with us that it finds favorable or convenient and may have the effect of discouraging
lawsuits against us or our directors and officers.
Risks
Primarily Related to Our ADSs and Ordinary Shares and Other Listed Securities
The
market price of Kitov Pharma’s ordinary shares, ADSs and public warrants is subject to fluctuation, which could result in
substantial losses by investors.
The
stock market in general, and the market price of Kitov Pharma’s ordinary shares on the TASE and its ADSs and Series A warrants
on NASDAQ in particular, are subject to fluctuation, and changes in the price of its listed securities may be unrelated to our
operating performance. The market prices of Kitov Pharma’s ordinary shares on the TASE and its ADSs and public warrants
on NASDAQ have fluctuated in the past, and we expect it will continue to do so. The market price of Kitov Pharma’s ordinary
shares, ADSs and public warrants are and will be subject to a number of factors, including:
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announcements
of technological innovations or new therapeutic candidates by us or by others;
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announcements
by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, joint ventures or capital commitments;
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our
need to raise additional capital;
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expiration
or terminations of licenses, research contracts or other development or commercialization agreements;
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public
concern as to the safety of drugs that we, our current or potential development and commercialization partners or others develop;
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the
volatility of market prices for shares of biotechnology companies generally;
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success
or failure of research and development projects;
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departure
of key personnel;
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developments
concerning intellectual property rights or regulatory approvals;
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variations
in our and our competitors’ results of operations;
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changes
in earnings estimates or recommendations by securities analysts, if Kitov Pharma’s ordinary shares or ADSs or public
warrants are covered by analysts;
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changes
in government regulations or patent decisions;
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developments
by our current or potential development and commercialization partners; and
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general
market conditions and other factors, including factors unrelated to our operating performance.
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These
factors and any corresponding price fluctuations may materially and adversely affect the market price of Kitov Pharma’s
ordinary shares and ADSs and public warrants and result in substantial losses by investors.
Additionally,
market prices for listed securities of biotechnology and pharmaceutical companies historically have been very volatile. The market
for these listed securities has from time to time experienced significant price and volume fluctuations for reasons unrelated
to the operating performance of any one company. In the past, following periods of market volatility, shareholders have often
instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost
and divert resources and attention of management from our business, even if we are successful.
Future
sales of Kitov Pharma’s ordinary shares or ADSs or other warrants or convertible securities could reduce the market price
of its ordinary shares and ADSs and other listed securities.
As
of March 16, 2020, we had an aggregate of 40,455,588 issued and outstanding ordinary shares (including 1 dormant ordinary share
held in treasury), no non-voting senior preferred shares, 6,835,669 Series A or public warrants, 26,898,178 non-listed warrants
issued to investors, the underwriters and placement agents as part of a number of public and registered direct offerings by us
since November 2015, 10,030,000 non listed pre-funded issued to our investors in public offering dated March 16, 2020 with an
exercise price of $ 0.0001 per ADS, warrants to purchase up to an additional 4,037,805 ADSs representing an equivalent number
of our ordinary shares issued by us in January 2020 to former shareholders of FameWave in connection with our acquisition of FameWave,
and non-tradable options and RSUs to purchase 5,101,184 ordinary shares pursuant to our equity based incentive compensation plans
and arrangements.
Any
future sales or issuances of a substantial number of ADSs and/or ADSs underlying warrants or service provider options in the public
market, or the perception that such sales may occur, could materially adversely affect the price of our ADSs and ordinary shares.
We cannot predict the effect, if any, that market sales of those ADSs and warrants to purchase ADSs or the availability of those
ADSs and warrants for sale will have on the market price of our ADSs and ordinary shares.
Any
other substantial sales of Kitov Pharma’s ordinary shares or ADSs or other warrants or securities convertible into ordinary
shares or ADSs, or the perception that such sales may occur in the future, including sales of ordinary shares or ADSs issuable
upon the exercise of options or the conversion of convertible securities, may cause the market price of Kitov Pharma’s ordinary
shares or ADSs or other listed securities to decline.
NASDAQ
has a listing requirement of a minimum closing bid price of $1.00 per share. If our ADSs cannot maintain the required minimum
closing bid price and we fail to correct the listing requirement deficiency within the provided cure period, our ADSs may be involuntarily
delisted from NASDAQ.
Our
ADSs are listed on NASDAQ, and the quantitative listing standards of NASDAQ require, among other things, that listed companies
maintain a minimum closing bid price of $1.00 per ADS. On July 8, 2019, we received a letter from the Listing Qualifications
Department of NASDAQ indicating that, based upon the closing bid price of our ADSs for the last 30 consecutive business
days, we did not meet the minimum bid price of $1.00 per share required for continued listing on NASDAQ pursuant to
NASDAQ Listing Rule 5550(a)(2). We were not able to regain compliance with this requirement within the 180-day period ending on
January 6, 2020. However, on January 7, 2020, we were granted an additional 180-day compliance period ending on July 6, 2020 (the
“Second Compliance Period”). We can regain compliance with this requirement if at any time before the expiration of
the Second Compliance Period the closing bid price for our ADSs is at least $1.00 per share for a minimum of ten consecutive business
days. In the event we do not regain compliance during the Second Compliance Period, NASDAQ will provide notice that our securities
will be subject to delisting. At that time, we may appeal NASDAQ’s delisting determination to a NASDAQ Listing Hearings
Panel. If we fail to regain compliance within our applicable cure period, or fail to satisfy other listing requirements, our ADSs
may be subject to delisting.
To
resolve the noncompliance, we may consider available options including a reverse share split, which may not result in a permanent
increase in the market price of our ADSs, which is dependent on many factors, including general economic, market and industry
conditions and other factors detailed from time to time in the reports we file with the Securities and Exchange Commission. It
is not uncommon for the market price of a company’s shares to decline in the period following a reverse share split.
Although
we expect to take actions intended to restore our compliance with the listing requirements, we can provide no assurance that any
action taken by us would be successful, or that any such action would stabilize the market price or improve the liquidity of our
ADSs. Should a delisting occur, an investor would likely find it significantly more difficult to dispose of, or to obtain accurate
quotations as to the value of our ADSs, and our ability to raise future capital through the sale of our ADSs could be severely
limited. Delisting would also impact some of our disclosure obligations under Israeli law. Following a delisting, we will remain
a publicly traded company on TASE and revert to being subject to full Israeli securities laws and disclosure requirements. Accordingly,
we will need to comply with U.S. and Israeli disclosure requirements and the resolution of any conflicts between those requirements
may lead to additional costs and require significant management time. Furthermore, we expect these additional reporting rules
and regulations would increase our legal and financial compliance costs.
In
the event that our ADSs are delisted from NASDAQ, U.S. broker-dealers may be discouraged from effecting transactions in shares
of our ADSs because they may be considered penny stocks and thus be subject to the penny stock rules.
The
SEC has adopted a number of rules to regulate “penny stock” that restrict transactions involving stock which is deemed
to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities
and Exchange Act of 1934, as amended (the “Exchange Act”). These rules may have the effect of reducing the liquidity
of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than
securities registered on certain national securities exchanges or quoted on NASDAQ if current price and volume information with
respect to transactions in such securities is provided by the exchange or system). Following a delisting from NASDAQ our ADSs
may constitute “penny stock” within the meaning of these rules. The additional sales practice and disclosure requirements
imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions our ADSs, which could severely
limit the market liquidity of such ADSs and impede their sale in the secondary market.
A
U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally,
an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or
her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent
to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny
stock” regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”,
a disclosure schedule prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer
or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer
and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit
monthly statements disclosing recent price information with respect to the “penny stock” held in a customer’s
account and information with respect to the limited market in “penny stocks”.
Securities
holders should be aware that, according to the SEC, the market for “penny stocks” has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that
are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic
price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated
to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the
penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of practical limitations to prevent the described patterns
from being established with respect to our securities.
We
incur increased costs and risks as a result of operating as a public company in the U.S. and Israel, and our management are and
will continue to be required to devote substantial time to compliance initiatives.
Kitov
Pharma’s ADSs and public warrants have been traded on The NASDAQ Capital Market since November 20, 2015, and prior to that
our Ordinary Shares traded on the TASE, where they continue to trade. As a public company whose securities are listed in the United
States and Israel, we incur accounting, legal and other expenses, including costs associated with our reporting requirements under
the Exchange Act and the Israeli Securities Law. We also incur costs associated with corporate governance requirements, including
requirements under Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the SEC and NASDAQ,
and provisions of Israeli corporate and securities laws applicable to public companies. Certain aspects of Israeli securities
laws are different than U.S. securities law, and our dual listing on TASE exposes us and our management to differing regulatory
regimes which may involve increased regulatory risk.
As
an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, we may take advantage
of certain temporary exemptions from various reporting requirements, including, but not limited to, not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations of the SEC thereunder).
When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring
compliance with them. We cannot predict or estimate the amount of additional costs we may thus incur or the timing of such costs.
Pursuant
to Section 404 of the Sarbanes-Oxley Act and the related rules adopted by the SEC and the Public Company Accounting Oversight
Board, our management is required to report on the effectiveness of our internal control over financial reporting. In addition,
once we no longer qualify as an “emerging growth company” under the JOBS Act and lose the ability to rely on the exemptions
related thereto discussed above and depending on our status as per Rule 12b-2 of the Exchange Act, our independent registered
public accounting firm may also need to attest to the effectiveness of our internal control over financial reporting under Section
404.
The
process of determining whether our existing internal controls over financial reporting systems are compliant with Section 404
and whether there are any material weaknesses or significant deficiencies in our existing internal controls, requires the investment
of substantial time and resources, including by our chief financial officer and other members of our senior management. As a result,
this process may divert internal resources and take a significant amount of time and effort to complete.
We
cannot predict the outcome of evaluations we will conduct, and whether we will need to implement additional remedial actions in
order to implement effective controls over financial reporting. The determination and any remedial actions required could result
in us incurring additional costs that we did not anticipate, including the hiring of outside consultants. Irrespective of compliance
with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations
and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher independent
auditor fees during and after the implementation of these changes. If we are unable to implement any of the required changes to
our internal control over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it
could adversely affect our operations, financial reporting and/or results of operations and could result in an adverse opinion
on internal controls from our independent auditors and cause the market price of Kitov Pharma’s ordinary shares, ADSs and
public warrants to decline.
Changes
in the laws and regulations affecting public companies will result in increased costs to us as we respond to their requirements.
These laws and regulations could make it more difficult or costlier for us to obtain certain types of insurance, including director
and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract
and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We cannot predict
or estimate the amount or timing of additional costs we may incur in order to comply with such requirements.
We
may be classified as a Passive Foreign Investment Company, or PFIC, for U.S. federal income tax purposes in 2020 and may continue
to be, or become, a PFIC in future years, which may have negative tax consequences for U.S. investors.
We
will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of our gross
income is “passive income” or (ii) on average at least 50% of our assets by value produce passive income or are held
for the production of passive income. Based on our estimated gross income, the average value of our gross assets, and the nature
of our business, we believe that we may be classified as a PFIC in the current taxable year and may be classified as a PFIC in
future years. If we are treated as a PFIC for any taxable year during which a U.S. investor held our ADSs, certain adverse U.S.
federal income tax consequences could apply to the U.S. investor.
As
a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable
Securities and Exchange Commission and NASDAQ requirements, which may result in less protection than is accorded to investors
under rules applicable to U.S domestic issuers.
As
a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise
required under the NASDAQ Listing Rules for U.S domestic issuers. We will follow home country practice in Israel with regard to
(1) director nomination procedures, as permitted by the Companies Law, under which either our board of directors, a group of directors,
or shareholder(s) holding sufficient portion of our share capital selects director nominees, subject to the terms of our amended
and restated articles of association. Directors are not selected, or recommended for board of director selection, as required
by NASDAQ Listing Rules, by independent directors constituting a majority of the board’s independent directors or by a nominations
committee comprised solely of independent directors, and (2) quorum requirement at shareholders’ meetings, as permitted
under the Companies Law, under which and pursuant to our amended and restated articles of association, the quorum required for
an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent
at least 25% of the voting rights of our shares (and in an adjourned meeting, with some exceptions, any number of shareholders),
instead of 33 1/3% of the issued share capital required under the NASDAQ Listing Rules. In addition, we will follow our home country
law, instead of the NASDAQ Listing Rules, which require that we obtain shareholder approval for certain dilutive events, such
as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of
control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the
company and certain acquisitions of the stock or assets of another company.
In
the future we may elect to follow additional home country corporate governance practices instead of those otherwise required under
the NASDAQ Listing Rules for U.S domestic issuers. Following our home country governance practices as opposed to the requirements
that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection than is accorded to investors under
the NASDAQ Listing Rules applicable to domestic issuers.
In
addition, as a foreign private issuer, we will be exempt from the rules and regulations under the U.S. Securities Exchange Act
of 1934, as amended or the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors
and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16
of the Exchange Act.
In
addition, we will not be required under the Exchange Act, to file annual, quarterly and current reports and financial statements
with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act. As our
ordinary shares are traded on the TASE, while our ADSs and Series A warrants are traded on NASDAQ, we currently also report to
the ISA and the TASE in accordance with the provisions of Section 35XXXIII of the Israel Securities Law, 5728-1968 and the Securities
Regulations (Periodic and Immediate Reports of a Foreign Body Corporate) 5761-2000, promulgated thereunder (the “Dual-Listed
Reporting Requirements”). Pursuant to the Dual-Listed Reporting Requirements, we prepare our periodic and immediate reports
in accordance with U.S. securities laws and reporting requirements, as applicable to a foreign private issuer. We intend to file
with the SEC, within 120 days after the end of each fiscal year ending December 31, an annual report on Form 20-F containing financial
statements which will be examined and reported on, with an opinion expressed, by an independent registered public accounting firm.
In accordance with NASDAQ Listing Rules, as a foreign private issuer we are required to submit on a Form 6-K an interim balance
sheet and income statement as of the end of the second quarter of each fiscal year.
Our
ADS holders may not be able to fully exercise their voting rights to the same extent as our ordinary shareholders. The depositary
for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying ADSs if a holder of our ADSs does not provide
voting instructions, except in limited circumstances, which could adversely affect their interests.
Our
ADS holders may instruct the depositary how to vote the number of deposited ordinary shares their ADSs represent. Except by instructing
the depositary, you will not be able to exercise voting rights unless you surrender your ADSs and withdraw the shares. However,
you may not know about the meeting enough in advance to withdraw the shares. We cannot assure you that you will receive the voting
materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents
are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means
that you may not be able to exercise voting rights and there may be nothing you can do if your shares are not voted as you requested,
and you cannot vote in person at meetings as a holder of ADSs.
Under
the deposit agreement for the ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares underlying ADSs
at shareholders’ meetings if a holder of our ADSs does not provide voting instructions, unless we notify the depositary
that:
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do not wish to receive a discretionary proxy;
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is substantial shareholder opposition to the particular question; or
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the
particular question would have an adverse impact on our shareholders.
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effect of this discretionary proxy is that a holder of our ADSs cannot prevent our ordinary shares underlying such ADSs from being
voted, absent the situations described above, and it may make it more difficult for shareholders to influence the management of
our company. Holders of our ordinary shares listed for trading on the TASE are not subject to this discretionary proxy.
We
currently do not anticipate paying cash dividends, and accordingly, shareholders must rely on the appreciation in our ADSs for
any return on their investment.
We
currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not
anticipate declaring or paying any cash dividends for the foreseeable future. Therefore, the success of an investment in our ADSs
will depend upon any future appreciation in their value. There is no guarantee that our ADSs will appreciate in value or even
maintain the price at which our holders have purchased their ADSs.
The
ability of any Israeli company to pay dividends or repurchase its shares is subject to Israeli law, and the amount of cash dividends
payable may be subject to devaluation in the Israeli currency.
The
ability of an Israeli company to pay dividends or repurchase its shares is governed by Israeli law, which provides that distributions,
including cash dividends and share repurchases, may be made only out of retained earnings as determined for statutory purposes.
Since we do not have earnings, we currently do not have any ability to pay dividends or repurchase our shares.
Investors
in our ADSs may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in
some limited circumstances, investors in our ADSs may not receive any value for them, if it is illegal or impractical to make
them available to investors in our ADSs.
The
depositary for the ADSs has agreed to pay investors in our ADSs the cash dividends or other distributions it or the custodian
receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. Investors
in our ADSs will receive these distributions in proportion to the number of ordinary shares their ADSs represent. However, the
depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders
of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require
registration under the Securities Act of 1933, as amended or the Securities Act, but that are not properly registered or distributed
under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part
of a dividend which was distributed in foreign currency made in respect of deposited ordinary shares may require the approval
or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may
determine not to distribute such property and hold it as “deposited securities” or may seek to affect a substitute
dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and
practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other
securities received through such distributions. We also have no obligation to take any other action to permit the distribution
of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositary may withhold from such dividends
or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes
it is required to make such withholding. This means that investors in our ADSs may not receive the same distributions or dividends
as those we make to the holders of our ordinary shares, and, in some limited circumstances, investors in our ADSs may not receive
any value for such distributions or dividends if it is illegal or impractical for us to make them available to investors in our
ADSs. These restrictions may cause a material decline in the value of the ADSs.
Holders
of ADSs must act through the depositary to exercise rights of shareholders of our company.
Holders
of our ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying
ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice
period required to convene a shareholders’ meeting is no less than 35 or 21 calendar days, depending on the proposals on
the agenda for the shareholders’ meeting. When a shareholder meeting is convened, holders of our ADSs may not receive sufficient
notice of the meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respect to any specific
matter. In addition, the depositary and its agents may not be able to send notice to holders of our ADSs or carry out their voting
instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders
of our ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that
they can instruct the depositary to vote the ordinary shares underlying their ADSs. Furthermore, the depositary and its agents
will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for
the effect of any such vote. As a result, holders of our ADSs may not be able to exercise their right to vote and they may lack
recourse if the ordinary shares underlying their ADSs are not voted as they requested. In addition, ADS holders will not be able
to call a shareholders’ meeting unless they first withdraw their ordinary shares from the ADS program and receive delivery
of the underlying ordinary shares held in the Israeli market in order to allow them to submit to us a request to call a meeting
with respect to any specific matter, in accordance with the applicable provisions of the Companies Law and our amended and restated
articles of association.
Our
ordinary shares and our ADSs and Series A warrants are traded on different markets and this may result in price variations.
Our
ordinary shares trade on the TASE, and our ADSs and Series A warrants trade on NASDAQ. Trading on these markets take place in
different currencies (U.S. dollars on NASDAQ and New Israeli Shekels, or NIS, on the TASE), and at different times (resulting
from different time zones, different trading days and different public holidays in the U.S. and Israel). The trading prices of
our securities on these two markets may differ due to these and other factors. Any decrease in the price of our securities on
one of these markets could cause a decrease in the trading price of our securities on the other market.
Our
ADSs have a relatively short prior trading history in the U.S., and present level of market activity may not be sustained, which
may limit the ability of our investors to sell our ADSs in the U.S.
Although
our ADSs have been traded on NASDAQ since November 20, 2015, the present level of market activity for our ADSs may not be sustained.
If an active market for our ADSs is not sustained, it may be difficult for an investor to sell its ADSs.
We
can issue non-voting senior preferred shares without shareholder approval, which could adversely affect the rights of holders
of ordinary shares.
Our
amended and restated articles of association permit us to establish the rights, privileges, preferences and restrictions of future
series of our non-voting senior preferred shares, which contain superior liquidation and dividend rights, and may contain other
rights, including conversion, redemption, optional and other special rights, qualifications, limitations or restrictions, equivalent
or superior to our ordinary shares and to issue such non-voting senior preferred shares without further approval from our shareholders.
The rights of holders of our ordinary shares may suffer as a result of the rights granted to holders of non-voting senior preferred
shares that we may issue in the future. In addition, we could issue non-voting senior preferred shares containing rights that
prevent a change in control or merger, thereby depriving holders of our ordinary shares of an opportunity to sell their shares
at a price in excess of the prevailing market price.
If
equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade
our ADSs, the price of our ADSs could decline.
The
trading market for our ADSs will rely in part on the research and reports that equity research analysts publish about us and our
business. The price of our ADSs could decline if such research or reports are not published or if one or more securities analysts
downgrade our ADSs or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
We
have broad discretion as to the use of the net proceeds from our previous offerings, and may not use them effectively.
We
currently intend to use the net proceeds from our previous offerings to expand our clinical development program, finance our business
development activities to enable out-licensing of our therapeutic candidates, expand our clinical development pipeline for additional
drug products, including by way of possible acquisitions, and for general corporate purposes, including working capital requirements.
However, our management will have broad discretion in the application of the net proceeds from our previous offerings. Our shareholders
may not agree with the manner in which our management chooses to allocate the net proceeds from the public offerings. The failure
by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and
results of operations. Pending their use, we may invest the net proceeds from the public offerings in a manner that does not produce
income. The decisions made by our management may not result in positive returns on any investment by shareholders and shareholders
will not have an opportunity to evaluate the economic, financial or other information upon which our management bases its decisions.
We
are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may
make our ordinary shares less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from
various requirements that are applicable to other public companies that are not “emerging growth companies.” Most
of such requirements relate to disclosures that we would only be required to make if we also ceased to be a foreign private issuer
in the future, for example, the requirement to hold shareholder advisory votes on executive and severance compensation and executive
compensation disclosure requirements for U.S. companies. However, as a foreign private issuer, we would still be required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We are exempt from such requirement for as
long as we remain an emerging growth company, which may be up to five fiscal years after the date of our November 2015 initial
public offering. We will remain an emerging growth company until the earliest of: (a) the last day of our fiscal year during which
we have total annual gross revenues of at least $1.07 billion; (b) the last day of our fiscal year following the fifth anniversary
of the closing of our initial U.S. offering; (c) the date on which we have, during the previous three-year period, issued more
than $1 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer”
under the Exchange Act. When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions
provided in the JOBS Act discussed above. We cannot predict if investors will find our ordinary shares, ADSs, or warrants less
attractive as a result of our reliance on exemptions under the JOBS Act. If some investors find our ordinary shares, ADS, or warrants
less attractive as a result, there may be a less active trading market for our ordinary shares, ADS, and warrants and our share
price may be more volatile.
ITEM
4.
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INFORMATION
ON THE COMPANY
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A.
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History
and Development of the Company
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Kitov
Pharma was incorporated under the laws of the State of Israel (under a previous name) on August 12, 1968, and its ordinary shares
were originally listed for trading on the TASE in 1978. Our ordinary shares are currently traded on the TASE under the symbol
“KTOV”, and our ADSs and our public warrants are traded on NASDAQ under the symbols “KTOV” and “KTOVW”,
respectively.
In
October 2012, the District Court in Lod, Israel approved the creditors arrangement in accordance with Section 350 of the Companies
Law in order to effectuate the sale by Kitov Pharma (then known as Mainrom Line Logistics Ltd.) of all its activities, assets,
rights, obligations and liabilities to a private company held by its then controlling shareholders, and all rights of Kitov Pharma’s
creditors against it were extinguished. From the completion of these transactions until the completion of the acquisition of Kitov
Pharmaceuticals described below, Kitov Pharma did not conduct any business activities and was a public shell company listed on
the TASE with no assets, debt and/or liabilities.
On
July 11, 2013, Kitov Pharma acquired Kitov Pharmaceuticals Ltd, which, prior to the completion of its merger with and into Kitov
Pharma in December 2017, together with Kitov Pharma, was engaged in the research and development of Consensi™. As part of
the acquisition, Mainrom Line Logistics Ltd. changed its name to Kitov Pharmaceuticals Holdings Ltd., which name was subsequently
changed in January 2018 to Kitov Pharma Ltd.
On
January 13, 2017, we announced that we had acquired a majority equity stake in TyrNovo Ltd., a privately held developer of novel
small molecules in the oncology therapeutic field.
On
April 25, 2017, the boards of directors of each of Kitov Pharma and Kitov Pharmaceuticals approved a merger between the two entities,
with Kitov Pharma remaining as the surviving entity. The merger was completed in December 2017. Kitov Pharmaceuticals was dissolved
upon the merger, and Kitov Pharma remained as the surviving entity. For more information on the merger, see Item 4.C – Organizational
Structure.
On
March 14, 2019, we announced a transaction to acquire 100% of FameWave Ltd., a privately held developer of CM-24 in the oncology
therapeutic field. The acquisition was completed in January 2020.
We
had no material capital expenditures for the years ended December 31, 2019, 2018, and 2017.
Recent
Developments
March
2020 Public Offering
On
March 16, 2020, we closed a public offering of an aggregate 9,620,000 ADSs and 10,380,000 Pre-funded Warrants (exercisable for
$0.0001 each ADS), and 20,000,000 investor warrants for gross proceeds of $6 million prior to deducting placement agent fees and
other offering expenses. We will receive gross proceeds from the investor warrants solely to the extent such warrants are exercised
for cash. The investor warrants are exercisable at an exercise price of $0.325 per ADS and will expire five years from March 16,
2020. In addition, we issued to the placement agent warrants to purchase 1,400,000 ADSs. The placement agent warrants are exercisable
at an exercise price of $0.375 per ADS and will terminate five years from March 12, 2020. As of the date of this Annual Report
on Form 20-F, none of these investor warrants or placement agent warrants have been exercised and 1,350,000 Pre-funded Warrants
have been exercised.
FameWave
Acquisition
On
March 14, 2019, we entered into the Acquisition Agreement to acquire FameWave, a privately held Israeli biopharmaceutical company.
FameWave’s main asset is CM-24, a clinical stage humanized monoclonal antibody targeting CEACAM1, a novel immune checkpoint
protein belonging to the Human CEA (Carcino-Embryonic Antigen) protein family. The transaction closed on January 7, 2020. For
additional information on the Acquisition Agreement and the transaction see below under Item 10. Additional Information –
C. Material Contracts – FameWave Acquisition Agreement.
Clinical
Developments
In
September 2019, we presented newly released proof-of-concept data showing evidence of NT-219's mechanism of action in reversing
cancer drug resistance in PDX models, demonstrating that NT-219 reverses tumor drug resistance to trametinib and folfirinox when
combined with these treatments. The data were presented in a poster at the American Association for Cancer Research's (AACR) Pancreatic
Cancer: Advances in Science and Clinical Care conference in Boston.
In
June 2019, we successfully completed the laboratory phase of the IND-enabling studies for NT-219. The preclinical GLP toxicology
studies have demonstrated good tolerability at the highest dose levels expected to be evaluated in Kitov’s planned Phase
1/2 study.
In
April 2019, FameWave signed on a clinical collaboration agreement with Bristol Myers Squibb Company for a planned Phase 1/2
clinical trials to evaluate the combination of CM-24 with nivolumab (Opdivo®), a PD-1 inhibitor, in patients with non-small
cell lung cancer (NSCLC).
In
January 2019, we announced new findings from our ongoing collaboration with researchers from the Hebrew University of Jerusalem.
The data revealed NT219’s high affinity and selective binding to its target proteins. Researchers demonstrated that NT219
binds directly to Insulin Receptor Substrates (IRS) 1/2 and to the Signal Transducer and Activator of Transcription 3 (STAT3),
both known modulators of tumor survival, metastasis and drug resistance. Data showed that a short exposure of cancerous cells
to NT219 was sufficient to trigger irreversible shutdown of these pathways, resulting in a long-term anti-cancer effect. Based
on these findings, we extended our collaboration agreement with Yissum in order to deepen the understanding of NT219’s efficacy
in overcoming tumors’ resistance to immunotherapy.
Internet
Sites
We
are required to file reports and other information with the SEC under the Exchange Act, and the regulations thereunder applicable
to foreign private issuers. We also furnish to the SEC under cover of Form 6-K material information required to be made public
in Israel, filed with and made public by any stock exchange or distributed by us to our shareholders. You may read our annual
report, including the related exhibits and schedules, and any document we file with or furnish to the SEC, such as registration
statements, prospectuses, reports, proxy and information statements, and other information regarding us that we file electronically
with the SEC, without charge, at the SEC’s web site at http://www.sec.gov. We maintain a corporate website at www.kitovpharma.com.
Information contained on, or that can be accessed through, our website does not constitute a part of this annual report. We have
included our website address in this annual report solely as an inactive textual reference. We will post on our website any materials
required to be posted on such website under applicable corporate or securities laws and regulations, including posting any notices
of general meetings of our shareholders.
We
are a clinical-stage company advancing first-in-class therapies to overcome tumor immune evasion and drug resistance, seeking
to create successful long-lasting treatments for people with cancer.
We
currently have two operating segments:
(i)
Oncology, which includes CM-24, a monoclonal antibody which binds/specific to Carcinoembryonic Antigen Related Cell Adhesion Molecule
1 (“CEACAM1”), a novel immune checkpoint that supports tumor immune evasion and survival through multiple pathways
and NT219, a small molecule that targets Insulin Receptor Substrate 1 and 2 (“IRS1/2”) and Signal Transducer and Activator
of Transcription (“STAT3”), two signal transduction pathways involved in the development of cancer drug resistance
mechanisms. Within the Oncology segment:
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We
are advancing a phase 1/2 clinical trial with CM24 in combination with nivolumab (Opdivo®)
in patients with non-small cell lung cancer which is under a clinical collaboration agreement
previously signed with Bristol-Myers Squibb Company which is planned to be initiated
in the second half of 2020.
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●
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We
are advancing NT219 to a Phase 1/2 study as a single agent followed by a dose escalation
phase of NT-219 in combination with cetuximab; and an expansion phase of NT-219 at its
recommended Phase 2 level, alone and in combination with cetuximab. Based on our current
development plans, we expect to submit an Investigational New Drug application for NT219
during the first half of 2020;
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(ii)
Pain and Hypertension, which includes Consensi™, a combination drug approved by the FDA in May 2018 for the simultaneous
treatment of two clinical conditions, pain caused by osteoarthritis and hypertension (high blood pressure).
Background
on our therapeutic candidates and products
On
March 14, 2019, we entered into the Acquisition Agreement to acquire FameWave, a privately held Israeli biopharmaceutical company,
which we completed in January 2020. FameWave’s main asset is CM-24, a clinical stage humanized monoclonal antibody targeting
CEACAM1, a novel immune checkpoint protein belonging to the Human CEA (Carcino-Embryonic Antigen) protein family. Evidence has
shown that CEACAM1 is expressed on tumor lymphocytes and is up-regulated in several cancer types. Preclinical studies have shown
evidence that CM-24 enhances the cytotoxic activity of tumor-infiltrating lymphocytes (TILs) against various CEACAM1-positive
tumor cell lines. CM-24 is being developed for multiple oncological indications according to the expression pattern of its target
protein. Preclinical studies provide strong justification for CM-24’s mechanism of action in activating the immune system
through multiple pathways. Additional preclinical studies showed that a combination of CM-24 with PD-1 and PDL-1 antibodies resulted
in a synergistic anti-cancer effect. In a Phase 1 dose ranging study of CM-24 as a single agent, conducted by MSD, a stable disease
rate of approximately 29% was noted. A decision was made by MSD to discontinue development, although, based on our knowledge,
such decision was not due to any known safety risks. We plan to initiate a Phase 1/2 study in the second half of 2020 to evaluate
the safety and efficacy of CM-24 at higher doses, in combination with nivolumab, an anti PD-1 inhibitor. We believe a significant
amount of data is available for the existing IND to support the continuation of the clinical studies. In 2019 FameWave entered
into a joint clinical collaboration agreement with Bristol Myer Squibb Company, for the planned Phase 1/2 study mentioned above.
For more information regarding CM-24, see, “Item 4. Business Overview - Our Therapeutic Candidates – CM-24”.
During
2017, we acquired a majority of the shares in TyrNovo, a privately held Israeli developer of novel small molecules in the oncology
therapeutic field. TyrNovo has developed NT219, a small molecule that presents what we believe to be a new concept in cancer therapy
by targeting two key oncology-related proteins, IRS1/2, as well as STAT3. Our NT219 therapeutic candidate’s anti-cancer
effect is achieved by overcoming tumors’ cancer drug resistance and would be developed both as a standalone drug, as well
as in combination with other cancer drugs or treatments. NT219 has been tested in a number of Patient-Derived Xenograft (PDX)
models where human cancer biopsies were taken and transplanted into mice and then used to test various cancer drugs. NT219 has
been pre-clinically tested alone and in combination with various classes of cancer drugs such as with chemotherapies, targeted
therapies and immuno-oncology therapies. For more information regarding NT219, see, “Item 4. Business Overview - Our Therapeutic
Candidates – NT219”.
Consensi™
is composed of the generic drugs celecoxib and amlodipine besylate. Celecoxib, the active ingredient in the branded drug Celebrex®,
is a non-steroidal anti-inflammatory drug (NSAID) used to relieve pain caused by osteoarthritis. Amlodipine besylate is a calcium
channel blocker used to reduce blood pressure. This combination is designed to simultaneously relieve pain caused by osteoarthritis
and to treat hypertension.
Our
competitive strengths
The
pharmaceutical market is characterized by large international pharmaceutical companies that develop a wide range of products,
both generic and innovative, which operate alongside smaller companies, such as ours, that develop a specific drug or a combination
of drugs. Therefore, many small companies enter into agreements with such global companies during the drug development stage in
order to continue the development or marketing of the drug, taking advantage of the financial, marketing and/or other resources
available to such global companies. At the same time, the global companies tend to enter into agreements with smaller companies
in order to save development time and resources. The global drug sector is a highly developed market with a turnover of hundreds
of billions of U.S. dollars and intense competition. If we are to develop other therapeutic candidates and one or more of those
therapeutic candidates are approved by the FDA to be commercialized as drugs, most of those drugs are expected to have competing
drugs or other therapies, developed at the same time by other companies and organizations. We are therefore exposed to competition
in our field of operation. Although we believe that our FDA-approved drug Consensi™ and our oncology therapeutic candidates
have advantages which our competitors’ products lack, there is a constant risk in the drug development field that a competing
party will complete the development stages before we are able to develop our therapeutic candidates intended for the same disease.
Moreover, a constant threat in our market is presented by new drugs that have already completed all the development stages and
have already entered the market and are competing with the treatments and drugs previously available on the market.
We
believe there are several advantages to the therapeutic candidate we are developing and to our products as set forth below.
Oncology
Segment - CM-24:
CEACAM1
is unique among the CEACAM family members in that it is widely distributed among various species and it has the largest number
of splice variants compared to other members of the family. Moreover, CEACAM1 also has the widest tissue distribution of all characterized
family members. as the widest tissue distribution of all characterized family members (source: Current Opinion in Cell Biology
Volume 18, Issue 5, October 2006, Pages 565-571). Accordingly, CM-24 may have a competitive advantage over other CEACAM-targeting
agents in that its inhibitory effect may be more general and target several splice variants and more tissues.
Additional
potential advantages of CM-24 over other CEACAM-targeting technologies may include:
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As
CM-24 blocks the homo- as well as the hetero- dimerization, i.e. blocks both CEACAM1-CEACAM1
as well as CEACAM1-CEACAM5 interaction - it has the potential to be more effective in
controlling the contact inhibition of cancerous cells with cells of the immune system.
CM-24 acts as an immune adhesion inhibitor molecule – a mechanism that is central
to the immune evasion mechanism of neoplastic cells
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In
addition to its contribution to tumor suppression CEACAM1 also has a modulatory role
in multiple cell types such as epithelial cells, endothelial cells, T-cells and hepatocytes.
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CEACAM1
may also be a ligand for T-cell Immunoglobulin and Mucin domain-3 (TIM-3) – another
immune checkpoint inhibitor. By activating TIM-3 with CM-24 a synergistic effect may
be expected. The relationship between CEACAM1 and TIM-3 has recently been described as
a mechanism that may overcome immune fatigue, and T-cell exhaustion (Nature. 2015 Jan
15; 517(7534): 386–390.).
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Finally,
CM-24 has been in a Phase 1 clinical trial, where 27 patients were exposed to the monoclonal antibody without adverse events necessitating
stopping of the drug, no drug related mortalities, and no dose limiting toxicities up to 10mg/kg, the highest dose tested.
Oncology
Segment - NT219:
NT219
is a small molecule, and small molecules typically are less expensive to develop and have less complex CMC as compared to proteins
or antibodies. In addition, in pre-clinical development NT219 has demonstrated several advantageous effects, such as:
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Single
agent activity in PDX models and xenografts;
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overcoming
drug resistance acquired by various cancer types; and
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efficacy
in combination with a number of approved cancer therapies belonging to various anti-cancer drug families such as chemotherapy,
targeted therapy and immune-oncology therapies.
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Pain
and Hypertension Segment - Consensi™:
Consensi™
is an FDA approved fixed-dose combination drug treatment intended for the treatment of osteoarthritis pain and for hypertension.
In Phase 3 and Phase 3/4 clinical trials, Consensi™ demonstrated better efficacy in lowering blood pressure than amlodipine
alone (one of Consensi™’s ingredients). In addition, we believe there are several advantages of using Consensi™:
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using
one drug that also includes an active ingredient that treats hypertension either as an existing condition or as a side effect
of using other drugs, ensures that the patient receives the suitable treatment for their disease and for its side effect;
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reassuring
physicians who are concerned that their patients who are treated for osteoarthritis will also be treated for hypertension,
which is a known side effect of NSAID treatments for pain caused by osteoarthritis. This is a particular concern, as hypertension
is usually not accompanied by tangible symptoms, and therefore patients may not be aware of their condition or the need to
treat it;
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purchasing
one drug as opposed to purchasing two separate drugs may lead to financial savings for patients in the U.S. by requiring payment
of just one co-payment and prescription fee as opposed to a double co-payment and prescription fee. In addition, the use of
one combination drug reduces the patient’s discretion with respect to whether to purchase and use only one of the drugs
and provides a comprehensive dual medical treatment in one combined drug; and
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using
calcium channel blockers in our therapeutic candidates as an antihypertensive. Calcium channel blockers are not included in
the FDA Safety Information Release for NSAIDs co-administered with angiotensin converting enzyme inhibitors, or ACE inhibitors,
or with angiotensin II receptor antagonists, diuretics and beta blockers.
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Our
strategy
Our
goal is to become a significant player in the development and commercialization of innovative drugs for treatment of unmet medical
need and having a significant market opportunity with a focus on oncology therapeutics.
Key
elements of our strategy are to:
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develop
clinical stage therapeutic candidates and obtain approval thereof from the FDA and other foreign regulatory authorities;
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cooperate with third parties to both develop and commercialize therapeutic
candidates in order to share costs and leverage the expertise of others; and
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expand
our line of therapeutic candidates through the acquisition or in-licensing of technologies, products and drugs in the oncology
space to develop and enhance the value of additional products, and bring them to market efficiently;
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enter
into licensing arrangements with international companies for our current or potential or future therapeutic candidates based
on potential upfront and milestone payments, royalties and/or other marketing arrangements, depending on product and market
conditions.
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Our
oncology therapeutic candidates CM-24 and NT219 and our current approved product, Consensi™ are further described below.
Oncology
Segment – CM-24
Background
CM-24
is a humanized monoclonal antibody directed against CEACAM1, an immune checkpoint protein belonging to the Human CEA (Carcino-Embryonic
Antigen) protein family. Evidence has shown that CEACAM1 is expressed on tumor infiltrating lymphocytes and is up-regulated in
several cancer types. Moreover, CEACAM1 has been shown to be associated with angiogenesis, as well as immune evasion of cancer
from the immune system.
The
technology originated from the laboratory of Prof. Gal Markel from Sheba Medical Center and initially developed by cCAM, which
was acquired by MSD in 2015.
MSD
conducted a phase 1 clinical trial, including patients with metastatic melanoma, non-small cell lung cancer, bladder, gastric,
colorectal and ovarian cancer patients. In this initial Phase 1 dose ranging study of CM-24 as single agent, a stable disease
rate of approximately 29% was noted as best overall response, and the decision was made to discontinue development, although,
based on our knowledge, such decision was not due to any known safety risks. MSD therefore returned the rights to CM-24 to former
cCAM shareholders and founders of FameWave. Review of the Phase 1 study results by external scientific advisors retained by Kitov,
suggested that while CM-24 was generally safe, higher doses of the antibody along with a modified dosing regimen in a defined
patient population would be warranted. Kitov plans to explore higher doses of CM-24 and to test the antibody in combination with
an anti- PD-1 antibody.
The
Therapeutic Candidate
CM-24
is a humanized immunoglobulin G4 (IgG4) (kappa) isotype immune-modulating monoclonal antibody that binds to CEACAM1, a protein
used by cancer cells to suppress the immune system.
CEACAM1
belongs to the CEA superfamily. CEACAM1 interacts with itself (i.e., hemophilic interaction) and with CEACAM5 (heterophilic interaction),
as well as with various bacterial proteins. Different functions have been attributed to the CEACAM1 protein: anti-proliferative
properties in carcinomas of the colon and prostate, or facilitation of proliferation in melanoma; central involvement in angiogenesis,
insulin clearance and in immune-modulation. CEACAM1 is expressed by many types of tumors and is associated with poor prognosis
in cutaneous melanoma, uveal melanoma, hepatocellular carcinoma, colorectal cancer and lung cancer. In addition, increased CEACAM1
expression on peripheral blood lymphocytes and elevated serum CEACAM1 were observed in patients with melanoma, osteosarcoma and
pancreatic carcinoma. These collective observations provide a strong justification for the development of a therapeutic approach
that targets the immuno-suppressive function of CEACAM1.
Earlier
preclinical studies revealed CM-24 reversed CEACAM1-mediated immune evasion by abrogating CEACAM1-CEACAM1 interactions, restoring
ZAP70 phosphorylation and TCR-driven effector functions, while maintaining antigen-restricted recognition. This abrogates the
immunosuppressive function of CEACAM1, promoting cell killing by T cells and NK cells.
CM-24
is a blocking monoclonal antibody that prevents CEACAM1-CEACAM1 and CEACAM1-CEACAM5 interactions, thus enhancing the cytotoxic
activity of lymphocytes.
Preclinical
and Mechanism of Action and Target Validation
The
preclinical studies have shown evidence that CM-24 enhances the cytotoxic activity of tumor-infiltrating lymphocytes (TILs) against
various CEACAM1-positive tumor cell lines. Additional preclinical studies provide strong justification for CM-24’s mechanism
of action in activating the immune system through multiple pathways as validated by world renowned researchers at Harvard Medical
School and MIT, in an article published in Nature* as well as by Prof. Gal Markel from the Tel HaShomer Medical Center**.
Additional preclinical studies showed that a combination of CM-24 with a PD-1 antibody resulted in a synergistic anti-cancer effect.
*
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Huang
Y-H, et al., (2015) Nature, 517(7534): 386–390. doi:10.1038/nature13848
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**
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Markel
G., et al., (2006) J Immunol., 177:6062-6071; doi: 10.4049/jimmunol.177.9.6062
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Phase
1 Clinical Trial
MSD
conducted an interventional, Phase 1, first in human, non-randomized, single group assignment, open-label, multi-centered
and multiple escalating doses study to assess the safety, efficacy, pharmacokinetics and tolerability of the
CM-24 antibody in the treatment of subjects with selected advanced or recurrent malignancies including melanoma,
non-small cell lung adenocarcinoma (NSCLC) and bladder, gastric, colorectal or ovarian cancer.
The
main objectives of the MSD clinical study were to assess the safety and tolerability of CM-24 and to determine the recommended
dose for Phase 2 trials, characterization of the pharmacokinetic profile and immunogenicity of CM-24, and to evaluate the preliminary
efficacy of the drug. The trial was conducted at four sites in the U.S. and Israel, and was designed based on a dose escalation
stage and an expansion stage. MSD terminated the trial following administration of CM-24 to 27 patients and prior to reaching
the expansion stage.
Main
conclusions by us from the Phase 1 clinical trials results:
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CM-24
was found to be generally safe and well tolerated. There were no DLTs up to 10mg/kg and no drug related morbidity
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Target
saturation was not reached up to 10mg/kg. PK modeling suggests that slower clearance with increasing dose and higher half-life
with increasing dose, PK variability across patients, and full receptor occupancy may likely require doses >10mg/kg administered
every 2 weeks
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Treatment
related adverse events noted in 17 subjects 82% Grade 1, 16% Grade 2 and 2.7% Grade 3. Most frequent were increased LFTs and
anorexia. The two Grade 3 events were headache and abdominal pain; there were 2 deaths that occurred within 30 days
from the last administration of CM24 due to disease progression.
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A
stable disease rate of approximately 29% was achieved, mostly in the two highest doses
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Our
Clinical Development Plans for CM-24
We
believe that CM-24 is a promising agent which has a potential to be efficacious as a standalone and in combination with other
anti-cancer agents and with anti PD-1 agents and other checkpoint inhibitors for patients with cancer. The Phase 1 study
noted above showed that CM-24 was in general well tolerated, and resulted in a stable disease rate of approximately 29% in the
heavily pretreated patients. The Phase 1 study was not designed to pre-screen CEACAM-1 levels on tumor tissue. Furthermore, in
this Phase 1 study, pembrolizumab, a PD-1 inhibitor, was not tested in combination with CM-24. And as noted, the doses used in
the aforementioned study were below those required to reach target saturation as determined by pharmacokinetic evaluations.
As
a result, given what we believe to be the good safety and tolerability profile of CM24, and the data from preclinical studies
showing synergistic anti-cancer effects of this antibody with PD-1 inhibitors, we plan to initiate a clinical study evaluating
such a combination. We plan to start our dosing in combination with nivolumab, an anti-PD-1 antibody at the level which was
found to be safe for CM-24 in the earlier Phase 1 study, after consultation with regulatory authorities. Our plan is to evaluate
safety as the primary endpoint, as combination therapy, with secondary assessments of efficacy and pharmacokinetics at higher
saturating doses of CM-24.
CM-24
is the only clinical stage antibody which targets CEACAM1. Other drugs in development target CEACAM5. The potential advantages
of targeting CEACAM1 over CEACAM5 are described above.
Manufacturing
We
entered into a manufacturing agreement with Rentschler Biopharma SE in Germany (“Rentschler”) which provides for Rentschler
to manufacture CM-24 batches for clinical studies for a total amount of $6.4 million over the next 2 years. The manufacturing
agreement contains various representations, warranties, indemnity, and intellectual property provisions, common to agreements
of such nature. Pursuant to the Manufacturing Agreement we will also enter into Quality Agreements with Rentschler.
Oncology
Segment - NT219
NT219
is a small molecule that presents what we believe is a new concept in cancer therapy by inhibiting two oncology-related proteins
IRS 1 and 2, and STAT3. The NT219 technology has been tested in a number of PDX models where biopsies from patients are implanted
into mice and used to test various cancer drugs. In such models, NT219, alone and in combination with several approved oncology
drugs, displayed potent anti-tumor effects and increased survival in various cancers by preventing the tumors from developing
resistance to the approved drug treatments, and by re-sensitizing tumors to the approved drugs even after resistance has been
acquired.
Background
on Cancer Drug Resistance
The
following are high-level summaries of the therapeutic areas we are currently investigating for NT219:
Solid
malignancies (e.g., pancreatic, head and neck, colon and non-small cell lung cancer). According to the Journal of Oncology
Practice, in 2020 roughly 1 in every 19 people worldwide will either be diagnosed with a solid tumor or be a cancer survivor.
According to the American Cancer Society, lung, pancreatic, and colon malignancies have high mortality rates and poor five-year
survival prognosis. Novel, emerging therapeutic approaches for targeting solid tumors are being developed and tested.
Tumor
Resistance to Cancer Therapies. Resistance to chemotherapy and to targeted therapies is a major problem facing oncology. The
mechanisms of resistance to ‘classical’ cytotoxic chemotherapeutics and to therapies that are designed to be selective
for specific target proteins share many features, such as alterations in the drug target, activation of pro-survival pathways
and ineffective induction of cell death.
Evidence
suggests that among other mechanisms of resistance, inhibition of central oncological target kinases such as EGFR, MEK and mutated-BRAF
could trigger feedback activation of STAT3 and IRS-to-PI3K/AKT, major survival pathways that bypass (prevent) the anti-cancer
effects of various drugs.
IRS.
Insulin Receptor Substrate (IRS) is a junction protein that mediates various mitogenic and anti-apoptotic signals mainly from
Insulin-like Growth Factor-1 Receptor (IGF1R) and Insulin Receptor (IR), but also from other oncogenes such as v-Src and ALK-fusion
proteins. IRS expression is often up-regulated in human tumors, such as prostate, pancreatic, liver, renal and ovarian cancer.
Resistance to several anti-cancer therapies (e.g. inhibitors of EGFR, MEK, mutated-BRAF, mTOR, as well as cytotoxic chemotherapy)
may be mediated by IRS up-regulation, as demonstrated in peer reviewed research articles published in scientific journals.
STAT3.
Signal Transducer and Activator of Transcription 3 (STAT3) plays crucial roles in several cellular processes such as cell
proliferation and survival, and has been found to be aberrantly activated in many cancer types (such as NSCLC, head and neck cancer,
pancreatic cancer and many others). Much research has explored the leading mechanisms for regulating the STAT3 pathway and its
role in promoting tumorigenesis. Evidence suggests that feedback activation of STAT3 plays a prominent role in mediating drug
resistance to a broad spectrum of targeted cancer therapies and chemotherapies (such as inhibitors of EGFR, MEK, ALK, as well
as 5FU, oxaliplatin and SN-38).
Mechanism
of Action
The
NT219 therapeutic candidate is a small molecule that we believe presents a new concept in cancer therapy, acting as a dual inhibitor
of IRS and STAT3, both of which putatively play major roles in cancer drug resistance. While targeted anti-cancer drugs inhibit
the “ON” signal, NT219 activates the “OFF” switch, leading to the degradation of IRS-1 and IRS-2 and extensively
blocking major oncogenic pathways.
IRS
down-regulation can be mediated by several oncogenic pathways (EGFR, MAPK, mTOR, etc.). Blockade of these pathways by various
drugs, could inhibit serine phosphorylation of IRS, leading to the activation of IRS to AKT survival bypass. Therefore, elimination
of IRS1/2 by NT219 could potentially prevent resistance and prolong the tumor’s response to various targeted drugs, as depicted
below:
There
have been reports in peer reviewed academic literature describing the involvement of Insulin-like Growth Factor-1 Receptor (IGF1R)
up-regulation in drug-resistance. In these cases, blockage of IGF1R direct substrates, IRS1/2, by NT219 could potentially overcome
drug resistance.
The
same principal is true for STAT3. Feedback activation of STAT3 is a common resistance mechanism to many targeted cancer therapies
(such as the inhibitors of EGFR, MEK, HER2) and cytotoxic chemotherapies. Combining these cancer therapies with NT219, which disrupt
this feedback mechanism, could potentially enhance cell death and delay resistance, suggesting a co-treatment strategy that may
be broadly effective in oncogene-addicted tumors.
Elimination
of IRS proteins and blockage of STAT3 by NT219 could potentially prevent resistance to multiple anti-cancer drugs, extend the
duration of effective drug treatment, and restore drug sensitivity in resistant tumors.
NT219
has high affinity and selective binding to its target proteins. NT219 binds directly to Insulin Receptor Substrates (IRS) 1/2
and to the Signal Transducer and Activator of Transcription 3 (STAT3. Data from preclinical work showed that a short exposure
of cancerous cells to NT219 was sufficient to trigger irreversible shutdown of these pathways, resulting in a long-term anti-cancer
effect.
Preclinical
results
In
pre-clinical trials, NT219, in combination with several approved cancer drugs, displayed potent anti-tumor effects and increased
survival in various cancers by preventing the tumors from developing drug resistance and restoring sensitivity to the drugs after
resistance is acquired. NT219 has been tested in a number of PDX models where biopsies containing human primary cancer
cells were transplanted into mice and then used to test various cancer drugs. NT219 has shown efficacy in various PDX models originated
from head and neck, cancer, non-small cell lung cancer (NSCLC), sarcoma, melanoma, pancreatic, and colon cancers.
Efficacy
of NT219 was demonstrated in combination with three major families of oncology drugs:
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1)
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Antibodies
such as the anti-epidermal growth factor receptor (EGFR) antibody (Erbitux®) and the immuno-oncology anti-PD1
antibody (Opdivo®, Keytruda®);
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2)
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Kinase
Inhibitors such as blockers of EGFR (Tagrisso®, Tarceva®), MEK (Mekinist®), Mutated
BRAF (Zelboraf®), and mTOR (Afinitor®); and
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3)
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Chemotherapy
agents such as gemcitabine (Gemzar®), 5FU, and Oxaliplatin.
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Clinical
Plan
The
clinical development strategy will parallel the preclinical studies, particularly with respect to the STAT3 and IRS/AKT pathway
inhibition/s, which have been characterized as a putative sine qua non for the resistance phenotype. Moreover, the tumor types
to be initially addressed also reflect the MEK/ERK pathway, and in particular, those tumors which functionally have shown dependence
or driver mutations with respect to erb-b pathways. However, within the context of the preclinical studies that have been performed,
there is also evidence of single agent activity noted with NT219, and this needs to be appreciated within the clinical development
plan.
NT219
first in human (FIH) studies need to consider primarily safety, particularly since the MOA relates to dual inhibition mechanisms.
Within the context of single agent activity, it has been noted that in a variety of studies NT219 may have effect. As such, standard
criteria in Phase 1 should be used to assess the agent in this monotherapy context, primarily with respect to safety, and evidence
for a signal of biologic relevance.
As
a result, the FIH Phase 1 study will evaluate single agent NT219 as a dose escalation, in patients with advanced cancer. Patients
will be unselected for this component of the trial (deemed Part A) and will be evaluated for safety as the primary endpoint, and
efficacy as a secondary endpoint. The escalation will take the form of a 3+3 standard design, and a course of therapy will be
four weeks. Patients will be administered NT219 weekly.
Upon
achieving data on the third (of five) dose level, a separate arm of the study will be opened. This will be the combination arm,
administering NT219 with cetuximab (Part B). In this arm, patients with advanced cancer, who are eligible for cetuximab therapy
(e.g. SCCHN), will receive a combination of the drugs, with NT219 being administered, followed by cetuximab, in a similar course
of four weeks. The combination will be evaluated in a similar 3+3 design, always at a lower dose than that administered as a single
agent, until/unless Part A completes the highest dose planned (50 mg/kg). These two parts of the study will provide information
regarding the safety of NT219 as a single agent and in combination with cetuximab, including the determination of the maximal
tolerated dose (MTD), as well as preliminary efficacy of NT219 as a single agent and in combination with cetuximab. It may also
provide the impetus for the expansion of the study into a given indication, either as single agent or in combination.
The
third portion (Part C) currently planned for the study will include the administration of NT219 at its MTD in combination with
standard dose cetuximab in patients with squamous cell carcinoma of the head and neck (SCCHN). This part of the study will
evaluate preliminary efficacy and safety in a larger cohort of patients. The planning of the Phase 2 studies will be a function
of the data from FIH studies. Currently, there is evidence suggesting myeloproliferative neoplastic disease, as well as colorectal
cancer should be assessed as monotherapy in the future. Similarly, based on erb-b pathway relevance, as well as data on the relevant
inhibition of the dual pathways being evaluated, besides SCCHN, NSCLC, pancreatic cancer, and melanoma are also candidates for
which we are planning future Phase 2 studies.
Competitive
Oncology Drugs in Development that Target IRS1/2 or STAT3
While
we are not familiar with other molecules which act as dual inhibitors of both IRS1/2 and STAT3, or lead to degradation of IRS1/2,
and which are in late stage of development, there are several therapeutic candidates in development which target either upstream
target of IRS1/2 as Insulin Like Growth Factor 1 Receptor (IGF1R), such as dalotuzumab (a recombinant humanized monoclonal antibody,
developed by Merck & Co for metastatic breast cancer), or target STAT3 such as napabucasin (which is developed by Boston Biomedical
and designed to inhibit cancer stem cell pathways), which are currently in Phase 3 clinical trials for metastatic pancreatic and
colon cancers. There are also other therapeutic candidates that target these pathways, which are mostly in early stage of development.
Pain
and Hypertension Segment - Consensi™
Background
on Osteoarthritis and Hypertension
Numerous
factors influence the drug market, including the aging of the general population. As life expectancy increases, we expect that
demand will increase for innovative drugs that treat diseases related to the elderly, such as osteoarthritis and hypertension.
Osteoarthritis
Arthritis
means joint inflammation. The term is used to describe the pain, stiffness and/or swelling in the joints of the body where one
or more bones are joined by ligaments. A normal joint provides a smooth surface enabling adjacent bones to move and glide on each
other during normal motion. In contrast, an arthritic joint is one that may have varying degrees of inflammation and possibly
destruction of the joint cartilage. These destructive changes preclude normal motion and cause pain.
The
most common type of arthritis is called osteoarthritis and is more common with advancing age. People with osteoarthritis usually
have joint pain and a decreased range of joint movement. Unlike some other forms of arthritis, osteoarthritis affects only the
joints. This condition is also sometimes called degenerative joint disease. Osteoarthritis primarily affects the joint cartilage.
Healthy cartilage allows bones to glide over one another and absorbs energy from the shock of physical movement. However, with
osteoarthritis, the surface layer of cartilage breaks down and wears away. This allows the bony surface of the different bones
under the cartilage to rub together, causing, pain, swelling, and loss of motion of the joint. Over time, affected joints may
lose their normal shape. Also, bone spurs, small growths called osteophytes, may grow on the edges of the joint further impairing
joint function. Thus, bits of bone or cartilage can break off and float inside the joint space, causing more pain and possible
damage.
Osteoarthritis
in the younger population is usually caused by traumatic injuries to the joints. In contrast, in the older population it is a
more of a chronic degenerative disease process. The main symptom of osteoarthritis is pain that appears gradually, worsens with
exertion, and is transiently relieved by rest.
The
pain caused by osteoarthritis is described by patients as a deep pain or a burning sensation related to the joint tissues of the
affected area. Osteoarthritis mainly affects the cartilage and disrupts the structural balance in the cartilage of the joint,
causing the cartilage cells to increase production of new raw materials required to create cartilage, but concurrently produce
enzymes that digest the cartilage.
Osteoarthritis
is one of the most common diseases worldwide causing physical disabilities in adults. According to the Centers for Disease Control
and Prevention (CDC) an estimated 22.7% (54.4 million) of US adults (civilian, non-institutionalized US adult population aged
18 years or older) had doctor-diagnosed arthritis, with significantly higher age-adjusted prevalence in women (23.5%) than in
men (18.1%). Arthritis prevalence increased with age. Studies have shown that approximately 44% of patients who suffer from hypertension
are also diagnosed with osteoarthritis.
The
pharmaceuticals used for treating osteoarthritis include a range of drugs. The particular choice of treatment is made according
to the disease severity. These can range from acetaminophen for cases of milder severity, to diclofenac, naproxen, and celecoxib
for moderate severity, up to treatment with narcotics for the most severe cases.
Various
non pharmacological treatments are intended to relieve the pain caused by the disease and to preserve and improve joint function.
Among these treatments are changes in the patient’s life style, namely diet, physiotherapy and exercise. The objectives
of these treatments are to strengthen the muscles adjacent to the joints and increase their ranges, thereby reducing body weight,
and decreasing the loads on the weight carrying joints to subsequently reduce the intensity of the pain.
In
some cases, the conservative non pharmacological treatments are not sufficiently helpful. In such cases, patients typically request
medical treatment. According to data published on the website of the Mayo Clinic in April 2013, the most common medical treatments
are the use of analgesics, such as NSAIDs, which include enzyme inhibitors, such as COX-2. NSAIDs treat inflammation by inhibiting
enzymes responsible for the initiation of the development of inflammation and subsequent pain. COX-2 enzyme inhibitors are non-steroidal
drugs that treat inflammation by directly inhibiting COX-2, an enzyme responsible for the development of inflammation and subsequent
pain but do not target the COX-1 enzyme. Targeting selectivity for COX-2 reduces the risk of peptic ulceration, and is the main
advantage of celecoxib, rofecoxib and other members of this drug class over non COX-2 selective NSAIDs.
After
several COX-2 inhibiting drugs were approved for marketing, data from clinical trials revealed that COX-2 inhibitors caused a
significant increase in heart attacks and strokes, with some drugs in the class possibly having worse risks than others. See “Business
- Our Therapeutic Candidates – Competitive Treatments for Pain Caused by Osteoarthritis”.
A
typical osteoarthritis treatment plan with these analgesics is as follows: (i) initial treatment of minor osteoarthritis will
begin with use of drugs such as acetaminophen; (ii) in the event that acetaminophen treatment is not effective, the physician
will proceed to treatments using NSAIDs, which will begin using drugs such as ibuprofen followed by naproxen and/or other NSAIDs
(more than 20 types of drugs, including COX-2 enzyme inhibitors); (iii) in cases where treatment with these drugs is ineffective,
the treatment will be direct injection of steroids into the affected joint; (iv) in cases where steroid injection is ineffective,
treatment by injecting hyaluronic acid (HA) into the affected joint will be considered; and (v) in the event that all the aforementioned
treatments fail, the patient may consider surgical replacement of the affected joint.
As
noted above, NSAIDs, both over-the-counter and prescription are commonly taken to manage the pain of backache, osteoarthritis,
rheumatoid arthritis, headache and other painful conditions. For example, according to a study commissioned by Kitov from IMS
Health, the largest vendor of U.S. physician prescribing data, between April 2015 and March 2016 there were 2,428,176 prescriptions
for celecoxib dispensed in the US.
In
July 2015 the FDA published a safety announcement requiring labeling for prescription NSAIDs to indicate that the risk of heart
attack or stroke can occur as early as the first weeks of using an NSAID and that the risk may increase with longer use of the
NSAID. In effect, the current warnings indicated on the labeling, in effect since 2005, has been strengthened as a result of a
review by the FDA of a variety of new safety information on prescription and over-the-counter NSAIDs, including observational
studies, a large combined analysis of clinical trials, and other scientific publications. These studies were discussed at a joint
meeting of the Arthritis Advisory Committee and Drug Safety and Risk Management Advisory Committee held in February 2014. As a
result of its reviews of NSAIDs, the FDA has cautioned in the labeling of NSAIDs that combining an NSAID with antihypertensive
drugs, including diuretics, beta blockers, ACE inhibitors, or angiotensin receptor blockers, may markedly diminish the efficacy
of these antihypertensive drugs. Calcium channel blockers, such as amlodipine besylate, the anti-hypertensive component of Consensi™,
were not included in this labeling requirement.
Hypertension
(High Blood Pressure)
Hypertension
is the most common chronic disease in the western world, affecting approximately thirty percent (30%) of the U.S. adult population,
according to an article in Morbidity and Mortality Weekly Report. Untreated, hypertension can cause significant morbidity and
mortality.
According
to its physiological definition, “hypertension” is an excessive pressure applied by the blood on the walls of the
blood vessels. The term hypertension refers to excessive arterial blood pressure, which is the pressure in the arteries that propels
blood to body organs.
The
blood pressure is created as a result of the contraction of the cardiac muscle propelling blood into the arteries, which possess
a limited capacity to store the blood. Blood pressure is measured in units of mercury (Hg) millimeters (mm Hg). Diagnosing hypertension
in adults requires at least two measures on two different occasions. There are two blood pressure values:
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Systolic
pressure is the peak pressure in the arteries measured in the cardiac cycle, during the contraction of the heart’s left
ventricle (systole); and
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Diastolic
pressure is the lowest pressure point in the arteries measured when the heart’s left ventricle is relaxing and there
is no contraction of the heart (diastole).
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In
the past, hypertension was generally defined as a systolic blood pressure of greater than 140 mm Hg or a diastolic blood pressure
of greater than 90 mm Hg. However, as discussed below, a recently halted NIH study may result in these designated values being
set lower. As a result of these data, multiple entities, including the American College of Cardiology, have recommended that a
patient’s systolic blood pressure should be maintained at a level below 130 mm Hg, and their diastolic blood pressure maintained
below 80 mm Hg.
The
cause of hypertension in 95% of patients is unknown, and in these cases hypertension is defined as “essential hypertension”.
However, some studies postulate that genetic factors and environmental factors are involved in the initial development of hypertension.
These factors include high salt consumption, obesity, excessive alcohol consumption, and probably mental and behavioral factors,
which may be caused by various circumstances, including working in certain professions. Extreme hypertension may lead to functional
disorders, and worsening health, while the affected person does not necessarily feel it and/or is aware of it. Therefore, hypertension
is often referred to as the “silent killer”.
The
danger of hypertension is continuing damage to blood vessels in critical areas of the body, such as blood vessels in the heart,
kidneys, eyes, and to the nerve tissue in the brain where any damage may cause a stroke. Moreover, damage to the blood vessels
may cause blockage due to arteriosclerosis and lead to the tearing of the vessels. These complications may cause various diseases
and even death.
Hypertension
treatment methods focus on reducing the patient’s blood pressure to normal values, thereby preventing the occurrence of
complications in the long term. Even a small increase in blood pressure may cause significant cardiovascular problems. For example,
it has been shown that any increase in blood pressure above a systolic value of 115 mm Hg is associated with an increased risk
of suffering a cardiovascular death. This finding has been repeatedly replicated and it is now established that there is no safe
level of blood pressure increase above of the “normotensive baseline value” of approximately 120 systolic and 70 diastolic.
The documentation of a danger of any increase in blood pressure above a value of 120/70 was documented in September of 2015 in
a large NIH sponsored clinical trial which enrolled over 9000 patients age 50 and older. This study also documented that patients
age 50 and older with systolic blood pressures greater than 120 had a greater rate of adverse cardiovascular events than did those
whose systolic blood pressure was treated to levels below 120.
It
has been recognized for many decades that hypertension requires treatment. Hypertension can be treated with many different classes
of medications. These include diuretics, beta blockers, alpha blockers, calcium channel blockers, ACE inhibitors, angiotensin
receptor antagonists and vasodilators. In general, these medications work by either relaxing blood vessels and thereby lowering
the pressure in arteries, or by assisting the body in removing fluid and thereby decreasing the pressure inside of arteries.
Although
drugs from each of the various classes of antihypertension medications are able to reduce blood pressure, there are marked differences
in their side effects profiles. For example, the diuretics can result in kidney problems, while the beta blockers can slow the
heart rate. It is therefore important for physicians carefully to select which antihypertension medications to prescribe for patients
based upon the patient’s other medical problems, including what concomitant medications they are receiving.
Blood
pressure can undergo significant alterations when subjects are placed on various medications. For example, according to a May
2010 FDA Joint Meeting of the Arthritis Advisory Committee and the Drug Safety and Risk Management Advisory Committee report published
by the FDA, an increase of about 3.5 mm Hg was diagnosed following the use of naproxen, while the use of Celebrex®
causes an increase of about 2.5 mm Hg. In addition, in August 2011 the FDA issued a Safety Information release stating that co-administration
of NSAIDs, including selective COX-2 inhibitors, with ACE inhibitors or with angiotensin II receptor antagonists, may result in
deterioration of renal function, including possible acute renal failure, and that the antihypertensive effect of ACE inhibitors
may be attenuated by NSAIDs. No such Safety Information release was issued with regard to calcium channel blockers, which is the
anti-hypertensive used in our therapeutic candidates.
The
FDA has also required warnings in the labeling of NSAIDs that adding diuretics or beta blockers to patients on NSAIDs can cause
problems with the control of their blood pressure. Calcium channel blockers, such as amlodipine besylate, the anti-hypertensive
component of Consensi™, were not included in this labeling requirement.
Background
on Combination Products
Numerous
companies worldwide have developed successful combination products comprised of a combination of two or more drugs to treat various
medical conditions, where the safety and effectiveness of each of the drugs was proven separately.
Combination
products manufactured and sold, which are similar to our therapeutic candidate, include:
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Vimovo®,
which was developed by Aralez Pharmaceuticals Inc. (originally Pozen Inc.) and was approved by the FDA in May 2010. Vimovo®
is a combination of naproxen and esomeprazole magnesium, marketed by AstraZeneca PLC worldwide (except in the U.S.)
and by Horizon Pharma in the U.S., and is designed for treating both pain and preventing gastric ulcer. Vimovo’s®
net sales in the U.S. reached $52 million in 2019.
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Caduet®,
a combination of Lipitor® and amlodipine, was originally developed and manufactured by Pfizer and is designated
for treating both cholesterol and hypertension, with global sales of $193 million in 2015. It is now a generic drug product.
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Janumet®,
a combination of metformin and sitagliptin, manufactured by Merck & Co. Inc. and designated to treat diabetes, with sales
of $2,201 million in 2016.
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Treximet®,
a combination of naproxen and sumatriptan, was originally developed by Aralez Pharmaceuticals Inc. (originally Pozen
Inc.) and marketed by Pernix Inc., and designed for relief of headache, pain, and other migraine symptoms, with U.S sales
of $66.9 million in 2016.
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Combination
drugs may provide improved medical treatment of patients diagnosed as suffering from two or more different diseases and also may
provide convenience to patients by using a single drug instead of multiple drugs. In addition, combination drugs have significant
commercial advantages deriving from maintaining and even increasing the market share of the active ingredients after their patents
expire by extending the life span of the patents for the active ingredients through the use of combination drugs.
Our
Consensi™ Drug
Studies
estimate that approximately 13.5 million patients in the United States. alone may suffer concurrently from hypertension and chronic
osteoarthritis pain in the joints, according to data published by the CDC. Our FDA-approved drug Consensi™ is based on the
generic drugs celecoxib and amlodipine besylate. Celecoxib is the active ingredient in the branded drug Celebrex®,
a known and approved-for-use drug designed primarily to relieve pain caused by osteoarthritis. Our combination is designed simultaneously
to relieve pain caused by osteoarthritis and treat hypertension, which is one of the side effects of using NSAIDs for treating
pain caused by osteoarthritis. Consensi™ is based on our belief that the added anti-hypertensive drug will decrease the
side effect of increased hypertension typically caused by the use of NSAIDs alone.
To
date, other than our recently approved Consensi™ product, no combination drug exists that offers the combined treatment
of pain caused by osteoarthritis and hypertension. We therefore believe that Consensi™ potentially holds significant advantages
over the currently available drugs in the market, due to the fact that the drug treatment of osteoarthritis together with hypertension
eases the burden of the treatment process for patients by providing the ability to use one drug instead of multiple drugs concurrently,
thereby increasing the patients’ ease of adherence to the required treatment.
Consensi™
is a fixed-dose combination product based on two known active ingredients (celecoxib and amlodipine besylate), the effectiveness
and safety of which has been separately proven for each, and which is intended to enable the concurrent treatment of pain caused
by osteoarthritis, and hypertension. We anticipate that treating the symptoms of hypertension and osteoarthritis will lower blood
pressure and by so doing, will reduce the risk of fatal and nonfatal cardiovascular events such as strokes or myocardial infarctions.
Consensi™ is available in tablets and is to be administered orally once per day. Consensi™ tablets are formulated
according to the following strengths (amlodipine/celecoxib): 2.5 mg/200 mg, 5 mg/200 mg, and 10 mg/200 mg tablets.
For
the development of Consensi™, we performed a double blind, placebo controlled, Phase 3 clinical trial from June 2014 through
November 2015 testing the decrease of hypertension in patients receiving the two components of our Consensi™ therapeutic
candidate. This trial was performed in the U.K. in four groups of twenty-six (26) to forty-nine (49) patients (a total of 152
patients), with each patient treated over a total period of two weeks. Group One was treated with the two components of Consensi™
(celecoxib and amlodipine besylate), Group Two was treated with a standard drug available in the market for treating hypertension
(amlodipine besylate, one of the components of Consensi™), Group Three was treated with celecoxib only, and Group Four received
a double placebo.
The
purpose of the trial was to show that a combination of the two components of Consensi™, as demonstrated in Group One, lowered
blood pressure by at least 50% as compared to the reduction in blood pressure in patients in Group Two (treatment with amlodipine
besylate only). We were not required by FDA to demonstrate or measure efficacy in treatment of pain caused by osteoarthritis.
Group Three and Group Four were included for control purposes and would not be considered in evaluating the primary efficacy endpoint.
The trial was conducted with over-encapsulated off-the-shelf drugs. The trial’s interim results demonstrated that the number
of 152 patients treated was adequate to provide statistical validity and therefore, the results were final. These final results
showed that in patients treated with amlodipine besylate only, there was a mean reduction in daytime systolic blood pressure of
8.8 mm Hg. In patients treated with Consensi™’s two components, there was a mean reduction in daytime systolic blood
pressure of 10.6 mm Hg. Therefore, the primary efficacy endpoint of the study has been successfully achieved with a p value of
0.001.
Additional
data from the Phase 3 clinical trial of Consensi™ suggested beneficial effects on renal (kidney) function, as compared to
negative effects on renal function caused by other NSAIDS.
Subsequently,
we completed a Phase 3/4 clinical trial designed to validate and better quantify these potential beneficial renal effects. The
trial was designed to explain the synergistic antihypertensive effect, where the reduction in diastolic blood pressure demonstrated
with the components of Consensi™ was greater than that observed with amlodipine besylate alone at certain times of the day.
Accordingly, we conducted a double blind, placebo controlled, clinical trial intended statistically to demonstrate Consensi™’s
effects on renal and vascular function, while providing us with data with respect to Consensi™ in addition to the data of
the Phase 3 clinical trial, by utilizing a primary efficacy end-point in the renal function clinical trial comparable to that
of the Phase 3 clinical trial. The primary efficacy endpoint of the trial was to show that Consensi™ lowers daytime systolic
blood pressure by at least 50% of the reduction in blood pressure achieved in patients treated with amlodipine besylate only.
Secondary endpoints included various parameters of renal function. In October 2017, we announced that Phase III/IV renal function
clinical trial, successfully met its primary efficacy endpoint. Data from the Phase III/IV trial demonstrated that Consensi™
lowered systolic blood pressure a comparable amount to amlodipine besylate, thus meeting the trial’s primary efficacy endpoint
of achieving at least 50% of the amlodipine reduction (p=0.019). The study also demonstrated that treatment with Consensi™
led to a statistically significant reduction of serum creatinine, a marker of renal function, from its baseline value (p=0.0005).
In contrast, neither amlodipine besylate nor placebo lowered creatinine to a statistically significant level. When comparing the
effect of Consensi™ to amlodipine besylate in lowering creatinine, it was found that Consensi™ enhanced the creatinine
reduction by an average of 102% over that achieved with amlodipine besylate alone, although there was a slight, but statistically
insignificant, increase in the rate of edema in the Consensi™ treatment arm.
Consensi™
is based on two generic drugs (amlodipine besylate and celecoxib). Until December 2015 celecoxib was protected by patents held
by Pfizer Inc. (Celebrex®). The USPTO granted Pfizer a “reissue patent” covering methods of treating
osteoarthritis and other approved conditions with celecoxib, the active ingredient in Celebrex®. The reissued patent
extended U.S. patent protection for Celebrex® from May 30, 2014 to Dec. 2, 2015.
We
submitted the NDA for marketing approval of Consensi™ to the FDA in July 2017, and the FDA approved our NDA on May 31, 2018.
Consensi™ was approved for patients suffering from hypertension and from osteoarthritis for whom treatment with amlodipine
for hypertension and celecoxib for the treatment of osteoarthritis are appropriate.
In
connection with our Consensi™ drug product, we are subject to post-marketing requirements and post-marketing commitments.
Post-marketing requirements and post-marketing commitments are studies that sponsors conduct after FDA approval to gather additional
information about a product’s safety, efficacy, or optimal use. Post-marketing requirements are required studies, whereas
a sponsor voluntarily commits to conduct post-marketing commitments. We are required by the FDA to comply with reporting requirements
including but not limited to submitting serious unexpected adverse drug experiences no later than 15 calendar days from initial
receipt of the information and also to provide a periodic report quarterly for the first three years of approval and then annual
after the first three years. The FDA waived a requirement to conduct a pediatric assessment under the Pediatric Research Equity
Act because Consensi™ is intended to treat indications that are rarely experienced in pediatric populations.
We
have also committed to conducting additional supplementary CMC studies on our Consensi™ drug product, including an elemental
impurities assessment and a dissolution method and acceptance criteria development study. We are also required to perform validation
for scaling up the manufacturing of Consensi by our manufacturer Dexcel.
In
November 2018, we entered into a Product Manufacturing Agreement (“Manufacturing Agreement”) with Dexcel Ltd., or
Dexcel, a global pharmaceutical company, which has been involved in the manufacture and marketing of more than 55 branded and
generic products, pursuant to which will manufacture scale-up batches as well as validation batches of Consensi™ in anticipation
of the launch of the drug in the U.S. by Coeptis Pharmaceutical, our U.S. distribution partner, as well as ongoing supply of Consensi™
to our distribution partners. Dexcel previously manufactured Consensi™ for us under a Development Services Agreement, pursuant
to which Dexcel developed the formulation for Consensi™, conducted the subsequent stability testing and manufacturing scale-up
in quantities adequate for submission of the NDA to the FDA.
We
recently announced that Coeptis is completing the packaging, release and shipment of Consensi™ to marketing partners, that
will begin selling Consensi™ in the U.S. in May 2020. According to our agreement with Coeptis Pharmaceuticals, Kitov is
eligible to receive up to $99.5 million milestone, reimbursement payments, and royalties, and we expect to receive aggregate milestone
and royalty revenues of between $28 million and $36 million from 2020 through 2022.
The
FDA required Important Safety Information for the Consensi™ product is as follows:
Important Safety Information (ISI)
for Consensi™
WARNING:
RISK OF SERIOUS CARDIOVASCULAR and GASTROINTESTINAL EVENTS
See
full prescribing information for complete boxed warning.
CONSENSI
contains celecoxib, a nonsteroidal anti-inflammatory drug (NSAID), and amlodipine, a calcium channel blocker (CCB). NSAIDs can
cause serious side effects, including:
●
|
Increased
risk of a heart attack or stroke that can lead to death. This risk may happen early in
treatment and may increase with duration of use.
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●
|
Do
not take CONSENSI right before or after a heart surgery called a “coronary artery
bypass graft” (CABG).
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Avoid
taking CONSENSI after a recent heart attack, unless your healthcare provider tells you
to. You may have an increased risk of another heart attack if you take NSAIDs after a
recent heart attack.
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NSAID
medications, like celecoxib, cause an increased risk of bleeding, ulcers, and tears (perforation)
of the esophagus, stomach, and intestines, at any time during treatment, which can occur
without warning and may cause death. Elderly patients and patients with a prior history
of peptic ulcer disease and/or GI bleeding are at greater risk for serious GI events.
|
What
is the most important information I should know about Consensi?
Consensi
contains celecoxib, a nonsteroidal anti-inflammatory drug (NSAID), and amlodipine, a calcium channel blocker (CCB). NSAIDs can
cause serious side effects, including:
|
●
|
Increased
risk of a heart attack or stroke that can lead to death. This risk may happen early
in treatment and may increase:
|
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o
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with
increasing doses of NSAIDs
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o
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with
longer use of NSAIDs
|
Do
not take Consensi right before or after a heart surgery called a “coronary artery bypass graft” (CABG).
Avoid
taking Consensi after a recent heart attack, unless your healthcare provider tells you to. You may have an increased risk of another
heart attack if you take NSAIDs after a recent heart attack.
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Increased
risk of bleeding, ulcers, and tears (perforation) of the esophagus (tube leading from
the mouth to the stomach), stomach, and intestines:
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o
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without
warning symptoms
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The
risk of getting an ulcer or bleeding increases with:
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o
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past
history of stomach ulcers, or stomach or intestinal bleeding with use of NSAIDs
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|
o
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taking
medicines called “corticosteroids”, “antiplatelet drugs”, “anticoagulants”,
“selective serotonin reuptake inhibitors (SSRIs)”, or “serotonin norepinephrine
reuptake inhibitors (SNRIs)”
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o
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increasing
doses of NSAIDs
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o
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older age
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o
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longer
use of NSAIDs
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o
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poor
health
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smoking
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o
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advanced
liver disease
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o
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drinking
alcohol
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o
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bleeding
problems
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You
should not take other medicines that contain NSAIDs or salicylates during treatment with Consensi because of increased risk of
stomach problems. Taking other medicines that contain NSAIDs or salicylates during treatment with Consensi will not provide increased
relief of symptoms of osteoarthritis.
Consensi
should only be used:
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at
the lowest dose possible for your treatment
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for
the shortest time needed
|
Who
should not take Consensi?
Do
not take Consensi:
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if
you are allergic to amlodipine, celecoxib or any of the inactive ingredients in Consensi.
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if
you have had an asthma attack, hives, or other allergic reaction with aspirin or any
other NSAIDs.
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right
before or after heart bypass surgery.
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if
you have had an allergic reaction to sulfonamides.
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Before
taking Consensi, tell your healthcare provider about all your medical conditions, including if you:
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have
liver or kidney problems.
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are
pregnant or plan to become pregnant. Talk to your healthcare provider if you are considering
taking Consensi during pregnancy. You should not take Consensi after 29 weeks
of pregnancy.
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are
breastfeeding or plan to breastfeed. Consensi can pass into your breast milk. It is not
known if Consensi will harm your baby. Talk with your healthcare provider about the best
way to feed your baby if you take Consensi.
|
Tell
your healthcare provider about all the medicines you take, including prescription and over-the-counter medicines, vitamins, or
herbal supplements. Consensi® and some other medicines can interact with each other and cause serious side effects. Do
not start taking any new medicine without talking to your healthcare provider first.
What
are the possible side effects of Consensi?
Consensi
can cause serious side effects, including:
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liver
problems, including liver failure
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worsening
chest pain (angina) or heart attack, particularly in people with severe obstructive coronary
artery disease
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swelling
of your arms, legs, hands and feet (peripheral edema) is common with Consensi but can
sometimes be serious.
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kidney
problems, including kidney failure
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increased
potassium levels (hyperkalemia)
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life-threatening
allergic reactions
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life-threatening
skin reactions
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low
red blood cells (anemia)
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See
“What is the most important information I should know about Consensi?” for further detail regarding serious side effects.
Your
healthcare provider will monitor your blood pressure and do blood tests to check you for side effects during treatment with Consensi.
Consensi
may cause fertility problems in females that is reversible when treatment with Consensi is stopped. Talk to your healthcare provider
if this is a concern for you.
The
most common side effects of Consensi include:
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swelling
of the arms, legs, hands, and feet
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headache
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joint
swelling
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frequent
urination
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dizziness
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hot
or warm feeling in your face (flushing)
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stomach
pain
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gas
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diarrhea
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tiredness
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heartburn
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extreme
sleepiness
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Get
emergency help right away if you get any of the following symptoms:
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shortness
of breath or trouble breathing
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slurred
speech
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chest
pain
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swelling
of the face or throat
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●
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weakness
in one part or side of your body
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Stop
taking Consensi and call your healthcare provider right away if you get any of the following symptoms:
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nausea
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●
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there
is blood in your bowel movement or it is black and sticky like tar
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more
tired or weaker than usual
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unusual
weight gain
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diarrhea
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your
skin or eyes look yellow
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itching
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skin
rash or blisters with fever
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indigestion
or stomach pain
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swelling
of the arms, legs, hands and feet
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flu-like
symptoms
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vomit
blood
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These
are not all the possible side effects of Consensi.
Call
your doctor for medical advice about side effects. You may report side effects to FDA at 1-800-FDA-1088 or www.fda.gov/medwatch.
You may also report side effects to Burke Therapeutics, LLC at 1-866-275-1264.
Please
see Full Prescribing Information, including BOXED WARNING, and Medication Guide.
Competitive
Treatments for Pain Caused by Osteoarthritis
The
competition for Consensi™ is expected to come from the oral anti-arthritic market, or more specifically the traditional
non-selective NSAIDs (such as naproxen and ibuprofen), traditional NSAID/gastroprotective agent combination products or combination
product packages (such as Vimovo®, Arthrotec®, Prevacid® and NapraPAC™) and
the only COX-2 inhibitor available in the U.S. market, Celebrex® (including generic versions of Celebrex®).
In 2017 global sales of Celebrex® (not including generic versions of Celebrex®) were $775 million
out of which $164 million were recorded in the US, $28 million in Europe, and $583 million in the rest of the world.
Due
to the voluntary withdrawal of Vioxx® by Merck & Co. in September 2004, the FDA ordered the withdrawal of Bextra®
by Pfizer and issued a Public Health Advisory in April 2005, requiring manufacturers of all prescription products containing
NSAIDs to provide warnings regarding potential adverse cardiovascular events as well as life-threatening gastrointestinal events
associated with the use of NSAIDs. Moreover, subsequent to an FDA advisory committee meeting in February 2005 that addressed the
safety of NSAIDs, and, in particular, the cardiovascular risks of COX-2 selective NSAIDs, the FDA has indicated that long-term
studies evaluating cardiovascular risk will be required to approve new NSAID products that may be used on an intermittent or chronic
basis. We believe that Consensi™ has a competitive advantage over other drugs in the market because, as a COX-2 inhibitor,
it has limited gastrointestinal side effects, and due to the addition of amlodipine besylate it is designed to address existing
hypertension and the cardiovascular side effects of NSAIDs.
License
Agreement for Territory of South Korea
On
March 8, 2017, we announced that the Company signed a definitive License Agreement Consensi™, for the territory of South
Korea, with Kuhnil Pharmaceutical Co., Ltd. (“Kuhnil”), a South Korean pharmaceutical company. Upon receipt of marketing
authorization in South Korea, Kuhnil will have the exclusive right and license to manufacture, distribute and sell Consensi™
in South Korea. Kuhnil will be responsible for seeking regulatory approval for Consensi™ in South Korea. Under the terms
of the license agreement, Kitov is entitled to receive milestone payments upon achievement of certain predefined regulatory milestones,
as well as double digit royalties in a range between ten and twenty percent of net sales. The initial term of the definitive agreement
with Kuhnil is for ten years from the date of first commercial sale and shall automatically renew for an additional one-year term.
The filling for marketing authorization with the South Korean regulatory authorities is pending the completion of the manufacturing
process validation and commercial launch in South Korea is now estimated to take place in 2021.
Commercialization
Agreement for China
In
May 2018 we signed a definitive License, Development and Commercialization Agreement for Consensi™ for the territory of
China with Hebei Changshan Biochemical Pharmaceutical Co., Ltd. (Changshan Pharma), a Chinese public company traded on the Shenzhen
Stock Exchange. Upon receipt of marketing authorization in China, Changshan Pharma will have the exclusive right and license to
import, manufacture, distribute and sell Consensi™ in China, Taiwan, Hong Kong and Macao. Changshan Pharma will be responsible
for seeking marketing authorization in China for Consensi™ in China. Under the terms of the agreement, we are entitled
to receive up to an aggregate of $3.5 million, of which $1 million was paid to us following FDA approval of Consensi™ and
$2.5 million will become payable upon achievement of certain regulatory milestones in China; up to an aggregate of $6.0 million
for predefined commercial milestones; and up to 12% royalties on net sales. The initial term of the definitive agreement with
Changshan Pharma is for ten years from the date of first commercial sale and shall automatically renew for additional one-year
terms. Changshan Pharma are preparing the Chinese NDA for submission in the second half of 2020.
Commercialization
Agreement for United States
In
January 2019, we entered into an exclusive marketing and distribution agreement with Coeptis for the commercialization of Consensi™
in the U.S. market. The agreement was amended in October 2019. Under the terms of the amended agreement we will receive 20% in
royalties on net sales of Consensi™ with minimum royalties of $4.5M over 3 years. In addition, we are entitled to receive
up to $99.5M in milestone and reimbursement payments, of which $2.5M was already received, and an additional $1M is due following
the first commercial sale of Consensi™ in the U.S. and $96M which is subject to certain pre-defined commercial milestones.
The agreement is for a term of fifteen years and may be extended for additional two-year terms, and includes customary provisions,
as well as certain residual rights and obligations of the parties following termination.
Manufacturing
We
entered into a Manufacturing Agreement with Dexcel which provides for Dexcel to manufacture scale-up batches as well as validation
batches in anticipation of the launch of Consensi™ in the U.S. by Coeptis, as well as ongoing supply of Consensi™
to our distribution partners. Dexcel is to manufacture Consensi™ in 3 dosage forms. The Manufacturing Agreement contains
various representations, warranties, indemnity, and intellectual property provisions, common to agreements of such nature. Pursuant
to the Manufacturing Agreement we or our licensees will also enter into Quality Agreements with Dexcel.
Intellectual
Property
Patents,
trademarks and licenses and market exclusivity
Our
policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related
to our proprietary technology, inventions and improvements that are important to the development of our business. We also rely
on our trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary position. We vigorously
defend our intellectual property to preserve our rights and gain the benefit of our technological investments. Our business is
not dependent, however, upon any single patent, trademark or contract. See “Item 3. Key Information – D. Risk Factors
– Risks Related to Intellectual Property”.
Oncology
Segment - FameWave
Patents
FameWave’s
patent and patent application portfolio, covering the entire CEACAM1 antibody termed CM24 and other antibodies and uses thereof,
includes five patent families, covering anti CEACAM1 antibodies and their uses in the treatment of cancer diseases.
|
●
|
Patent
Family 1 was filed on April 29, 2010 (PCT filing date). The priority date is April 30, 2009. The invention described in
this family, relates to anti-human CEACAM1 antibodies, hybridoma cells producing these antibodies and methods of using the
antibodies. A United States (US 8,598,322) patent as well as European (EP 2424896) national phase counterparts are now granted,
as well as patents in Australia (2010243211), China (ZL201080029465X), Hong Kong (HK1167264), Israel (215677), Japan (5726170),
Korea (10-1875227) and Russia (2598710), all of which have a maximum term of April 28, 2030 (each not including any available
patent term extension (PTE). The European patent was validated in Austria; Belgium; Czech Republic; France; Germany; Ireland;
Italy; The Netherlands; Poland; Spain; Switzerland; Turkey and United Kingdom. A patent application pending in Canada is expected
to be granted in 2020.
|
|
|
|
|
●
|
Patent
Family 2 was filed on July 21, 2010 (PCT filing date). The priority date is July
21, 2009.
The
invention described in this family, relates to method of diagnosing melanoma or monitoring progression of melanoma, the
method comprising determining a level of human CEACAM1 on isolated lymphocytes of a human subject in need thereof, wherein
an upregulation of said level of CEACAM1 above a predetermined threshold is indicative of melanoma or stage thereof in
said subject. Patents were granted in Israel (217182), Australia (2010274581) and Europe (EP 2457089). The European patent
was validated in United Kingdom, Ireland, The Netherlands, Germany, Spain, Italy, France and Switzerland. All granted
patents have a maximum term of July 20, 2030, (each not including any available PTE).
|
|
●
|
Patent
Family 3 was filed on October 10, 2012 (PCT filing date). The priority date is October 11, 2011. The invention described
in this family, provides antibodies, in particular chimeric antibodies, as well as molecules having at least the antigen-binding
portion of an antibody, against the human protein CEACAM1. Disclosed antibodies and antibody fragments are characterized by
comprising specific CDR sequences. Methods of production and use in therapy and diagnosis, of such antibodies and antibody
fragments are also provided. A United States (US 9,771,431) patent as well as European (EP 2744829) national phase counterparts
are now granted and divisional applications are pending. The European patent was validated in Germany, France, Spain, Italy,
United Kingdom, Ireland, The Netherlands, Poland, Lithuania, Latvia, Sweden, Belgium, and Switzerland. Patents were also granted
in Australia (2012322272), China (ZL201280049869), Hong Kong (1199646), India (333297), Israel (231931), Japan (6170926) and
Russia (2650869). The patents of this family have a maximum term of October 9, 2032, except of the US patent that received
a patent term adjustment of 119 days and has an expiry date of May 22, 2030 (each not including any available patent term
extension (PTE). Patent applications are also pending in Brazil, Canada and Korea.
|
|
|
|
|
●
|
Patent
Family 4 was filed on November 25, 2014 (PCT filing date). The priority date is November
25, 2013. The invention described in this family provides compositions comprising anti-human
CEACAM1 antibodies, compositions comprising antibodies capable of inhibiting or blocking
the interaction between PD-1 and its ligands, and methods for their combined use in treating
cancer.
Patents
have been granted in the United States (US 10081679) and Russia (2697522) and allowed in Europe (3074035), Australia and
China. These patents have a maximum term of November 24, 2034 (each not including any available patent term extension
(PTE). Patent applications are pending in Japan and Mexico.
|
|
●
|
Patent
Family 5 was filed on April 27, 2015 (PCT filing date). The earliest priority date
is April 27, 2014. The invention described in this family provides humanized antibodies,
capable of specific binding to human CEACAM1 molecules containing human-to-murine back-mutations
in non-CDR variable regions, and their encoding polynucleotide sequences are provided.
Pharmaceutical compositions comprising these antibodies as well as methods of their use
in treating and diagnosing cancer and other conditions are also provided. Patents have
been granted in the United States (US 10,550,196) and Mexico (366359) with a maximum
term of April 26, 2035 (not including any available patent term extension (PTE) while
applications are pending in other territories and countries, including a pending divisional
application in the United States.
|
License
Agreement from Tel HaShomer
On
April 16, 2012, cCAM entered into a license agreement with THM, and Ramot at Tel Aviv University Ltd. (“Ramot”) which
was effective as of May 25, 2010, pursuant to which THM and Ramot granted cCAM a worldwide, royalty-bearing, exclusive license
to develop, manufacture, produce, market and sell any biopharmaceutical product and/or diagnostic product using patents and inventions
owned by THM and Ramot in connection with uses of the glycoprotein CEACAM1 (the “THM License Agreement”). The THM
License Agreement was subsequently amended in 2013 and in 2015.
In
conjunction with the closing of the reversion agreement amongst MSD, cCAM and FameWave, the parties executed an Assignment and
Assumption Agreement by and between FameWave and cCAM (an MSD subsidiary), according to which cCAM assigned to FameWave all its
rights, title and interest in, to and under the License Agreement, which Assignment and Assumption Agreement was countersigned
by each of Ramot and THM, as a condition for closing of such reversion agreement (defined as the transfer of those certain assets
from cCAM and MSD to FameWave).
Under
the terms of the THM License Agreement, THM and Ramot retain ownership of the licensed information (defined as the patents and
inventions licensed under the License Agreement). However, FameWave will own all rights to any data and information created and/or
generated by cCAM and subsequently by FameWave, whether or not its development is based on the licensed information, including
any proprietary intellectual or industrial property rights. FameWave and THM and/or Ramot will jointly own all rights to any data
and information mutually created and/or generated by FameWave together with THS/Ramot/Sheba employees or agents, or TAU’s
students, employees or agents.
FameWave
has the right to grant sub-licenses to third parties in accordance with the terms set forth in the THM License Agreement. THM
and Ramot retain the right to use the licensed information solely for academic and/or scholarly purposes, provided that such use
does not harm and/or expose FameWave’s confidential information.
In
consideration for the license grant, FameWave agreed to pay to THM an annual license fee, royalties based on a percentage of “Net
Sales”, a percentage of the sales-based sublicense fees, and a percentage of the sublicense fees. Additionally, FameWave
has undertaken to pay certain milestone payments and a percentage of all consideration received by FameWave or its shareholders
as a result of or in connection with an exit event (as defined). Finally, THM also received an assignable warrant to purchase,
upon the closing of an IPO of FameWave, ordinary shares of FameWave, at a price equal to a certain percentage of the forecast
initial market value of FameWave for each share as was determined, prior to the IPO, for the purpose of the IPO.
FameWave
agreed to bear sole responsibility and payment obligations for any damage caused by or on behalf of FameWave or any sublicensee
as a result of or in connection with the THM License Agreement and/or the exercise of the license. FameWave is also required to
indemnify THM, Sheba, TAU and Ramot, and their respective employees, agents and representatives, from and against any and all
loss, liability, claims, damages and expenses (including legal costs and attorneys’ fees) of whatever kind or nature by
a third party that arise out of and/or result from the THM License Agreement and/or the exercise of the license, or to the extent
that they are based on a claim that the licensed information, the products or other material produced by FameWave infringes any
third party’s intellectual property rights including copyright, trade secret, patent, or trademark.
According
the THM License Agreement, FameWave undertook to develop, manufacture, sell and market products pursuant to the milestones and
time schedule attached to the THM License Agreement. FameWave is required to bear all costs and fees incurred prior to and during
the term of the THM License Agreement, in connection with the preparation, filing, maintenance, prosecution and the like of any
patents deemed necessary to protect the licensed information, and in case of third party infringement, FameWave is obligated,
at its expense, to institute, prosecute and control any action or proceeding with respect to such infringement.
THM
is entitled to appoint an observer to FameWave’s board of directors who has all the rights of any other director of FameWave
save for the right to vote. To date, THM has not acted on this right.
FameWave
has agreed to purchase and maintain, at its own expense, insurance which covers its liability pursuant to the THM License Agreement,
in its name and naming the indemnified parties as additional insured parties.
The
term of the THM License Agreement continues on a product-by-product and country-by-country basis, until the later of (i) the date
of expiry of the last of the licensed patents in such country; or (ii) the expiry of a period of 15 years from the first commercial
sale in such country.
THM
and Ramot may terminate the THM License Agreement and/or the license if (i) the first commercial sale of the product has not been
made within 2 years from FDA or CE marketing approval; (ii) FameWave breaches any of its obligations under the THM License Agreement
and such breach is not cured within 60-90 days, depending on the materiality of the breach; (iii) FameWave breaches any of FameWave’s
obligations under the THM License Agreement, and such breach remains uncured for 90 days after written notice; (iv) FameWave becomes
insolvent, or petitions are filed against it under insolvency laws; (v) FameWave has ceased to carry on business as an ongoing
concern; or (vi) FameWave has challenged, challenges, or causes any third party to challenge, the intellectual property rights
or other rights or THM or Ramot to the licensed information anywhere in the world.
Upon
termination of the THM License Agreement, other than due to expiration of the THM License Agreement, all rights granted to FameWace
revert to THM and Ramot and FameWave will not be entitled to make any further use in the licensed information. The THM License
Agreement is governed by the laws of the State of Israel.
Oncology
Segment - TyrNovo
Patents
TyrNovo’s
patent and patent application portfolio, covering NT219 and other compounds, includes six patent families, covering compounds
that modulate protein kinase signaling and their use in treatment of protein kinase related disorders, including cancer and neurodegenerative
disorders.
|
●
|
Patent
Family 1 was filed on December 4, 2007 (PCT filing date). The priority date is December 4, 2006. This family is directed
to compounds modulating the insulin like growth factor receptor signaling and methods of using these compounds as chemotherapeutic
agents for the treatment of protein kinase related disorders, in particular cancer. National phase counterparts exist in Europe
(EP 2125712) and the United States (US 8,058,309), both of which are now granted. EP 2125712 has a maximum term of December
4, 2027, while US 8,058,309 has a maximum term of April 5, 2028 (each not including any available patent term extension (PTE)).
The European patent was validated in France, Germany, Switzerland and the United Kingdom.
|
|
|
|
|
●
|
Patent
Family 2 was filed on June 7, 2009 (PCT filing date). The priority date is June 5, 2008. This family is also directed
to compounds modulating the insulin like growth factor receptor signaling, and methods of using these compounds as chemotherapeutic
agents for the treatment of protein kinase related disorders, in particular cancer. This patent family specifically discloses
and claims NT-219. National phase counterparts exist in Europe (EP 2285774), the United States (US 8,637,575) and Israel (IL
209638), all of which are now granted. EP 2285774 and IL 209638 have a maximum term of June 7, 2029, while US 8,637,575
has a maximum term of April 5, 2028 (each not including any available PTE). The European patent was validated in France, Germany,
Italy, Netherlands, Spain, Switzerland, and the United Kingdom.
|
|
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Patent
Family 3 was filed on December 27, 2011 (PCT filing date). The priority date is December 27, 2010. This family is directed
to compounds having a benzo[e][1,3]thiazin-7-one core, and methods of using these compounds as chemotherapeutic agents for
the treatment of protein kinase related disorders, in particular cancer. National phase counterparts exist in Europe (EP 2658847)
and the United States (US 9,073,880), both of which are now granted. EP 2658847 has a maximum term of December 27, 2031, while
US 9,073,880 has a maximum term of April 9, 2032 (each not including any available PTE). The European patent was validated
in France, Germany, Italy, Netherlands, Spain, Switzerland, and the United Kingdom.
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Patent
Family 4 was filed on July 13, 2014 (PCT filing date). The priority date is July 14, 2013. This family is directed to
use of the compounds disclosed in Patent Families 1-3, for the treatment of neurodegenerative diseases, including Alzheimer’s
disease. National phase applications were filed in Europe (EP 3021944), the United States (US 9,770,454 and its divisional
US 10,188,659) and Israel (IL 243566), all of which are now granted. Any patent issuing from this patent family will have
a maximum patent term of July 13, 2034. The European patent is being validated in France, Germany, Netherlands, Sweden,
Switzerland and Sweden.
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Patent
Family 5 was filed on February 4, 2016 (PCT filing date). The earliest priority date is February 5, 2015. This family
is directed to combinations of the compounds disclosed in Patent Families 1-3, acting as dual modulators of Insulin Receptor
Substrate (IRS) and signal transducer and activator of transcription 3 (STAT3), with various targeted drug families (inhibitors
of Epidermal Growth Factor Receptor (EGFR), mammalian target of rapamycin (mTOR); mitogen-activated protein kinase (MEK) or
mutated B-Raf), as well as chemotherapeutic agents (Gemcitabine, 5-FU, Irinotecan and Oxaliplatin), and use of such combinations
for the treatment of cancer. The combinations can be used to treat tumors that have developed resistance to these anti-cancer
drugs, to prevent acquired resistance of a tumor to these drugs, or to prevent tumor recurrence following cease of treatment
with these drugs. The invention further relates to the treatment of cancer using combination therapy comprising a dual modulator
of IRS and STAT3, in combination with an immunotherapy agent, and can be used to sensitize a tumor to immunotherapy. National
phase applications were filed in Australia (AU2016213972), Brazil (BR112017016776), Canada (CA2975673), China (CN107250108),
Europe (EP3253733), India, Israel, Japan (JP2018504418), Korea (KR20170109589), and the United States (US 2018/0028475). Application
numbers provided for published applications only. The European application has been allowed, and the other applications
are pending. Some have entered substantive examination. Any patent issuing from these applications will have a maximum patent
term of February 4, 2036.
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Patent
Family 6 was filed on November 16, 2017 (PCT filing date). There is no earlier priority date. This family is directed
to specific combinations of the compounds disclosed in Patent Families 1 through 3 above, acting as dual modulators of certain
anti-cancer mechanisms. The published PCT application is currently pending. The due date for national phase entry is May 16,
2020. Any patent issuing from these applications will have a maximum patent term of November 16, 2037.
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Exclusive
License Agreement with Yissum
In
August 2013, TyrNovo entered into a license agreement with Yissum, which was subsequently amended in April 2014 and March 2017,
pursuant to which Yissum has granted TyrNovo an exclusive, license (with the right to sublicense) for the development, use, manufacturing
and commercialization of products using certain patents and know-how owned by Yissum and patent applications filed by Yissum in
connection with unique inhibitors of the IGF-1R Pathway (the “Yissum License Agreement”).
Under
the terms of the Yissum License Agreement, Yissum shall retain the ownership of the Licensed Technology (as such term is defined
therein). All rights in the results of the activities carried out by TyrNovo or third parties in the development of these products
(and certain results obtained under material transfer agreements signed by TyrNovo and Yissum (the “TyrNovo MTAs”))
shall be solely owned by TyrNovo (unless an employee of the Hebrew University of Jerusalem or each of its branches is an inventor
of any of the patents claiming such results, in which case they shall be owned jointly by Yissum and TyrNovo). TyrNovo has the
right to grant sub-licenses to third parties in accordance with the terms set forth in the Yissum License Agreement.
Yissum
controls the prosecution, maintenance and enforcement of all the licensed patent rights. TyrNovo has the first right but not the
obligation to take action against an infringement of a licensed patent right, if TyrNovo does not do so, Yissum may undertake
such action at its own expense.
TyrNovo
has agreed to pay Yissum a percentage of “net sales” as royalties and to pay Yissum a percentage of the income that
it receives from granting sub-licenses to third parties. Additionally, in the event of an M&A prior to an IPO, TyrNovo will
be required to pay Yissum a percentage of the proceeds received under such M&A. In the event of an IPO, then prior to the
closing of such IPO. TyrNovo shall issue to Yissum such number of ordinary shares equal to a certain percentage of all TyrNovo
shares.
TyrNovo
is required to indemnify Yissum, the Hebrew University of Jerusalem, their directors, employees, their executive officers, consultants
or representatives and any other persons acting on their behalf under the license against any liability, including product liability,
damages, losses, expenses, fees and reasonable legal expenses arising out of the TyrNovo’s actions or omissions or which
derive from its use, development, manufacture, marketing, sale or sublicensing of any licensed product, licensed technology, and
certain information obtained under the TyrNovo MTAs, or exercise of the Yissum License Agreement, and the TyrNovo MTAs.
TyrNovo
has agreed to maintain, and to add Yissum as an additional insured party with respect to, clinical trials, comprehensive general
liability and product liability insurance as well as an insurance policy with respect to the foregoing indemnification prior to
the time when it commences clinical trials and concludes its first commercial sale.
The
term of the Yissum License Agreement shall expire upon the later of (i) the date of expiration in such country of the last to
expire licensed patent included in the licensed technology; or (ii) the end of a period of 15 year of the first commercial sale
in such country, while the license granted under the Yissum License Agreement will terminate upon the later of (unless the license
has been earlier terminated or expired) (i) the date of expiration in such country of the last to expire licensed patent included
in the licensed technology; (ii) the date of expiration of any exclusivity on the product granted by a regulatory or government
body in such country; or (iii) the end of a period of 15 year of the first commercial sale in such country.
TyrNovo
has the right to terminate the Yissum License Agreement upon a prior written notice. Either party has the right to terminate the
Yissum License Agreement if the other party is in material breach and has not cured such material breach within a certain amount
of days as of the receipt of a written notice notifying it of such breach. Additionally, Yissum has the right to terminate the
Yissum License Agreement immediately in the event that TyrNovo does not comply with its obligation (following a certain amount
of months cure period) to use commercially reasonable efforts to develop and commercialize the products; if an attachment is made
over the majority of TyrNovo’s assets or if execution proceedings are taken against TyrNovo and are not set aside within
a certain amount of days; or if TyrNovo challenges in any forum the validity of one or more of the licensed patents. Upon termination
of the Yissum License Agreement, TyrNovo shall assign to Yissum all the results obtained during the development of the product.
If Yissum licenses to third parties such results, then TyrNovo shall be entitled to a percentage of the net proceeds actually
received by Yissum from such third parties, up to an amount covering TyrNovo’s expenses incurred during the development
of such assigned results.
Pain
and Hypertension Segment - Consensi™
Kitov
Pharma owns two U.S. patents and we expect to be pursuing additional international patent applications relating to our lead drug
candidate, Consensi™. The following is a brief description of Kitov Pharma’s patent and trademark-related intellectual
property:
On
August 10, 2016, we announced that the United States Patent and Trademark Office (USPTO) issued patent #9,408,837 covering Consensi™.
The patent, entitled “Ameliorating Drug-Induced Elevations In Blood Pressure By Adjunctive Use Of Antihypertensive Drugs,”
was issued on August 9, 2016 and is expected to have a term that can extend to February 28, 2030. The patent includes claims covering
methods of ameliorating celecoxib-induced elevation of blood pressure by administering celecoxib and amlodipine separately or
in combination.
On
May 30, 2017 the USPTO issued patent #9,662,315 covering an oral dosage composition which includes both celecoxib and amlodipine.
This patent was a divisional of the ’837 patent and its term will run until May 22, 2029.
On
July 6, 2017, we filed a U.S. provisional application in partnership with Dexcel, Ltd. which is related to pharmaceutical formulations
of celecoxib and amlodipine and methods of preparing the same. An international application based on the U.S. provisional application
was filed on July 4, 2018 and a National Stage Application was filed in China. A U.S. nonprovisional application was filed on
June 14, 2018 based on the U.S. provisional application and U.S. Patent 10, 350,171 was issued from this application on July 16,
2019. This patent covers methods of preparing a pharmaceutical composition comprising celecoxib and amlodipine. A continuation
application was filed on May 31, 2019 and prosecution is currently ongoing.
In
January 2018 we received from the USPTO a notice of allowance for the trademark Consensi™, and we have extended this allowance
in anticipation of first commercial use in connection with our anticipated U.S. launch by the end of 2019.]
Market
exclusivity
In
the branded pharmaceutical industry, the majority of a branded drug’s commercial value is usually realized during the period
in which the product has market exclusivity. In the U.S. and some other countries, when market exclusivity expires and generic
versions of a product are approved and marketed, there can often be very substantial and rapid declines in the branded product’s
sales. The rate of this decline varies by country and by therapeutic category, and the number of generic competitor entrants to
the market, among other factors; however, following patent expiration, branded products often continue to have market viability
based upon the goodwill of the product name, which typically benefits from trademark protection.
A
pharmaceutical brand product’s market exclusivity is generally determined by two forms of intellectual property: patent
rights held by the brand company and any regulatory forms of exclusivity to which the NDA-holder is entitled.
Patents
are a key determinant of market exclusivity for most branded pharmaceuticals. Patents provide the brand company with the right
to exclude others from practicing an invention related to the medicine. Patents may cover, among other things, the active ingredient(s),
various uses of a drug product, pharmaceutical formulations, drug delivery mechanisms and processes for (or intermediates useful
in) the manufacture of products, and polymorphs. Protection for individual products extends for varying periods in accordance
with the expiration dates of patents in the various countries. The protection afforded, which may also vary from country to country,
depends upon the type of patent, its scope of coverage and the availability of meaningful legal remedies in the country.
Market
exclusivity is also sometimes influenced by regulatory exclusivity rights. Many developed countries provide certain non-patent
incentives for the development of medicines. For example, the U.S., the European Union and Japan each provide for a minimum period
of time after the approval of a new drug during which the regulatory agency may not rely upon the data of the original party who
developed the drug to approve a competitor’s generic copy. Regulatory exclusivity rights are also available in certain markets
as incentives for research on new indications, on orphan drugs and on medicines useful in treating pediatric patients. Regulatory
exclusivity rights are independent of any patent rights and can be particularly important when a drug lacks broad patent protection.
Most regulatory forms of exclusivity, however, do not prevent a competitor from gaining regulatory approval prior to the expiration
of regulatory data exclusivity on the basis of the competitor’s own safety and efficacy data on its drug, even when that
drug is identical to that marketed by the innovator.
It
is not possible to predict the length of market exclusivity for any of our branded products with certainty because of the complex
interaction between patent and regulatory forms of exclusivity, and inherent uncertainties concerning patent litigation. There
can be no assurance that a particular product will enjoy market exclusivity for the full period of time that we currently estimate
or that the exclusivity will be limited to the estimate.
Government
Regulations and Funding
Pharmaceutical
companies are subject to extensive regulation by foreign, federal, state and local agencies, such as the FDA in the U.S., the
Ministry of Health in Israel, or the various European regulatory authorities. The manufacture, distribution, marketing and sale
of pharmaceutical products are subject to government regulation in the U.S. and various foreign countries. Additionally, in the
U.S., we must follow the rules and regulations established by the FDA requiring the presentation of data indicating that our products
are safe and efficacious and are manufactured in accordance with current good manufacturing practices cGMP regulations. If we
do not comply with applicable requirements, we may be fined, the government may refuse to approve our marketing applications or
allow us to manufacture or market our products, and we may be criminally prosecuted. We and our manufacturers and clinical research
organizations may also be subject to regulations under other foreign, federal, state and local laws, including, but not limited
to, the U.S. Occupational Safety and Health Act, the Resource Conservation and Recovery Act, the Clean Air Act and import, export
and customs regulations as well as the laws and regulations of other countries. As a result, pharmaceutical companies must ensure
their compliance with the Foreign Corrupt Practices Act and federal healthcare fraud and abuse laws, including the False Claims
Act.
These
regulatory requirements impact our operations and differ from one country to another, so that securing the applicable regulatory
approvals of one country does not necessarily imply the approval of another country. The approval procedures involve high costs
and are manpower intensive, usually extend over many years and require highly skilled and professional resources.
U.S.
Food and Drug Administration Approval Process
The
steps usually required to be taken before a new drug may be marketed in the U.S. generally include:
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completion
of pre-clinical laboratory and animal testing;
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completion
of required chemistry, manufacturing and controls testing;
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the
submission to the FDA of an IND, the application for which must be evaluated and found acceptable by the FDA before human
clinical trials may commence;
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performance
of (or reference to) adequate and well-controlled human clinical trials and studies to establish the safety, pharmacokinetics
and efficacy of the proposed drug for its intended use;
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submission
and approval of an NDA; and
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agreement
with FDA of the language on the package insert.
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Clinical
studies are conducted under protocols detailing, among other things, the objectives of the study, what types of patients may enter
the study, schedules of tests and procedures, drugs, dosages, and length of study, as well as the parameters to be used in monitoring
safety, and the efficacy criteria to be evaluated. A protocol for each clinical study and any subsequent protocol amendments must
be submitted to the FDA as part of the IND process.
In
all the countries that are signatories of the Helsinki Declaration (including Israel), the prerequisite for conducting clinical
trials (on human subjects) is securing the preliminary approval of the competent authorities of that country to conduct medical
experiments on human subjects in compliance with the other principles established by the Helsinki Declaration.
The
clinical testing of a drug product candidate generally is conducted in three sequential phases prior to approval, but the phases
may overlap or be combined. A fourth, or post approval, phase may include additional clinical studies. The phases are generally
as follows:
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Phase
I. The Phase I clinical trial is generally conducted on 8-20 healthy volunteers. Phase I clinical trials typically involve
administering escalating doses of the therapeutic candidate in the healthy volunteers to assess safety, dosage tolerance,
absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases,
such as cancer, and especially when the product may be too inherently toxic to ethically administer to healthy volunteers,
the initial human testing is often conducted in patients;
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Phase
II. The Phase II clinical trial involves administering the therapeutic candidate to a small population of sick patients
to identify possible adverse events, or safety risks, and preliminary indicia of efficacy for the targeted disease or condition;
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Phase
III. The Phase III clinical trial usually comprises multi-center, double-blind controlled trials in hundreds or even thousands
of subjects at various sites to assess as fully as possible both the safety and the effectiveness of the drug. Specifically,
the Phase III clinical trial is intended to make a comparison between the therapeutic candidate and the standard therapy and/or
placebo. These trials are intended to establish the overall benefit/risk profile of the product and provide an adequate basis
for product labeling; and
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Phase
IV. In some cases, the FDA may condition approval of an NDA for a product candidate on the sponsor’s agreement to
conduct additional clinical trials after approval. In other cases, a sponsor may voluntarily conduct additional clinical trials
after approval to gain more information about the drug. Such post-approval studies are typically referred to as Phase IV clinical
trials.
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Clinical
trials must be conducted in accordance with the FDA’s good clinical practices, or GCP, requirements. The FDA may order the
temporary or permanent discontinuation of a clinical study at any time or impose other sanctions if it believes that the clinical
study is not being conducted in accordance with FDA requirements or that the participants are being exposed to an unacceptable
health risk. An institutional review board, or IRB, generally must approve the clinical trial design and patient informed consent
at study sites that the IRB oversees and also may halt a study, either temporarily or permanently, for failure to comply with
the IRB’s requirements, or may impose other conditions. Additionally, some clinical studies, mostly in certain types of
Phase III clinical trial studies where it is required under the applicable clinical trial protocol, are overseen by an independent
group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board or committee. This
group recommends whether or not a trial may move forward at designated check points based on access to certain data from the study.
The clinical study sponsor may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive
climate.
As
a therapeutic candidate matures through the clinical testing phases, manufacturing processes are further defined, refined, controlled,
and eventually validated around the time that the Phase III clinical trial is completed. The level of control and validation required
by the FDA increases as clinical studies progress. We and the third-party manufacturers on which we rely for the manufacture of
our therapeutic candidates and their respective components (including the APIs) are subject to requirements that drugs be manufactured,
packaged and labeled in conformity with cGMP. To comply with cGMP requirements, manufacturers must continue to spend time, money
and effort to meet requirements relating to personnel, facilities, equipment, production and process, labeling and packaging,
quality control, recordkeeping and other requirements.
Assuming
completion of all required testing in accordance with all applicable regulatory requirements, detailed information on the product
candidate is submitted to the FDA in the form of an NDA, requesting approval to market the product for one or more indications,
together with payment of a user fee, unless waived. An NDA includes all relevant data available from pertinent nonclinical and
clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information on
the chemistry, manufacture, controls and proposed labeling, among other things. To support marketing approval, the data submitted
must be sufficient in quality and quantity to establish the safety and efficacy of the product candidate for its intended use
to the satisfaction of the FDA.
If
an NDA submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the Prescription Drug User Fee Act,
or PDUFA, the FDA’s goal is to complete its initial review and respond to the applicant within ten months of submission,
unless the application relates to an unmet medical need, or is for a serious or life-threatening indication, in which case the
goal may be within six months of NDA submission. However, PDUFA goal dates are not legal mandates and the FDA response often occurs
several months beyond the original PDUFA goal date. Further, the review process and the target response date under PDUFA may be
extended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information
already provided in the NDA. The NDA review process can, accordingly, be very lengthy. During its review of an NDA, the FDA may
refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should
be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations.
Data from clinical studies are not always conclusive and the FDA and/or any advisory committee it appoints may interpret data
differently than the applicant.
After
the FDA evaluates the NDA and performs a pre-approval inspection, or “PAI”, on manufacturing facilities where the
drug product and/or its API will be produced, the FDA will either approve commercial marketing of the therapeutic candidate with
prescribing information for specific indications or issue a complete response letter indicating that the application is not ready
for approval and stating the conditions that must be met in order to secure approval of the NDA. If the complete response letter
requires additional data and the applicant subsequently submits that data, the FDA nevertheless may ultimately decide that the
NDA does not satisfy its criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategies,
or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe
use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition
approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment
to conduct post-marketing testing. Such post-marketing testing may include Phase IV clinical trials and surveillance to further
assess and monitor the product’s safety and efficacy after approval. Regulatory approval of drug product candidates for
serious or life-threatening indications may require that participants in clinical studies be followed for long periods to determine
the overall survival benefit of the drug product candidate.
If
the FDA approves one of our therapeutic candidates, we will be required to comply with a number of post-approval regulatory requirements.
We would be required to report, among other things, certain adverse reactions and production problems to the FDA, provide updated
safety and efficacy information and comply with requirements concerning advertising and promotional labeling for any of our therapeutic
candidates. Also, quality control and manufacturing procedures must conform to cGMP for approved drug products after our NDA is
approved, if at all, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes
extensive procedural, substantive and recordkeeping requirements. If we seek to make certain changes to an approved product, such
as certain manufacturing changes, we will need FDA review and approval before the change can be implemented. For example, if we
change the manufacturer of a product or our API, the FDA may require stability or other data from the new manufacturer, and such
data will take time and are costly to generate, and the delay associated with generating these data may cause interruptions in
our ability to meet commercial demand, if any. While physicians may use products for indications that have not been approved by
the FDA, we may not label or promote the product for an indication that has not been approved. Securing FDA approval for new indications
is similar to the process for approval of the original indication and requires, among other things, submitting data from adequate
and well-controlled studies that demonstrate the product’s safety and efficacy in the new indication. Even if such studies
are conducted, the FDA may not approve any change in a timely fashion, or at all.
Section
505(b)(2) New Drug Applications
With
respect to applications for therapeutic candidates that comprise APIs of one or more previously approved drug products a drug
sponsor may file a 505(b)(2) NDA, instead of a “stand-alone” or “full” NDA: a 505(b)(1) NDA. Section 505(b)(2)
of the Food, Drug, and Cosmetic Act, or FDC, was enacted as part of the Drug Price Competition and Patent Term Restoration Act
of 1984, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2) permits the submission of an NDA where at least some
of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant
has not obtained a right of reference. Since the studies or clinical trials have already been successfully performed and reviewed
by the FDA, the 505(b)(2) NDA can expedite the approval process. Generally, the application is typically used for drug approval
to treat new indications of a previously approved drug or new formulations of previously-approved products. Some examples of products
that may be allowed to follow a 505(b)(2) path to approval are drugs that have a new dosage form, strength, route of administration,
formulation or indication.
The
Hatch-Waxman Amendments permit the applicant to rely upon certain published nonclinical or clinical studies conducted for an approved
product or the FDA’s conclusions from prior review of such studies. The FDA may require companies to perform additional
studies or measurements to support any changes from the approved product. The FDA may then approve the new product for all or
some of the labeled indications for which the reference product has been approved, as well as for any new indication supported
by the Section 505(b)(2) application. While references to nonclinical and clinical data not generated by the applicant or for
which the applicant does not have a right of reference are allowed, all development, process, stability, qualification and validation
data related to the manufacturing and quality of the new product must be included in an NDA submitted under Section 505(b)(2).
To
the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already
approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the
FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, or Orange Book. Specifically, the applicant
must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed
patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed
patent is invalid or will not be infringed by the new product. The Section 505(b)(2) application also will not be approved until
any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for
the reference product has expired. Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in
the development of its products only to be subject to significant delay and patent litigation before its products may be commercialized.
Section
505(b)(1) New Drug Applications
A
Section 505(b)(1) NDA or BLA, known as the “full NDA or BLA,” is an application that contains full reports of investigations
of safety and efficacy performed by the drug sponsor. CM24 and NT219 are not a combination therapeutic candidate or a therapeutic
candidate that is comprised of an API that has already undergone some or all necessary human clinical trials in another therapeutic
candidate. Therefore, if CM24 or NT219 are approved for human clinical trials by the FDA or any foreign regulatory agency, and
shows adequate safety and efficacy data in human clinical trials, we anticipate that CM24 and NT219 will require a 505(b)(1) BLA
or NDA.
Special
Protocol Assessment
The
special protocol assessment, or SPA, process is designed to facilitate the FDA’s review and approval of drugs by allowing
the FDA to evaluate the proposed design and size of Phase III clinical trials that are intended to form the primary basis for
determining a drug product’s efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol
and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial design and data analysis
plans, within 45 days of receipt of the request.
The
FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval
of the therapeutic candidate with respect to effectiveness of the indication studied. All agreements and disagreements between
the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor
and the FDA.
Even
if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may revoke
or alter its agreement, such as under the following circumstances:
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public
health concerns emerge that were unrecognized at the time of the protocol assessment, or the director of the review division
determines that a substantial scientific issue essential to determining safety or efficacy has been identified after testing
has begun;
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a
sponsor fails to follow a protocol that was agreed upon with the FDA; or
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the
relevant data, assumptions or information provided by the sponsor in a request for SPA change, are found to be false statements
or misstatements, or are found to omit relevant facts.
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In
addition, a documented SPA may be modified, and such modification will be deemed binding on the FDA review division, except under
the circumstances described above, if the FDA and the sponsor agree in writing to modify the protocol and such modification is
intended to improve the study.
European
Regulatory Authorities
In
the event that we wish to perform trials in Europe or market or sell our ConsensiTM therapeutic candidate in Europe,
we must apply to an applicable country’s regulatory authorities with a request to approve our therapeutic candidates according
to the Mutual Recognition Procedure (MRP), which is a procedure applied by European Directive No. 2001/83/EC that enables access
to medicinal products (drugs) in 27 countries of the European Union. The MRP approval process requires the applicant to receive
approval in one of the EU countries and then apply for recognition of the other member countries to acknowledge the approval within
their territory. While the Company engaged an external consultant to assist the Company in applying for regulatory approval of
Consensi™ in Europe, EU regulatory authorities have indicated to us that because of the differences between EU regulations
and FDA regulations regarding combination products, it would be more difficult to obtain marketing approval in the EU than in
the U.S. We do not anticipate submitting a marketing application for ConsensiTM to any EU countries in the immediate
future. Other therapeutic candidates, such as NT219 or CM-24, may be approved through either the MRP or through the Centralized
Process in which a single application provides approval for all EU member states.
The
Israeli Ministry of Health
Our
operations are subject to permits from the Israeli Ministry of Health on two levels:
First,
pertaining to the import of drugs and/or raw materials, we are required to apply to the Ministry of Health for approval from its
medical accessories and devices unit (AMR).
Second,
pertaining to research and development, when we conduct trials in human in Israel, the trials will be subject to the approval
of the Helsinki Committee, which acts by force of the Public Health Regulations (Trials in Human Beings), 1980 (Trials in Human
Subjects Regulations) and according to the guidelines of the Helsinki declaration, or any other approval required by the Ministry
of Health. According to the Trials in Human Beings Regulations, the Helsinki Committee must plan and approve every experimental
process that involves human beings. The Helsinki Committee is an institutional committee that acts in the medical institution
in Israel where the trial is performed and is the party that approves and supervises the entire trial process. In practice, the
physician, who is the chief researcher, submits an application trial protocol to the committee that includes, among other documents
also the investigator brochure, clinical trial protocol and the informed consent form, on behalf of the requesting party. The
committee forwards its decisions regarding the requests for medical trials that were approved by the committee to the manager
of the medical institute and the manager has the authority to approve the requests without additional approval of the Ministry
of Health. According to the procedure for medical trials in human beings of the Ministry of Health, the Helsinki Committee will
not approve performance of a medical trial, unless it is absolutely convinced that the following conditions, among others, are
fulfilled: (a) the expected benefits for the participant in the medical trial and to the requesting party justify the risk and the
inconvenience involved in the medical trial to its participant; (b) the available medical and scientific information justifies
the performance to the requested medical trial; (c) the medical trial is planned in a scientific manner that enables a solution
to the tested question and is described in a clear, detailed and precise manner in the protocol of the medical trial, conforming
with the Helsinki principles declaration; (d) the risk to the participant in the medical trial is as minimal as possible; (e)
optimal monitoring and follow-up of the participant in the medical trial; (f) the initiator, the chief researcher and the medical
institute are capable and undertake to allocate the resources required for adequate execution of the medical trial, including
qualified personnel and required equipment; (g) the principal investigator, the secondary investigator have the appropriate training
in the conduct of clinical trials and have necessary professional experience in conducting such said clinical trials; the investigators
will follow GCP guidelines, the MOH and local SOPs; and (h) the nature of the commercial agreement with the chief researcher and
the medical institute does not impair the adequate performance of the medical trial.
All
phases of clinical studies conducted in Israel must be conducted in accordance with the Trials in Human Subjects Regulations,
including amendments and addenda thereto, the Guidelines for Clinical Trials in Human Subjects issued by the Israel Ministry of
Health (the Guidelines) and the International Conference for Harmonized Tripartite Guideline for Good Clinical Practice. The regulations
and the Guidelines stipulate that a medical study on humans will only be approved after the Helsinki Committee at the hospital
intending to perform the study has approved the medical study and notified the relevant hospital director in writing. In addition,
certain clinical studies require the approval of the Ministry of Health. The Helsinki Committee will not approve the performance
of the medical study unless it is satisfied that it has advantages to the study participants and society at large that Left the
risk and inconvenience for the participants and that the medical and scientific information justifies the performance of the requested
medical study. The relevant hospital director, and the Ministry of Health, if applicable, also must be satisfied that the study
is not contrary to the Helsinki Declaration or to other regulations. The Ministry of Health also licenses and regulates the marketing
of pharmaceuticals in Israel, requiring the relevant pharmaceutical to meet internationally recognized cGMP standards.
Pervasive
and continuing regulation in the U.S.
After
a drug is approved for marketing and enters the marketplace, numerous regulatory requirements continue to apply. These include,
but are not limited to:
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cGMP
guidance for APIs and 21 CFR §§ 210, 211 regulations, both observed by the FDA, require manufacturers, including
third party manufacturers, to follow stringent requirements for the methods, facilities and controls used in manufacturing,
processing and packing of a drug product;
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labeling
regulations and the FDA prohibitions against the promotion of drugs for unapproved uses (known as off-label uses), as well
as requirements to provide adequate information on both risks and benefits during promotion of the drug;
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approval
of product modifications or use of a drug for an indication other than approved in an NDA and/or BLA;
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adverse
drug experience regulations, which require us to report information on adverse events during pre-market testing;
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post-market
testing and surveillance requirements, including Phase IV trials, when necessary to protect the public health or to provide
additional safety and effectiveness data for the drug; and
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the
FDA’s recall authority, whereby it can ask, or under certain conditions order, drug manufacturers to recall from the
market a product that is in violation of governing laws and regulation. After a drug receives approval, any modification in
conditions of use, active ingredient(s), route of administration, dosage form, strength or bioavailability, will require a
new approval, for which it may be possible to submit a 505(b)(2), accompanied by additional clinical data necessary to demonstrate
the safety and effectiveness of the product with the proposed changes. Additional clinical studies may be required for proposed
changes.
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Other
U.S. Healthcare Laws and Compliance Requirements
For
products distributed in the United States, we will also be subject to additional healthcare regulation and enforcement by the
federal government and the states in which we conduct our business. Potentially applicable federal and state healthcare laws and
regulations include the following:
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The
federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering,
receiving, or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral
of an individual for, or the purchase, order, or recommendation of, any good or service, for which payment may be made under
federal healthcare programs such as Medicare and Medicaid;
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The
federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person from offering or transferring
remuneration to a Medicare or State healthcare program beneficiary that the person knows or should know is likely to influence
the beneficiary’s selection of a particular provider, practitioner or supplier of any item or service for which payment
may be made, in whole or in part, by Medicare or a State healthcare program;
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The
Ethics in Patient Referrals Act, commonly referred to as the Stark Law, and its corresponding regulations, prohibit physicians
from referring patients for designated health services (including outpatient prescription drugs) reimbursed under the Medicare
program to entities with which the physicians or their immediate family members have a financial relationship, subject to
narrow regulatory exceptions, and prohibits those entities from submitting claims to Medicare for payment of items or services
provided to a referred beneficiary;
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The
federal False Claims Act imposes criminal and civil penalties, as well as permitting civil whistleblower or qui tam actions,
against individuals or entities for knowingly presenting, or causing to be presented, to the federal government claims for
payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money
to the federal government;
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The
so-called federal “Sunshine Act” requires certain pharmaceutical and medical device companies to monitor and report
certain financial relationships with physicians and other healthcare providers to CMS for disclosure to the public;
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The
Health Insurance Portability and Accountability Act of 1996, imposes criminal and civil liability for executing a scheme to
defraud any healthcare benefit program and also prohibits knowingly and willfully falsifying, concealing or covering up a
material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits,
items, or services. This statute also imposes obligations, including mandatory contractual terms, with respect to safeguarding
the privacy, security and transmission of individually identifiable health information; and
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Analogous
state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements
and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers,
and some state laws require pharmaceutical companies report or disclose pricing or other financial information and to comply
with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated
by the federal government.
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Reimbursement
in the U.S.
Sales
of our Consensi™ drug product and our oncology therapeutic candidates and other therapeutic candidates, if approved, in
the United States may depend, in part, on the extent to which the costs of the approved products will be covered by third-party
payers, such as government health programs, commercial insurance and managed health care organizations. These third-party payers
are increasingly challenging the prices charged for medical products and services. Additionally, the containment of health care
costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. Our Consensi™
drug product has not yet received reimbursement from government or other third party payers. The United States government, state
legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price
controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and
cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could
further limit our net revenue and results. If these third-party payers do not consider our drug products to be cost-effective
compared to other available therapies, they may not cover our Consensi™ drug product or therapeutic candidates, if approved,
as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our drug products
on a profitable basis.
The
Medicare Prescription Drug Improvement and Modernization Act of 2003 (the MMA), imposed new requirements for the distribution
and pricing of prescription drugs for Medicare beneficiaries and included a major expansion of the prescription drug benefit under
Medicare Part D. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which
will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans
and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Parts A and B, Part D coverage is
not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan
can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription
drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily
all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed
by a pharmacy and therapeutic committee. Government reimbursement for some of the costs of prescription drugs may increase demand
for our Consensi™ drug product or our therapeutic candidates, if approved, if they are covered by a Part D prescription
drug plan. However, any negotiated prices for our Consensi™ drug product or our therapeutic candidates, if approved, covered
by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies
only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations
in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments
from non-governmental payers.
The
Patient Protection and Affordable Care Act
In
2010, President Obama signed into law the Healthcare Reform Law, which resulted in sweeping changes across the U.S. health care
industry. One of the primary goals of this comprehensive legislation was to extend health insurance coverage to currently uninsured
legal U.S. residents through a combination of public program expansion and private sector health insurance reforms. To fund the
expansion of insurance coverage, the Healthcare Reform Law contains measures designed to promote quality and cost efficiency in
health care delivery and to generate budgetary savings in the Medicare and Medicaid programs, as well as enhance remedies for
fraud and abuse enforcement. The Healthcare Reform Law’s provisions are designed to encourage providers to find cost savings
in their clinical operations. Pharmaceuticals represent a significant portion of the cost of providing care. Through modified
reimbursement rates and other incentives, the U.S. government is requiring that providers identify the most cost-effective services,
supplies and pharmaceuticals. This environment has caused changes in the purchasing habits of providers and resulted in specific
attention to the pricing negotiation, product selection and utilization review surrounding pharmaceuticals. This attention may
result in our Consensi™ drug product or our oncology therapeutic candidates, if approved, being chosen less frequently or
the pricing being substantially lowered. Additionally, the Healthcare Reform Law is expected to expand and increase industry rebates
for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program. The
Healthcare Reform Law also includes significant provisions that encourage state and federal law enforcement agencies to increase
activities related to preventing, detecting and prosecuting those who commit fraud, waste and abuse in federal healthcare programs,
including Medicare, Medicaid and Tricare. Since the enactment of the Healthcare Reform Law, numerous regulations have been issued
providing further guidance on its requirements. Some of the provisions of the Healthcare Reform Law have not yet been fully implemented,
and certain provisions have been subject to judicial and Congressional challenges. It is unlikely that these issues will be resolved
before the next presidential election in November 2020. The current administration may seek to pass additional reform measures
before the upcoming election. We cannot predict the outcome of the election, nor can we predict the healthcare-reform-related
initiatives that the newly elected (or re-elected, as applicable) administration will put forth thereafter. There is no way to
know whether, and to what extent, if any, the Healthcare Reform Law will remain in-effect in the future, and it is unclear how
judicial decisions, subsequent appeals, election-related measures, or other efforts to repeal and replace or, possibly, to restore
the Healthcare Reform Law will impact the U.S. healthcare industry or our business.
Grants
from the Innovation Authority, or the IIA (formerly known as the Office of the Chief Scientist or the OCS).
Under
the Encouragement of Research, Development and Technological Innovation in the Industry Law 1984, or the Innovation Law, formerly
known as The Law for the Encouragement of Industrial Research and Development, 1984, or the R&D Law, and IIA’s rules
and guidelines, a qualifying research and development program is eligible for grants of up to 50% of the program’s research
and development expenses. In general, the recipient of the grants is required to return the grants by the payment of royalties
on the revenues generated from the sale of products (and related services) developed (in whole or in part) according to, or as
a result of, a research and development program funded by the IIA (at rates which are determined under the IIA’s rules and
guidelines, up to the aggregate amount of the total grants received by the IIA, plus annual interest (as determined in the IIA’s
rules and guidelines). Following the full payment of such royalties and interest, there is generally no further liability for
royalty payment. Nonetheless, the restrictions under the Innovation Law (as generally specified below) will continue to apply
even after repayment of the full amount of royalties payable pursuant to the grants.
The
pertinent obligations under the Innovation Law and the IIA’s rules and guidelines are as follows:
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Local
Manufacturing Obligation. The terms of the grants under the Innovation Law and the IIA’s rules and guidelines require
that a company which received IIA grants, or the Recipient Company, is prohibited from manufacturing products developed using
these IIA grants outside of the State of Israel without receiving prior approval from the IIA (except for the transfer of
less than 10% of the manufacturing capacity in the aggregate which requires only a notice). If the Recipient Company receives
approval to manufacture products developed with IIA’s grants outside of Israel, it will be required to pay increased
royalties to the IIA, up to 300% of the grant amount plus interest, depending on the manufacturing volume that is performed
outside of Israel. The Recipient Company may also be subject to an accelerated royalty repayment rates. A Recipient Company
also has the option of declaring in its IIA grant application its intention to exercise a portion of the manufacturing capacity
abroad, thus avoiding the need to obtain additional approval following the receipt of the grant and avoiding the need to pay
increased royalties to the IIA.
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Certain
reporting obligations. A recipient of IIA grant is required to notify the IIA of certain events enumerated in the IIA’s
rules and guidelines.
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Know-How
transfer limitation. The IIA’s rules and guidelines restrict the ability to transfer know-how funded by the IIA outside
of Israel. Transfer of IIA funded know-how outside of Israel requires prior IIA approval and in certain circumstances is subject
to payment of a redemption fee to the IIA calculated according to formulas provided under the IIA’s rules and guidelines
(which such fee will not exceed 600% of the grants amount plus interest). Upon payment of such fee, the know-how and the manufacturing
rights of the products supported by such IIA funding cease to be subject to the Innovation Law and to the IIA’s rules
and guidelines.
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Approval
of the transfer of IIA funded know-how to another Israeli company may be granted only if the recipient assumes all of our responsibilities
towards the IIA, including the restrictions on the transfer of know-how and manufacturing rights outside of Israel (although such
transfer will not be subject to the payment of a redemption fee, such transfer will include an obligation to pay royalties to
the IIA from the income of such sale transaction as part of the royalty payment obligation).
Approval
to manufacture products outside of Israel or consent to the transfer of IIA funded know-how, if requested, might not be granted
or may be granted on terms that are not acceptable to us. The scope of the support received, the royalties that we have already
paid to the IIA, the amount of time that has elapsed between the date on which the know-how was transferred and the date on which
the IIA grants were received and the sale price and the form of transaction will be taken into account in calculating the amount
of the payment to the IIA in the event of a transfer of IIA funded know-how outside of Israel.
The
government of Israel does not own intellectual property rights in technology developed with IIA funding and there is no restriction
on the export of products manufactured using technology developed with IIA funding. However, the know-how is subject to transfer
of know-how and manufacturing rights restrictions as described above. The IIA’s approval is not required for the export
of any products resulting from the IIA research or development grants. In addition, the IIA in 2017 published rules and guidelines
for the granting of licenses to use know-how developed as a result of research financed by the IIA to foreign entities. According
to such rules, we will be required to receive the IIA’s prior approval for the grant of such use rights, and we will be
required to pay the IIA certain amount in accordance with the formula stipulated under these rules and guidelines.
These
restrictions may impair our ability to enter into agreements to perform or outsource manufacturing outside of Israel, or otherwise
transfer or sell TyrNovo’s IIA funded know-how outside of Israel without the approval of the IIA. Furthermore, in the event
that we, through TyrNovo, undertake a transaction involving the transfer to a non-Israeli entity of know-how developed with IIA
funding pursuant to a merger or similar transaction, the consideration available to TyrNovo’s and/or our shareholders may
be reduced by the amounts it is required to pay to the IIA. Any approval, if given, will generally be subject to additional financial
obligations. Failure to comply with the requirements under the Innovation Law and the IIA’s rules and guidelines may subject
TyrNovo to financial sanctions, to mandatory repayment of grants received by it (together with interest and penalties) and may
expose TyrNovo to criminal proceedings. In addition, the Government of Israel may from time to time audit sales of products which
it claims incorporate technology funded via IIA programs and this may lead to additional royalties being payable on additional
products, and may subject such products to the restrictions and obligations specified hereunder.
To
date, TyrNovo’s technology has received grants from the IIA in a total amount of approximately NIS 5.5 million. Up until
the date of this Annual Report on Form 20-F, no royalties have paid in respect to the grants received by the IIA. There is no
guarantee that TyrNovo will receive any further grants from the IIA or that the grants will be in the scope received in the past.
In
August 2015, an amendment to the Innovation Law, or Amendment No. 7, was enacted and which came into effect on January 1,
2016. Pursuant to Amendment No. 7, the IIA became responsible for the activity which was previously under the OCS’s
responsibility. The IIA is authorized to amend the requirements and restrictions which were specified in the Innovation Law before
Amendment No. 7 became effective, including with respect to ownership obligations of IIA funded know-how (including with respect
to restrictions on transfer of IIA funded know-how and manufacturing activities outside of Israel), as well as royalty obligations
which apply to companies that received grants from the IIA. Although the rules which were published by the IIA as of the date
of this Annual Report on Form 20-F, for the most part adopted the principal provisions and restrictions specified in the Innovation
Law prior to the effectiveness of Amendment No. 7, as of the date of this Annual Report on Form 20-F, we are unable to assess
the effect on our business of any future rules which may be published by the IIA.
In
addition, the IIA in 2017 published rules and guidelines for the granting of licenses to use know-how developed as a result of
research financed by the IIA to foreign entities. According to such rules, we will be required to receive the IIA’s prior
approval for the grant of such use rights, and we will be required to pay the IIA certain amounts in accordance with the formula
stipulated under these rules and guidelines. In August 2018, the IIA updated the abovementioned rules and established a new mechanism
with respect to the grant of a license by a company (which is part of a multinational corporation) that received grants from the
IIA to its group entities to use its funded know-how. Such license is subject to the IIA’s prior approval and to the payment
of 5% royalties from the income deriving from such license. Such mechanism includes certain restrictions which must be met in
order to be able to enjoy such lower royalty payment.
C.
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Organizational
Structure
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Our
corporate structure consists of Kitov Pharma Ltd., incorporated in the State of Israel, our wholly owned subsidiaries, FameWave
Ltd. and Kitov USA Inc. (currently inactive) and our majority owned subsidiary TyrNovo Ltd., of which we own approximately 98.47%
of its shares.
On
April 25, 2017, the boards of directors of each of Kitov Pharma and its wholly owned subsidiary, Kitov Pharmaceuticals, approved
a merger between the two entities, with Kitov Pharma remaining as the surviving entity. The respective boards of directors each
determined (i) that the merger was in the best interests of the companies and their respective shareholders, (ii) that considering
the financial position of the companies, no reasonable concern exists that Kitov Pharma, as the absorbing and surviving company,
would be unable to fulfill its obligations to its creditors, and (iii) taking into account the abovementioned, as well as the
corporate management and economic benefits to the two companies resulting from completing the merger, they approved the merger.
In accordance with the Companies Law, the merger between Kitov Pharma and Kitov Pharmaceuticals did not require shareholder approvals.
The merger was completed in December 2017. Kitov Pharmaceuticals was dissolved upon completion of the merger and Kitov Pharma
remained as the surviving entity.
D.
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Property,
Plant and Equipment
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All
of our facilities are leased, and we do not own any real property. The principal executive offices for Kitov Pharma, TyrNovo and
FameWave are in a commercial office building located in the Round Tower in the Azrieli Center, Tel-Aviv, Israel. Our current office
space of approximately 300 square meters is subject to a 60-month lease which commenced on January 1, 2015. with an option to
extend such lease for additional 60 months. We have no material tangible fixed assets apart from the properties described above.
We believe our facilities are adequate and suitable for our current needs.
ITEM
4A.
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UNRESOLVED
STAFF COMMENTS
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Not
applicable.
ITEM
5.
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OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
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You
should read the following discussion of our financial condition and results of operations in conjunction with the financial statements
and the notes thereto included elsewhere in this Annual Report on Form 20-F. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere
in this Annual Report on Form 20-F, particularly those in “Item 3. Key Information – D. Risk Factors.” See also
“Special Note Regarding Forward-Looking Statements.”
We
are a clinical-stage company focusing on advancing first-in-class therapies to overcome tumor immune evasion and drug resistance,
to create successful long-lasting treatments for people with cancer. Kitov’s oncology pipeline includes NT-219 and CM-24.
NT-219 is a small molecule targeting the novel cancer drug resistance pathways IRS1/2 and STAT3. Kitov is currently advancing
NT-219 in combination with cetuximab as a third-line or second-line treatment option for the treatment of recurrent and metastatic
squamous cell carcinoma of head & neck cancer (SCCHN), as well as a single agent monotherapy treatment in patients with advanced
solid tumors. CM-24 is a monoclonal antibody blocking CEACAM1, a novel immune checkpoint that supports tumor immune evasion and
survival through multiple pathways. Kitov will advance CM-24 as a combination therapy with anti-PD1 checkpoint inhibitors for
the treatment of non-small cell lung cancer (NSCLC). Kitov has entered into a clinical collaboration agreement with Bristol Myers
Squibb (NYSE: BMY) for the planned Phase 1/2 clinical trials to evaluate the combination of CM-24 with the PD-1 inhibitor nivolumab
(Opdivo®). Kitov is also the owner of Consensi™, a fixed-dose combination of celecoxib and amlodipine besylate, for
the simultaneous treatment of osteoarthritis pain and hypertension which was approved by the FDA for marketing in the U.S in May
2018 and is expected to be launched in the U.S. during 2020 by its partner Coeptis Pharmaceuticals. Kitov has also partnered to
commercialize Consensi in China and South Korea. The company is headquartered in Tel Aviv, Israel.
CM-24
is a clinical-stage monoclonal antibody blocking CEACAM1, a well-validated target which is highly expressed in many solid tumors
as well as on immune cells and plays a pivotal role in the immune system by blocking immune cells’ access to tumors by CEACAM1-CEACAM1
and CEACAM1-CEACAM5 interaction. CEACAM1 was also shown to regulate TIM3 which induce immune fatigue. This unique mechanism of
action positions CM-24 with a differentiated inhibitor of a multi-role immune checkpoint. In a monotherapy phase 1 study, CM-24
demonstrated safety and efficacy with standard dose in about 30% of patients.
NT219
therapeutic candidate targets cancer pathways IRS1/2 and STAT3 and as shown activity in preclinical studies as monotherapy as
well in combination and would be developed as stand-alone and in combination with other cancer drugs or treatments. The NT219
technology has been tested in a number of PDX models where human cancer cells are taken and transplanted into mice and then used
to test various cancer drugs. NT219 has been tested against and in combination with various classes of cancer drugs that have
been recently developed as well as older standard chemotherapy.
The
FDA approved our NDA for Consensi™ on May 31, 2018, for patients suffering from hypertension and from osteoarthritis for
whom treatment with amlodipine for hypertension and celecoxib for the treatment of osteoarthritis are appropriate. Consensi™
is based on the generic drugs celecoxib and amlodipine besylate. Celecoxib is the active ingredient of a known and approved-for-use
drug designed primarily to relieve pain caused by osteoarthritis. Celecoxib is the active ingredient in the branded drug Celebrex®.
This combination is designed to simultaneously relieve pain caused by osteoarthritis and treat hypertension, which is one of the
side effects of using non-steroidal anti-inflammatory drugs, or NSAIDs, for treating pain caused by osteoarthritis.
Now
that Consensi™ has been approved for marketing in the United States and that we have executed a marketing and distribution
agreement for the commercialization of Consensi™ in the United States, China and South Korea, we intend to shift the focus
of our clinical and regulatory teams to our oncology pipeline currently in development for various oncology indications. Based
on our current development plans, we expect to initiate a clinical study for NT219 during the first half of 2020 and to initiate
clinical study for CM24 during the second half of 2020.
In
addition, we may consider the acquisition of oncology therapeutic candidates at various stages of development. We currently have
no binding agreements or commitments to complete any transaction for the possible acquisition of new therapeutic candidates or
approved drug products.
Our
goal is to become a significant player in the development of innovative drugs with a clinical and commercial added value, focusing
on the oncology space.
Key
elements of our strategy are to:
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Focus
on oncology therapeutic assets for treatment of unmet medical need and having a significant market opportunity;
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leverage
our expertise in the clinical and regulatory processes in the United States, together with our research and development capabilities
and network of professional advisors, to efficiently develop drug candidates in clinical stages of development and achieve
marketing authorization;
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expand
our line of therapeutic candidates through the acquisition or in-licensing of technologies, products and drugs focused in
oncology space and intended to meet clinical needs
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cooperate
with third parties to both develop and commercialize therapeutic candidates in order to share costs and leverage the expertise
of others; and
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Secure
sufficient funds for the performance of acquisitions and development programs
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History
of Losses
Since
commencement of our pharmaceutical research and development operations, we have generated significant losses mainly in connection
with the research and development of our therapeutic candidates. Such research and development activities are expected to expand
over time and will require further resources if we are to be successful. As a result, we expect to continue incurring operating
losses, which may be substantial over the next several years, and will need to obtain additional funds to further develop our
research and development programs. As of December 31, 2019, we had an accumulated deficit of approximately $49.5 million.
We
plan to fund our future operations through commercialization and out-licensing of our therapeutic candidates and to raise additional
capital in the future through either debt or equity financing. We believe our existing working capital will be sufficient to meet
our present requirements through at least the next twelve months.
Components
of Statement of Operations
Revenues
We
began to generate revenues in 2017 for upfront and milestones achieved under our commercialization agreements for Consensi in
South Korea and China and beginning in 2019 also in the USA. Our agreement with our commercialization partners includes additional
regulatory and sales related milestone payments as well as future royalties on sales. We cannot predict the timing of meeting
those milestones and receiving the related milestone payments and royalty payments, if any.
Effective
as of January 1, 2018, we adopted the IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) which provides
new guidance on revenue recognition.
Research
and Development Expenses
Our
research and development costs comprise of basic scientific research, pre-clinical studies, CMC development, clinical studies,
post marketing commitments and medical research. Our research and development team combine of clinical and regulatory development
expertise mainly in the United States and Israel and the research and development capabilities of our scientists in Israel. During
the years 2014 through 2019, we focused on the clinical development, CMC development and regulatory activities related to Consensi,
and since 2017 we also expanded into research and development of NT219, including pre-clinical development, mechanism of action
research and CMC development. A significant portion of our research and development activities, including our preclinical and
clinical studies, are performed through subcontractors such as clinical research organizations (CROs) and third-party manufacturers.
Our non-GLP preclinical models are performed mainly by our employees in rented labs or at subcontractors’ labs.
Our
research and development expenses may fluctuate depending on the scope and timing of certain high-expense activities such as clinical
trials. For example, from 2014 through the first half of 2018, we performed Phase III and Phase III/IV clinical trials in connection
with Consensi™ that increased our research and development costs. We intend to initiate a clinical study for CM-24 &
NT219 in 2020, subject to IND approval, which may again increase our research and development expenses in 2020 and beyond.
Research
and development expenses also include compensation for our employees and consultants for medical, regulatory and development work.
Our research and development staff currently consists of 5 full-time employees, which we may expand as we expand our research
and development activities including clinical trials.
We
charge all research and development expenses to operations as they are incurred. We expect our research and development expense
to remain our primary expense in the near future as we continue to develop our therapeutic candidates.
From
the commencement of the pharmaceutical research and development activities of Kitov Pharma in 2011 through December 31, 2019,
and of TyrNovo from January 2017 through December 31, 2019, we have incurred research and development expenses of approximately
$22.6 million. Set forth below is a summary of the research and development costs for the years ended December 31, 2019, 2018
and 2017. Virtually all of the costs were incurred in connection with the development of Consensi™ and, subsequent to the
acquisition of TyrNovo in January 2017, in connection with the development of NT219.
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Year Ended December 31
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2019
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2018
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2017
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Total
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(U.S. dollars in thousands)
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Total research and development expenses
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2,674
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|
|
|
5,268
|
|
|
|
4,640
|
|
|
|
12,582
|
|
In
addition to the major cost of pre-clinical studies, clinical trials, and CMC development, research and development expenses include
consulting expenses for regulatory and project management work required for development of our therapeutic candidate portfolio.
Set forth below is a summary of our research and development expenses based on the type of expenditure.
|
|
Year Ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
(U.S. dollars in thousands)
|
|
Payroll expenses – mainly related party
|
|
|
1,012
|
|
|
|
933
|
|
|
|
969
|
|
Share-based payments
|
|
|
238
|
|
|
|
546
|
|
|
|
709
|
|
Sub-contractors
|
|
|
1,423
|
|
|
|
3,789
|
|
|
|
2,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,674
|
|
|
|
5,268
|
|
|
|
4,640
|
|
In
April 2014, we entered into an agreement with Dexcel for the development of the drug formulation for Consensi™ and its manufacture
in quantities sufficient to support the filing of an NDA with the FDA. We therefore began incurring costs in 2014 through 2019
for the development of the drug formulation for Consensi™.
Due
to the inherently unpredictable nature of clinical development processes, we are unable to estimate with any certainty the costs
we will incur in the continued development of our therapeutic candidates for potential commercialization. Our future research
and development expenses will depend on the success of the preclinical and clinical trials for our product or therapeutic candidates,
as well as availability of resources and based on ongoing assessments of the commercial potential of our products or therapeutic
candidates. In addition, we cannot forecast with any degree of certainty which products or therapeutic candidates may be subject
to future commercialization arrangements, when such commercialization arrangements will be secured, if at all, and to what degree
such arrangements would affect our development plans and capital requirements. See “Item 3. Key Information – D. Risk
Factors – If we and/or our potential commercialization partners are unable to obtain FDA and/or other foreign regulatory
authority approval for our therapeutic candidates, we and/or our potential commercialization partners will be unable to commercialize
our therapeutic candidates.”
As
we obtain results from preclinical studies and/or clinical trials, we may elect to discontinue or delay development and preclinical
studies and/or clinical trials for certain products or therapeutic candidates in order to focus our resources on more promising
therapeutic candidates or projects. Alternatively, we may elect to expend more resources for our current products and therapeutic
candidates than currently anticipated. Completion of preclinical studies and/or clinical trials by us or our licensees may take
several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of
a therapeutic candidate. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Business and
Regulatory Matters.”
The
lengthy process of completing CMC and/or preclinical studies and/or clinical trials and seeking regulatory approvals for our therapeutic
candidates requires substantial expenditures. Any failure or delay in completing preclinical and/or clinical trials, or in obtaining
regulatory approvals, could cause a delay in generating product revenue and cause our research and development expenses to increase
and, in turn, have a material adverse effect on our operations.
General
and Administrative Expenses
General
and administrative expenses consist primarily of compensation for directors, employees and consultants in executive and operational
functions. Other significant general and administrative expenses include professional fees for outside accounting and legal services,
travel costs, insurance premiums and reimbursement of legal expenses associated with class action claims.
Other
Expenses (income)
Other
Expenses represents the fair value of the rights granted to Taoz in 2017 as part of the Company’s settlement with Taoz,
regarding the acquisition of TyrNovo. Such rights were subsequently canceled following the acquisition of the remaining shares
held by Taoz during 2018.
Finance
Income and Finance Expense
Finance
Expense comprises primarily changes in the fair value of financial liabilities as well as bank fees. Finance Income comprises
changes in the fair value of financial liabilities and interest income from funds held in bank deposits.
Adjusted
operating loss
Adjusted
operating loss is defined as operating loss, plus non-cash share-based compensation expenses. Our management believes that excluding
non-cash charges related to share-based compensation provides useful information to investors because of its non-cash nature,
varying available valuation methodologies among companies and the subjectivity of the assumptions and the variety of award types
that a company can use under the relevant accounting guidance, which may obscure trends in our core operating performance. We
present adjusted operating loss because we use this non-IFRS financial measures to assess our operational performance, for financial
and operational decision-making, and as a means to evaluate period-to-period comparisons on a consistent basis. Management believes
this non-IFRS financial measure is useful to investors because: (1) it allows for greater transparency with respect to key metrics
used by management in its financial and operational decision-making; and (2) it exclude the impact of non-cash item that is not
directly attributable to our core operating performance and that may obscure trends in the core operating performance of the business.
Non-IFRS financial measures have limitations as an analytical tool and should not be considered in isolation from, or as a substitute
for, our IFRS results. We expect to continue reporting non-IFRS financial measures, adjusting for the item described above, and
we expect to continue to incur expenses similar to certain of the non-cash, non-IFRS adjustments described above. Accordingly,
unless otherwise stated, the exclusion of this and other similar items in the presentation of non-IFRS financial measures should
not be construed as an inference that these items are unusual, infrequent or non-recurring. Adjusted operating loss is not a recognized
term under IFRS and do not purport to be an alternative to IFRS net operating loss as an indicator of operating performance or
any other IFRS measure. Moreover, because not all companies use identical measures and calculations, the presentation of adjusted
operating loss may not be comparable to other similarly titled measures of other companies.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in conformity with IFRS as issued by the IASB, requires companies to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates
and judgments are subject to an inherent degree of uncertainty and actual results may differ. Our significant accounting policies
are more fully described in Note 3 to our annual financial statements included elsewhere in this Annual Report on Form 20-F. Critical
accounting estimates and judgments are evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances, and are particularly important to the portrayal of
our financial position and results of operations.
Fair
value measurement of non- trading derivatives
The
fair value of the rights granted to Taoz as part of the Company’s settlement with Taoz, regarding the acquisition of TyrNovo
were based on the Monte-Carlo Simulation method that takes into account the various parameters associated with the rights (such
as the valuation of TyrNovo at milestone, the probability of reaching the milestone, volatility, etc.). Different assumptions
could result in material changes to the expense amounts recorded for these options. Upon the acquisition all remaining shares
held by Taoz during 2018 and cancellation of such rights, we no longer recognize this derivative liability. In addition, we have
non-traded warrants which are derivative liabilities for which fair value method used is Black-Scholes.
During
2019, the company's warrants issued in 2018 and 2019 were registered and therefore they were reclassified from financial liabilities
to equity in their fair value using Black & Scholes valuation method.
Assessment
of Probability of contingent liabilities
The
company makes assessments whether it is more likely than not that an outflow of economic resources will be required in respect
of legal claims pending against the Company.
Accounting
Treatment of FameWave Acquisition
Based
on a preliminary assessment, we concluded that the acquisition of FameWave should be accounted for as an asset acquisition by
us rather than as a business combination under IFRS 3, Business Combinations. The acquisition should be accounted for as an asset
acquisition because substantially all of the fair value of the assets being acquired are concentrated in a group of assets to
be acquired by FameWave prior to or concurrent with the consummation of the Transaction. Furthermore, the acquired assets did
not have outputs or employees. The assets acquired by us under the Acquisition Agreement include a license, other associated intellectual
property, documentation and records, and drug materials but the purchase price has not been allocated yet. The acquisition closed
on January 7, 2020.
Comparison
of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
Revenues
As
from January 1, 2018 we applied IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) which provides new guidance
on revenue recognition. Total revenues for each of 2019 and 2018 were $ 1 million.
The
revenues for the year ended December 31, 2019, consisted of the first milestone payment related to ConensiTM commercialization
agreement with Coeptis Pharmaceuticals. The 2018 revenue is for upfront fees and milestones achieved under our commercialization
agreements for Consensi™ in China. Our agreements with our commercialization partners include additional regulatory and
sales related achievement milestones as well as future royalties on sales.
Research
and Development Expenses
Research
and development expenses for the year ended December 31, 2019 were $2.7 million, a decrease of $2.6 million, or 49.3%, compared
to $5.3 million for the year ended December 31, 2018. The decrease in research and development expenses resulted primarily from
a decrease in costs related to the clinical development of ConsensiTM following U.S. Food and Drug Administration (FDA)
approval of the drug in May 2018.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses, net of reimbursement from insurance for legal fees, for the year ended December 31, 2019
were $5.5 million, an increase of $1.0 million, or 22.2%, compared to $4.5 million for the year ended December 31, 2018. The increase
resulted primarily from a $0.9 million annual fee paid to the FDA relating to ConsensiTM which will be carried by our
marketing partner in the US starting from 2020.
Other
Expenses (income)
In
2019 we didn’t incur other expenses.
For
the year ended December 31, 2018 we had income of $0.9 million as a result of the cancelation of certain rights granted to Taoz
in 2017. This cancelation was done as part of our acquisition of Taoz’s holdings in TyrNovo.
Operating
Loss
Our
operating loss for the year ended December 31, 2019 amounted to $7.2 million, compared with an operating loss of $7.8 million
for the year ended December 31, 2018, a 7.8% decrease. The decrease in operating loss reflects the decrease in research and development
as mentioned above during the year ended December 31, 2018, offset by an increase in selling, general and administrative expenses.
Adjusted
Operating Loss
On
a non-IFRS basis adjusted operating loss for the year ended December 31, 2019, was $5.9 million, a decrease of $1.2 million from
$7.1 million for the year ended December 31, 2018. The decrease was due to the decrease in R&D expenses mentioned above and
a decrease in various SG&A expenses offset by a one-time increase in FDA fee and a one-time decrease in other income.
Finance
Income, net
Finance
income, net for the year ended December 31, 2019 was $1.5 million in comparison to finance expense of $2.3 million for the year
ended December 31, 2018. The change was related primarily to income from adjustments to fair value of warrants accounted as a
derivative liability, that resulted in 2019 in an income of $1.5 million, and in 2018 an income of $2.7 million. See Note 17 to
the financial statements for the year ended December 31, 2019, included in this Annual Report on Form 20-F.
Loss
for the Period
Our
net loss for the year ended December 31, 2019 amounted to $5.9 million, compared to a net loss of $5.6 million for the year ended
December 31, 2018, an increase of $0.3 million, which is a result of the increase in other expenses.
Comparison
of the Year Ended December 31, 2018 to the Year Ended December 31, 2017
Research
and Development Expenses
Research
and development expenses for the year ended December 31, 2018 were $5.3 million, an increase of $0.6 million, or 13%, compared
to $4.6 million for the year ended December 31, 2017. The increase resulted primarily from higher expenses in 2018 associated
with NT219 preclinical and CMC development of $1.2 million offset by decrease in clinical studies expenses for Consensi™
of $400 thousands.
General
and Administrative Expenses
General
and administrative expenses, net of reimbursement from insurance for legal fees, for the year ended December 31, 2018 were $4.5
million, a decrease of $1.9 million, or 29.7%, compared to $6.4 million for the year ended December 31, 2017. The decrease resulted
primarily from higher legal expenses in 2017 associated with class action claims and reimbursement for a portion of these legal
fees received in 2018.
Other
Expenses (income)
For
the year ended December 31, 2018 we had income of $0.9 million as a result of the cancelation of certain rights granted to Taoz
in 2017. This cancelation was done as part of our acquisition of Taoz’s holdings in TyrNovo. In 2017, we incurred an expense
of $1.0 million as a result of the rights granted to Taoz as part of our settlement with Taoz, in connection with the acquisition
of TyrNovo.
Operating
Loss
Our
operating loss for the year ended December 31, 2018 amounted to $7.8 million, compared with an operating loss of $12 million for
the year ended December 31, 2017, a 35% decrease. The decrease in operating loss reflects $1.0 million in revenue in 2018 in connection
with a commercialization agreement of Consensi™ and the significant decrease in general and administrative expenses as mentioned
above during the year ended December 31, 2018, offset by an increase in research and development expenses.
Adjusted
Operating Loss
On
a non-IFRS basis adjusted operating loss for the year ended December 31, 2018, was $7.1 million, a decrease of $2.6 million from
$9.7 million for the year ended December 31, 2017. The decrease was due to the decrease in R&D expenses mentioned above and
a decrease in various SG&A expenses offset by a one-time increase in FDA fee and a one-time decrease in other income.
Finance
Expenses, net
Finance
income, net for the year ended December 31, 2018 was $2.3 million in comparison to finance expense of $0.9 million for the year
ended December 31, 2017. The change was related primarily to income from adjustments to fair value of warrants accounted as a
derivative liability, that resulted in 2018 in an income of $2.7 million, and in 2017 in an expense of $1.0 million. See Note
17 to the financial statements for the year ended December 31, 2018, included in this Annual Report on Form 20-F.
Loss
for the Period
Our
net loss for the year ended December 31, 2018 amounted to $5.6 million, compared to a net loss of $12.9 million for the year ended
December 31, 2017, a decrease of $7.3 million, which is a result of the decrease in operating loss mentioned above and finance
income of $2.3 million recognized in the year ended December 31, 2018, compared to finance expense of $1.0 million incurred in
the year ended December 31, 2017, due to the adjustment in fair value of derivatives recognized as discussed above.
JOBS
Act
On
April 5, 2012, the Jumpstart Our Business Startups Act, or the JOBS Act, was signed into law. Section 107 of the JOBS Act provides
that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act for complying with new or revised accounting standards. This means that an “emerging growth company”
can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. For 2019,
we have not elected to utilize this exemption and, therefore, this has no effect on our financial statements. Should we elect
to utilize this exemption, we will not be subject to the same new or revised accounting standards as other public companies that
are not emerging growth companies. In addition, as a result of such possible election, our future financial statements may not
be comparable to those of public companies that are not emerging growth companies and are required to comply with public company
effective dates for new or revised accounting standards.
Subject
to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we also elected or may elect to
rely on other exemptions, including without limitation, not (i) providing an auditor’s attestation report on our system
of internal controls over financial reporting pursuant to Section 404 and (ii) complying with any requirement that may be adopted
by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s
report providing additional information about the audit and the financial statements (auditor discussion and analysis). These
exemptions will apply until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenues
of at least $1.07 billion ; (b) the last day of our fiscal year following the fifth anniversary of the closing of our initial
public offering on NASDAQ on November 25, 2015; (c) the date on which we have, during the previous three-year period, issued more
than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer”
under the Exchange Act.
B.
|
Liquidity
and Capital Resources
|
Our
oncology therapeutic candidates are in the research and development stage and therefore does not generate revenues, and our FDA-approved
drug Consensi™ has generated limited milestone revenues and is expected to generate additional revenues after launch of
the product in the United States currently planned for the first half of 2020. Since commencement of our operations as a pharmaceutical
research and development company, our activities have been financed by equity offerings, as well as private loans which were subsequently
fully repaid. We have raised gross proceeds of approximately NIS 52 million (approximately $9.2 million based on the representative
rates of exchange on the dates of the closings, March 3, 2014, September 3, 2014, and March 30, 2015) from our public offerings
on the TASE, approximately $13.0 million from our initial public offering on NASDAQ in November 2015, approximately $12.0 million
for our follow-on public offering on NASDAQ in July 2016, approximately $3.5 million from a registered direct offering in July
2017, approximately $8.1 million from a registered direct offering in June 2018 (described below) and approximately $6.0 million
from a registered direct offering in January 2019 (described below). The proceeds from the public and registered direct offerings
were used mainly to fund our ongoing operations and to acquire TyrNovo and FameWave. As of December 31, 2019, we had on hand approximately
$4.4 million in cash and cash equivalents, and in short term deposits. In January 2020, we raised $3.5 million in a private placement
as part as part of the acquisition of FameWave. In March 2020, we raised a net amount of approximately $5.2 million in a public
offering in the U.S.
We
believe that our current cash and cash equivalents are sufficient to satisfy liquidity requirements for the next 12 months. Since
we do not know whether we will generate significant revenues from our drugs and therapeutic candidate, if ever, should we decide
to continue the development of CM-24 & NT219 and to develop any additional therapeutic candidates, we may need substantial
additional funds to acquire, develop, and/or commercialize such therapeutic candidates. However, additional financing may not
be available on acceptable terms, if at all. Our long-term capital requirements will depend on many factors, including:
|
●
|
the
regulatory path of our therapeutic candidates;
|
|
|
|
|
●
|
our
ability to successfully commercialize Consensi and our CM24 and NT219 therapeutic candidates, including securing commercialization
agreements with third parties and favorable pricing and market share;
|
|
|
|
|
●
|
the
progress, success and cost of our preclinical studies and/or clinical trials and research and development programs;
|
|
●
|
the
costs, timing and outcome of regulatory review and obtaining regulatory approval of our therapeutic candidates and addressing
regulatory and other issues that may arise post-approval;
|
|
|
|
|
●
|
the
costs of obtaining and enforcing our issued patents and defending intellectual property-related claims; and
|
|
|
|
|
●
|
our
consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner
than anticipated.
|
If
we are unable to commercialize or out-license Consensi™ or our therapeutic candidates or obtain future financing, we may
be forced to delay, reduce the scope of, or eliminate one or more of our research and development programs related to the therapeutic
candidate, which may have a material adverse effect on our business, financial condition and results of operations.
Pursuant
to the Acquisition Agreement with FameWave, dated March 14, 2019, we deposited with an escrow agent $2 million Cash Escrow in
order to secure payments by FameWave to MSD for the return of the intellectual property rights to CM-24 to FameWave and/or to
repay any loans that the shareholders of FameWave may provide FameWave between the effective date of the Acquisition Agreement
and the closing.
Cash
Flow
Operating
activities
For
the year ended December 31, 2019, net cash flow used in operating activities was approximately $5.6 million compared to approximately
$8.5 million for the year ended December 31, 2018. The decrease of $2.9 million in net cash flow used in operating activities
was due to a decrease in operating losses, net of adjustments, offset by a decrease in net change in assets and liabilities. The
cash used in operating activities consisted of expenses associated with expenses related to the development and manufacturing
of ConsensiTM , expenses for the development of NT219 and general and administrative expenses, net of revenues from
the ConsensiTM commercialization agreement with Coeptis.
We
had no significant investment activities during the years ended December 31, 2019, 2018, and 2017 other than our acquisition in
March 2019 of FameWave (which closed in January 2020) and in January 2017 the acquisition of a majority ownership interest in
TyrNovo from its majority shareholder.
Financing
activities
For
the year ended December 31, 2019, financing activities consisted of net proceeds received from the January 2019 issuance of ADSs
in a registered direct offering and unlisted, unregistered warrants in a concurrent private placement for approximately $5.1 million,
compared to net proceeds received for the year ended December 31, 2018, from the June 2018 issuance of ADSs in a registered direct
offering and unlisted, unregistered warrants in a concurrent private placement for approximately $7.4 million. The proceeds from
the share issuances in 2019 and 2018 were used to finance the operating activities of the Company.
As
of December 31, 2019 Kitov Pharma had no borrowings.
As
of December 31, 2019, and as of the date of this Annual Report on Form 20-F, we had no commitments for capital expenditures.
C.
|
Research
and Development, Patents and Licenses
|
See
above under Item 5 - Operating and Financial Review and Prospects – A. Operating results – Components of Statement
of Operations - Research and Development Expenses.
We
are a pharmaceutical company which focuses its activities on the development of our therapeutic candidate and commercialization
of our FDA approved drugs. It is not possible for us to predict with any degree of accuracy the outcome of our research and development
or commercialization efforts with regard to our therapeutic candidate. Our research and development expenditure is our primary
expenditure, although we may incur substantial expenditure should we acquire any new therapeutic candidates. Increases or decreases
in research and development expenditure are primarily attributable to the level and results of our CMC, preclinical studies and
clinical trial activities and the amount of expenditure on those studies and trials.
E.
|
Off-Balance
Sheet Arrangements
|
We
are not party to any material transactions, agreements or other contractual arrangements with unconsolidated entities whereby
we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose
us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated
entity that provides us with financing, liquidity, market risk or credit risk support.
F.
|
Tabular
Disclosure of Contractual Obligations
|
The
following table summarizes our significant contractual obligations as of December 31, 2019.
|
|
Total
|
|
|
Less
than
1
year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than 5 years
|
|
|
|
(U.S.
dollars in thousands)
(unaudited)
|
|
Operating
Lease Obligations (1)
|
|
|
259
|
|
|
|
220
|
|
|
|
59
|
|
|
|
-
|
|
|
|
-
|
|
Purchase
Obligations (2)
|
|
|
1,444
|
|
|
|
1,444
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Other
Long-term Liabilities (3)
|
|
|
285
|
|
|
|
-
|
|
|
|
--
|
|
|
|
285
|
|
|
|
-
|
|
Total
|
|
|
1,988
|
|
|
|
1,664
|
|
|
|
59
|
|
|
|
285
|
|
|
|
-
|
|
(1)
|
Reflects
our office lease and car lease obligations
|
|
|
(2)
|
Reflects
obligations to R&D service providers in connection with the development of NT219 and orders for manufacturing
of Consensi™.
|
|
|
(3)
|
Includes
post-employment benefit liabilities
|
|
|
(4)
|
Not
including Purchase Obligations of FameWave for manufacturing of CM24 assumed by Kitov Pharma following the acquisition of
FameWave in January 2020. For more information on such obligations please see ITEM 10-C. - Material Contracts - Rentschler Biopharma Manufacturing
Agreement.
|
ITEM
6.
|
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|
A.
|
Directors
and Senior Management
|
The
following table sets forth the name, age and position of each of our executive officers and directors, as of the date of this
Annual Report on Form 20-F. The inclusion of any individual in this table does not necessarily imply that such individual is an
officer or office holder as such terms are defined under applicable law.
Name
|
|
Age
|
|
Position
|
Eric
Rowinsky, M.D.
|
|
63
|
|
Independent
Director and Chairman of the Board of Directors
|
Isaac
Israel
|
|
41
|
|
Chief
Executive Officer and Director
|
Simcha
Rock, CPA, MBA
|
|
69
|
|
Director
|
Steven
Steinberg(1)(2)
|
|
58
|
|
Independent
Director
|
Ido
Agmon, MBA(2)
|
|
42
|
|
Independent
Director
|
Ran
Tzror, CPA, MBA(1)
|
|
38
|
|
Independent
Director
|
Revital
Stern-Raff, CPA, MBA(1)
|
|
45
|
|
Independent
Director
|
Gil
Efron, CPA, MA
|
|
54
|
|
Deputy
CEO and Chief Financial Officer
|
Gil
Ben-Menachem, Ph.D., MBA
|
|
52
|
|
Vice
President of Business Development
|
Hadas
Reuveni, Ph.D.
|
|
52
|
|
Vice
President or Research and Development
|
Michael
Schickler, Ph.D.
|
|
62
|
|
Head
of Clinical Operations
|
Bertrand
Liang
|
|
57
|
|
Chief
Medical Officer
|
(1)
|
Member
of Kitov Pharma Audit Committee
|
(2)
|
Member
of Kitov Pharma Compensation Committee
|
Eric
Rowinsky, M.D. has been Chairman of Kitov Pharma’s Board since October 2019. Dr. Eric Rowinsky’s principal expertise
is in the development and registration of novel therapeutics to treat cancer. Since November 2015, Dr. Rowinsky has served as
Executive Chairman of the Board of Directors and President of Rgenix, Inc. He also serves as the Chief Scientific Officer of Clearpath
Development Inc., and has served as a consulting Chief Medical Officer of Oncotartis, Inc. since 2018 and Everest Medicines, Inc.
since 2017. Additionally, he has been an independent consultant since 2016 and works with many other life science companies in
providing expertise in developing and registering a wide range of novel cancer therapeutics. Dr. Rowinsky served as Executive
Vice President, Chief Medical Officer and Head of Research and Development of Stemline Therapeutics, Inc., a clinical-stage biopharmaceutical
company, from November 2011 until October 2015. Prior to joining Stemline, Dr. Rowinsky was co-founder and Chief Executive Officer
of Primrose Therapeutics, Inc., a start-up biotechnology company, from June 2010 until its acquisition in September 2011. He also
served as a drug development and regulatory strategy consultant to the ImClone-Lilly Oncology Business Unit and several other
biopharmaceutical and life sciences companies from 2010 to 2011. From 2005 to 2009, Dr. Rowinsky was Executive Vice President
and Chief Medical Officer of ImClone Systems Inc., where he led the FDA approval of Erbitux® for head and neck and colorectal
cancers and advanced eight other monoclonal antibodies through clinical development. From 1996 to 2004, Dr. Rowinsky held several
positions at the Cancer Therapy and Research Center, including Director of the Institute of Drug Development, or IDD, and the
SBC Endowed Chair for Early Drug Development at the IDD. From 1996 to 2006, he was a Clinical Professor of Medicine at the University
of Texas Health Science Center at San Antonio. From 1988 to 1996, Dr. Rowinsky was an Associate Professor of Oncology at The Johns
Hopkins University School of Medicine. He was a longstanding National Cancer Institute principal and co-principal investigator
from 1990 to 2004, and was integrally involved in pivotal clinical and preclinical investigations that led to the development
of numerous cancer therapeutics, including paclitaxel, docetaxel, topotecan, irinotecan, erlotinib, gefitinib and temsirolimus
among others. Dr. Rowinsky was also an Adjunct Professor of Medicine at New York University School of Medicine (2008-2018). Dr.
Rowinsky presently serves on the boards of directors of the public companies Biogen Idec, Inc., Fortress Biosciences, Inc., and
Verastem Inc. He formerly served on the boards of directors of the public companies Navidea Biopharmaceuticals Inc. (2010-2018),
BIND Therapeutics (2014-2016), and Biophytis S.A. (2018-2019), as well as at a number of privately held companies. Dr. Rowinsky
received a B.A. degree from New York University (1977) and an M.D. degree from Vanderbilt University School of Medicine (1981).
He completed his residency in internal medicine at the University of California, San Diego (1984) and completed his fellowship
in medical oncology at The Johns Hopkins Oncology Center (1987).
Isaac
Israel has served as our chief executive officer and a member of Kitov Pharma’s Board since October 2012. Mr. Israel
was the founding chief executive officer of BeeContact Ltd. (formerly TASE:BCNT), from 2001 until 2007. Since 2008 Mr. Israel
has served as founding chief executive officer of Uneri Capital Ltd., a consulting firm in the capital markets field, owned by
Mr. Israel, which specializes in the healthcare sector. Mr. Israel also provides consulting services to Capital Point Ltd. (TASE:CPTP)
and serves as a member of the board of directors of various private healthcare corporations. In the past Mr. Israel also served
as chairman of the board of a public healthcare corporation, NextGen Biomed Ltd., which is traded on TASE.
Simcha
Rock, CPA, MBA, has served a member of Kitov Pharma’s Board since July 2013. He also serves as a strategic consultant
to us. He served as our Chief Financial Officer from July 2013 until he retired from his position as Chief Financial Officer as
of December 31, 2018, following a transition period with Gil Efron, our new Chief Financial Officer. Prior to joining us, Mr.
Rock was a private equity manager at Edmond de Rothschild Private Equity Management, a firm specializing in the management of
venture capital and other private equity investments funds, from February 2000 until January 2011, with responsibility for all
financial, legal and administrative matters for several investment funds. Prior to 2000, Mr. Rock held financial management positions
at Intel Electronics Ltd., The Jerusalem College of Technology, and JC Technologies Ltd. Mr. Rock holds a BA from Yeshiva University
and an MBA from Cleveland State University.
Steven
Steinberg, has served as a member of Kitov Pharma’s Board since July 2016. Since April 2017, Mr. Steinberg has been
an independent financial consultant. From January 2015 through March 2017, Mr. Steinberg served as the chief financial officer
of Glide Talk Ltd., a technology company in the video messaging arena. From September 2013 to October 2014 he served as vice president,
finance at Client Connect Ltd., a subsidiary of Conduit Ltd., and subsequent to an acquisition, of Perion Network, Ltd. a NASADQ
listed company. Between August 2011 and August 2013, Mr. Steinberg acted as an independent consultant, providing start-ups and
mature organizations with advice in financial reporting, due diligence and business models. From December 2002 until July 2011
Mr. Steinberg was employed by Answers Corporation, a NASDAQ listed company, where he served as chief financial officer. Prior
to 2002 he held a number of finance and chief financial officer roles, following a ten-year period of service as an audit manager
at Coopers & Lybrand (currently Price Waterhouse Coopers) in New York City. Mr. Steinberg holds a Bachelor’s Degree
in Business Administration from Florida International University – School of Business Administration, and was granted a
CPA license in New York State.
Ido
Agmon, MBA, has served as a member of Kitov Pharma’s Board since June 2016. Since 2012, Mr. Agmon has been acting
as an independent consultant and investment manager, providing start-ups, investment funds and technology-based ventures with
advice in strategic& financial planning, fund-raising and related business development activities. He serves as a member of
the board of directors of an Israeli privately held start-up corporation. From 2014 until the end of 2016, Mr. Agmon was a manager
of Aviv New-Tech (formerly Aviv Bio-Invest), a private investment fund which manages a portfolio of public Israeli & global
biomed and technology companies, of which he was a co-founder, and where he was responsible for analysis and evaluation of investments
in Israeli and global biomed companies. From 2009 until 2011, Mr. Agmon served as the CEO of Meytav Technology Incubator, an Israeli-based
accelerator for biotech, pharma & medtech ventures with over 20 portfolio companies. Mr. Agmon has served as a board member
at a number of biomed ventures. From 2007 until 2009, he worked as the Director of Business Development at ATI incubator, a technology
incubator specializing in biomed and cleantech projects, responsible for deal-flow and project evaluation. Mr. Agmon holds a Bachelor’s
Degree in Business Administration & Life Sciences from Tel Aviv University, Tel Aviv, Israel, and an MBA from The Hebrew University,
Jerusalem, Israel.
Ran
Tzror, CPA, MBA has served as a member of Kitov Pharma’s Board since March 2017. Since 2014, Mr. Tzror has
been the director of S.Y Glilot Ltd., a real-estate company owned by his family. Between 2010 and 2014 he was employed by Teva
Pharmaceuticals Industries Ltd. (NYSE:TEVA; TASE:TEVA) in various roles in corporate business development, the office of the CEO
& President of Teva Pharmaceuticals, and as Director of the Corporate Post Merger Integration Office. Between 2007 and 2010
he was a senior associate at Somekh Chaikin Certified Public Accountants (Israel), a member firm of KPMG International. Between
2006 and 2007 he was a legal intern at the commercial division of Yigal Arnon & Co., Advocates & Notary. Mr. Tzror holds
a B.A. in Accounting, LL.B. in Law, and MBA in Financial Management from Tel-Aviv University. He also completed various courses
at the Kellogg Graduate School of Management at Northwestern University in Illinois. Mr. Tzror was granted a CPA license in the
State of Israel, and was also admitted as a member of the Israeli Bar Association.
Revital
Stern-Raff, CPA, MBA has served as a member of Kitov Pharma’s Board since March 2017. Since August 2017, Ms. Stern-Raff
has been an independent financial and accounting consultant. Between 2013 and August 2017, Ms. Stern-Raff, was the Chief Financial
Officer of several municipal development and community association units of the City of Giv’atayim, Israel. Between 2006
and 2013, Ms. Stern-Raff held comptroller and economist positions at Ilex Medical Ltd., a publicly-traded medical diagnostic equipment
company (TASE:ILX). Prior to 2006, Ms. Stern-Raff held a number of comptroller and public accounting positions. Between 2009 and
2012, Ms. Stern-Raff was an independent director at Real Imaging Holdings Ltd., a publicly traded breast cancer diagnostics company
(TASE:RIMG). Ms. Stern-Raff is a licensed CPA in Israel, and holds an M.B.A. (Finance) and B.A. (Business Administration –
Information Technology and Finance) from the Rishon Letzion College of Management in Israel.
Gil
Efron has served as our Deputy Chief Executive Officer and Chief Financial Officer since October 2018. Prior to joining us
he served as Deputy CEO and CFO of Kamada, a NASDAQ and TASE dual-listed plasma-derived protein therapeutics company, from September
2011 to November 2017. Prior to that, he was the CFO of NASDAQ listed RRsat Global Communications LTD from September 2005 to March
2011. Prior to that Mr. Efron served in various finance executive positions. Mr. Efron holds a BA degree in Economics and Accounting
and an MA degree in Business Administration from the Hebrew University of Jerusalem and was granted a certified public accountant’s
license in Israel.
Gil
Ben-Menachem, Ph.D., MBA, has served as the Company’s vice president of business development since January 2016,
as a member of the Board’s Science and Technology Committee since August 2016, as a director at TyrNovo Ltd., the Company’s
majority owned subsidiary, from February 2017 until our 2019 Annual General Meeting of Shareholders held on December 23, 3019
(the “2019 AGM”), and as a director of the Company from July 2017 until our 2019 AGM. Dr. Ben-Menachem has over 15
years of experience in the pharmaceutical, biotechnology, and venture capital industries. Prior to joining the Company, from 2013
until 2015 he was head of innovative products at Dexcel Pharma, a large privately held Israeli pharmaceutical company. From 2012
to 2013, Dr. Ben-Menachem served as chief executive officer of OphthaliX, a company that developed drugs in the ophthalmology
space. From 2008 to 2012 he served as director of business development at Teva Pharmaceutical Industries Ltd. (NYSE:TEVA; TASE:TEVA),
where he was responsible for business development efforts in connection with partnering and acquisition deals for late stage innovative
drug candidates. Between 2005 and 2008 he served as director of business development at Paramount Biosciences, a New York based
merchant bank and biotechnology venture capital firm. Dr. Ben-Menachem received his Ph.D. from the Hebrew University, and MBA
from the University of Maryland. He concluded his postdoctoral training in immunology and microbiology at the National Institutes
of Health (NIH), the U.S. Department of Health and Human Services’ medical research agency.
Dr.
Hadas Reuveni, Ph.D. has served as the Company’s Vice President Research and Development since 2017. Dr. Reuveni, a
co-inventor of the TyrNovo technology, received her Ph.D., Summa Cum Laude, for anti-cancer drug discovery from the Hebrew University
of Jerusalem. She has been engaged with the scientific projects in TyrNovo’s portfolio since 2005 and has nearly two decades
of research and development experience in biotechnology. Dr. Reuveni founded NovoTyr Ltd. a biotech start-up company which a predecessor
company to TyrNovo, developing small molecules for the treatment of cancer and neurodegenerative diseases, and where between 2005
and 2012 she served as the CEO. She also founded and served as a director and chief science officer of AngioB Ltd., a start-up
company that developed GPCR-based agents for multiple indications (2006-2010). Prior to these roles, she was the director of research
& development at Keryx Biopharmaceuticals (NASDAQ:KRX) on 2001-2004. Dr. Reuveni has served as a scientific consultant for
Integra Holdings Ltd., Campus Bio Management Ltd. and BioLineRX (NASDAQ/TASE BLRX).
Michael
Schickler, Ph.D., has served as the Company’s Head of Clinical Operations since January 2020. Prior to assuming this
role, Dr. Schickler served as the Chief Executive Officer of FameWave until the closing of the FameWave Acquisition. Dr. Schickler
has also provided consulting services for medical device and healthcare companies since July 2018, advising on various matters
pertaining to biopharmaceutical drug development, including as a consultant to the Company since March 2019. From May 2001 to
July 2018, Dr. Schickler served as Chief Executive Officer of CureTech Ltd. (“CureTech”), a biotechnology company
developing novel immunotherapies for the treatment and control of cancer. During his time at CureTech, Dr. Schickler led the company
from the establishment of its operations through its development into a clinical-stage company with activities spanning basic
research through GMP manufacturing and worldwide clinical operations. Dr. Schickler has served on the board of directors of CureTech
since October 2018 and has served on the board of directors of Accellta Ltd. since March 2017. Dr. Schickler received his Diploma
in Business Administration from the University of Lincoln, Lincoln, United Kingdom, his Ph.D. in Biology from The Weizmann Institute
of Science, Rehovot, Israel and his M.Sc. in Immunology and his B.Sc. in Biology from The Faculty of Life Sciences, Tel-Aviv University,
Israel.
Bertrand
Liang has served as the Company’s Chief Medical Officer since January 2020. Dr. Liang previously founded several biotechnology
companies, including Tracon Pharmaceuticals, Coronado Biosciences (subsequently merged with Fortress Biotech) and Pfenex Inc.
Earlier in his career, Dr. Liang was Site Head at Biogen Idec (now Biogen), leading pre-clinical and clinical development, and
Vice President, New Ventures; managing member, Forward Medical Sciences (a venture capital firm). He also served as Vice President
and Head of Hematology and Oncology at IDEC; and Global Development Leader at Amgen, where he led the development of various cytokines
that received U.S. Food and Drug Administration approval, including Neulasta®. Dr. Liang has also held academic positions
at the National Cancer Institute, University of Colorado and University of Vermont, where he headed Human Medical Genetics. He
is an alumnus of the Feinberg School of Medicine at Northwestern University, the Institute of Materials Research and Innovation,
University of Bolton, the Law School at University of London, Boston University, Regis University, and the MIT Sloan School of
Management. Dr. Liang has authored over 75 peer-reviewed publications, chapters and books, and edited a number of volumes in the
fields of Neurology and Oncology.
The
business addresses of our directors and senior management is One Azrieli Center, Round Tower, 132 Menachem Begin Road, Tel Aviv,
6701101, Israel.
Director
Compensation
According
to the Company’s Compensation Policy, the Company’s non-executive directors who have been declared by the Board of
Directors as “independent” under applicable exchange listing rules, may be compensated by means of a periodic payment
and/or by means of payment for participation in Board (or committee) meetings, and may also receive ancillary benefits, all as
approved by appropriate corporate bodies under applicable law. The cash periodic and/or per meeting compensation for any one non-executive
directors shall be capped at $100,000 per annum. In order to maintain their independent status, non-executive directors are not
allowed to participate in performance-related cash payment based incentive plans, nor in any pension schemes.
Such
directors may also be entitled to receive equity-based compensation in accordance with any applicable law. Under the Compensation
Policy, the equity-based compensation for any single Office Holder, at the date of the granting thereof, shall not exceed in one
calendar year, the higher of, (i) 5% of our share capital (on a fully diluted basis) calculated at the date of the grant, or,
(ii) USD 2.5 million. The value of equity-based compensation will be calculated based on the Black and Scholes Model, or any other
reasonable, best practice or commonly accepted applicable equity based compensation valuation models taking into account the circumstances
of the specific grants. The valuation methodology for purposes of calculating the value of the grants and compliance with the
caps set forth above need not be the same valuation methodology which will ultimately be used for accounting for the grants in
our audited financial statements. The maximum cumulative possible extent of dilution in respect of the entirety of the granting
of equity-based compensation for our employees and Office Holders (including any non-executive directors) shall not exceed in
one calendar year 15% (on a fully diluted basis) calculated at the date of the grant. The Compensation Policy directs that vesting
periods for equity based compensation grants to Office Holders shall be established by our Compensation Committee and Board of
Directors, which shall be no less than 3 years vesting for the full grant with a minimum vesting period of at least one year for
the first tranche of the grant, and subsequently shall be no more frequent than monthly vesting; provided, however, that such
vesting may start as of the commencement of the engagement of the Office Holder with the Company; and/or may include portions
of the grant which are immediately vested upon date of the grant, subject to the proviso that the aggregate fully vested equity
based compensation grants for an Office Holder as of the time of a new grant, including the vested portions of older grants awarded
to such Office Holder and the vested portions of a new grant at the time of grant, shall not exceed the caps set forth above.
The exercise prices for equity based compensation in the form of options shall be determined by the Compensation Committee and
the Board of Directors, taking into account the value of the Company’s traded securities leading up to and at the time of
the grant, as well as the value of such equity based compensation based on any reasonable, best practice or commonly accepted
equity based compensation valuation model. The Compensation Committee and the Board of Directors may make provisions for the cashless
exercise of equity-based compensation grants. The equity-based compensation grants may contain a mandatory exercise provision
for vested grants which shall provide for an automatic exercise upon reaching a certain share price and may also trigger the sale
of the underlying securities. The Board of Directors of the Company does not have discretion to limit the value of the equity-based
compensation at the time of exercise.
The
ceilings on the periodic and/or per meeting compensation, as well as for the equity-based compensation, for any Active Chairman
of the Board (i.e. not an independent director) holding no other executive role at the Company shall be three (3) times the ceilings
set forth above.
We
currently pay Kitov Pharma’s independent and non-executive non-chairman directors an annual fee of $40,000 for services
as a member of our Board of Directors, an additional $3,500 annual fee for service on each Board committee, and an additional
$7,000 annual fee for service on the Board of Directors of a subsidiary; provided, however, that the maximum annual fee for services
on our Board of Directors, on Board committees and/or on the Boards of any subsidiaries shall not exceed $47,000. The above dollar
denominated fees, and all other dollar denominated payments that we pay our directors based in Israel, are paid in NIS based on
the NIS/$ exchange rate at the beginning of the month in which such amounts are paid, but not lower than the exchange rate in
effect on January 1, 2017. In addition, we pay Dr. Rowinsky an annual fee of $60,000 for services as a member of our Board of
Directors, as Chairman of the Board, for service on any committee of the Board of Directors, and for service on the Board of Directors
of a subsidiary. All such director annual fees shall be paid pro-rata for any service during part of a year.
So
long as the Company operates in accordance with the corporate governance exception set forth in Regulation 5D of the Israeli Companies
Regulations (Relief for Public Companies with Shares Listed for Trading on a Stock Market Outside of Israel), 5760-2000, and is
not required to pay non-executive directors annual and per meeting fees as set forth under the Compensation Regulations, the Company
shall not pay any per meeting fees to its non-executive directors. Each of our Compensation Committee, Board of Directors and
shareholders have also approved ancillary benefits such that we may subsidize ongoing corporate governance or other professional
training for directors in amounts up to $5,000 per director per annum. We also reimburse the directors for any direct expenses
incurred during the performance of their duties (e.g. travel, parking, telephone, meals etc.). During the year ended December
31, 2019, we paid Kitov Pharma’s non-executive directors NIS 1,064 thousand (approximately $308 thousand) in the aggregate.
In
June and July of 2017 each of our Compensation Committee, Board of Directors and shareholders approved a grant of 31,361 RSUs
to be granted to each of our non-executive non-chairman directors under our 2016 Equity-Based Incentive Plan. In order to allow
for greater flexibility in reducing the tax burden of the grant, each of the applicable non-executive directors was entitled to
elect, prior to the time of grant, to receive in lieu of all or part of the approved grant of RSU’s, to receive such number
of options to purchase our ordinary shares at a ratio of 1.667 options per RSU, which options shall have an exercise price which
was calculated based on the average USD closing price of our ADSs on the NASDAQ Capital Market for the thirty (30) days prior
to the Board of Directors’ approval of the grant, converted into ordinary share values at the ratio of 1 ADS representing
1 ordinary shares, and converted into New Israel Shekel at the Bank of Israel Representative Exchange Rate for the date of May
24, 2017 such that the exercise price of each option equals to NIS 6.594 per one ordinary share. Any RSUs and/or options so granted
to each of the applicable non-executive directors, are being vested quarterly over a period of 3 years beginning one year following
the start date of each non-executive director’s appointment to our Board of Directors, and are exercisable for 7 years from
the date of grant. The RSUs and/or options were granted under applicable tax beneficial provisions, in accordance with the provisions
of the 2016 Equity-Based Incentive Plan and applicable law. Our Compensation Committee, Board of Directors and shareholders each
approved change of control acceleration for the grant of RSUs and/or options to each of the applicable non-executive directors.
Each of Messrs. Agmon, Weber and Tzror elected to received RSUs, and each of Mr. Steinberg and Ms. Stern-Raff elected to receive
half of the award as RSUs and half as options, under such terms as aforesaid.
In
March and April of 2019 each of our Compensation Committee, Board of Directors and shareholders approved grants of 112,000 options
to be granted to each of our non-executive, non-chairman directors under our 2016 Equity-Based Incentive Plan to purchase an equivalent
number of ordinary shares of Kitov. The options have an option exercise price which was calculated based on a ten percent premium
over the 30-day average closing price of our ADSs on the NASDAQ prior to the decision by our Board of Directors to approve the
equity-based compensation awards, such that the exercise price of each option equals to NIS 4.64 (USD 1.28) per one ordinary share.
The options to be granted to the directors, are being vested quarterly over a period of 3 years from March 19, 2019 beginning
one year following such date, and are exercisable for 7 years from March 19, 2019. The options were granted under applicable tax
beneficial provisions, in accordance with the provisions of the 2016 Equity-Based Incentive Plan and applicable law.
In
addition, in November and December of 2019, each of our Compensation Committee, Board of Directors and shareholders approved a
grant of 400,000 options to be granted to Dr. Rowinsky under our 2016 Equity-Based Incentive Plan. The options have an option
exercise price which was calculated based on a 10% percent premium over the closing price of our ADSs on the NASDAQ on the day
of the decision by our Board of Directors to approve the equity-based compensation awards, such that the exercise price of each
option equals to USD 0.814 per one ordinary share. The options granted to Dr. Rowinsky, are being vested quarterly over a period
of 3 years from the grant date, with a minimum vesting period of at least one year for the first tranche of the grant, and are
exercisable for 7 years from such date.
Our
Compensation Committee, Board of Directors and shareholders each approved change of control acceleration for the grant of RSUs
and/or options to each of the non-executive directors.
Directors’
Service Contracts
There
are no arrangements or understandings between us and any of our subsidiaries, on the one hand, and any of our directors, on the
other hand, providing for benefits upon termination of their employment or service as directors of our company or any of our subsidiaries,
except as provided in certain employment or service agreements with our executive officers who also serve as directors.
Executive
Compensation
For
so long as we qualify as a foreign private issuer, we are not required to comply with the proxy rules applicable to U.S. domestic
companies, including the requirement applicable to emerging growth companies to disclose the compensation of our chief executive
officer and other two most highly compensated executive officers on an individual, rather than an aggregate, basis. Nevertheless,
the regulations governing Israeli public companies, which were promulgated under the Israeli Companies Law, requires us to disclose
in the proxy statement for our annual general meeting of our shareholders (or to include a reference therein to other previously
furnished public disclosure) the annual compensation of our five most highly compensated office holders on an individual basis,
rather than on an aggregate basis. The disclosure is to be made with respect to the year of the financial statements being presented
at such annual general meeting, and as recorded in the Company’s financial statements for such year. This disclosure must
be on an individual basis, broken out by components, and as recognized in such annual financial statements, rather than only on
an aggregate basis for all office holders. This disclosure may not be as extensive as that required of a U.S. domestic issuer.
Under
the Companies Law and Regulations, the compensation of Kitov Pharma’s directors with respect their service as a director,
as well as their engagement in other roles (if the director is so engaged) as well as Kitov Pharma’s chief executive officer
generally requires the approval of our compensation committee, the subsequent approval of the board of directors and, unless exempted
under the regulations promulgated under the Companies Law, the approval of the shareholders at a general meeting. In addition
the Companies Law and Regulations requires the compensation of a public company’s executive officers (other than the chief
executive officer) who are not directors at the company to be approved by, first, the compensation committee, second, by the company’s
board of directors and third, if such compensation arrangement is inconsistent with the company’s duly approved compensation
policy, or compensation is approved prior to the approval of a new compensation policy upon expiration of the term of the previous
compensation policy, or is to an executive officer who is a controlling shareholder (or certain relatives or affiliates thereof),
also by the company’s shareholders. As such, the individual compensation to our directors and members of our management
bodies may not necessarily be disclosed or brought for prior approval by the shareholders on an individual basis. For more information
on the corporate approvals for officer compensation please see Item 6.C – Board Practices – “Compensation of
Directors and Executive Officers”
The
aggregate compensation paid, and benefits in-kind granted to or accrued on behalf of all of Kitov’s directors and office
holders for their services, in all capacities, to us during the year ended December 31, 2019, was approximately $3.0 million.
As of December 31, 2019, the total amount set aside as an actuarial estimate by us to provide post-employment benefits for certain
office holders was in the aggregate amount of approximately $285 thousand. We have not set aside amounts to provide post-employment
benefits for the remaining office holders.
We
have entered into engagement agreements with each of our executive officers. All of these agreements contain customary provisions
regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition
provisions may be limited under applicable laws.
Our
directors and executive officers hold exemption and indemnification letters and a valid D&O insurance policy. For information
on exemption and indemnification letters granted to our officers and directors, please see “Item 6. Directors, Senior Management
and Employees - C. Board Practices - Exculpation, Insurance and Indemnification of Directors and Officers”.
The
breakdown of the annual compensation received by each of Kitov’s five most highly compensated office holders (as defined
in the Companies Law) for the year ended December 31, 2019, broken out by component and on an individual basis, as recorded in
our financial statements for such year, are shown in the table below:
Name
|
|
Position
|
|
Salary
or
other
payments1
|
|
|
Bonus payments or accruals
|
|
|
Share-based
payment2
|
|
|
Total
3
|
|
Isaac Israel
|
|
Chief Executive Officer and Director
|
|
|
391,459
|
|
|
|
173,025
|
|
|
|
185,382
|
|
|
|
749,866
|
|
Gil Efron
|
|
Chief Financial Officer and Deputy CEO
|
|
|
262,621
|
|
|
|
94,286
|
|
|
|
222,282
|
|
|
|
579,189
|
|
Dr. Gil Ben-Menachem
|
|
Vice President Business
Development and Director4
|
|
|
218,211
|
|
|
|
51,003
|
|
|
|
123,595
|
|
|
|
392,809
|
|
Dr. Hadas Reuveni
|
|
Vice President of Research and Development
|
|
|
217,489
|
|
|
|
79,288
|
|
|
|
179,325
|
|
|
|
476,101
|
|
Dr. J. Paul Waymack
|
|
Chairman of the Board5
|
|
|
195,120
|
|
|
|
65,040
|
|
|
|
7,993
|
|
|
|
268,153
|
|
1
|
Includes
social benefits, such as payments to the National Insurance Institute, advanced education funds, managers’ insurance
and pension funds; vacation pay; and recuperation pay as mandated by Israeli law, and car lease or vehicle use reimbursement
related benefits.
|
2
|
Share
based payments are measured at the fair value of the service, when available. The fair value of the Company’s share
options granted to employees, directors and service providers, where fair value of service was not measurable, was estimated
using the fair value of Kitov Pharma’s traded warrants with similar terms, making some adjustments to reflect the specific
terms of the options based on the expected duration.
|
3
|
The
total compensation amounts do not include any amounts recorded for an increase in actuarial estimate calculations for post-employment
benefit liabilities for the office holder, nor any accruals for unused vacation time. Compensation amounts which were paid
or otherwise measured in NIS have been translated into US$ for purposes of this report at average representative exchange
rates for the year.
|
4
|
Dr.
Ben-Menachem was an executive director on our Board of Directors until the end of his term at the 2019 annual meeting of shareholders
in December 2019.
|
5
|
Dr.
Waymack was our Chairman of the Board until his retirement as a director in July 2019. He continued as our Chief Medical Officer
until his full retirement in September 2019.
|
6
|
For
more information on the calculation of the annual bonus please see below under the description of the individual executive
director’s compensation arrangements for 2019.
|
Consulting
Agreement with Waymack Inc. (wholly owned by Dr. John Paul Waymack)
Earlier
in 2019 we announced that Dr. Paul Waymack would be retiring as our chairman of the board and from his role as chief medical officer
following a transition period. He retired from our board of directors in July 2019 and retired fully as of September 2019.
In
July 2013, we entered into a consulting agreement with Waymack Inc. for the services of Dr. John Paul Waymack, one of our founders,
pursuant to which Dr. Waymack provides services to us as the chairman of our board of directors, and is responsible for the medical
operations of the Company as Chief Medical Officer in which capacity he reports to our board of directors. In return for Dr. Waymack’s
services, as of March 2014 we paid Waymack Inc. a monthly fee of NIS 29,880 (approximately $8,690 per month based on the representative
rate of exchange on June 30, 2014). Between September 2014 and December 2015, we paid Waymack Inc. a monthly fee of $14,000. During
2016, we paid Waymack Inc. a monthly fee of $20,000. During 2017 and 2018 we paid Waymack Inc. a monthly fee of $27,100. From
January 1, 2019 until his full retirement on September 30, 2019 we paid Waymack Inc. a monthly fee of $21,680. The service agreement
was terminable by either party upon 120 days’ advance notice to the other party. The above agreement was terminated as of
September 30, 2019.
In
addition to the above monthly fee Waymack Inc. was entitled to the following additional compensation:
Retirement
Grant. A retirement grant of six (6) times the monthly fee upon termination of Dr. Waymack’s engagement with us, provided
that the termination is not due to circumstances that do not entitle an employee to severance payments under any applicable law
and/or under any judicial decision of a competent tribunal.
Annual
Bonus. Annual bonus, which shall not exceed twelve (12) times the monthly fee, of which up to nine (9) times the monthly fee
is based on measurable criteria and up to three (3) times the monthly fee is based on non-measurable criteria under our compensation
policy. Following is a description of the annual bonus, commencing with the 2019 calendar year, based on measurable criteria which
were updated following a review by each of the Compensation Committee and Board of Directors of the Company’s goals and
targets: (i) a bonus in the amount of one (1) time the monthly fee for each increase of 25% of the Company’s equity or assets
or market cap or price per ADS at calendar year-end compared to the previous calendar year-end (exclusive of any increase directly
attributable to an equity raise), but in any event no more than three (3) times the monthly fee; (ii) a bonus in the amount of
one (1) times the monthly fee for completion of in-licensing transaction for a new product; (iii) a bonus in the amount of one
(1) times the monthly fee for completion of a commercial transaction for one of our therapeutic candidates (out-licensing or marketing
transaction) (iv) a bonus in the amount of one (1) times the monthly fee upon approval by the FDA (NDA approval) or any comparable
regulatory authority in connection with our products; (v) a bonus in the amount of two (2) times the monthly fee for acceptance
of one of our therapeutic candidates for IND by the FDA or a comparable stage by any comparable regulatory agency; (vi) a bonus
in the amount of one (1) times the monthly fee for publication of a scientific paper related to one of our therapeutic candidates;
and (vii) a bonus in the amount of one (1) time the monthly fee for registration of a patent for one of our therapeutic candidates. Our
Board of Directors has not yet finished its review of Dr. Waymack’s performance and bonus targets for 2019, and, as such,
no annual bonus for 2019 has been awarded to Dr. Waymack as of the date of this Annual Report on Form 20-F.
Special
bonus based on either a Merger Transaction or a Commercialization Transaction. A special bonus equal to: (i) 3.5% of our valuation
determined in a Merger Transaction for a valuation up to $30 million, plus an additional 2.0% of our valuation for the next $20
million layer of valuation (i.e. above $30 million but less than $50 million), plus an additional 1.0% of our valuation for the
layer of valuation above $50 million; provided that in any event Dr. Waymack will not be entitled to a bonus based on a Merger
Transaction in an amount exceeding $2,000,000; A “Merger Transaction” means one or more related transactions of either:
(A) sale, lease, license or any transfer of all or most of our assets or securities; (B) merger so that the shareholders holding
at least 50% of our issued and outstanding share capital prior to the consummation of such transaction hold less than 50% of our
issued and outstanding share capital or the share capital of the surviving company following the consummation of such transaction;
(ii) 3.5% of the cumulative revenues from a Commercialization Transaction for cumulative revenues up to $30 million, plus an additional
2.0% of cumulative revenues for the next $20 million layer of valuation (i.e. above $30 million but less than $50 million), plus
an additional 1.0% of cumulative revenues for the layer of cumulative revenues above $50 million. The bonus is payable for a Commercial
Transaction whose value or estimated value is at least $5 million as a result of the commercialization of our products. In the
event the value or estimated value of a Commercialization Transaction exceeds such amount, Dr. Waymack will be entitled to an
additional monthly bonus against revenues as a result of the Commercialization Transaction in the prior month. In any event Dr.
Waymack will not be entitled to a bonus based on a Commercialization Transaction in an amount exceeding $2,000,000. A “Commercialization
Transaction” means the execution of a licensing and/or distribution agreement of our products with estimated revenues of
at least $5 million. Any special bonus to be paid to Waymack Inc. with respect to a Commercialization Transaction shall be subject
to the limitation that any special bonuses to office holders of the Company together with any fees paid to advisors, bankers and
such in connection with the Commercialization Transaction shall be in aggregate no more than 17% of the cumulative revenues from
a Commercialization Transaction for cumulative revenues up to $30 million, and no more that 14% of cumulative revenues above $30
million.
In
2016, each of our audit committee, board of directors and shareholders approved a grant of options under our 2016 Equity-Based
Incentive Plan to Dr. Waymack for the purchase of 154,453 ordinary shares (the “Initial PW Grant”) (such number of
ordinary shares would comprise 154,453 of our ADSs). Such options will vest over a period of 3 years from June 27, 2016; have
an exercise price of NIS 15.768 per ordinary share; and are exercisable for 8 years from June 27, 2016, provided, however, that
no options were exercisable prior to our adoption of a revised compensation policy in accordance with the Companies Law, which
occurred in July 2017. In addition Dr. Waymack was granted an additional 123,438 options following our July 2016 follow-on public
offering, on the same terms and conditions of the Initial PW Grant so that the sum total of his options following such public
offering reflected 3.5% of our issued and outstanding shares subsequent to the offering(the “Subsequent PW Grant”);
this grant was made subject to the proviso that the economic value of the total options issued to Dr. Waymack, calculated as of
the date of issuance of the Subsequent PW Grant, was not in excess of the economic value of the Initial PW Grant as of the date
of the approval of our board of directors for the option grants to Dr. Waymack.
In
addition, in 2017 each of our Compensation Committee, Board of Directors and shareholders approved a grant of 232,305 RSUs to
be granted to Dr. Waymack under our 2016 Equity-Based Incentive Plan (such number of ordinary shares resulting from the RSUs would
comprise 232,305 of our ADSs). In order to allow for greater flexibility in reducing the tax burden of the grant, Dr. Waymack
was entitled to elect, prior to the time of grant, to receive in lieu of all or part of the approved grant of RSUs, such number
of options to purchase our ordinary shares at a ratio of 1.667 options per RSU, and which options shall have an exercise price
which was calculated based on the average USD closing price of our ADSs on the NASDAQ Capital Market for the thirty (30) days
prior to the Board of Directors’ approval of the terms of office and employment of Dr. Waymack which will include the grant,
converted into ordinary share values at the ratio of 1 ADS representing 1 ordinary shares, and converted into New Israel Shekel
at the Bank of Israel Representative Exchange Rate for the date of May 24, 2017 such that the exercise price of each option equals
to NIS 6.594 per one ordinary share. Dr. Waymack elected to receive 387,251 options in lieu of 232,305 RSUs (such number of ordinary
shares resulting from the options would comprise 387,251 of our ADSs). These options which were granted to Dr. Waymack shall be
vested quarterly over a period of 3 years from the commencement of Dr. Waymack’s engagement, and are exercisable for 7 years
from August 1, 2017. Our Compensation Committee, Board of Directors and shareholders each approved change of control acceleration
for the grants of options to Dr. Waymack.
In
March and April of 2019 each of our Compensation Committee, Board of Directors and shareholders approved a grant of 572,868 options
to be granted to Dr. Waymack under our 2016 Equity-Based Incentive Plan to purchase an equivalent number of ordinary shares of
Kitov. The options have an option exercise price which was calculated based on a ten percent premium over the 30-day average closing
price of our ADSs on the NASDAQ prior to the decision by our Board of Directors to approve the equity-based compensation awards,
such that the exercise price of each option equals to NIS 4.64 (USD 1.28) per one ordinary share. The options granted to Dr. Waymack
were to be vested quarterly over a period of 3 years from March 19, 2019 beginning one year following such date, and exercisable
for 7 years from April 29, 2019. The options were granted under applicable tax beneficial provisions, in accordance with the provisions
of the 2016 Equity-Based Incentive Plan and applicable law. These options expired unvested following Dr. Waymack’s retirement.
Agreement
with Mr. Isaac Israel
As
of September 2014 we entered into an employment agreement with Mr. Isaac Israel as our chief executive officer for the provision
of services pursuant to which we paid Mr. Israel a base salary of NIS 40,000 (approximately $10,593) per month. In addition to
the above we provided Mr. Israel with a car allowance at a monthly cost of up to NIS 4,000 (approximately $1,059), management
insurance policy and advanced study fund.
Effective
as of May 1, 2016, Mr. Israel increase the scope of his engagement with the Company to 100% from 80% and his base monthly consideration
and linked benefits were increased proportionally. In addition, as of May 1, 2016, Mr. Israel is engaged via a services agreement
with Uneri Capital Ltd., a private company wholly owned by Mr. Isaac Israel, provided, however, that there is no difference to
our costs and expenses for such engagement as a service provider instead of as an employee. For such services we paid Uneri Capital
as of such date monthly payments of NIS 68,867 (approximately $17,911) per month during 2016. Effective January 1, 2017 we are
paying Uneri Capital a monthly fee of $26,250 and a car allowance at a monthly cost of up to NIS 5,000 (approximately $1,400).
The fee, and all other payments derived from a multiple of the fee that we pay Uneri Capital, is paid in NIS based on the NIS/$
exchange rate at the beginning of the month in which such amounts are paid, but not lower than the exchange rate in effect on
January 1, 2017. The service agreement may be terminated by either party upon 120 days’ advance notice to the other party.
In addition, Mr. Israel is entitled to the following additional compensation:
Retirement
Grant. A retirement grant of six (6) time the monthly fee upon termination of Mr. Israel’s engagement with us, provided
that the termination is not due to circumstances that do not entitle an employee to severance payments under any applicable law
and/or under any judicial decision of a competent tribunal.
Annual
Bonus. Annual bonus commencing with the 2019 calendar year has decreased such that it shall not exceed eight (8) times the
monthly fee, of which up to six (6) times the monthly fee is based on measurable criteria and up to two (2) times the monthly
fee is based on non-measurable criteria under our compensation policy. Following is a description of the annual bonus, commencing
with the 2019 calendar year, based on measurable criteria which were updated following a review by each of the Compensation Committee
and Board of Directors of the Company’s goals and targets: (i) a bonus in the amount of one (1) time the monthly fee for
each increase of 25% of the Company’s equity or assets or market cap or price per ADS at calendar year-end compared to the
previous calendar year-end (exclusive of any increase directly attributable to an equity raise), but in any event no more than
three (3) times the monthly fee; (ii) a bonus in the amount of two (2) times the monthly fee for completion of in-licensing transaction
for a new product; (iii) a bonus in the amount of one (1) times the monthly fee for completion of a commercial transaction for
one of our therapeutic candidates (out-licensing or marketing transaction) (iv) a bonus in the amount of one (1) times the monthly
fee for acceptance of one of our therapeutic candidates for IND by the FDA or a comparable stage by any comparable regulatory
agency; (v) a bonus in the amount of one (1) time the monthly fee for registration of a patent for one of our therapeutic candidates;
and (vi) a bonus in the amount of one (1) times the monthly fee for meeting annual budget goals and/or (vii) a bonus in the amount
of one (1) times the monthly fee for initial coverage of the Company’s stock by a new analyst.
The
annual bonus awarded to Mr. Israel for the year ended December 31, 2019, as approved by our compensation committee and board of
director for such year, was $144 thousand The annual bonus awarded to Mr. Israel for 2019, was based on four (out of the maximum
of six) times the monthly fee for measurable criteria, including, amongst others, in-licensing of new therapeutic candidate and
out licensing of our approved drug. In addition, our compensation committee and board of directors, as set forth in our Compensation
Policy approved by our shareholders, awarded Mr. Israel an annual bonus amount of 1 times the monthly fee out of a maximum of
two times the monthly fee for non-measurable criteria, taking into account the contributions of Mr. Israel to the business of
the Company, considering his skills, knowledge, and expertise and their satisfaction with his performance all in accordance with
the criteria set forth in our Compensation Policy.
Special
bonus based on either a Merger Transaction, Fund Raise or a Commercialization Transaction. A special bonus equal to: (i) 3.5%
of our valuation determined in a Merger Transaction for a valuation up to $30 million, plus an additional 2.0% of our valuation
for the next $20 million layer of valuation (i.e. above $30 million but less than $50 million), plus an additional 1.0% of our
valuation for the layer of valuation above $50 million; provided that in any event Mr. Israel will not be entitled to a bonus
based on a Merger Transaction in an amount exceeding $2,000,000; A “Merger Transaction” means one or more related
transactions of either: (A) sale, lease, license or any transfer of all or most of our assets or securities; (B) merger so that
the shareholders holding at least 50% of our issued and outstanding share capital prior to the consummation of such transaction
hold less than 50% of our issued and outstanding share capital or the share capital of the surviving company following the consummation
of such transaction; (ii) 3.5% of the cumulative revenues from a Commercialization Transaction for cumulative revenues up to $30
million, plus 2.0% of cumulative revenues above $30 million but less than $50 million, plus 1.0% of cumulative revenues above
$50 million. The bonus is payable for a Commercial Transaction whose value or estimated value is at least $5 million as a result
of the commercialization of our products. In the event the value or estimated value of a Commercialization Transaction exceeds
such amount, Mr. Israel will be entitled to an additional monthly bonus against revenues as a result of the Commercialization
Transaction in the prior month. In any event Mr. Israel will not be entitled to a bonus based on a Commercialization Transaction
in an amount exceeding $2,000,000. A “Commercialization Transaction” means the execution of a licensing and/or distribution
agreement of our products with estimated revenues of at least $5 million. Any special bonus to be paid to Mr. Israel with respect
to a Commercialization Transaction shall be subject to the limitation that any special bonuses to office holders of the Company
together with any fees paid to advisors, bankers and such in connection with the Commercialization Transaction shall be in aggregate
no more than 17% of the cumulative revenues from a Commercialization Transaction for cumulative revenues up to $30 million, and
no more that 14% of cumulative revenues above $30 million.
In
2016, each of our audit committee, board of directors and our shareholders approved a grant of options under our 2016 Equity-Based
Incentive Plan to Mr. Israel for the purchase of 110,324 ordinary shares (such number of ordinary shares would comprise 110,324
of our ADSs). Such options will vest over a period of 3 years from June 27, 2016, have an exercise price of NIS 15.768 per ordinary
share, and are exercisable for 8 years from June 27, 2016, provided, however, that no options were exercisable prior to our adoption
a revised compensation policy in accordance with the Companies Law, which occurred in July 2017.
In
addition, in 2017 each of our Compensation Committee, Board of Directors and shareholders approved a grant of 217,786 RSUs to
be granted to Mr. Israel under our 2016 Equity-Based Incentive Plan to Mr. Israel (such number of ordinary shares resulting for
the RSUs would comprise 217,786 of our ADSs). In order to allow for greater flexibility in reducing the tax burden of the grant,
Mr. Israel was entitled to elect, prior to the time of grant, to receive in lieu of all or part of the approved grant of RSU’s,
such number of options to purchase our ordinary shares at a ratio of 1.667 options per RSU, and which options shall have an exercise
price which was calculated based on the average USD closing price of our ADSs on the NASDAQ Capital Market for the thirty (30)
prior to the Board of Directors’ approval of the terms of office and employment of Mr. Israel which will include the grant,
converted into ordinary share values at the ratio of 1ADS representing 1 ordinary shares, and converted into New Israel Shekel
at the Bank of Israel Representative Exchange Rate for the date of May 24, 2017 such that the exercise price of each option equals
to NIS 6.594 per one ordinary share. Mr. Israel elect to take the entire award as RSU’s. The RSUs which were granted to
Mr. Israel shall be vested quarterly over a period of 3 years from the commencement of Mr. Israel’s engagement, and are
exercisable for 7 years from August 1, 2017. Our Compensation Committee, Board of Directors and shareholders each approved change
of control acceleration for the grants of equity-based compensation awards to Mr. Israel.
In
March and April of 2019 each of our Compensation Committee, Board of Directors and shareholders approved a grant of 502,079 options
to be granted to Mr. Israel under our 2016 Equity-Based Incentive Plan to purchase an equivalent number of ordinary shares of
Kitov. The options have an option exercise price which was calculated based on a ten percent premium over the 30-day average closing
price of our ADSs on the NASDAQ prior to the decision by our Board of Directors to approve the equity-based compensation awards,
such that the exercise price of each option equals to NIS 4.64 (USD 1.28) per one ordinary share. The options granted to Mr. Israel
are being vested quarterly over a period of 3 years from March 19, 2019 beginning one year following such date, and exercisable
for 7 years from March 19, 2019. The options were granted under applicable tax beneficial provisions, in accordance with the provisions
of the 2016 Equity-Based Incentive Plan and applicable law.
Employment
Agreement with Dr. Gil Ben-Menachem
Pursuant
to an employment agreement entered into with Dr. Ben-Menachem in 2016, we are currently paying Dr. Ben-Menachem a monthly salary
of NIS 48,000, and the Company provides him with a medium size leased car and bears all of the cost of this car. In addition,
Dr. Ben-Menachem is entitled to a retirement grant of three (3) times the monthly salary upon termination of Dr. Ben-Menachem’s
engagement with us, provided that the termination is not due to circumstances that do not entitle an employee to severance payments
under any applicable law and/or under any judicial decision of a competent tribunal. Dr. Ben-Menachem is also entitled to performance
bonuses and commissions in connection with business development goals related to in-licensing and out-licensing transactions.
The commission awarded to Dr. Ben-Menachem during the year ended December 31, 2019 was $48,000, in connection with the out-licensing
of Consensi™.
In
the second quarter of 2016, each of our audit committee and board of directors approved a grant of options under our 2016 Equity-Based
Incentive Plan to Dr. Ben-Menachem for the purchase 22,065 ordinary shares. Such options vest over a period of 3 years from May
22, 2016, have an exercise price of NIS 15.768 per ordinary share, and are exercisable for 8 years from May 22, 2016.
In
addition, in 2017 each of our Compensation Committee and Board of Directors approved a grant of 59,818 RSUs to be granted to Dr.
Ben-Menachem under our 2016 Equity-Based Incentive Plan. The RSUs which were granted to Dr. Ben-Menachem are being vested quarterly
over a period of 3 years from the commencement of Dr. Ben-Menachem’s engagement, and are exercisable for 7 years from August
1, 2017. Our Compensation Committee, Board of Directors and shareholders each approved change of control acceleration for the
grants of equity-based compensation awards to Dr. Ben-Menachem.
In
March and April of 2019 each of our Compensation Committee, Board of Directors and shareholders approved a grant of 339,582 options
to be granted to Dr. Ben-Menachem under our 2016 Equity-Based Incentive Plan to purchase an equivalent number of ordinary shares
of Kitov. The options have an option exercise price which was calculated based on a ten percent premium over the 30-day average
closing price of our ADSs on the NASDAQ prior to the decision by our Board of Directors to approve the equity-based compensation
awards, such that the exercise price of each option equals to NIS 4.64 (USD 1.28) per one ordinary share. The options granted
to Dr. Ben-Menachem are being vested quarterly over a period of 3 years from March 19, 2019 beginning one year following such
date, and exercisable for 7 years from March 19, 2019. The options were granted under applicable tax beneficial provisions, in
accordance with the provisions of the 2016 Equity-Based Incentive Plan and applicable law.
Board
of Directors and Officers
Our
board of directors presently consists of seven directors. All of our directors also serve as directors of our subsidiaries TyrNovo
Ltd. and FameWave Ltd. Each of Dr. Rowinsky, Ms. Stern-Raff, Mr. Tzror, Mr. Steinberg, and Mr. Agmon qualifies as an independent
director under the corporate governance standards of the NASDAQ Listing Rules and the independence requirements of Rule 10A-3
of the Exchange Act.
Under
our amended and restated articles of association, resolutions by the Board of Directors shall be decided by a majority of votes
of the directors present, or participating, in the case of voting by media, and voting, each director having one vote. In the
event of a tie, the chairman of the Board does not hold a casting vote.
Under
the Companies Law, companies incorporated under the laws of the State of Israel that are “public companies,” including
companies with shares listed on NASDAQ, are required to appoint at least two external directors.
Pursuant
to regulations promulgated under the Companies Law, companies with shares traded on a U.S. stock exchange, including NASDAQ, may,
subject to certain conditions, “opt out” from the Companies Law requirements to appoint external directors and related
Companies Law rules concerning the composition of the audit committee and compensation committee of the board of directors. In
accordance with these regulations, in July 2016, we elected to “opt out” from the Companies Law requirements to appoint
external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee
of the board of directors.
Under
these regulations, the exemptions from such Companies Law requirements will continue to be available to us so long as: (i) we
do not have a “controlling shareholder” (as such term is defined under Section 1 of the Companies Law), (ii) our shares
are traded on a U.S. stock exchange, including NASDAQ, and (iii) we comply with the director independence requirements, the audit
committee and the compensation committee composition requirements, under U.S. laws (including applicable Nasdaq Rules) applicable
to U.S. domestic issuers.
A
majority of our Board members are independent as required by the NASDAQ Listing Rules. Furthermore, our Audit Committee consists
of at least three independent directors, and our Compensation Committee consists of at least two independent directors.
Should
any person or entity become deemed to be a controlling shareholder as defined in Section 1 of the Companies Law, then in accordance
with Section 248(a) of the Companies Law, we will be required to convene a special general meeting of the shareholders at the
earliest possible date, the agenda of which shall include the appointment of at least two external directors. Following such appointment,
all of the external directors shall be appointed to each of our audit committee and compensation committee, and at least one external
director shall be appointed to each committee of the Board of Directors authorized to exercise any of the powers of the board
of directors.
Our
directors are elected to serve are divided into three classes, with each class comprising one-third of the members of our board
of directors (the “Board”) (who are not external directors, if any were appointed), (hereinafter the “first
class”; the “second class”; and the “third class”). If the number of directors is not equally divisible
by three, each of the first class and the second class will be comprised of a different number, the closest and lowest to one-third,
while the third class will be comprised of the remaining directors (who are not external directors, if any were appointed). If
the number of directors changes, the number of directors in each class will change in accordance with the aforesaid rule.
At
our 2020 annual general meeting of shareholders, the appointment of the directors included in the second class shall end. At our
2021 general meeting of shareholders, the appointment of the directors included in the third class shall end. At our 2022 general
meeting of shareholders, the appointment of the directors included in the first class shall end. At our annual general meeting
of our shareholders, the shareholders are entitled to elect directors who shall be elected for a Three-Year Term to replace the
class of directors whose term in office has expired as of such annual general meeting of our shareholders, and so on ad infinitum,
so that the directors who shall be elected as stated above shall enter office at the end of the annual general meeting of our
shareholders at which they were elected, unless a later date for commencement of the term was decided at the time of the appointment,
and shall serve for Three-Year Terms (unless their appointment will be terminated in accordance with the provisions of our amended
and restated articles of association), and so that each year, the terms in office of one of the classes of directors shall expire
at the annual general meeting of our shareholders for such year. A “Three-Year Term” means a term of office of a director
until the third annual general meeting of our shareholders which shall be held following the date of their election as director,
provided that each director shall continue to serve in office until his or her successor is duly elected and qualified, or until
his or her retirement, death, resignation or removal. Our Board may appoint a director at any time to fill any vacancies until
the annual meeting of our shareholders set to take place at the end of the Three-Year Term for the class of directors to which
such director is so appointed by the Board, provided that the total number of the members of the Board serving at such time will
not exceed the Maximum Number (see below). The shareholders may at all times, by a Special Majority vote of the shareholders,
replace or dismiss a director (in the case of replacement, only if the appointed director is not a corporation). A director to
be replaced shall be given a reasonable opportunity to address the shareholders at their meeting. The tenure of a director expires
pursuant to the provisions of our amended and restated articles of association and the Companies Law, upon death or if s/he becomes
incompetent, unless removed from office as described above. At our 2020 annual general meeting of shareholders, the terms of the
directors included in the second class (Messrs. Steinberg, and Tzror) shall end. At our 2021 general meeting of shareholders,
the terms of the directors included in the third class (Messrs. Israel and Rock and Ms. Stern-Raff) shall end. At our 2022 general
meeting of shareholders, the terms of the directors included in the first class (Dr. Rowinsky and Mr. Agmon) shall end.
Under
our amended and restated articles of association, the number of directors on our Board will be no less than four and no more than
nine (including any external directors, to the extent that we may be required to appoint external directors in accordance with
the Companies Law and any Regulations enacted thereunder) (“Maximum Number”). The majority of the members of the Board
shall be residents of Israel, unless our center of management shall have been transferred to another country in accordance with
a resolution of our Board by a majority of three quarters (75%) of the participating director votes. The number of directors may
be changed, at any time and from time to time, by our shareholders with a majority of (a) 75% of the voting rights participating
and voting on the matter in the applicable general meeting of our shareholders and (b) more than 47.9% of all of the voting rights
in Kitov Pharma as of the record date established for the applicable general meeting of our shareholders (“Special Majority”).
In
addition, under the Companies Law, our board of directors must determine the minimum number of directors who are required to have
financial and accounting expertise. Under applicable regulations, a director with financial and accounting expertise is a director
who, by reason of his or her education, professional experience and skill, has a high level of proficiency in and understanding
of business accounting matters and financial statements. He or she must be able to thoroughly comprehend the financial statements
of the company and initiate debate regarding the manner in which financial information is presented. In determining the number
of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the
company and the scope and complexity of its operations. Our board of directors has determined that we require at least one director
with the requisite financial and accounting expertise and that Mr. Rock, Mr. Steinberg, Ms. Stern-Raff, Mr. Tzror are each deemed
to have such expertise.
Alternate
Directors
Our
amended and restated articles of association provide, as allowed by the Companies Law, that any director may, at all times, appoint
any person (which is not a corporation) by written notice to us to serve as an alternate director at a meeting of the board of
directors. A person who is not qualified to be appointed as a director, a person who is already serving as a director or a person
who is already serving as an alternate director for another director, may not be appointed as an alternate director, unless otherwise
permitted by applicable law. A director who is already serving as a director may be appointed as an alternate director for a member
of a committee of the board of directors so long as he or she is not already serving as a member of such committee, and if the
alternate director is to replace an external director, he or she is required to be an external director and to have either “financial
and accounting expertise” or “professional expertise,” depending on the qualifications of the external director
he or she is replacing. So long as the external director’s appointment is valid, the alternate director shall be entitled
to participate and vote in every meeting of the board of directors from which the appointing director is absent. Subject to the
terms of appointment, the alternate director will be regarded as a director and shall have all of the authority of the director
he or she is replacing. An appointing director may at any time cancel the appointment of an alternate director. The term of appointment
of an alternate director will end if the appointing director notifies us in writing of the termination or cancellation of the
appointment or if the appointing director’s appointment is terminated.
Audit
Committee
Under
the Companies Law, the board of directors of any public company must also appoint an audit committee. Companies listed on foreign
stock exchanges, including NASDAQ, which have adopted the corporate governance exceptions, such as our company (as described above),
are exempt from the audit committee composition requirements under the Companies Law, but must comply with the audit committee
composition requirements of the applicable foreign exchange.
Under
the NASDAQ Listing Rules, we are required to maintain an audit committee consisting of at least three independent directors, all
of whom are financially literate and one of whom has accounting or related financial management expertise.
Each
of the members of the audit committee is required to be “independent” as such term is defined in Rule 5605(a)(2) of
the NASDAQ Listing Rules and in Rule 10A-3(b)(1) under the Exchange Act, which is different from the general test for independence
of board and committee members. The independence requirements of the Exchange Act implement two basic criteria for determining
independence: (1) audit committee members are barred from accepting directly or indirectly any consulting, advisory or other compensatory
fee from the issuer or an affiliate of the issuer, other than in the member’s capacity as a member of the board of directors
and any board committee, and (2) audit committee members may not be an “affiliated person” of the issuer or any subsidiary
of the issuer apart from her or his capacity as a member of the board of directors and any board committee. The SEC has defined
“affiliate” for non-investment companies as “a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person specified.” The term “control” is
intended to be consistent with the other definitions of this term under the Exchange Act as “the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise.”
Audit
Committee Role
Under
the Companies Law, our audit committee:
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recommends
to the board of directors to recommend to our shareholders to appoint and approve the compensation of the independent registered
public accounting firm engaged to audit our financial statements;
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monitors
deficiencies in the management of the Company, inter alia, in consultation with the independent registered public accounting
firm and internal auditor, and advises the board of directors on how to correct such deficiencies;
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decides
whether to approve and recommend to the board of directors to approve engagements or transactions that require the audit committee’s
approval under the Companies Law relating generally to certain related party transactions. The audit committee must pre-determine
procedures for a competitive process, or other procedures, before approving related party transactions with controlling shareholders,
even if such transactions are deemed by the audit committee not to be extraordinary transactions. This process is to be supervised
by the audit committee, or any person authorized for such supervision, or via any other method approved by the audit committee;
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decides
as to what transactions shall be considered as “extraordinary transactions” as such term is defined under the
Companies Law in connection with related party transaction;
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determines
the approval process for transactions that are not negligible, as well as determine which types of transactions would require
the approval of the audit committee. Non-negligible transactions are defined as related party transactions with a controlling
shareholder, or in which the controlling shareholder has a personal interest, even if they are deemed by the audit committee
not to be extraordinary transactions but which have also been classified by the audit committee as non-negligible transactions;
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meets
and receives reports from both the internal auditors and the independent registered public accounting firm dealing with matters
that arise in connection with their audits; and
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regulates
the Company’s rules on employee complaints, and implementing a whistleblower protection plan with respect to employee
complaints of business irregularities.
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In
accordance with the Sarbanes-Oxley Act of 2002 and the NASDAQ Listing Rules, the audit committee is also directly responsible
for the appointment, compensation and performance of our independent auditors, and pre-approves audit and non-audit services to
be provided by the independent auditors. In addition, the audit committee is responsible for assisting the board of directors
in reviewing our annual financial statements, the adequacy of our internal controls and our compliance with legal and regulatory
requirements. The audit committee also oversees our major financial risk exposures and policies for managing such potential risks,
discusses with management and our independent auditor significant risks or exposure and assesses the steps management has taken
to minimize such risk.
Our
board of directors has adopted an audit committee charter setting forth the responsibilities of the audit committee, which are
consistent with the provisions of the Companies Law, rules and regulations of the SEC and the NASDAQ Listing Rules.
The
approval of the audit committee (or under certain circumstances the compensation committee) is required to effect specified actions
and transactions with office holders and controlling shareholders and their relatives, or in which they have a personal interest.
The audit committee may not approve an action or a transaction with a controlling shareholder or with an office holder unless
at the time of approval the audit committee meets the composition requirements under the Companies Law.
Our
audit committee consists of Ms. Revital Stern-Raff, Mr. Steven Steinberg and Mr. Ran Tzror. All members of our audit committee
meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQ Listing Rules.
Our board of directors has determined that all of the above members of the audit committee are audit committee financial experts
as defined by the SEC rules and have the requisite financial experience as defined by the NASDAQ Listing Rules.
Compensation
Committee
Israeli
public companies are required to appoint a compensation committee in accordance with the requirements set forth in the Companies
Law. Companies listed on foreign stock exchanges, including NASDAQ, which have adopted the corporate governance exceptions, such
as our company (as described above), are exempt from the compensation committee composition requirements under the Companies Law,
but must comply with the compensation committee composition requirements of the applicable foreign exchange.
In
accordance with the Companies Law, the roles of the compensation committee are, among others, as follows:
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to
recommend to the board of directors the compensation policy for directors and officers, and to recommend to the board of directors
once every three years whether the compensation policy that had been approved should be extended for a period of more than
three years;
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to
recommend to the board of directors updates to the compensation policy, from time to time, and examine its implementation;
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to
decide whether to approve the terms of office and employment of directors and officers that require approval of the compensation
committee; and
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to
decide whether the compensation terms of the chief executive officer of Kitov Pharma which were determined pursuant to the
compensation policy need not be brought for approval of the shareholders because it will harm the ability to engagement with
the chief executive officer.
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In
addition to the roles mentioned above our compensation committee will also make recommendations to our board of directors regarding
the awarding of employee equity grants.
Our
board of directors has adopted a compensation committee charter setting forth the responsibilities of the compensation committee,
which are consistent with the provisions of the Companies Law, rules and regulations of the SEC and the NASDAQ Listing Rules.
Our compensation committee presently consists of Mr. Steven Steinberg and Mr. Ido Agmon.
Compensation
Policy
Israeli
public companies must adopt a compensation policy with respect to the terms of service and employment of their directors and officers.
The compensation policy must be approved by the compensation committee (or the audit committee acting in lieu of a compensation
committee pursuant to the Companies Law) and board of directors, and subject to limited exceptions, by the shareholders. Shareholder
approval requires one of the following: (i) the majority of shareholder votes counted at general meeting including the majority
of all of the votes of those shareholders who are non-controlling shareholders and do not have a personal interest in the approval
of the compensation policy, who participate at the meeting (excluding abstentions) or (ii) the total number of votes against the
proposal among the shareholders mentioned in paragraph (i) does exceed two percent (2%) of the voting rights in the company. Under
special circumstances, the board of directors may approve the compensation policy despite the objection of the shareholders on
the condition that the compensation committee (or the audit committee acting in lieu of a compensation committee pursuant to the
Companies Law) and then the board of directors decide, on the basis of detailed arguments and after discussing again the compensation
policy, that approval of the compensation policy, despite the objection of the meeting of shareholders, is for the benefit of
the company.
On
July 12, 2017, Kitov Pharma’s shareholders approved our current compensation policy (the “Compensation Policy”).
The
Compensation Policy will not, on its own, grant any rights to our directors or officers. The Compensation Policy includes both
long term and short term compensation elements and is to be reviewed from time to time by our compensation committee (or the audit
committee acting in lieu of a compensation committee pursuant to the Companies Law) and board, according to the requirements of
the Companies Law.
In
general, compensation for officers will be examined while taking into consideration the following parameters, including, among
others (i) education, qualifications, expertise, seniority (with us in particular, and in the officer’s profession in general),
professional experience and achievements of the officer; (ii) meeting by the officer of the targets set for him, if relevant;
(iii) the officer’s position, the scope of his responsibility and previous wage agreements that were signed with him; and
(iv) the ratio between the total cost of the proposed engagement terms of an officer and the total cost of the wages for all of
our other employees, officers and contractors, and in particular compared to the average or median wage of such employees, officers
and contractors and the effect of this ratio and difference, if any, on labor relations.
Our
Compensation Policy must be reviewed from time to time by our Compensation Committee and Board of Directors, to ensure its alignment
with our compensation philosophy and to consider its appropriateness for the Company. Pursuant to the Israeli Companies Law, our
Compensation Policy must generally be re-approved once every three years by the Board of Directors, after considering the recommendations
of the Compensation Committee, and by a special majority of Company’s shareholders as detailed above. Any amendment to the
Compensation Policy requires the same approvals.
In
adopting the Compensation Policy, we considered feedback we received from shareholders regarding corporate governance “best
practices” for companies of a similar size, scope of business, and life-cycle. Subsequently, we adopted the Compensation
Policy to better align and to further improve the link between the long-term interests of the participants of the compensation
system with those of the shareholder. Targets used to determine payout levels for variable compensation elements such as the Annual
Bonus and Long-Term Incentives (LTIs) are approved by the Compensation Committee in advance. We expect that we will continue to
monitor the regulatory environment and to solicit feedback from our shareholders in the future to ensure that this link is maintained
and continuously strengthened.
In
addition to receiving and implementing suggestions by shareholders regarding the Compensation Policy, our Compensation Committee
and Board of Directors considered numerous factors, including the relevant matters and provisions set forth in the Israeli Companies
Law, and reviewed various data and other information they deemed relevant, with the advice and assistance of legal and other advisors.
They also used benchmark studies of peer companies prepared for us by outside consultants to determine that the various compensation
elements included in the Compensation Policy are in line with market practice. As a reference point, we target actual compensation
packages to the median compensation level of the peer group, while maintaining the potential for above-average variable compensation
for high performance. It should also be noted that our Compensation Committee expects to conduct these analyses and benchmarks
pay for executives at least once every three years. The benchmark group comprised a selection of companies chosen to reflect the
competitive environment in which we operate. These companies were selected according to criteria such as revenues, market capitalization,
business type, geographic location, and size.
Our
Compensation Policy is intended to strike a balance between short and long-term performance incentives for the executives in a
way that links pay to performance of our executive officers’ interests with those of the Company and our shareholders. We
believe that it allows us to provide meaningful incentives that reflect both our short- and long-term goals and performance, as
well as our executive officers’ individual performance and impact on shareholder value, while providing compensation that
is competitive in the global marketplace in which we recruit talent and designed to reduce incentives to take excessive risks.
Our
Compensation Policy (i) has an annual cap on equity based compensation of 15%, (ii) allows for non-executive directors to be paid
solely with an annual cash fee in lieu of annual and per-meeting cash fees, (iii) allows non-executive directors to receive equity-based
incentive compensation, (iv) allows for increased individual and Company coverage under the proposed directors’ and officers’
insurance policy for renewal as set forth in the Compensation Policy, (v) allows for signing or retention bonuses in order to
recruit qualified personnel, (vi) allows for change of control payments in order to reduce to some extent the personal uncertainty
of office holders and promote full and impartial consideration of change of control opportunities for the Company, and (vii) has
a cap on the value of share-based compensation for each Office Holder, during each year, which is the higher of (X) 5% of the
share capital of the Company (on a fully diluted basis) calculated at the date of the grant, or (Y) USD 2.5 million value of the
equity-based compensation calculated based on the Black and Scholes Model, or any other reasonable, best practice or commonly
accepted applicable equity based compensation valuation models taking into account the circumstances of the specific grants in
accordance with the provisions of the Compensation Policy.
The
brief overview above is qualified in its entirety by reference to the full text of our Compensation Policy, which is attached
as an exhibit to this Annual Report on Form 20-F.
Other
Board Committees
In
the past our board of directors established an investment committee in order to oversee the management and investment of the Company’s
cash and cash equivalents, which met on an ad hoc basis as required and was empowered to establish guidelines and policies, as
well as to make decisions, with respect to managing our financial assets. Our board of directors recently resolved to disband
this committee and authorized our audit committee to oversee such activities. Our board of directors had also previously established
a science and technology committee in order to advise and assist the Board of Directors of the Company in the oversight of the
Company’s research and development and technology programs. This committee also on an ad hoc basis. Our board of directors
also recently resolved to disband this committee.
Internal
Auditor
Under
the Companies Law, the board of directors of a public company must appoint an internal auditor based on the recommendation of
the audit committee. The role of the internal auditor is, among other things, to examine whether a company’s actions comply
with applicable law and orderly business procedure. Under the Companies Law, the internal auditor may not be a related party or
an office holder or a relative of a related party or of an office holder, nor may the internal auditor be the company’s
independent auditor or the representative of the same.
A
“related party” is defined in the Companies Law as (i) a holder of 5% or more of the issued share capital or voting
power in a company, (ii) any person or entity who has the right to designate one or more directors or to designate the chief executive
officer of the company, or (iii) any person who serves as a director or as a chief executive officer of the company. In July 2016,
our Board of Directors, following the recommendation of our Audit Committee, resolved to appoint as the Company’s new internal
auditor, Mr. Yisrael Gewirtz, a partner at Fahn Kanne Control Management Ltd., a member firm of Grant Thornton International.
Fiduciary
Duties and Approval of Specified Related Party Transactions and Compensation under Israeli Law
Fiduciary
Duties of Office Holders
The
Companies Law imposes a duty of care and a fiduciary duty on all office holders of a company. The duty of care of an office holder
is based on definition of negligence under the Israeli Torts Ordinance (New Version) 5728-1968. This duty of care requires an
office holder to act with the degree of proficiency with which a reasonable office holder in the same position would have acted
under the same circumstances. The duty of care includes, among other things, a duty to use reasonable means, in light of the circumstances,
to obtain:
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information
on the business advisability of a given action brought for his or her approval or performed by virtue of his or her position;
and
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all
other important information pertaining to such action.
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The
fiduciary duty incumbent on an office holder requires him or her to act in good faith and for the benefit of the company, and
includes, among other things, the duty to:
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refrain
from any act involving a conflict of interest between the performance of his or her duties in the company and his or her other
duties or personal affairs;
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refrain
from any activity that is competitive with the business of the company;
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refrain
from exploiting any business opportunity of the company for the purpose of gaining a personal advantage for himself or herself
or others; and
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disclose
to the company any information or documents relating to the company’s affairs which the office holder received as a
result of his or her position as an office holder.
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We
may approve an act specified above which would otherwise constitute a breach of the office holder’s fiduciary duty, provided
that the office holder acted in good faith, the act or its approval does not harm the company, and the office holder discloses
his or her personal interest a sufficient time before the approval of such act. Any such approval is subject to the terms of the
Companies Law, setting forth, among other things, the appropriate corporate bodies of the company entitled to provide such approval,
and the methods of obtaining such approval.
Disclosure
of Personal Interests of an Office Holder and Approval of Transactions
The
Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may have and
all related material information or documents relating to any existing or proposed transaction by the company. An interested office
holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors at
which the transaction is considered. An office holder is not obliged to disclose such information if the personal interest of
the office holder derives solely from the personal interest of his or her relative in a transaction that is not considered an
extraordinary transaction.
Under
the Companies Law, once an office holder has complied with the above disclosure requirement, a company may approve a transaction
between the company and the office holder or a third party in which the office holder has a personal interest. However, a company
may not approve a transaction or action that is not to the company’s benefit.
Under
the Companies Law, unless the articles of association of a company provide otherwise, a transaction with an office holder or with
a third party in which the office holder has a personal interest, which is not an extraordinary transaction, requires approval
by the board of directors. The Companies Law provides that such a transaction, which is not an extraordinary transaction, may
be approved by the board of directors or a committee of the board of directors or any other entity (which has no personal interest
in the transaction) authorized by the board of directors. Our amended and restated articles of association provide that transactions
in which officers have a personal interest but which are not extraordinary transactions can be approved by our chief executive
officer and chief financial officer (unless they have the personal interest; in which case it will be one of our directors instead
of such interested officer). If the transaction considered is an extraordinary transaction with either an office holder or with
a third party in which the office holder has a personal interest, then audit committee approval is required prior to approval
by the board of directors. For the approval of compensation arrangements with directors and executive officers, see “Item
6. Directors, Senior Management and Employees – B. Compensation.”
Any
persons who have a personal interest in the approval of a transaction that is brought before a meeting of the board of directors
or the audit committee may not be present at the meeting or vote on the matter. However, if the chairman of the board of directors
or the chairman of the audit committee has determined that the presence of an office holder with a personal interest is required,
such office holder may be present at the meeting for the purpose of presenting the matter. Notwithstanding the foregoing, a director
who has a personal interest may be present at the meeting and vote on the matter if a majority of the directors or members of
the audit committee have a personal interest in the approval of such transaction. If a majority of the directors at a board of
directors meeting have a personal interest in the transaction, such transaction also requires approval of the shareholders of
the company.
A
“personal interest” is defined under the Companies Law as the personal interest of a person in an action or in a transaction
of the company, including the personal interest of such person’s relative or the interest of any other corporate body in
which the person or such person’s relative is a director or general manager, a 5% shareholder or holds 5% or more of the
voting rights, or has the right to appoint at least one director or the general manager, but excluding a personal interest stemming
solely from the fact of holding shares in the company. A personal interest also includes (1) a personal interest of a person who
votes according to a proxy of another person, including in the event that the other person has no personal interest, and (2) a
personal interest of a person who gave a proxy to another person to vote on his or her behalf regardless of whether the discretion
of how to vote lies with the person voting or not.
An
“extraordinary transaction” is defined under the Companies Law as any of the following:
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a
transaction other than in the ordinary course of business;
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a
transaction that is not on market terms; or
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a
transaction that may have a material impact on the company’s profitability, assets or liabilities.
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Disclosure
of Personal Interests of a Controlling Shareholder and Approval of Transactions
The
Companies Law also requires that a controlling shareholder promptly disclose to the company any personal interest that he or she
may have and all related material information or documents relating to any existing or proposed transaction by the company. A
controlling shareholder’s disclosure must be made promptly and in any event no later than the first meeting of the board
of directors at which the transaction is considered. Extraordinary transactions with a controlling shareholder or in which a controlling
shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest,
and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or a controlling shareholder’s
relative (including through a corporation controlled by a controlling shareholder), regarding the company’s receipt of services
from the controlling shareholder, and if such controlling shareholder is also an office holder of the company, regarding his or
her terms of employment, require the approval of each of (i) the audit committee or the compensation committee with respect to
the terms of the engagement of the company, (ii) the board of directors and (iii) the shareholders, in that order. In addition,
the shareholder approval must fulfill one of the following requirements:
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a
majority of the shares held by shareholders who have no personal interest in the transaction and are voting at the meeting
must be voted in favor of approving the transaction, excluding abstentions; or
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the
shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no
more than 2% of the voting rights in the company.
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In
addition, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest
with a term of more than three years requires the abovementioned approval every three years, however, such transactions not involving
the receipt of services or compensation can be approved for a longer term, provided that the audit committee determines that such
longer term is reasonable under the circumstances.
The
Companies Law requires that every shareholder that participates, in person, by proxy or by voting instrument, in a vote regarding
a transaction with a controlling shareholder or in which such has a personal interest, must indicate in advance or in the ballot
whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will result in the invalidation
of that shareholder’s vote. For more information regarding exemptions from shareholder approval for extraordinary transactions
with a controlling shareholder, see “Item 10 – Additional Information – B. Memorandum and Articles of Association
– Board of Directors.”
Compensation
of Directors and Executive Officers
Directors.
Under the Companies Law, the compensation of our directors with respect their service as a director, as well as their engagement
in other roles (if the director is so engaged) requires the approval of our compensation committee (or the audit committee acting
in lieu of a compensation committee pursuant to the Companies Law), the subsequent approval of the board of directors and, unless
exempted under the regulations promulgated under the Companies Law, the approval of the shareholders at a general meeting. If
the compensation of a director is inconsistent with our duly approved compensation policy, or compensation is approved prior to
the approval of a new compensation policy upon expiration of the term of the previous compensation policy, then, provided that
those provisions that must be included in the compensation policy according to the Companies Law have been considered by the compensation
committee (or the audit committee acting in lieu of a compensation committee pursuant to the Companies Law) and board of directors,
shareholder approval will also be required, as follows:
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at
least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest
in such matter, present and voting at such meeting, are voted in favor of the compensation package, excluding abstentions;
or
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the
total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in such matter
voting against the compensation package does not exceed 2% of the aggregate voting rights in the company.
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If
the amounts of cash compensation to be paid to each independent director will be the same as that which is paid to our other independent
directors, and will not be in excess of the maximum amounts set forth under Regulations 4, 5 and 7 of the Companies Regulations
(Rules Concerning Compensation and Expenses for an External Director), 5760-2000, then the compensation committee (or the audit
committee acting in lieu of a compensation committee pursuant to the Companies Law) and board of directors may determine that
payment of such compensation is an engagement which does not require the approval of our shareholders pursuant to the leniencies
set forth in Regulation 1A(2) under the Companies Regulations (Relief Regulations Regarding Transactions with Interested Parties,
5760-2000 (hereinafter: the “Relief Regulations”).
Executive
Officers Other Than the Chief Executive Officer. The Companies Law requires the compensation of a public company’s executive
officers (other than the chief executive officer) who are not directors at the company to be approved by, first, the compensation
committee (or the audit committee acting in lieu of a compensation committee pursuant to the Companies Law), second, by the company’s
board of directors and third, if such compensation arrangement is inconsistent with the company’s duly approved compensation
policy, or compensation is approved prior to the approval of a new compensation policy upon expiration of the term of the previous
compensation policy, the company’s shareholders (by a special majority vote as discussed above with respect to the approval
of director compensation). However, if the shareholders of the company do not approve a compensation arrangement with an executive
officer that is inconsistent with the company’s stated compensation policy, the compensation committee (or the audit committee
acting in lieu of a compensation committee pursuant to the Companies Law) and board of directors may override the shareholders’
decision if each of the compensation committee (or the audit committee acting in lieu of a compensation committee pursuant to
the Companies Law) and the board of directors provide detailed reasons for their decision. Non-material amendments to the compensation
of a public company’s executive officers (other than the chief executive officer) may be approved by the chief executive
officer of the company if the company’s compensation policy has established that such amendments within the parameters established
in the compensation policy may be approved by the chief executive officer, and the compensation is consistent with the company’s
compensation policy.
Chief
Executive Officer. The compensation paid to a public company’s chief executive officer who is not a director at the
company is required to be approved by, first, the company’s compensation committee (or the audit committee acting in lieu
of a compensation committee pursuant to the Companies Law); second, the company’s board of directors, and, unless exempted
under the regulations promulgated under the Companies Law, by the company’s shareholders (by a special majority vote as
discussed above with respect to the approval of director compensation). However, if the shareholders of the company do not approve
the compensation arrangement with the chief executive officer who is not a director at the company, the compensation committee
(or the audit committee acting in lieu of a compensation committee pursuant to the Companies Law) and board of directors may override
the shareholders’ decision if each of the compensation committee (or the audit committee acting in lieu of a compensation
committee pursuant to the Companies Law) and the board of directors provide a detailed report for their decision. The renewal
or extension of the engagement with a public company’s chief executive officer need not be approved by the shareholders
of the company if the terms and conditions of such renewal or extension are no more beneficial than the previous engagement or
there is no substantial difference in the terms and conditions under the circumstances, and the terms and conditions of such renewal
or extension are in accordance with the company’s compensation policy.
The
compensation committee (or the audit committee acting in lieu of a compensation committee pursuant to the Companies Law) and board
of directors approval should be in accordance with the company’s duly approved compensation policy; however, in special
circumstances, they may approve compensation terms of a chief executive officer that are inconsistent with such policy provided
that they have considered those provisions that must be included in the compensation policy according to the Companies Law and
that shareholder approval was obtained (by a special majority vote as discussed above with respect to the approval of director
compensation). The compensation committee (or the audit committee acting in lieu of a compensation committee pursuant to the Companies
Law) may waive the shareholder approval requirement with regards to the approval of the initial engagement terms of a candidate
for the chief executive officer position, if they determine that the compensation arrangement is consistent with the company’s
stated compensation policy, and that the chief executive officer did not have a prior business relationship with the company or
a controlling shareholder of the company and that subjecting the approval of the engagement to a shareholder vote would impede
the company’s ability to employ the chief executive officer candidate.
The
engagement with a public company’s office holder need not be approved by the shareholders of the company with respect to
the period from the commencement of the engagement until the next shareholder meeting convened by the company, if the terms and
conditions of such engagement were approved by the compensation committee (or audit committee acting in lieu of the compensation
company) and the board of directors of the company, the terms and conditions of such engagement are in accordance with the company’s
compensation policy approved in accordance with Section 267A of the Companies Law, and if the terms and conditions of such engagement
are no more beneficial than the terms and conditions of the person previously serving in such role or there is no substantial
difference in the terms and conditions of the previous engagement versus the new one under the circumstances, including the scope
of engagement.
Duties
of Shareholders
Under
the Companies Law, a shareholder has a duty to refrain from abusing its power in the company and to act in good faith and in an
acceptable manner in exercising its rights and performing its obligations to the company and other shareholders, including, among
other things, when voting at meetings of shareholders on the following matters:
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an
amendment to the articles of association;
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an
increase in the company’s authorized share capital;
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the
approval of related party transactions and acts of office holders that require shareholder approval.
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A
shareholder also has a general duty to refrain from discriminating against other shareholders.
The
remedies generally available upon a breach of contract will also apply to a breach of the shareholder duties mentioned above,
and in the event of discrimination against other shareholders, additional remedies are available to the injured shareholder.
In
addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote
and any shareholder that, under a company’s articles of association, has the power to appoint or prevent the appointment
of an office holder, or any other power with respect to a company, is under a duty to act with fairness towards the company. The
Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach
of contract will also apply in the event of a breach of the duty to act with fairness, taking the shareholder’s position
in the company into account.
Exculpation,
Insurance and Indemnification of Directors and Officers
Under
the Companies Law, a company may not exculpate an office holder from liability for a breach of a fiduciary duty. An Israeli company
may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company
as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association.
Our amended and restated articles of association include such a provision. The company may not exculpate in advance a director
from liability arising out of a prohibited dividend or distribution to shareholders.
Under
the Companies Law and the Securities Law, 5738 – 1968 (“Securities Law”) a company may indemnify an office holder
in respect of the following liabilities, payments and expenses incurred for acts performed by him or her as an office holder,
either in advance of an event or following an event, provided its articles of association include a provision authorizing such
indemnification:
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a
monetary liability incurred by or imposed on him or her in favor of another person pursuant to a judgment, including a settlement
or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to
such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board
of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an
amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking
shall detail the abovementioned foreseen events and amount or criteria;
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reasonable
litigation expenses, including reasonable attorneys’ fees, incurred by the office holder as a result of an investigation
or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided
that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial
liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding
or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal
intent or in connection with a monetary sanction;
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a
monetary liability imposed on him or her in favor of a payment for a breach offended at an Administrative Procedure (as defined
below) as set forth in Section 52(54)(a)(1)(a) to the Securities Law;
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expenses
associated with an Administrative Procedure conducted regarding an office holder, including reasonable litigation expenses
and reasonable attorneys’ fees; and
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reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted
against him or her by the company, on its behalf, or by a third party, or in connection with criminal proceedings in which
the office holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent.
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An
“Administrative Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities
Authority), H4 (Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent
Procedures or Interruption of procedures subject to conditions) to the Securities Law.
Under
the Companies Law and the Securities Law, a company may insure an office holder against the following liabilities incurred for
acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:
|
●
|
a
breach of a fiduciary duty to the company, provided that the office holder acted in good faith and had a reasonable basis
to believe that the act would not harm the company;
|
|
●
|
a
breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct
of the office holder;
|
|
●
|
a
monetary liability imposed on the office holder in favor of a third party;
|
|
●
|
a
monetary liability imposed on the office holder in favor of an injured party at an Administrative Procedure pursuant to Section
52(54)(a)(1)(a) of the Securities Law; and
|
|
●
|
expenses
incurred by an office holder in connection with an Administrative Procedure, including reasonable litigation expenses and
reasonable attorneys’ fees.
|
Under
the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
|
●
|
a
breach of fiduciary duty, except for indemnification and insurance for a breach of the fiduciary duty to the company to the
extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the
company;
|
|
●
|
a
breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the
office holder;
|
|
●
|
an
act or omission committed with intent to derive illegal personal benefit; or
|
|
●
|
a
fine or forfeit levied against the office holder.
|
Under
the Companies Law, exculpation, indemnification and insurance of office holders must be approved by the compensation committee
(or the audit committee acting in lieu of a compensation committee pursuant to the Companies Law) and the board of directors and,
with respect to directors or controlling shareholders, their relatives and third parties in which such controlling shareholders
have a personal interest, also by the shareholders.
The
compensation committee (or the audit committee acting in lieu of a compensation committee pursuant to the Companies Law) and board
of directors may approve the inclusion of each director under the coverage of our directors and officers insurance policy without
the need for shareholder approval, if they determine that, pursuant to the leniencies set forth in Regulation 1B1 of the Relief
Regulations, the provision of such insurance coverage to the directors under our directors and officers insurance policy is being
granted on market terms, and with no material adverse effect on our profits, assets or obligations, and is consistent with our
Compensation Policy which was approved by our shareholders in accordance with the Companies Law, and is the same as the coverage
provided to all of our other directors.
The
compensation committee (or the audit committee acting in lieu of a compensation committee pursuant to the Companies Law) and board
of directors may approve the issuance to directors of our standard letters of waiver of liability and indemnification, immediately,
as of the date of their respective appointments as directors, with the approval by our shareholders being deferred to the next
general meeting of our shareholders following such approval, if they determine that, pursuant to the leniencies set forth in Regulation
1B4 of the Relief Regulations, that the letters which we issue to the appointed directors are consistent with our Compensation
Policy which was approved by our shareholders in accordance with the Companies Law, and are no more beneficial to the Appointed
Directors as such letters previously issued to our other directors.
Our
amended and restated articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent
permitted or to be permitted by law. Our office holders are currently covered by a directors’ and officers’ liability
insurance policy within the parameters set forth in our Compensation Policy.
Our
audit committee and board of directors approved the issuance of letters of indemnity (the “Indemnity Letters”) to
our office holders pursuant to which we agreed to indemnify such office holders, including an undertaking in advance for such
indemnification. The Indemnity Letters also received the approval of our shareholders. According to the Indemnity Letters, the
total accumulative sum of indemnification paid by us to all our office holders that were issued by Kitov Pharma will not exceed
a sum equal to 25% of our equity attributed to our shareholders according to our latest audited or reviewed consolidated financial
statements, as the case may be, as of the date of indemnification. The payment of the indemnity sum will not prejudice the right
of office holders to receive insurance coverage benefits. Once we have paid indemnity sums to our office holders at the maximum
indemnity sum, we will not bear additional indemnity sums unless the payment of these additional sums is approved by authorized
corporate bodies according to the law applicable at the time of payment of the additional indemnity sums, and subject to an amendment
in our articles of association if required by applicable law at such time.
In
addition, we have entered into agreements with each of our current office holders exculpating them from a breach of their duty
of care to us to the fullest extent permitted by law, subject to limited exceptions, and undertaking to indemnify them to the
fullest extent permitted by law, subject to limited exceptions, including with respect to liabilities resulting from our Registration
Statements, to the extent that these liabilities are not covered by insurance. This indemnification is limited to events determined
as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the
board of directors as reasonable under the circumstances. The maximum aggregate amount of indemnification that we may pay to our
office holders based on such indemnification agreement is with respect to all permitted indemnification, including in connection
with a public offering of our securities, an amount equal to 25% of our shareholders’ equity on a consolidated basis, based
on our most recent financial statements made publicly available before the date on which the indemnification payment was made.
Such indemnification amounts are in addition to any insurance amounts. Each office holder who agrees to receive this letter of
indemnification also gives his approval to the termination of all previous letters of indemnification that we have provided to
him or her in the past, if any.
We
expect to indemnify our officers and directors for obligations, including the deductibles for our directors’ and officers’
liability insurance policy, and we may be required to pay and costs and expenses they may incur related to the ISA Investigation,
the 2015 Motion, the 2017 Motions and U.S. Class Actions described in Item 8. Financial Information – A. Financial Statements
and Other Financial Information – Legal Proceedings, pursuant to the letters of indemnification issued to our directors
and officers.
Insofar
as indemnifications for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
To
our knowledge, other than with respect to the 2015 Motion, the 2017 Motions, the U.S. Class Actions, and the ISA Investigation,
which are all described further in “Item 8. Financial Information – A. Financial Statements and Other Financial Information
– Legal Proceedings”, there is no previous or pending litigation or proceedings against any of our office holders
as to which indemnification is being, or may be sought, nor are we aware of any other pending or threatened litigation or proceeding
that may result in claims for indemnification by any office holder.
As
of December 31, 2019, the Company had the Company had employees and consultants on full time basis as follow: (i) six in business
development, general and administrative roles; and, (ii) three in research and development roles.
As
of December 31, 2018, the Company had employees and consultants on full time basis as follow: (i) six in business development,
general and administrative roles; and, (ii) four in research and development roles.
As
of December 31, 2017, the Company had employees and consultants on full time basis as follow: (i) six in business development,
general and administrative roles; and, (ii) three in research and development roles.
While
none of our employees is party to a collective bargaining agreement, in Israel we are subject to certain labor statutes and national
labor court precedent rulings, as well as to certain provisions of the collective bargaining agreements between the Histadrut
(General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations including the Industrialists’
Associations. These provisions of collective bargaining agreements are applicable to our Israeli employees by virtue of extension
orders issued in accordance with relevant labor laws by the Israeli Ministry of Labor and Welfare, and which apply such agreement
provisions to our employees even though they are not directly part of a union that has signed a collective bargaining agreement.
The laws and labor court rulings that apply to our employees principally concern the minimum wage laws, procedures for dismissing
employees, determination of severance pay, leaves of absence (such as annual vacation or maternity leave), sick pay and other
conditions for employment. The extension orders which apply to our employees principally concern the requirement for length of
the work day and workweek, mandatory contributions to a pension fund, annual recreation allowance, travel expenses payment and
other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums.
Israeli
law generally requires severance pay, which may be funded by managers’ insurance and/or a pension fund described below,
upon the retirement or death of an employee or termination of employment without cause (as defined in the law). Furthermore, Israeli
employees and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the United
States Social Security Administration. Such amounts also include payments for national health insurance. A general practice also
followed by us is the contribution of funds on behalf of most of our employees either to a fund known as managers’ insurance,
to a pension fund or to a combination of both.
We
have never experienced labor-related work stoppages or strikes and believe that our relations with our employees are satisfactory.
The
following table sets forth information with respect to the beneficial ownership of Kitov Pharma’s ordinary shares as of
March 16, 2020 by:
|
●
|
each
of our directors, executive officers and senior management and employees individually; and
|
|
●
|
all
of our executive officers, directors, and senior management and employees as a group.
|
The
beneficial ownership of Kitov Pharma’s ordinary shares in this table is determined in accordance with the rules of the SEC.
Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which
includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of
or to direct the disposition of the security. For purposes of the table below, we deem ordinary shares of Kitov Pharma issuable
pursuant to options or warrants that are currently exercisable or exercisable within 60 days of March 16, 2020, if any, to be
outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of computing the percentage
ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership of any
other person. The percentage of ordinary shares beneficially owned is based on 40,455,588 ordinary shares of Kitov Pharma’s
issued and outstanding as of March 16, 2020 (not including 1 share held in treasury).
|
|
Ordinary Shares Beneficially Owned
|
|
Name of Beneficial Owner
|
|
Number
|
|
|
Percentage
|
|
Directors
|
|
|
|
|
|
|
Dr. Eric Rowinsky
|
|
|
0
|
|
|
|
0
|
%
|
Isaac Israel(1)
|
|
|
495,469
|
|
|
|
1.22
|
%
|
Simcha Rock(2)
|
|
|
*
|
|
|
|
*
|
%
|
Steven Steinberg(2)
|
|
|
*
|
|
|
|
*
|
%
|
Ido Agmon(2)
|
|
|
*
|
|
|
|
*
|
%
|
Ran Tzror(2)
|
|
|
*
|
|
|
|
*
|
%
|
Revital Stern-Raff(2)
|
|
|
*
|
|
|
|
*
|
%
|
|
|
|
*
|
|
|
|
|
|
Senior Management and Employees
|
|
|
*
|
|
|
|
|
|
Gil Efron(2)
|
|
|
*
|
|
|
|
*
|
%
|
Dr. Bertrand Liang(2)
|
|
|
*
|
|
|
|
*
|
%
|
Dr. Michael Schickler
|
|
|
*
|
|
|
|
0
|
%
|
Gil Ben-Menachem(2)
|
|
|
*
|
|
|
|
*
|
%
|
Hadas Reuveni(2)
|
|
|
*
|
|
|
|
*
|
%
|
|
|
|
|
|
|
|
|
|
Total (directors, senior management and employees)
|
|
|
1,541,716
|
|
|
|
3.80
|
%
|
(1)
|
The
number of shares set forth in the table as beneficially owned by Mr. Israel, includes 277,683 ordinary shares issuable upon
exercise of outstanding options currently exercisable or which are expected to vest and be exercisable within 60 days of March
16, 2020. 110,324 have an exercise price of NIS 15.77 per ordinary share, and are exercisable through June 27, 2024 and 167,360
of these options have an exercise price of NIS 4.64 per ordinary share, and are exercisable through March 19, 2026.
|
(2)
|
Includes
ordinary shares as well as ordinary shares issuable upon exercise of outstanding options and/or RSUs currently exercisable
or which are expected to vest and be exercisable within 60 days of March 16, 2020 comprising less than 1% of Kitov Pharma’s
ordinary shares.
|
2016
Equity-Based Incentive Plan
On
April 18, 2016, we adopted the Kitov Pharmaceutical Holdings Ltd. 2016 Equity-Based Incentive Plan, or the 2016 Equity Incentive
Plan. The 2016 Equity Incentive Plan provides for the granting to our directors, officers, employees and consultants and to the
directors, officers, employees and consultants of our subsidiaries and affiliates, of equity-based incentive awards, including,
amongst others, options, restricted share units (RSUs), restricted shares, with either ordinary shares of Kitov Pharma or Company
ADSs underlying the applicable award. The 2016 Equity Incentive Plan provides for awards to be granted at the determination of
Kitov Pharma’s board of directors (who is entitled to delegate its powers under the 2016 Equity Incentive Plan to the compensation
committee or audit committee of Kitov Pharma’s board of directors) in accordance with applicable laws. The exercise price
and vesting period of awards are determined by Kitov Pharma’s board of directors. The number of ordinary shares currently
reserved for the grant of awards under the 2016 Equity Incentive Plan is 7,500,000 ordinary shares. Kitov Pharma’s board
of directors may, subject to any other approvals required under any applicable law, increase or decrease the number of ordinary
shares to be reserved under the 2016 Equity Incentive Plan. As of February 29, 2020 there were non-tradable options and RSUs exercisable
into 5,089,676 ordinary shares issuable upon the exercise of outstanding options and RSUs under the 2016 Equity Incentive Plan.
The
2016 Equity Incentive Plan will be effective until the earliest of (a) its cancellation by the board of directors of Kitov Pharma
and (b) April 18, 2026. Nevertheless, awards granted prior to the 2016 Equity Incentive Plan’s expiration date, whether
vested or not vested up to that date, will remain effective and will not expire prior to their expiration date as set forth in
the notice of grant of award (but in any event not in excess of 10 (ten) years from the allocation date).
Upon
termination of engagement with the Company for any reason, other than in the event of death or for cause, all unvested options
will expire and all vested options at time of termination will generally be exercisable within up to twelve (12) months after
the date of such termination, unless otherwise determined by the board of directors (or the committee, as applicable), subject
to the terms of the 2016 Equity Incentive Plan and the governing award agreement. If we terminate a grantee for cause (as defined
in the 2016 Equity Incentive Plan) the grantee’s right to exercise all vested and unvested options granted to him will expire
immediately, unless otherwise determined by the board of directors (or the committee, as applicable). Upon termination of engagement
with the Company due to death, all the vested options at the time of termination will be exercisable by the grantee’s heirs
or estate, for one (1) year from the date of death, unless otherwise determined by the board of directors (or the committee, as
applicable), subject to the terms of the 2016 Equity Incentive Plan and the governing award agreement.
The
2016 Equity Incentive Plan enables us to grant awards through one of the following Israeli tax programs, at our discretion and
subject to the applicable legal limitations: (a) according to section 102 of the Israeli Income Tax Ordinance, through a program
with a trustee that is appointed by us, (b) according to section 102 of the Israeli Income Tax Ordinance, without a trustee, or
(c) according to the provisions of section 3(9) in the Israeli Income Tax Ordinance. The 2016 Equity Incentive Plan also enables
us to grant options as Incentive Stock Options for U.S. tax purposes.
The
2016 Equity Incentive Plan includes directives for protecting the option holders during the exercise period with respect to distribution
of bonus stock, issue of rights, splitting or consolidating our share capital and dividend distribution. We will be entitled at
our sole discretion, to change the terms of the 2016 Equity Incentive Plan and/or replace it and/or terminate it regarding future
grants at any time, as we deem appropriate. It is also clarified that we will be entitled to change the terms of 2016 Equity Incentive
Plan regarding grants that were granted to the grantees, provided that the terms of the options which were already granted will
not be changed in a way that may materially impair the rights of the grantees, without the consent of award grantees holding a
majority in interest of the awards so affected, and in the event that such consent is obtained, all awards so affected shall be
deemed amended, and the holders thereof shall be bound, as set forth in such consent. Kitov Pharma’ board of directors will
determine, at its sole discretion, if a certain change may materially impair the rights of the grantee.
In
May 2016, Kitov Pharma received from the Securities Authority of the State of Israel an exemption from prospectus requirements
pursuant to the prevailing laws of the State of Israel, with respect to the offering of any securities of Kitov Pharma issuable
pursuant to the 2016 Equity Incentive Plan, In accordance with the terms of such exemption, in lieu of Kitov Pharma filing an
outline of offering in connection with the 2016 Equity Incentive Plan, Kitov Pharma will provide without charge to each award
grantee in Israel, upon the oral or written request of such person, Hebrew translations of the Registration Statement on Form
S-8 filed in connection with the 2016 Equity Incentive Plan and the 2016 Equity Incentive Plan.
Administration
of the 2016 Equity Incentive Plan
The
2016 Equity Incentive Plan is administered by Kitov Pharma’s board of directors, regarding the granting of awards and the
terms of award grants, including exercise price, method of payment, vesting schedule, acceleration of vesting and the other matters
necessary in the administration of such plans. Awards granted under the 2016 Equity Incentive Plan to eligible Israeli employees,
officers and directors and which are granted under Section 102 of the Israel Income Tax Ordinance pursuant to which the awards
or the ordinary shares (or ADSs in accordance with a ruling from the Israel Tax Authority dated June 19, 2016, or Tax Ruling)
issued upon their exercise must be allocated or issued to a trustee and be held in trust for two years from the date upon which
such awards were granted in order to benefit from the provisions of Section 102. Under Section 102, any tax payable by a grantee
from the grant or exercise of the awards is deferred until the transfer of the awards or ordinary shares (or ADSs; in accordance
with the Tax Ruling) by the trustee to the grantee or upon the sale of the awards or ordinary shares (or ADSs in accordance with
the Tax Ruling), and gains may qualify to be taxed as capital gains at a rate equal to 25%, subject to compliance with specified
conditions.
Form
S-8 registration statements
On
May 20, 2016 Kitov Pharma filed a registration statement on Form S-8 under the Securities Act to register 600,000 ordinary shares
of Kitov Pharma issued or reserved to be issued under our 2016 Equity Incentive Plan, on June 6, 2017 Kitov Pharma filed a registration
statement on Form S-8 under the Securities Act to register additional 1,900,000 ordinary shares of Kitov Pharma issued or reserved
to be issued under our 2016 Equity Incentive Plan, and on March 28, 2019, Kitov Pharma filed an additional registration statement
on Form S-8 under the Securities Act in order to register an additional 5,000,000 of our ordinary shares issued or reserved to
be issued under the Plan. We intend to file one or more additional registration statements on Form S-8 under the Securities Act
to register ordinary shares of Kitov Pharma issued or reserved to be issued under the 2016 Equity Incentive Plan. The registration
statements on Form S-8 become effective automatically upon filing. Ordinary shares issued upon exercise of a share option or other
award and registered pursuant to the Form S-8 registration statement will, subject to vesting provisions and Rule 144 volume limitations
applicable to our affiliates, be available for sale in the open market immediately unless they are subject to any contractual
lockup lock-up or, if subject to a contractual lock-up, immediately after the contractual lock-up period expires.
ITEM
7.
|
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
The
following table sets forth information with respect to the beneficial ownership of Kitov Pharma’s ordinary shares as of
March 16, 2020 by each person or entity known by us to own beneficially more than 5% of Kitov Pharma’s outstanding ordinary
shares.
The
beneficial ownership of Kitov Pharma’s ordinary shares in this table is determined in accordance with the rules of the SEC.
Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which
includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of
or to direct the disposition of the security. For purposes of the table below, we deem ordinary shares issuable pursuant to options
or warrants that are currently exercisable or exercisable within 60 days of March 16, 2020, if any, to be outstanding and to be
beneficially owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that
person, but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person. The
percentage of ordinary shares beneficially owned is based on 40,455,588 ordinary shares (not including 1 share held in treasury).
The data presented is based on information provided to us by the holders, or disclosed in public regulatory filings in the U.S.
or Israel, in accordance with the applicable law.
None
of our shareholders has different voting rights from other shareholders. To the best of our knowledge, we are not owned or controlled,
directly or indirectly, by another corporation or by any foreign government. We are not aware of any arrangement that may, at
a subsequent date, result in a change of control of our company. Unless otherwise noted below, all references to “ordinary
shares” refers to ordinary shares of Kitov Pharma.
|
|
Shares
Beneficially Owned
|
|
Name of Beneficial Owner
|
|
Number
|
|
|
Percentage
|
|
5% or greater shareholders
|
|
|
|
|
|
|
M.
Arkin (1999) Ltd.(1)
|
|
|
4,463,953
|
|
|
|
11.0
|
%
|
OrbiMed
Israel Partners Limited Partnership(2)
|
|
|
4,041,513
|
|
|
|
9.9
|
%
|
Pontifax
Group(3)
|
|
|
4,041,513
|
|
|
|
9.9
|
%
|
Armistice
Capital Master Fund, Ltd.(4)
|
|
|
4,041,513
|
|
|
|
9.9
|
%
|
CVI
Investments, Inc.(5)
|
|
|
4,041,513
|
|
|
|
9.9
|
%
|
|
(1)
|
M.
Arkin Ltd. (“Arkin”) acquired its holdings in Kitov Pharma in January 2020
upon completion of the FameWave Transaction in exchange for its holdings in FameWave
and a cash investment of $1.167 million. The ADSs were issued on a private placement
basis in Israel pursuant to exemptions from the prospectus requirements under applicable
Israeli securities laws and from the registration requirements of the Securities Act.
These holdings include (i) 3,292,139 restricted ADSs and (ii) warrants to purchase 1,171,814
restricted ADSs representing 1,171,814 restricted, ordinary shares, which are immediately
exercisable. To our knowledge these are the only holdings of Arkin in Kitov Pharma. Arkin
has signed a Shareholder’s Undertaking in connection with the FameWave Transaction
containing, amongst other matters, certain standstill limitations and an undertaking
not to vote its ADSs, subject to certain exceptions relating to significant corporate
transactions, against the recommendation of our board of directors, during an initial
transfer lockup period of between 6-12 months following the closing of the FameWave Transaction,
and subsequent to the transfer lock-up period until the earlier of its holdings being
reduced to below 2.5% of our issued and outstanding shares or 24 months following the
closing of the FameWave Transaction. Of the 3,292,139 restricted ADSs beneficially owned
by Arkin, 2,343,629 restricted ADSs are being held by Altshuler Shaham Trust Co. Ltd.
(“Altshuler Shaham”) as trustee and escrow agent in connection with the closing
of the FameWave Transaction. While such ADSs are held by Altshuler Shaham, the right
to vote such ADSs is solely exercisable by Arkin.
|
(2)
|
OrbiMed
Israel Partners Limited Partnership (“OrbiMed”) acquired its holdings in
Kitov Pharma in January 2020 upon completion of the FameWave Transaction in exchange
for its holdings in FameWave and a cash investment of $1.167 million. The ADSs were issued
on a private placement basis in Israel pursuant to exemptions from the prospectus requirements
under applicable Israeli securities laws and from the registration requirements of the
Securities Act. It owns (i) 3,461,983 restricted ADSs and (ii) warrants to purchase 1,256,736
restricted ADSs representing 1,256,736 restricted ordinary shares. However, pursuant
to the terms of the warrants, OrbiMed cannot exercise the warrants to the extent that
OrbiMed would beneficially own, along with any affiliates after any such exercise, more
than 9.99% of our outstanding ordinary shares. Consequently, as of the date set forth
above, OrbiMed is not able to exercise 712,171 of its warrants due to these beneficial
ownership limitations. To our knowledge these are the only holdings of Orbimed in Kitov
Pharma. Orbimed has signed a Shareholder’s Undertaking in connection with the FameWave
Transaction containing, amongst other matters, certain standstill limitations and an
undertaking not to vote its ADSs, subject to certain exceptions relating to significant
corporate transactions, against the recommendation of our board of directors, during
an initial transfer lockup period of between 6-12 months following the closing of the
FameWave Transaction, and subsequent to the transfer lock-up period until the earlier
of its holdings being reduced to below 2.5% of our issued and outstanding shares or 24
months following the closing of the FameWave Transaction. Of the 4,463,953 restricted
ADSs beneficially owned by OrbiMed, 2,513,473 restricted ADSs are being held by Altshuler
Shaham as trustee and escrow agent in connection with the closing of the FameWave Transaction.
While such ADSs are held by Altshuler Shaham, the right to vote such ADSs is solely exercisable
by OrbiMed.
|
(3)
|
Includes
(i) (A) 1,156,797 restricted ADSs and (B) warrants to purchase 403,759 restricted ADSs
held by Pontifax (Israel) II LP (“Pontifax Israel”), (ii) (A) 449,065 ADSs
and (B) warrants to purchase 156,741 restricted ADSs held by Pontifax (Israel) II –
Individual Investors LP (“Pontifax Israel Individual Investors”) and (iii)
(A) 1,535,732 ADSs and (B) warrants to purchase 536,032 restricted ADSs held by Pontifax
(Cayman) II LP (“Pontifax Cayman,” and together with Pontifax Israel and
Pontifax Israel Individual Investors, the “Pontifax Group”). The Pontifax
Group acquired its holdings in Kitov Pharma in January 2020 upon completion of the FameWave
Transaction in exchange for its holdings in FameWave and a cash investment of $1.167
million. The ADSs were issued on a private placement basis in Israel pursuant to exemptions
from the prospectus requirements under applicable Israeli securities laws and from the
registration requirements of the Securities Act. Pontifax Group owns, in aggregate, 3,141,594
restricted ADSs and warrants to purchase 1,096,532 restricted ADSs representing 1,096,532
restricted ordinary shares. However, pursuant to the terms of the warrants, Pontifax
Group cannot exercise the warrants to the extent that Pontifax Group would beneficially
own, along with any affiliates after any such exercise, more than 9.99% of our outstanding
ordinary shares. Consequently, as of the date set forth above, Pontifax Group is not
able to exercise 231,578of its warrants due to these beneficial ownership limitations.
To our knowledge, including based on a form 13G filed by Pontifax (Israel) II L.P., Pontifax
(Cayman) II L.P., Pontifax Management II L.P., Pontifax Management 2 G.P. (2007) Ltd.,
Ran Nussbaum and Tomer Kariv. with the SEC on February 13, 2020, these are the only holdings
of Pontifax Group in Kitov Pharma. According to the disclosure on the Form 13G, Pontifax
Management is the general partner of the Pontifax (Israel) II - Individual Investors,
L.P., Pontifax (Israel) II L.P., and Pontifax (Cayman) II L.P., and Pontifax Management
GP is the general partner of Pontifax Management. Mr. Kariv and Ran Nussbaum are directors
of Pontifax Management GP and, as such, hold voting and/or dispositive power over the
ADSs held by these entities. Pontifax Group has signed a Shareholder’s Undertaking
in connection with the FameWave Transaction containing, amongst other matters, certain
standstill limitations and an undertaking not to vote its ADSs, subject to certain exceptions
relating to significant corporate transactions, against the recommendation of our board
of directors, during an initial transfer lockup period of between 6-12 months following
the closing of the FameWave Transaction, and subsequent to the transfer lock-up period
until the earlier of its holdings being reduced to below 2.5% of our issued and outstanding
shares or 24 months following the closing of the FameWave Transaction. Of the 3,141,594
restricted ADSs beneficially owned by Pontifax Group, 2,193,085 restricted ADSs are being
held by Altshuler Shaham as trustee and escrow agent in connection with the closing of
the FameWave Transaction. While such ADSs are held by Altshuler Shaham, the right to
vote such ADSs is solely exercisable by Pontifax Group.
|
(4)
|
The
number of Shares reported as beneficially owned by Armistice Capital Master Fund LLC
consists of (i) 4,000,000 Shares (represented by 4,000,000 American Depositary Shares),
and (ii) 41,513 Shares (represented by American Depositary Shares) issuable upon the
exercise of pre-funded warrants to purchase American Depositary Shares (the “Pre-Funded
Warrants”). Armistice Capital also holds an additional 5,958,487 pre-funded warrants
as well as 10,000,000 registered ordinary investor warrants issued in our public offering
in March 2020, as well as non-listed warrants to purchase 760,000 ADSs representing 760,000
ordinary shares issued in our registered direct offering in June 1 2018, all of which
are not exercisable to the extent that the total number of Shares then beneficially owned
by a Reporting Person and its affiliates and any other persons whose beneficial ownership
of Shares would be aggregated with such Reporting Person for purposes of Section 13(d)
of the Exchange Act, would exceed 9.99%.
|
(5)
|
The
number of Shares reported as beneficially owned by CVI Investments Inc. consists of (i)
3,800,000 Shares (represented by 3,800,000 American Depositary Shares), and (ii) 241,513
Shares (represented by American Depositary Shares) issuable upon the exercise of pre-funded
warrants to purchase American Depositary Shares (the “Pre-Funded Warrants”).
CVI Investments, Inc. also holds an additional 958,487 pre-funded warrants as well as
5,000,000 ordinary investor warrants issued in our public offering in March 2020 which
are not exercisable to the extent that the total number of Shares then beneficially owned
by a Reporting Person and its affiliates and any other persons whose beneficial ownership
of Shares would be aggregated with such Reporting Person for purposes of Section 13(d)
of the Exchange Act, would exceed 9.99%. To our knowledge, including based on a form
13G filed by CVI Investments, Inc. and Heights Capital Management, Inc. with the SEC
on March 20, 2020, these are the only holdings of CVI Investments in Kitov Pharma. According
to the disclosure on the Form 13G, Heights Capital Management, Inc., which serves as
the investment manager to CVI Investments, Inc., may be deemed to be the beneficial owner
of all securities owned by CVI Investments, Inc, and as such may exercise voting and
dispositive power over these shares. Each of CVI Investments, Inc. and Heights Capital
Management, Inc. disclaimed any beneficial ownership of any such securities, except for
their pecuniary interest therein.
|
Except
as indicated in footnotes to this table, we believe that the shareholders named in this table have sole voting and investment
power with respect to all shares shown to be beneficially owned by them, based on information provided to us by such shareholders
or otherwise disclosed by them in public filings.
Changes
in Percentage Ownership by Major Shareholders
M.
Arkin (1999) Ltd.
Arkin
acquired its holdings in Kitov Pharma in January 2020 upon completion of the FameWave Transaction in exchange for its holdings
in FameWave and a cash investment of $1.167 million. These holdings include (i) 3,292,139 restricted ADSs and (ii) warrants to
purchase 1,171,814 restricted ADSs representing 1,171,814 restricted, ordinary shares, which are immediately exercisable.
OrbiMed
Israel Partners Limited Partnership
OrbiMed
acquired its holdings in Kitov Pharma in January 2020 upon completion of the FameWave Transaction in exchange for its holdings
in FameWave and a cash investment of $1.167 million. It owns (i) 3,461,983 restricted ADSs and (ii) warrants to purchase 1,256,736
restricted ADSs representing 1,256,736 restricted ordinary shares. However, pursuant to the terms of the warrants, OrbiMed cannot
exercise the warrants to the extent that OrbiMed would beneficially own, along with any affiliates after any such exercise, more
than 9.99% of our outstanding ordinary shares. Consequently, as of the date set forth above OrbiMed is not able to exercise any
of its warrants due to these beneficial ownership limitations.
Pontifax
(Israel) II LP/Pontifax (Israel) II – Individual Investors LP/Pontifax (Cayman) II LP
Pontifax
Group acquired its holdings in Kitov Pharma in January 2020 upon completion of the FameWave Transaction in exchange for its holdings
in FameWave and a cash investment of $1.167 million. Pontifax Group owns, in aggregate, (i) 3,141,594 restricted ADSs and (ii)
warrants to purchase 1,096,542 restricted ADSs representing 1,096,542 restricted ordinary shares. However, pursuant to the terms
of the warrants, Pontifax Group cannot exercise the warrants to the extent that Pontifax Group would beneficially own, along with
any affiliates after any such exercise, more than 9.99% of our outstanding ordinary shares. Consequently, as of the date set forth
above, Pontifax Group is not able to exercise any of its warrants due to these beneficial ownership limitations.
Armistice
Capital, LLC/Armistice Capital Master Fund Ltd./Steven Boyd
Armistice
Capital Master Fund LLC participated in our registered direct offering in June 2018 after which it surpassed a holding of 5% of
Kitov Pharma’s ordinary shares. On June 11, 2018 Armistice Capital, LLC, Armistice Capital Master Fund Ltd. and Steven Boyd
filed a Schedule 13G with the SEC pursuant to which it notified the SEC that their holdings were reduced to below 5% of our issued
and outstanding share capital.
Armistice
Capital Fund LLC also participated in our public offering in March 2020, upon closing of which it surpassed a holding of 5% of
Kitov Pharma’s shares. (i) 4,000,000 ADSs and (ii) 6,000,000 pre-funded warrants with an exercise price of $0.0001 per ADS,
and (iii) 10,000,000 registered non-listed investor warrants with an exercise price of $0.325 per ADS, which were all acquired
in the public offering of March 2020, as well as (iv) non-listed warrants to purchase 760,000 ADSs representing 760,000 ordinary
shares issued in our registered direct offering in June 2018. However, pursuant to the terms of the warrants, Armistice cannot
exercise the warrants to the extent that Armistice would beneficially own, along with any affiliates after any such exercise,
more than 9.99% of our outstanding ordinary shares. Consequently, as of the date set forth above, other than with respect to 41,513
of its pre-funded warrants, Armistice is not able to exercise any of its warrants due to these beneficial ownership limitations.
CVI
Investments Inc.
CVI
Investments Inc. participated in our public offering in March 2020, upon closing of which it surpassed a holding of 5% of Kitov
Pharma’s shares. CVI Investments owns, in aggregate, (i) 3,800,000 ADSs and (ii) 1,200,000 pre-funded warrants with an exercise
price of $0.0001 per ADS and (iii) 5,000,000 non-listed investor warrants with an exercise price of $0.325 per ADS, which were
all acquired in the public offering of March 2020, as well as (iv) non-listed warrants to purchase 3,800,000 ADSs representing
1,200,000 restricted ordinary shares issued in our registered direct offering in 5,000,000. However, pursuant to the terms of
the warrants, CVI Investments cannot exercise the warrants to the extent that it would beneficially own, along with any affiliates
after any such exercise, more than 9.99% of our outstanding ordinary shares. Consequently, as of the date set forth above, CVI
Investments is not able to exercise 958,487 of its pre-funded warrants and 5,000,0000 of its March 2020 investor warrants due
to these beneficial ownership limitations.
Acquisition
of FameWave Ltd. – Voting and Shareholder’s Undertaking
On
March 14, 2019, we entered into the Acquisition Agreement to acquire FameWave, a privately held Israeli biopharmaceutical company
(FameWave’s main asset is CM-24, a clinical stage humanized monoclonal antibody targeting CEACAM1, a novel immune checkpoint
protein belonging to the Human CEA (Carcino-Embryonic Antigen) protein family. The Acquisition Agreement was amended on August
16, 2019, pursuant to which the parties agreed that all major closing conditions have been met other than finalizing the tax ruling
for the sellers and the issuance and exchange of shares in the companies. On January 7, 2020, the FameWave Transaction closed.
Each of the selling FameWave shareholders, including the investors in the concurrent private placement ADS issuance, has represented
to us that other than the applicable voting undertaking and the Registration Rights Agreement that was entered into at the closing
of the FameWave Transaction, such party is not, and will not be, a party to any agreement or arrangement, whether written or oral,
with us, any of the our officers or shareholders or a corporation in which the our officers or shareholders are an Interested
Party (as defined in the Israeli Companies Law, 5759-1999), regulating the management of the Company, the shareholders’
rights in the Company, the transfer of shares in the Company, including any voting agreements, shareholder agreements or any other
similar agreement even if its title is different or has any other relations or agreements with any of our shareholders, directors
or officers. In addition, each of the investment funds and any FameWave shareholders that signed the Registration Rights Agreement
in connection with the FameWave Transaction, entered into the Shareholder’s Undertaking, which amongst other matters, contains
undertakings of the shareholder not to seek to become part of a bloc of shares of the Company which would necessitate a special
tender offer under the Israeli Companies Law, or would otherwise seek to effect a change of control in Kitov. Furthermore, to
the best of our knowledge it is the intention of all of the investment funds and the other FameWave shareholders to be passive
unaffiliated shareholders of the Company. Upon the closing of the acquisition, FameWave became a wholly owned subsidiary of Kitov
Pharma. For more information on the transaction, including details of the issuances of our securities to the significant shareholders
of FameWave and the investment funds, please see Item 4.A. History and Development of the Company – Recent Developments
– FameWave Acquisition. For more Information on the Acquisition Agreement in connection with this transaction please see
Item 10 – Additional Information – C. Material Contracts – FameWave Acquisition Agreement. For more Information
on the Voting and Shareholder’s Undertaking please see Item 10 – Additional Information – C. Material Contracts
– FameWave Acquisition Agreement. – Voting and Shareholder’s Undertaking.
Record
Holders
As
of the date of this Annual Report on Form 20-F, there were (i) 12 shareholders of record of our ordinary shares, 11 of which were
Israeli or other non-U.S. persons or entities holding 73% of our ordinary shares, and the other was our ADS Depositary holding
(a) 26.87% of our ordinary shares on behalf of Israeli or other non-U.S. persons holding restricted ADSs and (b) 0.12% of our
ordinary shares on behalf of U.S. persons holding restricted ADSs; and (ii) one holder of record for the public warrants which
was a U.S. entity. As of March 20, 2020, there were 34,670,271 ADSs outstanding (or approximately 83.63% of our total
issued and outstanding ordinary shares), which were held by a number of different brokerage and other nominee holders of record
as recorded on the records of our ADS Depositary, The Bank of New York Mellon.
The
number of record holders is not representative of the number of beneficial holders of our ADSs, ordinary shares, and our warrants
because many of the ADSs, ordinary shares and our warrants are held by brokers or other nominees. Other than with respect to certain
restricted shares or ADS containing a legend, the shares for a publicly traded company such as ours, which is listed on TASE (and
with ADSs listed on NASDAQ), are generally recorded in the name of our Israeli share registrar, Registration Company of United
Mizrahi Bank Ltd. or in the name of our ADS Depositary, The Bank of New York Mellon.
B.
|
Related
Party Transactions
|
FameWave
Ltd.
As
part of the transaction to acquire 100% of FameWave from its shareholders, we provided a loan to FameWave of up to approximately
$2 million to pay cCAM BioTherapeutics Ltd. (“cCAM”), a wholly owned subsidiary of Merck Sharp and Dohme Corp., known
as “MSD” in Israel, which discovered CM-24, for the return of the intellectual property rights to CM-24 to FameWave,
and to repay certain loans which were provided by FameWave’s previous shareholders to FameWave to conduct business pursuant
to the approved business budget. Following closing of the acquisition of FameWave in January 2020, this loan became an intercompany
loan between Kitov Pharma and FameWave. The terms and conditions of this intercompany loan have not yet been finalized.
TyrNovo
Ltd.
Kitov
Pharma provides services to TyrNovo and has entered into a formal arm’s length transaction services agreement between Kitov
Pharma and TyrNovo, setting out the terms and conditions of these arrangements, pursuant to which TyrNovo reimburses Kitov Pharma
at cost plus 5% for the provision of these services.
Other
Related Party Agreements
We
have entered into agreements with our executive officers and key employees. See “Item 6. Directors, Senior Management and
Employees – B. Compensation”.
For
information on exemption and indemnification letters granted to our officers and directors, please see “Item 6. Directors,
Senior Management and Employees - C. Board Practices - Exculpation, Insurance and Indemnification of Directors and Officers.”
C.
|
Interests
of Experts and Counsel
|
Not
applicable.
ITEM
8.
|
FINANCIAL
INFORMATION
|
A.
|
Consolidated
Statements and Other Financial Information
|
See
Item 18
Legal
Proceedings
From
time to time, we may become party to legal proceedings and claims in the ordinary course of business, or otherwise.
2015
Motion to Approve a Class Action in Israel
On
December 3, 2015, we announced that we received a lawsuit and motion to approve the lawsuit as a class action lawsuit pursuant
to the Class Action Lawsuits Law 5766-2006 (the “2015 Motion”) which was filed against us and our directors at the
Tel Aviv District Court (Economic Division). The 2015 Motion is with respect to asserted claims for damages to the holders of
our securities listed on the Tel Aviv Stock Exchange, arising due to the public offering of our initial public offering of our
securities in the U.S. during November 2015. In the 2015 Motion it was claimed that the class the petitioners are seeking to represent,
namely, anyone holding our shares at the start of trading on November 22, 2015 exclusive of the respondents and/or anyone acting
on their behalf and/or any affiliates thereof and excluding anyone whose rights to our shares derive from ADS certificates issued
in the U.S to such extent as derived therefrom; and any holders of our Series 2 TASE listed warrants as of the start of trading
on November 22, 2015, exclusive of the respondents and/or anyone acting on their behalf and/or any affiliates thereof (Purported
Class). The total amount claimed from all defendants, if the 2015 Motion is certified as a class action, as set forth in the motion
is approximately NIS 16.4 million. In addition to this amount, the petitioners in the motion are seeking remedies in order to
redress discrimination against the Purported Class owing to the dilution caused by the public offering, including the possibility
that the Purported Class should be awarded from Kitov Pharma amounts reflecting the losses of the Purported Class from a possible
price increase in the shares of Kitov Pharma following the announcement of the Phase III clinical trial results.
Under
applicable Israeli law, a motion to approve a lawsuit as a class action initially needs to be approved as such by the court. Only
after such approval is granted by the court, will the court proceed to the second stage of hearing the underlying claims of the
class action lawsuit. We announced that we reject the claims asserted in the 2015 Motion. We have delivered our response to the
court in accordance with applicable law, and a preliminary hearing was held by the court on September 12, 2016. At such hearing
the court determined that certain claims of the petitioners in connection with alleged personal interests by affiliates of Kitov
Pharma in connection with the public offering of our initial public offering of our securities in the U.S. during November 2015
are not part of the grounds for the 2015 Motion and no remedies shall be sought by the petitioners in connection therewith. The
court set a schedule for the submission by the petitioners of a motion for discovery, and any responses to such motion. An additional
preliminary hearing was held on February 7, 2017. At that hearing the court ruled on the scope of the petitioners’ motion
for discovery, and pursuant to such ruling Kitov Pharma delivered to the petitioners (subject to signing confidentiality undertakings)
certain protocols of the board of directors of Kitov Pharma. The parties subsequently filed various motions in connection with
discovery. On March 30, 2017 the court ordered the parties to negotiate on the matter in order to try and reach a procedural agreement.
On June 4, 2017 a preliminary hearing was held at which the court ruled on matters concerning discovery and scheduled an evidentiary
hearing for October 30, 2017. On October 24, 2017 the court issued a ruling to stay proceedings in this matter until January 15,
2018 due to the ongoing ISA Investigation. This stay was subsequently extended by the court, which ruled that the evidentiary
hearing shall not be rescheduled and that the stay of proceedings shall remain in place pending delivery of a notice to the court
by the ISA with respect to an update on the ISA Investigation. At the request of the ISA, this stay was subsequently extended
several times by the court. Following approval of the Enforcement Arrangement in connection with the ISA Investigation (see below),
the stay was lifted. An evidentiary hearing was scheduled for June 23, 2020.
On
November 8, 2016, a shareholder of Kitov Pharma submitted a request to the court in connection with the 2015 Motion to be excluded
from the Purported Class and claiming to have independent causes of action and claims of approximately NIS 1 million (the “Petition
to Exclude”). We responded to the court as required, and, amongst other arguments, we noted that pursuant to the Class Action
Lawsuits Law 5766-2006 and the Regulations enacted thereunder, at the current stage of the court proceedings with respect to the
Motion, such shareholder cannot petition to be excluded from the Purported Class. The court ordered the shareholder to respond
to our response and he has done so. In May 2018 the shareholder submitted an independent lawsuit against us in the Haifa Magistrates
Court seeking damages of approximately NIS 1.1 million (the “Separate Lawsuit”). In August 2018 the Haifa Magistrates
Court transferred the Separate Lawsuit to the Tel Aviv Magistrates Court. We are of the view that such shareholder’s claims
are identical to the asserted claims for damages in the Motion, and we have notified the court of such and have sought a stay
of proceedings pending the outcome of the Motion. A preliminary hearing on our motion to dismiss the Separate Lawsuits and/or
stay the proceedings was held in May 2019, at which it dismissed the claim without prejudice. This shareholder subsequently filed
a new separate claim against the Company in the Haifa District Court – Economic Division, which has since been transferred
to the Tel Aviv District Court – Economic Division. In January 2020, the Tel Aviv District Court – Economic Division
accepted the Company’s position that the shareholder’s claims are identical to the asserted claims for damages in
the Motion, and entered a stay of proceedings pending the outcome of the Motion.
We
have been advised by our attorneys that the likelihood of Kitov Pharma not incurring any financial obligation as a result of the
class action (including the 2015 Motion and the Separate Lawsuit) exceeds the likelihood that Kitov Pharma will incur a financial
obligation. At this stage however, we are unable, with any degree of certainty, to make any other evaluations or any other assessments
with respect to the 2015 Motion’s and/or the Separate Lawsuit’s probability of success or the scope of potential exposure,
if any.
ISA
Investigation
On
February 7, 2017, we announced that Kitov Pharma was being investigated by the Israeli Securities Authority (the “ISA”
and the “Investigation,” or “ISA Investigation” respectively) in connection with historical disclosures
relating to the Data Monitoring Committee (“DMC”) that was appointed in connection with our Phase III clinical trial
of Consensi™. In connection with the clinical trial, we appointed an independent statistician and an orthopedist to serve
as our DMC in order to review the preliminary results of the initial patient group, with respect to determining if it would be
necessary to increase the number of patients to be enrolled in the clinical trial in order to demonstrate statistical validity
required to meet the primary endpoint of the clinical trial.
In
September 2018 we announced that, following a filing by our Chairman of the Board and Chief Medical Officer, Dr. Paul Waymack,
of a motion to quash a subpoena for documents and testimony served on Dr. Waymack by the Securities and Exchange Commission (“SEC”),
the SEC has commenced an action to enforce the subpoena. As stated by the SEC, “The application does not reflect a determination
by the SEC or its staff that Waymack or Kitov Pharmaceuticals has violated any provisions of the federal securities laws or any
provisions at issue in the Israel Securities Authority’s investigation”. The formal order issued by the SEC, which
authorizes the SEC Staff to issue subpoenas and take testimony, states that the Israel Securities Authority (“ISA”)
has requested assistance in connection with an investigation and does not cite any other reason for issuing the formal order.
Furthermore, counsel for the SEC has confirmed to Dr. Waymack’s counsel that the sole purpose of the SEC’s involvement
in this matter is to facilitate obtaining documents and testimony from Dr. Waymack on behalf of the ISA, pursuant to the assistance
memorandums between the SEC and ISA, which, was conducting an ongoing investigation of Kitov and certain of its principals. To
our knowledge, according to Dr. Waymack’s filing, the SEC subpoena should have been quashed because the SEC’s assistance
to the ISA in this matter would prejudice the public interest of the United States; that in conducting the underlying investigation,
the ISA has violated both Israeli and United States law that would normally prohibit the ISA’s conduct in certain matters
in connection with the investigation; that Dr. Waymack’s rights under American law as an American citizen and a respected
member of the medical community would not be respected and preserved by the SEC providing assistance to the ISA; that to allow
the SEC’s subpoena to stand would result in an abuse of process; and, that the subpoena was also overly broad and unduly
burdensome to both Dr. Waymack and Kitov. In February 2019, a hearing was held with respect to these motions involving Dr.
Waymack, and the court issued a ruling granting Dr. Waymack’s motion that the subpoena is overly broad but denying the other
arguments raised by Dr. Waymack. The parties were given a period of time to discuss and agree on a revision to the scope of the
subpoena. Dr. Waymack then informed us that he intended to file an appeal of that decision.
On
August 13, 2019, the Administrative Enforcement Committee (the “Committee”) of the Israel Securities Authority (“ISA”)
approved an administrative enforcement agreement, titled Enforcement Arrangement ("Enforcement Arrangement"), entered
into by and amongst ISA, Kitov Pharma, Isaac Israel, our chief executive officer, Paul Waymack, our former chairman and Simcha
Rock, our former chief financial officer, pursuant to which the Company and each of Messrs. Israel, Waymack and Rock settled the
ISA’s claims that under Israeli Securities Laws the Company made negligent disclosures in a number of its historical reports
filed with the ISA in 2014 and 2015, and the ISA decided to discontinue its criminal investigation and to cease all proceedings
us and our principals, including the subpoena proceedings in the USA against Dr. Waymack.
As
noted by the Committee in its decision to accept and approve the Enforcement Arrangement, further continuation of the legacy matter
of the ISA criminal investigation would have likely been protracted, burdensome, and expensive for the ISA, the Company and its
principals. The Committee and the ISA, amongst other factors, recognized our cooperation and the fact that we had adopted internal
policies and procedures in connection with public reporting even prior to the commencement of the investigation, and also noted
that we are now reporting to ISA as a dual-listed company primarily reporting under US Securities Laws.
The
Committee noted, amongst other factors (including the above), that in terms of the outcomes, no substantive damage was caused
to the investing public as a result of the negligence of the Company and its principals as described in the Enforcement Arrangement,
and the statistical results of the clinical trial were accepted by, and Consensi™ was, in fact, approved by the Food and
Drug Administration.
As
described in the Enforcement Arrangement, the Company and Mr. Israel made negligent disclosures in a number of historical reports
filed with the ISA in 2014 and 2015 with respect to the impartiality of an external Data Monitoring Committee (“DMC”)
that was appointed by the Company in connection with reviewing the Company’s Phase III clinical trial results for Consensi™.
In addition, and as further described in the Enforcement Arrangement, in a number of historical reports filed with the ISA in
2015 the Company and each of Messrs. Israel, Waymack and Rock, negligently did not disclose that one of the members of the DMC
did not receive and examine the results of the trial at such a time and manner as was reported by the Company.
The
ISA allegations as described in the Enforcement Arrangement are not related to the validity of the results of the Phase III clinical
trial data of Consensi™, which met its primary efficacy endpoint with statistical significance and was approved by the Food
and Drug Administration, nor do they relate to any US securities laws or regulations.
As
part of the Enforcement Arrangement, the ISA decided to discontinue its criminal investigation against the Company and to cease
all proceedings against the Company and its principals in connection with this matter, including all proceedings regarding the
ISA’s attempt to obtain documents and testimony in the US from Dr. Paul Waymack. In addition, the ISA agreed to discontinue
the proceedings under the Israeli Securities Law against the Company and its principals with respect to the facts set out in the
Enforcement Arrangement.
Specifically,
as part of the Enforcement Arrangement:
1)
The Company shall pay a fine of NIS 1,500,000 (approximately $430,000), payable in 24 consecutive monthly payments;
2)
Mr. Isaac Israel shall (i) pay a fine of NIS 200,000, (approximately $60,000) payable in 12 consecutive monthly payments, beginning
thirty days after the approval of the Enforcement Arrangement by the Committee; and, (ii) be subject to a conditional prohibition
to serve as a senior officer in a supervised body under the Israeli Securities Law for a period of 12 months, in the event that
Mr. Israel violates certain sections under the Israeli securities laws within two years.
3)
Dr. Paul Waymack shall pay a fine of NIS 100,000 (approximately $30,000), to be paid in one payment no later than sixty days after
the approval of the Enforcement Arrangement by the Committee.
4)
Mr. Simcha Rock shall (i) pay fine of 80,000 NIS (approximately $20,000), payable in 12 consecutive monthly payments, beginning
thirty days after the approval of the Enforcement Arrangement by the Committee; and (ii) be subject to a conditional prohibition
to serve as a senior officer in a supervised body under the Israeli Securities Law for a period of six months, in the event Mr.
Rock violates certain sections under the Israeli securities laws within two years.
In
order to put this matter to rest, remove uncertainty and focus on the future marketing of Consensi™ and on our other business,
the Company, by vote of a committee consisting of independent members of our Board of Directors, and the above mentioned principals,
agreed to the Enforcement Arrangement with the ISA.
We
will not indemnify the above noted principals for the fines they are paying to ISA under the Enforcement Arrangement; however,
we may have to indemnify them for certain legal expenses which are not covered by our insurance carriers, which we expect to be
immaterial.
The
above is a summary of the material terms of the Enforcement Arrangement. An English translation copy of the Enforcement Arrangement,
is attached as an exhibit to this Annual Report on Form 20-F. The Enforcement Arrangement has been attached to this Annual Report
on Form 20-F to provide you with information regarding its terms. The summary of the material terms of the Enforcement Arrangement
herein is qualified in its entirety by reference to the Enforcement Arrangement. This summary may not contain all of the information
about the Enforcement Arrangement that is important to you. We urge you to read the Enforcement Agreement carefully. The full
binding Hebrew text of the Enforcement Arrangement and the Committee ruling were published by the ISA on its Administrative Enforcement
Arrangements webpage.
2017
Motions to Approve a Class Action in Israel
On
February 16, 2017, we announced that four lawsuits and motions to approve the lawsuits as a class action lawsuit were filed against
us and certain of our office holders at the Tel Aviv District Court (Economic Division), and served on us, with each such motion
relating to the ISA Investigation into our public disclosures around certain aspects of the studies related to our lead drug candidate,
Consensi™ (the “2017 Motions”). One of these motions was subsequently withdrawn.
The
petitioners in one of the motions petitioned the court to dismiss the other 2017 Motions (“Petition for Dismissal”).
On December 19, 2017 the court granted the Petition for Dismissal and dismissed the other outstanding 2017 Motions.
The
remaining motion from the 2017 Motions was filed against us, our executive directors and certain of our present and former directors,
by certain shareholders who are requesting to act as representatives of all shareholders of record from December 10, 2015 until
February 6, 2017. The plaintiffs allege, among other things, that we included misleading information in our public filings which
caused the class for which the plaintiffs are seeking recognition, an aggregate loss of approximately NIS 29 million (approximately
US$ 8 million at prevailing exchange rates). The court ordered a stay of proceedings due to the ongoing ISA Investigation. Following
approval of the Enforcement Arrangement in connection with the ISA Investigation (see above), the stay was lifted. On March 8,
2020 the court approved scheduling arrangement agreed to by the parties to the Surviving Motion, whereby the petitioners in the
Surviving Motion will have 45 days to submit an amended lawsuit and motion to approve the lawsuit as a class action, the respondents
will have 60 days following the submission of such amended fillings to submit their responses, and the petitioners will then have
an additional 30 days to respond to the respondents’ filings.
Under
applicable Israeli law, a motion to approve a lawsuit as a class action initially needs to be approved as such by the court. Only
after such approval is granted by the court, will the court proceed to the second stage of hearing the underlying claims of the
class action lawsuit.
Our
management rejects the claims in all of the aforesaid 2017 Motions. At this preliminary stage we are unable, with any degree of
certainty, to make any evaluations or any assessments with respect to the 2017 Motions as to the probability of success or the
scope of potential exposure, if any, including, without limitation, the effects of the Enforcement Arrangement and/or the Settlement
of the U.S. Class actions (see below) may have on the 2017 Motion.
U.S.
Class Actions
United
States District Court for the Southern District of New York
On
February 7, 2017, an individual who allegedly acquired Kitov Pharma’s securities, individually and on behalf of a putative
class of investors who purchased or otherwise acquired Kitov Pharma’s securities, filed a lawsuit relating to the ISA Investigation
in the United States District Court for the Southern District of New York against Kitov Pharma, its CEO and CFO, alleging violations
of U.S. federal securities laws and seeking unspecified damages and other relief based on, among other things, Kitov Pharma allegedly
including misleading information in its public filings.
On
May 19, 2017, we filed a brief in opposition to a pending motion by two individuals to, among other things, appoint The Rosen
Law Firm, P.A. as lead plaintiffs’ counsel, on the basis that the firm represents an overlapping putative class of plaintiffs
in the consolidated California state court action which is discussed below. On May 26, 2017, the movants filed a reply brief in
which they represent that they are withdrawing their request to appoint The Rosen Law Firm, P.A. as plaintiffs’ co-lead
counsel.
By
order entered on May 5, 2017, the court approved the parties’ proposed case schedule, thereby providing the plaintiffs through
June 19, 2017 to file an amended complaint. An amended complaint was filed on June 19, 2017, which complaint limited the
scope of its claims as compared to the original complaint.
On
August 2, 2017, we filed a motion to dismiss the amended complaint in its entirety. Plaintiffs opposed our motion on August 30,
2017, and our reply was filed on September 27, 2017. In addition, on September 20, 2017, we filed a letter motion requesting
a conference on the issue of whether this litigation should be dismissed following our discovery of posts on an investment message
board appearing to have been made by the lead plaintiff in the case, and stating that he did not know himself to be a plaintiff
in this action. On September 21st, the court granted our request, and on November 7th, the court ordered that the issues raised
in our letter motion would be considered together with and supplementing our motion to dismiss. In March 2018, the court rendered
a decision on our motion to dismiss, dismissing all claims against our CFO and a partial dismissal of certain claims against us
and our CEO.
Superior
Court of the State of California for the County of San Mateo
On
February 10, 2017, an individual who allegedly acquired Kitov Pharma’s securities, individually and on behalf of a putative
class of investors who purchased or otherwise acquired Kitov Pharma’s securities, filed a lawsuit relating to the ISA Investigation
in the Superior Court of the State of California for the County of San Mateo against Kitov Pharma, its CEO and CFO, and the underwriters
of Kitov Pharma’s initial public offering, alleging violations of U.S. federal securities laws and seeking unspecified damages
and other relief based on, among other things, Kitov Pharma allegedly including misleading information in its public filings.
On
March 20, 2017, an individual who allegedly acquired Kitov Pharma’s securities, individually and on behalf of a putative
class of investors who purchased or otherwise acquired Kitov Pharma’s securities, filed a lawsuit relating to the ISA Investigation
in the Superior Court of the State of California for the County of San Mateo against Kitov Pharma, its CEO and CFO, and the underwriters
of Kitov Pharma’s initial public offering, alleging violations of U.S. federal securities laws and seeking unspecified damages
and other relief based on, among other things, Kitov Pharma allegedly including misleading information in its public filings.
On
April 6, 2017, the Superior Court of the State of California for the County of San Mateo entered an order consolidating the two
California putative class actions, appointed the lead counsel to plaintiffs in the consolidated action and set a case schedule.
An amended complaint was filed on or about June 5, 2017.
On
August 3, 2017, a motion of demurrer was filed on behalf of the Company and the individual defendants to dismiss the complaint
against them, and, in the alternative, a motion was filed to stay the action, including, until the Supreme Court of the United
States has ruled as to the jurisdiction of the California state court to hear this dispute. The underwriter defendants also filed
a motion of demurrer. Answering papers were filed by plaintiffs on September 19, 2017; our reply papers were filed on October
19, 2017; and the hearing on this motion was held on October 26, 2017. At the hearing, the judge ruled against us, the individual
defendants and our underwriters, denying our demurrers and our motions to stay the entirety of the matter. We filed an answer
on or about November 24, 2017. On December 15, 2017, we filed a more limited motion to stay discovery pending the resolution of
the ISA Investigation. Following plaintiffs’ opposition to our motion on January 5, 2018 and our reply in further support
on January 16, 2018, the court ruled in our favor after arguments on January 29th, 2018 staying discovery by plaintiffs against
the Company and the individual defendants until June 1, 2018, at which point the parties are to update the court on the status
of the ISA’s investigation. Discovery against the underwriters continued.
Settlement
of U.S. Class Actions
In
July 2018 we entered into a stipulation and agreement of settlement that is intended to settle the US Class Actions. The settlement
was approved by the court in March 2019.
Under
the terms of the settlement, the Classes in all of the Actions will receive aggregate consideration of $2.0 million. The settlement
consideration, as well as ancillary expenses, is being funded by our insurance carriers. We expect that the settlement will have
no impact on our Statement of Operations.
The
settlement contains no admission of wrongdoing and reiterates that we have always maintained and continue to believe that we did
not engage in any wrongdoing or otherwise commit any violation of federal or state securities laws or other laws, including, without
limitation, vigorous denials that our public statements were misleading; that we failed to disclose any material information to
investors; that we acted in any deceitful manner; that any investment losses sustained by the Classes were caused by our or other
defendants’ alleged misconduct, and that they have any liability to the Classes in the U.S. Class Actions. The settlement
also reiterates that our counsel researched the applicable law and believes that we and the other defendants can successfully
defend against all claims in the U.S. Actions, and that they continue to believe that the claims asserted in the U.S. Class Actions
have no merit, and the Classes have no evidence to support their claims.
We
and the other defendants agreed to the settlement on the basis of the advice and recommendations of our insurance carriers, who
are indemnifying us for the expenses of conducting a defense in the U.S. Class Actions, as well as paying judgments which may
be assessed as a result of the U.S. Class Actions. As such, we and the other defendants believe that further litigation of the
U.S. Class Actions would be protracted, burdensome, and expensive for us as well as our insurers, and that it is desirable and
beneficial that the claims asserted in the U.S. Class Actions be fully and finally settled and terminated in the manner of the
settlement, with no additional costs to us or to the other defendants.
Pursuant
to the final settlement, we and our directors and officers as well as the other defendants named in the U.S. Class Actions were
released from the claims that were asserted or could have been asserted in the U.S. Class Actions by Class members participating
in the settlement.
Although
we maintain directors’ and officers’ liability insurance, with an extension to cover the Company as well, and which
is expected to cover much of our expected costs in connection with the 2015 Motion (including the Separate Lawsuit), the ISA Investigation,
the 2017 Motions and the U.S. Class Actions after payment by us of the policy deductibles, the insurance companies may reject
our claims for coverage under the policy or the coverage may not be adequate to cover future claims. Furthermore, we are required
to indemnify our underwriters for their legal defense costs or any other damages in the California putative class actions, and
such indemnification will not be covered under the policy. To date we have already received requests from our underwriters to
indemnify them for their legal costs in connection with the California putative class actions in an aggregate amount of approximately
$186,900, most of which amount has already been paid by us as of the date of this Annual Report on Form 20-F. Additionally, we
may be unable to maintain our existing directors’ and officers’ liability insurance in the future at satisfactory
rates or adequate amounts.
Other
than the 2015 Motion (as well as the Separate Lawsuit), the ISA Investigation, the 2017 Motions and the U.S. Class Actions, we
are not currently a party to any significant legal or arbitration proceedings involving any third party, including governmental
proceedings pending or known to be contemplated, which may have, or have had in the recent past, significant effects on the company’s
financial position or profitability.
Dividend
Policy
We
anticipate that, for the foreseeable future, we will retain any future earnings to support operations and to finance the growth
and development of our business. Therefore, we do not expect to pay cash dividends for at least the next several years. We did
not declare dividends during the three most recent fiscal years.
The
distribution of dividends may also be limited by the Companies Law, which permits the distribution of dividends only out of retained
earnings or earnings derived over the two most recent fiscal years, whichever is higher, provided that there is no reasonable
concern that payment of a dividend will prevent a company from satisfying its existing and foreseeable obligations as they become
due. Our amended and restated articles of association provide that dividends will be paid at the discretion of, and upon resolution
by, our board of directors, subject to the provision of the Companies Law.
Except
as otherwise disclosed in this Annual Report on Form 20-F, no significant change has occurred since December 31, 2019.
ITEM
9.
|
THE
OFFER AND LISTING
|
A.
|
Offer
and Listing Details
|
Our
ordinary shares are currently traded on the TASE under the symbol “KTOV”. Our ADSs and public warrants are currently
traded on NASDAQ under the symbols “KTOV” and “KTOVW”, respectively.
NASDAQ Minimum Bid
Price Requirement
On
July 8, 2019, we received a letter from the Listing Qualifications Department of NASDAQ indicating that, based upon the closing bid
price of our ADSs for the last 30 consecutive business days, we did not meet the minimum bid price of $1.00 per
share required for continued listing on NASDAQ pursuant to NASDAQ Listing Rule 5550(a)(2). We were not able to regain compliance
with this requirement within the 180-day period ending on January 6, 2020. However, on January 7, 2020, we were granted an additional
180-day compliance period ending on July 6, 2020 (the “Second Compliance Period”). The NASDAQ determination to grant
the Second Compliance Period was based on the Company’s meeting the continued listing requirement for market value of publicly
held shares and all other NASDAQ initial listing standards, with the exception of the bid price requirement, and our written notice
of our intention to cure the deficiency during the Second Compliance Period by effecting a reverse share split, if necessary.
We can regain compliance with this requirement if at any time before the expiration of the Second Compliance Period the closing
bid price for our ADSs is at least $1.00 per share for a minimum of ten consecutive business days. In the event we do not regain
compliance during the Second Compliance Period, NASDAQ will provide notice that our securities will be subject to delisting. At
that time, we may appeal NASDAQ’s delisting determination to a NASDAQ Listing Hearings Panel. We intend to continue actively
monitoring the bid price of our ADSs between now and the expiration of the Second Compliance Period and will consider available
options to resolve the deficiency and regain compliance with the minimum bid price requirement, including a reverse share split,
if necessary.
Not
applicable.
Our
ordinary shares are listed and traded on the TASE under the symbol KTOV. Our ADSs and our public warrants are currently traded
on NASDAQ under the symbols “KTOV” and “KTOVW”, respectively.
Not
applicable.
Not
applicable.
Not
applicable.
ITEM
10.
|
ADDITIONAL
INFORMATION
|
Not
applicable.
B.
|
Memorandum
and Articles of Association
|
Securities
Registers
Our
registration company for our shares is Registration Company of United Mizrahi Bank Ltd, and its address is 7 Jabotinsky St., Ramat
Gan, Israel.
Our
transfer agent and registrar for our ADSs is the depositary for our ADRs, Bank of New York Mellon, and its address is 101 Barclay
Street, New York, NY.
Objects
and Purposes
According
to our memorandum of association and our amended and restated articles of association, we are permitted to engage in any legal
business. Our registration number with the Israeli Registrar of Companies is Public Company number 520031238.
Ordinary
Shares
The
following is a description of our ordinary shares. Our authorized share capital is 250,000,000 ordinary shares, with no par value,
and 50,000,000 non-voting senior preferred shares, with no par value, divided into 5 classes of 10,000,000 preferred shares in
each class. The above amounts include 1 dormant ordinary share held in treasury.
The
ordinary shares do not have preemptive rights, preferred rights or any other right to purchase our securities. Neither our amended
and restated articles of association nor the laws of the State of Israel restrict the ownership or voting of ordinary shares by
non-residents of Israel, except under certain circumstances for ownership by nationals of certain countries that are, or have
been, in a state of war with Israel.
Transfer
of Shares. Our fully paid ordinary shares may generally be freely transferred under our amended and restated articles of association,
unless the transfer is restricted or prohibited by applicable law or the rules of the stock exchange on which the shares are traded.
Notices.
Under the Companies Law, and regulations promulgated thereunder, and our amended and restated articles of association, we are
required to publish notices on our website, at least 21 days’ prior notice of a shareholders’ meeting. However, under
regulations promulgated under the Companies Law, we are required to publish notices on our website at least 35 calendar days prior
any shareholders’ meeting in which the agenda includes matters which may be voted on by voting instruments. Regulations
under the Companies Law exempt companies whose shares are listed for trading both on a stock exchange in and outside of Israel,
from some provisions of the Companies Law. These regulations exempt us from some of the requirements of the Israeli proxy regulations,
under certain circumstances.
According
to the Companies Law and the regulations promulgated thereunder, as applicable to Kitov Pharma, for purposes of determining the
shareholders entitled to notice and to vote at such meeting, the board of directors may fix the record date not more than 40 nor
less than four calendar days prior to the date of the meeting, provided that an announcement regarding the general meeting shall
be given prior to the record date.
Election
of Directors. Under our amended and restated articles of association, the number of directors on our Board will be no less
than four and no more than nine (including any external directors, to the extent that we may be required to appoint external directors
in accordance with the Companies Law and any Regulations enacted thereunder) (“Maximum Number”). The majority of the
members of the Board shall be residents of Israel, unless our center of management shall have been transferred to another country
in accordance with a resolution of our Board by a majority of three quarters (75%) of the participating director votes. The number
of directors may be changed, at any time and from time to time, by our shareholders with a majority of (a) 75% of the voting rights
participating and voting on the matter in the applicable general meeting of our shareholders and (b) more than 47.9% of all of
the voting rights in Kitov Pharma as of the record date established for the applicable general meeting of our shareholders (“Special
Majority”). For more information, please see “Item 6 – Directors, Senior Management and Employees – C.
Board Practices.”
Dividend
and Liquidation Rights. Subject to preferences that may be applicable to any then outstanding preferred shares, our profits,
in respect of which a resolution was passed to distribute them as dividend or bonus shares, shall be paid pro rata to the amount
of shares held by the shareholders. In the event of our liquidation, the liquidator may, with the general meeting’s approval,
and subject to any preferences that may be applicable to any then outstanding preferred shares, distribute parts of our property
in specie among the shareholders and he or she may, with similar approval, deposit any part of our property with trustees in favor
of the shareholders as the liquidator, with the approval mentioned above, deems fit.
Voting,
Shareholders’ Meetings and Resolutions. Holders of ordinary shares are entitled to one vote for each ordinary share
held on all matters submitted to a vote of shareholders. The quorum required for an ordinary meeting of shareholders consists
of at least two shareholders present, in person or by proxy, or who has sent us a voting instrument indicating the way in which
he or she is voting, who hold or represent, in the aggregate, at least 25% of the voting rights of our outstanding share capital.
A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or any
time and place as prescribed by the board of directors in notice to the shareholders. At the reconvened meeting one shareholder
at least, present in person or by proxy constitutes a quorum except where such meeting was called at the demand of shareholders.
With the agreement of a meeting at which a quorum is present, the chairman may, and on the demand of the meeting he must, adjourn
the meeting from time to time and from place to place, as the meeting resolves. Annual general meetings of our shareholders are
to be held once every year within a period of not more than 15 months after the last preceding annual general shareholders’
meeting. Our board of directors may call special general meetings of shareholders. The Companies Law provides that a special general
meeting of shareholders may be called by the board of directors or by a request of two directors or 25% of the directors in office,
whichever is the lower, or by shareholders holding at least 5% of our issued share capital and at least 1% of the voting rights,
or of shareholders holding at least 5% of our voting rights, subject to the provisions set forth in our amended and restated articles
of association.
An
ordinary resolution requires approval by the holders of a majority of the voting rights present, in person or by proxy, at the
meeting and voting on the resolution.
Our
ADS holders may instruct the depositary how to vote the number of deposited ordinary shares their ADSs represent. If we request
the depositary to solicit your voting instructions (and we are not required to do so), the depositary will notify you of a shareholders’
meeting and send or make voting materials available to you. Those materials will describe the matters to be voted on and explain
how ADS holders may instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date
set by the depositary. The depositary will try, as far as practical, subject to the laws of Israel and the provisions of our amended
and restated articles of association or similar documents, to vote or to have its agents vote the shares or other deposited securities
as instructed by ADS holders. If we do not request the depositary to solicit your voting instructions, you can still send voting
instructions, and, in that case, the depositary may try to vote as you instruct, but it is not required to do so.
Except
by instructing the depositary as described above, you will not be able to exercise voting rights unless you surrender your ADSs
and withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares. In any event,
the depositary will not exercise any discretion in voting deposited securities and it will only vote or attempt to vote as instructed
by the holder of the ADSs or as described in the following sentence. If we asked the depositary to solicit your instructions at
least 30 days before the meeting date but the depositary does not receive voting instructions from you by the specified date,
it will consider you to have authorized and directed it to give a discretionary proxy to a person designated by us to vote the
number of deposited securities represented by your ADSs. The depositary will give a discretionary proxy in those circumstances
to vote on all questions at to be voted upon unless we notify the depositary that:
|
●
|
we
do not wish to receive a discretionary proxy;
|
|
●
|
there
is substantial shareholder opposition to the particular question; or
|
|
●
|
the
particular question would have an adverse impact on our shareholders.
|
We
are required to notify the depositary if one of the conditions specified above exists.
We
cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your
shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the
manner of carrying out voting instructions. This means that you may not be able to exercise voting rights and there may be
nothing you can do if your shares are not voted as you requested.
In
order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited
securities, if we request the depositary to act, we agree to give the depositary notice of any such meeting and details concerning
the matters to be voted upon at least 30 days in advance of the meeting date.
Allotment
of Shares. Our board of directors has the power to allot or to issue shares to any person, with restrictions and condition
as it deems fit.
Preferred
Shares
Pursuant
to Israel’s securities laws, a company whose ordinary shares are registered for trade on TASE may not have more than one
class of shares for a period of one year following initial registration of the company on TASE. After a period of one year, it
is permitted to issue preferred shares if the preference of those shares is limited to a preference in the distribution of dividends
and these preferred shares have no voting rights, and if such issuance is otherwise in accordance with any then applicable TASE
regulations or directives with respect to the issuance of preferred shares by a company whose ordinary shares are listed on TASE.
We
presently do not have any issued and outstanding preferred shares. On December 5, 2016, our shareholders approved the amendment
to our amended and restated articles of association, as well as to our memorandum of association, for the addition to Kitov Pharma’s
registered share capital of 50,000,000 non-voting senior preferred shares, with no par value, divided into 5 classes of 10,000,000
preferred shares in each class (the “Preferred Shares”).
Pursuant
to our amended and restated articles of association, our Board of Directors is authorized to fix, by resolution of the Board of
Directors, (i) the number of issued Preferred Shares (subject to the maximum number of Preferred Shares authorized in such class),
(ii) the designation of such class of Preferred Shares, and (iii) the conversion, redemption, optional and other special rights,
qualifications, limitations or restrictions, if any, of the shares of such class of Preferred Shares. Consequently, the issuance
of Preferred Shares would be available for issuance without further actions by the Company’s shareholders, unless shareholder
approval is required by Israeli law, the rules of any exchange or other market on which the Company’s securities may then
be listed or traded, the Company’s Articles of Association then in effect, or any other applicable rules and regulations.
For so long as we are also listed on TASE, the issuance of any Preferred Shares will also be subject to the requirements of any
TASE regulations or directives governing the issuance of preferred shares by companies whose ordinary shares are listed on the
TASE.
Subject
to the actual terms of issuance determined by our Board of Directors for any Preferred Shares when issued, our Preferred Shares
may be convertible into our ordinary shares or another series of Preferred Shares. Each such series of Preferred Shares shall
have such number of shares, designations, preferences, qualifications, and special or relative rights or privileges as shall be
determined by the Board of Directors, which may include, among others, dividend rights, liquidation preferences, conversion rights
and preemptive rights, rights, qualifications, limitations and/or restrictions determined by our Board of Directors in accordance
with our articles of association in effect at the time of any such issuance, including, but not limited to, some or all of the
following: (i) the number of Preferred Shares constituting that series and the distinctive designation of that series, which number
may be increased or decreased (but not below the number of Preferred Shares then outstanding) from time to time by action of the
Board of Directors; (ii) the dividend rate and the manner and frequency of payment of dividends on the Preferred Shares of that
series, whether dividends will be cumulative, and, if so, from which date; (iii) the terms and conditions of any conversion privilege
of the series, including provision for adjustment of the conversion rate in such events as the Board of Directors may determine;
(iv) whether or not the shares of that series will be redeemable, and, if so, the terms and conditions of such redemption; (v)
whether that series will have a sinking fund for the redemption or purchase of Preferred Shares of that series, and, if so, the
terms and amount of such sinking fund; (vi) whether or not the Preferred Shares of the series will have priority over or be on
a parity with or be junior to the Preferred Shares of any other series or class in any respect; (vii) the rights of the Preferred
Shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and
the relative rights or priority, if any, of payment of Preferred Shares of that series; and any other relative rights, preferences
and limitations of that series.
Issuance
of Preferred Shares by our Board of Directors may result in such shares having dividend or liquidation preferences senior to the
rights of the holders of our ordinary shares and, Preferred Shares which are convertible into our ordinary shares could potentially
dilute the voting rights of the holders of our ordinary shares.
Once
designated by our Board of Directors, and offered hereby, each series of Preferred Shares may have specific financial and other
terms that will be described in a prospectus supplement. The description of the Preferred Shares that is set forth in any prospectus
supplement is not complete without reference to the documents that govern the Preferred Shares.
All
Preferred Shares offered hereby will, when issued, be fully paid and nonassessable, including Preferred Shares issued upon the
exercise of Preferred Share warrants or subscription rights, if any.
Each
Preferred Share shall be entitled to receive upon distribution, and in preference to our ordinary shares, (i) dividends in excess
of the general dividends issued to all shareholders including holders of Ordinary Shares, and/or (ii) amounts paid in a distribution
of our surplus assets on winding up, in an amount equal to the original issue price for such Preferred Shares as set forth in
the Company’s share registrar (adjusted for share combinations or subdivisions or other recapitalizations of the Company’s
shares), and less the amount of any dividend previously paid in preference, all pro rata to the number of the Company’s
Preferred Shares of each specific class of Preferred Shares issued and outstanding at such time, without having regard to any
premium paid or discount thereon, and all subject to the provisions hereof.
Furthermore,
and after payment of the Preferred Shares’ dividend preferences or liquidation preferences as aforesaid, each Preferred
Share in the Company’s capital shall be entitled to receive upon distribution, (i) a general dividend issued to all shareholders,
(ii) bonus shares, and (iii) amounts paid in a distribution of the Company’s surplus assets on winding up, all pro rata
to the number of the Company’s Shares (Ordinary Shares and Preferred Shares) issued and outstanding at such time, without
having regard to any premium paid thereon or discount, and all subject to the provisions hereof.
All
Preferred Shares shall be non-voting shares and shall not vest the holder thereof with any right to participate in the Company’s
general meetings, to receive notice thereof and/or to vote thereat, except as otherwise specifically required by Israeli law.
Without limitation to the above, the Preferred Shares shall not confer upon the holders thereof any voting rights or any right
to appoint directors or any other right with respect to general meetings, including without limitation, attending, voting at or
requesting to convene, such general meetings or proposing matters for the agenda of such general meetings, except as expressly
set forth below or as otherwise specifically provided by Israeli law.
So
long as any Preferred Shares are outstanding, the provisions of the section below titled “Modification of class rights”,
and the provisions of this section shall apply, such that the adoption of a resolution, by a regular majority in voting power
of the Preferred Shares who are present, entitled to vote thereon (if any) and voting thereon, voting together as a single class,
given in person or by proxy or by an authorized proxy holder, at a meeting of holders of Preferred Shares shall be necessary for
effecting or validating:
(i)
Authorization of Senior Shares. Any amendment or alteration of the Memorandum of Association or Articles of Association of the
Company so as to authorize or create, or increase the authorized amount of, any class or series of shares to be so authorized,
created or increased after the initial issuance of any class of Preferred Shares, the terms of which expressly provide that such
class or series will rank senior to the outstanding class or classes of Preferred Shares as to dividend rights and distribution
rights upon the liquidation, winding up or dissolution of the Company (collectively, “Senior Shares”);
(ii)
Amendment of the Preferred Shares. Any amendment, alteration or repeal of any provision of the Articles of Association so as to
adversely affect the special rights, preferences, privileges or voting powers of the Preferred Shares.
(iii)
Share Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification
involving the Preferred Shares, or of a merger or consolidation of the Company with or into another entity, unless in each case
(x) the Preferred Shares remain outstanding or, in the case of any such merger or consolidation with respect to which the Company
is not the surviving or resulting entity (or the Preferred Shares are otherwise exchanged or reclassified), are converted or reclassified
into or exchanged for preferred shares of the surviving or resulting entity or its ultimate parent, and (y) such Preferred Shares
that remain outstanding or such preferred shares, as the case may be, have rights, preferences, privileges and voting powers of
the surviving or resulting entity or its ultimate parent that, taken as a whole, are not materially less favorable to the holders
thereof than the rights, preferences, privileges and voting powers, taken as a whole, of the Preferred Shares immediately prior
to the consummation of such transaction;
provided,
however, that (A) for all purposes of this section, (1) any increase in the amount of the Company’s authorized Ordinary
Shares or Preferred Shares or the issuance of any additional Ordinary Shares or Preferred Shares or (2) the authorization or creation
of any class or series of shares established after the initial issuance of any class of Preferred Shares, the terms of which do
not expressly provide that such class or series ranks senior to or on a parity with the previously issued and outstanding Preferred
Shares as to dividend rights and distribution rights upon any liquidation, winding up or dissolution of the Company (collectively,
“Junior Shares”); or the authorization or creation of any class or series of shares established after the initial
issuance of any class of Preferred Shares the terms of which expressly provide that such class or series will rank on a parity
with the previously issued and outstanding Preferred Shares as to dividend rights and distribution rights upon any liquidation,
winding up or dissolution of the Company (collectively, “Parity Shares”); and, any increase in the amount of authorized
but unissued shares of such class or series of Parity Shares or Junior Shares or the issuance of additional shares of such class
or series of Parity Shares or Junior Shares, will be deemed not to adversely affect (or to otherwise cause to be materially less
favorable) the rights, preferences, privileges or voting powers of the previously issued and outstanding Preferred Shares and
shall not require the consent or the adoption of a resolution by the holders of the previously issued and outstanding Preferred
Shares; (B) in the event of a binding share exchange or reclassification involving the Preferred Shares, or of a merger or consolidation
of the Company with or into another entity, as described above in which the provisions of sub-section (b)(iii)(x) and (y) above
are complied with, the consent or the adoption of a resolution by the holders of the previously issued Preferred Shares shall
not be required in order to effect, validate or approve such share exchange, reclassification, merger or consolidation; and (C)
to the extent that, notwithstanding the provisions of immediately preceding clauses (A) and (B), the consent or approval of the
holders of Preferred Shares, voting together as a single class, is nonetheless required by applicable law or the Articles of Association
in such circumstances, or such consent or approval is otherwise required by applicable law or the Articles of Association with
respect to any matter that is not set forth in the provisions of items (i)-(iii) of this section above, such approval or consent
may be given by the adoption of a resolution, by a simple majority of the voting power of the Preferred Shares who are present,
entitled to vote thereon (if any) and voting thereon, voting together as a single class, given in person or by proxy or by an
authorized person, at a meeting of holders of Preferred Shares and the legal quorum for any such meeting shall be as set forth
above with respect to meeting of holders of our Ordinary Shares.
The
rules and procedures for calling and conducting any meeting of the holders of Preferred Shares (including, without limitation,
the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of
written consents and any other procedural aspect or matter with regard to such a meeting or such consents shall be governed by
any rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to
the requirements of our amended and restated articles of association (including the provisions set forth above), applicable law
and, if applicable, the rules of any national securities exchange or other trading facility on which the Preferred Shares are
listed or traded at the time.
Although
our Board of Directors has no intention at the present time of doing so, it could authorize the issuance of a series of Preferred
Shares that could, depending on the terms of such series, impede the completion of a merger, tender offer, change of control or
other takeover attempt.
Board
of Directors
Under
our amended and restated articles of association, resolutions by the Board of Directors shall be decided by a majority of votes
of the directors present, or participating, in the case of voting by media, and voting, each director having one vote. In the
event of a tie, the chairman of the Board does not hold a casting vote.
Under
the Companies Law, companies incorporated under the laws of the State of Israel that are “public companies,” including
companies with shares listed on NASDAQ, are required to appoint at least two external directors.
Pursuant
to regulations promulgated under the Companies Law, companies with shares traded on a U.S. stock exchange, including NASDAQ, may,
subject to certain conditions, “opt out” from the Companies Law requirements to appoint external directors and related
Companies Law rules concerning the composition of the audit committee and compensation committee of the board of directors. In
accordance with these regulations, in July 2016, we elected to “opt out” from the Companies Law requirements to appoint
external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee
of the board of directors.
Under
these regulations, the exemptions from such Companies Law requirements will continue to be available to us so long as: (i) we
do not have a “controlling shareholder” (as such term is defined under Section 1 of the Companies Law), (ii) our shares
are traded on a U.S. stock exchange, including NASDAQ, and (iii) we comply with the director independence requirements, the audit
committee and the compensation committee composition requirements, under U.S. laws (including applicable Nasdaq Rules) applicable
to U.S. domestic issuers.
A
majority of our Board members are independent as required by the NASDAQ Listing Rules. Furthermore, our Audit Committee consists
of at least three independent directors, and our Compensation Committee consists of at least two independent directors.
The
Companies Law requires that certain transactions, actions and arrangements be approved as provided for in a company’s articles
of association and in certain circumstances by the audit committee or the compensation committee and by the board of directors
itself. Those transactions that require such approval pursuant to a company’s articles of association must be approved by
its board of directors. In certain circumstances, audit committee and shareholder approval is also required. The vote required
by the audit committee and the board of directors for approval of such matters, in each case, is a majority of the directors participating
in a duly convened meeting. Under the provisions of the Companies Law, whoever has a personal interest in a matter, which is considered
at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless
it is not an extraordinary transaction as defined in the Companies Law. However, if the chairman of the board of directors or
the chairman of the audit committee has determined that the presence of an office holder with a personal interest is required
for the presentation of a matter, such officer holder may be present at the meeting. Notwithstanding the foregoing, if the majority
of the directors have a personal interest in a matter, they shall be allowed to participate and vote on this matter, but the approval
of the transaction by the shareholders in the general meeting is required.
According
to the Companies Law, an arrangement between the company and its directors, regarding their conditions of service, including the
grant to them of exemption from liability from certain actions, insurance, and indemnification as well as an arrangement between
the company and its directors on conditions of their employment, in other capacities, generally requires the approval of the compensation
committee (or the audit committee acting in lieu of a compensation committee pursuant to the Companies Law), the board of directors,
and the shareholders.
Under
the Companies Regulations (Relief from Related Party Transactions), 5760-2000, promulgated under the Companies Law, as amended,
certain extraordinary transactions between a public company and its controlling shareholder(s) do not require shareholder approval.
Such exempt extraordinary transactions must however be approved by both the board of directors and the audit committee. In addition,
under such regulations, directors’ compensation and employment arrangements in a public company do not require the approval
of the shareholders if both the compensation committee (or the audit committee acting in lieu of a compensation committee pursuant
to the Companies Law) and the board of directors agree that such arrangements are solely for the benefit of the company, provided
that the compensation due under such arrangements does not exceed the compensation sums prescribed for external directors under
applicable companies regulations. Employment and compensation arrangements for an office holder that is a controlling shareholder
of a public company, or the provision of directors’ and officers’ insurance for the chief executive officer, do not
require shareholder approval if certain criteria are met. The Board, following the prior determination of the Audit Committee
or Compensation Committee, as applicable, may also determine that the compensation being offered to certain office holders (including
directors) is an engagement which, pursuant to the leniencies set forth in the Relief Regulations, can be entered into by a company
immediately, with the approval by the shareholders being deferred to the next shareholder meeting to be called by the Company,
is such compensation is consistent with compensation policy of the company which was approved by the shareholders of the company
in accordance with the Companies Law, and are no more beneficial to the recipient as such similar compensation previously granted
to other holders of the same office.
Exchange
Controls
There
are currently no material Israeli currency control restrictions on payments of dividends or other distributions with respect to
our securities or the proceeds from the sale of our securities, except under certain circumstances, for shareholders who are subjects
of countries that are, or have been, in a state of war with Israel or otherwise as set forth in this section. However, legislation
remains in effect pursuant to which currency controls can be imposed by administrative action at any time. Israeli residents have
an obligation to file reports with the Bank of Israel regarding certain transactions. In addition, Bank of Israel regulations
require us to submit regular quarterly update reports concerning foreign investments in the Company.
Access
to Corporate Records
Under
the Companies Law, shareholders are provided access to minutes of our general meetings, our shareholders register and principal
shareholders register, our amended and restated articles of association, our financial statements and any document that we are
required by law to file publicly with the Israeli Companies Registrar or the Israel Securities Authority. In addition, shareholders
may request to be provided with any document related to an action or transaction requiring shareholder approval under the related
party transaction provisions of the Companies Law. We may deny this request if we believe it has not been made in good faith or
if such denial is necessary to protect our interest or protect a trade secret or patent.
Modification
of Class Rights
Under
the Companies Law and our amended and restated articles of association, the rights attached to any class of share, such as voting,
liquidation and dividend rights, may be amended by adoption of a resolution by the holders of a majority of the shares of that
class present at a separate class meeting, or otherwise in accordance with the rights attached to such class of shares, as set
forth in our amended and restated articles of association. The enlargement of an existing class of shares or the issuance of additional
shares thereof, shall not be deemed to modify the rights attached to the previously issued shares of such class or of any other
class, unless otherwise provided by the terms of the shares.
Private
Placements
Under
the Companies Law, if (i) as a result of a private placement a person would become a controlling shareholder or (ii) a private
placement will entitle investors to receive 20% or more of the voting rights of a company as calculated before the private placement,
and all or part of the private placement consideration is not in cash or in public traded securities or is not in market terms
and if as a result of the private placement the holdings of a substantial shareholder shall increase or as a result of it a person
shall become a substantial shareholder, then in either case, the allotment must be approved by the board of directors and by the
shareholders of the company. A “substantial shareholder” in connection with a private placement as set forth above,
is defined as a shareholder who holds five percent or more of the company’s outstanding share capital or voting rights,
and which assumes the exercise of all of the securities convertible into shares either held by that person prior to such private
placement or offered to such person under the private placement. In order for the private placement to be on “market terms”
the board of directors has to determine and explain in detail that the private placement is on market terms, unless proven otherwise.
Otherwise, under the Companies Law and the regulations promulgated thereunder, a private placement of securities does not require
approval at a general meeting of the shareholders of a company; provided however, that in other special circumstances, such as
a private placement completed in lieu of a special tender offer, or a private placement under circumstances which qualifies as
a related party transaction requiring shareholder approval, approval at a general meeting of the shareholders of a company is
then also required. A Registered Direct Offering in the United States is generally considered a private placement under the Companies
Law.
Exclusive
Forum for Shareholder Litigation
Our
Amended and Restated Articles of Association provide that, unless we consent in writing to the selection of an alternative forum,
the Tel Aviv District Court (Economic Division in the State of Israel (or, if the Tel Aviv District Court does not have jurisdiction,
and no other Israeli court has jurisdiction, the federal district court for the District of New York) shall be the sole and exclusive
forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary
duty owed by any of our directors, officers or other employees to us or our shareholders, and (3) any action asserting a claim
arising pursuant to any provision of the Companies Law or the Israeli Securities Law 5728-1968, in all cases subject to the court’s
having personal jurisdiction over the indispensable parties named as defendants. In addition, the federal district courts of the
United States for the District of New York shall be the exclusive forum for any complaint asserting a cause of action arising
under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital
stock shall be deemed to have notice of and consented to these provisions. This forum selection provision will limit shareholders’
choice in selecting a judicial forum for disputes with us that it finds favorable or convenient and may have the effect of discouraging
lawsuits against us or our directors and officers.
Provisions
Restricting Change in Control of Our Company
As
described below, certain provisions of the Companies Law and/or our amended and restated articles of association may have an effect
of delaying, deferring or preventing a change in control.
Acquisitions
under Israeli Law
Special
Tender Offer
According
to the Companies Law, an acquisition pursuant to which a purchaser will hold a “controlling stake”, that is defined
as 25% or more of the voting rights if no other shareholder holds a controlling stake, or an acquisition pursuant to which such
purchaser will hold more than 45% of the voting rights of the company if no other shareholder owns more than 45% of the voting
rights, may not be performed by way of market accumulation, but rather by way of a special tender offer (as defined in the Companies
Law) made to all of the company’s shareholders on a pro rata basis, or pursuant to a private placement approved by the company’s
shareholders with the purpose of approving the acquisition of controlling stake, or 45% or more of the company’s voting
rights. In accordance with the Companies Law, such procedures are not required if the controlling stake or 45% of the company’s
voting rights are purchased from an existing holder or a controlling stake or 45% of the company’s voting rights. A special
tender offer may not be consummated unless a majority of the shareholders who announced their stand on such offer have accepted
it (in counting the total votes of such shareholders, shares held by the controlling shareholders, shareholders who have personal
interest in the offer, shareholders who own 25% or more of the voting rights in the company, relatives or representatives of any
of the above or the bidder and corporations under their control, shall not be taken into account). A shareholder may be free to
object to such an offer without such objection being deemed as a waiver of his right to sell its respective shares if the transaction
is approved by a majority of the company’s shareholders despite his objection. Shares purchased not in accordance with those
provisions will become “dormant shares” and will not grant the purchaser any rights so long as they are held by the
purchaser.
In
the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the
advisability of the offer, or shall abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons
for its abstention. In addition, the board of directors must disclose any personal interest each member of the board of directors
has in the offer or stems therefrom.
In
the event that a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control
with the purchaser or such controlling person or entity shall refrain from making a subsequent tender offer for the purchase of
shares of the target company and cannot execute a merger with the target company for a period of one year from the date of the
offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender
offer.
Full
Tender Offer
A
person wishing to acquire shares or a class of shares of an Israeli public company and who would, as a result, own more than 90%
of the target company’s issued and outstanding share capital or of certain class of its shares, is required by the Companies
Law to make a full tender offer (as defined in the Companies Law) to all of the company’s shareholders for the purchase
of all of the issued and outstanding shares of the company or class of shares. If either (i) the shareholders who do not accept
the offer hold, in the aggregate, less than 5% of the issued and outstanding share capital of the company or of the applicable
class, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, or (ii) the shareholders
who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable
class, then all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However,
a shareholder that had its shares so transferred, whether or not it accepted the tender offer (unless otherwise provided in the
offering memorandum), may, within six (6) months from the date of acceptance of the tender offer, petition the court to determine
that the tender offer was for less than fair value and that the fair value should be paid as determined by the court. If the shareholders
who did not accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable
class of shares, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s
issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
Merger
The
Companies Law provides that corporate mergers require the approval of both companies’ boards of directors and shareholders.
The board of directors of a merging company is required pursuant to the Companies Law to discuss and determine whether in its
opinion there exists a reasonable concern that as a result of a proposed merger, the surviving company will not be able to satisfy
its obligations towards its creditors, taking into account the financial status of the merging companies. If the board of directors
has determined that such a concern exists, it may not approve a proposed merger. In the event, however, that shares of the target
company are held by the acquiring company or by a person holding 25% or more of any type of controlling means of the acquiring
company, the merger will not be approved if a majority of the shareholders of the target company attending and voting at the meeting
at which the merger is considered (without taking into account, for that purpose, the shares held by the acquiring company or
by a person holding 25% or more of any type of controlling means of the acquiring company) object to and do not vote in favor
of the merger. If a person holds 25% or more of any type of controlling means of more than one merging company, the same provisions
shall apply with regard to the shareholders’ vote with respect to each such company. Upon the request of a creditor of either
party to the proposed merger, the court may delay or prevent the merger if the court concludes that there exists a reasonable
concern that as a result of the merger the surviving company will be unable to satisfy the target company’s obligations.
Furthermore, a merger may not close unless at least 30 days have passed from the time that the general meeting of each of the
merging companies was held and at least 50 days have passed from the date on which the merger proposal was sent to the Israeli
Registrar of Companies.
Tax
Issues
Israeli
tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably
than U.S. tax laws treat them. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges
his ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock
swap.
Amended
and Restated Articles of Association
Our
amended and restated articles of association contain provisions that could delay or prevent changes in control or changes in our
management. These provisions include the following:
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no
cumulative voting in the election of directors, which limits the ability of minority shareholders to elect director candidates;
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the
right of our board of directors to elect a director to fill a vacancy, which may prevent shareholders from being able to fill
vacancies on our board of directors;
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a
majority of the members of our board of directors are required to be residents of Israel, unless our center of management
has been transferred to another country by a decision of our board of directors resolved by a supermajority of three-quarters
of the participating votes at such board of directors meeting;
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the
size of our board of directors shall be no more than nine (including any external directors required under applicable law);
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the
directors, except for our external directors, are divided into three classes, as nearly equal in number as possible.; and,
at each annual general meeting, the term of one class of directors expires, and the directors of such class are re-nominated
to serve an additional three year term that expires at the annual general meeting held in the third year following such election,
with this process continues indefinitely; and
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the
provisions in our amended and restated articles of association governing the number of directors, the election and removal
of directors, the division of the board of directors into classes, and the establishment of the center of management may only
be changed by the shareholders with a majority of (a) 75% of the voting rights participating and voting on the matter in the
applicable general meeting and (b) more than 47.9% of all of the voting rights in Kitov Pharma as of the record date established
for the applicable general meeting.
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Changes
in Our Capital
The
general meeting may, by a simple majority vote of the shareholders attending the general meeting:
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increase
Kitov Pharma’s registered share capital by the creation of new shares from the existing class or a new class, as determined
by the general meeting;
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cancel
any registered share capital which have not been taken or agreed to be taken by any person;
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consolidate
and divide all or any of its share capital into shares of larger nominal value than its existing shares;
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subdivide
Kitov Pharma’s existing shares or any of them, Kitov Pharma’s share capital or any of it, into shares of smaller
nominal value than is fixed;
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reduce
Kitov Pharma’s share capital and any fund reserved for capital redemption in any manner, and with and subject to any
incident authorized, and consent required, by the Companies Law; and
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reduce
shares from the issued and outstanding share capital of Kitov Pharma, in such manner that those shares shall be cancelled
and any nominal par value paid for those shares will be registered at Kitov Pharma’s books as capital fund, which shall
be deemed as a premium paid on those shares which shall remain in the issued and outstanding share capital of Kitov Pharma.
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FameWave
Acquisition Agreement
The
following is a summary of the material terms of the Acquisition Agreement. A copy of the Acquisition Agreement, including ancillary
agreements which were entered into in connection with the transactions contemplated by the Acquisition Agreement, are attached
as exhibits to this Annual Report on Form 20-F. The Acquisition Agreement, and ancillary agreements, have been attached to this
Annual Report on Form 20-F to provide you with information regarding its terms. The summary of the material terms of the Acquisition
Agreement (including any of its ancillary agreements) below and elsewhere in this Annual Report on Form 20-F is qualified in its
entirety by reference to the Acquisition Agreement and/or the applicable ancillary agreement. This summary may not contain all
of the information about the Acquisition Agreement and/or any applicable ancillary that is important to you. We urge you to read
carefully the Acquisition Agreement (including any of its ancillary agreements) in its entirety as these are the legal documents
governing the transactions.
Form
of the Transaction
Upon
the terms and subject to the conditions of the Acquisition Agreement, in January 2020 we acquired 100% of the issued and outstanding
shareholdings from the shareholders of FameWave, in exchange for the issuance of our ADSs and Kitov Warrants, and FameWave became
a wholly-owned subsidiary of the Company. In addition, we provided a loan to FameWave to pay cCAM, a wholly owned subsidiary of
MSD for the return of the intellectual property rights to CM-24 to FameWave and to repay certain loans provided by FameWave’s
shareholders to FameWave to conduct business pursuant to the approved business budget. As part of the Acquisition Agreement, three
leading life science focused investment funds, Orbimed Israel Partners, Pontifax, and Arkin Holdings, who collectively held approximately
90% of FameWave, concurrently invested $3.5 million in us at closing in exchange for additional newly issued ADSs of the Company,
priced at $1.23 per ADS, in a private placement.
Transaction
Consideration
In
consideration of the transfer of the FameWave shares to us and the other obligations set forth in the Acquisition Agreement, the
aggregate purchase price paid by us for 100% of FameWave shares consisted of the issuance by us to the FameWave Shareholders,
and, on behalf of FameWave, to (i) THM, and (ii) the lenders with outstanding balances under the Convertible Loan Agreement, their
respective share, as set forth in the allocation table to be provided to us prior to closing of the Transaction, of (a) 8,075,610
of our ADSs (equal to $9,933,000 divided by $1.23, (the “Consideration Shares PPS”)), and such ADSs with aggregate
value of $9,933,000 served as the total consideration for 100% of the fully diluted share capital of FameWave, and was allocated
among all selling FameWave shareholders, lenders under the Convertible Loan Agreement, THM, and any other persons with equity
based rights in FameWave and/or rights to receive consideration from an exit transaction of FameWave or any other type of FameWave
reorganization, and (b) Kitov Warrants to purchase 4,037,805 additional ADSs, with an exercise price equal to $1.98 per ADS of
Kitov, and with a term of exercise of 4 years beginning on the date of issuance, and subject to other terms and conditions as
set forth herein and in the Warrant Agreements, the form of which is attached to the Acquisition Agreement.
As
part of the Acquisition Agreement, three leading life science focused investment funds, Orbimed, Pontifax Venture Capital, and
Arkin Holdings, who collectively (together with their respective affiliates) held approximately 90% of FameWave, will invest an
aggregate $3.5 million in us in exchange for 2,845,528 newly issued ADSs of the Company, priced at $1.23 per ADS.
Pursuant
to the Acquisition Agreement, we deposited with an escrow agent $2 million Cash Escrow in order to secure payments by FameWave
to MSD and/or loans that the shareholders of FameWave provided FameWave between the effective date of the Acquisition Agreement
and the closing, and which was released to FameWave prior to the closing.
Indemnification
Each
party has agreed to indemnify and hold harmless the other party, such party’s respective affiliates, and their respective
equity holders, officers, directors, managers, employees, attorneys, accountants, consultants, financial advisors and other agents
for penalties, fines, costs, liabilities, obligations, losses, expenses and fees, including court costs and reasonable attorneys’
fees and expenses arising out of or resulting from a breach of any representation or warranty or the failure to duly perform or
observe any covenant or agreement in the Acquisition Agreement required to be performed or observed before or after the closing
date under the Acquisition Agreement.
Amendment
The
Acquisition Agreement may be amended by an instrument in writing signed on behalf of each of Kitov and the Stockholder Representative,
and if for any reason there is no Stockholder Representative at such time, by selling FameWave shareholders holding at least a
majority of the capital stock of FameWave held in aggregate by the selling FameWave shareholders on the date of the closing of
the Acquisition Agreement)
Ancillary
Agreements Related to The Transactions
Lock-Up
Agreements
Our
ADSs and ADSs issuable upon exercise of the Kitov Warrants which we will is to the investment funds and to the other selling shareholders
of FameWave who will have signed a Registration Rights Agreement, and the ADSs we will issue to the investment funds in return
for their $3.5 million investment will be subject to a lock-up agreement to be entered into at closing of the Transaction restricting
transfer or sales for a 12-month period commencing on the date of issuance by us; provided, however, that during the period following
6 months after the date of issuance of the securities and until the end of the such 12-month period, the holder will be allowed
to sell the ADS and/or the ADSs issued upon any exercise of the Kitov Warrants, subject to any statutory resale restrictions or
limitations, but only if (i) the we have not publicly announced clinical data related to FameWave’s products, and (ii) the
market price for our ADSs on NASDAQ at the close of the preceding trading day was above $3.00 per ADS.
Registration
Rights
At
the closing of the transactions contemplated by the Acquisition Agreement, and in order to induce certain FameWave shareholders
to sell their FameWave shares to us and/or invest in our ADSs, we entered into, at the closing of the acquisition, a Registration
Rights Agreement (the “Registration Rights Agreement”) providing for the filing of a registration statement providing
for the resale by such shareholders of their registrable securities (the “Registration Statement”) with the Securities
and Exchange Commission registering for resale their ADSs and the ADSs underlying the Kitov Warrants. Pursuant to the Registration
Rights Agreement, we shall be obligated to file a resale registration statement providing for the resale by such shareholders
of their registrable securities by no later than 120 days prior to the end of the above mentioned lockup period, and cause the
Registration Statement to be declared effective no later than the end of such lock-up period.
We
undertook to use commercially reasonable efforts to cause the resale registration statement to remain continuously effective for
at least 12 months (or such shorter period as will terminate when all of our securities covered by the Registration Statement
have been sold or withdrawn).
Voting
and Shareholder Undertakings
In
addition, each of the investment funds and the other FameWave shareholders party to the Registration Rights Agreement signed a
Shareholder’s Undertaking in connection with our securities held by them containing, amongst other matters, an undertaking
that during the above mentioned lock-up period, and, subsequent to such lock up period until the earlier of: (i) for so long as
the aggregate number of our ordinary share equivalents beneficially owned by the shareholder and its group members, as a group,
is greater than or equal to 2.5% of our then issued and outstanding ordinary shares or (ii) 24 months following the date of the
undertaking, the shareholder shall cause all of our voting securities beneficially owned by it or any of its group members or
over which it or any of its group members has voting control not to be voted, (i) against all those persons nominated and recommended
to serve as directors of the Company by our board of directors and/or any applicable committee thereof and (ii) with respect to
any other action, proposal or matter to be voted on by our shareholders, in a manner inconsistent with the recommendation of our
board of directors or any applicable committee thereof; provided, however, that the undertakings in sub-clauses (ii) and (iii)
above shall not apply to: (1) matters under Sections 270(1), 270(2), 270(3) and 270(4) the Israeli Companies Law and matters which
require the declaration by officers or shareholders of a personal interest and/or affiliation with a controlling shareholder as
defined in, and in accordance with, the Israeli Companies Law, or (2) matters directly affecting the development of the technology
controlled by FameWave Ltd. or (3) where, based on a legal advice opinion received in writing by the shareholder, the shareholder
reasonably believes that such vote by the shareholder may impose any liability on the shareholder.
In
addition, during a standstill period until the earlier of: (i) for so long as the aggregate number of our ordinary share equivalents
beneficially owned by the shareholder and its group members, as a group, is greater than or equal to 2.5% of our then issued and
outstanding ordinary shares or (ii) 24 months following the date of the undertaking, and subject to certain exceptions set forth
in the undertaking, the shareholder shall not, directly or indirectly, and shall cause its representatives (to the extent acting
on behalf of the shareholder) or any of its group members or over which it or any of its group members has voting control not
to, directly or indirectly, to, without the prior written consent of, or waiver by, us (all defined terms below are as in the
Shareholder’s Undertaking annexed to the Proxy Statement):
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acquire,
offer or seek to acquire, agree to acquire or make a proposal (including any private proposal to the Company or the Board)
to acquire, by purchase or otherwise (including through the acquisition of Beneficial Ownership), any securities (including
any Equity Securities or Voting Securities) or Derivative Instruments, or direct or indirect rights to acquire any securities
(including any Equity Securities or Voting Securities) or Derivative Instruments, of the Company or any Subsidiary or Affiliate
of the Company or any successor to or Person in Control of the Company, or any securities (including any Equity Securities
or Voting Securities) or indebtedness convertible into or exchangeable for any such securities or indebtedness; provided that
the Shareholder may acquire, offer or seek to acquire, agree to acquire or make a proposal to acquire Ordinary Share Equivalents
(and any securities (including any Equity Securities or Voting Securities) convertible into or exchangeable for Ordinary Share
Equivalents) and Derivative Instruments with respect to Ordinary Share Equivalents, if, immediately following such acquisition,
the collective Beneficial Ownership of Ordinary Share Equivalents of the Shareholder and its Group Members, as a group, would
not exceed the Standstill Level;
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offer,
or seek to acquire, or participate in any acquisition of a majority of the consolidated assets of the Company and its Subsidiaries,
taken as a whole;
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conduct,
fund or otherwise become a participant in any “tender offer” (as such term is used in Regulation 14D under the
Exchange Act or Chapters Two and Three of Part VIII the Israeli Companies Law) or in any merger or merger type transaction,
involving Equity Securities, Voting Securities or any securities convertible into, or exercisable or exchangeable for, Equity
Securities or Voting Securities, in each case either not approved by the Board or where the representative of the Incumbent
Directors has informed the Shareholder in writing that such offer or transaction was approved by the Board when a majority
of directors at the time of such approval or recommendation are not Incumbent Directors;
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otherwise
act in concert with others to seek to control or influence the Board or shareholders of the Company or its Subsidiaries or
Affiliates; provided that nothing in this clause (d) shall preclude the Shareholder or its Representatives from engaging in
discussions with the Company or its Representatives;
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make
or join or become a participant (as defined in Instruction 3 to Item 4 of Schedule 14A under the Exchange Act) in (or in any
way knowingly encourage) any “solicitation” of “proxies” (as such terms are defined in Regulation
14A as promulgated by the SEC and assuming for this purpose that the Company was subject to the proxy rules under Section
14 of the Exchange Act) (including, in each case, similar concepts under Israeli law, including submission of positions statements),
or consent to vote any Voting Securities or any of the voting securities of any Subsidiaries or Affiliates of the Company
(including through action by written consent), or otherwise knowingly advise or influence any Person with respect to the voting
of any securities of the Company or its Subsidiaries or Affiliates;
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make
any public announcement with respect to, or solicit or submit a proposal for, or offer, seek, propose or indicate an interest
in (with or without conditions) any merger or merger type transaction, including, but not limited to, a merger pursuant to
Chapter One of Part VIII or Chapter Three of Part IX of the Israeli Companies Law, consolidation, business combination, “tender
offer” (as such term is used in Regulation 14D under the Exchange Act or Chapters Two and Three of Part VIII of the
Israeli Companies Law), recapitalization, reorganization, purchase or license of a material portion of the assets, properties,
securities or indebtedness of the Company or any Subsidiary or Affiliate of the Company, or other similar extraordinary transaction
involving the Company, any Subsidiary of the Company or any of its securities or indebtedness, or enter into any discussions,
negotiations, arrangements, understandings or agreements (whether written or oral) with any other Person regarding any of
the foregoing;
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call
or seek to call a meeting of shareholders of the Company or initiate any shareholder proposal or meeting agenda item for action
of the Company’s shareholders, or seek election or appointment to or to place a representative on the Board or seek
the removal of any director from the Board;
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form,
join, become a member or in any way participate in a Group (other than with the Shareholder, any of its Group Members or any
counterparty in connection with a Hedging Arrangement with respect to the securities of the Company or any of its Subsidiaries
or Affiliates;
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deposit
any Voting Securities in a voting trust or similar Contract or subject any Voting Securities to any voting agreement, pooling
arrangement or similar arrangement or Contract, or grant any proxy with respect to any Voting Securities;
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make
any proposal or disclose any plan, or cause or authorize any of its and their directors, officers, employees, agents, advisors
and other Representatives to make any proposal or disclose any plan on its or their behalf, inconsistent with the foregoing
restrictions;
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knowingly
take any action or cause or authorize any of its and their directors, officers, employees, agents, advisors and other Representatives
to take any action on its or their behalf, that would reasonably be expected to require the Company or any of its Subsidiaries
or Affiliates to publicly disclose any of the foregoing actions or the possibility of a business combination, merger or other
type of transaction or matter described;
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knowingly
advise, assist, arrange or otherwise enter into any discussions or arrangements with any third party with respect to any of
the foregoing; or
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directly
or indirectly, contest the validity of, any provision of these provisions of the Acquisition Agreement.
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Manufacturing
Agreement with Dexcel
In
November 2018, we entered into a Manufacturing Agreement with Dexcel, a global pharmaceutical company, which has been involved
in the manufacture and marketing of more than 55 branded and generic products. Pursuant to the Manufacturing Agreement, Dexcel
will manufacture scale-up batches as well as validation batches of Consensi™ in anticipation of the launch of the drug in
the U.S. by Coeptis Pharmaceutical, our U.S. distribution partner, as well as ongoing supply of Consensi™ to our distribution
partners. Our payments to Dexcel for these products and services in connection with the manufacture of scale-up batches as well
as validation batches will be covered by milestone and reimbursement payments from Coeptis Pharmaceutical. Dexcel previously manufactured
Consensi™ for us under a Development Services Agreement, pursuant to which Dexcel developed the formulation for Consensi™,
conducted the subsequent stability testing and manufacturing scale-up in quantities adequate for submission of the NDA to the
FDA.
Dexcel
is to manufacture Consensi™ in 3 dosage forms. We are to provide Dexcel with packaging and labeling instructions, 12-month
rolling forecasts, and purchase orders. The Manufacturing Agreement contains various representations, warranties, indemnity, and
intellectual property provisions, common to agreements of such nature. Pursuant to the Manufacturing Agreement we or our licensees
will also enter into Quality Agreements with Dexcel.
According
to the previous Development Services Agreement with Dexcel, as well as the recent Manufacturing Agreement with Dexcel, any new
intellectual property rights resulting from the development made by Dexcel which are applicable to manufacture, research, development,
making of, use, sale, production commercialization and distribution of Consensi™ shall be jointly and equally owned (50%/50%)
by Dexcel and Kitov. We anticipate that in the near future, we will be filing an international patent application, in partnership
with Dexcel, which is related to pharmaceutical formulations of celecoxib and amlodipine and methods of preparing the same. Under
the Development Services Agreement and Manufacturing Agreement, Dexcel granted Kitov and Kitov granted Dexcel each a fully-paid,
non-exclusive, perpetual world-wide license to the jointly and equally owned new intellectual property rights. Accordingly, we
expect that there will be no royalty payments due to Dexcel for our use of this jointly and equally owned new intellectual property
rights.
Commercialization
Agreement for United States
In
early January 2019, we entered into an exclusive marketing and distribution agreement with Coeptis for the commercialization of
Consensi™ in the U.S. market. The agreement provides for total milestone payments from Coeptis of $3.5 million, of which
we have already received the initial $1 million milestone concurrent with finalization of the agreement, and a $1.5 reimbursement
payment upon completion of an agreed CMC plan. In addition, the agreement entitled us to 60% of Coeptis’ net profit on Consensi™
sales until such time as we have received $13 million in such profit distributions, following which we would then be entitled
to 40% of Coeptis’ net profit on all subsequent Consensi™ sales. In October 2019, we amended the agreement with Coeptis.
Under the terms of the amended agreement we will receive 20% in royalties on net sales of Consensi™ with minimum royalties
of $4.5M over 3 years. In addition, we are entitled to receive up to $99.5M in milestone and reimbursement payments, of which
$2.5M was already received, and an additional $1M is due following the first commercial sale of Consensi™ in the U.S. and
$96M which is subject to certain pre-defined commercial milestones. The agreement is for a term of fifteen years and may be extended
for additional two-year terms, and includes customary provisions, as well as certain residual rights and obligations of the parties
following termination.
Rentschler
Biopharma Manufacturing Agreement
We
entered into a manufacturing agreement with Rentschler Biopharma SE in Germany (“Rentschler”) which provides for Rentschler
to manufacture CM-24 batches for clinical studies for a total amount of $6.4 million over the next 2 years. The manufacturing
agreement contains various representations, warranties, indemnity, and intellectual property provisions, common to agreements
of such nature. Pursuant to the Manufacturing Agreement we will also enter into Quality Agreements with Rentschler.
Other
Agreements
For
a description of other agreements, please see “Item 3. Major Shareholders and Related Party Transactions – D. Risk
Factors – Risks Related to Our Business and Regulatory Matters”, “Item 4. Information on the Company –
B. Business Overview – Services and License Agreements”, “Item 4. Information on the Company – B. Business
Overview – Consensi - Commercialization Agreement for the United States”, “Item 4. Information on the Company
– B. Business Overview – Intellectual Property”, “Item 4. Information on the Company- B. Business Overview
- Intellectual Property – FameWave License Agreement with Tel HaShomer”, “Item 4. Information on the Company-
B. Business Overview - Intellectual Property – TyrNovo Exclusive License Agreement with Yissum”
For
information on exemption and indemnification letters granted to our officers and directors, please see “Item 6 – Directors,
Senior Management and Employees – C. Board Practices – Exemption, Insurance and Indemnification of Directors and Officers.”
The
above summaries of certain terms and provisions of our material and other agreements is not necessarily complete and is subject
to, and are qualified in its entirety by the provisions of any copies of any agreements which are filed as an exhibit to this
Annual Report on Form 20-F. You should carefully review the terms and provisions set forth in the agreements attached as exhibits,
and we encourage you to read the full acquisition agreement for a more complete understanding of the transaction. The agreements
exhibited to this Annual Report on Form 20-F have been attached as exhibits to this report to provide investors and security holders
with information regarding its terms. It is not intended to provide any factual information about us or any counterparties to
such agreements. Any of our representations, warrants, covenants, disclosures or other matters set forth in such agreements are
for the benefit of the counterparties of such agreements only, and not for the benefit of any third parties, including any of
our securities holders.
Exchange
Controls
There
are currently no material Israeli currency control restrictions on payments of dividends or other distributions with respect to
our securities or the proceeds from the sale of our securities, except under certain circumstances, for shareholders who are subjects
of countries that are, or have been, in a state of war with Israel or otherwise as set forth in this section and under “Item
10E. Additional Information — Taxation.” However, legislation remains in effect pursuant to which currency
controls can be imposed by administrative action at any time. Israeli residents have an obligation to file reports with the Bank
of Israel regarding certain transactions.
The
following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership
and disposition of our ordinary shares, ADSs or warrants (the “Shares”). You should consult your own tax advisor concerning
the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state,
local, foreign or other taxing jurisdiction.
Israeli
Tax Considerations and Government Programs
The
following is a summary of the material Israeli tax laws applicable to us, and some Israeli Government programs benefiting us.
This section also contains a discussion of some Israeli tax consequences to persons owning our Shares. This summary does not discuss
all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances
or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include traders
in securities or persons that own, directly or indirectly, 10% or more of our outstanding voting capital, all of whom are subject
to special tax regimes not covered in this discussion. Some parts of this discussion are based on a new tax legislation which
has not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or professional
tax advice and does not cover all possible tax considerations.
General
The
following is a summary of the material tax consequences under Israeli law concerning the purchase, ownership and disposition of
Ordinary Shares and ADSs of our company.
This
discussion does not purport to constitute a complete analysis of all potential tax consequences applicable to investors upon purchasing,
owning or disposing of Ordinary Shares and ADSs of our company. In particular, this discussion does not take into account the
specific circumstances of any particular investor (such as tax-exempt entities, financial institutions, certain financial companies,
broker-dealers, investors that own, directly or indirectly, 10% or more of our outstanding voting rights, all of whom are subject
to special tax regimes not covered under this discussion). To the extent that issues discussed herein are based on legislation,
which has yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein
will accord with any such interpretation in the future.
Potential
investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and
disposition of the Ordinary Shares or ADSs being offered hereby, including, in particular, the effect of any foreign, state or
local taxes.
General
Corporate Tax Structure in Israel
The
Israeli corporate tax rate applicable to Israeli resident companies is 23%.
Taxation
of Shareholders
Capital
Gains
Capital
gain tax is imposed on the disposal of capital assets by an Israeli resident and on the disposal of such assets by a non-Israeli
resident if those assets are either (i) located in Israel; (ii) shares or a right to a share in an Israeli resident corporation,
or (iii) represent, directly or indirectly, rights to assets located in Israel, unless an exemption is available or unless an
applicable double tax treaty between Israel and the seller’s country of residence provides otherwise. The Israeli Income
Tax Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus.” Real Gain is the excess
of the total capital gain over Inflationary Surplus computed generally on the basis of the increase in the Israeli Consumer Price
Index between the date of purchase and the date of disposal. Inflationary Surplus is not subject to tax.
Real
Capital Gain accrued by individuals on the sale of the Ordinary Shares or ADSs will be taxed at the rate of 25%. However, if the
individual shareholder is a “Controlling Shareholder” (i.e., a person who holds, directly or indirectly, alone
or together with another, 10% or more of one of the Israeli resident company’s means of control) at the time of sale or
at any time during the preceding 12-month period, such gain will be taxed at the rate of 30%.
Corporate
and individual shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income which is
23% for corporations, and a marginal tax rate of up to 47% for individuals.
Notwithstanding
the foregoing, real capital gains generated from the sale of our Ordinary Shares or ADSs by a non-Israeli shareholder may be exempt
from Israeli tax under the Israeli Income Tax Ordinance provided that the following cumulative conditions are met: (i) the Ordinary
Shares or ADSs were purchased upon or after the registration of the Ordinary Shares or ADSs on the stock exchange and (this condition
will not apply to shares purchased on or after January 1, 2009) (ii) the seller does not have a permanent establishment in Israel
to which the generated capital gain is attributed. However, non-Israeli resident corporations will not be entitled to the foregoing
exemption if Israeli residents: (i) hold more than 25% or more means of control in such non-Israeli corporation or (ii) are
the beneficiaries of, or are entitled to, 25% or more of the income or profits of such non-Israeli corporation, whether directly
or indirectly. In addition, such exemption would not be available to a person whose gains from selling or otherwise disposing
of the Ordinary Shares or ADSs are deemed to be business income.
In
addition, the sale of the Ordinary Shares or ADSs may be exempt from Israeli capital gain tax under the provisions of an applicable
double tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for such an
exemption). For example, the Convention between the Government of the U.S. and the Government of the State of Israel with respect
to Taxes on Income (the “U.S.- Israel Double Tax Treaty”) exempts a U.S. resident (for purposes of the treaty) from
Israeli capital gains tax in connection with the sale of the Ordinary Shares or ADSs, provided that: (i) the U.S. resident owned,
directly or indirectly, less than 10% of the voting power of the company at any time within the 12 month period preceding such
sale; (ii) the U.S. resident, being an individual, is present in Israel for a period or periods of less than 183 days in the aggregate
during the taxable year; (iii) the capital gain from the sale, exchange or disposition was not derived through a permanent establishment
of the U.S. resident; and (iv) the capital gains arising from such sale, exchange or disposition is not attributed to real estate
located in Israel or a resident in Israel; however, under the U.S-Israel Double Tax Treaty, the taxpayer would be permitted to
claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition,
subject to the limitations under U.S. law applicable to foreign tax credits. The U.S-Israel Double Tax Treaty does not relate
to U.S. state or local taxes.
Payers
of consideration for the Ordinary Shares or ADSs, including the purchaser, the Israeli stockbroker or the financial institution
through which the Ordinary Shares or ADSs are held, are obligated, subject to certain exemptions, to withhold tax upon sale of
Ordinary Shares or ADSs from the amount of consideration paid upon the sale of the securities (or on the Real Capital Gain realized
on the sale, if known), at a rate of 25% for an individual or at a rate of corporate tax for a corporation (23% in 2019 and thereafter).
Upon
the sale of traded securities, a detailed return, including a computation of the tax due, must be filed and an advanced payment
must be paid to the Israeli Tax Authority on January 31 and July 31 of every tax year in respect of sales of traded securities
made within the previous six months. However, if all tax due was withheld at source according to applicable provisions of the
Israeli Income Tax Ordinance and regulations promulgated thereunder, such return need not be filed and no advance payment must
be paid. Capital gains are also reportable on annual income tax returns.
Dividends
Dividends
distributed by a company from income, which is not attributed to an Approved Enterprise, a Benefited Enterprise or a Preferred
Enterprise as defined in the Israel’s Encouragement of Capital Investment Law (1959), to a shareholder who is an Israeli
resident individual will be generally subject to income tax at a rate of 25%. However, a 30% tax rate will generally apply if
the dividend recipient is a Controlling Shareholder, as defined above, at the time of distribution or at any time during the preceding
12-month period. If the recipient of the dividend is an Israeli resident corporation, such dividend will generally not be subject
to tax provided that the income from which such dividend is distributed, derived or accrued within Israel. A distribution of dividend
by a company from income attributed to a Preferred Enterprise will generally be subject to withholding tax in Israel at the following
tax rates: Israeli resident individuals - 20% with respect to dividends distributed as of 2014, or such lower rate as may be provided
in an applicable tax treaty; and Israeli resident companies - 0%. Dividends distributed from income attributed to an Approved
Enterprise and/or a Benefited Enterprise are subject to a tax rate of 15%. If the dividend is attributable partly to income derived
from an Approved Enterprise, Benefited Enterprise or Preferred Enterprise, and partly from other sources of income, the income
tax rate will be a blended rate reflecting the relative portions of the types of income.
Non-Israeli
residents (either an individual or a corporation) are generally subject to Israeli tax on the receipt of dividends at the rate
of 25% (30% if the dividend recipient is a Controlling Shareholder at the time of distribution or at any time during the preceding
12-month period). Dividends distributed by an Israeli resident company from income, which is attributed to a Preferred Enterprise,
to a non-Israeli resident (either an individual or a corporation) are generally subject to withholding tax at a rate of 20%. These
rates may be reduced under the provisions of an applicable double tax treaty. For example, under the U.S.-Israel Double Tax Treaty,
the following tax rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i)
if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of payment of
the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting stock
of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident paying corporation
for such prior taxable year (if any) consists of certain types of interest or dividends the tax rate is 12.5%; (ii) if both the
conditions mentioned in clause (i) above are met and the dividend is paid from an Israeli resident company’s income which
was entitled to a reduced tax rate under The Law for the Encouragement of Capital Investments, 1959, the tax rate is 15%; and
(iii) in all other cases, the tax rate is 25%. The aforementioned rates under the U.S.-Israel Double Tax Treaty will not apply
if the dividend income is attributed to a permanent establishment of the U.S. resident in Israel.
A
non-Israeli resident who receives dividend income derived from or accrued from Israel, from which the full amount of tax was withheld
at source, is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i)
such income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources
of income in Israel with respect to which a tax return is required to be filed and (iii) the taxpayer is not obliged to pay Excess
Tax (as described below).
Payers
of dividends on our shares, including the Israeli stockbroker effectuating the transaction, or the financial institution through
which the securities are held, are required, subject to any of the foregoing exemptions, reduced tax rates and the demonstration
of a shareholder of his, her or its foreign residency, to withhold taxes upon the distribution of dividends at a rate of 25%,
provided that the shares are registered with a nominee company (for corporations and individuals).
Excess
Tax
Individual
holders who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) and who
have taxable income that exceeds a certain threshold in a tax year (NIS 649,560 for 2019), linked to the Israeli Consumer Price
Index), which is approximately $[●], based on the representative NIS - U.S. dollar rate of exchange of [●] on January
23, 2020), will be subject to an additional tax at the rate of 3% on his or her taxable income for such tax year that is in excess
of such amount. For this purpose, taxable income includes taxable capital gains from the sale of securities and taxable income
from interest and dividends, subject to the provisions of an applicable double tax treaty.
Estate
and Gift Tax
Israeli
law presently does not impose estate or gift taxes.
U.S.
Federal Income Tax Considerations
The
following is a description of certain U.S. federal income tax consequences relating to the acquisition, ownership and disposition
of our ADSs and warrants by a holder. This description addresses only the U.S. federal income tax consequences to holders that
are initial purchasers of our ADSs and warrants pursuant to this offering and that will hold such ADSs and warrants as capital
assets. This description does not address tax considerations applicable to holders that may be subject to special tax rules, including,
without limitation:
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banks,
financial institutions or insurance companies;
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estate investment trusts, regulated investment companies or grantor trusts;
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dealers
or traders in securities, commodities or currencies;
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tax
exempt entities or organizations;
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certain
former citizens or residents of the United States;
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persons
that received our ADSs or warrants as compensation for the performance of services;
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persons
that will hold our ADSs or warrants as part of a “hedging,” “integrated” or “conversion”
transaction or as a position in a “straddle” for U.S. federal income tax purposes;
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partnerships
(including entities classified as partnerships for U.S. federal income tax purposes) or other pass- through entities, or holders
that will hold our ADSs or warrants through such an entity;
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U.S.
Holders (as defined below) whose “functional currency” is not the U.S. dollar; or
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holders
that own directly, indirectly or through attribution 10% or more of the voting power or value of our shares.
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Moreover,
this description does not address the U.S. federal estate, gift, or alternative minimum tax consequences, or any U.S. state, local
or non-U.S. tax consequences of the acquisition, ownership and disposition of our ADSs and warrants.
This
description is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, existing, proposed and temporary U.S.
Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, in each case as in effect
and available on the date hereof. All the foregoing is subject to change, which change could apply retroactively and could affect
the tax consequences described below. There can be no assurances that the U.S. Internal Revenue Service, or IRS, will not take
a different position concerning the tax consequences of the acquisition, ownership and disposition of our ADSs and warrants or
that such a position would not be sustained. Holders should consult their own tax advisers concerning the U.S. federal, state,
local and foreign tax consequences of acquiring, owning and disposing of our ADSs and warrants in their particular circumstances.
For
purposes of this description, the term “U.S. Holder” means a beneficial owner of our ADSs or warrants that, for U.S.
federal income tax purposes, is (i) a citizen or resident of the United States, (ii) a corporation (or entity treated as a corporation
for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the
District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source or (iv)
a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration
and one or more U.S. persons have the authority to control all of its substantial decisions or (y) that has elected to be treated
as a domestic trust for U.S. federal income tax purposes.
A
“Non-U.S. Holder” is a beneficial owner of our ADSs or warrants that is neither a U.S. Holder nor a partnership (or
other entity treated as a partnership for U.S. federal income tax purposes).
If
a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our ADSs and warrants,
the U.S. federal income tax consequences relating to an investment in our ADSs and warrants will depend in part upon the status
of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor regarding the
U.S. federal income tax consequences of acquiring, owning and disposing of our ADSs and warrants in its particular circumstances.
Persons
considering an investment in our ADSs or warrants should consult their own tax advisors as to the particular tax consequences
applicable to them relating to the acquisition, ownership and disposition of our ADSs and warrants, including the applicability
of U.S. federal, state and local tax laws and non-U.S. tax laws.
Exchange
of ADSs for Ordinary Shares
In
general, if you hold ADSs, you will be treated as the holder of the underlying ordinary shares represented by those ADSs for U.S.
federal income tax purposes. Accordingly, gain or loss generally will not be recognized if you exchange ADSs for the underlying
ordinary shares represented by those ADSs. In addition, you will receive a basis in your ordinary shares equal to the basis of
your ADSs exchanged for such shares.
Taxation
of Dividends and Other Distributions on Our ADSs
Subject
to the discussion below under “Passive Foreign Investment Company Consequences,” if you are a U.S. Holder, the gross
amount of any distribution made to you with respect to our ADSs before reduction for any Israeli taxes withheld therefrom, generally
will be includible in your income as dividend income to the extent such distribution is paid out of our current or accumulated
earnings and profits as determined under U.S. federal income tax principles. Non-corporate U.S. Holders may qualify for the lower
rates of taxation with respect to dividends on ADSs applicable to “qualified dividends,” provided that certain conditions
are met, including certain holding period requirements and the absence of certain risk reduction transactions. Such lower rate
of taxation shall not apply if we are a PFIC for the taxable year in which we pay a dividend. Moreover, such dividends will not
be eligible for the dividends received deduction generally allowed to corporate U.S. Holders irrespective of PFIC status. To the
extent that the amount of any distribution by us exceeds our current and accumulated earnings and profits as determined under
U.S. federal income tax principles, it will be treated first as a tax-free return of your adjusted tax basis in our ADSs and thereafter
as either long-term or short-term capital gain depending upon whether the U.S. Holder has held our ADSs for more than one year
as of the time such distribution is received.
If
you are a U.S. Holder, dividends paid to you with respect to our ADSs will be foreign source income for foreign tax credit purposes.
Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited
against your U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. For this purpose, dividends generally constitute “passive category income.”
A foreign tax credit for foreign taxes imposed on distributions may be denied if you do not satisfy certain minimum holding period
requirements. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor
to determine whether and to what extent you will be entitled to this credit.
The
amount of a distribution paid to a U.S. Holder in a foreign currency will be the dollar value of the foreign currency calculated
by reference to the spot exchange rate on the day the U.S. Holder receives the distribution, regardless of whether the foreign
currency is converted into U.S. dollars at that time. Any foreign currency gain or loss a U.S. Holder realizes on a subsequent
conversion of foreign currency into U.S. dollars will be U.S. source ordinary income or loss. If dividends received in foreign
currency are converted into U.S. dollars on the day they are received, a U.S. Holder generally should not be required to recognize
foreign currency gain or loss in respect of the dividend.
Subject
to the discussion below under “Backup Withholding Tax and Information Reporting Requirements,” if you are a Non-U.S.
Holder, you generally will not be subject to U.S. federal income (or withholding) tax on dividends received by you on your ADSs,
unless:
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you
conduct a trade or business in the U.S. and such income is effectively connected with that trade or business (and, if required
by an applicable income tax treaty, the dividends are attributable to a permanent establishment or fixed base that such holder
maintains in the U.S.); or
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you
are an individual and have been present in the U.S. for 183 days or more in the taxable year of such sale or exchange and
certain other conditions are met.
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Sale,
Exchange or Other Disposition of Our ADSs and Warrants
Subject
to the discussion below under “Passive Foreign Investment Company Consequences,” if you are a U.S. Holder, you generally
will recognize gain or loss on the sale, exchange or other disposition of our ADSs or warrants equal to the difference between
the amount realized on such sale, exchange or other disposition and your adjusted tax basis in our ADSs or warrants, as applicable,
and such gain or loss will be capital gain or loss. The adjusted tax basis in an ADS or warrant generally will be initially determined
as described above in “Tax Basis of each ADS and Warrant.” If you are a non-corporate U.S. Holder, capital gain from
the sale, exchange or other disposition of an ADS or warrant is generally eligible for a preferential rate of taxation applicable
to capital gains, if your holding period determined at the time of such sale, exchange or other disposition for such ADS or warrant
exceeds one year (i.e., such gain is long-term capital gain). The deductibility of capital losses is subject to limitations. Any
such gain or loss generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes. A foreign
tax credit for foreign taxes imposed on capital gains may be denied if you do not satisfy certain minimum holding period requirements.
The rules relating to the determination of the foreign tax credit are complex, and it is possible that the ability of a U.S. Holder
to claim a foreign tax credit for any such Israeli tax will be limited. You should consult your tax advisor to determine whether,
and to what extent, you will be entitled to this credit.
Subject
to the discussion below under “Backup Withholding Tax and Information Reporting Requirements,” if you are a Non-U.S.
Holder, you generally will not be subject to U.S. federal income or withholding tax on any gain realized on the sale or exchange
of such ADSs or warrants unless:
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such
gain is effectively connected with your conduct of a trade or business in the United States (and, if required by an applicable
income tax treaty, the gain is attributable to a permanent establishment or fixed base that you maintain in the United States);
or
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you
are an individual and have been present in the United States for 183 days or more in the taxable year of such sale or exchange
and certain other conditions are met.
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Exercise
of a Warrant
The
exercise of a warrant for ADSs generally will not be a taxable event for the exercising U.S. Holder. A U.S. Holder will have a
tax basis in the ADSs received on exercise of a warrant equal to the sum of the U.S. Holder’s tax basis in the warrant surrendered,
reduced by any portion of the basis allocable to a fractional share, plus the exercise price of the warrant. A U.S. Holder generally
will have a holding period in ADSs acquired on exercise of a warrant that commences on the date of exercise of the warrant.
Passive
Foreign Investment Company Consequences
We
may be classified as a Passive Foreign Investment Company (PFIC) for the 2020 tax year. If we are indeed so classified for 2020
or in any other taxable year, a U.S. Holder would be subject to special rules generally intended to reduce or eliminate any benefits
from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non-U.S. company that does not
distribute all of its earnings on a current basis.
A
non-U.S. corporation will be classified as a PFIC for federal income tax purposes in any taxable year in which, after applying
certain look-through rules with respect to the income and assets of subsidiaries, either:
|
●
|
at
least 75% of its gross income is “passive income”; or
|
|
|
|
|
●
|
at
least 50% of the average quarterly value of its total gross assets (which may be determined in part by the market value of
our ADSs, which is subject to change) is attributable to assets that produce “passive income” or are held for
the production of passive income.
|
Section
1298(a)(4) of the Code provides that to the extent provided in regulations, if any person has an option to acquire stock in a
PFIC, such stock shall be considered as owned by such person. Certain proposed regulations provide rules for treatment of options
to acquire stock in a PFIC. It is not currently known if, when or the extent to which such proposed regulations will be finalized
and become effective. The discussion below assumes that regulations relating to options to acquire PFIC stock will become effective
and would apply to the warrants. Each prospective investor is urged to consult with its own tax advisor about the tax consequences
of holding warrants if we are classified as a PFIC.
Passive
income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions,
the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason
of the temporary investment of funds raised in offerings of our ADSs and warrants. If a non-U.S. corporation owns at least 25%
by value of the stock of another corporation, the non-U.S. corporation is treated for purposes of the PFIC tests as owning its
proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s
income. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns our ADSs or warrants, we will generally
continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns our
ADSs or warrants, regardless of whether we continue to meet the tests described above.
Our
PFIC status determination is based on our income, assets and activities for the entire taxable year and therefore it is not possible
to determine whether we will be characterized as a PFIC for the 2020 taxable year until after the close of the year. In addition,
our status as a PFIC may depend on how quickly we utilize the cash proceeds from this offering in our business, which we cannot
currently determine with certainty.
If
we are indeed properly classified as a PFIC, and you are a U.S. Holder, then unless you make one of the elections described below,
a special tax regime will apply to both (a) any “excess distribution” by us to you (generally, your ratable portion
of distributions in any year which are greater than 125% of the average annual distribution received by you in the shorter of
the three preceding years or your holding period for our ADSs) and (b) any gain realized on the sale or other disposition of the
ADSs or warrants. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be
subject to tax as if (i) the excess distribution or gain had been realized ratably over your holding period, (ii) the amount deemed
realized in each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other
than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax, at the
U.S. Holder’s regular ordinary income rate for the current year and would not be subject to the interest charge discussed
below), and (iii) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have
been payable in those years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation
applicable to long-term capital gains discussed above under “Distributions.” Certain elections may be available that
would result in an alternative treatment (such as mark-to-market treatment) of our ADSs or warrants.
If
a U.S. Holder makes the mark-to-market election, then, in lieu of being subject to the tax and interest charge rules discussed
above, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of the ADSs at the end
of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted
tax basis of the ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of
income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder’s
tax basis in its ADSs will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition
of ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but
only to the extent of the net amount of income previously included as a result of the mark-to-market election).
The
mark-to-market election is available only if we are a PFIC and our ADSs are “regularly traded” on a “qualified
exchange.” Our ADSs will be treated as “regularly traded” in any calendar year in which more than a de minimis
quantity of our ADSs are traded on a qualified exchange on at least 15 days during each calendar quarter. NASDAQ is a qualified
exchange for this purpose. Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder
may continue to be subject to the tax and interest charge rules discussed above with respect to such holder’s indirect interest
in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes, including
stock in any of our subsidiaries that are treated as PFICs. If a U.S. Holder makes a mark-to-market election, it will be effective
for the taxable year for which the election is made and all subsequent taxable years unless our ADSs are no longer regularly traded
on a qualified exchange or the IRS consents to the revocation of the election.
We
do not intend to provide the information necessary for U.S. Holders to make qualified electing fund elections if we are classified
as a PFIC. U.S. Holders should consult their tax advisors to determine whether any of these elections would be available and if
so, what the consequences of the alternative treatments would be in their particular circumstances.
If
we are determined to be a PFIC, the general tax treatment for U.S. Holders described in this section would apply to indirect distributions
and gains deemed to be realized by U.S. Holders in respect of any of our subsidiaries that also may be determined to be PFICs.
A
U.S. Holder who owns ADSs during any year in which we are a PFIC, will be required to file an IRS Form 8621 (Information Return
by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with respect to us, generally with the U.S.
Holder’s federal income tax return for that year.
U.S.
Holders should consult their tax advisors regarding application of the PFIC rules.
Medicare
Tax
Certain
U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment
income,” which may apply to all or a portion of the following items with respect to ADSs and warrants: dividend or other
distributions, gains from dispositions and “excess distributions” and income from “mark-to-market” elections
under the PFIC rules, if applicable. Each U.S. Holder that is an individual, estate or trust is urged to consult its tax advisors
regarding the applicability of the Medicare tax to its income and gains in respect of its investment in our ADSs and warrants.
Backup
Withholding Tax and Information Reporting Requirements
U.S.
backup withholding tax and information reporting requirements may apply to certain payments to certain holders of our ADSs and
warrants. Information reporting generally will apply to payments of dividends on our ADSs, and to proceeds from the sale or redemption
of our ADSs and warrants made within the United States, or by a U.S. payer or U.S. middleman, to a holder of our ADSs and warrants,
other than an exempt recipient (including a payee that is not a U.S. person that provides an appropriate certification and certain
other persons). A payer may be required to withhold backup withholding tax from any payments of dividends on our ADSs, or the
proceeds from the sale or redemption of our ADSs and warrants within the United States, or by a U.S. payer or U.S. middleman,
to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise
fails to comply with, or establish an exemption from, such backup withholding tax requirements. Any amounts withheld under the
backup withholding rules will be allowed as a credit against the beneficial owner’s U.S. federal income tax liability, if
any, and any excess amounts withheld under the backup withholding rules may be refunded, provided that the required information
is timely furnished to the IRS.
Foreign
Asset Reporting
Certain
U.S. Holders who are individuals are required to report information relating to an interest in our ADSs, subject to certain exceptions
(including an exception for shares held in accounts maintained by financial institutions) by filing IRS Form 8938 (Statement of
Specified Foreign Financial Assets) with their federal income tax return. U.S. Holders are urged to consult their tax advisors
regarding their information reporting obligations, if any, with respect to their ownership and disposition of our ADSs and warrants.
Foreign
Account Tax Compliance Act
FATCA
imposes withholding tax on certain types of payments made to foreign financial institutions and certain other non-U.S. entities.
The legislation imposes a 30% withholding tax on dividends on, or, subject to the discussion of certain proposed Treasury Regulations
below, gross proceeds from the sale or other disposition of, our ADSs and warrants paid to a “foreign financial institution”
or to certain “non-financial foreign entities” (each as defined in the Code), unless (i) the foreign financial institution
undertakes certain diligence and reporting obligations, (ii) the non-financial foreign entity either certifies it does not have
any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each
substantial United States owner, or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies
for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting
requirements in (i) above, it must enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake
to identify accounts held by “specified United States persons” or “United States-owned foreign entities”
(each as defined in the Code), annually report certain information about such accounts, and withhold 30% on payments to account
holders whose actions prevent it from complying with these reporting and other requirements. If the country in which a payee is
resident has entered into an “intergovernmental agreement” with the United States regarding FATCA, that agreement
may permit the payee to report to that country rather than to the U.S. Department of the Treasury. The U.S. Treasury recently
released proposed Treasury Regulations which, if finalized in their present form, would eliminate the federal withholding tax
of 30% applicable to the gross proceeds of a sale or other disposition of our common stock or warrants. In its preamble to such
proposed Treasury Regulations, the U.S. Treasury stated that taxpayers may generally rely on the proposed regulations until final
regulations are issued. Prospective investors should consult their own tax advisors regarding the possible impact of these rules
on their investment in our ADSs and warrants, and the possible impact of these rules on the entities through which they hold our
ADSs and warrants, including, without limitation, the process and deadlines for meeting the applicable requirements to prevent
the imposition of this 30% withholding tax under FATCA.
THE
DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN OUR ADSs
IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
F.
|
Dividends
and Paying Agents
|
Not
applicable.
Not
applicable.
We
are required to file reports and other information with the SEC under the Exchange Act, and the regulations thereunder applicable
to foreign private issuers. We also furnish to the SEC under cover of Form 6-K material information required to be made public
in Israel, filed with and made public by any stock exchange or distributed by us to our shareholders. The SEC maintains an Internet
site that contains reports, proxy and information statements and other information regarding issuers that file electronically
with the SEC. Our filings with the SEC are available to the public through this web site at http://www.sec.gov. These SEC filings
are also generally available to the public on (i) the Israel Securities Authority’s Magna website at www.magna.isa.gov.il,
(ii) the Tel Aviv Stock Exchange website at http://www.maya.tase.co.il, and (iii) from commercial document retrieval services.
In
addition, since our ordinary shares are traded on TASE, we also presently report to ISA and TASE in accordance with the Securities
Regulations (Periodic and Immediate Reports of a Foreign Body Corporate) 5761-2000, promulgated thereunder (the “Dual-Listed
Reporting Requirements”). Pursuant to the Dual-Listed Reporting Requirements, we prepare our periodic and immediate reports
in accordance with U.S. securities laws and reporting requirements. Our major shareholders are required to make applicable ownership
disclosures in accordance with U.S. securities laws and reporting requirements. We generally initially file or furnish our reports,
as applicable, to the SEC. We then submit copies of the SEC filings and submissions to ISA and TASE, including any filings made
by our major shareholders with respect to their holdings in Kitov Pharma, in accordance with the Dual-Listed Reporting Requirements.
Such copies can be retrieved electronically through the websites for listed company reports of ISA (www.magna.isa.gov.il) and
TASE (www.maya.tase.co.il).
As
a foreign private issuer, we will be exempt from the rules under the Exchange Act relating to the furnishing and content of proxy
statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act. As permitted under the Companies Law, and the Notice Regulations which
were enacted pursuant to such law, and as set forth in our amended and restated articles of association, we are not required to
physically deliver a notice of a shareholders meeting, a proxy statement or a voting slip. We prepare notices of general meetings
of our shareholders, as well as the accompanying proxy statements, voting slips and voting instruction forms, (collectively, the
“Proxy Materials”) in accordance with applicable laws, rules and regulations and disclosure requirements in the State
of Israel, as such are applicable to a company whose shares are traded on both TASE and NASDAQ, and which reports to the SEC as
a foreign private issuer and to ISA and TASE in accordance with the Dual-Listed Reporting Requirements. Our Proxy Materials may
not necessarily be mailed to our beneficial shareholders in Israel, or to our beneficial ADS holders in the U.S. We will furnish
to the SEC on Form 6-K the forms of our Proxy Materials, and they will be made available to the public on the SEC’s website
at www.sec.gov. We will also submit the Proxy Materials to ISA and TASE and they will be made available to the public on their
respective websites for listed company reports: www.magna.isa.gov.il and www.maya.tase.co.il. We will also include the Proxy Materials
on our corporate website, to the extent required under the Companies Law and the applicable regulations enacted thereunder governing
publication of notices of general meetings of our shareholders and the distribution of the Proxy Materials. The circulation of
by us of any Proxy Materials should not be taken as an admission that we are subject to the proxy rules under the Exchange Act,
nor as an admission that in doing so we are not availing, nor that we may not avail, ourselves of any, or all of, the exemptions
set forth under Regulation 3 of the Companies Regulations (Relief Regulations for Companies Whose Securities are Listed for Trading
on an Exchange Outside of Israel), 5760-2000. Furthermore, nothing in the form or content of, and/or the language in, any of our
Proxy Materials should be taken as an admission by us with respect to that which is stated under Regulation 5 of the Notice Regulations
concerning the applicability (or lack thereof) of instructions under relevant non-Israeli law as to the content our Proxy Materials,
insofar as such may apply to certain matters on the agenda of the applicable meeting of securities holders.
In
addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently
or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to file with the SEC,
within 120 days after the end of each fiscal year ending December 31, an annual report on Form 20-F containing financial statements
which will be examined and reported on, with an opinion expressed, by an independent registered public accounting firm. We also
furnish to the SEC under cover of Form 6-K material information required to be made public in Israel, filed with and made public
by any stock exchange or distributed by us to our shareholders. In addition, in accordance with the NASDAQ Listing Rules, as a
foreign private issuer we are required to submit on a Form 6-K an interim balance sheet and income statement as of the end of
the second quarter of each fiscal year.
We
maintain a corporate website at www.kitovpharma.com. Information contained on, or that can be accessed through, our website does
not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual
reference. We will post on our website any materials required to be posted on such website under applicable corporate or securities
laws and regulations, including posting any notices of general meetings of our shareholders.
Any
statements in this Annual Report on Form 20-F about any of our agreements, contracts or other documents is not necessarily complete.
If the agreement, contract or document is filed as an exhibit to the Annual Report on Form 20-F the agreement, contract or document
is deemed to modify the description contained in this annual report. We urge you to review the exhibits themselves for a complete
description of the contract or document.
I.
|
Subsidiary
Information
|
Not
applicable.
ITEM
11.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Market
risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of financial
instruments that may adversely impact our financial position, results of operations or cash flows. Our overall risk management
program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial
performance.
Risk
of Interest Rate Fluctuation and Credit Exposure Risk
We
do not anticipate undertaking any significant long-term borrowings. At present, our credit and interest risk arises from cash
and cash equivalents, deposits with banks as well as accounts receivable. A substantial portion of our liquid instruments is invested
in short-term deposits with Bank Leumi le- Israel Ltd., a major Israeli banking institution.
We
estimate that because the liquid instruments are invested mainly for the short-term and with highly-rated institutions, the credit
and interest risk associated with these balances is immaterial. The primary objective of our investment activities is to preserve
principal while maximizing the income we receive from our investments without significantly increasing risk and loss. Our investments
are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and the fair market value
of our investments. We manage this exposure by performing ongoing evaluations of our investments.
Equity
Price Risk
We
are not exposed to equity securities price risk because we have never invested in equity securities.
Foreign
Currency Exchange Risk
Our
foreign currency exposures give rise to market risk associated with exchange rate movements of the U.S. dollar, our functional
and reporting currency, mainly against the NIS and other currencies. Although the U.S. dollar is our functional currency and reporting
currency, a portion of our expenses are denominated in NIS. Our NIS expenses consist principally of payments to employees or service
providers and short term investments in currencies other than the U.S. dollar. We anticipate that a sizable portion of our expenses
will continue to be denominated in currencies other than the U.S. dollar. If the U.S. dollar fluctuates significantly against
the NIS it may have a negative impact on our results of operations. We manage our foreign exchange risk by aligning the currencies
for holding short term investments with the currencies of expected expenses, based on our expected cash flows.
Portfolio
diversification is performed based on risk level limits that we set. To date, we have not engaged in hedging transactions. In
the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the
exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material
adverse effects of such fluctuations.
(A)
|
Set
forth below is a sensitivity test to possible changes in U.S. dollars/NIS exchange rate as of December 31, 2019:
|
Sensitive
instrument
|
|
Income (loss) from
change in exchange
rate (U.S. dollars in
thousands)
|
|
|
Value
(U.S. dollars
in thousands)
|
|
|
Income (loss) from
change in exchange
rate (U.S. dollars in
thousands)
|
|
|
|
Down 2%
|
|
|
Down 5%
|
|
|
|
|
|
Up 5%
|
|
|
Up 2%
|
|
Cash
and cash equivalents and deposits
|
|
|
2
|
|
|
|
5
|
|
|
|
106
|
|
|
|
(5
|
)
|
|
|
(2
|
)
|
Other
current assets
|
|
|
9
|
|
|
|
22
|
|
|
|
440
|
|
|
|
(22
|
)
|
|
|
(9
|
)
|
Accounts
payable
|
|
|
(18
|
)
|
|
|
(45
|
)
|
|
|
(903
|
)
|
|
|
45
|
|
|
|
18
|
|
Other payables
|
|
|
(20
|
)
|
|
|
(49
|
)
|
|
|
(985
|
)
|
|
|
49
|
|
|
|
20
|
|
Post
employment benefit liabilities
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
(101
|
)
|
|
|
5
|
|
|
|
2
|
|
Total income
(loss)
|
|
|
(29
|
)
|
|
|
(72
|
)
|
|
|
|
|
|
|
72
|
|
|
|
29
|
|
(B)
|
As
of the date of this Annual Report on Form 20-F, our interest rate risk exposure is in respect to bank deposits, which expose
us to risk due to change in fair value interest rates.
|
ITEM
12.
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not
applicable.
Not
applicable.
Not
applicable.
D.
|
American
Depositary Shares
|
Each
of the American Depositary Shares, or ADSs, represents one ordinary share (or a right to receive 1 ordinary share). The ADSs trade
on the NASDAQ Capital Market.
The
form of the deposit agreement for the ADSs and the form of American Depositary Receipt (ADR) that represents an ADS have been
incorporated by reference as exhibits to this Annual Report on Form 20-F. Copies of the deposit agreement are available for inspection
at the principal office of The Bank of New York Mellon, located at 101 Barclay Street, New York, New York 10286.
Fees
and Expenses
Persons
depositing or withdrawing shares or ADS holders must pay:
|
|
For:
|
|
|
|
$5.00
(or less) per 100 ADSs (or portion of 100 ADSs)
|
|
Issuance
of ADSs, including issuances resulting from a distribution of shares or rights or other
property
Cancellation
of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
|
|
|
|
$.05
(or less) per ADS
|
|
Any
cash distribution to ADS holders
|
|
|
|
A
fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited
for issuance of ADSs
|
|
Distribution
of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to
ADS holders
|
|
|
|
$.05
(or less) per ADS per calendar year
|
|
Depositary
services
|
|
|
|
Registration
or transfer fees
|
|
Transfer
and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw
shares
|
|
|
|
Expenses
of the depositary
|
|
Cable,
telex and facsimile transmissions (when expressly provided in the deposit agreement) converting foreign currency to U.S. dollars
|
|
|
|
Taxes
and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock
transfer taxes, stamp duty or withholding taxes
|
|
As
necessary
|
|
|
|
Any
charges incurred by the depositary or its agents for servicing the deposited securities
|
|
As
necessary
|
The
depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs
for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to
investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees.
The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing
investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its
fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to
ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until
its fees for those services are paid.
From
time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment
and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from
the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers,
foreign currency or other service providers that are owned by or affiliated with the depositary and that may earn or share fees,
spreads or commissions.
Series
A Warrants
The
following summary of certain terms and provisions of the outstanding Series A warrants is not complete and is subject to, and
qualified in its entirety by the provisions of the Warrant Agent Agreement and form of Warrant Certificate, which is filed as
an exhibit to the registration statement filed with the SEC on Form F-1 (Registration No. 333-207117) on November 18, 2015, as
amended by the Letter Amendment to Warrant Agent Agreement which is filed as an exhibit to our Report on Form 6-K submitted
to the SEC on June 29, 2016, as subsequently amended and supplemented. Prospective investors should carefully review the terms
and provisions set forth in the Warrant Agent Agreement and form of Warrant Certificate, as amended. Series A warrants are administered
by the Bank of New York Mellon, as warrant agent.
Exercisability. The
Series A warrants are exercisable immediately upon issuance and at any time up to November 25, 2020. The Series A warrants will
be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice accompanied
by payment in full for the number of ADSs purchased upon such exercise (except in the case of a cashless exercise as discussed
below), together with the ADS issuance fee of $0.05 per ADS and other applicable charges and taxes. Unless otherwise specified
in the Series A warrant, the holder will not have the right to exercise the Series A warrants, in whole or in part, if the holder
(together with its affiliates) would beneficially own in excess of 4.99% of the number of our ordinary shares outstanding immediately
after giving effect to the exercise, as such percentage is determined in accordance with the terms of the Series A warrants.
Cashless
Exercise. In the event that a registration statement covering ordinary shares underlying the Series A warrants is not
effective, and an exemption from registration is not available for the resale of such ordinary shares underlying the Series A
warrants, the holder may, in its sole discretion, exercise Series A warrants and, in lieu of making the cash payment otherwise
contemplated to be made to us upon such exercise in payment of the aggregate exercise price, elect instead to receive upon such
exercise the net number of ADSs determined according to the formula set forth in the Warrant Agent Agreement. The issuance fee
of $0.05 per ADS, as well as other applicable charges and taxes, are due and payable upon any cashless exercise.
Exercise
Price. The exercise price per ADS purchasable upon exercise of the Series A warrants is equal to $3.78 per full ADS (which
may be adjusted as set forth below). In addition to the exercise price per ADS, the $0.05 issuance fee per ADS and other applicable
charges and taxes are due and payable upon exercise.
Adjustment
Provisions. The exercise price and the number of ADSs issuable upon exercise are subject to appropriate adjustment in
the event of certain stock dividends and distributions, stock splits, stock subdivisions and combinations, reclassifications or
similar events affecting our ADSs or ordinary shares.
Transferability. Subject
to applicable laws, the Series A warrants may be transferred at the option of the holders upon surrender of the Series A warrants
to the warrant agent, together with the appropriate instruments of transfer.
Warrant
Agent and Exchange Listing. The Series A warrants will be issued in registered form under the Warrant Agent Agreement
between us and the warrant agent.
Fundamental
Transaction. If, at any time while the Series A warrants are outstanding, (1) we consolidate or merge with or into another
person, (2) we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets,
(3) any purchase offer, tender offer or exchange offer (whether by us or another person) is completed pursuant to which holders
of our ordinary shares are permitted to sell, tender or exchange their ordinary shares for other securities, cash or property
and has been accepted by the holders of 50% or more of our outstanding shares of ordinary shares, (4) we effect any reclassification
or recapitalization of our ADSs or ordinary shares or any compulsory share exchange pursuant to which our ordinary shares are
converted into or exchanged for other securities, cash or property, or (5) we consummate a stock or share purchase agreement or
other business combination with another person whereby such other person acquires more than 50% of our outstanding ordinary shares,
each, a “Fundamental Transaction”, then upon any subsequent exercise of the Series A warrants, the holders thereof
will have the right to receive the same amount and kind of securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder
of the number of ADSs then issuable upon exercise of the Series A warrant, and any additional consideration payable as part of
the Fundamental Transaction.
Rights
as a Shareholder. Except as otherwise provided in the Warrant Agent Agreement or by virtue of such holder’s ownership
of ADSs or ordinary shares, the holder of Series A warrants does not have rights or privileges of a holder of ADSs or ordinary
shares, including any voting rights, until the holder exercises the Series A warrants.
The accompanying notes are an integral part of these consolidated
financial statements.
(*) Restated to reflect a 20:1 reverse share split, that took
place in January 2019, see Note 9A.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements
Notes to the Consolidated Financial Statements
Note 1 - General
Reporting entity
|
A.
|
Kitov Pharma Ltd. (hereinafter: “the Company”)
is a clinical-stage company advancing first-in-class therapies to overcome tumor immune
evasion and drug resistance.
|
The Company has two operating segments:
(i) Oncology, which includes NT219, a therapeutic
candidate which is a small molecule that targets two signal transduction pathways involved in the development of cancer drug resistance
mechanisms.
(ii) Pain and Hypertension, which includes Consensi™,
a combination drug approved by the FDA for marketing in the U.S and is partnered in the U.S, China and South Korea.
The Company was incorporated in Israel as a private
company in August 1968, and has been listed for trading on the Tel Aviv Stock Exchange since September 1978. In October 2012,
the Company disposed of all of its previous operations, and in July 2013, the Company acquired shares of Kitov Pharmaceuticals
Ltd. (hereinafter: “Kitov”) from its shareholders, in exchange for the Company’s shares (hereinafter:
“the Acquisition”).
|
B.
|
The Company’s securities (American Depository Shares
(“ADS”) as well as Series A warrants) were listed for trading on the NASDAQ
in November 2015. Each ADS represents 1 ordinary share with no par value following a
reverse split in effect from January 4, 2019 (see Note 9A). Each warrant enables the
purchase of 1 ADS.
|
|
C.
|
In December 2017, the Company completed its merger with Kitov,
with the Company remaining as the surviving entity. The effective date of the merger
was December 31, 2017.
|
In January 2018, the Company changed its name from
Kitov Pharmaceuticals Holdings Ltd to Kitov Pharma Ltd.
The Company’s address is One Azrieli Center,
Round Tower, 132 Menachem Begin Road, Tel-Aviv 6701101 Israel.
|
D.
|
In January 2017, the Company acquired the majority of shares
of TyrNovo Ltd. (hereinafter: “TyrNovo”). During 2018, the Company
acquired additional shares of TyrNovo from various minority shareholders, see also Note
5.
|
The Company together with TyrNovo are referred to,
in these financial statements, as “the Group”.
|
E.
|
On March 14, 2019 the Company signed an agreement to acquire
100% of FameWave Ltd, a privately held biopharmaceutical Company with rights to develop
CM-24, (“FameWave”) from its shareholders in exchange for USD 10 million
worth of its newly issued ADSs with a long term lock-up period, priced at USD 1.23 per
ADS, plus 50% warrant coverage based on an exercise price of USD 1.98 per ADS with a
4 year term. The acquisition was subject to several conditions, which have been met as
of January 7, 2020. In addition, the Company provided a loan to FameWave of USD 2 million
that served mainly to pay cCAM BioTherapeutics Ltd., a wholly owned subsidiary of Merck
Sharp and Dohme Corp., known as “MSD” in Israel, which discovered CM-24,
and to finance budgeted expenses until the closing of the acquisition. See also Note
20B.
|
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 1 – General (Cont’d)
|
F.
|
Since incorporation through December 31, 2019, the Group has
incurred losses and negative cash flows from operations mainly attributed to its development
efforts and has an accumulated deficit of USD 49.5 million. The Group has financed its
operations mainly through private and public financing rounds. Through December 31, 2019,
the Company raised a total of USD 44.8 million net.
|
Management anticipates that its existing capital
resources will be adequate to satisfy liquidity requirements for the next 12 months. Subsequently, management’s plans include
pursuing alternative financing arrangements or reducing expenditures as necessary to meet the Company’s future cash requirements.
However, there is no assurance that, if required, the Company will be able to raise additional capital or reduce discretionary
spending to provide the required liquidity.
Note
2 - Basis of Preparation of the Consolidated Financial Statements
A.
|
Statement of compliance with International
Financial Reporting Standards
|
The Group has prepared the consolidated financial
statements in accordance with International Financial Reporting Standards (hereinafter: “IFRS”), as issued by the
International Accounting Standard Board (“IASB”).
These consolidated financial
statements were approved by the board of directors on March 16, 2020.
B.
|
Functional and
presentation currency
|
These consolidated financial statements are presented
in US dollars (USD), which is the Group’s functional currency, rounded to the nearest one thousand, unless otherwise noted.
The USD is the currency that represents the principal economic environment in which the Group operates.
C.
|
Use of estimates
and judgment
|
The preparation of consolidated financial statements
in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Management prepares the estimates on the basis of
past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of
each estimate. The preparation of accounting estimates used in the preparation of the Group’s consolidated financial statements
requires management of the Group to make assumptions regarding circumstances and events that involve considerable uncertainty.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods affected.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 2 - Basis of Preparation of the Consolidated Financial
Statements (Cont’d)
Information about assumptions made by the Group with
respect to the future and other reasons for uncertainty with respect to estimates that have a significant risk of resulting in
a material adjustment to carrying amounts of assets and liabilities in the next financial year are included in the following notes:
Estimate
|
|
Principal
assumptions
|
|
Possible
effects
|
|
Reference
|
Fair value measurement of non-trading derivatives
|
|
Unobservable inputs used in the valuation model
including standard deviation and discount rates
|
|
Profit or loss from a change in the fair value of
derivative financial instruments
|
|
For information on a sensitivity analysis of
level 3 financial instruments carried at fair value see Note 20B regarding financial instruments
|
|
|
|
|
|
|
|
Identification of performance obligations in
contracts with customers
|
|
In order to identify distinct performance obligations
in a contract with a customer, the Group uses judgment when it examines whether it is providing a significant service of integrating
the goods or services in the contract into one integrated outcome.
|
|
A change in the timing of recognizing revenue
over the period of the contract.
|
|
See Note 3I regarding revenue from contracts
with customers.
|
|
|
|
|
|
|
|
Assessment of probability of contingent liabilities
|
|
Whether it is more likely than not that an outflow
of economic resources will be required in respect of legal claims pending against the Company and its investees
|
|
Reversal or creation of a provision for a claim
|
|
For information on the Company’s exposure
to claims see Note 12B regarding contingent liabilities
|
|
|
|
|
|
|
|
Recoverability of intangible assets
|
|
The probability of regulatory considerations, commercial
and legal considerations and financial and strategic considerations
|
|
impermanent of the In-process research and development
in profit or loss
|
|
See Note 5 regarding intangible assets
|
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 2 - Basis of Preparation of the Consolidated Financial
Statements (Cont’d)
Fair value measurement
The Group’s management regularly reviews significant
unobservable inputs and valuation adjustments, including obtaining valuations prepared by third parties and assessing the evidence
to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy
in which the valuations should be classified.
Significant valuation issues
are reported to the Group Audit Committee.
When measuring the fair value of an asset or liability,
the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques as follows:
|
-
|
Level 1: quoted
prices in active markets for identical assets or liabilities.
|
|
-
|
Level 2: inputs other than quoted prices included
in Level 1 that are observable for the asset or liability, either directly or indirectly.
|
|
-
|
Level 3: inputs
for the asset or liability that are not based on observable market data.
|
If the inputs used to measure the fair value of an
asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is
categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the
entire measurement.
Further information about the assumptions made in
measuring fair value of share based payments, financial asset and derivative instruments are included in Note 10 and Note 20B,
respectively.
D.
|
Exchange rates
and linkage bases
|
Balances in foreign currency or linked thereto are
included in the consolidated financial statements at the representative exchange rates, as published by the Bank of Israel, which
were prevailing as of the statement of financial position date.
Data on exchange rates are as follows:
|
|
Representative
|
|
|
|
exchange rate of USD
|
|
|
|
(NIS/USD 1)
|
|
Date of consolidated financial statements:
|
|
|
|
December 31, 2019
|
|
|
3.456
|
|
December 31, 2018
|
|
|
3.748
|
|
December 31, 2017
|
|
|
3.467
|
|
Changes in exchange rates for the year ended:
|
|
%
|
|
|
|
|
|
December 31, 2019
|
|
|
(7.8
|
)
|
December 31, 2018
|
|
|
8.1
|
|
December 31, 2017
|
|
|
(9.8
|
)
|
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 2 - Basis of Preparation of the Consolidated
Financial Statements (Cont’d)
E.
|
Initial application
of new standards, amendments to standards and interpretations
|
As from January 1, 2019 the Group applies the new
standards and amendments to standards described below.
The Group has not early adopted any standards, interpretations
or amendments that have been issued but are not yet effective.
IFRS 16, Leases
As from January 1, 2019 (hereinafter:
“the date of initial application”) the Group applies International Financial Reporting Standard 16, Leases (hereinafter:
“IFRS 16” or “the standard”), which replaced International Accounting Standard 17, Leases (hereinafter:
"IAS 17" or "the previous standard").
The main effect of the standard’s
application is reflected in annulment of the existing requirement from lessees to classify leases as operating (off-balance sheet)
or finance leases and the presentation of a unified model for lessees to account for all leases similarly to the accounting treatment
of finance leases in the previous standard. Until the date of application, the Group classified all of the leases in which it
is the lessee as operating leases, since it did not substantially bear all the risks and rewards from the assets.
In accordance with IFRS 16,
for agreements in which the Group is the lessee, the Group recognizes a right-of-use asset and a lease liability at the inception
of the lease contract for all the leases in which the Group has a right to control identified assets for a specified period of
time, other than exceptions specified in the standard. Accordingly, the Group recognizes depreciation and amortization expenses
in respect of a right-of-use asset, tests a right-of-use asset for impairment in accordance with IAS 36 and recognizes financing
expenses on a lease liability. Therefore, as from the date of initial application, lease payments relating to assets leased under
an operating lease, which were presented as part of expenses in the statement of operations, are capitalized to assets and written
down as depreciation and amortization expenses.
The Group elected to apply the
standard using the modified retrospective approach, with an adjustment to the balance of retained earnings as at January 1, 2019
and without a restatement of comparative data. In respect of all the leases, the Group elected to apply the transitional provisions
such that on the date of initial application it recognized a liability at the present value of the balance of future lease payments
discounted at its incremental borrowing rate at that date calculated according to the average duration of the remaining lease
period as from the date of initial application, and concurrently recognized a right-of-use asset at the same amount of the liability,
adjusted for any prepaid or accrued lease payments that were recognized as an asset or liability before the date of initial application.
Therefore, application of the standard did not have an effect on the Group’s equity at the date of initial application.
Furthermore, as part of
the initial application of the standard, the Group has chosen to apply the following expedients:
|
(1)
|
Not separating non-lease
components from lease components and instead accounting for all the lease components and related non-lease components as a single
lease component.
|
|
(2)
|
Not applying the requirement to recognize a right-of-use asset and a lease liability in respect of leases where the underlying
asset has a low value.
|
Impact of the application of IFRS 16 in the
reporting period
In measurement of the lease liabilities, the Group
discounted lease payments using the nominal incremental borrowing rate at January 1, 2019. The discount rate used to measure the
lease liability is 8%.
As a result of applying IFRS 16, in relation to the
leases that were classified as operating leases according to IAS 17, the Group recognized as at January 1, 2019 right-of-use assets
and lease liabilities in the amount of approximately USD 400 thousand, respectively. As at December 31, 2019 the Group recognized
right-of-use assets and lease liabilities in the amount of USD 206 thousand and USD 223 thousand, respectively.
Furthermore, instead of recognizing lease expenses
in relation to those leases, during the period ended December 31, 2019 the Group recognized additional depreciation expenses in
the amount of USD 168 thousand, and additional financing expenses in the amount of USD 33 thousand. For further information on
how the Group recognizes leases under IFRS 16, See Note 3N.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note
3 - Significant Accounting Policies
The accounting policies set out below have been consistently
applied for all periods presented in these consolidated financial statements:
|
A.
|
Basis of consolidation
|
The Group accounts for business combinations using
the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally
measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment.
Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except
if related to the issue of debt or equity securities.
The consideration transferred does not include amounts
related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.
Subsidiaries are entities controlled by the Group.
The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity. The consolidated financial statements of subsidiaries
are included in the consolidated financial statements from the date on which control commences until the date on which control
ceases.
|
3.
|
Non-controlling
interests
|
Non-controlling interests are measured initially
at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.
Changes in the Group’s interest in a subsidiary
that do not result in a loss of control are accounted for as equity transactions.
|
4.
|
Transactions
eliminated on consolidation
|
Intra-group balances and transactions, and any unrealized
income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
|
B.
|
Foreign currency
transactions
|
Transactions in foreign currency are translated
to the functional currency of the Group at exchange rates as of the transaction dates. Monetary assets and liabilities
denominated in foreign currency as of the reporting date are translated into the functional currency at the exchange rate as
of the said date. Exchange rate differences with respect to monetary items are the differences between the amortized cost in
the functional currency as of the start of the year, adjusted for the effective interest during the year, and the amortized
cost in foreign currency, translated at the exchange rate as of the end of the year. Non-monetary items denominated in
foreign currency and measured at historical cost, are translated using the exchange rate as of the transaction date. Exchange
rate differences arising from translation into the functional currency are recognized on the statement of operations as
financial expenses.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note
3 - Significant Accounting Policies (Cont’d)
|
1.
|
Non-Derivative
financial instruments
|
|
a.
|
Non-derivative
financial assets – policy applicable as from January 1, 2018
|
Initial recognition and
measurement of financial assets
The Group initially recognizes trade receivables
and debt instruments issued on the date that they are created. All other financial assets are recognized initially on the trade
date at which the Group becomes a party to the contractual provisions of the instrument. A financial asset is initially measured
at fair value plus transaction costs that are directly attributable to the acquisition or issuance of the financial asset. A trade
receivable without a significant financing component is initially measured at the transaction price. Receivables originating from
contract assets are initially measured at the carrying amount of the contract assets on the date classification was changed from
contract asset to receivables.
Derecognition of financial
assets
Financial assets are derecognized when the contractual
rights of the Group to the cash flows from the asset expire, or the Group transfers the rights to receive the contractual cash
flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset
are transferred. When the Group retains substantially all of the risks and rewards of ownership of the financial asset, it continues
to recognize the financial asset.
Classification of financial
assets into categories and the accounting treatment of each category
Financial assets are classified at initial recognition
to one of the following measurement categories: assets at amortized cost; assets at fair value through other comprehensive income
– investments in debt instruments; assets at fair value through other comprehensive income – investments in equity
instruments; or assets at fair value through profit or loss.
Financial assets are not reclassified in subsequent
periods unless, and only if, the Group changes its business model for the management of financial debt assets, in which case the
affected financial debt assets are reclassified at the beginning of the period following the change in the business model.
|
b.
|
Non-derivative
financial assets – policy applicable before January 1, 2018
|
Initial recognition and
measurement of financial assets
The Group initially recognizes receivables and deposits
on the date that they are created. All other financial assets acquired in a regular way purchase, are recognized initially on
the trade date at which the Group becomes a party to the contractual provisions of the instrument, meaning on the date the Group
undertook to purchase or sell the asset.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note
3 - Significant Accounting Policies (Cont’d)
Non-derivative financial assets include: cash and
cash equivalents, short term deposits and other receivables.
Cash and cash equivalents include cash balances available
for immediate use and call deposits. Cash equivalents include short-term highly liquid investments (with original maturities of
three months or less) that are readily convertible into known amounts of cash and are exposed to insignificant risks of change
in value.
Derecognition of financial assets
Financial assets are derecognized when the contractual
rights of the Group to the cash flows from the asset expire, or the Group transfers the rights to receive the contractual cash
flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset
are transferred.
When the Group retains substantially all of the risks
and rewards of ownership of the financial asset, it continues to recognize the financial asset.
|
c.
|
Non-derivative
financial liabilities
|
Non-derivative financial liabilities
include: accounts payables and other payables.
Initial recognition of
financial liabilities
The Group initially recognizes debt securities issued
on the date that they originated. All other financial liabilities are recognized initially on the trade date at which the Group
becomes a party to the contractual provisions of the instrument.
Subsequent measurement
of financial liabilities
Financial liabilities (other than financial liabilities
at fair value through profit or loss) are recognized initially at fair value less any directly attributable transaction costs.
Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method.
Financial liabilities are designated at fair value through profit or loss if the Group manages such liabilities and their performance
is assessed based on their fair value in accordance with the Group’s documented risk management strategy, providing that
the designation is intended to prevent an accounting mismatch, or the liability is a combined instrument including an embedded
derivative.
Derecognition of financial
liabilities
Financial liabilities are derecognized when the obligation
of the Group, as specified in the agreement, expires or when it is discharged, cancelled or transferred to equity.
|
d.
|
Derivative financial
liabilities
|
The Group holds derivative financial
instruments that do not serve for hedging purposes.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note
3 - Significant Accounting Policies (Cont’d)
Measurement of derivative
financial instruments
Derivatives are recognized initially at fair value;
attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are
measured at fair value, and changes therein are accounted for as described below.
The changes in fair value of these derivatives are
recognized in profit or loss, as financing income or expense. The fair value of these derivatives is based on an evaluation, and
classified as level 3.
|
1.
|
Research and
development
|
Expenditure on research activities, undertaken with
the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss when incurred.
Development activities involve also plans or
designs for the production of new or substantially improved products and processes. Development expenditure are capitalized
only if development costs can be measured reliably, the product or process is technically and commercially feasible, future
economic benefits are probable, and the Group has the intention and sufficient resources to complete development and to use
or sell the asset. Currently all development costs are recognized in profit and loss as expense.
|
2.
|
Other intangible
assets
|
Other intangible assets, including in-process research
and development in respect of the Company’s acquisition of TyrNovo (see also Note 5), which have infinite useful lives,
are measured at cost less accumulated impairment losses.
The Group examines the useful life of an intangible
asset that is not periodically amortized at least once a year in order to determine whether events and circumstances continue
to support the decision that the intangible asset has an indefinite useful life.
|
4.
|
Timing of impairment
testing
|
Once a year and on the same date, or more frequently
if there are indications of impairment, the Group estimates the recoverable amount of each cash generating unit that contains
goodwill, or intangible assets that have indefinite useful lives or are unavailable for use.
The Group presents loss per share data for its ordinary
share capital. Loss per share is calculated by dividing the loss attributable to holders of ordinary shares, by the weighted average
number of ordinary shares outstanding during the period.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note
3 - Significant Accounting Policies (Cont’d)
The Group has a number of post-employment benefit
plans. The plans are usually financed by deposits with insurance and pension companies, and they are classified as defined contribution
plans and as defined benefit plans.
A defined contribution plan is a post-employment
benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation
to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an expense in profit or
loss in the periods during which related services are rendered by employees.
Other long-term employee
benefits
The Group’s net obligation in respect of long-term
employee benefits plans is calculated separately for each plan by estimating the amount of future benefit that employees have
earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
|
G.
|
Share-based payment
transactions
|
The grant-date fair value of equity-settled share-based
payment arrangements granted to employees is generally recognized as an expense, with a corresponding increase in equity, over
the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the
related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based
on the number of awards that meet the related service and non-market performance conditions at the vesting date.
A provision is recognized if, as a result of a past
event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow
of economic benefits will be required to settle the obligation.
The Group recognizes revenue from upfront and milestone
payments at the point in time the milestone criteria is met and collectability is probable. The revenue is measured according
to the amount of the consideration to which the Group expects to be entitled.
Identifying the contract
The Group accounts for a contract
with a customer only when the following conditions are met:
|
(a)
|
The parties to the contract have approved the
contract (in writing, orally or according to other customary business practices) and they are committed to satisfying the
obligations attributable to them;
|
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note
3 - Significant Accounting Policies (Cont’d)
|
(b)
|
The Group can identify
the rights of each party in relation to the goods or services that will be transferred;
|
|
(c)
|
The Group can identify the payment terms for the goods
or services that will be transferred;
|
|
(d)
|
The contract has a commercial substance (i.e.
the risk, timing and amount of the entity’s future cash flows are expected to change as a result of the contract); and
|
|
(e)
|
It is probable that the consideration, to which
the Group is entitled to in exchange for the goods or services transferred to the customer, will be collected.
|
For the purpose of section (e) the Group examines,
inter alia, the percentage of the advance payments received and the spread of the contractual payments, past experience with the
customer and the status and existence of sufficient collateral.
If a contract with a customer does not meet all of
the above criteria, consideration received from the customer is recognized as a liability until the criteria are met or when one
of the following events occurs: the Group has no remaining obligations to transfer goods or services to the customer and any consideration
promised by the customer has been received and cannot be returned; or the contract has been terminated and the consideration received
from the customer cannot be refunded.
Identifying performance obligations
On the contract’s inception date the Group
assesses the goods or services promised in the contract with the customer and identifies as a performance obligation any promise
to transfer to the customer one of the following:
|
(a)
|
Goods or services
(or a bundle of goods or services) that are distinct; or
|
|
(b)
|
A series of distinct goods or services that
are substantially the same and have the same pattern of transfer to the customer.
|
The Group identifies goods or services promised
to the customer as being distinct when the customer can benefit from the goods or services on their own or in conjunction with
other readily available resources and the Group’s promise to transfer the goods or services to the customer is separately
identifiable from other promises in the contract. In order to examine whether a promise to transfer goods or services is separately
identifiable, the Group examines whether it is providing a significant service of integrating the goods or services with other
goods or services promised in the contract into one integrated outcome that is the purpose of the contract.
Determining the transaction
price
The transaction price is the amount of the consideration
to which the Group expects to be entitled in exchange for the license and commercialization agreement. The Group takes into account
the effects of all the following elements when determining the transaction price: variable consideration, the existence of a significant
financing component, non-cash consideration, and consideration payable to the customer.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note
3 - Significant Accounting Policies (Cont’d)
Variable consideration
The Group includes variable consideration, or part
of it, in the transaction price only when it is highly probable that its inclusion will not result in a significant revenue reversal
in the future when the uncertainty has been subsequently resolved. At the end of each reporting period and if necessary, the Group
revises the amount of the variable consideration included in the transaction price.
Right to use and
right to access
To determine whether the Group’s promise to
grant a license provides a customer with either a right to access the Group’s IP or a right-to-use the Group’s IP,
the Group considers whether a customer can direct the use of, and obtain substantially all of the remaining benefits from, a license
at the point in time at which the license is granted.
A license is considered a “right-to-use”
license when the customer maintains control of the IP upon its transfer. However, if the grantor of the license maintains involvement
with the IP after its transfer, and the customer cannot direct the use of, and obtain substantially all of the remaining benefits
from the license, then the license is considered a right-to-access license. The license granted by the Company, which relates
to its product is granted to a third party which can obtain direct use of, and substantially all of the remaining benefits from
the license at the point in time at which the license is granted. The Group will not continue to be involved in any activities
that significantly affect the IP at the specific territory. Therefore recognized the license granted as right-to-use license.
Principal or agent
When another party is involved in providing goods
or services to the customer, the Group examines whether the nature of its promise is a performance obligation to provide the defined
goods or services itself, which means the Group is a principal and therefore recognizes revenue in the gross amount of the consideration,
or to arrange that another party provide the goods or services which means the Group is an agent and therefore recognizes revenue
in the amount of the net commission.
The Group engaged with a third party to manufacture
its products for the Group’s customer ("the Manufacturing Agreement").
The Group is a principal when it controls the promised
goods or services before their transfer to the customer. Indicators that the Group controls the goods or services before their
transfer to the customer include, inter alia, as follows: the Group is the primary obligor for fulfilling the promises in the
contract; the Group has inventory risk before the goods or services are transferred to the customer; and the Group has discretion
in setting the prices of the goods or services.
The above indicates that in the Manufacturing Agreement
the Group is an agent and therefore it recognizes such revenues on a net basis.
Contract modifications
A contract modification is a change in the scope
or price (or both) of a contract that was approved by the parties to the contract. A contract modification can be approved in
writing, orally or be implied by customary business practices. A contract modification can take place also when the parties to
the contract have a disagreement regarding the scope or price (or both) of the modification or when the parties have approved
the modification in scope of the contract but have not yet agreed on the corresponding price modification.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note
3 - Significant Accounting Policies (Cont’d)
The Group accounts for a contract modification
as an adjustment of the existing contract since the remaining goods or services after the contract modification are not
distinct and therefore constitute a part of one performance obligation that is partially satisfied on the date of the
contract modification. The effect of the modification on the transaction price and on the rate of progress towards full
satisfaction of the performance obligation is recognized as an adjustment to revenues (increase or decrease) on the date of
the contract modification, meaning on a catch-up basis.
Royalties
The Company recognizes revenue
for sales-based royalties promised in exchange for a license of intellectual property when the later of the following events occurs:
(a) the subsequent sale occurs; or (b) the performance obligation to which some or all of the sales-based royalties has been satisfied.
The Company has yet to recognize revenues from royalties.
J.
|
Financing income
and expense
|
Finance income comprises changes in the fair value
of the financial liability through profit and loss, and income from short term deposits.
Finance expenses include loss from exchange rate
differences. Interest expense is recognized, using the effective interest method. In the statements of cash flows, interest received
is presented as part of cash flows from investing activities and interest paid is presented as part of cash flows from financing
activities.
Incremental costs directly attributable to an expected
issuance of an instrument that will be classified as equity are recognized as an asset in deferred expenses in the statement of
financial position. The costs are deducted from the equity upon the initial recognition of the equity instruments, or are expensed
as financing expenses in the statement of operations when the issuance is no longer expected to take place.
L.
|
Issuance of units
of securities
|
The consideration received from the issuance of units
of securities is attributed initially to financial liabilities that are measured each period at fair value through profit or loss,
and then to financial liabilities that are measured only upon initial recognition at fair value. The remaining amount is allocated
to equity.
Direct issuance costs are attributed to the specific
securities in respect of which they were incurred, whereas joint issuance costs are attributed to the securities on a proportionate
basis according to the allocation of the consideration from the issuance of the units, as described above.
Income tax comprises current and deferred tax. Current tax and
deferred tax are recognized in profit or loss except to the extent that they relate to a business combination, or are recognized
directly in equity or in other comprehensive income to the extent they relate to items recognized directly in equity or in other
comprehensive income.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 3 - Significant Accounting
Policies (Cont’d)
Current taxes
Current tax is the expected tax payable (or receivable) on the
taxable income for the year, using tax rates enacted or substantively enacted at the reporting date. Current taxes also include
taxes in respect of prior years and any tax arising from dividends.
Deferred taxes
A deferred tax asset is recognized for unused tax
losses, tax benefits and deductible temporary differences, to the extent that it is probable that future taxable profits will
be available against which they can be utilized.
Deferred tax assets that were not recognized are
reevaluated at each reporting date and recognized if it has become probable that future taxable profits will be available against
which they can be utilized.
Policy applicable as from January 1, 2019
Determining whether an arrangement contains a lease
On the inception date of the lease, the Group determines whether
the arrangement is a lease or contains a lease, while examining if it conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. In its assessment of whether an arrangement conveys the right to control the
use of an identified asset, the Group assesses whether it has the following two rights throughout the lease term:
|
(a)
|
The right to obtain substantially all the economic benefits
from use of the identified asset; and
|
|
(b)
|
The right to direct the identified asset’s use.
|
For lease contracts that contain non-lease components, such
as services or maintenance, that are related to a lease component, the Group elected not to separate non-lease components from
lease components and instead accounting for all the lease components and related non-lease components as a single lease component.
Leased assets and lease liabilities
Contracts that award the Group control over the use of a leased
asset for a period of time in exchange for consideration, are accounted for as leases. Upon initial recognition, the Group recognizes
a liability at the present value of the balance of future lease payments (these payments do not include certain variable lease
payments), and concurrently recognizes a right-of-use asset at the same amount of the lease liability, adjusted for any prepaid
or accrued lease payments, plus initial direct costs incurred in respect of the lease.
Since the interest rate implicit in the Group's leases is not
readily determinable, the incremental borrowing rate of the lessee is used. Subsequent to initial recognition, the right-of-use
asset is accounted for using the cost model, and depreciated over the shorter of the lease term or useful life of the asset.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 3 - Significant Accounting
Policies (Cont’d)
The Group has elected to apply the practical expedient by which
short-term leases of up to one year and/or leases in which the underlying asset has a low value, are accounted for such that lease
payments are recognized in profit or loss on a straight-line basis, over the lease term, without recognizing an asset and/or liability
in the statement of financial position.
The lease term
The lease term is the non-cancellable period of the lease plus
periods covered by an extension or termination option if it is reasonably certain that the lessee will or will not exercise the
option, respectively.
Variable lease payments
Variable lease payments that depend on an index or a rate, are
initially measured using the index or rate existing at the commencement of the lease and are included in the measurement of the
lease liability.
When the cash flows of future lease payments change as the result
of a change in an index or a rate, the balance of the liability is adjusted against the right-of-use asset.
Other variable lease payments that are not included in the measurement
of the lease liability are recognized in profit or loss in the period in which the event or condition that triggers payment occurs.
Depreciation of right-of-use asset
After lease commencement, a right-of-use asset is measured on
a cost basis less accumulated depreciation and accumulated impairment losses and is adjusted for re-measurements of the lease liability.
Depreciation is calculated on a straight-line basis over the useful life or contractual lease period, whichever earlier, as follows:
|
●
|
Buildings
|
2 years
|
|
●
|
Motor Vehicles
|
2-3 years
|
Policy applicable before January 1, 2019
Determining whether an arrangement contains a lease
At inception or upon reassessment of an arrangement, the Group
determines whether such an arrangement is or contains a lease. An arrangement is a lease or contains a lease if the following two
criteria are met:
|
●
|
The fulfillment of the arrangement is dependent on the
use of a specific asset or assets; and
|
|
●
|
The arrangement contains rights to use the asset.
|
At inception or upon reassessment of the arrangement, the Group
separates payments and other consideration required by such an arrangement into those for the lease and those for other elements
on the basis of their relative fair values.
If the Group concludes for a finance lease that it is impracticable
to separate the payments reliably, an asset and a liability are recognized at an amount equal to the fair value of the underlying
asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognized
using the buyer’s incremental borrowing rate.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 3 - Significant Accounting
Policies (Cont’d)
Other leases
are classified as operating leases, and the leased assets are not recognized on the Group’s statement of financial position.
Lease payments
Payments made under operating
leases, other than conditional lease payments, are recognized in profit or loss on a straight-line basis over the term of the
lease. Lease incentives received are recognized as an integral part of the total lease expense on a straight-line basis, over
the term of the lease. Minimum lease payments made under operating leases are recognized in profit or loss as incurred.
O.
|
New standards and interpretations not yet adopted
|
|
(1)
|
IAS 1 Presentation of
Financial Statements
|
Amendment to IAS 1, Presentation
of Financial Statements: Classification of Liabilities as Current or Non-Current
The Amendment replaces certain
classification requirements for current or non-current liabilities. Thus, for example, according to the Amendment, a liability
will be classified as non-current when the entity has the right to defer settlement for at least 12 months after the reporting
period, and it "has substance" and is in existence at the end of the reporting period. A right is in existence at the
end of the reporting period only if the entity complies with conditions for deferring settlement at that date. Furthermore, the
Amendment clarifies that the conversion option of a liability will affect its classification as current or non-current, other
than when the conversion option is recognized as equity.
The Amendment is effective for
reporting periods beginning on or after January 1, 2022 and is applicable retrospectively, including an amendment to comparative
data.
The Group is examining the effects of the Amendment
on the consolidated financial statements with no plans for early adoption.
|
(2)
|
Amendment to IFRS 3,
Business Combinations
|
The Amendment clarifies
whether a transaction to acquire an operation is the acquisition of a "business" or an asset. For the purpose of
this examination, the Amendment added an optional concentration test so that if substantially all of the fair value of the
acquired assets is concentrated in a single identifiable asset or a group of similar identifiable assets, the acquisition
will be of an asset. In addition, the minimum requirements for definition as a business have been clarified, such as for
example the requirement that the acquired processes be substantive so that in order for it to be a business, the operation
shall include at least one input element and one substantive process, which together significantly contribute to the ability
to create outputs. Furthermore, the Amendment narrows the reference to the outputs element required in order to meet the
definition of a business and added examples illustrating the aforesaid examination
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note
3 - Significant Accounting Policies (Cont’d)
The Amendment is effective for
transactions to acquire an asset or business for which the acquisition date is in annual periods beginning on or after January
1, 2020, with earlier application being permitted.
In the opinion of the Group, application
of the Amendment will may have a material effect on the accounting treatment of future acquisitions of operations.
Note 4 - Operating Segments
Since 2018 the chief operating decision marker (CODM)
has started to review the results of two reportable segments, as described below, which form the Group’s strategic business
units. The strategic business units offer different products and services and the allocation of resources and evaluation of performance
are managed separately because they require different technology and marketing strategies. For each of the strategic business
units, the Group’s CODM reviews internal management reports on at least a quarterly basis. The following summary describes
the operations in each of the Group’s operating segments:
|
●
|
Pain and Hypertension – Includes development
and marketing of ConsensiTM a combination drug indicated for treating osteoarthritis pain and hypertension simultaneously,
which was approved by the FDA for marketing in the U.S and has partner agreements in the U.S, China and South Korea.
|
|
●
|
Oncology – Includes development of a small
molecule that has demonstrated in pre-clinical studies the potential to overcome resistance to multiple anti-cancer drugs.
|
The accounting policies of the operating segments
are the same as described in Note 3 regarding significant accounting policies.
Performance is measured based on segment operating
results as included in reports that are regularly reviewed by the chief operating decision maker. Segment results are used to
measure performance as management believes that such information is the most relevant in evaluating the results of certain segments
relative to other entities that operate within these industries. Segment results reported to the chief operating decision maker
includes revenue and research and development expenses which are directly attributable to a segment on a reasonable basis.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 4 – Operating Segments (Cont’d)
Information about reportable
segments
Information regarding the results
of each reportable segment is included below.
|
|
For the year ended December 31, 2019
|
|
|
|
Pain and Hypertension
|
|
|
Oncology
|
|
|
Total reportable segments
|
|
|
Reconciliations
(*)
|
|
|
Total
consolidated
|
|
|
|
USD in thousands
|
|
|
|
|
|
Revenues
|
|
|
1,000
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
395
|
|
|
|
2,041
|
|
|
|
2,436
|
|
|
|
238
|
|
|
|
2,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
3,068
|
|
|
|
2,815
|
|
|
|
5,883
|
|
|
|
1,273
|
|
|
|
7,156
|
|
Finance income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,479
|
)
|
Tax Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,893
|
|
|
|
For the year ended December 31, 2018
|
|
|
|
Pain and Hypertension
|
|
|
Oncology
|
|
|
Total reportable segments
|
|
|
Reconciliations (*)
|
|
|
Total
consolidated
|
|
|
|
USD in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
1,000
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
2,185
|
|
|
|
2,537
|
|
|
|
4,722
|
|
|
|
546
|
|
|
|
5,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
4,730
|
|
|
|
3,217
|
|
|
|
7,947
|
|
|
|
(121
|
)
|
|
|
7,826
|
|
Finance income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,257
|
)
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,569
|
|
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 4 – Operating Segments (Cont’d)
|
|
For the year ended December 31, 2017
|
|
|
|
Pain and Hypertension
|
|
|
Oncology
|
|
|
Total reportable segments
|
|
|
Reconciliations (*)
|
|
|
Total
consolidated
|
|
|
|
USD in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
100
|
|
|
|
-
|
|
|
|
100
|
|
|
|
-
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
2,603
|
|
|
|
1,328
|
|
|
|
3,931
|
|
|
|
709
|
|
|
|
4,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
6,674
|
|
|
|
1,951
|
|
|
|
8,625
|
|
|
|
3,341
|
|
|
|
11,966
|
|
Finance income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
947
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,913
|
|
(*)
|
Includes employees
share based expenses and other expenses/income related to rights granted to Taoz.
|
Information on geographical
segments
In presenting information on the basis of geographical
segments, segment revenue is based on the geographical location of customers.
Revenues in 2019 are from the U.S and in each of
2018 and 2017 from the far-east. For further information see Note 13.
All of the Group’s non-current assets are located
in Israel.
Note 5 - Subsidiary
A.
|
On January 13, 2017, the Company completed its
acquisition from Goldman Hirsh Partners Ltd (“GHP”) of a controlling interest in TyrNovo, a privately-owned Israeli
company, which is developing NT-219, a small molecule that has demonstrated in pre-clinical studies, the potential to overcome
resistance to multiple anti-cancer drugs.
|
Pursuant to the terms of the transaction, the Company
issued to GHP 564,625 of its Ordinary Shares (the “Consideration Shares”) and paid GHP aggregate cash proceeds of
approximately USD 2 million (the “Cash Consideration”) in exchange for 9,570 Ordinary Shares in TyrNovo, that represented
approximately 65% of TyrNovo’s shares. In addition, the Company was assigned a loan in the amount of USD 101 thousand which
had been made by GHP to TyrNovo, (the “TyrNovo Acquisition”). USD 167 thousand of the Cash Consideration was held
back by the Company pending the fulfillment of certain conditions as agreed to between the Company and GHP. During 2019 the Company
and GHP signed an agreement, according to which the Company paid GHP USD 91 thousand and the remaining amount of USD 76 thousand
was retained by the Company to cover any future claims it might have with regards of any matter the above amount was withheld
for and is waived by GHP. The Company has written off this remaining liability.
All of the Consideration Shares were held in escrow
in order to ensure the fulfillment of certain post-closing undertakings and to satisfy indemnification claims and other liabilities
the Company may become subject to as a result of the TyrNovo Acquisition. In February 2019, the Consideration Shares were released
from the escrow.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 5 - Subsidiary (Cont’d)
The acquisition was accounted for as an asset purchase
as it does not meet the definition of a business combination in accordance with IFRS 3.
The following summarizes the acquisition date fair
value of each major class of consideration:
|
|
USD thousands
|
|
Cash
|
|
|
2,000
|
|
Equity instruments issued (564,625 Ordinary Shares) (1)
|
|
|
1,800
|
|
Assignment of loan to the Company
|
|
|
(101
|
)
|
Total consideration transferred
|
|
|
3,699
|
|
|
(1)
|
The
fair value of the Ordinary Shares issued was based on the listed share price of the Group on January 11, 2017 of approximately
USD 3.19 per share.
|
|
(2)
|
Identifiable assets acquired and liabilities assumed
|
The following table summarizes the recognized amounts
of assets acquired and liabilities assumed at the date of acquisition:
|
|
USD thousands
|
|
Current assets
|
|
|
21
|
|
Fixed assets, net
|
|
|
3
|
|
Intangible assets (2)
|
|
|
6,172
|
|
Short-term credit from bank
|
|
|
(16
|
)
|
Trade payables
|
|
|
(123
|
)
|
Other payables
|
|
|
(212
|
)
|
Long-term related parties
|
|
|
(130
|
)
|
Total net identifiable assets
|
|
|
5,715
|
|
|
(2)
|
In-process research and development
|
Purchased in-process research and development expense
represents the value assigned to research and development projects, which were commenced but not yet completed at the date of acquisition.
Technological feasibility for these projects has not been established and they have no alternative future use in research and development
activities or otherwise.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 5 - Subsidiary (Cont’d)
|
B.
|
Settlement
with a minority shareholder
|
On February 9, 2017, subsequent to the acquisition
of TyrNovo, the Company, TyrNovo and Taoz - Company for Management and Holdings of Companies Ltd. (“Taoz”), a shareholder
owning at that time approximately 4% of TyrNovo, entered into a settlement arrangement in response to a motion filed by Taoz on
January 19, 2017.
Pursuant to the settlement arrangement, the parties
agreed, among other matters, as follows:
Taoz was entitled to be issued an additional 77 ordinary
shares of TyrNovo, representing 0.5% of the issued and outstanding share capital of TyrNovo immediately following this issuance.
The shares were issued in February 2017 and were measured at a fair value of USD 29 thousand.
Taoz had the right during a defined period to invest
an additional USD 1,750,000 (the “Deferred Investment”) by way of convertible loans, with conversion terms defined
under various circumstances, including the possibility of conversion at a price per share reflecting a 30% discount off the price
per share paid in a subsequent financing round, and the possibility of conversion at a price per TyrNovo share reflecting a TyrNovo
company valuation of USD 13,500,000.
In the event that a defined milestone is achieved,
and Taoz did not invest the Deferred Investment, then the Company has the right to acquire all of Taoz’s holdings in TyrNovo
at a price per share of USD 476.48.
The Company provided to Taoz a put option to sell
to the Company up to 50% of the TyrNovo shares issued to Taoz, exercisable during a period of 90 days from the publication by TyrNovo
of the results of Phase I clinical trials, for a price per TyrNovo share equal to USD 1,600, either in ordinary shares of the Company
or, at the Company’ sole discretion, in cash; upon the expiration of the 90 day exercise period, the put option, if not exercised
by Taoz, shall expire and no longer be valid.
The rights granted to Taoz by the Company were valued
at the date of agreement at USD 1,000 thousand and were charged to Other Expenses. The value of these rights as of December 31,
2017 was estimated at USD 1,030 thousand. The net change in value of this liability in the amount of USD 30 thousand was charged
to Finance Expenses, as well as other expenses in the amount of USD 29 thousand value of shares issued to Taoz in the consolidated
financial statements for the year ended December 31, 2017.
Regarding valuation techniques and significant unobservable
inputs, see Note 20B.
In regards with the acquisition of Taoz’s shares
in TyrNovo, see Note 5C below.
In October 2017, the Company signed an agreement for
the acquisition of an additional 27% stake in TyrNovo (the “Newly Acquired TyrNovo Shares”), from a group of unaffiliated
minority shareholders of TyrNovo, who collectively held 4,024 ordinary shares, or approximately 27%, of TyrNovo. In exchange for
these Newly Acquired TyrNovo Shares, the Company issued to these unaffiliated minority shareholders of TyrNovo, in aggregate, 658,484
newly issued ordinary shares of the Company, which, at that time, represented approximately 6% of the Company’s issued and
outstanding share capital.
The closing of this transaction took place on March
15, 2018, following which the Company held approximately 91.9% of TyrNovo’s issued and outstanding ordinary shares.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 5 - Subsidiary (Cont’d)
The carrying amount of TyrNovo’s net assets
in the consolidated financial statements on the date of the acquisition was USD 2,821 thousand. The Group recognized a decrease
in non-controlling interests of USD 768 thousand, an increase in share premium of USD 1,483 thousand and a decrease in a capital
reserve for transactions with non-controlling interest of USD 715 thousand.
|
C.
|
In
June 2018, the Company signed an agreement with a minority shareholder in TyrNovo, Taoz, for the acquisition of its holding in
TyrNovo, which was approximately 4.1% of TyrNovo’s share capital. In exchange for these shares and for the waiving of investment
rights and put options it was previously granted, which are described in Note 5B, the Company issued to Taoz 140,845 newly issued
ordinary shares of the Company. The fair value of the shares issued as consideration for the acquisition of TyrNovo Shares amounted
to USD 237 thousand. The fair value of the shares issued in consideration for waving the rights amounted to USD 136 thousand.
As part of the agreement, the Company committed to register the newly issued shares for trading. The registration statement, registering
the Company’s ADSs representing the newly issued shares for trading, was declared effective by the SEC as of August 8, 2018.
In accordance with the agreement, the Company paid to Taoz in cash the difference between the share price of Kitov’s shares
on the closing date to that on the registration date, which amounted to USD 160 thousand. The cash payment was recorded to finance
expenses.
|
The carrying amount of TyrNovo’s net assets
in the consolidated financial statements on the date of the acquisition was USD 1,977 thousand. The Group recognized a decrease
in non-controlling interests of USD 93 thousand, an increase in share premium of USD 237 thousand and a decrease in a capital reserve
for transactions with non-controlling interest of USD 144 thousand.
In addition, the Company derecognized the derivative
liability of USD 1,030 thousand, recognized an amount of USD 894 thousand as other income and an increase in share premium of USD
136 thousand deriving from the waiving of the rights, as described above.
The closing of this transaction took place on June
15, 2018, following which the Company held approximately 97.4% of TyrNovo’s issued and outstanding ordinary shares.
|
D.
|
Non-controlling
interests
|
Non-controlling interests are presented based on their
proportionate interest in the recognized amount of the assets and liabilities of TyrNovo.
|
E.
|
The
following is condensed information regarding TyrNovo:
|
|
|
Incorporated and
operates in
|
|
Group’s ownership equity
|
|
TyrNovo Ltd.
|
|
Israel
|
|
|
98.47
|
%
|
During 2019
TyrNovo issued 13,750 shares to Kitov which increase the Company’s direct ownership of equity from 97.6% to 98.47%.
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note
6 - Cash and Cash Equivalents
|
|
As of December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
|
USD thousands
|
|
|
|
|
|
Balance in USD
|
|
|
4,279
|
|
|
|
4,410
|
|
Balance in other currencies
|
|
|
106
|
|
|
|
753
|
|
Total cash and cash equivalents
|
|
|
4,385
|
|
|
|
5,163
|
|
Note 7 - Other Current Assets
|
|
As of December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
|
USD thousands
|
|
|
|
|
|
|
|
|
Receivables, see Note 14
|
|
|
1,493
|
|
|
|
-
|
|
Government authorities
|
|
|
182
|
|
|
|
81
|
|
Reimbursement of legal fees receivable
|
|
|
-
|
|
|
|
743
|
|
Prepaid fee to the Food and Drug Administration
|
|
|
-
|
|
|
|
930
|
|
Prepaid expenses and other receivables
|
|
|
232
|
|
|
|
76
|
|
Total other current assets
|
|
|
1,907
|
|
|
|
1,830
|
|
Kitov Pharma Ltd.
Notes to the Consolidated Financial Statements
Note 8 - Other Payables
|
|
As of December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
|
USD thousands
|
|
|
|
|
|
Contract liabilities, see Note 14
|
|
|
961
|
|
|
|
-
|
|
Due to related parties - payroll related
|
|
|
587
|
|
|
|
910
|
|
Due to GHP (Note 5A)
|
|
|
-
|
|
|
|
167
|
|
Accrued expenses
|
|
|
255
|
|
|
|
852
|
|
Government authorities
|
|
|
36
|
|
|
|
65
|
|
Payroll related payables
|
|
|
267
|
|
|
|
61
|
|
|
|
|
2,106
|
|
|
|
2,055
|
|
Note 9 - Equity
|
A.
|
On
December 19, 2018 in a shareholders’ general meeting, it was resolved to consolidate the Company’s authorized and
paid-in share capital in a 20:1 ratio, in a way that every 20 shares with no par value were consolidated into one share with no
par value. The said reverse share split took place on January 4, 2019. Following the reverse share split, the Company’s
authorized share capital is 250,000,000 ordinary shares, with no par value, and 50,000,000 non-voting senior preferred shares,
with no par value, divided into 5 classes of 10,000,000 preferred shares in each class.
|
In these consolidated financial statements, all numbers
of shares reflect the reverse share split retrospectively.
|
B.
|
The
Company’s share capital
|
|
|
As of December 31
2019
|
|
|
As of December 31
2018
|
|
|
|
Number of shares in thousands
|
|
|
|
Authorized
|
|
|
Issued
and
paid-in
|
|
|
Authorized
|
|
|
Issued
and
paid-in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares, no par value
|
|
|
250,000
|
|
|
|
19,564
|
|
|
|
250,000
|
|
|
|
16,099
|
|
Class A preferred shares, no par value
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
Class B preferred shares, no par value
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
Class C preferred shares, no par value
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
Class D preferred shares, no par value
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
Class E preferred shares, no par value
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
9 - Equity (Cont’d)
C.
|
Changes
in share capital during the year
|
|
|
For the year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
Number of shares in thousands
|
|
Issued as at January 1
|
|
|
16,009
|
|
|
|
11,222
|
|
|
|
7,662
|
|
Issuance of ADSs (See D below)
|
|
|
3,429
|
|
|
|
3,260
|
|
|
|
2,432
|
|
Issuance of shares (See Note 5)
|
|
|
-
|
|
|
|
799
|
|
|
|
565
|
|
Vesting of RSUs
|
|
|
97
|
|
|
|
121
|
|
|
|
563
|
|
Exercise of warrants
|
|
|
29
|
|
|
|
607
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued as at December 31
|
|
|
19,564
|
|
|
|
16,009
|
|
|
|
11,222
|
|
|
1.
|
In January 2019, in a registered direct offering on the NASDAQ, the Company raised USD 6 million gross (approximately USD 5.1 million net of placement agent fees and other offering related expenses). Part of the issuance expenses were warrants issued to the placement agent in the amount of USD 298 thousand were recorded in equity. USD 129 thousand were recorded net of share premium and USD 169 thousand were recorded to finance expense.
In this registered direct offering, the Company issued 3,428,572 ADSs and, in a concurrent private placement, 2,571,430 non-listed warrants to purchase 2,571,430 ADSs. Each non-listed warrant is exercisable until July 15, 2024 at an exercise price of USD 2.00 per ADS.
The ADSs issued were recorded in equity in an amount of USD 2,200 thousand, net of issuance expenses. The warrants were considered a derivative instrument (due to a cashless exercise feature), and were recorded as a liability in the amount of USD 3,406 thousand. Issuance expenses related to the warrants, in the amount of USD 515 thousand were recorded to finance expense. During September 2019, the warrants were listed for trading, as a result the cashless feature expired. Therefore the Company reclassified the warrants to equity according to the warrants fair value on the listing date. The changes in the warrants fair value was recorded as financial income. The warrants fair value on the listing date was USD 1,273 thousand. See also Note 20B.
|
|
|
|
|
2.
|
In
June 2018, in a registered direct offering on the NASDAQ, the Company raised a gross amount of USD 8.1 million (approximately
USD 7.4 million net of placement agent fees and other offering related expenses).
|
In
this registered direct offering, the Company issued 3,260,000 ADSs and, in a concurrent private placement, 1,630,000 non-listed
warrants to purchase 1,630,000 ADSs. Each non-listed warrant is exercisable until December 5, 2023 at an exercise price of USD
2.80 per ADS. The ADS’s issued were recorded in equity in an amount of USD 4,276 thousand, net of issuance expenses. The
warrants were considered a derivative instrument (due to a cashless exercise feature) and were recorded as a liability in the
amount of USD 3,467 thousand. Issuance expenses related to the warrants, in the amount of USD 301 thousand were recorded to finance
expenses.
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
9 - Equity (Cont’d)
During
September 2019, the warrants were listed for trading, as a result the cashless feature expired. Therefore the Company reclassified
the warrants to equity according to the warrants fair value on the listing date. The changes in the warrants fair value was recorded
as financial income. The warrants fair value on the listing date was USD 661 thousand. See also Note 20B.
|
3.
|
In
July 2017, in a registered direct offering on the NASDAQ, the Company raised a gross amount of USD 3.5 million (approximately
USD 3.1 million net of placement agent fees and other
offering related expenses).
|
In
this registered direct offering, the Company issued 2,431,746 ADSs in a concurrent private placement and 1,215,873 non-listed
warrants to purchase 1,215,873 ADSs. Each non-listed warrant is exercisable until January 14, 2023 at an exercise price of USD
1.50 per ADS. The ADS’s issued were recorded in equity and in an amount of USD 2,174 thousand. The warrants were considered
a derivative instrument (due to a cashless exercise feature) and were recorded as a liability. During August 2018, the warrants
were listed for trading, as a result the cashless feature expired. Therefore the Company reclassified the warrants to equity
according to the warrants fair value on the listing date. The changes in the warrants fair value was recorded as financial income.
The warrants fair value on the listing date was USD 567 thousand. See also Note 20B.
E.
|
Other
equity transactions
|
|
1.
|
During the reporting period, the Company issued 97 thousand ordinary shares on account of vested RSUs granted in 2017 and 2018. See also Note 10A.
|
|
|
|
|
2.
|
During the reporting period, 29 thousand warrants, issued in July 2017, were exercised into 29 thousand shares for a consideration of USD 43 thousand. Subsequently, an amount of USD 42 thousand was recorded to share premium against receipts on accounts of warrants.
|
|
3.
|
During
2018 343 thousand warrants, issued in July 2017, were exercised into 343 thousand shares for a consideration of USD 515 thousand.
In addition, 484 thousand warrants, issued in July 2017, were exercised into 264 thousand shares on a cashless exercise, and
an amount of USD 1,618 thousand was recorded to share premium against derivative liabilities.
|
|
4.
|
During
2018 the Company issued 121 thousand ordinary shares on account of vested RSUs granted in 2017. See also Note 10A.
|
|
5.
|
On
October 30, 2017, the Company issued to a vendor of the Company, in consideration for services provided by the vendor to the
Company, 67,367 ADSs. The fair value of the services provided was measured at USD 150 thousand, out of which, USD 96 were
recorded as share premium against general and administrative expenses in 2017 and USD 54 thousand were recorded as share premium
against general and administrative expenses in 2018.
|
|
6.
|
During
October and December 2017, the Company issued 496,533 ordinary shares on account of vested RSUs. See also Note 10.
|
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
9 - Equity (Cont’d)
F.
|
Non-controlling
interests
|
The
following table summarizes the information relating to a subsidiary that has non-controlling interests, before any intra-group
eliminations:
|
|
December 31
2019
|
|
|
December 31
2018
|
|
TyrNovo Ltd.
|
|
in USD thousand
|
|
|
|
|
|
Non-controlling interests percentage
|
|
|
1.53
|
%
|
|
|
2.4
|
%
|
Non-current assets
|
|
|
24
|
|
|
|
9
|
|
Current assets
|
|
|
192
|
|
|
|
415
|
|
Current liabilities
|
|
|
(646
|
)
|
|
|
(4,120
|
)
|
Net assets
|
|
|
(430
|
)
|
|
|
(3,696
|
)
|
Net assets attributable to non-controlling interests
|
|
|
(7
|
)
|
|
|
(89
|
)
|
Loss for the year
|
|
|
2,847
|
|
|
|
3,688
|
|
Loss allocated to non-controlling interests
|
|
|
43
|
|
|
|
369
|
|
Note
10 - Share-based Payment Arrangements
A.
|
On
December 23, 2019, the Company granted 400 thousand options to the Chairman of the Board. The options have an exercise
price of USD 0.814 per one ordinary share, and will vest during 3 years from the grant date. The options are exercisable
for 7 years from grant date.
The
fair value of these options as of the grant date was measured at USD 207 thousand.
During
March and April 2019, the board of directors of the Company approved the grant of 3,162 thousand options to directors,
employees and consultants. The options have an exercise price of USD 1.28 – 1.64 per one ordinary share, and will
vest during 3 years from the date of grant. The options are exercisable for 5-7 years from grant date. The fair value
of these options as of the grant date was measured at USD 2,677 thousand. Those options that were granted to directors
were approved by the shareholders of the Company in April 2019.
In
addition, the Company granted 61 thousand options to Tmura, an Israeli charity organization, the options have an exercise
price equals USD 6 per ordinary share, and were immediately vested at the date of grant. The fair value of these options
as of the grant date was measured at USD 56 thousand.
On
November 20, 2018, the Company granted 159,759 options and 59,720 RSUs to two executives. The RSUs and options have a
vesting period of 3 years from the commencement of the offeree’s engagement with the Group, with a one-year cliff
for the first one-third of the vested amount, and over 8 quarters thereafter. The exercise period is 5 years from the
date of the grant. The options shall have an exercise price equals to USD 1.59 per one ordinary share. 34,825 thousand
RSUs were fully vested at the time of the grant. The fair value of these RSUs and options at the date of the grant was
measured at USD 71 thousand and USD 127 thousand, respectively.
|
On
August 15, 2017, the Company’s Board of Directors approved grants of 17 thousand RSUs and 29 thousand options to two consultants.
The RSUs and/or options have a vesting period of 3 years from the commencement of the service provider’s engagement, with
a one-year cliff for the first one-third of the vested amount, and over 8 quarters thereafter. The exercise period is 7 years
from the date of the grant. The options shall have an exercise price equals to USD 1.84 per one ordinary share. 29 thousand options
and 9 thousand RSUs were fully vested at the time of the grant. The fair value of these RSUs and options at the date of the grant
was measured at USD 32 thousand and USD 31 thousand, respectively.
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
10 - Share-based Payment Arrangements (Cont’d)
In
addition, on August 15, 2017, the Company’s Board of Directors granted of 42 thousand RSUs and 16 thousand options to one
consultant. The RSUs have a vesting period of 3 years from November 25, 2015, with a one-year cliff for the first one-third
of the vested amount, and over 8 quarters thereafter. The exercise period is 7 years from the date of the grant. The options shall
have an exercise price equal to USD 4.39 per one ordinary share and shall have a vesting period of 3 years from May 22, 2016.
The exercise period is 7 years from the date of the grant. 8 thousand options and 28 thousand RSUs were fully vested at the time
of the grant. The fair value of these RSUs and options at the date of the grant was measured at USD 76 thousand and USD 15 thousand,
respectively.
In
June 2017, the Company’s board of directors decided to amend the Company’s 2016 Equity-Based Incentive Plan (the “Plan”)
to increase the number of Ordinary Shares available for issuance thereunder by an additional 1,900,000 Ordinary Shares. No other
amendments were made to the Plan.
On
August 1, 2017, the Company’s board of directors approved grants of 608 thousand RSUs and 440 thousand options. The options
have an exercise price equals to USD1.85 per one ordinary share. The RSUs and/or options have a vesting period of 3 years from
the commencement of the Officer’s or Director’s engagement, with a one-year cliff for the first one-third of the vested
amount, and over 8 quarters thereafter. The exercise period is 7 years from the date of the grant. 22 thousand RSUs and 20 thousand
options were fully vested at the time of the grant. The fair value of these RSUs and options at the date of the grant was measured
at USD 1,326 thousand and USD 592 thousand, respectively.
The
Company recorded in 2019 an expense of USD 1,273 thousand (2018 - USD 719 thousand), of which USD 988 thousand (2018 - USD 660
thousand) are to key management personnel.
B.
|
Other
share based payment arrangements
|
See
Note 9E with regards to share based payments to service providers.
C.
|
The
number and weighted average exercise prices (in USD) of share options are as follows:
|
|
|
Weighted average exercise price
|
|
|
Number of options
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding on January 1
|
|
|
2.60
|
|
|
|
3.08
|
|
|
|
4.29
|
|
|
|
1,131,781
|
|
|
|
1,002,022
|
|
|
|
519,746
|
|
Expired during the year
|
|
|
-
|
|
|
|
7.00
|
|
|
|
20.72
|
|
|
|
-
|
|
|
|
30,000
|
|
|
|
2,239
|
|
Granted during the year
|
|
|
1.32
|
|
|
|
1.59
|
|
|
|
1.85
|
|
|
|
3,622,895
|
|
|
|
159,759
|
|
|
|
484,515
|
|
Outstanding on December 31
|
|
|
1.71
|
|
|
|
2.60
|
|
|
|
3.08
|
|
|
|
4,754,676
|
|
|
|
1,131,781
|
|
|
|
1,002,022
|
|
Exercisable on December 31
|
|
|
3.21
|
|
|
|
2.95
|
|
|
|
2.83
|
|
|
|
1,093,029
|
|
|
|
873,344
|
|
|
|
708,879
|
|
|
|
The
exercise price is denominated in NIS and are re-measured using historic exchange rates.
|
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
10 - Share-based Payment Arrangements (Cont’d)
The
options outstanding at December 31, 2019 had an exercise price of USD 0.81- USD 6 (2018 - USD 1.59- USD 4.39, 2017 -USD 1.84 -
USD 7.01), and weighted average contractual life of 5.56 years (2018 - 5.29 years, 2017 - 7.2 years).
D.
|
The
number of RSUs are as follows:
|
|
|
Number of RSUs
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Outstanding at January 1
|
|
|
109,419
|
|
|
|
170,727
|
|
Granted during the year
|
|
|
-
|
|
|
|
59,720
|
|
Vested during the year
|
|
|
97,910
|
|
|
|
121,028
|
|
Outstanding at December 31
|
|
|
11,509
|
|
|
|
109,419
|
|
E.
|
Options
to service providers were measured at the fair value of the service, when available.
|
The
fair value of the Company’s share options granted to employees, directors and service providers, where fair value of service
was not measurable, was measured using the binominal model, using the fair value of the traded warrants with similar terms, making
certain adjustments to reflect the specific terms of the options based on the expected duration.
The
following assumptions were used:
|
|
2019
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Share Price - USD
|
|
0.746 - 1.22
|
|
|
1.18
|
|
|
|
1.82 - 2.17
|
|
Option price - USD
|
|
0.49-1.1
|
|
|
0.80
|
|
|
|
3.28 - 3.82
|
|
Expected volatility (%)
|
|
99.22-113.78
|
|
|
105.77
|
|
|
|
80.65 - 80.91
|
|
Expected duration (years)
|
|
4.61-7
|
|
|
4.95
|
|
|
|
6.77 - 6.97
|
|
Dividend yield (%)
|
|
-
|
|
|
-
|
|
|
|
-
|
|
Risk free rate interest rate (%)
|
|
1.63%-1.95%
|
|
|
1.41
|
%
|
|
|
1.36 - 1.39
|
|
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
10 - Share-based Payment Arrangements (Cont’d)
F.
|
On
January 3, 2018, TyrNovo granted 1,170 options of TyrNovo to certain employees. The options were fully vested at the date of grant.
The exercise period is 7 years from the date of the grant. The options shall have an exercise price equals to USD 0.29 per one
ordinary share. The fair value of these options at the date of the grant was measured at USD 431 thousand.
|
The
fair value of these options was measured using the binominal model,
The
following assumptions were used:
|
|
2018
|
|
|
|
|
|
Share Price - USD
|
|
|
368.39
|
|
Option price - USD
|
|
|
369.39
|
|
Expected volatility (%)
|
|
|
79.16
|
|
Expected duration (years)
|
|
|
7
|
|
Dividend yield (%)
|
|
|
-
|
|
Risk free rate interest rate (%)
|
|
|
2.4
|
%
|
In
2018, the Company recorded a share-based compensation expense of USD 431 thousand, of which USD 402 thousand are to key management
personnel.
G.
|
Expenses
recognized in the consolidated financial statements:
|
|
|
For
the year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
USD thousands
|
|
Research and development expenses
|
|
|
238
|
|
|
|
546
|
|
|
|
709
|
|
General and administrative expenses
|
|
|
1,035
|
|
|
|
227
|
|
|
|
1,570
|
|
Other expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based expense recognized
|
|
|
1,273
|
|
|
|
773
|
|
|
|
2,308
|
|
Note
11 - Transactions and Balances with Related Parties
In
addition to their salaries or fees, the Group also provides non-cash benefits to directors and executive officers, and contributes
to a post-employment defined contribution plan on behalf of employees.
Certain
executive officers are entitled to termination benefits of up to 6 monthly salaries or fees.
Executive
officers also participate in the Group’s share option programs. For further information, see Note 10 regarding share-based
payments.
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
11 - Transactions and Balances with Related Parties (Cont’d)
Expenses
of key management personnel:
The
Company recorded expenses to executive officers:
|
|
For the year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
USD thousands
|
|
Short - term employee benefits
|
|
|
1,776
|
|
|
|
2,165
|
|
|
|
2,305
|
|
Post-employment benefits
|
|
|
22
|
|
|
|
16
|
|
|
|
137
|
|
Share based payments
|
|
|
719
|
|
|
|
574
|
|
|
|
1,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,517
|
|
|
|
2,755
|
|
|
|
4,111
|
|
The
Company recorded expenses to directors:
|
|
For
the year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
USD thousands
|
|
Short - term benefits
|
|
|
339
|
|
|
|
268
|
|
|
|
217
|
|
Share based payments
|
|
|
269
|
|
|
|
86
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
608
|
|
|
|
354
|
|
|
|
453
|
|
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
12 – Commitments and contingent liabilities
|
1.
|
TyrNovo,
has obligations to the Israel Innovation Authority (hereinafter: “IIA”) with respect to grants it received from
the IIA in connection with TyrNovo’s technology. The requirements and restrictions for such grants are found in the
Encouragement of Research, Development and Technological Innovation in Industry Law 5744-1984 and in the IIA’s rules
and guidelines and the terms of these grants.
|
In
general, a recipient company is obligated to pay the IIA royalties from the revenues generated from the sale of products and related
services developed as a result of, a research and development program funded by the IIA (currently a yearly rate of 3% to 6%),
up to the aggregate amount of the total grants received by the IIA, plus annual interest. Tyrnovo will not be required to repay
the grants if it does not generate revenue.
TyrNovo’s
technologies were developed, at least in part, with funds from IIA grants, and accordingly is obligated to pay royalties on sales
of any of its IIA funded products and related services. As of December 31, 2019, the maximum royalty amount that would
be payable by TyrNovo, excluding interest, is approximately NIS 5.5 million (USD 1.6 million), and as of such date, TyrNovo had
not paid any royalties to the IIA.
The
Group does not recognize a liability for royalties because there is no reasonable assurance, as of the reporting period, that
the underlying sales will occur in the future. Therefore, the financial statements do not include a liability for these royalties.
|
2.
|
TyrNovo
has entered into a license agreement (the “License Agreement”) with Yissum Research Development company of the
Hebrew University of Jerusalem Ltd. (hereafter “Yissum”) dated August 15, 2013, as amended. In accordance with
the License Agreement, Yissum granted the Company an exclusive license to commercialize, exploit, develop, manufacture, market,
import, export, distribute, offer to sell, or sell products, that are derived from Yissum’s licensed technology.
|
In
consideration for the grant of the license, the Company shall pay Yissum the following consideration during the term of the license:
|
(i)
|
Royalties
at a rate of three percent (3%) of net sales.
|
|
(ii)
|
Sublicense
fees at a rate of twelve percent (12%) of sublicense consideration.
|
In
addition, Yissum is entitled to receive an exit fee of 12% of the transaction proceeds in the event of certain pre - defined transactions
set forth in the License Agreement.
The
consolidated financial statements do not include a liability for royalties or sublicense fees for this license agreement as there
is no minimum payments and thus obligation will be recognized when the related sales will occur.
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
12 - Commitments and contingent liabilities (Cont’d)
|
1.
|
In
December 2015, a lawsuit and a motion to approve such lawsuit as a class action was filed
against the Company and its directors by shareholders who were holding the Company’s
Tel Aviv Stock Exchange listed securities before the offering that took place in November
2015, claiming damages for the purported class in the motion totaling NIS 16.4 million
(USD 4.3 million) due to the said offering (the “Motion”). The Company delivered
its response to the court in accordance with applicable law. A preliminary hearing held
by the court on September 12, 2016 and subsequently the court set a schedule for the
submission by the petitioners of a motion for discovery, and any responses to such motion.
Additional preliminary hearings were held during 2017. On October 24, 2017 the court
issued a ruling to stay proceedings in this matter until January 15, 2018 due to the
ongoing ISA Investigation (See Note 12B(3) below).
|
At
the request of the ISA, this stay was subsequently extended several times by the court. Following approval of the Enforcement
Arrangement in connection with the ISA Investigation (see Note 12B(3)), the stay was lifted. An evidentiary hearing was scheduled
for June 23, 2020.
|
2.
|
On
November 8, 2016, a shareholder of the Company submitted a request to the court in connection
with the Motion to be excluded from the purported class and claiming to have independent
causes of action and claims of approximately NIS 1 million (USD 262 Thousand) (the “Petition
to Exclude”). The Company responded to the court as required, and, amongst other
arguments, the Company noted that such shareholder cannot petition to be excluded from
the purported class. The court ordered the shareholder to respond and he has done so.
In May 2018 the shareholder submitted an independent lawsuit against the Company in the
Haifa Magistrates Court seeking damages of approximately NIS 1.1 million (USD 306 Thousand)
(the “Separate Lawsuit”). In August 2018 the Haifa Magistrates Court transferred
the Separate Lawsuit to the Tel Aviv Magistrates Court. The Company is of the view that
such shareholder’s claims are identical to the asserted claims for damages in the
Motion, and has notified the court of such and have sought a stay of proceedings pending
the outcome of the Motion. A hearing on the Company’s motion to dismiss the Separate
Lawsuit and/or stay the proceedings has been scheduled for May 1, 2019, at which it dismissed
without prejudice in May 2019. This shareholder subsequently filed a new separate claim
against the Company in the Haifa District Court – Economic Division, which has
since been transferred to the Tel Aviv District Court – Economic Division. In January
2020, the Tel Aviv District Court – Economic Division accepted the Company’s
position that the shareholder’s claims are identical to the asserted claims for
damages in the Motion, and entered a stay of proceedings pending the outcome of the Motion.
|
The
Company’s management rejects the claims asserted in the Motion as well as in the Petition to Exclude and the Separate Lawsuit,
and, in consultation with its legal advisors, believes that the likelihood of the Company not incurring any financial obligation
as a result of this class action exceeds the likelihood that the Company will incur a financial obligation. Therefore, no provision
for this matter was recorded in these financial statements.
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
12 - Commitments and contingent liabilities (Cont’d)
|
3.
|
In
February 2017 the Company announced that the Israeli Securities Authority has begun a
formal investigation into, amongst other matters, the Company’s public disclosures
in connection with the Data Monitoring Committee (DMC) appointed in connection with the
Company’s Phase III trial of KIT-302, the results of which were announced in December
2015, and what information regarding the DMC was disclosed publicly by Kitov. A DMC is
generally an external independent group of experts who monitor patient safety and treatment
efficacy data while a clinical trial is ongoing, and, in the case of the KIT-302 Phase
III clinical trial, was established in order to analyze the preliminary results of the
initial patient group enrolled in the clinical trial and determine the number of additional
patients, if any, that Kitov might have needed to recruit in order to demonstrate statistical
validity, and to meet the primary end point of the clinical trial.
|
In
February 2017, four lawsuits and motions to approve the lawsuits as a class action lawsuit (each, a “Motion”), were
filed against the Company and certain of its office holders at the Tel Aviv District Court (Economic Division), and served on
the Company, with each Motion relating to the above noted formal investigation by the Israeli Securities Authority (ISA) into
the Company’s public disclosures (the “2017 Motions”). One of these motions was subsequently withdrawn. The
petitioners in one of the motions petitioned the court to dismiss the other 2 of the 2017 Motions (“Petition for Dismissal”).
On December 19, 2017 the court granted the Petition for Dismissal and dismissed the other remaining 2017 Motions. The remaining
motion (the “Surviving Motion”) was filed against the Company, the Company’s executive directors and certain
of its present and former directors, by certain shareholders who are requesting to act as representatives of all shareholders
of record from December 10, 2015 until February 6, 2017. The plaintiffs allege, among other things, that the Company included
misleading information in its public filings which caused the class for which the plaintiffs are seeking recognition, an aggregate
loss of approximately NIS 29 million (approximately USD 8 million). The Company and other defendants have not yet delivered their
response to the court, and will do so in accordance with applicable law and the court’s instructions. The court ordered
a stay of proceedings due to the ongoing ISA Investigation. Following approval of the ” Enforcement Arrangement” (see
below) in connection with the ISA Investigation, the stay was lifted. On March 8, 2020 the court approved scheduling arrangement
agreed to by the parties to the Surviving Motion, whereby the the petitioners in the Surviving Motion will have 45 days to submit
an amended lawsuit and motion to approve the lawsuit as a class action, the respondents will have 60 days following the submission
of such amended fillings to submit their responses, and the petitioners will then have an additional 30 days to respond to the
respondents’ filings.
Under
applicable Israeli law, a motion to approve a lawsuit as a class action initially needs to be approved as such by the court. Only
after such approval is granted by the court, will the court proceed to the second stage of hearing the underlying claims of the
class action lawsuit.
The
Company’s management rejects the claims in all of the aforesaid Motions and class action lawsuits. At this preliminary stage
the Company is unable, with any degree of certainty, to make any evaluations or any assessments with respect to the Surviving
Motion as to the probability of success or the scope of potential exposure, if any. Therefore, no provision for this matter was
recorded in these financial statements.
On
February 7, 2017, a holder of the Company’s securities listed on the NASDAQ filed in the United States District Court (Southern
District of New York), a federal securities class action relating to the above noted formal investigation by the ISA into the
Company’s public disclosures against the Company, its CEO and CFO, seeking unspecified damages and relief in connection
with, amongst other things, damages alleged to have occurred due to the purchasers of the Company’s securities in the Company’s
initial public offering in the USA on November 20, 2015, as well as in open market purchases, as a result of the Company allegedly
including misleading information in its public filings. An amended complaint was filed on June 19, 2017, which complaint limited
the scope of its claims as compared to the original complaint.
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
12 - Commitments and contingent liabilities (Cont’d)
On
August 2, 2017, the Company filed a motion to dismiss the amended complaint in its entirety. In addition, on September 20, 2017,
the Company filed a letter motion requesting a conference on the issue of whether this litigation should be dismissed. On September
21, 2017, the court granted the Company’s request, and on November 7, 2017, the court ordered that the issues raised in
the letter motion would be considered together with and supplementing the motion to dismiss. No decision was rendered on the motion
to dismiss.
On
February 10, 2017, a holder of the Company’s securities listed on the NASDAQ filed in the Superior Court of the State of
California, a securities class action relating to the above noted formal investigation by the ISA into the Company’s public
disclosures, against the Company, its CEO and CFO and the underwriters in the Company’s initial public offering in the USA
on November 20, 2015, seeking unspecified damages and relief in connection with, amongst other things, damages alleged to have
occurred due to the purchasers of the Company’s securities in such public offering as a result of the Company allegedly
including misleading information in its public filings.
On
March 20, 2017, a holder the Company’s securities listed on the NASDAQ filed in the Superior Court of the State of California,
a securities class action against the Company, its CEO and CFO and the underwriters in the Company’s initial public offering
in the USA on November 20, 2015, seeking unspecified damages and relief in connection with, amongst other things, damages alleged
to have occurred due to the purchasers of the Company’s securities in such public offering as a result of the Company allegedly
including misleading information in its public filings.
On
April 6, 2017, the Superior Court of the State of California for the County of San Mateo entered an order consolidating the two
California putative class actions.
An
amended complaint was filed on or about June 5, 2017.
On
December 15, 2017, the Company filed a motion to stay discovery pending the resolution of the ISA Investigation. Following Plaintiffs’
opposition to the Company’s motion on January 5, 2018 and the Company’s reply in further support on January 16, 2018,
the court ruled in the Company’s favor after arguments on January 29, 2018 staying discovery by Plaintiffs against the Company
and the individual defendants until June 1, 2018, at which point the parties are to update the court on the status of the ISA’s
investigation. Discovery against the underwriters continued.
In
June 2018 the Company entered into a Memorandum of Understanding and subsequently, in July 2018 entered into a Stipulation of
Settlement with respect to the shareholder class action lawsuits pending against it. Under the terms of the proposed settlement,
the purported classes in all of the actions will receive aggregate consideration of USD 2.0 million. The settlement consideration,
as well as ancillary expenses, will be funded by the Company’s insurance carriers, who
have indicated to the Company that they have already made reserves for the settlement consideration. The settlement was approved
by the court in March 2019 and has been finalized.
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
12 - Commitments and contingent liabilities (Cont’d)
Pursuant
to the final settlement, the Company and its directors and officers are released from the claims that were asserted or could have
been asserted in the Actions by class members participating in the settlement.
ISA
Administrative Enforcement Arrangement:
On
August 13, 2019, the Administrative Enforcement Committee (the “Committee”) of the Israel Securities Authority (“ISA”)
approved an administrative enforcement agreement, titled Enforcement Arrangement ("Enforcement Arrangement"), entered
into by and amongst ISA, Kitov Pharma Ltd. (the “Company” or the “Registrant”), Isaac Israel, the Company’s
chief executive officer, Paul Waymack, the Company’s former chairman and Simcha Rock, the Company’s former chief financial
officer, pursuant to which the Company and each of Messrs. Israel, Waymack and Rock settled the ISA’s claims that under
Israeli Securities Laws the Company made negligent disclosures in a number of its historical reports filed with the ISA in 2014
and 2015, and the ISA decided to discontinue its criminal investigation and to cease all proceedings against the Company and its
principals with respect to the facts set out in the Enforcement Arrangement. As part of the Enforcement Arrangement the Company
shall pay a fine of NIS 1,500,000 (approximately USD 430,000), payable in 24 consecutive monthly payments.
The
Company, by vote of a committee consisting of independent members of the Board of Directors, and the above mentioned principals,
agreed to the Enforcement Arrangement with the ISA.
Note
13 - Revenues
Revenues
recorded are from upfront payments of license agreements. Such revenues in 2019 are from a customer in the U.S and in each of
2018 and 2017 from two customers in the far-east.
Note
14 - Research and Development Expenses
|
|
For
the year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
USD thousands
|
|
Salaries, wages and related expenses
|
|
|
1,012
|
|
|
|
933
|
|
|
|
969
|
|
Share-based payments (see also Note 10)
|
|
|
238
|
|
|
|
546
|
|
|
|
709
|
|
Service providers (*)
|
|
|
1,424
|
|
|
|
3,789
|
|
|
|
2,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,674
|
|
|
|
5,268
|
|
|
|
4,640
|
|
(*)
|
The
Company has determined that it acts as an agent for certain transactions, see Note 3I. Accordingly, the Company recorded USD 532
thousand as an offset of R&D costs. Receivables and payables regarding such transactions are recorded on a gross basis (see
Notes 7 and 8, respectively).
|
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
15 - Sales, General and Administrative Expenses
|
|
For
the year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
USD thousands
|
|
Employees and officers compensation
|
|
|
1,445
|
|
|
|
1,733
|
|
|
|
1,984
|
|
Share-based payments (see also Note 10)
|
|
|
657
|
|
|
|
87
|
|
|
|
1,224
|
|
Legal fees in connection with ISA investigation and class action lawsuits (see also Note 12B)
|
|
|
356
|
|
|
|
690
|
|
|
|
893
|
|
Other professional consulting
|
|
|
900
|
|
|
|
1,525
|
|
|
|
1,306
|
|
Board member remuneration and insurance
|
|
|
622
|
|
|
|
470
|
|
|
|
505
|
|
Board member share-based payments
|
|
|
269
|
|
|
|
86
|
|
|
|
47
|
|
FDA Fee
|
|
|
946
|
|
|
|
-
|
|
|
|
-
|
|
ISA settlement (see also Note 12B)
|
|
|
387
|
|
|
|
-
|
|
|
|
-
|
|
Rent and office maintenance
|
|
|
80
|
|
|
|
243
|
|
|
|
196
|
|
Travel
|
|
|
144
|
|
|
|
143
|
|
|
|
131
|
|
Car expenses
|
|
|
38
|
|
|
|
85
|
|
|
|
64
|
|
Depreciation
|
|
|
178
|
|
|
|
7
|
|
|
|
4
|
|
Other
|
|
|
56
|
|
|
|
126
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,078
|
|
|
|
5,195
|
|
|
|
6,397
|
|
B.
|
The
Consolidated Statements of Operations for the year ended December 31, 2019, include refunds from the insurance company in
respect of legal expenses in the amount of USD 596 thousand, and for December 31, 2018, amount of USD 743 thousand.
|
Note
16 - Other Expenses (Income)
During
2017 the Company recorded an amount of USD 1,029 thousand in its consolidated financial statements under Other Expenses, with
regards to rights granted to Taoz as part of the Company’s settlement with Taoz, regarding the acquisition of TyrNovo, See
also Note 5B. During 2018, the Company acquired Taoz’s holdings in TyrNovo. As part of the agreement with Taoz, it waived
the rights described in Note 5B, and the Company recorded an amount of USD 894 thousand under Other Income, see also Note 5C.
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
17 - Finance Expense (Income)
|
|
For
the year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
USD thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (expenses) in respect of derivatives, net (*)
|
|
|
(1,509
|
)
|
|
|
(2,740
|
)
|
|
|
1,049
|
|
(*)
|
The
derivatives are related mainly to the fair value adjustments of warrants. The 2019, 2018 and 2017 warrants included a cashless
exercise feature, which expired on September 16, 2019, September 12, 2019 and August 8, 2018, respectively, when the Company filed
a registration statement with the SEC, registering the shares that will derive from future exercise of these warrants. See also
Note 20B.
|
|
|
For the year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
USD thousands
|
|
Finance expense
|
|
|
|
|
|
|
|
|
|
Fees and interest expense
|
|
|
81
|
|
|
|
9
|
|
|
|
26
|
|
Loss from exchange rate differences, net
|
|
|
100
|
|
|
|
106
|
|
|
|
-
|
|
Payment to Taoz, see Note 5C
|
|
|
-
|
|
|
|
160
|
|
|
|
-
|
|
Warrant issuance costs
|
|
|
-
|
|
|
|
301
|
|
|
|
-
|
|
|
|
|
181
|
|
|
|
576
|
|
|
|
26
|
|
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
17 - Finance Expense (Income) (Cont’d)
|
|
For the year ended
December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
USD thousands
|
|
Finance income
|
|
|
|
|
|
|
|
|
|
Income from exchange rate differences, net
|
|
|
-
|
|
|
|
-
|
|
|
|
(22
|
)
|
Interest income from short term deposits
|
|
|
(151
|
)
|
|
|
(93
|
)
|
|
|
(106
|
)
|
|
|
|
(151
|
)
|
|
|
(93
|
)
|
|
|
(128
|
)
|
Note
18 - Taxes on Income
The
tax rate applicable to the Group for 2019 and 2018 is 23%. The tax rate in 2017 was 24%.
B.
|
Carry-forward
losses
The
Company and its subsidiaries incurred losses through 2019, which are not expected to be utilized in the foreseeable future.
Therefore, the Group did not record current taxes or deferred taxes.
|
In
2019, the main reconciling item from the statutory tax rate of the Company (23%, representing theoretical tax benefit of approximately
USD 1.3 million) to the effective tax rate (0%) is the fact that deferred taxes were not created in respect of carry forward tax
losses.
The
carry-forward loss for tax purposes for the Company and its subsidiaries, and the unrecognized research and development expenses,
amounts to USD 21 million as of December 31, 2019 (2018 – USD 33.1 million, 2017 – USD 28.2 million).
C.
|
Tax
assessments
The
Company’s tax assessments are deemed finalized through the end of 2017, pursuant to section 145 of the Israeli Income
Tax Ordinance. The subsidiary’s tax assessments are deemed finalized through the end of 2014, pursuant to section
145 of the Israeli Income Tax Ordinance.
During
2019, the Company’s tax assessments for Kitov Pharma Ltd. for the tax years of 2014 - 2017 were finalized. Following
the tax assessments, the Company was required to pay an amount of approximately 250 USD thousands which were recorded
as an expense in 2019.
|
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
19 - Employee benefits
A.
|
Employee
benefits include post-employment benefits and short term benefits.
|
Balances
include:
|
|
For the Year ended
December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
|
USD thousands
|
|
|
USD thousands
|
|
Short-term benefits
|
|
|
365
|
|
|
|
136
|
|
Post-employment benefits
|
|
|
285
|
|
|
|
405
|
|
B.
|
Post-employment
benefit plans – defined contribution plan
|
The
Company has a defined contribution plan in respect of the Company’s liability in respect of its employees who are subject
to Section 14 of the Severance Pay Law – 1963.
|
|
For the Year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
USD thousands
|
|
|
USD thousands
|
|
|
USD thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount recognized as expense in respect of defined contribution plan
|
|
|
136
|
|
|
|
95
|
|
|
|
52
|
|
C.
|
Certain
of the Company’s senior executives are entitled to annual and special bonuses under the terms of their employment and
consulting agreements. These bonuses will become due upon the achievement of certain goals or agreements for the commercialization
of the Company’s products. These consolidated financial statements include bonuses in the amount of USD 462 thousand
for the year ended December 31, 2019, and USD 777 thousand for the year ended December 31, 2018.
|
D.
|
Certain
of the Company’s senior executives are entitled to benefits upon termination of employment under the terms of their
employment and consulting agreements, see Note 11 on related parties. These benefits are measured based on the time of service
and their monthly pay and the expected term of their employment. These consolidated financial statements include a liability
due to these grants of USD 285 thousand and USD 405 thousand, as of December 31, 2019 and 2018, respectively.
|
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
20 - Financial Instruments
Framework
for risk management
The
Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.
The
Group’s risk management practice was formulated to identify and analyze the risks that the Group faces, to set appropriate
limits for the risks and controls, and to monitor the risks and their compliance with the limits. The risk policy and risk management
methods are reviewed regularly to reflect changes in market conditions and in the Group’s operations. The Group acts to
develop an effective control environment in which all employees understand their roles and commitment.
The
Group Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures,
and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee
is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management
controls and procedures, the results of which are reported to the Audit Committee.
Credit
risk is the risk of financial loss to the Group if a debtor or counterparty to a financial instrument fails to meet its contractual
obligations, and arises mainly from the Company’s receivables. The Group restricts exposure to credit risk by investing
only in bank deposits.
The
Group held cash and cash equivalents and short-term deposits of USD 4,395 thousand at December 31, 2019 (2018 – USD 6,684).
These are held with banks, which are rated A2, based on Moody’s Rating Agency ratings. The short-term deposits, mainly in
USD, bear fixed interest ranging between 0.02% - 2.97%.
The
carrying amount of cash and cash equivalents and short-term deposits approximate their fair value.
Market
risk is the risk that changes in market prices, such as foreign currency exchange rates, the CPI, interest rates and the prices
of equity instruments, will influence the Group’s results or the value of its holdings in financial instruments. The objective
of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing returns.
Currency
risk
The
Group is exposed to currency risk mainly for cash and purchases for research and development expenses that are denominated in
dollars and euros. Therefore, the Group is exposed to exchange rate fluctuations in these currencies against the NIS and takes
steps to reduce the currency risk by maintaining its liquid resources in accordance with its future needs.
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
20 - Financial Instruments (Cont’d)
Set
forth below is a sensitivity test to possible changes in USD/NIS exchange rate as of December 31, 2019:
Sensitive instrument
|
|
Income (loss) from
change in exchange
rate (U.S. dollars in
thousands)
|
|
|
Value
(U.S. dollars
in thousands)
|
|
|
Income (loss) from
change in exchange
rate (U.S. dollars in
thousands)
|
|
|
|
Down 2%
|
|
|
Down 5%
|
|
|
|
|
|
Up 5%
|
|
|
Up 2%
|
|
Cash and cash equivalents and deposits
|
|
|
2
|
|
|
|
5
|
|
|
|
106
|
|
|
|
(5
|
)
|
|
|
(2
|
)
|
Other current assets
|
|
|
9
|
|
|
|
22
|
|
|
|
440
|
|
|
|
(22
|
)
|
|
|
(9
|
)
|
Accounts payable
|
|
|
(18
|
)
|
|
|
(45
|
)
|
|
|
(903
|
)
|
|
|
45
|
|
|
|
18
|
|
Other payables
|
|
|
(20
|
)
|
|
|
(49
|
)
|
|
|
(985
|
)
|
|
|
49
|
|
|
|
20
|
|
Post-employment benefit liabilities
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
(101
|
)
|
|
|
5
|
|
|
|
2
|
|
Total income (loss)
|
|
|
(29
|
)
|
|
|
(72
|
)
|
|
|
|
|
|
|
72
|
|
|
|
29
|
|
B.
|
Financial
instruments measured at fair value:
|
|
|
|
1.
|
A
loan of USD 2 million to FamWave was accounted for as a financial asset at fair value
(see Note 1E for further information).
|
|
2.
|
In
September 2019, the Company registered the warrants issued in 2018 and 2019 and therefore
they were reclassified from financial liabilities to equity in their fair value using
Black & Scholes valuation method.
|
|
3.
|
Fair
value hierarchy of financial instruments measured at fair value:
|
|
|
December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
USD thousands
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
2,000
|
|
Kitov
Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
20 - Financial Instruments (Cont’d)
|
|
December 31, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
USD thousands
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (see Note 9D(2))
|
|
|
-
|
|
|
|
-
|
|
|
|
554
|
|
|
|
554
|
|
Details
regarding fair value measurement at Level 3:
Financial
instrument
|
|
Valuation
method for determining fair value
|
|
Significant
unobservable inputs
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2019
|
|
|
|
|
|
Warrants
|
|
Black
- Scholes
|
|
expected
term
|
|
|
4.02-4.83
years
|
|
|
|
|
|
expected
volatility
|
|
|
99
|
%
|
|
|
|
|
annual
risk free interest
|
|
|
1.95
|
%
|
|
|
|
|
dividend
yield
|
|
|
0
|
%
|
For
the year ended December 31, 2018
|
|
|
|
|
|
Warrants
|
|
Black
- Scholes
|
|
expected
term
|
|
|
4.9
years
|
|
|
|
|
|
expected
volatility
|
|
|
97.29
|
%
|
|
|
|
|
annual
risk free interest
|
|
|
2.51
|
%
|
|
|
|
|
dividend
yield
|
|
|
0
|
%
|
4.
|
The
recoverable amount of the in-process research and development (hereinafter –
“intangible asset”) was based on its value in use and was determined by discounting
the future cash flows to be generated from it. The recoverable amount of the intangible
asset exceeds it's carrying amount, thus no impairment loss was recognized.
|
Key
assumptions used in calculation of recoverable amount:
Discount
rate
The
discount rate used for calculating intangible asset recoverable amount is 20%, taking into consideration the risk associated
in drug candidates at this stage of development.
Kitov Pharma Ltd.
Notes
to the Consolidated Financial Statements
Note
21 - Subsequent Events
|
1.
|
On
March 14, 2019 the Company signed an agreement to acquire 100% of FameWave Ltd, a privately
held biopharmaceutical Company developing CM-24, (“FameWave”) from its shareholders
in exchange for USD 10 million worth of its newly issued ADSs with a long-term lock-up
period, priced at USD 1.23 per ADS, plus 50% warrant coverage based on an exercise price
of USD 1.98 per ADS with a 4-year term. In addition, the Company provided a loan to FameWave
of up to approximately USD 2 million to be paid to cCAM BioTherapeutics Ltd., a wholly
owned subsidiary of Merck Sharp and Dohme Corp., known as “MSD” in Israel,
which discovered CM-24, or to repay certain loans provided by FameWave’s shareholders.
The acquisition closed in January 7, 2020.
Under
the terms of the agreement, OrbiMed, Pontifax and Arkin Holdings, leading life-science focused investment funds, are exchanging
their shares in FameWave for Kitov ADSs and warrants, and investing USD 3.5 million in Kitov in exchange for additional
newly issued ADSs of Kitov. As of January 7, 2020, OrbiMed, Pontifax and Arkin Holdings each hold approximately 11% of
Kitov’s shares on a non-diluted basis.
|
|
2.
|
In
March 2020, in a public offering on the NASDAQ, the Company raised a gross amount of
USD 6.0 million (approximately USD 5.2 million net of placement agent fees and other
offering related expenses).
In
this public offering, the Company issued 9,620,000 ADSs and 10,380,000 pre-funded warrants, 20,000,000 warrants to purchase
20,000,000 ADSs. Each pre-funded warrant is exercisable until March, 2035 at an exercise price of USD 0.0001 and each
warrant is exercisable until March, 2025 at an exercise price of USD 0.325 per ADS. In addition, the placement agent in
this offering was granted 1,400,000 warrants to purchase 1,400,000 ADSs exercisable until March, 2025 at an exercise price
of USD 0.375 per ADS. The Company will also issue 250,000 ADS in a private placement to the previous placement agent in
this transaction.
|
|
|
|
|
3.
|
In December 2019, a strain of coronavirus
was reported to have surfaced in Wuhan, China, and in 2020 has reached multiple other countries, resulting in government-imposed
quarantines, travel restrictions and other public health safety measures in China, the USA, Israel, and other affected countries.
The various precautionary measures taken by many governmental authorities around the world in order to limit the spread of the
Coronavirus, which has affected and could have an adverse effect on the global markets and its economy, including on the availability
and pricing of employees, resources, materials, manufacturing and delivery efforts and other aspects of the global economy. Therefore,
the Coronavirus could disrupt production and cause delays in the supply and delivery of products used in our operations, may affect
our operation, including the conduct of clinical studies, or the ability of regulatory bodies to grant approvals or supervise
our candidates and products, may further divert the attention and efforts of the medical community to coping with the Coronavirus
and disrupt the marketplace in which we operate and may have a material adverse effects on our operations. As of the date of March
16, 2020 we cannot estimate the effect of this development, if any.
|
F-53